Women and Capital: Two words that don’t always marry

What’s the market for women entrepreneurs?

The market is good for their ideas. Census data show that the number of women-owned businesses and the revenue from them has increased faster than the number of all businesses combined.

Women-owned businesses are less likely to fail, too, experts say.

Finding money to back a woman-owned business, however—now, that's a different story.

The problem is not limited to Wisconsin, but is national, and it spans two kinds of investments: "seed" and venture capital (VC). Seed, or "angel" money is an amount of money, sometimes several hundred thousand dollars, needed to get a business off the ground. "Angels" frequently don't publicize their investments.

Venture capital provides more money to take a promising business further down the road. There are a handful of established VC companies in Wisconsin.

As it turns out, both angel and VC money are in short supply when it comes to women-owned businesses.

"Not only is there not a lot of money out there for women, but not a lot of early stage money," said Lauren Flanagan, founder and CEO of SCIO Corp., a Michigan financial consulting firm.

A national report gives data that paints the issue in stark numbers. The 2004 report, from the Ewing Marion Kauffman Foundation, states:

• The venture capital industry is "overwhelmingly male," and there are slightly fewer senior ranking women wielding influence in 2000 (9 percent) than there were in 1995 (10 percent).

• The turnover rate is high. Two-thirds of the female VCs listed in 1995 had left by 2000, compared with one-third of the men.

• Investors often make decisions based on who they know, and most of those people have been men.

The result is that less than five percent of venture capital investments have historically gone to women, according to the report.

The consequences for women entrepreneurs can be steep: either they turn to more expensive funding sources, or slow down their plans.

Linda L. Darragh, director of entrepreneurship programs in the graduate school of business at the University of Chicago, once tracked two businesses making the same products. The owners were graduates of the same business school, but one was female and the other was male. The businesses wound up showing very different growth trajectories, she said.

"The guys starting the business were very tied into some very wealthy men who put up initial capital for the business," she said. The woman-owned business was just "limping along."

"The ability of men to attract capital over women is so different. It really is an issue," she added.

Flanagan agreed. Women have "an extra hoop to jump through. It's `deal-flow,' it's who you know. Women have a harder time getting introductions."

At the national level, five-year-old Springboard Enterprises, a nonprofit organization helping women access private equity markets, has had considerable success. Springboard, which claims to have 4,000 investors and $3 billion in capital, has held 14 forums across the country at which 320 women entrepreneurs have presented their pitches. Four Springboard companies have gone public, according to the organization's website.

At the state level, several recent government initiatives and two private ones may serve to turn the situation for Wisconsin women entrepreneurs around.

Governor Jim Doyle's "Grow Wisconsin" plan included several initiatives aimed at increasing access to capital. One, the recently formed public-private Wisconsin Angel Network, now counts eight separate angel groups, up from six a year ago, said Lorrie Keating Heinemann, secretary of the Wisconsin Dept. of Financial Institutions. Six more are now forming. Those eight represent over 200 angel investors.

Two new funds for women are in the works as well.

One, Women Angels of Milwaukee, headed by Milwaukee attorney Barbara Boxer, plans to invest only in women-owned businesses in Wisconsin and perhaps beyond. It is an "informal investment group of 19 women," Boxer said. Investors must be "qualified," meaning that they have an annual income of $200,000 or net assets of at least $1 million, which can be held jointly with a spouse, she added.

Women Angels is currently considering several investments, which will range from $250,000 to $2.5 million, Boxer said.

As an attorney, Boxer certifies minority- and women-owned businesses for the state of Wisconsin. "So I know there is a real need for women-owned businesses out there and a need for infusion of capital," Boxer said.

Lauren Flanagan is also forming a private women's angel investment group, Phenomenelle Angels Fund I, to invest in women or minority owned or managed businesses in the Midwest.

Membership will be limited primarily to women who are accredited investors as well as select entities, foundations and institutional investors.

"What we're trying to offer to women-led companies is, if you had a choice, wouldn't you rather have successful women as investors?" Flanagan said.

The money is there, according to Darragh. In the past, women have tended to give their wealth to charity instead of thinking of it as investments, she said. "There are a huge number of women with money," she said.

Mina Johnson-Glenberg, Ph.D, founder and CSO of NeuronFarm LLC, a Madison firm making educational software to help children learn to read, understands firsthand the difficulties of finding capital. In 2002, NeuronFarm received $1.5 million in federal Small Business Innovation Research money, but nothing since, she said.

At Springboard's most recent forum, held in Chicago, she made it as far as the third round of discussions, but lost on the fourth because she hadn't yet sold any software. Since then, she's made sales to two schools, so she hopes for better luck next time.