Reading: Should You Become An Angel Investor

Women are becoming an economic powerhouse in the United States. By 2020, they are expected to control two-thirds of the private wealth in the U.S., as an estimated $3.2 trillion will transfer to the next generation, according to a study by RBC Wealth Management.

This is the first generation of women to inherit money in an equal way to men and the first to move into the executive ranks and own their own businesses. “For the first time in recorded history, women own the majority of personal, investable wealth,” says Trish Costello, founder and CEO of Portfolia, an entrepreneurial investing platform designed for women. “Women have the wherewithal to invest.”

Yet, despite our enormous investing power, many women are reluctant to take action, in part, Costello says, because every financial system in place was created in the 1950s and 1960s before the majority of women were in the workforce. “These systems were built without any thought about how women want to invest,” she says. “All they’ve done [with the systems that exist today] is to shrink them and pink them.”

That is the reason why women are joining specialized angel investing groups such as Portfolia, 37 Angels, Golden Seeds LLC, and Plum Alley. These groups collectively evaluate (mostly) female-founded companies that focus on themes that resonate with women investors. Sectors include women’s health, active aging, or consumer tech, and the angels decide whether to make an early-stage investment.

Female investors are woefully under-represented in venture capital groups. According to All Raise, only 9 percent of decision makers at U.S.-based venture capital firms are female. But more and more women are becoming angel investors. While angels are still predominantly male, 22 percent are female, and according to The American Angel, a national study released last November by the Angel Capital Association and Rev1 Ventures, 30 percent of new angels are women.

Reinvent Yourself as an Investor
Angel investing is the ultimate second act for women, says Angela Lee, founder and CEO of 37 Angels, a community of female angel investors. Many women have had successful careers with Fortune 500 companies and have plenty of advice to give new founders, she says. Angel investing allows women to remain actively involved in business in a way that fits their schedule and lifestyle. Angel investors typically invest their own money in a startup company and, in addition to funding, often provide the founder with advice and contacts. While most angels seek to make profit on their investment, they are also motivated by a desire to help a founder start a business they believe in. “I’m having more conversations with women about not just doing traditional investing in the stock market, but looking for alternative ways to invest in things like real estate, franchises, and startups,” Lee says. “I also see more women taking direct ownership over their investments and wanting their dollars to truly have impact.” Angel investing allows for exposure to an alternative asset class.

Unlike traditional investing, angel investing allows women to place bets collaboratively on a product or service they believe in, want to see in the marketplace, and could be overlooked by male investors. “Women are the buyers and influencers, and the early adopters,” Costello says, referring to a Harvard Business School study that finds, in aggregate, women represent a growth market bigger than China and India combined. “If we don’t step up and invest, we’re not using our power, and not getting [the] companies and products we want in[to] the marketplace.”

For instance, Portfolia just launched its sixth fund, the FemTech Fund, which will offer funding to six to ten companies that provide healthcare for women. FemTech is anticipated to be a $50 billion market by 2025, according to a report by Frost & Sullivan. Most venture capital firms avoid women’s health because most VC investors are men and are unaware of women’s health problems, Costello says, which opens the door for female investors. For example, Costello recalls a conversation she had recently with a noted male VC investor about a company named Joylux that offers an at-home solution for the problem of leaky bladders that hits women from childbirth through menopause. They discussed the market size and merits of a potential investment until the male VC finally admitted he couldn’t lay down dollars because he “just wouldn’t be comfortable talking about vaginas every Monday morning at the partner’s meeting.” “I had to laugh out loud,” Costello says. “And I told him, ‘Vaginas are our daily life. We’re going to make a lot of money because we’re not squeamish talking about vaginas.’” In fact, Portfolia ended up investing in Joylux, a company that secured $5 million in its Series A round of financing earlier this year.

Angel investment groups collaboratively decide which companies to invest in based on four aspects: the people (does the team work together well and understand the market), the problem (does the problem they’re solving affect a large segment of the market), their progress (are they pitching an idea or a proof of concept, and do they already have customers) and price (which is the least important aspect of the four), Lee says. Most angel networks will evaluate thousands of companies but only bring the best 50 to investors for their consideration.

You Are Taking a Risk
Not every investment bears profit. It’s best to go into angel investing thinking you will never see a dime of the money you invest, warns Ellen Archer, president of the Trade Publishing Group at Houghton Mifflin Harcourt, who spent a year as a managing director at Golden Seeds, evaluating, coaching and providing strategic business guidance to early-stage businesses. “There are so many good ideas that end up not working out for a multitude of reasons. It may seem odd to go from book publishing to angel investing but it’s similar to what I do at a publishing house. You have to be a good storyteller but you also have to provide a compelling reason to invest in that book. At the end of the day, nine out of 10 books fail. It’s the same with angel investing.”

While Archer didn’t make a profit on her angel investments, she says she would invest again. “I like the idea of women supporting women,” she says. Her advice is to sit down and decide how much you are comfortable spending, knowing that you might not see that money again.

You Don’t Need to be Rich to be An Angel
Don’t get caught up in the misconception that you need to invest millions, says Peggy Northrop, CEO of Northrop Consulting LLC. Women often think of an investor as a tech guy who founded a company and made a billion dollars, yet angels can make smaller investments, ranging from $5,000 to $15,000, particularly during the friends and family fundraising round. Northrop became interested in angel investing after founding her own company, Shebooks, and pitching to various angel groups. “My assumption was that you had to be rich to [be an angel] but that’s not the case.”

You also don’t need to have an MBA or know how to do a financial analysis, Costello says. With early-stage companies, you aren’t reading extensive financials, you are judging the team, the uniqueness of the product and their understanding of the market. In fact, understanding of the market is women’s secret power because men don’t buy enough goods and services to know the market as well as women do. Northrop recommends speaking with some of the startup’s customers as you evaluate teams; ask them how the product is different from other products the customer has used. Decide if the customer’s experience matches what the founder said during her pitch.

Find a Group that Offers Training
You will need to learn the lingo and jargon used by angel investors and founders. “Give yourself a goal to go to an event once a week or [once a] month and hear 10 pitches and try to build that muscle memory,” Lee suggests. Get a feel for the language and then go home and Google everything, she says. You can also use 37 Angels’ online glossary.

If you join an angel group and don’t feel comfortable asking questions, find another group. By definition, anyone — male or female — looking to become an angel investor is at best 50 percent qualified. “None of us know anything about it because it’s on the cutting edge of innovation,” Lee says. But women are less comfortable feeling under qualified.

To help alleviate these concerns, many angel investing programs offer training. For example, 37 Angels offers in-person and online boot camps, the Angel Capital Association offers webinars, and Portfolia hosts meetings to help angels start collaborating and understanding how to evaluate a deal. A company will pitch their idea, and then five lead investors will ask questions, evaluate the company and discuss it while potential angels listen in, Costello says.

“We have tremendous economic power that we use as consumers but we haven’t really used it as investors,” Northrop says. Angel investing gives women the tools to use that power.

Come learn if angel investing should be part of your reinvention at Covey Club’s virtual salon at 8 pm EST July 24th for a conversation with Costello and Lee. Purchase tickets here.