Women-Owned Businesses Out of Venture Capital Loop

Only 2% of the money invested by venture capital firms goes to women-owned businesses, according to a survey released today by the National Foundation for Women Business Owners.

About 38% of U.S. businesses are owned by women, yet women-owned firms represent only 9% of all institutional investment deals, the survey found.

“Women business owners still tend to be invisible to venture capitalists,” said Sharon Hadary, executive director of the nonprofit research firm in Washington.

The reasons are varied, based on the survey’s findings and interviews with industry leaders and observers.

* Women aren’t aggressively seeking venture capital. The survey found that just 11% of the 9.1 million women-owned businesses are seeking venture capital.

* 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. “Many times a venture capitalist will look at a business plan after hearing from a lawyer, accountant or a friend.”

* Most women run 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 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% 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% of the venture capital firms that have invested in women-owned businesses are likely to make new investments with other female entrepreneurs.

*

The study can be found at https://www.nfwbo.org.