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Full transcript: Cowboy Ventures founder Aileen Lee on Recode Decode

Lee coined the term “unicorn” because it sounded less lame than “home run.”

TechCrunch Disrupt SF 2015 - Day 1 Steve Jennings / Getty

On a recent episode of Recode Decode, hosted by Kara Swisher, Cowboy Ventures founder Aileen Lee explained why she wants techies to stop saying “good guy” in the boardroom.

You can read some of the highlights from their discussion at that link, or listen to it in the audio player above. Below, we’ve posted a lightly edited complete transcript of their conversation.

If you like this, be sure to subscribe to Recode Decode on iTunes, Google Play Music, TuneIn and Stitcher.

Transcript by Celia Fogel.

Kara Swisher: Today in the red chair is Aileen Lee. For nearly 13 years she was a partner at the venture capital firm Kleiner, Perkins, Caufield & Byers, one of the more famous in the Valley. In 2012, she left to start her own firm, Cowboy Ventures, which has invested in companies like August, Dollar Shave Club and even Philz Coffee. Aileen, welcome to the show.

Aileen Lee: Thank you.

I have known you a long time. Where did we meet? I don't even know.

I don't know.

Some bar.


Three a.m., drinking away. So, I'm excited to have you here. I've been trying to get you for a while, you're hard to pin down and I finally caught you in my web of red chairness. I really am glad you're here.

I'm excited to be here. A little nervous, but excited.

You'll be fine. You know how to deal with me, Aileen. One of the things I start off with is talking to people about where they're from. You are the person, I think most people know, who coined the term "unicorn," which has been with us ever since, for good or bad. And you've been around the venture capitalist business for a long, long time. And you're a unicorn yourself — there aren't that many women venture capitalists.

Oh, thank you.

Why don't you talk a little bit about your background and how you got where you got? It's very typical to have a white male venture capitalist, and they usually do the same things. But you've had a really interesting background.

I have my career a little bit by accident. I'm a first-born child of a Chinese immigrant family, I grew up on the East Coast. And I have to admit, I did not grow up around technology. I kind of grew up in an environment where my family was very oriented towards, like, “just get a good education,” but engineering …

What did your parents do?

My dad was a dentist, my mom managed his office.

So you didn't want to be a dentist?

Not so much. I appreciate the sacrifices my dad made. I went to a great public high school. When I was growing up, I had lots of smart classmates that were girls, but none of us were really pushed into math or computers or anything like that. Girls took AP history and AP English and AP European history. And boys took calculus and physics. I remember reading an article, this in the late ‘80s, about scientific illiteracy and how the stats were showing that girls were not pursuing careers or majors in quantitative or STEM fields. And that kind of pissed me off.

And how old were you? Like 8?

No, no, I was in high school, I think. So I decided to apply to MIT.


And I got in.

You hadn't, heretofore, taken any of these things?

No. I was completely underprepared. But I just figured it'd be good for me, and I was fortunate that I had [the] grades and the test scores to get in. It definitely kicked my ass, I was not super-prepared. But I really loved it, and I realize — maybe not at the time, but in retrospect — it was just great working with so many smart people who are such curious minds.

So coming to MIT unprepared, most of those people ... Megan [Smith] went, and she was at the genius high school before.

Oh, yeah. I was not. I remember my freshman year roommate took AP physics in eighth grade. I called my mom, and I was like, "Uh, Houston, we may have a problem." But I made it through.

What's the first-year courses there?

There's a core first year which is, fortunately, pass/fail. You take a year of math and you take chemistry, biology, eventually you program in C — I don't know if they still do that, but back then this is what you did. You take two full years of math and science. But it was great. I hung out and learned from so many smart people.

You had a capacity for it that didn't know you had.

Yeah. So I think that probably, the parallel to that is [that] I don't build the products, I don't ship them, I don't architect the products, but I work with and support the people who are like the people I went [to school with].

What did you come out of MIT with? A degree.

Sloan undergrad. Business undergrad.

The business undergrad. But you had taken computing courses and coding courses. So how did you get to venture capital?

So I was an analyst at Morgan Stanley for two years after college.

The Mary Meeker years?

She was there at the time, yeah. And legendary even then.

You were a tech analyst?

Actually, I was an M&A analyst, and we did a lot of tech. I moved out to San Francisco for my second year and worked in a small tech group.

What did you push?

Well, gosh. Back then, I remember 3DO going public, our corporate finance. And people who are still in the Valley and doing an amazing job now were on the Morgan Stanley tech team back that. So I worked for George Boutros, Frank Quattrone was running corporate finance.

They're still slogging away.

So it was a great time. I mean, I don't think I really understood what was going on at the time. I'd heard about venture capital then, and to be honest, it sounded like the coolest job. You meet with entrepreneurs, you hear their stories, try to pick through what's the right combination of market timing, opportunity, people, and then you just help them.

But you were an analyst then.


So how do you make that leap? I mean, you were basically studying stuff that you want to take public. It's a sales job in a lot of ways.

Well, I was on the M&A side, so it was a little different. It was more like analysis of business models and figuring out how things combined.

And this is what year?

This is '92 to '94. So a lot of analysts would take a third-year job going into venture capital or something else. And some of my colleagues were looking at venture capital jobs. I was kind of like, "Oh, that sounds really cool," but it was all guys, mostly white guys, and I looked at the firms — back then, I think we had to go to the library to look at who the firms were — and they were all guys. And I just figured, "I would never fit into this world." Like, I didn't grow up in Connecticut with a businessman father who had been teaching me about business, so I didn't try. I wound up going to Harvard business school, and along the way I had worked at the mall at Short Hills for many, many years when I was in high school.

I've been there.

It's a nice mall.

It's a nice mall.

And I kind of worked my way up the retail food chain at the Short Hills Mall over the years, and I had always been really interested in brands and brands that had a lot of customer or organic consumer love, very high-quality products, not a lot of marketing, but a lot of customer love. And so when I was in business school, I worked for the North Face and Odwalla. They were both private companies, up-and-coming companies, with a lot of customer love. And then I went to Gap after business school, which was a really hot company back then.

I didn't realize you had such an interesting background.

Oh, thank you.

What did you do? Fleece? Or culottes?

I worked on first this business development team that was kind of like a strategy group, but working hands-on with merchants and stuff like pricing or store strategy and [helping] write some business plans. At the time, we were thinking, "Should we do maternity? Should we do Gap Body?" And we would do research, trying to figure out market sizes and, like, "How would we do this? And what would the brand be? And what would the business be like?" So it was, in a way, “intrapreneurship.” And then my second year, I actually got to be chief of staff for Mickey Drexler.

He was the founder.

He was the CEO at the time. The Fishers are the founders, and he's running J. Crew now. And he's just an amazing merchant and it was such an amazing time at Gap. We really were [a] talent magnet company for the industry.

Definitely under Drexler. They've had some ups and downs.

Retail, it's a hard business. And you have ups and downs.

He changed it from sort of being a cheap brand, because it used to be "fall into the Gap," I don't know if you remember that ad. That was a long time ago.

Yes, I do remember that.

It was sort of a warehouse kind of approach, and then it became trendy.

Yeah. I don't know if you remember "khakis swing." That was big. Everyone used to wear khakis, and Gap was —

The khaki headquarters!

Yeah, exactly. And then my last year there I was on the internet team.

Ah, so this was pre-internet.

This was '99.

Oh, then it had already boomed.

Yeah, like the beginning of '99. So the dot-com boom was happening. Some of my friends from business school had gone to these random “startups” at the time, like Amazon or Netscape. And I was kind of like, "Oh, good luck with that book thing."

You didn't want to do it. Because you had worked in tech M&A, but you probably were not working on that tech M&A.

That didn't exist. That tech didn't exist. And it just seemed like really smart people were going to those companies, they were moving really fast, and I knew that being on the dot-com team at Gap, like we were slowly figuring out how to stand up a site every day, but we just didn't have the team or the ability to run as fast as these pure-play internet companies. So I decided I wanted to join an internet company, and I just basically interviewed with anyone who would talk to me. I wound up getting a job at Kleiner Perkins.

Okay. But it was Kleiner, not a company. Did you interview at any companies?

I interviewed at, like, a thousand companies.

Who did you not take that you wish you had taken?

Oh you know, it's so funny because I did interview with a company called Della and James, which was a wedding registry company founded by Jenny Lefcourt and Jessica Herrin. I'm still friends with them today, but they were internet pioneers in the dot-com era. And Jessica, as you know, is now the founder and CEO of Stella & Dot, and Jenny's a partner at Freestyle. I also interviewed at, founded by Varsha Rao and Mariam Naficy. Varsha's now at Airbnb and Mariam's the CEO of Minted. And I'm still friends with them from back then. It was really cool. I mean, there were, like, no female founders back then, but the four of them are all still in the game and doing an awesome job.

Did you ever interview with the Googles or the Amazons of the world?

No. Google I met in '99 when I joined Kleiner.

Which was early.

It was — I don't know, it was probably 10 people? 15 people?

The garage. Susan Wojcicki's garage.

Yeah. Totally.

So why did you [go] to Kleiner?

Basically, they were doing a search for an associate, and the associate would be working mostly with John Doerr. And it was combination of: I was somewhat technical, having gone to MIT; I had been chief of staff to Mickey; I had some internet experience and consumer experience. And the dot-com boom was happening, and most venture firms did not have many consumer people at the time, they had a lot of networking and chip people. And it was not a partner-track job, so it was like, "Come do this for two years, you'll be smarter than you were before about startups and hopefully you can make a better decision about where you go next." And I was like, "That's fine, I don't know anything about Silicon Valley."

Right, and it was the most prominent firm, or among them. I guess Benchmark, too.

Yeah, at the time Kleiner, Sequoia, Benchmark were probably it. We saw everything. Venture has changed a lot. Back then, sourcing was not part of my job. Probably for the first eight years.

Mostly because you got everything.

We saw everything. We didn't have to look, because everyone called us.

And so your job was to help source? Or things came over …

No, it was to evaluate. Back then, we would print out business plans and put them in folders, and every night I would take home like 20 folders and just read business plans. And a lot of it was helping portfolio companies. Kleiner was — and still is — very service-oriented, like, "venture is a service job. We are in service to entrepreneurs." So it's about sitting shoulder to shoulder with them and figuring out, "What's our plan? What are our priorities? Should we do OKRs? Who do we need to hire? What customers do we need to go get?" And basically walking through walls for the teams that you're working with.

What did you evaluate, what you did a good job on and what you did not?

I definitely have learned a lot of things. I spent many years working with Segway.

Oh yeah, that. Seemed exciting.

It was exciting. Segway Polo, actually, is a misunderstood, little-known, super-enjoyable sport.

All right, okay, good. For the super-elite, but okay, all right. The 1 percent of the 1 percent.

It was really funny, actually, because they were for mostly geeks who liked cool tech toys, people were buying these $8000 Segways.

Yeah, I remember Jeff Bezos riding around town on one, and I was like, "Get the hell off that. Like, stop. Please stop going into restaurants with me on those things."

And Steve Wozniak had bought like four or five. And so he would bring them in a mini van to a field and then invite engineers he knew to play Segway polo with him. So on the weekends, my husband and I would go play Segway polo with this crew, because we were trying to get to know the Segway community.

Sounds enjoyable, but not a great business.

No. It was a good lesson. And I think my lesson there is I did not love it. I thought it was a super-cool product and a really cool technology, but $8000, no clear practical use cases, no place to put your bag or how are you going to lock it up when you take it to work if you take it to work? You can't, it's not easy to go up stairs. I said some of those things softly, but maybe not as loudly or effectively as I could or should have. Because I was the only woman, almost always. I was young. I was working with people that were legends. And so I felt like they must know better than me.

Right. You didn't want to say, "You're an idiot."

I think I just didn't have the self-confidence that I wish I had had, because maybe I could have saved us some money and some time.

Which one did you get right? You think you did a good job on?

I would say there are some ... you know, BIll Gurley was on recently, and he was talking about rules. And we used to have rules. I mean, most firms do. Lessons learned. After many, many years of making good and bad decisions, you have lessons. You have to have a certain amount of ownership, or “we only invest at A, we don't invest at B or C.” Or “we only look for these kinds of people.” Or whatever the rules are.

And back towards the end of my years at Kleiner, we were pushing to get more involved in seed, a few of us were. And it was just, "We don't do seed." And Uber was one of the seeds that we took a look at. And it was magical. Even though it was black car, so there was a risk that it was a rich-people's product, it was a magical experience.

Which you had been talking about — brands that delight customers.

Yeah. And we had said, "We are looking for mobile-native, new services that are delightful, and product-oriented founders who create magical experiences for customers." And Uber certainly felt like, once you started doing it, you were still thinking about, "Wow that was so cool, it was so easy, it made me feel so special." And one of the things that I've always had in my head is the Starbucks-ification of everything. There's a lot of things that you take for granted every day where you're not treated with respect. Or you might be willing to pay a little bit more. Like, coffee used to be 99 cents, and now you're willing to pay $3 or $4 for it because it makes you feel so much better. It's like a little treat during the day. And Uber was that. Yeah. Dollar Shave Club, in a way, was that.

Well, we're going to talk about those. But you invested in Uber.

No, we didn’t. I suggested it. It was like, "We don't do seed." And then there were also rules around like, "We don't do things that are too expensive." Bill [Gurley] was saying something about how you have to play the game that's on the field. “What is happening?” At the time, things were getting expensive. And you have to decide, “Am I going to sit it out? Or am I going to pony up?”

And be part of the frenzy.

There are some things that I wish we had done that would have been both fund-making and career-making that we didn't do, but in some cases I pushed for.

I'll never forget Sergey Brin once telling me, "We couldn't have paid too much for YouTube" when they were bidding for it. They were like, "There was no price too high to get that particular thing." And it's actually true. You created the term "unicorn." How do you feel about creating a term? Explain how you did that.

How do you feel about unicorns?

I'm tired of the term, I'll be honest. But I liked it when it came out. I did like it when it came out.

It's very efficient, I would say.

Yes, it works.

Because, you know, “valued by public or private markets at over a billion dollars but less than ten years old” is a long thing to say.

So explain how you came up with that.

It was just a naming convention for this analysis that I was trying to do which is, I had this new fund, Cowboy Ventures, a $40 million seed fund, and before diving into making a lot of investments, I had the fortune of having a clean slate and more time, because I didn't have a huge portfolio to work with. And I had asked some of our investors, LPs ... you know, conventional wisdom or the lore of venture capital is [that] you work really hard with a diverse portfolio of companies. You might have 20, 30 companies in a fund, and at the end of the day, it's two that matter. [I asked,] “Can I see the data?” And it was actually hard to come up with the data. “So how many do you have to look at every year to find those two? And can you tell at the beginning that those two are those two?”

Like, are there patterns?

Are they pivots? Or did the people all go to Stanford? Did they all drop out of high school?

And they weren't keeping data on this.

No, our industry historically has had very little data. And that's changing, I think. The whole moneyball idea, moneyball for venture capital or moneyball for a lot of things that have historically been very anecdotal and subjective, I think is on its way. I basically just started making a list of what are the winners of the past decade? And what's the cutoff for what would be a winner? Let me just start looking at data. And at the time, Crunchbase wasn't a thing you could search, so it was really a lot of hand-pulling and a lot of calling friends who happened to be — a lot of founders were people that I knew. Like, “How did you meet?”

“How many founders were there?”

“How old were you when you started the company? Is this the original idea? Are you still doing the original idea? Where did you work before?” Looking up their LinkedIn profiles and just putting it all into …

Like actually doing your homework.

Putting it all into a big spreadsheet. And lining up all the companies and saying, "Okay, what do these companies have in common?" And it actually turned out that they had a lot in common. The first one, really, is this less-than-1-percent thing. It's very rare.

And then I also was like, “How many a year?” At the time when I wrote up the analysis, in 2013, there were basically on average, in the prior 10 years, four a year. That's also changed in the past couple of years. The vast majority were teams: People who had worked together before. Unfortunately, pretty much no women. Almost always a technical co-founder. And people — at the time, in 2013, there was this drop-out-of-college, start-a-company, you're-a-loser-if-you-haven't-started-a-company-by-the-time-you're-24 kind of a thing. These people started their companies in their 30s. And they had work experience beforehand, mostly at tech companies. So I was happy that that's how the …

So you're disproving all the traditional notions.

Yeah, because I would be having meetings with founders who would come in kind of sheepishly being like, "Hey, I'm really sorry, I'm 35 and I know I'm really old, but I hope you'll still meet with me." It's like, "No, you're doing the right thing. You went and got some work experience, you worked with really smart people, you got to know a market, you know how to build and ship product, you got some exposure to sales and marketing," whatever it is. Like, "Now, you're ready."

So when you use the term, where did you come up with it? Why unicorn versus anything else? Griffin.

I know. I had a bunch of different things, like "home run," and they just sounded yucky. And unicorn, when I put that in there, the idea was something rare, something that's almost magical, kind of legendary, feels special, didn't sound like a loser business term.

Right, right. There's so many.

Yeah, so it just kind of made the whole thing easier to read and it made it a little more fun.

So this is when you're starting your fund.

Yeah, maybe a year into it.

And it got a lot of attention. What do you think of the attention it's gotten since? Because now it's sort of "unicorns are in trouble," like it's sort of used as a handy term.

You know, I know people were kind of sick of it, like you maybe …

But just that it's being used in different ways than I think you envisioned it.

The reality is, it may feel like it's an overused term, but that is still what I think our industry is about.

Right. Finding these.

From an investor perspective, not necessarily for Cowboy Ventures but for traditional venture funds that are $600 million, the way the math works is you have to be investing in unicorns otherwise you're not going to be …

Which are now called decacorns, right?

Right, a $10 billion company. But if you have a billion dollar fund, you kind of have to own a certain amount of a $10 billion company to be able to do a good job and have top returns. Like for our fund, our second fund is $60 million, we don't have to. If we own 10 percent of a $600 million company, we've returned capital. So I actually like that about being seed.

Let's talk about why you left Kleiner. Here you are, you did this thing that got a lot of attention right off the bat. You were at the most powerful venture firm, you were one of the prominent partners there. What caused you to leave?

Actually, I think you were the first person we called.

Yes, you did. When you left.

It was a combination of things. At Kleiner, I had been there for a long time and we had grown a lot bigger over the years. And I was fortunate to be a senior partner, so involved in a lot of the different practices that we had and a lot of the different meetings. And I found myself in a lot of meetings. And thinking about the next 15 or 20 years and thinking, "Is this what I want to keep doing?" And then meanwhile ...

And these funds had gotten enormous, right?

The funds had gotten big — complicated, as you may have read in the press or as you've written about. And meanwhile, seed was this emerging category where the teams are smaller, they're definitely more raw in terms of what they've figured out, which is actually kind of what I like about working with entrepreneurs, and they are more appreciative in some ways of more help at that stage because it's less baked. And where if you've got experience and you've got some advice or some judgement to share, if you're really picky about people and you like to help people build teams. Like if you're really into product road mapping and prioritization — ruthless prioritization, because at seed you have not enough time and not enough money, you have to be brutal about what are the five things ...

So you're really helping these companies versus managing them.

Yeah, we’re getting really involved. And it's a different pace. We might make five or 10 investments a year instead of — a GP at a firm is meeting with a ton of companies all year long to make one or two investments. But you're married to them for the next eight or 10 years.

Why didn't you do a seed fund at Kleiner? Is that just impossible?

I think it's hard because …

Mary kind of has a growth fund which is not really seed.

No. I think it's hard both because these firms have so much money under management, making a million dollar investment just doesn't make sense. And you have signaling risk. If you invest in the seed and you don't invest in the A, it's like, "Oh, what's wrong with that company? Did it not perform?" And also I've been doing this for a while. I've built a lot of great relationships with people I really respect that I never got to work with and I basically had to compete with to win series A's. At seed we co-invest. So one of the first people I called when I was thinking about starting this fund is Steve Anderson.

Fantastic venture capitalist. Instagram.

Yeah, he's amazing. He's done an incredible job across so many different kinds of companies.

By himself, pretty much.

Yeah. And we started together at Kleiner. Or Josh Kopelman, who has built an amazing firm. Or Michael Dearing. People who I've known for many years and became friends with but never really got to work with. And I called him and I was like, "Hey, thinking about this seed thing, is it too crowded? I mean, I know in general we think there's too much money, but is there too much money at seed?"

Because there's a lot of angel investors.

Yeah, there are, but they basically all said, "There is a lot of money at seed, but there's not enough really experienced, helpful people who post-writing the check are going to work really closely with these teams for a year or two years to help them get to the A and help them be on the right path. And we always co-invest so we'll work together and it'll be great." I'm so appreciative of their support because maybe I wouldn't have done it if they had said, "Yeah, it's too hard."

What was that like, walking out? Because it's sort of like when I left the Wall Street Journal. I felt great, but you know what I mean? It was leaving behind a big name.

Yeah. It was hard. And I'm really fortunate. My husband and I had been having dinner with some friends who are entrepreneurs and they knew me and they knew Kleiner pretty well and asked how it was going. And they were like, "So when are you going to leave and start your own firm?"

They said that to you?

I said, "What? You think that I could do that?" And they were like, "Of course, why wouldn't you?" And it honestly had not crossed my mind until they said that. I thought about that for three months. I did my financial models, I worked on the deck, I thought about it. And the more I thought about it, I thought, "This actually would be amazing. Maybe it would be bad, but ..." I think I have a lot to offer and I have good judgement, but I think when you're part of a large firm, sometimes it's hard to get that through. And you also maybe get into this group-think and you get worried about what people think about what you think.

Right, so you talked about speaking quietly, that's a woman thing, too.

Yeah. I felt like there's no one to draft off of. It's “this is it.”

Your decision now.

Yes. It's like you have to have your gut and you have to have your frameworks, and just go for it. And maybe it'll suck but you gotta do it. That's the job.

Not a lot of people do that. It's interesting. Not a lot of people do that, and not a lot of women do that.

I have to say, it has been so much better than I expected. I mean, I don't know if I had real expectations, but I think the flexibility and the agility for us to be able to meet people and have a quick feeling about whether I'm leaning in, my heart's beating faster, I love the way they're talking about stuff, the market's big. And like Bill also said, you kind of get in this worry mode of all the things that could go wrong because you don't want your 10 partners breathing down your neck being like, "See, I told you that was going to suck." First of all, I don't have that, it's myself beating myself up all day long [laughs].

Aileen, you suck.

Yeah, I do think that quite a bit, but I think much more about what if it goes right? What if this works? It would be so awesome. And I think some of the things that are going on in tech right now, we were talking about Pokémon Go before, or Uber, Airbnb, it’s so easy to poke holes in those businesses. I remember Airbnb and Uber and everyone being, "Oh, they are going to be regulated out of existence." Or, "They will be sued forever and they will never make it." Consumer businesses are way harder in many ways than enterprise businesses, but when they work you are truly changing industries. You change consumer behavior and multi-billion dollar hotel chains now think, "Okay, how do we change our business in the age of Airbnb?" It's amazing.

Do you ever wish you could invest more money? So you've got a hundred million dollars now.

Under management.

Under management. Do you wish you could have a bigger stake? Because at some point they zero you out. You know what I mean?

Yeah, you do get diluted over time.

And you're influencing, too.

Well, hopefully.

Because they go, "Now we're coming in and we'll take over."

Well, being so close to the entrepreneurs at seed, really, you're one of the few early believers. A lot of people are naysayers, [but] you're with them and you've helped them hire people and you've helped them make tough decisions, and you've worked on, okay, what's the story for series A, and we have to make some tough tradeoffs to make sure we make it. You're in the trenches together, hopefully the entrepreneurs remember that and we do stay in touch. It's not like we disappear after they raise their A. In some cases I stay on the board and stuff like that. So we do have the opportunity to continue to invest in tech companies. And we do.

But you try and stay in the seed area.

We get most of our ownership at seed, but we follow on in the A, the B, the C. And also LPs and the investors in our funds, they want to continue to have opportunities for upside, so it's actually nowadays a lot of seed firms create what they call SPVs — Special Purpose Vehicles — where if you have a pro rata in a company that's doing well but it's like $5 billion, you just create an SVP and you do it through that.

Do you think about raising even more money? Is that something given how much money there is awash in the system?

I do a little just because I would actually be able to hire more people.

Hard to do now?

With our size I think, we're small. But I also think I want to be super aligned with our investors and with our entrepreneurs, which is all about the upside. It's not about the fee income, which I think is a trap that many people in the venture world are stuck in, the crack of fee income. Because we are small, it's all about what we call carried interest. [It’s] the profit-sharing after we return capital. And if you want to get into that, you have to keep your fund small.

Right, right. Absolutely. So when we get back we're going to talk about more things, including some of the trends you see, some of the investments you've made, and being a woman venture capitalist. You were also at Kleiner during the Ellen Pao issue.

Well, actually, I was gone.

I know, you were gone. But all the issues they bring up.

But I was there, apparently, when stuff was happening.

Ah ha. Now, what have you invested in? You were in August, what else?

Yeah. Dollar Shave Club you mentioned.

That was good. That worked out well for you.

Yeah, exactly. Lately we have been actually investing in ...

You do a lot of retail, because I didn't realize you worked for the Gap.

Yes I did. I'm actually super careful about retail and e-commerce because I think it's one of the hardest categories to invest in. It's super tricky. Some of the misperceptions of Cowboy and me, one is — with due respect — Ellen and I are different people; and that we only invest in women ventures or e-commerce. We actually invest in more enterprise companies than we do consumer. Especially recently.

Let’s talk first about Dollar Shave Club. Is that a hit?

I think it's a hit.

Or is it you have to sell it because …

Oh no, I think it's going to get way bigger.

Right. Why sell now?

I think it was a great deal for Unilever.

What's the impetus to sell now?

I think it was a fair valuation. It wasn't a crazy price relative to how big the business is.

No, it was a great price.

And I think Unilever has a lot of resources and my understanding is the Unilever leadership team, especially the CEO, kind of like Bret [Taylor] talked about, the rapport with the CEO and seeing how you can actually get where you want to go faster with the deep pockets and the resources of the acquirer.

Well it happened to Odwalla, it happened to all kinds of big consumer products.

Yeah, that was a big part of it for the Dollar Shave Club team.

Right, and it was time to go. Did you think about staying independent?

I was not on the board when it happened but I think it was a tough call.

It was a great outcome for you. One Kings Lane, not so much. Was that with Kleiner?

With Kleiner.

What happened there? I know I've been bugging you about it.

I know, you've been bugging me about it.

I think it's lower than we reported.

No, I'm not going to comment.

Oh, you almost did.

But One Kings Lane I think is an amazing brand. Home is such a huge unaddressed category. It's such a tough one to shop for. I still feel like that category is not done. There will be a One Kings Lane 2.0 or 3.0 that I hope we find.

What is the trouble with e-commerce right now? And then we'll get onto what you've invested in, enterprise and other things.

E-commerce is really hard. In some cases you have inventory, but even in cases where you don't, margins can be challenging, cost of customer acquisition is challenging, frequency and retention is challenging.

And then there's Amazon.

Yeah, and there's Amazon. So you have to have unique inventory or you have to have a unique way of selling the inventory. Amazon is such an amazingly tough competitor because Jeff [Bezos] is such a long-term thinker and planner. He's said, "I'm willing to not make money on businesses for potentially decades because this is so huge and I'm going to be doing this for a long time." And he's got super deep pockets and really smart people.

Thank god for AWS, too.


He's shown he can make money.

Yeah, yeah. So I mean, he is super smart and so I think you have to be super smart and I mean if you look at Zulily, that was a very good team, and I do think they built a great business in a relatively short period of time. But it's just tough. Retail is tough.

What are you in in retail right now?

I don't know if I'd call it retail but we're investors in a company called Memebox, which is a K-beauty company. If you see this lovely complexion that I have it's snail cream [KS laughs]. It's Korean snails.

Oh, nice. Good to know. I think I'm going to pass on that one. But you're not in that many. What are you focused on? What is your big focus?

Seed for us is really a combination of the people and the mission that they're on. Market size, the idea and the technology. Like, is it unique? And what have they figured out kind of almost with nothing. And what's the plan. So with a reasonable amount of capital, can we get to a good place and are we headed in a great direction where we're going to build a great company, and the team has the chops to be able to get there.

Give me an example of something you've recently done and why.

I'll talk about Textio. I don't know if you're familiar with Textio.


It's one of the things that we're excited about which we are not seeing enough of, what we call smarter software. Like some people call it AI-driven software, Kieran at Textio calls it learning-loop software. I don't know if it's Sequoia or someone has this thing, “What's the reason why? Why now?” And for the past five years we've been living in: Smartphone is the reason why now. Because everyone has a smartphone, enterprise software has to change because you're not going to be locked to your PC anymore, or I'm not going to use that crappy UX that we've had for the past 15 years when my iPhone is such a slick cool product. Or there are mobile native products that can disrupt whole industries.


Yeah, exactly. I mean, there are so many good examples. But I think in the next decade, smarter software is going to be the why now or the reason why.

What does that mean?

It's like you use software all the time that is not learning. Let's say you open it up and you go to a certain navigation menu bar, and you always do the same things, why doesn't it know that?

It doesn't. Siri drives me crazy when I call my sons. They don't know. It's fascinating.

It's going to basically personalize the experience based on who you are, what your role is, what your common activities are. If you do the same thing over and over again, your software's going to learn from that and do it for you. Instead of you having to click five things, it's going to basically jump from click one to click five. And in the case of Textio, it basically ingests lots of writing and then can make recommendations. We haven't had any writing recommendations since spellcheck.

Right. That's true.

But we're sitting on top of crazy amounts of data from writing, writing an email and seeing how quickly people [act]. Do they open the email? Do they click on it? And do they take action? And the writing that was in the email, the photos, how long it was, what was the tone, what were the words? That's data that you learn from. And then make your writing better so that more people will open the email, more people will click on it. And so Textio does that first for job specs and things that are related to people and HR. But this kind of learning software that basically reads the body of writing and makes proactive recommendations so that your writing becomes more effective, Textio should be applicable. And it's one of the only real-world applications of learning-loop software that we have found. But I think there's going to be a lot more.

What are you worried about? I mean, Bill still talked about the bubble. He is still not coming off of that one.

Yeah. I think there has been a cooling and there will continue to be a cooling, which is good.

How does that manifest itself from your perspective?

If you looked at the unicorn analysis that we did, if you looked at the prior 10 years, were there better years for unicorns? Yes. There are certain years where more great companies are born than others. And some of that has to do with downturns.

Google started in a downturn.

Yeah, so many great companies. And maybe, yeah, the entrepreneurs have to really want it bad to start a company in a downturn because they know it's going to be harder, and I think we're actually heading into that, so I'm kind of hopeful that the next year's vintage of companies started will be super awesome. Because it's a tough time.

Are you advising your people on anything?

We did in 2015. We slowed down our pace of new investments pretty significantly because we kind of felt like winter was coming, and from a fundraising perspective, right? Because people had been partying like crazy, writing huge checks at very high valuations, they're going to have a massive hangover, and they're going to pull back. And they're going to be like, from a venture perspective, "I've got this really full dance card, I made a bunch of expensive investments that have to grow into them, or I have to figure out how to get them sold. My partners are giving me a lot of shit for the decisions that we made, I'm sober now. And I cannot make new investments unless the team is ridiculously special or they've accomplished ridiculous things with almost nothing." And I think that's kind of the world that we're in. And so the entrepreneurs have to be tougher and more thoughtful than ever before.

No more parties.

It's something we're paying attention to and we're looking for and it's kind of raised our bar a little bit.

Let's finish up talking about being one of the few women — there's just a few — women venture capitalists. What is that like, walking into a room when you're the only woman? I remember you talking about a dinner once where literally you're the only woman in the room.

Oh my god, it happens so much. But one thing I would say — and we talked about this once — is one request I'd have is, I really would like us to stop using the phrase "good guy."

Okay, right.

If you pay attention, you'll realize people say, "He is such a good guy," so often. And there is no female equivalent. Like what would you say? "She's such a good girl?" That sounds so stupid.

No, that's a bad thing.

Or, "She's a good woman." What is that? She's good at bearing children? Like what is that? [laughter] So and it happens that you're sitting in a boardroom with a bunch of guys and it's a hot company that's thinking about raising their series A or their series B and usually what we do is we make a Google doc with a list of target investors and someone will say, "Oh I was just with Jimmy Brown last weekend. He's such a good guy. We should put him on the list." And then someone will be like, "Ah, I love that dude. He's such a great guy." And so then we put him on the list. And then someone's like, "Oh how about Joe Schmo," like, "Ah, love that dude." And then I'll bring up a woman. And they'll be like, "Oh does she invest in security?" It's a totally different set of questions. There's no, "She's such a good girl." And so I would request we say, "He's a good human," or "She's a good human or person," whatever you want to say. "Good peeps." I think there's a lot — and like this is just one example — of tons of unintentional subconscious bias.

Are they unintentional? Are they subconscious?

Well maybe it's intentional but ...

Not unintentional, it's lazy. I'm going to stick with [that].

The filter for [a guy] I'm going to put on my cap table is someone who's a good guy, like he doesn't rock the boat, he's fun to be with. It has nothing to do with whether he's going to help build value in my company, whether he's going to introduce me to customers. Whereas, I feel like the filter that I see people apply to females: "Do I like her, does she have specific domain expertise, can she introduce me to the 15 customers I need to win in the next year?" It's a totally different filter.

Yeah, they're higher standards. It's interesting, I always say the only time they bring up standards is for people of color and women. And they never bring them up with white men.

Yeah, it's totally different. And the other thing I'd say is, you know, Kleiner did take a chance on me. I was reading this article yesterday about the Obama administration in the early days, about how it was kind of a very testosterone-[driven].

Yeah, this was the shine thing.

The shine thing. You posted it, right? And I remember John doing that for me at Kleiner, in a meeting where you have people with big personalities who are awesome debaters, he would say, "Aileen, what do you think?" And after I said something he'd say, "I think that's a really great point." Those kinds of things that men can do for people who are different, not just women, in environments, and that women can do for each other or people can do for each other, I think we'll make a huge difference. I don't think we do it enough.

Why doesn't it happen? And talk a little bit about the Kleiner case with Ellen Pao, it certainly iterated through the whole industry. And I don't think it's limited to Kleiner, the things that happened there. Whatever side you believe, whatever side you come out on that one, it's so familiar. It was so familiar, so many of the things. Everywhere.

Not just in tech. We see this everywhere. We see this in the election right now.

Hillary doesn't smile and Matt Lauer and Trump say 10 idiotic things and she's on the [hotseat].

Yeah, it's crazy. So I think we all, men and women, men more so than women in a way because in venture they're 95 percent of the industry — there's the big thing about what Mike Moritz said on Bloomberg about pipeline and stuff. But the reality, with all due respect, he's been an amazing investor but someone took a chance on him. He was a journalist. If we want our industry to change, we have got to make very concerted efforts to go outside of things that we know and that we're comfortable with. Like, "Oh yeah, that guy went to Dartmouth, I love Dartmouth guys." You have to take a chance on people, and many people, not just one person because then all the weight is on one person.

That's what I'm saying: Do you feel the weight on yourself?

And if they don't do a great job or they don't work out, it's like, "Well, we'll never do that again." And I've heard that from so many people. Like the Ellen case, unfortunately, has caused some people to be like, "Well, we are for sure never hiring woman partners because we do not want to get in that situation." And that is the wrong message to take away.

If you replace that with Jewish or any other descriptor, you couldn't possibly say it.

It would be so wrong. Yeah, totally.

What do you think the impact of that was ultimately? I think very little.

I do think people are talking about [it]. I mean, eight or 10 years ago if I ever said ... I remember one time talking to a partner at Kleiner where we had had a meeting or a company presentation, and afterwards we're getting lunch and talking and I said, "Hey what did you think about this?" And, "This kind of seemed like a problem." And he was like, "Why didn't you say that in the meeting?" And I was like, "I don't know, maybe it's because I'm still a junior partner and I'm female." And he says, "Zip it, I don't want to hear it. Never ever talk about being a woman again." [laughs] That was the conversation that we had! And now actually I think we can have that conversation and people will listen and hopefully help and be like, "No, you can do it."

Yeah, it was interesting, I just advised a friend, they were doing something and no men would do it. And they were trying to get her to do it. And I said, "Say no men have done this, why do you expect me to?"

Oh my god, that works so well, you do that to me and it totally works! [laughs]

It does! Because it's factual. Have you noticed? I think as long as you point out the facts, as uncomfortable as it may be, but I do feel that nothing has changed. I mean, I think women have to push for it. Is that what has to happen? Or is it just demographics?

I love my job, but I feel a little extra motivation to show how good we can be. Cowboy Ventures is the money you want at seed, and oh by the way, it's mostly women. I feel so motivated and driven by how cool would that be, not just for us but for a lot of other firms where modern firms are winning.

And what else is a modern firm? Let's finish up on that. What do you think is going to change in venture capital that has to change? Because it still feels slightly antiquated.

It does. But we just invested in a company that we haven't announced yet in the most recent Y Combinator class and the founders who are two guy engineers who have worked in the Valley for a while. [They said], "We went to a bunch of the websites of the VC firms and we were like, hello, you have 15 guys. Do you not get that it's 2016?" They said that to me. And I feel like venture firms, there's a lot of data that shows that diverse teams have better outcomes and make better decisions. And also, with how competitive this industry is getting, if you don't have women or diverse people on your team, you're going to miss out.

Diversity of all kinds: Age, race ...

Introverts, extroverts. Ethnicity, gender, sexual orientation.

I had a venture capitalist recently say to me, "Well, we have a Canadian." [AL laughs] I was like, "I'm on the phone but I'm going to get in my car, come down and hit you really hard."

Totally. Like, "Oh, he's Indian." Great, that's awesome. But I think that if you pay attention to it, if you're cruising the websites of all these firms and you look at all the pictures, it's awesome that you have a CFO and a female GC, but if you look at the investing partners and it is 15 dudes, I do think that those people are going to be left behind if they don't get with where the world is going.

Is that the same thing at companies?


Or boards.


Boards I think is really where it's [bad].


Yeah, it's interesting. When it's one woman versus three or people of color, it's a really interesting change of dynamic.

Yeah, and that's the thing. It's funny. You probably get these calls where people want to sit down and talk to you about, "Hey, I'm really concerned my firm doesn't have any women. Can we grab coffee and talk about it?" I don't really want to do that anymore.

Because they can find them themselves.

Yeah, and they just want to talk about it. They're not actually doing it and they're not committed. That's one end of the spectrum, and then a couple notches in is like, "We are going to hire one woman." And like that, just checking the box.

It's not enough.

It's not enough.

All right, we're going to finish up on the last question I ask everyone. What is a mistake you've made?

Oh my god we don't have time for this. How long is this podcast? [laughs]

No, just one mistake of many. [laughs]

So many.

What is a quality you think is critically important to your success?

Well I would say at Cowboy, one mistake that we have made a couple of times is letting a FOMO drive our decisions.

Fear of missing out.

Fear of missing out, where we don't see something early enough so we don't have a ton of time to make a decision. They've already met with a couple other firms and they've gotten term sheets and they want us in but they're like, "You have to decide in a week." And we don't have the time to really get to know the team and the business and meet with them multiple times, and we think, "Well, that firm and that firm are really good firms and we really respect those people so let's do it." That's just not [good enough]. In my dream world we have enough time to get to know the team and we make an independent decision and we would do it even if everyone else passed. I think that's really important. You have to have conviction and you have to be willing to be a contrarian. A lot of times everyone else is like, "This well never work." And you are the one person or the one firm that's saying, "But if it works it's going to be awesome."

So what do you have to do to overcome that?

You just have to put your blinders on and not listen, and not even ask who else is in. Just make your own decision.

Right. And that's hard to do.

In this environment it has been very hard to do because the process has been so rushed. And I think entrepreneurs are starting to realize this and it's biting some entrepreneurs, right? You get kind of giddy with all the attention you're getting in this process and you get focused on optimizing the process and the valuation and the heat rather than really making good long-term decisions about who you're getting married to. And I think entrepreneurs are starting to see that.

I like that a lot of them are kicking people off boards if they're not helpful. I've heard that three or four times recently.

Have you? Really?

Yeah. Prominent people. Uber's done it, SoFi's done it. It's like, woah.

It sounds like you have good information about things that are happening.

I do. I'll be writing about it. I'm watching all of you, Aileen.

Oh well.

Anyway. Thank you so much for coming on, I'm so glad you're finally here.

Thank you for having me.

Again, it's Aileen Lee who is — what is your title at Cowboy Ventures?

I'm founder and managing partner.

Founder and managing partner of Cowboy Ventures, which is a seed firm in Silicon Valley that has a wide range of interesting investments. Thank you, Aileen.

Thank you for having me.

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