Series A Institute seeks to increase access to equity financing for women and minority-led firms through education and networking opportunities.

 

What are the issues with women and minorities seeking equity financing?

30% of all businesses in the U.S. are women-owned, and 15% of all businesses are minority-owned. Women and minorities are far less likely to get the opportunity to pitch for angel and venture capital investments and less likely to get funded when they do. Women are 1/3 as likely to be funded by angel investors and only receive 7% of all VC funds invested.

The statistics are worse for minorities. A 2010 study found that 87% of venture capital funds went to Caucasian-led teams with only 1% going to African-American led teams. Black women own 1.5 million businesses in America that generate about $44 billion per year and they are the fastest growing group of entrepreneurs in the U.S. However, black females only obtain 0.2% percent of venture capital investment dollars.

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Outside capital is a key factor in the success of businesses; less capital means fewer employees hired, lower revenues, and high failure rates for start-up businesses.  Babson College found that if women in the US had the same capital access as men, 6 million jobs would be added to the U.S. economy in five years.

While targeted angel investor groups are seeking to increase access to alternative funding sources by pooling women and minority funders on the theory that they are more likely to invest in women and minority-led business, the number of businesses funded has not increased proportionally.

 

So Angels and Venture Capital Investors Want To Invest In Start Ups, But They Don’t. Why?

Angels and VCs are foremost looking to make money.  Entrepreneurs have less than ten minutes to show that they will make money for the investors, and make it quick. From our experience and the experience of others as angel investors or VCs, when given the opportunity pitch, most minority and women-led businesses fail.

Start-ups aren’t ready. Reasons for this include:

  • Failure to communicate what investors want to know
  • Lack of proper business formation
  • Flawed management structure
  • Missing or deficient financial reports
  • Nonexistent intellectual property protection
  • Poor valuation
  • No exit strategy

 

Why is equity financing critical to the success of entrepreneurs?

Nearly all successful business owners experience failures before they achieve success.  Those failures are often necessary to gain the experience, create appropriate networks, and to perfect a successful business model.  Despite this, traditional funding sources, like conventional and SBA loans, often provide a one shot opportunity for success.  The entrepreneur’s personal assets are used as collateral, and the ability to pay back the loans are attached to the business owner’s personal assets and credit history.  With a single missed payment, her credit is ruined, she will lose some of her personal assets, like her home, and her capital investment disappears. She is left in a position where she experiences financial hardship and is unable to give it another go. This exposure is a significant deterrent for new business.

Funds invested by angel investors, venture capitalists, and other non-traditional investment sources are lost when a business goes under, but the entrepreneur’s exposure to risk is minimal, which leaves him in a position to give his business idea another shot.  His credit profile stays intact, and there is no chance that he’ll lose his home. Unlike traditional lending sources, angel and VC funds are exchanged for ownership interests in the business. Investors often take an advisory role as well, providing mentorship and opening their networks to the entrepreneurs, which is invaluable.

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How the Series A Institute helps solve the problem

The Series A Institute provides multi-day workshops that convene start-up businesses, with a focus on women and minority-led start-ups, for training sessions, roundtables, and networking events to assist them in positioning their businesses for alternative financing. The workshops teach entrepreneurs how to prepare for this type of funding by covering all aspects (financial, operational, legal, marketing) of what angels and VCs are looking for when they invest. Click here to learn more about the Series A Institute.