The number of women and minority owned businesses doubled between 1982 and 1997 to 15%. Women led businesses alone generate some $1.5 trillion in revenue annually. There are more than 3.5 million self-employed women. And yet even as significant as their participation in the economy and among the ranks of entrepreneurs, Access to Venture Capital Remains Pressing Issue for Women and Minority-Owned Small Businesses according to this article from freshnews.com.
"We understand the vital roles that women and minority small business owners play in the economy from the point of view of an investor and venture capitalist. However, nearly three quarters of women are more likely to receive financing from individual investors than venture capital firms**. This is a startling fact since women-owned businesses parallel the average U.S. company in terms of financial strength, credit risk and longevity," said [President and Chief Executive Officer of Fort Washington Investment Advisors, Maribeth S.] Rahe
The article goes on to highlight some institutional constraints that confront minority and women applicants who are effectively shut-out of VC funding - gender dominance in the industry; lack of informal networks with ties to the VC community; and, non-preferential treatment by women VCs for women entrepreneurs. And some problems, real or perceived, that women and minority entrepreneurs must recognize and deal with - lifestyle businesses not suitable for VC funding, lack of personal financial capital; and concerns about women or minority's management abilities.
These aren't new findings., rather they have been documented extensively. Two of the better treatments are provided by the Kauffman Foundation: GATEKEEPERS OF VENTURE GROWTH: Diana Project Report on the Role and Participation of Women in the Venture Capital Industry by Candida Brush, Nancy Carter, Elizabeth Gatewood, Patricia Greene and Myra Hart. Their key findings include:
- women represent less than 10% of management-track VCs
- 64% of women in VC ranks in 1995 were not in VC business after 2000, significantly higher turnover than men in these firms
- current targets of VC funding are male dominated professions - biotech, engineering and physics
- women's networks are not as fully developed and as VCs rarely consider unsolicited proposals thereby making networks critical to success.
For a more general appraisal of the challenges and opportunities within the small business community, see this report: Entrepreneurship in the 21st Century which presented the findings from a joint SBA- Kauffman Foundation conference on advancing entrepreneurship and small businesses. Among the primary problems that plague all small businesses:
- health insurance where administrative costs are disproportionately higher for small businesses
- regulatory burdens which consume relatively more resources - research shows that small businesses pay 60% more to comply with federal regulations and twice what larger enterprises pay for federal tax regulations
- litigation costs are considerably higher relatively for a small business
- global competition unfettered by social or regulatory burdens
The breadth and depth of the problem have been well documented and it is beyond time that practices and processes be developed to increase access to VC funding. There is some anecdotal evidence that VC’s are broadening their perspective on suitable early stage investments coincident with the increase in VC spending ($5.8 Billion in Q2-04 according to MoneyTree). But there is a lot more they can do to accommodate and actively encourage women and minority participation - education, policy influence, recruitment and outreach to name a few.
For their part, entrepreneurs must also take better advantage of the policies, programs, agencies and resources that do exist. There are numerous government, academic, private and public agencies, associations and groups which actively foster communication with and introductions to Venture Capital professionals through participation. I see in my own Los Angeles Venture Association many excellent people and programs specifically developed to assist entrepreneurs. And I find a disturbing lack of participation especially by women and minority entrepreneurs in these regularly scheduled programs. Certainly we need to do a better job with promoting our organization, but it is also incumbent upon the entrepreneurs to make the effort to find out about the services and organizations that are already available for their benefit.
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