Minding the Gap: Women and Angel Investing

A woman in formal clothes is going up to the stairs which are made of golden coins. A sketch of New York on background. A red arrow duplicate the movement of the lady.

By Susan Coleman and Alicia Robb

In spite of the impressive growth of women-owned firms in the United States in the recent years, they are still considered in the minority. In this article, the authors explore the opportunity, challenges, and a solution on closing the gender gap in angel investing.


The Opportunity

Women-owned firms have made great strides in recent years. The US Census Bureau estimated that there were 9.9 million women-owned firms in the United States in 2012 representing 36% of all firms, a dramatic increase over 28.7% just five years earlier. In fact, the number of women-owned firms grew by 27% from 2007 to 2012, compared with a growth rate of 2% for firms overall (Survey of Business Owners, 2012; Ibid, 2007). These numbers suggest that a growing number of women are choosing entrepreneurship as career path and as a means for putting their talents, creativity, and initiative to work.


The Challenge

In spite of these impressive statistics, however, women-owned firms are still in the minority, and there are roughly two male entrepreneurs for every woman entrepreneur in the United States (Survey of Business Owners, 2012). Similarly, for those women who do pursue the entrepreneurial path, the vast majority launch small rather than growth-oriented firms. The same 2012 US Census data reveals that fewer than 20% of women-owned firms have any employees aside from the entrepreneur herself, and collectively, women employ only 7.5% of all employees. This is an important consideration in an economy that is still feeling the effects of the “Great Recession” and the ensuing focus on job creation.

Similarly, research that we have conducted ourselves using the Kauffman Firm Survey confirms that women are less likely to launch growth-oriented firms, the kind that create a substantial number of jobs (Coleman & Robb, 2016b). This persistent gender gap in entrepreneurial activity prompted the Kauffman Foundation’s Lesa Mitchell to write:

With nearly half of the workforce and more than half of our college students now being women, their lag in building high-growth firms has become a major economic deficit. The nation has fewer jobs – and less strength in emerging industries – than it could if women’s entrepreneurship were on a par with men’s. Women capable of starting growth companies may well be our greatest under-utilised economic resource. (Mitchell, 2011, p. 2).

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Findings from Prior Research

We all know that women are just as smart, creative, and hard-working as men, so what’s holding them back from launching growth-oriented firms? A considerable amount of our research has focused on the financing strategies of women entrepreneurs (Coleman & Robb, 2009; Ibid., 2012; Ibid, 2016a) and has consistently documented the fact that women, on average, raise smaller amounts of financial capital than men and are more reliant on internal rather than external sources. This is particularly true in the case of the external equity financing as provided by venture capitalists and angel investors. Although internal sources of financing in the form of personal savings, funds from family and friends, and personal debt, often in the form of credit cards, may be sufficient for the launch of smaller, lifestyle firms, these sources cannot typically furnish sufficient financial capital for growth-oriented firms.

Several explanations have been offered for the dramatic difference in equity financing between women- and men-owned firms. One of the most compelling of these is that the current gender imbalance in equity investors serves as a major contributor to the gender imbalance in equity capital recipients.

Several explanations have been offered for the dramatic difference in equity financing between women- and men-owned firms. One of the most compelling of these is that the current gender imbalance in equity investors serves as a major contributor to the gender imbalance in equity capital recipients. This argument was first put forth by the Diana Project team (Brush et al., 2001) who highlighted the gender gap in venture capital investing, observing that only 5% of VC funding went to women-led firms in 1999. In that initial report, Brush and her colleagues challenged a number of “myths” including the myth that women do not want to grow their businesses and the myth that they do not actively seek equity investors. Alternatively, these researchers identified the heavily male-dominated nature of the VC industry as a structural barrier between women entrepreneurs and access to equity capital. Brush and her colleagues developed this theme more fully in a second major Diana Project report published in 2004 (Brush et al., 2004), noting that women represented only 9% of management track VCs in 2000. This presents a particular problem for growth-oriented women entrepreneurs, because their networks are less likely to intersect with males who represent the other 91% of VC decision-makers. In light of that, one of the Diana team’s conclusions was that increasing the number of women venture capitalists would also increase opportunities for women entrepreneurs to connect with potential sources of VC funding.

Building on this theme a somewhat later study Becker-Blease and Sohl (2007) focused on angel investing to find evidence of “homiphily” or the tendency of likes to be attracted to likes. Thus, women entrepreneurs would be somewhat more likely to receive funding from women angels, while male entrepreneurs would be more likely to receive funding from male investors. Given the relatively small number of women angel investors, this finding has an indirect if not a direct effect on the supply of angel capital available to growth-oriented women entrepreneurs.

In a study of British angel investors done at approximately the same time, researchers Harrison and Mason (2007) found that male investors had stronger networks than female investors, an important distinction, since networks are a major source of deal flow. One of the major findings from the Harrison and Mason study, however, was the relative invisibility of women angel investors due to their small numbers. As in the case of the Diana Project findings, Harrison and Mason concluded that this gender imbalance in angel investors may serve as a type of structural disadvantage for women seeking capital from that source.

This gender disparity in angel investing was a bit of a puzzle for us in light of the fact that over 40% of the top wealth holders in the United States are women. Why aren’t women who have the financial means to do so investing? In an attempt to answer this question we conducted further research which identified five primary factors that cause women to shy away from angel investing: 1) they don’t know about angel investing; 2) they don’t encounter other angel investors in their networks; 3) they don’t see investment opportunities; 4) they don’t feel prepared; and 5) they are risk averse when it comes to making that first large investment in a company. These responses are consistent with prior research on the impact of knowledge (human capital), networks (social capital), confidence (self-efficacy) and attitudes toward risk in investing behaviour. Studies have shown that women are less likely to have previous entrepreneurial experience than men, and that they are less likely to have education and experience in the STEM disciplines, the birthplace of many growth-oriented ventures (Marlow & McAdam, 2012; Ranga & Etzkowitz, 2010). In light of that, one would anticipate that women investors are less familiar with the entrepreneurial process and with specific industries such as high tech and bioscience that tend to be characterised by rapid growth. In terms of social capital, prior research suggests that social capital is just as important for investors as it is for entrepreneurs in the sense that strong investor networks can provide access to better deal flow. Thus, if women are positioned outside the established angel and VC networks, they may have fewer opportunities to invest.

Gender differences in self-confidence or “self-efficacy” have been the focus on a fairly considerable amount of research. These studies suggest that women tend to have less confidence in tasks that are typically associated with men such as math, quantitative analysis, and finance (Amatucci & Crawley, 2011; Kirkwood, 2009). Lower levels of self-confidence, in turn, often translate into higher levels of risk aversion when it comes to investing behaviour. Importantly however, the effect of gender on risk taking is weakened significantly when researchers control for knowledge of financial markets and investments. This finding suggests that providing women with knowledge and information about the investing process and investment alternatives can increase their self-confidence as investors while also encouraging them to consider riskier types of investments.


The Solution

Armed with these research findings as well as research we conducted ourselves in the course of writing our book, The Next Wave: Financing Women’s Growth-Oriented Firms (Coleman & Robb, 2016a), we resolved to address the gender gap in equity investing through our own entrepreneurial initiative, Next Wave Ventures, launched by Alicia in the summer of 2015 (http://nextwave.ventures). Under the Next Wave umbrella, our first initiative, the Rising Tide Program, was created with the goal of mobilising women who have both the financial means and the desire to become angel investors. To achieve this goal, Alicia recruited a core group of nine experienced women angel investors. These lead investors convened for a Rising Tide Launch event in Palo Alto, California, in September 2015.

An additional group of 90 aspiring women investors were recruited in the summer and fall of 2015 through a combination of means including the Next Wave website, social media, and the personal networks of the managing partners, Alicia and Trish Costello, of Portfolia, and the lead investors who were all active investors in various angel groups across the country. All participants in the fund were accredited investors.1 A parallel program was launched in Europe with nine lead investors from nine different countries and more than 80 women from more than 20 countries.

Training for the Rising Tide investors began in January 2016 and covered the nuts and bolts of angel investing, i.e. creating an investment philosophy, screening markets, models, and teams, due diligence, term sheets, and adding value as an investor. Training activities and materials were designed by Next Wave founder Alicia Robb in cooperation with Brigitte Baumann (Go Beyond Investing)2, and Marianne Hudson (Angel Capital Association). Training was provided through a combination of online and in-person meetings and workshops. In addition, all sessions were recorded and placed online where training participants could access them. A Rising Tide Investors’ Summit was held in San Diego in October 2016 to allow Rising Tide participants to meet in person, share their experiences, and provide feedback on both this initial training program and next steps. Similar in person meetings were held in Europe over the course of the year with the last one being held in Zagreb, Croatia, in November 2016.


What Happened?

By the conclusion of the training period (December 2016), the Rising Tide US Fund invested in a total of ten entrepreneurial firms, nine of which had women on the founding team and six had a female CEO. Throughout this process, Susan’s role has been to pre- and post-test Rising Tide participants and to conduct interviews to identify strengths and weaknesses in the training program so that it can be refined and improved for future cohorts. Preliminary results from these evaluations indicate that the majority of participants shared goals of:

– Increasing their knowledge and skills in evaluating entrepreneurial firms for investment,
– Gaining confidence in their ability to make good investment choices,
– Accessing high quality deal flow,
– Developing a network of peers and mentors to help them evaluate investment opportunities going forward,
Contributing to the development of a stronger ecosystem to support growth-oriented women entrepreneurs.

Post-test surveys and interviews reveal that all of the goals were at least partially, if not fully, met. Further, thoughtful comments from our participants on their experience with Rising Tide #1 have provided valuable insights into ways in which we can improve our training programs going forward. In terms of “value added”, the majority of participants describe Rising Tide as a “remarkable experience” and opportunity to meet and network with “awesome women”. In this sense, the power of the network we are creating has become evident, even at this early stage of the Next Wave Initiative. In fact, the response of participants to a program of this type that provides a sense of community and shared purpose combined with educational and investing opportunities has been far more enthusiastic than we ever anticipated. Their repeated inquiries into “What Comes Next?” before we had even finished this first program tipped us off that we were onto something.


Next Steps

As we look forward to a new year and a whole new set of entrepreneurial opportunities, the Next Wave Initiative, like the firms we have invested in, is pursuing a path of growth and diversification. New programs are being launched in several countries in 2017. This is a direct response to requests and interest on the part of members of our first Rising Tide cohort and women from around the world who want to participate in the network.

One of our most valuable “lessons learned” from the first Rising Tide cohort is the importance of education for aspiring women investors and the creation of networks that will allow them to share their knowledge, expertise, and investing opportunities.

One of our most valuable “lessons learned” from the first Rising Tide cohort is the importance of education for aspiring women investors and the creation of networks that will allow them to share their knowledge, expertise, and investing opportunities. In light of that, Alicia created the Rising Tide Foundation, which will serve as the focal point for the development of training activities and programs for future cohorts, both domestically and abroad. The Foundation will also work toward developing a global network of women investors and entrepreneurs as well as the men that support them. It is an exciting time for growth-oriented entrepreneurs and investors, and we are thrilled to have a role in helping to close the gender gap in angel investing!


About the Authors

Dr. Susan Coleman is the Ansley Chair of Finance at the University of Hartford’s Barney School of Business, teaching courses in entrepreneurial and corporate finance at the undergraduate and graduate levels. The success of her co-authored book A Rising Tide: Financing Strategies for Women-Owned Firms (Stanford University Press, 2012) led to a follow-up book, The Next Wave: Financing Women’s Growth-Oriented Firms (2016) which examines the experience of women entrepreneurs in high growth sectors.

Dr. Alicia Robb is a Senior Fellow with the Ewing Marion Kauffman Foundation. She has previously worked with the Office of Economic Research in the Small Business Administration and the Federal Reserve Board of Governors. She is Founder and CEO of Next Wave Ventures, an active angel investor and mentor to startups, on the Advisory Board for Global Entrepreneurship Week and the Deming Center Venture Fund.

THE NEXT WAVE: Financing Women’s Growth-Oriented Firms (Stanford University Press, 2016) by Susan Coleman and Alicia Robb


The Securities and Exchange defines an “accredited investor” as someone who has earned income exceeding $200,000 ($300,000 with spouse) in each of the prior two years, or has a net worth of over $1 million either alone or with a spouse, excluding the value of the person’s primary residence (http:///www.investor.gov).
2. The Rising Tide Europe Fund and training program were also conducted in 2016 in partnership with Go Beyond Investing.

2007 Survey of Business Owners.  U.S. Census Bureau.
•  2012 Survey of Business Owners.  U.S. Census Bureau.
•  Amatucci, F. M. and Crawley, D. C. 2011. Financial self-efficacy among women entrepreneurs. International Journal of Gender and Entrepreneurship, 3(1), 23-37.
•  Becker-Blease, John R. and Jeffrey E. Sohl (2007). Do Women-Owned Businesses Have Equal Access to Angel Capital?  Journal of Business Venturing 22 (4), 503-521.
•  Brush, Candida, Nancy Carter, Elizabeth Gatewood, Patricia Greene, and Myra Hart (2001). The Diana Project: Women Business Owners and Equity Capital: The Myths Dispelled. Kansas City, Missouri: Kauffman Center for Entrepreneurial Leadership.
•  Ibid. (2004). Gatekeepers of Venture Growth: A Diana Project Report on the Role and Participation of Women in the Venture Capital Industry. Kansas City: • Missouri: Kauffman Center for Entrepreneurial Leadership.
•  Coleman, Susan and Alicia M. Robb (2009). A Comparison of New Firm Financing by Gender:  Evidence from the Kauffman Firm Survey Data.  Small Business Economics 33, 397-411.
•  Coleman, Susan and Alicia M. Robb (2012). A Rising Tide: Financing Strategies for Women-Owned Firms.  Stanford, California: Stanford University Press.
•  Coleman, Susan and Alicia M. Robb (2016a). The Next Wave: Financing Women’s Growth-Oriented Firms.  Stanford, California: Stanford University Press.
•  Coleman, Susan and Alicia Robb (2016b). Financing High-Growth Women-Owned Enterprises: Evidence from the United States in Díaz-García, C., Brush, C., Gatewood, E. and Welter, F. (eds), Women’s Entrepreneurship in Global and Local Contexts, Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing.
•  Harrison, Richard T. and Colin M. Mason (2007). Does Gender Matter?  Women Business Angels and the Supply of Entrepreneurial Finance.  Entrepreneurship Theory and Practice 31 (3), 445-472.
•  Kirkwood, J.  (2009). Is a Lack of Self-Confidence Hindering Women Entrepreneurs?  International Journal of Gender and Entrepreneurship 1 (2), 118-133.
•  Marlow, Susan and Maura McAdam (2012). Analyzing the Influence of Gender Upon High-Technology Venturing Within the Context of Business Incubation.  Entrepreneurship Theory and Practice 36 (4), 655-676.
•  Mitchell, Lesa (2011, September). Overcoming the Gender Gap: Women Entrepreneurs as Economic Drivers. Kansas City, MO: Ewing Marion Kauffman Foundation.  Retrieved at http://www.kauffman.org on 8/22/16.
•  Ranga, M. and H. Etzkowitz (2010). Athena in the World of Techne: The Gender Dimension of Technology, Innovation, and Entrepreneurship. Journal of Technology Management and Innovation 5(1), 1-12.



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