XXcelerate Fund: Women funding women
A group of local women investors, entrepreneurs and lenders have created a new organization to build profitable, Oregon-based businesses.
Called the XXcelerate Fund, it will address the critical and entrenched capital shortfall facing women entrepreneurs using capacity-building funding from the Portland Development Commission.
"We are proud to support this innovative, grassroots funding solution created by some of Portland's most dynamic women founders to provide a new path forward for female entrepreneurs," said Kimberly Branam, executive director of the PDC.
Based on a survey the creators put out to women business founders in Portland, there's an overwhelming need for this kind of program: the survey found 40 percent of the founders identify as underrepresented people of color, and most have been denied traditional funding sources despite nearly all having been through an incubator, accelerator of previous business training.
"When you look at the financial landscape, women don't seem to get very much of the loan funds available to small businesses and startups," XXcelerate Fund Executive Director Robin Klemm told the Business Tribune. "So we thought we would change that a little bit."
The XXcelerate Fund is currently looking for funding in two areas: one is to fund the capital side of the business and its loan aspect, and the second is to fund its own startup costs.
The capital is intended to be fully deployed within five years, and the first recipient will be named late in 2017 when the fund reaches its initial $500,000.
The founding board includes Robin Klemm as executive director, Judith M. Hutchison as lending director, and entrepreneurs Paige Hendrix Buckner, Genevieve LeMarchal, Astrid Scholz and Mara Zepeda. Jill Nelson, founder and CEO of Ruby Receptionists, is the fund's education and mentorship advisor.
The founders have been working on XXcelerate for more than a year, bringing on Klemm as a board member and the executive director a few months ago.
Klemm has been an investor in the Oregon Angel Fund (OAF) for five years. In 2016, she was named Most Valuable Angel.
She said she enjoys being a part of OAF, which is out to make a difference for all entrepreneurs. OAF is mainly made up of people who have already held significant C-suite positions, such as CEO, CFO or COO, who come together to invest in startups.
"You do have investment in women startups in the Oregon Angel Fund. It is certainly not half the investments," Klemm said. "One of the things about OAF is that it targets a 10-times return. Nobody ever gets a 10-times return, but they target it."
Klemm doesn't have bags of personal money, but does have an academic background.
"I think the timing of the XXcelerate Fund is just perfect: there is so much energy being unleashed right now with the Women's March — and we're not talking about political stuff even though that's the underlying element, but there is an awareness that women matter," Klemm said. "That half of the economy doesn't want to sit there and just be subject to the other half of the economy — we want to be active participants in the destiny of not only ourselves, but our world."
XXcelerate is working on getting its 501(c)(3) status organized.
"It's a nonprofit because in order to get going, we need funds to start up the organization and to provide the educational opportunities with the mentorship opportunities as we move forward," Klemm said. "When the fund is fully functional, our hope is that it will be self-sustaining, it will be evergreen."
XXcelerate Fund is a revolving loan fund for women-owned startups.
XXcelerate would work on a membership basis, providing education, networking, peer consultations and peer support — fundamental help to startups.
"What we'd like to do, what the women founders have put together in their education packages is issues they have found particularly helpful," Klemm said.
It focuses on sales, and provides a twice-monthly meeting for peer support, which has already proven invaluable:
"One of the things that already happened is one in the entire group was losing the lease on a building because the building was about to be torn down — surprise, this is Portland, buildings are torn down every day," Klemm said. "She was looking for a new space, and one of our other members said wait a second we're thinking of a new space. The two of them went in on this space and they have enough savings from going in together on this larger space that they were able to hire one front desk person between the two of them and have added to their functionality that way."
Half the economy
Klemm said funding women founders equally is something she only could have dreamed of, but four founding entrepreneurial women got together and made it happen.
"(They) were bemoaning the fact that they keep going on this endless hunt for money to grow their businesses," Klemm said.
More than 97 percent of venture capital funding has gone to male CEOs for decades, despite the fact that women-led, venture-backed companies were found less likely to fail, used less capital and had 12 percent higher annual revenues, according to the 2014 Babson College Study.
"So the women were just sick of being window dressing for these programs — why don't you apply for this, or for that? Guess what, it's not going to happen," Klemm said. "It hasn't happened. If you were to look at the statistics mathematically, this system asymptotically goes to zero without a lot of women getting out there and trying to make a difference, and that's what these four women are trying to do."
According to the 2016 Oppenheimer Funds Study, women started businesses at twice the rate of men last year, launching 1,300 businesses per day in the U.S.
And yet, women receive only 5 percent of the total dollars in conventional small business loans, according to the Senate Report: 21st Century Barriers to Women's Entrepreneurship.
"If you have over 90 percent of venture funds going to male-run companies, and venture capitalists like to invest in people they've invested in before, it helps reduce the risk: they know them, they like to invest in companies that have had individuals who have been part of a startup before — I'm talking all male here," Klemm said. "Where does this system go mathematically? It goes down to zero: you've got a whole lot of women fighting just to keep it up."
The better half
"Women-owned companies tend to be much more capital efficient. They tend to be targeted much more to the three-to-five times (growth) so when OAF looks at a lot of women startups, they just don't see them in their minds as growing big enough as an OAF investment," Klemm said. "OAF is dominated by a lot of tech and Intel people, so they're looking for a lot more promise of tech rather than feet-on-the-ground-solid, but maybe slightly lower growth."
An Illuminate Ventures study of U.S. businesses found that women-led, venture-backed companies were less likely to fail, used less capital and had 12 percent higher annual revenues than those led by men.
"I understand how it came about: it's very logical how it came about, but we're far from the roots to this and somebody's got to change it," Klemm said. "We in fact have what's known in economics as a market failure: we are not funding the full market of potential startups. We're just funding half, and the half that seems to perform a little under par, and that's it."
If an economy were a single business, it would definitely not approach things this way, Klemm pointed out.
"If I were to say to you, "I'm going to take half of all your potential businesses in the slightly better half, and we're going to ignore them totally and just concentrate on the (less well-performing half). It simply doesn't make sense," Klemm said. "Just because you have these awesome women out there starting up companies doesn't mean the barriers that are in place in the market — barriers in terms of relationships, in terms of experience, that are expansive in the market — are going to change unless somebody intervenes."
The Dow Jones Women at the Wheel study of 15 years of venture-backed companies shows that a company's chances of success increase as the percentage of females holding executive positions increases.
"If we can get this loan fund going, all of a sudden Portland looks like a magnet for women business developers," Klemm said. "The potential here is really great and again we're looking at half the market. We want to capitalize on that half the market that has been ignored systematically over the years."
Meet and Greet Happy Hour
Monday, Feb. 6, 2017 from 5:30 - 7:30 p.m. at Vacasa, 926 N.W. 13th Ave. #200.
This event will provide more information about the fund, answer questions and hear feedback. Food and refreshments will be provided.
According to the 2014 review Bridging the Gender Gap in Venture Capital, published by Babson College, 2.7 percent of venture-backed companies were led by women — conversely, more than 97 percent of financed companies were led by men.
"For one thing, (funding women) is going to add to the economy. There's going to be more cash flow in the economy as a result of this. There are going to be more hires, greater employment, there's going to be more role-modeling so that those young women coming up can say, oh yes, we can do it," Klemm said. "These children are going to look and see that women provide a great deal of the economy."
A 2015 analysis of a decade's worth of data by First Round Capital, a venture capital firm that provides seed funding to startups (including Uber), showed that out of 300 of their portfolio companies, startup teams with at least one female founder performed 63 percent better than all-male teams.
According to a 2014 Senate report "21st Century Barriers to Women's Entrepreneurship," businesses owned by women receive 5 percent of the total dollars offered in small business loans. It found women entrepreneurs still face challenges getting fair access to capital, equal access to federal contracts, and relevant business training and counseling.
Project Diane's report, The Real Unicorns of Tech: Black Women Founders, found only 11 African American women total in the U.S. have received venture capital exceeding $1 million.