Ep 51 – Navigating the New Normal in Fundraising

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About Angela Lee

Angela Lee is an award-winning professor and former Chief Innovation Officer at Columbia Business School where she teaches venture capital and leadership courses. Angela started her career in product management and then moved to consulting at McKinsey.

She has started 4 startups and is also the founder of 37 Angels, an investing network that has evaluated over 20,000 startups, invested in 100, and activates new investors through a startup investment bootcamp. She also serves as a venture partner at Fresco Capital, an early-stage venture fund that focuses on the future of work, digital health, and sustainability.

Angela has spoken at the White House and NASA and is an expert in teaching online and making learning scalable. She is a sought-after expert on CNBC, Bloomberg TV, MSNBC and Fox Business.

She was recognized by Crain’s as a Notable Women in Tech, by Inc. as one of 17 Inspiring Women to Watch, and by Entrepreneur Magazine as one of 6 Innovative Women to Watch. In 2020, she was awarded the Dean’s Award for Teaching Excellence at Columbia Business School and she was awarded the Singhvi Prize for Scholarship by the class of 2022.

Episode Highlights

1. The 4P Framework: Evaluating startups based on People, Problem, Progress, and Price.
2. How to  counterbalance perceptions of aggression when asserting your value.
3. The importance of tracking key metrics and understanding the “why” behind the numbers.
4. Strategies for leveraging networks without being perceived as pushy or aggressive.
5. How to avoid the big mistake women make: asking for too little funding, hurting valuation and long-term incentives.
6. Actionable steps to prepare for fundraising, from personal branding to financial acumen.
7. Proven techniques for negotiating fair valuations and favorable deal terms.
8. Overcoming the “personal branding” trap: When and how to showcase your strengths effectively.

Links and Resources:

• Angela Lee’s Tedx Talk
• Grammarly– A writing assistance tool that can help refine the tone and language of communications.
• 37 angels– An angel investing group founded by Angela Lee to promote diversity in startup investing and education
• 37 angels bootcamp– An investment bootcamp offered by 37 Angels to educate individuals about startup investing.
• 37 angels women– A resource on the 37 Angels website specifically for investors who fund female founders and diverse founders.
• Carta – article on gender equity gap
• NVCA Venture Monitor: A quarterly report on the state of the venture capital market.
• CrunchBase insights daily newsletter
• PitchBook– Paid resources that offer free research and daily newsletters on venture capital and startup trends.
• Traction by Gabriel Weinberg (book)- A book that explores 19 different customer acquisition channels for startups.
• Cooley GoTrends– A Tableau-powered tool by the venture law firm Cooley, providing insights into current market trends for deal terms.
• Brad Feld’s “Term Sheet Series Wrap up” – A comprehensive overview of essential terms in early-stage term sheets.
• Early Growth Financial Services: An organization that provides outsourced CFO services for startups.
• “16 Startup Metrics” by Andreessen Horowitz: A seminal guide outlining key metrics for startups to track.

Interview Transcript

Shubha K. Chakravarthy: Hello, Angela. Thank you for being on Invisible Ink today. We are so excited to have you!

Angela Lee: Thank you so much for having me!

Shubha K. Chakravarthy: I was really impressed when I first looked you up and I learned a little bit more about how you have done a lot in your life. You have been teaching at Columbia for a long time. You are the founder of 37 Angels. You have been on MSNBC, Fox, you name it. You have been on every possible channel I can think of.

So, I think you have two or three different perspectives that you bring to the table. What I’d like to do today is to dive into all of those lenses and see what we can learn from you in terms of founders, funding, and all of that good stuff. I want to jump right in. Just to start off in terms of the state of early stage funding, we all know that 2022-2023 is a very different world than 2021-2020. What are you seeing in terms of the early stage funding trends today, specifically with regard to women founders?

Angela Lee: That is a big question to start off with. But in terms of what I’m seeing, I think what people are talking the most about is certainly valuation. What we do know is that for the late stage, valuation has dropped a lot.

For the early stage, valuation hasn’t dropped nearly as much. But unfortunately, deal flow is down across the board. So, regardless of what stage, what geography, what sector, people are doing between a third and a half fewer deals than they were two years ago at this time.

Shubha K. Chakravarthy: That is a huge number. I didn’t expect that number to be so big just given that the early stage is a little bit protected from exits and all of that other stuff that happens from a market perspective. Do you have any insights or thoughts on why that might be?

Angela Lee: There are a couple of reasons why the early stage has not seen the lower valuation on the founder side. It is actually that founders are basically just not raising. They are saying that it is a really scary market, “I’m not even going to put my foot out there. I’m going to hold out and hunker down.”

I’m an investor in about 100 plus companies and I get quarterly updates from them. Two, three, four years ago, people were sitting on 12 months of cash, 18 months of cash, 24 months of cash. I’m now getting emails from founders saying, “I’m sitting on 36 months of cash because I’ve just really tightened my belt” and I’m like, “I do not even want to try to raise in this current environment.” So, I think that’s a big driver.

The second driver is the fact that venture capitalists are being a little bit more prudent about how they put capital to work and people are slowing down their check writing. The deals that are getting done, I do think are of higher quality. So, that is why they are maintaining valuation.

The other reason why we are not seeing valuation drop nearly as much is that VCs are sitting on a ton of dry powder, right? They raised a record amount of capital between 2015 and 2021, they haven’t deployed all that cash yet. So, VCs are able to keep those companies going, the ones that raised in 2021.

Then the last thing I’ll say is that one of the weird things about valuation is that it is all based on future potential. It is not based on historical performance and for late stage companies, you have to be very realistic about the exit market.

But for early stage companies, they are not going to exit for 5 or 10 years. As their exit is so far away, it is a little bit easier to say, “Well, the market is going to improve by the time they go to market.” So, I think that people can be more valuations at an early stage.

Shubha K. Chakravarthy: Which leads me to my next question, there are these ups and downs and we have seen at least a couple of these in the last couple of decades. Do you think there is a fundamental shift in terms of investors’ risk appetites for startups?

Angela Lee: It’s a change in risk appetites. But what the data very clearly shows is that what is seed has gotten later and later. So, it might surprise you to know that right now, the average seed company that goes out for fundraising is 3 years old. I think that is a really surprising number. People think about seed companies. It is that early stage seeds are little. But that is absolutely not the case. These are companies that are several years old.

I just got off of listening to a bunch of founder pitches and these are seed stage companies that have millions of dollars of revenue. So, what is seed today is so different than what was seed a decade ago.

Shubha K. Chakravarthy: And that hasn’t changed the size of the funding that they are asking for as well.

Angela Lee: Absolutely. A decade ago, raising a seed round was raising half a million or maybe a million. These days, a seed round is 1 to 5 million dollars. There is a fun term called a mango seed, because mangoes are really large seeds and it is basically so that you are raising a really large seed round, which is this kind of really silly terminology that got very popular during the late 2021 time period.

Shubha K. Chakravarthy: I learned that. I love it. That’s going to be my new thing. One last question on current trends, we know some sectors are hard. Climate is up there. Are there other sectors you are seeing picking up heat or having investor interest?

Angela Lee: I think it has taken a lot of the mind share right now, just to give you a statistic. I listened to a few of the last Y Combinator Demo Day pitches. I listened to maybe 50 pitches and 76% of them had the word “Artificial Intelligence” in them.

So, it is almost a meaningless term at this point. Everyone is just throwing into their pitch deck. I actually think that we are going to start to see a little bit of fatigue, just like we saw fatigue in the Internet of Things, just like we saw fatigue and metaverse for Web 3.

Shubha K. Chakravarthy: Got it. Anything that has especially or disproportionately fallen out of favor in terms of sectors?

Angela Lee: I think that all the things that were really hot during COVID, a lot of investors were thinking, “Well, I’ve already made a bet in that space, I’m going to move on.”

So, telemedicine and a lot of stuff around mental wellness, I think a lot of people are saying, “We have made our bet there” and they have kind of moved on.

Shubha K. Chakravarthy: Now coming to this, which leads us to a question. Where do founders look for funding, especially early stage funding? So, one of the big trends we hear a lot about on LinkedIn or what have you in terms of this 2 percent or whatever number that goes from VC funding to women founders.

What is your take on what is driving that low number? I think we have established in at least some of the papers I’ve seen in terms of bias, but what else is out there? What else are we missing in that discourse on only 2 percent goes to women?

Angela Lee: So, a lot of it is just based on who the investors are. So, if you look at who gets funding, the percentage is very closely aligned with who is writing the checks. We need more diverse venture capitalists.

The good news is that angel investing is now about 35% to 40% percent women. So, you are seeing much more diversity in angel checks. But unfortunately, angel checks can only get you so far. So, we need that diversity shift in the later stage rounds of investing.

The other thing I will say is on the founder’s side. There is a lot of chatter about women founders being more capital efficient, and that is true. The data proves that very clearly. But it is also because women founders are raising less funding, and some of that is because they are able to raise less funding.

But I find that even off the bat, they will often ask for less funding. That makes it a little bit harder to then get to your Series A and your Series B. I always tell women founders, “Bump up a little bit of what you are asking for.” I would argue it is just as hard to raise a 2 million round as it is to raise a 3 million.

Shubha K. Chakravarthy: Do you think that is hurting them disproportionately, for example, in sectors like med-tech or where you need FDA approval, and they come with big checks in terms of the amount of money you spend. Is that hurting them in terms of getting to the next level?

Angela Lee: Absolutely. If you are looking at any industry that is very capital intensive, you just have to raise enough and you can’t just raise barely enough because you need a little bit of buffer. Not everything goes perfectly as we all know.

Shubha K. Chakravarthy: If you are then a woman founder looking for early stage funding, I think what is clear is to go look for angel funding. That is obvious. I am hearing about this post funding gap where you get your first round from angels, but then you are not far enough along to your point earlier about the seed stage or how much traction you should have gained.

What are your thoughts? Are you seeing that? Where can founders, especially women, go to access that or address that post funding gap?

Angela Lee: Absolutely. So, if you look at any chart that shows percentage of funding to female founders by stage, it is a very clear and sharp drop as you get to later stages. The advice I give to women founders is that, first of all, if you think about the actual investor conversations, there is research actually out of Columbia Business School that shows that investors ask male and female founders different questions. They tend to ask male founders promotion based questions. “Tell me how you’re going to become the next unicorn.” They ask female founders prevention based questions. “How are you going to prevent Google from stealing your market share?”

So, I always tell women founders, when someone asks a prevention based question, answer it, and then answer the promotion based question they didn’t ask you. I also think that women founders need to not only build their network, but very intentionally leverage their network.

So, if I think about the emails I get on a daily basis, I get a lot more emails from women hesitantly asking me for help. Like, “Can I take you to coffee? I want to pick your brain.” I get many more emails from male founders saying, “You know these three Series B investors. Can you introduce me? Here is an email that you can write to them.” Boom.

So, be aggressive about asking for help and really leveraging your network and then make it really easy for people to help you.

Shubha K. Chakravarthy:  I take your point and I did listen to your Ted Talk before, in preparation for this, and I love the three points you made there. Anyone listening to this needs to listen to your Ted talk as well. I really liked that, but the question has a little nuance, right?

I’ve read some research that shows that the same negotiating techniques, and I would argue that this is a negotiating technique, that I come to you and say, “Hey, please introduce me to Mr. and Ms. X because they are a great investor” is received differently when a woman asks for it versus when a man asks for it.

Are you seeing that, and if so, how can a woman founder overcome that inherent bias as being perceived too aggressive?

Angela Lee: That is true that the same behavior done by a man and a woman can be perceived very differently. So, there are a couple of pieces of advice.

The first thing is that a part of me just says do it anyway, right? Because if you don’t send the emails then you are definitely not going to get the introduction. So, a part of me says to do it anyway.

That said though, if you are getting feedback that you are perceived as aggressive, pushy, there are worse words that you can be called, then what I would say is that what sometimes people talk about like power and women that are perceived as too powerful can be called all those different words.

So, think about the three V’s, Verbal, Vocal, and Visual. Verbal is what are the words that you are using? Vocal is how you sound. Then the visual is how you look. I’m obviously speaking about spoken communication. If you are getting feedback that you are being perceived as too strong, do not dial down your strength. Dial up your warmth. So, dialing up your warmth tempers a lot of strength.

This is the reason why a lot of American presidents have dogs. It is hard to take away the power of the U. S. President, but they dial up their warmth by giving them pets and taking photos with babies. This is why politicians hold babies. So, what I would say is talk to people and think about how  you can dial up your warmth across those 3 dimensions and that will temper what can be perceived as aggressive behavior.

But then part of me says, “Ignore it and do it anyway.”

Shubha K. Chakravarthy: I love it. Do you have specific tactical things that women can do that demonstrates worth while not tempering down their strength?

Angela Lee: So, one thing is replace. As opposed to, “I’m sorry. I know you’re so busy. I’m sorry to bug you”, replace it with — “Thank you for taking your time. I know how busy you are.” That could be a very small shift that both dials up your power and your warmth.

Looking at the word choice, I do really encourage you to download Grammarly. There is a free version and there is a paid version, but it will actually tell you the tone of your email. What you can do is swap out words to dial up your worth until Grammarly tells you things are a little bit warmer.

Then of course, you want to ask for feedback. Talk to five people who know you well and just lay out verbal, vocal, visual, and tell them about the warmth and the power and ask them on a scale of 1 to 10, “Where am I on these two dimensions? What can I do to dial up my warmth? What can I do to dial up my power?” A lot of women need to do that as well.

Shubha K. Chakravarthy: Fantastic. Thanks. I love those takeaways. So shifting gears slightly, one of the things I love about your work is that you founded 37 Angels, which is an angel investing group. You are one of the co-founders. I think you have been running it for 11 years now.

What prompted you to start it and what did you hope to accomplish with that effort?

Angela Lee: I started angel investing in 2008 and a couple of things happened to me as I was angel investing. The first thing that happened is that people kept asking me if I was lost, or asking me, “Where does your money come from?”

The second thing is that I kept going to events and I would write down 15 questions and I would go home and I would Google them and I would talk to people and I found out that a lot of the time the information didn’t exist or that even the experts didn’t know about them.

So, I started 37 Angels with two goals. The first is to have more people that look like me writing checks. Then the second thing is to shine a light on the black box that is startup investing and break down all these things.

It was supposed to be more of an investment club with friends and we were just going to get together and chat and we very quickly realized that there was such a demand in the marketplace that people just kept wanting to take our investment bootcamp to learn about this, which you can learn more about at 37angels.com/bootcamp.

A funny thing — just to give you a sense of how many “experts” don’t know about this space. We launched our online course in 2016 and a lot of people thought, “Oh, that is so smart that you are doing this.” The reason why we launched the online course is not because we necessarily wanted another channel.

It is because a bunch of VCs reached out to me and said, “I want to take your program because I don’t understand cap table math, but I can’t be seen in your program because I’ve been a venture capitalist for three years.” That is why we launched the online course so that people could take the course secretly.

Shubha K. Chakravarthy: I love it. This is the best story I’ve heard this month, to be honest. You have talked about what you hope to accomplish. There is more around bringing more diversity on the investor side. So, what have been your biggest learnings and what have been your biggest surprises from an investor perspective?

Angela Lee: My biggest learning is about the volume of stuff I would need to do. What I mean by that is that I originally thought that we would do an investment club for me and 10 girlfriends together. We would each bring a company and then we would invest in 1 of them.

I thought that I would look at 100 deals a year and we would invest in 5. I just didn’t realize the volume of deals that we would have to go through. We look at about 2000 companies a year to invest in 10. So, that was a huge surprise, of just how much stuff there was out there that we had to filter through.

Then, one of the biggest complaints about angel investors is that angel investors are slow. There is a lot of cat herding. I’m a former founder and really wanted to be incredibly efficient. So, we guarantee that the time period from pitch to funding is four weeks and we run a very efficient process. I think because of that we have a lot of founders saying, “You know, you are the only angel network we are pitching.” It is so because we are efficient and we feel like a fund even though it is a group of about a hundred individuals making decisions.

Shubha K. Chakravarthy: Got it. What are you learning in terms of the huge multiple of deals that you are seeing relative to what you expected, especially with regard to women founders? Are there themes or patterns that you can share that might be helpful to founders as they prepare their own journey?

Angela Lee: I think that there is an assumption that people have that women tend to start companies in certain industries. Fashion tech, retail, consumer packaged goods, that has been a little bit true, but I think not as true as the dialogue is out there. We have invested in lots of women that are running FinTech companies or B2B SaaS companies, or deep tech companies. I think there is a little bit of truth to that, but not nearly as much as people think there is.

Then, I think that we have learned a lot about what to look for in investing in the company very quickly. Another fun fact is that the average VC looks at a pitch deck for about three minutes before deciding if they are going to take a meeting. So, you have to get very good and very quick at pattern recognition.

Shubha K. Chakravarthy:  One little data point for you, I actually had a friend who applied to 37 Angels and she said it is the fastest response she ever got from any angel group. So, clearly something that you are doing is working. For those of our listeners who don’t have a clear picture, what is the process of 37 Angels? How typical is it of other similar sized angel groups?

Angela Lee: I think the process is very similar to most groups. I think what is differentiated is the speed through which we get through our process. So, our process is that a founder can apply to us or they can just email us. Then we always look for a pitch deck and we will very quickly look at a pitch deck to decide if we are going to take a meeting. We meet with about one in four companies that reach out to us.

Then, we start a 20 or 30 minute initial meeting. Sometimes we will have a second meeting to decide if there is somebody who is going to pitch. We basically have a cycle every two months. We start with about 500 inbound. We meet with about 100 or 125 of them. We pick 8 to pitch to our network.

We write diligence memos on three and we usually fund about two out of the eight. That process from one end to the other takes a month. That is pretty fast compared to what it does. So, our process is not abnormal in the sense that we are kind of filtering and doing more and more work as we get down to a smaller and smaller group. I just think we do it more efficiently than average.

Shubha K. Chakravarthy: What allows you to cut that cycle time?

Angela Lee: I think a part of it is that we have a very clear process. We have a diligence memo template. I have to review every diligence memo. I’m an excellent cat herder. I think the fact that we put very clear timelines helps. I think, if you don’t put a very clear process in place, people naturally are busy and they are going to take longer than you would want them to.

Shubha K. Chakravarthy:  Then in terms of this big fall off that happens from the pitch deck that comes in and the ones that you decide, can you just talk about what the instant top two or three factors are that make you decide either a clear yes or a clear no? What do you do about the ones that are in between?

Angela Lee: We evaluate companies using the 4P framework — People, Problem, Progress, and Price. People are of course the team. Problem is about how large is the problem and what does the competitive landscape look like? Progress is, do they have any traction? Price is, of course, the deal terms have to be fair. It is very much in that order of priority. In terms of people, green flags are relevant domain expertise. A complementary team. Then you believe that they are going to win in that space. They have that magic X factor.

Red flags would be lack of self awareness, lack of coachability, lack of knowing who your next hires are going to need to be to really build this to scale. On the problem side, we are obviously looking for a large market with an attractive competitive landscape. I would say the biggest red flag is people not being aware of their indirect competitors. Oftentimes founders are like, “We have two direct competitors.” I’m like, “Maybe you have two direct competitors, but you have about a hundred indirect competitors.” So, not knowing your indirect competitive landscape is a big mistake.

Then comes progress. We are looking for a repeatable customer acquisition process. I think sometimes founders come to us whose one video went viral. I’m like, “That is not a repeatable or sustainable customer acquisition process.” We really want something that you can go and scale. Sometimes, they will be like “All of my clients, they are my friends.” Then you probably don’t have enough friends to get to a venture backed business. So, how do you build a repeatable customer acquisition process?

Shubha K. Chakravarthy: You talked about coachability. How do you assess that when you are just looking at the pitch deck?

Angela Lee: You can’t detect coachability in the pitch deck. We will detect that from the very first meeting because oftentimes in that first meeting, we will offer feedback. I literally just got off a pitch and I asked him, “My understanding of your competitive differentiation is X. Is that right?” He said, “No, it is actually Y.”

I said, “That is not at all clear in your pitch deck. That is a great competitive differentiation. I don’t get that from your pitch deck.” He took it really well and actually tested, “What if I pitch it like this?” That shows coachability.

I’ve had that exact same conversation with a different founder and the feedback is, “You just don’t get it.” I’m like, “If I don’t get it, then how is a customer going to get it by looking at a three second Instagram ad?” So, we will test it from the very first meeting, whether or not they are coachable.

Shubha K. Chakravarthy: Do you have any comments in terms of the distribution of male versus female founders and thoughts on what you are seeing there driving?

Angela Lee: Our deal flow is one third female and two thirds male, and that is exactly where our portfolio is as well.

Shubha K. Chakravarthy: Which is pretty consistent with what you are seeing in terms of the overall angel landscape as well. Moving now specifically to funding for women, you have a lot of experience. You mentioned that you are a founder yourself. You are an angel investor. If you just had to narrow down funding challenges for women, what do you think are the top three funding challenges women founders face?

Angela Lee: I think the biggest problem is lack of access to the network right at the end of the day. Investors tend to invest in people that look like that and people tend to have networks that look a lot like them. So, when the investor base is heavily male, the women are disadvantaged because they are not in those networks as much.

The second thing is, of course, knowing how to leverage those networks without being perceived as pushy or aggressive. I would say that the third thing, which we have also already spoken a little bit about is access to later stage funding. I don’t want to say the problem isn’t all solved for early stage funding, but it is at least less acute in the early stage than it is at a later stage.

Shubha K. Chakravarthy:  I’m going to just dive into that a little bit because I’ve spoken to a few investors and I’ve also spoken to a couple of academics who study this for a living.

One of the pushbacks I’ve gotten is, “The more professional we are as investors, the more we have been trained to not look at things like homophily bias or affinity bias. What we really care about is that if you come to the table with something that makes money, I don’t care if you are a rabbit or a woman or what have you, we are going to invest.” I’d like to hear what your thoughts are on that.

Angela Lee: I think that for someone to say that “because I know that intrinsic bias exists that I am not falling prey to it” is a very silly statement to make at the end of the day. Our brains are incredibly lazy and our brains like to put labels on people and do pattern recognition at a millisecond level.

The reason is because when we were cavemen and cavewomen, when we saw a paw print in the snow, we had to immediately say, is that going to eat us or can we eat them? That is hardwired into our brains. To say that because I know that bias I can avoid it, I think it is just a very silly statement. I’m saying that even if you are aware of it, you cannot help but fall prey to it in some sense. 

Shubha K. Chakravarthy: Building on that, you shared a lot of valuable insights in terms of what we women can do. Is there any received wisdom accepted as gospel truth about women and funding that you disagree with?

Angela Lee: I disagree with the fact that women investors are more risk averse. I think that is something that is often touted and I simply disagree and I’m sure you have seen the research that shows that women investors perform better.

I don’t mean just venture investors, I mean, women hedge fund managers and across most asset classes, women fund managers outperform men. I think the idea that women don’t think big enough and that women only start lifestyle companies is also just patently untrue.

Shubha K. Chakravarthy: Is there anything else in the public discourse that you think is worth diving into deeper or exploring more so that we can shed more light or somehow change the status quo for women? So that there are more of them that get access to funding?

Angela Lee: One thing that I think is interesting is that a lot of the time we talk about the disadvantage that women don’t get funding. But what is interesting is that even the women who get funding are disadvantaged.

Carta, published something called the Gender Equity gap. We all know about the gender pay gap, but they did a really interesting study that showed that women founders also own disproportionately less of their companies than their male co-founders.

It is not just that women founders aren’t getting funding, even when they get that funding, they are disadvantaged compared to male co-founders.

Shubha K. Chakravarthy: I’m assuming what you are talking about is that they get a smaller check for a bigger share of the company at a lower valuation. That was the summary of what I read in that research.

Angela Lee: Exactly. Or if they have a male co-founder, the male co-founder gets 60% and she gets 40%.

Shubha K. Chakravarthy: How much of that are you seeing in some of the deal flow or even the other women entrepreneurs through your teaching or anything else that you are seeing?

Angela Lee: All the time. I think something that surprises people is that, obviously as an investor, I’m constantly talking to founders about valuation. I mean, I would say probably 20% of the conversations I have are, “You need to increase your valuation,” which might surprise people, but at the end of the day I’m an educator before I’m an investor and when I see somebody putting out deal terms that are going to hurt them, I will tell them. Out of that 20 % where I say that “You need to increase your valuation,” 95% of those founders are women.

Valuation is too low and that is bad for the founder, but it is also bad for the investor in the long term because if by Series C that woman founder only owns 6% of the company, she is going to be less incentivized to shoot for the moon. I have seen women founders late stage walk away, because it just isn’t worth four more years of their life. When the biggest upside is X and they gave away too much of their company, it just isn’t worth it for them to continue to run it.

Shubha K. Chakravarthy: So, clearly being informed about valuation is a very big part of negotiating a good funding deal as a founder, but if you think about it, where do I get the data? I need to go to PitchBook. I need to go to some other really expensive source because I don’t have access to friends in the industry or I simply don’t have access to that information. What actionable advice or suggestions do you have for women to get a better shot at a decent or fair valuation?

Angela Lee: So yes, PitchBook and CrunchBase are very expensive from a paid resource perspective, but both of them put out a tremendous amount of free research, and they both do quarterly reports on the state of the market.

So, one you can look for is NVCA Venture Monitor, that is a quarterly report. But I would just subscribe to PitchBook and CB Insights daily newsletter, and then you will start getting their quarterly reports, and then you will know exactly what the venture market is looking for.

On top of that, I would just make sure that you are going to demo days yourself, that you are going to pitches and you are seeing what is in the market. Have a core group of three to five investors that you are close to, who know the market, where you can ask them, “Does this feel fair? Does this not feel fair?” Talk to other founders as well, male and female. I think that these days, the data around what valuation looks like is pretty prolific and pretty available to everybody.

Shubha K. Chakravarthy: What advice would you give to women founders if you had to pick 3 or 4 actionable steps that you can take if, say, I have an idea and maybe I made progress on the product. What are the 3 or 4 actionable things I need to do that will have, like the 80-20 version of fundraising prep?

Angela Lee: So, if I go into the four Ps again, on the “People” side, I think you do need to shout from the rooftops why you are awesome. That can’t be something that you are afraid of because in early stage investing, we are primarily investing in the team.

So, you do have to say why you are awesome and if that is incredibly difficult for you, get some coaching or you can have two founders. That is on the “People” side.

The “Problem” side, you need to get to a really large market size. At the end of the day, angels and VCs need large exits to support their funding economics. So, you need to make us believe that this can get to a hundred million dollars in revenue or half a billion dollars revenue. Honestly, if you can’t get to those numbers, it probably isn’t a venture backable business and you should seek alternative forms of funding.

Then on the “Progress” side, again, we are looking for that repeatable acquisition model. We are looking for people who I think are willing to run a lot of experiments. This is not necessarily true of more female founders or male founders, but I often find that people tend to do customer acquisition through the channels that they know. Once one is working, they are like, “Okay, I’m good. I’m going to keep doing direct email.” Try five different customer acquisition channels, try influencer marketing, try search engine optimization.

There is a great book called Traction by Gabriel Weinberg, where he walks through the 19 different customer acquisition channels. Go buy that book and just make sure you are trying a few different channels because right now it is hard to get consumer eyeballs to pay attention to whatever it is that you are looking at. You often have to try different things and we are looking for founders who are willing to run a lot of fast failing experiments.

Shubha K. Chakravarthy: I really like what you said about you having to toot your own horn a little bit. Clearly there is stuff you are talking about in the pitch or in the conversations with the potential investor where you can bring that across. Is there something that you can do before you start your fundraising to lift up your profile? I hate to use the word personal branding, but is that effective and how should they do it, if it is effective?

Angela Lee: I think that from a social media perspective, if you are not already tweeting and doing all that kind of stuff, I wouldn’t, obviously you need to — from a company perspective, be active on social media to some degree, but as an individual, if you don’t have a big personal brand, I personally don’t think that is that big of a deal. It is not something that we spend a lot of time diligencing, but we are going to do reference checks.

We are going to want to know, “How do you handle obstacles? Are you gritty? Have you recovered from failure in the past? Are you a good leader? Are you a good seller?” All that kind of stuff. I also encourage people to get coaching. I hired my first vocal coach in 2008 because people’s impressions are 90% built off of how we look and how we sound and not actually off of the words that we are saying. So, I would say taking an hour on refining the words in your pitch deck and instead spending an hour with a pitch coach where they can be like, “You are speaking too quickly,” or “You are ending your sentences with a question mark.” That is time well spent.

Shubha K. Chakravarthy: One last question on the four P’s that you talked about in terms of preparing. You talked about the price and the deal terms are obviously, it is not a question of what you are buying. It is a question of what price women typically, at least in my experience, haven’t had the exposure to understanding valuation is clearly a big piece, but then there are other pieces of the term sheet where you need to understand.

So, what recommendations do you have for women to get up to speed and become familiar, short of hiring an expensive lawyer, which you should anyway, when you are getting close to getting a check? Do you have any specific pieces of advice?

Angela Lee: First, I would give a shout out to the 37 Angels Bootcamp. A couple of additional ones for you. One is, Brad Feld wrote a really good article called, “Term Sheet Series Wrap Up.” It is a really good overview of all the terms that matter on an early stage term sheet and what each of them mean. I would start there.

Another resource for you is Cooley GoTrends. Cooley is a venture law firm, and they have a Tableau power tool that tells you right now, how many people are giving away liquidation preferences and how many people are giving away different terms. So, the Bradford articles are like, “Here is what the terms mean,” but then the Cooley resource tells you, “Here is what the market looks like right now.”

Shubha K. Chakravarthy: We will put those in the listening notes. Thanks for those.

You talked about having some amount of sophistication and financial knowledge about all of these things. That brings us to the topic of acumen and business financial and strategic acumen, especially for the founder, because as you said, that is most of what you are writing the check based off of. How important is their business strategic and financial acumen when you as an investor evaluate a deal?

Angela Lee: I don’t think that everyone on the team needs to have it. I think you need to have somebody on the team who is senior who can guide you to just make smart financial decisions around taking out debt or handling accounts payables and accounts receivables. What do you think is a smart way to manage revenues and expenses? How do you build a P&L report? So, I do think you need to have someone on the team, but I don’t think that everyone on the team has to have it.

That is a pretty easy skill set to hire in. There is an organization called Early Growth Financial Services that does outsourced CFO work. I think that it is important that someone on the team has it, but not everybody needs to have it on the team.

Shubha K. Chakravarthy: Then there are things like market understanding and your go to market strategy and is there a channel conflict and those more second order or nuanced in strategic dimensions also enter into the picture when you are evaluating what they are doing. I’m just curious, either subjectively or objectively when you are looking at a deal.

Angela Lee: What I tend to do is, any number on their pitch deck or any number that they mentioned, I’ll ask them two or three additional questions behind that number.

I again looked at a pitch deck this morning and it said that they have 12% client churn, which means that 12 percent of their clients have left in the last year. So, my first question is, “Well, why have they left you?” Then the next question will be, “What have you changed about your product or your onboarding process or something to reduce that churn? What are you planning to do going forward that you have not yet had a chance to implement?”

I don’t know that you need business acumen necessarily to answer those questions, but you need a kind of intellectual curiosity. You need to be somebody who wants to understand the numbers and I find that if there is a number and I ask them two or three questions, and the answer is kind of consistently, “I don’t know,” or “I didn’t bother to check” then you are not looking underneath the hood of your company and you are looking at things at a surface level and you are not going to learn the nuances of what is really going to make this company successful.

Shubha K. Chakravarthy: I love that approach. Flipping that to the other side, I’m a founder and I want to get as deep as possible under the hood. What is the actionable recommendation that you would give to make this a part of my MO, so to speak, so that I become familiar with it and I get comfortable with this process?

Angela Lee: The first thing I would say is to track all the numbers that you can. If you are doing a retail brand, what percentage of your revenue is coming from different channels? What percentage of your customers are coming from different channels? Do people like your product? Capture all the normal metrics. And by the way, another good resource is 16 Startup Metrics. It was written by Andreessen a number of years ago, but it still very much holds up. If nothing else, then start by tracking those 16 metrics.

Then for every one of those metrics, basically ask the question, “Why is that number where it is? Is that number good or bad? How might I improve that number?” I would argue, if you ask those three questions about every one of those metrics, that would be enough to be like, “Okay, I understand the numbers. I really understand what is driving the success or lack of success in my company.

Shubha K. Chakravarthy: I hate to ask this unpopular question. Do you see a difference based on gender in terms of founders who have that grasp and those who don’t have that grasp? Is there something we as women founders can do to improve?

Angela Lee: I actually find that women founders know their numbers better. The reason why I think that is so is because women founders are held to a higher bar. There is a tremendous amount of data that shows around promotions, that women are promoted based off of performance and men are promoted based off of potential. I think because of that, women founders, women employees, and women business leaders often have to prove themselves before they are given the chance to go do something at the next level.

I think because we have a good reputation, we have good deal flow, I think that the founders who are pitching us, and especially if we are talking to them, they are already in that top 25 percent of the deals that we are looking at. I think by definition, they are going to have already proven themselves. So, we actually find that the women founders that pitch, know their numbers better because they know they have to.

Shubha K. Chakravarthy: Understood. What I’m taking away is that you started the 16 metrics, and then getting the habit of being as uncomfortable as it is of getting more and more familiar and diving deeper and deeper into it. So, coming back to kind of close the loop in terms of women investing in other women, I just want to delve a little bit deeper on that. Early on, you mentioned very clearly that diversity on the investing side is really important to improve diversity on the founder side.

I get that, but there is also a part of me that says, “We don’t need to have more women to be investing in other women.” My analytical brain says it makes the homophily bias, right? I get that. I’m not disagreeing with that. The truth is that the majority of investment dollars are controlled by men, whether we like it or not, that is a reality. I believe that if you are starting good ventures, whether you are a man, woman, whatever it is, you need to be able to access investment dollars, whether they are controlled by men or women, maybe it’s idealistic.

The question is, “What do we need to do as founders or even at a more holistic level or systemic level to get more mainstream investors, that is, male investors to understand the value of women founded ventures, especially if the problem is not transparent to them?”

Angela Lee: I think it is simply that LPs have to demand it. As a venture capitalist, you raise money from limited partners and they are how you raise your hundred million dollar venture capital fund. I think that you really need to push it from that angle and what is good is that limited partners and investors and funds are starting to demand these things. They are looking for equality in the portfolio. They are also looking for things like sustainability and racial equality as well. To me, that is the greatest source of influence on a VC’s behavior is their investors. I think that I do a lot of LP education and talking to them about why this is so important.

I think secondly, you have to prove the case from an economic perspective. We cannot have people investing in women because it is the right thing to do, or the socially conscious thing to do. You have to be doing it because it is the smart thing to do financially.

We do know that women are more capital efficient. Women exit quicker. All these things like showing the economic case of why this is so important to do. Also, frankly, you will have a diversity of ideas that you are investing in. That is also good because diversification works very much in this asset class. So, I think those are the two things that really push for it on the LP side, and then really make sure that men and women understand the economic benefit in investing in a diverse portfolio.

Shubha K. Chakravarthy: Absolutely. From an LP side, what have you found most impactful in moving the dial to say, “Okay, we are going to ask for this.” What actionable initiatives or efforts are you seeing as a result of that?

Angela Lee: A lot of the conversations I have with limited partners is, “Here is how you should be evaluating VCs that come to you to pitch for funding.” I give them a set of questions to ask, and a bunch of them are related to diversity. “What is the diversity of your portfolio? What is the diversity of your deal flow?” If they don’t know, it means they don’t care. I would argue half of all funds, we are not even tracking that. That is kind of step one. Do they even track these things? Do those numbers reflect how you want your money to be invested? Then ask them, “How do they blind themselves to bias in their process?”

Another fun study I’ll share, which I think a lot of people have probably heard at this point, is that orchestras are traditionally very male dominated. What they started doing is they started literally putting up a curtain between the people who were auditioning to be the orchestra and the people who were listening to them. By doing that, they increased the number of women that got into orchestras by threefold. Then they went one step further and they said, “Take off your shoes.” The reason why is because when women walk across the stage, you can tell what heels sound like, and women have lighter treads.

So, even that was an unconscious bias. By removing the shoes, even more women got invited into the orchestra. It is not about teaching people about unconscious bias, “Okay, now I’m not going to have it.” It is very much about how you blind your process to bias.

Shubha K. Chakravarthy: I love this because I was talking to a professor, an academic, just a couple of days ago, he had done a study that had the exact same scientific idea. This was a tech transfer research study. He sent 50 of them to an investor with a male name for a founder and 50 of them to a female. He said there was a significant bias in terms of not licensing the technology back to the founder or the inventor for the women relative to the men.

So, my question to you is, given that so much of it is based on the founder, given that so much of the investment decision rides on the personality, how do you blind the bias in this situation?

Angela Lee: First of all, there are funds that specifically do that. They actually will take in the kind of pitch deck and they will remove the demographic information. It is very much the minority. You can’t only pitch those funds. I do know some people who don’t have the founder’s photo in the pitch deck and they will do just the first initial with the last name. I don’t know that I necessarily recommend it because investors also tend to look you up on LinkedIn and you can’t without a first name, but I know quite a few founders who’ve done that successfully.

Then at the end of the day, I think that you have to again, lean into your network because something like 80% of the deals that get done in venture capital are through a referral. So, I keep going back to leverage your networks and they will help you get through that initial hump of at least getting a meeting.

Shubha K. Chakravarthy:  Then the 2nd lever that you mentioned in terms of diversity and getting more women funded was to make the economic case. I completely agree with you. There is a systemic solution, which will be whatever the case might be. The recent California law was a step in the right direction, but as an individual founder what can I do to demonstrate that economic argument to you as an investor?

Angela Lee: One thing I will say is that I have noticed an increasing number of outbound emails to me that say, “I’m a woman founder or I’m a founder of color” and I would encourage you to not lead with that. I think that it shouldn’t be the most interesting and most compelling part of your pitch and you want to lead with the most interesting and compelling part of your pitch. Lead with strength, lead with numbers and be very direct in saying, “I want to pitch you.”

What I would do is again, go back to that trusted board of advisors and say, “Here are the seven bullet points I could include in the email. What are the three that are going to be the most compelling to a venture capitalist?” I think that will help you know how to put your best foot forward, and then I would say, do your research as well. Investors like it when founders have done a little bit of research.

If you are able to put in your email, “I think that this company is synergistic to another company in your portfolio,” or “I know you invest in this space,” or “You just said this interesting thing in TechCrunch about this space and we are very much building on that trend,” I think showing that you’ve done your research on the investor is also helpful.

Shubha K. Chakravarthy: Right. On that topic, do you have any hacks to make that process more efficient just because you have to take a multiple number of meetings, the reality as a woman founder. So, each one of these research efforts takes X amount of time and you only have X hours in a day.

Angela Lee: It’s true that it takes time, but it is much better to send out 100 thoughtful emails than 200 mass emails that are going to give you a much lower kind of response rate. So I actually think that it’s time well spent. It takes three to six months to raise a round. You’re going to meet with probably 50 to 100 investors. That is just the reality of raising a round.

Shubha K. Chakravarthy: It also speaks to me that you need to be more careful upstream in terms of a similar vetting process that you do with founders doing the flip side in terms of funders to say, “Don’t even.” If they don’t make that first cut or don’t have a single woman founder in their portfolio, whatever the case might be, what are your thoughts on having that vetting process as a founder?

Angela Lee: Unfortunately, the process to figure out what percentage of their portfolio is female is a pretty long process. I don’t know if that is a good use of their time.

Shubha K. Chakravarthy: What would you do? What would you counsel a woman founder to do to make that pipeline processing better?

Angela Lee: Look at the team page. Do they have a female investor? Not if they have a female person on their team but if they have a female investor on their team? If they do, then you should be fine.

Shubha K. Chakravarthy: Then is it like a tiered process where you say, “I’ve got these 25-30 or 50 investors that I’m going to go after and I’m going to prioritize the ones that have a female investor?

Angela Lee: I don’t know that I would necessarily do that. I think that you will unfortunately then cut off a pretty large percentage of VCs. I don’t think that you should not pitch them.

I think, first of all you should be reaching out to probably a couple hundred investors, not 30-40. But to look at a team page doesn’t actually take that much time. I’ll also mention one of the resources. If you go to 37angels.com/women, we have a resource on our website that is specifically for folks who only fund female founders and diverse founders.

Shubha K. Chakravarthy: Got it. You have covered a lot of ground in 50 minutes. I really appreciate that but I leave you with one thing. Is there one thing that I wish you wished I’d asked you, but I didn’t?

Angela Lee: No, I think you have actually asked me of all the questions I would have asked. I just really want to echo the point of leveraging your network, asking for help, and then making it really easy for people to help you.

Shubha K. Chakravarthy: Fantastic. Thank you so much, Angela. This has been an amazing conversation. I really appreciate your generosity in taking the time.

Angela Lee: Thank you so much. Great chatting with you!