Venture capital: Glass ceiling for women entrepreneurs?

Published in the Ottawa Business Journal newspaper and website.
April 23, 2007 (April 25 on

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Amika Mobile CEO Suhayya Abu-Hakima.
Amika Mobile CEO Suhayya Abu-Hakima.
Photo by DARREN BROWN for the Ottawa Business Journal

Entrepreneur Suhayya Abu-Hakima successfully raised more than US$4 million in angel financing with her first startup, and is currently aiming to raise $1 million to $2 million with her second company.

She says she took her e-mail risk management server products company AmikaNow! Corp. to Bay Street venture capitalists in 2000. Finding the terms unsuitable for her company, she turned to angel investors for financing and managed to raise about US$4 million, as well as another $575,000 in federal government financing.

“In 2002, we were aggressively pursued by venture capitalists in Boston because compliance was hot at the time, but we were asked to relocate and I said no,” Ms. Abu-Hakima adds.

She has since moved on to start her second company, Amika Mobile, following the successful sale of AmikaNow!’s compliance business to Entrust in 2004.

However, Ms. Abu-Hakima is one of a rare breed of women entrepreneurs who are willing and able to apply for equity financing of any kind, be it angel financing, venture capital, or equity invested by the business owners themselves.

A recent study co-authored by University of Ottawa professors Barbara Orser and Allan Riding shows that female business owners are equally as likely as their male counterparts to seek all kinds of financing, except equity financing, even after controlling for sector and size of firm.

What’s even more surprising, according to Ms. Orser, is that the reason women aren’t getting equity financing isn’t because of gender bias and discrimination.

“The common assumption is that it’s an old boys’ network and that women aren’t in the pipeline,” says Ms. Orser about the equity finance market. “However, it’s just that women are just not applying for equity financing, so who’s got the problem? I don’t assume this is about discrimination because capital seeks out good properties.”

Angel investor Caroline Somers, who has been involved with local angel investment groups the Band of Scoundrels and the Ottawa Angel Alliance for several years, agrees with this assessment, saying that she’s only seen one company with a female chief executive or managing partner apply for angel financing out of more than a hundred companies.

“It’s something I want to change. I see no reason for (the lack of women applying),” she says. “I don’t think there’s any difference between men and women presenting and it’s not as if they don’t have the same opportunities.”

Ms. Abu-Hakima insists, however, that the reason why women entrepreneurs aren’t applying is because she sees, as a female business owner herself, that there really isn’t a level playing field in the equity financing market.

“(Gender discrimination) exists. It’s getting better, but we need organizations to target women entrepreneurs more,” she says. “I think women are probably seeking funding where the playing field is more level, such as technology banking or lines of credit.”

“The deck is a bit stacked,” Ms. Abu-Hakima argues.

Ms. Orser says women do tend to enter into smaller, low-growth and high-labour companies which are not attractive to venture capitalists, but points out that her study controls for these factors.

However, she says it’s possible that there could be a vicious cycle of thought, where women are assuming that they will not get equity financing even if they apply for it, and therefore don’t even try.

“It’s similar to perceptions about the debt financing and loans market a decade ago,” she says. “Women thought banks would turn them down, they wouldn’t apply. But with modern scoring tools, gender doesn’t apply and the market’s more insightful. There are a lot of misperceptions about equity financing.”

Ms. Orser notes that only a small percentage of Canadian business owners seek equity financing at all, at four per cent of companies which have at least 50-per-cent male ownership, and one per cent of female majority-owned companies.

Nonetheless, the trend is particularly unsettling among women because many of them are simply not informed about the workings of the equity financing markets and could therefore be hampering the growth of their companies, she said.

“When I talk to women at events about equity financing, they look at me like deer in headlights and ask me what equity financing is,” Ms. Orser says. “There is a definite difference of financial literacy between men and women, whether it’s about understanding the capital markets and financial instruments, or knowing who the players are and where the networks are to tap into. It’s one of the root causes (of women not applying for equity financing).”

She notes that part of the reason female entrepreneurs prefer to use debt financing could simply be because venture capital pools and angel investors are not as visible as the banking system.

“We have a bank on every corner and a great banking system here in Canada which is transparent and works well,” says Ms. Orser. “So when people think of capital, they automatically go ‘Ah, the bank!'”

Both Ms. Orser and Ms. Abu-Hakima, along with Ms. Somers, agree there should be more mentorship and education programs to encourage women to apply for equity financing. Ms. Abu-Hakima says the government should fund more tax incentive programs and other initiatives which help women and other minorities access equity financing, such as the Defense Supply Center Columbus Women-Owned Small Business program in the U.S.

All three point to organizations such as the Canadian Advanced Technology Alliance’s Women in Technology and Forum and U.S.-based Springboard Enterprises as important resources in supporting and educating women about the equity financing market.

And ultimately, says Ms. Abu-Hakima, it’s about being persistent and sharp if women entrepreneurs want to snag financing.

“One day you could be the heretic with the crazy idea that you say is going to make millions of dollars, and another day you could be a hero… it’s not an easy job,” she says. “But the equity financing scene is showing positive movement, and a positive trend is possible. We just have to work on it.”

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