By Kathryn Minshew (Editor in Chief, Pretty Young Professional) As a female founder of a woman-focused company, I’ve spoken to my fair share of angel investors. My recent venture, Pretty Young Professional, is a smart, career-focused content site and community for young professional women.
So when I heard about the Pipeline Fund Fellowship, which trains women philanthropists to become angel investors, I was fascinated. I got an inside look at the other side of the table, at the people who fund entrepreneurs like us.
How Angels Help Start-Ups
An angel investor is an individual who invests his or her own money -- anywhere from $25,000 to $250,000 -- in a start-up or entrepreneurial company, typically in exchange for a piece of the equity (ownership) in that venture. For a fledging company like mine, this money can be critical in helping get the business off the ground.
The game is risky, but the rewards are potentially huge: remember Peter Thiel, who gave Facebook an early angel investment?
Most Angels are Men
Given women’s wealth, education, and experience -- and rising entrepreneurship -- we would expect to see plenty of female angels. But unfortunately, by most counts, 90% of angel investors are male. So why the disparity?
A variety of studies have attempted to answer this question: Women have different social networks, lack awareness of angel investing, or are less likely to be cashed-out entrepreneurs. Women tend to have social networks that encourage separating friends and money. Women are less comfortable with risk.
Deborah Schultz, a partner at the Altimeter Group, put it well: “Men are a lot better at letting ‘perceived failure’ roll off their backs… There’s a great quote: If women fail, we blame ourselves, if men fail they blame the situation.”
And This is a Problem
The shortage of women angels is “a missed opportunity for women, for the entrepreneurial community, and U.S. competitiveness as a whole,” claims a report from the Ewing Marion Kauffman Foundation.
Fewer female angels means fewer investors in general, which means less available capital to start companies. But to get more specific, the gender disparity in angel investing also creates a threefold problem for female entrepreneurs seeking money:
- Investors often look for entrepreneurs who remind them of themselves (or their younger selves), a well-established phenomenon called homophily.
- Investors seek to invest in markets they understand. So fewer female angels means fewer investors with an understanding of the female consumer.
- The majority of angel investing tends to occur within fairly closed networks, where women may not have preexisting connections. Once again, there’s an old boys’ club.
The data support these conclusions. Venture capital firms with women investment partners are 70 percent more likely to lead an investment in a woman entrepreneur than those with only male partners.
In addition, studies consistently show that female-friendly groups of angel investors are more collaborative, more likely to encourage newcomers, and more interested in a broad range of investment opportunities.
What’s all this mean for you? More female angels, we hope! So go make your fortune, and then come back and invest in other women.
About the guest blogger: Kathryn Minshew is Co-Founder and Editor-in-Chief of Pretty Young Professional, a career-focused content site and community for professional women. Previously, Kathryn worked as a management consultant at McKinsey & Company, followed by a stint in Rwanda for the Clinton Health Access Initiative. Follow her on Twitter at @KMinshew1 and the Pretty Young Professional on Twitter at @PYPro.