Women backing women?

Should female angel investors only invest in female-founded businesses?

The dial is still not moving on the gender funding gap. Still, less than 2% of venture funding goes to women-led businesses, and more than half of female founders experience gender bias in the fundraising process.

In the current economic climate, investors are pulling back or redirecting capital into their existing portfolio or later stage less risky deals, and angel investment has dropped by 32% compared to this time last year. The impact on female founders starting to come through at seed stage is likely to be felt acutely. There is often talk of how at the current rate of progress, it will take 100 years before we close the gender funding gap. However, there is a danger that the dial for female founds might go backwards. We must act.

Investors tend to have a bias towards backing businesses and founders they understand and relate to. Male investors are half as likely as their female counterparts to invest in start-ups with a woman on the senior team, and three times less likely to invest in those with a female CEO. We clearly need more women investing.

The impact of female angels

Alison Rose, CEO of NatWest who led the seminal Rose Review of Female Entrepreneurship in the UK, and Jenny Tooth OBE, Executive Chair of the UK Business Angels Association, are just two of the women in the industry who are striving to make serious change. One of the spinouts of the Rose Review is the Women Angel Investment Task Force which Jenny leads. I’m a fan of their Women Backing Women campaign, running a series of events across the UK to encourage more women to invest.

However, women still only make up 14% of the angel community, and less than 0.5% of that community have built a portfolio of at least 10 investments.

A recent study from the UKBAA and industry data experts Beauhurst on The Impact of Female Angel Investment In The UK reveals that over 1,000 female led business have been backed by women angel investors in the last 10 years, injecting £2.34bn of capital into those start-ups. However, these numbers are still small compared to the overall industry statistics. Looking at the report in detail, the absolute amount of equity investment with female angel participation has actually gone down in the last couple of years, both in terms of number and value, from £304m to £266m, and 571 to 409 respectively, whilst data from Beauhurst’s The Deal 2021 showed that investments from the angel community as a whole were growing and the UK venture capital industry almost doubled.

Women backing women

So, with all this information in mind, should female angel investors, still in the minority, focus on deploying their funds into female founders? In my view, it’s a resounding ‘yes’. Changing an industry is hard. Shifting your own behaviour is much easier.

In the past decade, almost 25% of all companies backed by female angels were female-founded, higher than the average of 19%. I’d like to see that number at 100%. Male founders don’t need female angel investors’ support. They already have the privilege that gives them much better access to funding.

Female founders deliver significantly better outcomes for investors than their male counter parts, performing 63% better than those of their male peers in delivering value for their investors, significantly less likely to fail, and generating 10 per cent more revenue, and delivering double the return on investment. From a rational decision-making process alone, it’s a total no brainer.

The more female founders that we back, who go onto scale and exit their business, the more these women will put back into female-led start-ups themselves as angel investors. It’s circular.

The Crowdfunding Effect

The definition of Female Angel Investors within the aforementioned report from the UKBAA and Beauhurst is “those individuals who have shareholding(s) in at least two different companies, excluding those which have received crowdfunding”. We should consider changing this because many women, myself included, invest exclusively via crowdfunding. Anecdotally, the leading crowdfunding platforms tell me that 25% of crowdfunding investors are women. Worth noting too that funding amounts through crowdfunding have only dropped by 7% in the last year (against the industry average of 33%) and is the second most important route to investment for women. And it’s great for female founders, who have a 75% success rate compared to 55% by male founders. 24% of crowdfunding deals go to female founders.

So where next?

Despite the ongoing work in the angel ecosystem to raise awareness of the gender funding gap, encourage more diversity of investors, better measure and track diversity in funding opportunities and outcomes, and provide more comprehensive support for female founders, there is still clearly a very long way to go before we have a level playing field.

We encourages female angel to put 100% of their venture investments into women-led start-ups.

We continue to work hard to give female founders exposure within the investment community, through our networks, email communications and social media channels. Visibility is a big part of the issue, as well as raising their confidence and helping them know that other women have got their back.

[This article was originally published in Angel News in November 2022]