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The Face Of Angel Investing Is Changing. Here’s What You Need To Know

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Amid the coronavirus outbreak, angels are telling founders to scrutinize their sales forecasts, hiring plans, costs and every other assumption about their business. Upheaval can also create opportunities, as changing markets and obstacles create new challenges to solve and ways for startups to scale their companies. 

Some angels will be slightly more hesitant about dumping millions of dollars into companies, at least for the time being, thanks to the COVID-19 crisis. However, seasoned investors actively working with investment groups have made investing a habit. They are not oblivious to concerns around COVID-19, nevertheless, they may look for opportunities to enhance their portfolio as more novice investors are sitting on the sidelines. 

Matthew Stafford, an angel investor in the UK, says he’s “carrying on as normal for now.” He has just invested in one company (for the third time) and is beginning due diligence on another. And, entrepreneurs want angels investing. As reported by the Kauffman Foundation, a study conducted by William Kerr and Josh Lerner of Harvard and Antoinette Schoar of MIT, angel investment significantly increases a startup’s success rate. In fact, startups receiving angel investment were 20-25% more likely to survive after four years and 16-19% percent more likely to have grown to 75 employees. 

Despite the current funding ecosystem and pandemic, there are sweeping foundational changes that are being made across the angel investment sector, as a whole.  

How Is Angel Investing Changing? 

We still have a long way to go as data from Pitchbook shows that in 2019, companies founded solely by women garnered 2.7% of the total capital invested in venture-backed startups in the United States. That means 97% of venture money went to men. But, Mckinsey’s research shows that gender-diverse companies are 21% more likely to outperform their peers. And, the research goes on to prove that ethnically diverse companies outperform non-diverse companies by 35%. 

With that said, a current trend taking place is that angel investors are now diversifying funds by investing in a portfolio of companies, and business owners directly, within diverse silos. Investment silos reflect industries such as technology, energy/green tech, consumer products, real estate, and life science and other sectors. Traditional angels and angel groups have a singular focus on one silo. But, research led by the Angel Capital Association and others points to the fact that the most successful angel investment portfolios are investments in multiple silos and geographies, which in turn allocate funds across diverse founders. 

With the world turning to more inclusion, now is the time for diverse founders, who are looking for funding, to take advantage. Large angel investment groups, such as Keiretsu Forum, have invested in over a dozen silos across the globe. New and traditional angel groups are now on the hunt to expand their portfolios across various silos and sectors by supporting underserved women and minority-owned startups. 

Data shows that these investment opportunities, amongst diverse founders, can have significant ROI. The research done at Willamette University that was commissioned by the The Angel Capital Association (ACA), included two separate studies conducted across a decade, demonstrates that an angel portfolio of 20+ fully vetted deals has the strongest probability of optimal return at over 2.5x.  

Investment groups like the Keiretsu Forum are leading the charge for angels who are seeking diverse start-up success. Keiretsu Forum is a global angel investor network with more than 3,000 accredited investor members throughout 53 chapters on four continents. According to PitchBook, Keiretsu continues to lead the industry, for 4 consecutive years, in early-stage investments and is among the top in late-stage.  

“I believe my role at Keiretsu is to ensure that our members have access to well-vetted, high-quality deal flow, and that means portfolio diversity,” says Howard Lubert, co-founder of the Mid-Atlantic and South East Regions. Howard brings 34 years in the private equity space optimizing due diligence and deal flow for various venture capital funds including Safeguard Scientifics. “We go out of our way to find early-stage companies that are led by women and the impact has been positive.”

The Face Of Angel Investing

How is the traditional face of angel investing starting to change? For one, more women are entering the industry as Founders and Funders; 22% of investors are now women, with that number continuing to increase. 

These female funded start-ups are proving to be just as successful, if not more so than traditionally funded ones. Women investors are expanding the investment industry and opportunities for female entrepreneurs looking to build a start-up company. The data indicates in 2018 women angels represented 29.5% of the angel market, an increase from 2017 (19.5%) as researched by Jeffrey Sohl, “The Angel Market in 2018: More Angels Investing in More Deals at Lower Valuations”, Center for Venture Research.  

Another recent study by Women's Business Enterprise National Council shows that, in 2018, women of color accounted for 47% of all women-owned businesses, employed 2.2 million people and generated $386.6 billion in revenues. Businesses owned by women of color grew by 163% between 2007 and 2018.

Social Capital Markets (SOCAP) is another organization pushing forward diversity. Their annual Social Impact Conference brings male and female entrepreneurs and investors together from all walks of life. SOCAP is known for giving female social entrepreneurs, founders, and investors a platform for sharing and obtaining industry experience while connecting women entrepreneurs and women investors together.  

How Does This Impact You?

As the angel investment community expands, entrepreneurs in more diverse silos and minorities will see growing opportunities while delivering a bigger success rate for investors, which is a net-net positive for anyone building a company (higher returns will mean more accessibility to money).  

With all of these changes coming to angel investing, not only will the face of investors change but also the face of the diverse founders running the companies. The good thing about the evolution and expansion is that investors are able to support minority founders and a broader range of angel investors can find a way to meet diverse investment needs. And, with angel investors focusing more on diversity, we will see an influx of innovation. 

Finding the right investor and pitching your business will still be a difficult and sometimes scary process, especially during the Coronavirus pandemic, but with so many investors and groups out there looking for your start-up, the hardest part may just be finding the right investor. Thanks to the diverse outlook investors are now seeking, all founders have a greater chance of succeeding and finding investors to help launch their start-up. If you’re looking to raise, the time to start is now. 

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