From `Blank Looks' To Blank Checks

Whitney Johns's women-oriented venture firm helps clients get "fund-raising fit"

Whitney Johns knows from experience how women entrepreneurs struggle to raise capital. In 1994, she couldn't get a loan to expand Whitney Johns & Co., a consulting firm she founded in 1986 to help small and midsize companies with acquisitions. As a board member of the National Association of Women Business Owners, the Nashville-based entrepreneur met many other women with the same problem. So she founded Capital Across America (CXA), an investment firm focusing on women-owned businesses.

In June, CXA and the Women's Growth Capital Fund, in Washington, D.C., became the first women-oriented venture funds to be federally licensed as small-business investment corporations. Having raised $6.8 million, Johns's firm is eligible for an additional $20.4 million in low-cost capital from the government. So far, it has committed $2.7 million to four companies--which makes her a big player, if only by default. The 315 SBIC licensees nationwide now command an investment pool of $7.7 billion. But in 1996, just 1% of SBIC funds went to women-owned companies. Johns, 40, spoke with BUSINESS WEEK Staff Editor Edith Updike. Some excerpts:

Q: Let's start with a capsule description of what CXA does.

A: Capital Across America provides mezzanine capital [a second round of financing] to growing companies that need at least $300,000 to expand. Our focus is women business owners, but we're not exclusively for women. We don't want to discriminate the other way. But we want to make a concerted effort to educate women about not only our fund but also other funds, and how to use this money to grow companies. Most small businesses need more than just money.

Q: How does this venture reflect your own experience?

A: As I expanded, I could not find growth capital. I couldn't borrow from a bank because I was in a service business that did not have tangible assets. I had a good business, but it was not bankable. I think up until the mid-'90s, that was a typical experience for women business owners. We've seen a tremendous change in the last two years.

Q: Any thoughts on why?

A: There's been a lot of exposure of the size and quality of the women's business community, which is now over

8 million business owners employing one in four U.S. company workers. While each company may be small, combined they represent a tremendous amount of purchasing power--$2.3 trillion in sales.

Q: How have women's capital needs changed?

A: Eight years ago, they needed start-up money or small amounts of money. Five years ago, the numbers started climbing. They needed a few hundred thousand. Now they need half a million, a million. There's a need all over the country for capital in the half-million to $2 million range.

Q: Doesn't venture capital fit the


A: The average venture capital investment in the country right now is

$6.9 million. That's just more money than most women owners need when they're expanding a business. And most small-business owners--women in particular--do not want to give up ownership of the company they've struggled to start.

The other problem with venture capital is it's very focused on high-tech and biotech, the real jazzy businesses. That field is very narrow, whether you're a man or a woman, and has been a little tougher for women to break into. If you have a basic business that's making $5 million--it's not very pretty, but it makes money--it's not going to be attractive to the venture capitalist.

Q: Did you have trouble selling a women-oriented fund to investors?

A: It was very difficult to raise substantial money and took about a year and a half. I had to go outside of my existing network and talk to people who didn't really understand the dynamic women-business-owner market. We talked to a lot of people who had blank looks on their faces.

Q: What was so hard to understand?

A: There's a disconnect between who has the money and who needs the money. Both mezzanine and venture funds were managed mostly by men, who were comfortable dealing with men. Now, we're seeing more women going into the capital-providing professions, and they're more attuned to the needs and language of the women business owner.

My travels [to meetings of women business owners] were great training. Most guys don't attend those events and don't quite know the market.

Q: Do women have a different approach to business than men?

A: Yes. They often underestimate their potential. Usually a guy will shoot for the moon and know that it's unrealistic, but he thinks: I'm going to ask for five times as much as I need in hopes that I get what I need.

Women, on the other hand, often don't ask for enough money to really accomplish what they want to accomplish. They're much more conservative in their risk-taking. I don't advocate that women shoot for the moon or overestimate their needs. I want women to stay conservative so that they're successful when they stretch. But I am seeing a trend for women to stretch.

Q: Are there areas in which women have an edge?

A: One of the assets that is most undervalued in the "male world" is networks. Women have a very good ability to develop relationships and networks--with their customers, with their employees, with their suppliers, with outside consultants, and so forth. The accounting world doesn't take into account the value of networks, but it can make all the difference in the world. It can save a business in an economic downturn.

Q: What advice do you have for small companies seeking capital?

A: Have a short summary--both oral and written--that is so compelling that someone like me will read the full business plan. Sometimes you have only 60 seconds to make an impression.

Second, have an excellent business plan. Most people focus on the product or the service and forget the financial section. Women in particular need to focus on this section; it's usually the weakest link we see in the business plans we receive.

The third thing is what I call becoming "fund-raising fit." Raising money is very complicated. They should become very knowledgeable about the process. Get a lot of advice. Seek a mentor. A good adviser in this area is well worth the money.