BUSINESSWEEK ONLINE : JULY 10, 2000 ISSUE
FRONTIER -- FEATURES Nothing Ventured Women are launching more businesses than ever. So why aren't they getting a fair share of venture funds? Silicon Valley entrepreneurs talk about ''two degrees of separation''--everyone knows someone who knows a venture capitalist. The problem is, two degrees don't always get you funding. Just ask Punita Pandey, the 36-year-old founder of netCustomer.com Inc., who, like many women entrepreneurs, found herself one degree short of what really matters--firsthand ties to the financial community. On the surface, Pandey had everything going for her. She was well-educated, with an MBA from the University of California at Berkeley and an engineering diploma from India's prestigious Birla Institute of Technology & Science. She also had impressive work credentials, including 15 years of management experience at Deloitte Consulting, Healtheon, and McDonnell Douglas. What she lacked when she drew up her business plan in late 1998 to offer customer-service technology over the Internet were the connections that would move her one degree closer to the money. Indeed, the entrepreneur watched as two of her competitors--both, as it happens, men--raised $75 million and $45 million from venture capitalists. ''I realized early on that as a first-time entrepreneur, it would be hard for me to attract big VC attention,'' says Pandey, ''no matter how sound and attractive a business proposition I had.'' By all accounts, times have never been better for women entrepreneurs. In 1998, women started 36% of new businesses, according to the National Federation of Independent Business. As their numbers grow and their public profiles rise, they're creating their own information clearinghouses, networking groups, and investment funds. Even so, say advocates, women-owned businesses have lagged woefully behind men when it comes to getting the capital to start and expand their companies. "PRETTY FRIGHTENING" Women business owners may get bank loans in almost the same proportion as men, but they have access to smaller amounts, according to a 1998 study by National Foundation of Women Business Owners and Wells Fargo & Co. Only 34% of the women had credit lines of $50,000 or more, compared with 58% of men. ''Woman-owned businesses are still pretty frightening to banks,'' says Robin Hunt, the founder and president of H&W Plastics in Bowling Green, Ky., whose bank turned down her request for a second loan, citing concerns over her cash flow. ''Those that are in manufacturing are very frightening because, unlike a dot-com, every cent has to be poured into the capital equipment.'' Recent anecdotal information suggests, however, that the credit gap is finally narrowing. Among the encouraging signs: Major U.S. banks, including FleetBoston Financial Corp. and Wells Fargo, have launched multibillion-dollar loan programs targeting women entrepreneurs. And the Small Business Administration, often the lender of last resort, is backing fewer loans to women, a sign that women are having more success getting conventional loans. ''Our real capital gap now is in equity capital,'' says Andrea Silbert, founder of the Center for Women & Enterprise, a Boston nonprofit group that helps businesswomen find funding. Even the venture gap is beginning to close, if ever so slightly. Women succeed more by doing what it takes--crafting careful business plans, assembling strong boards that include prominent men, and networking like crazy. In the first quarter of this year, when a record $17.8 billion in venture funds poured into new companies, women nailed down 12.7% of the total, according to the San Francisco research firm VentureOne Corp. Contrast that with their paltry 1.55% share in all of 1995. Also a sign of the changing times: More women are taking leadership roles in venture capital firms and angel networks, and in some cases they're starting their own funds. That increases the likelihood, say advocates, that a woman-run company will pop onto an investor's radar screen. Although some people say you don't need a gender-specific source of funding, Margaret H. Wyant disagrees. Wyant is a former Procter & Gamble Co. general manager and the founder of Isabella Capital LLC, a $6-million Cincinnati VC fund that targets women-owned companies. ''I think it's like Wellesley and Radcliffe--if it hadn't been for them, Harvard wouldn't have admitted women in 1975.'' There is progress, to be sure, but some women CEOs still feel it's an uphill slog to get taken seriously. ''I have been really taken aback by the number of potential investors who say things like, 'You sure know a lot for someone who's so pretty,''' says Kathleen Rege, president and CEO of PlayStrobe Pacing Solutions, based in San Jose, whose analytical tools allow golf courses to operate more efficiently. ''I'm not there to be pretty. I'm there to talk about my business.'' Rege says she has become so fed up with such comments she lets her male advisors screen potential investors. Silbert has seen gender bias at work too. ''One VC told me he would never invest in a woman CEO who was of child-bearing years. That's common.'' CLIMBING THE CURVE Another more benign view of the persistent gender gap in venture funding is that women are latecomers to the game. ''It wasn't until 1975 that corporations started to hire women, and it was only in the 1980s that that translated to significant numbers,'' says Wyant. Only now are these seasoned businesswomen starting their own companies in great numbers. And many are still climbing the learning curve, as they figure out how to write business plans and present themselves to investors. Women can hobble themselves a bit, too. They aren't always comfortable ceding control to investors or taking other people's money, whether it be in the form of debt or equity. And when they do ask for money, they tend to underestimate how much they need. ''Women really need to understand leverage better,'' says Teresa Cavanagh, director of Women Entrepreneurs' Connection, an investment program targeting women that's run by FleetBoston Financial. But when it comes to venture funds, there are less subtle issues at play. Most VCs are men and they tend to lend to those they know--the Old Boy network in action. ''Traditional firms historically have done nothing to network into women's space,'' says Wyant. ''That's no fault of theirs. They didn't go to Smith and Wellesley, and they're not members of women's forums.'' Case in point: Wyant's own husband, John H. Wyant, founder of Cincinnati-based Blue Chip Venture Co., has a $450 million portfolio of more than 100 companies--and only one is woman-led. ''We men don't get it,'' he concedes. Allowing for the possibility they never will, a new generation of women entrepreneurs is taking matters into its own hands. Consider, for example, January's Springboard 2000 in San Mateo, Calif., the first of five events organized this year by the Forum for Women Entrepreneurs and the National Women's Business Council in Washington, D.C. There, Pandey and 25 other women entrepreneurs, selected by event organizers from among 350 applicants, presented their business plans to 300 angel, corporate, and venture investors. To date, 24 of those presenters have received a total of $165 million--although Pandey was not among the successful ones. Another obstacle to VC funding is that women, for the most part, haven't been in the right industries at the right time. As venture capital was pouring into information-technology and health-related fields through most of the 1990s, women entrepreneurs were slow to shift away from non-Internet service industries, where their ranks were stronger. And just as women entrepreneurs have brought many service firms online--helping them land huge VC deals in 1999 and the first quarter of 2000--dot-com-weary investors are now fleeing so-called pure Internet plays, regardless of who starts them. ''Now you pretty much have to be in IT infrastructure and communications,'' warns Silbert. Does that mean women who start consumer Web sites are out of luck? Not necessarily. The recent creation of four women-owned VC funds should help women with a great consumer business idea. ''A lot of these men don't understand women's businesses,'' says Sheryl Marshall, managing director of one such fund, Axxon Capital in Boston, that just invested in MyMaison.com, a Wilmington (Del.) home decor business founded by Lisa David. Adds Marshall: ''Let's say you were talking to a male investor about a bridal registry. He wouldn't understand it in a million years. A woman would get it in a nanosecond.'' For the immediate future, many women will still, of necessity, approach traditional VC firms run by men. Pandey, like others, knows she must strengthen her network. Despite her failure to get funding at Springboard 2000, she pressed on, tirelessly making the rounds of other forums. And at a small Silicon Valley conference, she met Murrali Rangarajan, president and CEO of iLogistix, an $800 million supply-chain management firm in Fremont, Calif. He introduced her to his customers. Two of them, Dell Computer Corp. and Acer America, have signed on to use netCustomer's customer-support technology. Thus far, Pandey has funded her operations with under $1 million--her personal earnings in the stock market, she says. However, to succeed in her fast-changing market, she needs more money. Like other entrepreneurs, whether male or female, she can only hope that Nasdaq's steep decline won't dry up VC funding for the long term. She has begun setting up meetings with several VC firms, including Kleiner Perkins Caufield & Byers, Silicon Valley's most successful high-tech investor. And that moves her one degree closer. To read more about venture capital and women entrepreneurs, click Online Extras at smallbiz.businessweek.com By Kevin Ferguson _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Nothing Ventured TABLE: You've Come a Long Way, Maybe CHART: Gender Gap CHART: Who's Calling the Shots Give `em Hell, Jane Wayne This Raven Really Flies Resources: For Women Only INTERACT E-Mail to Business Week Online

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