By Liese Hutchison
Women entrepreneurs are tapping into the St. Louis investment
market. From family and friends to angel investors to venture
capitalists to equity partners, women business owners are seeking
financing to help purchase businesses, start-up companies or
expand operations.
Where a company is in its life cycle determines the type of
financing it seeks. In the infancy stage most entrepreneurs
tap into savings or ask family and friends for investments.
As the company grows, the next source of financing is an angel
investor or high net worth individual. Typically the third financing
stage is venture capital, a high–growth investment that can
lead to a sell-out or an initial public offering. Venture capital
is typically invested in areas such as technology, which require
a lot of capital and have very few assets. Another financing
option is to secure a private equity partner. Private equity
firms typically focus on larger companies needing capital to
purchase a company or for growth. Any of the financing sources
mentioned above then owns a percentage of the company and hopes
for a high rate of return on his investment as the company grows.
Once a company starts obtaining revenue, lines of credit or
expansion capital from retail banks aren’t far behind.
So how are women faring in the financing of their companies?
According to a recent study entitled, “Women Entrepreneurs in
the Equity Capital Markets: The New Frontier,” conducted by
the National Foundation for Women Business Owners (NFWBO) and
sponsored by Wells Fargo, only recently have women been seeking
equity. “The movement of women-owned firms into the equity capital
markets is a new phenomenon,” says Nina McLemore, NFWBO chair.
“Two-thirds (65 percent) of the women interviewed with equity
capital received their first equity investment in the past four
years.”
There are more than nine million women-owned businesses in the
United States, but women-owned firms represent only nine percent
of all institutional investment deals and receive only 2.3 percent
of all institutional investment dollars among the firms interviewed.
“The NFWBO report should serve as a wake-up call to accelerate
the involvement of women entrepreneurs in the equity capital
markets,” McLemore notes. “Women entrepreneurs should consider
seeking equity investments and equity investors should recognize
the market potential of these increasingly substantial women-owned
firms.”
Holly Huels, senior vice president of Capital For Business,
a private equity firm that invests in manufacturing, distribution
and business-to-business service companies, says most women-owned
businesses aren’t large enough to get the attention of private
equity firms. “I would love to finance more women-owned companies
but very few have more than $5 million in revenue, which is
our minimum threshold.”
In addition to the revenue requirement, Huels looks for established
companies in which to invest. She found one such venture in
Steelweld, a truck body manufacturing business. Elaine Hunter,
president, started at Steelweld as a secretary in 1966. She
eventually became an officer and then a stockholder, and in
1995 purchased the company. Steelweld has 170 employees in two
installation facilities (San Jacinto, Calif. and Temple, Texas)
and one manufacturing plant (St. Clair, Mo.). Southwestern Bell
is the company’s largest client and Hunter expects to double
1999 sales of $12 to $25 million this year.
Hunter needed the help of The Fortune Group, an intermediary
to secure financing through Capital For Business and Firstar
for her purchase. “It was difficult for me to get financing,
because I didn’t have a manufacturing background per se, and
I wasn’t taken seriously a lot of times,” Hunter notes. Her
business is doing so well that she is buying back Capital For
Business’s stake in Steelweld ahead of schedule. Hunter notes
that what helped her buy the business was her strong business
plan and her advisors, such as her accountant.
Hunter’s experience mirrors the NFWBO report. Both the women
business owners and the institutional investors interviewed
by NFWBO agree that a primary factor of success in the equity
capital arena is gaining access to the right networks of advisors—accountants,
attorneys, fellow business owners and mentors—who can assist
with putting together the business plans and making referrals.
Two-thirds of the proposals that are seriously considered by
institutional investors come from these referral networks.
Other keys to success in the equity capital markets according
to NFWBO, include:
•Giving up management control: Nearly three-quarters (73
percent) of women who have equity capital were prepared to give
up day-to-day control of their businesses, compared to only
58 percent of those still seeking equity
•Strong management team: The management experience of the
company leaders and their understanding of the market are critical
factors that investors consider in evaluating proposals
•Demonstrating marketing knowledge: Presentations should
feature a clear business concept with a realistic marketing
plan
Persistence: Perseverance is important. Women entrepreneurs
who have equity financing contacted an average of more than
15 funding entities, while women who are still seeking equity
financing have contacted fewer than 11 funding entities.
Laura
Schacht, president and CEO
of Defiance Innovations, has secured
the initial financing to purchase the
company and is now looking for venture
capital financing. |
Laura Schacht, president and CEO of Defiance Innovations, has
firsthand experience in obtaining financing for her company.
She agrees with Hunter and NFWBO that key advisors are important
and she found her advisors through two organizations: The Executive
Committee (TEC) and the Women’s Presidents Organization (WPO).
“The advice I got from these groups was invaluable, and it was
also helpful to know that I wasn’t alone,” Schacht says. “I
don’t think I could have gotten through the hard times without
the people who I met through those groups.”
Schacht purchased Defiance Innovations in 1999. The company
has 27 employees and manufactures high-speed vertical machining
centers. After securing the initial financing to purchase the
company from Midwest Bank Center, Schacht is looking for venture
capital financing in St. Louis. Because of the debt Schacht
incurred buying the company last year and recently purchasing
another company that complements her business, retail banks
aren’t an option right now. “Our financials are scary to a traditional
bank,” she notes. “The potential is there and the VC people
see that.” Schacht is trying to secure $1 million in venture
capital financing to enhance the company’s parts inventory and
invest in equipment. She notes that there are so many challenges
in getting financing that she’s not sure that being a woman
plays a role.
However, Marsha Mellitz, president of the Center for Emerging
Technologies, does think being a woman plays a role in the VC
market. “Most of the venture capitalists are men and they’re
used to dealing with men,” she notes. But Mellitz adds that
most women aren’t focusing on high-growth or technology companies,
which are the areas the venture capitalists are looking in.
“I know a lot of women in business in St. Louis, but they tend
to be locally focused and smaller companies that tend to raise
money from friends and family.” Mellitz adds that the venture
phenomenon is so new to the St. Louis area that there aren’t
many men-owned businesses seeking VC money, let alone women-owned
businesses.
Phyllis Brasch Librach is starting her company, SoWhatIf, with
personal savings, money from friends and family and seed money
to get her idea off the ground. Once her concept is proven,
she feels she can secure venture capital. SoWhatIf is a marketing
and merchandising company that caters to young women and teenage
girls who are size 14 and larger. “Twenty-seven million women
under age 34 are size 14 and up,” Librach notes. “Studies have
shown these customers feel forgotten and alone. We did the research
to see if we could find the right products for them.”
SoWhatIf is a marketplace for size and lifestyle, not an e-retailer,
Librach notes. “The reason this business exists is to solve
a customer’s problem and to consolidate the merchandise that
fits her size and lifestyle into one place. Women can click,
call or come into a store to find the merchandise we’ve reviewed
and collected.” The company did a privately funded test launch
last month and is seeking VC money to go national. “Securing
capital isn’t a gender issue; it’s how good is the idea and
the investment climate,” she says. “Women have been so supportive
of our idea, and we think the money will come.”
Suzanne Magee Joyce is seeing the money come in from a several
sources. TechGuard Security is raising money to support its
self-updating firewall security software. “We started the company
through self-financing,” Joyce says of herself and her husband
James. “We then did a private placement with friends and family
and are now in a seed round of financing.” At press time, TechGuard
Security was confident of reaching its $5 million goal. “We’re
using the seed money for additional staffing, sales and marketing
of the product, TechGuard Neural Firewall, lab equipment and
office expansion,” Joyce notes.
Andy Hoyne, a partner in the Angel Network, says that women-owned
companies sometimes ask for too little money. “We’re looking
to invest in companies that need $500,000 to $2 million and
that have the potential to grow real fast such as a software
or biotech firm as opposed to a retail or manufacturing company
that probably needs a retail bank,” he notes. He says the women
who ask for money from the Angel Network typically want only
$100,000 to $200,000 in financing. “Most VCs invest more than
that,” he says.
Where’s the breakdown of investment dollars coming from for
women-owned businesses? According to the NFWBO study:
•73 percent of women business owners report that they received
their initial investment from family or friends
•73 percent have received equity capital from individual
investors, such as angel investors
•25 percent say that corporate investors made equity capital
investments in their firms
•15 percent say they received equity capital from venture
capital firms.
Women entrepreneurs who have equity capital differ from other
women business owners in several ways. They own newer businesses,
and are younger in age, more highly educated and more likely
to have been senior mangers or executives just prior to business
ownership.
Although only 14 percent of the institutional investors interviewed
in the NFWBO survey were women, “the presence of women in decision-making
roles in investor firms is making a difference for women business
owners,” McLemore comments. “Two-thirds of the women investors
(67 percent) say they have made an investment in women-owned
firms in the past three years, compared with only 40 percent
of men investors.” Experience with investments in women-owned
firms also appears to influence future investment. Firms that
have previously made an investment in women-owned firms are
twice as likely to make new investments in women-owned businesses
(75 percent compared to 38 percent.)
“The type of businesses women are in will greatly influence
the amounts of capital available to them,” Huels emphasizes.
And she encourages women to raise capital, “Women shouldn’t
be afraid to approach the private equity markets or hire someone
to help them raise capital.”
Liese L. Hutchison is an assistant professor in the department
of communication at Saint Louis University and a free-lance
writer.
