Star Tribune
February 19, 2007
Metro Edition

A University of St. Thomas professor has won international recognition for a project to help female entrepreneurs ob-tain funding in the male-dominated field of venture capital.

For years, women have been starting businesses at a rapid rate - nearly double that of all businesses nationally.

Yet a closer look reveals that those companies often are small, in employees and revenue, said Nancy Carter, who holds the Richard M. Schulze Chair in Entrepreneurship at the University of St. Thomas Opus College of Business.

"We began to scratch our heads and say, `How can this be?'-" Carter said. "With the rapid increase in women-owned businesses, the opportunity to enhance personal wealth creation, to enhance the communities in which they live and the economy as a whole, why is it those businesses would be substantially smaller?"

Carter teamed with other scholars, experts in business and sociology, to seek answers. Taking inspiration from the mythical goddess of the hunt, they named their work the Diana Project.

The undertaking, begun in 1999, has grown into a groundbreaking international research project that has promoted women entrepreneurs and the growth potential of their firms. Their work has examined disparities in access to capital and looked at how to help women entrepreneurs prepare to do business with venture capital funds and other investors.

For their continuing efforts, Carter and her Diana Project colleagues last month received an award regarded as a Nobel Prize for business research, the 2007 International Award for Entrepreneurship and Small Business Research. The award was founded by the Swedish Business Development Agency and the Swedish Foundation for Small Business Research.

The project's founders will receive a $50,000 prize at a formal award ceremony in May in Stockholm. They are Carter, Candida Brush and Patricia Greene of Babson College, Elizabeth Gatewood of Wake Forest University and Myra Hart of Harvard Business School.
The scholars took aim at what they saw as myths often cited to explain why women-owned business are smaller: Women don't want high-growth businesses, instead preferring retail, home-based or low-tech enterprises. They don't have the experience or qualifications to be good business risks.

They also heard another explanation: Women aren't in the right social networks, particularly in the male-dominated world of venture capital, where deal makers bring together investors and business seeking to grow. "A lot of what hap-pens in business is who you know as much as what you know," Carter said.

While women own 30 percent of all businesses, they receive as little as 5 percent of venture capital, Carter said. At venture capital firms, women held 10 percent of decision-making positions in 1995. By 2000, the share had dropped to 9 percent, despite huge growth in the industry fueled by the dot-com boom. During the same period, women left venture firms at twice the rate of men.
Venture capitalists, men or women, seldom consider deals that come over the transom, from unknown parties, Car-ter said. Instead they typically pursue deals presented by entrepreneurs with whom they have a network connection.

"If there aren't women in the capital industry, that would make it more difficult to get into the right social networks to get chauffeured to the right resources," Carter said. "That gap is going to preclude women getting access to the ven-ture capital industry."

Big game hunting
The Diana Project has worked with nonprofit groups to organize forums to bring together women entrepreneurs and venture funds. For the last 2 1/2 years, Carter has been vice president of research at Catalyst Inc., a nonprofit women's leadership group in New York. Her focus there is working with large organizations, Fortune 500 firms, to advocate for women in the workplace.

"The philosophy is that if we can make changes within those organizations, given their size and influence in our economy, they can become role models for other organizations," Carter said. "Given the number of people they employ, if we can change the work environment in those companies, we can have a real sustained impact at the societal level."

In the Twin Cities, Leslie Frecon, CEO and founder of private equity firm LFE Capital, said she has made a spe-cialty of investing in women-owned businesses. The Diana Project's research has helped her explain to investors why women-owned businesses, as an underserved market, represent a good opportunity.

"We don't do it out of a sense of social mission," Frecon said. "We do it because it's the fastest-growing segment of the U.S. economy. That gives us a broader deal selection. In our business, that's a competitive advantage."

Sima Griffith, founder and managing principal of Aethlon Capital, a Minneapolis-based investment bank, said many women entrepreneurs she meets are looking for $100,000 to $500,000 to start businesses, often retail.

Most venture capital and private equity funds are looking for deals of at least $3 million and have little interest in sole proprietorships or retail businesses, Griffith said.

"The important point is that female entrepreneurs with successful track records who are in industries like health care and technology, industries that are of interest to [venture capital firms], and are really good at networking can re-ceive funding," he said.

For those outside the network, Griffith often recommends assembling a management team or a board of advisers or hiring lawyers or accountants who can make introductions to funding sources.

"I think Professor Carter's work is very important because it focuses on the disparity or the lack of female partners with large institutional funds," Griffith said. "I think focusing on that disparity could help effect change."

One way that could happen is if pension funds and university endowments - large sources of venture capital - were to ask venture funds about programs they have to attract and retain female partners, Griffith said. "They could be in a position to say, "We're not going to invest in your fund because you don't have any women or minorities as partners,' and that will start getting the venture funds to pay attention to their hiring practices or their retention practices."

Todd Nelson is a freelance writer in Woodbury. His e-mail address is  This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

THE DIANA PROJECT
What is it? The Diana Project, named for the mythological goddess of the hunt, studies women entrepreneurs and business growth opportunities. Its research has helped women entrepreneurs gain access to growth capital and promoted female entrepreneurship internationally.

Who's behind it? Nancy Carter, who holds the Richard M. Schulze Chair in Entrepreneurship at the University of St. Thomas Opus College of Business, began the project in 1999 with four other scholars: Candida Brush and Patricia Greene of Babson College, Elizabeth Gatewood of Wake Forest University and Myra Hart of Harvard Business School. In May, they will receive $50,000 for winning the academic equivalent of a Nobel Prize in business research, the 2007 International Award for Entrepreneurship and Small Business Research.

For more information: A Diana Project report on the venture capital industry is at: http:;www.kauffman.org/pdf/Diana_2004.pdf
The award announcement is at: http:;www.fsf.se/fsf-nutek-award/eng.htm
More project background: http:;www.esbri.se/diana.asp