Pioneering private equity shop focusing on female-run firms strikes alliance

Leslie Frecon was a pioneer when she worked her way up to senior vice president of corporate finance at General Mills in the early 1990s. She left after 20 years to open her own private-equity investment boutique in 2001 and focus on female-owned businesses.

Frecon is still breaking new ground at her LFE Capital in Wayzata.

Stifel Financial, the large St. Louis-based brokerage and financial services firm, has invested in LFE and is now a minority shareholder. Moreover, Stifel is investing in Frecon's fourth fund, which she expects to grow to $100 million.

This is significant because it allows LFE to add investment staff. And its fourth fund should be larger than the three previous combined.

"Raising capital for the small number of female-headed private-equity businesses like LFE remains a challenge," Frecon said last week. "That's due to the smaller size of funds, the constraints of institutional investors and the lack of women in decision-making positions.

"Stifel has recognized the market opportunity and LFE's track record and capabilities. And leveraging their capital, expertise and national networks will enable LFE to expand its reach and impact."

Stifel declined to quantify the investment, but the financial giant has capacity. Stifel reported improved 2021 net earnings of $252 million on record revenue of $4.7 billion.

Frecon invests — typically in amounts up to $7 million — in women-led businesses with revenue of $2 million to $20 million and a focus on tech-enabled products and services in the health and wellness industry.

LFE's patient performance has been superior. The firm has realized cash-on-cash returns of 3.5 times invested capital over the years.

The firm is one of the longest standing of the small nationwide niche of female investment firms that back female entrepreneurs.

"We are committed to LFE Capital's mission to expand access to capital and networks to facilitate the continued success of the women's business community," Victor Nesi, co-president of Stifel and head of its institutional business, said in a January statement. "We admire Leslie's foresight and tenacity."

Businesses owned by women get just 2% of capital from venture capital and private equity outfits, according to PitchBook and other sources.

However, Boston Consulting Group research shows women-owned startups generated twice as much revenue per dollar invested and 10% more in cumulative revenue than all startups over a recent five-year period.

For Frecon, the investment gap is easy to explain.

"There are not enough female decision makers at PE firms," Frecon said. "Supporting women-owned and -managed fund advisers is key to solving issues because these funds get scarce capital to women-led companies that grow."

Frecon has a good track record to sell — one of the reasons her firm secured the Stifel partnership, she said.

"We're selling our businesses for three to eight times their revenues," she said. "That's a nice return for shareholders and LFE limited partner investors. We're keen on the health and wellness market, and women start a large percentage of those businesses.''

LFE also is licensed by the Small Business Administration as a small business investment company, which permits banks to invest in both the firm and its funds. That includes the banking units of Wells Fargo, BMO Harris, American Express and Morgan Stanley.

Avant Healthcare faced several challenges, including the Great Recession and Trump-era immigration restrictions. But the company persevered, performed and resulted in a nice payday when it was acquired several years ago,

Other current and past holdings include names such as Inlet Medical, Halo Innovations and Wellbeats.

"Those tech-rooted companies scale faster and have higher margins," Frecon said.

In 2019, LFE invested in Minneapolis-based Peace Coffee.

Peace Coffee is a fair trade coffee company established by a nonprofit in a basement years ago. It was purchased in 2018 by longtime CEO Lee Wallace and investor Kent Pilakowski, now an independent adviser who had been a marketer at General Mills.

Wallace has shuttered the higher cost, slower growing coffee shop business, a strategy accelerated during the pandemic, to focus on double-digit growth since 2019 in the wholesale and consumer-direct businesses.

"Everybody drinks coffee at home since the pandemic," said Frecon. She wasn't expecting such explosive growth when she invested. "It's a fabulous, premium brand that's fast growing under Lee, a great CEO, and a fabulous management team."

LFE Capital isn't the only female-led equity group in town. CEO Cathy Connett's Sophia Fund has invested $10 million-plus in early-stage, female-run startups. LFE has collaborated with Sophia on perspectives and deals over the years.