Aileen Lee, founder of Cowboy Ventures, discusses her background and career path in a conversation with a friend. She talks about her immigrant upbringing and the challenges her parents faced. Aileen shares her experiences working in various roles, including investment banking and at Gap. She also talks about her time at Kleiner Perkins and the importance of gaining operating experience as a venture capitalist. Aileen briefly mentions her tenure as CEO of a digital media company and the lessons she learned in managing different personalities.

- The speaker discusses the importance of not losing sight of what it takes to grow a company while focusing on product-market fit.
- Investors evaluate a founder's ability to attract and lead a team, not just their product-market fit.
- Investors are interested in both short-term and long-term potential when evaluating a startup.
- The speaker shares their experiences and lessons learned in hiring salespeople and qualifying leads.
- It is important to focus on customers with real problems and long-term potential, rather than those who may not be sustainable.
- The investor emphasizes the importance of empathy and belief in founders and their businesses.
- The speaker believes that both mercenary and missionary approaches can be successful in tech.
- It is important for founders to find investors who can provide the right level of support and guidance for their needs.

- Fundraising is important for startups, even if it is premature
- Storytelling is a crucial skill for fundraising, as it engages people emotionally and helps recruit talent and convince customers
- Practice and perfect your pitch before starting fundraising
- Understand venture capitalist math and their motivations when pitching for funding
- Having professional investors can provide guidance and help scale the company
- Fundraising can be humbling, but it can also motivate founders to prove investors wrong
- It is common to receive rejections when fundraising, so founders should get used to it and have empathy for others in the same situation.

- The speaker emphasizes the importance of providing feedback to entrepreneurs and not just rejecting their proposals without explanation.
- The speaker shares her experience of using a lead qualification process to efficiently identify potential investors.
- The speaker acknowledges that being a female entrepreneur affected the fundraising process, as there are biases and stereotypes that women face.
- The speaker discusses the need for addressing biases and promoting diversity in the tech ecosystem, and mentions the organization All Raise that aims to accelerate success for women in the industry.
- The speaker provides advice on pitching, highlighting the importance of discussing the team, the problem being solved, the market size, the product or solution, and competition. Transparency and honesty are also emphasized.

- Investors want honesty and transparency in financial plans
- A 3-year plan is often preferred, including revenue numbers, costs, and cash consumption
- Investors look for revenue growth, margins, and spending allocation
- A summary slide can be useful in presentations
- The term "unicorn" was coined to describe billion-dollar companies
- The analysis of successful companies showed commonalities in founders' age and having co-founders
- Distribution of funds in a seed round depends on the type of company
- Non-traditional founders can show their potential through storytelling and demonstrating grit and insight
- It is a good time to be a non-traditional founder due to increased awareness of diversity in venture capital
- Reference checks can help in choosing VCs.

- The speaker recommends doing reference checks on both investors and founders before making investment decisions.
- When determining the cap for a pre-seed round, it is important to consider the market, the amount of money that may need to be raised in future rounds, and the desired level of dilution.
- Having different caps for different investors is not recommended, as it can lead to dissatisfaction and strained relationships.
- It is possible for entrepreneurs to reach out to venture capitalists (VCs) through cold intros, but a warm intro is preferred and demonstrates networking skills.
- Companies founded by women are undervalued compared to those founded by men, potentially due to bias, and efforts should be made to address this issue on both the investor and founder side.
- The factors that matter in investment analysis were focused on, and the factors that did not have a significant impact were not mentioned.
- The alignment of objectives between investors seeking high returns and companies looking for low-cost market entry can be achieved by helping companies prioritize their minimum viable product and focusing on market validation.

- The speaker suggests building both options simultaneously instead of choosing one and then building the other based on feedback.
- The goal is to get the product to the market, gather feedback, and conserve cash.
- The speaker apologizes for cutting off the conversation and thanks the participants.

Aileen Lee, founder of Cowboy Ventures, discusses her background and career path, emphasizing the importance of empathy and belief in founders and their businesses. She shares her experiences in various roles and provides advice on fundraising and pitching to investors. Lee also addresses biases and diversity in the tech industry, and highlights the factors that matter in investment analysis. She suggests building both options simultaneously and prioritizing market validation.

YC Partner Geoff Ralston talks to Cowboy Ventures Founder Aileen Lee.

Transcript and additional content can be found here: https://www.startupschool.org/videos/56

Learn more at https://www.startupschool.org/

Today I am honored to have my good friend Aileen Lee here, and we're going to have a conversation about stuff.

Yeah, well, I hope we talk about like, Aileen is a very public personality in the venture world, so there's lots of great talk she has given online, and I hope not to do too much of that.

She tells a lot of amazing things, so it'll be hard to avoid.

So this will just be the latest version of pearls of wisdom from Aileen, but hopefully we'll try to push the conversation in other areas if we can.

So you, they might not know that much about your kind of interesting and I would say idiosyncratic career that led you to being the founder of Cowboy Ventures.

Maybe we can just start with you giving a quick overview of your background, I don't know, from the gap to now.

And like your time schedule is actually, oh, it's constrained.

Because 1 of the reasons we're doing this at YC now instead of at Stanford is that at Stanford you're constrained.

So usually we talk for 30 or 40 minutes and then do a Q and A, whatever's natural.

Let's see, I am a first generation immigrant.

So I have a very, like, I grew up in a very traditional, like our family had nothing.

We, they saved up money to buy a Chinese restaurant.

People in the family worked in the Chinese restaurant.

I guess, I mean, I think immigrants are entrepreneurs, right?

Because you come here with nothing, and you have to figure out how to get a job and how to find a place to live and how to make it work.

And yeah, I think there's a phrase, at Kleiner we used to say, like the definition of an entrepreneur is like who does more than anyone thought possible with less than anyone thought possible.

And I think that's probably true for immigrants as well.

I bet that resonates with a lot of people in the audience.

And I was fortunate that my parents were very focused on education.

So I wound up going to MIT, being completely over my head.

And then I did investment banking for a couple years.

I lived in China for a year and taught English and studied Chinese.

And at business school, I was always really interested in brands, and in particular, consumer brands and how they generate a lot of organic customer love.

And so I kind of, and this is like kind of pre-internet, so I used to go to the library and read Fast Company and Inc.

Magazine to try and find names of companies that were kind of up-and-coming and I would then look them up in the phone book

Yeah, seriously, like how many people here have gone to the library to read magazines?

Or you could look up older magazines on something called MicroFiche.

Raise your hand if you know what MicroFiche is.

And so I found a company called Odwalla and a company called The North Face.

I would just call the phone number and just ask to talk to whoever would talk to me.

And I convinced them to hire me for the summer.

So I did 2 months at 1 and 2 months at the other.

I guess that now they would be considered growth companies.

And I did marketing and then after business school I went to Gap.

And my family was not that into me going to work for Gap.

You spend all this time trying to get a good education, maybe retail is not the place to go.

But I felt really passionate about, like I was going to have the opportunity to work with really smart people and Gap at the time was such a talent magnet in retail.

I think the smartest planners and merchants and visual designers were working at the company and we were just kind of on fire.

And so I spent 3 years working different operating roles like I worked on the supply chain projects trying to figure out where our stuff was, it was called Glass Pipeline.

And then I got a job, I worked as chief of staff to the CEO for a year, kind of just doing everything from helping prepare for public company board meetings to making sure that he had a good parking space when we wanted to go on store visits.

And then my last job there was the online store in 1999.

And our online store was just, gap.com was the only thing we had we weren't sure if we were going to do Old Navy or BananaRepublic.com because we weren't sure if this dot com thing was gonna stick and...

yeah yeah did exactly I think you and I have been working for you know 20 something years since then we should have just bought Amazon stock.

I did suggest at 1 point that while I was at Yahoo that we buy Amazon.

No, they said that it would screw up our multiple.

And there was this little startup called Facebook.

And we were talking to them about maybe, I think they wanted 20 million and we wanted to pay 15.

So anyways, I was helping run the dot com part of Gap in 1999.

And it was exciting but also just not a pure play tech company and so much was happening in the dot-com boom so I just said, you know, I think I should go work at a tech company And so I sent my resume to whoever would read it.

And I wound up getting an interview at this firm called Kleiner Perkins.

And I think they thought it would be novel to hire a woman.

And also that I had been chief of staff to the CEO, I think, was kind of like a good kind of training to be an associate at a venture firm.

So I wound up working for a partner there named John Doerr for 4 or 5 years.

And we were working with Google and Amazon.

And we had incredible relationships and got to meet incredible people and I was also like the dumping ground of every business plan that was sent to Kleiner Perkins at the time.

And so every night I would just take home duffel bags of printed business plans and read them.

And it was an amazing experience and I it was like a 2 to 3 year job.

Often times at venture firms it's very opaque in terms of it's like there is not really a career path and that was not a career path job but I wound up staying for 13 years.

But you stayed for 13 years, but there was a gap in the middle where you went and became a CEO.

I always felt like I didn't have enough operating experience, especially not, I hadn't been a venture backed CEO.

And I think, you know, a lot of, this may be old school thinking, but at Kleiner, the thought was like, you know, it's really hard to give advice to a startup CEO if you haven't done it yourself.

And if you haven't run the functions, you haven't lived through the experience, you haven't really put yourself on the line.

And so an opportunity came up where a company that we had invested in and I was on the board of was had 2 co-founders and neither of them was clearly the CEO and they asked me to come in and help.

And I was really excited to have the opportunity to work with them and to get some more operating experience.

So I took kind of 2 years off from Kleiner and I went and ran this company.

It was like kind of an ad sales driven business in the digital lab out of home space.

At the time there was a company in China called Focus Media that had like an 8 or 9000000000 dollar market cap taking kind of what had been paper billboards and turning them into digital and running basically like kind of a content management system and kind of like an ad network for digital billboards.

And that's what we were trying to build at RMG.

It was kind of a big, I mean it was a great experience and we thought we had our model locked and loaded in 07.

So we raised a $20 million Series B, which at the time, in 07, was a big B.

You joke, but I have seen seeds that large, right?

And then 08 happened, and we wound up having to lay off half the company.

But then we also, like, because we had this nice, we had a lot, we kind of anticipated winter was coming and we kept our powder dry so we were able to live through it.

We wound up acquiring 2 of our closest competitors and then I replaced myself with like a better CEO and I went back to Kleiner.

So do you feel that you were right and that that experience did help you give better advice to CEOs?

And so It might be hard looking back now, but what did you learn as CEO that informs the advice you give now?

I mean, I had never, I guess many things.

And so I thought That would naturally translate into being a great manager.

And I had managed some people at Gap but not a ton.

But I think it's very different being a CEO or a leader where people, you have to first convince them to work there, you know, work at your company.

And I turned out to be not as good at this as I thought.

But when you have different reports, like you have a head of engineering, a head of marketing, a head of sales, a head of finance, they often have different personalities and you want them to have different personalities and they have different strengths, but that means they often have to be managed in different ways.

Like you have to communicate with them in different ways and kind of like figure out what is the style of communication and rhythm and like what's the, what are the words that are going to help them do their best.

And I, that had not been intuitive to me.

I thought you could just be yourself and everything.

Yeah, no, I had a, I had a mentor of mine who used to call that touch.

And I think 1 of the things that's interesting as a startup founder, like most of the folks in startup school are struggling to find product market fit.

And they're thinking about that and they're thinking about that.

And at some point, sometimes they lose track of the fact that really, especially if, for example, they talk to an investor like you, you're evaluating that but you're also looking at this person and wondering, could you hire a VP of marketing, a VP of sales, a VP of engineering, can you attract the right people?

Do you have what it takes to be a leader as a founder?

And I think people, sometimes as you're struggling just to get a customer, you lose track of actually what it takes to really grow a company.

that's absolutely right, which is, and I'm sure we'll talk about that, which is like what are investors thinking.

Like, we're thinking both short term and long term when we talk to you.

Like we're thinking about whether you can accomplish the short term, but also what comes after that and what comes after that and whether you are demonstrating that you can parallel path in a way, thinking about how the short term is a setup for the long term.

In fact, the reality is the only thing that matters to investors is the future.

The present is only an indication of what the future may just look like.

The other thing I'd say, I guess many things about being a startup CEO, I had never hired salespeople before.

I didn't know how to create a compensation structure for salespeople.

Or how do you create, sometimes when you do your comp, you create unintended consequences by how you compensate people.

I found, like, I hired these, you know, different kinds of sometimes experienced people, sometimes inexperienced people, like, you know, what kind of, how do you want to place bets on people who are unproven versus pay up for people who are somewhat proven?

But sometimes they come out of platforms where the platform was doing really well, it's not really clear that the person was really good.

So I learned a lot of lessons around that.

And also just in sales in general and I'm sure many of you who are trying to get product market fit experiences, like lead qualification is really important.

You yourself and your sales team can deceive yourself into thinking that you're making progress by having a lot of meetings But the reality is a lot of those leads are never going to close.

And so figuring out like how should you spend your time and how do you qualify leads so that you're really spending time on the accounts that are a good fit for you and are actually closeable in the time and the money that you have is something that I have learned the hard way.

I was thinking about that yesterday because I was talking to a founder whose company was betting on a deal closing, and that deal just didn't close.

And we were talking about it, and the problem was that they didn't really have that bad a problem.

Like the problem he was solving, it was a problem and there was a few people who were kind of interested in solving it, but it wasn't a real hard problem.

And those are the wrong customers to spend a lot of time with.

And even if you close them, if it's not sustainable, then you just live kind of campaign to campaign or quarter to quarter and you can't, your return is gonna be high, you're not gonna be able to upsell the people.

So you kind of like, like you were saying about short term plus long term, it's hard enough just to close them, But you have to be able to close that same person maybe with more money every quarter.

And if you think you're going to be able to close them but they're not going to come back, sometimes it's not even worth closing them.

like all that stuff that I had never done before that I learned the hard way.

Well Tyler Bosmany from Clever is coming to talk about sales next week.

So I think we should talk a lot about, a lot more about what investors are looking for.

But I've been thinking, you've talked a lot about that before and said a lot of amazing things, but I was thinking a little bit about from a startup founder's perspective how they should look at investors and what they should look at.

I was thinking about you and 1 of the things I thought was somewhat different about you was the level of empathy you bring to the founders who come to you and the investors.

I think that there's a level of help you give which is not just, you know, here's how you should think about sales, but here's how you should think about believing in your business.

I mean, you do so much more than just as an investor and you're interested in a broad set of ways that the ecosystems put together and I think that all is part of the same picture.

I don't know if it's, I think it comes naturally hopefully.

I mean my partner Ted, who you know, was thinking about writing this blog post about making venture capital human.

it sounds so dumb to write that, that we decided not to write it.

But because he's relatively new to our firm, he's been at Cowboy for a year and a half, but he's been working with startups for 20 years.

And he said that that's 1 of the things that he noticed joining Cowboy is like that we are more maybe empathetic or more human than a lot of VCs that he knows, but it just sounded so dumb to be like, hey, come to us, we're human.

mean, I think I'm a person who, a lot of people may look at my resume or what I'm doing now and think like, wow, she really has it together.

Like I have not had it together for much of my life.

I have been the person on the business school project who's a procrastinator and doesn't show up with her homework done when everyone else is ready.

I have been the person who's slid into class, slightly hungover, being like, hey Jeff, do you have notes?

And you have to give people second chances and you have to believe that they're gonna get better over time.

I just think in general to be a venture investor you have to be an optimist.

But also because I was a series A, series B investor when I was at Kleiner and I moved to Seed.

And so kind of by definition deciding to go earlier means you want to live with people and situations that are more raw and that less is baked, less is figured out and that you're not trying to poke holes in what could go wrong but you're trying to work with the people and figure out what do we need to go right.

In working with folks prior to product market fit or half the time at Cowboy, the people haven't built a product yet and half the time they have.

So kind of by definition, it's what we choose to do.

But it's also just I feel like I'm a product of people who believed in me.

Like, you know, John Doerr and the people at Kleiner changed my life when they hired me.

I was the first woman, I was the youngest, I did not, I was never a working engineer, I wasn't working at a venture-backed startup, I was a completely non-traditional hire.

And I wouldn't be sitting here if people hadn't made a bet on me as a non-traditional hire.

When I think about John, the first word that pops in my head, and you know him way better than me so it might be different is thoughtful.

I was thinking of like what are the characteristics of the great investors I know and thoughtful and empathetic.

You think about people who get your product, who are familiar with sales, or invested in similar companies and like your domain.

But if you think about it, the people who, I think if we look at the industry, who are the best at it have those qualities and not just the cold hard qualities that make for like, you know, investing magic.

You know, I don't know if I totally agree.

Like I think John and I used to do this presentation called like there are mercenaries and missionaries.

Like you can win if you're a mercenary and you can win as a missionary.

You just have to choose what you want to be.

And I think that there are plenty of people in tech who are pretty mercenary.

Like they're pretty cold, they're very driven.

They just care about results and they push and they push and they're super aggressive and you can win doing that.

I mean, I think, I'm guessing in your head, you're thinking about brands of companies in your mind that seem like missionary companies or mercenary companies, right?

And there are successful companies that are more mercenary than missionary.

Like there are people who we know who are not warm and don't ask you how your spouse is doing or your sick mom or, you know, but And those people can be successful.

It's just you have to choose who you want to be.

Yeah, maybe there's a connection between them, which is you should, we always tell this to founders, is you should look for an investor who's gonna be most helpful to you.

And sometimes having your butt kicked is what you need and sometimes having someone understand and understand what you're going through and help you still believe in your future is what you need.

And I guess it depends, really, is the answer.

Yeah, I think we all, we have a saying at Cowboy, we're always happy, never satisfied.

And so, we're very grateful and we're positive and optimistic, but you can always do better.

So fundraising is premature for some of these folks.

But even if it's premature, if you're a startup, you're moving fast and it'll happen.

For folks who are just in the middle, as I was saying, battling for customers and to figure out whether, as we say at YC, talking to customers and writing code and talking to customers and writing code and trying to find something that works and solve real problems, how should they start to think about fundraising, How do you think about that?

Like what are your first steps as you approach that stage?

So I think something that we have talked about here at YC, and it's funny because it's a relatively new thing to talk about.

I think it's always been there, but now we have an articulation of it, which is storytelling.

Some people are natural storytellers and some are not.

I think regardless of whether you are a natural storyteller or not, it's really helpful to become 1 for fundraising.

People want to be emotionally engaged in your story and the journey of your company and the arc and to feel like your company is on an upward arc.

And so how you lay out, kind of how you came up with the idea, you know, what work you did to figure out whether there was a there there to validate or de-risk some of the initial potential issues with your company, like on how you've hustled, like in a way it's like a rags, you're engaging someone on the beginning steps of a rags to riches story.

And showing people what you've figured out and what challenges you've faced, and where you see it going, is part of how, because that's a, storytelling is something you need to woo people who can get paid much more working at Google or Facebook.

It's how you convince customers to take a bet on you when you don't have a lot of other customers.

It's how you convince people to move to the paid version from the free version.

And so it's a skill that you can use in pretty much everything that you do.

Like I think there are plenty of people, like I used to be super nervous speaking on stage.

And for the first couple years that I worked in venture, when I got invited to anything to speak, I said no, because I was too scared.

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A Conversation with Aileen Lee - Moderated by Geoff Ralston