VC Corner: Ann Miura-Ko of FLOODGATE (Lyft, Ayasdi, Wanelo, TaskRabbit)

Ann Miura-Ko has been called "the most powerful woman in startups" by Forbes and is a lecturer in entrepreneurship at Stanford. The child of a rocket scientist at NASA, Ann is a Palo Alto native and has been steeped in technology startups from when she was a teenager. Prior to co-founding FLOODGATE, she worked at Charles River Ventures and McKinsey and Company.

Some of her investments include Lyft, Ayasdi, Xamarin, Refinery29, Chloe and Isabel, Maker Media, Wanelo, TaskRabbit, and Modcloth.

Ann is known for her debate skills (she placed first in the National Tournament of Champions and second in the State of California in high school) and was part of a five-person team at Yale that competed in the Robocup Competition in Paris, France. She lives with her husband and 3 kids ages 8, 5 and 3.

She was received her BS from Yale University in EC, and her PhD from Stanford University in Math Modeling of Computer Security. She loves the piano, robotics, and is a huge foodie.

Watch FLOODGATE's Ann Miura-Ko interviewed by Derek Andersen, and read our condensed highlights below, edited for clarity.

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Let’s get to know you a little better: tell us about where you grew up, your parents, and your early life.

I should sing something - I just had karaoke night at Floodgate.

I went to high school at Poly High, right across street from Town & Country back before it was so fancy. My dad's a rocket scientist - he works at NASA. I used to babysit for a serial entrepreneur, and I remember realizing in seventh or eighth grade this guy was on his ninth startup. It was just sort of the thing to do back in the day.

As I went off to college, I came from a family of mechanical engineers. My big rebellion when I had this moment in college when I realized I was actually pretty interest in business. It was an interesting experience because I was giving a tour to this guy of the engineering facility, and I'm telling him “this is my lab,” and he asks me what I’m doing for spring break. I just said, “well, I think I'm going to go home and visit my parents,” feeling really un-cool about saying that. The guy says, “well, I’m the CEO of HP and if you want, you can come hang out with me for a week.” I was like, “Oh, OK, that sounds cool.”

It was one of these life transforming events, where Bill Gates also showed up and was making this .NET announcement, after I got back I told some my professors this was a life changing thing. I get the set of pictures from the CEO Lou Platt, and there’s a picture of me sitting in this chair chatting with Lou Platt and the next picture is Bill Gates sitting exactly where I was talking to Lou Platt. It was this first moment where I was like, wow, maybe there's something else out there for me.

I had always thought I'm going to be a research scientist - following the noble family path - so they said, well, there’s two options - this is at Yale - Investment Banking or Management Consulting. I went to Investment Banking for one summer, but didn't really like it, so I ended up at McKenzie for three years after college. I actually really loved it. I learned a lot - they let me do a lot of crazy things that most young people wouldn’t get to do. I decided a lot of people have always been telling me venture capital is something you should look into, and so I looked into venture capital, and I met this partner from Charles River ventures by the name of Ted Dintersmith. Our interview was such that we just sat around talking about books and music that we really liked, and geeked out. I like classical music and modern American literature, and he happened to like the same kind of books and he listened to opera. It was a meeting of the minds and he sort of offered me a job on the spot. I don’t even ask about compensation or benefits - I was like, “yeah I'd love to move out to Boston to work for you.” I did that, and my second day of work was 9/11.

We spent two years analyzing the venture industry, but I’d always wanted to go back to graduate school - so I went. I told him I was going to go to law school and I did the whole application process. I got in, and my husband was going through law school at the time, too. I realized that really was not what I wanted to do. I escaped to apply for a PhD - clearly the better option - ending up at Stanford for a while for math modeling of computer security, and was teaching entrepreneurship as part of a way to pay for my PhD program - all in the engineering school.

That was with Steve Blank, right? Tell us about that.

Yeah, I ended up with Steve Blank. He was one of three professors teaching a class that I was starting to teach as a teacher’s assistant. It was a really fabulous experience, and we got to meet all these luminaries - like Diane Green from VMR, one of my like eight mentors and my partner that I work with today, and Mike Maples, another real industry luminary. If you don’t corral these people, then students would start bickering or wouldn’t do well.

It was actually well received with Mike Maples, starting this really great dialogue that, in the future, when I was starting to think of starting my own company, we could connect. The reason I thought I'd be a good idea to go back and get my PhD was because I wanted to be more technical again and potentially start up a company. I went to Mike Maples and my old mentor Ted Dintersmith and they say, “Why don’t you find one of these angels?” Maybe they’ll let you look at their deal flow, and you’ll be able to assess whether or not your ideas are any good.

I would go in every Wednesday and stay for the whole day, and I gave them my honest opinion about what I thought about the companies  we were seeing. There was this moment where I realized a lot of what I'd seen from 2000 and 2003 was funds having trouble generating great returns for their investors unless they were one of the top ten firms. I talked to Ted about the optimal size for a venture capital firm - where would it actually be easy to provide awesome returns, and we talked about that $100 million firm. Mike added that $500,000 was the new $5 million - this was in 2005 to 2007.

At that time, I was seeing a lot of my own students, and servers were becoming cheap commodity hardware. You could stick one in your closet and start a business, but you’d still have to pay for certain things, totaling a few thousand dollars to get things started. By 2007 and 2008, cloud services were up and running, and you could start something with your credit card and not much credit. There was a game change - a real amazing movement.

Mike and I call this the Democratization of Entrepreneurship. We think that this is a really big deal, and compare it to the Gutenberg Press or the Ford Model T, with regards to the kind of revolution it created not only within that technical field, but within society as a whole.

When Mike offered me the partnership opportunity to co-found Floodgate, he specifically said you should drop out of the PhD program - but I didn’t, because I’m Asian in case you didn’t notice, so I ended up finishing it off on the side. I devoted myself to this opportunity, because it was 2008 and there weren’t that many super angels, as the financial collapse is happening. So my timing going into venture capital is really great. My parents are asking me what in the world I’m doing and my advisors are asking what this company I’m joining is, but to me it was the only thing I could see, and that Mike could see, and a few other people could see. But no one else could see this opportunity - it was like this carrot that just kept dangling in front of me. I couldn’t help myself - I just had to go after it.

What were some of the things you found make for a great venture capital firm?

We asked our GPs - our general partners, the actual investors - what it means to be world class, based on their data. It turns out that if you return 3X of the invested capital that you’re allocating on a regular basis, you’re in the top 3% of all investors. It’s kind of a scary number that only so few investors can return, at the end of the day. I think that’s the number we think about, that’s what we aim for, as General Partners, to return to our LPs, our Limited Partners.

Roger McNamee has a different way of looking at it, from waves perspectives: in every given wave, you have to be  in one of the top three companies, and to have one additional investment in the top 10 - and I think that takes you beyond 3X. You'll be an epic investor if you can do that over and over and over again. But if you look at your investments through that lens it becomes really tough to justify all of your investments, so it's a good way of thinking about it retrospectively.

Getting in these deals, it’s funny because we’re at a stage where you could be a celebrity entrepreneur or celebrity investor - but that’s not the way you get into the best investments or return money for your investors. There are really only 15 companies in any given year that started that achieve two real metrics:

The first is $100 million in profitable revenues within five years - or if you think about it another way, it’s $500 million dollars valuation, and that’s at exit. It’s only at that exit that you return money to your investors. If only 15 companies in any given year actually achieve that, the question is how many of those companies are in your portfolio at any given time.

What makes these companies - the ones in the top three or the top 15 - different than the hundreds of other entrepreneurs that you see come through the door?

Looking at our portfolio since 2005 and see which ones have been successful, I think we’re starting to identify that a few things:

Number one, you have to be going after a huge total available market, where the surface area that you’re tackling has to be really big. I’m talking about a bottom up assessment, as part of the land grab you’re after: if you look at how much you’re going to charge your customers and how many people out there would buy it, how big is that opportunity?

Number two, you actually know something - and I think that’s under-appreciated. There’s an authenticity about being an entrepreneur, and this is the factor that I think gets us past founders who are entrepreneurs because they want to be part of the entrepreneurial hero worship. I think the best entrepreneurs also don’t see obstacles - they see a path through those obstacles, and they’ll continue adjusting their path and do so without even thinking about it. It’s this notion that they have to get to the end zone - it’s a singular focus and drive that gets them there.

I think that becomes harder in Silicon Valley because there is a notion that being an entrepreneur is a romantic ideal, but what the movies and TV shows don’t recognize is that it’s a startup grind. There’s nothing romantic in working hundred hour weeks, not seeing your family, and throwing out code that you’ve been working on for two years because your cofounder decided that you’re going to pivot. Yet we romanticize it, and so the authenticity of that idea to being an entrepreneur is really important because it gets you through those moments.

In our case, our core bets are from $500,000 to about $1 or $2 million, and more recently around $3 million.

When is a good time to raise money for one’s business?

Well, the question is when do you want to raise money? The power is actually much more in the entrepreneur’s hands than the investor’s, because you ultimately determine the point at which you actually accept capital into your company, or if you bootstrap it. I generally encourage you go as far as possible before taking any money. If you can get the home run, and get to the promised land without any capital, that’s much better - so the more you can squeeze out of your company without taking money from people like me, the more of your company you’re able to work, and you should think deeply about when the time to change that ownership structure by accepting capital should be.

Let’s say you want to raise $100,000 to get more users… or maybe you want to raise $5 million to get big quickly, but then you should be considering the valuation, and what sort of exit you’re going after.

Can we talk about flipping companies?

Nothing against them, but I do feel like entrepreneurs should be very aware of what their investors want, and aligned with your investors. Lack of alignment is what creates a lot of heartache.

At Floodgate, we say we invest in Thunder Lizards: those 15 companies that want to crawl across the Pacific Ocean, take over Tokyo, and eat buildings and trains - and generally disrupt markets right. We are looking literally for Godzilla. And Godzilla is not going to sell for five million dollars to Facebook the same week they get the check from us.

I think flipping is actually more of a psychology. In flipping, it’s not that you’ve run out of alternatives, run through all your hypotheses as to how to make this a successful business mode, and everything has worked up against you. Now, you’ve run out of ideas, and we're going and try to sell the assets of the company to make some money for the investors and for the entrepreneur. That’s a flip.

On the other side, even if they build it big, I think there's also some entrepreneurs who say we don't want to take this company public and so we have to figure it out. At this point, we really do go for that billion, two billion, 10 billion dollar IPO - or we’re going to try to find a great acquirer over that $100 million in revenue you generate.

At the same time, if you don't have an idea that’s screaming out to you, that needs to be birthed at this very particular moment, you've got to remember that the hundredth employee at Facebook did better than 99.99% of all entrepreneurs. If it’s sort of a financial motivation, then there are great companies - rocket ships - that you should get on. But if there is an idea that’s screaming to get out, that's an indication that maybe you are a founder.

And these first time founders, they’re not jaded. That’s the thing I love about our job: we get to work with people who are totally unvarnished. They see the world through rose colored glasses, and everything’s about to go their way, and it just keeps them forever young. They have a dream and they get sucked into it, and that’s a joy.

Talk to us about how you balance your work and your life.

I wake up around 5:00 in the morning, because I have 3 kids under the age of 3 - one is 5, another is 3, and one is 10 months. One of the things Mike and I have talked about is what’s a sustainable sort of work week, and our coaches and mentors have told us somewhere around 60 to 70 hours a week is the magic number. It’s sustainable, but it’s really hard, right?

I keep certain parts of the day clear so that when my kids are with me, I’m actually present for that moment - that’s 6:30 AM to 8:00 AM in the morning, I’m off the grid. Then again from 6 PM to 9 PM, I try to be off the grid. On weekends, I work when they tap or non-negotiable things come up, like the doctor’s appointments, or parent-teacher conferences. I try to throw in an hour every month to volunteer in my kids’ classrooms.

I think it’s really hard to even think about balance, because the idea is you get home and everything’s quiet and in order, dinner is cooked, kids are really well behaved - and mine aren’t, and my house is a crazy mess, and someone is usually screaming. I don’t think men or women can have it all - it’s just important to have a partner with whom you keep things together.

We’ve been thinking about how hard work versus balance affects a company’s success, One of our portfolio companies works 100-hour weeks - it’s kind of insane. But to someone as competitive as me, I get it - we all work hard. I believe you win because you work harder - that’s 90% of it. If you’re in a competitive environment and your competitor’s engineers are working 5-10% more there's an advantage there even if they're working less efficiently. If they fix their processes but continue to have that work ethic, there’s a long-term advantage there, so I would push on that, and I think founders have a huge role to play in that.

What are your thoughts for where the venture capital industry is headed, and for your career in it?

In 20 years from now, I want to look back - and out of my window - and see all the stuff that I was part of, and that’s sort of my competitive streak there: i want to see how the things I’ve invested in have changed people’s lives. That’s the thing that gives me goosebumps: thinking about the founders and the journey they go through. Whether it’s Lean at Task Rabbit or Eric Koger and Susan Koger over at Modcloth, or the guys over at Zimrod, I’ve worked with a bunch of them from the days they were Stanford grads students, and chased them down with a check in my hand literally begging them to take it to build this product.

As a firm, it’d be nice to get that 3x return on our portfolio, but more than anything I want to do it with integrity. I think integrity is so important, and it's the one part of ourselves that if you sell  off you'll never get it back, so within our firm we really believe in being an entrepreneur’s advocate, going to bat for entrepreneurs and staying on their side throughout the entire process.

In a 20 or 30 year career, I want to look back and be proud of every single moment along the way, while being able to say we helped make really great stuff happen.