Changing the Face of Angel Investing

The Black and Latinx angel investor community is at a critical inflection point.

Historically, the angel investment ecosystem has skewed white and male. According to the most recent American Angel Report, only 1.3% of U.S. angel investors are black and 2.3% are hispanic. Consequently, the majority of angel investments went to founders that reflected the demographic of that majority.

The Diversity in U.S. Startups Report also found that of all the venture capital invested in 2017,1.9% was allocated to Latinx founders and 1% to Black founders. This dearth of funding for Black and Latinx founders across the capital stack, even at the angel and seed stage, is astounding.

For the past several years, the angel ecosystem’s efforts to increase diversity have primarily focused on increasing gender parity in their community. And they’ve made progress. The Angel Capital Association (ACA), which represents 14,000 angel investors and 250+ angel groups in North America, has increased female membership to 22% over the past decade — but only a small percentage of those new angel investors were Black or Latina women.

However, those trends are shifting — and the angels of color Community is growing rapidly. In the first few months of 2020, five new angel networks have been launched — Business Angel Minority Association, AccelHub Ventures, Black Angels Miami, Angeles Investors, and Multicultural Angel Investor Network — highlighting both the increased interest and ability of people of color to become angel investors and the need for inclusive, representative groups.

These new angel networks are filling a critical gap in the startup investment ecosystem — fostering communities of investors, training and mentoring for new angels, and promoting syndication deals so everyone can be part of lucrative opportunities.

And the formation of these new angel networks wasn’t happenstance. It’s building on momentum that’s been long developed by other organizations who are mobilizing and training new angel investors, such as Pipeline Angels, Portfolia, and 37 Angels. As the momentum continues to snowball, this movement is mobilizing active angels and recruiting new angels to make their first investments.

Now, the broader angel ecosystem is waking up. It’s no secret that the lack of active angel investors of color has limited the amount of capital available to founders of color. Organizations like the ACA are realizing the growing community of angels of color and responding with concerted efforts to be more inclusive. Their leadership team, for example, is now more representative of the community, with Juliana Garaizar, Lorine Pendleton, and the newly added Eli Velasquez, currently serving on their board.

Additionally, the SEC has recognized that their Accredited Investor definition, which dictates who is legally able to invest in and own equity in private companies, was far too limiting and exclusive. Since 1982, an Accredited Investor has been strictly defined by income levels and assets — an individual that has at least $200,000 annual income for the past two years ($300,000 for joint income), or has over $1MM in net worth, excluding their home. The new SEC Proposal to rewrite this policy, which is currently open for public comment, would expand the current definition to include:

  • individuals with an entry-level stockbroker’s license or other credentials issued by an accredited educational institution

  • “knowledgeable” employees of funds who might not currently meet the SEC’s wealth thresholds

  • family offices with at least $5 million in assets under management and their family clients

  • “spousal equivalents” who could pool their assets for the purposes of qualifying as accredited investors

This would allow many more Americans, particularly Black and Latinx individuals, to access a new asset class and own equity in private companies — investments that are a critical tool for building wealth.

Those angel investments can translate into increased generational wealth. The growing wealth gap between white households and households of color is terrifying. If current trends continue, the average black household wealth will be $0 by 2053–average Latinx household wealth will hit zero 20 years later, and the COVID-19 pandemic is exacerbating this crisis. In 2016, the median Black Household wealth was half what it was right before the Great Recession; in contrast, median White Household wealth in 2016 had increased by 15% over the same time period. With skyrocketing unemployment, shuttered businesses, and no signs of slowing, this pandemic is likely to accelerate the decimation of Black and Latinx wealth.

While angel investing will not directly solve this problem, for Accredited Investors with a balanced investment portfolio, strategically investing a percentage of their investment capital into a portfolio of startups could generate considerable returns and help to build a storehouse of wealth to pass on.

There is a critical need for more angels of color. Promising, high-growth potential startups founded by people of color struggle to attract and secure capital, even when comparing favorably to their white counterparts. This lack of capital can be partly attributed to the implicit bias and inaccessibility of networks that currently define the early-stage investment ecosystem.

Angels of color, however, are more likely to have networks that are accessible to founders of color; more likely to pattern-match with those founders; more likely to understand the markets the startups are disrupting; more likely to provide the capital, network, and mentorship those startups need to succeed. Which means that angels of color are well positioned to fund the first Black or Latinx unicorn.

As the economy reopens and the “new normal” starts to take shape, there will be an urgent need for private capital to create the world of tomorrow. Education, employment, healthcare–these are but a few of the industries that will be forever changed by this pandemic. The new generation of innovators and entrepreneurs that redefine how we function as a society need to be more diverse and more representative than previous generations. And when these founders of color decide to fundraise, they’ll hopefully find more angels of color sitting across the table.

If you’re interested in learning more about this movement, joining the angels of color community, or accessing new opportunities, join the Vetted Community.

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