Women who are entrepreneurs have always found it tougher to raise money than their male counterparts have. New kinds of support and a new breed of investor are starting to level the playing field.
Cover Story
Grassroots venture capital
Women who are entrepreneurs have always found it tougher to raise money than their male counterparts have. New kinds of support and a new breed of investor are starting to even the score
Hagit Glickman brims with the qualities that investors prize. She has a magnetic personality. She has solid credentials -- including a Ph.D. in clinical psychology and a decade of experience in the managed-care system. And she has a business plan that burns at the nexus of two hot industries: health care and E-commerce. But in early 1999, when Glickman began the money hunt for MyPsych.com, an online service linking mental-health-care providers with their patients, prospective investors weren't just dismissive, they were downright insulting.
"The message I got was, 'There, there, honey," recalls Glickman, 35. "Here I am, a professional woman, a recognized expert in my field. I go into meetings with potential business partners, venture capitalists, and angel investors, and all I hear is, 'This is a really sweet, cute little idea. But it will never go anywhere.' It was shocking to me."
Glickman would have been less shocked, although no less dismayed, had she known then the statistics on venture funding for women who are entrepreneurs. Although women own 9 million companies -- 38% of all U.S. enterprises -- they collect only a tiny fraction of venture-capital investments. Last year, women-led companies received less than 5% of the roughly $36 billion invested by VCs. Yet according to the Small Business Administration, women's start-ups outpace those headed by men in revenue growth by a margin of two to one. And the National Foundation for Women Business Owners pegs that growth rate at 436% over the past 12 years.
And yet funding for those companies lags behind in part because women have amassed that track record chiefly in the retail and service sectors -- not exactly venture bailiwicks. Today women are entering venture-backed industries and doing so at the same rate as men, but they're not wired into the male-dominated VC networks. "Venture capitalists fund people who they know, who they know of, or who are like them," observes Denise Brosseau, president and cofounder of the seven-year-old Forum for Women Entrepreneurs, in San Francisco. "They don't know how women are going to act. We might cry, God forbid."
But just as women broke through the barriers to debt financing in the 1990s, they are now beginning to penetrate the equity arena. That near-5% sliver of the venture pie is more than twice the helping dished out to female entrepreneurs four years ago, an increase resulting in part from the proliferation of high-tech and Web companies. In the equalizing space of the Internet, women are retooling their marketing, advertising, sales, and publishing skills into officer credentials; meanwhile, men and women are graduating from business schools with identical technical expertise. Consequently, women now hold senior-management positions at 41% of venture-backed businesses, up from 21% in 1998, according to the research company VentureOne. "That's fabulous," says Brosseau. "It means that there are women now who have been before the VC community, and so women in general will be perceived as less risky."
More women are jumping into venture financing as investors, too, launching funds and angel groups from Seattle to New York. Meanwhile, specialized incubators and other mentoring and support organizations are outfitting women-owned start-ups for their trek up the money trail. "We are trying to create a community of interests," explains Catherine Muther, founder of the Women's Technology Cluster, an incubator in San Francisco. "It's about a commitment to each other and to giving back to our community -- a community in which every member has a stake." At the Cluster's one-year anniversary in March, Hillary Rodham Clinton dubbed the movement "the new-girl network."
The growing number of female managers in VC-backed firms means that women are seen as less risky.
The beneficiaries of the new-girl network are entrepreneurs like Glickman. After stumbling with investors her first time out, Glickman landed a spot in the Women's Technology Cluster. There she polished her presentation and quickly nailed a deal with Hemisphere Healthcare Inc., which provided MyPsych.com with a management team, technology, and about $1 million for product development. What's more, the publicity generated by Clinton's visit rubbed off on Cluster members. The First Lady's limo had barely pulled away when Glickman enjoyed the novel experience of having investors cold-calling her. "That's directly a result of momentum generated by the Cluster," she says.
The fount of that momentum is Muther, who in 1994 resigned as marketing chief at Cisco Systems (with "enough cash to choke a horse," according to a colleague) and set out to become a driver of social change. A trip to Bangladesh focused her philanthropic impulses. There Muther observed women who had received economic-development loans immediately plowing their meager profits back into their communities. "Given an opportunity to participate in their economy, women tend to invest in social value," Muther says.
Promoting women's participation in the economy became Muther's end; securing their access to capital her means. She returned to the United States and spent the next two years and $2 million of her own money establishing the Women's Technology Cluster, located on the industrial side of San Francisco's Potrero Hill. Aided by incubator maven Jim Robbins (the brains behind Silicon Valley's first trio of company cookers), Muther created not a separate, women-only network but rather a system for ushering women into the larger venture landscape. "By emphasizing just a little bit of gender equality" in venture financing, Muther predicts, "we will ultimately end up with a bell-shaped curve."
What Muther witnessed in Bangladesh inspired her also to build into her business model a unique give-back component: every incubated company pledges 2% equity to a fund that she hopes will grow in value. "Right now, it's primarily a portfolio of warrants," Muther explains. "Over time there will be liquidity events, and we will create a store of wealth to reinvest in the community." That money, she hopes, will not just sustain the Cluster but also assist female entrepreneurs outside the incubator.
