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WTF is Angel Investing (and should you be doing it to boost your finances?)

Investing: not just for old white dudes.

05 Dec 2020

When it comes to finances, we’ve discussed how often women fall behind. More than just the gender pay gap, pension gap and mortgage gap (sigh so many gaps) the most crucial is the financial capability gap- often a mindset we have ingrained within us that we simply do not know enough about finance.

This is why women frequently fall into (yes, another) gap; The Investor Gender Gap. According to UK investment statistics, just 10% of women have a stocks and shares ISA, compared to 17% of men. Furthermore, in 2017 82% of ISA accounts opened by women were cash accounts, compared to 75 per cent of those opened by men. Other statistics reveal that only 7% of women hold other investments or unit trusts, compared with 14% of men, while the ratio of male to female customers among the top 10 DIY investment platforms is reported to be 68 to 32.

On my many financial journeys I keep hearing about angel investing as a way into investing in a real way but- what is it? On the off chance it did not involve some sort of celestial bank account - I decided to consult the experts.

Ok, so what IS Angel Investing?

“Angel investors are typically high net worth individuals who invest money, and often time, in startup businesses or entrepreneurs, as a means to help them grow and in exchange for shares in their company,” explains Emilie Bellet, founder and CEO of Vestpod, the digital platform and community that empowers women financially, “Angel investors generally invest their own money (unlike venture capitalists, who invest a fund of money belonging to other people) and make their own decisions concerning the businesses. They expect to make money with the company increasing in value over time. However, these investments can be very illiquid!”

What if you’re not super rich?

“The easiest way to put a toe into this is via a crowdfunding platform,” explains Holly Mackay, founder of the irreverent and accessible financial explainer site Boring Money, “We recently raised nearly £1 million from individuals on the Crowdcube funding platform. Anyone can back a company this way and often with as little as about £10!”

“The benefits are that you get access to a range of very young businesses with strong growth potential. It’s interesting, engaging and you can pick a sector you like,” she says, “The potential returns are very high but obviously it can also be very high-risk as most start-ups will fail.”

Ah bummer, so it’s risky?

“Angel investing is extremely risky!” warns Emilie, “Making money as an angel investor is possible, but you could also lose all of your money. Unfortunately, the majority of startups will fail. If you decide to invest in a startup, make sure you do your due diligence, check the track record of the founders and truly believe in the mission.”

“I wouldn’t invest unless I already had emergency savings for the short to long term,” advises Emilie, “Only ever invest what you can afford to lose.”

How would you get started?

“I would assess my financial situation and decide how much I can afford to invest and when I'd need the money back,” says Emilie, “I would also look into tax incentives/government schemes such as the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme.”

“I would then also try to work out the industries and businesses I’d like to invest in - are they in line with my values? What can I bring to the table? Once that's established, I would join an angel investment community or syndicate to work in partnership with other angels by pooling our communal knowledge and resources.”

Why is it a good idea- any tips?

“Angel investing helps you to give back to the community around you and support projects you feel passionate about. It can also help grow your money,” says Emilie, “If you invest in the right startups, you can potentially see impressive returns on your investment over time, but always keep in mind why you do it and the high risk associated with it!”

Why is it great for women?

“Women remain under-invested compared to men,” notes Holly, “The stock market turns us off en masse and all the pompous pinstripe nonsense leaves us cold. Investing in really young businesses can be a chance to invest in something you understand, a product you like or a sector you want to back. It feels more personal.”

"It can be a really nice way to put your money to work. But it is really high-risk – the valuations can be bonkers and the chance of failure high - so I’d suggest anyone doing this has the majority of their invested money in safer, more mainstream investments from more established brands. A ‘multi-asset’ fund is worth investigating as the staple – angel investing can be your ‘bit on the side’!”

Learn about Angel Investing before you do it: UK Business Angels Association.