Research Summary

Women-Owned Firms Attract Investors for Business Growth

Center for Women’s Business Research  ·  July 18, 2000

Equity investors those who fund businesses in exchange for a share of the firm’s ownership report that they are receiving more proposals from women-owned enterprises. A sizeable number of these investors are investing in firms owned by women. However, equity capital investment in women-owned firms still remains a virtually untapped market.

These findings are based on a groundbreaking NFWBO study that examines equity capital opportunities for women business owners and reveals success strategies for obtaining equity capital from the perspective of both women entrepreneurs and institutional equity investors. “Women Entrepreneurs in the Equity Capital Markets: The New Frontier,” was sponsored by Wells Fargo.

“The movement of women-owned firms into the equity capital markets is a new phenomenon,” said Nina McLemore, NFWBO Chair and President of Regent Capital, an equity investment firm. “Two-thirds (65%) of the women interviewed with equity capital received their first equity investment in the past four years. Furthermore, 44% of the equity investors say that, over the past year, they have seen an increase in proposals from women-owned firms.”

Editor’s Note:

When referring to the study, it should be called "Women

Entrepreneurs in the Equity Capital Markets: The New Frontier," conducted by

the National Foundation for Women Business Owners and sponsored by Wells Fargo.

However, women-owned firms represent only 9% of all institutional investment deals and receive only 2.3% of all institutional investment dollars among the firms interviewed. Furthermore, women business owners are not yet moving into the equity markets at a fast pace. Although the women-owned businesses selected for this study were prime candidates for equity, only 11% are actively in the market 6% have obtained equity investment and another 5% are seeking it.

“The NFWBO report should serve as a wake-up call to accelerate the involvement of women entrepreneurs in the equity capital markets,” said McLemore. “Women entrepreneurs should consider seeking equity investments and equity investors should recognize the market potential of these increasingly substantial women-owned firms,” McLemore continued.

“With this study, Wells Fargo hopes to help build momentum for the growth of women-owned businesses across the country,” said Colleen Anderson, Executive Vice President at Wells Fargo. “The more visibility we can give to how women business owners can pursue all the financial options available to them, the better the financial community can respond.”

“America’s 9.1 million women-owned businesses have increased dramatically in number, employment and revenue in the past decade,” Anderson continued. “Equity capital may afford many of these firms a chance to grow at an even faster rate.”

Both the women business owners and the institutional investors interviewed by NFWBO for the survey agree that a primary factor to success in the equity capital arena is gaining access to the right networks of business advisors. These networks of advisors includes accountants, attorneys, fellow business owners, and mentors who can assist in putting together their business plans and making referrals. Two-thirds of the proposals that are seriously considered by institutional investors come from these referral networks.

Other keys to success in the equity capital markets include:

Giving up management control: Nearly three-quarters (73%) of women who have equity capital were prepared to give up day-to-day control of their businesses, compared to only 58% of those still seeking equity;

Strong management team: The management experience of the company leaders and their understanding of the market are critical factors that investors consider in evaluating proposals;

Demonstrating marketing knowledge: Presentations should feature a clear business concept with a realistic marketing plan;

Persistence: Perseverance is important. Women entrepreneurs who have equity financing contacted an average of more than 15 funding entities, while women who are still seeking equity financing have contacted fewer than 11 funding entities.

Currently, equity capital for women-owned businesses is most likely to come from informal or individual investors, not from institutional equity investors. Nearly three-quarters (73%) of women business owners report that they received their initial investment from family members or friends; 73% have received equity capital from individual investors, such as “angel investors.” One-quarter (25%) of these women entrepreneurs say that corporate investors made equity capital investments in their firms and only 15% say they received equity capital from venture capital firms.

Women entrepreneurs who have equity capital differ from other women business owners in several ways. They own newer businesses, and are younger in age, more highly educated, and more likely to have been senior managers or executives just prior to business ownership.

Although only 14% of the institutional investors interviewed in the NFWBO survey were women, “the presence of women in decision-making roles in investor firms is making a difference for women business owners,” comments NFWBO’s McLemore. “Two-thirds of the women investors (67%) say they have made an investment in women-owned firms in the past three years, compared with only 40% of men investors.”

Experience with investments in women-owned firms also appears to influence future investment. Firms that have previously made an investment in women-owned firms are twice as likely to make new investments in women-owned businesses (75% compared to 38%).

The research study includes a section, “Equity Capital: A Resource Guide for Women Entrepreneurs,” (Download a free Adobe Acrobat Reader.) that is available on the National Foundation for Women Business Owners web site, www.nfwbo.org. The guide includes recommended sources of information, including web sites, books, magazines, and equity capital funds focused on women-owned firms.

# # #

• Women-Owned Firms Receive 9% of Investment Deals; 2.3% of Dollars
• Business Advisors are Key Sources of Referrals for Equity Investment Firms
• Women With Equity More Likely to Use Sources Linked Into Equity Networks
• Strong Management is Key in Evaluating Proposals
• View an 8-minute video from the Equity Study Announcement

The National Foundation for Women Business Owners (NFWBO)is a nonprofit research and leadership development institute. NFWBO is recognized as the premier source of information and intelligence on women business owners and their enterprises by corporations, policy makers, financial institutions and the media. Up-to-date intelligence about women business owners and their enterprises worldwide is documented in NFWBO’s original research and analysis. The Foundation is affiliated with the National Association of Women Business Owners (NAWBO).

Wells Fargo & Company, a member of NFWBO’

s Corporate Advisory Council and Corporate Circle, is a $222 billion diversified financial services company providing banking, insurance, investments, mortgage and consumer finance through about 5,300 banking stores, the Internet and other distribution channels across North America, including all 50 states, and elsewhere internationally. Wells Fargo leads the industry in improving access to capital for women business owners and offers a full range of financial services. Through its Women’s Loan Program the first of its kind Wells Fargo has loaned billions of dollars to women-owned businesses nationwide. To help entrepreneurs build and grow their businesses, Wells Fargo offers an online resource center at

. The site provides Internet banking and bill payment, and links small businesses with products and services.

Methodology: This study was conducted by telephone during the period October 18 to December 10, 1999. Over 6,300 telephone calls were made, as follows: 1,439 calls to institutional investors, for a total of 50 completed interviews; 4,883 calls to women business owners, for a total of 40 women who have equity capital, 33 women who are seeking or have sought equity capital unsuccessfully, and 162 women who have never sought equity capital. An additional 433 women business owners not seeking equity were identified during the calls, but did not participate in the study in order to save resources for interviewing those who had or were seeking equity.

The sample pool of equity investors included all of the licensed SBICs in the country, and venture capital companies listed in two national directories: International Directory of Venture Capital Funds, 1998-1999, a published directory; and Infon Venture Capital 1999Q4, on CD-ROM. An interview was requested with the director, managing partner, or president of these companies.

The sample pool of women business owners were those who were thought a priori would be most likely to have or be seeking equity capital. They were either (1) in the industries most likely to be of interest to equity investors (50% of sample); 2) had sales growth of 15% or more over the past three years (25% of sample); or 3) were firms in the states with the most equity activity: California, Massachusetts, Pennsylvania, Texas, and the District of Columbia (25% of sample). A call for study volunteers was also put on the NFWBO web site (www.nfwbo.org), and this resulted in several dozen additions to the sample.

Interviews were conducted by CJ Olson Market Research of Minneapolis, MN, a woman-owned business.

The sampling error for samples of N = 50 is ±14.2% at the 95% level of confidence. The sampling error for sample size N = 33 and 40 are ± 18%, and N = 162 is ±8.0%. This means that 95 times out of 100, survey results will be within 18%, 14.2% or 8.0% of true population values.

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