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Not long after that, we were approached by another woman looking for funding. This time the entrepreneur was a pint-sized pop star who had enjoyed several hits in the 1970s. We were keen to learn about her business, and not just because we might have been a little star-struck. In fact, she had an interesting concept for a website that would showcase bands, known and unknown, and allow consumers to sample their product and buy their music or book them for weddings and parties. Venture capitalists are cautious optimists, a bit like serial husbands (we’re a male-dominated profession): we learn enough from experience to require pre-nuptial agreements, but not so much as to lose our enthusiasm. So we are always curious to know how much cash the entrepreneur has personally at risk in the business. None is not a satisfactory answer, particularly from a successful singer. We also like to know how much their friends and family believe in them — and an endorsement of just £2,000 from a Rich-Listed showbiz colleague is worse than no endorsement at all.
You have to question whether all the state and quango initiatives to empower and inspire female entrepreneurs are poorly directed or just plain patronising: the annual ‘Women’s Enterprise Day’, for example, and the ‘Women’s Enterprise Task Force’. The problem seems to be one of definition. The venture capital industry exists to provide equity risk capital to fledgling businesses in which the entrepreneur expects to walk away guiltless if things go wrong but be handsomely rewarded if they go right. That appears to be an essentially male dynamic. With notable exceptions, women seem to respond to different values and incentives.
If entrepreneurship is defined to include all forms of individual business activity, then women are as well represented in business as they are in the professions. Advertising and recruitment agencies, retail outlets, bed and breakfasts and hairdressing establishments would all count. Crucially, however, these sorts of businesses rarely rely on external investment. Outside financing will typically be by way of bank loans. A former governor of the Bank of Scotland used to say that the female hairdressing sector was the bank’s best credit risk: women have a better track record than men of building businesses responsibly and honouring their contractual obligations. That’s probably why the vast majority of borrowers from microfinance institutions in poor countries (up to 95 per cent of borrowers in some cases) are women. But from a venture capital perspective the problem is that these sorts of businesses can rarely accommodate sophisticated equity investors with target rates of return and planned-exit requirements. It probably explains why we see so few women with business plans.
The genders seem to divide in how they calibrate risk. While male entrepreneurs will, famously, overestimate their market opportunity and underestimate the threats, female entrepreneurs are typically more cautious and more scrupulous in assessing the requirements for success. This inclines them towards an ownership structure that retains control, avoids dilution and is conservatively funded. We recently lost a deal we were keen to do, in which the chief executive was a woman (the first we had seen for some time), because we believed the business would grow faster with more capital than the management team were seeking.
One of our portfolio companies is taking advantage of this gender difference to build its business. It is acquiring local GP surgeries and consolidating them into a business that takes care of all the red tape and frees the doctors to focus full-time on practising medicine. One important driver for this business is that the generation of doctors who started out in the 1960s and are now retiring can no longer expect to pass over the practice to a junior who will devote the next 30 years to continuing to build and nurture it. That junior is now most likely to be a woman — and female GPs, by and large, are seeking flexibility in their careers. Thus the company can acquire surgeries from retiring GPs and use flexible working practices to create greater efficiency in operating the combined practices. The chief operating officer of the company is a woman, as it happens.
The paucity of women in venture capital extends to the providers as well as the recipients. There are few women business angels: senior figures such as Anne Glover, managing partner of Amadeus Capital Partners and former chairman of the British Venture Capital Association, are very rare. It is really too bad because many of the qualities necessary for success in high-risk, early-stage investing are the very things women tend to be so good at — mentoring, collaboration and patience — and all of these will be in even greater demand as the economy falters. On the other hand, women wouldn’t have backed all those overpromising, underperforming men in the first place. And then where would the venture capital industry be?
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