Editor’s Note: This article is the last in a three-part series on scaling up women-owned businesses. Part 1 covered using cash, and part 2 covered debt.

Left to right: Felena Hanson of Hera Hub, Lucy Postins of The Honest Kitchen, Kimberly Crupi Dobbins of Simple Squares
Left to right: Felena Hanson of Hera Hub, Lucy Postins of The Honest Kitchen, Kimberly Crupi Dobbins of Simple Squares. All three women secured equity funding that was just right for their business.

Scaling Up logo w- yellow caseKimberly Crupi Dobbins recruited two knowledgeable but silent angel investors. Felena Hanson brought in an investor and partner who would play a key role in her operation. Lucy Postins sold minority stakes to established, expert investors who would protect her sustainability values.

Securing equity investment while female can seem daunting, but these three women and many more are doing it. And with careful thought, research and determination, they’re finding the equity investors and setting the terms that are right for them and their growing businesses.

Most entrepreneurs use personal savings and reinvest business profits to expand. But a truly ambitious plan to scale up usually requires tapping outside capital. For most, that means getting a loan, according to the U.S. Small Business Administration (SBA). However, about 2 percent of business financing comes from angel investors and venture capitalists. These investors provide what can be sizable sums of money to entrepreneurs looking to seize opportunity in competitive, fast-moving industries, and sometimes supply expert advice and connections too. In exchange, they get a share of ownership and future profits.

Women, though, are quite scarce in the elite equity world. Only one woman raises equity financing for every nine men, according to the National Women’s Business Council (NWBC), and women-owned businesses receive just 2 percent of all equity dollars, while men-owned businesses receive 18 percent (equally owned and public companies get the the rest). One reason: Few women are in leadership roles at investment firms — in 2014 only 6 percent of their top management was female.

It can be a challenge to be the only woman in the room in equity negotiations, said Kim Wales, the founder and CEO of New York management consulting firm Wales Capital, at a recent NWBC public meeting. And women often hold back. “We scale back the vision, we scale back the dollar amount that we’re asking for when we’re raising the capital,” she says. “We should have the biggest idea at the table… We should be very confident in our ability to succeed. We should be asking for the capital up front to really make our visions come live.”

The Equity Decision
To make big visions come true, business owners often look to investors for money, expertise and connections to aid the growth effort. The game, generally, is to maximize these benefits, while retaining as much company ownership and control as possible.
­    Entrepreneurs usually work with two types of investors: angels, who are accredited wealthy individuals who typically provide early-stage seed money, and venture capitalists, institutions that invest in later-stage startups with the potential to become very large. The average angel investment is about $330,000, compared to $11.7 million for the average venture capital deal. (A new type of equity investing, online crowdfunding from small individual investors, began in the U.S. this past May — too recently to judge its impact.)
­    Within these two spheres, however, business owners and investors can and do strike deals of endless variety. That means owners should take the time to carefully weigh their business aspirations, financial and know-how needs, and desire for ownership and control before selecting an investor and signing on.

Silent Partners for a Food Business

Which is exactly what Crupi Dobbins did.

The founder of Simple Squares, a Chicago maker of all-natural, gluten-free, paleo-friendly snackbars, bootstrapped for the first 4 years, spending about $50,000 of her own money to get the company up and running. (Learn about her startup story in our 2014 video and article and 2015 podcast episode.) And Crupi Dobbins was making waves in this fast-growing market, tripling snackbar sales each year by selling to Whole Foods stores and natural food markets.

But by mid 2014, she knew her production volume would soon outstrip her ability to self-fund. What she needed was outside capital to help her “to manage cash flow better, instead of being cash strapped.”

So Crupi Dobbins, who had previously worked at two financial-services firms, plunged into a research process to prepare herself to raise capital. “As much as investors are doing their homework on us, we need to do our homework on them,” she says.

She also moved out of her home office and into an incubator space in January 2015. The incubator housed technology companies mainly, and it took two tries to get accepted, she says. “They do a lot of promoting of female founders in that space,” she says. “For me it was energizing” to be back in an office environment and part of an entrepreneurial community that could teach her a few things about the investment process.

In the summer of 2015, she did a single round of fundraising and took in $1 million from two male investors — the very first people she pitched. They are silent partners but often provide advice. “One is an active mentor of mine, and the other is involved in the food and beverage space,” she says. “They always talk about ‘smart money’ and bringing in people who are going to help build your business, and I feel like I have that with both investors.”

Simple Squares was able to expand into more Whole Foods stores and to smaller grocery chains, which sell its boxes of 12 bars in eight flavors for about $30. It has sold about 1.5 million bars during the last 12 months, compared to 450,000 in 2013.

Now Crupi Dobbins is beginning to expand distribution internationally, and she’s eying a big move into conventional grocery stores. “The plan is to stay true to the brand and grow so that we are available to the masses and not just to organic, natural consumers,” she says.

An Equity Partner Adds Scope

Felena Hanson has big expansion plans, too. She operates a female-focused coworking-space business, Hera Hub, that is a vehicle for reaching her ultimate goal of helping 20,000 women entrepreneurs launch and grow businesses. This non-monetary objective was born from a “life-is-short” realization and search for purpose after surviving a near fatal car crash (see our December 2013 article and video). 

Felena Hanson teamed with a female angel to grow Hera Hub.

To start Hera Hub, Hanson used what was left of her life savings following the 2008 market crash and a loan from her father to invest a total of about $90,000 in a 5,000 square-foot-space in San Diego. It was the first of three Hera Hub spaces that she opened in that city, serene spa-like environments whose members generate close to $1 million a year in revenue.

To fund building the third location and the creation of the systems and business model to scale up further, Hanson found an angel investor serendipitously from her own community. Silvia Mah, a marine biology PhD with an MBA who was leading some of the entrepreneurship programming at Hera Hub, offered herself up after seeing Hanson’s financial projections. Though Hanson declined to provide details of Mah’s January 2013 investment, she says she retains majority ownership.

“I feel very fortunate that she’s not just an angel investor, she’s a partner in my business,” says Hanson. “It’s really a match made in heaven.”

Mah sits on Hera Hubs advisory board and leads sister organizations Hera Labs, a 2-year-old nonprofit accelerator program for women entrepreneurs that has received grant money from the SBA, technology company Qualcomm and the City of San Diego, and Hera Fund, a one-year-old fund for female angels who want to invest in female founders. The fund also organizes the Hera Venture Summit conference series.

To reach more women, Hanson intends to expand Hera Hub nationally and internationally. She won’t need additional investor dollars, she says, because she won’t be taking on more real estate. Instead, she plans to license her concept to other business owners.

Originally, Hanson planned to expand through franchising. But after collecting about 70 leads over two years and inking only one deal, she decided to pivot. The legalities of the application process were onerous and a turn-off for prospects, she says. “It’s like it’s your third date, and you hand someone a 300-page prenup.” Some had negative ideas about franchises — for instance that franchisees ultimately get poor support from franchisors — and associated the concept with chains like McDonald’s. “It didn’t fit the culture of community and supporting women” that’s central to Hera Hub’s brand, she says.

Her new licensing approach, a looser partnership with a lower fee, has generated immediate interest, Hanson says. She is in the final stages of the process with candidates in Baltimore, Phoenix and Central Valley, Calif., and has a candidate in Atlanta. But her first licensor will be in Stockholm, Sweden.

“My goal is to impact women ultimately all over the world,” Hanson says, and she believes licensing will get her there. “I feel confident that we’ll get to that [20,000] number in the next 4 years.”

Long-Term Investors, Advisors and Mission Protectors

Lucy Postins, the founder of The Honest Kitchen, a $40 million San Diego maker of organic pet food, also teamed up with investors who were onboard with her mission.

Postins sources “human-grade” ingredients for her dog and cat food directly from vegetable and meat farms around the world (except China) that, like her, are committed to environmental sustainability. All of The Honest Kitchen’s chicken is free-range, supplied from Petaluma Poultry and Crystal Lake Farms. Its quinoa is fair trade and supports micro-farmers in Bolivia. Some of the farms Postins works with now grow for her and her alone.

Lucy Postins

Arrangements like these are vital for The Honest Kitchen, which expects to sell 7 million pounds of pet food in 2016 through about 4,000 pet specialty shops and small and medium chain stores and via its website, Amazon and Chewy.com. Building a supply chain of both quality and the size to support that kind of volume has taken both commitment and money — something Postins says she could not have done without the right financial backers.

“The first and most important thing is to have an investor aligned with your vision and values,” she says. Postins found those backers in White Road Investments, a fund started by the owners of Clif Bar, Gary Erickson and Kit Crawford, and Alliance Consumer Growth, a private equity firm in New York. They have proved loyal investors — stepping up for a first investment round in 2011 and a second a few years later. Postins declines to disclose the terms.

Postins says she delayed fundraising as long as she could. She started The Honest Kitchen in 2002 with a $7,000 loan from her husband Charlie and sold exclusively online. (Learn more about her startup story here and listen to our podcast episode.) As her products took off, the couple remortgaged their house and took out a credit line to keep up. That was stressful, Postins says, but it has allowed them to retain majority ownership.

The Honest Kitchen’s investors are not involved in the business day-to-day, she says, but when she’s facing a major challenge they are there for her. For instance, when the giant chain Petco wanted to bring in her products, they joined her for day-long strategy sessions to weigh the pros and cons and potential ramifications. They didn’t push her to accept, and ultimately she declined.

“They are long-term partners for us and wanted to see us grow in a steady manageable way” that wouldn’t overstress the company’s supply chain, erode its culture or undermine its values. The Honest Kitchen has 49 employees and 16 to 17 office dogs.

While the company has bank lines of credit for working capital, the cash infusion enabled better cash flow management and big investments in a retailer-focused sales team and creative marketing efforts, she says. For instance, Postins has a book coming out on Oct. 10 called “Dog Obsessed,” which she describes as “a lifestyle guide for people who love their dogs as much as their family — or more in some cases.” It serves up 49 recipes, each with a wine pairing for the human’s portion.