Compilation: Deep Tide TechFlow

Note: This article is included in the Deep Tide TechFlow special topic "YC Entrepreneurship Course Chinese Notes" (updated daily), dedicated to collecting and organizing the Chinese version of YC courses. The twenty-first article is an online course by Aileen Lee, founder of Cowboy Ventures, titled "Women Entrepreneurs, Traditional Founders, and Investor Expectations."

Cowboy Ventures Background

Cowboy Ventures is an early-stage venture capital firm founded in 2012, headquartered in Palo Alto, California, USA. The company's vision is to support entrepreneurs in improving the world through technology and innovation, providing them with funding, resources, and experiential support.

Cowboy Ventures' investment focus includes consumer technology, enterprise services, digital health, fintech, artificial intelligence, and machine learning. Its portfolio includes many successful startups, such as Airbnb, Coinbase, Guild Education, Plaid, Redfin, and Unison.

The company's co-founder, Aileen Lee, is a well-known venture capitalist who previously served as a partner at the prestigious VC firm Kleiner Perkins Caufield & Byers. She is also one of the most influential women in Silicon Valley. Cowboy Ventures pursues long-term investments, aiming to build deep partnerships with startups and provide them with strategic guidance and operational support.

Retail Career

I am a first-generation immigrant, and both of my parents are Chinese. Growing up in a very traditional family, we had nothing, but they saved money to buy a Chinese restaurant, so everyone in the family worked there. I grew up in New Jersey and always thought of immigrants as typical entrepreneurs because you come to this country with nothing and have to find a job, a place to live, and a livelihood.

In my impression, entrepreneurs are like those who do more than anyone else but at the same time do less than anyone else. Immigrants also need this spirit. I was very fortunate that my parents placed a high value on education, and I eventually got into MIT, starting a fully immersive learning experience.

Then I worked in investment banking for a few years because it was a personal interest of mine. Later, I lived in China for a year, teaching English and learning Chinese. During business school, I was particularly interested in brands and consumer brands, studying how they generate high-quality organic customers.

At that time, when the internet was not yet widespread, I often read Fast Company and Inc. magazines to look for emerging and upcoming companies, and I would find them in the phone book and call them. I even searched for old magazines on microfiche.

After graduating from business school, I went to Gap. My family didn't like that I worked for Gap because I had spent so much time getting a good education, and maybe retail wasn't where I was meant to be. But I was really passionate and felt there would be an opportunity to work with very smart people. At that time, Gap was attracting talent in retail. The smartest planners, merchants, and visual designers all worked there.

I worked at Gap for three years in various operational roles.

• I worked on supply chain projects, trying to figure out where the goods were.
• Then I served as CoS for a year, helping prepare for public company board meetings and ensuring there was a good parking spot when they wanted to visit the stores.
• In 1999, I helped operate Gap's online division, uncertain whether to do Old Navy or Banana Public.com, as it was unclear whether this .com would continue.

*Note: GAP is one of the largest clothing companies in the United States. Founded in 1969 with only a handful of employees, it is a multinational company with five brands (GAP, Banana Republic, Old Navy, Athleta, Intermix), over 3,200 chain stores, annual revenue exceeding $13 billion, and 165,000 employees. It's hard to avoid GAP when talking about McFashion.

The Chief of Staff (CoS) is an executive position in complex organizations. The CoS is a coordinator for support staff or the primary assistant to key figures such as leaders of large organizations. Typically, the CoS provides a buffer between the CEO and the direct reporting team of business leaders.

Working at Kleiner Perkins

A lot happened during the internet boom, and later I wanted to work for a tech company, so I sent my resume to a few people and eventually interviewed at Kleiner Perkins. They might have thought it was novel to hire a woman, but I had previously been a CEO, which allowed me to work in a venture firm.

At Kleiner Perkins, I worked with a partner named John Doerr for four or five years, and we were very successful. John is a legendary figure in the venture capital world. We worked with Google and Amazon and met incredible people.

I loved reading every business plan that came into Kleiner Perkins, but I always felt I didn't have enough operational experience, especially not having been a CEO in a venture capital firm.

But then an opportunity arose. A digital media company we invested in needed a CEO, and they asked me to come in to help, giving me the chance to gain more experience. I took a two-year leave from Kleiner Perkins to run this digital media company. It was a great experience; our model looked very successful in 2007, and we raised $20 million in Series B funding. However, in 2008, we ultimately had to lay off half the staff.

But later, we also grew fond of that state because we were able to weather the storm. We eventually acquired two competitors, and after bringing in a better CEO, I returned to Kleiner Perkins. I felt lucky because it was a tough road.

*Note: Kleiner Perkins is a venture capital firm founded in 1972, headquartered in Menlo Park, California, USA. The firm invests in the technology sector and has invested in many well-known tech companies, such as Google, Amazon, AOL, Compaq, and Sun Microsystems. Additionally, Kleiner Perkins focuses on investments in green technology and clean energy, with several successful cases in these areas.

Advice for CEOs

I have many thoughts; first, I am an ordinary person who enjoys communicating with others. I believe this trait can translate into great management ability. In the past, I managed a few people, but not many. However, when you are a CEO or leader, you must first persuade employees to work at the company, which is different from before. I found this task much more challenging than I had imagined. You have to deal with employees with different personalities, such as engineering leads, marketing leads, sales leads, and finance leads. They have different strengths and weaknesses, so they require different management approaches. You must find effective ways and rhythms of communication to motivate them and help them perform at their best. This requires adjusting your mindset.

Another issue is that as a CEO of a startup, I need to take on many new responsibilities. For example, I had never hired salespeople before and didn't know how to create a compensation structure for them. When you complete work, compensating others can lead to unexpected consequences. I hired many different types of people, including experienced and inexperienced ones. You have to decide whether you are willing to bet on unproven people and find the right tasks for them, which is not easy. In sales, we had to spend time and energy determining the qualifications of potential customers and how to close those unsustainable accounts.

I learned a lot, but most of it was through hard lessons. Sometimes I felt like I failed, especially when I was responsible for the business school project; I procrastinated for a long time and didn't complete the assignments. Although my resume might look good, I am acutely aware of my shortcomings.

I believe humans can change; they evolve and learn. Giving people a second chance is necessary because time can make people better. Being a venture capitalist requires being an optimist.

When choosing early investments, it is essential to work with those more primitive, undiscovered, and uncommon people and situations to understand what we need to do to drive innovation.

At Cowboy Ventures, people spend half their time producing products and the other half researching and exploring.

Becoming a non-traditional employer means people need to embrace your ideas as a non-traditional employer. When deciding to become a fundraiser, you need to be a natural storyteller, sharing your story and bringing people along on your company's journey. This skill can be applied in many areas, such as recruiting talent, persuading customers to buy your products or services, or raising funds. Practice is key to improving storytelling skills, and effective ways to enhance storytelling abilities include seeking feedback from friends, getting help from Sequoia partners and others, and participating in feedback sessions provided by YC.

Investor Expectations

When you face significant milestones like seed rounds or Series A, you should pay close attention. If professional investors (whether seed funds or large venture capital firms) give you funding, you must generate a certain return to be part of them. In recent venture capital, achieving a top return of four times is crucial. If you secure $100 million in funding, you must figure out how to generate $400 million in returns to raise funds again in the future. This means you need to find two to four truly great companies to invest in among 30 different companies to achieve balance. Among these 2-4 companies, they must generate at least $1 billion or more in returns.

Our first investment was $40 million, holding 10% of the company. We exited when the company was valued at $400 million, allowing us to recoup our investment fund. However, this exit strategy typically only applies to seed round financing. Once Series A financing occurs, people expect to exit larger-scale investments because these individuals usually have $500 million or $800 million in assets. So they need to own 10% of a company valued at $8 billion to return the fund.

Historical data shows that most funds ultimately do not own 50% of company shares. They have two to three companies valued in the billions and a bunch of companies valued close to zero or truly worth zero. Therefore, they look at you and think, "Is this one of the companies I want to support this year? Can it become my big winner?" They do not consider how to bring this company to a valuation of $200 million or $300 million, but rather whether this founder can turn this company into a multi-billion dollar company. Thus, execution and storytelling in the short term must be appropriate.

For institutional investors, this is what they think.

Understanding the math of venture capitalists during the entrepreneurial process is crucial because only then can you understand why the person sitting across from you is asking you business questions and why they care about you.

However, not everyone can successfully exit with $40 million from an angel round. Many times, angel investors do not provide the guidance that professional investors offer to help you scale your company in the market. Because they are not professionals, they are just high-net-worth individuals who write you a check and say to keep in touch and move on.

While sometimes you have to do what you must, you should always try to position yourself in a place with good options. This is essentially the case when considering fundraising order and team building. If you want to become a fast-growing company and develop Series A and B, institutional investors can help you find partners for the next round. Many founders forget this: you have to do all these things yourself, which is one of the things people rarely talk about when fundraising.

When you start a startup, you have to fundraise and tell your story to professional investors. Fundraising is humbling. Therefore, during the fundraising process, you need to let investors see your value to gain their support and funding.

Gender Bias

When I started Cowboy Ventures, I was the only one. I could feel their trust in me, which made me very nervous. Nowadays, I have gone through all this because every funder gets some equity. Even the hottest companies will have people refuse to invest.

If you send me your business plan or we have a conversation, we will work very hard to reply to you, telling you whether we are a fit and why not, rather than just smiling. Many people need to see this. You need to get feedback from many VCs, but they might be afraid to tell you the reason because if you do well, they want to call you later and pretend they were really busy when they passed, or they don’t want you to feel that their lack of investment was a mistake.

Leadership is crucial in fundraising; investors will smile, but their job is just to understand what you are doing, and they will not enter your first fund. They are too conservative, so be careful.

Therefore, I decided to create a process to screen everyone by phone before I met them to ensure they understood seed funds and had some industry knowledge. Sometimes this process is efficient, and sometimes it doesn't work.

AllRaise: Building a Diverse and Inclusive Tech Ecosystem

We know that many studies show women have a harder time gaining trust than men. Even when women and men say the same things, they do not leave the same impression. This is very unfair, but we all have biases, and I hope people can have an equal attitude towards both genders.

I think it’s like a study conducted by Penn-MIT, where they presented some slides on PowerPoint with voiceovers and asked business school students to invest $100 or $1,000 to see how much they would give. Then they did an A/B test, playing the same slides with male or female voiceovers.

One of the slides was narrated by a man describing how to raise two daughters to adulthood. The result showed that male students were more willing to invest in male entrepreneurs than female students. We must address gender bias at every stage of life, whether in elementary school, middle school, or adulthood; we need to work to eliminate bias. We must focus on this issue because we have ignored it in the past and not talked about it. Now we need to take action.

Some people just want to be popular, while others genuinely possess ethics and earn trust. We should focus on how to ensure the entire team possesses these qualities rather than just focusing on one person.

AllRaise.org is a nonprofit organization focused on advocating for and accelerating the success of women in the tech ecosystem.

We provide services related to venture capital as well as diversity and inclusion, helping women and people of color enter this field. We provide space for women entrepreneurs, helping them get training and matching them with companies that want more diverse teams.

We encourage founders to register as transformative founders who can drive diversity and inclusion on boards and help build stronger company cultures. We believe in the importance of faith and diversity, and we hope to inject them into every corner of the world.

Finally, regarding entrepreneurship, it’s not just about storytelling; it also requires support in math and results. We hope to help entrepreneurs better understand the math and components of results in venture capital.

In summary, we are committed to building a more inclusive and diverse tech ecosystem.

How to Present Your Startup Idea to Investors?

As a founder, when raising funds, you should showcase your team and talk about who you are, why you started the company, and the background or experience you have that is necessary to solve the problem. Next, explain the existence of this problem and its scale. Investors typically look for billion-dollar problems. You need to identify a target market because if you can only capture 10% of the market share, your target market may be too small for venture capitalists. They want your target market to be at least $5 billion or more because they want to know how much profit you can make if you really succeed.

Then you start discussing the product or solution, what you have built, how it works, and what makes it unique. You need to clearly point out its significant benefits, ideally a tenfold difference, because only then can you attract people to try something new.

You also need to discuss the competitive landscape, but be careful with your wording and do not disparage other companies or competitors. You need to face reality honestly and transparently, rather than misleading investors and board members with words.

Finally, you need to provide a financial plan, usually a three-year plan, including revenue figures, profit and loss statements, business profit margins, costs of entering the business, and expenses related to marketing, technology development, and advertising. Additionally, you need to plan how much cash you will consume over the next three years. These are the basic elements you need to discuss on the pitch.

It’s best to have a summary slide. If you have ever done public speaking or a speaking course, they will tell you, "I will tell you what I am going to tell you, then I will tell you, and then I will tell you what I told you." You can start with a number or summarize "the key points of our work" on a slide like Canton. Then you start revealing the whole story, saying, "Basically, among 30 companies, you will end up with two winners and some not-so-good companies." You ask limited partners (LPs) for data to figure out if this is realistically feasible. You want to understand the data of other funds, the composition of their winners, the backgrounds of the founders, how they met, their birth order, where they worked, and so on. While all this understanding is important, if you can create a clear table listing companies valued over $1 billion in the past decade and record every piece of information, such as where they went to college, the number of co-founders, their age when starting the company, previous companies they worked for, etc., you can more accurately identify the commonalities of success.

However, collecting this data is not easy. In the end, you start creating a spreadsheet listing companies valued over $1 billion in the past decade, starting with a number and recording various information about these companies one by one. Although the dataset of these 39 companies is often quite outlier and not statistically significant, you can still uncover some useful information from this dataset. For example, most successful companies have co-founders, and they often have close connections and shared backgrounds. Additionally, analysis shows that consumer founders tend to be younger when starting companies compared to business founders.

Ultimately, you need to summarize all the information into a concise concept. You try to find a word or phrase to describe those companies that achieve a $1 billion valuation within ten years. You thought of "home run" or "big hit," but they didn't sound quite right. Eventually, you came up with a magical term, "unicorn," which succinctly describes those rare, highly successful companies. Entrepreneurship is not just about doing the right things, having the right background and experience; it also requires a lot of luck and opportunity, like alchemy.

How to View Non-Traditional Founders?

For startups, there isn't much data during the seed stage. At this stage, you may not have shipped anything, have no customers, or even have a complete team. But what you can talk to investors about is your passion for the problem and the insights and experiences you have gained. Investors are more concerned about whether you have enough courage and skills to overcome obstacles and succeed in this field.

In recent years, investors have begun to pay more attention to non-traditional founders. My friend, Ali Rosenthal, is raising funds with a focus on supporting less visible entrepreneurs. Now we recognize that investors cannot always look for opportunities in the same pool, and successful companies no longer need to rely on barriers to establish themselves.

Richard Kirby did a great analysis showing that diversity in venture capital has become a huge issue, not only in terms of gender and race but also in the lack of diversity in the educational backgrounds of investors. If most investors come from a few elite schools like Stanford and Harvard, their perspectives and ways of thinking will be limited, preventing them from fully uncovering some very promising startups. Therefore, we need more diverse talent to enter the venture capital field to ensure better diversity and opportunities.

Rationally Choosing Investors

When choosing venture capitalists, we should base our decisions on some rational foundation rather than just intuition. Therefore, we recommend conducting reference checks on both fronts.

When considering investing in a company, we usually conduct background checks, which differ from criminal background checks, focusing on understanding the founder's past work experiences, strengths and weaknesses, and the challenges they have faced.

At the same time, if there are multiple investors to choose from, we also need to consider whether they are a good fit. For founders, choosing the right investor is crucial because the relationship with investors usually lasts for several years.

When selecting investors, we should also take into account the opinions of other successful entrepreneurs. For example, we recently invested in a company in Y Combinator (YC), and they referenced other entrepreneurs' advice when choosing investors.

The Upper Limit of Startups

I believe the upper limit of startups is closely related to market conditions and also depends on the choices entrepreneurs make when raising funds, so I would not accept the first offer. When considering each round of financing, we need to imagine the level of dilution we will face because it may not be the only type of dilution you see. In my experience, a good rule of thumb is that in each round of financing, you typically must anticipate that your shares will decline in BN (B, C, D, E…) rounds, so you may end up selling 20% to 30% of the company over time.

Another factor to consider is how many rounds of financing companies in your field typically require. Many people think they only need to rise from Series B to finally reach Series F. But in reality, it may not be that simple. You need to understand how much you need to raise rather than focusing on how many rounds of financing you need.

If there is a time gap in salary increases, that’s fine. However, if there is no time gap, you may face a group of angry investors who will work with you long-term, which is not a healthy relationship. Therefore, choosing the right investors is very important; you need to establish a long-term relationship with them.

Finally, we need to recognize that very few people will look at the person they spoke to 15 minutes ago and think they are doing better than you. This is the reality we need to face and act accordingly.

How to Approach Venture Capital?

In the entrepreneurial field, especially for startups, cold introductions have always been very common. For investors, they usually gauge your interest based on the market you mention in your email and the situation you have discovered, measuring your company's value in pounds.

The traditional venture capital approach is based on the fact that you have already reached out to many potential business opportunities, but most people do not know the investors. These startups sit on Sand Hill Road, with no one knowing they exist, yet they still have business plans. Therefore, establishing networking relationships is crucial for startups when seeking a warm introduction.

I think this is also one of the reasons people use cold introductions as a filter. If you don’t know how to start, find motivation, and establish connections, you may not become a successful entrepreneur. I have tried two approaches, and I think it is important to realize that the world is small, and everyone knows each other. Therefore, by looking for people you are connected with, such as a few mutual acquaintances, you can smoothly establish connections; it’s not as hard as you might think.

Are Women-Founded Companies Valued 84% Less Than Male-Founded Companies?

A study found that companies founded by women are valued 84% less than those founded by men. It is uncertain whether these results are widespread in the industry. In fact, on the unicorn list, there are only two female founders.

Of course, if we look at the average situation across the entire venture capital field, this disparity may be normalized. However, it is worth noting that the success of most paper companies relies on the equity of female co-founders.

If these most valuable companies do not have female co-founders holding or owning equity, and we consider these companies to be the most valuable in the industry, then the conclusions drawn from the above study are reasonable.

If viewed as a comparison between apples and oranges, the analysis may indicate that the underestimation of female-founded companies by investors is partly due to bias.

We believe women can also excel in founding businesses, and we can work to eliminate certain biases in the investor community. Additionally, we can help female founders improve their storytelling and pitching skills.

I have had the privilege of working with some very competitive women who successfully attracted many investors to bid. The prices are relatively high, such as multiples related to revenue or operating rates, which often depend on the founder's ideas and how they tell the story.

How Do Startups Determine Their Minimum Viable Product?

I believe our goals align with those of investors. We all want to help companies enter the market so they can quickly receive feedback and determine whether the product has market potential.

We also want to help companies find their minimum viable product and identify the features that are truly needed. For example, when hearing the sound of horseshoes, some people might think about developing both Android and iPhone apps simultaneously, but we need to see market validation results before deciding whether to incorporate those features into the product.

We believe we can work well together, striving to advance product development and making adjustments based on feedback to achieve the best results while also saving cash. We will not waste time and money building unnecessary features before understanding the truly needed functionalities.