Inclusiveness: An Interesting Way to Improve Angel Results

By: Marianne Hudson, ACA Executive Director

This post originally appeared on

A new buzzword in entrepreneurship and equity investing is “inclusiveness.”  It is gaining traction with Venture Capitalists and angels alike, who see that building the diversity of the investor community and the entrepreneurs they invest in is not only a good societal goal, but it is also a way to build great deal flow, make better investment decisions, and grow returns.

What has many investors scratching their heads, though, is: how do we do become more inclusive?  Think about it.  Do you often go outside your social network to bring in co-investors or entrepreneurs who are different from you?  Most likely the answer is no.  You probably stick with the core people you know or are like you.  Research backs this up for most investors.  But “sticking to your knitting” may be limiting your options and leaving some money on the table.

Nearly every angel I’ve talked with about this “gets” the advantages of building diversity in their investor circles.  They know that diverse teams make better investment decisions. They think of different questions and more fully evaluate opportunities.  They also know deal flow grows as the overall social network of the team grows – and the deals can deliver even better returns.  Research shows that women-led startups are more capital efficient, achieve 25% higher return on investment, and when venture-backed generate 12% higher revenue than male-owned tech companies.

But even though angels understand the importance of inclusiveness, they don’t usually understand how to do it.

I got to thinking more about this “how” question while attending the first ever White House Demo Day, where I saw amazing entrepreneurs of many races, ages, and genders.  In addition to me, some well-known angel investors were blown away by these entrepreneurs, who adeptly pitched their companies to the President, answering his many questions.  I also met a more diverse set of investors than I had ever met and learned about public and private initiatives aimed at supporting inclusiveness and diversity in our field.

So my thinking of how to build inclusion expanded after this event.  Many angels initially think of building investor diversity by creating angel groups or platforms for a specific demographic.  This definitely works.  In particular, women are flocking to angel groups comprised of mostly women investors – Golden Seeds and Astia Angels are long-time national initiatives, plus I am aware of at least 10 other similar angel groups based in medium-sized cities and a newly launched initiative, the Rising Tide US Fund.  Pipeline Fellowship is also training women to get started in angel investing and Portfolia is an online investing platform that helps female accredited investors support women-led companies.  These efforts and groups are a big part of why women now represent an estimated 26 percent of angels, a big growth over the eight percent I studied in 2006.

But there is another important “how” that should go side-by-side with these initiatives:  growing your social networks little-by-little with people from diverse backgrounds.  Juliana Garaizar, managing director of the Houston Angel Network (HAN), helped me think about this.  She strongly believes in broadening our horizons as angels. She has a unique perspective, being an experienced business leader the world over and having written a paper on increasing women’s participation in investing as a Kauffman Fellow. “We need to think outside the box,” she said. “But the difficult part is figuring out where that box is.” In other words, Garaizar hopes angels can become more aware of unintentional biases and work past them. “It’s not a recipe and not a one size-fits-all since every person has different biases. It’s something we do on a personal basis by progressively exposing investors to different environments.”

Garaizar’s focus on building diversity person by person is leading to results for HAN, which has tripled its membership of women in two years.  In addition, the group has done some deals it might not have done before.  Materna Medical, a deal in women’s healthcare, happened because of the additional understanding of that market by its women members, as well as from the help of the medical doctor wife of a leading member, as she could explain the soundness of the technology and help build the case for the product’s market.

These results happened because of these action steps:

  • Reach out to current and potential investors from diverse backgrounds.  Find out what makes them tick and communicate about the things they care about.  In some cases, you’ll work with experienced investors who can connect you to interesting deal flow, such as these investors who have spoken at previous Pipeline Fellowship Conferences.  In other cases, you’ll find people who have never made an angel investment because they were never asked.
  • Provide mentoring to new angels, to make them feel at ease and build their knowledge of angel investing to build their chances of success.
  • Put them in smaller work groups, where they often shine best.  Garaizar mentioned that several of the new women didn’t speak up initially in the larger group, but were “killing it” in due diligence teams, and male members realized their potential.
  • Partner up with organizations that are gaining traction in inclusiveness.  HAN is working with Nextwave Ventures, which is developing the Rising Tide Program and also Village Capital, which does impact investing – which often attracts women angels.
  • Highlight positive successes in inclusive investing, be it through informal connections or formal angel groups.  Write about them and make sure they speak at events to add their value on investing best practices.
  • Be aware of any biases you may have that are unconsciously reducing your opportunities and angel colleagues.  The VC community is tackling this issue with training, developed by Freada Kapor Klein and Mitchell Kapor.  “Unconscious bias” training sessions were held just before White House Demo Day.

These ideas should help more angel investors become more inclusive in their thinking.  The Angel Capital Association will add our own support of diversity in our field by publishing its own diversity data, a commitment ACA made through White House Demo Day. This means you’ll be seeing more hard numbers over the coming years, the first of which will be presented at the 2016 ACA Summit in Philadelphia. The data will not only help us realize where we are, but where we can go so we can better connect with diverse investors and entrepreneurs.

Little by little, let’s build more inclusiveness in angel investing.  The results should be a win-win for everyone.