The Traditional Investor
In previous years, angel investors have, for the most part, conformed to traditional stereotypes. They have often been male, retired CEOs or entrepreneurs with a keen interest in investing. Often, their interest in investing has stretched beyond monetary return. They may have wished to keep a foot in the door of an industry, mentor a new generation of business entrepreneurs or enhance their business understanding on a part-time basis.
Over recent years some effort has been made to break away from this stereotype. However, in light of recent changes to banks' lending patterns, many suggest that more needs to be done. Despite some efforts from groups such as Golden Seeds (US), women, in particular, remain underrepresented. A recent report by the Organization for Economic Cooperation and Development suggests that women make up only 5% (Europe) and 13% (US) of total angel investors.
Understanding the Need for Increasing Female Investor Numbers
Since the economic downturn, banks have been reluctant to issue loans for new business start-ups. Further, venture capital firms have increasingly targeted their investments at later-stage companies. When an economic downturn puts pressure on existing businesses and new businesses are unable to receive start-up funding, economic growth becomes stunted.
The development of alternative investment channels has, thus, become crucial to generating economic growth, and in order to better match demand to supply, additional investors must be found. It is believed that women investors would be best fit. A report by the Guardian Life Research Institute projects that female-owned small businesses (now constituting 16% of total US employment) will be responsible for generating approximately 33% of the 5.5 million new jobs expected by the Bureau of Labour Statistics by 2018.
There is, however, a Catch 22. As angel investors and those seeking to establish new businesses are dependent upon existing networks and business relationships in order to establish start-up contracts, adjusting traditional investor profiles to increase female investors and entrepreneurs poses a particular challenge. As per Mark G. Heesen, President of the National Venture Capital Association:
"Historically, venture capital has been a much acclaimed boys club."
"That network is something that women have to permeate. It is harder for women to break into that arena."
Further, it is felt that by increasing the number of female angel investors, levels of corporate diversity can be enhanced. As per Ed Reitler, of ARC Angel Fund:
"It is incredibly important that the venture ecosystem includes women as angel investors. They are crucial to ensuring the funding of a more diverse group of companies."
A Key Development: The Pipeline Fellowship, New York
As the need for female investors has become apparent so, too, has the need to identify and support them. The Pipeline Fellowship, founded in 2010 by Natalia Oberti Noguera, delivers upon this need. Its mission is to provide practical training to female philanthropists who wish to become angel investors within the female-owned business sector. Selected females receive comprehensive training delivered within a six-month program. Topics covered include due diligence, finance and strategic portfolio management.
Following their six-month training period, small angel groups (made up of ten investors) sort through business plans submitted by female entrepreneurs. From these plans, they select several companies to present business pitches. After the pitches, angels perform due diligence on each company. They then select one for investment, each contributing $5,000 (totalling $50,000).
The success of the program has been marked. In 2011, it set out to train ten women in angel investment, and support female social entrepreneurs. A year on, the program has expanded to provide training for 40 women within four programs held across two locations. This expansion represents 400% growth over a one-year period. As per founder, Natalia Oberti Noguera:
"The Pipeline Fellowship is committed to increasing diversity in the angel investing community and training a new generation of angels to invest for good."
Angels Influence Tax Incentives to Increase Profit Margins
In order to attract additional angel investors, several States across the US have introduced tax credit or incentive schemes. Such credit schemes range from benefits 10% to benefits in excess of 50%. Given the elusive nature of venture capital dollars, historically low interest rates and limited personal opportunity for tax free savings, angel investors are now establishing leverage groups to influence investment tax policy across the US.
To this regard, women who become angel investors should not only become involved in the investment process, but also in industry lobbying. In so doing, they could increase their potential profits substantially through the reduction of tax liability.
Examples of successful industry lobbying include Connecticut, Georgia and Minnesota, where investors played critical roles in the passing of tax credit legislation. Due largely to the lobbying of the Atlanta Technology Angels and the Technology Association of Georgia, the State of Georgia now provides a 35% income tax credit of up to $50000 per individual, per annum. This credit, capped at $10 million per annum is operational for three years from January 2011.
Lisa Weston is a finance writer from London, England, where she regularly interviews industry insiders, most of whom agree there is a definite need for more women to make moves in the industry.