It’s been well-documented that the world of investing is a ‘boys’ club,’ on both sides of the deal. Despite the increasing number of female-led businesses, in 2020, female founders received a mere 2.3% of venture capital funding. Some have argued that women-led businesses are overlooked and underfunded because female investors are also underrepresented; only 22% of angel investors are women, with 65% of American venture capital firms having no female partners. Backbone Angels – a collective of ten female angels who invest primarily in Black, Indigenous, and women of color-led startups – is flipping that script.
Among Backbone Angels’ founding partners is Arati Sharma. Sharma spent almost a decade at the tech giant, Shopify, helping to build the company from the ground up. Her time at Shopify ignited a spark for startup culture, sharpened her skills in marketing, and provided her with the windfall she later used to break into angel investing.
After partnering with her husband, also a tech professional, the duo set out to build an investing portfolio. Disappointedly, despite her passion for women-led businesses, she found that most of the founders in their portfolio were men.
“I started talking to our colleagues who advised me that if you want to invest in a very specific type of founder or company – like how other investors invest in clean tech or healthcare – you have to be really specific about it, and tell people about it,” Sharma said.
Following that advice, Sharma became committed to investing exclusively in female founders, especially women of color, for one full year. In doing so, she soon realized that the gender gap in funding went both ways. Despite having the capital to invest, Sharma, along with the other female investors she knew, were being overlooked, and grossly under-pitched.
“I found that a lot of the deal flow was going towards men. Even my husband was getting a lot of decks, and I was confused, because [women are] just as capable, and we could be investors too,” Sharma said.
With nine of Sharma’s former Shopify colleagues sharing in her frustrations, they came together to form Backbone Angels, in March 2021. Each of the collective’s founding partners had capital to invest, and with years immersed in startup culture, they were no strangers to mentoring women in tech. Collectively, they believed that investment was their chance to expand that work beyond their 9-to-5 roles.
“We wanted to give our experience back to women who are starting businesses outside of Shopify … We realized there were a lot of programs to help women around education and pitching, and offering support, mentorship, and allyship. But we noticed there were so few that were writing the check. And I think that’s one of the most impactful things that you can do for a woman who is starting a business and raising funding – just write her first check,” Sharma shared.
Since 2021, Backbone Angels has invested in more than 42 women-led businesses. Sharma, alone, has personally offered funding to 28 of those entrepreneurs, 72% of whom were first-time founders. To some, those numbers might seem intense, but Sharma noted that she was intentional about being aggressive with the impact she set out to make.
“The strategy was really to invest in as many companies as possible, in diverse industries, so I could learn the type of angel investor I wanted to be … I wanted to experience the type of industries, founders, and problems I could be most helpful with, and the ones I wanted to bet on … It was a lot of learning by doing,” she explained.
As a skincare founder herself, Sharma is most excited about direct-to-consumer businesses. Her portfolio includes brands like Blume, Sheertex, and Bird&Be, which were all founded by women who created companies to solve gender-specific problems they’ve experienced.
Since the launch of Backbone Angels, Sharma has now received more than 300 pitches, and has become adept at spotting the founders and companies who are worth the investment. Her key indicators include founders who have conviction about the businesses they’re building, as well as those who are passionate about the problem they’re solving. She also looks for founders who are able to motivate a team and build momentum around their vision. However, Sharma also seeks out founders who can balance their vision and focus with humility.
“I think there are a lot of founders who are obsessed with what they’re doing, but they have blinders on. Sometimes, that’s really important, but the way they speak to investors and galvanize and respond to feedback shows a level of humility, and the ability to build a team of smart people who can also challenge them,” Sharma noted.
While Sharma is passionate about working with good founders, she also ensures that the companies they’re building are both scalable and sustainable. Because she invests in the pre-seed and seed stages, Sharma doesn’t expect massive revenue or a huge customer base, but she’s skilled at recognizing signs of growth.
“I’m looking for signals of customer adoptions or momentum around building a product. I’m also looking for whether they’re going to be able to be a hit in the market they’re building in. I like products that are in saturated marketplaces, but have a unique twist, or are for a slightly underserved market,” Sharma explained.
Sharma acknowledges that many female founders are often hesitant to pursue funding in a bear market, but she points out that capital is still accessible for entrepreneurs who can prove their value. To help motivate founders to reach beyond existing barriers, she advises them to make sure they can articulate their numbers, customers, and market, and how they’ll use the capital they’ll receive.
“I recently met a founder who had been bootstrapping for about eight years before she decided to raise capital. She had so much data and insight around customer type, her plan, her product, her numbers. That to me was a no-brainer investment,” Sharma recalled.
While founders often focus on the financial support investors can offer, Sharma also encourages entrepreneurs to consider other forms of value. She advises founders to seek out investors who provide key skills and advice, and who show a genuine commitment to their success.
“I like to be a safe space for my founders to vent, complain, talk through strategies, and have a sounding board. It’s really important for founders who are raising capital to build a cap table that’s trustworthy. Entrepreneurship is incredibly lonely. So, your investors can really be those peers for you in a safe space,” Sharma shared.
As her second year with Backbone Angels draws to a close, Sharma continues to focus on building a strong portfolio. But while the returns on her investments and the accolades she’s earned (like being this year’s recipient of Canada’s Angel Investor of the Year) are great signs of the ambitious work she undertakes, they’re not her greatest motivation. Sharma is most inspired by a desire to build a better world for ambitious female entrepreneurs, and the young son she’s raising.
“I always thought being a mother would hinder my career. But if anything, it’s made me work harder, and it’s inspired me more to go out and build the type of world I want him to live in … I think the stories you hear of women going on mat leave and starting businesses is because women get so motivated to build a better world.”
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