Two years ago, I got a call from Joanna, my former team member at Microsoft. After spending time in Africa on tech development projects at the Gates Foundation, she (along with Amanda, another former Microsoft alum) decided to found Kasha, a startup working to provide women in Africa with greater access to feminine products and everyday hygiene essentials.
Her call was to ask me if I would be interested in becoming an angel investor for Kasha. Prior to this conversation, it never occurred to me that I could personally play a role in helping female entrepreneurs to build their companies simply because I’m not a VC. Now that I’m an entrepreneur myself, I see a huge role angel investors play in the startup community, especially for women-led startups.
Earlier this year, Pitchbook reported that in 2017 just 2.2% of all venture capital in the US went to companies founded solely by women.
According to a recent Harvard Business Review report, women-led businesses are the fastest growing segment of entrepreneurship in the U.S., but they comprise a small percentage of the companies funded by venture capital. A Babson College study found that most women-led businesses have been funded by the founder herself, or by friends and family. One reason? Fewer than 5% of all VC-funded firms have women on their executive teams, and only 2.7% had a female CEO.
While it is clear the VC community needs to work on gender diversity when it comes to their own teams, there’s no reason they can’t diversify their investments. After examining a decade’s worth of data from 300 portfolio companies, a report by First Round Capital revealed that startup teams with at least one female founder performed 63% better than all male teams.
The good news is that studies such as these, #metoo and other social movements are shining a bright light on this dark truth and forging change. In May, FORTUNE reported that Melinda Gates has been funding female VCs through a secret investment firm. That same month Arlan Hamilton, Founder and Managing Partner of Backstage Capital announced a $36Million fund solely dedicated to black women-led startups and entrepreneurs.
These are big, important steps, but they are not enough. Female entrepreneurs need our collective support…and you don’t have to be a Venture Capitalist to move the pendulum. Here’s how:
- Talk to your Financial Advisor about an investment strategy (It’s not as scary as you think). Any time when I’m evaluating a new investment opportunity, Jennifer, my financial advisor, is the first person I talk to. Here are useful tips I learned from her and help you find the fit of an angel investment to your financial portfolio.
- What is the goal of the investment? Is it your core investment or a satellite investment? Your risk level should be lower for your core investment, and higher for the satellite investment.
- What is the time horizon for the investment? short term 1-2 years, medium term 3-5 years, and longer term 7-10 years or even longer.
- What is your risk tolerance? It measures the volatility of up and down during the investment period. In generally, everyone has a stronger emotional towards downside than upside. So, check your emotions.
- What is the probability of success? That is related to the end goal. If an investment has a lower chance of success, it should have a higher rate return to compensate that. Vice versa, if an investment has a higher chance of success, the return generally is lower.
2. Invest in something you believe in.
Being an angel investor is a passion project of mine and something I do on the side. Therefore, I only invest in companies where their missions connect with my values. My second angel investment was at SpotOn, a pet-centric ride-hailing company founded by my friend Aparna that matches passengers and their fur-baby to a pet-friendly driver. As a pet-parent in NYC, I can relate to the challenge of getting an Uber, Lyft or a cab when traveling with my four-legged kid. Both Kasha and SpotOn’s missions really spoke to me. More importantly, I believe in the founders themselves. I have gotten to know them and have confidence that they have the vision and the grit to build their companies and make an impact.
3. Can’t decide on an organization? Find a group who can.
You may not be exposed to many female founders on a regular basis or you may be too busy to vet individual startups. There are many Angel or VC groups that specifically focus on women-led startup investment opportunities. Ellevest is a great place to start – they offer flexible investment options with an easy-to-use platform. Some other great examples are Chole Capital, Astia, Mindshift Capital, Female Founders Club and Backstage Capital. Click here for more!
I have seen angel investments range from a few thousand dollars from friends and family to tens of thousands and millions of dollars depending on the type of startups and the stages they’re in. Your early investments may help a startup to prove a concept or to get the appropriate tools, licenses, or permits, just enough to push them to the next milestone.
4. Not ready to invest? Become a customer!
If you aren’t ready to become an investor, become a customer! Female entrepreneurs are disrupting nearly every industry. Next time you are looking for a service or solution, consider a female-founded company. If you come across a great startup with services that don’t quite align with your work, refer them to someone in your network that could use them.
The bottom line: You don’t need to have deep pockets to make a big impact. Every investment and referral make a difference. What other tips do you have to help advance more women entrepreneurs to the next milestone?