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, 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 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.

For start-ups, 2% may sound steep, but Cluster CEOs say it's worth it. Through the incubator, CEOs are matched with well-connected mentors and advisers who guide them through the start-up and funding process. They are also plugged into Muther's vast personal network, whose nodes include angel investors, VCs, lawyers, accountants, and other professional contacts from her years at Cisco and 3Com.

Catherine Muther created not a separate, women-only network but rather a system for ushering women into the larger venture landscape.

Cluster members laud the internal networking opportunities as well. At a regular weekly meeting of Cluster CEOs, for example, Gina Johnson confides that she is struggling to find a lead investor for a much-needed capital infusion for, a Web-based business dealing with senior care. Later, CEOs of more-advanced-stage companies introduce her to their own investors. "We all share contacts," says Johnson, who joined the Technology Cluster from another, more traditional incubator last winter. "And the deeper I get into this industry and the whole funding process, the more I realize that those contacts are everything." Others are apparently finding the same thing: at the Cluster's anniversary, Muther announced that its first 10 start-ups had raised a total of $18 million in equity investments.

Of course you can fit only so many eggs into one incubator, and there are thousands of women-run start-ups that could profit from Muther's nurture. Fortunately there are other organizations that -- while stopping short of incubation -- offer similar services by opening their own networks to entrepreneurs and acting as prep schools in fund-raising. Much of that schooling entails emboldening women in their investment pursuits. "We see very clear patterns in how women approach equity investments," says Andrea Silbert, CEO of the Center for Women and Enterprise, in Boston, which since 1998 has helped 100 local entrepreneurs seek equity funding. "They're not as aggressive as men in the amount they ask for, and they're reluctant to put their friends' and families' money at risk."

"There's a profile in the venture world of what a successful entrepreneur looks like," agrees Jennifer Gill Roberts, a general partner in the Palo Alto, Calif., office of Dallas-based Sevin Rosen Funds. "It's someone who's aggressive, very competitive, and hard-driving. A lot of those are typical male characteristics. A woman may have all those qualities, but the way she demonstrates them may be very different. So what you'll hear from VCs is, 'She doesn't have the characteristics we're looking for in a CEO." Through workshops and one-on-one coaching, groups like the Center for Women and Enterprise help women who are entrepreneurs present themselves and their businesses as investment worthy.

But most important, those organizations, like Muther's incubator, are portals to a network. Silbert and her colleagues, for example, boast a filigree of powerful connections that includes the Boston angel group Renaissance Ventures. Then there's the Forum for Women Entrepreneurs, founded by Roberts and Brosseau when they were students at Stanford's Graduate School of Business. The year was 1993, and "you could count the women VCs and women CEOs on one hand," Roberts recalls. The two envisioned creating a venture fund to provide women with pre-seed-stage money.

Instead, Roberts joined Sevin Rosen in 1994 and used her insider status to help Brosseau enroll 1,000 members -- including a smattering of men -- dedicated to supporting women in business. "I love to hook people together, to encourage connections and build a community," says Brosseau. Those thus hooked range from first-time CEOs to powerhouse VCs like Hummer Winblad Venture Partners' cofounder Ann Winblad, who recently invested in a start-up she discovered through the Forum. Brosseau also has garnered financial and other support from heavyweights like Microsoft, SoftBank, and Kleiner Perkins Caufield and Byers. Members do much of their networking through a private E-mail list, posting requests for fund-raising advice and seeking introductions to lawyers and accountants, angels and VCs.

Valerie Buckingham joined the Forum in February and four months later was closing in on a first round of $750,000 for Meconomy Inc., a privacy-protection start-up. "I got direct referrals that got me in front of venture capitalists," she says, referring to contacts made through both the organization's staff and its members. The first-time CEO also availed herself of the Forum's seminar series featuring the wit and wisdom of Bay Area VCs and other experts in structuring early-stage investments, negotiating term sheets, and presenting to people like themselves.

Male entrepreneurs care about this stuff too, of course. But while the Forum's lessons are gender-neutral, the approach is targeted. "Women network differently. They seek to be more collaborative and less competitive," Roberts says. "You can see that on the E-mail list and in the meetings. People go out of their way to help each other."

The success of organizations like the Forum depends on the existence of like-minded investors. More women are getting VC money because more venture funds -- many with female principals -- are targeting start-ups whose founders are women. Along the way, those funds are both exposing their CEOs to a broad array of investors and introducing investors to funding opportunities that they might otherwise have missed.

Back in 1994, when Sona Wang began soliciting institutional investors for the first venture fund targeting women who are entrepreneurs, the Wall Street Journal reported that fewer than a dozen female entrepreneurs nationwide had landed $1 million in venture capital. No wonder that Wang's idea for Inroads Capital was "perceived as risky," she says. "We knew it was risky."

Managers of venture funds targeting women stress that they're not interested in special-needs cases.

Six years later Chicago-based Inroads is the largest of the women-oriented funds, with $50 million under management. Women's Growth Capital Fund, in Washington, D.C., followed Inroads' lead in 1997, investing $18 million in 13 companies. A year later San Francisco's Viridian Capital added $30 million to the pot. New entrants since 1999 include Cincinnati's Fund Isabella, with $10 million, and Boston's Axxon Capital, which at press time had just closed its first $12-million fund.

Concerned that their missions might be misunderstood, these funds' managers emphasize that they're not interested in special-needs cases. "We get lots of callers who say, 'I am a woman, and everyone else has turned me down, and you need to help me," says Patty Abramson, cofounder of Women's Growth Capital Fund. "But we're not looking to invest in companies nobody else wants to fund. We're in the deals to make money."

"People always assume that there's a double standard if you focus on something crazy like women," agrees Wang. "Our investment criteria are the same for all our companies."

Indeed, two-thirds of Inroads' investments are in businesses founded or run by men. Diversity helps the fund stay in the thick of the deal flow, and that, in turn, builds credibility for its VCs and all its portfolio companies. "We view ourselves as a conduit for non-women-focused funds to invest in these companies as well," says Wang. "When we call our colleagues on the West Coast and ask them to look at a deal, they pay attention, because it's come to them through the old referral network."

That's not to say women-led venture funds have found acceptance more easily than the entrepreneurs they back. When former securities broker Sheryl Marshall started scouting institutional investors for Axxon Capital, she says the reaction among many was, "Ugh! A venture fund focused on women? How can that be successful?"

But Marshall sees her gender as an advantage. Like some investors and entrepreneurs, she believes that women are sometimes quicker than men to detect the promise in other women's ideas. She recounts, for example, how male VCs scratched their heads over one woman's plan to start an online wedding registry -- a concept that appealed to Marshall instantly. Says Dorothea Herrey, a VC at Scripps Ventures: "We've seen a couple of deals in retail fashion where my female colleague and I had different reactions than the men in the room. We get the business better because we are the target consumer." And that perspective should matter to all VCs, since women are the chief household buyers and account for roughly half of all E-commerce purchases.

Even as they savor their niche market, VCs at women-centric funds hope their successes will lure other investors to back women-owned companies too. And, in fact, that's already happening: in April, New York City's Flatiron Partners announced a $20-million standalone fund exclusively for start-ups led by women and minorities. But widespread enthusiasm may be constrained by the paucity of female partners in traditional firms: women account for less than 20% of the nation's VCs. "I've got to believe that having decision-making, deal-doing women partners will influence VCs' perceptions of women in leadership roles," says Wang. Women-focused funds on their own "have not made much progress," she adds. "It's still a severely undertapped market."

Sevin Rosen's Roberts is nonetheless optimistic. "I think about it in terms of the progress that we've made," she says. "The face of venture firms is changing -- by age, ethnicity, and gender. It doesn't feel as inhospitable as it once did."

Whereas it can take years to make partner in a VC firm, angel investors are born overnight. And they're being born all across the country as women with accumulated wealth invest in new companies, many being started by people like themselves. The leader of the pack is the 100-member Seraph Capital Forum, assembled a year ago by Susan Preston, CEO of Reality-Based Learning Co., an education company in Redmond, Wash. Preston's motive was to get more women involved with start-ups in the Seattle area, where "there are only about four women VCs," she says.

Every Seraph angel meets the net-worth requirements of an accredited investor, but that doesn't necessarily translate into expertise. Before joining Seraph, "some of these women had never made a financial decision by themselves," says Preston. The angels are strongly encouraged to attend Seraph's lunches, classes, and seminars at which local VCs and partners from law firms and big-five accounting firms drill them in evaluating management teams, analyzing financial documents, and diversifying investment portfolios. "Our goal is to give them the education and information to help them make intelligent investment choices for themselves," Preston says.

Thus equipped, individual angels have so far invested in 18 companies, plunking down as much as $500,000 each. Although Seraph claims gender-blindness in choosing opportunities to present to members, women CEOs have knocked on its door in disproportionate numbers, and just over a third of the companies invested in count women among their founders.

Seraph appears to have started a trend: there's talk of similar groups sprouting up in New York and San Francisco. In the Washington, D.C., area, was completely booked after just a couple of breakfast meetings, with 90 members possessing varying degrees of investment experience and ranging in age from 25 to 65. "We were so oversubscribed that we think we're going to have to do another one," says organizer Esther Smith, a managing partner at investment relations firm Poretz Group, in McLean, Va. Each angel has agreed to put in $25,000 each year for three years, becoming equal partners in a fund that made its first private investment in May.

But it will take more than female angels, or any other single force, to bring women's access to capital up to par. "I don't think it's going to change dramatically until women have a greater presence in all areas, from angel financing and venture-capital firms to government, law, and Fortune 500 companies," says Preston. She and others focused on parity recommend that every area with a concentration of VCs also host incubators similar to the Women's Technology Cluster; networking and support groups akin to the Forum for Women Entrepreneurs; and venture funds and angel groups that target companies in which women are significant stakeholders.

For the new-girl network, building that infrastructure may be the ultimate goal. "There's this feeling that all of us are working for a greater good for all the rest of us," says Preston. "And maybe subconsciously we all work harder because we perceive that a failure by one suggests a failure for all."

D.M. Osborne is a senior writer at Inc.

A Fair Shot

The calendars of Web CEOs bristle with Xs designating industry conferences -- Industry Outlook, Demo, NDA, and the like -- where the company leaders can strut their stuff before throngs of well-heeled investors. Now female CEOs have their own dates to reserve: a series of venture fairs collectively called Springboard 2000 that spotlight nascent women-run companies in the life-sciences and technology sectors.

Since the first Springboard 2000 event, in January, investors have pumped $175 million into 20 of 26 presenting companies. At the forum, founders pitched to an audience of angels and venture capitalists packed into Oracle's gleaming conference center in Redwood City, Calif. "Bringing 400 people into the room built this kind of frenzy," says Krishna Subramanian, CEO of Kovair Inc., a maker of business-to-business strategic-relationship-management software and the day's first presenter. "It cracked us into the network. Within two weeks we had multiple investment offers from multiple VCs."

"It's a rare event where you can get in front of that kind of audience and have them actually hear you," agrees Lisa Henderson, CEO of, an online matchmaker for student athletes and college athletics recruiters. "It really kick-started the company."

The Springboard 2000 fairs grew out of conversations that took place last year among Catherine Muther, founder of the Women's Technology Cluster; incubator guru Jim Robbins; and Kay Koplovitz, founder of cable's USA Networks and the newly anointed chair of the National Women's Business Council. Koplovitz wanted to sponsor a big, attention-getting conference for female entrepreneurs, but Robbins suggested something more results-oriented: a vehicle for channeling money to the most promising women-led businesses. Working with Forum for Women Entrepreneurs' Denise Brosseau, the threesome signed up such sponsors as Oracle and spread the word to everyone on their contact lists. Ads placed in business publications and on the Web drummed up additional interest.

A pool of 350 women-led businesses applied for the chance to make their pitch, and a screening committee of 35 equity investors winnowed the list to 26. "We were looking at the same exact criteria that an angel or a VC would look at," says Brosseau. But selection was just the beginning. Pitch coaches groomed and grilled the entrepreneurs for their 10 to 17 minutes in the spotlight. Brosseau, Robbins, and other veterans also spent long hours preparing the presenters. In all, 150 professionals pitched in to help entrepreneurs and event organizers alike. And "nobody got paid," says Brosseau.

Those efforts showed, according to attendees impressed by the caliber of the pitches. "In some ways, it seems a little forced. These people don't need a crutch," says Stuart Davidson, a managing director at Labrador Ventures, which ended up investing in "But far and away the majority of the companies that we see are men's. So there is a place for a forum for companies run by women."

Springboard 2000 staged its second venture fair in Dulles, Va., in July, and there are plans for a Boston edition in November and a New York one in March 2001. But the organizers hope the demand will soon evaporate. "We're trying to put ourselves out of business in a few years," says Brosseau. "This is an awakening process, to help women get into all the other conferences. We have no desire to institutionalize it."

For Women Mostly

Venture funds

Axxon Capital

Fund Isabella

Inroads Capital Partners

Women's Growth Capital Fund

Viridian Capital

Angel groups

Renaissance Ventures

Seraph Capital Forum

Networking and support organizations

Center for Women and Enterprise

Forum for Women Entrepreneurs

Financial Women's Association
of New York

U.S. Small Business Administration
Office of Women's Business Ownership

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