In recent years some obstacles to venture capital financing for women and minority owned businesses have been lessened. More women and minorities are managers in traditional funds, and more targeted funds for these groups have been created. While the VC market is still quite small and exclusive, these changes have helped make the process less threatening and more tenable for these groups.
Robert Stein, a partner at the Women’s Growth Capital Fund, a venture capital fund investing solely in women-owned and managed companies, told the NCIIA how women and minority entrepreneurs can improve their chances of gaining venture capital investors.
According to Stein, “the vast majority of women and minorities who are seeking venture capital are first time entrepreneurs.” This is an immediate disadvantage because “venture capital is all about risk management, and as a general proposition, it is less risky to invest in somebody who has been through the process before. Whether they have succeeded or failed, they at least presumably have learned from their mistakes so next time they are going to avoid some costly mistakes that can doom an early-stage, under-financed company.”
Four crucial elements will persuade VC firms to look at and possibly invest in a first-time venture. The first is a compelling business plan that is “rigorously researched” and demonstrates how the company will grow rapidly in three to five years and produce the large returns VC firms require. Having customers and sales will make the plan more believable. “The more revenue you have, the closer you are to cash flow positive or profitability, the closer you are to getting in the door,” Stein says.
Another element is having hired experienced managers who compensate for the weaknesses in the team. A third is the entrepreneur’s demonstrated ability to listen and take advice from experienced people.
The last and most important, in Stein’s view, is an experienced and highly involved board with members who have been senior managers and have experience operating a company. The board propels the company forward by contributing to strategy formation and change; providing connections to senior management candidates, customers, and investors; and bringing other human and technical resources to the company.
A distinguishing characteristic of a successful entrepreneur, according to Stein, is the ability to build a powerful team. “The ultimate, intuitive, black box, art and science of entrepreneurship is knowing how to identify, recruit, and inspire people who not only come in as senior management but as critical board members and advisors and really add value to the company every day.”
In summary, first-timers should overcome their novice status by surrounding themselves with experience. The degree to which they can benefit from others will determine their own success and their credibility with VC firms.
For more information about the Women’s Growth Capital Fund visit their website.
