Y Combinator Startup Podcast - #17 - Aileen Lee and Kirsty Nathoo at the Female Founders Conference

Episode Date: July 12, 2017

Aileen Lee is the founder of Cowboy Ventures.Kirsty Nathoo is CFO and a Partner at Y Combinator.

Hey, this is Craig Cannon, and you're listening to Y Combinators podcast. Today's episode is a conversation between Kirstie Nathu and Aileen Lee. Kirstie is a partner, Y, CFO, and Aileen is the founder of Cowboy Ventures. This conversation was recorded at our fourth annual female founders conference, which took place here in San Francisco this June. Okay, here we go. So I'm Kirstie Nathu. I'm a partner at Y Combinator and also the CFO. And our next speaker is Aileen Lee, and Aileen is the founder of Cowboy Ventures, which is a fund that invests in seed stage companies. Before starting cowboy, Aileen was at Kleiner Perkins, and she's also spent time at Gap and Morgan Stanley. Alien is also famous for coining the term unicorn, which you

probably sick to death of hearing about now. Infamous or famous. And we actually invite Aileen to talk to our founders that YC every batch. And the reason why is that we just love that she gives this amazing, no nonsense advice to our female founders about talking to investors. So I'm excited to be able

to chat with her today in front of everybody. Thank you. Okay, so Aileen, I gave a little bit of your history there, but why do you go into a little bit more detail and about how you what made you decide to go off on your own and start Cowboy? So Cowboy

We Ventures is still kind of a startup. We started five years ago, and I had been at Kleiner for a long time, actually, almost 13 years. And I, part of the time, from 07 to 2009, I actually kind of left part-time and went to go run one of our portfolio companies as CEO. And when I came back, I just had a different feeling about the firm and the work. And I found that I was fortunate to be a senior partner at Kleiner at the time. And as you, for these large firms, you've been just like large companies, as you kind of get into senior management, you spend more and more your time in meetings, less kind of doing the functional work and more around kind of trying to help run the firm a bit. And I just really love working hands-on with founders and with portfolio companies, and I just felt like our firm had kind of grown quite large, and I was spending more time on internal meetings than actually just spending time with companies. And the industry had changed a lot, too. I mean, as you all probably know. There are a lot more funds now. There are a lot more startups. They can be all around the country. And so venture investors really have to be kind of open for business and

available to meet with companies all the time because you just don't really, you know, you never really know what's under the hood unless you have a meeting and you get to meet people. And so I just felt like having a job where all I really did was just meet with companies, get to know talented people who might start companies, who might want to work at portfolio companies, and helping portfolio companies is really all I wanted to do with less overhead. And Seed was this new category that was still pretty small in terms of the number of firms and also the number of well-respected brands in the Seed category that were known for giving hands-on help.

And yet it's the biggest, it's kind of the biggest part of the funnel. And so it seemed like a great opportunity to both start something new, make it more personal, make it very small with very little overhead, where really all we do is very pure and very focused. And so what did you see at Kleiner and places like that that you decided you were going to do differently with your fund? Anything. It did get quite large, and I think this isn't specific to Kleiner,

but in general, the math of venture capital is such that venture capitalists make money through a combination of fee income and what is called carried interest, which is basically profit sharing with their investors once you've returned the capital. And when you do the math on funds, if you have a $500, $800 million or a billion dollar fund, the number of multi-billion dollar companies

that you have to be an investor in per fund is quite large. When you do the math, it seems very unlikely that most venture capital firms will be able to generate the kinds of returns to investors and to themselves that they have in the past. And so the math, I think, just works much better. and it's much more aligned with entrepreneurs if the funds are smaller. So that was one thing.

But I won't, I mean, having the chance to be a female founder and to hopefully build a brand that gets very hopefully well respected by entrepreneurs and investors for being a blue chip top tier firm in terms of the quality of work, the quality of relationships, the integrity and the outcomes. And helping to put numbers on the board and move the needle for women in tech is something that really motivates me. Yeah, yeah. And you mentioned that one of the things was that you wanted to have more of a hands-on approach with helping the founders that you invested in.

What kind of things do founders ask you for help with and how can you help them? Well, at Seed Stage, it's hard for us to see, but how many of you out there are founders? Holy cow. That is awesome. And how many of you are Seed Stage or Pre-Seed founders? Okay, a lot. So at stage age, as you know, you have not enough time, not enough money, not enough people. And so founders generally want advice or help or guidance on multiple fronts. One is on hiring. Many times a founder has never hired certain types of people before.

They've never hired a head of sales or they've never hired a U.S. designer and things like that. So they like advice in both introductions and help filtering and knowing kind of where to set the bar in terms of who to hire when and how to know that they're the right people on the financial plan. as many of you may know, the bar has kind of been raised in terms of how much series A of investors want to see. You accomplish from Seed stage before you raise an A and then from A to B and B to C. Because a lot of these funds have gotten bigger, they have more money. So they can kind of wait and write a bigger check at a higher valuation for more traction. And so I think at Seed or even pre-seed getting good advice from experienced folks on what you really need to prioritize

and accomplish with the money and the time that you have at Seed can be important. and customer introductions, feedback on roadmaps, help with positioning and strategic messaging and PR. So just kind of across the board, that's the way we like to help. Yeah, yeah. And so, you know, if one of the things that you're doing is working so closely with the founders, what kind of what traits are you looking for in the founders?

What really attracts you to the companies that you invest in? Because at this stage it is all about the people. Yes, a lot of it is about the people. And so, you know, high integrity, high intelligence people who have also shown a certain amount of hustle and scrappiness in figuring stuff out before they've raised money and then having kind of an aggressive but doable plan for what they're going to do with the money and within a reasonable period of time. So we usually suggest that your seed round lasts you at least 18 months, if not 24 months or more than that. you know going a big a big mission and vision that's quite ambitious that can be backed up by here's where we want to be and here's how we're going to get there over time this is what we want to get done the next 12 months or the next 18 months you know relevant backgrounds if possible or at least

a personal connection to the problem that the person and the team is trying to solve we'd love to see ideally some kind of a technical angle or a technical solution That's kind of it. And we also talk sometimes when we meet with the women in each class, so I will just say it. I do think it can be harder for women to raise money than men. And so I think that kind of sucks, and we will fix it over time.

But for now, the thing we have to do is know what you are up against being a woman entrepreneur raising money in a largely male industry of VCs and understanding then kind of where you are and what you need to work on. Because a lot of pitching, Well, the other thing I'd say is storytelling is really important. And being a great storyteller is important.

And if you are not a great storyteller, you can become one. I have seen so many people who started out not being great storytellers become excellent ones, and it's just a matter of feedback and practice. Especially at that early stage where you're really selling a dream. Yes. So important. Yes. So, you know, you mentioned that it's potentially harder for female entrepreneurs to be pitching to male investors.

How does somebody pitch to somebody? who is not necessarily their target market? Well, hopefully there are plenty of, I mean, hopefully you can pitch women. And the more we can do to get more women into the venture industry, the more women you will have to pitch. But you, look, it's a 95% male industry. Right. So you're very likely to have many men in the room.

But look, if you look at Pinterest or house or stitch fix, I mean, the majority of the investors and those companies are men. So obviously there are men in the industry who understand problems that they may not personally relate to. Right. I mean, it goes to show, doesn't it? If you have an enterprise startup, then the people who you're pitching to aren't your users in that situation either.

Right. So it is possible. It's just all about that storyteller. Definitely. And the folks at Y.C publish a lot of great things about like tips and tricks for how to go about doing it. But I think for many of you, if you're going into a fundraising next, you know, generally starting out with what is the mission and vision of the company?

How big is the market? Venture investors are looking for large, addressable markets. What is the problem that you're trying to solve? Who's on your team and how relevant is the team? What is the product that you've built if you have built something or what are the wireframes look like? What kind of traction or feedback have you gotten from the market in terms of whether people are going to like the product or whether they do like the product? And what is the financial model and the economic model look like? And what are you going to do with the money?

like that's pretty much how I think those are the main elements of the story and just how you tell the story and the personal narrative that goes along with that and I think is what investors are really looking for. Yeah and I think a lot of it just comes with confidence as well, just walking into that room with confidence. So how would you advise the women in the audience to be able to internalize that and project it in those meetings? I mean, it's exactly what you said, Kirstie, which is you all, there are some great examples of women founders out there who have raised a lot of money or building quite valuable companies. So we know it's possible. And I think especially with a lot of the news that's come out in the past week, we hopefully have a better window than ever, more openness, more support than ever. I think there is a gathering army of not just women, but also men, who realize that the deck has been somewhat stacked against women in the industry since the beginning of the industry and that it needs to change. And so those are all good things.

And there's also just such an amazing ecosystem of people who have raised money, who you can friendly pitch your story to and get feedback and iterate. I mean, nobody comes up with a perfect pitch right away. everybody iterates on it and gets feedback and practices and it gets better. Yeah, and I think that's one of the things that people don't necessarily realize that there's a lot of people that can help you with the pitch that have been there. And seed stage investors are very much focused on helping their companies get to the next stage and we'll help with those pitches. Yes, we do like to do that.

Yeah. So I'm going to go there, all this news that you just mentioned. Does anyone know about the news? Has anyone heard some stuff going on recently? You know, as a female VC, what's your take on it? What can we do? I'm pretty pissed off. But I think we have to use it.

We can't just be mad, right? We have to be constructive. We have to use this an opportunity to come up with new ways of doing things, new solutions, using it as an opportunity. It both is, I think, a carrot and a stick. There's not going to be one answer. There's going to be multiple things that we can hopefully do to be constructive with what we've learned in the past week.

And I don't think that this is, I don't think this story is over. I think more sad stories will come out over the coming weeks about behavior that shouldn't happen in the industry. That's unprofessional, that's unacceptable, that will piss us off even more. And so we have to, you know, all of you, hopefully, hopefully, you know, this will give you more motivation to be successful, to kick some major butt with your companies, to build modern, inclusive cultures, to bring up, like, to hire a

diverse team, to nurture and develop a fantastic slate of lots of women and people of color on your management teams and in your ranks that will become the next generation of CEOs. And then, and also we need more women investors. You know, so I, you know, something that I had the fortune of having breakfast this morning with a bunch of general partners at a bunch of women, general partners at different firms. And we talked about what can we do to help the associates and principals, the women and people of color, other firms so that we have more people becoming general partners faster. So there are more people to call when we have a successful company that's going to have choices, raising an A or a B or a C, we at Cowboy Ventures are going to try and steer those companies to modern firms that have women and people of color in the investing positions. And if you all have only men at your firm, and the founders, they're a decision, but most of our founders feel this way, if they have a choice, they would

rather work with a modern firm. Like, why should we make money for assholes? You know? Yeah, for sure. And, you know, if a VC misses a deal that turns into a hot deal, because the founders have said, no, I'm not going to work with you, that's how change can happen. Yeah, so I think, you know, if you have a company that's successful, if entrepreneurs and friends of yours who have successful companies, or if you're a great operating executive that is going to have lots of opportunities

to be recruited to be a VP at different companies, you're making a choice kind of with your feet or with your wallet by who you make successful. And so I hope that you will use your leverage to steer people and steer yourself to firms and teams that are inclusive and diverse.

Yeah, for sure. It's going to take a concerted effort, but we can get there. So, you know, we've talked a bit there about choosing these modern firms to work with. But how else does a founder, you know, what should they be looking for in investor? How do they decide who they should be working with? I do think being networked with other women and other entrepreneurs, you know, there were a bunch of articles about how the information that came, from the information that came out has been kind of an open secret in Silicon Valley for years. And some people knew about it and some

people didn't, but you have to ask. So you have to ask, we investors do references on entrepreneurs before we invest. Entrepreneurs and executives who are thinking about joining startups do references on the folks that you are considering joining. And hopefully you'll figure out, are they people of integrity? Do they have skeletons in their closet? What do I need to know that I'm getting into? How is the culture? and I'm hoping that we'll come up with some way. I mean, I think the great thing is that women and other people are starting to come forward and name names and talk specifically about people or firms they've had bad experiences with.

And all this stuff has just been, I mean, it's happened to probably most women in this room. You just eat it. You know, it just makes this little pit in your stomach that causes you to doubt whether you're welcome in technology, whether that firm really wants you to be there. I mean, there's so many microaggressions and little cuts that people do because subconsciously they're trying to make you feel uncomfortable or they really just don't, they don't have confidence to you, but you should all have confidence in yourselves. And I'm hoping that more people will be encouraged that you'll be a hero or a hero, by coming forward and being brave, because it's a hard thing to do.

but factually and using data and evidence showing what's happened and that it's not okay, because there are many people to have your back because it's not okay. Yeah, yeah, I mean, we get that. We ask founders to tell us if investors have behaved badly because we have the power to be able to do something to help. You know, we can stop them coming to demo day or we can, you know, there's numerous things.

But it's so hard to get women to tell us who they talk, who they are talking about. and it just requires so much bravery. But the more that it happens, the less bravery it will require. Yes, I really appreciate. I think in the last batch that we talked to, a woman said something about a male VC

who had said some very inappropriate things, and you all found out his name and disinvited him to demo it. So I was pretty psyched about that. Thank you. You're welcome. So we haven't really talked much about your portfolio and the kinds of companies that you look at.

You know, where do your interests lie? So being us, being, we are a generalist. You know, there are some vertical specific funds, like the only invest in health care or big data or robotics. We're generalist funds. Our goal is to hopefully identify and work with the most promising startups at stage that are technology-oriented startups every year, whether they're enterprise or consumer-oriented. And so we have, I think, a really interesting mix of founders and companies that we've gotten to back. some of them are consumer oriented, like BritainCo, brandless,

which is a company that's launching on July 11th that we're super excited about, and both female CEOs and founders, and also security companies, infrastructure, textio, is an enterprise SaaS company that we've backed, also founded by a fantastic woman CEO. So it's really, I think hopefully we can be helpful and hands-on and all the things that I mentioned, like team building and go-to-market strategies and helping you get ready for your Series A, regardless of what type of company you are.

And do you think that founders should consider, you know, how should they consider these funds that say that they're vertical-specific versus the generalist approach? I mean, the fun thing at Seed is one of the reasons why I also decided to move earlier from being a Series A investor to a Seed investor. A is CED is collaborative. So at Series A, generally the way the industry works is you're going to pick one series A, a lead investor and that firm is going to own 20 to 30% of your company going forward and and hopefully your prior seed investors will invest per rata but you can't you don't split your your series a

usually between two different series a firms at seed we don't we always co-invest with other people so we can partner with a data oriented firm or an enterprise focus firm or a consumer oriented firm and we do that quite and also with with angels individuals who have special expertise or relationships with the founder. So it's more of like a village, and it's a team approach to trying to help the company, because it's the riskiest time. So we feel like having lots of good people around the table to help the company and support them is more fun for us and is going to help the company more.

Yeah, yeah, it's definitely a difference at Series A, where you have one investor who's on your board and they're the ones that are driving it. Yes. The seed stage, it just takes, like you say, a village. Yeah, yeah. And I also think hopefully our village tries to help. guide and advise the founders on who is the best Series A board member, because that is really a big decision. It's really hard to get divorced from your Series A board member. Right. You should treat

it like a marriage. It is a marriage. It's a dating process. Yes. And that person is going to help you grow as a CEO. And if you want to be a CEO that lasts for the next 10 years running your company, making sure that you develop a relationship of trust with your Series A investor who's really who could try and get rid of you or could help you develop is a big deal. And that's one of the things that we work with our founders on is trying to help them find that right person. So we're running out of time. So, you know, we have a room full of women here. So many of them, as we've seen, are founders. What's the, you know, biggest piece of advice you can give to them to help them pitch to a seed investor and be successful? So as I mentioned, I do think that women

have to walk a finer line in today's environment of mostly male VCs than guys do. Like, as you may have heard me, like I try and say this whenever I have the opportunity, like, what if my trigger phrases is he's such a good guy? Yeah, I can't stand that phrase. Like the phrase good guy, people say it all the time, and it doesn't really mean much other than like high five, we love that bro. Let's go and shoot some hoops. Yeah, exactly.

And I see this all the time. You know, in meetings with VCs where if we have a company that's doing well and we're thinking about who we're going to call for our series A, and it's mostly men around the table and myself. And we make a Google Doc of, like, who are the target investors for the round? And someone will be like, oh, what about Scott Jones? And someone else will be like, oh, I love that dude. He's such a good guy. And then someone else will say, oh, what about Brian Smith?

and it's like, oh, love that dude, love that guy. Put him on the list. And it doesn't mean anything. Like, it doesn't mean that he's going to be a great board member and that we should get married to him for 10 years. But then if I bring up a woman, what about Susie Smith? They'll say, oh, does she invest in security? Like, there's no, oh, she's such a great girl.

Or she's such a great woman. Like, it's just, it's infuriating. Yeah. But that's kind of what happened. But the same thing happens to entrepreneurs. Like, if you pitch or a group of guys pitch in the closed session after you leave, the VCs be like, I just love those guys. And someone else would be like, yeah, such good guys, love those guys, so fun to work with.

And you're just like, er. But it's just not fair because they don't say, they can't say that about women. Like, it's such a, like, what if I say something that's offensive or like, I just love that woman? What does that mean? But women don't say it's about women either. I know, it's not fair, so like we should stop saying it. But that's kind of the world that we live in, right?

So the advice I like to give women entrepreneurs is, you know, be confident, but don't stretch. Like if you are a little too arrogant or you, if you kind of puff things up a little bit too much, they will ding you for being an exaggerator. So that's one thing. But, you know, don't be too shy or underconfident. because, to be honest, I think guys can get away with being, oh, he's just an introvert. Whereas women, and there was an article recently that basically showed a quantitative study that showed that women and men get different judgments and they get different questions,

depending on basically by investor. So it is not fair. We just have to know how the deck is stacked and work around it. So, you know, practice your pitch. So you come across as confident but not overconfident and not spinning, because they will ding women for overspinning. Know your numbers. Women are overly dinged for not being quantitative enough.

I have a friend who works at a unicorn company who her father is a math professor. She was a math major. She was the COO for a company doing $100 million in revenue and in charge of quantitative acquisition, marketing all these things. When she interviewed at this unicorn company, first of all, all of her interviews with men, and every single person asked her,

how do I get the confidence that you're quantitative enough? There's just no way that men get those kinds of questions. No. So just know your numbers. It's not, you know, so if someone asks you, what's the CAAC, what's the LTV, what are the margins, what's the revenue plan for next year? Just know it. Just practice it. And if those are things that you don't know about

or you're not sure how to calculate, then these are the things that you can ask for help from so many people around. And, yeah, you know, women, really do have to know those numbers back to front because they will get pushed on them much more. So that is so important. Be good at follow-up. If people are asking you questions or there's some follow-up things, take notes, send an e-bill the next day and say, hey, here are the things that we discussed. I wanted to follow up on these points. Showing that you're super conscientious and that you're on it. Well, actually, like, I think

there are some women who get put into this category of, like, she's a killer. Like, that's kind of category that you want to be in. That's how many. think about, there's like women and there's like women killers. And like, oh my God, she's an animal. Like she just like was all over her shit and she just knew her numbers. She followed up. Like she's an animal. And I mean, to be honest, it's so true.

Like VC firms that are mostly male do want to, they want to show the world that they are, that they get it, that there's with it. And they also know that it's just women and like if they don't attract women founders, they are going to be leaving a lot on the table. And it's going to be harder for their firm and for their portfolio companies to attract women or people of color if they don't walk the talk in some way. And so I think they are more open for business than ever

to back a more diverse set of entrepreneurs. So that's great for us, right? We can do this. You just need to know what you need to do. Fantastic. Well, thank you so much for this. Thank you. All right, thanks for listening.

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