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Female angel investors upset stereotypes

on July 22, 2011 Source: Kauffman Foundation

Women don’t dominate the angel investing field – not nearly.

According to a study by the University of New Hampshire’s Center for Venture Research, women comprise only about 15 percent of angel investors and just about 5 percent of all partnerships at high-technology venture capital firms.

(The study also notes that the percentage of women seeking start-up funding was 20 percent – up from 12.6 percent a decade ago.).

The UNH Center for Venture Research also took a close look at what impact women angel investors have on angel funding groups, and concludes that the conventional wisdom that women are cautious with angel money may not be true.

The study, led by Jeffrey Sohl, director of the UNH Center for Venture Research, and John Becker-Blease, of Oregon State University, was just published in the July edition of the journal, “Entrepreneurship, Theory and Practice.”

In it, Sohl and Becker-Blease say that when an angel investment group had a small percentage of women investors, the firm was, in fact, tighter with its funding practices. But when women comprised more than 10 percent of an angel funding group, investments actually increased.

Even Sohl and Becker-Blease saw the study results as a real eye-opener.

“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.”

But why would an increase in numbers for women angels heighten a firm’s funding numbers? The study researchers say it has something to do with “stereotype threats.”

This, from the study:

According to this psychological theory, when a stereotype exists about a person, that person will behave in a manner consistent with that stereotype when they are in a situation that highlights, or accentuates, this aspect of their status, whether that is gender, race or ethnicity.

“In the context of this research, this means that when there are few women in an angel group, the stereotype of cautious investing is accentuated. As the number of women increases, there is less of a stereotype – there are more women, so they are more recognized for their ability as investors and less because of their gender,” Sohl said.

As women become more pervasive, and hold more influence at angel funding firms, the stereotype of the “cautious female” should go the way of other big myths, like Santa Claus, the Easter Bunny, and the ability of leprechauns to locate gold.

That would be a good thing for the angel funding industry.

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