How to Give Women the Wings of an Angel
Canada has not tapped its female angel investor potential – yet.
The female angel investor conversation has been discussed inside and out. From TechCrunch, BetaKit to the Financial Post, there have been more than a few arguments made about the lack of female representation in Canada’s early-stage investment community and the benefits of tapping into this financial resource.
For example, Kristi Zuhlke the CEO and Co-Founder of Knowledge Hound wrote that women investors are important because they signal to female entrepreneurs that they belong – demonstrating that the startup and investment sphere do not have to be male dominated.
There are no statistics about female Canadian angels, but according to the US Center for Venture Research, only about one in five US angel investors is a woman. But why is this? From the conferences, workshops and meetings I have attended the recurring ‘problem’ stems down to a simple question: “How do I get started?”
Surprisingly, getting started as angel investor is not as daunting or challenging as one may think. That is why I have answered the common questions asked by women about entering the angel community.
i. How do you get involved with an angel group? How do you decide what group to join when there are so many?
The most common practice for choosing an angel group is location and timing. It is a lot easier to attend investment meetings or other events when they are only a few minutes away. However, I would still recommend researching a variety of angel groups and then visiting them.
Each group has its own personality and style, and this filters the type of deals they see and the way the deals are structured. It is important to find a group where you feel there is an opportunity for collaboration with the other members and mutual respect. It is a bonus if you enjoy spending time with the other angels, as its makes the whole process much more enjoyable!
ii. Is it valuable to know what resources are available within your angel group before joining?
Yes, it is important to find a group that has resources and processes that work for you. Some groups are very agile and do a lot online, other groups place more weight on in-person meetings, deliberation and screening. You need to pick a strategy that resonates for you.
I recently heard an analogy that angel investing is like working out. Some people prefer to do it at home, on their own, while others prefer to attend classes or work out at a gym. I think there is a similarity, however for new angels I would recommend the deal flow, screening and support that comes by being a part of an angel investing group.
Here are the most common resources you will receive from joining an angel group:
• High-quality investment opportunities,
• Diversification of portfolio companies,
• Share due diligence with fellow members and industry experts,
• Networking with industry leaders, and
• Education and training.
Find a group with the right paradigm for you and your personal investment style.
iii. How many companies should be in your portfolio? How do you decide what your first portfolio company is going to be?
It is important for an angel portfolio to be diversified. Dan Rosen, the Chairman of the Alliance of Angels in Seattle, recommends investing in 12-30 companies over a lifetime, as it is a manageable goal that spreads the risk and increases the odds of return. I have also heard talk of 80 to 100 companies. Either way, a strong angel investment portfolio is diversified in multiple sectors, stage of company and even likelihood of returns.
But you have to start somewhere, so start with a deal you like. It may be because it is a sector you are familiar with, the entrepreneur, business plan or exit strategy that resonates with you.
Whatever the reason, find a deal you like, examine it, do your due diligence and then place your bet. Like all first times, it will be nerve-wrecking (but exciting!) so do your homework, and then jump in.
iv. Should you only invest in companies that are in fields you know well?
I firmly believe that one of the biggest benefits of angel groups is that they allow their members to invest comfortably in ventures outside their wheelhouse. More specifically, as you build up a trust for your fellow angel group members, with their varied industry experience, your comfort level in investing in a company that is not from your native sector will increase. Turning angel investing into a team sport and lowering investment risk – a win, win.
Plus, as previously mentioned a diversified portfolio is a more robust one, which will provide you with a solid return on investment.
v. If you could do one thing differently from when you started as an angel, what would it be and why?
It only took 10 months for me to receive a strong return on the first deal I made, which lead me to compare a lot of my future investments to that first one. Each investment is incredibly different and looking back I don’t think I should have done that. Rather, I would say to be cautious not to judge all deals on your first successful investment, as not all of them will work out that quickly.
vi. What is the motivation behind angel investors?
Angels are motivated by many different reasons and all are valid, but all are looking for strong returns. Some want to give back of their expertise and provide an opportunity for another entrepreneur, as they themselves received guidance and funding in the early days. Others want to stay current and enjoy the energy of the cutting edge. Some wish to support a specific type of business, targeting social impact. Whatever your motivation is, there will be other angels with similar interests.
vii. What advice would you offer to a female who wanted to get involved with angel investing?
Just do it! Having more female angel investors will expose Canada’s young entrepreneurs to a diversity of views, encouraging them to think about how a broader customer base might see their products and provide balance. It would also mean that there would be more angel investors, and more capital for startups.
Women tend to be more conservative investors that are slower to invest. I would advise to be confident in yourself and take the leap from investing in stocks to early-stage businesses. You will not regret it.
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This article is intended for informational purposes only, and doesn't constitute tax, accounting, or legal advice. Everyone's situation is different! For advice in light of your unique circumstances, consult a tax advisor, accountant, or lawyer.