Angel investment has become an increasingly viable option for many UK start-ups looking for alternatives to bank funding. Indeed, at the same time that the government is extending and expanding its Funding for Lending Scheme, it’s is also urging UK entrepreneurs and small business owners to seek other routes to raising finance -be it from the retail bond market, private debt placements, or online crowd-funding.
But today, just five percent of angel investors are women – something which limits the investor pool, reveals the extent to which women-generated wealth is not being invested, and sends the wrong kind of message to budding women entrepreneurs.
Even more limited than this investment pool, is the one open to social enterprises. Social entrepreneurship –- the concept of doing well by doing good, with a strong focus on positive social and environmental impact –- has really caught fire. Social enterprises are defined by Social Enterprise London, a company representing this sector in the political arena, as businesses founded to address social or environmental needs, and whose profits are reinvested into the community or back into the business, rather than the focus being on the need to maximise profit for shareholders.
But angels investing in this community are even harder to come by, something of which Clearly Social Angels leader Suzanne Biegel is keenly aware. I caught up with Suzanne to understand what can be done to accelerate female investment and investment in social enterprises.
What is ClearlySo and how is it enabling social entrepreneurs to raise capital?
ClearlySo aims to grow the social investment marketplace and help build a more social economy by helping social entrepreneurs to raise capital by connecting them with the right investors. We work with social entrepreneurs to advise them on their investment readiness, how to raise capital, and what they need to do if they’re not yet ready for investment.
We work with UK-based companies, and run our own angel investment network called Clearly Social Angels, of which a third of members are women. We’re also part of a global investing network called Toniic which looks at global opportunities, as well as having a global investor base.
What are the main obstacles facing UK social businesses who need to raise capital?
There isn’t a sufficiently large, identified investor base open to social businesses looking to raise capital. A large reason for this is a lack of education on the investor end. Entrepreneurs need a backer who understands their business and ideally can help beyond capital. A significant barrier is that financial and wealth advisors simply don’t know the social enterprise space well enough. They understand philanthropy, but many can’t equate it with business. Many are inclined to keep philanthropy and investment separately, and don’t see social businesses as an opportunity to make money, not realising what the returns could like for some of these businesses.
As a result, currently there’s not enough committed capital from angels to invest in these businesses. It’s partially due to the fact that social enterprise is a relatively new area, but it’s also because these businesses sometimes have a less obvious pathway to liquidity. Focused primarily on building something of social or environmental value means that they can have slightly different financing structures to typical start-ups. Reaching maturity and exiting in as short a number of years as possible, might not be the right strategy for them. At the same time, angels often want to invest in businesses which are past the seed stage, meaning that the challenge of time is even harder for social entrepreneurs.
But the knowledge gap is also on the entrepreneur end. These types of enterprises don’t necessarily have all the skillsets needed to raise capital. Some are so focused on the social impact, that raising multiple rounds of funding can prove tough. Social enterprises need to make sure that they’re ready for outside capital and ambitious for growth, and that they do what it takes to get through the early stages.
How can social entrepreneurs make their businesses more attractive to investors?
We need more case studies of exciting women-led or women-founded businesses that are making a social or environmental impact, more examples like the Body Shop and ZipCar. There simply aren’t enough of them. This is partly because social enterprise has only existed as an identified field for less than 20 years, but that’s why it’s even more important to hear success stories about how investors have fared with social business -– even more so in the case of women social investors who are few and far between.
What can be done to boost the number of female angels?
Education around angel investing in the social enterprise sector in the UK is a problem, and even more so for women, many of whom are not aware of how to invest, and of the risks and paybacks of angel investment.
One measure which will help address this is angel training. We need to create an environment where women feel comfortable to pose any question and can receive accessible and convenient assistance. The hours of some investor networks -– which often only meet in the evenings -– can pose problems for training, as can ‘macho’ environments. I think there’s also a cultural difference which means that there aren’t as many female angels here as there are in the US. We need to displace this discomfort about asking each other for investment.
As long as there’s an imbalance between men and women growing and exiting successful businesses, there will continue to be fewer women angel investors -– after all, entrepreneurs need to get to a place in business where they’re successful enough to invest in others. In addition, there’s an absolute need for more women-run businesses in the UK which will bring greater turnover and tax revenue.
I’m passionate about helping to develop more women investors. Diversity often means better investment decisions and better management. There is also a vital need to support women on boards, something we’re actively discussing at ClearlySo.
In particular, we need to stimulate the growth of more women-run social enterprises, and the private sector has a role to play here in demonstrating that it’s possible to make a positive and social environmental change in business by buying from and investing in high-quality women-owned, social-impact-oriented companies. We need to dramatically increase that ratio of women angel investors in the UK.
This year’s annual Dell Women’s Entrepreneur Network (DWEN) will focus on the theme of ‘Pay It Forward’ and how to champion the unique multiplier effect that female entrepreneurs can have on women’s entrepreneurship and the global community. Check out the blog post for more details and stay tuned for more details on the event!Tags: Business,Entrepreneurship,Technology