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Human Capital: The Doorway to Financial Capital (Part 3)

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Over the past 12 years, I have worked closely with entrepreneurs, particularly women, who are building scalable businesses and need to raise capital. They come to our venture catalyst organization, Springboard Enterprises to raise money. What they learn is to cultivate human capital, the doorway to raising funds.

It seems logical, but it isn't always evident. Somehow, those who haven't had experience raising capital think the capital markets are a meritocracy. They are not. You hear that all the time, especially in California, that venture capital is a meritocracy. Well, it's not.

If it were a meritocracy, why would women entrepreneurs get only 3 percent of the venture capital in that state? We know better, i.e. check out 51 Job; iRobot, Constant Contact, Zipcar, and numerous other companies founded or co-founded by women -- all IPO's.

What we all need to recognize is that capital is not based on meritocracy. It's based on relationships. Yes, the business has to be disruptive or at least scalable to attract venture capital. VC's invest in PEOPLE first, and businesses second.

So what does this mean for entrepreneurs out trying to raise funds for their businesses? It means they have to build out their network of support prior to accessing needed capital. It is after all, the ability to tap into the right advisors, the right network of funds, the right business partners that will convince VC's to invest in your company.

That's why we launched Springboard Enterprises in 2000, to create a platform for women entrepreneurs, to teach them about angel and venture capital, what investors expect and are looking for, and, importantly, how they are going to make money backing you and your firm.

In building out the platform, we realized that we also had to build out the network of investors, starting with super angel funds, who were open to investing in women entrepreneurs.
In Q1 2011, The Center for Venture Research reported that women comprised 12 percent of U.S. angel investors and women owned 12 percent of the entrepreneurial class seeking venture capital. Amazingly, by a more than 100 percent over performance, 26 percent of these women entrepreneurs received venture funding.

My partners, Amy Wildstein and Penny Zuckerwise and I launched a super angel fund backed by 40 women investors in 2001. Boldcap Ventures was just the beginning of women putting their capital to work in a concerted way. Today, there are many of these angel networks, still heavily populated by men, but increasingly more so by women. Among these are Golden Seeds, Belle Capital, , KC Women's Capital Connection, Illuminate Ventures, Texas Women Ventures and the Women's Venture Fund. We have finally realized that financial capital is not broadly speaking a meritocracy, but rather a mosaic of HUMAN capital that knits together the resources and pools the funding required to lift these companies off the ground.

What is encouraging to me is that these funds are also working together to pool capital and can raise funds equivalent to early stage VC investors. According to CB Insights, the average angel fund investment rose from $500,000 in 2010 to $700,000 in 2011. When funds pooled with other resources, the average size investment increased to $1.5 million. In some cases it is in excess of $3 million. What is attractive about this network is that the investors are strongly committed to helping these companies grow by 1) helping to build out management teams, 2) connecting them to business partners 3) refining their business models and 4) steering them through later stage funding.
This process is not new, but it is relatively new to women. Go to any venture forum pitch session run by a wide variety of organizations such as TechStars, YCombinator, Dreamit, Southeast Ventures, Investorcircle, and SXSW Hatchpitch and you will still see a steady stream of men presenting to essentially all male investors in the room. Quite frankly, they are intimidating to many women, and we need to change the mix of these early stage entry points to attract more women which in turn, will add significantly to more venture successes.

We are working hard to change the funding access points for women specifically in technology, software, biotech, medical devices and diagnostics, digital media, gaming, clean tech, green tech and robotics.

HUMAN capital is the key ingredient and doorway to financial capital. We need to create more seats at the table for women and become the engine behind energizing the economy that we know women can be.

Read Part 2 of this series here.