The CEO of Launch Angels on why crowdfunding means both more investment in female-led businesses and more female angels.
By Shereen Shermak (CEO, Launch Angels)
Equity crowdfunding is in its early stages, but even at this point you can glimpse the potential. And that potential includes promise for both women angels and women-led companies.
The Equity Crowdfunding Explosion
First, a definition. Equity crowdfunding is investing in early-stage companies through web platforms, typically receiving stock for your money. At this point, only accredited investors (high incomes or high net worth) can participate. However, regulations are still being defined that may loosen that restriction.
Even under current restrictions, equity crowdfunding is rapidly growing. There are about 350 platforms in the US, with close to the same number around the rest of the world. According to GoGetFunding, among all the types of crowdfunding (including donation and loans), the equity crowdfunding segment grew the most from 2011-12—by an impressive 114%. And some projections show that $3-4 billion will be raised through equity crowdfunding in 2013. Just as tellingly, even as equity crowdfunding blossoms, venture firm investments are down.
Equity crowdfunding is more than just a new way of raising money. It’s filling a hole in funding. You may have noticed ‘the gap’ in financing between friends and family investments and venture capitalists. Angels (wealthy individuals who invest their own money in startups) are in the same “neighborhood” of contribution as friends and family. But they are not generally accessible, with 70% of their deals done locally (Halo Report, Angel Resource Institute.).
Women-Led Companies and Women Angels on the Rise
Equity crowdfunding is democratizing funding in more ways than one, including opening doors for women. Some crowdfunding sites boast great statistics on women-led investing. At Indiegogo, 42% of successful campaigns were female-led. A majority of offerings on CircleUp are women-led deals. Women have also been serial backers more than men.
Equity crowdfunding might be impacting angel investing as well. According to the Center for Venture Research, between 2011 and 2012 alone, the number of women angels increased by 80%: from 12% of investors to 22%. Part of this is likely attributable to the ability to identify deals online through crowdfunding sites.
On the Side of the Angels
I often hear women automatically dismiss themselves as potential angels. The reasons most commonly given:
- I don’t have the wealth to angel invest.
- I don’t have the time to angel invest.
- I don’t have the network to find the ‘good’ deals.
Let’s look at the money issue first. Angel investments are risky, and should only be undertaken by those who can afford to lose the money invested. But it’s interesting to note that angel investment entry points can be as low as $5,000-10,000.
As for the time and network issues, those are significant problems. In fact, those problems inspired the launch of my company, Launch Angels. We’re leveraging the power of equity crowdfunding to create personalized venture funds and a very transparent experience. Recognizing that equity portals often don’t perform thorough due diligence on deals they list and that good research requires on average at least 40 hours, we decided to assist would-be angels. We take on the research and paperwork burden for our investors, plus spread Fund investment dollars over more deals by pooling individuals’ money.
We also afford investors themed choices. For example, in 2014 we will offer a fund that will invest in women-led and women-friendly businesses.
Equity crowdfunding, angels, and women. It’s a timely mix and one that promises to remain fruitful well into the future.
About the guest blogger: Shereen Shermak is CEO of Launch Angels (@Launch_Angels), an innovative venture capital firm that enables investors to create venture portfolios of $50k-$250k. Previously, she co-founded multiple software companies in the Boston area and built products for major financial services institutions. Follow her on Twitter @shrcubed.