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January 2008 Presentations

Minority/Women Panel Discusses Capital Availability

January 15, 2008

GCVA’s first luncheon of 2008 was a spirited discussion of capital availability for minority and women-owned businesses. Moderated by Mel Gravely, Director of the Minority Business Accelerator, questions addressed both perceptions and facts around the ability of minority and women businesses to find funding. Mel was joined by three panelists: Vanessa Freytag, Executive Director of The Women's Fund of the Greater Cincinnati Foundation; Ross Love, President/CEO and Owner of Blue Chip Enterprises; and Maribeth Rahe, President/CEO of Fort Washington Investment Advisors.

Mel directed his first question to Vanessa, asking about her experiences with the differences in going to market, as relates to capital, for minority/women businesses. Vanessa feels there were significant differences, even though, as she describes, “People say, ‘business is business, the deal’s the deal – it doesn’t matter who’s behind it. But that’s not so.” She explains the inherent differences between men and women result in different thought processes regarding their businesses: “The differences don’t go away when you go to run a business.”

She says this results in a difference in prioritization as people figure out how to make their businesses successful: “Women are typically more inclusive,” she feels, “while men tend to do more independently.” This does not translate into differences in success rates, however, since she says the success stats and financial strength scores show both men and women-owned businesses have similar rates, and women sometimes have an edge.

Ross added his comments on the topic, building off Vanessa’s opening of “Business is business.” “I keep hearing it,” he says, “but what’s the real difference with people of color? Perception of risk. The purpose of business is to make money. People make different types of decisions because of this perception of risk. It’s automatically assumed, from past history, that businesses owned by Hispanics or African-Americans are a greater risk.”

He does feel there can be an appearance of riskiness simply because minority business owners traditionally have less familiarity with the system. “A significant number of minority business owners don’t have the access to networks that non-minorities do. They’re not as familiar with sources or how to access channels. This is especially true with venture capital.” Ross believes there is a void in the knowledge of how to gain access to venture capital, which can lead to problems. For instance, a high percentage of African-American businesses do not approach banks for credit lines. Instead, they use their own money and friends & family, but this prevents them from building a credit history and limits their ability to develop stronger networks.

Maribeth feels that for women, access to capital has come a long way in the past few decades. “Now, I see presentations from everyone, and the usual approach is, ‘Who’s got the best elevator speech?’” She feels evaluations are not gender-specific and that often, presentations by women and minorities are better. “I see more women and minorities coming to us for help because many of them don’t have a network. Venture capital has always been a club – I think the industry is working to be more inclusionary these days.” While she does believe they have a broader base, she says they can still do a better job of including others.

On the other hand, she addressed Ross’s comment about perceived vs. real risk. “Biases are alive and well – much of it depends on how and where a person was raised. Gender and racial bias definitely still exists and we have to work to be more inclusionary. But, I don’t think the doors slam like they used to – that’s just not tolerated.”

Mel then asked Vanessa to articulate the differences for women regarding differences in the deal. How would a deal from a woman business owner look different to a reviewer? Vanessa was less optimistic than Maribeth, feeling that many deals from women-owned businesses have “not even arrived at the door yet. We should take Maribeth , Xerox her, and put her everywhere,” she laughed, half seriously. “The majority of deals running through the network are male and white. Many women and minority deals don’t even get there to be considered.”

Yet, she believes, women are much more attuned to what is happening in the consumer market: “What consumer base is growing, and what are they looking for? How do we meet those needs? This approach is often foreign to male investors. I’ve heard many anecdotal stories about deals not going where the concept is very different than traditionally seen.” She says it’s important for investors to look at a woman’s complete history, and not just her business success, when making a decision. “Women are more likely to do a business in areas they’ve not had a career in,” she says. “They can be knocked out for this, yet the statistics show they do just fine.” Women also tend to plow their earnings back into their business, resulting in a problem Ross discussed with minority-owned businesses: “They’re less likely to have a credit history, so they are discounted – but wouldn’t you want to invest in someone who knows how to plow money back in?”

Ross explained that he has experienced business from a number of different perspectives: “I’ve run two businesses – one was successful, one failed. I’ve also dabbled as an angel with a success rate of 0 wins, 2 ties, 1 loss, and 1 outstanding. As I look at the world broadly and in Cincinnati, I see a split where it comes to men-owned businesses. In general, they have access to capital because they have access to decision-makers. Because of my history, I can call Blue Chip or Fifth-Third, and they’ll take my call. But for minorities without networks, the game changes.” He feels minority businesses need more support in order to compete. “We need an increase in sound business concepts and plans. These people have a right to succeed because they have solid ideas. But they have more need for technical assistance and the ability to have an honest dialogue with a management team to address issues.”

Mel then asked Maribeth to comment on why it really matters if women and minority businesses have greater access to capital. She answered that this is the fastest-growing sector of the market: “Women and minority businesses make significant contributions to our country. We need to encourage everyone.” She also says there are a lot of great things happening in our own backyard. “CincyTech’s executive in residence program is fantastic, and Queen City Angels of course is supportive. Tony [Shipley] wants more women-owned businesses. UC is also providing great entrepreneurship and leadership programs.” While she says there are all kinds of venues and opportunities, she’s not sure how many women and minority business owners know about them and how to get in. “We need more examples of successful women and minorities – the more we have, the more successful we will be. There are not enough role models yet.”

Mel then changed the approach and asked each panelist to name one element of what would need to happen for access to capital to happen. He had them go one by one several times to gather a number of responses:

Vanessa: Businesses go to multiple providers.
Ross: Vehicles that reach those firms that need small amounts of money.
Maribeth: Credibility and experience.
Vanessa: Education.
Ross: Compelling community reason.
Maribeth: A successful business relies on execution.
Vanessa: Better dialogue of what financial elements are needed.
Ross: Encouragement to pursue business of scale.
Maribeth: Good business plan.

Mel’s next question was, “Is access different for the type of capital – debt vs. equity?”

Vanessa: Statistics show a gap: women have less equity capital.
Ross: There’s a long way to go – 15% of African-Americans have access to credit; MBEs receive only 2% of all equity.

Mel then asked the panel to elaborate on the ability to raise small amounts of money - $50-500k. Ross feels there are not enough sources for small investments: “Banks are not interested. Venture capital depends on relationships and on the entrepreneur having a history and/or significant sales levels. There need to be more smaller funds.”

Maribeth stresses that women entrepreneurs are right in front of us, hoping to get advice. “I’m surprised how many hundreds of angel investment groups there are, and how many women angel groups. Probably, if an entrepreneur is pitching a lot, she’ll be a success.” She also said she was not sure how many minority angel groups there were and encouraged Ross to start one.

Vanessa said she often speaks to venture capital firms as an expert, and they want insight on how to access women-owned businesses. “Often, successful women are not necessarily visible – they’re under the radar screen,” she says. “They need to network more to be seen.” She also says investors really need to listen: “What is the entrepreneur doing? If you’re less familiar with the area, look at her overall history of success. Take ‘woman’ out of the picture.”

Ross says before you go after any capital, the first step is to find out what the bank or venture capital firm is looking for – their standards, expectations, etc. “It’s best if you can find a friend inside who can tell you what you need.” Then, you need to sell two things: the business idea, remembering it’s not enough to just sell yourself; and the competitive advantage. Third, show that your team is in place, especially on the financial side.

On the capital side, he feels there needs to be “a little more dialogue to establish a relationship. You used to be able to go to a local small bank. On the basis of your relationship with them, they would support you. Today, everything is technology-based, there are very few relationship-based transactions.” He believes lenders still need to understand the business proposition face to face. He also encourages them to have an honest discussion when issues are found: “Explain what’s appealing and what flaws you’ve found – don’t just wave goodbye.”

Mel agreed with Ross’s comments, saying it’s a challenge to take more time to look and evaluate when we’re all busier and busier.

He then asked panelists to answer several questions. The first was, “Is access to capital for women and minorities better or worse than in the past?” All three answered, “Better.”

Then, “Who holds the most ‘blame’ for where we are today – women/minority entrepreneurs or capital sources?” Vanessa felt industry was the most to blame; Ross felt 2/3 industry, 1/3 entrepreneurs; and Maribeth felt the problems stems from a lack of networks.

Next question, “Is the deal or the entrepreneur more important?” All three felt the entrepreneur, the people, were without question more important.

“Do investment firms care specifically about providing capital access to women and minorities?” Maribeth said yes; Ross was neutral; and Vanessa said there is an occasional bright light.

The last question was, “Is Cincinnati ahead of or behind peer communities in this area?” Vanessa and Ross both felt we were behind; Maribeth was not sure.