As women entrepreneurs grow their enterprises, research has shown that they are less likely to seek and obtain equity investments, either from angel or venture capital investors. Some say women are less growth-oriented, some say their network ties don’t include the sources of referrals that are so important in this arena, and others point to a lack of interest or a bias in the equity capital community.
There are two new research studies shedding new light on this issue. The first, Venture Capital, Social Capital and the Funding of Women-led Businesses, published by the Small Business Administration’s Office of Advocacy, focuses on the venture capital industry, and finds that VC firms that network and invest together (thus sharing the risk) are more likely than those that go it alone to invest in women-led firms. Interestingly, firms that invest in women-led firms have a higher rate of return on their investment – which should show other firms that women-led firms may actually be a better investment or – at the very least – not as “risky” as they may presume.
The second analysis, “The Angel Investor Market in 2012: A Moderating Recovery Continues,” comes from the Center for Venture Research at the University of New Hampshire. Their analysis shows that, overall, there was a decline in the number of active angel investors in 2012 compared to 2011, but the size of their investments increased, for a net increase of 1.2% in the number of firms receiving angel capital investments. The share of angel investors who are women has increased significant: from 12% to 22% over that same period. And, perhaps not coincidentally, the share of women entrepreneurs selling capital also increased – from 16% to 25% of the firms tracked. And, while the number of women seeking angel capital is still low, when they receive an angel capital investment they top the average yield for investors by 4%. Here’s a good piece on Forbes.com about the study, featuring some insights from your truly.
Interestingly, angel capital is catching up may soon pass venture capital in their impact in the marketplace. In 2012, angel investments totaled $22.9 billion. A total of 268,160 investors made 67,030 deals. Conversely, while venture capital deals totaled $26.5 billion, that total was achieved by a much lower 3,698 deals. In addition, the value of VC investments declined 10% in 2012 from the previous years, and the number of deals dropped by 6%. Will the more patient and personal angel investor soon top the more “take no prisoners” MO of the VC investor? Time will tell; the inflection point may come soon.
Another mano á mano form of equity investment is also gaining momentum. Crowdfunding is an avenue that more and more entrepreneurs are utilizing to raise outside capital – albeit at typically lower levels than angel or VC funding. And some say that this is an avenue that is becoming increasingly popular for women- and minority-owned firms.
As for the women entrepreneurs themselves, there are two successful NGOs that are helping women seeking equity investment to make the connections and talk the talk that will get them the deal: Astia and Springboard. Check them out.
And think that venture capital is only for single bottom line companies? Think again; there are many social capital investment firms. Here are some useful tips for seeking equity capital if you have a social enterprise.