Female Ownership Matters
The Entrepreneur: Patricia Karter, 51
Background: An artist with an MBA, Patricia Karter is the co-founder and CEO of Dancing Deer Baking. Based in Roxbury, Mass., the little bakery with a strong social mission aims to grow into a $50 million business—without sacrificing its core values and practices: community philanthropy, employee development, and the use of only natural ingredients. Today, Karter, who has received a round of institutional capital, is pursuing another equity capital round—this time using women angel investors.
The Company: Launched in 1994, Dancing Deer Bakery has clung to a simple yet unconventional business philosophy (BusinessWeek.com, 5/19/07): If bakers love what they do, it shows in the food. More than a decade later, that guiding principle has helped propel the all-natural baked goods outfit into a fast-growing business) (BusinessWeek.com, 8/21/06).
Sales: Dancing Deer Bakery had about $10.5 million sales in the fiscal year ended June, 2007, and projects $14.4 million next year.
Her Story: I'm frequently asked whether Dancing Deer's social mission gets in the way of its profitability. That's easy. We are a consumer brand. Our social activism builds consumer loyalty and attracts highly motivated employees. It's a win-win proposition. Plus, being committed to making all-natural products and making the world a better place is way more fun than being wound tight around the tyranny of a single bottom line. We've got a second one. How much good did we do? Of course, we don't get to declare victory on the second bottom line approach unless the business succeeds on conventional measures of profitability and asset value.
Not all of our fans know about our dual mission. Some just love the Molasses Clove cookies. But to the extent that people are aware of our progressive practices and philanthropic commitments, they get it.
When Title IX opened up the boy's track team to me when I was a junior in high school in 1973, it was my first awakening to gender disparities in the power structure of our society, not just the athletic complex. I was also awakened to how bad that system is for everyone, including the boys.
I've been hoping our society could have a better balance ever since. That's where the female ownership comes in. Dancing Deer wants to advance the role of women in the male-dominated business world by being not just women-run but majority women-owned.
Time to Diversify
It is my belief that more women controlling assets in the private sector will yield a net gain in performance and ultimately a better society for all. This is not a zero sum game. Ownership chooses management and therefore sets the agenda. If you believe that diversity leads to better decision-making, then it is logical to pursue it at the ownership level. So that's what I'm trying to do with our next fund-raise.
We all know that women are underrepresented in the executive suite and in the boardroom. Women are also minor players in the world of private equity and venture capital. While women constitute one of the fastest growing segments of entrepreneurs—they start 54% of new businesses—there are fewer women investing in growth businesses, and there are fewer women entrepreneurs receiving funding (less than 4% of venture funds go to women entrepreneurs, less than 14% of angel investors are women), according to the Center for Women's Business Research.
Today, what started as a $20,000 hobby investment is a prominent national brand in the natural foods market.
I have been leading Dancing Deer on my own since 2000, as both majority owner (until recently when I sold a stake to institutional investors) and manager.
Now our ambitious growth plan requires more cash than we generate—so we are looking outside for growth capital. I, like most other entrepreneurs, had been seeking the holy grail of self-funded rapid growth but couldn't pull it off. I wanted to maintain control for financial reasons, of course, but much more than that, to stay on mission. I perceived that might be difficult if I took on professional money.
The Hunt for Capital
Here's where the question of mission having an impact on profitability is relevant and interesting. It turns out to be pretty hard to find private capital that subscribes to social change and is sensitive to gender issues. While socially responsible investing is a burgeoning field in the public markets, if you look inside the vast majority of private equity funds, you will find only a tiny minority of women.
We have two institutional investors who have placed equity and subordinated debt in Dancing Deer in the past year and a half. We've done well in the intervening period, with everyone's value increasing handsomely. But therein lies the rub. The institutional investors are obligated to place their funds where the returns look good and to keep the capital working. In the case of Dancing Deer, Ironwood Equity and Generation Equity Investors both have social missions and invest in opportunities that produce some second bottom line value. They invested in and embraced our social activism agenda. But they are venture capitalists, not charitable foundations. They get privileges that create downstream opportunities and/or superior rights when the going gets rough.
By rights, these financial partners could take a large share of the next round of equity capital and by extension, dilute our women-owned status. They could even say no to the whole initiative. You might wonder why I signed a deal like that. Perhaps I was overconfident that I wouldn't have to go out for that much more capital. Ironically, I also accepted the norms of the private equity markets, even though norms and I aren't particularly close friends. But here's the good news. These investors, much as they'd like to have more, have agreed to take less in order to make room for women in our next fund-raise. That's remarkable. One of the two, Generation Equity fund, which represents individual investors, also agreed that 50% of the people it brings to the table will be women.
That frees us to go out to the small community of women angel investors. It's highly unusual. No one goes backwards to angels, and I don't know of anyone who has restricted an offering to women. It means the fund raise, which could be relatively easily accomplished with an institution, is turning into an energy-consuming campaign to identify and assemble women investors. The capital markets just aren't organized in this way. They are organized according to criteria that have mattered to the market. Gender has not been, historically, a factor. I'd like to change that, at least until there is balance. Eventually it should be completely irrelevant—in that better world we're building.
More journals are available in our ongoing Entrepreneur's Journal series.