Working in Tandem—VC and Founders Alliance

Emma Hinchliffe: Hey, everyone, thank you for joining us and welcome to NextGen. My name's Emma Hinchliffe, I'm a senior writer at Fortune, author of our newsletter of the Broadsheet and a co-chair of the MPW NextGen Summit. So let me be the first to welcome you, and thank you all for being here. Thank you to TriNet as well for hosting us at this session, which is super exciting. And just a reminder, this is on the record, but we definitely want this to be an environment that we can be casual and we'd love to hear from all of you as well participating.

So I'd love to start by introducing our panelists. We're joined by Sita Chantramonklasri, who is founder and general partner of Siam Capital, as well as one of her portfolio founders, Laura Katz, founder and CEO of Helaina. Lisa Reeves, Chief Product Officer at TriNet. And Jesse Draper, founding partner at Halogen Ventures. So thank you so much for being here.

Sita Chantramonklasri: Thank you.

Lisa Reeves: Thank you.

Jesse Draper: Thank you.

Emma: So we're going to talk about VCs and founders and how everyone works together. So, since we have a great example here with Laura and Sita, I'd love to start and just hear about your relationship. What's your relationship like? And maybe how did you meet? How did you know it this was a good fit?

Sita: Yeah, I'm happy to start.

Emma: Yeah. Go for it.

Sita: That is a loaded question. We have a fantastic relationship, but obviously extremely entangled in many ways. But to answer your first question, we met a few years ago. I was spending a bunch of time trying to understand the broad infant formula market, and frankly, just how broken it is and the lack of innovation...

Emma: Those who don't know Laura's company, Helaina, makes human protein-based infant formula.

Sita: And yes, she was one of the founders that I had come across and was super impressed by her background. Somewhat serendipitously another fund that I had a very close relationship with had led their previous round. So we started spending time and getting to know each other very much. Also, on a personal level, I remember a lot of shared meals and some discussions of favorite pizzas in New York.

Laura Katz: Yeah, a lot of, in the time that Sita and I met, I think we had had maybe 10 different coffees and meals, like in three months of just getting to know each other, which as a founder you're thinking so much about what it means to bring a new person into your business. To have that opportunity to build a relationship was so important to me. And Sita was down, so that was great.

Emma: Yeah. And how did you know that this was a good match? What made you make that decision to work with each other?

Laura: I think in the process of getting to know Sita and really aligning on the values that we have of what it means to have an investor-founder relationship, that was something that at every touchpoint, I'm sure Sita was asking me similar types of questions. But I just really wanted to understand what that relationship looks like to her. And so, we got to know each other. And I think for me, it's somebody who really cares about the business, somebody that cares about what we're building and sees that long-term mission, but is aligned on, okay, this is what the next 18 months look like and here's all of the opportunities, but here are all of the risks and just being really real and open and honest with each other. And that was a conversation that we continuously had over that maybe 10 meetings that we did. So over time, it became really clear that we wanted to work with Sita.

Emma: Yeah. Do we have founders in the room? Okay. What's your company?

Audience member: [Inaudible]

Emma: Nice. Emily, cool. Another founder back there. Nice. What's your company?

**Audience member:**I run a Salesforce implementation practice in Houston.

Emma: Nice. Amazing. And investors? Okay. A couple. And I'm sure other people interested in becoming founders or investors. Great. Lisa, you have a long career. You've worked as a founder and operator and a founder...

Lisa: Investor.

**Emma: **Sorry, excuse me, founder, investor and operator. So working in those three roles, what have you learned about what works in those relationships and what doesn't?

Lisa: Yeah, so it's interesting. So I was an investor. I ran SAP Ventures for a number of years and then I had my own venture fund in Boulder, Colorado. I've been an operator certainly at TriNet and other companies, and an entrepreneur where I started a data analytics company and sold it to Workday. And so I think the fascinating thing is that you have appreciation for the relationship from all aspects. And that's pretty unique, I think. And so what you just discussed, the investor and the entrepreneur relationship, but also from an operational perspective, how's it perceived externally for M&A type activity. And then also, I think you have a certain level of empathy, which coming from all sides of it, which is really valuable when you think about what works and what doesn't, and also share goals, and sort of key principles to build an enduring company.

Emma: Yeah. Jesse, for you, what do you look for when you're deciding whether to back a founder and how to tell it's the right move?

Jesse: There's so many things we look for. We have a hundred item diligence checklist, but it's different in every case. And I'd say, if I was going to narrow it down to three, we look for a really unique, interesting product that has something proprietary. So just so you guys know, we invest in early-stage female-founded consumer tech. We have about 70 portfolio businesses, 100% female-founded and I like to say three male CEOs. So you get really funny questions. People ask you things like, "Well, what if a guy works there?" And I'm like, "Well, we're building a billion-dollar businesses, so it'd be really weird if a guy didn't work there. I just want to make sure there's women in the leadership team." But we look for a really unique product with something proprietary. What is the moat? Do you have patents? Do you have really unique customers?

And then we look for some kind of traction, be that like a hundred thousand users, but don't let that number scare you in any way, because we also invest pre-product. And then it's all about the founder. I'm an early-stage investor. I try to get in as early as is humanly possible. And it's about the founder. It's about this relationship. You're climbing mountains, not one. It's not a straight line. And you go through some real tough times. It's actually hard sometimes for me to sit on a board, when I've made an early-stage investment, we've been along the ride for a long time and our company start raising series B, series C. And I'll join the board later on and it's actually really hard sometimes because as a board member, you really have to shine, as an investor in general, but as a board member you really have to turn the mirror around and say, "Look, I know we were friendly before. Now you're not performing and this is where you need to be." So it's a really important decision for a founder and for an investor.

Emma: Yeah. Jesse, that's such a great point. What are some other ways that the relationship between a founder and an investor changes with time as a company scales?

Jesse: Well, when they're doing great, it's awesome. I mean, we invested in This Is L. It was the first organic tampon line they sold to P&G. And I would call her and I'd be like, "You haven't talked to me for six months. I haven't heard anything. I have no idea what's going on." She'd be like, "Okay, well, we're at a $50 million run rate." And I'd be like, "Cool, I'm not going to bother you. You keep working and you just let me know when you need me." But I think the time you spend the most time as an investor and I'd be curious what both of you would have to say about this, but you spend the most time with a founder when they're not performing exactly or hitting their marks. And I think that's the hardest thing for me as an investor with 70 businesses to balance, where it's like, who do I spend the most time with now? Because you need to be there for those founders, but also at a certain point you have to bet on your winners who are performing.

**Emma:**Yeah. Lisa, what have you seen over your career?

Lisa: Well, I think just maybe to tack onto the back of that question in your comment. I think as a company's skills, it also depends what the actual team is looking for. If you're an operator and you mentioned product, well, I'm a chief product officer, so I spent a lot of time in the weeds on product. As a company those skills, I'm on a board right now, the Canadian company, where it's a lot about relationships, opening up channels and relationships, especially to the U.S. And so, I think it really depends on what's there. And I would say it's just so interesting about how the dynamic changes when things are good and when things are not so good. And I can even remember that when I had my own company and it was, I never wanted to save bad news to the end, so I was always overcommunicating as an early-stage company. And it's tough, I think, as an entrepreneur, as you raise additional capital, kind of navigating those waters, because every investor has a different set of expectations.

Emma: What do you think those expectations are and how do they differ?

Jesse: Every investor has a set of expectations or the founder. Yeah. I mean, I think they vary. Well, it depends what you've talked about too. It's like if they said they're going to do 50 million, they better do 50 million. I mean, it also makes you think as a founder, okay, let's make sure that my goals are really realistic and my projections are really realistic, and that I exceed those. And that's something actually women are much better at. We are very realistic. We actually raise too little capital and we're more profitable, and we raise exactly what we want. And I often say the most important thing when you are raising is get a bigger miscellaneous category, because it's not going to go exactly how you think it's going to go.

Emma: Yeah. Laura, for you as the founder up here, what are some of the good ways that investors communicate with you and what are some of the less ideal interactions you have with some of your investors?

Laura: Everyone's different. I think that's the biggest takeaway is, Sita and I can text about something, and just have that relationship where it's easy and I'll just go to her. Some people I'm going to be writing a more formal email and giving them a more formal update. Some people want to call, some people... It's balancing what people need. And I think it's similar to how you run a business. Everybody on your team works differently and if you can be an empathetic leader to them, which to me that means working in with them in a way that works for them, in a way that really reflects their working style, then I think that's how you get the most out of your relationship and the people that you work with.

So I would say that's my perspective as a founder. But sometimes I would say where it's difficult to work with some investors is when they want a lot out of you and you're trying to run the business. And I'm sure that if there's any founders in the room, and everyone here can probably appreciate that, sometimes as a founder it's my job to make sure we're hitting our milestones and to make sure that the business is operating efficiently and towards our North Star. And so that means that I don't have all the time in the world for all of our investors. And that as long as they can be really sensitive of our time, then I think the relationship can go better. But that's not always the case.

Emma: Yeah. Sita, for you, what works and what doesn't work in your relationships with your founders?

Sita: If we were to really boil it down, I think it comes to value alignment and prioritization. I've had this discussion with a lot of both founders and investors, to be quite honest, I'm especially in the last few months just giving the broader macro market environment, that if you were to in some ways visualize the alignment that a founder should have with their investor, I would almost liken it to a three-step ladder. So very basically, we need to be almost like a glorified cheerleader. That's sort of like the minimum thing that we need to be as an investor. But in order for us to be able to build a much more robust collaborative relationship, we need to go much further than that. I would say the second layer part of the ladder is really being an active coach, someone who was in the weeds with them, who is essentially not just standing on the sidelines, but really engaged with the business.

And trying to understand, and also this goes back to Laura's point of, if you have the same end in sight or you have the same long-term alignment, it allows for you to have flexibility in the short or interim. But I'd say the really ideal sort of the third layer of the ladder, what we should all try to optimize for, is actually being on the team. And I know that that's much easier said than done. But as an investor, we always, as Jesse had mentioned, there's almost a role that we need to play as the business continues to advance. But if we can keep that North Star of always being on their team, it really in many ways allows us to prioritize and align to be essentially building the company with the founder. Again, much easier said than done, but that's definitely something that I think we're trying to optimize for.

Laura: Yeah. Absolutely.

Emma: Yeah. Do we have any questions from the room? No? I'll come back to you. You mentioned the recent macro environment. I think one question that has come up about investor and founder relationships is that a lot of startups that are doing layoffs right now were pushed to scale and to hire by their investors and are now having to deal with the consequences of that decision. Does what's happening right now provide any lessons about anything that should change about investor relationships with their founders moving forward?

Jesse: I'm happy to talk about that macro environment. I mean, this is something I feel like I've been telling my founders all along the way, even before Covid. We were living in this weird moment of uber valuations that were literally balloons without revenues to match the size of their business. And it just didn't make sense to me. And so even going into Covid, I was like, "Why are we growing? Let's build a really great business with a great foundation, be profitable." That word we hadn't heard for so many years. So I do feel like now all the founders are listening. Now the power has gone back into the investors’ hands where the founders are like, "Oh, I was growing, growing, growing, but I'm going to run out of money now." And I mean, I think that's something that, and I do have to say, this is me on my soapbox because I invest in women, but we have proprietary data on how women perform and women are so much more profitable. Their sales are better overall.

I do think we need to take more risks. We need men. We need women. We need men who can have the gut check and throw in the check, because we need more women writing checks frankly. But we also are much more risk averse, so we take much more calculated risks. So in terms of growing a business, companies with a female in the founding team perform so, so much better. So, go with your instinct as a female founder and be like, "You know what? I feel like we're blowing cash and we're going to run out in three months." You definitely are.

So I think those are things that finally people are thinking about. I mean, I do have a few founders who just woke up and they're like, "Oh, we were growing," I'm like, "We've been talking about profitability for two years. What are you thinking?" And finally we're seeing a lot more layoffs. I think a couple months ago there was an article that was the flat round is the new up round. And so I've been thinking about that a lot. So as a founder, you shouldn't feel like it's a fail if you are raising a flat round, you just need to get to where you need to go right now. Anyway, that was all over the place. Those are some of my thoughts.

Emma: No, well, there's a lot going on.

Sita: No, I agree with you. I will sort of echo your point that I feel like you might have been alluding to, that in some ways maybe some investors changed their narrative, because they were also part of the herd mentality. And I have to say, obviously none of us can speak to the broader community, but that's definitely the case. I think that we have to admit that the changing macro environment has also in many ways made investors who are previously very gung-ho, very bullish, a lot more conservative. And that's actually a change in tone that they've been expressing to their founders. I think that the reality is we need to reconcile that, in that as founders, they also need to continue to build robust businesses, taking in the opinions and the insights of their investors, but also continuing to follow their own North Star. And just as investors I think also need to be able to understand that, as founders, we're going to make mistakes along the way. But that at the end of the day, that value alignment is extremely important to be able to create a long-term relationship.

Laura: I think that's so spot on. Something that we think about and I see of other female founders is, your investors, your board, they're there as thought partners. They're there as people to help you think through strategy, but they're not the ones making those day-to-day decisions. And as a female founder, you need to remember that your board could have a recommendation, but you're going to be making a lot of these decisions and you should feel empowered to do what's best for your business, not just what your investors see is best. And I think that that is something that I like to encourage colleagues and friends that have founded their own businesses to do, because your investors are not there day in and day out and they don't know all of the nuance that you know. And so when we talk about the layoffs and the really big push of hiring that we've seen, I mean, I think the big lesson is, you know your business the best and you need to be doing what's best for your business. And it's not always just hiring a ton of people or whatever that might be.

Sita: And we bet… not just bet, we make a calculated decision in investing in a founder and in their founding team. So as a result of that, we put a level of trust and belief in them wanting to also and having the ability to run their own business. So I think that's also extremely important that we don't want to take that ownership away from anyone, regardless of how nuanced and intimate that founder and investor relationship might be.

Lisa: What I find so interesting is, this is not the first time it's happened. And so when you think about having a diverse board, the diverse opinions, maybe different ages, different size funds, because we've seen it before. If you've been in the industry for a while.

Emma: Do you think companies are missing that perspective right now? Or startups missing out on advisors and investors and board members who have not navigated a downturn before?

Lisa: Yeah, I think it's an opportunity, for sure. I think it's an opportunity. And it speaks to, we've seen it before, we'll see it again. And the difference here was probably with Covid and just a lot of the buying trends and things that were influenced there. You hadn't seen that previously, but definitely in terms of contraction and size of rounds and a flat round is really an up round. I mean, I can remember all of this in the past 20 years.

Jesse: It’s crazy.

Emma: Laura, has there been a time where you've had to navigate that kind of situation you were describing, where you maybe disagree with, advice or suggestions you were hearing from investors and how do you approach that?

Laura: Yes, absolutely. How do I approach that? I mean, usually my perspective is come in with, here's what we think, here's the why, here's the work behind it. And I mean, I think that what we're building at Helaina is really complex and there's so many moving parts. So, we make human proteins. We're the first company to do this, to put them into food. And we're making infant formulas one use case and there's several use cases. And so just explaining that there's all of these regulatory paths and all of these different parts of the business we have to navigate. And I think that where I've disagreed with investors has been typically where our team has a lot of strength and knowledge in that category where we can show the why and then you have to just make the decision that's best for what you're doing. Absolutely.

And sometimes I disagree and then I come back to what their recommendation was, maybe a few months later. We had an investor that invested in our series A who was really adamant that we use the technology we've built to build out a B2B business. And I was like, "I don't know that that's an important focus for us." And over the past year it's something that we've really realized could be really powerful. And she was like, "I knew you would get there." And so sometimes there is, and I see this with my team as well, sometimes you have to let somebody get there on their own. That can happen with investors. Yeah.

Emma: Yeah. So interesting. Great example. Anything from the room? Anyone want to chime in? Yeah, please go ahead and please just wait for the microphone. And please introduce yourself as well.

Audience member: Hi, I'm Nicole. And I'm interested to hear from the investors how you prioritize your attention on the companies that are part of your portfolio. So, is it always that the squeaky wheel or the underperforming company gets your attention or the ones that are making mistakes? I'd really love to hear how you prioritize your attention on the companies.

Jesse: I'm happy to go. It's heartbreaking for me, because I wish I could spend time with every single one. But we have to weigh it based on the amount of ownership we have in each company. And then we also, we go through quarterly and sort of say, who are our priorities right now? And we call it the top 10, but it's quite a few companies in there. And we do it based on ownership and also how many rights we have there. So, if I have a board seat and a vote, we have a little bit more control. While we don't control the business, we know that if something happened, we could vote in our favor.

And those are our drop everything companies. They're going to return the fund. We see it already and so we do whatever they need. But they also don't need us as much, because they're kind of like off to the races. And so we try to help as much as we can. We try to spread it out amongst our tiny team. But I think there are moments where you do have to say, "Okay, we're spending so much time with this business, and actually our attention needs to be here." And in those cases, sometimes what I'll do is try and introduce them to a couple potential advisors who might be able to help get them out of this situation.

Emma: Yeah. Sita, how do you approach that?

Sita: I'll start with, it depends. I think that the reality is that different founders favor different types of relationships in the sense of the cadence. I mean, everything from the caliber and type of conversations you guys have to the frequency. And I think that there's an element of also trying to understand what works for the founders and we really should try to optimize for that. To go back to my earlier point of at the very bare minimum we need to just be a sort of a glorified cheerleader.

I will say that for a lot of founders, they want to have consistent cadence. They want to consistently have a conversation or a dialogue with the investors. So if that's the case and we think that doing so allows for them to optimize and be the best performing founder they can be, that's obviously what we need to do. But at some founders, and especially if they're doing really well, they don't want to hear from us. And I think that it's trying to understand that balance. That's probably the first lens of how we prioritize. And then second to that is as Jesse alluded to, really understanding. All right, these are the folks we really need to highlight, because they're, A, important to us, and B, potentially also troublesome in this period of time.

Emma: Any other question? Oh, sure. Yeah. Right here.

Audience member: Sure. Hi, I'm Jen Wines, founder of Invisible Wealth. And my question to you is, I would love a peak behind the curtain as it relates to due diligence. I hear this term and I'm like, "What does that mean?" And Jesse, you mentioned a hundred checklists and it's sector specific, but maybe just some examples as to what goes on in due diligence.

Emma: Yeah, great question. Who wants to take that?

Jesse: I mean, we do a ton of due diligence, but at the earliest stages, it's like two, three people sometimes in a room with an idea pre-product and you're like, "Have you ever been to prison?" I mean, literally. And I've seen great companies come out of prison who are focused on incarceration. And so, we do background checks, we call their references. I mean, there was one time we actually made an investment. I just in my head was like, "Oh, my god, this is on the record." But we made an investment and we had checked references, but actually we learned very quickly that those, we actually wrote the check, wired the money, signed the terms and it was a fairly small check, we were kind of taking a risk on a crazy idea. And we quickly learned that all those references we had called, they'd really only known this person for a year or two.

And it was like, we started realizing that they were lying about almost everything they were telling us. And this is also the problem with virtual. So, this was during Covid and now I'm like, "We are meeting every single person. We cannot invest this way." And we even want to make sure we're meeting all of our potential investors now, because we had a lot of people write checks virtually too. And so, we had to go navigate that, because of a diligence issue. And so now, we actually go even deeper and just really try to get to know these people, many, many conversations, whether they're through Zoom or in person, we go through. To finish the story, we got the money back. I went a little Godfather, if I'm being honest. But we're still, I try to put good vibes out there.

And I think you really need to get to know these people as well as you possibly can. And then, if I'm not an expert at breast milk protein, I would call quite a few experts and say, "What do you think about this?" And then I also might have some of them have a conversation with them. And so those are things, as a founder you could actually preempt and say, "Hey, we have experts you can talk to." And then also as a lead, we lead occasionally... Do you guys lead too? Yeah. Then you have to have all of that and you can kind of share that around, so you really need to make sure you're buttoned up in terms of diligence.

Audience member: Just one clarifying question. So when you lead, do you have a packet of sorts that you're able to substantiate your leading of the investment?

Jesse: Yes, like a deal memo. Like a 30 to 60-page deal memo.

Lisa: One thing I would say, because I've been on both sides, investing and selling and acquiring, with M&A in a corporate role. I mean, you gave examples of really early stage, which is what you have to do. But one thing I would stress is, start good hygiene from the beginning. Because if you start good hygiene, once you start to get some momentum and product market fit and more investors, it makes it so much easier. And from the acquisition side, it's so much cleaner. You can follow the kind of paper trail, you understand if you have... And there's also a lot of tools and technology to manage some of the stuff as you raise more capital to manage equity, for example. And if you can really infuse that, because I've been in the industry for a long time where it was very cottage industry and kind of back officey and everything. If you could really have good hygiene around it, it makes the whole package as the company matures and progresses so much easier, also for a potential exit, whatever that exit might be.

Laura: I'm happy to chat with you after this about the founder perspective. We're in diligence right now with several folks and what has been helpful for us for past rounds as well as what we're doing right now is, spend a month or however long you need, putting together a really strong data room. And that's going to be anything from technical overviews to model, for us it's a revenue model, technical economic model. And be really prepared to have in your diligence process, conversations, walking investors through everything, and knowing where they might poke holes and having answers. What we do at Helaina is, as I have meetings with investors and go through these calls, I write down all the questions that they ask me. And so I know that a lot of people are asking about X, I'm going to make sure I have that answer prepared and written down and thought through. And going through the diligence you see things come up again and again. So it's being really prepared for whatever somebody might ask you. And people ask all kinds of things. So I like the FAQ approach, yeah.

Sita: I will add that it depends on the stage. Mechanically speaking, our process, I imagine as well for you, if you're one of the first checks into a company, if you're investing at the pre-seed or seed stage, or if you're investing, I mean, we invest sometimes as late as a series C, it's a very different process. If I were to boil it down, I would say we're really trying to answer three questions. And obviously there's many sort of sub-questions into this, but first is really trying to understand the market opportunity. The second is really trying to understand the solution. Where does this solution, product or service, fit into that? How does this team add to that solution? Do they have some sort of competitive advantage in their perspective or skill to be able to deliver that solution to market? And then the third I would say is really around competition. So that's really the three sort of pillars.

And I mean, the reality is depending on how complex the business is or how late stage it is, it could be something as brief as a couple of page investment brief to... I mean, think my longest investment memo was close to 90 pages for an advanced materials company we were diligencing. And then there's also an element of understanding where your expertise is having that self-awareness of like, "Okay, I'm going to rely on my own knowledge base," versus, "How do I marry that with other experts that are within our network?" Be it other investors or other, I mean, paid experts. A lot of investors pull to that as a resource as well.

Emma: Thank you. I think we had some other questions. Oh, sure.

Audience member: Oh, hi. I'm Maureen Brown, founder of Mosie Baby. I'd love to hear some perspective on how you balance that desire for moat defensibility and risk. So I mean, I can go on and on about this, but that's like always comes up, right? It's like, what's your defense ability? And we have all that, of course. But at some point there's also risk. So I'm just curious how you guys evaluate and balance risk when you're making an investment.

Sita: That's a great question.

Jesse: That's such a good question. I mean, I'd be curious what you guys think. You cannot see the downside as a venture capitalist. You have to be able to see the upside. We are risk takers. I think it's about the people at that point, if you're deciding between those two things. It's about openness and coachability. Every company has tons of risks and also unforeseen risks you can't even imagine. And I think at that point, it really comes down to getting to know the founder and knowing that they are open and optimistic. Venture capitalists should be optimistic and founders have to be insanely optimistic. I mean, that's the red flag I see right away. If someone's like, "Well, we can't do that because of blah blah blah." I'm like, okay. There was a no there and you saw block, when I actually think that you need to be able to roll with it.

And there was one founder I had met with and she said, "Well, we have to do it." When they say, "We have to do it exactly this way and we can only go this direction and it's like, "Well, what if there was an international pandemic and the entire world shut down?" I mean, I used to ask questions like that, because you want to see that the founder is open and can build this bajillion-dollar business. Typically, founders are focused on their first product and I want to see that they're going to continue to grow that to this billion now, trillion-dollar market. So I think that would be about the founder investor relationship more than anything else. There's always a risk. This is gambling. Women are better at it though.

Laura: We say, "Strong opinions loosely held." That's so important.

Sita: Well, I don't disagree with you, I will also say it slightly depends also on the stage in which you invest in, right?

Jesse: Yeah, that’s true.

Sita: And that if you are investing slightly later, you have to underwrite a risk return profile.

Jesse: That's way de-risked later stage.

Sita: Yeah. And oftentimes, depending on the check size, that's also your risk appetite, depending on the price that you're willing to pay, depending on whether or not is an exit potential only materialized in them going public or is there an M&A acquisition down the line? So it just depends on the stage in which you invest in. You have to really be able to underwrite. If you're investing at the earliest stages, you shouldn't be looking at the downside scenario, you should be a glass half full all the way. But as you pay a more premium of a price, if you will, you have to understand what is the downside risk that you're taking into consideration.

And specifically with technology, I think what you were alluding to is IP that might be protected by you developing it yourself or whatever form and you guys bringing it onto the business. If that's something that's core to the business, what we've often seen is that we need to see some of that risk mitigated if that's something that you want it to be baked into the price. If it's not, then technically that edge or that technology exist yet. But we would be more willing to write an early-stage check if it's not priced in. Does that make sense?

Emma: Yeah. Great question. Anyone else? Oh, right up here.

Audience member: Hi, my name's Ratika. I lead corp dev at Toast. My question was more about strategic alternatives. Obviously, in this environment I talked to a lot of VCs, and they're looking for corp dev leaders to get close to portfolio companies, even if they have runway. I'm curious how you see it today within your portfolio. Are you encouraging your founders to go out there and have conversations even though they're not selling? But at some point, they might not get a fundraise and they need to think about options.

Jesse: Oh yeah. We have a plan A, B, C, D, E, F, G. And if they have six months runway, I'm like, "Let's talk to a whole bunch of acquirers. Let's just get to know them and let's also have someone you could merge with." I think you as a founder should be thinking that way, but also typically I feel like you're focused on building the business, running the business. So you're not always seeing like, "No, you're about to run out of cash," or what have you. And we're seeing people, especially in D-to-C, cut back on marketing. I mean, D-to-C products, we have about 25% in our portfolio. It's just going to be a really tough time to raise right now. And so, we're seeing them do really incredible creative things, merging with each other in similar spaces.

And that's something else that, women don't always... We just have this data in our fund, they're seeing the one product. And I'm constantly saying like, "Okay, here's a whole bunch of great HR tech products. Let's roll it up. And then we have 50 million of revenue and we can sell that." So we're trying to do really interesting creative things, create partnerships between businesses. I mean, you should be thinking every which way, because you just don't know how it's going to go. But we're in a bear market and it's going to get worse. And I'm an optimist.

Lisa: I think that, by the way, I love Toast, love the business model, love the product. Love everything about it. I think coming from the corporate venture side, everyone has a different point of view about a corporate, but when I was at SAP Ventures, the primary driver was financial return, return to the parent, not strategic alignment, which is very unusual, at least at that time. And I know for a lot of the corporate funds, it's an opportunity to get a small, in some cases a big piece of the business, but in many cases, sprinkle, when I was at Workday Ventures, sprinkle money across a number of companies in the portfolio, which are adjacent, kind of a view on the market, a window into the market, and certainly build those relationships too. I'm a big proponent of that.

Audience member: You get good terms right now.

Lisa: Yeah.

Sita: Laura and I have talked about this. I think we summarize it as, always be selling.

Laura: I think when you asked that maybe three or four of our investors recently have been like, "How are you thinking about this?" Especially given everything going on right now. And it's, as you said, you need the plan A, B, C, D, E of what can happen. And so always be selling or ABC, as we say at Helaina, always be closing. We are constantly in conversation with these folks and now probably more than we have in the last year.

Emma: Yeah. Anyone else? Okay, that was a good round from the room. Thanks so much, everyone. Those of you who are VCs on stage also who raise funds, what do your founder relationships teach you about your relationships with your LPs?

Laura: That's a good question. I'm so curious.

Jesse: I'd rather talk about what's pissing me off right now. Is that okay? In terms of LPs.

Emma: Go for it. We’re on our third fund.

Jesse: I know, I'm ready. It's no secret. It's not just me, it's every fund. But we're going out for our third fund and it's like, we're still considered emerging managers because all of the LPs. The largest capital in the entire United States and beyond is managed by about 10 to 20 advisors. And most of them are located in New England, in the New England territories. And these manage the endowments, the institutions all across the entire country. And all of that capital is currently going to Sequoia, Andreessen, all of these three to five funds. I'm not the only one saying this. I'm a smaller fund in the grand scheme of things, but I'm talking to funds that manage four billion of capital and are doing really well. And all that capital's still going there.

And I don't know if you guys just heard about this FTX thing, but that had the crème de la crème of all of these investors. And that just pissed me off, because I am working my ass off to raise capital from these larger institutions and they won't even give you the time of day. As a female or diverse manager, you're simply a box being checked. And they take the meeting and then they just ghost you. And so, I have this idea because I'm all like, "Okay, well, what's the solution?" And while I don't want to add any more regulatory issues, what if, since some of these advisors manage hundreds of billions of dollars of endowments in anyone who, I mean, it's crazy to me, and then they're all putting them in the same five buckets. What if we threw a bomb in that?

And we said, if you manage, pick a number, four billion of capital, I don't know. That seems like plenty to hire in-house. That would actually give us diversity of location, democratize the investments, democratize the capital. It would go more local. Say it's like University of Arizona, then Arizona would get a lot more capital. Right now, it's all being managed by these same people and it doesn't make any sense. And I say that to all of you incredible powerful women, because we need you making these decisions and writing checks and writing larger checks than you feel comfortable with, because we need to change that kind of gender wealth gap. So, I know that's not the answer you wanted, but that's all I can think about right now.

Lisa: So Jesse, have you thought about relocating to Colorado?

Jesse: I mean, if the capital is there, I'm on my way.

Lisa: So I was just appointed to the venture capital authority for the state of Colorado from the House of Representatives.

Jesse: Oh my god. Let’s do this!

Lisa: We've got close, probably about 80 million and it's being allocated to emerging managers, BIPOC founder or founded funds, emerging managers and funds that invest in rural Colorado—so outside of the front range, which is Boulder, Denver, everything. And we're making allocations and you have to have matching funds, but we're making grants across a ton of emerging managers with women focus rule and others. And BIPOC.

Jesse: Okay. Well, she's helping solve the problem. We need that in every state.

Lisa: We do need that in every state. Colorado is super, super progressive.

Jesse: I love the solution though.

Lisa: Yeah. So please move to Colorado.

Jesse: Okay, I'm done. I'll be there.

Emma:... to anything from your experience?

Sita: Yeah. It's funny because I don't think, and I'm truly not exaggerating, that not a day goes by that not either someone asked me this question or someone wants to discuss this. And I think the reality is that it boils down to the fact that, as investors and as allocators, and honestly, not to be so blunt, but as human beings, we're all in this business of pattern recognition. And that's both a positive, but also in this instance a massive challenge and negative to, essentially an obstacle to change. And to also untapped revenue potential or untapped returns, in that, as Jesse was alluding to quite explicitly, actually, that all these folks invest in what has worked in the past expecting that that will continue to work in the future. I mean, right this week we have an example of where that was very much not the case.

And I think that the other challenge is that venture is a forecasting business. We can't have the same prism of thought and assume that if we continue to do the same thing over and over again, it is somehow going to break through and create new channels of innovation, and it's going to birth new managers. That's not the case. So I think that the reality is, while the change is still very slow and it's happening somewhat, I don't only want to say organically because it's not at all, but it's somewhat happening now within some smaller circles, we do need more folks to go against this mold of pattern recognition and recognize that, be it if you are a founder, be it if you are an investor, you need to challenge that school of thought. Because if not, we're just going to sleepwalk into the next generation of investors and founders. And as we all know, that's not how we create real innovation. So I think that's still very much the case also on the LP side. And we all, managers, as well as founders, have a very active role into trying to change that narrative.

Jesse: But it's made managers, so only 2% of venture capital funding is going towards women and this is a major part of the problem. And so it's really fascinating. I love what you're saying about how this is a pattern recognition thing, but it's also a, you're right, we need to disrupt, because you don't get fired for putting money in Sequoia, but people are afraid to take a risk on all of these new managers. And this isn't a female or a male issue, this is just a new manager issue. Across the board I've talked to hundreds of them.

And so there's something we can do, I'm sure, but I love that idea. That's something you can do today. You can go against the grain, challenge where the money's going, challenge where it's coming from and make sure that when you raise money for your billion-dollar business, you are taking it from people who are, because you're going to actually contribute to this. All the women in this room, you're going to create a billion-dollar business and then inevitably invest it back into the female ecosystem somehow. So make sure that you're working with capital that is fair.

Sita: By the way, I will also point out that there's real data to back that investing in emerging managers.

Jesse: Outperformance.

Sita: Outperform, yeah. I think the statistic is somewhere around two thirds of new emerging manager funds outperform the standardized traditional funds. Obviously, they're outliers, but there's real data to back this argument. And I also will say that something that everyone says within the traditional world of venture capital is, we look for repeat founders. So that's actually a very similar analogy. But that the challenge of that is that in many ways it creates this hurdle for new types of innovators and new types of entrepreneurs to create new businesses. And if you actually go and look at some of the most interesting businesses, say for instance, the woman who's on the cover of Fortune...

Emma: Melanie Perkins.

Sita: Yeah. How many times did she get rejected by a VC?

Emma: More than a hundred.

Sita: Case in point. She has...

Emma: And she had a matching grant from the Australian government, so very similar to what you're describing.

Jesse:
And she made a bunch of money for Australia and now we're seeing so many great companies come out of there, truly. But that's what happened.

Lisa:
But that's how it happened. I love that. It throws off more cash. It raises the tide for everyone.

Sita: And she did not fit the mold. But that's the point. We're not supposed to fit the mold. The mold is there for us to break it. And I think that we have to get comfortable and normalize that idea.

Laura: I've had such firsthand experience with this, because when I started Helaina, I didn't go to business school. It was my first business. I didn't know what a VC was before starting the company. I didn't go to an Ivy League college. I didn't come from any high-powered job. I worked in the food industry. And so many people at the beginning were like, "What?" I even have actually an investor that invested in Helaina who said to me, "You're kind of a nobody," in those words. And I was like, "Well, I'm figuring it out." And he was like, "Yeah, but that's kind of like what we like about you." And it's something that you run up against and you just have to have a lot of confidence and know that this is something that probably everybody in this room, if you haven't gone through it, you will, or you have in the past. And it's part of raising money from investors is that you're the 2%, but you can do it. So you just got to keep going.

Emma: Yeah. Thank you. I want to do one last check for anything from anyone in the room. Okay. Well, we only have a couple minutes left. But Jesse, you kind of brought up this topic of changing dynamics with LPs. And I think a trend we've seen over the past maybe five years is founders taking more of an interest in where their money is coming from and who the LPs for their investors are. In this economic environment when it's very hard to raise, is that changing? Is that founder interest still there? And how does that affect all the dynamics you're describing?

Jesse: I mean, we've had that happen. We have that happen a lot. I mean, I think there's a very small handful of female investors who are focused on investing in women. And so it's like a deal flow magnet, which is great for us. But we actually had this company, Babylist, come, and this is public information, and they were doing $250 million in revenue. They'd only raised $10 million ever. They were super profitable. And they came to us and we're early-stage investors, but they said, "We actually don't need any money, but we're probably going to go public and we want to make it for women. And so what do you want? We want you in this deal." And they already had a $30 million check from Norwest Ventures and we raised an SPV for this, because it was an incredible opportunity. And honestly, I'd never seen financials like that. It was magic.

And that was one of those situations where they were thinking about it. We raised an SPV with our LPs, which is a special purpose vehicle, which is a fund for a direct deal. And they actually even wanted to know what percent were female and diverse LPs in that vehicle. And they've been so thoughtful about who they want to make money for and they're doing great. And so we're seeing that kind of thing a lot more.

Emma: Yeah. Lisa, what about you? I mean, you've seen lots of this over your career.

Lisa: Yeah, I see it even with corporates when they talk about the environmental social governance. I think the same thing applies to companies as they're building and maturing. What does that investor base look like? It's a reflection of you as a company and your board. It's also a reflection of you as a company. And so I think those things are really, really important. And we see that with the demographics now. We see that with folks that are earlier in their career. It's different. It's very, very different from how things were a few years ago. So kudos to Babylist.

Jesse: Yes, they're awesome. She's amazing. Fantastic. You should meet her.

Lisa: Those things matter.

Laura: I've recently found their products. Yeah, yeah.

Jesse: And they're investing and they're like doing some investing. Any other baby products, let me know.

Emma: If you could pick one thing to change about how investor founder relationships are set up today, what would it be?

Sita: I think, I don't know if I would say this is something we need to explicitly change, but we should always continue to optimize for, is really ensuring that you're "long-term aligned" and "long-term greedy." Because I think that having alignment not just on your values and your priorities, but also the timeline and what your projected workflow or relationship or your expected value is. That actually matters a lot. So if you were, say, long-term aligned in the next five years or 10 years, it actually makes a huge difference on how you operate your business looking backwards. And I think that's something, while as it's always changing, is never perfect with any founder or investor relationship, but once you get that, once you really have that alignment, it makes a world of a difference.

Laura: I would say from the founder perspective that don't just see the founder investor relationship as the relationship with your investors, but the relationship that you can have with any type of investor that you want to build a relationship with for whatever reason. Maybe it's a long-term relationship they'll invest later or they have a portfolio company you want to work with. Whatever it might be I think changing the relationship from the founder is spending more time and building that relationship and seeing where it goes. And for us, that's been really valuable for all kinds of things. I have investors that haven't invested in Helaina, but come to me with, "Hey, we have this company that's really interested in your technology," or whatever it might be. And that can create so much value.

Lisa: I would say nothing to change, but I would not discount the importance of having, depending on the stage of your company, an independent voice on the board or a productive advisor, like a board advisor. I think it can be invaluable from both a culture, people kind of empathy perspective, as well as just kind of playbook seen it before, what can they bring to the table.

Jesse: A hundred percent.

Emma: Yeah. Well, Jesse, if you have anything you want to add really quick.

Jesse: I mean, I agree. You need to be super aligned. I think you just need to be super aligned all along the way. And that's a hard thing to say. And then at the very end, I think if you could just guarantee that every founder was as invested as the investor, that would be really helpful, because those founders who fight tooth and nail to do something with their business and then maybe they go out of business, I will invest in again. But the founders who give up, like there's this look that I've had a couple of our founders get where it's like, "I'm done. It's over. I'm going to sell it for a dollar." And I'm like, "Don't you dare to that, that's a terrible idea." But just to know that they're in it for the long-term and you're aligned that way too.

Emma: Yeah. Well, thank you so much to our panelists. And thank you to TriNet for hosting us.

Lisa: Thank you.