Getting In On The Angel Game

Angel clubs are building networks of wealthy, well-educated women--something that's long overdue

I often chat with my father, Kenneth, a retired entrepreneur living in Aspen, about the private-equity deals he invests in with his skiing and biking buddies. When I asked him recently how he gets in on the ground floor of young, high-growth companies, he said: "I hear about them through my network of friends." Unfortunately, my father's network, and thousands of others like his, rarely include women. "We just haven't been invited," says Patty Abramson, co-founder of Women, a Washington, D.C.-based group of women who have raised $6 million to invest in high-tech startups.

With women finally reaching the top ranks of Corporate America and becoming business owners as well, they're ready to invade what has typically been a man's domain--early-stage "angel" investing. Jeffrey Sohl, director of the Center for Venture Research at the University of New Hampshire, says that 400,000 angels invest up to $40 billion annually in 50,000 companies. But so far, he figures, women make up only 3% of angels' ranks.

SECOND STAGE. Angels typically invest between $25,000 and $2 million of their own money to finance early-stage companies, an investment that most often is locked up for 5 to 10 years. Usually, angels provide second-stage financing, after an entrepreneur has raised seed capital, but before professional venture capital groups weigh in with big institutional bucks for companies whose business is well advanced.

To get into the angel game, you must be a high net worth investor. The Securities & Exchange Commission says that's someone whose net worth (in- cluding her home) is greater than $1 million or who has an annual income of at least $200,000, if you're single, or $300,000, if you're married. Even if you have the assets, you may not have the risk tolerance. Warns Kay Koplovitz, chief executive of Working Woman Network and an active angel investor: "This type of investing is extremely risky. You shouldn't put in any money that you can't afford to lose 100%."

The riskiness is reflected in a recent study by Gerald Benjamin, senior managing partner of International Capital Resources, a San Francisco firm that matches investors and companies. He looked at the returns that 1,200 angel investors achieved between 1989 and 1999. Nearly 70% of them either lost all or part of their investment or got their money back with no return. Only 30% of them got a return--but those returns ranged from 2 to 10 times their investment.

Women who can tolerate that kind of risk recently have launched angel networks in Seattle, Boston, and New York, and others are in the works. Though their structure and investment criteria vary (table), the groups are all committed to building networks of wealthy, well-connected women--something that's long overdue.

Of course, the main aim of all angels is to fund the next Yahoo! and make a fortune. But that aside, there is real value to the women-only groups. Their atmosphere is more relaxed than men's clubs, and they often provide a formal learning process, such as seminars on evaluating startups and developing a deal structure. "Many of the women have never done this type of investing but really want to learn," says Sue Preston, founder of the Seraph Capital Forum.

Through angel clubs, women are more likely to gain board seats or managerial posts in young companies. As Amy Millman, executive director of the National Women's Business Council, says: "Women are now getting a piece of the action."

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