Robin Chase

(WOMENSENEWS)–When Robin Chase got the idea to start a sort of car co-op, a friend from graduate school was her first investor.

In 1999, ZipCar, a Boston-based car sharing service was merely a dream born of a glimpse of a similar operation in Berlin. As a first-time entrepreneur, Chase was unfamiliar with the world of venture capital but knew this type of high finance was her only option if she wanted to get this tech-heavy company up and running.

Today, ZipCar has networks in New York, Boston, Washington, D.C., and Chapel Hill and has received several rounds of venture financing. The service provides rental cars on an hourly basis without need for a central garage or in-person reservation agent.

Competition is tough in the world of venture capital funding. It is where people, like Chase, with revolutionary ideas that need lots of start-up cash turn when they cannot get bank funding. Venture capitalists traditionally invest in young, rapidly growing companies with the potential to produce large return on investment, like biotech, technology and life sciences firms. Projected annual revenues are on average $25 million or more, and VCs take an active part in the management and part of the equity ownership in the companies they finance.

Women are still a tiny minority in this small-and-select world of venture-capital finance, which in 2003 doled out only 2,779 investments, with an average size of $6.5 million, according to the National Venture Capital Association. Very few companies–about 2.4 percent–are financed with venture capital, according to statistics compiled using the most recent data (1998) from the Federal Reserve’s National Survey of Small Business Finances. Bank loans account for 19.9 percent of financing, trade credit makes up 17 percent and owner equity amounts to 27.1 percent.

To find out how much of this total financing was going to women, Growthink Research, a publisher of venture capital research in Los Angeles and Chicago-based re:invention, a marketing consulting company, studied the venture-capital flows to men and women. They isolated the study to developments in 2003. The results, released in June, showed that women headed less than 5 percent of the 1,860 companies that received a total of $19 billion and received only 4.1 percent of the capital.

Insufficient Networks

Looking at this funding gap, many women involved in the venture capital community say it is largely the result of insufficient networks.

“The venture business is a business of relationships and networks. It is about who can open the door to you so you can talk to the right venture firm, because VCs specialize like most industries,” said Amal Johnson, a general partner in ComVentures, a Palo Alto, Calif-based venture capital firm, focusing on early stage communications investments.

“The challenge for women doesn’t come from the fact that they are women starting a new company. It is from the lack of network they may have developed in the past and that is really required to accelerate the funding of the company.”

Indeed, networking was the key for ZipCar’s Chase. She was able to tap into classmates from graduate school who had started businesses. Being a graduate of the Sloan School of Management at Massachusetts Institute of Technology was a huge advantage, Chase recalled. She also sought out women’s groups that promote young female entrepreneurs like Springboard Enterprises Inc., a Washington, D.C.-based organization that promotes women’s entrepreneurial development through alliances, partnerships and direct programming.

Chase’s last round of investment came from 8Wings Enterprises, a Boston-based female angel investor group.

The female network is important to break into this seemingly male world, where men looking for VC funding may be more tapped into the arenas that attract venture capital. As Chase tells it, “white men have a ‘super bond’ with white male venture capitalists.”

“There is a little extra special relationship that white men who have been to the top tier business schools and who have come out of the consulting world have with one another.”

Looking Beyond Traditional Networks

The trick is to get men to look beyond these traditional networks, said Kirsten Osolind, of re:invention. “Men tend to know other men where women tend to know both men and women–partly because of habit, partly because there aren’t enough of us women in the executive world. It was but a short time ago that many clubs were men-only. The boundaries have not been erased.”

Women are trying to erase these boundaries by building up their networks that will facilitate their access to resources, knowledge and capital.

Responding to increasing demand for practical advice on how to start and run a successful business, the National Association of Women Business Owners recently released a book: “Taking an Idea to Market: How to Turn Your Vision into a Successful Business Venture.” Springboard and other organizations, like the Commonwealth Institute in Boston, have focused on educating women about the venture capital market.

Such efforts have succeeded in increasing the number of female-led deals getting financed, said Kay Koplovitz, the chairperson and founder of Springboard Enterprises.

In 1999, when Springboard began its initiative, 1.7 percent of venture capital dollars was going to women-led businesses. Today, that number stands at 7 percent, according to a study released at the end of June by the Center for Women’s Business Research. “Progress is being made,” she said. “Stories are getting told and there is an increasingly large audience hearing these stories.”

Angel Investors, the Missing Link

For Linda Darragh, a clinical professor from the Kellogg School of Management at Northwestern University, it is the access to the angel investors that is the missing link for many women. Angel investors, often wealthy individuals who invest in a company before it reaches the venture capital phase, are even harder to find. This is one of the elements of venture capitalism, Darragh discusses in her courses on women and entrepreneurship.

“This is the missing piece,” said Darragh, who was instrumental in bringing Springboard to the Midwest and who is working to launch the Ceres Fund, an angel network that is primarily funded by women investors. It is this early stage finding that women often lack to bring their business to the venture capital level. Again, networks are beginning to grow to match women with such investors.

“Still, we have not yet built a big enough pipeline to get enough women to that level,” Darragh said, “It is the angel that can really walk a woman to the door of the venture capitalist.”

Bio: Marianne Sullivan is a Boston-based freelance writer who writes frequently on economics and finance.

For more information:

Springboard Enterprises

Growthink Research

National Association of Women Business Owners

re:invention inc.

Commonwealth Institute