Getting in the Game:
Venture Capital Firms Target Female Entrepreneurs
By Lindsey Townsend
Good news: the boardroom door has opened a crack. The high-profile world of venture capital, long an exclusive “boys club,” has begun to let the gals in to play.
In the past three years a host of new initiatives have been launched that are targeted towards getting more cash in the hands of female entrepreneurs. Major developments include SBIC licensing of three women-owned, women-focused venture capital firms; the creation of WOMENAngels.NET, the first all-female angel investors’ fund; and the formation of Springboard 2000, a series of women’s venture capital conferences.
It’s help that’s sorely needed. Although the Small Business Administration (SBA) reports that women are now starting businesses at twice the rate of men, last year they received less than 2% of the estimated $16 billion invested by venture capitalists. Why haven’t female-led companies received their share of the pie to date? One reason is that in the past women have usually operated retail and service businesses, which typically don’t offer the higher returns that high-tech industries offer-and that investors love.
“Only in the last 10 years have women really begun achieving senior management positions in high-tech firms and gaining the skill sets they need to start high-growth firms that venture capitalists will look at,” observes Christine Cordaro, general partner with San Francisco-based Viridian Capital. Another problem is that women have traditionally not had access to investor networks. “This is a relationship business,” she says. “Women need to learn how to network in the venture capital community to get someone’s attention and be referred on to someone else.”
A Giant Leap for Female Firms
In 1998, the Small Business Investment Corporation (SBIC) took the historic step of licensing three venture capital firms that were women-owned and women-focused. (Venture funds that are licensed SBICS can significantly increase the size of their investment pool with government funding up to two times the private capital already raised.) “We have many licensed women-owned or managed SBICs, but Viridian Capital, Capital Across America, and Women’s Growth Capital Fund are the only ones that specifically focus on women,” says Nancy Singer, public affairs specialist with the U.S. Small Business Administration (SBA) in Washington, D.C. With SBA-backed funding, the three firms represent a potential investment pool of more than $56 million.
Founder and CEO Whitney Johns Martin leads the mission of Nashville-based Capital Across America to reach what she calls a key under-served market: “traditional industries that are not interesting to venture capitalists, such as non-high-tech businesses-which many women are still involved in.”
With a pool of $25 million, the firm has already invested $10 million in woman-led firms, with the average investment being around $1 million. They look for profitable businesses with at least three years of operating activity, growing at an annual rate of at least 15%, and managed by an experienced team.
As immediate past president of the National Association of Women Business Owners (NAWBO) and Chairman of the Board of the Federal Reserve Bank of Atlanta, Nashville Branch, Martin is extremely well-connected. “I call our money ‘smart money.’ It’s not just access to capital. We also offer our knowledge, expertise, and referral information to add value to the business,” she says.
Meanwhile, with $30 million under management, Women’s Growth Capital Fund (WGCF) is the largest women-owned venture capital firm in the Eastern United States. The Washington, D.C.-based Fund has more than 70 individual and institutional investors. “Seventy percent of our individual investors are women who have put in an average of $100,000 each,” says managing partner Patty Abramson. The Fund concentrates on women-owned or managed expansion-stage companies-those who have been in business at least two years, have a product or service on the market, revenue of about $500,000, and projected annual sales growth of at least 20 percent. Average investment is $500,000 to two million.
Abramson also helped develop WOMENAngels.NET, the first all-female investors fund in the U.S. “Although there is an incredible amount of private equity investing being done, very few women are participating in angel investing,” Abramson says. Each of the fund’s 85 members has contributed at least $75,000 towards helping the fund amass more than $6 million in seed money for new business. “All meet the federal regulators’ definition of accredited investors, meaning they have minimum net worth of $1 million or significant annual income of $200,000 for an individual or $300,000 for a household,” Abramson remarks.
Members attend monthly dinner meetings where pre-screened companies make their financing pitches. While the group focuses primarily on the tech and biotech industries, they go out of their way to support female entrepreneurs, Abramson says. “We’re tapping into this pool of successful women who can contribute their skills when they get on the boards of startup companies.” Abramson plans to launch a second club in the fall and hopes to eventually have a network of women investors investing together around the country.
Another innovative forum launched this year is Springboard 2000, a national initiative designed to increase the investment channels for women entrepreneurs in woman-led firms by corporate, angel and venture investors. Spearheaded by the National Women’s Business Council and The Forum for Women Entrepreneurs, Springboard 2000 raised an astounding $165 million in venture-capital commitments last January in Silicon Valley.
Of the 26 companies that made presentations at the forum before an audience of venture capitalists, all were headed or co-headed by women. “We maintained there were many women who could not get their companies in front of the investors and that if they could just get their business plans read, the investors would certainly agree they were good deals. So we set out to find good deals that were funded, run and/or managed by women with substantial equity stakes in their companies,” says Amy Millman, executive director of the National Women’s Business Council.
In July, a second Springboard Mid-Atlantic conference was held in Dulles, Virginia, where 45 pre-selected companies presented their businesses to an audience of 200+ private, corporate and venture capital investors. “The companies are seeking anywhere from $500,000 to $3 million and represent the entire spectrum of high-tech, high-growth potential businesses: dot.com, e-commerce, hardware and software, telecommunications, biotech and life sciences companies,” said Millman. (Editor’s note: At press time, organizers expected more than $150 million in venture capital commitments from the Mid-Atlantic forum.) A third Springboard is planned for November in Cambridge; MA.
Other Funds Operating
In addition to the licensed SBICs, there are also a handful of other venture capital companies that specifically target women-owned firms such as the Cincinnati-based Isabella Capital LLC and Chicago-based SB Partners. “Our purpose is to make money. Women represent an underserved, high potential market segment with less competition than the other entrants,” says Isabella’s principal Peg Wyant. Isabella focuses on early-stage, woman-led businesses that are technology-driven; they typically invest $200,000 to $2 million per company, usually in more than one round. “We look for an exceptional leader capable of building a world-class team. The winds will change and there will be storms, but to reach the destination, it’s the quality of the people that count,” Wyant remarks.
Finally, one of the newest venture capital firms to enter the market is SB Partners, which completed its first round of funding last December and has already invested in an industrial safety products distribution company and an educational publisher. SB plans to target both women and minority-owned companies with an average investment of $1 million. Partner Leslie Davis says that women tend to be overly cautious about giving up interest in their company to outsiders. “But they should understand the game. We’re providing equity, and with that comes an ownership stake,” she points out.
Show Me the Money
- Learn the process. Talk to people who have successfully raised money. Attend venture capital forums and develop presentation skills, then get to know venture capitalists. Venture capital firms are inundated with business plans, investment summaries, and email requests. There’s no way to respond to all of them. But I will stop what I’m doing to review one that has been recommended to me by someone I trust. -- Whitney Johns Martin
- Think seriously about whether there is a sufficient growth projection to enable a venture fund to invest. Know the competition and how you fit in, and understand your revenue model…Do you know how much it will take to reach your milestones? -- Patty Abramson
- Be able to clearly articulate your long-term financing strategy as well as how you will exit and make your investor money in three to five years. -- Christine Cordaro
- Be thorough, be confident, be persistent. -- and have big dreams! -- Peg Wyant