How To Increase Angel Funding For Women Entrepreneurs
One form of equity financing is angel investment. Angels invested $21.3 billion in 2016, according to the Center for Venture Research at the University of New Hampshire. An angel investor must be accredited, meaning she or he must generate an annual income of $200,000 ($300,000 as a couple) and/or have a minimum net worth of $1 million, in addition to their home. From 2006 to 2016, as the number of women angels has doubled, there has been a corresponding increase in the number of female founders getting funded — nearly doubling from 7,037 to 13,962.
Alicia Robb is a researcher and Ph.D. economist specializing in entrepreneurship and entrepreneurial finance. She also was a Senior Fellow at the Kauffman Foundation, writing two books on women entrepreneurs. Her research revealed several barriers to women and minorities who want to become angel investors:
For the past couple of years, Robb has been testing a new model to remove those barriers and bring on more angel investors. The model — learn by doing — is a well-known technique in which you learn through practice and iteration but it had not been applied to training up angel investors.
She formed a micro-investment firm, Next Wave Ventures, in which 90 new or relatively new women angel investors who are mentored by nine experienced women angel investors. Together they invest in a fund. The experienced investors lead deal flow, due diligence and making the investment decision. In the first fund, Rising Tide, 99 women invested $10,000 in the 10 U.S. companies over the course of a year. The Kauffman Foundation, which researches and advocates on behalf of entrepreneurs, underwrote the creation of the educational and training component, which is available to anyone.
“We’re rethinking the [angel] financing model,” said Robb. “Instead of seeking unicorns, we’re looking for zebras.” Unicorns are tech startups that scale relatively quickly into billion dollar plus companies. Along the way, “eight of 10 fail, one returns the investment and one is a home run,” said Robb. Zebras, on the other hand, are less likely to go bust, make both a financial and social return, and band together to support each other, according to the women — Jennifer Brandel, Astrid Scholz, Aniyia Williams and Mara Zepeda — who coined the term. Their goal is sustainable prosperity.
Zebras — which also tend to be started by women and under-represented groups — mean less volatility in the overall portfolio. The idea is if more companies survive, even without a Facebook, Google or Uber, the overall portfolio will do better.
Some lessons from the pilot fund:
It is too soon to say if the learn-by-doing model will engage more women as long-term angel investors. Robb will be tracking this.
If I’ve piqued your interest and angel investing seems attractive, here are nine questions you should ask yourself if you are considering being an angel investor.
Want to learn about crowdfinancing, signup for updates on training. In the meantime, read all my articles on online financing options.
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