Seed Investing: What's Changed, What Hasn't with Cowboy Ventures Founder Aileen Lee and Jason Lemkin

founders what, how things really work, what it's really like. And not only is Aileen one of the investors that most of us, many of us all look up to, but she's also— Oh God. What's that?

Oh God.

Well, we admire, but also she's very early in the micro VC trend. And we won't talk about it too much today, but we will talk about a little bit. When Aileen founded Cowboy Ventures in 2012, 2012. Now you open up TechCrunch or Strictly VC or anything, you'll see, you know, a dozen firms a week, literally sometimes, right? 500 or 600 since then. But back then, you could probably count the seed firms on one hand or two hands.

Yeah. And I was not the earliest. We can talk about that.

But you were in the— let's call you Gen 1, even though, I mean, this new wave. And so I think it gives us a perspective that maybe we don't get, uh, in some other places, um, in addition to many great investments over the years. So I, so I thought we could talk about really what's changed, what hasn't, um, and it's funny, just to kind of kick it off, I'll tell you, we've heard too, and I want to, I want to, first of all, two things. We'll have some time, so I know, I know I'm not always great at it, but put your questions in the Q&A and we'll answer as many as we can right in the Zoom. Put them in. Um, but what I want to do— oh, I had forgot about this slide. Um, oh, hold on, just one take, pause. Sorry, I'll come back to this. I don't want to, I don't want to, um, go out of order, but I did want to highlight one thank you and whatnot. We've been doing these SaaStr events since 2015, the SaaStr Annual. Just a funny story, and you can learn a lot from people on how they act and treat people backstage. Um, you can learn a lot from the COs that bail the last 2 weeks. And how they quit. They say that they have other issues, then you see them heliskiing on Instagram. There's one like that. Those ones, those are the unicorns that always fail. You can learn what founders think of VCs. I will tell you how many CEOs I've talked to that say, I'll come to Saastr, but I don't want my Series B or Series C VC interviewing me, which is sort of interesting. And then you can learn about the people that are here for you. And this, this is maybe too, too nuanced for some of the folks here, and, and I want Aileen to do most of the talking, but we had to reschedule SASTR Annual this year right during COVID-19. It was, it was terrible. And the last speaker I was talking to was Aileen, and she was like, I'm coming, I'm here. We were going through these slides, and not that many people are troopers and supportive. And so it sounds minor or technical, but if you want to do diligence on a human being I get to do it a few hundred times a year, and to see someone that is supportive, even if it's something that seems minor, most people don't do it. Most people don't, don't go the extra yard. So that meant a lot to me, and so it's, it's another reason just to take, to take their money, as an aside.

Both of our money, actually, not just mine, Jason's too.

But it was, it was, it meant a lot to me. So I want to talk about this slide. I used it in my kind of like my breakfast pre-warm-up, like the crazy times we're in. But before we even get there, we had two talks today. I sat in on all of them, and I heard different opinions. From Satya from Homebrew, we just heard that seed's at an all-time high. Like, people have to deploy money, deals are getting done left and right. They've done like 4 or 5 deals since March, and valuations are down a bit, and the bar's gone up, but seed investors know they only get one bite of the apple. They can't do the A or the B if they miss the seed. So we heard in a way like an 11, right? And then I asked Keith Rabois this morning how it's doing. He said seed is at 10% of what it was. So we're here, we have 110 and 10. What's the, just if you had to summarize, and then I wanna talk about this slide, just where are we on either a scale of 1 to 10 or a percentage basis? Where is seed investing?

So I would say, I don't know if I can put a number on it, but also thank you for having me, Jason.

Thank you for coming.

Hi everyone, thanks so much for coming to hang out with us. I— what I've been— when shelter-in-place started, the conversation we've had internally on our team is like, we have to think of ourselves as like Navy SEALs, right? Where we're like at base camp right now and we're gonna train and we're gonna like work on our playbooks and do our research. And obviously our first priority was working with our portfolio companies, but like if you've got like your investing engine on and you're like rearing to go, it didn't feel like in February or March or April April or May was really the time to deploy. Like, I have a feeling we will get super deployed probably maybe end of summer, this fall, and the winter. Because I think the— like, a lot of the people who are raising right now are still raising on ideas and plans that were pre-COVID. And I think we need to give people time to adjust their plans, their mentalities. And also, we also need to give folks time, like folks who've been laid off, who have a little time to decompress, and then they think about an idea, and they spend the summer working on it, and they're like kind of planning it out. And so maybe they'll come out and raise the fall. But I think like, if you look at historical recessions, at least in tech, those are some of the best times to be an investor and the best times to start a company. The people are scrappier. They're really on a mission. They're clearly not going to get rich quick. And they attract really great, hardworking people who are on the mission with them. And I think that's going to be an awesome time to invest. But I don't think we're quite there yet. So I've been like, personally, our team has been kind of holding back a little bit. We're taking a ton of meetings. But I think in terms of quality and the best time will probably be, it hasn't really started yet.

So let's just—

I don't know, what do you think about that?

Well, I don't know the answer. I think, my view, I wanna de-pack your term deploy, 'cause it's an insider term and I wanna explain it to founders and folks listening what deploy means, 'cause it's not obvious. I wanna hear more views. My views, I mean, first of all, March 15th to today has been utterly exhausting on many levels, the rate of change, right? And I think whether it's doing portfolio triage or learning to take pitches over Zoom or whatever people are doing, it's hard as human beings, we can only process so much change. And I feel like we've been through 3 worlds since like early March. And I think everyone needs some stability, whether it's good, bad, or ugly, or in the middle to survive. So I'm just trying to learn. What I personally have seen in my little portfolio and the founders I work with is what I call the COVID beneficiaries, the ones that have accelerated since March. I mean, it's what you see on the BVP cloud on the left. They're on fire. They are on fire. The ones that have grown faster.

Yeah.

And I've seen, and I want to get your views on this, I've seen the folks that are, the ones that are even growing a little bit less fast, where you would think a VC should take a bet. Look, okay, let's say half your business sells to e-commerce, but 20% sells to live events. Okay, well, do the math in your head. You should still be growing, but growing more slowly. I see those folks struggling, which maybe isn't totally logical. But if you're a COVID beneficiary, it's like the money is there, at least from someone you've met.

Yeah.

At least from someone you've met, the money's there.

But these are also super, I mean, You're talking about growth stage companies where they've got strong product-market fit.

Anyone post-revenue.

Yeah. And they've got referenceable customers, they've got pipeline, they've got funnels. Like seed is just a totally different game. Right? So, but I think, yeah, for, I mean, the Cloud Index is not even post-revenue, right? That's way post-revenue. And so they're just way easier due diligence, I think.

So let's just, I want to get your thoughts on this slide on the best of times and the worst of times. But when you say, Deploying capital, let's just slow down for a minute. How big is your— I was going to tease on this in a later slide, but how big is your current fund?

$95 million.

Okay. $95 million. And you have two GPs, right? You and Ted. So you have two partners and some, one or two other investing—

Yeah. We've got two awesome other people on our team, Amanda and Jamira. Okay.

But roughly, that means you and Ted each have $50 million. It could vary, but it doesn't really matter. $50 million. How long before COVID were you planning to take to deploy that $50 million? Because that's what this deploy means. It means over a time frame, right?

Yeah. I mean, my version of deploy is kind of deploy capital, but kind of deploy yourself as an investor, right? So like, you know, when you think about, like, there are— sometimes in work, it's like super intense, right? And then you have like a little— you have to take advantage of the lulls because sometimes it gets super intense, whether you're an operator or investor. Sometimes like when it rains, it pours, right? Like there's just— you've got 5 really interesting companies in diligence in parallel, and you think they're all potentially things that you could invest in and founders that you really want to work with. And there's times that you're not really seeing things that you think are gonna, gonna get there with, like, on either side. And, um, and so I think probably it will be really intense this fall and in the winter in terms of great ideas, new waves. Now, the one thing we don't have that's new is, like, you know, some of the waves have been because there have been new platform shifts because of mobile or because of cloud or because of security or because of a bunch of other stuff. Like, we we don't— that's not clear what the next big tech platform shift opportunity is. So I think that will dampen kind of the intensity a little bit. But I think in terms of like, you know, some investors feel anxious, like I need to be writing checks all the time, or I need to be making investments all the time. And I don't think that's true. You know, you gotta— sometimes it's slow and let it be slow. And then sometimes it's like really fast and really intense and you've got a lot going on and that's when you make your investments and sign up to work with new folks.

And you, it's, so traditionally in normal and good times, there is a sort of very slow-paced pressure as a VC, which is to do X deals a year. There's many types of pressure. As time goes on, it's how many unicorns, what's your multiple, what's your DPI? But in the early days, it's just, if you don't do enough investments, you just can't make money. Right? If you do no investments, you—

Yes.

So, and if you're seed, how many investments do you and Ted each do a year roughly? What's the target?

It's a wide range. Like we might do 6 to 12 a year.

Together as a team, right?

Yeah.

So each of you will do 3 to 6.

Yeah.

That's a classic seed portfolio. And then as you get older—

It's probably actually a slower pace than I think. Like we're probably on a 3, 3.5-year fund cycle where we'll make our initial investments, whereas other funds are maybe on 2 years.

Got it. So that's why you have a few or less, right?

Yeah. Yeah.

And then later, it's 1 to 2.

Hopefully a quality, not quantity kind of a—

And so usually what happens, let's say I'm working at Cowboy and I got— and I'm supposed to do 3 or 4 a year and we're coming up on June and I've done none. I start to feel pressure, don't I?

Yeah.

Even if no one says it.

Totally.

Do you think that pressure is gonna come back at the end of the year? And therefore, when you talk about deployment slowdown, do you think folks will want to do a lot of deals in the back half of the year because they'll feel the pressure to hit their quota?

It's very possible. Okay.

So let's talk about this slide for a minute. And you have a broad exposure. You have exposure to segments that are, I call COVID beneficiaries. You have exposure to segments that probably are heavily impacted, right? How do I, how you get your arms around the fact that cloud stocks on the left are at an all-time high and we're, we almost, and California is one of the worst economies in the Western world. How do I? How are you thinking about this?

I mean, the multiples that folks are trading at right now, like on the left-hand, I don't totally understand it. I think it'll be interesting to see, because also the numbers, like we don't have Q2 numbers yet. Right? Like when Q2 numbers come out, for some folks, they may be softer. Right? Because budgets were not really locked up for most of Q1. And so, I mean, I think if you are Zoom, obviously, or maybe in infrastructure, you probably won't see a lot of the budget freezes and the layoffs and your sponsor being laid off. But I think for a lot of vertical SaaS, they'll see impacts when the Q2 numbers come out. And so that may change what this chart looks like, maybe in July, August.

Yep. And when you look at like Main Street versus the cloud index, like what are you excited about today?

You excited—

more excited about e-commerce? I mean, what— especially non-obvious things, are you more excited?

Yeah. So, I mean, I think in a bunch of categories like healthcare, right, and distance learning, and infrastructure, this recession, which super sucks for a lot of people, it is going to be an accelerator for tech, right? Because businesses are going to rely on technology and are also going to adopt technology faster. So it's like in healthcare, one of my friends who's a doctor says she feel like she fell asleep in 2020 and woke up in 2030. In terms of like the industry's willingness to adopt technology, because it's been a fight and it needs to be adopting technology across the board. And so, but now like they have to. And so I think for a lot of states and like regulatory agencies and businesses that have been pushing back, like they're to enable remote work, they're gonna have to change a lot of stuff. And that's gonna take, that's gonna, a lot of investment's gonna happen in software. So it's not gonna be like, if the question would be like, Do you feel like we have too many unicorns? We are going to have more unicorns. There's no question in my mind. There's going to be more in the US and more in China and then an increasing number in Latin America and in India and other markets that are really huge because this is— we're in a good sector. Tech is only going to get more important and more valuable.

So even if you feel the multiples on the left are a little aggressive, if you're bullish on unicorns, having coined the term, if you're bullish on unicorns, what does that mean overall for seed investing and venture investing? If folks feel good about unicorns, does that mean it should still be easier? There should be— there's room for many, many more startups. What does that mean for a founder?

Wait, hold on a second. I have kids in the background.

Bring them on.

Thanks.

Lunchtime.

Yeah, exactly. It's like lunch break at school. Wait, what was the question?

What does it mean— so we're in these weird times. The cloud shares are at all-time high, NASDAQ's close, this crazy recession we're ever in, but you're bullish about unicorns, right? Unicorn generation. What is that? How does that inform your thinking in terms of types of investments, pace, valuations, anything? Does it inform you? Does it change your thinking?

Yeah. No, I mean, I think, look, I was an A, B investor for 12 years and did some growth too, and I switched to seed. Partially, I think for personal reasons, I think it's a better fit for me and it's more fun. I'm really passionate about seed investing. And there are lots of really good folks that we partner with at A and B and C and D, who they're really good at that. And this is the one thing that we want to focus on. We think it's also a great category for, like, you know, you are getting in at the riskiest time, where the valuations are lower, but there's way more upside. It's also more collaborative, as you know, like, it's, you know, I was— had lots of friends in seed who were co-investing with each other and helping each other build companies, whereas at A and B and C, you generally, like, you can be friends with everyone in VC, but you have to beat all of them to win the A or the be. And then you're carrying the water with the founders for the next decade as a lead board member, and you don't get a ton of help from other people. So I really, I love seed, and I'm super excited about it.

So I want to dig into that next on the next point. But before we leave this slide, do you have any portfolio companies that have benefited from this time that you didn't expect? Like not that, maybe even Zoom, we didn't fully expect to be this big, right? But are there any that folks could learn from that you're like, wow, I'm kind of surprised that one is a COVID beneficiary?

Not really a surprise. I guess probably one of the more notable companies that we work with is Guild Education.

Yeah.

And I think because a lot of the folks that they work with— they basically help hourly workers who work for big companies like Disney and Walmart get high school diplomas or college educations or get vocational training. And I think because there have been a lot of layoffs and hourly workers, I think there could be a question about whether that was going to hurt a company like Guild, but it's turned out that a lot of enterprises who have furloughed workers are suggesting that people who are furloughed use the time to actually get an education. It's also being used as an offboarding benefit. So like, we're really, we're really sorry we have to let you go, but we're going to help you get on a career path so you can get this benefit of trying to figure out like where you're going to get your next job. So there's been a bunch of things that actually have helped accelerate Guild. That I think could have been a question. And obviously, just the fact that they've built this incredible infrastructure for remote learning is great.

Yeah, it's an interesting one because that— on the one hand, it's remote learning, right, and very powerful. On the other hand, it's a benefit, right? At least you know the company much better than I do, but it's a benefit. That's where the budget comes from. That's why it's done well, but it's a benefit. And as soon as folks cut at traditional companies, and cut people, you would think the benefits— we've seen many folks in the benefits space be exactly linearly impacted, linearly impacted with layoffs. And it's just, it's natural, right? It's like cutting back on rent will cut back on benefits.

Totally, totally. So that was the one that was like, uh-oh, it's like, are we— but it's so far it's going great.

That is interesting. What's your gut? What percent of startups you think are COVID beneficiaries? What's your— have you looked at it? Do you have a sense? What do you think?

I think unfortunately it's a pretty small— it's a small percentage. I'd say 10 to 15. I don't think it's— yeah. What do you think?

I made up a number just based on a very limited data set. I think it's in SaaS, in cloud, if you define it that way, I think it's about 15 to 20%.

Yeah.

And it's more of the folks on the left than we would have thought, right? Which maybe there's some learning from that, right? We missed— we knew Slack would benefit, but actually Atlassian's benefited much more than Slack. Right. There's some— did we know Bill.com would benefit as much as Zoom? I don't know. If you didn't analyze its business model, you would think that intuitively. Right.

Yeah.

But I feel the question— and let's maybe transition to that. Let's assume it's 10 or 15 or 15 or 20. It's a big delta, but it's— but you're not saying it's single digits. Right. There's no— so, no. For the rest of the year, or at least for the next quarter or two, would you only invest in COVID beneficiaries, or would you invest in folks in heavily impacted industries? Like, how are you thinking about that?

Like, it's a spectrum. Like, I don't think I'm going to be going to try and find a lot of travel startups right now.

Yes.

Um, but I do think, like, we're investors in a company called Homebase that basically sells SaaS for small, medium-sized businesses to do hourly work management. Like, scheduling shifts, paying folks, giving them cash advances, communicating with the manager. Like, obviously, the majority of the people who they were managing the shifts and the payments for, who were working in February, they were not working in March or in April.

Yeah.

But when businesses reopen, I think they are going to rely on technology more than ever before, right? Some of the older businesses that were like a little hesitant about technology, they may not reopen. And the people who start businesses in the next generation are gonna be like, I need a full stack of modern software to run my business. So it's flexible, and it's nimble, and I have good transparency, and I can do it from anywhere. And so they will adopt things like Homebase at a faster rate than businesses that have been around for 30 years. And so I think if you time it right, there's— I mean, you can basically ride the wave of all these businesses reopening.

And for your existing portfolio and new investments, can you model that? Do you think about— I mean, you have to have at least a position, right? Is it 6 months, 12 months? They just announced today Disney World's gonna start to reopen. When will home base get back?

When is it gonna reopen? Is it gonna be like 6 feet apart and every other, like on the roller coaster?

Shanghai, yeah. Shanghai processes, attendance will be half, they won't, you can't, you can't hug a prince or princess, and you have to get reservations.

Is the price gonna be double?

Well, that's a question for a lot of things down the road. If the price doesn't double, I mean, that's a restaurant question too, right? Yeah. If prices double, it all works. And, you know, obviously Disney can carry a business for a little while. Those are some of the scarier questions, right, for our economy, is can we adapt to things? Can we adapt to Coachella when we're 20 feet apart? I mean, I don't know. I don't know if Coachella at $4,000 a ticket works. Does it?

I know, no, but also it was funny, I was in San Mateo County, I think they have a rule that camp, some camps can open, but they have to, you have to sign up for 4 weeks at a time because they don't want kids in and out, but it's like that really disadvantages people who cannot afford 4 weeks of camp.

Oh yeah, there's this.

Not good, yeah, there's a lot of challenges.

A lot of challenges, a lot of, and I think a lot of probably beyond the scope of what we get into today, but a lot of these a lot of these flattening things you might— and we can talk about it in deal flow. Like, you might think some flattening helps less advantaged, but I don't know. Do you think pitching over Zoom helps outsiders more? Do you think it helps the founder that didn't go to Stanford and didn't go to YC? Or does it maybe not help as much as you think pitching?

I'm hopeful that— I mean, I think there's two things. There's the pitching, but there's also where's the company going to be based, right? Like, that's all up in the air now. So before, I mean, look, when I was at Kleiner, I spent a year going— spending a lot of time in New York. There was a lot of stuff going on in New York, and when I came back, and I was like, hey, I found all these cool companies like Mongo and Warby and Stack Overflow, and like, they were like— some partners are like, why are you wasting your time? No big companies are ever going to be built outside the Bay Area. Like, we clearly didn't teach you well. And same thing with HomeAway, actually. Like, you know, it was the same thing. It's like, why are you wasting your time? Like, and so Things have changed a lot in the past 10 years, but I am hopeful that— I was just on the phone with one of the CEOs we work with today who is in New York, and they're moving to Denver. Just people are gonna— I think over the summer, people are gonna be moving all over the place and trying to figure out how to run remote or partially distributed or clustered companies. And I think that will advantage founders who are in different places and are not on the coasts.

I think it started like last week.

You think so?

I think that folks that live in San Francisco, live, founders and executives that live a crummy lifestyle in San Francisco, in gross parts of the city, that have sacrificed, that maybe even have families, right?

Yeah.

That have sacrificed a lot, are looking around. I have several, like several conversations I've had, they're looking around like, What is the point to being in San Francisco today? I cannot visit Salesforce. I cannot visit Twilio. I cannot visit a customer. And I have a baby and a husband or a wife or some other living in not just a small apartment, but a gross part of— I've traded off so much. And I— 3 people I know got in the— got packed up the minivan and left.

Totally. I agree. Like we had another CEO that we work with. They packed up their car and they rented an apartment or a house on a lake in South Carolina. They had never been there before. They'd never been to the town and they just drove there and they lived there for the past month and a half. And he's been so much more productive and so much happier. Like there's a whole nother thing we won't get into around mental health and all the, like, you know, it's especially if you're by yourself in a small apartment, it's, it's not, not happy making.

Yep. And how do you think Like, let's just— maybe this is not a good example, but when you invested in Guild, they were based in Denver, right?

No, they were based in Palo Alto.

Oh, I thought it was based in Denver.

They moved to Denver. It was funny because Rachel came to us and said like, hey, I know we just had a meeting and we discussed we need to hire a VP of engineering and a VP of product and a VP of marketing, but we also want to move the company to Denver. And we were like, what? Like, how are we going to find those people in Denver? And she was like, Trust me, like, there's some really good companies there and some tech, like, you know, Facebook and Gusto are opening offices. It's a great place to live. I think I can get people from the East Coast and the West Coast to move to Denver because if you want a family or if you want to buy a house, it's a great— you want to send your kids to public school, it's a great place. And I want to build a company where people can have a family and have a good home life and have a great job. And I'm so glad that we're like, okay, do it, because it's been It was a really smart move and probably 3 or 4 years ahead of her time.

Yeah, it was. So she's built a unicorn now. Did you have— so let's compare today. Did you have any— I mean, you had no choice, but did you have reservations? Did you try to talk her out of it? Oh, totally.

I didn't try to talk to her, but I was like, are you sure? But I mean, I think it gets a lot of this stuff on the slide, right? Which is we are seed. I would say half the time that we invest, they haven't built a product yet. Like there's no technology. They need money to actually build software. And then half the time they built like some MVP. We do about We're probably 75% enterprise, 25% consumer. We're generalists. We usually invest between $500K to $1.5 million. We like to co-lead or co-anchor seed rounds with— and we almost always co-invest with other folks, angels and institutional seed folks like yourself. And so like at Guild, they had basically— they had an idea for kind of reboot your career boot camps. And they came up with a 3-hour boot camp and they posted it on Craigslist and they rented strip mall, like vacant space, and they were holding these free 3-hour bootcamps. And then they were like texting the people afterwards asking for— and then they charged $40 and then $80. But that's basically what they had when we invested. And so we definitely, you know, it doesn't have to be perfect at seed.

And so I want to make sure we hit the bullets on this slide. But so today, let's fast forward today. So 4 years ago when Rachel said, "I'm gonna move into Denver to build my management team," and now that I understand kind of how raw the vision was in the beginning, I get it, right? Because it wasn't technology heavy in the beginning, that's for sure, right?

Yeah.

So I get it. But today, if I, if you, do you, how are you feeling? How are you feeling about not just New York or Denver, how are you feeling about Baton Rouge or Sioux Falls or Tampa? Or how does that strike you today? And What would you— and for New Deals, and what would you advise founders that are thinking about leaving the Bay Area now?

Yeah, I mean, it's a better time than ever to both, you know, to start a company in a different part of the United States. Your people are gonna have to be way more purposeful around culture building and about communication. 'Cause it's still been a rarity to build a really successful scaled company without having like formative team members live and work in the same place and be next to each other. Like a lot of times we recommend like for portfolio companies that are opening a second or third office, it's like, you know, you have people all in the headquarters and then you send out people who really understand the culture and have a lot of internal credibility and they start the new offices. In some cases, like, and I'm really curious is like, Founders may start companies and they've never been in the same office when they start the company. Like when we hear pitches this fall, we're probably going to hear people who have like not seen each other.

Yes.

But like SVT Robotics is a company that is based in Virginia, Virginia Beach actually. And it's kind of like MuleSoft for warehouse robotics, for integrating, like, you know, if you've got a third-party robotic arm and you want to integrate it with your conveyor belt or your WMS, you'll use SVT instead of writing custom code. The founders know warehouses and they know warehouse automation really well. And they've lived in Ohio and Pennsylvania and Virginia and like all the places where warehouses are. Yeah. And so, and we're super psyched to be investors in that company and we'd love to find more like them.

What and where, so just, that's a good, those are all really interesting examples. Today, if you met with a startup, and again, you're doing seed, so it's early, but it's the kind of company that clearly could benefit in a year or two from some Salesforce alums or Box alums or Twilio alums. They're doing a classic playbook, and they want to move to Arkansas or Ohio or Bismarck. Is that a no in this flattened world, in this distributed world? Do you think you can get VPs to join a company, Bay Area style VPs to join non-Bay Area companies in 2020? Do you think that'll change?

I think we can do it. I mean, we, you know, it's funny at Textio, another company that I work with, which is based in Seattle, we tried hard to make the whole team Seattle-based. And we're doing our head of revenue search. We just, We said, like, you know, maybe we should open it up and look at people who are not based in Seattle. And we found a great person who's based in the Bay Area. And we, I mean, at the time, we had a deal where he was going to spend a week or two in Seattle a month, and then a week or two at home or on the road. And so we're fortunate that we had that time together before we wound up going into shelter-in-place. But like, it works. And he's a huge part of the team. And they're making it work. So I think we're all learning, fortunately, or we have been learning over the past couple years how to make commuter-style jobs work and distributed team work, which is a good warm-up for the next 3 years we're about to live through.

Yeah, yeah. I think this— the thing for— I think for especially for B2B in the next couple months to watch is can we flatten management teams? Yeah. Can not just the GitLabs and the Zapier, but can ordinary company— can Bay Area type executives, whether they're based in the Bay Area literally or in New York, but But folks that come out of the traditional folks where we poach, I mean, you want, once you scale, you want to hire someone that's done it before. You really do. I mean, everyone that runs Salesforce today came from Oracle and everyone that runs Twilio came from Salesforce. There's a reason. And if folks in Virginia Beach or wherever it is can hire these folks now as easily, it changes everything, doesn't it?

Well, I mean, we have like internally At Cowboy, we have like every other week, we have scenario planning time where we just kind of think about like, okay, what if this is 24 months? What if this is 36 months? What if like, what if nobody can get on a plane until summer of 2021 at earliest from a sales perspective? Like, how is that going to change sales? How's that going to change marketing? Like the fact that a lot of our portfolio companies in enterprise, they got a lot of sales done or relationship building done around conferences, right? Whether it's CubeCon.

Often 40%, it turns out.

Yeah.

Like 40%.

HR Tech, CubeCon, whatever it is. You know, you may not have been spending a lot of money getting a booth, but like you were hosting dinners, you were meeting up with people. And like, when that doesn't happen, how is that going to change sales? I think it's going to be for— and maybe that's going to be better for startups because having a lot of money to buy people expensive dinners is not going to be as important. That— and like maybe— and it sounds like COVID has, for at least in the the folks that we've been talking to for the past couple of weeks, like it's now a common bond. Like you make small talk over Zoom for 5 or 10 minutes about like what's been hard or how the family time's been good or whatever. Then you get right into the sale process and the person on the, the customer on the other end is like, this sounds really good. I need this. Let's do it. You know? And so in some ways it's like more efficient. And I'm so, but we're staying really close to it.

Yeah. For what it's worth. And I want to, I want to talk about how you're sourcing deals now. But my personal view, just for the conversation, is I actually think this selling over Zoom, at least for now, is substantially benefiting folks with brands. Because if I don't know you yet, and I can actually meet the CEO— and a meeting counts over Zoom, don't get me wrong— but we're all taking more vendor risk. You're taking, we're taking more investment risk, more risk just has to be taken in the shelter world. And it's comforting to know it's Box. It's comforting to know—

Yeah, yeah. This is like—

Guild's a unicorn now. Like, I'll trust— maybe Guild isn't as great as Schmild or whatever. I don't know. But I don't want to do this. I don't want to really— like, if there's risk during discovery, maybe I don't want to take risk today. Now, if you're the only vendor in a space, it's different, right? If you're the Notion or Tandem.

Totally.

But I wonder if one of the reasons these cloud stocks are going to keep growing is because people don't want to take— they'll just— I'll just stick with Jira.

I kind of worry a little bit about whether we'll move into this, like, nobody ever got fired for buying IBM, for buying certain brands. And I do think, like, if you are a seed stage founder who is listening to this right now, or you're pre-seed, or you're, like, you know, if you're not a brand, it's going to be hard to make new sales, I think, in the next 2 or 3 quarters at a minimum. And so, but so being willing to give your product away for free, or, like, changing the packaging so that it's virtually free for the next 6 months and then people pay for it, but getting people to use it and showing that it's super valuable. And so that when people have budgets again, they'll buy it, they'll pay for it, and that's referenceable. I think for a lot of seed stage companies, that's the thing to do because it's really hard to get new budget, even if you're an existing brand, but as a new brand, it's even harder.

It is harder. Yeah, it is a fun topic we could dig into, but We can if you want. But tell me on this, like, yeah, first I want to talk about how you find deals and how founders can pitch you.

Yeah.

But just the micro topic today, in today's world, I know you're slowing down a little bit to learn, right? But how are you feeling about being pitched on Zoom? What's your personal view of not meeting in real life? How, what's your—

Yeah.

1 to 10.

It is, I think it's a bummer on both sides, right? I mean, the benefit is, things have been so hot that the velocity of decision-making and relationship building was, I think, untenable. You know, we're like, you know, founders were like optimizing for getting it done fast. And I think in many cases, they weren't really getting to know the people that they were getting married to. And like, because once you get people on your cap table, you cannot get them off.

Never.

And so I was really bummed about how fast, like, the process was happening where we weren't really having a chance to get to know people and they weren't really getting to know who they they were taking on to their cap table. So I think this will actually be better in terms of giving people— and then I guess we have this— we were thinking about when we moved into Children's Place, like, OK, how are we going to get to know people? And we already had a diligence process, but in marketing, in old-fashioned marketing, I don't know if you remember the 4 Ps. There was price, place, promotion, and product, right? And so I was thinking about, okay, we have our own like 4 Ps that we generally try and figure out. And so our 4 Ps are people, product, potential, and plan.

Okay.

So when we're like, we'll say to someone, you know, if we kind of have a first meeting and we think it's interesting and they like us, we'll be like, okay, we have this thing, like we're not gonna probably get to meet face to face. So we wanna get to know you over a course of meetings and maybe some of them will be dinners or something like that where we're like, we wanna get to know the people, like where you came from, What you've done before, what you've learned, what you think of your strengths and weaknesses, your self-awareness, like where you want to be complimented, what kind of a team you want to build. And then on the product, obviously, like, you know, really understanding both what's there or the vision for the product, competitive landscape, differentiation, how much better it is, the potential, like what could this become, right? Both how big is the market and like if we're really successful, what are we building? And then the plan, like how much do you want to raise? Valuation range, what are we going to get done during the seed period, who do you need to hire, all that stuff. And so basically just going through those 4 things is our way of getting to know each other. And I think that's probably going to be the way we do it for the rest of the year.

So more time, like more time can balance out the lack of the ability to schmooze in person.

Yeah, I think it might in a way be better. I mean, obviously, in person's better. But I think a slowing— and I also think the velocity and optimizing for speed and just low overhead check, I think there are plenty of founders who will tell other founders that that was a mistake. And I think this downturn is hopefully going to give people pause around, there's going to be a lot of shitty ups and downs. And I want to be careful about who's going to be helpful to me in a time of a lot of uncertainty.

Yeah. This morning, the first speaker, I don't know if you know Christophe Jantz from Point Nine Capital.

Hold on one second. Sorry. I just saw the kids go to the room.

We're in the lunch session. I don't know if you know Christophe Jantz from Point Nine.

I don't.

He's great. His first angel investment, he was the first angel into Zendesk after he was a CEO. And then he started doing SaaS really in the beginning and we kind of became SaaS content buddies before we co-invested. And he's done half his investments remote since then because he's in Berlin. So he couldn't always get on a plane and pop up for an angel or seed deal. And his advice, he had a great, because he is a veteran, although You know, never, never, none of us foresaw shelter. But his point was, it's like anything in sales, but make it easier. So his point was have the best diligence together, have the references built, do a video, have the best email pitch, have a— if you weren't going to build the deal room, build a deal room. If folks need more time, bake it in and just turbocharge the amount of disclosure and transparency you would have to make up for the kind of informal informal type decisions people are making in those high-velocity— Did it advice?

Yep.

Good.

I like it.

Okay. On this, just for— so just so folks understand, so how do you find— just some insider stuff to help folks learn. How do you find deals and how do founders pitch you? Like maybe a few case studies from some last deals. How did they find you? How did you discover some of this?

We get a ton of referrals from angels, from co-investors who we want to work with, from founders, from folks that we know. Like, I think Ted and I, you know, I've been doing this for 20 years. Ted's been in tech for 20 years too. And so we do have, like, we like to say, hopefully when you work with us, you're going to get, like, really experienced, thoughtful, patient, supportive advice with a huge Rolodex.

Yup.

And so, we get a lot, but also, you know, you and I are both super passionate about using our privilege to try and make tech more equitable and less brotastic. So, you know, I've been told that, you know, the need for the warm intro really disadvantages a lot of people. And so we don't, we read all of our inbound. So you can email hello@cowboy.vc, someone will read it, and we will, if it's potentially a fit, we will get back to you. You don't have to get referred to pitch us.

So let's break that down for just a second. So if you had a pie chart, number one source of deals you do is referrals. Network. Warm referrals, right? For better, mostly for better, but for better or worse, right? They do have some bias and issues associated with them. But the inbound. So the inbound is, sorry, it's hello@cowboyventures.com?

Hello@cowboy.vc. Cowboy.vc.

Yeah, I got to get this one right, folks. Well, yeah, thank you.

Hello.

Well, it's probably on the website too, right?

It is hello@cowboy.vc.

If, if that email is good, if it's good, let's— if it's dear Cowboy, we're the team that built the top product at Square. We're pre-revenue, but we have 10 beta customers, all of whom said we're changing the way finance works. Here's where we come from. Here's who we know. Here's our friends. Is that email— what are the odds that email gets read and how seriously?

Oh, it's 100% gonna get read.

100%. So let's stop just a second.

100% gonna get read. Yes.

Right? I can't find you. I can't track you down. I met you at a conference. But that email is gonna— this is things founders don't get. That great email is gonna get read, isn't it?

Even a crappy email is gonna get read. Even a crappy email is gonna get read. Like even Dear Sir gets read.

Okay. But the good one. If you liked what I just wrote, right?

Yeah.

What are the odds someone's going to read a deck that's attached? And what are the odds I'm going to get at least a Zoom?

I mean, that email you described is probably 100% going to get read.

100% going to get read.

Yep. And 95% going to get a, hey, let's have a meeting or like let's set up a call.

Yeah. What percent of emails that come to hoy.vc are great like that? What percent of these emails are great?

That many. I mean, we also, I would say, we only invest in the US.

Yeah.

And we get some from different countries, and that's a, you know, like that unfortunately we just don't invest outside the US. But you know, it's when I was at Kleiner, this is before email was really how we got most pitches. Like people would mail business plans and pitch decks, and the EAs would put them in folders and put them into giant LL Bean bags, and just like drop them off at my office. And I would go home every night and like basically order Chinese food and read business plans. Like every night.

You were like a script reader.

Oh, I was, you know, I was single. My girlfriends were making fun. They're like, should we buy you cats now or later? Like, it's basically— this is my life, is just like reading business plans. And, um, but, uh, the business plan for Bloom Energy was a cold inbound from a professor of space technologies at University of Arizona. And at the time, like, we had heard about, um, fuel cells, and we knew that there was different kinds of fuel cells, and we were kind of getting interested in alternative energy and green, and it seemed— he seemed interesting. And so I wrote him, and I was like, hey, I got your business plan. Do you want to do a call? And so Bloom is a public company now, and it was a cold inbound.

Cold inbound. And so let's just finish it, because I think this is— it's not perfect, but it does flatten a bit. These emails are going to get read.

You really don't need— are you really surprised by this?

No, no, no, I'm not. I'm not surprised. I think founders are surprised and I want to talk about how to hack it because so much of the advice you get on the internet, the fact that warm referrals are your number one source and that a great cold email would get read is— just seems inconsistent to people, right? I'll actually— I'm happy to share some personal stories. Uh, I've I even published two cold emails that I funded, one of which crossed 100x last— it's the best made. It's 100x on a double-digit ownership cold email. And it was an outsider. It was like— there are advantages to being an outsider, right? You don't know. You don't do as much diligence. You don't have to have gone to Stanford and have done the perfect thing. But I think founders are surprised that that investors are so busy. They'll see you on social media. They'll see you traveling. They'll see that you have 20 portfolio companies. Right? And they'll be like, how could I get Cowboy's attention? But the reality is there's only so many great deals a year. Right? And if, and it's sales for founders and it's sales for VCs. And if the pitch is amazing, the cold email works. Email is profound. And yet people don't spend enough time on it. They ask you for coffee. "I saw you talk on stage. Can we get together sometime and talk? What are the odds you're going to get coffee?" Right.

Yeah. Too much coffee.

Too much coffee, right?

Yeah. Or, "Can I pick your brain?" That's one of my—

"Can I pick your brain? I have an idea. Can I pick your brain?" Right? Yeah. I think the best founders figure that out. But the earlier stage it is, the less they figure it out, right? The less they know. And I think if you write the world's best email, and it has to be real. It it can't be imaginary. But if you even have some hints of excellence, it's going to get read, isn't it?

Yeah. Yeah.

Yeah.

But I mean, I do think like for years, I was kind of fighting the "we'll read everything" just because I felt like it was the mark of a good founder that knows how to hustle, and is a relationship builder, and is like a talent magnet, that a good founder knows how to somehow get it started. Like, you know, cold email someone, you, and be like, hey, Jason, I really admire you. I like this thing that you wrote. I'd love to talk to you about this thing. And then you don't— they didn't know you, but also now you know them. And then you introduce them to someone, they introduce you, and then like before you know it, the person's kind of kick-started a network of relationships that can be helpful to her or him. And I do think that's a really valuable skill. So, you know, so for years I was like, well, if a founder can't figure out how to get some credible person with some venture capital universe, some founder cred, someone who's the VP of engineering at a decent company, or someone who's a product manager at a decent company who knows a venture capitalist, maybe it's going to be harder for them to recruit people or sell customers. But I've kind of let go of that because I think, like, a seed is a really raw stage. And I've seen founders change over the course of 10 years from where they start to, you know, hopefully being a unicorn founder that's managing thousands of people. And people change.

Yeah. I used to think that. I used to think, when I came up with a simple bar which is some, a founder that was better than me with more going for them can build a unicorn. And so I felt like if you couldn't penetrate, if you couldn't be that aggressive founder that found their way through the door, literally by email, physically showing up, the cowboy, whatever it is, if you weren't that person, you weren't aggressive enough to build something big. And what I, what I've still done, anyone that wants to talk to me, if they want to talk to me about community or SaaS in general, there's a million ways to reach you. If they want to reach me about investing, I used to always say, well, find my email.

Right.

Find my email somewhere. What's your email, Jason? No. Like, I mean, how are you going to sell Procter Gamble or Google if you can't figure out a prospect's email? It's a—

yeah. And it's also in a way, like, if you're in the consumer space, you can be an introvert and just an awesome product person, especially if your product has network effects. You can not be able to talk and you can build a huge company. In the enterprise space, I think it's a little more important that you can talk.

I think it is. I will say for what it's worth, I don't— like you said, you read more of the emails today. I realize that while that is— it's too tight a noose. It's too much of a forcing function. There are other ways to build traction. You can build an incredibly developer-centric product and build a community. Totally.

Exactly. Yeah. Like, yes.

Even if you're not good at things. And so if you require that almost alpha-esque, put your boot through the door, there's a lot of privilege and other issues, but you're also going to miss people, I think, in terms of—

Totally. I think that's totally true. And I mean, some of my— I have so many lessons learned about companies that I've passed on that I shouldn't have. But like, I've learned that early on in the process, I have to figure out or just ask the person if they are more of an extrovert or an introvert. And if they're an introvert, we just, we have a different conversation. Yep.

All right. We're going to run out of time.

I know we have like so many questions and we can talk forever. No, I know.

We can do them later if you have the energy. But let me just pick a couple because some are tactical. This one's super tactical, but I think it is actually helpful. One attendee asked, "Who would you look for for references?" Talk just a minute about references. What if you don't have great references? Is that a gating item for folks that come out of nowhere? How important are— especially if yours are funky?

I think it's important, especially now, like you said, that it's people that you've worked with or worked for, people who've worked for you, people who've been your boss. Like, we recently did diligence on a company and the founder gave us references and gave us their friends. That was not helpful.

Is that a— I used to think that was a no.

I think it was a—

Close to a no, like such a fail.

But I don't know today. We're very, you know, I think as a person, like an immigrant person who has in many ways been underestimated in many different ways in different situations, I have a lot of empathy for being underestimated and for giving people chances. And, you know, at Series B, you got to know this shit. But like at seed, if you don't— if you never raised money before, sometimes there's stuff that someone tells you and then you were like, "Oh, duh. Yeah, I get it." And then they move on. So it's not a no for me, but yeah, I was like, "Hey, don't give me your friends. I don't really want to know what your friends think of you. I want to know what you're like to work with." Yeah, this one's interesting because it's not necessarily obvious.

This says, when you invest seed or pre-seed, what do you expect MRR will be in 3 to 6 months? It's actually not a silly question because you're not the only VC. You're betting that someone in the next 12 to 24 months is going to write a check at 2 to 5 times the price you did. So what does that have to mean in terms of the window in which you can invest in terms of growth?

Especially right now, that is a really tricky one, right? Because let's say if you're going to— like, we're basically recommending to all— in March, we recommend to all of our portfolio companies to basically plan like come up with a bunch of plans so that ideally you have money to get you into '22, 2022.

Yes.

So either raise money right away or, you know, you're gonna do some cuts because assume that Q2, Q3, Q4 are gonna be really hard for new sales and that maybe things will pick up in Q1, but maybe not. Maybe they won't pick up until Q3 next year. And And so you're going to be going out to raise your A, if you're seed, on potentially not a lot of revenue growth, you know, especially if you have to go out in the first half of 2021. And so I think depending on what the product is that you're selling and what, you know, what business you're in, are there other metrics that you can show around customer engagement and customer use or value? Or— because otherwise you're going to be competing against people who are starting from scratch. In March or in June who are like, I have no traction, but I just started this thing.

That's a tough thing, right? It's like folks graduating from college this year, it may be a lost generation compared to next year. I hope not.

What? I hope not.

No, I know. But this may be a year where they don't get to go through traditional recruiting processes and are impacted. And you're like, well, there's next year. But by next year, there's another—

Yeah. There are going to be—

50,000 seniors graduating from great colleges and you're in this weird phase.

And the other thing we didn't get to, what I know is one of your questions, was just like, you know, there are so many funds, and that there are multistage funds, right? Like, when you look at venture capital, there's a whole thing going on about how many funds there are and how many seed funds there are. But the other thing that I feel like we don't talk about enough is how many gigantic funds there are and how much of the money is in multistage funds that each fund is bigger than $500 million.

Yes.

And so how that changes the ecosystem in terms of when you put someone on your cap table, like, we co-invest with multi-stage funds all the time and we partner with them all the time, but you have to be really savvy about when you do take one of those folks on or multiples of them onto your cap table and onto your board. It's a different ballgame in terms of their incentives and their portfolios and the size checks they want to write and versus like us, you know, simple seed people.

Yeah, I think for each big fund on the cap table, you need to create $1 to $2 billion in exit value. So once you have like 4 or 5 of those big names, you're kind of committing to a deck of corn.

Yeah, exactly. And the reality is, like, I mean, Thomas Tungus published a thing recently about like, I think you're 26 times more likely to be acquired than to go public. And so the reality is, I mean, people can joke about how many unicorns there are, but it's still extremely hard to build a billion-dollar company.

It is. Have you— I keep waiting for your TechCrunch article number 3. I don't think you wrote the third one, did you?

I haven't, no. Actually, it's funny because I have— now that we have a little bit more time at home, I've gotten back to it actually to kind of like get up to speed on the new set. —and to try and learn like where they came from and all that stuff and how it's different than the original set. I think it's time.

I mean, I think—

Oh, thank you. I'm working on it. I'm a really slow writer.

Those were— the first one was like— this is probably the last thing we'll have to chat about, so maybe it's a little off topic, but I think it's helpful. I think the first one was one of the best pieces of venture content marketing ever, right? Which was probably part of the goal, right? No, it was completely an accident.

It was an accident? Totally. Like I did not think anyone was going to read it at all. Really? Oh my God. I worked on it for months just for myself, just because like I had this new fund. Months? Months. Months. No one had ever assembled that type of data?

Now there's analysts and everyone in firms does it, but no one had ever seen that whenever the first one was, 2014 or something like that?

2013. Yeah. I just, I did it for myself just because I had this new fund and I was like, what should I invest in? Like if I had to do an analysis of like the most successful companies of the past decade, what would they have in common so I could try and look for those for the next set? And then there was all this stuff that came out of it. I was like, oh, I actually think this would be useful for founders and for investors for a bunch of different reasons. And so I published it, but I gave it to some friends to read it. I actually was on the way back from the Lobby conference, and I gave it to a couple people on the plane to read it. I was like, hey, I'm thinking about publishing this blog post. What do you think? And they were like, it's okay. Nobody even said like, wow, this is really great, or like this is going to become a thing. And so it was a big surprise. Yeah, the Saturday morning. I was at Disney World. I was at Disneyland with my family the day that it went up, the Saturday morning it went up. And like, so I'm like online for rides. And I was like, Jason, my husband's name is Jason. I was like, oh my God, people are like liking this and sharing this. It's so crazy. And he's like, hey, we're at Disneyland, like focus. And I'm like, you don't understand, like people are actually reading this thing.

It's funny, speak from— I mean, it's the great lesson of all writing, speak for what you're passionate about. You were passionate about it because you had to learn how to deploy the fund. So this was your homework, and you forced yourself to distill all that work into an article because it was your investment thesis. This was your investment thesis, a piece of it.

It's also, I mean, our industry is huge, right? It manages almost like $500 billion, and there was so little data or analysis on our industry, like no transparency of like— I mean, there's not even In universities, there's no professor on the history of technology who studies the history of the technology business and all the forks in the road of companies. If you did A instead of B, what happened to the company? I just think it's fascinating. It is.

All right. We're out of time. I'd like to do all these questions. Maybe if you're bored someday, let me know. We'll do them again on Zoom and answer them together. I have time.

Yeah, but I really enjoyed chatting with you.

Thank you. Okay. I want the third article on TechCrunch. It's okay if it takes a while. I've been waiting for a few years, so that's— Oh, you're so nice. Thank you. All right. Aileen, thank you for doing this. This was great, and we'll, we'll talk to you soon.

Thanks, everybody. Bye.