No surprise, women entrepreneurs have a harder time raising capital than their male counterparts. However, it is scaling companies — the 1% of companies raising venture capital to grow to be billion-dollar companies — that get all of the media attention. Far more entrepreneurs have more modest growth goals. These companies are more likely to seek loans.
Whether debt or equity, women-owned businesses use fewer types of financing options than their male counterparts, according to the 2016 Small Business Credit Survey: Report on Women-Owned Firms. Even when they are a low credit risk, they are less likely to get approved for a loan: 68% compared to 78% for their male counterparts.
One woman, Roshawnna Novellus, plans to change that. Her mother, a high school teacher, taught her the importance of women being in charge of their economic power. “I was 12 when my mother enrolled me in a high school investment club,” she said. By 15, Novellus had developed a plan to pay for her college education. She was awarded $600,00, which paid for 11 years of college and four degrees, including computer engineering, business management, and finance.
Novellus’ platform, EnrichHer, helps women entrepreneurs generating annual sales of at least $50,000 raise debt via Regulation Crowdfunding. Reg CF, also known as Title III of the JOBS Act, was approved on May 16, 2016. It allows small businesses and startups to raise up to $1.07 million. With Reg CF, entrepreneurs raise money not just from the eight million accredited investors (wealthy people) but from 240 million average Janes and Joes.
This method is gaining in popularity among both entrepreneurs and investors, according to Amy Cortese, an expert in crowdfunding. Since 2016, more than 1,688 Reg CF campaigns have launched — with 778 of those taking place in the last 12 months — raising nearly $250 million from nearly 220,000 investors, according to Crowdfund Capital Advisors. Naysayers feared there would be a lot fraud surrounding this type of financing. To date, there has been none.
Most Reg CF platforms help entrepreneurs raise equity financing. EnrichHer specifically helps women raise debt. It launched in February 2019 and has already lent $2 million. “We received 2,000 applications,” said Novellus. EnrichHer has a database of Main Street investors, wealthy people, and institutions that will fund your company. However, before investors who don’t know you provide funding, the entrepreneur needs to demonstrate that her network supports her by raising some money from them, advises Novellus.
EnrichHer’s first loan was to a $1.2 million IT company, LilliRNB, which was rejected by banks. More than a third — 34%, of companies generating $1- $15 million in revenue — were rejected by large banks and 21% were turned down by small banks, according to the 2018 Small Business Credit Survey. To get approval, the business owner, Barbara Jones, worked with EnrichHer to better present the strength of her company through a cash flow analysis.
While most EnrichHer borrowers have service businesses, some are scaling tech businesses. Melissa Hanna of Mahmee, a maternal and infant health tech company, needed a bridge loan while waiting for due diligence to be conducted on a $3 million equity financing round. Investors included celebrities, Serena Williams and Mark Cuban. The round was led by Arlan Hamilton’s ArlanWasHere Investments fund, with support from Revolution’s Rise of the Rest Seed Fund.
For Novellus, the most significant two challenges have been getting the word out about EnrichHer to women entrepreneurs and funders, and assuring people that the platform is safe. In terms of getting the word out, she is in talks with banks to establish referral partnerships and has formed a partnership with Lendistry, a Community Development Financial Institution (CDFI) based in California. CDFIs are nonprofits that lend to underrepresented entrepreneurs who have a hard time getting bank loans. Novellus also has a long history of working with supporting organizations. She reached out to 100. An overwhelming 64 have responded.
The company also plans to educate and inspire through events. It recently did events in Atlanta and Houston. In the coming months, it will roll out events to cities such as Charlotte, Chattanooga, Los Angeles, Memphis, Miami, New Orleans, Philadelphia, and San Diego. These events don’t just build awareness; they build trust in the Novellus platform and team among entrepreneurs and funders.
Feedback from entrepreneurs is that the application needed to be simplified, so it is less burdensome to complete. EnrichHer is working to streamline the application from the entrepreneur’s perspective, while still providing the depth of information it needs to make good decisions on who is allowed to raise money on the platform.
EnrichHer also needed to raise money to build out its platform. Recently, it raised money from the JumpFund, a venture capital fund that invests in female founders from the Southeast. “Our team has known Roshawnna for several years. We’ve followed her impressive progress from having an initial concept through to a successful product launch,” said Kim Seals, general partner of The JumpFund. “Roshwanna and the EnrichHER team have built an impressive company that we believe will be a disrupting force in the financial services industry. And we love the alignment of the purpose behind EnrichHER with our JumpFund mission of getting more capital in the hands of female business creators.”
This past Sunday Novellus won the Stella Labs’ Women’s Fast Pitch at the Women’s Venture Summit in San Diego. Two weeks ago she won SoGal’s Regional Pitch Competition in Charlotte.
One reason for the success to date is that there is growing recognition of the underfunding of women entrepreneurs and that a one-size-fits-all approach won’t work.
What financing options will you use to finance your business?