Inspire Inclusion: Redefining angel investment for female founders

8th March 2024 marks International Women’s Day (IWD). This year's campaign theme is #InspireInclusion, a well intentioned theme that inspires everyone to understand and value women’s inclusion, to forge a better world.

I can’t help feeling a bit despondent though, last year I wrote about the inequalities female founders face when raising equity investment, and another year on I don't feel much has changed. In fact I’ve been experiencing the inequality in funding for female founders for over a decade now. It started with my own pitching experience 10 (ok, 12) years ago, and more recently, whilst working closely with numerous startups on our Funding Accelerator, I’ve continued to see first hand how hard founders, in particular female founders, find it to raise investment.

The data doesn't paint a rosy picture either.

Beauhurst's The Deal 2023 Report shows that from a decade-long high in 2021 where over £22 billion was raised, there was a dramatic drop to just over £11 billion in 2023 which is the lowest it's been since 2018. Times are tough, and it's currently harder than ever to secure equity investment, irrespective of gender. 

All male teams still secure the bulk of the investment deals, but there are signs of improvement. Investment in all female, majority female, and equal gender split teams is at the highest it's been.

There is still a (very) long way to go for female founders to be on a par with their all male counterparts, but rather than focus too much on the negatives, I wanted to use this International Women's Day to showcase some reasons to be cheerful. 

We all have a role to play

I firmly believe we all have a role to play in driving real change, and although our impact initially may be small it’s a start. If we collectively make changes to our behaviours we will see real meaningful change, and each of us can make a difference.

One thing that stood out to me when I read the Beauhurst report was that £1.4 billion was raised at seed stage last year. Although slightly less than 2022 it is still the second highest it has been, showing there is still faith in early-stage startups.

What struck me (and this is not to blow my own trumpet), is that we all have a role to play. We can all make a difference, even if it's small. In 2023, Focused For Business’ Funding Accelerator raised over £10 million in seed funding for the founders that we supported through the programme. That’s 0.7% of the total raised at Seed stage. But, out of the 16 Funding Accelerator alumni startups that raised, only 4 (25%) were female founders. It’s not enough, but with Beauhurst reporting that only 19% of the investment deals went to female founders it shows that we are punching above our weight, and helping to secure more funding for female founders than the average. From small beginnings mighty oaks grow. 

Our impact may be small, but it's a start

It is this kind of incremental progress and small change that can really affect larger overall change. Funding Accelerator's support for female founders is just one example, but there are lots of examples of initiatives or programs that have made a tangible impact.

There have been a number of new angel investment networks that have been launched in recent years to bring more diversity into the funding community, HERmesa has grown to a community of over 170 women and aligned men since its launch in 2020. It aims to provide women co-founded startups at pre-seed and seed stage. Likewise a new angel investment network launched in 2023 setup by the Fund Her North co-founders hopes to establish the North of England as the go-to destination for female-founded businesses seeking funding. Mint Ventures is another great example of a women angel investment group that aims to make angel investing more accessible for women and aims to provide more sources of capital to companies with diverse leadership teams, as well as a clear social, ethical, or environmental purpose to grow.

Changing behaviour to drive change

There are many reasons why female founders find it hard to raise investment. One is that there are not enough female angel investors in the UK. In September 2022 UK Business Angels Association (UKBAA) stated there were 36,800 angel investors, of which 14% (just 5,064 individuals) were women. That number is set to reduce considerably with rule changes introduced by the government increasing the income thresholds defining high net-worth individuals, which impacts the number of women qualifying as high net-worth investors the most. In some areas of the UK there will be a 90% to 100% fall in the numbers of female angel investors, which has caused an outcry in the startup community, so much so that the chancellor is expected to announce that the decision will be reversed in the Spring Budget on Wednesday (6th March).

A reduction in the number of female angel investors is bad news for female founders, as female founders are more likely to be backed by female angel investors. 25% of the businesses backed by female angels were female-founded, which is higher than the average of 19%. Why? One reason is that women are better placed to understand the problems female founders are setting out to change. 

Encouraging more women to become angel investors

One of the challenges of bringing new angels into early-stage funding is that there isn't a clear or obvious route to “learn the ropes” of angel investing. I believe women are interested in startups and - potentially - in investing. In fact, many of the mentors, particularly women, who support our Funding Accelerator have shown such an interest in what the startups are doing, that they are keen to  invest in them. Many of these women have not made angel investments before so they are not sure where to start. 

Angel investing should come with a health warning. It is risky! Which means it's not for everyone, but if you understand the risks and go into it with your eyes open - knowing that you may lose all your investment - it is an asset class that is worth exploring.

New ways for startups and angel investors to meet

The ‘pitch’ environment is not always the best introduction into angel investing  - in fact, I’d argue it doesn’t really work for new female investors or female founders. Female founders can often experience bias when pitching. Angels (especially those new to angel investing) can find it difficult to get a real understanding of what the business has achieved to date, meaning they often need to do more due diligence before feeling they have insight to commit and make an angel investment.   

Knowing we need to look for better ways of getting female founders funded, and new ways to introduce new angel investors to the world of startup investing,  Focused For Business has been piloting Investment Boards with Mint Ventures. 

Like Focused For Business, Mint Ventures want to see change. They are a women-led business angel investment club and network offering a fresh approach to investing for women and funding for diverse teams. 

Introducing Investment Boards

We share a vision - we believe that to drive change behaviours need to change. The Investment Boards challenge the way angel investors and founders have traditionally interacted, and instead the boards:

1. provide an alternative pathway to angel investment based on collaboration and consensus rather than “pitching”.

2. help to improve startup founders' understanding of the ‘traction’ they need to de-risk opportunities enough to secure funding.

3. give early-stage investors an alternative way of assessing pre-seed and seed investment opportunities without relying on “a pitch”, which also helps to accelerate the due diligence process.

The investment board is collaborative. Investors and startups meet three times over a 3-month period, each time focusing on a different challenge being faced by the startup. Rather than a start-up presenting to investors, the investment board acts more like a peer board, creating a “safe space”, where startup founders and early-stage investors meet in a confidential, facilitated, environment to co-develop specific growth plans. The board encourages mutual understanding between the founders and investors through discussion, collaboration, and the alignment on  growth targets and milestones. The boards break down the historic stance of “them” and “us” and replace this with a sentiment of “let’s do this together”.

The boards are also hand picked so that angels with specific functional or sector skills are aligned with startup founders looking for input in these areas. Women considering becoming angel investors are invited to join the boards and “buddy up” with more experienced angels, to introduce new angel investors to the benefits and risks of early-stage investing, and build their experience. 

In the short-term we hope the boards will foster education and a better mutual understanding and trust between startups and investors. Longer term, we hope to improve understanding of markets that are outside of an investor’s direct (or lived) experience, and aim to encourage greater investment in startups led by under-represented founders.

It’s early days, but so far the feedback from mentors, exiting investors, new potential investors and founders has been overwhelmingly positive. In particular participants enjoy the collaborative and supportive environment, rather than the high pressured  pitch environment. The format has proved  helpful  in getting to the crux of issues, and hearing different perspectives.

If we are to #InspireInclusion we need to recognise that we all have a role to play. We need to  change our behaviours and look for new and innovative ways of working to facilitate change.

If you're a founder preparing for investment, or a women considering getting involved in angel investing and are interested in finding out more about Investment Boards  - please do drop me a line. 

If you would like to find out more about angel investing Mint Ventures is running an event in central London on 12th of March at 5:30pm exploring how you can get involved in angel investing. I shall be there and look forward to carrying on the conversation. Reserve your (free) ticket here.

And from all of us at Focused for Business, Happy International Women’s Day.