[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
FIELD HEARING IN PASADENA, CA: BRIDGING THE GAP - INCREASING ACCESS TO
VENTURE CAPITAL FOR SMALL BUSINESSES
SUBCOMMITTEE ON ECONOMIC GROWTH, TAX AND CAPITAL ACCESS
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
APRIL 5, 2016
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 114-052
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HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
CHRIS GIBSON, New York
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
CARLOS CURBELO, Florida
CRESENT HARDY, Nevada
NYDIA VELAZQUEZ, New York, Ranking Member
YVETTE CLARK, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRENDA LAWRENCE, Michigan
ALMA ADAMS, North Carolina
SETH MOULTON, Massachusetts
MARK TAKAI, Hawaii
Kevin Fitzpatrick, Staff Director
Emily Murphy, Deputy Staff Director for Policy
Jan Oliver, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
Hon. Steve Knight................................................ 1
Hon. Judy Chu.................................................... 2
Ms. Jeri J. Harman, Managing Partner & CEO, Avante Mezzanine
Partners, Los Angeles, CA, testifying on behalf of the Small
Business Investor Alliance..................................... 4
Ms. Renee LaBran, General Partner, Rustic Canyon/Fontis Partners,
Senior Advisor, Idealab, Pasadena, CA.......................... 6
Ms. Louise J. Wannier, Board Member/Advisory Services, True
Roses, Inc., Pasadena, CA...................................... 8
Ms. Laura Yamanaka, President, teamCFO, Inc., Los Angeles, CA,
testifying on behalf of the National Women's Business Council.. 10
Ms. Jeri J. Harman, Managing Partner & CEO, Avante Mezzanine
Partners, Los Angeles, CA, testifying on behalf of the
Small Business Investor Alliance........................... 30
Ms. Renee LaBran, General Partner, Rustic Canyon/Fontis
Partners, Senior Advisor, Idealab, Pasadena, CA............ 37
Ms. Louise J. Wannier, Board Member/Advisory Services, True
Roses, Inc., Pasadena, CA.................................. 40
Ms. Laura Yamanaka, President, teamCFO, Inc., Los Angeles,
CA, testifying on behalf of the National Women's Business
Questions for the Record:
Answers for the Record:
Additional Material for the Record:
BRIDGING THE GAP - INCREASING ACCESS TO VENTURE CAPITAL FOR SMALL
TUESDAY, APRIL 5, 2016
House of Representatives,
Committee on Small Business,
Subcommittee on Economic Growth,
Tax and Capital Access,
The Subcommittee met, pursuant to call, 10:03 a.m., at
Pasadena City Hall, 100 Garfield Avenue, Pasadena, California,
Hon. Steve Knight, presiding.
Present: Representatives Knight and Chu.
Mr. KNIGHT. Good morning. This hearing will come to order.
Before we begin, I would like to sincerely thank our
Ranking Member, Ms. Chu, for inviting me to be here with her
today. She is an active participant in the Committee, she has
been a staunch advocate for small business' concerns at every
turn, and she works together with all our members in a
bipartisan fashion. Again, thank you, Ms. Chu, for inviting me
here to your district today.
I would also to thank each of our witnesses for taking time
out of their busy schedules to be in our Subcommittee hearing
this morning. I realize each of you are very busy and I
appreciate your willingness to take time out of your schedules
and appear before this Subcommittee to talk about increasing
small companies' access to venture capital.
Small businesses are essential to America's economic
competitiveness. Not only do they employ half of the Nation's
private sector workforce, they also create two-thirds of new
net jobs in our country. Yet in recent years, small businesses
have been slower to recover from the recession and credit
crisis, hitting them especially hard.
Starting a business can present challenges for all
entrepreneurs, and many cite a lack of funding as a primary
obstacle they face throughout their business life cycle. Unlike
large enterprises that can obtain funds from commercial debt
and equity markets, small businesses must often rely on their
own personal assets, retained earnings, community banks, and
credit unions for needed capital.
There is a clearer correlation to a small business owner's
ability to hire and his or her ability to get financing. When
small businesses can access adequate financing, they create
jobs and spur the economy.
The financing needs of small businesses are as varied as
the population itself. The life cycle of a small business can
take many forms with very different implications for the types
of risks and rewards that lenders and investors can expect. For
new ventures that have high-risk profiles and high expected
returns, the initial stages require commitments of equity
capital sometimes from family and friends, and sometimes in the
form of venture or private equity capital.
Data from the National Venture Capital Association has
shown that venture capital funding has been on the rise for the
past 5 years, but unfortunately has yet to reach pre-recession
levels and continues to be difficult to obtain for small firms.
Improvements are always welcome, and we can always do better.
Today we have an excellent panel of experts to discuss
options to increase access to venture capital for small firms,
particularly at those small companies that have had lower
levels of venture funding participation. I am looking forward
to listening to the discussion, and, again, I want to thank
each of our witnesses for taking time to be here today.
I now yield to our ranking member, Ms. Chu, for her opening
Ms. CHU. I would like to thank Congress Member Knight for
coming here and chairing this meeting. It is a special
privilege for me to be able to have a field hearing, and
especially on such an important topic. But it would not be
possible unless Congressman Knight were here to chair this
meeting. So I really appreciate the fact that you have taken
time out of your schedule to be here.
There is no doubt that women-owned small businesses are an
undeniable force in today's economy. Over 9.8 million women-
owned businesses, employing 8.4 million people, generate $1.4
trillion in annual earnings. Here in California, over 37
percent of businesses are women owned, the most of any State in
the country. These female entrepreneurs employ over 1 million
Californians and generate $200 billion in receipts.
Since the beginning of the recession, women have outpaced
men in business creation. From 2007 to 2012, the number of
women-owned businesses grew 28 percent versus just 8 percent
for male-owned firms. However, many of these women-owned
businesses still face one key obstacle to success: access to
A Kauffman Foundation study found that 72 percent of women
entrepreneurs listed access to capital as their most critical
challenge to launching a new business. The Federal Reserve
found that compared to men, women-owned businesses rely more on
personal credit cards, their own savings, and capital provided
by friends and family to finance their businesses. Moreover,
traditional debt financing, like bank loans, does not work for
certain businesses like startups that typically lack revenue
streams and credit history, making them too high risk for
traditional bank lending.
For these entrepreneurs, there are three forms of equity
investment that typically target new and early stage firms:
angel investing, venture capital, and regulated investment
funds, like small business investment companies, or what we
call SBICs. Angel investing generally refers to high net worth
individuals who invest in and support startup companies in
their early stages of growth. In addition to angel networks,
women-led businesses can seek venture capital. Because it is
equitable in nature, VC is most attractive for new companies
with limited operating history that are too small to raise
capital in the public markets, and too undeveloped to secure a
Beyond the purely private market, the Small Business
Investment Company Program, SBIC, which is operated by the
Small Business Administration, was created to inject
government-backed capital into the market and spur additional
investing. By the end of last year, the program had over $25
billion dedicated to small businesses.
Unfortunately this need for early stage startup capital,
especially for women-led small businesses, is going largely
unmet by the private market and SBA's existing investment
programs. Babson College's Diana Project found out while women
entrepreneurs have made considerable progress in obtaining
venture capital since 1999, a wide gender gap exists.
They found that businesses that have all male teams are
more than 4 times as likely as companies with even one woman on
the team to receive funding from venture capital investors.
More concerning was that companies that had a woman CEO only
received a total of 3 percent of investments. This disparity
exists despite the finding that businesses with a woman on the
executive team are more likely to have higher valuations at
both first and last stage of funding.
Furthermore, Babson researchers found that women venture
capitalists are more likely to invest in women-owned
businesses. Unfortunately the total number of women partners in
venture capital firms has declined significantly since 1999,
dropping down 6 percent from a high of 10 percent. I hope
today's hearing will shed some light on the lack of women in
On a positive note, SBICs made 280 investments in women-
owned firms totaling $394.6 million over the past 5 years. More
importantly, there has been a significant increase in such
investments over the past 2 years. The number of investments
has doubled, and dollars increased fourfold. Unfortunately,
these investments in women-owned firms still only represent
approximately 3 percent of the overall activity of the SBIC
Today's hearing will examine the challenges faced by female
entrepreneurs looking to obtain venture capital. Although
woman-owned firms have made significant gains since the
recession, these statistics show that they still lack
comparable access to capital compared to their male-owned
competitors. We will also explore ways to increase both access
to investment style capital funding for women-led firms and the
number of women investors.
I want to thank the chairman for traveling here today and
to conduct this important hearing, and I look forward to
hearing from today's witnesses. Thank you, and I yield back.
Mr. KNIGHT. Thank you very much. We've got 5 minutes for
each witness. We will not cut you off, but please be mindful of
the 5 minutes, and we will be as good as we can with you. But
we want to hear from everyone and make sure that we get enough
time for questions and answers.
I am going to have Congresswoman Chu introduce our
witnesses, and we will get this hearing going.
Ms. CHU. Okay. It is my pleasure to introduce four
exceptional witnesses today. Jeri Harman is a managing partner
and CEO of Avante Mezzanine Partners, one of the only majority
women-led and owned private equity funds in the country. She
has over 30 years of financing experience, and is also the
chair-elect of the Board of Governors of the Small Business
Jeri was inducted into the National Association of Women
Business Owners Hall of Fame in 2013, and Mergers and
Acquisitions Magazine named Jeri one of the top 25 female
professionals in 2015. Jeri is testifying on behalf of SBIA.
Ms. Harman, thank you so much for joining us today.
Now if you can do your testimony.
STATEMENTS OF JERI J. HARMAN, MANAGING PARTNER & CEO, AVANTE
MEZZANINE PARTNERS, LOS ANGELES, CALIFORNIA, TESTIFYING ON
BEHALF OF THE SMALL BUSINESS INVESTOR ALLIANCE; RENEE LABRAN,
GENERAL PARTNER, RUSTIC CANYON/FONTIS PARTNERS, AND SENIOR
ADVISOR, IDEALAB, PASADENA, CALIFORNIA; LOUISE J. WANNIER,
BOARD MEMBER/ADVISORY SERVICES, TRUE ROSES, INC., PASADENA,
CALIFORNIA; AND LAURA YAMANAKA, PRESIDENT, TEAMCFO, INC., LOS
ANGELES, CALIFORNIA, TESTIFYING ON BEHALF OF THE NATIONAL
WOMEN'S BUSINESS COUNCIL
STATEMENT OF JERI J. HARMAN
Ms. HARMAN. All right. Good morning, Congressman Knight,
Ranking Member Chu, and members of the Subcommittee. My name is
Jeri Harman, and I am the managing partner & CEO of Avante
Mezzanine Partners. As Congresswoman Chu mentioned, I'm also
the chair-elect of the Board of Governors of the SBIA, Small
Business Investor Alliance, and I'm here on their behalf.
SBIA is the primary voice of the lower middle market
private equity industry, including small business investment
companies, or small business investment companies, or SBICs.
But let me start by telling you a little bit about my firm,
Avante Mezzanine Partners. Avante is an SBIC firm based right
here in Los Angeles, and we invest between $5 million and $25
million of debt and equity in lower middle market companies.
Avante has two SBIC funds. Our first SBIC we launched in
2009--yes, 2009--and that was $218 million. We just raised our
second fund last year--yay--of $250 million. We're proud to
have invested in 20 companies across the country to date and
look forward to continuing those investments.
Avante is somewhat unique in the private equity industry,
as was just mentioned, given the diverse leadership and
ownership of our fund. 3 of the 5 investment partners at Avante
are women. 4 of the 5 are women, minorities, or both. We're one
of the only majority women-led and owned private equity funds
in the Nation.
I also feel honored to have been recognized, as was just
mentioned, as one of the top women in private equity industry
by such organizations as NAWBO, Los Angeles Business Journal
right here, and Mergers and Acquisition magazine. I was even on
their cover, which thrilled my mother.
Let me tell you more about my views on women in private
equity. According to the private equity research company,
Preqin, senior women accounted for just 10.5 percent of all
employees in private equity firms. We clearly need to improve
diversity in the executive ranks of private equity funds. Many
organizations, including SBIA, are bringing focus to this
This increased attention, along with more senior women as
role models, continuing changes in firms' cultures, and
openness to flexible work arrangements, and increased access to
capital, can make a difference. These steps can increase our
pipeline and retention of talented women and minorities in
I believe that with increases of senior representation of
women and minorities in private equity, there will in turn be
more access to capital for diverse entrepreneurs. This is
important not just because it is the right thing to do. It has
been shown that diversity generates better results, better
returns to shareholders as well as supporting job growth.
While there have been a number of studies that have been
done over time and all consistent in their results, my written
testimony mentions two recent studies that discuss gender
diversity and corporate returns. For example, one study done
recently by McKinsey & Company found that companies in the top
quartile for gender diversity are 15 percent more likely to
outperform their respective national industry medians.
Now, with my remaining time I would like to talk a little
bit more about the SBIC program. The SBIC program has
facilitated record amounts of private equity into SBICs, and,
in turn, into the small business economy. From 2012 to 2015,
SBICs have deployed $18.4 billion to over 4,400 companies
nationwide. These recent SBIC financings created or retained
over 385,000 jobs.
We've worked with this Committee and the SBA on many past
initiatives, and we appreciate the Committee's work to improve
SBIC operations. Thank you in particular for your work last
year to pass the SBIC Family of Funds Limit into law. We're
As more thoroughly detailed in my written testimony,
though, we have a few more new recommendations and appreciate
your consideration. The first initiative would expand access to
capital for SBICs, and if we have more capital we can put more
capital into these needy small businesses. Banks are a major
source of capital for SBICs, and many of these banks would like
to increase their amount of investment in SBICs. Many are
precluded from doing so, however, by the SBIC Act, even though
otherwise permitted by their banking regulators. The SBIA is
working on a legislative solution, and we ask you to consider
supporting this initiative.
We would also ask the Committee to consider technology
updates at the SBA. The SBIC industry is interested in virtual
data rooms which can be paid for by the private sector. This
can help us better communicate and send reports to the SBA
providing an efficiency not only to the SBA, but also to SBICs.
Finally we have several suggestions, as further detailed in
my written testimony, related to timely SBA data releases,
which are helpful for both the industry and Congress and
further needed improvements in SBIC licensing and operations.
I am grateful to be a part of the SBIC program. I'm excited
by the impact that it has had on capital access for small and
middle market businesses, including women and minority
entrepreneurs. The SBIA looks forward to working with this
Thank you again for inviting me to testify, and I look
forward to questions.
Ms. CHU. Now I would like to introduce Renee LaBran, who is
general partner at Rustic Canyon/Fontis Partners, a growth
stage investment fund based in my district.
Renee has over 25 years of experience in corporate and
small company settings, and is in a range of industries that
include internet, digital media, and technology, and consumer
products. She is a senior advisor at Idealab, a local incubator
based in downtown Pasadena, where she advises entrepreneurs on
how to achieve their objectives.
Renee was appointed by Governor Jerry Brown to the Board of
Trustees for the California State Bar in 2015.
Welcome, Ms. LaBran.
STATEMENT OF RENEE LABRAN
Ms. LABRAN. Good morning, Chairman Knight and Ranking
Member Chu. My name is Renee LaBran. I've worked in venture
capital since 2000 when I helped start a venture capital fund
called Rustic Canyon Partners, which was funded by the
controlling shareholders of the company that I worked for at
the time. In 2006, I helped Rustic Canyon spin out another fund
called Rustic Canyon/Fontis Partners, which focused on
underserved markets. That fund is now in its final stage, and
we're harvesting those investments.
In addition to winding up the portfolio of Rustic Canyon/
Fontis, I currently serve as an advisor to Idealab, a tech
incubator that just celebrated its 20th anniversary. I also co-
founded a startup competition for female entrepreneurs that's
now entering its 4th year. I'm personally a small angel
investor in several women-founded companies. All that said, I
have a pretty good firsthand look at the challenges faced by
women entrepreneurs as well as women in venture capital.
When I started in venture, there were a handful of women.
Industry social events typically involved golf and cigars. I
can only think of a few women who came to pitch companies to
us. I'm pleased to say that things have gotten a little better,
and I'm amazed at the number of women-focused events that have
sprung up in the last few years.
But the statistics are still quite dismal. I'm sure many of
you have read the Diana Project report that Congresswoman Chu
also mentioned. It's tracked the women in venture capital and
both sides of the table since 1999. For those of you haven't
read it, here's a few key statistics. In 2011 to 2013, 15
percent of companies that received venture capital had a woman
on the executive team, up from 5 percent in 1999. Great news,
but still very small. Not as small as the percentage of
companies that receive venture capital with women CEO, which
was the 2.7 percent that was mentioned earlier.
Further, companies that had a woman on the executive team
also tended to be at a later stage compared to the overall
profile of companies receiving venture capital, leaving one to
wonder where these companies found their capital in the first
place. These are just the problems on the entrepreneur side.
On the venture side, the problem is even more severe. The
number of women partners in venture capital fell from 10
percent to 6 percent between 1999 and 2013. This is
particularly problematic because VC firms with women partner
are 2 times as likely to invest in a company with a woman on
the executive team, and three times as likely to invest in a
company with a woman CEO. The reasons for this should be
obvious, but just in case they're not, let me elaborate.
Entrepreneurs find venture capitals through their own
networks; thus, venture capitalists invest in entrepreneurs who
tend to run in their own circles and are much more like
themselves. The proverbial old boy network prevails. When women
do come to pitch, they find themselves facing a table of male
partners who are more comfortable themselves meeting with other
men who look like they look. There's plenty of other evidence
in the press today about how women are often judged in ways
that men are not.
It's even more difficult for women entrepreneurs to find
seed investment since the vast majority of seed investors are
men, and successful angels tend to invest in entrepreneurs they
already know. When women do break into the VC side, they also
face challenges. Many firms who have a woman partner have just
one or maybe two, which is often an uncomfortable position to
The shortfall on the VC side is the flip side of the
entrepreneur coin. Men who have access to capital to start a
fund often start them with close colleagues out of their own
network. Successful entrepreneurs who have large exits often
join VC funds, but there are fewer women at the top of firms to
become successful or companies to become successful in the
first place and achieve such exits. So breaking in is very
difficult for women.
Some women have chosen to start their own funds, but often
struggle to raise capital since most funds have to be raised
from individuals, and, once again, the network effect comes
into play. What I'm describing here is a vicious circle rather
than a virtuous cycle.
The Diana Report urges VC firms to take corrective actions.
However, despite the evidence that this might improve returns,
I don't think we're likely to see those changes soon. If we're
truly an economy that relies on innovation and entrepreneurship
as our growth engine, we need to find ways to include the half
of the population that's missing out. By the way, we're talking
about women here, but male entrepreneurs of color face these
Over the years there have been various programs for
emerging managers that provided access to capital for first-
time funds formed by women and minorities. However, these
programs seem to be cyclical and have diminished rather than
increased. Government is also in a position to provide
incentives to potential limited partners to provide capital
either directly or through funds that are more likely to deploy
capital to those who currently lack access. Without incentives
or nudges, I believe it will take far too long for these
problems to self-correct, if ever.
These are just some of the issues facing both women
entrepreneurs seeking venture capital funding and women seeking
a career in the industry. There's so much more I could tell
you, and I'm happy to answer any questions you may have today.
I appreciate the opportunity to testify. Thank you.
Ms. CHU. Well, thank you so much, Ms. LaBran.
And now, I would like to introduce a constituent of mine,
Louise Wannier. Louise is a serial entrepreneur that has
chaired boards of directors and, as CEO, built companies in
four different industries, including education technology,
consumer electronics, information management software, and
Among her many endeavors, in 2006, Ms. Wannier founded
MyShape, the first online personal shopping platform. MyShape
grew to over 800,000 members and partnered with over 200
fashion brands. It was financed with $27 million from venture
Ms. Wannier, thank you for being here today.
STATEMENT OF LOUISE J. WANNIER
Ms. WANNIER. Thank you very much. Chairman Knight, and
Ranking Member Chu, and members of the Subcommittee, and the
public who's here today, thank you very much for the
Thank you for the opportunity to share my thoughts with the
House Small Business Committee today. I also would like to
thank Andy Wilson, our local Pasadena City councilman, and Amy
Millman, who's president of Springboard Enterprises, who works
and has devoted her career to helping women to receive venture
I've long pondered why it is so easy for my male CEO
colleagues to, from my perspective, have a much easier time
raising sufficient capital for their ventures. I've often felt
that, and I suppose maybe every entrepreneur feels this way,
but I had a disproportionately difficult time raising capital
for the business plans I presented. I had to have more meetings
with more venture firms, and in the past I have failed twice to
raise sufficient capital for two ventures. Coincidentally, they
were following the difficult economic downturns in 2000 and
I'm summarizing part of my testimony because it's slightly
longer than the time allotted, but you can read the full
details in the printed testimony. Each of those two companies
have products that were already well received in the market. In
MyShape's case, the 800,000 members already. In the prior case,
they had thousands of different companies using the product.
Of course there are many, many reasons why ventures are
unable to raise capital, and it would take deeper study. But
the facts are that at the same time that I was unable to raise
follow-on capital for those two companies, even after meeting
with many different firms, ventures that, in my opinion, were
comparable or less comparable, less deserving of capital,
raised many millions of dollars of capital in the same
timeframe. I'm sure this was not simply due to the difference
between men and women. I'm sure it was also due to other
differences. But I do feel it was a factor.
So this request to testify today gave me a fresh
opportunity to reflect on this question: why do women have a
harder time raising venture capital? Is it simply the network
effect as we've just heard, or, if not, why not?
For my undergraduate studies, I went to Cal Tech here in
Pasadena. I graduated in 1978 with a degree in astronomy,
following that, an MBA at UCLA in 1980. For the first 6 years I
worked in management consulting in the Los Angeles office of
Ernst doing strategic M&A studies, doing financial feasibility
studies, and working with corporations across diverse
Following those years, I temporarily relocated to Sweden,
and what was interesting is that I accidentally became an
entrepreneur because the men there gave a young woman from
America, who was only 30 at the time, an opportunity to build
and finance my building a new company working in a very
interesting area. From that experience, I returned with my
family to the United States, and fortunately became one of the
six principle founders of Gemstar Development Corporation, and
I personally was instrumental in developing and executing the
go to market strategy that resulted in VCR Plus becomimg one of
the most successful consumer electronic products worldwide.
Congressman Chu, thank you. You've already summarized what
I've done in my career. But I think that background and from my
early background and training in the scientific method, I made
a hypothesis. I reflected on what has happened and came to this
conclusion. The data, as we've already heard, tells us that a
higher proportion of women-founded businesses succeed than do
those started by men. Yet women are underrepresented
significantly in the proportion of venture capital financing.
Only under 3 percent of women CEOs represent the VC funding.
That's not just the proportion of venture capital
financings in number, but also in total dollars invested over
the lifetime of a venture. A higher proportion of women-founded
businesses succeed. They have tenacity. They persevere by
bootstrapping using personal financing, friends and family,
credit card debt, all other non-professional venture capital
methods. Therefore, unfortunately, they result in lower growth
companies, which in turn are less attractive to the larger
venture capitalists over the longer term than do the businesses
founded by male entrepreneurs who tend to raise and risk larger
sums of capital on average per venture.
Number three, there's a venture capital seed and A-round
gap between what can be raised through friends and families and
what can be raised through professional venture capitalists.
The trend affects both male and female entrepreneurs. The
venture capitalists have been amassing larger and larger funds
which has correspondingly resulted in a proportionately
significant increase in the average amount that they need to
invest, and that raised per series in any one venture round.
I think it's partly or simply because any one venture
partner cannot sensibly, fiscally, responsibly manage
simultaneously more than a certain number of investments. They
have to put a larger portion of assets to work at any time.
This pushes the professional VCs towards higher and higher
risk, and this criteria does not tend to be the type of venture
that women entrepreneurs more often gravitate towards.
There is a venture capital gap for first-time
entrepreneurs, because of the network effect. Entrepreneurs who
do not have a prior successful exit as a track record--in my
case I did with Gemstar--have an almost impossible time raising
venture capital. Most venture capitalists and most venture
capital is invested in entrepreneurs who already have had
I have some other remarks, which are stated here. I do see,
however, one bit of positive news here. Women are natural
collaborators and naturally social. Women have taken advantage
of the recent trend in social media, and there is a recent
article in Forbes and other places which has pointed to the
fact that social media has now become a strong enabler of
facilitating women's ability to raise funds. We're starting to
see potentially some shifts in this trend.
This is a brief summary. I recommend a further study be
made. I thank you very much for the opportunity to be of
Ms. CHU. Thank you, Ms. Wannier. Thank you for your
Now I would like to introduce Laura Yamanaka, president of
teamCFO, Inc. Since its inception, teamCFO has received several
regional and national awards, including the Asian Business
Leadership Award by Wells Fargo, and the U.S. Asian Pacific
Chamber of Commerce, and the Women in Business and Accountant
Advocate Award by the SBA.
Laura has also been featured in news and radio sources on
the subject of small business and finance, including the Los
Angeles Business Journal and the Los Angeles Times. Laura is
currently chair of NAWBO, the National Association of Women
Business Owners, where she has also served as treasurer and is
past president of the organization. She is here today on behalf
of the National Women's Business Council.
Ms. Yamanaka, we are so happy to have you here today.
STATEMENT OF LAURA YAMANAKA
Ms. YAMANAKA. Thank you very much. Thank you very much,
Congressman Knight, and Ranking Member Judy Chu, and
distinguished members of the Subcommittee, for inviting me to
speak on behalf of the National Women's Business Council.
I'm going to give you a brief background on myself. I think
it's wonderful that you've established this panel of witnesses
because I think you're getting a broad cross-section. In my
business, we outsource CFOs, so we actually work with the
businesses who are hopefully attempting to get funding and move
through the next levels of funding. So it's been very
interesting for me to see actually half of my testimony here,
which you will see. I'm not going to read through it because
everybody has covered it quite admirably. Since I'm a numbers
person, I have a lot more numbers behind it, so in case you
need it, look at it here.
I am speaking on behalf of the National Women's Business
Council, and it is a non-partisan Federal advisory council
created to serve as an independent source of advice to the
United States Small Business Administration, Congress, and the
White House on issues of impact and importance to women
business owners, leaders, and entrepreneurs.
Interestingly enough, it was created by the Women's
Business Ownership Act of 1988, which for the first time
allowed a woman to have a business loan without a male co-
signer. 1988 isn't that long ago frankly, and so, we don't even
think about it right now. But when you look and hear of all the
stats that are presented, we have made a lot of progress on the
positive side with a long way to go.
Let me see. I'm going to pass through this.
Women's access to capital is a priority for all the reasons
that we've indicated. I think what was interesting per Council
research, we found out that men start their businesses with
nearly twice the amount of capital as women, $135,000 versus
$75,000. This disparity is slightly larger among firms with
high growth potential, $320 to $150, and it's huge among the
top 25 firms, $1.3 million versus $210,000.
At the lower levels we're behind, but not so behind, and as
we get larger and larger, the gap becomes larger or greater. We
get about 40 percent of the funding that men do at the highest
level or at the lowest level, and men get 400 percent at the
highest level. If the idea is that as a small business you
grow, and multiply, and develop your businesses, but when you
are a larger company you can do it at a much higher rate, we
are immediately behind the eight-ball. Much more relying on the
credit cards that, thank goodness, the other legislation put
Thanks to great innovation in the capital space with
crowdfunding, peer-to-peer lending, micro financing, and more,
women have a greater opportunity to pursue and raise capital
that they need. I think everybody has cited the Diana Research
Project, I think it's landmark research. It also says to me we
need more research in this area. If this is the citing source
for all of us, it's good, don't get me wrong. But there should
be more. There should be better research, right? This can't be
really one of the singular studies in place, which is why it's
so important to fund organizations or entities like the
National Women's Business Council.
It was very interesting in that study. I think we didn't
really specifically speak about it. But there was a question
about whether women entrepreneurs were not being funded at that
rate because they really didn't have the experience that they
needed to get there, and this was a study that was done in
1999. What's really interesting is you would think because of
the pipeline effect, and as there's been more interest, more
access, more availability, government resources, private
resources, you would think that percentage would go up. But as
my fellow witnesses have indicated, actually that percentage
has been dropping. Stats are in here.
One of the bright spots is that actually women-owned
businesses or just women in general, own and control a huge
amount of assets in the world and particularly in the United
States. One of the proposals that we could put forward is a
little bit of a focus on the fact that if we could direct,
encourage, communicate, let people know, let women know the
disparity in investing, if we could get some of the personal
investments into this broader area, we could possibly even out
or increase the funding of women in this area.
Let me skip ahead to our recommendations. The Council is
committed to broadening the dialogue through engagement of the
full entrepreneurship ecosystem and the exploration of
innovative ways to increase investment in women-owned and
women-led businesses. In 2014, the Council conducted research
on access to capital by high-growth women, and this research
confirmed that men are starting businesses with significantly
more capital. We already know that. Female ownership was
negatively correlated to the proportion of capital coming in
from external sources. That's also been cited. That woman-owned
businesses exceed their own expectations regarding growth.
Basically what that's saying is two businesses, male,
female, the guy is going to shoot for the moon, and the woman
is going to go, hey, if I just get to the coast, I'm fine.
She's not setting her expectation out there, which means she's
blowing past those expectations, and which is huge when you're
going up for external funding, right?
We would like to suggest several remedies to this situation
that we think that we could put forward. We would like to
propose eliminating the carried interest loophole for venture
capital firms. I'm not sure how we feel about this over here,
but that is one area that we could explore so that funds who do
not fund female-owned or female-led firms proportionately to
male-owned or male-led firms, we could possibly use that as an
inducement. We could introduce tax credits for investment
income in women-owned and women-led businesses to provide
incentive for investors to seek out woman-owned and women-led
firms who are generally under capitalized
We can increasingly improve the promotion of capital
opportunities and sources to broaden and diversify the outreach
for many women. We can strengthen the pipeline of women in
careers in finance by specifically increasing the numbers on
the financing and the investment side. That has been
particularly of concern to us because that pipeline has gone
down, even though you see more and more women going into the
financing field. So that's of interest to us.
We would really like to see providing entrepreneurial
support, particularly in the form of education and membership,
early and consistently so those positions of possibly not
shooting for the moon and just shooting for the coast, we can--
we can stop that. If you don't go for it, you're never going to
get there, right?
In conclusion, as the government's only independent voice
for women entrepreneurs, the Council's mission is twofold: to
support and conduct groundbreaking research and provide insight
into women-owned business enterprises from startup to success,
and share the findings to ultimately incite constructive action
and policies. The numbers confirm that the full economic
participation of women and their success in business is
critical to the continued economic recovery and job growth in
this country. We are committed to sustaining the potential that
women entrepreneurs represent.
We know women have ideas. We know that they're leaders. We
know that they're launching businesses at great lengths. We
just have to give the opportunity for these women to scale at
the comparable levels and remove those barriers to their
opportunity. Thank you very much.
Mr. KNIGHT. Thank you very much to our panel. I think we
have got some good questions, and some exceptional information.
I would like to start off quickly with an opening question,
and all four of you can answer this. My wife is in, well, up to
maybe 20 years ago, a hundred percent women business or women
industry. It was nursing, and over the last 15 or so years we
have seen men go into nursing.
We sat down one night and we talked about another business
that was maybe a hundred percent men, and in my district it is
aerospace engineering. We figured that about 20 years ago it
was probably pretty close to 100 percent men. Today there are
an awful lot of ladies that are in aerospace engineering, and I
think part of that is because of some of the programs that have
This is where my question is going to come from. Because of
that phenomenon in aerospace engineering, they started off with
a VEX program with robotics, with Legos, with all of these
different programs that got kids involved in STEM, but also got
our young girls to be involved in engineering. We've seen some
of the robotics programs go from a hundred percent boys to now
about 50/50 in most of the programs that we see across this
That is kind of a grassroots, maybe an out of the box
thinking of how to get young ladies involved in something that
they probably weren't involved in or they weren't thinking of.
I have two boys, young girls are very adept at math, and we
want to push them into this arena if they have that aptitude.
So there is my question. I understand that we do not have
as many women CEOs as we would like to have. Do we have as many
women going into certain industries, and I will pick the
finance industry, as we need so that we can cultivate some of
these young ladies, so that in 20 years or 25 years they are
CEOs of businesses and they are taking over?
Ms. HARMAN. That is a very broad question.
Mr. KNIGHT. That is what I am all about.
Ms. HARMAN. It is a very important question, of course. I
think we can learn a lot from what has already been successful,
which is STEM is a great example. I mean, there has been a
concerted effort to make sure that young women and girls
continue to excel at math and sciences and so forth, and
encourage them to pursue careers there.
But, as you have noted and I mentioned in my testimony, we
have not seen a lot of progress in the private equity finance
industry, and that has been continual. I mentioned the 10.5
percent of senior women in private equity overall. You can
subdivide that in venture capital buyouts, et cetera. It is the
same, you know, and it has been flat and declining in general.
I think there is no single answer on that. I think part of
it, just like with STEM, is to reach into the educational
system and make sure that women understand that there are great
opportunities and power in going into financial careers, in
particular private equity, but they have to see role models.
They have to see women succeed, and that is why I mentioned,
the more there are people like Renee, myself, and many others
around us, organizations like PE WIN, Private Equity Women
Investor Network, which I am on the steering committee, which
is senior women in private equity, over 200 members throughout
the U.S., and it is going global.
Creating these networking ecosystems shows that there are
women who can and do have success in private equity, and there
is a career path. But it also takes an ecosystem where we are,
showing diversity in all firms, which is a firm culture issue.
There are a lot of women opting out who are not even in the
pipeline because they do not see this as a viable career path
either because there is lack of role models or because they
view that the lifestyle, typically going to investment banking
first and then you go into private equity from there, well,
that is a lifestyle that involves a lot of travel, et cetera.
That is not always attractive to women, especially as they come
in and they decide not to stay in and go up the ranks, so it is
really a combination of things.
The final point on that, and we all mentioned it, is access
to capital. If there is more obvious accessibility, to women,
both entrepreneurs as well as fund managers like myself, where
there are capital pockets that we know are available to us that
are outside of the old network, and in the new network, and
that includes public pension funds have been putting emerging
manager programs together, some of which focus on women and
minority managers or investors.
We have capital from some of those pockets, but there are
not many of those pockets, and that has not been growing. That
would be helpful to grow as well.
I assume you heard me.
Ms. CHU. We heard you loud and clear. It was a wonderful
Ms. LABRAN. Thank you. To add onto Jeri's comments, I think
having more women going into STEM and some of the more
scientific areas I think can benefit on the entrepreneurial
side, that you have more women who are going to work for some
of the tech companies and becoming entrepreneurs.
However, a couple of other observations. One of the things
that has been interesting to me about women entrepreneurs now,
because of the ability it is much easier to start a company
today. There are platform technologies that enable companies to
get started from much less capital, and do not require as much
technical expertise. You are seeing a lot of women at tech
conferences starting businesses that are not necessarily
software and deep technology, but are e-commerce, fashion, but
are considered tech because of the platforms they operate on.
So I do think those things will happen.
I am not quite sure on the finance side, though, to be
honest. I do not believe that the problem is that there are not
enough women going into finance. I think if you look at
accounting, accounting has worked very hard at getting women
into their companies because they have a shortage of
accountants. I think on the aerospace side, they knew they were
growing. They needed more engineers. They had incentive which
was if I cannot fill the jobs, I cannot grow, to hire more
women and to increase their talent pool.
I know the accounting firms are very focused on this right
now because they cannot keep enough people, so they have to
figure out how to get more people in the door and keep them. I
do not think that is a problem in venture capital and private
equity. There are way more people who want to get into that
business than there are jobs.
I get bombarded with women coming out of business school,
and men, who want to get jobs in venture capital, but there are
very few jobs. There are just not that many firms, and the
people who get the jobs are people who have a connection, and
you just get in this cycle. So if there was a shortage, then
I think this is a very efficient market. If there is a
shortage, people will do what they are incented to do. If there
are financial incentives, they will follow the money. But right
now there are plenty of people applying for those jobs, plenty
of access to very smart young people, and there are a few
firms. I have some colleagues in venture capital here who are
finally realizing that there are a whole bunch of companies out
there being started by women, and that maybe if they had women
in their own ranks that they would have broader access to a
wider range of talent. But it requires an awakening on their
part, which takes some time.
So I think it can't never hurt. Everything helps. But, you
know, that seems to me to be the bigger barrier.
Mr. KNIGHT. Thank you very much. I am going to have Ms. Chu
Ms. WANNIER. Are we done with that question? I thought you
said everyone would answer.
Ms. CHU. I am sorry. I am sorry.
Ms. WANNIER. I would like to----
Mr. KNIGHT. I forgot because the microphone went over
there. I am sorry. Yes, ma'am.
Ms. WANNIER. No, no. Absolutely no problem, Chairman
Knight. I probably feel quite differently to everyone else
here. As a woman CEO for the last 30 years and as a woman
entrepreneur, I have a slightly different perspective. I
believe that the issue of women-run companies is the same as
women-run businesses. It is a factor that there is not the
society and cultural ability for women to have balance in their
lives. For women in general, balance is more important often
than men. Men have for many, many years been willing to
sacrifice their families and other aspects of their lives.
Now, what I observe, I have four grown children. I managed
to have them at the same time, and I see it to be different in
that generation. My kids in their relationships, the men are
starting to take some of the balance. They are participating.
My son-in-law is going to be on paternity leave as well as my
daughter taking her leave when their child is born shortly.
They seem to have a different attitude on diversity. They do
not seem to see the differences as much as I think my
generation sees the differences.
The number of lawyers graduating who often become venture
capital partners, you have to look at what makes a venture
capital partner. They either tend to be attorneys or they tend
to be successful business people. How do you get to be a
venture capitalist? You do not get there from being a startup.
I mean, yes, you could go from business school to becoming an
associate at a venture capital firm, which is really a research
position. But you cannot really go from there to becoming a
lead partner without either putting in many, many years or
going out and making a success of yourself some other way. At
least I have not seen that.
There is another factor. I really think that we need to
move to a world where we are not distinguishing bias based on
men or women, but we are actually putting in place some
specific criteria on which investments should be made, and we
are putting in place some independent panel review. I think
venture capitalists would benefit from this, even though they
might not like the idea.
I think the venture capitalists would do better to adopt a
system similar to what scientists use for peer review. I think
that investments should be peer reviewed. I think that there
are systems that could be put in place that would mean that our
capital is more wisely deployed.
Mr. KNIGHT. I agree.
Ms. WANNIER. Okay.
Mr. KNIGHT. I firmly agree that if I was putting out
capital and it was my life savings to go into business with a
friend, that I would have everything that you are saying in
mind, that you better successful. You are taking everything
that I have, and you better be successful.
I think sometimes in venture capital, you have got a lot of
people that have an awful lot of hold on money, and they can do
a hundred issues as opposed to my life savings and one issue.
Ms. WANNIER. Right.
Mr. KNIGHT. I can take a lot of risks with friends because
I have a relationship with them. And so, if I lose out on this
and I lose out on this, well, hopefully, a couple of them will
come through. I think that that is a problem.
I firmly believe that if you are going to be involved in
venture capital, it should be all about the risk reward factor.
How much do they bring to the table, and what is the reward
that might come from this? I do not care who owns it, and I do
not care who started the business. What can I get out of this?
But I agree that there is a lot of relationships, and a lot of
good old boy thinking, and a lot of, well, yeah, absolutely, I
can help you out because we have known each other for so long.
That should not be the way it is. The way it is, is that I
am going to be involved in this business, and I want this
business to be successful. So what is your strategic plan? What
are you going to do? Where are we going to be in 2 years? Where
are we going to be in 5 years, and so on, and so forth? That
should be it in my thinking.
But it is not today, and that is part of what this panel is
about is how do we get past some of those barriers, and how do
we get to the best for the business owner, the best for the
community, and the best for success because success brings
opportunities. The opportunities are going to be more jobs, and
more help for our economy, and all of those things. That is
what we should be working toward.
Ms. YAMANAKA. So with that, I think that nobody at this
table, these tables, would disagree with that fact that you
need to be a solid business with a solid plan, with, you know,
a niche market. You got to have all your marbles in order,
I think that the issue is that in this world where we live
in right now, you are absolutely right. Am I going to invest my
money with somebody I do not know off the street or one of my
friends, you know, that I know I have done business with
before? I know how hard they work. I know what kind of
lifestyle they have, what kind of judgment they have. I do not
care if you are a man, or a woman, or whatever, you are going
to make that decision based on all the quantitative factors and
the soft part of it.
One of the pieces of research the National Women's Business
Council has indicated, and I think some of my fellow witnesses
here have indicated, that your contacts are important. Part of
that start is getting people started in the beginning, women,
minorities, whomever, starting in the process of coming
together, having the same types of experiences so they can
progress on that journey together.
I think what we are finding out, and it has only been
recent, that there are other obstacles along the way. So
trickle up is not exactly trickling, right in my field, finance
CPA firms. If you look at accounting classes, accounting
majors, more than 50 percent of people coming in are women. In
CPA firms, a lot of times your entry class is more than 50
percent. However, we have been close enough to come to the
cycle of partnership, and you see that women fall out at a much
higher rate than men, perhaps, Louise, some of the reasons why
you have indicated, perhaps other reasons.
I think somebody had indicated it is not one facet. It is
multiple. It is a complex problem. We need to have complex
solutions that encourage people to start in the beginning,
encourage that equal. It does not matter if you are male,
female, whatever, you go for it and have those same common
On the other hand, along the way, I think it is important
to assist that leverage, okay, so that it evens it a little
bit, not because it is, you know, the right thing to do or
whatever, and it is the right thing to do, but because it is
good business, as we have indicated. That diversity is so
important. If we can get that faster through certain types of
encouragement in the short run, we all benefit to that. I think
it is just coming out to the exact specifics, you know, which
is why we are all here.
But, again, if we look at our eye on the ball and getting
that diversity and always here, it is going to mean more money
for everybody, more jobs for everybody.
Mr. KNIGHT. Thank you very much. Now, I will go to Ms. Chu.
I agree. This panel is hitting it right on the head, though. I
have invested with three friends. I have made three tax write-
So, you know, instead of using my head, I used my heart,
and I think that a lot of venture capital goes to I have got a
relationship here. And, yes, he did something good, he did
something bad, but I have got a relationship with that person,
so I am going to invest with that person, instead of looking
into the numbers and saying this is a sound investment. So
Ms. CHU. Thank you so much, and I am eager to ask questions
to all of you. I am going to ask the first half of my
questions, and then we will do a second round of questions.
First, I would like to ask Jeri Harman specific questions
related to SBIC. The reason I want to focus in on this with you
since you are an expert in this is that the SBIC program, the
Small Business Investment Company programs, are a direct result
of the SBA's attempt to have more investment going; thus, we,
since the House Small Business Committee has oversight over the
SBA, we could have some say-so in terms of what the future
direction of SBIC is.
What we see is that there are still too few SBIC
investments in women-led firms and even fewer SBICs with women
partners. While SBIC programs have a higher proportion of
female managers than the broader VC community, more must be
done to increase the numbers in both realms.
So, Ms. Harman, in your opinion, what role does the SBA
have in improving the SBIC program to better serve women? Is
there a way to work within the SBIC program to ensure that more
women are qualified to become fund managers when the
opportunities become available?
Ms. HARMAN. Yeah, I mean, clearly there is a lot more work
to be done. There are not that many senior female women in the
SBIC program, but I think it is changing. I think there is more
of a focus. People are shining the light both at the SBA as
well as the SBIA to educate people about the benefits of the
But it still becomes an issue. In order for women to raise
a fund like I did, you still have to get the private capital,
the private equity capital. That is the foundation for the
firm, and then we can use the SBA leverage for the rest of the
capital. That is how, as you know, the SBICs are done.
So we still have to have access to the capital to start our
funds that is outside what the SBA provides. And that is where
these emerging manager programs, whether they are coming from
public pension funds, endowments, foundations, family offices,
individual investors, et cetera, all of them are providers of
that capital. But there has to be that network that we have all
talked about, whether that network is women or a broader
network, that provides the access to those types of LPs,
limited partners, that support the total fundraising
We are trying in SBIA to create more of those
opportunities. There have been women's networking events at
each of our regional and national events, women investors as
well as women LPs. So both the GPs and the LPs, which is that
the key ecosystem. If we can put those people together, then
that creates access to capital, start the funds and then, of
course, the SBA and the SBIC program provides the leverage to
increase the access to capital.
I think the more the SBA focuses on supporting the SBIC
program honestly it has been very successful in getting money
to small businesses. Whether that is women- and minority-owned
businesses, or LMI urban, you know, located business, veteran-
owned businesses, et cetera. We have done women-owned
businesses, we have done LMI, located companies, et cetera.
We all have to deliver results to our shareholders, so we
have to find the best opportunities out there. But still, it
all starts back to access to capital. Again, the networking and
the shining the light on this.
I am chair-elect of the SBIA. The vice chair is another
woman. We have two women prior to this as senior people on the
SBIA executive committee. We are starting to represent, but
there is more work to be done.
Ms. CHU. In 2014, the SBIC program experienced an uptick in
investment in women-led firms. The number of deals doubled, and
the dollars invested grew nearly fivefold. What are the reasons
for this positive trend, and what can Congress do to help
continue this trend?
Ms. HARMAN. It is hard to say the reasons. I think there
has been an increasing pipeline--I think Renee talked about it
and some of my fellow panelists here--on the increasing
pipeline of qualified entrepreneurs so there is more
opportunities to invest in many of these women diverse managed
firms. There has been more exposure through studies that have
shown that investing in diversely managed companies generates
better results, which is, just better business.
As I said, the increased attention that has happened at the
SBA and the SBIA, if you will, has been helpful, but I do want
to caution. I do not think what I would call subsidies or, in
other words, lowering any standards for qualifying for capital,
whether it is SBICs qualifying for capital, a company is
qualifying for capital, is the answer. There are plenty of very
talented women and minorities who are running businesses who
are in the private equity field.
When we raised our funds, we did not ask people to look at
anything except our track record, our strategy, the experience
of our team that we could benchmark against anybody, but we
needed the open doors to be able to tell that story. That is
the access. That is having those emerging manager programs, you
know, encouraging. I think the government can do more to
encourage public funds to go into the LP side of things outside
of the SBIC program, provide more capital as a limited partner
to qualify emerging managers.
Ms. CHU. There were strategic plan initiatives, like the
SBA's Impact Investing Fund and Early Stage Initiative. The SBA
tried to spur additional investment in underserved markets
through this initiative. The goal was laudable, but the program
was not particularly popular with the investor community.
Ms. HARMAN. Right.
Ms. CHU. How could we change these programs to make them
more attractive to investors like yourself and better serve the
Ms. HARMAN. First, we have to recognize that all SBICs are
doing impact investing. We have invested in women-owned
companies. We have invested in LMI urban located, however you
define ``impact.'' So to me, the solution really is to support
the general SBIC program and continuing to provide education
and money to support that program.
It is hard because venture capital and leverage do not go
hand-in-hand. One of the big benefits of the SBIC program is
the low-cost leverage that it provides at the fund level for us
to in turn make these investments. But you do not really want
to have a lot of leverage if you are doing venture investing,
which is a little bit earlier stage investing, because your
mistakes are magnified.
If you have a couple of poor performers early in the fund,
you are done because the leverage magnifies those problems. I
think it can be potentially a mismatch between levered SBIC
program type capital and true venture impact, you know, funds.
That has been part of the program, and venture investors know
that. They do not want to increase their leverage and increase
that risk profile, so they do not see the other benefits then
of partnering, if you will, with the government because that
has been the major advantage.
Ms. CHU. Ms. LaBran, although women control over half of
all the wealth in this country, the Diana Project found that
the number of women in venture capital actually decreased from
10 percent to just 6 percent as you pointed out. Are women
leaving the venture capital industry, or does this statistic
mask other factors that are in play?
Ms. LABRAN. I do not think women are leaving. I actually
tried in the report to find the actual numbers as opposed to
just the percentages, and I could not find it because I do see
more women now at the junior levels of venture capital firms,
again, very small numbers.
I speculate that what may have happened is that when we had
the shake out in the market that the number of firms being
formed, and I think you referred to the smaller amount of
dollars being invested in venture, the number of firms
contracted. Therefore, maybe the newer firms, which I would
also speculate that probably more of the women were in newer,
younger firms, those firms just did not get re-funded, so they
just moved on to something else.
I think, maybe, it was attrition of the venture capital
firms that they were associated with, and you did not have many
women coming in at the partner level because it does take a
long time. Maybe they were junior at some other firms, and
those firms, again, did not raise as much capital.
Unfortunately, firms only hire generally when they raise a new
fund. So people call you all the time and say, hey, I am
looking for a job, and, it is great, we will be hiring in 5
years when we raise the next fund or 3 years.
So it is very difficult just to increase the numbers
because of the length of time unless you have new funds being
Ms. CHU. Well, I have more questions, but let us do another
Mr. KNIGHT. I will go back to my broad question. We are in
the age of the baby boomers. The baby boomers are retiring and/
or preparing to retire. The 1946 to 1964 folks are in that
period where a lot of them moving on and a lot of them going
into social security, and Medicare, and things like that that
we have to deal with I am sure in the next 10 or 12 years.
Because of that, are we seeing possibly an opportunity
because we are going from a very large workforce where an awful
lot of men have maybe dominated in some of these areas or these
arenas, and now giving a lot more opportunities for young
ladies that are graduating from our great universities to get
into some of these positions and work their way up, or are we
not seeing that at all?
Ms. WANNIER. Again, that is a good, broad question. Yes, as
I said in my prior remarks, I believe that the generations of
my children who are in their late 20s and early 30s, that I am
seeing a very significant difference in their workplace to the
workplace that I worked in. I was 1 of 10 women in my class at
Cal Tech. I was 1 in 5, I think, at UCLA for business school.
In the work world I was often working with mostly male
colleagues, but that has shifted dramatically. Now Cal Tech has
over a third women. That is a change of a factor of 3.
But what is required, and we have not yet spoken about, are
mentoring programs. We need to get more women of experience who
may not have chosen to go the path of CEO, but who have
nevertheless significant corporate experience into corporate
boards. We need to get diversity in our board room, which then
in turn some of those board members will also become venture
partners, because venture partners are grown from within as
well as come from the outside.
We need to establish, similar to STEM, kind of a long-term
mentoring program I believe. There are several very good
organizations, and just at this moment I am not remembering the
name of the one. I can get it to you afterwards. There are
several very good organizations that are trying to work on
long-term mentoring of young women going through the corporate
ranks and going through venture ranks as well. I know that each
of you do a certain amount of mentoring as well. I know there
are many opportunities for that. But, as Laura said, it is a
very, very diverse problem, and it is going to attack from many
I do want to add one little point that I mentioned in my
last remarks about a system. I had one example of implementing
such a system, and actually, Renee, you were on that committee.
We had an approach here in Pasadena, an organization called
EntreTech, and we started something sponsored by
PricewaterhouseCoopers at the time.
We started an entrepreneur award, but we based our award on
a very systematic approach. We opened up the applications to
all kinds of companies at different levels of early-stage
ventures, and we said that there were two criteria. We were
going to evaluate them on both the potential size of the market
that they had to potentially realize, as well as the specific
activities and results that they had achieved, which
demonstrated that they were likely to achieve the investment
results. We had a diverse committee involved in making that
decision. On the committee we had CEOs, we had venture
partners, and, again, thank you, Renee, for your service. We
had members of the advisory professional services firms.
That diversity of thinking also brought good results. I
believe one of the prior members of that committee came to see
me recently and had coffee with me and said, Louise, do you
realize that every single one, I do not even think there was an
exception, he said, of the people we gave the award to had a
Ms. YAMANAKA. So you talked about the baby boomers exiting
out, and I think one of the really interesting stats for women
in general coming out of maybe a corporate workforce or having
successfully raised their children is they are more likely to
start businesses at an older age. I think that this is an
opportunity point that we are going to see people are keeping
themselves in better shape, we are living longer, we have more
opportunities. The internet provides a lot more access to
across the world and globally. I think we are going to see a
significant increase in the number of people transitioning out
into ``early retirement'' into becoming business owners for
both men and women.
Regarding the question about that pipeline and getting
people in, hey, you know, capitalism works. Supply and demand
works. If there is a need and somebody sees you can make money
at it, even if perhaps they are not so inclined or their
network does not allow for it, they are going to go after
whatever they need to fulfill that product or that service.
They are going to get who they need to fulfill that product and
So I think it just takes perhaps a little bit longer as it
is going up, filtering up. But over the long run, it makes
Mr. KNIGHT. I am going to keep the microphone with you and
ask you one quick question. We have seen new mechanisms on the
internet--crowdfunding, peer-to-peer, things of this nature--
that might not bring in mammoth amounts of money, but can bring
in pretty substantial amounts of money. Are they helping? Are
they giving a new opportunity?
Ms. YAMANAKA. The jury is still out because it is a very
short period of time for data. But preliminary results have
indicated that, yes, it is working. In fact, I have a site here
that I will get you specifically. It says there an increased
level of 21 percent of funding for woman-owned businesses as
opposed to male-owned businesses.
I think when you look at how it started out through social
enterprise, Kickstarter and all those crowdfunding
opportunities, that women, one of our things is we are more
collaborative, you know. We have the relationships. Perhaps we
have not focused it in a traditional business.
Crowdfunding gives the opportunity in a small and greater
scenario to provide access of funds that maybe they would not
have in their local community, so I think it is huge. I think
it is going to kick off a lot of business at the smaller
levels, which is a good thing. Do not get me wrong. I love it.
It is going to open up opportunities to people who would not
have it otherwise.
I think we also have to realize that we need to focus some
attention on the larger numbers because that is where the real
money is. As far as I am concerned, it is great for starting
off small and----
Mr. KNIGHT. Right.
Ms. YAMANAKA.--we are doing a great job. To have the parity
of the impact in the financial return and reward on the
economy, we really need to look at the spectrum of investment,
which is what we are addressing here.
Mr. KNIGHT. Thank you very much. Ms. Chu?
Ms. CHU. Yes. Ms. Wannier, you said that there was a gap in
funding for seed and A-round financing since professional VC
firms have grown in size and do not have the capacity to handle
many small investments. Do you think the private market will
eventually fill that gap, or do we need the government to
provide an incentive to invest in such firms?
Ms. WANNIER. Well, I do not have all of the data necessary
to completely determine that. But what I believe and what I
observe in the marketplace is that it might be possible to
raise $500,000 or a million. Most VCs or many, many VCs of the
large funds are investing $3 to $5 million less often than they
are investing $10 million, $15 million in a Series A round.
To support an investment of $10 to $15 million without
giving away all of your equity and you have no room then for
the follow-on rounds, you have to be supporting valuations and
sizes of markets, which are very significant, which means that
the businesses that will consistently grow to the $20 to $50
million as opposed to the $100 to $500 million level are
getting ignored and passed over. And there is a definite gap
supporting that middle range of business.
I believe that, as we said, women are, for various reasons,
more drawn to that area than to the much larger ones
statistically, and so that gap needs supporting. I am not quite
sure what the best solution is. I have a feeling my colleagues
to the left will have a better idea.
Ms. LABRAN. A lot of these things tend to be quite
cyclical. There are time periods where a lot of the firms want
to invest earlier, and then they all shift later, and it just
depends on what the market dynamics are at the time. There was
a time period where funds were investing early, and then the
valuations, because of changes in the economy, were not jumping
up in the next rounds. So everybody said, why would I want to
invest in an earlier stage. I might as well wait, have less
risk, and invest later.
Actually right now I think you do have this very bifurcated
pattern that Louise is referring to, although I would make a
slight distinction. What has happened is that seed investing,
which used to be, maybe, a couple of hundred thousand people,
are doing seed and super seed, and they just changed the names
So you have these super seed rounds that are, you know, a
million or $2 million that are being done under a different
structure than what used to be called a Series A. This is
problematic because there are a number of funds that do seed
investment. Again, those tend very much to be entrepreneurs who
have had successful exits. They have taken their own private
money, personal money, and that of maybe some colleagues, and
formed these small funds. So they can only afford to do very
Then you have the big institutionals that are doing the $10
million kinds of rounds or even larger, the $50 million, $60
million into the snapshots of the world. But a lot of these
angels, many of whom, by the way, are leveraging the
crowdfunding platforms that Congressman Knight was referring
to, they are men. There are just very few women on those
platforms. And I will say----
Ms. HARMAN. Smarter.
Ms. LABRAN. Well, that is the thing. I mean, we can joke
about that, but in the last few weeks or months, I am
constantly invited to these events that are targeted at getting
women to invest more in these very early stages. I have a
little bit of mixed feelings about them because I do think that
it is important to have more involved in this ecosystem. Many
of these women do have the means, but I think we also have to
make sure that we do not have people who really cannot afford
to take that kind of risk making these investments.
So crowdfunding does help because it allows more people to
make small investments because many of these people should not
be making, you know, $50,000, $100,000 bets that the angel
networks have typically required, but they can do $5 or $10.
That is hard for a company to handle, but if there was a
crowdfunding platform that allows that to be aggregated, that
actually is helpful.
So of course the jury will be out, but I do see at least it
is raising the interest in people investing, and that may just
help more women and other first-time entrepreneurs get that
little bit of seed capital that they need other than their
credit cards and other things that are self-limiting.
Ms. CHU. Well, talking about angel investors, Ms. Yamanaka,
we have seen an increase. Historically females were 15 percent
of the angel investors in the United States, but for 2014 it
did increase to 20 percent. So that is a significant increase.
In your opinion, what is driving that increase?
Ms. YAMANAKA. Finally that trickle up is working. We are
more successful in accumulating wealth and are able to invest
back in the educational piece, the give-back piece that makes
good economic sense, ultimately all of those reasons. It is a
good investment. Somebody is willing to say, hey, I am going to
take my money. I am going to put it here. I think I am going to
get a better return than if I stuck it in the bank. No offense
to the banks right now.
That said, women are great at leveraging, so they are
looking at, one, an economic return, but they are also looking
at if their money will make a difference. This is purely
speculative on my part that all things being equal, if I have
an investment, both investments are the same, going to have the
same return, same risk. But if I feel that I can make a
difference with this investment by helping out a new
entrepreneur or investing a business that is going to have more
of a social impact or whatever those things, I am going to
probably put my money into the second piece, all things being
I think that is really important. I cannot stress that
enough because many times people go, oh, you know, they are
going to just waste their money or put their money into
something that really does not make as much economic sense,
but, you know, they are going to change the world or it is a
good moral thing to do. We are going to do that on top of the
fact that all things being equal, it is a good economic
Women are not foolish. We make wise economic decisions. If
you look at our commercial or our personal and consumer buying
patterns, we do make a lot of those common everyday decisions,
and I think that holds all the way through.
Ms. WANNIER. Can I add----
Ms. CHU. Absolutely.
Ms. WANNIER. It just also occurs to me that one of the
things I have encountered in my career is that many women do
not take the time to fully understand and appreciate and
understand financial projections and financial statements. Now,
women who go into banking or into accounting of course do. But
I believe that we could also strengthen our education systems
to add that earlier in the cycle of our education so that both
men and women get exposed to these concepts from a practical
sense earlier in life.
Ms. YAMANAKA. But men do not either, right? I mean, I have
to put it in there.
Ms. WANNIER. No, I mean----
Ms. YAMANAKA. I have clients that are men that are equally
ignorant on projections. I do not want to look, hang a label.
Ms. LABRAN. If I may just reinforce what Laura talked
about, I mentioned I co-founded a startup competition for women
entrepreneurs. Going into our 4th year last year, we received
over 100 applicants. What has been interesting is the number of
women who have come to participate in the event just to see the
pitch competition. We are also getting men. But some of those
women have become interested in investing back to these small
But she is absolutely right. These women, it is not like,
oh, is that the coolest thing I have ever seen. No, it is
something they want to feel good about, and they have to be
able to relate to it. One of the businesses that was one of our
winners, and a number of us invested in, was founded by a
woman, let us say, a more mature woman, as opposed to some of
the much younger millennial kinds of founders. A more mature
She started a company that has been largely targeted at the
LGBT community, and it is a fabulous business. She has done a
great job raising a million dollars from women who just really
love her story. By the way, in 1 year she did over a million
dollars' worth of sales in her first year of business. She
would have done more had she had more capital to buy inventory.
But, to your question about the profile changing as a
result of boomers retiring, I think it is, again, all those
things and to the extent that women are exposed. They do think
very differently than male angels, I deal with both groups, and
it is a very different discussion.
Ms. HARMAN. But I think that still relates back to your
question about various demographics. It is not just women
investing differently, which I completely agree with, and some
of the importance of understanding that. It is actually
millennials or next gen, or whatever the various demographic
categories that are basically people younger than me.
Far younger than me. As an employer, as an investor,
understanding the difference of some of these younger
entrepreneurs or people I might hire is very important because
they do not think the same way that we think in general.
As we are trying to hire, this is the pipeline thing we
talked about is as you are trying to increase the pipeline,
understanding as I am hiring people, trying to bring women and
minorities into private equity, but in general younger people,
understanding that they care about lifestyle. They care about
flexible work arrangements, men and women, perhaps women more.
They care about what they are doing having some meaning. So we
have to recognize that we have to offer all those things in a
way that is compatible with, you know, their goals and
aspirations, and that creates the pipeline and the retention in
what we are doing.
The other point I want to make is many companies do not
qualify. We keep talking about venture capital and getting more
venture capital to these startup businesses or smaller
businesses. Many of them are classic economy boring businesses.
They do not scale to be a billion dollars. Most of them are not
dot.com successes, you know. There is a company that makes, is
a distributor of medical devices, or a company that makes an
Those are the kind of businesses we finance and many
others, for example, in the SBIC program. They are the kind of
business that bootstrap by bringing in personal capital, by
going to banks just for asset-based financing. They get to the
point where they are cash flow positive. Then they can start to
come to people who lend them money or invest equity based on a
proven business that now helps them scale to the next stage.
But they are not going to scale and be that exciting
crowdfunding type of business.
Most of the businesses out there, small businesses, are
those boring--I love boring--businesses----
Ms. HARMAN.--you know, that we fund and are really
necessary to continue to fund.
Ms. WANNIER. I have a question. When I looked at SBIC
funding for myself--I have a lifestyle business, which is a
fashion design business, it is not a venture interesting
business--funding was only available if you put your house on
the line. That is not true anymore?
Ms. HARMAN. No.
Ms. WANNIER. That is an SBIC. These do not involve that, so
it is possible to have a venture type risk.
Ms. LABRAN. Totally different.
Ms. WANNIER. Okay. That is interesting. Thank you.
Ms. CHU. Good to know.
Ms. YAMANAKA. Actually what you saw here was an opportunity
for improvement, so it does not get any better than this table.
I think the SBA has done an excellent job of improving the
complexity of regulations and communicating their services and
how they do it. But, as with anything complex, and as with a
government organization, and with the budget limitations, there
are things that could be done better, or we could do to improve
the outreach and understanding out there.
We are in an age of commercials, 15 seconds, get it
through. And so, a lot of times people, and I am not just
saying women--just men, millennials, everybody--do not take the
time to go through the layers of the internet to try to figure
out certain things. We do have a lot of great services and
products out there that could help. We just need to get the
consumer connected to the source in a better way.
Ms. CHU. I have one final question for the whole panel, and
that is if there was one thing you would like my colleagues
back in Washington, D.C. to understand about women
entrepreneurs and investors, and also one thing for us to do,
what would that be?
Ms. YAMANAKA. Just one?
Ms. CHU. Well, if you have two, that is fine.
Ms. LABRAN. I would start by saying that, again, that what
makes the US economy different from most others, although other
countries are trying to emulate us, is that we are based on
entrepreneurship, and growth, and opportunity. If we are
missing out on half the party, we are not going to realize the
success that we could. So it is really important that people
start to appreciate the opportunity that the missing half
I personally believe that all these educational and
encouragement type things are great. They are important. But,
when I read like the Diana Project report, the recommendations
are to make venture capitalists understand that it is a good
thing to invest in women. You can tell people things until they
are blue in the face, and we know that people do not always do
what should logically be in their best interests, right? But,
again, they do tend to follow the money.
I believe that if there were economic incentives in place
to encourage more investment going into underserved markets
that the money would follow quite quickly.
Ms. HARMAN. I absolutely agree, as usual, with what Renee
said. You said two things: one, the message to go back. To me,
the message to go back, which I think resonates with many, but
maybe not all, is diversity creates better outcomes. If you
believe that, the rest of it can kind of follow from there.
What is the one thing that you can do? Something maybe a
little more specific would be to look at allocating public
pension funds, government employees pension funds, to set aside
more money for qualified, not subsidized, qualified emerging
managers. So put it in the hands of good investors who have
proven themselves, but who are going to be those smaller,
diverse, emerging managers who are going to get that money out
to qualified entrepreneurs.
Ms. LABRAN. That would be an example of a kind of economic
Ms. HARMAN. That is right. I was going down one level
specific as far as economic incentive, but the returns would be
there. This is not an economic incentive that says, well, we
are going to take the government pension funds, employees
should accept less return. I would argue they will get more
return as we have proved.
Ms. YAMANAKA. I agree with everything that is being said on
the left side of the table. I am sure that comes as no
surprise. I think on the precepts that there is opportunity. We
can frame this positively or negatively, and I prefer to look
at it positively, like all my fellow witnesses here. There is a
50 percent of the population is not performing at the level
that it could. Not even one for one. Even a 50 percent increase
would change how the U.S. economy, our position in the world,
and the lifestyle and how people live here. That is grounded in
How do you do that? I totally agree you cannot make people
do things. You can encourage them financially, and, again, we
are looking at the economics of it. If it makes good economic
sense, all things being equal, people will do it. One of the
tactical ways that we could do it, as I had mentioned earlier,
is introducing tax credits potentially, I would put on a
Anybody's intention, I think anything should always be up
there for a period of time and then reevaluation where you have
to re-up, and also the carried interest loophole for venture
capital firms. Those are two tactical approaches that could
create the incentives on a short-run basis. I think anything
that we do has to have a sunset provision so that it has the
opportunity to make sure that the context has changed or not
changed. If it has not changed, let us say, then we have to go
back and look and see what we are doing and what we could do
differently, at least in the short run.
Voice. We do not understand what she means by the carried
Voice. Well, we know what it is. I am not clear how that is
Ms. YAMANAKA. No, no, no, not taking it away.
Ms. YAMANAKA. Well, we could talk about that later.
Ms. WANNIER. I agree with everything that has been said so
far. My comments relate to reaching out to the women and the
diversity who will be the entrepreneurs or will be the venture
capitalists. I believe that we need much more publicity, so I
would like to see the government spend a little bit of the SBIC
funding or the acronym funding to put together a database that
is nationally accessible of all projects that have been funded,
all companies that have been funded, so that we as women can
understand and learn from others' examples.
We can understand the results that others have achieved on
different implementations, put together a network of everything
that works in this business, make it accessible so that someone
who does not have a network can easily tap in and get access to
Ms. CHU. Thank you so much. I would like to submit for the
record a wonderful op-ed that was done by Jeri Harman, our
panelist here. It was published in the L.A. Daily News this
week highlighting the importance of funding women and minority
firms. It certainly underscored the importance of this hearing
Mr. KNIGHT. Without objection.
[The information follows:]
Mr. KNIGHT. Okay. I would like to thank everyone as this
hearing comes to a close. I would like to thank our stellar
panel. I think that you have seen in the last hour and 40
minutes or so some of the minds of America coming together and
working to make it better. And so, I thank you for coming here.
Access to a robust capital market is critical for the
health and wellbeing of our small business community, which in
turn is critical for our Nation's economy. Venture capital and
does play an important role that traditional debt financing
simply does not fill. Making it easier for small firms,
particularly those that have had greater difficulty in
accessing venture capital, and we have seen that with many
woman-owned businesses, ought to be a priority. I look forward
to working with the ranking member and all of my colleagues
back in Washington on this important issue.
And before I yield to Ms. Chu for her last word, I wanted
to again thank you for allowing me to come to your beautiful
city, your beautiful city hall. This is one of the great
landmarks in California. I firmly believe that, and always
coming here, it makes people's jaw drop. And it is beautiful
not just to be in southern California, but to see such
architecture as here.
So I found today's discussion enlightening and look forward
to sharing our discussion with our colleagues. And, Ms. Chu,
for your closing? Thank you.
Ms. CHU. Well, I would just like to thank all the panelists
for coming today. If there is anybody that doubts women's
intelligence and entrepreneurial knowledge, they would really
have to come here and listen to you. You had so many insights,
and you gave me much room for thought, and a thought about what
we could do back in Washington, D.C. to improve the situation
of women entrepreneurs.
So I thank you so much for sharing your experience with us
as well as your whole incredible body of knowledge.
Mr. KNIGHT. Thank you, and I ask unanimous consent that
members have 5 legislative days to submit statements and
supporting materials for the record.
And without objection, we are adjourned.
[Whereupon, at 11:44 a.m., the Subcommittee was adjourned.]
A P P E N D I X
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Good morning Congressman Knight, Ranking Member Chu, and
Members of the House Small Business Subcommittee on Economic
Growth, Tax & Capital Access.
Thank you for holding this hearing today to examine ways to
increase access to capital for small businesses. My name is
Jeri Harman, and I am the Managing Partner & CEO of Avante
Mezzanine Partners, an investment firm and Small Business
Investment Company (SBIC) based in Los Angeles. I am also the
Chair-Elect of the Board of Governors of the Small Business
Investor Alliance (SBIA).
I am here on behalf of SBIA, the premier organization of
lower middle market private equity funds, debt funds, and
investors. SBIA members provide vital capital to growing small
and medium sized businesses nationwide, resulting in job
creation and economic growth. SBIA is also the primary voice of
the SBIC industry. While many SBIA members traditionally do not
provide venture capital, i.e. equity capital for start-ups or
early stage companies, our members are significant sources of
capital for small and growing companies and fill a critical gap
that exists in the lower middle market.
About Avante Mezzanine Partners
Avante Mezzanine Partners provides debt and equity for high
quality, lower middle market businesses that generate at least
$3 million in cash flow. Avante invests between $5 million and
$25 million of capital in the form of unitranche or one-stop
debt as well as traditional subordinated debt and minority
equity Avante works with private equity and independent
sponsors in buyout transactions, as well as with entrepreneurs
and owners to finance recapitalizations, refinancings,
acquisitions and growth.
Avante is somewhat unique in our industry, given the
diverse leadership and ownership of our fund. Three out of our
five investment partners are women, making it one of the only
majority women-led and owned private equity funds in the
nation. And four out of five are women and minorities o9r both.
Prior to founding Avante, I started-up and led Los Angeles
offices for two multi-billion publically traded private equity
and mezzanine investment funds--American Capital and more
recently Allied Capital, where I was also a member of Allied's
Investment Committee. Earlier career highlights include various
senior level positions with Prudential Capital.
As the next Chair of the Board of Governors of the Small
Business Investor Alliance, I will be leading an annual
gathering of limited partners and general partners, including
SBICs, at the National Summit for Middle Market Funds later
this year. SBIA provides a platform for senior executives in
the industry to agree on best practices--these best practices
are good for small businesses and good for investors. In
addition to my role as Chair-Elect at SBIA, I serve as a
Steering Committee Member of the Private Equity Women Investor
Network (PEWIN) and as the Co-Chair of the Association for
Corporate Growth (ACG)--Los Angeles Business Conference.
I feel honored to have been recognized as one of the top
women in the private equity industry. In 2013, the National
Association of Women Business Owners (NAWBO) Los Angeles
inducted me into the Hall of Fame. In 2015, I was named one of
the Most Influential Private Equity Investors in Los Angeles by
the Los Angeles Business Journal. In January of this year I was
on the cover of Mergers & Acquisitions magazine and named one
of the Most Influential Women in Mid-Market M&A.
According to March 2016 data compiled by Preqin, senior
female women accounted for 10.5 percent of all employees in
private equity firms across North America. These statistics
indicate that we have a significant amount of work to do to
improve diversity in the executive ranks at private equity
funds. With incre4asing attention to this issue, more senior
women as role models, continuing changes in firms' cultures and
openness to flexible work arrangements, I am hopeful we can
increase our pipeline and retention of talented women in
As Chair-Elect of SBIA, it is a goal of mine to increase
diversity at regional events, provide new opportunities for
women to network with one another, and include new content
aimed at women in private equity. For example, as part of
SBIA's regional and national events, SBIA has organized the
Women Investors Networking Luncheon, an exclusive networking
event for senior-level women fund managers, limited partners
and investment bankers. Our first Women Investors Networking
Luncheon was in May 2014, and we have hosted the luncheon at
every subsequent regional and national event. These
opportunities provide a platform for women to discuss how to
make private equity more diverse and how to find and invest in
companies that are led by women and minority entrepreneurs.
As private equity becomes more diverse this should result
in better returns to shareholders as well as support job
growth. Two recent reports support that gender diversity has a
positive impact on performance at corporations. A study by
McKinsey & Company \1\ found that companies in the top quartile
for gender diversity are 15 percent more likely to outperform
their respective national industry medians. The study also
found that companies in the bottom quartile for gender and
ethnic diversity are less likely to achieve above average
financial returns. A study by MSCI indicates that companies
with strong female leadership generated a return on equity of
10.1% per year versus 7.4% for those without strong female
\2\ Women on Boards: Global Trends in Gender Diversity, MSCI.
SBICs Provide a Critical Source of Capital for Small
The SBIC program was created by the Small Business
Investment Act of 1958 to ``improve and stimulate the national
economy...by establishing a program to stimulate and supplement
the flow of private equity capital and long-term loan funds
which small-business concerns need for the sound financing of
their business operations and for their growth, expansion, and
modernization, and which are not available in adequate
\3\ Public Law 85-699, as amended
Avante Mezzanine was licensed for our second SBIC in 2015.
This fund was $250 million in assets under management and we
started investing in companies with this fund in late 2015. Our
first SBIC consisted of $218 million in assets under management
and we are proud to have invested in 20 companies across the
SBICs allow small businesses to access patient capital--
capital that cannot be called back at a moment's notice. This
capital is available for helping businesses survive and thrive
in the face of the unexpected bumps in the road. The importance
of SBIC capital was abundantly clear in the financial crisis
and the recession that followed. While most financial
institutions were cutting off capital to small businesses and
recalling loans, SBICs were throttling up and filling the
capital void. Demand for capital from SBICs has grown
dramatically since the financial crisis and continues to grow.
This growth is not driven by government directive, but by the
market needs of small businesses and the opportunities being
recognized by private investors.
It is important to note that the SBIC program has
facilitated record amounts of private capital into SBICs and,
in turn, into the small business economy. For example,
according to the SBIC Program Overview \4\ provided by the SBA,
from 2012 to 2015 SBICs have deployed $18.4 billion to 4,457
companies nationwide. The SBA data also indicates that during
the time period between 2012 and 2015, SBIC financings created
or retained 385,274 jobs. As of December 31, 2015, there was a
total of $25.9 billion in assets under management, a record
amount for the SBIC Program. Currently, there are 300 SBICs
across the country, in all corners of the country, from
Portland, Maine, to Portland, Oregon, and Miami, Florida to Los
\4\ SBIC Program Overview, https://c.ymcdn.com/sites/sbia.site-
SBIA Supports Enhancements to the SBIC Program
The SBIA appreciates the constant stream of communication
between Small Business Administration leadership and staff and
the Board Members and staff of the SBIA. This open dialogue has
helped the SBA and SBIC industry work together to find common
ground on many improvements to the SBIC Program.
We also appreciate the work of the Committee over the past
several years to improve SBIC operations and increase leverage
available to SBICs. While the SBIC program has grown steadily,
there are additional actions that SBA and the Committee can
take to strengthen the program, and expand the pool of SBIC
investors. These actions will increase the number of SBIC
funds, increase the attractiveness of the program to existing
SBIC investors, and increase the amount of capital that can be
deployed to American small businesses.
The SBIC Act Should Be Adjusted to Encourage More Bank
Investment in SBICs
The SBIC program is in a unique position to attract
investment from banking institutions. Since prior to the repeal
of the Glass-Steagall Act in 1999, SBICs have been encouraged
as a strong investment for banks, allowing them to expand their
lending activities beyond what the bank itself could engage in.
Bank investments in SBICs are actively encouraged by bank
regulators through the Community Reinvestment Act (CRA). Bank
investments in SBICs receive CRA credit due to the public
welfare benefit that they provide, including lending to small
businesses, particularly minority, women and veteran-owned
businesses, but also to economically disadvantaged and rural
areas that generally see little capital investment. Since the
passage of Dodd-Frank, and the institution of the Volcker Rule
framework, SBICs have once again become very attractive
vehicles for banks. Small businesses seeking capital from SBICs
have greatly benefitted from this interest, as more SBIC funds
will form and more capital can be deployed out of the program
as new banks decide to invest in SBICs.
Unfortunately, many banks and savings institutions that
have an interest in increasing the amount of their investments
in SBICs, are unable to invest more than 5% of the capital and
surplus of the institution due to a provision in the Small
Business Investment Act of 1958 (SBIC Act).\6\ However,
depending on the type of charter of the banking institution,
some banks are permitted to invest up to 15% of their capital
and surplus in SBICs \7\, with bank regulator approval. A
number of SBIA's bank members are currently at the cap and wish
to invest more than 5% of their capital and surplus in SBICs,
and are not permitted to do so. An adjustment to the SBIC Act,
which has been discussed with members of the Committee, could
remove this barrier, and ensure SBICs can continue to grow the
amount of investment from banking institutions. I encourage the
Committe4e to study this issue closely and adopt legislation
that would raise the percentage that banks are permitted to
invest under the SBIC Act, to match that permitted by their
respective banking regulators.
\6\ Capital Requirements, Small Business Investment Act of 1958,
\7\ Banks holding a National Bank Charter, and regulated by the
Office of the Comptroller of the Currency (``OCC'') can make aggregate
``public welfare investments'' that do not exceed 15 percent of the
bank's capital and surplus. SBICs qualify as public welfare
investments. If making such an investment over 5 percent, OCC written
approval must be received. See 12 CFR 24.4.
Technological Updates and Modernization of SBA Processes
Will Increase the Attractiveness of the SBIC Program
For many years, the SBA has provided important and helpful
data to the industry, Congress and the public about the SBIC
program through their ``SBIC Program Overview.'' The SBIC
Program Overview, up until October 2015, was provided monthly.
The information provided in this report \8\ includes, among
other things: (1) information on the number of SBICs; (2) SBIC
capital at risk; (3) the number of applicants going through the
licensing process; (4) how long license applications are taking
to clear the SBA's process; (5) information about how many
companies received financing; (6) the number of jobs that were
created and retained with that financing; (7) and the number of
businesses located in LMI or women, minority and veteran owned
that received financing from SBICs. The timeliness and
frequency6 of this information is critical to ensure the SBIC
program is running smoothly, particularly the licensing
process. Investors or limited partners (LPs) in the program
also rely on this data to get a sense of how long the licensing
process is taking for funds in formation they are investing in.
In addition, the data was a meaningful economic indicator on
the small business sector, as well as an indicator of SBA's
performance and activities. The SBIC Program Overview has only
been released once since October 2015 (the end of FY 2015),
while being released monthly beforehand.
\8\ Attached as Appendix A.
In addition to the ``SBIC Program Overview'', SBA
previously provided information about the names of companies
that were financed by SBICs, at the state level, as well as the
total amount of capital SBICs had invested in all fifty states.
This data was extremely helpful to make sure the program was
making an impact across the entire country, and to share with
members of the Congress and the public about the companies in
their region that were actively benefitting from the program.
The SBA has not released this data to the public since 2013,
while doing so for many years beforehand. We encourage the
Committee to ensure the SBA resumes providing all of this
necessary information on a monthly and timely basis that is not
only critical for oversight of the program, but also critical
for Congress, the public, and the industry to review.
SBIA also believes that SBA should embark on an initiative
to utilize ``virtual data rooms'' provided by a private sector
provider, and paid for by the SBIC. Updates should be made to
technology to help share files, reports, contracts, and other
information that is communicated between Small Business
Investment Companies and the SBA. Virtual data rooms would make
it easier to find these documents because they would be
searchable and housed in one digital location. Virtual data
rooms would also streamline the collection of data by SBA
staff, removing redundant processes at the SBA and saving time
and resources. SBA should allow for the use of existing off-
the-shelf virtual data rooms to provide a communication vehicle
for SBICs and the SBA in a single, secure location for all
regulatory documents, submissions, requests, and
communications. This approach will reduce costs for the SBA, as
well as provide for storage of information in an easily-
accessible format for the life of the SBIC.
In addition to the restoration of data provision by the SBA
and suggested use of virtual data rooms, SBIA has a number of
suggestions that can improve the licensing process for SBICs,
in which the time from application until licensure has
significantly crept up in the past few years, rising from 5.6
months in FY 2011 to 8.4 months at the end of FY 2015. In
contrast, several years ago, the SBA set a goal to approve
licenses in six months. SBA has taken some positive steps to
improve the licensing structure, including folding together the
teams that handle licensing and the management assessment
questionnaire (MAQ) process, but more could be done to
streamline the application process. This includes a number of
recommendations of the House Appropriations Subcommittee on
Financial Services & General Government, which requested the
following in House Report 114-194, reported out of the full
Committee on July 9, 2015:
SBIC Program Licensing.--The Committee believes the
SBA Investment Division should consider reorganizing
the Small Business Investment Company (SBIC) licensing
process and personnel to more efficiently use the
resources allocated. In particular, SBA should: combine
the licensing and Management Assessment Questionnaire
(MAQ) staff; reduce the number of licensing committees
and steps for all applicants; and create a meaningful
fast track process for repeat licensees that takes no
longer than six weeks, which will allow SBA to focus
their resources on first funds and ensure that there is
a written record of the decision made by the Investment
Division for applicants and any court that might review
such licensing decisions.\9\
\9\ H. Rept. 114-194, Financial Services & Genera Government
Appropriations Bill, 2016, (July 9, 2015).
Making the changes suggested by the Appropriations
Committee would be extremely helpful in eliminating the
slowdown in license application approvals at the SBA,
particularly by the elimination of duplicative licensing
committees and implementing a fast track process for second-
time funds which have an established track record at the SBA.
This meaningful fast track process for repeat licensees should
not be longer than 45 days after an application is submitted to
the SBA, which will allow SBA to focus their resources on first
funds. There are a number of other suggestions which SBIA has
communicated to SBA staff in the hopes of further streamlining
processes, better utilizing staff resources and providing more
transparency and consistency to the licensing process.
I am grateful to be part of the SBIC program and excited by
the impact it has on capital access for small and middle market
businesses. The SBIA looks forward to working with the
Committee to continue to explore ways to increase access to the
SBIC program for women and minority fund managers and expand
the number of businesses that are receiving investments from
SBICs. Thank you again for inviting me to testify, and I look
forward to answering any questions that you have.
TESTIMONY OF RENEE LaBRAN
General Partner, Rustic Canyon / Fontis Partners
Senior Advisor, Idealab
U.S. House of Representatives Committee on Small Business Subcommittee
on Economic Growth, Tax and Capital Access
``Bridging the Gap--Increasing Access to Venture Capital for Small
April 5, 2016
155 No. Lake Ave., Suite 800
Pasadena, CA 91101
Good morning Chairman Knight and Ranking Member Chu. My
name is Renee LaBran and I have worked in venture capital since
2000 when I was invited to help start a venture capital fund
called Rustic Canyon Partners, funded by the controlling
shareholders of the company where I was working at the time. In
2006, I helped Rustic Canyon spin out another fund called RC/
Fontis Partners, which focused on underserved markets. That
fund is now in its final stage, and we are harvesting those
In addition to winding up the portfolio of RC/Fontis, I
currently serve as an advisor to Idealab, a tech incubator that
just celebrated its 20th anniversary. I also co-founded a
start-up competition for female entrepreneurs now entering its
fourth year. I am personally a small angel investor in several
women-founded companies. All that said, I have a pretty good
first hand look at the challenges faced by women entrepreneurs
and women in venture capital.
When I started in venture, there were a handful of women.
Industry social events typically involved golf and cigar
smoking. I can only think of a few women who came to pitch
companies to us. I am pleased to say that things have got a
little better. I am amazed at the number of women focused
events that have sprung up in the last few years. However, the
statistics are still dismal.
I am sure many of you have read the Diana Project report
that has tracked women in venture capital on both sides of the
table since 1999. For the benefit of those who have not read
it, here are a few key statistics from the report:
- In 2011 - 13, 15% of companies that received
venture in capital had a woman on the executive team,
up from 5% in 1999. That is great news, but still a
small percentage overall.
- And speaking of a small percentage, only 2.7% of
the companies that received VC had a woman CEO.
- Companies that had a woman on the exec team also
tended to be later stage compared to the overall
profile of companies receiving VC, leaving one to
wonder how these companies found their seed capital.
These are just the problems of the entrepreneur side. On
the venture side, the problem is even more severe. The number
of women partners in VC fell from 10% to 6% between 1999 and
The number of women partners is particularly problematic
since VC firms with a woman partner are 2x as likely to invest
in a company with a woman on the exec team and 3x more likely
to invest in a company with a woman CEO. The reasons for this
should be obvious, but just in case, let me elaborate.
Entrepreneurs find venture capital firms through their
networks. Thus, VCs invest in entrepreneurs who tend to run in
their own circles and are must more like themselves. The
proverbial old-boy network prevails. When women do come to
pitch, they find themselves facing a table of male partners,
who are more comfortable meeting with other men who look like
they do. There is plenty of other evidence in the press today
about how woman are often judged in ways that men are not.
It is even more difficult for women entrepreneurs to find
seed investment, since the vast majority of seed investors are
men, and successful angels tend to invest in entrepreneurs they
Women who do break into the VC side also face challenges.
Many firms who do have a woman partner have just one or maybe
two, which is often an uncomfortable position. The shortfall of
the VC side is the flip side of the entrepreneur coin. Men who
have access to capital to start a fund often start them with
close colleagues out of their own network. Successful
entrepreneurs who have large exits often join VC funds, but
there are fewer women at the top of venture backed companies to
achieve such exits. Breaking in is difficult for women. Some
women have chosen to start their own funds, but often struggle
to raise capital since most new funds have to raise from
individuals, and once again the network effect comes into play.
What I am describing here is a vicious circle rather than a
virtuous cycle. The Diana Report urges VC firms to take
corrective actions. However, despite the evidence that this
might improve returns, I don't think we are likely to see these
If we are truly an economy that relies on innovation and
entrepreneurship as our growth engine, we need to find ways to
include the half of the population that is missing out. (By the
way, male entrepreneurs of color face many of the same
barriers). Over the years, there have been various programs for
emerging managers that provided access to capital for first
time funds formed by women and minorities. However, these
programs seem to be cyclical and have diminished rather than
increased. Government is also in a position to provide
incentives to potential limited partners to provide capital
either directly or through funds that are more likely to deploy
capital to those who currently lack access. Without incentives
or nudges, it will take far too long for the problems to self-
correct, if ever.
These are just some of the issues facing both women
entrepreneurs seeking VC funding and women seeking a career in
the industry. There is so much more that I could tell you, and
am happy to answer any questions you may have. I appreciate the
opportunity testify today.
U.S. House of Representatives Committee on Small Business
Testimony Regarding the Challenges of Raising
Venture Financing for Women-Led Entrepreneurial Businesses
Presented by Louise J. Wannier, True Roses, Inc.
April 5, 2016
Chairman Knight and Ranking Member Chu,
Thank you for the opportunity to share my thoughts with the
House Small Business Committee today. I would also like to
thank Andy Wilson, Pasadena City Councilman and Amy Millman,
Executive Director of Springboard.org for recommending that I
be asked to contribute to the discussion today.
I have long pondered why is it so easy for my male CEO/
Entrepreneur colleagues have had, from my perspective, a much
easier time raising sufficient capital to fund their ventures.
I have often felt that I have had a disproportionately
difficult time raising capital for the business plans I have
presented. It has been extremely difficult and I have in the
past failed twice to raise sufficient capital to be able to
weather the economic downturns that inevitably occur in the
cycles of our free-market economy. Each of those two companies
had products that were well received in the market with either
thousands of companies using the products or hundreds of
thousands of consumers using the internet service and still
were unable to raise the follow-on capital during the
transition cycles following the drop of the market economy in
2000 and 2008 respectively. Of course, there are many reasons
why ventures are unable to raise capital, and it would take a
deeper study, but the facts are that I was unable to raise
follow-on capital for ventures that had successful products in
the market but were not yet profitable and needed growth
capital, even after meeting with many individual professional
venture capital firms nationwide, while, in my opinion, many
ventures run by male colleagues were able to achieve follow-on
financing for ventures that did not represent, in my opinion,
as strong an investment opportunity for the investors. I am
sure that this was not simply due to the difference between men
and women but I do feel it was a factor.
So this request has given me the opportunity to reflect
freshly on the question: Why do women have a harder time
raising venture capital than men, or do they, and if they do/or
do not, why so or why not?
I was trained in my undergraduate studies to think as a
scientist. In 1978, I graduated with a Bachelors of Science
with Honors in Astronomy from the California Institute of
Technology, here in Pasadena, followed by a Masters in Business
Administration with concentration in Management Science and
Finance with Honors in June, 1980. For the first six years of
my career I worked in the Los Angeles offices of the management
consulting division of what was then Ernst and Ernst/Ernst &
Whinney (what is now E&Y) doing financial feasibility and
strategic M&A studies for large healthcare organizations and
other corporations in diverse industries. Following those
years, I temporarily relocated to Sweden and as I often say,
accidentally became an entrepreneur because I ``didn't have a
job''. I was very fortunate to have the opportunity to work in
Gothenburg, Sweden and gain my first experience as an
intrapreneur, founding a company in education technology on
behalf of Chalmers Industriteknik. Following that experience I
returned with my family to the United States and ended up
becoming one of the six principal founders of Gemstar
Development Corporation and was instrumental in developing and
executing the go-to-market strategy that resulted in VCR Plus+
being one of the most successful consumer electronics products
In summary, as an experienced Corporate Director and CEO, I
have chaired Boards of Directors and as CEO built companies in
four different industries: Education Technology, Consumer
Electronics, Information Management Software and Fashion/
eCommerce. In my roles as Board Chairman and CEO, I have led
capital raises, recruited board members and established
advisory boards including bringing on independent non-financial
board members to lend strategic industry experience. I
currently serve as business advisor to entrepreneurs with
venture to mid-size small businesses and non-profit community
I was a member of the fifth class of women to graduate from
Caltech and our ratio was one woman to ten men in the class at
that time. Since then I understand the undergraduate percentage
of women has risen to over 30% (perhaps higher) and there are
now a significant number (although not that high of a
percentage) of faculty members who are women and even, now
retiring, one or more female senior members of the
administration and board of trustees. So some progress has been
From this excellent training, I learned the scientific
method, in which one first thinks hard about the problem,
attempts to make a hypothesis and then looks at the data, or
designs one or more experiments to gather data to then look at
the question of whether or not the data supports the initial
Using this foundation, I contemplated the question,
reviewed my own experience and reflected on what my hypothesis
is related to this issue of concern:
My reflections lead me to this initial hypothesis, which I
offer for your consideration:
The data will tell us that:
1) A higher proportion of women-founded businesses
succeed than do those started by men, yet women are
unrepresented significantly in the proportion of
venture capital financings both in number and average
amount invested over the lifetime of a venture, and,
2) A high proportion of women-founded businesses
succeed by bootstrapping using personal financing/
friends and family, credit-card debt, and all other
non-professional venture methods of financing and
therefore result in lower-growth companies which
succeed at a greater rate over the longer term than do
the businesses founded by male entrepreneurs who tend
to raise and risk larger sums of capital on average per
3) There is a venture capital ``SEED and A-round''
gap between what can be raised through friends/
families/small angel investor networks and what can be
raised through Professional VC's. This trend affects
both male and female entrepreneurs. The VC's have been
amassing larger and larger funds which has
correspondingly resulted in a proportionally
significant increase in the average amount raised per
Series (VC round) simply because any one Venture
partner cannot sensibly/fiscally responsibly manage
simultaneously ore than a certain number of investments
sot hat they have to put a larger portion of assets to
work at a time. This pushes the Professional VC's
towards higher and higher risk and this criteria does
not tend to be the type of venture that women
entrepreneurs more often gravitate towards.
4) There is a venture capital gap for first-time
entrepreneurs. Entrepreneurs who do not have a prior-
successful exit as a track record have an almost
impossible time raising venture capital. Most VC's and
most Venture capital is invested in entrepreneurs who
have already had successful exits.
I have personally experienced (I have had senior executive
men tell me these things at various points during my career)
and I believe overall that there is a cultural bias still
remnant in our society that women are to be cared for as the
nurturing portion of our society and that as a whole we are
less capable in business than are men. There is a cultural bias
that women often do not have a strong financial grounding and
are incapable emotionally of making the tough decisions and
choices that are necessary to be successful in business; that
women are too compassionate and too emotionally biased and
therefore will be unwilling to do what it takes to win in the
US game of business.
I do NOT believe that this pertains to all men, and unlike
most women, I have personally been very fortunate to have been
able to raise significant amounts of professional venture
capital for two different ventures (Enfish and MyShape). I was
very fortunate to have the support Womens' Growth Capital in DC
and Intel Ventures for Enfish and to have the support of a rare
woman partner, Emily Melton, at DFJ, a well-recognized ``A''
player, Venture firm in Silicon Valley. I feel this is largely
because I was very fortunate to have been part of the early
success of Gemstar coincidentally occurring during the first
significant economic boom in the late 1990's due to the advent
of the Internet and Technology businesses. I have also raised
significant amounts of Angel Capital from individual investors
through my personal network of friends and colleagues. This
gave me the track record that investors at the time would
follow and it is this track record that is often difficult for
women to establish, for the reasons discussed above.
Secondarily, women have until recent generations (and I see
continual improvement and hope in my childrens' generations,
work experiences and attitudes), not naturally developed the
business and insider-friend-networks necessary to raise
capital. Because women are naturally social; social media has
been a strong enabler of facilitating womens' ability to raise
funds and we are starting to see some shifts in this trend.
This is a brief summary and I recommend that a further
study be made. Thank you for the opportunity to be of service.
Louise J. Wannier
Board/Advisory Services, True Roses, Inc.
1446 Rose Villa Street
Pasadena, CA 91106
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Tim Huelskamp and Ranking Member Judy Chu and
distinguished members of the Subcommittee, thank you for
inviting me to speak on behalf of the National Women's Business
Council today before the U.S. House of Representatives'
Subcommittee on Economic Growth, Tax and Capital Access for
this Bridging the Gap - Increasing Access to Venture Capital
for Small Businesses hearing.
I will begin with some brief background on myself. I co-
founded teamCFO in 2000 to improve performance and support the
growth of the private business community through a ``hands-on''
financial working relationship with their clients. As a long-
time champion of financial literacy for women business owners,
I have lectured on the subject to diverse audiences, including
young girls who are aspiring business women. I have also been a
key collaborator in the curriculum design for financial
literacy. Additionally, I have spoken at several national
seminar series on the subject of financial literacy for
business owners. I have also served as the National Chair of
the National Association for Women Business Owners (NABWO) as
well as the Chair for the Los Angeles Chapter.
The National Women's Business Council (NWBC) is a non-
partisan federal advisory council created to serve as an
independent source of advice and counsel to the U.S. Small
Business Administration, Congress, and the White House on
issues of impact and importance to women business owners,
leaders, and entrepreneurs. The NWBC was established via the
Women's Business Ownership Act of 1988 (HR. 5050), a landmark
piece of legislation that most notably eliminated individual
state laws that required women to have a male relative cosign a
business loan. The Council is committed to producing best-in-
class, actionable research on the most relevant issues facing
women in business and those who aspire to start and lead
businesses. Compelling, rigorous research is the springboard
for action and change. We act as convener, collaborator, and
councilor; it is our mission to be a resource, to put forth
actionable policy recommendations, and then to engage and
support influencers, stakeholders, and decision makers in the
I was appointed as a Council Member of the National Women's
Business Council in June of 2013. The Council is composed of 15
dynamic women; we are small business owners, we are members of
women business organizations, we are diverse in industry, stage
of business, geography, race, story, and more. It's so
important that we are a representative Council, and truly
represent the ever-growing and ever-diversifying population of
women in business.
Women-owned firms represent an important segment of the
business sector. As of 2012, women-owned businesses comprised
36% of the country's businesses, a significant increase from
28% in 2007.\1\ As of 2012, there were nearly 10 million women-
owned businesses \2\ in the United States.\3\
\1\ Womenable. ``The Growth and Development of Women-Owned
Enterprises in the United States, 2002-2012'' (Commissioned by NWBC,
\2\ The term ``women-owned'' refers to enterprises that are at
least 51% owned and operated by a woman or group of women. Businesses
equally-owned by a man and a woman (or equal numbers of men and women)
are not included--primarily because the way that equally-owned firms
have been identified has differed in each of the past four business
census years, thus precluding accurate trend analysis.
\3\ NWBC Analysis of U.S. Census Bureau 2012 Survey of Business
These firms generate an estimated $1.4 trillion in sales
and employ over eight million people. Between 2002 and 2012,
the number of women-owned firms increased at a rate 2-1/2 times
the national average (52% vs. 20%), employment in women-owned
firms grew at a rate 4-1/2 times that of all firms (18% vs.
just 4%), and the growth in revenues generated by women-owned
firms paralleled that of all firms (up 51% compared to 48%).\4\
As women-owned business increase in number, revenue per firm,
and employment per firm, it is important to address the needs
of this growing population.
\4\ Womenable. ``The Growth and Development of Women-Owned
Enterprises in the United States, 2002-2012'' (Commissioned by NWBC,
Women's Access to Capital is a Priority
Access to essential business assets--capital and markets--
continues to be a challenge for too many women. Our work here
focuses on changing the infrastructure, and increasing and
improving resources, so more women can access the capital they
need to start and grow their businesses, and enter new and
emerging marketplaces, which will help them grow even more. Per
Council research, on average, men start their businesses with
nearly twice as much capital as women--$135,000 vs. $75,000.
This disparity is slightly larger among firms with high-growth
potential--$320,000 vs. $150,000; and it is much larger in the
Top 25 firms--$1.3 million vs $210,000. High-growth businesses
have considerable economic impact-think revenue and receipts,
but they are much more likely to rely on outsider financing,
both debt and equity. Among high-growth firms, differences
across gender exist with regards to amount of financial capital
used, as well as the source of that capital. It is in the best
interest of the economy to understand any barriers to these
firms' success. With lower levels of capital, regardless of
growth aspiration or potential, women-owned businesses are no
doubt on different trajectories. We believe that a multifaceted
approach--involving all components of the entrepreneurship
ecosystem--is critical to increasing women's access to capital.
Closing the Venture Capital Gap
Thanks to great innovation in the capital space, with
crowdfunding, peer to peer lending, microfinancing, and more,
women have greater opportunities to pursue and raise the
capital they need. However, women continue to lag behind men in
terms of equity investment. The Diana Project research
conducted in 1999 explored the reasons why fewer than 5% of all
ventures receiving equity capital had women on their executive
teams. It was hypothesized then that women entrepreneurs were
neither prepared nor motivated to found high-potential
businesses; and were thus not good candidates for venture
capital investors. But this groundbreaking research found
otherwise, concluding: ``fundable women entrepreneurs had the
requisite skills and experience to lead high-growth ventures.''
The research concluded that women were consistently left out of
the networks of growth capital finance and appeared to lack the
contacts needed to break through. Updated research, performed
by Babson College, found that of the 6,793 companies funded by
venture capital between 2011 and 2013, only 2.7% of the
companies had a woman as the CEO. More than a decade later, and
the percentage has dropped!
Only one woman raises equity financing for every nine men
who do. Early-stage venture capital investing represents the
greatest proportion of the total venture capital investments,
49% (3,166 out of 6,512), while later-stage venture capital
comprised 31% (2,042) and seed capital made up 20% (1,301).
Companies with a woman executive on the team were more likely
to receive later-stage funding, or 21% (421) of these
investments. On the other hand, companies with a woman
executive received only 13% of the total investments in the
early stage and only 9% in the seed stage.\5\
\5\ Brush, Candida, Patricia Greene, Lakshmi Blachandra, and Amy
Davis. ``Women Entrepreneurs 2014: Bridging the Gender Gap in Venture
Capital.'' The Diana Project. 2014. http://www.babson.edu/Academics/
Per Council research, women-owned businesses are receiving
only 2.0% of equity funding--as opposed to 18% for men-owned
businesses. When more than a third of all business is women-
owned or women-led, and they receive less than three percent of
the available venture capital, the flag is raised. Women stand
to benefit greatly from a more balanced venture capital
landscape. Women are majority owners of nearly 10 million
businesses in the country. And, per the Global Entrepreneurship
Monitor, 36% of women with established businesses want to grow
their ventures which show that the appetite for funding
outpaces the current supply.\6\ Babson College has concluded
the lack of sufficient capital funding for women entrepreneurs
will cost the economy nearly six million jobs over the next
\6\ Kelley, Donna J., Candida G. Brush, Patricia G. Greene, Yana
Litovsky, and Global Entrepreneurship Research Association. ``Global
Entrepreneurship Monitor: 2012 Women's Report.'' Global
Entrepreneurship Monitor. 2013.
\7\ Stengel, Geri. ``Money's There if Small Businesses Know Where
to Look.'' Forbes. 2014. http://www.forbes.com/sites/geristengel/2014/
Women Investing in Women--An Opportunity
One explanation for the disparity is that the number of
women in the upper echelons of investment firms is down--in
1999 it was at 10%; and as of 2014 only 6% of top management
and investment firms are women.\8\ About a year ago, in a Tech
Crunch article, ``The Real Unicorns Are Female Angel
Investors,'' Kristi Zuhlke wrote ``to get more women in tech
today, we need women investors.'' She continued to assert that
``women investors are important because they signal to women
YOU belong here.'' \9\ Venture capital firms with female
partners are reportedly two and one half times more likely to
invest in companies with women on the management team (34% vs.
13%).\10\ Based on the argument that women investors would be
more likely to invest in women entrepreneurs, the declining
number of women investors is a concern.
\8\ Brush, Candida, Patricia Greene, Lakshmi Blachandra, and Amy
Davis. ``Women Entrepreneurs 2014: Bridging the Gender Gap in Venture
Capital.'' The Diana Project. 2014. http://www.babson.edu/Academics/
\9\ Zulkhe, Kristi. ``The Real Unicorns Are Female Angel
Investors.'' Techcrunch. 2015. http://techcrunch.com/2015/08/31/the-
\10\ Brush, Candida, Patricia Greene, Lakshmi Blachandra, and Amy
Davis. ``Women Entrepreneurs 2014: Bridging the Gender Gap in Venture
Capital.'' The Diana Project. 2014. http://www.babson.edu/Academics/
We are pleased to see that women are establishing funds for
women. Examples include: Golden Seeds--a woman-focused early
investment fund; Astia--a nonprofit dedicated to identifying
and supporting high-growth women entrepreneurs; and Texas Women
Ventures--an investment firm giving millions to women
entrepreneurs in Texas. Women are establishing funds that
specifically look for companies with women founders and
leaders. Golden Seeds has invested over $70 million in more
than 65 women-led businesses since 2005.\11\
\11\ ``Who We Are.'' Golden Seeds. 2015. http://
Spreading the Wealth--Increasing Women's Access to Venture
The Council is committed to broadening the dialogue through
engagement of the full entrepreneurship ecosystem and the
exploration of innovative ways to increase investment in women-
owned and women-led businesses. In 2014, the Council conducted
research on Access to Capital by High-Growth Women-Owned
Businesses; this research confirmed that 1) men are starting
businesses with significantly more capital; 2) female ownership
was negatively correlated to the proportion of capital coming
from external sources; and 3) women-owned firms exceed their
own expectations regarding growth. Other Council research, also
conducted in 2014, on Undercapitalization as a Contributing
Factor to Business Failure for Women Entrepreneurs, confirmed
that all things being equal, undercapitalization negatively
impacts business survival.
In September of 2015, the Council hosted a conversation on
women's access to venture capital, featuring: Jules Pieri, co-
Founder and CEO of The Grommet, an entrepreneur-in-residence at
Harvard Business School, and one of Fortune's Most Powerful
Women Entrepreneurs in 2013; Julia Pimsleur, CEO of Little Pim,
founder of Double Digit Academy, a bootcamp training for women
planning to raise venture capital or an angel round of $500k+,
and author of Million Dollar Women: The Essential Guide for
Female Entrepreneurs Who Want to Go Big; Jeanne M. Sullivan, an
advisor, speaker, investor and connector and the co-Founder of
StarVest Partners, a venture capital firm in NYC; and Trish
Costello, Founder and CEO of Portfolia, a collaborative equity
investing platform, and recognized internationally for her
pioneering work in educating and preparing venture capital
investment partners, through the prestigious Kauffman Fellows
Program. During this online session with over 200 participants,
a panel discussed the importance of venture capital for women-
owned and women-led firms, shared best practices and actionable
insights on how to secure venture capital, and proposed
solutions to eliminate this gender gap. Trish Costello
asserted: ``Five million women are accredited investors--either
they make more than $200K or have $1 million in assets.
Collectively, women own about $10 trillion in private
investable assets. So when we look at these numbers if women
just began to put a very small amount of investment wealth
behind the [women-led] companies they want to see, we could
greatly shift what is happening in entrepreneurship world.''
In our 2015 Annual Report, which we shared with this
esteemed committee, the Council proposed a few potential
Eliminating the carried interest loophole
for venture capital firms that do not fund female-owned
or female-led firms proportionally to male-owned or
male-led firms--to ensure higher levels of investment
for women ventures.
Introducing tax credits for investment in
women-owned and women-led businesses--to provide
incentives for investors to seek out women-owned and
women-led firms that are generally undercapitalized and
face a higher burden to securing.
Increasing and/or improving the promotion of
capital opportunities and sources--to broaden and
diversify the outreach to the many women that do have
Strengthening the pipeline of women into
careers in finance--Specifically increasing the number
of women on the financing and investment side, as angel
investors, members of venture capital pitch committees,
investment bankers and more--to diversify the
perspectives and authority in the decision-making
Providing entrepreneurial support--
particularly in the form of education and mentorship--
early and consistently for women--to better prepare
women as they seek to start and grow their businesses.
Dan Primack just published an article last week, titled:
``Venture Capital Still Has a Big Problem With Women'' in
Fortune. They used PitchBook to compile a list of all U.S.-
based venture capital firms that had raised at least one fund
of $100 million or more since the beginning of 2011. They
found: ``Among firms that had raised funds of $200 million or
more, the percentage of female decision-makers was 5.67%. For
firms that had only raised funds of between $100 million and
$199 million--a much smaller group--it was 5.97%.'' As the
government's only independent voice for women entrepreneurs,
the Council's mission is two-fold: to 1) support and conduct
groundbreaking research that provides insight into women
business enterprises from startup to success, and to 2) share
the findings to ultimately incite constructive action and
policies. The numbers confirm that the full economic
participation of women and their success in business is
critical to the continued economic recovery and job growth in
this country, and we are committed to sustaining he potential
that women entrepreneurs present. We know women have innovative
ideas and that women are leaders. We know women are launching
businesses that create value and solve problems. And we believe
women with innovative and scalable ideas should be able to grow
their businesses, increase their receipts and create more jobs;
it's good for business, and good for the economy overall.
Thank you for this opportunity to testify, and I look
forward to your questions.