How to be an angel of an investor
Over the course of our lives, many of us may build deep-seated expectations, beliefs and attitudes that lead us to miss out on rewarding opportunities. Unconscious thinking can possibly impact the companies and founders you choose to invest time and money in: three experts discuss how to take a fresh approach to becoming an exceptional angel investor.
The human brain can process 11 million bits of information a second. However, our conscious minds can only handle 40 to 50 bits of information during this time1. As a result, our brains have to take cognitive shortcuts, leading to implicit bias. This can have detrimental consequences for how we perceive and make decisions about people, businesses and even our own investments.
Unconscious bias also manifests itself in the world of angel investing. An HSBC Private Banking report, She’s the Business, revealed that 61 per cent of female entrepreneurs pitch to all or predominantly male investors and less than one in ten will pitch to all or mostly female investors. We also know from the UK VC & Female Founders report, which was undertaken by the British Business Bank in partnership with Diversity VC and the BVCA, that for every GBP1 of VC (venture capital) investment in the UK, all-female founder teams get less than 1p, while all-male founder teams get 89p. The disparity goes even further: between 2009 and 2019, only 0.24 per cent of VC money invested in UK start-ups went to Black entrepreneurs and just 0.02 per cent went to Black female entrepreneurs2.
For investors who want to change the patterns, how can they get started?
Acknowledge the similarities
“The first step is acknowledging that you might have a bias,” says Tamara Gillan, Founder and CEO of the WealthiHer Network. “I’d actually recommend that people conduct an audit of what and who they have invested in in the past and see what emerges from that. Are you thinking broadly enough? Do you only invest in what you know? Are you – and this is a big one – only investing in people like you?”
Affinity bias is where we naturally gravitate towards people who appear to be like us. “You look at someone and subconsciously think, they might have the same values as me, and we could therefore have a good relationship,” says Michael Adeniya, COO, UK Black Business Show. “I'm guilty of it myself and try to be aware of it. I played elite sport and, subconsciously, I link sportspeople with high performance in work. If I was looking at CVs and I saw someone who was captain of their rugby team or a high-ranking track athlete, I instantly assume that, like me, this person could be a top achiever in sales.
“This notion exists when it comes to investing, too, so I’d recommend that people who are looking to provide an entrepreneur with backing go into pitches with a scorecard that can help take their affinity bias out of the equation.”
Do you only invest in what you know? Are you – and this is a big one – only investing in people like you? - Tamara Gillan, Founder and CEO of the WealthiHer Network
Take the plunge on a new investor approach
“The world is changing so much right now. Investors should be challenging themselves and going out of their way to learn more about the shifting dynamics and the new categories, products or opportunities that might be presenting themselves as a result,” says Gillan. ”They need to find new ways to meet entrepreneurs and their teams.”
Kirsty Moore, Managing Director of HSBC Private Banking, echoes this sentiment. “If your networks are all in the same category, you could miss out on some amazing opportunities,” explains Moore. “There might be high growth potential in a market that emerged from the pandemic, but you might not have the access because you’re not plugged into those networks. Broadening who you are talking to will help you keep abreast of investment opportunities as they emerge.”
Moore also notes that many deals are never ‘done in the room’, because of previous relationships; they are often secured through significant conversations and interactions. The importance of getting to know people outside of the pitch rooms, therefore, cannot be underestimated.
“I was talking to a property developer the other day and he told me that he’s stopped going to property events,” says Adeniya. “Instead, he puts himself into different environments where he doesn’t just meet people who are like him, but where he can add value and gain a different perspective.
“I’d recommend going to events like ours – the UK Black Business Show – and hearing what a completely different demographic has to say. By doing so, you might start to see where you can find the biggest gains. My advice is to take the plunge where there’s an element of unknown.”
Adeniya also stresses the importance of ensuring that you yourself have a diverse team. “You need someone who does not have the same point of view as you – that doesn’t look like you and doesn’t hold your same beliefs. This will help you enormously when it comes to diversifying what and who you’re investing in.”
If your networks are all in the same category, you could miss out on some amazing opportunities… Broadening who you are talking to will help you keep abreast of investment opportunities as they emerge. - Kirsty Moore, Managing Director of HSBC Private Banking
Consider the wider team in pitches
It’s also key to remember that a business is about much more than just one individual. “People drive businesses,” says Gillan. “Yes, the founder is the force behind it, but what you should be focusing on is the multidimensional ways in which people and their skills complement each other. Daina Spedding from BGF (formally the British Growth Fund) told me at a recent WealthiHer event that something they pay a lot of attention to is how teams work together.
“At WealthiHer, we just went through a pre-seed round and what really impressed me was one of the investors asked to come to team meetings and learn how we interact with each other. It was scary for us, but it gave them the confidence to invest because they’d seen the leadership team in action. It was only an hour of their time, but what they got from it was something that you wouldn’t learn from a pitch deck. I’d really recommend that investors consider doing something similar.”
I’d recommend that people who are looking to provide an entrepreneur with backing go into pitches with a scorecard that can help take their affinity bias out of the equation. - Michael Adeniya, COO, UK Black Business Show
Your experience and insight can be worth more than finances
The chances are that if you’re looking to angel invest, your reasons for doing so are about more than just profit. Instead, you’re looking to offer support to a business that needs it. “Generally speaking, women’s businesses were impacted by Covid because of the sectors they tend to be in – such as retail, hospitality and entertainment,” says Moore. “And with the cost of living crisis further impacting companies who need investment to grow, we’re heading towards even more uncertainty. I think investors should be doing research and looking into trends, but also considering which sectors might be particularly hard hit so that they can offer a helping hand.”
Moore also advises thinking about what you can offer in addition to finances. “Angel investors will have had successful business journeys themselves, which means that they will have a great deal that they can share in terms of knowledge,” she says. “Even if they can only offer up small amounts of time, that could make the world of difference to a small business.”
Investors can also help by being more vocal about their own experiences of investing outside of their comfort zone, Moore emphasises. “If you’ve backed something that wasn’t previously a natural fit for you, but you had success – then tell people about it,” she says. “By doing this, you’re actively promoting this way of thinking and helping to reverse unconscious biases.”