Session With Aileen Lee

Men's Hellhound Print Long Sleeve T-ShirtAileen Lee is the founder of Cowboy Ventures, a backer of awesome seed-stage technology companies. Her full session can be found here.

Q: How bad is the current market (early 2016) for venture financing?

A: Unfortunately, I believe winter has arrived for tech startup financing. Winter has or will hit late to mid-stage financings first this year, but there will be a trickle down effect down to Series A and seed, and it has already started. This isn’t all bad news — a lot of great enduring tech companies were built during downturns. And founders / teams who are starting and building companies during this period will likely be in it for the right reasons and building mission-driven cultures, because it won’t be easy to get rich quick through tech startups in the coming years.

Q: Aileen Lee is one of the most prominent and successful women venture investors in tech. Why aren’t there more women in venture capital?

A: Oh so many reasons. We’re actually looking to add someone to the Cowboy team — and because we are majority female, and two of us are Chinese females from New Jersey with similar post-college careers, in our discussion yesterday our team agreed we should make sure to be look for and interview lots of candidates who are different from us and have different profiles, different personality types. We care most about whether someone will be a magnet for great founders, an outstanding investor over time, and will be fun to work with.

Unfortunately, I don’t think that’s a conversation or a commitment enough venture teams have. Likely because many firms have done well historically with a homogeneous team, so there isn’t a sense that adding new people would make things better. It would also cause a change in internal culture/conversation, and many partners like the way things are.

Lots of studies have shown that more diverse teams have better creativity, better outcomes, better financial results — but there is not enough diversity by ethnicity, gender, or personality type in venture capital. And just in the past 2 months a number of firms have issued press releases saying, “We’re thrilled to announce our newest partner … another Caucasian male.” With all due respect, it’s frustrating to see these few open slots continue to go to people who are so similar to the people already there.

Entrepreneurs have a tremendous amount of influence now by choosing which investors they work with, and calling on a diverse group of potential investors when they raise a round. Hoping founders will vote with their feet by showing the VC world they want to work with modern, diverse teams — that might be the best way to impact the VC ranks in the short term.

Q: How did Aileen Lee come up with the idea of “unicorn” as a way to describe high-growth private tech companies? What’s the origin story of the phrase?

A: An area of interest personally and professionally is continual learning from the history of tech and venture. Venture is a decades old, multi-billion dollar annual industry and yet there has been a surprising lack of data and quantified learning about what drives the best results, the “making of”, so to speak — and it’s super interesting!

So when starting Cowboy Ventures, we wanted to figure it out — we had heard anecdotally from pretty much everyone in venture and LPs that the top- performing funds are driven by 1-3 investments that have $1B+ exits per fund — the rest of the investments don’t seem to matter that much. But how many of these companies are founded every year? And if we looked under the hood of how they were founded, who the founders were, where they went to school, how they met, etc.,would we find anything they have in common that would help us be better seed stage investors? I wasn’t able to find good answers to these questions.

So, the “unicorn” analysis was born. It was a laborious process because a lot of the data is not easy to get. It was originally called “the learning project” internally, and it’s a big spreadsheet.

It turned out there were a bunch of takeaways from the analysis we thought would be worth sharing with entrepreneurs, investors, and others, so we slowly wrote it into a blog post. But the phrase “private or public company most recently valued at $1B or more by investors” is just not a fun phrase to write or read over and over in a blog post.

So we tried a bunch of different substitutes — “Home Run”, “Monster Company”, “ThunderLizard” (Mike Maples’ terminology for huge tech winners) and none felt right. I was looking for a word that represented something quite rare, hard to achieve, special, almost magical, where alchemy has to happen because in a sea of startups, very few get to this place. Trying “unicorn” in the piece just made the whole thing so much more fun to read — so “unicorn” was born.

Q: Why did Aileen Lee name her venture firm Cowboy Ventures?

A: My husband and I have 3 kids — twin daughters who were 4 when we got pregnant with our son. We thought it would be fun to ask our girls to come up with a name for their little brother — it could be the baby’s code name, and/or they would forget the task but remember feeling included, as they often forgot (and still forget) to put dirty clothes in the hamper, feed the dog, etc.

We were really surprised when a few days later the girls were skipping around the house singing, “We’re going to have a baby brother, and his name is going to be Cowboy Handsome Shiny Dolphin!”

Like all good Palo Altoans we have backyard chickens, and one is named Shiny Dolphin — so that was out — so we called our son Cowboy Handsome for the following 3 months until he was born, and the name kind of stuck, so he’s named Cowboy.

Fast-forward to raising our first fund. I was hoping there would be a fund, but until it was raised, I didn’t want to spend a lot of time coming up with a super distinctive, evocative name until the ink was dry. So I called the project the “Cowboy Fund” while fundraising, as “Cowboy” seemed to be a good pregnancy project name.

After closing, we spent a bunch of time with some of our most creative friends trying to come up with a new name. We wanted something that reflected that we are a bit non-traditional, hard working, and entrepreneurial, and that we value people who want to be out on the frontier and are willing to go for long stretches without a lot of support or resources; able to make due without all the comforts or tools desired at times; and that we don’t take ourselves too seriously — we have a sense of humor.

Many domain name purchases later, we kept coming back to Cowboy. It communicated everything we were looking for, so that’s how we became Cowboy Ventures.

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