Why the Rise in Female Angel Investors Is Good News for Women-Led Startups

It's no surprise that more funding for women entrepreneurs coincides with an increase in the number of women angel investors.
Why the Rise in Female Angel Investors Is Good News for Women-Led Startups
Image credit: gradyreese | Getty Images
Guest Writer
Managing Partner of Golden Seeds
6 min read
Opinions expressed by Entrepreneur contributors are their own.

In 2004, there were about 225,000 angel investors in the United States, and 5 percent of them -- about 11,000 -- were women. Fast forward to 2016, the latest year for which data is available, and you'll see an incredible change. There were approximately 300,000 self-described angel investors in the U.S. that year, and 26 percent of them -- about 78,000 -- were women. In the span of a dozen years, women stepped up in unprecedented numbers to become investors. The seven-fold increase in their ranks coincides with another upswing: a growing number of funded women entrepreneurs.

Want to get better at market research and figuring out what your special sauce should be? Learn more in our online Intelligence course.

Related: Attention Female Entrepreneurs: Here's a Step-by-Step Guide for Picking the Right VC

It's no coincidence that these two data points are trending upward together, nor is it coincidence that it's happening now. The growth in the number of women investors since 2004 coincides with a period of time in which women -- in large numbers -- have recognized they have the skills, interests, networks and capital to invest in ways that did not previously exist. As those women became angel investors, the number of women-led companies backed by angel investments also rose. Data from the Center for Venture Research at the University of New Hampshire illustrates this correlation. In 2004, 3 percent of the 48,000 or so companies that received angel funding were led by women -- that's approximately, 1,500 women entrepreneurs accessing angel investments. In 2016, women-led companies represented 22 percent of all companies that received angel funding -- that's more than 14,000 female entrepreneurs receiving capital to propel their early stage companies.

It shouldn't be up to women investors alone to fund women-led companies, but there's no doubt that the momentum, determination and leadership of the growing community of women angels has enabled growth for women in entrepreneurship.

Women entrepreneurs: Founding 1,000 new businesses every day

There are a reported 300,000 new women entrepreneurs in this country every year. Of the almost 1,000 new women-led businesses founded every day, not all want funding, nor are all good candidates for it. However, the pace of entrepreneurship among women shows they have the skills, credentials and confidence to build businesses. And more women are realizing that they can successfully present their visions and plans and gain interest from investors -- both women and men.

Whether the angels involved focus solely on women-led companies, as we do at Golden Seeds, or simply practice inclusion on their own teams, having other women in the room increases the odds of securing funding for women entrepreneurs. The reasons for this can be debated, but it seems clear that gender diversity among decision-makers improves the chances that women entrepreneurs will be funded. In fact, the well-regarded Diana Project, a study by Babson College, concluded that venture capital firms with women partners were more than twice as likely to invest in companies with women on their management teams than those without women partners.

This is not about empathy. Rather, it may be that diversity among decision-makers opens minds to the possibility of investment in diverse entrepreneurs. Also, women often create businesses that are born of their own life experiences -- experiences other women may be particularly likely to recognize and calibrate as large opportunities. The goal for investors should be to create investing environments that will maximize the range of experience and diverse views offered by decision-makers.

Related: The Only Advice Women Need to Raise Capital

How to pitch angels in a gender-diverse investor landscape

In many ways, the best fundraising advice for women entrepreneurs is the same advice that is best for men: Do your homework before the pitch. Learn which sectors and geographies the investors you're pitching tend to focus on. Look at their portfolio companies and determine whether there are patterns to their investments that bode well for your company.

Angel investors want to see a great leadership team, realistic budgets for specific goals and a willingness to communicate and collaborate with investors. They're also often swayed by an entrepreneur's past success. Admittedly, the number of women entrepreneurs has only been escalating for the past 10 to 15 years. There have not been a lot of female entrepreneurs, so many who are seeking funding can't describe other companies they have launched. In those cases, it's even more critical to convincingly connect the dots between their past professional experience and their ability to build a successful business. In this scenario, the entrepreneurs can be effective by stressing how their operating experience, management experience and education will support the success of their business.

We see this with many of the entrepreneurs we invest in at Golden Seeds. For example, the founders of Little Passports, Amy Norman and Stella Ma, leveraged their years of running consumer businesses at eBay to become entrepreneurs, and Groupize, which streamlines hotel bookings, was founded by two hotel industry veterans with extensive management experience and a deep understanding of the potential for their company.

Happily, we are starting to see more women serial entrepreneurs who have had successful exits in the past and are fundraising for their second or even third ventures. One-third of Golden Seeds' investments last year were with serial entrepreneurs -- a sign of continued progress.

Related: New Study Finds 5 Key Differences in How Male and Female Founders Raise Capital

Regardless of an entrepreneur's gender, and regardless of the genders of the potential investors, a successful pitch comes down to creating confidence in the room that there is the potential to build a great company. Founders need to create a scenario in the minds of angel investors that these are people who can pull off a difficult task and execute on the business plan they are presenting. This is true for both men and women. When it comes to writing a check to an entrepreneur, what's going through the minds of the angel investor is, "Do I believe this person and her team can really do this?"

Entrepreneurs need to do more than project their own confidence about that question. They also need to communicate that they will be cautious stewards of the money invested, that they will be operationally effective, that they will have good judgment in running the business, and that they are adaptive enough to modify their business plans when scenarios change, as they inevitably will.

It seems clear that we have entered a great time for women entrepreneurs -- they are increasingly recognized as innovators who are building fundable companies that many investors, both women and men, want to learn about.

More From Women Entrepreneur

Women in Business

10 Prominent Women Leaders Share Their Thoughts on How to Close the Gender Wage Gap

'It's okay to talk about salaries with your friends, mentors and peers,' says Cate Luzio, CEO of Luminary. 'If you don't get a raise, don't give up.'
Innovation Now

10 Powerful Women Leaders Discuss Keeping AI Safe for Humanity

'History has shown that whenever a great invention gets into the wrong hands, evil tends to prevail. Right now, we're in the early stages of AI and currently exploring the many potential benefits of using AI for good.'
Human Resources

10 Powerful Women Leaders of HR Share Their Most Effective Strategies to Retain Great Employees

'Don't leave the newbie hanging after they show up,' says Rachel Book of Fidelity Investments. 'Check in often, and ensure they can bring their real self to the office.'
Women Entrepreneurs

How Model Alexandra Cristin Turned Her Brand Into an 8-Figure Empire

The Glam Seamless founder and CEO breaks down how she broke through as an entrepreneur.

More from Entrepreneur

Get heaping discounts to books you love delivered straight to your inbox. We’ll feature a different book each week and share exclusive deals you won’t find anywhere else.
Jumpstart Your Business. Entrepreneur Insider is your all-access pass to the skills, experts, and network you need to get your business off the ground—or take it to the next level.
Create your business plan in half the time with twice the impact using Entrepreneur's BIZ PLANNING PLUS powered by LivePlan. Try risk free for 60 days.

Latest on Entrepreneur