Survey finds women business owners are finally getting venture

Journal Record, The (Oklahoma City), Jul 20, 2000 by Michael Liedtke Associated Press

SAN FRANCISCO -- 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 psychological 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.

Even as venture capitalists shower billions of dollars on startup 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 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 foundation, a nonprofit research firm in Washington, D.C.

The survey indicates most female entrepreneurs are relying on their own savings and loans to finance their firm's growth instead of tapping into a rich vein of venture capital for cash infusions.

According to San Francisco-based research firm VentureOne, 2,559 companies received venture capital funding in 1999 B of that total, 186, or 7 percent, had female founders.

Venture capitalists invested $48 billion in U.S. companies in 1999, according to a separate report by Newark, N.J.-based Venture Economics.

The company did not break it down by gender.

The trend uncovered by the foundation's 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 female entrepreneurs who are unsure how to pitch their business ideas.

"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.

"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 B usually other women. Two- thirds of the women investors polled said they had bought stakes in women-owned firms in the previous 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.

The survey results stem from interviews with 50 venture capital firms and 235 women-owned businesses. The foundation did not provide a margin of error.