(FORTUNE Small Business) – At a mahogany conference table in a big-windowed room high above Boston's financial district, Janet Kraus and Kathy Sherbrooke sit opposite two stone-faced venture capitalists: an older man and his younger male colleague. Kraus and Sherbrooke are hardly neophytes when it comes to raising money for their startup. Early on they cajoled nearly half-a-million dollars from friends and family. Later they tapped angel investors for $1.1 million. That got them to "proof of concept," as the lingo goes, and helped them land their first paying customers. But this meeting is a notch up from the routine. Today they are asking for serious money from two very serious gatekeepers. Kraus has just completed her presentation. The room is silent, which worries her; it's better when they jump right in with questions. Finally the older guy slides his glasses down his nose and looks up. "So, Janet," he says. "I see Kathy's married."

Huh?

"I'm just curious. What are you going to do when Kathy gets pregnant?"

First question out of his mouth! The blood climbs in Kraus's neck. Is he kidding? Kraus and Sherbrooke have been planning this deal for years. Both have corporate experience, Ivy League degrees, MBAs from Stanford. Together they slaved over every cell in their spreadsheet, every slide in their presentation. They aren't asking these guys for any favors; they're asking for a chance to make them rich. Kraus bites her tongue. Sherbrooke (whose wedding ring was the tipoff) focuses all her psychic power on stopping Kraus from exploding. The younger VC snickers softly. "Hmm," Kraus says brightly, breaking the tension, "that's a good question! What will I do? I don't know, throw her a shower?"

Seven years, two baby showers, and $26 million in venture funding later (no thanks to those sexist VCs), Kraus, 39, and Sherbrooke, 38, are thriving, as is Circles, their startup. Circles is in the concierge business. It operates customer- and employee-loyalty programs for brokerage firms, credit card companies, and hospitals. While many other venture-backed startups born around the turn of the century have flamed out, Circles has prospered. Yes, headquarters is in a funky red-brick industrial building in South Boston (almost half the 500 employees are here, the rest in a call center in Burlington, Ontario), and yes, dogs roam the hallways, but Circles is no dot-com relic. The web part, once primary, has receded. Today Circles, one of three national concierge services, interacts with its 2.5 million members mainly by phone--arranging romantic dinners and fancy vacations, booking dog walkers and cat sitters and clowns for kids' birthday parties. The two founders feel that their advantage lies in their willingness to go to extremes for their clients--once even calling in a helicopter rescue for a climber stranded on a mountain. Sales last year were $34 million, up from $25 million in 2004, and Circles has been profitable since 2001.

It's the kind of women's success story you might think was pretty common these days--but not so fast. According to the latest from Growthink Research, of the 1,860 companies that received private equity funding in 2003, only 5%, or 84, of them were woman-owned. While women did well in health care (44% of all businesses funded in that field in 2003 were led by women), they lagged far behind men in other industries such as telecom, networking, and e-commerce.

The story about the VCs who played the baby card--now part of company lore at Circles--still rankles. Stuff like that "just makes my skin crawl," says Sherbrooke. "You don't want to be the whiner on the other side of the table," she says, but she's also the first to admit that any woman entrepreneur has to think about all kinds of questions that men don't--including what happens if she gets pregnant. Long before Kraus and Sherbrooke committed to becoming business partners, much less dreamed of asking investors to back them, they dug deeply into all that and more: children, husbands, relationships, fears and dreams, and their personal definitions of success--issues that have little to do with the daily grind of business but everything to do with why two women might choose to go into business with each other, and whether they'll succeed.

Kraus and Sherbrooke had met on the first day of math camp at Stanford Business School, before classes started. Later that week, on a class outing to Big Sur, they paddled around in a kayak for two hours talking about how they had wound up at Stanford. Right away they discovered a connection in Body Shop founder Anita Roddick, who used her chain of cosmetics stores to advocate for human rights and the environment. Sherbrooke had written her admissions essay on Roddick; Kraus aspired to work for her one day. It wasn't just Roddick's creativity that made her such an appealing role model, or her commitment to responsible commerce--it was her financial success. Roddick was proof that entrepreneurs don't have to choose between values and profits; if they're smart, they can have it all.

Sherbrooke is from New Jersey by way of Dartmouth, where she majored in literature. A stint in business journalism after college opened her eyes to the brave new world that Roddick, Steve Jobs, and other heroes of the new economy were inventing every day. In business you could "do something big," she realized--that was the epiphany that had led her to Stanford--"and do it in a way that creates positive impact well beyond the financial outcome."

Kraus majored in political science at Yale and dreamed of becoming a Supreme Court Justice. After working with a consulting firm in Boston, she joined a nonprofit in São Paulo that tries to rescue street orphans. It was not a good fit. And so to Stanford--still idealistic, she says, but certain now that business was her arena.

Stanford in the early '90s was an entrepreneurial hothouse. Irv Grousbeck, co-founder of Continental Cablevision, taught a popular course on financing startups. Jim Collins was there too, compiling the research that would become his bestseller, Built to Last, and sharing everything he was learning with his students. Both Kraus and Sherbrooke took Collins's class.

The two forged their partnership right after graduation in late spring 1994, during a cross-country road trip from Palo Alto to Cape Cod. They packed up Kraus's red 1990 Honda Accord and headed east on I-80. They weren't sightseeing, they weren't cutting loose, they were working. It was a five-day meeting on wheels, intensely purposeful--a time for soul-searching and brainstorming, a true journey of discovery. A business partnership is "like a marriage," says Kraus, quoting professor Collins. "You want to make sure you're doing it with someone you trust through and through." For 3,000 miles they grilled each other. While one drove, the other took notes. When you think about starting a business, why are you doing it? What are your financial goals, your life goals? "I need to explicitly say that my husband comes first," Sherbrooke told Kraus. "If we ever get to a point where it's the business or the marriage, I'm going to choose the marriage every time." Kraus was cool with that.

They talked launch strategies (venture funding was the goal from day one; they had no idea what they were in for) and exit strategies. Each looked forward to a long entrepreneurial career spanning several startups. Neither had children at the time, but already they thought about companies like children: as living organisms they would nurture and love for as long as it felt right, then let go. About the only question they did not thoroughly dissect over those five days was the obvious one: What kind of business do we want to start? They didn't know, and they didn't think it was important to know, not yet. "That got my attention," says Stanford alum Mike Stevens, co-founder of New England Capital Management, a Boston buyout firm, who would become their mentor. "They were asking, 'What are the values we have between us and how can we take all that and put it into a venture that reflects our values?' That is the right way to think about being an entrepreneur."

Both women were keen on doing something big. Not employing tons of people necessarily, but definitely big. They were not interested in starting a nice little lifestyle company, no matter how much cash it generated. Their highest shared goal was to make a positive impact--on customers, on employees, on the world (shades of Anita Roddick).

By the time they reached Sherbrooke's parents' house on Cape Cod, they had articulated a shared vision and had a plan: First we get experience, then we start our business. Sherbrooke returned to California and worked as a product manager at a software company. Kraus left for North Carolina and her dream job at the Body Shop. They gave each other three years, no more. Then life intervened. After only a year and a half, Sherbrooke became engaged. Her fiancé was from Boston, and she decided to move back east with him. Kraus told Sherbrooke she was ready to quit her job and start her business now, "even if you're not ready." By summer 1996 they were meeting every morning in Kraus's South End apartment, gunning toward a launch.

All they needed now was an idea. "You'll have a real tendency to churn through the same ideas over and over," warned Stevens. "Try to remove yourself from that situation. You have to open up as many doors as possible." Busy professional women strapped for time, that's where they started. How do you solve that? A combination retail store and wellness center? A website selling health products? Or maybe concierge services? The two noticed a lot happening in the marketplace for concierge services, but most of it was local. They saw an opportunity for something bigger than simply walking dogs or buying groceries for busy women, and that led them toward loyalty programs for businesses. Not exactly a world-changing enterprise, granted, but one that comes with plenty of chances to make a happy difference in people's lives.

Stevens also advised them to decide who was going to be the CEO. It was okay to call themselves co-founders, okay to pay themselves equal salaries, and okay to divide the equity straight down the middle. But no one was going to invest in them until it was clear who was the boss. Kraus and Sherbrooke didn't want to hear that, but naturally they talked it through. How important is our partnership? Do we give in on principle just because a bunch of 60-year-old men don't buy co-CEOs, especially when they're women? Do we have to play their game? In the end, they agreed to bend. Kraus would be CEO, Sherbrooke would be president. No big deal. "She's the explorer and I'm the navigator," says Sherbrooke. "We meet in the middle on strategy and what's practical."

Then they began making the rounds. The further they advanced down the money path from friends and family to angel investors to VCs, the fewer women they encountered and the more baffling the process. Kraus was an ice-hockey player at Yale. She likes games and she's naturally competitive, but like most women, she says, she wants to know what the rules are. She remembers watching the boys mingle with VCs in business school, how naturally they conversed, how clueless she felt. It has taken her years to figure that stuff out. "Men just have conversations with men who then tell them what to do and who then introduce them to the right people," Kraus says. "When you're a woman, it's hard to know who to ask. The whole process just feels so unclear. Little tiny things, like never, ever, ever send a business plan to a VC. How would you know that? If you do that, it's the kiss of death. The only way that VCs ever take a plan seriously is if it has been hand-delivered to them by somebody they trust." Or this: "It's so important that you know these guys before you ever tell them what you're doing. You should be having conversations about what they're interested in, what they're thinking about, and little by little they're saying to each other, 'This guy so-and-so, he's doing some interesting stuff.' But this guy so-and-so has never asked them for any money! So by the time he actually needs money, the VCs actually want to put money in."

Sherbrooke says that she never felt discriminated against as a woman in anything she tried to do--in college, in business school, or at work--until she started dealing with VCs. "We'd meet with a group of men, and they would say, 'This is really interesting. I think it's not quite up our investment alley, but I have someone you should really talk to. You guys should meet Mary Jo, I bet she could be really helpful to you,' " she says. "It was always a woman they put us in touch with. Always. It was so bizarre. Most of the time the women had no connection to our industry. Some of them weren't even particularly impressive. It was like all they could think of, sitting across the table and looking at us, was that we were women, and they were trying to figure out how to make some connection."

The key was securing that first round of VC financing--$15 million, co-led by TL Ventures in Wayne, Pa., and Trident Capital in Westport, Conn. The breakthrough came when they shifted their focus away from VCs who had eyes only for technology companies to those more open to service companies. "I don't think it was a glass ceiling," says Sherbrooke. "I think it was a barrier you have to break through, which I think every entrepreneur has to face in some way. You're just sitting there with an idea, you've proven nothing, you're just asking for money. It's just this very awkward odd time."

She's right, of course. It's hard for everyone. But it's harder for women. If she can't see that, even now, that's interesting. Maybe not seeing yourself as a victim is exactly what it takes.

56% Share of women business owners with $1 million or more in sales who finance--or plan to finance--their business through commercial lenders (vs. 71% for men).

Source: Center for Women's Business Research

The $784 million of venture capital invested in woman-run firms in 2003 went to:

54% HEALTH CARE

21% BUSINESS SOFTWARE AND SERVICES

17% TELECOMMUNICATIONS AND NETWORKING

6% E-COMMERCE

2% OTHER

Source: Growthink Research

Growth Tips

COMMITTEE OF 200: This Chicago-based group of influential women offers the Growing Entrepreneurs Mentoring Program, which provides advisors for women who own businesses with $3 million to $10 million in sales. c200.org

MAKE MINE A $MILLION BUSINESS PROGRAM: To help women entrepreneurs reach $1 million in annual revenues, this program gives participants a year of business coaching and other resources. It is run by Count-Me-In, a nonprofit dedicated to increasing women's access to capital, and OPEN for American Express (FSB's distribution partner), the corporation's small-business group. makemineamillion.org

SPRINGBOARD ENTERPRISES: This Washington, D.C., nonprofit offers networking programs, seminars, venture forums, and workshops to teach women how to gain access to equity markets. Participants have raised significant amounts of capital. springboardenterprises.org

WOMEN PRESIDENTS' ORGANIZATION: The 2006 WPO Annual Conference in Chicago, April 27-29, includes a session for women who want to pitch their business plans to venture capitalists. womenpresidentsorg.com

WOMEN'S TECHNOLOGY CLUSTER: The San Francisco business incubator helps female technology entrepreneurs find sources of capital through introductions, conferences, mentoring, and other services. wtc-sf.org