By David Fondler Pioneer Press, St. Paul, Minn.
A group of five women, backed by more than 50 investors, has built a Twin Cities investment fund to nurture development of women-led technology and health care businesses.
The Sofia Angel Fund II closed its first round of fund-raising at $3.9 million last month; a second close is expected to bring the fund up to $5 million. The first Sofia Angel Fund, started in 2006, raised $1 million and is fully invested.
The idea is this: Find investors, typically individuals, who are willing to take risks on women entrepreneurs whose business ideas can create bigger companies. In addition to equity, these investors may take leadership or board positions in the companies. But mostly, it will be the women running the fund who will work with the entrepreneurs to grow the businesses.
The fund's name comes from the goddess Sophia, who represents wisdom in numerous mythologies.
"We wanted to bring our wisdom and resources to the companies," says fund CEO Cathy Connett. "So it's not just about bringing the funds ... we have very extensive networks, we have very extensive experience; the areas we are investing in is what we know."
Connett, an engineer with a Harvard MBA, who once handled business acquisitions for 3M, runs CorConnections, a St. Paul-based consulting firm. Others in the group are Barbara Stinnett, Lisa Crump, Joy Lindsay and Dee Thibodeau.
Stinnett, a veteran of the Silicon Valley investing community who worked for HP, Oracle and Cisco, now runs the Timmaron consulting group in Minneapolis. She joined Connett recently for an interview about the Sofia Fund. Their answers have been edited for context and clarity.
Question: Let's start with the concept of women-led businesses. What's behind that? And what does it mean in your criteria?
Connett: "In 'women-led,' we include women founders, we include women on the executive team, with key roles and equity. Some people do a hard and fast 51 percent ownership. To qualify for a state of Minnesota angel tax credit, as a women-led company, it has to be 51 percent-owned by women. I hate to say it, but there are a number of people who play games. They give 51 percent ownership to a woman and she's not involved in the company. We're looking for transparency; we want women involved. There are two reasons we do that. One is, there's multiple data citing the fact that when women are on the executive teams, companies perform better, so we're minimizing our risk, The other incentive is the fact that women entrepreneurs are under-funded. If you look at venture capital numbers, they've gotten up to 9 percent, if you look at seed and early-stage deals ... in 1998, it was 4 percent; it's not moving very fast. And so we've seen women out there, we know they have good deals, and we're looking to help bring the money to them."
Question: What about on the investment/funding side? Women only, or open to all?
Connett: "The first fund was women only, because women wanted to learn more about this (investing) space. This time, we have men, we have women, we have couples, we have executives and entrepreneurs. It's really nice to see entrepreneurs investing their gains back into the community. We have C-suite people. It's a fairly diverse group, so it's been an interesting process, raising that money."
Stinnett: "We're very much about investing in something that we are passionate about and has purpose ... passion and purpose in a market space where we believe we have operational expertise, networking connections, investment knowledge; really around those."
Question: What does the team bring to the mission?
Stinnett: "Each of the members brings a unique value. We are all focused on early-stage in some way, shape or form. Mainly Joy and Lisa have been doing it from the investment side, and Cathy and I also work and mentor entrepreneurs as part of our consulting organizations, and then Dee is out in the market space in technologies."
Connett: "All five of us have been investing in early-stage deals for decades, in addition to our day jobs, so to speak."
Question: What to you expect from the companies you target?
Stinnett: "We actually have on our website the key criteria. ... We talk about the fact that you need to have the management team, need to be in a market space that we're saying we are in. Knowing their space, knowing their TAM, or total addressable market; they need to understand the landscape of the value they're bringing, and the potential competition. Those are the key things."
Connett: "For example, we say health and wellness, (but) we don't do medical devices. We are looking for companies where we can bring the expertise, a couple of rounds of funding, then there might be an exit; we're looking for three- to five-year exits. It used to be people would look at IPOs as the ultimate exit; frankly, what's happening in the marketplace today, many of the exits are strategic buyers -- either public companies or, in more and more cases, private-equity firms. Companies start because families and friends invest, people who know them and trust them, which an angel considers a good sign, that there's trust there. But there's a gap between friends and family and venture capitalists. And with angels driving this, that's what drives the economic development of this community; it drives job creation, it drives innovation, the seed of spinoffs of large corporations. You need an infrastructure, an environment, where that is positive, and angels help bring the money and mentorship to help drive that community."
Stinnett: "So the whole social economic aspect of it is important to us. Educating people about the whole angel class, really working with entrepreneurs to be here, in the community, and to be able to contribute in a way that's not just the financial piece, but it's also very fulfilling."