How Do Angels Learn to Be Angels?

This is an excerpt from my newest book The Angel Playbook: An Essential Guide for Entrepreneurs and Angel Investors

SoGal Ventures is the first female-led millennial venture capital firm. It was founded by Pocket Sun and Elizabeth Galbut, Look at the stats, and you will see why Sun and Galbut are pioneers.

According to a working paper published by the Peterson Institute for International Economics, in 2014 almost 60 percent of companies in the world had no female board members. About 50 percent of companies worldwide had no female C-suite executives, and fewer than 5 percent had a female CEO. But this is not just about gender parity, which is important from a social perspective, it’s also about profitability, which is important to the health of any company. When the Peterson Institute team examined the profitable firms in their sample, they discovered that women in corporate leadership added to the profitability of the company. Even having just a 30 percent female share of leadership translated into a 15 percent increase in profitability.

Interestingly, it’s not just about getting women in the CEO chair. Peterson discovered that a female CEO did not necessarily underperform or outperform a male CEO. So why did better female representation help the examined companies? The study’s authors found it was because gender diversity in top management also contributed to skill diversity, which led to more effective monitoring of staff performance and reduced gender discrimination throughout the management ranks, which helped these companies recruit, promote, and retain talent.

Gender-biased firms do not reward employees with responsibilities commensurate with their talent, so they lose out to rivals that do not discriminate. Their lack of gender diversity affects the bottom line.

Pocket Sun told me in an interview that she and her cofounder, Elizabeth Galbut, developed networks of young entrepreneurs whom they’ve helped with resources and hiring. It was the beginning of developing a cohort—a group of stakeholders connected by common interests. It was a natural next step to begin connecting those entrepreneurs with investment opportunities, and invest in them personally.

“We decided to start investing because it was a time to put money where our mouth is, and also capitalize on the opportunities we’re already creating,” she said. Her decision was also informed by the need to inspire more women to become investors, because entrepreneurs need different perspectives from different demographics, and as the Peterson study showed, companies benefit from diversity.

In VC firms, only 7 percent of the partners are women, Sun said. Even if you count everyone who is employed to make an investment decision, she estimated that only 13 to 16 percent of women in venture capital are empowered to make investment decisions. In angel investing, she estimated the corresponding number to be about 20 percent—not that much higher.

Why are so few women calling the shots in investment firms? The usual explanation is “It’s an old boy’s network,” but if we unpack that sentiment, the truth is that the founders are male, so the funders are also male. You’ve got yourself a feedback loop right there, creating an exclusive network.

When venture investing began in the United States about sixty years ago, there were fewer women in the workplace, and venture capital jobs were new and scarce anyway. Another reason for the gender gap is psychological. Sun said that when a man decides that angel investing is something he’d like to do, he just goes ahead and does it. “I think women tend to want more education and get themselves prepared before actually investing money in startups.” There are a few angel education and training programs for women. Pipeline Angels, 37 Angels, Female Funders, and Stiletto Dash are four that are active now.

Read more of the book, including a free sample, on Amazon

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