Fundraising Advice for Female Founders

by Aileen Lee

Aileen Lee is the founder of Cowboy Ventures.

Kirsty Nathoo is CFO and a Partner at Y Combinator.


Craig Cannon [00:00:00:00] - Hey, this is Craig Cannon. And you're listening to Y Combinator's podcast. Today's episode is a conversation between Kirsty Nathoo and Aileen Lee. Kirsty is a partner at YC, as well as the CFO, and Aileen is the founder of Cowboy Ventures. This conversation was recorded at our 4th Annual Female Founders Conference, which took place here in San Francisco this June. Okay, here we go.

Kirsty Nathoo [00:00:00:21] - So I'm Kirsty Nathoo. 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. Aileen is also famous for coining the term unicorn, which you're probably sick to have hearing about now.

Aileen Lee [00:00:00:52] - Infamous or famous, whatever.

Kirsty Nathoo [00:00:00:55] - And we actually invite Aileen to talk to our founders at YC every batch. And the reason why is we 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.

Aileen Lee [00:00:01:17] - Thank you.

Kirsty Nathoo [00:00:01:21] - Okay, so Aileen, I gave a little bit of your history there, but why don't 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?

Aileen Lee [00:00:01:31] - So Cowboy 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 part of the time, from '07 to '09, 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 for these large firms, just like large companies, as you kind of get into senior management, you spend more and more of 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 felt like having a job where all I really did was just meet with companies, get to know talented and 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 it's the biggest, it's kind of the biggest part of the funnel, and so it seemed like a great opportunity to start something, make it more personal, make it very small with very little overhead, where really all we do is very pure and very focused.

Kirsty Nathoo [00:00:03:30] - And so what did you see at Kleiner and places like that, that you decided you were going to do differently with your fund? Any things?

Aileen Lee [00:00:03:40] - 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 billion, $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 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.

Kirsty Nathoo [00:00:04:53] - 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?

Aileen Lee [00:00:05:05] - Well, at seed stage, I know 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 seed stage, as you know, you have not enough time, not enough money, not enough people. And so founder 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 UX designer, or things like that. So 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 investors want to see you accomplish from seed stage before you raise 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.

Kirsty Nathoo [00:00:06:30] - Yeah, yeah. And so if one of things that you're doing is working so closely with the founders, 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.

Aileen Lee [00:00:06:44] - Yes. A lot of it is about the people. And so high integrity, high intelligence people, who have also shown a certain amount of hustle and scrappiness in figuring stuff out before they raise 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. 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." Relevant backgrounds, if possible, or at least a personal connection to the problem that the person and the team is trying to solve. We love to see, ideally, some kind of 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're 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.

Kirsty Nathoo [00:00:08:24] - Especially at that early stage where you're selling a dream.

Aileen Lee [00:00:08:27] - Yes.

Kirsty Nathoo [00:00:08:27] - It's so important. So you mention 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?

Aileen Lee [00:00:08:43] - 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 look, it's a 95% male industry, so you're very likely...

Kirsty Nathoo [00:00:08:57] - Right. Yeah, there's no denying it right now.

Aileen Lee [00:00:08:59] - Yes...have many men in the room. But if you look at Pinterest or House or Stitch Fix, I mean, the majority of the investors in those companies are men, so obviously there are men in the industry who understand problems that they may not personally relate to.

Kirsty Nathoo [00:00:09:16] - Right. I mean, it goes to show, doesn't it? If you have an enterprise startup, then the people who you're pitching aren't your users in that situation either.

Aileen Lee [00:00:09:23] - Right, exactly.

Kirsty Nathoo [00:00:09:23] - So it is possible. It's just all about that storytelling.

Aileen Lee [00:00:09:26] - Definitely. And the folks at YC published 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, 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 do 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, I think is what investors are really looking for.

Kirsty Nathoo [00:00:10:22] - 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?

Aileen Lee [00:00:10:36] - It's exactly what you said, Kirsty, 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 the perfect pitch right away. Everybody iterates on it, and gets feedback, and practices, and it gets better.

Kirsty Nathoo [00:00:11:30] - Yeah. And I think that's one of the things that people don't necessarily realize. There's a lot of people that can help you with the pitch that have been in there and seed stage investors are very much focused on helping their companies get to the next stage and will help with those pitches.

Aileen Lee [00:00:11:46] - Yes, we do like to do that.

Kirsty Nathoo [00:00:11:48] - Yeah. So I'm going to go there. All this news that you just mentioned.

Aileen Lee [00:00:11:53] - Does anyone know about the news?

Kirsty Nathoo [00:00:11:54] - Yeah, has anyone heard some stuff going on recently? You know, as a female VC, what's your take on it? What can we do?

Aileen Lee [00:00:12:08] - 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 as an opportunity to come up with new ways of doing things, new solutions, using it as an opportunity, that 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 this story is over. I think more sad stories will come out over the coming weeks about behavior that shouldn't in the industry, that's unprofessional, that's unacceptable, that will piss us off even more. And so we have to, all of you, hopefully this will give you more motivation to be successful, to kick some major butt with your companies, to build modern, inclusive cultures, 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 also we need more women investors. I had the fortune of having breakfast this morning with a bunch of general partners, and a bunch of women general partners at different firms, and we talked about what can we do to help the associates of principles, the women and people of color in 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, I mean, it's their decision, but most our founders feel this way, if they have a choice they would rather work with a modern firm. Why should we make money for assholes? You know?

Kirsty Nathoo [00:00:14:19] - Yeah, for sure. And if a VC misses a deal that turns into a hot deal, most of the founders have said, "No, I'm not going to work with you." That's how change can happen.

Aileen Lee [00:00:14:29] - Yeah, so I think if you have a company that's successful or 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.

Kirsty Nathoo [00:00:14:58] - Yeah, for sure. It's going to take concerted effort, but we can get there. So we've talked a bit there about choosing these modern firms to work with. But how else does a founder, what do they be looking for investor? How do they decide who they should be working with?

Aileen Lee [00:00:15:19] - I do think being networked with other women and other entrepreneurs, you know, there was a bunch of articles about how the information that came, well, 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're 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's 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. It just makes this little pit 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 micro-aggressions and little cuffs that people do, because subconsciously they're trying to make you feel uncomfortable, or they really just don't, they don't have confidence in 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 heroine, by coming forward and being brave, 'cause it's a hard thing to do. But factually, and using data and evidence, showing what's happened, and that it's not okay. 'Cause there are many people that have your back, 'cause it's not okay.

Kirsty Nathoo [00:00:17:00] - Yeah, yeah. And 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. There's numerous things. But it's so hard to get women to tell us who they are talking about. And it just requires so much bravery. But the more that it happens, the less bravery it will require.

Aileen Lee [00:00:17:28] - Yes, I really appreciate it. And I think in the last batch that we talked to, one 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 Day. So I was pretty psyched about that. Thank you.

Kirsty Nathoo [00:00:17:42] - You're welcome. So we haven't really talked much about your portfolio and the kinds of companies that you look at. Where do your interests lie?

Aileen Lee [00:00:17:59] - We are a generalist. There are some vertical specific funds, like they'll 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 seed stage that are technology-oriented startups every year, whether they're enterprise or consumer-oriented. And so we have a really interesting mix of founders and companies that we've gotten to back. Some of them are consumer-oriented, like Brit & Co, Brandless, which is a company that's launching 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. 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.

Kirsty Nathoo [00:00:19:04] - 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?

Aileen Lee [00:00:19:13] - 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, is seed is collaborative. So at series A, generally the way the industry works is you're going to pick one Series A lead investor, and that firm is going to own 20% to 30% of your company going forward. And hopefully your prior seed investors will invest pro rata. But you don't split your series A use, usually between two different series A firms. At seed, we always co-invest with other people. So we can partner with a data-oriented firm, or an enterprise-focused firm, or a consumer-oriented firm, and we do that quite, and also with angels, individuals who have special expertise or relationship with the founders. 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.

Kirsty Nathoo [00:00:20:12] - Yeah, yeah. There's definitely a difference at series A, where you have one investor who's on your board, and they're the ones that's driving it. The seed stage, it just takes, like you say, a village.

Aileen Lee [00:00:20:21] - 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.

Kirsty Nathoo [00:00:20:35] - Right. You should treat it like a marriage.

Aileen Lee [00:00:20:37] - It is a marriage, yes.

Kirsty Nathoo [00:00:20:39] - It's a dating process.

Aileen Lee [00:00:20:40] - And that person's 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 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.

Kirsty Nathoo [00:00:21:00] - So we're running out of time. So we have a room full of women here, so many of them, as we've seen, are founders. What's the biggest piece of advice you can give to them to help them pitch to a seed investor and be successful.

Aileen Lee [00:00:21:19] - So as I mentioned, I do think that women have to walk a finer line in today's current environment of mostly male VCs than guys do. You may have heard me, I'm trying to say this whenever I have the opportunity, one my trigger phrases is, "He's such a good guy." 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, "High five, we love that bro."

Kirsty Nathoo [00:00:21:47] - "Let's go and shoot some hoops."

Aileen Lee [00:00:21:49] - Yeah, exactly. And I see this all the time in meeting 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 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, "Love that dude. Love that guy. Put him on the list." And it doesn't mean anything. 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?" There's no, "Oh, she's such a great girl." or "She's such a great woman." It's infuriating. But that's kind of what, 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 will be like, "I just love those guys." And someone else will be like, "Yeah, such good guys. Love those guys. So fun to work with." And you're just like "Err!" But it's just not fair, because they can't say that about a woman. It's like, "What if I say something that's offensive?" or "I just love that woman." What does that mean?

Kirsty Nathoo [00:00:23:18] - But women don't say this about women either.

Aileen Lee [00:00:23:20] - 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'd like to give women entrepreneurs, is be confident, but don't stretch. If you're a little too arrogant, or 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 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 judgements and they get different questions depending on, basically by investors. So it is not fair. We just have to know the deck is stacked, and work around it. So practice your pitch, so you come across as confident, but not overconfident, and not spinning. 'Cause 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. Her father's a math professor, She was a math major, She was the COO for company doing $100 million in revenue and in charge of quantitative acquisition, marketing, and all these things. When she interviewed at this unicorn company, first of all, all of her interviews were 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. So just know your numbers. So if someone asks you, "What's the CAC? What's the LTV? What are the margins? What's the revenue plan for next year?" Just know it. Just practice it.

Kirsty Nathoo [00:00:25:04] - 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. Qomen really do have to know those numbers back to front, because they will get pushed on them much more. So that is so important.

Aileen Lee [00:00:25:22] - Be good at followup. If someone asks, if people are asking you questions, or there's some followup things, take notes, send an email on the next day, and say, "Hey, here are the things that we discussed. I wanted follow up on these points." Showing that you're super conscientious and that you're on-it will actually, I think there are some women who get put into this category of like, "She's a killer." That's kind of category you that you want to be in. That's how men 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. She's an animal." I mean, to be honest..

Kirsty Nathoo [00:00:26:01] - It's so true.

Aileen Lee [00:00:26:02] - VC firms that are mostly male do want to show the world that they get it, that they're with it, and they also know that it's just women, and 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 more diverse set of entrepreneurs. So that's great for us. We can do this. You just need to know what you need to do.

Kirsty Nathoo [00:00:26:33] - Fantastic. Well, thank you so much for this.

Aileen Lee [00:00:26:36] - Thank you.