Angel Investors Watch Over Women Entrepreneurs
By Ty McMahan
Rhonda Kallman is known for opening doors for women to a business dominated by men.
As co-founder of Boston Beer Co., she helped build the manufacturer of Samuel Adams into one of the largest craft brewers in the U.S., while also making a commitment to recruiting and promoting women through the years. The Institute for Brewing Studies once awarded her with the title "Pioneering Woman in the Beer Business"
So when she struggled to raise capital for her next beer venture, New Century Brewing Co., it seemed fitting that she turned to an investment group devoted to making an impact in an industry largely controlled by men. Golden Seeds, which invests only in women-led companies, provided Kallman with seed financing in 2006 to get the start-up off the ground.
The firm is part of a grassroots effort by angel groups and other investor organizations to exploit the lack of venture capital devoted to companies run by women, who historically have run into obstacles raising money. Their hope is that they will realize strong returns on investment, creating a chain reaction of successful business owners who in turn will enter the investment game.
"We want entrepreneurs to come in and see women investors in the room," Golden Seeds Managing Director Stephanie Hanbury-Brown said. "Our main objective now is to have more women investors because that will have a trickle-down effect. There are a lot of smart businesswomen out there."
According to the Center of Women's Business Research, as of 2006, there were an estimated 7.7 million majority women-owned companies, accounting for 29.7% of all businesses in the U.S. Those companies generate $1.1 trillion in annual sales and employ 7.2 million people nationwide. Yet a separate study conducted by venture capital industry tracker VentureSource showed that only 4.3% of venture-backed companies are led by women, down from 7.5% in 2002.
Women-led angel groups are trying to improve that statistic. There are now nine such groups in the U.S. - including a group that started last month in Kansas City called Women's Capital Connection - and about 15 with significant female membership, according to the Angel Capital Association. These groups are spreading considerable amounts of capital throughout a diverse range of sectors - from consumer goods to life sciences - and women entrepreneurs are finding a new place to turn when raising funding.
The Seeds To Success
In Kallman's case, New Century needed to raise funding in order to hire workers for the brewery and a sales team to help ramp up distribution. While she struggled to find investors that were willing to take a chance on a beer business, Kallman found what she was looking for with Golden Seeds. She received funding and valuable business advice and was able to start shipping two brews - Edison, which claims to have reinvented light beer, and Moonshot, a premium beer that contains 69 milligrams of natural caffeine. The beers can now be found on tap at Hillstone Restaurant Group Inc.'s restaurant chain Houston's and in Whole Foods Market Inc. stores.
"There are advantages [to working with women angels]," Kallman said. "The sisterhood thing is give or take. I'm perfectly good without that. The thing about women, particularly those who would be involved in a group like Golden Seeds, is they are mavens, they are trendsetters. They are dedicated to helping women entrepreneurs succeed."
Golden Seeds, founded in 2004, has so far invested in 17 companies, from consumer-focused ventures like gDiapers, maker of the world's first flushable baby diaper, to more technology-heavy start-ups like eJamming Inc., a software platform for musicians to collaborate online.
While Golden Seeds only invests in women-led companies, it's open to including men on the investment team - but it caps the percentage of men on the team at 15%. "That's because only 15% of the managing directors at investment banks are women," Hanbury-Brown said. "We figured we would increase our numbers when they increase theirs."
Golden Seeds now has about 80 members and chapters in New York, Philadelphia and Boston. The group has experienced one exit, but Hanbury-Brown declined to provide further details. "It was a good outcome," she said. "I thought we wouldn't have an exit for five years, so this is good."
According to Marianne Hudson, executive director of the Angel Capital Association, relatively few women have taken a high-growth start-up through the exit process and then become "cashed-out" entrepreneurs. Those are the people most inclined to be active and consistent angel investors.
The Female Surge
Women-led angel groups started popping up in the late 1990s when the dot-com era was at its peak. Today, some of the most active groups include Golden Seeds, Phenomenelle Angels, Texas Women Venture Fund, Sophia Angel Fund, Women's Investment Network and Women Angels LLC.
According to a 2007 survey by the Angel Capital Association, these groups typically average seven deals a year worth about $1.8 million. Dollars invested per round average about $240,000, or about $31,000 per angel. According to the survey, 72% have co-invested with a venture capital firm.
The survey also showed that investment by women-led groups is up 23% since 2005.
Besides the angel groups, there are other organizations working to connect women entrepreneurs with capital, such as Astia. Its programs are designed to accelerate funding and growth of early-stage, women-led companies. The organization connects companies with an advisory network made up of venture capitalists and executives that helps them prepare for challenges experienced by start-ups of all stages.
MixerCast Inc. and Scout Labs Inc. are two promising women-led start-ups that presented at Astia's 6th Annual Venture Conference in October. MixerCast, a start-up led by Chief Executive Jennifer Cooper that distributes widgets for marketers and publishers, has raised $6 million in Series B funding from Intel Capital, Onset Ventures and Velocity Interactive Group. Scout Labs, led by CEO Jennifer Zeszut, raised an undisclosed round of funding for software that monitors what is being said about a company across the Web.
The start-ups join the more than 57 women-led companies that have presented at the conference and raised capital or been acquired since 2003. Over the past four years, Astia's venture conference companies have raised $263 million and the conference has had a greater than 50% success rate of companies receiving funding.
Several Astia clients have seen exits, including AgentArts Inc., a provider of personalization and recommendation technology that was acquired last July by Fast Search & Transfer ASA, a Norwegian provider of search technologies, for an undisclosed amount, and drug maker Abmaxis Inc., which was acquired in 2006 for $80 million.
The success of groups like Astia illustrates that women have found ways around the boys-club environment of private equity investing. It's still too early, though, to know what type of success these groups, and angel investment firms like Golden Seeds, will achieve or if the groundwork they have laid for other women will inspire more activity.
But Vosmek said a new generation of businesswomen may finally create a strong ecosystem of female investors and entrepreneurs. "The young generation is choosing entrepreneurship right out of school," Vosmek said. "We're seeing a great number of women as part of founding teams."
(c) 2008 Dow Jones & Company, Inc.
