For many people, if they hear “angel investor” they’ll think of programmes like Dragons Den where incredibly wealthy individuals sit with piles of cash on tables in front of them, with very excited entrepreneurs pitching to them and trying to convince them to park with their cash. It’s easy to see why, after this limited exposure, many of us believe that there are minimum investment requirements or you need to be a white collar CEO in order to qualify as an angel investor. The reality is, that’s not the case.
Although they don't have wings or halos, angel investors are individuals who invest their own money into a small business in exchange for shares in the company. But these angels offer more than money – they also offer mentoring and support, and businesses that receive investment through them, benefitting from the investor’s time, skills, contacts and business knowledge. So they’re pretty hands-on and have a genuine desire to push the business forward in collaboration with the entrepreneur. That’s an exciting position to hold!
The current landscape
But now for the hard truths. Female angels remain a minority in angel investment. Of a total 36,800 angels in the UK, only 14% (5,064) are women, and less than 0.5% (157) of female angels have achieved a portfolio of 10 or more, according to research undertaken by Natwest. So, what does this all mean?
As the data shows, this shortage of women angels has a direct impact on the UK’s female founders. This is because data shows that women are much more likely to invest in female-founded companies, which are currently underfunded compared to their male counterparts and often unable to meet their full potential. When it comes to entrepreneurship and investment, women’s financial needs are simply not being met.
For women as entrepreneurs:
For women as investors:
64% of women feel their financial and wealth management providers need to improve their proposition, and 96% of women are not advised about angel investment by their financial advisors.
Women angels therefore have a critical role to play in supporting female entrepreneurship in the UK and making their businesses thrive. But the reality is, they’re significantly underrepresented in this space. We need more female angel investors, don’t you think?
Angel investing can help plug the financial gender gap.
What it takes to be an angel investor
Contrary to popular belief, everybody has the potential to become an angel investor and you don’t need tons of cash to get started. There are some serious misconceptions about the amount of cash you need behind you to invest in, and make a difference for an amazing small business owner with a dream to make a difference.
Each business will structure their funding round differently but the “ticket size” can be anything between £1,000 on one end and £250,000 at the other. But it’s not just your ability to fund they’re looking for – it’s your specific skills, contacts and business backgrounds to support their own journey to success.
Philanthropy and funding in angel investing
Statistically, female investors are much more likely to choose their investments based on more than just the financial investment. Women spend and save differently. Women invest differently. Women use data differently when we make financial decisions. Our investments yield greater returns. We value different things. We live longer.
Female angels are no different. More often than not, they make their decision based upon philanthropic opportunities, aligned values and the opportunity they gain make a difference within the business.
Over Being Underfunded (OBU) have identified four major trends coming together to make angel investment by women, for women, an incredible opportunity. Here’s what they found:
- Investment demand is increasing: In 2021, 145,200 women in the UK started a business, this was a year-end year increase since 2018 of 37%.
- Women’s wealth is rapidly riding: Women are adding $5 trillion to the wealth pool every year – far outstripping the overall wealth-market growth.
- Government expectations: Investing in women founders if worth £250 billion to the UK economy and there has been a 68% increase in financial services organisations who have signed the Investing in Women’s Code.
- Investing for impact: Women invest differently, prioritising impact metrics as well as financial returns.
So think of it like a match making process. It could be that a founder of a small business has got an amazing idea, a solid business plan. They’ve done all their market research but they have a crucial skill missing in the team to bridge that gap and support their growth.
We’re seeing much more powerful matches made between female founders and female investors than ever before, based on mission, purpose and values, and this has the potential to pave the way for meaningful female-founded change in the world – that’s powerful.
How to get started angel investing
So you’re reading this thinking “I’ve got valuable skills”, “I’ve got some spare cash to invest”. The next question on your lips is then “but how do I get started?”.
Capital is a great place to start. To become an angel investor, you will need to start with capital and cash to invest.
Next up, you’ll need to build a network or utilise the networks you’ve already got in order to find your first opportunity. The reason it’s important to build a wide network is because in order to find the right opportunity, you may have to screen many to find the right fit for you.
You can also consider affiliating yourself with an angel investor club which can introduce you to businesses they procure on your behalf.
What to look out for
Whilst it might seem glamorous and attractive to invest in a company and steer its growth, like something you’d watch on a TV programme, there’s one crucial thing to bear in mind: that angel investment does come with serious risks. Because whilst the average return on investment is 30 to 40%, there is no guarantee you’ll get your money back.
So here’s what to keep in mind before deciding whether or not to invest in a start-up:
- Financials: It should come as no surprise to learn that most angel investors strongly prioritize the financials of the companies they consider. After all, the top goal of most angel investors is making money! So look into the company carefully and see for yourself if they’ll be able to generate revenue and growth in a relatively short period of time.
- Competition: Angel investors need to also consider the business’s competition. The company may have a brilliant idea for a business, but if another entrepreneur is already tackling the idea in a better way than you, there's no point in investing.
- Market evidence: A product or service may sound great on paper, to the point that it makes sense that people would want to buy it. But what evidence is there that people will spend money on it? Companies will need solid market research if they want to impress an angel investor like yourself.
- Your skills: You’ll also need to care deeply about the nature of the company's founder and have a skillset that complements what they need. So consider: do your skills marry up? Are you capable of leading the organization and forging a path forward in this industry?
- Founder experience: What kind of history does the founder (or co-founders) have? Have they ever started or managed a business before? Have they worked in companies within this industry?
- The team: Even the best, most dedicated entrepreneurs can't build a business on their own. They depend on partners and employees to build the business collaboratively. Accordingly, angel investors want to know whom you've hired, and who you plan to bring on in the future.
- Networks and resources: What kind of access to resources does the company have? Have they attracted any funding yet? Do they have vendors in mind or partnerships in place to get the business running?
- The company culture: Organizational culture is a massive factor for success in business, and angel investors know it. If the company’s still in the planning stages of your start-up, it may be hard to demonstrate what their company culture will be like, and angel investors will expect a reasonable answer.
- Compatibility: Angel investors want to know they're investing in a person who's worthy of the money – and they want to work only with someone they can genuinely get along with. So consider whether the founders are people you gel with – that’s the key ingredient to a good working relationship.
Final thoughts on angel investing
The data is showing that female founders, combined with philanthropic female angels who have shared passions and can fill skills gaps really are going to take over the world. We are seeing partnerships which simply haven’t existed in other types of investment before and these partnerships are showing no plans of slowing down.
Not only does it provide a platform for them to have a say in the direction of businesses, but it also serves as a practical way to provide support to fellow entrepreneurs. As it stands, the world of angel investing is a male-dominated one, and the time has come for us to take ownership of our rightful place within it.