Women Take Charge

They control two thirds of consumer spending, are awarded a higher percentage of tertiary degrees and several studies show that their companies produce higher returns and revenue than their counterparts.

“They” are women and—despite the weight of data piling up that they should logically be attracting a bigger share of the venture pie—they are barely nibbling at the crust. Less than 2.5% of the €3.5 billion invested annually by venture funds into Europe goes to startups led by a female CEO, according to a survey done by Venture One.

There are compelling data that suggest venture firms would do well to pay more attention to female entrepreneurs and/or companies focused on selling products to women:

• The Boston Consulting Group (BCG) reported last October that women control or substantially influence 65% of the world’s annual consumer spending, or about $12 trillion. “As they advance in their careers, their share of spending will grow, making women an even more important target for consumer marketers,” states the BCG report, “Below the Topline: Women’s Growing Economic Power.”

• The United Nations Economic Commission for Europe reports that the majority of tertiary degrees are now awarded to women.

• A Library House survey done in 2007 shows VC-backed companies run by women returned 12% more revenue than those run by men.

• And a McKinsey report called “Women Matter” states that diverse teams perform significantly better than all-male ones, enjoy higher market caps and greater profitability. Part of the study shows that companies with three or more women on their boards of directors had an average ROE 10% higher than all-male competitors and average EBITDA that was 48% higher than companies with all-male boards.

The [VC] market is inefficient and women are simply not on the radar.”

Gita Patel

Roman Fleck, a principal with Index Ventures in Geneva, has a typical response to the data. “I couldn’t care less if an entrepreneur is a woman or a man,” he says. But he goes on to say: “In my four years here I truly can’t remember a woman entrepreneur that we’ve backed.”

Those who continue to ignore the elephant in the room stand to lose, as several new venture funds target the massively under-served market of the female entrepreneur.

In Paris, Dunya Bouhacene, CEO of Women Equity for Growth (WEG), has announced three funds that will focus on businesses led by women. Bouhacene is working with Bryan Garnier and Co. and is talking to potential investment partners, she says. She hopes to raise the funds through two campaigns each year.

“The first fund will be small, €5 million to €15 million, and look to invest about €1 million in each opportunity,” Bouhacene says. “We are already targeting some companies with established revenues and profit.”

She adds that she is in “advanced talks with Banque Paribas and, through Bryan Garnier, a global network of partnering investment banks and expect to make our first investment within a few months.”

Two of the funds are aiming at European growth companies from any sector that are either led by a woman or have a significant number of women at the helm. One of these funds will focus on innovative companies that invest 15% or more of revenue in R&D. Some 60% of this fund (a Fonds Communs de Placement dans l’Innovation, or FCPI) will be invested in privately held companies with revenue of at least €2 million.

A maximum 20% of the fund can support listed companies with a market cap of under €150 million. Private French investors benefit from a tax break of 25% on the money they invest in any company meeting the innovation criteria.

I couldn’t care less if an entrepreneur is a woman or a man … [but] in my four years here I truly can’t remember a woman entrepreneur that we’ve backed.”

Roman Fleck

The second fund will focus on later stage companies in growth with revenue of €10 million to €15 million.

The third fund, an FCPI, will focus solely on French companies led by women. Investors in that fund are expected to benefit from tax breaks.

WEG has also launched a research venture. “There is not much analysis of women-led growth companies,” notes Bouhacene. “There’s a lot on why we [women] don’t grow successful companies, not on why we do.”

The WEG funds aren’t the first European venture funds focused on female entrepreneurs. That distinction belongs to the Trapezia fund, which was created in 2006 by London-based StarGate Capital. The idea behind Trapezia was to tap into “the greatest growth market there is: women,” says StarGate co-founder Gita Patel, who is in the midst of raising the second Trapezia fund.

“The women’s market is quite simply the fastest-growing sector on a global basis of any,” Patel says. It’s not an issue of social equity or gender politics, she adds. “Either there’s a business case or there’s no case.”

The venture business needs funds like Trapezia because “the market is inefficient; women are simply not on the radar,” Patel says. VC networks tend to largely be made up of white males. Trapezia was established because Patel believed that a dedicated initiative was the only way to attract the best female talent. “Women have limited access to referral networks,” she says. “There are few female fund managers.”

Patel says it’s too early to see judge her fund’s performance after just four years, but she adds: “We are on track to deliver 20% to 25% IRRs. We have some star performers where we believe they could be good acquisition targets.”

There is not much analysis of women-led growth companies. There’s a lot on why we don’t grow successful companies, not on why we do.”

Dunya Bouhacene

Another venture fund targeting female entrepreneurs is the Amazon Euro Fund, which was launched in 2006 by AMM Finance. It focuses on women-led companies with market caps of €150 million and above.

Astia, a U.S.-based not-for-profit accelerator that helps female tech entrepreneurs gain access to capital, launched a European outpost in London two years ago. “We don’t know exactly why … but we do know that VC firms with at least one woman in the partnership are 70% more likely to have a woman-led company in their portfolio,” says Astia CEO Sharon Vosmek, citing a research study done by Astia.

Vosmek argues that VC firms should add female partners “so you don’t miss out on, say, the next VMWare.” In fact, Mike Kwatinetz, founding partner of U.S.-based Azure Capital Partners, which backed VMWare, told VCJ last month: “I have no proof of this, but I believe there is some prejudice against women. Our firm has invested in a lot of women CEOs and has done pretty well that way.” (See “Women in VC,” June VCJ.)

VMWare, which was co-founded by Diane Green and her husband Mendel Rosenblum, was passed over by some institutional investors wary of husband/wife teams. VMWare sold to EMC Corp. for $635 million in 2003. Four years later, EMC took the company public, a move that valued its 87% stake in VMWare at $16.6 billion on the first day of trading.

Vosmek says Astia’s program has led to over 60% of selected companies raising $650 million, with 16 of those companies later getting acquired and two going public.

Astia client DNA Direct was acquired for an undisclosed price in February by Fortune 50 company Medco Health Solutions Inc. (NYSE:MHS). DNA Direct founders Sharon Terry, Ryan Phelan and Trish Brown had previously gone through the Astia program, which resulted in their raising $7 million in funding in 2008 from Firefly Investments and Lemhi Ventures.

If VCs in general can’t make themselves more appealing to female entrepreneurs, they risk losing out on some hot companies. Some female entrepreneurs have bypassed venture capital altogether due to a negative perception of venture capitalists. “VCs have a reputation for being unforgiving and not particularly supportive,” says Karen Hanton, founder and CEO of Internet restaurant-booking site toptable. “You know you are going to hit bumps in the road at some time, and at that point you don’t want to be kicked.”

When toptable needed money, Hanton avoided VCs and instead brought in consumer drinks giant Diageo as a strategic investor. “We learned an enormous amount from them,” she says. “They understood consumer behaviour and contributed greatly, beyond the finance, to the development of the company.”

VCs would have done well to convince Hanton to take their money. Toptable posted pre-tax profits of £1,268,000 for the year ended June 30, 2009, a 187% increase from the prior year. Annual revenue grew 20 percent during that same period, even in the face of a recessionary environment.