In the Venture Drought, an Oasis
For Antoinette Bruno, CEO of a struggling dot-com serving the restaurant industry, stumbling upon the women of 8 Wings Enterprises late last year was a godsend. Bruno's company, StarChefs, was sorely in need of cash. But the regular sources of venture capital had all but dried up, and to make matters worse, Bruno had just been denied a chance to plead her case at Springboard, a quarterly event that lets women entrepreneurs pitch for funding to a roomful of potential investors.
Enter 8 Wings, named by four angel investors who serve as business advisers to women-led companies. Bruno met them at a venture-capital networking event. They saw her potential and decided to act as her mentors. "She was a success waiting to happen," says 8 Wings partner Sharon Whiteley. Indeed, with 8 Wings' knowledge of the private-equity arena to guide her, Bruno is now negotiating for $5 million in new money. 8 Wings works with female entrepreneurs who are ready for equity funding but need guidance, contacts, and encouragement.
Women business owners have a strong need for such help. The venture-capital community is the epitome of an old boys' network, and most women don't have the ties or knowhow to negotiate this clubby world. Even if they have contacts, they often don't understand the rules of the financing game, in part because they have no role models.
HARSH WORLD. Women have been launching businesses at nearly twice the rate of men, according to the National Foundation for Women's Business Owners. But companies founded by women received only 7.2% of the $72 billion in venture funds raised in 2000, reports San Francisco research firm VentureOne. That's up from 1.7% in 1995, but it's still a meager share. "We often see women entrepreneurs with promising and credible businesses who forge their way into the private equity arena only to be discounted, intimidated, and ill-prepared for the scrutiny of private investors," says Connie Duckworth, an 8 Wings partner. As a result, they are shut out of the venture-capital world.
For these reasons, a group such as 8 Wings can be terrifically valuable. Each member has succeeded in starting and/or funding companies and creating far-reaching networks that can help fledgling entrepreneurs. Whiteley has started five successful companies. Duckworth is a managing director at Goldman Sachs. Paula Chauncey is a former banker and Kathy Elliot is a former research director for an investment-advisory firm. While they still work professionally in other positions, they come together as 8 Wings to mentor entrepreneurs.
Typically, the 8 Wings partners work intensively to perfect a client's business plan, prepare the pitch to venture capitalists, and often make introductions to potential investors and other business contacts. They typically take stock or options in the companies they assist.
In Bruno's case, they helped refocus StarChefs. When Bruno started as CEO two years ago, the founders were pursuing a new strategy: to sell supplies to restaurants over the Internet. But StarChefs, already a popular site for chefs and foodies to exchange information, generated most of its revenue from its culinary job finder, an online classified-ad bulletin board. With more than 6 million hits a month, it was a busy destination.
The 8 Wings partners advised Bruno to focus on the "pain in her industry"--its persistent labor problems. Hiring, training, and retaining good workers is a big issue for restaurateurs. The industry, which employs more than 17 million people nationally, has an average annual employee-turnover rate of 120%. "We were already in the business of labor with the job board, but we just weren't focusing on it," says Bruno. "8 Wings helped me to see what was staring right at me."
So Bruno exited the restaurant-supply business and focused on hiring and training. In the process, she laid off 15 people, cutting monthly operating costs from $100,000 to $30,000. Bruno partnered with a company to develop restaurant-training programs modeled after video games. One game resembles the old Pac Man, where restaurant trainees try to make it through a maze before being caught. If trapped, they have to answer a question relating to their job. Such games appeal to the 25-and-under set who make up the bulk of restaurant employees. StarChefs makes money from selling these programs and ad space on its job board.
INTRODUCTIONS. Now that Bruno's business was in order, she was ready to ask for money. One of the 8 Wings partners knew someone at Springboard who helped get Bruno an interview. Once accepted to the forum, Bruno worked feverishly for two weeks with 8 Wings members to create a 20-minute slide presentation. In her pitch, she covered 10 points, such as StarChefs' revenue model (table). But "the most critical information an investor wants to hear early on is what the problem or serious need is that your product or service solves," says Whiteley.
There are also things investors don't want to hear. "Saying you don't have [competition] signals that you'll be unprepared for competitive challenges, unrealistic, and perhaps even arrogant," says Chauncey. Another no-no: "This is a $40 billion market." It may be, but you're undoubtedly addressing a much smaller segment.
After a pitch for funding, you hope venture capitalists will want to discuss your company further. That's what happened to Bruno. Nearly 20 potential investors asked her to call. But before she did, Bruno researched them and created a list of those she wanted to see first. "Conduct due diligence on all the firms you pursue," says Elliot. "Look at their track records, mix of investments, board make-up, and talk to their portfolio companies."
Of course, 8 Wings can't assist every entrepreneur who needs its help. So the partners are writing a book, 8 Wings: How Every Woman Can Find the Psychic and Financial Capital to Fund Her Entrepreneurial Dream, due out early next year. Other resources: Pratt's Guide to Venture Capital, found at business libraries, and VentureOne Venture Capital Source Book (877 522-8663). Also check the Web sites of venture capitalists and probe local organizations that compile lists of such investors (table).
If you don't get money immediately, don't despair. As Bruno learned, keep networking--you never know who you might meet.
By Toddi Gutner