SBA Award Boosts Venture Capital Fund for Women

For an article about female entrepreneurs that featured her, an editor asked Patty Abramson to pose in boxing shorts, as if squaring off against the president of a male run venture capital company. She refused, agreeing instead to be pictured wielding a cigar.

"A woman e-mailed me saying, ‘How could you smoke a cigar? You’re just playing up to them."

But Abramson, who heads the District-based Woman’s Growth Capital Fund, the largest female run source of venture capital in the country, doesn’t want to waste her time battling over images. "What we do is not about having an antagonistic relationship," she said. "It’s not a crusade or about punishing anyone. It’s about getting our foot in the door. It’s about having a place at the table."

Last week, the door opened in a big way for the fund when it was awarded Small Business Administration approval for Small Business Investment. Company financing, qualifying it to receive as much as $20 million to invest in companies, in addition to the $8 million the fund has raised on its own.

The award acknowledges a national trend. Between 1987 and 1996, the number of companies owned by women increased by 78 percent nationwide. More recently women have been forming businesses at about twice the rate of men. Amy Millman, executive director of the National Women’s Business Council in the District credits this shift to the growing number of banks willing to lend to established businesses owned by women.

Wells Fargo & Co. now has a $10 billion loan fund specifically for female-run businesses, up from $1 billion in 1996. BankBoston has a similar program, Women Entrepreneurs Connection, worth $100 million. And Banc One Corp, recently named a woman to direct its Women’s Entrepreneur Initiative.

"Four years ago, I couldn’t get a banker to return my calls," Millman said. "Now, bankers are recognizing that banking on women is good business."

But banks don’t like to lend to companies without significant track records, forcing many start-ups to seek venture capital. Last year, some 400 mostly male U.S. venture capital firms provided $45 billion in funding, according to Jeanne Lazarus, director of marketing at the National Venture Capital Association in Arlington. Only a small portion of that amount — Millman says less than 2 percent — went to businesses led by women.

The Women’s Growth Capital Fund was born at a lunch that Abramson and her friend Rob Stein, 54, had at La Chaumiere in Georgetown. As people on skis zipped passed and shopkeepers dug out their sidewalks during a rare DC winter blizzard, the conversation turned to an article both had read in Inc. Magazine about women in venture capital.

Abramson, who could never get over the exasperation she experienced while trying to get a line of credit for her successful marketing business, only to be told repeatedly that this required her husband’s approval, became intrigued about personally doing something. "We got animated talking about it," Abramson said. "We both left feeling really excited not even knowing what ‘it’ was."

Abramson, Stein and a third partner, Wendee Kanarek, 42, a former vice president at Manufacturers Hanover Trust, spent the next two months checking out venture capital funds (they found only four specifically for women), conducting business focus groups and picking the brains of individual entrepreneurs. Occasionally they got a could shoulder — one male investment banker told Abramson point blank that her idea about setting up a female-owned venture capital fund was stupid. But the overwhelming response was enthusiastic.

With commitments from 65 investors, 70 percent of them women, the fund began operations a year ago and had $8 million in its coffers before the SBA windfall.

Women’s Capital Growth is like the companies it aims to fund — operating on a thin margin. Staffed with a secretary and a part-time intern, the fund is run from a converted two-story Georgetown town house filled with product samples from companies such as Michigan-based Shari’s Organics and Hammond’s Candies of Denver.

So far Women’s Growth Capital has funded two deals, turning down more than 250 solicitations for funds. The two that made the cut are McLean’s Women’s Connection Online, a rapidly growing internet site for business and professional women, and Physics Quality Care, a company based in Waltham, Mass. that buys and manages medical practices.

The partners at Women’s Growth Capital don’t take salaries, though that will change soon, they say. During the next five years, Abramson expects to step up the pace of investing, putting an average of $1 million in about 18 firms.

Abramson, Stein, and Kanarek categorize prospects as "start-up," "beyond concept" and "expansion phase." Like other venture capitalists, they try to pick only "perfect" expansion firms.

"Ideally, we want companies with solid seasoned, entrepreneurial management, a real board of directors, a proprietary product, and a proven concept that’s growing by at least 50 percent and will likely soon be profitable, Stein said. "We want to be virtually sure they’ll still be in business in three or four years."

Abramson’s fund recognizes and capitalizes on one of the realities of women in business: Female-run firms tend to operate below the radar screen of most capitalists, who like to invest in aggressive, rapidly growing companies promising high rates of return.

"Venture capitalists look to invest no less than $1 million and expect annual growth of 100 percent," said Bruce Rosenthal, director of communications at the District based National Foundation of Women Business Owners. "Women who run new companies tend to be younger, less experience, less focused on growth and therefore do not often qualify."

Susan De Fife, owner of Women’s Connection On Line, agrees: "Venture capitalists as a whole see hundreds of thousands of business plans even year and only very few get funded."

De Fife, 36, had no idea where to go for financing when she started her business. At first, she relied on credit cards and equity loans, later attracting a consortium of "angel" investors who ponied up a combined $130,000. This, together with a simultaneous $500,00 cash infusion from Mid Atlantic Venture Capital of Reston, represented a major breakthrough.

For De Fife, accessing capital has not been a question of discrimination but rather gaining access to the right channels.

"A lot of women owned companies that might otherwise qualify didn’t rise to the level of awareness," she said. "And most funding institutions didn’t realize they were missing an opportunity."

De Fife is nevertheless encouraged by recent developments that she says help level the playing field. One was the emergence of Women’s Growth Capital and other female-led venture capital funds, which she described as "only one piece of the pie, but a vert important one.

"It helped increase the deal flow but also understanding, enabling women to learn the language that investors talk, and raising their awareness," she said.

What about the hundreds of companies run by women who don’t make the cut? "We’re trying to build a network of women in other venture funds that we connect them on," Abramson said. "We’ve put resource lists of places for them to go for debt, equity of different aspects of their business. We also encourage companies that are too early in their development to keep us informed about their progress so that perhaps we will be able to fund them later."

Women’s Connection On Line was one such firm. It first failed the litmus test but, as Abramson put it, continued to make "huge strides." In May, Women’s Growth Capital came through with $400,0900 that De Fife said she needed to maintain her firms torrid growth, measured by the 2 million monthly hits to her website, up from 3,000 hits a month a year ago.

"Our industry is moving so quickly, forcing us to expand as rapidly as we possibly can," De Fie said. "That money came at a very critical time. It has made a huge difference."