VC Corner: Aileen Lee of Cowboy Ventures

Aileen is the founder of Cowboy Ventures, a seed-stage focused fund. Cowboy Ventures seeks to back exceptional founders who are building technology products that “re-imagine” work and personal life in large and growing markets - what we call “Life 2.0”.

Cowboy-backed companies include August, Area 1 Security, DocSend, Dollar Shave Club, Lending Home, Philz Coffee, Product Hunt, Rise, Styleseat and True & Co.

Prior to Cowboy, Aileen joined Kleiner Perkins Caufield Byers in 1999 where she was a Senior Partner and is now a Strategic Advisor. She previously worked in various operating roles at Gap Inc. and as an analyst at Morgan Stanley.

Aileen enjoys thinking about and writing about tech insights, including “Welcome to the Unicorn Club”, “Why Women Rule the Internet” and “Social Proof is the New Marketing”. She has degrees from MIT and Harvard, and is mom to 3 kids and a startup wife. She enjoys yoga and kickboxing.

Aileen took to the stage at the Startup Grind Global Conference in 2014. We picked out the best wisdoms below, but you can watch the full video here.

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Where were you born and raised, Aileen? When did you get the founder itch?

I was born in Staten Island, New York. My parents were born in China, and they emigrated here during high school or college. I’m first generation, born here in the States. Then our family moved to New Jersey, where I grew up.

Aileen is kind of a tough name, to be honest, but I was very close to Angie — Angie Lee from Staten Island, New York, which didn’t affect social etiquette in a happy way.

Tell us about Cowboy Ventures, after your time at Kleiner-Perkins. Did you see an unserved market?

I was really fortunate. I was interested in entrepreneurship and startups for a long time, and I used to be one of those geeks who would read Inc Magazine when I was in high school. I was always interested in the idea formation & company generation. I did little non-tech startups with friends in junior high. We had a business making tie-dye shirt selling them at school — it was called Buy or Dye. We also used to have this takeout egg roll stand that we would make and bring it to street fairs and stuff — it was called Wok Out. We did a lot of little business to make money.

When I was an analyst at Morgan Stanley after college and I always heard about venture capital. I loved the idea of working with startups and helping them get off the ground, giving them money and business advice. To be honest, I thought I’d never fit in.

When I was at Morgan Stanley, the two types of people I saw in venture capital were either these gunner type guys who would wear bow ties to school or country clubby guys who had fathers who were in venture capital or had friends in venture capital. They probably grew up in Connecticut and went to private school. I just figured I would never fit in.

I got very lucky kind of catching a branch with Kleiner Perkins in 1999, which was a long time ago. I didn’t plan on staying — I thought it’d be a good way to learn about startups and then make a decision about what startup to join. I ended up working 13 years at Kleiner Perkins. It was a fantastic experience. I got to work with some of the best entrepreneurs and best partners on the planet.

But 13 years is a long time. Venture capital is changing quite a bit. With AWS and open source, you don’t need as much money to start a company or product. I had other friends who were doing this like Michael Deering, Steve Anderson, Josh Kopelman, who I think are just top notch at professional seed investing, and they were generating really great returns and having a ton of fun, and adding a lot of value to startups.

But it felt like there weren’t enough of them. For your first $1 million to $2 million, there was a real opportunity to provide real investing help and more business building experience and also to have a smaller, more personal shot, and hopefully deliver better returns. As you might know, the venture returns the last few years haven’t been very good because the funds have gotten very large, so it’s hard to deliver fantastic results when you have a $600 million fund.

So it gave the next part of my career the chance to do something more personal, and almost boutique like. Very small and lean: no big partner meetings, no overhead or politics — just working at the earliest stages as companies are planning their $1 million or $2 million raise, building the product and the initial team.

Your firm is based on the thesis of Life 2.0. Can you tell us about that?

It’s a very broad label. The idea is that in modern society, life is being changed in really interesting ways through software products and new technologies. Just 5 or 6 years ago, we would wake up and turn on our TV or go outside to get the newspaper to get the news, right?

Now you reach over and get your phone or iPad. How you get your news is through completely different channels. When you get to work, I used to be a copious notetaker. I had tons of notebooks lots of little flags and highlights — now I use Evernote. I can see it on my phone, iPad, or iMac at home.

Whether its the business processes or through our personal lives — like how you get to work, which used to require a car or bus, and can now be with Lyft or Uber and ridesharing. Even how you open your door: we’re investors in the August smartlock, like Nest for your locks in your house. Things in our lives are becoming more efficient, more transparent, or more fun through new technologies.

We’re looking at startups in enterprise SAAS and communities right now, and I think it could happen for them to be led by a female founder.

How about solar energy or water access? Those seem like more Life 0.02 problems. Any investments there?

I have invested in these types of companies. When I was at Kleiner Perkins, we invested in a solar company with awesome technology for thin film, high efficiency solar panels. But I may have too much scar tissue. The number one thing investors are looking for is very large markets, and how easy they are to get to. A lot of these third world markets are not as easy to address as first world markets, and usually not as large. A lot of these markets also have a lot of regulatory risk, there's a lot of economic risk, and I’ve definitely learned a couple of lessons about avoiding markets where you can be in or out of business based on things outside of your control in case the wind blows in the wrong direction.

You’ve said that women are probably one of the biggest underserved markets, but they’re the best users for most products. Your thesis is that women will become the power users of mobile internet. Can you tell us where you see female entrepreneurship going?

I would be happy if we could just get to 10% female founders in the near term [of Unicorn companies]. It’s really shocking. I was raised in a time when I learned that boys and girls have the same capabilities, and it’s not fair that boys control more of the economy than girls. It’s not right. I have to admit I’m frustrated that more hasn’t changed. In politics and in healthcare, I actually think women have made more progress. In tech and entrepreneurship we have a lot of opportunity. There are no female CEOs in the current startup list.

There’s a pipeline problem. Technology and design are the key skills to create a startup, so we have to look at the pool of women who are coming out of school with those degrees, and also get them in to high growth startups. I think that a high growth experiences is one of the gateways to founding a Unicorn company. It’s also hard socially, I think, for women in entrepreneurship, which is usually a 95% male environment, to be in the inner circles of Silicon Valley companies.

If you’re looking at doing a startup and looking at your team, look very hard about how you’re working diversity into your founding team. I think it’s the right thing to do, but a lot of data has shown it creates better results.

Obviously the companies on the Unicorn list have been very successful and we all wish to be associated with those companies, but if they had more diversity on their teams, I think they’d be even better and stronger than they are today.

When founders pitch you, what are some of the key things that grab your attention?

The background of the founding team is very helpful, and introducing yourself up front by saying who you are, what you've done before, and why you’re passionate about it is an important and personal moment. Most people won’t understand if you’re a missionary or a mercenary. It’s a very long road and it’s not going to be over unless the company dies in two years. So we’re really trying to get to know you as a founder to see if you can navigate a company for 8 to 10 years.

Understanding the size of the markets, explaining what your product is, and what’s going to be hard about it and how close you are to finding out if the hard stuff is doable.

Especially in today’s world, where you don't need much money to buy some Facebook ads, to run a survey, to ship a lightweight MVP — that’s a big chasm between the people who walked into the door and built something and had 500 people use it. Versus the person who says, “I need money to hire engineers so I can build this product and then we’ll see if it works.”

Storytelling is a very big part of this, or investors will look to see is this person salesy and try to see what’s real. If it’s too much story, it’s like a jazz hands pitch. Everybody loves a good story. You can look at how much more engaged and emotionally attached you are to a story, versus something that is clinical and is a bit all over the place. It has to be a combination of story and date.

As the founder and CEO, one of your biggest jobs is recruiting. Silicon Valley has an incredibly tight talent market, San Francisco in particular. Everyone wants a full-stack engineer, a Ruby engineer, an iOS engineer, an Android engineer — how are you going to win over the 50,000 startups who want the same talent? It’s about selling your vision as a leader, and it’s why storytelling works.

A Unicorn, as you’ve coined it, is a billion dollar valuation company. You outline characteristics of successful founders, from technical degrees to two or more cofounders who work together. Tell us about your list.

We cover about 90% of high growth startups, so we definitely missed some and some have happened in just the last few months, like Nest. One of the companies I’m slightly obsessed with  is a good example of the lengths to which you can be capital intensive, and it speaks to the size of the market, where many companies in some regions still don’t have the right software. That’s why I think the companies are so valuable. Read Aileen Lee’s full piece here.

Tell us about the future of Cowboy Ventures, and the companies you’d be excited about.

We’ve been investing at a rate of about one company per month, and this year we’ll probably do 12 companies this year. We’re pretty flexible in that we can do checks from $100,000 to $1 million or so, Our sweet spot is usually like $500,000 to $800,000.

I have a little bit of a shopping list.

I think it’s crazy that we’re carrying business cards — someone is going to figure out digital business cards on mobile devices.

I would love for there to be an internet shopping time sheet where anything that has been bought receives a digital receipt for eCommerce so it actually creates visibility so you can find and bid on owned goods.

We’re really into SAAS for specific verticals, because I think most industries are running with really old processes that can be automated.

But I’ll say this: a lot of the best ventures are not ventures investors are looking to invest in, like Twitter. No one asked for a 140 character blogging platform, but entrepreneurs did it and investors backed them.

For fun, here’s Aileen on the most important lesson she learned from her immigrated parents.