Survey: Women Slow to Get Venture Capital

S A N   F R A N C I S C O,  July 19, 2000 -- Although she had been steadily building her business since 1994, Nell Cote didn’t really feel like a full-fledged entrepreneur until just a few months ago.

In April, her New York-based company, Hudson Williams, received the venture capital industry’s seal of approval with its first round of funding — a $3 million investment by Wheatley Partners that had almost as much psychic as fiscal impact.

“It’s given me a lot of confidence and has validated my company,” said Cote, whose 34-employee firm helps businesses improve their Web sites. “People may meet me and think, ‘She’s a woman,’ but now they know I have venture capital behind me. It makes me more credible.”

Cote’s experience remains a rare phenomenon for women entrepreneurs.

2% Into 38% = Woe

Even as venture capitalists shower billions of dollars on start-up companies, only a trickle of the money is being invested in the estimated 9.1 million businesses owned by women.

About 38 percent of U.S. businesses are owned by women, yet just 2 percent of the money invested by venture capital firms goes to women-owned firms, according to a survey released today by the National Foundation for Women Business Owners and Wells Fargo & Co.

“Women business owners still tend to be invisible to venture capitalists,” said Sharon Hadary, executive director for the National Foundation for Women Business Owners, a nonprofit research firm in Washington, D.C.

The survey indicates most women entrepreneurs are relying on their own savings and loans to finance their firms’ growth instead of tapping into a rich vein of venture capital for cash infusions. Venture capitalists invested $70 billion in U.S. companies in the 15-month period ending March 31, according to Venture Economics, a research firm.

The trend uncovered by the survey means many women-owned businesses are being saddled with cumbersome debt that restricts their ability to grow. Meanwhile, venture capitalists may be missing out on golden opportunities being developed by women entrepreneurs who are unsure how to pitch their business ideas.

A Wake-up Call

“We see this as a wake-up call for venture capital investors and women business owners,” said Colleen Anderson, executive vice president of business banking for San Francisco-based Wells Fargo.

The reasons why women remain off venture capital’s radar screen are varied, based on the survey’s findings and interviews with industry leaders and observers.

Some of the most commonly cited explanations include:

Women aren’t aggressively seeking venture capital. The survey found that just 11 percent of women-owned businesses are seeking venture capital.

“It can be intimidating,” Cote said. “Having venture capital makes you concentrate on an exit strategy and that can be difficult for a woman. We tend to fall in love with our businesses.”

Women don’t have enough inside connections to plug into the venture capital industry.

“Women need to build better networks to give them better access to venture capitalists,” Hadary said. “We found in our survey that many times a venture capitalist will look at a business plan after hearing from a lawyer, accountant or a friend.”

Until recently, most women have been running staid businesses that offer little appeal to venture capitalists looking for fast-growing companies likely to make a killing in the stock market. This is changing, though, as more women receive technical engineering degrees and others migrate from the telecommunications industry to start Internet-related companies.

“Ten years ago, most women seemed to be running retail businesses and who wanted to invest in that?” said Nora Zietz, general partner with the Abell Venture Fund in Baltimore, Md. “Now, we are starting to see more proposals from women in fiber optics and other technical businesses.”

Although more women have entered the industry, men still dominate venture capital firms.

Not a Lot Wear Skirts

“There still aren’t a lot of us wearing skirts in this industry,” said Stacy Anderson, founder of Piedmont Venture Partners in Charlotte, N.C.

The foundation’s survey found most women are lining up their venture capital from family and friends — usually other women. Two-thirds of the women investors polled said they had bought stakes in women-owned firms in the last three years compared with 40 percent of men investors.

“It’s always easier to invest in organizations that look like you. That’s human nature,” Hadary said.

Breaking through the barriers separating women entrepreneurs and venture capitalists seems to be the key. The survey found 75 percent of the venture capital firms that have invested in women-owned businesses are likely to make new investments with other female entrepreneurs.