Study: Women angel investors more likely to give back to female-led startups

Women support women, a new study of 13,000 North American angel investors says.

As more female entrepreneurs have entered the business field in the past few decades, women have begun to reshape the nature of angel investing, according to a report by the Overland Park-based Angel Capital Association.

“Being an entrepreneur is one of the best pathways to becoming an angel investor,” said Marianne Hudson, executive director of the association, reflecting on the study. “On top of that, as women became angel investors, they were good at getting the word out to other women to join the angel community and particularly targeted strong education and networking programs to help women get started more successfully in this field.”

While angels are still predominantly men, the number of women angels has been increasing even as the number of women in venture capital firms has slowed or dropped, “The American Angel” report details. Twenty-two percent of angels are women, as are 30 percent of new angels, the study found.

“More women are recognized and admired as top angel investors, by angels, venture capital firms, and entrepreneurs,” Hudson said. “The list of women angels in top investor media stories grows each year. Women like Esther Dyson, Caterina Fake, Joann Wilson, Lauren Flanagan and Jean Hammond make these list more and more, as do angel groups with mostly women angels or that are led by women.”

The City of Fountains is no different, she said.

“We’ve got some real star women angels here in Kansas City, such as Darcy Howe (KCRise Fund) and Victoria Barnard (Women’s Capital Connection),” Hudson said. “I guess you could say that these women angels are more recognized by VC firms for follow-on capital, but … If anything, the lack of women in venture capital has been a motivator for women interested in equity investing to become angels.”

Since women in venture capital has been dropping — by 4 to 8 percent in other research, with numbers smaller now than five years ago, according to the Angel Capital Association — the best and most accessible vehicle to support early-stage companies is angel investing, Hudson said.

“I’ve seen a few leading women angels get into venture funds to provide higher levels of funding to entrepreneurs. Locally, Darcy is an example of this,” she said. “Nationally, Golden Seeds, the largest network of angels who invest in women-led companies, also leads a venture fund.”

Among “The American Angel” study’s findings, published in partnership with researchers at the Wharton and Harvard Business Schools:

• Female investors place great importance on the gender of the founders they are considering investing in. Fifty-one percent of women consider the founders’ gender to be highly important, while only 6 percent of their male counterparts considered the founder’s gender to be highly important. Having more female angels may impact the extent to which women-led startups are being given the opportunity and platform to receive early-stage financing.
• Female investors place more importance on social impact (with 33 percent stating that a startup’s social mission is an “extensively used” criteria), more than twice the percentage of men (16 percent) who “extensively used” social mission as part of their decision criteria.
• On the other hand, female investors invest more modest amounts of capital, at an average check size of $26,500, compared with men who invest an average of $37,700. Female investors are also somewhat less likely to backup their past investments, making follow-on investments 27 percent of the time as compared with males making follow-on investments for 32 percent of their investments. The reason for the lower numbers for women might be that more of them are newer to the angel community.

Hudson’s assertion that entrepreneurs help create future angel investors also is supported (without gender specificity) by the Angel Capital Association study.

“The findings … demonstrate that angels are created ‘organically’ — that is, angels were, at one point, on the other side of the table as entrepreneurs themselves, and are therefore ‘local’ and familiar with the entrepreneurship ecosystem,” the report reads. “Fifty-five percent of angel investors were previously a founder or CEO of their own startup. There is a virtuous cycle between angels and entrepreneurs — not only do entrepreneurs become angels, but they also give back.”

Most angels are interested in two kinds of returns: financial and personal, Hudson said.

“They want to cash in through great exits, but they also get joy out of working with interesting entrepreneurs and with other angels. It’s fun for them,” she said. “Since these angels were entrepreneurs themselves, they understand the life of startup founders and definitely want to support the next generation of entrepreneurs (regardless of age) through both money and expertise.”

Such former entrepreneurs want to share their experience in commercializing innovations, growing companies, and getting to successful exits, Hudson said.

“Many like watching these great new companies grow and create jobs in their own communities,” she said. “Their past experience as entrepreneurs also means many are starting with the right skills for making angel investments — from the beginning of their angel investing. They know how to evaluate founding teams, ask good questions, and understand deal terms.”

Not only do angels with an entrepreneurial background write larger checks — with an average investment of $39,000 as compared to $28,000 for those with no entrepreneurial background — many also make excellent board members for new companies, and can better help companies get to acquisitions or other types of exits, Hudson said.

Sixty percent of angels who are former entrepreneurs take an advisory role and 52 percent of them take a board seat, according to the report. This compares to 38 percent of angels without an entrepreneurial background who take an advisory role, and only 26 percent of them take a board seat.