20VC Why Lead Lime's Series D Funding Round, Why Engineers Are Underpaid & Why 74% of US Venture Firms Still Do Not Have Female GPs



In this episode of "20 Minutes VC," host Harry Stebbings interviews Sarah Smith, a partner at Bain Capital Ventures, who has an impressive track record with investments in companies like Perksy and Lime. With experience scaling operations at Facebook and Quora, Sarah shares insights on the importance of flexible management, maintaining user trust, and optimizing scooter fleets in competitive markets. She also discusses the challenges and strategies for increasing diversity in venture capital, advocating for active sourcing and support for the first female GP hires, and the potential inefficiency in compensating engineers with undervalued equity. Sarah emphasizes the need for professional development and fair pay to ensure the success of new partners, regardless of gender.

Summary Notes

Introduction to the Episode and Guest

  • Harry Stebbings introduces the episode of "20 minutes VC" and invites feedback via Instagram.
  • Sarah Smith, partner at Bain Capital Ventures, is introduced as a special guest.
  • Sarah's impactful investments, including Perksy and Lime, are highlighted.
  • Her previous roles at Quora and Facebook, where she contributed to significant growth, are mentioned.
  • Harry Stebbings discusses tools for scaling time and businesses, mentioning TravelPerk, Stripe, and Intercom as resources.

"You are listening to the 20 minutes vc with me, Harry Stebings." "I'm thrilled to welcome Sarah Smith, partner at Bain Capital Ventures." "Sarah spent five years at Cora... and before Cora, Sarah spent four years at Facebook as director of online operations." "I now use TravelPerk... and Stripe has built those resources for you... An intercom offers a new and better way to acquire, engage, and retain customers."

These quotes introduce the podcast, guest, and some tools for scaling businesses, setting the stage for the conversation with Sarah Smith.

Sarah Smith's Background and Venture into Venture Capital

  • Sarah Smith describes her journey from a non-business background to venture capital.
  • She shares her early life in Milwaukee, her family's public profession background, and her initial career as a music teacher.
  • Sarah's transition to business occurred after moving to San Francisco post-dotcom bust.
  • Her realization of the need for business education led her to UC Berkeley extension courses.
  • Sarah's path included an MBA from Stanford, a role at Facebook, and work at Quora.
  • Angel investing and joining Graph Ventures were key steps toward full-time venture capital.
  • Sarah joined Bain Capital Ventures during the MeToo movement, seeking a change and finding a welcoming ecosystem.

"I'm proof that someone can really come from almost any background... I was born outside of Milwaukee... I majored in music education." "I moved out [to San Francisco]... I landed at Sylvan Learning Centers... I enrolled at UC Berkeley extension nights and weekends." "I graduated from Stanford Business School... I worked at a bootstrap startup... referred me into Facebook." "I started angel investing on the side... I decided it was really the time to make a leap of my career and pursue venture full time."

These quotes outline Sarah Smith's diverse career path and her transition into the world of venture capital.

Lessons from Teaching Applied to Management and VC

  • Sarah Smith reflects on her experience as an elementary school music teacher and its impact on her management and venture capital approach.
  • She emphasizes empathy for diverse backgrounds and the importance of helping individuals reach their full potential.
  • The concept of scaffolding in teaching is akin to managing and mentoring in a business context.
  • Sarah highlights the parallels between teaching strategies and building teams, as well as fostering growth in people and companies.

"I taught in literally the lowest income school in Madison... working in that environment also just gave me a lot of empathy." "As a teacher, you're really working with all different kinds of kids... there's a lot of overlaps between that and being a manager and also being a venture capitalist." "The concept of scaffolding where you really want to demonstrate a skill, help shadow a student... that can apply to help building teams and helping, really, people and companies reach their full potential."

These quotes explain how teaching skills and philosophies can be effectively applied to management and venture capital roles.

Takeaways from Hyperscaling at Facebook and Quora

  • Sarah Smith shares insights from her time at Facebook and Quora, focusing on the necessity of flexibility during rapid growth.
  • She stresses the importance of not becoming too attached to any particular team or process due to constant change.
  • Sarah discusses the value of having team members from headquarters establish new offices to ensure cultural alignment.
  • Emphasizing quality and trust, she notes their significance in building a successful company.

"When a company is growing as fast as Facebook was or Quora was, it's really important, I think, not to get tied too much to any team or process." "In opening remote offices... sending a group of people from headquarters for at least twelve months... I found really the best way to encourage cultural alignment." "In both cases of Facebook and Quora, I think quality and trust are really critical."

These quotes highlight the key lessons from Sarah's experiences in companies undergoing rapid expansion and the strategies used to manage growth effectively.## User Trust and Company Focus

  • Maintaining user trust is crucial for companies, especially in the tech industry.
  • Facebook is currently experiencing difficulties in this area.
  • User trust is a central element that companies must prioritize to ensure long-term success.

"really easy to lose. I think, frankly, you know, Facebook is struggling with that now in some ways, and it's super important that companies keep their focus on user trust."

The quote highlights the challenge companies face in retaining user trust and emphasizes its importance for corporate focus.

Market Sizing and Consumer Behavior

  • The market size for micro-mobility is significant, estimated at $40 billion globally.
  • Sarah Smith indicates that market size was not the main factor in investing but rather the shift in consumer behavior.
  • The adoption rate for e-scooters shows a steep increase, reflecting a rapid acceptance of new technology.
  • Factors contributing to this shift include the rise of the sharing economy, improved battery and GPS technology, and urban congestion.

"It is a huge market, certainly... But to be honest, that wasn't necessarily the thing I was looking for... What I saw was really that this huge momentum shift in consumer behavior in 2018."

The quote explains that while the market size is large, the decision to invest was more influenced by the dramatic shift in consumer behavior towards micro-mobility.

Competitive Landscape in Micro-Mobility

  • The micro-mobility industry is fiercely competitive, with many players in the market.
  • Capital is considered somewhat of a moat but not the main factor for success in the competition.
  • Companies with experience in multiple markets and the most data for optimization are likely to achieve higher utilization rates and revenue.
  • Regulatory mechanisms like dynamic capping will play a significant role in the industry's future.

"We really bet on our belief that the company who has the most experience in the most markets are also going to have the most data to use in optimizing and driving the highest utilization."

This quote explains the investment strategy focusing on companies with extensive market experience and data optimization capabilities to outperform competitors.

Dynamic Capping

  • Dynamic capping is a regulatory mechanism cities may use to manage micro-mobility services.
  • It requires vendors to maintain a certain utilization rate per vehicle to add more scooters.
  • This system aligns with consumer demand and ensures a reliable transportation option.
  • San Francisco currently uses a fixed capping system, which is different from dynamic capping.

"Dynamic capping, it's different than what we currently have in San Francisco, which is fixed capping."

The quote describes dynamic capping as a regulatory approach that differs from fixed capping by focusing on utilization rates to determine the number of scooters allowed.

Hardware and Infrastructure

  • The rapid growth of micro-mobility has strained the supply chain, leading to the use of consumer-grade scooters.
  • There is confidence in the ability to develop rugged scooters suitable for shared urban use.
  • The focus is on achieving positive unit economics with durable hardware.

"So one of the things that is interesting is given how fast things grew last year, there's put a lot of strain on supply and the supply chain."

The quote addresses the challenges faced by the micro-mobility industry due to rapid growth and the need for more durable scooters.

Consumer Loyalty and Convenience

  • Consumer loyalty may develop over time, but proximity and location are currently the main drivers of scooter selection.
  • Companies may introduce incentives to foster loyalty, but the most optimized fleet distribution will likely win the most revenue.
  • Consumer preference is expected to favor the closest and most readily available scooters.

"So we think it's possible that consumers will use many different products... But our view is that really, again, this comes back to the fleet that is best optimized in terms of its disbursement of the vehicles throughout the city."

This quote suggests that while consumer loyalty can emerge, the convenience and optimization of scooter fleets are more influential in consumer choices.

Investment Dilution

  • Comparing the investment in Lime to earlier investments in Facebook, there is confidence in Lime's growth potential.
  • Despite potential dilution from future funding rounds, the belief is that Lime could become a dominant transportation company.
  • Positive unit economics and growth potential are key factors in the investment decision.

"I believe they have a shot at being the largest transportation company in the world."

The quote reflects the optimistic outlook on Lime's potential to scale and dominate the transportation industry despite concerns about investment dilution.

Engineer Compensation and Equity

  • Engineers are considered underpaid due to the high demand and tight market for their skills.
  • The prevailing view is that equity is often undervalued by employees, treated like a lottery ticket with an expected value of zero.
  • Sarah Smith suggests that companies should raise more capital to increase salaries rather than over-relying on equity as compensation.
  • There is a market inefficiency where equity is not adequately valued by employees compared to investors.

"I do believe this. I don't know about you, but I have yet to find a founder who says that they have too many engineers."

The quote emphasizes the high demand for engineers and the need to reconsider how their compensation is structured, particularly regarding equity.## Employee Compensation and Liquidity

  • Employees may not value company equity the same as investors due to different financial time horizons.
  • Companies are taking longer to go public, which affects employee liquidity needs.
  • Traditional four-year vesting schedules are outdated and may not align with average employee tenure.
  • A shift towards more cash upfront and shorter vesting schedules could be more effective.
  • Annual equity refreshers could keep employees engaged and motivated.
  • Equity tracking software has made managing these changes more feasible.

"I think that we are living in a world where the four year vesting schedule is really outdated and sort of a legacy from somewhat like 20 years ago, when companies typically went public more in like four to five years."

This quote emphasizes the misalignment between traditional vesting schedules and the current reality of longer periods before companies go public.

"And now we have great companies like Charta that have really automated a lot of this back office administration."

This quote highlights technological advancements that have simplified equity management, making alternative compensation structures more viable.

Attrition Rates and Employee Tenure

  • The high attrition rate in competitive markets like San Francisco may be influenced by outdated compensation structures.
  • Employees may seek to build a diverse equity portfolio by working at multiple companies.
  • Companies need to adapt to shorter employee tenures by ensuring quick onboarding and engagement.
  • Retaining executive and leadership roles is crucial for organizational stability and knowledge transfer.

"I do think it's a massive challenge for organizations because we still are used to sort of planning around careers and assuming that people will stay pass on that tribal knowledge."

This quote discusses the organizational challenges posed by high attrition rates and the need for adapting to a new workplace reality.

Underrepresentation in Venture Capital

  • Systematic and structural barriers contribute to the underrepresentation of women and minorities in venture capital.
  • GP commitment requirements and the mystique of angel investing are significant barriers.
  • Education on becoming an accredited investor and starting with smaller investments can empower underrepresented groups.

"So if someone's trying to raise a $50 million fund, for example, that could mean that there's this expectation of a one to $2 million GP commitment, which unless you come from money or you are one of the few women in very senior ranks at a rocket ship exit."

This quote explains how GP commitment requirements can disproportionately affect women and minorities, limiting their participation in venture capital.

"And I talked to many women who could afford to do angel investing and also similarly had no idea if they even qualified."

This quote indicates a lack of awareness among potential female angel investors about the requirements and opportunities for entering the field.

Strategies for Increasing Diversity in VC Firms

  • Full commitment from firm leadership is essential for successfully integrating diverse partners.
  • Clear criteria and expectations for partners must be established.
  • Proactive sourcing and earnest referrals are key to finding diverse candidates.
  • Allowing candidates to participate in investment committees can aid in the mutual evaluation process.
  • A "farm team" strategy can develop future talent by giving them investment experience.

"So if you have maybe a two year or three year upfront grant and then you offer annual refreshers, you're much better positioned to keep that smooth for the long haul for the employee."

This quote advises on compensation strategies that can help retain employees for longer periods, which is beneficial for both the employees and the company.

"So you have to really ask directly and earnestly for referrals and introductions."

This quote suggests a proactive approach to sourcing diverse candidates for venture capital firms.

Ensuring Success for New Partners

  • Mentorship and creating a psychologically safe environment are crucial for the success of new partners.
  • Maintaining investment criteria helps to ensure that new partners are evaluated and supported effectively.

"They often will jump on the phone, sit down with me, go over an investment proposal that I'm thinking of, and what they are really, really good at that I don't even think they realize that. I realize as a former teacher, is they're really great at creating psychological safety."

This quote speaks to the importance of mentorship and support in fostering the success of new partners, particularly those from underrepresented groups.## Standards for New Partners

  • Maintain consistent investment criteria for new partners.
  • Ensure that new partners are set up for success in their early deals.
  • Avoid lowering standards just to get initial deals done.

I would encourage you to hold the same standard and make sure if you know in your heart that this is not a good deal for this partner to do, don't let them walk into it.

This quote emphasizes the importance of not compromising investment standards for new partners, to ensure their long-term success.

Avoiding the Diversity Tax

  • Do not overload the first female partner with mentoring responsibilities.
  • It's crucial to allow the individual to focus on their core job responsibilities.
  • Limit additional burdens to enable success in their primary role.

I'd also recommend you not give her the diversity tax.

The quote highlights the issue of disproportionately tasking the first female partner with extra mentorship roles, which can hinder their performance in their main job.

Professional Development and Fair Compensation

  • Encourage and invest in the professional development of partners.
  • Support attendance at conferences and networking events.
  • Ensure fair compensation to avoid pay gaps.

And of course, it kind of goes without saying, but make sure you're paying her fairly.

This quote stresses the need for equitable pay and the importance of professional growth opportunities for partners.

Investment Criteria Consistency

  • Agreeing on the importance of keeping investment criteria consistent for new partners.
  • Acknowledging the long-term impact of early investment decisions.

Keeping the same, I think is super important.

Harry Stebbings concurs with Sarah Smith's point on maintaining consistent investment criteria, recognizing its significance.

Book Recommendations for Female Writers

  • Recommends books by female writers to gain insights into the tech industry and management.
  • Suggests "Brotopia" by Emily Chang and "The Making of a Manager" by Julie Zhuo.

One you've probably heard of is "Brotopia" from Emily Chang.

Sarah Smith recommends "Brotopia" for its insights into Silicon Valley, reflecting on the importance of diverse perspectives in literature.

New Profile for a VP of People

  • Founders are looking for VPs of People with a balance of business and human risk management.
  • Success in the role often comes from those with sales, operations, or even product and engineering backgrounds.

I think you can find people that come from within the ranks of a company and bring them into that role.

Sarah Smith describes the evolving profile for a VP of People, highlighting the value of diverse professional backgrounds.

Board Game Recommendations

  • Shares personal enthusiasm for board games.
  • Provides recommendations for different types of board games.

For cooperative games, "Pandemic Legacy Season One" is really fantastic.

Sarah Smith shares her favorite board games, showcasing her personal interests and expertise in the area.

Addressing the Downsides of Remote Work

  • Emphasizes the need for empathy, trust, and connection in remote work.
  • Recommends tools like Slack and Bonusly to foster camaraderie.
  • Suggests company travel and home office stipends to improve remote work environments.

I think you also need to be prepared to invest in travel and really bring the whole company together in person at least once a year.

Sarah Smith discusses strategies to combat the challenges of remote work, focusing on team cohesion and employee well-being.

Advice for Women Joining Firms

  • Encourages women to join firms even as the first female partner.
  • Supports firms making efforts toward diversity.
  • Believes in backing women who take on these pioneering roles.

I think we should really be helping those that are raising their hands, asking for help in diversity recruiting and welcoming the conversations.

Sarah Smith argues against discouraging women from becoming the first female partner at a firm, advocating for support and change from within.

Culture Fit and Speaking Out

  • Importance of firm culture for the integration of the first female partner.
  • The need for openness in addressing awkward situations or biases.

I think my partners have done a really good job of encouraging me to bring up things to speak out when I see things that maybe might be slightly awkward or show any kind of bias.

Sarah Smith reflects on her own experience as the first female partner and the supportive culture that allows her to address issues of bias.

Excitement for Recent Investment

  • Discusses the seed investment in Perksy, a market research app.
  • Highlights the founder's dynamic approach and the team's industry experience.

The product engagement rates were really insane, which is what originally caught my attention.

Sarah Smith shares her enthusiasm for her recent investment, focusing on the product's performance and the founder's qualities.

Acknowledgments and Resources

  • Expresses gratitude for the support received from Sarah Smith.
  • Provides information on where to follow Sarah and the show on social media.
  • Discusses travel management solutions and business resources.

I'm so pleased that we got to do this and I can't thank you enough for joining me today.

Harry Stebbings thanks Sarah Smith for her participation and contributions, highlighting the value of their discussion.

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