More Women, More Money: The Effect of Gender on Angel Investments

"When the number of women in an angel group increases, so does their investment activity as angel investors." -- Jeffrey Sohl, Center for Venture Research{1}

Angel investors—those individuals who typically provide second-round start-up funding between the first-round seed funding of "friends and family" and later-round venture capital—are often critical to the success of new businesses.

In order to share resources and pool capital, individual angel investors organize into groups, and according to a new study, gender plays a role in the decision-making of these "angel groups."


The study, "The Effect of Gender Diversity on Angel Group Investment," was published in the July issue of the journal Entrepreneurship Theory and Practice and was conducted by John Becker-Blease of Oregon State University and Jeffrey Sohl, the director of the Center for Venture Research at the University of New Hampshire, which holds the nation's most complete database of angel investment groups.

Analyzing the data of 183 angel groups from 2000 to 2006, Becker-Blease and Sohl found that angel groups with a small percentage of females exhibited more caution in regard to investing. But when women represented more than 10 percent of the group, investments increased, a result that they found surprising.

"At first the results were counterintuitive, since previous research on women investing, in general, shows women to be more cautious investors. Since angel investing involves substantial risk, one would assume that this cautious behavior would also be exhibited in angel investors," Sohl said.

"However, our research indicates that when the number of women in an angel group increases, so does their investment activity as angel investors."{2} 


The researchers contend that these results are correlated to a phenomenon called "stereotype threat," an experience in which an anxious situation leads to an individual confirming a negative stereotype regarding their social group.

First described by the American social psychologist Claude Mason Steele, the Dean of the School of Education at Stanford University, stereotype threat has often been called a potential contributing factor to the gaps found in academic performance across racial and gender lines.

In a 1999 article in The Atlantic, Steele described stereotype threat as "the threat of being viewed through the lens of a negative stereotype, or the fear of doing something that would inadvertently confirm that stereotype."

According to Steele, "Everyone experiences stereotype threat. We are all members of some group about which negative stereotypes exist, from white males and Methodists to women and the elderly. And in a situation where one of those stereotypes applies—a man talking to women about pay equity, for example, or an aging faculty member trying to remember a number sequence in the middle of a lecture—we know that we may be judged by it."{3}

It makes sense that this fear is reduced when the individual in question is not so obviously in the minority of any given group. When the "power in numbers" quotient starts to take effect, the focus on any one individual's own characteristic differences to the group's majority is less of a factor.

"When there is only a handful of women participating in these groups, their status as women, who are less aggressive investors, induces greater reluctance to invest," Becker-Blease said, "but as the proportion of women increases, women investors are made less aware of their status, and invest with greater confidence."{4} 


In the case of investing, the stereotype is that women are generally more risk averse than men and put their money in more secure investment vehicles. But while the stereotype may impact the decision-making of angel investor groups, it may not be the case among individual investors.

A 2010 study conducted by Oleg Badunenko of the Cologne Graduate School in Management, Economics and Social Sciences, and Dorothea Schäfer and Nataliya Barasinska of Deutsches Institut für Wirtschaftsforschung Berlin (the German Institute for Economic Research) challenges the stereotype of the cautious female investor, finding that "men and women are equally likely to take a chance on risky investments—assuming that they have the same financial resources at their disposal."

The researchers said that "women are likely to have cautious investment habits because—as a rule—they have only half the investment resources available that men have at their disposal."{5}

Their point is well taken. Even though gender equality has made great strides in the past few decades, women still don't earn as much as their male counterparts. According to the March 2011 White House report "Women in America: Indicators of Social and Economic Well-Being," which was prepared by the United States Department of Commerce and the Executive Office of the President for the White House Council on Women and Girls, "At all levels of education, women earned about 75 percent of what their male counterparts earned in 2009. In part because of these lower earnings and in part because unmarried and divorced women are the most likely to have responsibility for raising and supporting their children, women are more likely to be in poverty than men."{6}

In the world of start-ups, angels abound. But as the Obama administration report makes clear, angels are also needed much further down the socioeconomic ladder.




2. Ibid. 


4. Ibid., 1.



image: Raffaello Sanzio da Urbino (1483–1520), Sistine Madonna, Gemäldegalerie Alte Meister, Dresden, detail Putti (cherubs) (Wikimedia Commons)