October 21, 2011
If you can’t beat ‘em, join ‘em. And if you can’t join ‘em, well, then start your own. That seems to be the attitude of women who for years wanted to join exclusive investment groups that made millions funding startup companies, but found it hard to break into this male-dominated world.
Not so anymore. The number of all-female angel investment groups – groups of wealthy individuals who invest in start-up companies – has grown over the last decade. In 2005, women represented approximately 8.7 percent of the angel market, according to the Center for Venture Research. In 2010 that figure had risen to 13 percent. There are currently seven or eight women-focused angel groups in the U.S., up from three in 2005, some of which have hundreds of members, says Marianne Hudson, executive director of the Angel Capital Association, an industry trade organization with 340 member groups.
The concept of an all-female investment group is not new. For years, women have gotten together to socialize and dabble in the stock market – a cross between afternoon tea and a power lunch. The most notable was the Beardstown Ladies, started in 1983.
A group of 16 spritely, elderly women, many well into their 70s, pooled their money to invest in stocks, including Wal-Mart. They chose Wal-Mart after seeing its parking lot busier than Kmart’s. (The Beardstown Ladies published The Beardstown Ladies’ Common-Sense Investment Guide and still meet regularly. They claimed they had annual returns of nearly 24 percent from 1984 to 1993, but it later turned out that they seriously overestimated their earnings.) In the late 1990s, after the “Tupperware party” model of investing saw little success, all-female angel investment groups began to crop up – a far more sophisticated model that has had staying power through the financial crisis.
"...The women in these
angel investment groups
are getting to be somewhat
more important players than
one would have thought."
“With the stock clubs, especially since 2008, people have learned that the market is like Las Vegas in that the house always wins. The big boys always win. You’re a little player,” says Barbara Boxer (not the Senator), who serves on the investment committee of BELLE Capital, an all-female angel investment group in Detroit. “As women have gone into the work force, they’ve become more sophisticated in finance and they want more than just the stock club idea. Angel investment groups are the next generation of these clubs.”
Angel groups invest not in public companies but in small, private endeavors that are highly risky and require serious capital investment to get in the game. Some of the members spent years in finance or ran companies of their own but were never invited into the exclusive male-dominated investment circles.
“What we’ve seen with the women in these angel investment groups is that they’re getting to be somewhat more important players than one would have thought,” says Jeffrey Sohl, associate professor of business administration at the University of New Hampshire’s Center for Venture Research. “Those [old style] investment clubs, which were basically glorified book clubs, only dealt with public equities. And in the scheme of things, they were very minor players. But in the private equity market, these angel investment groups have been major players.”
The typical angel group meets monthly, sometimes over breakfast or dinner, and representatives from startup companies are invited to present their business plans. The group then decides whether or not to invest. Some groups allow men to join. Others limit their access. The New York-based angel group Golden Seeds, for instance, allows no more than 15 percent of its members to be men.
“We chose that number because the number of female managing directors on Wall Street has never been more than 15 percent. We say when their numbers improve, so will ours,” said Stephanie Hanbury-Brown, who helped found Golden Seeds in 2004 after spending 15 years at JPMorgan Chase & Co.
It’s not just the number of female investment groups that are growing. The groups, themselves, are getting bigger. Golden Seeds, for instance, grew from 157 members last year to 200 today. New members must be referred by an existing member. Most are former Wall Street people who are semi-retired or left the workforce to raise children. In the Seattle-based Seraph Capital Forum, started by a group of 12 women back in 1997 and one of the first and longest-running of the all-woman angel investment groups, members must be accredited investors under federal securities laws, meaning they must have at least $1 million in net worth or have earned $200,000 in the previous two years.
A study found that when
there are more women
in an angel group, the
group is willing to take
more risk, debunking a
common belief that women
are innately risk averse.
“We believed there were a lot of women who had the economic means [to be] investors. So we gave people a safe place where they didn’t feel stupid asking questions, and where there wasn’t positioning or posturing,” said Janis Machala, one of the group’s co-founders.
In fact, research has found that all or mostly-female angel groups help women take bigger investment risks. A recent study by the Center for Venture Research showed that when there are more women in an angel group, the group is willing to take more risk, debunking a common belief that women are innately risk averse.
Many of the angel groups also target female-run companies, and that has meant more female entrepreneurs are getting a slice of the startup capital pie – though it’s still a pretty skinny slice. Women own about 29 percent of U.S. businesses, which includes home businesses, according to Census figures, yet they receive from just 4 to 9 percent of the venture capital funding available, according to the Kauffman Foundation. “Part of [starting the group] was we wanted a seat at the table, to get into these deals, and part of it was we wanted to support women entrepreneurs,” Machala said.
But women shouldn’t think just because they’re female, they’re going to get money from all-women angel groups, says Villette Nolon, Seraph’s president.“We want to invest in well-run opportunities. This isn’t charity.”