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[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]

FIELD HEARING IN PASADENA, CA: BRIDGING THE GAP - INCREASING ACCESS TO 
                  VENTURE CAPITAL FOR SMALL BUSINESSES

=======================================================================

                                HEARING

                               before the

        SUBCOMMITTEE ON ECONOMIC GROWTH, TAX AND CAPITAL ACCESS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             APRIL 5, 2016

                               __________

                             
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                           

            Small Business Committee Document Number 114-052
              Available via the GPO Website: www.fdsys.gov
                                      ______

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99-716                         WASHINGTON : 2016 
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                         CHRIS GIBSON, New York
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        CARLOS CURBELO, Florida
                         CRESENT HARDY, Nevada
               NYDIA VELAZQUEZ, New York, Ranking Member
                         YVETTE CLARK, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                       BRENDA LAWRENCE, Michigan
                       ALMA ADAMS, North Carolina
                      SETH MOULTON, Massachusetts
                           MARK TAKAI, Hawaii

                   Kevin Fitzpatrick, Staff Director
             Emily Murphy, Deputy Staff Director for Policy
                       Jan Oliver, Chief Counsel
                  Michael Day, Minority Staff Director
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Steve Knight................................................     1
Hon. Judy Chu....................................................     2

                               WITNESSES

Ms. Jeri J. Harman, Managing Partner & CEO, Avante Mezzanine 
  Partners, Los Angeles, CA, testifying on behalf of the Small 
  Business Investor Alliance.....................................     4
Ms. Renee LaBran, General Partner, Rustic Canyon/Fontis Partners, 
  Senior Advisor, Idealab, Pasadena, CA..........................     6
Ms. Louise J. Wannier, Board Member/Advisory Services, True 
  Roses, Inc., Pasadena, CA......................................     8
Ms. Laura Yamanaka, President, teamCFO, Inc., Los Angeles, CA, 
  testifying on behalf of the National Women's Business Council..    10

                                APPENDIX

Prepared Statements:
    Ms. Jeri J. Harman, Managing Partner & CEO, Avante Mezzanine 
      Partners, Los Angeles, CA, testifying on behalf of the 
      Small Business Investor Alliance...........................    30
    Ms. Renee LaBran, General Partner, Rustic Canyon/Fontis 
      Partners, Senior Advisor, Idealab, Pasadena, CA............    37
    Ms. Louise J. Wannier, Board Member/Advisory Services, True 
      Roses, Inc., Pasadena, CA..................................    40
    Ms. Laura Yamanaka, President, teamCFO, Inc., Los Angeles, 
      CA, testifying on behalf of the National Women's Business 
      Council....................................................    47
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.
 
   BRIDGING THE GAP - INCREASING ACCESS TO VENTURE CAPITAL FOR SMALL 
                              BUSINESSES.

                              ----------                              

                         TUESDAY, APRIL 5, 2016

                  House of Representatives,
               Committee on Small Business,
                   Subcommittee on Economic Growth,
                                    Tax and Capital Access,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, 10:03 a.m., at 
Pasadena City Hall, 100 Garfield Avenue, Pasadena, California, 
Hon. Steve Knight, presiding.
    Present: Representatives Knight and Chu.
    Mr. KNIGHT. Good morning. This hearing will come to order.
    Before we begin, I would like to sincerely thank our 
Ranking Member, Ms. Chu, for inviting me to be here with her 
today. She is an active participant in the Committee, she has 
been a staunch advocate for small business' concerns at every 
turn, and she works together with all our members in a 
bipartisan fashion. Again, thank you, Ms. Chu, for inviting me 
here to your district today.
    I would also to thank each of our witnesses for taking time 
out of their busy schedules to be in our Subcommittee hearing 
this morning. I realize each of you are very busy and I 
appreciate your willingness to take time out of your schedules 
and appear before this Subcommittee to talk about increasing 
small companies' access to venture capital.
    Small businesses are essential to America's economic 
competitiveness. Not only do they employ half of the Nation's 
private sector workforce, they also create two-thirds of new 
net jobs in our country. Yet in recent years, small businesses 
have been slower to recover from the recession and credit 
crisis, hitting them especially hard.
    Starting a business can present challenges for all 
entrepreneurs, and many cite a lack of funding as a primary 
obstacle they face throughout their business life cycle. Unlike 
large enterprises that can obtain funds from commercial debt 
and equity markets, small businesses must often rely on their 
own personal assets, retained earnings, community banks, and 
credit unions for needed capital.
    There is a clearer correlation to a small business owner's 
ability to hire and his or her ability to get financing. When 
small businesses can access adequate financing, they create 
jobs and spur the economy.
    The financing needs of small businesses are as varied as 
the population itself. The life cycle of a small business can 
take many forms with very different implications for the types 
of risks and rewards that lenders and investors can expect. For 
new ventures that have high-risk profiles and high expected 
returns, the initial stages require commitments of equity 
capital sometimes from family and friends, and sometimes in the 
form of venture or private equity capital.
    Data from the National Venture Capital Association has 
shown that venture capital funding has been on the rise for the 
past 5 years, but unfortunately has yet to reach pre-recession 
levels and continues to be difficult to obtain for small firms. 
Improvements are always welcome, and we can always do better.
    Today we have an excellent panel of experts to discuss 
options to increase access to venture capital for small firms, 
particularly at those small companies that have had lower 
levels of venture funding participation. I am looking forward 
to listening to the discussion, and, again, I want to thank 
each of our witnesses for taking time to be here today.
    I now yield to our ranking member, Ms. Chu, for her opening 
statement.
    Ms. CHU. I would like to thank Congress Member Knight for 
coming here and chairing this meeting. It is a special 
privilege for me to be able to have a field hearing, and 
especially on such an important topic. But it would not be 
possible unless Congressman Knight were here to chair this 
meeting. So I really appreciate the fact that you have taken 
time out of your schedule to be here.
    There is no doubt that women-owned small businesses are an 
undeniable force in today's economy. Over 9.8 million women-
owned businesses, employing 8.4 million people, generate $1.4 
trillion in annual earnings. Here in California, over 37 
percent of businesses are women owned, the most of any State in 
the country. These female entrepreneurs employ over 1 million 
Californians and generate $200 billion in receipts.
    Since the beginning of the recession, women have outpaced 
men in business creation. From 2007 to 2012, the number of 
women-owned businesses grew 28 percent versus just 8 percent 
for male-owned firms. However, many of these women-owned 
businesses still face one key obstacle to success: access to 
capital.
    A Kauffman Foundation study found that 72 percent of women 
entrepreneurs listed access to capital as their most critical 
challenge to launching a new business. The Federal Reserve 
found that compared to men, women-owned businesses rely more on 
personal credit cards, their own savings, and capital provided 
by friends and family to finance their businesses. Moreover, 
traditional debt financing, like bank loans, does not work for 
certain businesses like startups that typically lack revenue 
streams and credit history, making them too high risk for 
traditional bank lending.
    For these entrepreneurs, there are three forms of equity 
investment that typically target new and early stage firms: 
angel investing, venture capital, and regulated investment 
funds, like small business investment companies, or what we 
call SBICs. Angel investing generally refers to high net worth 
individuals who invest in and support startup companies in 
their early stages of growth. In addition to angel networks, 
women-led businesses can seek venture capital. Because it is 
equitable in nature, VC is most attractive for new companies 
with limited operating history that are too small to raise 
capital in the public markets, and too undeveloped to secure a 
bank loan.
    Beyond the purely private market, the Small Business 
Investment Company Program, SBIC, which is operated by the 
Small Business Administration, was created to inject 
government-backed capital into the market and spur additional 
investing. By the end of last year, the program had over $25 
billion dedicated to small businesses.
    Unfortunately this need for early stage startup capital, 
especially for women-led small businesses, is going largely 
unmet by the private market and SBA's existing investment 
programs. Babson College's Diana Project found out while women 
entrepreneurs have made considerable progress in obtaining 
venture capital since 1999, a wide gender gap exists.
    They found that businesses that have all male teams are 
more than 4 times as likely as companies with even one woman on 
the team to receive funding from venture capital investors. 
More concerning was that companies that had a woman CEO only 
received a total of 3 percent of investments. This disparity 
exists despite the finding that businesses with a woman on the 
executive team are more likely to have higher valuations at 
both first and last stage of funding.
    Furthermore, Babson researchers found that women venture 
capitalists are more likely to invest in women-owned 
businesses. Unfortunately the total number of women partners in 
venture capital firms has declined significantly since 1999, 
dropping down 6 percent from a high of 10 percent. I hope 
today's hearing will shed some light on the lack of women in 
venture capital.
    On a positive note, SBICs made 280 investments in women-
owned firms totaling $394.6 million over the past 5 years. More 
importantly, there has been a significant increase in such 
investments over the past 2 years. The number of investments 
has doubled, and dollars increased fourfold. Unfortunately, 
these investments in women-owned firms still only represent 
approximately 3 percent of the overall activity of the SBIC 
industry.
    Today's hearing will examine the challenges faced by female 
entrepreneurs looking to obtain venture capital. Although 
woman-owned firms have made significant gains since the 
recession, these statistics show that they still lack 
comparable access to capital compared to their male-owned 
competitors. We will also explore ways to increase both access 
to investment style capital funding for women-led firms and the 
number of women investors.
    I want to thank the chairman for traveling here today and 
to conduct this important hearing, and I look forward to 
hearing from today's witnesses. Thank you, and I yield back.
    Mr. KNIGHT. Thank you very much. We've got 5 minutes for 
each witness. We will not cut you off, but please be mindful of 
the 5 minutes, and we will be as good as we can with you. But 
we want to hear from everyone and make sure that we get enough 
time for questions and answers.
    I am going to have Congresswoman Chu introduce our 
witnesses, and we will get this hearing going.
    Ms. CHU. Okay. It is my pleasure to introduce four 
exceptional witnesses today. Jeri Harman is a managing partner 
and CEO of Avante Mezzanine Partners, one of the only majority 
women-led and owned private equity funds in the country. She 
has over 30 years of financing experience, and is also the 
chair-elect of the Board of Governors of the Small Business 
Investor Alliance.
    Jeri was inducted into the National Association of Women 
Business Owners Hall of Fame in 2013, and Mergers and 
Acquisitions Magazine named Jeri one of the top 25 female 
professionals in 2015. Jeri is testifying on behalf of SBIA. 
Ms. Harman, thank you so much for joining us today.
    Now if you can do your testimony.

 STATEMENTS OF JERI J. HARMAN, MANAGING PARTNER & CEO, AVANTE 
  MEZZANINE PARTNERS, LOS ANGELES, CALIFORNIA, TESTIFYING ON 
 BEHALF OF THE SMALL BUSINESS INVESTOR ALLIANCE; RENEE LABRAN, 
  GENERAL PARTNER, RUSTIC CANYON/FONTIS PARTNERS, AND SENIOR 
  ADVISOR, IDEALAB, PASADENA, CALIFORNIA; LOUISE J. WANNIER, 
  BOARD MEMBER/ADVISORY SERVICES, TRUE ROSES, INC., PASADENA, 
 CALIFORNIA; AND LAURA YAMANAKA, PRESIDENT, TEAMCFO, INC., LOS 
   ANGELES, CALIFORNIA, TESTIFYING ON BEHALF OF THE NATIONAL 
                    WOMEN'S BUSINESS COUNCIL

                  STATEMENT OF JERI J. HARMAN

    Ms. HARMAN. All right. Good morning, Congressman Knight, 
Ranking Member Chu, and members of the Subcommittee. My name is 
Jeri Harman, and I am the managing partner & CEO of Avante 
Mezzanine Partners. As Congresswoman Chu mentioned, I'm also 
the chair-elect of the Board of Governors of the SBIA, Small 
Business Investor Alliance, and I'm here on their behalf.
    SBIA is the primary voice of the lower middle market 
private equity industry, including small business investment 
companies, or small business investment companies, or SBICs. 
But let me start by telling you a little bit about my firm, 
Avante Mezzanine Partners. Avante is an SBIC firm based right 
here in Los Angeles, and we invest between $5 million and $25 
million of debt and equity in lower middle market companies.
    Avante has two SBIC funds. Our first SBIC we launched in 
2009--yes, 2009--and that was $218 million. We just raised our 
second fund last year--yay--of $250 million. We're proud to 
have invested in 20 companies across the country to date and 
look forward to continuing those investments.
    Avante is somewhat unique in the private equity industry, 
as was just mentioned, given the diverse leadership and 
ownership of our fund. 3 of the 5 investment partners at Avante 
are women. 4 of the 5 are women, minorities, or both. We're one 
of the only majority women-led and owned private equity funds 
in the Nation.
    I also feel honored to have been recognized, as was just 
mentioned, as one of the top women in private equity industry 
by such organizations as NAWBO, Los Angeles Business Journal 
right here, and Mergers and Acquisition magazine. I was even on 
their cover, which thrilled my mother.
    [Laughter.]
    Let me tell you more about my views on women in private 
equity. According to the private equity research company, 
Preqin, senior women accounted for just 10.5 percent of all 
employees in private equity firms. We clearly need to improve 
diversity in the executive ranks of private equity funds. Many 
organizations, including SBIA, are bringing focus to this 
issue.
    This increased attention, along with more senior women as 
role models, continuing changes in firms' cultures, and 
openness to flexible work arrangements, and increased access to 
capital, can make a difference. These steps can increase our 
pipeline and retention of talented women and minorities in 
private equity.
    I believe that with increases of senior representation of 
women and minorities in private equity, there will in turn be 
more access to capital for diverse entrepreneurs. This is 
important not just because it is the right thing to do. It has 
been shown that diversity generates better results, better 
returns to shareholders as well as supporting job growth.
    While there have been a number of studies that have been 
done over time and all consistent in their results, my written 
testimony mentions two recent studies that discuss gender 
diversity and corporate returns. For example, one study done 
recently by McKinsey & Company found that companies in the top 
quartile for gender diversity are 15 percent more likely to 
outperform their respective national industry medians.
    Now, with my remaining time I would like to talk a little 
bit more about the SBIC program. The SBIC program has 
facilitated record amounts of private equity into SBICs, and, 
in turn, into the small business economy. From 2012 to 2015, 
SBICs have deployed $18.4 billion to over 4,400 companies 
nationwide. These recent SBIC financings created or retained 
over 385,000 jobs.
    We've worked with this Committee and the SBA on many past 
initiatives, and we appreciate the Committee's work to improve 
SBIC operations. Thank you in particular for your work last 
year to pass the SBIC Family of Funds Limit into law. We're 
very grateful.
    As more thoroughly detailed in my written testimony, 
though, we have a few more new recommendations and appreciate 
your consideration. The first initiative would expand access to 
capital for SBICs, and if we have more capital we can put more 
capital into these needy small businesses. Banks are a major 
source of capital for SBICs, and many of these banks would like 
to increase their amount of investment in SBICs. Many are 
precluded from doing so, however, by the SBIC Act, even though 
otherwise permitted by their banking regulators. The SBIA is 
working on a legislative solution, and we ask you to consider 
supporting this initiative.
    We would also ask the Committee to consider technology 
updates at the SBA. The SBIC industry is interested in virtual 
data rooms which can be paid for by the private sector. This 
can help us better communicate and send reports to the SBA 
providing an efficiency not only to the SBA, but also to SBICs.
    Finally we have several suggestions, as further detailed in 
my written testimony, related to timely SBA data releases, 
which are helpful for both the industry and Congress and 
further needed improvements in SBIC licensing and operations.
    I am grateful to be a part of the SBIC program. I'm excited 
by the impact that it has had on capital access for small and 
middle market businesses, including women and minority 
entrepreneurs. The SBIA looks forward to working with this 
Committee.
    Thank you again for inviting me to testify, and I look 
forward to questions.
    [Applause.]
    Ms. CHU. Now I would like to introduce Renee LaBran, who is 
general partner at Rustic Canyon/Fontis Partners, a growth 
stage investment fund based in my district.
    Renee has over 25 years of experience in corporate and 
small company settings, and is in a range of industries that 
include internet, digital media, and technology, and consumer 
products. She is a senior advisor at Idealab, a local incubator 
based in downtown Pasadena, where she advises entrepreneurs on 
how to achieve their objectives.
    Renee was appointed by Governor Jerry Brown to the Board of 
Trustees for the California State Bar in 2015.
    Welcome, Ms. LaBran.
    [Applause.]

                   STATEMENT OF RENEE LABRAN

    Ms. LABRAN. Good morning, Chairman Knight and Ranking 
Member Chu. My name is Renee LaBran. I've worked in venture 
capital since 2000 when I helped start a venture capital fund 
called Rustic Canyon Partners, which was funded by the 
controlling shareholders of the company that I worked for at 
the time. In 2006, I helped Rustic Canyon spin out another fund 
called Rustic Canyon/Fontis Partners, which focused on 
underserved markets. That fund is now in its final stage, and 
we're harvesting those investments.
    In addition to winding up the portfolio of Rustic Canyon/
Fontis, I currently serve as an advisor to Idealab, a tech 
incubator that just celebrated its 20th anniversary. I also co-
founded a startup competition for female entrepreneurs that's 
now entering its 4th year. I'm personally a small angel 
investor in several women-founded companies. All that said, I 
have a pretty good firsthand look at the challenges faced by 
women entrepreneurs as well as women in venture capital.
    When I started in venture, there were a handful of women. 
Industry social events typically involved golf and cigars. I 
can only think of a few women who came to pitch companies to 
us. I'm pleased to say that things have gotten a little better, 
and I'm amazed at the number of women-focused events that have 
sprung up in the last few years.
    But the statistics are still quite dismal. I'm sure many of 
you have read the Diana Project report that Congresswoman Chu 
also mentioned. It's tracked the women in venture capital and 
both sides of the table since 1999. For those of you haven't 
read it, here's a few key statistics. In 2011 to 2013, 15 
percent of companies that received venture capital had a woman 
on the executive team, up from 5 percent in 1999. Great news, 
but still very small. Not as small as the percentage of 
companies that receive venture capital with women CEO, which 
was the 2.7 percent that was mentioned earlier.
    Further, companies that had a woman on the executive team 
also tended to be at a later stage compared to the overall 
profile of companies receiving venture capital, leaving one to 
wonder where these companies found their capital in the first 
place. These are just the problems on the entrepreneur side.
    On the venture side, the problem is even more severe. The 
number of women partners in venture capital fell from 10 
percent to 6 percent between 1999 and 2013. This is 
particularly problematic because VC firms with women partner 
are 2 times as likely to invest in a company with a woman on 
the executive team, and three times as likely to invest in a 
company with a woman CEO. The reasons for this should be 
obvious, but just in case they're not, let me elaborate.
    Entrepreneurs find venture capitals through their own 
networks; thus, venture capitalists invest in entrepreneurs who 
tend to run in their own circles and are much more like 
themselves. The proverbial old boy network prevails. When women 
do come to pitch, they find themselves facing a table of male 
partners who are more comfortable themselves meeting with other 
men who look like they look. There's plenty of other evidence 
in the press today about how women are often judged in ways 
that men are not.
    It's even more difficult for women entrepreneurs to find 
seed investment since the vast majority of seed investors are 
men, and successful angels tend to invest in entrepreneurs they 
already know. When women do break into the VC side, they also 
face challenges. Many firms who have a woman partner have just 
one or maybe two, which is often an uncomfortable position to 
be in.
    The shortfall on the VC side is the flip side of the 
entrepreneur coin. Men who have access to capital to start a 
fund often start them with close colleagues out of their own 
network. Successful entrepreneurs who have large exits often 
join VC funds, but there are fewer women at the top of firms to 
become successful or companies to become successful in the 
first place and achieve such exits. So breaking in is very 
difficult for women.
    Some women have chosen to start their own funds, but often 
struggle to raise capital since most funds have to be raised 
from individuals, and, once again, the network effect comes 
into play. What I'm describing here is a vicious circle rather 
than a virtuous cycle.
    The Diana Report urges VC firms to take corrective actions. 
However, despite the evidence that this might improve returns, 
I don't think we're likely to see those changes soon. If we're 
truly an economy that relies on innovation and entrepreneurship 
as our growth engine, we need to find ways to include the half 
of the population that's missing out. By the way, we're talking 
about women here, but male entrepreneurs of color face these 
same barriers.
    Over the years there have been various programs for 
emerging managers that provided access to capital for first-
time funds formed by women and minorities. However, these 
programs seem to be cyclical and have diminished rather than 
increased. Government is also in a position to provide 
incentives to potential limited partners to provide capital 
either directly or through funds that are more likely to deploy 
capital to those who currently lack access. Without incentives 
or nudges, I believe it will take far too long for these 
problems to self-correct, if ever.
    These are just some of the issues facing both women 
entrepreneurs seeking venture capital funding and women seeking 
a career in the industry. There's so much more I could tell 
you, and I'm happy to answer any questions you may have today.
    I appreciate the opportunity to testify. Thank you.
    [Applause.]
    Ms. CHU. Well, thank you so much, Ms. LaBran.
    And now, I would like to introduce a constituent of mine, 
Louise Wannier. Louise is a serial entrepreneur that has 
chaired boards of directors and, as CEO, built companies in 
four different industries, including education technology, 
consumer electronics, information management software, and 
fashion e-commerce.
    Among her many endeavors, in 2006, Ms. Wannier founded 
MyShape, the first online personal shopping platform. MyShape 
grew to over 800,000 members and partnered with over 200 
fashion brands. It was financed with $27 million from venture 
capital firms.
    Ms. Wannier, thank you for being here today.

                 STATEMENT OF LOUISE J. WANNIER

    Ms. WANNIER. Thank you very much. Chairman Knight, and 
Ranking Member Chu, and members of the Subcommittee, and the 
public who's here today, thank you very much for the 
opportunity.
    Thank you for the opportunity to share my thoughts with the 
House Small Business Committee today. I also would like to 
thank Andy Wilson, our local Pasadena City councilman, and Amy 
Millman, who's president of Springboard Enterprises, who works 
and has devoted her career to helping women to receive venture 
financing.
    I've long pondered why it is so easy for my male CEO 
colleagues to, from my perspective, have a much easier time 
raising sufficient capital for their ventures. I've often felt 
that, and I suppose maybe every entrepreneur feels this way, 
but I had a disproportionately difficult time raising capital 
for the business plans I presented. I had to have more meetings 
with more venture firms, and in the past I have failed twice to 
raise sufficient capital for two ventures. Coincidentally, they 
were following the difficult economic downturns in 2000 and 
2008.
    I'm summarizing part of my testimony because it's slightly 
longer than the time allotted, but you can read the full 
details in the printed testimony. Each of those two companies 
have products that were already well received in the market. In 
MyShape's case, the 800,000 members already. In the prior case, 
they had thousands of different companies using the product.
    Of course there are many, many reasons why ventures are 
unable to raise capital, and it would take deeper study. But 
the facts are that at the same time that I was unable to raise 
follow-on capital for those two companies, even after meeting 
with many different firms, ventures that, in my opinion, were 
comparable or less comparable, less deserving of capital, 
raised many millions of dollars of capital in the same 
timeframe. I'm sure this was not simply due to the difference 
between men and women. I'm sure it was also due to other 
differences. But I do feel it was a factor.
    So this request to testify today gave me a fresh 
opportunity to reflect on this question: why do women have a 
harder time raising venture capital? Is it simply the network 
effect as we've just heard, or, if not, why not?
    For my undergraduate studies, I went to Cal Tech here in 
Pasadena. I graduated in 1978 with a degree in astronomy, 
following that, an MBA at UCLA in 1980. For the first 6 years I 
worked in management consulting in the Los Angeles office of 
Ernst doing strategic M&A studies, doing financial feasibility 
studies, and working with corporations across diverse 
industries.
    Following those years, I temporarily relocated to Sweden, 
and what was interesting is that I accidentally became an 
entrepreneur because the men there gave a young woman from 
America, who was only 30 at the time, an opportunity to build 
and finance my building a new company working in a very 
interesting area. From that experience, I returned with my 
family to the United States, and fortunately became one of the 
six principle founders of Gemstar Development Corporation, and 
I personally was instrumental in developing and executing the 
go to market strategy that resulted in VCR Plus becomimg one of 
the most successful consumer electronic products worldwide.
    Congressman Chu, thank you. You've already summarized what 
I've done in my career. But I think that background and from my 
early background and training in the scientific method, I made 
a hypothesis. I reflected on what has happened and came to this 
conclusion. The data, as we've already heard, tells us that a 
higher proportion of women-founded businesses succeed than do 
those started by men. Yet women are underrepresented 
significantly in the proportion of venture capital financing. 
Only under 3 percent of women CEOs represent the VC funding.
    That's not just the proportion of venture capital 
financings in number, but also in total dollars invested over 
the lifetime of a venture. A higher proportion of women-founded 
businesses succeed. They have tenacity. They persevere by 
bootstrapping using personal financing, friends and family, 
credit card debt, all other non-professional venture capital 
methods. Therefore, unfortunately, they result in lower growth 
companies, which in turn are less attractive to the larger 
venture capitalists over the longer term than do the businesses 
founded by male entrepreneurs who tend to raise and risk larger 
sums of capital on average per venture.
    Number three, there's a venture capital seed and A-round 
gap between what can be raised through friends and families and 
what can be raised through professional venture capitalists. 
The trend affects both male and female entrepreneurs. The 
venture capitalists have been amassing larger and larger funds 
which has correspondingly resulted in a proportionately 
significant increase in the average amount that they need to 
invest, and that raised per series in any one venture round.
    I think it's partly or simply because any one venture 
partner cannot sensibly, fiscally, responsibly manage 
simultaneously more than a certain number of investments. They 
have to put a larger portion of assets to work at any time. 
This pushes the professional VCs towards higher and higher 
risk, and this criteria does not tend to be the type of venture 
that women entrepreneurs more often gravitate towards.
    There is a venture capital gap for first-time 
entrepreneurs, because of the network effect. Entrepreneurs who 
do not have a prior successful exit as a track record--in my 
case I did with Gemstar--have an almost impossible time raising 
venture capital. Most venture capitalists and most venture 
capital is invested in entrepreneurs who already have had 
successful exits.
    I have some other remarks, which are stated here. I do see, 
however, one bit of positive news here. Women are natural 
collaborators and naturally social. Women have taken advantage 
of the recent trend in social media, and there is a recent 
article in Forbes and other places which has pointed to the 
fact that social media has now become a strong enabler of 
facilitating women's ability to raise funds. We're starting to 
see potentially some shifts in this trend.
    This is a brief summary. I recommend a further study be 
made. I thank you very much for the opportunity to be of 
service.
    [Applause.]
    Ms. CHU. Thank you, Ms. Wannier. Thank you for your 
testimony.
    Now I would like to introduce Laura Yamanaka, president of 
teamCFO, Inc. Since its inception, teamCFO has received several 
regional and national awards, including the Asian Business 
Leadership Award by Wells Fargo, and the U.S. Asian Pacific 
Chamber of Commerce, and the Women in Business and Accountant 
Advocate Award by the SBA.
    Laura has also been featured in news and radio sources on 
the subject of small business and finance, including the Los 
Angeles Business Journal and the Los Angeles Times. Laura is 
currently chair of NAWBO, the National Association of Women 
Business Owners, where she has also served as treasurer and is 
past president of the organization. She is here today on behalf 
of the National Women's Business Council.
    Ms. Yamanaka, we are so happy to have you here today.

                  STATEMENT OF LAURA YAMANAKA

    Ms. YAMANAKA. Thank you very much. Thank you very much, 
Congressman Knight, and Ranking Member Judy Chu, and 
distinguished members of the Subcommittee, for inviting me to 
speak on behalf of the National Women's Business Council.
    I'm going to give you a brief background on myself. I think 
it's wonderful that you've established this panel of witnesses 
because I think you're getting a broad cross-section. In my 
business, we outsource CFOs, so we actually work with the 
businesses who are hopefully attempting to get funding and move 
through the next levels of funding. So it's been very 
interesting for me to see actually half of my testimony here, 
which you will see. I'm not going to read through it because 
everybody has covered it quite admirably. Since I'm a numbers 
person, I have a lot more numbers behind it, so in case you 
need it, look at it here.
    I am speaking on behalf of the National Women's Business 
Council, and it is a non-partisan Federal advisory council 
created to serve as an independent source of advice to the 
United States Small Business Administration, Congress, and the 
White House on issues of impact and importance to women 
business owners, leaders, and entrepreneurs.
    Interestingly enough, it was created by the Women's 
Business Ownership Act of 1988, which for the first time 
allowed a woman to have a business loan without a male co-
signer. 1988 isn't that long ago frankly, and so, we don't even 
think about it right now. But when you look and hear of all the 
stats that are presented, we have made a lot of progress on the 
positive side with a long way to go.
    Let me see. I'm going to pass through this.
    Women's access to capital is a priority for all the reasons 
that we've indicated. I think what was interesting per Council 
research, we found out that men start their businesses with 
nearly twice the amount of capital as women, $135,000 versus 
$75,000. This disparity is slightly larger among firms with 
high growth potential, $320 to $150, and it's huge among the 
top 25 firms, $1.3 million versus $210,000.
    At the lower levels we're behind, but not so behind, and as 
we get larger and larger, the gap becomes larger or greater. We 
get about 40 percent of the funding that men do at the highest 
level or at the lowest level, and men get 400 percent at the 
highest level. If the idea is that as a small business you 
grow, and multiply, and develop your businesses, but when you 
are a larger company you can do it at a much higher rate, we 
are immediately behind the eight-ball. Much more relying on the 
credit cards that, thank goodness, the other legislation put 
forward.
    Thanks to great innovation in the capital space with 
crowdfunding, peer-to-peer lending, micro financing, and more, 
women have a greater opportunity to pursue and raise capital 
that they need. I think everybody has cited the Diana Research 
Project, I think it's landmark research. It also says to me we 
need more research in this area. If this is the citing source 
for all of us, it's good, don't get me wrong. But there should 
be more. There should be better research, right? This can't be 
really one of the singular studies in place, which is why it's 
so important to fund organizations or entities like the 
National Women's Business Council.
    It was very interesting in that study. I think we didn't 
really specifically speak about it. But there was a question 
about whether women entrepreneurs were not being funded at that 
rate because they really didn't have the experience that they 
needed to get there, and this was a study that was done in 
1999. What's really interesting is you would think because of 
the pipeline effect, and as there's been more interest, more 
access, more availability, government resources, private 
resources, you would think that percentage would go up. But as 
my fellow witnesses have indicated, actually that percentage 
has been dropping. Stats are in here.
    One of the bright spots is that actually women-owned 
businesses or just women in general, own and control a huge 
amount of assets in the world and particularly in the United 
States. One of the proposals that we could put forward is a 
little bit of a focus on the fact that if we could direct, 
encourage, communicate, let people know, let women know the 
disparity in investing, if we could get some of the personal 
investments into this broader area, we could possibly even out 
or increase the funding of women in this area.
    Let me skip ahead to our recommendations. The Council is 
committed to broadening the dialogue through engagement of the 
full entrepreneurship ecosystem and the exploration of 
innovative ways to increase investment in women-owned and 
women-led businesses. In 2014, the Council conducted research 
on access to capital by high-growth women, and this research 
confirmed that men are starting businesses with significantly 
more capital. We already know that. Female ownership was 
negatively correlated to the proportion of capital coming in 
from external sources. That's also been cited. That woman-owned 
businesses exceed their own expectations regarding growth. 
That's huge.
    Basically what that's saying is two businesses, male, 
female, the guy is going to shoot for the moon, and the woman 
is going to go, hey, if I just get to the coast, I'm fine. 
She's not setting her expectation out there, which means she's 
blowing past those expectations, and which is huge when you're 
going up for external funding, right?
    We would like to suggest several remedies to this situation 
that we think that we could put forward. We would like to 
propose eliminating the carried interest loophole for venture 
capital firms. I'm not sure how we feel about this over here, 
but that is one area that we could explore so that funds who do 
not fund female-owned or female-led firms proportionately to 
male-owned or male-led firms, we could possibly use that as an 
inducement. We could introduce tax credits for investment 
income in women-owned and women-led businesses to provide 
incentive for investors to seek out woman-owned and women-led 
firms who are generally under capitalized
    We can increasingly improve the promotion of capital 
opportunities and sources to broaden and diversify the outreach 
for many women. We can strengthen the pipeline of women in 
careers in finance by specifically increasing the numbers on 
the financing and the investment side. That has been 
particularly of concern to us because that pipeline has gone 
down, even though you see more and more women going into the 
financing field. So that's of interest to us.
    We would really like to see providing entrepreneurial 
support, particularly in the form of education and membership, 
early and consistently so those positions of possibly not 
shooting for the moon and just shooting for the coast, we can--
we can stop that. If you don't go for it, you're never going to 
get there, right?
    In conclusion, as the government's only independent voice 
for women entrepreneurs, the Council's mission is twofold: to 
support and conduct groundbreaking research and provide insight 
into women-owned business enterprises from startup to success, 
and share the findings to ultimately incite constructive action 
and policies. The numbers confirm that the full economic 
participation of women and their success in business is 
critical to the continued economic recovery and job growth in 
this country. We are committed to sustaining the potential that 
women entrepreneurs represent.
    We know women have ideas. We know that they're leaders. We 
know that they're launching businesses at great lengths. We 
just have to give the opportunity for these women to scale at 
the comparable levels and remove those barriers to their 
opportunity. Thank you very much.
    [Applause.]
    Mr. KNIGHT. Thank you very much to our panel. I think we 
have got some good questions, and some exceptional information.
    I would like to start off quickly with an opening question, 
and all four of you can answer this. My wife is in, well, up to 
maybe 20 years ago, a hundred percent women business or women 
industry. It was nursing, and over the last 15 or so years we 
have seen men go into nursing.
    We sat down one night and we talked about another business 
that was maybe a hundred percent men, and in my district it is 
aerospace engineering. We figured that about 20 years ago it 
was probably pretty close to 100 percent men. Today there are 
an awful lot of ladies that are in aerospace engineering, and I 
think part of that is because of some of the programs that have 
started out.
    This is where my question is going to come from. Because of 
that phenomenon in aerospace engineering, they started off with 
a VEX program with robotics, with Legos, with all of these 
different programs that got kids involved in STEM, but also got 
our young girls to be involved in engineering. We've seen some 
of the robotics programs go from a hundred percent boys to now 
about 50/50 in most of the programs that we see across this 
State.
    That is kind of a grassroots, maybe an out of the box 
thinking of how to get young ladies involved in something that 
they probably weren't involved in or they weren't thinking of. 
I have two boys, young girls are very adept at math, and we 
want to push them into this arena if they have that aptitude.
    So there is my question. I understand that we do not have 
as many women CEOs as we would like to have. Do we have as many 
women going into certain industries, and I will pick the 
finance industry, as we need so that we can cultivate some of 
these young ladies, so that in 20 years or 25 years they are 
CEOs of businesses and they are taking over?
    Ms. HARMAN. That is a very broad question.
    Mr. KNIGHT. That is what I am all about.
    Ms. HARMAN. It is a very important question, of course. I 
think we can learn a lot from what has already been successful, 
which is STEM is a great example. I mean, there has been a 
concerted effort to make sure that young women and girls 
continue to excel at math and sciences and so forth, and 
encourage them to pursue careers there.
    But, as you have noted and I mentioned in my testimony, we 
have not seen a lot of progress in the private equity finance 
industry, and that has been continual. I mentioned the 10.5 
percent of senior women in private equity overall. You can 
subdivide that in venture capital buyouts, et cetera. It is the 
same, you know, and it has been flat and declining in general.
    I think there is no single answer on that. I think part of 
it, just like with STEM, is to reach into the educational 
system and make sure that women understand that there are great 
opportunities and power in going into financial careers, in 
particular private equity, but they have to see role models. 
They have to see women succeed, and that is why I mentioned, 
the more there are people like Renee, myself, and many others 
around us, organizations like PE WIN, Private Equity Women 
Investor Network, which I am on the steering committee, which 
is senior women in private equity, over 200 members throughout 
the U.S., and it is going global.
    Creating these networking ecosystems shows that there are 
women who can and do have success in private equity, and there 
is a career path. But it also takes an ecosystem where we are, 
showing diversity in all firms, which is a firm culture issue. 
There are a lot of women opting out who are not even in the 
pipeline because they do not see this as a viable career path 
either because there is lack of role models or because they 
view that the lifestyle, typically going to investment banking 
first and then you go into private equity from there, well, 
that is a lifestyle that involves a lot of travel, et cetera. 
That is not always attractive to women, especially as they come 
in and they decide not to stay in and go up the ranks, so it is 
really a combination of things.
    The final point on that, and we all mentioned it, is access 
to capital. If there is more obvious accessibility, to women, 
both entrepreneurs as well as fund managers like myself, where 
there are capital pockets that we know are available to us that 
are outside of the old network, and in the new network, and 
that includes public pension funds have been putting emerging 
manager programs together, some of which focus on women and 
minority managers or investors.
    We have capital from some of those pockets, but there are 
not many of those pockets, and that has not been growing. That 
would be helpful to grow as well.
    I assume you heard me.
    [Laughter.]
    Ms. CHU. We heard you loud and clear. It was a wonderful 
answer.
    Ms. LABRAN. Thank you. To add onto Jeri's comments, I think 
having more women going into STEM and some of the more 
scientific areas I think can benefit on the entrepreneurial 
side, that you have more women who are going to work for some 
of the tech companies and becoming entrepreneurs.
    However, a couple of other observations. One of the things 
that has been interesting to me about women entrepreneurs now, 
because of the ability it is much easier to start a company 
today. There are platform technologies that enable companies to 
get started from much less capital, and do not require as much 
technical expertise. You are seeing a lot of women at tech 
conferences starting businesses that are not necessarily 
software and deep technology, but are e-commerce, fashion, but 
are considered tech because of the platforms they operate on. 
So I do think those things will happen.
    I am not quite sure on the finance side, though, to be 
honest. I do not believe that the problem is that there are not 
enough women going into finance. I think if you look at 
accounting, accounting has worked very hard at getting women 
into their companies because they have a shortage of 
accountants. I think on the aerospace side, they knew they were 
growing. They needed more engineers. They had incentive which 
was if I cannot fill the jobs, I cannot grow, to hire more 
women and to increase their talent pool.
    I know the accounting firms are very focused on this right 
now because they cannot keep enough people, so they have to 
figure out how to get more people in the door and keep them. I 
do not think that is a problem in venture capital and private 
equity. There are way more people who want to get into that 
business than there are jobs.
    I get bombarded with women coming out of business school, 
and men, who want to get jobs in venture capital, but there are 
very few jobs. There are just not that many firms, and the 
people who get the jobs are people who have a connection, and 
you just get in this cycle. So if there was a shortage, then 
absolutely.
    I think this is a very efficient market. If there is a 
shortage, people will do what they are incented to do. If there 
are financial incentives, they will follow the money. But right 
now there are plenty of people applying for those jobs, plenty 
of access to very smart young people, and there are a few 
firms. I have some colleagues in venture capital here who are 
finally realizing that there are a whole bunch of companies out 
there being started by women, and that maybe if they had women 
in their own ranks that they would have broader access to a 
wider range of talent. But it requires an awakening on their 
part, which takes some time.
    So I think it can't never hurt. Everything helps. But, you 
know, that seems to me to be the bigger barrier.
    Mr. KNIGHT. Thank you very much. I am going to have Ms. Chu 
ask questions.
    [Laughter.]
    Ms. WANNIER. Are we done with that question? I thought you 
said everyone would answer.
    Ms. CHU. I am sorry. I am sorry.
    [Laughter.]
    Ms. WANNIER. I would like to----
    Mr. KNIGHT. I forgot because the microphone went over 
there. I am sorry. Yes, ma'am.
    Ms. WANNIER. No, no. Absolutely no problem, Chairman 
Knight. I probably feel quite differently to everyone else 
here. As a woman CEO for the last 30 years and as a woman 
entrepreneur, I have a slightly different perspective. I 
believe that the issue of women-run companies is the same as 
women-run businesses. It is a factor that there is not the 
society and cultural ability for women to have balance in their 
lives. For women in general, balance is more important often 
than men. Men have for many, many years been willing to 
sacrifice their families and other aspects of their lives.
    Now, what I observe, I have four grown children. I managed 
to have them at the same time, and I see it to be different in 
that generation. My kids in their relationships, the men are 
starting to take some of the balance. They are participating. 
My son-in-law is going to be on paternity leave as well as my 
daughter taking her leave when their child is born shortly. 
They seem to have a different attitude on diversity. They do 
not seem to see the differences as much as I think my 
generation sees the differences.
    The number of lawyers graduating who often become venture 
capital partners, you have to look at what makes a venture 
capital partner. They either tend to be attorneys or they tend 
to be successful business people. How do you get to be a 
venture capitalist? You do not get there from being a startup. 
I mean, yes, you could go from business school to becoming an 
associate at a venture capital firm, which is really a research 
position. But you cannot really go from there to becoming a 
lead partner without either putting in many, many years or 
going out and making a success of yourself some other way. At 
least I have not seen that.
    There is another factor. I really think that we need to 
move to a world where we are not distinguishing bias based on 
men or women, but we are actually putting in place some 
specific criteria on which investments should be made, and we 
are putting in place some independent panel review. I think 
venture capitalists would benefit from this, even though they 
might not like the idea.
    I think the venture capitalists would do better to adopt a 
system similar to what scientists use for peer review. I think 
that investments should be peer reviewed. I think that there 
are systems that could be put in place that would mean that our 
capital is more wisely deployed.
    Mr. KNIGHT. I agree.
    Ms. WANNIER. Okay.
    Mr. KNIGHT. I firmly agree that if I was putting out 
capital and it was my life savings to go into business with a 
friend, that I would have everything that you are saying in 
mind, that you better successful. You are taking everything 
that I have, and you better be successful.
    I think sometimes in venture capital, you have got a lot of 
people that have an awful lot of hold on money, and they can do 
a hundred issues as opposed to my life savings and one issue.
    Ms. WANNIER. Right.
    Mr. KNIGHT. I can take a lot of risks with friends because 
I have a relationship with them. And so, if I lose out on this 
and I lose out on this, well, hopefully, a couple of them will 
come through. I think that that is a problem.
    I firmly believe that if you are going to be involved in 
venture capital, it should be all about the risk reward factor. 
How much do they bring to the table, and what is the reward 
that might come from this? I do not care who owns it, and I do 
not care who started the business. What can I get out of this? 
But I agree that there is a lot of relationships, and a lot of 
good old boy thinking, and a lot of, well, yeah, absolutely, I 
can help you out because we have known each other for so long.
    That should not be the way it is. The way it is, is that I 
am going to be involved in this business, and I want this 
business to be successful. So what is your strategic plan? What 
are you going to do? Where are we going to be in 2 years? Where 
are we going to be in 5 years, and so on, and so forth? That 
should be it in my thinking.
    But it is not today, and that is part of what this panel is 
about is how do we get past some of those barriers, and how do 
we get to the best for the business owner, the best for the 
community, and the best for success because success brings 
opportunities. The opportunities are going to be more jobs, and 
more help for our economy, and all of those things. That is 
what we should be working toward.
    Yes, ma'am.
    Ms. YAMANAKA. So with that, I think that nobody at this 
table, these tables, would disagree with that fact that you 
need to be a solid business with a solid plan, with, you know, 
a niche market. You got to have all your marbles in order, 
absolutely.
    I think that the issue is that in this world where we live 
in right now, you are absolutely right. Am I going to invest my 
money with somebody I do not know off the street or one of my 
friends, you know, that I know I have done business with 
before? I know how hard they work. I know what kind of 
lifestyle they have, what kind of judgment they have. I do not 
care if you are a man, or a woman, or whatever, you are going 
to make that decision based on all the quantitative factors and 
the soft part of it.
    One of the pieces of research the National Women's Business 
Council has indicated, and I think some of my fellow witnesses 
here have indicated, that your contacts are important. Part of 
that start is getting people started in the beginning, women, 
minorities, whomever, starting in the process of coming 
together, having the same types of experiences so they can 
progress on that journey together.
    I think what we are finding out, and it has only been 
recent, that there are other obstacles along the way. So 
trickle up is not exactly trickling, right in my field, finance 
CPA firms. If you look at accounting classes, accounting 
majors, more than 50 percent of people coming in are women. In 
CPA firms, a lot of times your entry class is more than 50 
percent. However, we have been close enough to come to the 
cycle of partnership, and you see that women fall out at a much 
higher rate than men, perhaps, Louise, some of the reasons why 
you have indicated, perhaps other reasons.
    I think somebody had indicated it is not one facet. It is 
multiple. It is a complex problem. We need to have complex 
solutions that encourage people to start in the beginning, 
encourage that equal. It does not matter if you are male, 
female, whatever, you go for it and have those same common 
experiences.
    On the other hand, along the way, I think it is important 
to assist that leverage, okay, so that it evens it a little 
bit, not because it is, you know, the right thing to do or 
whatever, and it is the right thing to do, but because it is 
good business, as we have indicated. That diversity is so 
important. If we can get that faster through certain types of 
encouragement in the short run, we all benefit to that. I think 
it is just coming out to the exact specifics, you know, which 
is why we are all here.
    But, again, if we look at our eye on the ball and getting 
that diversity and always here, it is going to mean more money 
for everybody, more jobs for everybody.
    Mr. KNIGHT. Thank you very much. Now, I will go to Ms. Chu. 
I agree. This panel is hitting it right on the head, though. I 
have invested with three friends. I have made three tax write-
offs.
    [Laughter.]
    So, you know, instead of using my head, I used my heart, 
and I think that a lot of venture capital goes to I have got a 
relationship here. And, yes, he did something good, he did 
something bad, but I have got a relationship with that person, 
so I am going to invest with that person, instead of looking 
into the numbers and saying this is a sound investment. So 
thank you.
    Ms. CHU. Thank you so much, and I am eager to ask questions 
to all of you. I am going to ask the first half of my 
questions, and then we will do a second round of questions.
    First, I would like to ask Jeri Harman specific questions 
related to SBIC. The reason I want to focus in on this with you 
since you are an expert in this is that the SBIC program, the 
Small Business Investment Company programs, are a direct result 
of the SBA's attempt to have more investment going; thus, we, 
since the House Small Business Committee has oversight over the 
SBA, we could have some say-so in terms of what the future 
direction of SBIC is.
    What we see is that there are still too few SBIC 
investments in women-led firms and even fewer SBICs with women 
partners. While SBIC programs have a higher proportion of 
female managers than the broader VC community, more must be 
done to increase the numbers in both realms.
    So, Ms. Harman, in your opinion, what role does the SBA 
have in improving the SBIC program to better serve women? Is 
there a way to work within the SBIC program to ensure that more 
women are qualified to become fund managers when the 
opportunities become available?
    Ms. HARMAN. Yeah, I mean, clearly there is a lot more work 
to be done. There are not that many senior female women in the 
SBIC program, but I think it is changing. I think there is more 
of a focus. People are shining the light both at the SBA as 
well as the SBIA to educate people about the benefits of the 
SBIC program.
    But it still becomes an issue. In order for women to raise 
a fund like I did, you still have to get the private capital, 
the private equity capital. That is the foundation for the 
firm, and then we can use the SBA leverage for the rest of the 
capital. That is how, as you know, the SBICs are done.
    So we still have to have access to the capital to start our 
funds that is outside what the SBA provides. And that is where 
these emerging manager programs, whether they are coming from 
public pension funds, endowments, foundations, family offices, 
individual investors, et cetera, all of them are providers of 
that capital. But there has to be that network that we have all 
talked about, whether that network is women or a broader 
network, that provides the access to those types of LPs, 
limited partners, that support the total fundraising 
environment.
    We are trying in SBIA to create more of those 
opportunities. There have been women's networking events at 
each of our regional and national events, women investors as 
well as women LPs. So both the GPs and the LPs, which is that 
the key ecosystem. If we can put those people together, then 
that creates access to capital, start the funds and then, of 
course, the SBA and the SBIC program provides the leverage to 
increase the access to capital.
    I think the more the SBA focuses on supporting the SBIC 
program honestly it has been very successful in getting money 
to small businesses. Whether that is women- and minority-owned 
businesses, or LMI urban, you know, located business, veteran-
owned businesses, et cetera. We have done women-owned 
businesses, we have done LMI, located companies, et cetera.
    We all have to deliver results to our shareholders, so we 
have to find the best opportunities out there. But still, it 
all starts back to access to capital. Again, the networking and 
the shining the light on this.
    I am chair-elect of the SBIA. The vice chair is another 
woman. We have two women prior to this as senior people on the 
SBIA executive committee. We are starting to represent, but 
there is more work to be done.
    Ms. CHU. In 2014, the SBIC program experienced an uptick in 
investment in women-led firms. The number of deals doubled, and 
the dollars invested grew nearly fivefold. What are the reasons 
for this positive trend, and what can Congress do to help 
continue this trend?
    Ms. HARMAN. It is hard to say the reasons. I think there 
has been an increasing pipeline--I think Renee talked about it 
and some of my fellow panelists here--on the increasing 
pipeline of qualified entrepreneurs so there is more 
opportunities to invest in many of these women diverse managed 
firms. There has been more exposure through studies that have 
shown that investing in diversely managed companies generates 
better results, which is, just better business.
    As I said, the increased attention that has happened at the 
SBA and the SBIA, if you will, has been helpful, but I do want 
to caution. I do not think what I would call subsidies or, in 
other words, lowering any standards for qualifying for capital, 
whether it is SBICs qualifying for capital, a company is 
qualifying for capital, is the answer. There are plenty of very 
talented women and minorities who are running businesses who 
are in the private equity field.
    When we raised our funds, we did not ask people to look at 
anything except our track record, our strategy, the experience 
of our team that we could benchmark against anybody, but we 
needed the open doors to be able to tell that story. That is 
the access. That is having those emerging manager programs, you 
know, encouraging. I think the government can do more to 
encourage public funds to go into the LP side of things outside 
of the SBIC program, provide more capital as a limited partner 
to qualify emerging managers.
    Ms. CHU. There were strategic plan initiatives, like the 
SBA's Impact Investing Fund and Early Stage Initiative. The SBA 
tried to spur additional investment in underserved markets 
through this initiative. The goal was laudable, but the program 
was not particularly popular with the investor community.
    Ms. HARMAN. Right.
    Ms. CHU. How could we change these programs to make them 
more attractive to investors like yourself and better serve the 
intended beneficiaries?
    Ms. HARMAN. First, we have to recognize that all SBICs are 
doing impact investing. We have invested in women-owned 
companies. We have invested in LMI urban located, however you 
define ``impact.'' So to me, the solution really is to support 
the general SBIC program and continuing to provide education 
and money to support that program.
    It is hard because venture capital and leverage do not go 
hand-in-hand. One of the big benefits of the SBIC program is 
the low-cost leverage that it provides at the fund level for us 
to in turn make these investments. But you do not really want 
to have a lot of leverage if you are doing venture investing, 
which is a little bit earlier stage investing, because your 
mistakes are magnified.
    If you have a couple of poor performers early in the fund, 
you are done because the leverage magnifies those problems. I 
think it can be potentially a mismatch between levered SBIC 
program type capital and true venture impact, you know, funds. 
That has been part of the program, and venture investors know 
that. They do not want to increase their leverage and increase 
that risk profile, so they do not see the other benefits then 
of partnering, if you will, with the government because that 
has been the major advantage.
    Ms. CHU. Ms. LaBran, although women control over half of 
all the wealth in this country, the Diana Project found that 
the number of women in venture capital actually decreased from 
10 percent to just 6 percent as you pointed out. Are women 
leaving the venture capital industry, or does this statistic 
mask other factors that are in play?
    Ms. LABRAN. I do not think women are leaving. I actually 
tried in the report to find the actual numbers as opposed to 
just the percentages, and I could not find it because I do see 
more women now at the junior levels of venture capital firms, 
again, very small numbers.
    I speculate that what may have happened is that when we had 
the shake out in the market that the number of firms being 
formed, and I think you referred to the smaller amount of 
dollars being invested in venture, the number of firms 
contracted. Therefore, maybe the newer firms, which I would 
also speculate that probably more of the women were in newer, 
younger firms, those firms just did not get re-funded, so they 
just moved on to something else.
    I think, maybe, it was attrition of the venture capital 
firms that they were associated with, and you did not have many 
women coming in at the partner level because it does take a 
long time. Maybe they were junior at some other firms, and 
those firms, again, did not raise as much capital. 
Unfortunately, firms only hire generally when they raise a new 
fund. So people call you all the time and say, hey, I am 
looking for a job, and, it is great, we will be hiring in 5 
years when we raise the next fund or 3 years.
    So it is very difficult just to increase the numbers 
because of the length of time unless you have new funds being 
formed.
    Ms. CHU. Well, I have more questions, but let us do another 
round.
    Mr. KNIGHT. I will go back to my broad question. We are in 
the age of the baby boomers. The baby boomers are retiring and/
or preparing to retire. The 1946 to 1964 folks are in that 
period where a lot of them moving on and a lot of them going 
into social security, and Medicare, and things like that that 
we have to deal with I am sure in the next 10 or 12 years.
    Because of that, are we seeing possibly an opportunity 
because we are going from a very large workforce where an awful 
lot of men have maybe dominated in some of these areas or these 
arenas, and now giving a lot more opportunities for young 
ladies that are graduating from our great universities to get 
into some of these positions and work their way up, or are we 
not seeing that at all?
    Ms. WANNIER. Again, that is a good, broad question. Yes, as 
I said in my prior remarks, I believe that the generations of 
my children who are in their late 20s and early 30s, that I am 
seeing a very significant difference in their workplace to the 
workplace that I worked in. I was 1 of 10 women in my class at 
Cal Tech. I was 1 in 5, I think, at UCLA for business school. 
In the work world I was often working with mostly male 
colleagues, but that has shifted dramatically. Now Cal Tech has 
over a third women. That is a change of a factor of 3.
    But what is required, and we have not yet spoken about, are 
mentoring programs. We need to get more women of experience who 
may not have chosen to go the path of CEO, but who have 
nevertheless significant corporate experience into corporate 
boards. We need to get diversity in our board room, which then 
in turn some of those board members will also become venture 
partners, because venture partners are grown from within as 
well as come from the outside.
    We need to establish, similar to STEM, kind of a long-term 
mentoring program I believe. There are several very good 
organizations, and just at this moment I am not remembering the 
name of the one. I can get it to you afterwards. There are 
several very good organizations that are trying to work on 
long-term mentoring of young women going through the corporate 
ranks and going through venture ranks as well. I know that each 
of you do a certain amount of mentoring as well. I know there 
are many opportunities for that. But, as Laura said, it is a 
very, very diverse problem, and it is going to attack from many 
directions.
    I do want to add one little point that I mentioned in my 
last remarks about a system. I had one example of implementing 
such a system, and actually, Renee, you were on that committee. 
We had an approach here in Pasadena, an organization called 
EntreTech, and we started something sponsored by 
PricewaterhouseCoopers at the time.
    We started an entrepreneur award, but we based our award on 
a very systematic approach. We opened up the applications to 
all kinds of companies at different levels of early-stage 
ventures, and we said that there were two criteria. We were 
going to evaluate them on both the potential size of the market 
that they had to potentially realize, as well as the specific 
activities and results that they had achieved, which 
demonstrated that they were likely to achieve the investment 
results. We had a diverse committee involved in making that 
decision. On the committee we had CEOs, we had venture 
partners, and, again, thank you, Renee, for your service. We 
had members of the advisory professional services firms.
    That diversity of thinking also brought good results. I 
believe one of the prior members of that committee came to see 
me recently and had coffee with me and said, Louise, do you 
realize that every single one, I do not even think there was an 
exception, he said, of the people we gave the award to had a 
successful exit.
    Ms. YAMANAKA. So you talked about the baby boomers exiting 
out, and I think one of the really interesting stats for women 
in general coming out of maybe a corporate workforce or having 
successfully raised their children is they are more likely to 
start businesses at an older age. I think that this is an 
opportunity point that we are going to see people are keeping 
themselves in better shape, we are living longer, we have more 
opportunities. The internet provides a lot more access to 
across the world and globally. I think we are going to see a 
significant increase in the number of people transitioning out 
into ``early retirement'' into becoming business owners for 
both men and women.
    Regarding the question about that pipeline and getting 
people in, hey, you know, capitalism works. Supply and demand 
works. If there is a need and somebody sees you can make money 
at it, even if perhaps they are not so inclined or their 
network does not allow for it, they are going to go after 
whatever they need to fulfill that product or that service. 
They are going to get who they need to fulfill that product and 
service.
    So I think it just takes perhaps a little bit longer as it 
is going up, filtering up. But over the long run, it makes 
economic sense.
    Mr. KNIGHT. I am going to keep the microphone with you and 
ask you one quick question. We have seen new mechanisms on the 
internet--crowdfunding, peer-to-peer, things of this nature--
that might not bring in mammoth amounts of money, but can bring 
in pretty substantial amounts of money. Are they helping? Are 
they giving a new opportunity?
    Ms. YAMANAKA. The jury is still out because it is a very 
short period of time for data. But preliminary results have 
indicated that, yes, it is working. In fact, I have a site here 
that I will get you specifically. It says there an increased 
level of 21 percent of funding for woman-owned businesses as 
opposed to male-owned businesses.
    I think when you look at how it started out through social 
enterprise, Kickstarter and all those crowdfunding 
opportunities, that women, one of our things is we are more 
collaborative, you know. We have the relationships. Perhaps we 
have not focused it in a traditional business.
    Crowdfunding gives the opportunity in a small and greater 
scenario to provide access of funds that maybe they would not 
have in their local community, so I think it is huge. I think 
it is going to kick off a lot of business at the smaller 
levels, which is a good thing. Do not get me wrong. I love it. 
It is going to open up opportunities to people who would not 
have it otherwise.
    I think we also have to realize that we need to focus some 
attention on the larger numbers because that is where the real 
money is. As far as I am concerned, it is great for starting 
off small and----
    Mr. KNIGHT. Right.
    Ms. YAMANAKA.--we are doing a great job. To have the parity 
of the impact in the financial return and reward on the 
economy, we really need to look at the spectrum of investment, 
which is what we are addressing here.
    Mr. KNIGHT. Thank you very much. Ms. Chu?
    Ms. CHU. Yes. Ms. Wannier, you said that there was a gap in 
funding for seed and A-round financing since professional VC 
firms have grown in size and do not have the capacity to handle 
many small investments. Do you think the private market will 
eventually fill that gap, or do we need the government to 
provide an incentive to invest in such firms?
    Ms. WANNIER. Well, I do not have all of the data necessary 
to completely determine that. But what I believe and what I 
observe in the marketplace is that it might be possible to 
raise $500,000 or a million. Most VCs or many, many VCs of the 
large funds are investing $3 to $5 million less often than they 
are investing $10 million, $15 million in a Series A round.
    To support an investment of $10 to $15 million without 
giving away all of your equity and you have no room then for 
the follow-on rounds, you have to be supporting valuations and 
sizes of markets, which are very significant, which means that 
the businesses that will consistently grow to the $20 to $50 
million as opposed to the $100 to $500 million level are 
getting ignored and passed over. And there is a definite gap 
supporting that middle range of business.
    I believe that, as we said, women are, for various reasons, 
more drawn to that area than to the much larger ones 
statistically, and so that gap needs supporting. I am not quite 
sure what the best solution is. I have a feeling my colleagues 
to the left will have a better idea.
    Ms. LABRAN. A lot of these things tend to be quite 
cyclical. There are time periods where a lot of the firms want 
to invest earlier, and then they all shift later, and it just 
depends on what the market dynamics are at the time. There was 
a time period where funds were investing early, and then the 
valuations, because of changes in the economy, were not jumping 
up in the next rounds. So everybody said, why would I want to 
invest in an earlier stage. I might as well wait, have less 
risk, and invest later.
    Actually right now I think you do have this very bifurcated 
pattern that Louise is referring to, although I would make a 
slight distinction. What has happened is that seed investing, 
which used to be, maybe, a couple of hundred thousand people, 
are doing seed and super seed, and they just changed the names 
around.
    So you have these super seed rounds that are, you know, a 
million or $2 million that are being done under a different 
structure than what used to be called a Series A. This is 
problematic because there are a number of funds that do seed 
investment. Again, those tend very much to be entrepreneurs who 
have had successful exits. They have taken their own private 
money, personal money, and that of maybe some colleagues, and 
formed these small funds. So they can only afford to do very 
small investments.
    Then you have the big institutionals that are doing the $10 
million kinds of rounds or even larger, the $50 million, $60 
million into the snapshots of the world. But a lot of these 
angels, many of whom, by the way, are leveraging the 
crowdfunding platforms that Congressman Knight was referring 
to, they are men. There are just very few women on those 
platforms. And I will say----
    Ms. HARMAN. Smarter.
    [Laughter.]
    Ms. LABRAN. Well, that is the thing. I mean, we can joke 
about that, but in the last few weeks or months, I am 
constantly invited to these events that are targeted at getting 
women to invest more in these very early stages. I have a 
little bit of mixed feelings about them because I do think that 
it is important to have more involved in this ecosystem. Many 
of these women do have the means, but I think we also have to 
make sure that we do not have people who really cannot afford 
to take that kind of risk making these investments.
    So crowdfunding does help because it allows more people to 
make small investments because many of these people should not 
be making, you know, $50,000, $100,000 bets that the angel 
networks have typically required, but they can do $5 or $10. 
That is hard for a company to handle, but if there was a 
crowdfunding platform that allows that to be aggregated, that 
actually is helpful.
    So of course the jury will be out, but I do see at least it 
is raising the interest in people investing, and that may just 
help more women and other first-time entrepreneurs get that 
little bit of seed capital that they need other than their 
credit cards and other things that are self-limiting.
    Ms. CHU. Well, talking about angel investors, Ms. Yamanaka, 
we have seen an increase. Historically females were 15 percent 
of the angel investors in the United States, but for 2014 it 
did increase to 20 percent. So that is a significant increase. 
In your opinion, what is driving that increase?
    Ms. YAMANAKA. Finally that trickle up is working. We are 
more successful in accumulating wealth and are able to invest 
back in the educational piece, the give-back piece that makes 
good economic sense, ultimately all of those reasons. It is a 
good investment. Somebody is willing to say, hey, I am going to 
take my money. I am going to put it here. I think I am going to 
get a better return than if I stuck it in the bank. No offense 
to the banks right now.
    That said, women are great at leveraging, so they are 
looking at, one, an economic return, but they are also looking 
at if their money will make a difference. This is purely 
speculative on my part that all things being equal, if I have 
an investment, both investments are the same, going to have the 
same return, same risk. But if I feel that I can make a 
difference with this investment by helping out a new 
entrepreneur or investing a business that is going to have more 
of a social impact or whatever those things, I am going to 
probably put my money into the second piece, all things being 
equal.
    I think that is really important. I cannot stress that 
enough because many times people go, oh, you know, they are 
going to just waste their money or put their money into 
something that really does not make as much economic sense, 
but, you know, they are going to change the world or it is a 
good moral thing to do. We are going to do that on top of the 
fact that all things being equal, it is a good economic 
investment.
    Women are not foolish. We make wise economic decisions. If 
you look at our commercial or our personal and consumer buying 
patterns, we do make a lot of those common everyday decisions, 
and I think that holds all the way through.
    Ms. WANNIER. Can I add----
    Ms. CHU. Absolutely.
    Ms. WANNIER. It just also occurs to me that one of the 
things I have encountered in my career is that many women do 
not take the time to fully understand and appreciate and 
understand financial projections and financial statements. Now, 
women who go into banking or into accounting of course do. But 
I believe that we could also strengthen our education systems 
to add that earlier in the cycle of our education so that both 
men and women get exposed to these concepts from a practical 
sense earlier in life.
    Ms. YAMANAKA. But men do not either, right? I mean, I have 
to put it in there.
    [Laughter.]
    Ms. WANNIER. No, I mean----
    Ms. YAMANAKA. I have clients that are men that are equally 
ignorant on projections. I do not want to look, hang a label.
    Ms. LABRAN. If I may just reinforce what Laura talked 
about, I mentioned I co-founded a startup competition for women 
entrepreneurs. Going into our 4th year last year, we received 
over 100 applicants. What has been interesting is the number of 
women who have come to participate in the event just to see the 
pitch competition. We are also getting men. But some of those 
women have become interested in investing back to these small 
amounts.
    But she is absolutely right. These women, it is not like, 
oh, is that the coolest thing I have ever seen. No, it is 
something they want to feel good about, and they have to be 
able to relate to it. One of the businesses that was one of our 
winners, and a number of us invested in, was founded by a 
woman, let us say, a more mature woman, as opposed to some of 
the much younger millennial kinds of founders. A more mature 
woman.
    She started a company that has been largely targeted at the 
LGBT community, and it is a fabulous business. She has done a 
great job raising a million dollars from women who just really 
love her story. By the way, in 1 year she did over a million 
dollars' worth of sales in her first year of business. She 
would have done more had she had more capital to buy inventory.
    But, to your question about the profile changing as a 
result of boomers retiring, I think it is, again, all those 
things and to the extent that women are exposed. They do think 
very differently than male angels, I deal with both groups, and 
it is a very different discussion.
    Ms. HARMAN. But I think that still relates back to your 
question about various demographics. It is not just women 
investing differently, which I completely agree with, and some 
of the importance of understanding that. It is actually 
millennials or next gen, or whatever the various demographic 
categories that are basically people younger than me.
    [Laughter.]
    Far younger than me. As an employer, as an investor, 
understanding the difference of some of these younger 
entrepreneurs or people I might hire is very important because 
they do not think the same way that we think in general.
    As we are trying to hire, this is the pipeline thing we 
talked about is as you are trying to increase the pipeline, 
understanding as I am hiring people, trying to bring women and 
minorities into private equity, but in general younger people, 
understanding that they care about lifestyle. They care about 
flexible work arrangements, men and women, perhaps women more. 
They care about what they are doing having some meaning. So we 
have to recognize that we have to offer all those things in a 
way that is compatible with, you know, their goals and 
aspirations, and that creates the pipeline and the retention in 
what we are doing.
    The other point I want to make is many companies do not 
qualify. We keep talking about venture capital and getting more 
venture capital to these startup businesses or smaller 
businesses. Many of them are classic economy boring businesses. 
They do not scale to be a billion dollars. Most of them are not 
dot.com successes, you know. There is a company that makes, is 
a distributor of medical devices, or a company that makes an 
aerospace component.
    Those are the kind of businesses we finance and many 
others, for example, in the SBIC program. They are the kind of 
business that bootstrap by bringing in personal capital, by 
going to banks just for asset-based financing. They get to the 
point where they are cash flow positive. Then they can start to 
come to people who lend them money or invest equity based on a 
proven business that now helps them scale to the next stage. 
But they are not going to scale and be that exciting 
crowdfunding type of business.
    Most of the businesses out there, small businesses, are 
those boring--I love boring--businesses----
    [Laughter.]
    Ms. HARMAN.--you know, that we fund and are really 
necessary to continue to fund.
    Ms. WANNIER. I have a question. When I looked at SBIC 
funding for myself--I have a lifestyle business, which is a 
fashion design business, it is not a venture interesting 
business--funding was only available if you put your house on 
the line. That is not true anymore?
    Ms. HARMAN. No.
    Ms. WANNIER. That is an SBIC. These do not involve that, so 
it is possible to have a venture type risk.
    Ms. LABRAN. Totally different.
    Ms. WANNIER. Okay. That is interesting. Thank you.
    Ms. CHU. Good to know.
    Ms. YAMANAKA. Actually what you saw here was an opportunity 
for improvement, so it does not get any better than this table. 
I think the SBA has done an excellent job of improving the 
complexity of regulations and communicating their services and 
how they do it. But, as with anything complex, and as with a 
government organization, and with the budget limitations, there 
are things that could be done better, or we could do to improve 
the outreach and understanding out there.
    We are in an age of commercials, 15 seconds, get it 
through. And so, a lot of times people, and I am not just 
saying women--just men, millennials, everybody--do not take the 
time to go through the layers of the internet to try to figure 
out certain things. We do have a lot of great services and 
products out there that could help. We just need to get the 
consumer connected to the source in a better way.
    Ms. CHU. I have one final question for the whole panel, and 
that is if there was one thing you would like my colleagues 
back in Washington, D.C. to understand about women 
entrepreneurs and investors, and also one thing for us to do, 
what would that be?
    Ms. YAMANAKA. Just one?
    [Laughter.]
    Ms. CHU. Well, if you have two, that is fine.
    [Laughter.]
    Ms. LABRAN. I would start by saying that, again, that what 
makes the US economy different from most others, although other 
countries are trying to emulate us, is that we are based on 
entrepreneurship, and growth, and opportunity. If we are 
missing out on half the party, we are not going to realize the 
success that we could. So it is really important that people 
start to appreciate the opportunity that the missing half 
provides.
    I personally believe that all these educational and 
encouragement type things are great. They are important. But, 
when I read like the Diana Project report, the recommendations 
are to make venture capitalists understand that it is a good 
thing to invest in women. You can tell people things until they 
are blue in the face, and we know that people do not always do 
what should logically be in their best interests, right? But, 
again, they do tend to follow the money.
    I believe that if there were economic incentives in place 
to encourage more investment going into underserved markets 
that the money would follow quite quickly.
    Ms. HARMAN. I absolutely agree, as usual, with what Renee 
said. You said two things: one, the message to go back. To me, 
the message to go back, which I think resonates with many, but 
maybe not all, is diversity creates better outcomes. If you 
believe that, the rest of it can kind of follow from there.
    What is the one thing that you can do? Something maybe a 
little more specific would be to look at allocating public 
pension funds, government employees pension funds, to set aside 
more money for qualified, not subsidized, qualified emerging 
managers. So put it in the hands of good investors who have 
proven themselves, but who are going to be those smaller, 
diverse, emerging managers who are going to get that money out 
to qualified entrepreneurs.
    Ms. LABRAN. That would be an example of a kind of economic 
incentive.
    Ms. HARMAN. That is right. I was going down one level 
specific as far as economic incentive, but the returns would be 
there. This is not an economic incentive that says, well, we 
are going to take the government pension funds, employees 
should accept less return. I would argue they will get more 
return as we have proved.
    Ms. YAMANAKA. I agree with everything that is being said on 
the left side of the table. I am sure that comes as no 
surprise. I think on the precepts that there is opportunity. We 
can frame this positively or negatively, and I prefer to look 
at it positively, like all my fellow witnesses here. There is a 
terrific opportunity.
    50 percent of the population is not performing at the level 
that it could. Not even one for one. Even a 50 percent increase 
would change how the U.S. economy, our position in the world, 
and the lifestyle and how people live here. That is grounded in 
Laura's plan.
    How do you do that? I totally agree you cannot make people 
do things. You can encourage them financially, and, again, we 
are looking at the economics of it. If it makes good economic 
sense, all things being equal, people will do it. One of the 
tactical ways that we could do it, as I had mentioned earlier, 
is introducing tax credits potentially, I would put on a 
phased-out basis.
    Anybody's intention, I think anything should always be up 
there for a period of time and then reevaluation where you have 
to re-up, and also the carried interest loophole for venture 
capital firms. Those are two tactical approaches that could 
create the incentives on a short-run basis. I think anything 
that we do has to have a sunset provision so that it has the 
opportunity to make sure that the context has changed or not 
changed. If it has not changed, let us say, then we have to go 
back and look and see what we are doing and what we could do 
differently, at least in the short run.
    Voice. We do not understand what she means by the carried 
interest loophole.
    Voice. Well, we know what it is. I am not clear how that is 
taking away----
    Ms. YAMANAKA. No, no, no, not taking it away.
    Voice. Right?
    Ms. YAMANAKA. Well, we could talk about that later.
    Voice. Okay.
    Ms. WANNIER. I agree with everything that has been said so 
far. My comments relate to reaching out to the women and the 
diversity who will be the entrepreneurs or will be the venture 
capitalists. I believe that we need much more publicity, so I 
would like to see the government spend a little bit of the SBIC 
funding or the acronym funding to put together a database that 
is nationally accessible of all projects that have been funded, 
all companies that have been funded, so that we as women can 
understand and learn from others' examples.
    We can understand the results that others have achieved on 
different implementations, put together a network of everything 
that works in this business, make it accessible so that someone 
who does not have a network can easily tap in and get access to 
that network.
    Ms. CHU. Thank you so much. I would like to submit for the 
record a wonderful op-ed that was done by Jeri Harman, our 
panelist here. It was published in the L.A. Daily News this 
week highlighting the importance of funding women and minority 
firms. It certainly underscored the importance of this hearing 
today.
    Mr. KNIGHT. Without objection.
    [The information follows:]
    Mr. KNIGHT. Okay. I would like to thank everyone as this 
hearing comes to a close. I would like to thank our stellar 
panel. I think that you have seen in the last hour and 40 
minutes or so some of the minds of America coming together and 
working to make it better. And so, I thank you for coming here.
    Access to a robust capital market is critical for the 
health and wellbeing of our small business community, which in 
turn is critical for our Nation's economy. Venture capital and 
does play an important role that traditional debt financing 
simply does not fill. Making it easier for small firms, 
particularly those that have had greater difficulty in 
accessing venture capital, and we have seen that with many 
woman-owned businesses, ought to be a priority. I look forward 
to working with the ranking member and all of my colleagues 
back in Washington on this important issue.
    And before I yield to Ms. Chu for her last word, I wanted 
to again thank you for allowing me to come to your beautiful 
city, your beautiful city hall. This is one of the great 
landmarks in California. I firmly believe that, and always 
coming here, it makes people's jaw drop. And it is beautiful 
not just to be in southern California, but to see such 
architecture as here.
    So I found today's discussion enlightening and look forward 
to sharing our discussion with our colleagues. And, Ms. Chu, 
for your closing? Thank you.
    Ms. CHU. Well, I would just like to thank all the panelists 
for coming today. If there is anybody that doubts women's 
intelligence and entrepreneurial knowledge, they would really 
have to come here and listen to you. You had so many insights, 
and you gave me much room for thought, and a thought about what 
we could do back in Washington, D.C. to improve the situation 
of women entrepreneurs.
    So I thank you so much for sharing your experience with us 
as well as your whole incredible body of knowledge.
    Mr. KNIGHT. Thank you, and I ask unanimous consent that 
members have 5 legislative days to submit statements and 
supporting materials for the record.
    And without objection, we are adjourned.
    [Whereupon, at 11:44 a.m., the Subcommittee was adjourned.]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                            A P P E N D I X
                            
                            
                            
                            
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Good morning Congressman Knight, Ranking Member Chu, and 
Members of the House Small Business Subcommittee on Economic 
Growth, Tax & Capital Access.

    Thank you for holding this hearing today to examine ways to 
increase access to capital for small businesses. My name is 
Jeri Harman, and I am the Managing Partner & CEO of Avante 
Mezzanine Partners, an investment firm and Small Business 
Investment Company (SBIC) based in Los Angeles. I am also the 
Chair-Elect of the Board of Governors of the Small Business 
Investor Alliance (SBIA).

    I am here on behalf of SBIA, the premier organization of 
lower middle market private equity funds, debt funds, and 
investors. SBIA members provide vital capital to growing small 
and medium sized businesses nationwide, resulting in job 
creation and economic growth. SBIA is also the primary voice of 
the SBIC industry. While many SBIA members traditionally do not 
provide venture capital, i.e. equity capital for start-ups or 
early stage companies, our members are significant sources of 
capital for small and growing companies and fill a critical gap 
that exists in the lower middle market.

    About Avante Mezzanine Partners

    Avante Mezzanine Partners provides debt and equity for high 
quality, lower middle market businesses that generate at least 
$3 million in cash flow. Avante invests between $5 million and 
$25 million of capital in the form of unitranche or one-stop 
debt as well as traditional subordinated debt and minority 
equity Avante works with private equity and independent 
sponsors in buyout transactions, as well as with entrepreneurs 
and owners to finance recapitalizations, refinancings, 
acquisitions and growth.

    Avante is somewhat unique in our industry, given the 
diverse leadership and ownership of our fund. Three out of our 
five investment partners are women, making it one of the only 
majority women-led and owned private equity funds in the 
nation. And four out of five are women and minorities o9r both.

    Prior to founding Avante, I started-up and led Los Angeles 
offices for two multi-billion publically traded private equity 
and mezzanine investment funds--American Capital and more 
recently Allied Capital, where I was also a member of Allied's 
Investment Committee. Earlier career highlights include various 
senior level positions with Prudential Capital.

    As the next Chair of the Board of Governors of the Small 
Business Investor Alliance, I will be leading an annual 
gathering of limited partners and general partners, including 
SBICs, at the National Summit for Middle Market Funds later 
this year. SBIA provides a platform for senior executives in 
the industry to agree on best practices--these best practices 
are good for small businesses and good for investors. In 
addition to my role as Chair-Elect at SBIA, I serve as a 
Steering Committee Member of the Private Equity Women Investor 
Network (PEWIN) and as the Co-Chair of the Association for 
Corporate Growth (ACG)--Los Angeles Business Conference.

    I feel honored to have been recognized as one of the top 
women in the private equity industry. In 2013, the National 
Association of Women Business Owners (NAWBO) Los Angeles 
inducted me into the Hall of Fame. In 2015, I was named one of 
the Most Influential Private Equity Investors in Los Angeles by 
the Los Angeles Business Journal. In January of this year I was 
on the cover of Mergers & Acquisitions magazine and named one 
of the Most Influential Women in Mid-Market M&A.

    According to March 2016 data compiled by Preqin, senior 
female women accounted for 10.5 percent of all employees in 
private equity firms across North America. These statistics 
indicate that we have a significant amount of work to do to 
improve diversity in the executive ranks at private equity 
funds. With incre4asing attention to this issue, more senior 
women as role models, continuing changes in firms' cultures and 
openness to flexible work arrangements, I am hopeful we can 
increase our pipeline and retention of talented women in 
private equity.

    As Chair-Elect of SBIA, it is a goal of mine to increase 
diversity at regional events, provide new opportunities for 
women to network with one another, and include new content 
aimed at women in private equity. For example, as part of 
SBIA's regional and national events, SBIA has organized the 
Women Investors Networking Luncheon, an exclusive networking 
event for senior-level women fund managers, limited partners 
and investment bankers. Our first Women Investors Networking 
Luncheon was in May 2014, and we have hosted the luncheon at 
every subsequent regional and national event. These 
opportunities provide a platform for women to discuss how to 
make private equity more diverse and how to find and invest in 
companies that are led by women and minority entrepreneurs.

    As private equity becomes more diverse this should result 
in better returns to shareholders as well as support job 
growth. Two recent reports support that gender diversity has a 
positive impact on performance at corporations. A study by 
McKinsey & Company \1\ found that companies in the top quartile 
for gender diversity are 15 percent more likely to outperform 
their respective national industry medians. The study also 
found that companies in the bottom quartile for gender and 
ethnic diversity are less likely to achieve above average 
financial returns. A study by MSCI indicates that companies 
with strong female leadership generated a return on equity of 
10.1% per year versus 7.4% for those without strong female 
leadership.\2\
---------------------------------------------------------------------------
    \1\ http://www.mckinsey.com/business-functions/organization/our-
insights/why-diversity-matters

    \2\ Women on Boards: Global Trends in Gender Diversity, MSCI. 
https://www.msci.com/www/blog-posts/women-on-boards-global-trends/
0263383649

    SBICs Provide a Critical Source of Capital for Small 
---------------------------------------------------------------------------
Businesses

    The SBIC program was created by the Small Business 
Investment Act of 1958 to ``improve and stimulate the national 
economy...by establishing a program to stimulate and supplement 
the flow of private equity capital and long-term loan funds 
which small-business concerns need for the sound financing of 
their business operations and for their growth, expansion, and 
modernization, and which are not available in adequate 
supply.'' \3\
---------------------------------------------------------------------------
    \3\ Public Law 85-699, as amended

    Avante Mezzanine was licensed for our second SBIC in 2015. 
This fund was $250 million in assets under management and we 
started investing in companies with this fund in late 2015. Our 
first SBIC consisted of $218 million in assets under management 
and we are proud to have invested in 20 companies across the 
---------------------------------------------------------------------------
country.

    SBICs allow small businesses to access patient capital--
capital that cannot be called back at a moment's notice. This 
capital is available for helping businesses survive and thrive 
in the face of the unexpected bumps in the road. The importance 
of SBIC capital was abundantly clear in the financial crisis 
and the recession that followed. While most financial 
institutions were cutting off capital to small businesses and 
recalling loans, SBICs were throttling up and filling the 
capital void. Demand for capital from SBICs has grown 
dramatically since the financial crisis and continues to grow. 
This growth is not driven by government directive, but by the 
market needs of small businesses and the opportunities being 
recognized by private investors.

    It is important to note that the SBIC program has 
facilitated record amounts of private capital into SBICs and, 
in turn, into the small business economy. For example, 
according to the SBIC Program Overview \4\ provided by the SBA, 
from 2012 to 2015 SBICs have deployed $18.4 billion to 4,457 
companies nationwide. The SBA data also indicates that during 
the time period between 2012 and 2015, SBIC financings created 
or retained 385,274 jobs. As of December 31, 2015, there was a 
total of $25.9 billion in assets under management, a record 
amount for the SBIC Program. Currently, there are 300 SBICs 
across the country, in all corners of the country, from 
Portland, Maine, to Portland, Oregon, and Miami, Florida to Los 
Angeles, California.\5\
---------------------------------------------------------------------------
    \4\ SBIC Program Overview, https://c.ymcdn.com/sites/sbia.site-
ym.com/resource/resmgr/Docs/SBICProgramOverview---
--Q12016.pdf
    \5\ https://www.sba.gov/sbic/financing-your-small-business/
directory-sbic-licensees

---------------------------------------------------------------------------
    SBIA Supports Enhancements to the SBIC Program

    The SBIA appreciates the constant stream of communication 
between Small Business Administration leadership and staff and 
the Board Members and staff of the SBIA. This open dialogue has 
helped the SBA and SBIC industry work together to find common 
ground on many improvements to the SBIC Program.

    We also appreciate the work of the Committee over the past 
several years to improve SBIC operations and increase leverage 
available to SBICs. While the SBIC program has grown steadily, 
there are additional actions that SBA and the Committee can 
take to strengthen the program, and expand the pool of SBIC 
investors. These actions will increase the number of SBIC 
funds, increase the attractiveness of the program to existing 
SBIC investors, and increase the amount of capital that can be 
deployed to American small businesses.

    The SBIC Act Should Be Adjusted to Encourage More Bank 
Investment in SBICs

    The SBIC program is in a unique position to attract 
investment from banking institutions. Since prior to the repeal 
of the Glass-Steagall Act in 1999, SBICs have been encouraged 
as a strong investment for banks, allowing them to expand their 
lending activities beyond what the bank itself could engage in. 
Bank investments in SBICs are actively encouraged by bank 
regulators through the Community Reinvestment Act (CRA). Bank 
investments in SBICs receive CRA credit due to the public 
welfare benefit that they provide, including lending to small 
businesses, particularly minority, women and veteran-owned 
businesses, but also to economically disadvantaged and rural 
areas that generally see little capital investment. Since the 
passage of Dodd-Frank, and the institution of the Volcker Rule 
framework, SBICs have once again become very attractive 
vehicles for banks. Small businesses seeking capital from SBICs 
have greatly benefitted from this interest, as more SBIC funds 
will form and more capital can be deployed out of the program 
as new banks decide to invest in SBICs.

    Unfortunately, many banks and savings institutions that 
have an interest in increasing the amount of their investments 
in SBICs, are unable to invest more than 5% of the capital and 
surplus of the institution due to a provision in the Small 
Business Investment Act of 1958 (SBIC Act).\6\ However, 
depending on the type of charter of the banking institution, 
some banks are permitted to invest up to 15% of their capital 
and surplus in SBICs \7\, with bank regulator approval. A 
number of SBIA's bank members are currently at the cap and wish 
to invest more than 5% of their capital and surplus in SBICs, 
and are not permitted to do so. An adjustment to the SBIC Act, 
which has been discussed with members of the Committee, could 
remove this barrier, and ensure SBICs can continue to grow the 
amount of investment from banking institutions. I encourage the 
Committe4e to study this issue closely and adopt legislation 
that would raise the percentage that banks are permitted to 
invest under the SBIC Act, to match that permitted by their 
respective banking regulators.
---------------------------------------------------------------------------
    \6\ Capital Requirements, Small Business Investment Act of 1958, 
Section 302(b).
    \7\ Banks holding a National Bank Charter, and regulated by the 
Office of the Comptroller of the Currency (``OCC'') can make aggregate 
``public welfare investments'' that do not exceed 15 percent of the 
bank's capital and surplus. SBICs qualify as public welfare 
investments. If making such an investment over 5 percent, OCC written 
approval must be received. See 12 CFR 24.4.

    Technological Updates and Modernization of SBA Processes 
---------------------------------------------------------------------------
Will Increase the Attractiveness of the SBIC Program

    For many years, the SBA has provided important and helpful 
data to the industry, Congress and the public about the SBIC 
program through their ``SBIC Program Overview.'' The SBIC 
Program Overview, up until October 2015, was provided monthly. 
The information provided in this report \8\ includes, among 
other things: (1) information on the number of SBICs; (2) SBIC 
capital at risk; (3) the number of applicants going through the 
licensing process; (4) how long license applications are taking 
to clear the SBA's process; (5) information about how many 
companies received financing; (6) the number of jobs that were 
created and retained with that financing; (7) and the number of 
businesses located in LMI or women, minority and veteran owned 
that received financing from SBICs. The timeliness and 
frequency6 of this information is critical to ensure the SBIC 
program is running smoothly, particularly the licensing 
process. Investors or limited partners (LPs) in the program 
also rely on this data to get a sense of how long the licensing 
process is taking for funds in formation they are investing in. 
In addition, the data was a meaningful economic indicator on 
the small business sector, as well as an indicator of SBA's 
performance and activities. The SBIC Program Overview has only 
been released once since October 2015 (the end of FY 2015), 
while being released monthly beforehand.
---------------------------------------------------------------------------
    \8\ Attached as Appendix A.

    In addition to the ``SBIC Program Overview'', SBA 
previously provided information about the names of companies 
that were financed by SBICs, at the state level, as well as the 
total amount of capital SBICs had invested in all fifty states. 
This data was extremely helpful to make sure the program was 
making an impact across the entire country, and to share with 
members of the Congress and the public about the companies in 
their region that were actively benefitting from the program. 
The SBA has not released this data to the public since 2013, 
while doing so for many years beforehand. We encourage the 
Committee to ensure the SBA resumes providing all of this 
necessary information on a monthly and timely basis that is not 
only critical for oversight of the program, but also critical 
---------------------------------------------------------------------------
for Congress, the public, and the industry to review.

    SBIA also believes that SBA should embark on an initiative 
to utilize ``virtual data rooms'' provided by a private sector 
provider, and paid for by the SBIC. Updates should be made to 
technology to help share files, reports, contracts, and other 
information that is communicated between Small Business 
Investment Companies and the SBA. Virtual data rooms would make 
it easier to find these documents because they would be 
searchable and housed in one digital location. Virtual data 
rooms would also streamline the collection of data by SBA 
staff, removing redundant processes at the SBA and saving time 
and resources. SBA should allow for the use of existing off-
the-shelf virtual data rooms to provide a communication vehicle 
for SBICs and the SBA in a single, secure location for all 
regulatory documents, submissions, requests, and 
communications. This approach will reduce costs for the SBA, as 
well as provide for storage of information in an easily-
accessible format for the life of the SBIC.

    In addition to the restoration of data provision by the SBA 
and suggested use of virtual data rooms, SBIA has a number of 
suggestions that can improve the licensing process for SBICs, 
in which the time from application until licensure has 
significantly crept up in the past few years, rising from 5.6 
months in FY 2011 to 8.4 months at the end of FY 2015. In 
contrast, several years ago, the SBA set a goal to approve 
licenses in six months. SBA has taken some positive steps to 
improve the licensing structure, including folding together the 
teams that handle licensing and the management assessment 
questionnaire (MAQ) process, but more could be done to 
streamline the application process. This includes a number of 
recommendations of the House Appropriations Subcommittee on 
Financial Services & General Government, which requested the 
following in House Report 114-194, reported out of the full 
Committee on July 9, 2015:

          SBIC Program Licensing.--The Committee believes the 
        SBA Investment Division should consider reorganizing 
        the Small Business Investment Company (SBIC) licensing 
        process and personnel to more efficiently use the 
        resources allocated. In particular, SBA should: combine 
        the licensing and Management Assessment Questionnaire 
        (MAQ) staff; reduce the number of licensing committees 
        and steps for all applicants; and create a meaningful 
        fast track process for repeat licensees that takes no 
        longer than six weeks, which will allow SBA to focus 
        their resources on first funds and ensure that there is 
        a written record of the decision made by the Investment 
        Division for applicants and any court that might review 
        such licensing decisions.\9\
---------------------------------------------------------------------------
    \9\ H. Rept. 114-194, Financial Services & Genera Government 
Appropriations Bill, 2016, (July 9, 2015).

    Making the changes suggested by the Appropriations 
Committee would be extremely helpful in eliminating the 
slowdown in license application approvals at the SBA, 
particularly by the elimination of duplicative licensing 
committees and implementing a fast track process for second-
time funds which have an established track record at the SBA. 
This meaningful fast track process for repeat licensees should 
not be longer than 45 days after an application is submitted to 
the SBA, which will allow SBA to focus their resources on first 
funds. There are a number of other suggestions which SBIA has 
communicated to SBA staff in the hopes of further streamlining 
processes, better utilizing staff resources and providing more 
---------------------------------------------------------------------------
transparency and consistency to the licensing process.

    Conclusion

    I am grateful to be part of the SBIC program and excited by 
the impact it has on capital access for small and middle market 
businesses. The SBIA looks forward to working with the 
Committee to continue to explore ways to increase access to the 
SBIC program for women and minority fund managers and expand 
the number of businesses that are receiving investments from 
SBICs. Thank you again for inviting me to testify, and I look 
forward to answering any questions that you have.
                       TESTIMONY OF RENEE LaBRAN

            General Partner, Rustic Canyon / Fontis Partners

                        Senior Advisor, Idealab

U.S. House of Representatives Committee on Small Business Subcommittee 
               on Economic Growth, Tax and Capital Access

  ``Bridging the Gap--Increasing Access to Venture Capital for Small 
                               Businesses

                             April 5, 2016

                              Renee LaBran

                      155 No. Lake Ave., Suite 800

                           Pasadena, CA 91101

                             (818) 790-3464

    Good morning Chairman Knight and Ranking Member Chu. My 
name is Renee LaBran and I have worked in venture capital since 
2000 when I was invited to help start a venture capital fund 
called Rustic Canyon Partners, funded by the controlling 
shareholders of the company where I was working at the time. In 
2006, I helped Rustic Canyon spin out another fund called RC/
Fontis Partners, which focused on underserved markets. That 
fund is now in its final stage, and we are harvesting those 
investments.

    In addition to winding up the portfolio of RC/Fontis, I 
currently serve as an advisor to Idealab, a tech incubator that 
just celebrated its 20th anniversary. I also co-founded a 
start-up competition for female entrepreneurs now entering its 
fourth year. I am personally a small angel investor in several 
women-founded companies. All that said, I have a pretty good 
first hand look at the challenges faced by women entrepreneurs 
and women in venture capital.

    When I started in venture, there were a handful of women. 
Industry social events typically involved golf and cigar 
smoking. I can only think of a few women who came to pitch 
companies to us. I am pleased to say that things have got a 
little better. I am amazed at the number of women focused 
events that have sprung up in the last few years. However, the 
statistics are still dismal.

    I am sure many of you have read the Diana Project report 
that has tracked women in venture capital on both sides of the 
table since 1999. For the benefit of those who have not read 
it, here are a few key statistics from the report:

          -  In 2011 - 13, 15% of companies that received 
        venture in capital had a woman on the executive team, 
        up from 5% in 1999. That is great news, but still a 
        small percentage overall.

          -  And speaking of a small percentage, only 2.7% of 
        the companies that received VC had a woman CEO.

          -  Companies that had a woman on the exec team also 
        tended to be later stage compared to the overall 
        profile of companies receiving VC, leaving one to 
        wonder how these companies found their seed capital.

    These are just the problems of the entrepreneur side. On 
the venture side, the problem is even more severe. The number 
of women partners in VC fell from 10% to 6% between 1999 and 
2013.

    The number of women partners is particularly problematic 
since VC firms with a woman partner are 2x as likely to invest 
in a company with a woman on the exec team and 3x more likely 
to invest in a company with a woman CEO. The reasons for this 
should be obvious, but just in case, let me elaborate. 
Entrepreneurs find venture capital firms through their 
networks. Thus, VCs invest in entrepreneurs who tend to run in 
their own circles and are must more like themselves. The 
proverbial old-boy network prevails. When women do come to 
pitch, they find themselves facing a table of male partners, 
who are more comfortable meeting with other men who look like 
they do. There is plenty of other evidence in the press today 
about how woman are often judged in ways that men are not.

    It is even more difficult for women entrepreneurs to find 
seed investment, since the vast majority of seed investors are 
men, and successful angels tend to invest in entrepreneurs they 
know.

    Women who do break into the VC side also face challenges. 
Many firms who do have a woman partner have just one or maybe 
two, which is often an uncomfortable position. The shortfall of 
the VC side is the flip side of the entrepreneur coin. Men who 
have access to capital to start a fund often start them with 
close colleagues out of their own network. Successful 
entrepreneurs who have large exits often join VC funds, but 
there are fewer women at the top of venture backed companies to 
achieve such exits. Breaking in is difficult for women. Some 
women have chosen to start their own funds, but often struggle 
to raise capital since most new funds have to raise from 
individuals, and once again the network effect comes into play.

    What I am describing here is a vicious circle rather than a 
virtuous cycle. The Diana Report urges VC firms to take 
corrective actions. However, despite the evidence that this 
might improve returns, I don't think we are likely to see these 
changes soon.

    If we are truly an economy that relies on innovation and 
entrepreneurship as our growth engine, we need to find ways to 
include the half of the population that is missing out. (By the 
way, male entrepreneurs of color face many of the same 
barriers). Over the years, there have been various programs for 
emerging managers that provided access to capital for first 
time funds formed by women and minorities. However, these 
programs seem to be cyclical and have diminished rather than 
increased. Government is also in a position to provide 
incentives to potential limited partners to provide capital 
either directly or through funds that are more likely to deploy 
capital to those who currently lack access. Without incentives 
or nudges, it will take far too long for the problems to self-
correct, if ever.

    These are just some of the issues facing both women 
entrepreneurs seeking VC funding and women seeking a career in 
the industry. There is so much more that I could tell you, and 
am happy to answer any questions you may have. I appreciate the 
opportunity testify today.
   U.S. House of Representatives Committee on Small Business

         Testimony Regarding the Challenges of Raising

   Venture Financing for Women-Led Entrepreneurial Businesses

        Presented by Louise J. Wannier, True Roses, Inc.

                   (Board/Advisory Services)

                         April 5, 2016

    ------------------------------------------------------------------------------

    Chairman Knight and Ranking Member Chu,

    Thank you for the opportunity to share my thoughts with the 
House Small Business Committee today. I would also like to 
thank Andy Wilson, Pasadena City Councilman and Amy Millman, 
Executive Director of Springboard.org for recommending that I 
be asked to contribute to the discussion today.

    I have long pondered why is it so easy for my male CEO/
Entrepreneur colleagues have had, from my perspective, a much 
easier time raising sufficient capital to fund their ventures. 
I have often felt that I have had a disproportionately 
difficult time raising capital for the business plans I have 
presented. It has been extremely difficult and I have in the 
past failed twice to raise sufficient capital to be able to 
weather the economic downturns that inevitably occur in the 
cycles of our free-market economy. Each of those two companies 
had products that were well received in the market with either 
thousands of companies using the products or hundreds of 
thousands of consumers using the internet service and still 
were unable to raise the follow-on capital during the 
transition cycles following the drop of the market economy in 
2000 and 2008 respectively. Of course, there are many reasons 
why ventures are unable to raise capital, and it would take a 
deeper study, but the facts are that I was unable to raise 
follow-on capital for ventures that had successful products in 
the market but were not yet profitable and needed growth 
capital, even after meeting with many individual professional 
venture capital firms nationwide, while, in my opinion, many 
ventures run by male colleagues were able to achieve follow-on 
financing for ventures that did not represent, in my opinion, 
as strong an investment opportunity for the investors. I am 
sure that this was not simply due to the difference between men 
and women but I do feel it was a factor.

    So this request has given me the opportunity to reflect 
freshly on the question: Why do women have a harder time 
raising venture capital than men, or do they, and if they do/or 
do not, why so or why not?

    I was trained in my undergraduate studies to think as a 
scientist. In 1978, I graduated with a Bachelors of Science 
with Honors in Astronomy from the California Institute of 
Technology, here in Pasadena, followed by a Masters in Business 
Administration with concentration in Management Science and 
Finance with Honors in June, 1980. For the first six years of 
my career I worked in the Los Angeles offices of the management 
consulting division of what was then Ernst and Ernst/Ernst & 
Whinney (what is now E&Y) doing financial feasibility and 
strategic M&A studies for large healthcare organizations and 
other corporations in diverse industries. Following those 
years, I temporarily relocated to Sweden and as I often say, 
accidentally became an entrepreneur because I ``didn't have a 
job''. I was very fortunate to have the opportunity to work in 
Gothenburg, Sweden and gain my first experience as an 
intrapreneur, founding a company in education technology on 
behalf of Chalmers Industriteknik. Following that experience I 
returned with my family to the United States and ended up 
becoming one of the six principal founders of Gemstar 
Development Corporation and was instrumental in developing and 
executing the go-to-market strategy that resulted in VCR Plus+ 
being one of the most successful consumer electronics products 
worldwide.

    In summary, as an experienced Corporate Director and CEO, I 
have chaired Boards of Directors and as CEO built companies in 
four different industries: Education Technology, Consumer 
Electronics, Information Management Software and Fashion/
eCommerce. In my roles as Board Chairman and CEO, I have led 
capital raises, recruited board members and established 
advisory boards including bringing on independent non-financial 
board members to lend strategic industry experience. I 
currently serve as business advisor to entrepreneurs with 
venture to mid-size small businesses and non-profit community 
boards.

    I was a member of the fifth class of women to graduate from 
Caltech and our ratio was one woman to ten men in the class at 
that time. Since then I understand the undergraduate percentage 
of women has risen to over 30% (perhaps higher) and there are 
now a significant number (although not that high of a 
percentage) of faculty members who are women and even, now 
retiring, one or more female senior members of the 
administration and board of trustees. So some progress has been 
made.

    From this excellent training, I learned the scientific 
method, in which one first thinks hard about the problem, 
attempts to make a hypothesis and then looks at the data, or 
designs one or more experiments to gather data to then look at 
the question of whether or not the data supports the initial 
hypothesis.

    Using this foundation, I contemplated the question, 
reviewed my own experience and reflected on what my hypothesis 
is related to this issue of concern:

    My reflections lead me to this initial hypothesis, which I 
offer for your consideration:

    The data will tell us that:

          1) A higher proportion of women-founded businesses 
        succeed than do those started by men, yet women are 
        unrepresented significantly in the proportion of 
        venture capital financings both in number and average 
        amount invested over the lifetime of a venture, and,

          2) A high proportion of women-founded businesses 
        succeed by bootstrapping using personal financing/
        friends and family, credit-card debt, and all other 
        non-professional venture methods of financing and 
        therefore result in lower-growth companies which 
        succeed at a greater rate over the longer term than do 
        the businesses founded by male entrepreneurs who tend 
        to raise and risk larger sums of capital on average per 
        venture; and

          3) There is a venture capital ``SEED and A-round'' 
        gap between what can be raised through friends/
        families/small angel investor networks and what can be 
        raised through Professional VC's. This trend affects 
        both male and female entrepreneurs. The VC's have been 
        amassing larger and larger funds which has 
        correspondingly resulted in a proportionally 
        significant increase in the average amount raised per 
        Series (VC round) simply because any one Venture 
        partner cannot sensibly/fiscally responsibly manage 
        simultaneously ore than a certain number of investments 
        sot hat they have to put a larger portion of assets to 
        work at a time. This pushes the Professional VC's 
        towards higher and higher risk and this criteria does 
        not tend to be the type of venture that women 
        entrepreneurs more often gravitate towards.

          4) There is a venture capital gap for first-time 
        entrepreneurs. Entrepreneurs who do not have a prior-
        successful exit as a track record have an almost 
        impossible time raising venture capital. Most VC's and 
        most Venture capital is invested in entrepreneurs who 
        have already had successful exits.

    I have personally experienced (I have had senior executive 
men tell me these things at various points during my career) 
and I believe overall that there is a cultural bias still 
remnant in our society that women are to be cared for as the 
nurturing portion of our society and that as a whole we are 
less capable in business than are men. There is a cultural bias 
that women often do not have a strong financial grounding and 
are incapable emotionally of making the tough decisions and 
choices that are necessary to be successful in business; that 
women are too compassionate and too emotionally biased and 
therefore will be unwilling to do what it takes to win in the 
US game of business.

    I do NOT believe that this pertains to all men, and unlike 
most women, I have personally been very fortunate to have been 
able to raise significant amounts of professional venture 
capital for two different ventures (Enfish and MyShape). I was 
very fortunate to have the support Womens' Growth Capital in DC 
and Intel Ventures for Enfish and to have the support of a rare 
woman partner, Emily Melton, at DFJ, a well-recognized ``A'' 
player, Venture firm in Silicon Valley. I feel this is largely 
because I was very fortunate to have been part of the early 
success of Gemstar coincidentally occurring during the first 
significant economic boom in the late 1990's due to the advent 
of the Internet and Technology businesses. I have also raised 
significant amounts of Angel Capital from individual investors 
through my personal network of friends and colleagues. This 
gave me the track record that investors at the time would 
follow and it is this track record that is often difficult for 
women to establish, for the reasons discussed above.

    Secondarily, women have until recent generations (and I see 
continual improvement and hope in my childrens' generations, 
work experiences and attitudes), not naturally developed the 
business and insider-friend-networks necessary to raise 
capital. Because women are naturally social; social media has 
been a strong enabler of facilitating womens' ability to raise 
funds and we are starting to see some shifts in this trend.

    This is a brief summary and I recommend that a further 
study be made. Thank you for the opportunity to be of service.

    Kind regards,

    Louise J. Wannier
    Board/Advisory Services, True Roses, Inc.
    (626) 675-8541
    [email protected]

    1446 Rose Villa Street
    Pasadena, CA 91106
   
   
  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 
   
   
    
    Chairman Tim Huelskamp and Ranking Member Judy Chu and 
distinguished members of the Subcommittee, thank you for 
inviting me to speak on behalf of the National Women's Business 
Council today before the U.S. House of Representatives' 
Subcommittee on Economic Growth, Tax and Capital Access for 
this Bridging the Gap - Increasing Access to Venture Capital 
for Small Businesses hearing.

    I will begin with some brief background on myself. I co-
founded teamCFO in 2000 to improve performance and support the 
growth of the private business community through a ``hands-on'' 
financial working relationship with their clients. As a long-
time champion of financial literacy for women business owners, 
I have lectured on the subject to diverse audiences, including 
young girls who are aspiring business women. I have also been a 
key collaborator in the curriculum design for financial 
literacy. Additionally, I have spoken at several national 
seminar series on the subject of financial literacy for 
business owners. I have also served as the National Chair of 
the National Association for Women Business Owners (NABWO) as 
well as the Chair for the Los Angeles Chapter.

    The National Women's Business Council (NWBC) is a non-
partisan federal advisory council created to serve as an 
independent source of advice and counsel to the U.S. Small 
Business Administration, Congress, and the White House on 
issues of impact and importance to women business owners, 
leaders, and entrepreneurs. The NWBC was established via the 
Women's Business Ownership Act of 1988 (HR. 5050), a landmark 
piece of legislation that most notably eliminated individual 
state laws that required women to have a male relative cosign a 
business loan. The Council is committed to producing best-in-
class, actionable research on the most relevant issues facing 
women in business and those who aspire to start and lead 
businesses. Compelling, rigorous research is the springboard 
for action and change. We act as convener, collaborator, and 
councilor; it is our mission to be a resource, to put forth 
actionable policy recommendations, and then to engage and 
support influencers, stakeholders, and decision makers in the 
implementation.

    I was appointed as a Council Member of the National Women's 
Business Council in June of 2013. The Council is composed of 15 
dynamic women; we are small business owners, we are members of 
women business organizations, we are diverse in industry, stage 
of business, geography, race, story, and more. It's so 
important that we are a representative Council, and truly 
represent the ever-growing and ever-diversifying population of 
women in business.

    Women-owned firms represent an important segment of the 
business sector. As of 2012, women-owned businesses comprised 
36% of the country's businesses, a significant increase from 
28% in 2007.\1\ As of 2012, there were nearly 10 million women-
owned businesses \2\ in the United States.\3\
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    \1\ Womenable. ``The Growth and Development of Women-Owned 
Enterprises in the United States, 2002-2012'' (Commissioned by NWBC, 
2016). https://www.nwbc.gov/research/SBOTrends.
    \2\ The term ``women-owned'' refers to enterprises that are at 
least 51% owned and operated by a woman or group of women. Businesses 
equally-owned by a man and a woman (or equal numbers of men and women) 
are not included--primarily because the way that equally-owned firms 
have been identified has differed in each of the past four business 
census years, thus precluding accurate trend analysis.
    \3\ NWBC Analysis of U.S. Census Bureau 2012 Survey of Business 
Owners.

    These firms generate an estimated $1.4 trillion in sales 
and employ over eight million people. Between 2002 and 2012, 
the number of women-owned firms increased at a rate 2-1/2 times 
the national average (52% vs. 20%), employment in women-owned 
firms grew at a rate 4-1/2 times that of all firms (18% vs. 
just 4%), and the growth in revenues generated by women-owned 
firms paralleled that of all firms (up 51% compared to 48%).\4\ 
As women-owned business increase in number, revenue per firm, 
and employment per firm, it is important to address the needs 
of this growing population.
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    \4\ Womenable. ``The Growth and Development of Women-Owned 
Enterprises in the United States, 2002-2012'' (Commissioned by NWBC, 
2016). https://www.nwbc.gov/research/SBOTrends.

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            Women's Access to Capital is a Priority

    Access to essential business assets--capital and markets--
continues to be a challenge for too many women. Our work here 
focuses on changing the infrastructure, and increasing and 
improving resources, so more women can access the capital they 
need to start and grow their businesses, and enter new and 
emerging marketplaces, which will help them grow even more. Per 
Council research, on average, men start their businesses with 
nearly twice as much capital as women--$135,000 vs. $75,000. 
This disparity is slightly larger among firms with high-growth 
potential--$320,000 vs. $150,000; and it is much larger in the 
Top 25 firms--$1.3 million vs $210,000. High-growth businesses 
have considerable economic impact-think revenue and receipts, 
but they are much more likely to rely on outsider financing, 
both debt and equity. Among high-growth firms, differences 
across gender exist with regards to amount of financial capital 
used, as well as the source of that capital. It is in the best 
interest of the economy to understand any barriers to these 
firms' success. With lower levels of capital, regardless of 
growth aspiration or potential, women-owned businesses are no 
doubt on different trajectories. We believe that a multifaceted 
approach--involving all components of the entrepreneurship 
ecosystem--is critical to increasing women's access to capital.

                Closing the Venture Capital Gap

    Thanks to great innovation in the capital space, with 
crowdfunding, peer to peer lending, microfinancing, and more, 
women have greater opportunities to pursue and raise the 
capital they need. However, women continue to lag behind men in 
terms of equity investment. The Diana Project research 
conducted in 1999 explored the reasons why fewer than 5% of all 
ventures receiving equity capital had women on their executive 
teams. It was hypothesized then that women entrepreneurs were 
neither prepared nor motivated to found high-potential 
businesses; and were thus not good candidates for venture 
capital investors. But this groundbreaking research found 
otherwise, concluding: ``fundable women entrepreneurs had the 
requisite skills and experience to lead high-growth ventures.'' 
The research concluded that women were consistently left out of 
the networks of growth capital finance and appeared to lack the 
contacts needed to break through. Updated research, performed 
by Babson College, found that of the 6,793 companies funded by 
venture capital between 2011 and 2013, only 2.7% of the 
companies had a woman as the CEO. More than a decade later, and 
the percentage has dropped!

    Only one woman raises equity financing for every nine men 
who do. Early-stage venture capital investing represents the 
greatest proportion of the total venture capital investments, 
49% (3,166 out of 6,512), while later-stage venture capital 
comprised 31% (2,042) and seed capital made up 20% (1,301). 
Companies with a woman executive on the team were more likely 
to receive later-stage funding, or 21% (421) of these 
investments. On the other hand, companies with a woman 
executive received only 13% of the total investments in the 
early stage and only 9% in the seed stage.\5\
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    \5\ Brush, Candida, Patricia Greene, Lakshmi Blachandra, and Amy 
Davis. ``Women Entrepreneurs 2014: Bridging the Gender Gap in Venture 
Capital.'' The Diana Project. 2014. http://www.babson.edu/Academics/
centers/blank-center/global-research/diana/Documents/diana-project-
executive-summary-2014.pdf.

    Per Council research, women-owned businesses are receiving 
only 2.0% of equity funding--as opposed to 18% for men-owned 
businesses. When more than a third of all business is women-
owned or women-led, and they receive less than three percent of 
the available venture capital, the flag is raised. Women stand 
to benefit greatly from a more balanced venture capital 
landscape. Women are majority owners of nearly 10 million 
businesses in the country. And, per the Global Entrepreneurship 
Monitor, 36% of women with established businesses want to grow 
their ventures which show that the appetite for funding 
outpaces the current supply.\6\ Babson College has concluded 
the lack of sufficient capital funding for women entrepreneurs 
will cost the economy nearly six million jobs over the next 
five years.\7\
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    \6\ Kelley, Donna J., Candida G. Brush, Patricia G. Greene, Yana 
Litovsky, and Global Entrepreneurship Research Association. ``Global 
Entrepreneurship Monitor: 2012 Women's Report.'' Global 
Entrepreneurship Monitor. 2013.
    \7\ Stengel, Geri. ``Money's There if Small Businesses Know Where 
to Look.'' Forbes. 2014. http://www.forbes.com/sites/geristengel/2014/
03/05/moneys-there-if-small-businesses-know-where-to-look/.

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    Women Investing in Women--An Opportunity

    One explanation for the disparity is that the number of 
women in the upper echelons of investment firms is down--in 
1999 it was at 10%; and as of 2014 only 6% of top management 
and investment firms are women.\8\ About a year ago, in a Tech 
Crunch article, ``The Real Unicorns Are Female Angel 
Investors,'' Kristi Zuhlke wrote ``to get more women in tech 
today, we need women investors.'' She continued to assert that 
``women investors are important because they signal to women 
YOU belong here.'' \9\ Venture capital firms with female 
partners are reportedly two and one half times more likely to 
invest in companies with women on the management team (34% vs. 
13%).\10\ Based on the argument that women investors would be 
more likely to invest in women entrepreneurs, the declining 
number of women investors is a concern.
---------------------------------------------------------------------------
    \8\ Brush, Candida, Patricia Greene, Lakshmi Blachandra, and Amy 
Davis. ``Women Entrepreneurs 2014: Bridging the Gender Gap in Venture 
Capital.'' The Diana Project. 2014. http://www.babson.edu/Academics/
centers/blank-center/global-research/diana/Documents/diana-project-
executive-summary-2014.pdf.
    \9\ Zulkhe, Kristi. ``The Real Unicorns Are Female Angel 
Investors.'' Techcrunch. 2015. http://techcrunch.com/2015/08/31/the-
real-unicorns-are-female-angel-investors/.
    \10\ Brush, Candida, Patricia Greene, Lakshmi Blachandra, and Amy 
Davis. ``Women Entrepreneurs 2014: Bridging the Gender Gap in Venture 
Capital.'' The Diana Project. 2014. http://www.babson.edu/Academics/
centers/blank-center/global-research/diana/Documents/diana-project-
executive-summary-2014.pdf.com.

    We are pleased to see that women are establishing funds for 
women. Examples include: Golden Seeds--a woman-focused early 
investment fund; Astia--a nonprofit dedicated to identifying 
and supporting high-growth women entrepreneurs; and Texas Women 
Ventures--an investment firm giving millions to women 
entrepreneurs in Texas. Women are establishing funds that 
specifically look for companies with women founders and 
leaders. Golden Seeds has invested over $70 million in more 
than 65 women-led businesses since 2005.\11\
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    \11\ ``Who We Are.'' Golden Seeds. 2015. http://
www.goldenseeds.com/who-we-are.

    Spreading the Wealth--Increasing Women's Access to Venture 
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Capital

    The Council is committed to broadening the dialogue through 
engagement of the full entrepreneurship ecosystem and the 
exploration of innovative ways to increase investment in women-
owned and women-led businesses. In 2014, the Council conducted 
research on Access to Capital by High-Growth Women-Owned 
Businesses; this research confirmed that 1) men are starting 
businesses with significantly more capital; 2) female ownership 
was negatively correlated to the proportion of capital coming 
from external sources; and 3) women-owned firms exceed their 
own expectations regarding growth. Other Council research, also 
conducted in 2014, on Undercapitalization as a Contributing 
Factor to Business Failure for Women Entrepreneurs, confirmed 
that all things being equal, undercapitalization negatively 
impacts business survival.

    In September of 2015, the Council hosted a conversation on 
women's access to venture capital, featuring: Jules Pieri, co-
Founder and CEO of The Grommet, an entrepreneur-in-residence at 
Harvard Business School, and one of Fortune's Most Powerful 
Women Entrepreneurs in 2013; Julia Pimsleur, CEO of Little Pim, 
founder of Double Digit Academy, a bootcamp training for women 
planning to raise venture capital or an angel round of $500k+, 
and author of Million Dollar Women: The Essential Guide for 
Female Entrepreneurs Who Want to Go Big; Jeanne M. Sullivan, an 
advisor, speaker, investor and connector and the co-Founder of 
StarVest Partners, a venture capital firm in NYC; and Trish 
Costello, Founder and CEO of Portfolia, a collaborative equity 
investing platform, and recognized internationally for her 
pioneering work in educating and preparing venture capital 
investment partners, through the prestigious Kauffman Fellows 
Program. During this online session with over 200 participants, 
a panel discussed the importance of venture capital for women-
owned and women-led firms, shared best practices and actionable 
insights on how to secure venture capital, and proposed 
solutions to eliminate this gender gap. Trish Costello 
asserted: ``Five million women are accredited investors--either 
they make more than $200K or have $1 million in assets. 
Collectively, women own about $10 trillion in private 
investable assets. So when we look at these numbers if women 
just began to put a very small amount of investment wealth 
behind the [women-led] companies they want to see, we could 
greatly shift what is happening in entrepreneurship world.''

    In our 2015 Annual Report, which we shared with this 
esteemed committee, the Council proposed a few potential 
remedies, including:

           Eliminating the carried interest loophole 
        for venture capital firms that do not fund female-owned 
        or female-led firms proportionally to male-owned or 
        male-led firms--to ensure higher levels of investment 
        for women ventures.

           Introducing tax credits for investment in 
        women-owned and women-led businesses--to provide 
        incentives for investors to seek out women-owned and 
        women-led firms that are generally undercapitalized and 
        face a higher burden to securing.

           Increasing and/or improving the promotion of 
        capital opportunities and sources--to broaden and 
        diversify the outreach to the many women that do have 
        investment-ready firms.

           Strengthening the pipeline of women into 
        careers in finance--Specifically increasing the number 
        of women on the financing and investment side, as angel 
        investors, members of venture capital pitch committees, 
        investment bankers and more--to diversify the 
        perspectives and authority in the decision-making 
        process.

           Providing entrepreneurial support--
        particularly in the form of education and mentorship--
        early and consistently for women--to better prepare 
        women as they seek to start and grow their businesses.

    Conclusion

    Dan Primack just published an article last week, titled: 
``Venture Capital Still Has a Big Problem With Women'' in 
Fortune. They used PitchBook to compile a list of all U.S.-
based venture capital firms that had raised at least one fund 
of $100 million or more since the beginning of 2011. They 
found: ``Among firms that had raised funds of $200 million or 
more, the percentage of female decision-makers was 5.67%. For 
firms that had only raised funds of between $100 million and 
$199 million--a much smaller group--it was 5.97%.'' As the 
government's only independent voice for women entrepreneurs, 
the Council's mission is two-fold: to 1) support and conduct 
groundbreaking research that provides insight into women 
business enterprises from startup to success, and to 2) share 
the findings to ultimately incite constructive action and 
policies. The numbers confirm that the full economic 
participation of women and their success in business is 
critical to the continued economic recovery and job growth in 
this country, and we are committed to sustaining he potential 
that women entrepreneurs present. We know women have innovative 
ideas and that women are leaders. We know women are launching 
businesses that create value and solve problems. And we believe 
women with innovative and scalable ideas should be able to grow 
their businesses, increase their receipts and create more jobs; 
it's good for business, and good for the economy overall.

    Thank you for this opportunity to testify, and I look 
forward to your questions.

                                 [all]
```