The Middle Market Review Insights on the Middle Market.

Subscribe Subscribe

Subscribe Today

I want to receive:

Thanks for subscribing!

Business Owners

Breaking Boundaries: The Exit Journey for Female Entrepreneurs


When Linda Etter and her husband, Tracy, decided they wanted to scale back from the long hours they were logging at their company, e&e IT Consulting Services, Inc., in 2014, they sold a majority stake in the staffing company, based in Mechanicsburg, Pa., to private equity firm IMB Partners, based in Bethesda, Md. 

At the time, e&e IT Consulting had about $16 million in annual revenue. e&e’s business was heavily concentrated with the Pennsylvania state government, but IMB saw the potential to expand, according to Farrah Holder, managing director at IMB Partners. “Equity capital is going to be interested in the growth to come,” Holder says. 

Since then, e&e IT Consulting has grown to $22 million in annual revenue with an 18-person staff and a roster of 135 billable professionals. Under the leadership of the firm’s vice president Alecia Justice, the couple’s grown daughter, as part of its succession plan, the company is now on the hunt for acquisitions to fuel growth. To spark new business, IMB has connected e&e with other firms in its portfolio who need staffing services. That support, “has opened doors for us to additional business opportunities,” says Justice.

Female Representation in the Lower Middle Market

Scenarios like this are still relatively rare for female founders and CEOs, in part because women are underrepresented in the lower middle market and have been for many years. Only 4.2% of firms led by women have revenue of $1 million or more, according to American Express. “Baby Boomer exits are not as prevalent with women-owned businesses,” says Andrew Sherman, a partner in the Washington, D.C. office of law firm Seyfarth Shaw and author of Mergers & Acquisitions from A to Z.

Women are also underrepresented in the private equity world, meaning women founders who seek to exit must make inroads to an investment community that is overwhelmingly male. Research by the Knight Foundation found that, as of 2018, only 8.6% of hedge funds, mutual funds, private equity firms, and real estate funds had female ownership of at least 25%. Only about 20% of senior leaders at private equity firms are women, according to McKinsey

However, there is hope for the future, as new generations of women leaders take the helm of middle market firms. “2021 numbers were very encouraging, with most arrows pointing up toward female founders increasing the number of deals they’re getting as a percentage of overall deals with capital,” says Geri Stengel, president of Ventureneer, a research firm that studies the obstacles facing underrepresented entrepreneurs.

“What makes me cautious for 2022 is the uncertainty of the markets right now,” Stengel adds. “It’s typical when markets retreat that investors go back to their old ways. They’re going to be investing in their existing portfolio companies as opposed to new companies, which would hinder female founders.”

The Path to Accessing Capital

Aihui Ong exited her company, EdgiLife Media—a tech company in San Mateo, California, that enables consumer packaged goods companies to tap into customer intelligence while placing products in the hands of consumers via a wellness-oriented subscription box called LoveWithFood—in 2018, after running it for seven years. She is now a general partner at the venture capital firm Transform Capital, which has a philanthropic mission and donates to causes selected by investors and founders of its portfolio companies, and XFactor Ventures, which is focused on funding the next generation of female founders. 

Ong, based in Silicon Valley, decided to sell EdgiLife to SnackNation, which curates and delivers healthy snacks to customers’ homes, after the buyer approached her for the third time. “As a health and wellness community with half a million people, we had billions of data points on consumers all across the U.S.,” she says. “We had a lot of IP and a good base of consumers. This acquisition is synergistic and provides the buyer access to a larger customer base while providing their CPG clients with deeper consumer insights and more refined data analytics.”

Her advice for female founders looking for backers? “Fundraising is a numbers game,” Ong says. “A female founder will come to me and say, “I tried to raise money. I talked to a lot of investors.” And my question is, “How many investors did you talk to?” They’ll say 5 or 8. That’s not a lot. I talked to 75 investors to close my seed round. It is a game of kissing a lot of frogs and seeing who kisses you back. Keep on going. Don’t give up. Eventually you’ll find investors who are interested in your space.”

Bringing Buyers Value

Private equity firm Olive Tree Ridge focuses primarily on backing firms in industries such as light manufacturing and food processing that are run by women founders and immigrants, using a majority-controlled buyout strategy. The firm looks for companies with annual revenue above $5 million and 20-30% margins whose founders have deep experience in their industry and strong relationships that will help them weather challenges, such as supply-chain constraints and labor shortages, with resilience. 

“These women all have one thing in common: They understand the business they are in,” says founding partner Michael Davis. “All of the women we work with are veterans of the industries they work in. They are able to navigate problematic situations that would be fatal to most.” 

Case in point: Davis said that when one of the companies served by the firm’s investment banking arm — a fashion business that serves plus-size customers — found itself unable to source and receive materials and the finished product from manufacturing facilities in China and India, the founder found a way to purchase from buyers in New York City’s Garment District, who had bought in bulk long ago, and make the products locally.

“If she were not entrenched in the Garment District, she would not be able to switch the modality of her business as quickly as her balance sheet would indicate she needed to,” says Davis. 

Olive Tree Ridge also pays attention to the culture and role in the community that potential portfolio companies have, believing these bring resilience. “The businesses we look at do not have a labor shortage,” says Davis. “The CEOs run their businesses the way they run their families.” 

When it identifies a potential investment, Olive Tree Ridge will share the data it uses with the operator to evaluate the business and the comparable businesses it looks at, with the hope of developing a relationship in the future. “I want to be as transparent with you as possible, so you know what creates value in our eyes,” he says. “It turns into a partnership with the operator. She understands what we value. We might not be in a position to acquire the business, but now we have a new friend who is running a great business and seeking our advice and wants to earn more. When they improve the business, the business is more valuable.” 

And Davis sees part of his firm’s mission as helping operators beyond the point where they exit. His firm has set up a registered investment advisory practice to help founders of its portfolio companies manage the wealth they have built. “Our responsibility does not end when we cut her a check,” says Davis. “Now she needs to maintain and grow that wealth.”

Learn More About Joining Axial

Request Information

Subscribe to Middle Market Review

Subscribe to Middle Market Review

Subscribe Today

I want to receive:

Thanks for subscribing!