Women are making huge strides as angel investors, nearing 40% of the wealthy individuals who fund entrepreneurs. And women-owned startup ventures account for 37% of the market of new companies, according to a new study on women angel investors from the Center for Venture Research at the University of New Hampshire.
The market captured in this study is kind of a real-life “Shark Tank,” where entrepreneurs approach investors and pitch their ideas, hoping to make a deal for startup funding in exchange for a cut of the future profits.
The total market of angel investments in 2022 was $22.3 billion, according to the study, which accounts for 62,325 entrepreneurial ventures receiving money from 367,945 investors, with an average deal size of $356,650.
When Jeffrey Sohl started tracking angel investors for the Center of Venture Research in the early 2000s, women accounted for less than 10% of the marketplace. Just before the recession in 2008, women only accounted for about 12% and in 2015, were up to almost 20%. By 2021, that had jumped to 33.6% and then to 39.5% in 2022.
Angel investors exist as a kind of a middle ground between incubators and accelerators, which nurture entrepreneurs building ideas, and venture capitalists, who fund projects at later stages. Many new companies need multiple rounds of funding, and this middle stage is often crucial to bridge the gap between getting off the ground and going big.
Sohl attributes the rise in women in the angel investing space to a number of factors, but mostly to a virtuous cycle of “women doing business and then cashing out, and then coming back to invest in other businesses,” he says.
Women helping women
That’s definitely what Loretta McCarthy has seen in her role as an angel investor and helping to run the angel investor group Golden Seeds, which started in 2004. “Back then, women were just 5% of the funders and 3% of the startups. On both sides of the equation, women were not part of capital formation,” says McCarthy. “We knew it was a serious issue that needed to be addressed.”
Over the past 20 years, Golden Seeds has invested about $175 million in 250 companies, all of which have at least one woman in a key leadership position. Currently, they have more than 300 active investors. They will evaluate about a thousand startup proposals this year, and about 450 will be invited to pitch to one of Golden Seeds’ eight regional chapters.
“There are some similarities to ‘Shark Tank’ – they pitch for 10 minutes, then we ask questions for 10 minutes, and then our members discuss what they think,” says McCarthy. “But there’s a long process between the first presentation and funding, and most of the ventures are not consumer products.”
Golden Seeds’ biggest success so far, measured by the cash-out for investors, was an enterprise technology company focused on monitoring social media sentiment.
“The company went through many iterations and eventually sold for $450 million. We got $38 million out of that result,” says McCarthy. “When angel investing works, and works well, it’s because we bought very early. And many of us added more capital over time.”
Golden Seeds has also invested in companies like Little Passports, which creates monthly learning kits for kids; Bentobox, which provides restaurant services and Cognition Therapeutics, a biotech firm. McCarthy says they’re seeing a lot of pitches now for companies offering products and services to help women deal with menopause.
Minorities still lag as angel investors
While women are soaring as angel investors, approaching parity, minorities are still lagging. Sohl’s study found that minority angels accounted for 8.6% of the market in 2022 and minority-owned firms represented just 15% of the entrepreneurs marking pitches.
“You can look at national social and economic data and look at the numbers to come up with a reason why,” says Sohl. “When you think of visible women in leadership positions in companies versus minorities – you have to get the success stories out there for people to see.”
McCarthy sees the potential for growth among all groups, with the story of groups like hers serving as an example. Golden Seeds works with many other groups to try to promote the businesses of underrepresented communities, particularly the incubators and accelerators that are helping them get started.
The most important factor: Getting the pitch in front of people who can understand the market.
For women, that meant getting women on the investor side a place at the table. So now McCarthy and her group are trying to get more
“The key is getting the right people in the room when a pitch is made,” says McCarthy. “We try to create an environment that will increase the likelihood they will get a serious chance of funding.”