What were the key lessons Aileen Lee learned from her experience as a CEO?

As a CEO, Aileen learned the importance of modulating communication styles for different team members and the critical need for strong sales leadership and lead qualification. She realized that understanding customer problems and ensuring sustainability were more crucial than just closing deals.

How should founders think about investors and what should they look for?

Founders should look for investors who are not only knowledgeable about their domain but also empathetic and understanding, aligning with their long-term vision. It's important to consider whether an investor's style is 'mercenary' or 'missionary' and choose based on what the startup needs at its current stage.

What is the most important skill for fundraising?

Storytelling is identified as a crucial skill for fundraising. Founders need to engage investors emotionally by articulating the company's journey, challenges, and future vision, demonstrating an upward arc and the company's potential for significant growth.

Why do venture capital firms seek such high returns (e.g., 10x)?

Venture capital firms rely on a power law distribution, where a few outsized winners compensate for many investments that don't succeed. To return their fund, they need to find companies that can become billion-dollar businesses, as lower exits don't provide the necessary returns for their fund size.

What advice does Aileen Lee have for founders about fundraising?

Fundraising is a humbling process that requires persistence and learning from 'no's. Founders should practice their pitches, seek feedback, and understand the VC's math to ensure alignment. It's also important to build relationships and put yourself in a position to have choices.

How can founders stand out and get noticed by VCs?

Strong storytelling, demonstrating hustle and insight when facing roadblocks, and having a clear understanding of the market and solution are key. For non-traditional founders, showing grit and a unique perspective can be as important as a traditional background.

What are the essential components of a startup pitch?

A compelling pitch includes the team's background and passion, a clearly defined problem and its market size (billions of dollars for VCs), a unique 10x solution, an honest assessment of competition, and a financial plan projecting revenue, margins, and cash consumption.

What is the origin of the term 'unicorn' in venture capital?

Aileen Lee coined the term 'unicorn' to describe private companies founded less than ten years ago that reached a billion-dollar valuation. She needed a concise, memorable term for her analysis of successful startups, and 'unicorn' felt special and magical.

Does being a woman affect fundraising success?

Studies and anecdotal evidence suggest women founders may face bias, receiving lower valuations than male counterparts. While challenging, women can succeed by telling compelling stories and actively working to overcome investor biases. The industry is also making efforts to improve diversity and inclusion.

Should founders worry about a cap on convertible notes?

While it's best to avoid variable caps that can upset investors, founders should focus on realistic dilution over multiple rounds. Understanding VC math and ensuring long-term investor relationships are positive is crucial when structuring deals.

How should founders decide between warm intros and cold emails to VCs?

Both approaches can be effective. Warm introductions are helpful and can be seen as a test of a founder's networking skills, but well-crafted cold emails detailing the market opportunity and progress can also lead to meetings, especially with seed-stage firms.

Key Moments

A Conversation with Aileen Lee - Moderated by Geoff Ralston

Y Combinator

Science & Technology3 min read61 min video

Sep 21, 2018|20,331 views|279|20

YC Y Combinator Aileen Lee Geoff Ralston Startup School

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Key Moments

TL;DR

Aileen Lee on building startups, fundraising, investor math, and the importance of empathy.

Key Insights

Aileen Lee's career journey started from humble immigrant roots, leading to roles in banking, retail, and eventually venture capital.

Operating experience as a CEO was invaluable for understanding the challenges founders face and providing better advice.

Successful fundraising requires compelling storytelling, understanding investor motivations (venture math), and meticulous pitch practice.

Investors look for founders with grit, insight, and the ability to demonstrate a path to significant, multi-billion dollar exits.

Empathy and a 'human' approach are crucial differentiators for VCs, fostering stronger founder-investor relationships.

Addressing biases in the venture ecosystem, particularly for female founders, is an ongoing challenge and opportunity for improvement.

FROM IMMIGRANT ROOTS TO VENTURE CAPITAL PIONEER

Aileen Lee shared her fascinating career trajectory, beginning with her upbringing as a first-generation immigrant whose family ran a Chinese restaurant. This entrepreneurial environment, coupled with a strong emphasis on education, led her to MIT and later to roles in investment banking before discovering her passion for consumer brands. Her early explorations involved cold-calling companies like Odwalla and The North Face, demonstrating a proactive approach that foreshadowed her future in venture capital. This foundational experience underscores the value of initiative and a deep interest in building successful businesses.

THE VALUE OF OPERATING EXPERIENCE

Lee's tenure at Gap, including her role as Chief of Staff and leading their online store, provided crucial operational experience. This was further solidified by her time as CEO of an ad-tech company, RMG Networks. She recounted the humbling lessons learned, particularly in people management and sales, emphasizing the need to adapt communication styles to different team members. This hands-on experience, she believes, enhances her ability to provide more empathetic and practical advice to founders, as she has personally navigated the complexities of running a startup.

UNDERSTANDING INVESTOR PERSPECTIVES AND 'VENTURE MATH'

A significant portion of the discussion centered on what investors seek. Lee explained 'venture math,' highlighting that VCs need substantial returns (e.g., 4x their fund) to satisfy their limited partners (LPs). This necessitates identifying companies with the potential for billion-dollar exits. Founders must understand this motivation, as investors are not simply looking for a moderate exit, but for the next potential outlier. Demonstrating this future potential, alongside strong short-term execution, is critical for securing investment.

THE ART AND SCIENCE OF FUNDRAISING AND STORYTELLING

Effective fundraising hinges on compelling storytelling, a skill Lee advocates for all founders, regardless of natural inclination. This involves weaving a narrative around the company's origin, the problem it solves, the market size, the product's unique value proposition, and competitive landscape. Practice is paramount; founders should refine their pitch through feedback sessions, treating potential investors like customers. Understanding investor motivations, especially the need for outsized returns, is key to aligning the narrative with their objectives.

EMPATHY AND DIVERSITY IN VENTURE CAPITAL

Lee emphasized the importance of empathy and a more 'human' approach in venture capital, contrasting with purely 'mercenary' tactics. She believes that recognizing founders' full potential and offering support, even through challenges, builds stronger relationships. This extends to fostering diversity, citing her work with organizations like All Raise. She noted the persistent biases against female founders, evidenced by valuation gaps, and stressed the need for conscious efforts to create a more inclusive ecosystem, encouraging non-traditional founders to showcase their grit and unique insights.

DECONSTRUCTING THE 'UNICORN' AND THE PITCH STRUCTURE

Lee, credited with coining the term 'unicorn' for billion-dollar startups, shared insights from her analysis of these outlier companies. Contrary to popular belief at the time, her research indicated that founders in their 30s often had more success than younger college dropouts. She also highlighted the prevalence of co-founders and strong networks among successful ventures. A typical pitch should include slides on the team, problem, market size (addressable market must be multi-billion), product/solution, competition, and financial projections, presented both comprehensively and with a concise summary.

Mentioned in This Episode

●Companies

●Organizations

●People Referenced

Common Questions

Aileen Lee, founder of Cowboy Ventures, has a diverse background including attending MIT, working in investment banking and China, and gaining operating experience at Gap. Her path into venture capital began at Kleiner Perkins, where she was hired despite being a non-traditional candidate, eventually leading to her founding her own VC firm.

Topics

Business & Entrepreneurship Economics & Markets Startup Growth Venture Capital Investor Relations Startup Funding Pitch Decks Venture Math

Mentioned in this video

Companies

Gap

A retail company where Aileen Lee worked in various operating roles, including marketing and chief of staff.

Facebook

Social networking giant that Aileen Lee mentioned in the context of missed opportunities.

Focus Media

A Chinese company that digitized billboards and served as an inspiration for Aileen Lee's startup.

Google

Technology company that Aileen Lee encountered during her time at Kleiner Perkins.

Cowboy Ventures

Venture capital firm founded by Aileen Lee, focusing on early-stage investments.

Odwalla

A food and beverage company that Aileen Lee interned with during business school.

Kleiner Perkins

Venture capital firm where Aileen Lee worked for 13 years, starting as an associate.

Yahoo

Internet services company where Aileen Lee worked, and where she suggested acquiring Amazon.

Harrison Metal

Mentioned in the context of investors needing to track emerging seed funds.

Amazon

E-commerce and cloud computing company that Aileen Lee considered acquiring for Yahoo.

Organizations

MIT

Massachusetts Institute of Technology, where Aileen Lee pursued her education.

First Round

Mentioned as a firm that investors should be familiar with when evaluating seed funds.

Founders for Change

An initiative encouraging founders to commit to inclusion and diversity.

Harvard

University mentioned in the context of the origins of many venture capitalists.

Stanford

University mentioned in the context of the origins of many venture capitalists.

The North Face

An outdoor recreation product company where Aileen Lee interned.

All Raise

A non-profit organization founded by Aileen Lee to accelerate success for women in the tech ecosystem.

People

Mike Maples

Mentioned as a helpful advisor in fundraising.

Michael Deering

Mentioned as someone who raised a fund as a solo general partner, offering advice to Aileen Lee.

John Doerr

Legendary venture capitalist at Kleiner Perkins who Aileen Lee worked under.

Richard Kirby

Mentioned for conducting an analysis on diversity in venture capital.

Aileen Lee

Founder of Cowboy Ventures, known for her work in venture capital and coining the term 'unicorn'.

Ally Rosenthal

A friend of Aileen Lee who is raising a fund focused on non-obvious founders.

Steve Investors

Mentioned as helpful advisors when Aileen Lee was raising her first fund.

Software & Apps

Friendster

An early social networking service that Aileen Lee worked with.

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