The Feminine Touch
Women are joining forces to invest in life science ventures, and getting results.
Catherine V. Mott's foray into "angel investing" began in 1999, partly the result of fortuitous timing. While waiting at a country club for her date to show up, Mott joined some men she knew who were hanging out at the bar. "I was standing there drinking my scotch-on-the-rocks with them, just talking, and they're talking about this deal," she recalls. "And I said, 'I want in.'" So she became an investor.
At the time, Mott had 17 years of banking experience on her resume but no idea what it meant to be an angel investor. She just knew that she was writing checks to a fledgling company, and that she expected the investment would bring her big returns. The experience sparked Mott's interest in the idea of individual investors coming together to aggregate their knowledge, expertise, and money. She began researching and visiting angel groups across the country, eventually concluding that angel investing would make the most sense in Pittsburgh, Pa., one of the richest areas of intellectual capital in the country as measured by NIH research dollars. At the same time, she was bothered by the lack of sophistication with which many individual investors were approaching investment opportunities. Determined to inject a bit of rigor into the process, Mott set out to apply her banking savvy in a new arena.
Today, she is a managing partner of BlueTree Allied Angels, a group she launched in 2003 to bring individuals together to invest in early-stage companies primarily in Pittsburgh and the surrounding region. About half of the angel group's investment portfolio consists of medical and life science companies, reflecting the University of Pittsburgh's strength in life science research. It includes Pittsburgh-based ALung Technologies, developer of an artificial lung, and Altoona, Pa.-based INRange Systems, maker of a system for remotely managing patients' drug therapies. But if it weren't for Mott's gutsy infiltration of an industry foreign to most women, BlueTree might never have blossomed. "Nobody asked me, 'Would you like to do this?'" she says. "I was not invited to be a player."
GETTING INTO THE LOOP
Mott is among a burgeoning class of women who are changing the face of equity investing in the United States. While men still make up the majority of the nation's venture capital and angel investors, women are beginning to break down the walls of the old-boys' network.
"I see women really exploding into the field both as entrepreneurs and investors, lately, in the biotech/healthcare field," observes Amy Millman, president of Springboard Enterprises, a Washington, DC-based nonprofit that educates and supports female entrepreneurs. If women continue to gain leadership roles as equity investors, it could sharply improve opportunities for women- and minority-led start-ups in the life sciences to tap into early-stage funding - or at least that's the hope. Up until now, women just haven't been in the loop.
A recent Ewing Marion Kauffman Foundation analysis published in Science underscores the point. Based on a random sample of 4,227 life scientists over a 30-year period and personal interviews with faculty scientists, the study reveals that male scientists secure patents at more than double the rate of their female colleagues. Why such a large gender gap? It's not that women conduct less significant scientific research, but compared with their male colleagues, senior female scientists lack social networks and exposure to the commercial sector, the authors found.
"What we're finding in early innovation and entrepreneurship is that it is much more about social networks than anything else - and mentoring," says Lesa Mitchell, vice president of advancing innovation at the Kansas City, Mo.-based foundation, which works to promote entrepreneurship in the United States. "Women simply don't seem to have the commercial social networks and mentors that men do."
"If they don't have the social networks and they're not participating in commercialization, they're not going to be making progress as investors and entrepreneurs," adds Marianne Hudson, executive director of the Angel Capital Education Foundation and entrepreneurship director of the Kauffman Foundation.
MORE ESTROGEN IN THE ROOM
At present, women account for no more than eight percent of angel investors, according to an April 2006 Kauffman Foundation report. Angels are typically individuals with high net worth who invest individually or as groups in startup and early-stage companies. Despite their underrepresentation in the angel world, women are shaking up the status quo in other ways: starting angel groups whose investors are predominately or exclusively women, for example, or investing in companies that are run by women.
Golden Seeds, which operates angel forums in New York and Connecticut, does both, investing only in women-owned, women-led companies. Its portfolio includes Saladax Biomedical in Bethlehem, Pa., which develops rapid tests for monitoring blood levels of chemotherapy drugs. Adrienne Choma, president and chief operating officer, cofounded the company. Golden Seeds' investor base is 80% women, 20% men. "I would like to keep that balance, because we want to make sure that we have ... more estrogen in the room than testosterone," says Stephanie Hanbury-Brown, head of investing and coleader of the two forums. She says strong female representation helps foster a supportive environment.
"Many entrepreneurs feel that presenting to investors can be a grueling experience, and particularly women entrepreneurs have told me over and over again they just feel they get spoken down to," she explains. "If they're young, they're asked, 'When are you going to have a baby?' If there are two of them, they're asked, 'Who's going to be the boss?'" Golden Seeds actually likes the idea of co-CEOs, she added, because it gives female entrepreneurs a certain amount of flexibility.
Mary Del Brady, president and chief executive officer of RedPath Integrated Pathology, a Pittsburgh-based commercial laboratory that provides cancer diagnostic testing, is a veteran of the fundraising gauntlet. Between BlueTree and Golden Seeds, her two-year-old company has raised in excess of $250,000. Each company's investment came at a critical time in the company's funding cycle, Brady says. Plus, BlueTree's name has real cachet in the Pittsburgh market, which she believes gives RedPath greater credibility in talks with other prospective investors.
ABOVE ALL, A BUSINESS DECISION
While many women-owned and managed angel funds have a genuine interest in leveling the playing field for female CEOs and women-managed companies, investing in a woman-led company is still purely a business decision, Brady observes. "We're all about return on investment," explains Lauren Flanagan, cofounder and managing partner of Phenomenelle Angels Fund, a newly created fund targeting women- and minority-owned or managed businesses in Wisconsin and the Midwest. If there's any bias, she says, it's recognizing that women and minorities have to clear additional hurdles to succeed in business, so those who make it are "probably really excellent."
Angel capital remains scarce in the minority entrepreneurial space, notes Robert L. Greene, president and CEO of the National Association of Investment Companies in Washington, DC. In the life sciences in particular, he explains, the "return horizon" - the time it takes for angels and other equity investors to see a profit on their investments - remains a significant barrier to investment. Overall, less than two percent of all private equity is invested in minority-owned companies, he adds.
Seraph Capital Forum, the first all-women's angel investment group in the United States, has no stated preference for either women-owned or minority-owned companies. "We want to invest in any good deal," says Susan Preston, who launched the Puget Sound region group in 1999 out of frustration over women's lack of participation in early-stage investing. Those "good deals" include life science companies such as Pacific BioSciences, a Menlo Park, Calif., developer of DNA sequencing technologies. Like other angel groups, Seraph shies away from therapeutics, which could require hundreds of millions in investment to get to a product.
Venture capital investing also remains a male-dominated industry. Between 1995 and 2000, the percentage of female venture capitalists actually slipped a bit, from 10 to 9%, according to a 2004 report from the Diana Project, a study of female business owners and business growth activities. While the ranks of women in venture capital may not have swelled in recent years, the buzz about women-led venture capital firms seems to be on the rise.
"I do think there may be more visibility on the few that are in the field," offers Patricia Greene, a founding member of the Diana Project and provost at Babson College in Wellesley, Mass.
A HUGE OPPORTUNITY
Ceres Venture Fund, a women-led partnership in Evanston, Ill., is among the latest entrants, and one of the few that heavily favors healthcare and life sciences. Donna Williamson, one of the three women who cofounded the company, is a former corporate officer of global healthcare giant Baxter International and a founding officer of health-services provider Caremark International. "This is an area that has seen huge growth in professional graduates, in women in medical school, in women in PhD programs," Williamson notes. "We feel there's a huge opportunity to be able to support the initiatives that these women are going to want to take in terms of entrepreneurship and growing businesses."
Karen Kerr, who left ARCH Venture Partners last year to begin her own venture fund, Agile Equities, agrees. "Certainly there are a lot of women out there getting doctorates ... who are working in medical device companies and pharmaceutical companies and informatics companies who are becoming more entrepreneurial," she says. Just as the number of US women-owned businesses has expanded in recent years, she says, "I would expect to see that happening in the life sciences."
Whether equity investors are profiting by targeting women-owned companies is an open question. Women-led angel groups, for the most part, are too new to have much of a track record, and no one has calculated their return-on-investment record in any substantive way. "We're probably several years away from actually seeing some real concrete returns or information [that will yield a clearer picture]," Springboard's Millman suspects. And if you base it on the pioneers, you may not get an accurate picture because there's a significant learning curve for investors and entrepreneurs alike. "There's a lot of scars and a lot of dead bodies," she says. The picture is just as murky on the venture capital side, she adds, because existing data fail to clarify whether women lead a recipient company.
There are some encouraging signs. Although the Diana Project finds that female venture capitalists do not give female entrepreneurs preferential treatment, 70% are in partnerships that have closed deals with women-led companies. "No one is suggesting that the deal should be evaluated with any kind of gender perspective," says Greene, one of the study's coauthors. "The idea is there should just be an opportunity to at least get your proposal evaluated." Once that happens, the floodgates of opportunity may begin to open.
That's already happening at Ceres Venture Fund, where good deals are surfacing even though women-led companies are not the fund's exclusive focus. "That's where I was this afternoon," Williamson laughs, "with a woman entrepreneur founder that we're in due diligence on in the life science area - a PhD scientist."