29 May Research explains why women lack equal access to angel capital
Madison, Wis. – New research showing why women entrepreneurs receive less angel funding than their male counterparts comes as no surprise to the managers of a Wisconsin angel capital fund designed for women.
The research, conducted by Jeffrey Sohl, director of the Center for Venture Research at the University of New Hampshire, examined the equality of women’s access to angel capital. It indicates that women entrepreneurs seek funding at lower rates and are more likely to seek funds from women angels than male angels.
Managers of the Phenomenelle Angels, which has thus far raised $3 million to invest in early-stage businesses owned by women, said the findings are consistent with other research that has pointed to barriers women entrepreneurs face as they attempt to raise capital.
In the angel market, only 8.9 percent of all proposals are brought forward by women-owned businesses, according to the New Hampshire research. That low participation in the angel market persists despite the fact that the majority of new businesses are being started by women.
“It confirms a lot of things, such as the number that still don’t have equal access to angel capital,” said Joe Hildebrandt, founder, principal, and managing director of the Phenomenelle Angels Fund. “Women simply don’t have the same access to the angel capital market.”
More confirmations
The report is the latest to note the dichotomy in wealth held by women and their willingness to invest. Mirroring a 2006 report from the Ewing Marion Kauffman Foundation, the New Hampshire study said women-owned businesses are the fastest-growing sector of new venture ownership in the United States.
The Kauffman study indicated that while women hold roughly 50 percent of the nation’s wealth, they do only about eight percent of the venture investing.
“If women stepped up and invested at the same rate as men, there would be a flood of early-stage capital in the market,” said Lauren Flanagan, also a managing director of the Phenomenelle Angels Fund.
One explanation for that, according to the latest research, is there are very few women investors with the necessary expertise and experience to be effective providers of angel capital. Conversely, women angels may perceive or experience barriers to quality investment opportunities compared to their male counterparts, and therefore decide to participate in the market at a substantially lower rate than men.
Hildebrandt and Flanagan also said men still have an advantage in making contacts at investment funds, so the “good old boy” network still explains some of the disparity.
Flanagan can speak from experience. She helped raise $20 million in equity capital as a senior executive for WebWare and also co-founded four other technology companies. “A lot of times, you can’t even get in unless you know someone,” she said.
Gender comfort
One of the reasons funds like the Phenomenelle Angels have been established is the belief that entrepreneurs prefer to seek angel funding from angel investors of the same sex. If women-owned businesses are more likely to submit proposals to women angels, the report said that increasing the supply of women angels will encourage greater flow of women-owned business deals to investors, and greater participation of women entrepreneurs in the high-growth, high-return industries typically financed by private equity.
Thus far, the Phenomenelle Angels Fund has raised $3 million, with the ultimate goal of raising $10 million. The fund has two companies in its investment portfolio – IDC, an accounting software firm, and TrafficCast International, a global provider of digital traffic data – for a combined total of $1.3 million in commited capital. In addition, it soon plans to invest in a third company, and four or five additional investments are under active consideration.
In June, the fund will launch another fund-raising effort to get closer to its $10 million goal.
Silver lining
While the results suggest that women seek angel financing at rates substantially lower than those of men, they appear to have an equal probability of receiving investment. The study found no significant difference in the rates at which women-owned businesses are funded (13.33 percent) compared to male-owned businesses (14.79 percent).
“This raises the important question for researchers of whether the low rate of women-owned businesses receiving angel capital funding reflects a low submission rate,” the researchers said in a release.
Tom Still, president of the Wisconsin Technology Council, recently returned from an Angel Capital Association meeting in Chicago, where funds like the Phenomenelle Angels still stand out. He pointed to a healthy rate of participation by female entrepreneurs in the Governor’s Business Plan Contest – nine of the 26 finalists are women – but said “there’s a ways to go” before there are more and better opportunities for women entrepreneurs to access angel capital.
Citing a lack of contacts for women in predominantly male angel networks, Still does not believe there is an intimidation or a fear factor that prevents women entrepreneurs from seeking angel capital from male investors. “I don’t think they are afraid to ask for money,” he said. “Entrepreneurs are entrepreneurs. They are not going to be shy about telling their stories.”
Still said it’s possible that women entrepreneurs receive funding from female or other investors that operate outside of organized angel groups, or prefer to invest as individuals, a possibility that was noted in the New Hampshire research.
Research pattern
Sohl and co-author John Becker-Blease, a former UNH professor now at Washington State University, will present their research in the July issue of the Journal of Business Venturing in the article, “Do women-owned businesses have equal access to angel capital.”
They suggest that future studies examine the conditions under which women entrepreneurs receive angel funding. Thus far, the evidence they have gathered suggests that women-owned businesses and male-owned businesses must surrender relatively similar amounts of equity in return for investment. However, more detailed research on deal-level data is needed to provide more insight into whether there are differences in the conditions under which investments are made into male-owned businesses and female-owned businesses.
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