“Sexual dealing: Less VC flowing to women”

 Nashville Business Journal, by Dave Raiford, November 20, 2000

Women entrepreneurs don't come close to their male counterparts when it comes to getting venture capital, but the disparity has more to do with connections and sheer numbers than gender.

Of the equity investment firms responding to a survey by the National Foundation for Women Business Owners last year, about 9 percent reported making deals with women-owned firms. Those deals represented only 2.3 percent of the total cash invested by those companies in 1999.

It shows a stark contrast, but the dynamic behind the numbers isn't based on gender, says Laura Campbell, president and chief executive officer of Laura Campbell & Associates in Nashville.

"One of the reasons they're not getting venture capital is that not as many are seeking funding," she says.

It's hard to find something without knowing where to look, and it's tougher when venture capitalists are more likely to open their doors to someone they know. But such is the nature of an inherently risky business, she says.

Stuart McWhorter, senior executive with the Franklin-based venture capital firm Clayton Associates, agrees.

"We typically know the people (we invest in)...that can cut the courtship period in half," he says.

Started in 1995 as an "angel" investor vehicle, Clayton Associates invests in the range of $250,000 to $3 million per deal. The smaller investments are usually made to infuse more cash as the business grows, he says.

The company is invested in 35 companies now, and about 70 percent of those are in the Nashville area. Clayton Associates focuses primarily on health care, service and technology companies. Three of its investments are in women-ran companies.

It's not surprising that venture capitalists and private investors tend to stick with known quantities, Campbell says, and those quantities happen to mainly consist of male-owned and -run companies.

"If (venture capitalists) have had success with someone in the past, then it makes sense to them to invest with that person again," she says. "Venture capital is an incredibly risky investment. Anything they can do to lessen that risk is what they need to do."

Campbell was a partner in Nashville's first major venture capital firm, Massey Burch Capital Corp. Her company, Campbell & Associates, works with businesses to develop business plans and raise investment funds.

It's who you know

The NFWBO statistics bear out the logic that who a business owner knows is paramount to success in garnering equity investments.

Of the investors surveyed, 64 percent responded that the proposals they take seriously came from referrals and not cold-call, unsolicited business plans.

The relatively low number of women entrepreneurs receiving venture capital doesn't point to a nefarious plot, says Whitney Johns Martin, founder and CEO of Capital Across America. Rather, it's the product of well-worn trends that could be changing.

"Historically it's been a low number. Not many women were in the networks and didn't have the relationships, and venture capital firms have been dominated by men," says Martin. "I don't believe it's a matter of overt discrimination, but a disconnect between the two markets, and that is rapidly changing."

Focusing on women-owned businesses, Capital Across America was founded two years ago in Nashville and now has an office in Dallas. So far, the firm has invested about $26 million, primarily in companies located on the West Coast.

For Kim Stier, president and founder of Industrial Data Systems, Inc., the key to the venture capital strong box is networking, not gender.

Knowing an investor doesn't guarantee an investment, but it does help open doors and it's making the right moves into the right business circles that makes the difference, she says.

Started in 1993 by Stier, IDS works with businesses in the chemical industry to manage materials safety data sheets and safety compliance programs using the Internet as a distribution channel of its services.

"I saw an untapped niche and I started a company," she says. "I boot-strapped it for years."

Boot-strapping will only go so far, and Stier wants to take her company to the next level. That requires an infusion of investment, and over the past few months, she has sought private investors to help her Nashville-based business grow.

"I started networking and got into the loop by partnering with other Internet companies," she says.

Now, Stier and IDS have some deals in the works. The gender issue did come up during meetings with investors, but it came as an assurance that it had no bearing on whether she would get a deal or not, she says.

"Their objective was to bring that to the forefront," she says.

With deals by the hundred crossing the desks of decision makers in venture capital firms, familiar names and faces carry simply seem to carry more weight than ink and paper business plans, she says.

"If I didn't know someone and I sent a business plan, 100 percent of the time it would come back with, `It's an interesting idea. Thanks, but it doesn't fit into our portfolio,' " she says.

Speed sells

It's not that venture capitalists are reluctant to invest in women-owned businesses, McWhorter says, but they have to get the proposals first.

Clayton Associates will see anywhere from 150 to 200 business plans during the next 12 months, he says, and few of those will come from women, if history is a guide.

Fewer proposals mean fewer deals. The first priority of the firm is to manage its current investments, then go through the deals they're offered, he says. "We get a lot of deals and there are only so many that we can do," McWhorter says.

And although networking is important, in the deals Clayton Associates will make, McWhorter says his firm looks for key ingredients beyond familiar faces and names.

"We have what we call the `passion meter.' We look to see if they have a passion for what they're doing and [if] they know their business," he says. "Have they invested their own money? We're not looking for someone who is looking for a free ride, and a lot of them are."

The business plan and goals must make sense to the firm, and make sense quickly because the timer is ticking.

"We've got to get it in 15 minutes. If we don't get it, we won't do it," he says.

Stier says investors generally want to know the expertise behind the plan and the exit strategy -- the moment they get the return on their investment.

Whatever the case, venture capitalists want to know how and approximately when they might see their investment pay off and they're probably not going to be interested in plans that stretch into decades, from men or women.

Knowing the Nashville venture capital firms, Campbell says they want to make money and don't care if their investments are made with male- or female-owned businesses.