20 VC 021 Gender Equality, Startup Valuations and 'Friend Raising before Fund Raising with Sharon Wienbar



In episode 21 of the "20 minutes VC" with host Harry Stebbings, Sharon Weinbart, a partner at Scale Venture Partners, discusses her journey from a marketing VP witnessing the tech bubble to a venture capitalist. With a focus on mobile and Internet companies, she addresses the underrepresentation of women in tech and VC, noting that despite women's proven investment acumen, only 4.6% of general partners are female. Sharon emphasizes the importance of diversity, challenging implicit bias, and adopting inclusive hiring practices. She also speaks on the viability of startups outside Silicon Valley, the influence of geographical location on funding, and the current tech bubble, asserting that disciplined investment in fundamentally strong companies can still yield returns. Lastly, Sharon highlights the importance of VCs adding value beyond capital, like offering expertise and cultural fit, and the role of platform shifts in driving venture capital returns, with a keen interest in the mobile development stack.

Summary Notes

Introduction to Sharon Weinbar and Scale Venture Partners

  • Sharon Weinbar is a partner at Scale Venture Partners, focusing on mobile and Internet companies.
  • She has a background in marketing for tech companies and witnessed the tech bubble first-hand.
  • Sharon has been with Scale Venture Partners for about 15 years and sits on the boards of various companies.

"Sharon invests in mobile and Internet companies at scale venture Partners, where she sits on the boards of actions, Beach, Mint, Everyday Health, Playphone, reply and utest."

This quote introduces Sharon Weinbar's current role and expertise within the venture capital industry, highlighting her involvement with multiple companies.

Sharon's Career Path and Transition into Venture Capital

  • Began as a consultant at Bain & Company.
  • Transitioned to marketing in the technology and software sectors.
  • Sought a senior-level contribution that required less international travel due to family.
  • Was approached by a venture fund that had backed a successful startup she was involved in.

"About 15 years ago, I was trying to figure out how could I keep contributing at a senior level... And that sparked the idea of venture capital."

Sharon explains her career progression and how personal circumstances led her to consider venture capital as a field that allows her to leverage her experience while accommodating her family life.

Women in Venture Capital and Tech

  • Scale Venture Partners has three female partners, the most in the U.S. for firms with over $200 million under management.
  • The firm's diversity began from its inception, which has contributed to its success.
  • Implicit bias and pattern matching are challenges for diversity in tech and venture capital.
  • Women are statistically proven to be strong investors, trading less often and taking better-calibrated risks.
  • Improving female representation involves increasing entry-level opportunities and focusing on retention and promotion.
  • The venture capital industry has long promotion cycles and small business sizes, making personnel changes infrequent.

"And the existence proof of success, both to candidates who come from diverse backgrounds as well as from the existing employees, is a very important part of changing the ratio toward a more diverse workforce."

Sharon highlights the importance of having successful role models from diverse backgrounds to encourage more inclusivity in the workforce.

  • The ratio of female partners in venture capital has remained steady but low at 4.6%.
  • The tech industry has seen a decline in the percentage of women in engineering roles since the mid-1980s.
  • Early computer science was more collaborative and had a higher representation of women.
  • Efforts are being made to recreate a collaborative culture to attract more women to the field.
  • The industry acknowledges the importance of diverse perspectives, especially as software becomes increasingly central to the world.

"I believe in venture capital that the numbers show the ratio has been quite steady, which is to say it hasn't gone up, but it hasn't gone down."

Sharon provides a candid assessment of the lack of progress in improving gender inequality in the venture capital industry over her 15 years of experience.

Software's Influence on Various Industries

  • Software has infiltrated many aspects of life beyond core technology products.
  • It's crucial for the design and product trade-offs to reflect the diverse customer base.
  • Relying solely on young men for software development can lead to a mismatch with the customer base.

"And software is kind know coding the experience that we have with so many different aspects of life now, right, our automobiles, our home appliances, how we experience media, how we buy makeup, all kinds of things. You're having a software experience in industries that are far afield from core technology products."

This quote emphasizes the pervasive role of software in modern life, highlighting the need for a diverse group of developers to cater to a broad customer base.

Encouraging Diversity in Tech

  • Increasing the supply of qualified women in tech is essential.
  • Women are a majority in wet sciences and often have computer science capabilities.
  • Companies should consider candidates with relevant coursework, not just computer science degrees.
  • Blind recruiting methods can mitigate implicit bias.
  • Awareness of implicit bias in management and promotion is crucial.
  • Research shows women are often evaluated differently than men in performance reviews.
  • HR software is emerging to address gender biases in hiring and promotion processes.

"So, number one is companies can look not just for the bscs, but for specific coursework that has women qualified to work as engineers."

This quote suggests that companies should broaden their hiring criteria to include women with relevant skills, not just those with specific degrees.

"And then the awareness of implicit bias in the management and promotion path is also incredibly important."

The quote highlights the need for awareness and action regarding implicit bias in workplace management and promotion decisions.

Geographical Bias in Startups

  • Startups can be successful outside of Silicon Valley.
  • Access to talent is critical for startups, regardless of location.
  • CEOs must focus on talent pipelines and be proactive in recruiting.
  • Being outside the Valley may affect early-stage funding but not necessarily later valuations.

"But Silicon Valley has no monopoly on smart people and good ideas."

Sharon Weinbar indicates that innovation and talent are not exclusive to Silicon Valley, suggesting that startups can thrive elsewhere.

"So I think the ceos who run those companies outside of Silicon Valley have to be even more focused on the talent pipeline and always kind of always be recruiting."

The quote stresses the importance for CEOs outside Silicon Valley to be vigilant in their recruitment strategies to ensure access to top talent.

Startup Valuations and the Tech Bubble

  • The high valuations in tech are partly due to the companies' impressive performances.
  • Despite concerns about a tech bubble, there is potential for investors to profit.
  • Real traction and revenue in the enterprise space are driving valuations.
  • Early-stage funding can be more challenging in secondary markets.

"Yeah, it's definitely possible to make money, because part of what's driving the extraordinary valuations is actually extraordinary performance by some of these companies."

Sharon Weinbar asserts that despite high valuations, investors can succeed due to the genuine growth and performance of some tech companies.

IT Spending and Bubble 1.0 Valuations

  • The last Fortune 500 company got its domain and spurred IT spending.
  • Companies became web-enabled and retooled for Y2K.
  • This led to overvaluation of companies during the dot-com bubble.
  • An example given is a company going public with a $4 billion market cap on $800,000 in trailing revenue.

"last year that the last Fortune 500 company got its domain name and got on the web. Right? And that spurred on five years of extraordinary it spending, of companies getting web enabled and coincidentally also y two k retooling. So you had this huge spend on new it platforms, and that fundamental growth became highly overvalued. So, just as an example, I said earlier, I was officer of a public company and Bubble 1.0, that company went public with a $4 billion market cap in $800,000 in trailing revenue. So that equals bubble."

The quote outlines the excessive IT spending that occurred due to companies moving online and preparing for Y2K, which led to inflated valuations during the dot-com bubble, exemplified by a company with a high market cap but low revenue.

Growth and Valuation of Modern Tech Companies

  • Modern B2B companies with high growth and subscription models are valued on potential.
  • Companies showing 100-200% year-on-year growth are attractive to investors, especially in a low-interest-rate environment.
  • High valuations can be justified if companies quickly grow into them.
  • Disciplined investment is key in the current high-valuation market.

"But when you look at b to b companies that are being valued at ten times revenue, but they're growing at 100% to 200% year on year with a subscription style business model, the revenue base is much more durable. The growth is extraordinary."

This quote emphasizes the robust growth and durable revenue base of modern B2B companies, which justifies their high valuations and makes them appealing to investors.

Venture Capital Strategy and Board Involvement

  • Venture capital is essentially capital, but it also involves hiring a board member.
  • Scale Venture Partners always takes a board seat, showing a commitment to involvement.
  • The firm focuses on early scaling phase companies with product-market fit and a working channel to market.
  • They provide expertise and a hands-on approach, assisting with recruitment and strategic decisions.

"So with a preferred round comes a board seat. And in fact, that's part of our strategy, is that we always have a board seat. With our companies."

The quote highlights the strategic approach of Scale Venture Partners to always have a board seat, indicating their active involvement in the companies they invest in.

Finding the Right Venture Firm Fit

  • Entrepreneurs should carefully select venture partners, treating it like strategic sales or executive hires.
  • It's recommended to "friend raise" before fundraising, building relationships with potential investors.
  • Entrepreneurs should consider firms with relevant sector experience, geographical diversity, and a good reputation.

"I think entrepreneurs should think about raising capital and selecting an investment partner very much. It's a process very much like your first few strategic sales or your strategic executive hires, which is, number one, you want to friend raise before you fundraise."

The quote advises entrepreneurs to approach raising capital as they would strategic sales or hiring, emphasizing the importance of building relationships with investors before seeking investment.

Entrepreneurial Strategy for Engaging with Venture Capitalists (VCs)

  • Entrepreneurs should actively create and maintain lead lists of potential VCs.
  • Regular updates and meetings with VCs are crucial, even if brief.
  • Building a board and investor base should be a strategic, forward-thinking process.

So entrepreneurs should be making lists, lead lists, winnowing them down, keeping notes and having meetings, even if it's a 20 minutes update call a couple of times a year with the firms who they think might be the right firms to invest in their company one or two rounds from now.

This quote emphasizes the importance of entrepreneurs being proactive and strategic in their relationships with potential investors, suggesting that they should keep organized lists and notes, and maintain regular communication with VCs who may be a good fit for future funding rounds.

  • The correlation between venture capital returns and technological platform shifts is significant.
  • Mobile technology has transformed the need for software to be refashioned for mobile experiences.
  • The mobile developer space is fundamental due to the unique interaction between software, mobile devices, and backend systems.
  • Companies outside of the tech sector, like L'Oreal, are becoming significant software developers, creating opportunities for companies that support software development and quality assurance.

The whole theme of the development stack being up for grabs, because every application has to be refashioned for a mobile experience, both all the back end and then all the front end.

This quote highlights the massive shift towards mobile technology and the ensuing opportunities for the development stack, as all applications must be redesigned for mobile experiences, affecting both frontend and backend systems.

The Role of Social Media in Venture Capital

  • Twitter is a useful platform for news aggregation and staying informed.
  • LinkedIn is recommended for more thoughtful cold outreach to VCs.
  • Personalized messages on social media can be an effective way for founders to connect with VCs.

I think the more thoughtful place to do sort of a cold outreach is on LinkedIn, but please don't ask to link to me. Just with the know. I'd like to connect with you, but I did a lot of deal flow both on Twitter and LinkedIn, where somebody sends a custom paragraph that says why they want to connect with me.

The quote suggests that LinkedIn is a suitable platform for entrepreneurs to reach out to VCs with personalized messages, and that such targeted communication can lead to deal flow.

The Joys and Challenges of Being a VC

  • Working with entrepreneurial teams is a rewarding aspect of being a VC.
  • Time management and prioritization are significant challenges in the venture capital industry.
  • VCs must balance time between seeking new opportunities and supporting existing portfolio companies.

The thing I love is working with the teams. [...] The downside is [...] the time management and the constant time slicing.

This quote reflects the dual nature of a VC's role: the enjoyment of collaborating with entrepreneurial teams and the difficulty of managing time effectively across various responsibilities.

Time Allocation in Venture Capital

  • Portfolio companies take precedence over seeking new deals.
  • Time management varies based on current company needs, such as executive searches or mergers and acquisitions.
  • VCs aim to keep board commitments to a manageable number to fulfill their responsibilities effectively.

Money in the ground trumps new deal. So if you have a portfolio company issue, you owe it to them.

The quote outlines the principle that existing investments and responsibilities to portfolio companies take priority over new investment opportunities, highlighting the VC's fiduciary duty.

Recent Investment Decisions

  • The most recent investment by the VC is Cloud Health, a company that helps manage cloud technology expenditure.
  • The investment aligns with the theme of new platforms and the essential nature of managing enterprise cloud services.

The most recent investment that we've announced is a company called Cloud Health. [...] We thought that that is an essential part of moving core enterprise businesses to the cloud.

This quote explains the rationale behind the recent investment in Cloud Health, emphasizing the importance of managing and optimizing cloud technology costs for enterprises transitioning to the cloud.

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