A Bathroom Line Indicates Progress

... and Other Lessons Learned at the 2018 Angel Capital Association Summit

By Guest Blogger - Laury Saligman

“Ten years ago, there were never lines for the bathroom” joked a woman at the Angel Capital Association (ACA) annual summit in Boston last week.  She was right. The percentage of women angel investors has increased from 4% 15 years ago to 22% now.  These statistics represent both the progress made to date and the need for more improvement. The lack of female investors is one of the reasons that women entrepreneurs have such a difficult time raising money to grow their companies.  Numerous research studies have shown that people support companies and projects led by people similar to themselves. Increasing the number of female investors is therefore an important strategy to help to close the gender gap in early-stage finance.

The summit’s Opening Session Keynote included an interview with super-angel, Joanne Wilson titled, “The Things I’ve Learned from Investing in Women.”  Joanne, formerly a tech entrepreneur, started investing in 2007. She discussed the importance of defining an investment thesis and committing to it. Joanne’s financially focused thesis includes a commitment to invest in women-led companies.  According to Wilson, these companies have higher ROIs. Men often ask her how she finds so many women when they can’t. She explains that excellent female entrepreneurs are out there.

Joanne works closely with the entrepreneurs she invests in.  She has found that women entrepreneurs dot their “i”s and cross their “t”s.  Female founders are often older and more experienced in their business verticals.  She and several other speakers explained that women tend to be more grounded in their revenue projections, and even reduce the estimates so that they can under-promise and over deliver.  A man, running exactly the same business, may present more optimistic revenue projections – twice that of his female counterpart. The problem is that this difference in approach results in the female-led company looking less profitable.

At the summit, there were numerous sessions on women and inclusion including, “How Women Are Changing the Angel Field.”  In this session, Jenny Toothe, from UK Business Angels Association, reported on a recently completed study examining patterns regarding female angels.  A key finding was that women usually felt responsible for the family’s finances and didn’t want to risk the money that could otherwise be used for school fees and mortgages.  Typically, their husbands invested, using the same family money, from a joint account.

Another challenge that the UK report uncovered is that women who are successful in corporations aren’t part of the entrepreneurial ecosystem.  These women don’t meet entrepreneurs on a daily basis. Exacerbating the problem is that the women who actually invest don’t talk about it with their friends and therefore, many would-be investors aren’t aware of the opportunity.  This issue illustrates the need for open and inclusive investing groups.

In discussing risk, Deb Kemper of Golden Seeds, an active early-stage investing group focused on women-led companies, pointed out that early stage investing is part of the asset allocation of a diversified portfolio and should represent a percentage of your total portfolio.

For women, the idea of giving back and supporting the community is a key driver for early stage investing.  This is not to say that female investors are throwing money around willy-nilly in mission-based companies. The most successful ones work in groups, methodically conduct due diligence, negotiate terms, and work with entrepreneurs to create successful enterprises.  Golden Seeds invests in about 3% of the companies that they review.

These women were trying to dispel the myth that you need an MBA or business background to be an angel investor.  When working in a team, a person with a deep understanding of a vertical is often critical.

There are several other groups and initiatives working to level the playing field for women and minorities.  Below are are a few of them.

Next Wave Impact – A “learn by doing” fund, with 99 female investors (including me), focuses on financial returns and a social or environmental impact.   As a Limited Partner, I have been impressed by the diverse knowledge base of the Limited Partners as well as the deep expertise of the 12 Managing Partners.  Next Wave took a leadership role at the ACA conference by organizing several events and sessions around impact investing, including a pre-event to map the impact investing ecosystem and improve communication between investors.

Portfolia is a new fund which invests where women make markets.  According to Founder, Trish Costello, Portfolia is not small, dumb, or pink.   The fund has set up a model to partner with deal leads, leverage their expertise, and invest in a variety of sectors for diversification.  She is seeking 100,000 investors over the next five years. Currently, 5% of the investors are men.

Project 500 is a training program, founded by the impressive Melissa Bradley.  Bradley, who is a woman of color, entrepreneur, and Georgetown professor, shared her trajectory and mission to “accelerate new majority entrepreneurs from high potential to high growth.”  She explained that it costs a person of color $125,000 more to start a business, thanks to a lack of social capital, financial services, incubators, etc.  However, people of color are capital efficient.

Founders for Change is a solution created by entrepreneurs to address inclusivity.  The group was started by two entrepreneurs who wanted to see more diversity in their capital partners.  They committed to only accepting money from VC firms with a woman or person of color in a decision-making position.  The group now includes over 700 tech entrepreneurs interested in a more inclusive cap table.

The field of early stage investing and support is rapidly evolving to address its lack of inclusivity.  These initiatives, combined with an increase in interest, among both men and women, in diversity are helping to move the needle towards a more diverse entrepreneurial ecosystem.  The ACA Summit represented some of the progress made to date and highlighted areas for future work.

ACA just published their Diversity and Inclusion Resource Guide to help members grow group membership by attracting a more diverse set of angel investors.

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