The number of women angel investors has grown substantially in the last decade. This is, broadly, a positive development. Women founders benefit from having capital from people who understand their experience. Women who’ve built wealth from their own businesses now have meaningful capital to deploy. The diversification of capital sources is healthy for the broader ecosystem.
But there’s a pattern worth noting. A meaningful subset of women who start angel investing make bad decisions in specific, recurring ways. Naming the pattern is uncomfortable. It’s also useful, because the pattern is correctable.
The failure mode runs roughly like this. A successful woman — often a senior operator, a former founder, or a mid-career professional with capital — decides to start angel investing. She wants to support women founders. She wants to participate in early-stage company building. She wants the financial returns. She has the capital and the network. She begins making investments.
The investments she makes tend to share traits. They’re skewed heavily toward consumer brands, particularly women-targeted consumer brands. They’re skewed toward founders she likes personally. They’re skewed toward companies whose missions resonate with her values. They’re skewed toward products she would buy herself.
These investments tend to underperform. The reasons are structural.
The consumer brand category, particularly women-targeted consumer brands, has been one of the worst-performing investment sectors of the last decade. Direct-to-consumer apparel, beauty, food, and wellness brands have produced very few large outcomes. The category looks attractive — the products are visible, the brands feel meaningful, the founders are often charismatic — but the underlying business economics are usually poor. Customer acquisition costs have risen faster than lifetime values. Margins are crushed by competitive pressure. The exits, when they come, are usually small.
Investing in founders you like personally produces selection bias. The founders you like personally are not necessarily the founders most likely to build big companies. Likability is uncorrelated with operational excellence. Some of the most successful founders are difficult, intense, or socially awkward. Investing based on personal warmth filters out a meaningful percentage of the highest-return opportunities.
Investing in companies whose missions resonate with your values means investing in the same companies as everyone else who shares those values. This produces a competitive market where the prices are bid up and the returns are compressed. The companies that produce outsized returns are usually the ones with theses that aren’t yet popular.
Investing in products you would buy yourself is the most common form of confirmation bias in early-stage investing. Your buying preferences are a sample size of one. They tell you almost nothing about whether a product will succeed in the market. Most consumer products that succeed are bought by people very different from the investors funding them.
The pattern of failures isn’t random. It’s the predictable result of an investing approach that emphasizes affinity over analysis. The successful women angels — and they exist — tend to do something different. They invest in industries they’re deeply familiar with from their operational experience. They invest in founders based on track record and competence rather than personal warmth. They develop investment theses that are specific and contrarian. They diversify across at least 20 to 30 investments rather than making concentrated bets on companies they love.
The underlying lesson: investing well requires a different mindset than building a company well. The skills that made a successful operator are not the same skills that produce returns as an early-stage investor. Recognizing this is the first step.
The takeaway
If you’re starting to angel invest, the most important question is: what are you investing in that you wouldn’t have bought yourself, would have skipped if you didn’t like the founder, and don’t have a personal mission alignment with? If your portfolio is full of companies you’re emotionally drawn to, your returns will likely disappoint.
