Transcript follows & podcast below. This is Part I of the interview, you can find Part II here.
- What is your sweet spot, in what kind of businesses do you like to invest?
I invest mostly in internet companies & very early stages so typically just when it’s people with an idea. So solely focused on seed stage & I do it for a fund called Founder Collective. It’s sort of a group of entrepreneurs who got together & formed it including Eric Paley & Dave Frankel who are friends of mine who are entrepreneurs who run it full time. And some other people like Caterina Fake who is the cofounder of Hunch, she’s part of it. Bill Trenchard is another interesting entrepreneur on the Wast Coast & a few other people.
Brilliant I think you’re doing some great work, changing the face of investment really.
- Cindy Gallop, Founder of IfWeRanTheWorld, said in a recent interview: ‘VCs fund in their own image: white, male. The cycle is self-perpetuating, so (predominantly male) VCs have a preconceived notion in their heads of what they think constitutes the kind of entrepreneur to back. John Doerr apparently said, ‘If you’re a white, under 30, tech geek with no social life and a Harvard/Stanford dropout, line up for VC money.’ He didn’t say ‘male,’ but he might as well have. If it had been a 17-year-old Russian girl who came up with ChatRoulette would there have been as much interest in funding whatever she might do next?’ What is your take on this Chris, & if this is happening how can women startups find an opening in this culture?
Yeah I’ve now raised vc for my own startups from big venture capitalists a number of times. And I generally agree. When you pitch to partnerships it’s almost always a big table filled with almost all men & generally white men. I think I heard some statistics its something like almost half of tech startups have an Indian cofounder as an example.
Wow that’s great isn’t it?
But they seem to be under-represented in vc so it’s not just a gender thing. I think it’s just, for whatever reason, I think part of it is to do with the fact that vc is a very slow changing industry. And the startup world has changed and the vc world hasn’t hopefully caught up. But I think that’s true. I think that a lot of vcs, I think what Cindy said there’s a lot of truth to that, they kind of invest a lot in people, they base on the people. I don’t think it’s overt sexism, I think what it is they call it pattern recognition. There’s this archetype for what the perfect entrepreneur is & it’s what you just described, it’s Mark Zuckerberg or Bill Gates kind of thing. And it tends to be male! And so when you combine that with the sort of sense of people investing in pattern recognition you end up with in most cases, I don’t think deliberate sort of homogenization of who they end up investing in or something.
Yes I note that a lot of people in the interviews over here have been saying that like attracts like. They go for what is similar to them. I beg to differ that that’s a good deal!
Yeah similar to them & also similar to other companies they’ve funded that were successful or whatever. Whatever the pattern might be? It’s just a barrier to others.
So that they would feel comfortable? Yeah I understand.
- Cindy also says: ‘I think not as many women as men actively seek VC money because they’re not as tapped into the boy’s network as male entrepreneurs are. Young male entrepreneurs can very easily become the flavor of the month and get introduced around from one VC to another — get the perception going that they’re ‘hot’ and get their funding. It doesn’t happen for women that way.’ Do you think that networking with Venture Capitalists is harder for women entrepreneurs?
Probably. I do think what she says about being hot… VCs constantly talk to each other & there’s something I blog about a lot called signaling. What happens is that in early stage companies you’re investing in people & there’s so little information about the actual company at that point because it’s barely formed. A lot of what happens is that the main input to people making decisions is what other people think. That’s how you get this hot deal phenomenon right. People hear that some famous vc firm is interested & so everyone else is interested & that snowballs one way or the other. So I think that this
signaling has this amplifying effect on what we discussed earlier which is this bias which comes through pattern recognition. So I think that the herd mentality just ends up amplifying that even more I guess. So I think I generally agree but I think it’s changing. I think some of the good signs is that the next generation of vcs I think will be the ones who are junior vcs today & a lot more of those are women than in the past. So that bodes well to me, it’ll eventually change.
And obviously even younger male vcs & angels don’t seem to have the bias as well so obviously the younger generations are going to bring in a whole new face to it hopefully?
Yeah I think so!
- What do you see as the obstacles for inclusion of women entrepreneurs in achieving funding, do you see any actual hurdles that we’ve got?
So it depends. When I invest for example our process is a much shorter process: you meet with a few people individually & then we make the decision. With almost all big vcs, you do that & then you have the most important event you present to the entire partnership. And this is like this ritual every Monday they have people come in & you sit there in front of 20 people & maybe 10 more people on video conference or something. And you know it’s a very intimidating thing. You’re going to have to walk into a very skeptical crowd & act like you own the place or something, I don’t know. I personally think it’s a flawed process. I think it ends up optimizing for the wrong things. I think it optimizes for things which I don’t see as necessarily being correlated with pretty good startups. Especially if you walk into a room with 20 guys it’s probably a less welcoming crowd. And that’s a critical juncture in the fund raising process!
I’d agree I’ve actually been doing some volunteer work for Astia off & on. I’ve seen some of the early pitches that some of the women do & they obviously don’t feel comfortable & it comes across. So even if they’ve got a great business idea, the pitch doesn’t really come across so great at the outset! So I would imagine that if they felt more relaxed, if it was a more relaxed setting there’d be more likelihood of more success. Because if they’ve got great businesses & they fall down because of the pitch, that’s really a pity!
- Cindy also says:’ VCs tend to say that they back the person, not the idea. But if they always back the same kind of person — male — then women entrepreneurs have a better chance of getting funded when they have something that’s actually working in the marketplace.’ Do you agree that women need to have their business developed before they can achieve funding?
Not always! We’ve invested just recently, the Founder’s Collective, in a couple of female run startups that were pre-product. I think other people do too! So I don’t think it’s always the case. Certainly no matter who you are, male or female, if you have a successful product getting traction, you’re going to have a vastly easier time raising money. It pretty much means you’re guaranteed to raise money.
So really everyone’s in the same boat with that?
Well yeah there’s that & I think if you’re just at the early stage without a product or traction, then it all comes down to people. And then you run into these pattern recognition archetype problems or whatever.
- Often advice for sourcing venture/angel funding is equated with dating, implying that there is a matching that needs to happen with entrepreneur & investor. Have you noticed a general psychological profile of venture capitalists/angels and also of entrepreneurs that promotes the attraction & synergy between them to develop a great startup? How do you know when you meet an entrepreneur that it’s the right connection that you’re going to work with that person?
So I guess everyone has their own method. I come to it as a full time entrepreneur. I mean investing for me is a side thing. The rule I use is I think: Would I cofound a company with this person? And if the answer is yes then I think I should invest & if the answer is no, I think I shouldn’t. For me that’s a way to think about it. For people that come at it from a pure vc point of view who aren’t doing startups, I guess they must have different rules of thumb. Especially with traditional vcs where they might make 2 investments a year after seeing thousands of pitches. There does have to be a whole romance, if you will, to finally get over that hurdle & invest millions of dollars. And I think the chemistry ends up being very important.
I guess when you said that your criteria is that you always ask yourself whether you’d be a cofounder with them or not with an entrepreneur, that immediately speaks to me about that human relationship that you’re obviously holding in some high value because you wouldn’t cofound with someone you didt get along with right?
Yeah that’s right, certainly getting along with them. Part of it is life is too short to deal with people you don’t get along with right? Part of it’s not just financial, you want to have a mutually constructive & friendly relationship, right? But I also just think it works better. In some of the bad investments I’ve had you have this sort of hostile, well not hostile but the entrepreneur sort of managing the vc, the investors so to speak as opposed to thinking of them as a partner. I think having that dynamic, kind of feeling like there’s a two way dialogue where you can give advice & they can respond & give advice or whatever. Feeling like there’s open communication, that kind of stuff is important. And I’m sure as with all human relationships, gender & everything else kind of plays into that to the extent that people tend to be friends with people like them. Probably the same thing goes for investing?
I think also, as a matchmaker, the difference is actually quite interesting. That’s usually what attracts people to each other whether platonically, or in love or business. So I think it’s not just similar there’s also that difference: that people complete each other, yeah?
Absolutely that’s critical. Especially when you’re cofounding something. Like my cofounders all have completely different & complementary skills.
Yeah that would work!
- Jeff Clavier, SoftTech VC, on Betting on Female Startups (ezebis.com)
- Why VCs are becoming founders (tech.fortune.cnn.com)
- Angel Investors Are Going Where VCs Fear to Tread (newsweek.com)
- The founder’s life for young VC’s (finance.fortune.cnn.com)
- Janice Roberts, Mayfield Fund, on Mobile Sector Venture (ezebis.com)
- Fred Destin on Venture Success PtII (ezebis.com)
- Jeff Clavier: Betting on Female Startups PtII (ezebis.com)
- Startups Ain’t Always Pretty (And That’s Normal) (metamorphblog.com)
- Jeff Clavier on Beating the Odds for Irish & European Startups (ezebis.com)
- Eve Phillips: A Woman’s View of Both Sides of the Table PtII (ezebis.com)
- Chris Dixon, Cofounder Hunch, on ReVisioning Venture (ezebis.com)
- Startup Sherpa: Chris Dixon And Stickybits CEO Billy Chasen Talk About Pivoting (Part I) (techcrunch.com)
- Emily Olson on Venture Sourcing Made Easy Pt II (ezebis.com)
- Here are the Crunchies finalists: Vote for your favorite startups (venturebeat.com)
- Startup Sherpa: Serving Two Masters And Changing Consumer Behavior (Part II) (techcrunch.com)
- Doubleclick Cofounder’s New Startup Gets Funding From Kleiner Perkins’ sFund (businessinsider.com)