Can women get venture capital funding? The arguments on both sides are equally persuasive.
Venture capitalists say they consider profit potential, not gender, when looking for deals. But despite this apparent neutrality, women only got an estimated 4 to 5 percent of the $38 billion invested in the United States in 1999.
"More women are being funded today, and there are a number of highly qualified women seeking funding, but relative to the total market, the numbers are small," says Willa Seldon, general partner with San Francisco-based Viridian Capital, the newest SBA-backed small-business investment company (SBIC) targeting women entrepreneurs.
But, Seldon adds, the numbers are improving. She attributes the change to several factors: women entrepreneurs being better-prepared to seek capital, more venture capitalists looking to fund women and more women working at established venture funds.
Sharon Hadary, executive director of the National Foundation for Women Business Owners, views the discussion as a sign of how far women have come. "When we first started, we worried about issues like banking relationships, access to credit and [convincing] banks that a woman-owned business is viable," she points out.
Acknowledging that the market is still clearly under-served, Hadary speculates that preparation is part of the problem. She believes that while some women have the management teams and skills financiers like to see, most don't.
Another obstacle is that most venture capitalists only look at proposals recommended by people they know, and "a lot of venture capitalists don't have women entrepreneurs in their circles of friends," says Kay Koplovitz, CEO of New York City's Koplovitz & Co., a media investment firm. She says the percentage of women getting equity capital is anemic.
To ameliorate the negative fall-out from fighting the good-old-boys network, Seldon says Viridian reviews every business plan that comes its way, but only invests in less than 1 percent of the proposals.
Another development that may help circumvent women's lack of access to venture capital is the growing number of women angel networks. There's no definitive list of these organizations, but Koplovitz has found networks in cities like Seattle; Boston; Washington, DC; and Cincinnati.
As more women entrepreneurs move into the ranks of investors, the amount of venture funding available to women, as well as women's overall chances of obtaining equity financing, should increase.
For the first 10 years of her company's life, Laura Peck Fennema was content to grow Essentiel Elements using internal financing.
Then came the decision to add a skin-care line to a product mix that already included aromatherapy body and hair items sold to spas and specialty stores. "Launching a skin-care line requires a much larger budget," says Fennema, 42, of her need for outside funding. "And we needed to hire our own direct sales force. That takes deeper pockets."
Going the venture capital route was a natural for Fennema, who had worked as a technology stock analyst in investment banking for eight years prior to starting her San Francisco company with $50,000 in savings in 1989. But even Fennema didn't realize how naive she was about the process.
"In the thick of it, for three or four months, searching for venture capital consumed about a third of my time. I was meeting with people constantly, sending out business plans, responding to questions and revising my financing," she says. She eventually ended up with a first round of financing in March 1999--a combination of $500,000 in venture funding and $750,000 in private equity capital. "I approached only about five venture capitalists, and when I realized they were going to have to do so much due diligence to close the deal, I decided to take another route."
Fennema, who believes the lengthy due-diligence process is the nature of the venture capital beast, also cautions women to understand that going to traditionally male-dominated venture funds can be an iffy proposition. This is particularly true if you're pitching a deal that might be viewed as a "women's issue," such as a company only selling services and products aimed at women.
While Fennema was surprised at the level of intensity required to raise her $1.25 million in equity capital, she's extremely pleased with the results--and her 1999 sales of $10 million: "It has allowed the company to grow pretty dramatically."
Koplovitz & Company, (212) 551-3585
National Foundation for Women Business Owners, (301) 495-4975, ext. 13, http://www.nfwbo.org
Viiridian Capital, 220 Montgomery St., #946, San Francisco, CA 94104, (415) 391-8950