Angel investors provide capital to entrepreneurs – often because they believe in the project and the person(s) behind it. When it comes to women in the workforce, growing numbers of them are both becoming angel investors and reaping the rewards of an “angel” investing in their ideas and passion.
What is the difference between an angel investor and a venture capitalist?
Venture capitalists inherently look for projects that will quickly give them sometimes extremely large returns on their investments. They provide financing to startups or smaller companies that are looking to expand. These companies in need of financing typically need to prove a large market exists for the product or service, and that the particular company holds an advantage at delivering.
Compared to angel investors, venture capitalists often operate on a much larger scale, pooling large sums of cash from multiple resources. They can also afford greater risks because that pool of funding is often quite deep. In return for providing capital, venture capitalists often look for ways they might be able to exchange their investments for some influence in the business.
Angel investors, on the other hand, are usually individuals who invest their own money, and usually look for startups that somehow align with their personal interests. They are interested in helping a new generation of entrepreneurs find success in the business world, and they invest in exchange for equity in the company. Angel investors are also often willing to work as mentors to the small business owners at the helms, helping to steer their ships to success.
What roles do women have as angel investors?
The once small company Little Passports, operated by Amy Norman and Stella Ma, searched for investors to move the business in a positive direction. Venture capitalists, who are predominately male, turned their noses at the idea of this company run by two women. These men did not think that the company would be able to boast the kind of revenue venture capitalists seek. In a day and age where sexism in the workplace is supposed to be prohibited, it can’t be denied that investors still take a critical eye to entrepreneurs’ genders. They somehow equate success with male entrepreneurs and risk with female entrepreneurs.
Fortunately, the tides are turning and more female entrepreneurs are getting a boost from none other than female angel investors. That same company, Little Passports, grew to report revenues of $5 million just five years after Norman and Ma sought funding. This success is attributed in a large part to a group of female angel investors who saw the potential in both the business plan, and the people operating the business, and supplied almost $2 million in investments.
In the United States the number of female angel investors is growing, up from 20,000 in 2005 to almost 60,000 in 2014. In correlation, the number of female entrepreneurs is also on the rise, from 9% in 2005 to 23% in 2014. In an ironic and perhaps connected turn of events, the number of females working in venture funds is slowly decreasing, from an already low 10% to just above 5%.
In reality, effective business investing should include women at both the venture fund table and the angel investor side of the room. Females make up roughly half of the consumers in the country, heavily influencing purchase decisions related to the home and children especially. Representation of these consumers is important when it comes to investment decisions. New organizations, such as Women In Venture, hope to change the dynamics and increase equitable distribution of investment decisions and opportunities among genders. Entrepreneurs also play an important role in these changes as they seek out female angel investors and look internally at their own companies for ways to practice gender equality across all fronts of the business.