Business angels as financiers of women’s entrepreneurship

Businesses require some form of financing at some point: during the early stages to start the business, to keep an existing one running by supporting operations and ensuring a ready supply of capital and liquidity, or when expansion or growth is planned. Access to funding remains a problem for women in South Africa, and this is where business angels step in.

Business angels are informal investors who fund businesses started by others. As with other business activities, investment trends may also be predicted according to gender. For example, women tend to be less likely than men to fund start-ups, and they also provide less funding. Women business angels also tend to, more than men, fund close family and friends.(1)

To test these assumptions, we analysed data from a random sample of 55 668 adults interviewed between 2001 and 2022 through the Global Entrepreneurship Monitor South Africa project. The findings confirmed the presence of gender differences. In South Africa, women business angels fund start-ups less frequently than men do, and they also provide lesser amounts. Women are also more likely than men to fund close family and relatives, although this is a preferred relationship category for both. The findings show that gender differences continue to pervade informal investing in entrepreneurship.

An overview of business angels

Starting costs cannot be avoided, and while some businesses may require less than others due to the nature of the business or the founder’s personal wealth, sourcing funding is unavoidable for new entrepreneurs and small businesses. Making decisions on which finance route to take is difficult, and entrepreneurs need the right information to make informed choices. Not all businesses are able to access the same types of finance, as funding typically depends on the stage of the business, current performance, market position, and the reason for the financing. In addition, not every financial instrument may be viable or beneficial. Funding must be tailored to the specific needs and goals of the company in question. These considerations also apply to funders when loans or grants are distributed. Funders are not willing to lend money to all types of businesses, and they also consider the business’s stage of development.

Essentially, there are two ways to set up a new business: with or without financial assistance. Most South African businesses fall into the second category, and begin without formal financial assistance. These businesses typically begin small and lean, relying on the owner's savings and reinvestment of the sales revenue into operational costs. However, some businesses are unable to launch, continue, or expand without the assistance of outside funding. Several funding methods are available, including bootstrapping, debt financing, equity financing, government funds and grants, venture capital, crowdfunding, and angel investment.

In the context of investment, the term ‘angel’ originated from Broadway theatre, where wealthy patrons contributed funds towards theatrical productions. The term ‘angel investor’ was coined by William Wetzel, founder of the Center for Venture Research at the University of New Hampshire.(2) Angel investing and venture capital funding are similar; both provide business funds through the purchasing of private equity or royalty claims.(3) However, venture capital investors and capital investment funds are generally held by professional investors who have defined portfolio preferences. In contrast, angel investors are from various backgrounds, and may or may not be accredited investors. They have various motivations for investing, which often go beyond making a profit.(4) Angel investors fund friends, family, and people in their networks. They are likely to engage with businesses in sectors with which they are familiar or into which they have some degree of insight. Moreover, whereas venture capital investors often require proof of concept, angel investors may invest in an idea or team without requiring such proof.(5)

Angel investors are somewhat more willing to engage with early-stage businesses, compared to venture capitalists. Once involved in those businesses, they might also provide multiple rounds of funding.(6) Although this could ease the criteria a business must meet to attain funding, it does not eliminate the need for a good business plan and assurance that it would be successful.(7)

Furthermore, angel investors are more likely to engage with the business beyond the terms of the contract by offering significant assistance in talent acquisition, marketing, and bringing other contributing operational partners and co-investors into the network.(8) The table below summarises the advantages and disadvantages of angel investment.

Since angel investment is a form of equity investment, it does not come with debt obligations, even if the company fails. Additionally, the business need not make monthly interest repayments.Although less hands-on than venture capitalists, angel investors still buy equity. Thus, they have the power to seek a bigger role in business decisions.
Angel investors are usually entrepreneurs, and their investment in a start-up often includes providing business skills and networks. Equity must be provided in exchange for angel investment. This could be more expensive than debt financing in the long run.
Angel investment is more flexible and less regulated than venture capital, which simplifies administration. Angel investors could be inexperienced investors who provide poor advice and take a significant portion of the company's equity.
Angel investors tend to provide multiple rounds of investment. Angel investors could require as much as half of the business in exchange for the funding.
Angel investors are scarce.
Angel investors may require a full audit before providing funding.

Advantages and disadvantages of angel investment(9)

As with other gender-related patterns evident in the field of business and entrepreneurship, angel investment, both on the receiving and investing side, shows less participation by women. For example, Field(10) states that 98% of venture capital funding in the USA is allocated to men. Not only do more men than women receive venture capital funding, but women also receive significantly less in dollar value. For black women entrepreneurs, the situation is even bleaker. Although exact figures are not always available, it was estimated that, in 2018, a mere 4.5% of all venture capital and/or angel investment disclosed went to women-owned tech startups. In addition, of the R1.7 billion awarded in South Africa, only R77.7 million went to women founders.(11) A recent publication by Atouf(12) showcased the top South African angel investors. Of the 20 featured investors, none were women. Similarly, the top 20 angel investors in Brazil,(13) Australia,(14) and Spain(15) were all men. Mexico(16) had one woman investor, Nigeria(17) and Poland(18) had two each, and China(19) had three. There seems to be a global trend of fewer women funders and recipients, with women funders investing smaller amounts of money.

Men have historically made up the vast majority of angel investors. Nevertheless, there is an awareness of the importance of diversity in the investment network, which has resulted in initiatives to increase women’s contributions as angel investors. One example is the Women Backing Women campaign, launched in 2022 in the UK. The campaign aims to increase the number of women angel investors while also expanding the women angel ecosystem in the country. The campaign managers believe that by increasing the number of women angels, more women entrepreneurs will have the option to fund their businesses, and thus have a greater chance of success.(20) In collaboration with Beauhurst, the UK Business Angels Association published a research report providing valuable insights into the status quo of women angel investment. The latest report highlighted that more than 5 000 women had made use of angel investment, which led to the creation of around 10 000 employment opportunities. Another interesting finding was that 25% of all businesses backed by women angels were founded by women, but, sadly, only 14% of angel investors in the UK were women.(21)

This gender gap has been ascribed to the following factors:

  • Lack of access to capital — women often face financial challenges, which restricts their investment capacity.
  • Lower risk appetite — women may be more risk averse, making them reluctant to invest in new businesses.
  • Smaller networks — women may have smaller business networks, which restricts the extent to which they can introduce the business founder to helpful connections and networks.
  • Lack of role models — a lack of role models contributes to this gender gap. When women see successful women, they are motivated and inspired. Likewise, having angel investor role models can also lead to more women becoming investors.
  • Bias or stereotyping — investment decisions may be influenced by bias or gender stereotyping, which may be unconscious or purposeful.(22)
The study

The Global Entrepreneurship Monitor (GEM) annually randomly samples adults aged 18 to 64 to complete a structured questionnaire. The same questionnaire is used across several countries, allowing country-level comparisons. The current study analysed a representative sample of 55 668 adults (including 1 092 business angels) in South Africa who were included in annual surveys from 2001 to 2022.

The study’s research questions were:

  • Do women investors fund entrepreneurs less frequently than men?
  • Do women business angels provide smaller investment funds than men?
  • Do women tend to fund close family and other relatives more frequently?
Measurement of business angels

The following measurements from the annual adult population survey were used.

Business angel: Have you, in the past three years, personally provided funds for a new business started by someone else, excluding any purchases of stocks or mutual funds?

Funding amount: Approximately how much, in total, have you personally provided to these business start-ups in the past three years, not counting any investments in publicly traded stocks or mutual funds?

Business angels’ relationships with funded entrepreneurs: What was your relationship with the person who received your most recent personal investment? Was this a:

  1. close family member, such as a spouse, sibling, child, parent, or grandchild;
  2. some other relative, kin, or blood relation;
  3. a work colleague;
  4. a friend or neighbour; or
  5. a stranger with a good business idea?

The analyses addressed several questions, including: How many adult women and men are business angels? Is there a gender gap in the frequency of investment? We hypothesised that women are less likely than men to fund start-ups. The figure below shows that, of the 55 668 participants surveyed (28 206 women and 27 462 men), 1.6% of the women were business angels, compared to 2.3% of the men, and that the difference was statistically significant (p < .001). Thus, the gender gap in angel investing in South Africa we observed is aligned with theory.

Women and men funding start-ups

Next, we examined how much capital business angels provide for start-ups and whether there is a gender gap in the amounts of funding provided. We hypothesised that women business angels provide less money than men. The results showed that the largest number of women business angels invest less than R5 000, with men more likely to invest an amount greater than R5 000 (see figure below). The difference was statistically significant (p = 0.04).

Funds provided by business angels

The last question we addressed was: Is there a gender difference in how business angels are related to the entrepreneurs they fund?

The literature suggests that women and men business angels differ with regard to their relationship with the entrepreneurs they fund.(23) Specifically, women business angels are more likely to fund a close family member or relative. The results showed a statistically significant (p = 0.003) difference in these relationships, with 57% of women business angels funding family, compared to 45% of men business angels. Around 8% of men business angels would fund strangers on the strength of a good business idea, compared to 6% of women business angels. This gender difference is illustrated in the graph below.

Business angels’ relationship with funded entrepreneurs


Our results demonstrate that men are more likely than women to fund start-ups, and they also provide greater amounts of capital. Regarding their relationships with the entrepreneurs they fund, there is a similar pattern for women and men, with a close family member being a clear preference (women 57% and men 45%), followed by a friend or neighbour (men 29% and women 20%).

The results show that a greater number of men (2.3%) than women (1.6%) provided funding for businesses, and that men were more likely than women to fund capital amounts of R5 000–R100 000 and above R100 000. Future research should consider the propensity of angel funders, both women and men, to fund women-owned start-up businesses.

Raising finance is not easy, and access to finance and markets for women-owned businesses remains a challenge and amongst the biggest obstacles women entrepreneurs face.(24) Accelerating and supporting women entrepreneurs in South Africa should include:

  • A focus on supporting high-growth women entrepreneurs with the potential to innovate, create jobs, and deliver solutions to their markets;
  • Addressing policy constraints, coupled with support programmes for women entrepreneurs;
  • The backing of women business owners in male-dominated sectors; and
  • Encouraging more women investors and women in financing generally, through accelerator- and incubator programmes, as they will be more likely to invest in other women entrepreneurs.(25)

Such initiatives should be supported by the enhancement and promotion of women’s networks, greater media attention, and raising awareness of the importance of women angel investors and entrepreneurs, as well as research to develop a better understanding of the lived experiences of women entrepreneurs, in order to address obstacles and concerns effectively.(26)


Multiple Authors

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