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About Gwen C. Edwards
Gwen C. Edwards is a seasoned entrepreneur, investor, and innovator with over 30 years of experience in high technology. Her career began at Stanford Research Institute, where she developed a passion for commercializing innovation. She has held executive roles at SBC, Nortel Networks, and Bell Canada, demonstrating exceptional leadership and business acumen. Notably, Gwen grew Pacific Bell Network Integration and Business Internet Services from $50M to $400M in just 24 months.
Since 2001, she has advised venture-backed companies, focusing on capital formation, market strategies, and customer advocacy. Gwen holds an MBA from Pepperdine University and an MA in Communications from California State University.
She serves on the advisory board of Astia, an organization dedicated to the success of women entrepreneurs, and co-leads Golden Seeds San Francisco, an angel investment network.
Additionally, she is a board member of the National Health Foundation. Gwen’s career reflects a blend of innovation, leadership, and a commitment to fostering entrepreneurial success.
Episode Highlights
- The one thing founders can never lose sight of throughout the startup journey
- How to select the right idea for your startup
- The right way to get market feedback for your idea
- How to nail your startup’s business model
- How to establish strong customer relationships even when you’re not selling directly to them
- Secrets of scaling your startup the right way
- How to prepare for a smooth investor due diligence process
- Valuations, cap tables and other potential pitfalls, and how to tackle them effectively
- How to demonstrate founder fit to investors
- An investor’s wisdom for women founders
- How to leverage your advantage as a woman founder in STEM
Links and Resources:
- Angel Resource Institute– The Angel Resource Institute, formerly the Angel Capital Education Foundation, is a United States nonprofit organization that conducts research and provides education on angel investing.
- Stanford Research Institute– It is a United States nonprofit scientific research institute that conducts client-sponsored research and development for government agencies, commercial businesses, and private foundations.
- Golden Seeds– Golden Seeds is an angel investment firm dedicated to pursuing positive investment returns through the empowerment of women entrepreneurs.
Interview Transcript
Gwen Edwards: Thank you. It’s great to be here. I love the name of your podcast.
Shubha Chakravarthy: Gwen, we are so happy to have you here today with us on Invisible Ink.
Gwen Edwards: Thank you. Thank you very much. I’m just so excited to get into this conversation.
Key Insights on Innovation
Shubha Chakravarthy: So I was looking at your background and you’ve had such a unique and rich set of experiences across startups, innovation, and now funding new founders.
What’s the one most revealing insight you got across all of these experiences about the world of startups?
Gwen Edwards: Wow, that is an interesting question.
I have tons of experience in the innovation space and I think the biggest most interesting distinction for me was realizing that being a startup is definitely about innovation but the huge difference between just innovation outside of the startup environment is about the fact that when you’re out there away from a corporation or an innovation center or hub or anything, you are on your own, you are flying without a net.
I had no idea what that would be like and how different it is. It’s completely different from being an intrapreneur and somebody that’s skilled, trained, great at innovation. It comes to them naturally.
In my case, I started out at Stanford Research Institute doing cool things. I didn’t think about business. I didn’t know what I was going to do when I grew up. I just loved the exploration and I discovered over time that I was such an innovator.
And frankly I think executive recruiters thought the same thing. I was constantly getting calls to go run a startup during the nineties in particular, when it was boom, boom, boom later on.
The assumption is those are all transferable skills. And maybe the only thing really transferable is your Rolodex. But there’s an assumption that you learn how to be a good operator. You manage innovation and you can go do it.
But what I completely underestimated, I believe, is that when you’re out in the world of startups without any kind of a net underneath you, nobody really cares about you and your success at all, except your friends and family, except an investor cares.
And even that investor relationship, which might start out early as an angel over time 5-10 years – they’re still there but you might not have time to pay much attention to them.
We always hope you will but the reality is even those relationships that are critical at each stage of your development as a CEO, they don’t last.
You have a lead for the seed round. Then you have a lead investor for the series A, then you have a different lead investor for the series B, another for the series C. Each one has their own desires. Obviously, they all want you to be successful but they have their nuances, preferences, their push on different from different dimensions.
And over time those relationships have to shift. You contrast that with an environment where you’re building something for an enterprise. You’re starting a new initiative for a corporation and you’re baked in to their strategy. You’re bringing value on day one. If you could execute, you’re going to get more money thrown at you to deliver.
I came from that kind of environment which is very different. You can actually succeed, can flawlessly execute as an entrepreneur and still face a moment in time where the market gets shifted.
“The money’s dried up. We can’t quite fund you as much as we thought we could.” And that’s an example of risks that you could never predict. That’s a long answer to your question, but it’s just this whole world of startups is so different. And I just think it’s important to understand innovation in that context.
Raising Money Is A Constant
Shubha Chakravarthy: If you had to give one takeaway from this learning of how different it is. What’s the one tip that you would give a startup founder knowing of all that you know now?
Gwen Edwards: Never underestimate how hard it is to raise money. And you’ll have to constantly be doing it. I was even told way back when I took the helm of a company. I was told “plan to spend the first 12 hours of your day running the company and your second 12 hours of the day raising money”.
And I remember thinking, how could that possibly be the case? Because you raise your money then you have time to run the company. But no, you’re constantly on the lookout. And building those relationships, operating and executing them.
Selecting the Right Ideas
Shubha Chakravarthy: That brings out the question of what are you working on? What is the subject of innovation? And I want to hear your thoughts on, first of all, how do you make the right investments in the right ideas?
Based on your experience, what have you seen effective founders do in terms of selecting the right ideas to work on? How do they know which is the wheat and what is the chaff and which ones they should stay away from?
Gwen Edwards: Yeah. I’m not sure when I think about that question, I’m not sure the entrepreneur really does that weeding and sifting. I think they have to refine at every step.
I mean I’ve definitely seen entrepreneurs at hackathons, kind of playing around, experimenting but I think reflecting back on successful entrepreneurs, I think that for the most part they are pulled and compelled to do something. They are driven, they are drawn. It has to be for more than, “I’d like to be an entrepreneur. This will be fun. I’ll make some quick money and go do something else”.
Because it’s so hard, I think they really have to be just driven by ideally a personal experience, something they know in their gut or their bones. Either from their experience in their academic research, life experience, or combination of those two things.
And then if they’re driven, for example they really want to solve for ovarian cancer or osteoporosis and there’s some really interesting things in the healthcare field that people you know, have experiences driving their interest.
Or they really know certain aspects of enterprise software challenges. And they just know – they don’t have to question. They just know what the need is.
That could be very niche like to people outside of that domain but they know exactly what they’re going to do and how, but then it’s a question of refining that knowledge.
Probably really good examples of where there’s often a huge gap between somebody believing they know what they’re going to do and what they actually do, are in some of the medical device examples.
And where you see and appreciate brilliant MD PhDs and they’ve decided to even leave their practice because they’re so passionate about fixing something in healthcare or developing a device.
Refining Ideas Through Customer Feedback
Gwen Edwards: I’ve seen this fascinating process where something will be pitched at day one of a six to eight week customer discovery process. And at the end of that six weeks they’ll come forward and say, “I had no idea that I’d be presenting this six weeks ago”.
And what was the difference? Talking to potential customers, getting outside of themselves, out of their environment, their belief structure. Founders talk to themselves. We all do. And going out and talking to real clinicians in different settings, patients in different settings.
I think it’s that refinement process that and if people are somewhat introverted, they don’t like it. It’s like, “I don’t need to do that. No, I’ve just got to go raise my money. I don’t need to talk to more customers. They’re confusing me. No, I got to finish my TAM, SAM and SOM or whatever you know”.
So I think it’s just dynamic that refines the idea and that dynamic never stops even though you’re at a point where you’ve frozen your design specs, executing and not dreaming of the next thing anymore.
But in the back of your mind you’re constantly alert to what might the next gen look like or next release or just sensing something new.
It’s that ability to operate with a bifocal lens, paying attention and then looking down the road. Looking down the road also will help keep your radar alert for potential exits, strategic partners, acquirers which you don’t worry about when you’re an intrapreneur versus an entrepreneur.
Shubha Chakravarthy: That’s really well said. And the one thing that I kind of picked up was there’s this idea of a zip code. That’s what I’m passionate about. Let’s say it’s something in healthcare or climate or what have you.
And then your real filtering process comes in taking the market as your test and then defining and nudging your idea based on what you hear. Is that a fair characterization of what you just said?
Gwen Edwards: Yeah, absolutely. I don’t think you can start that process too soon. You don’t have to wait for a perfect MVP, even a rough one. I mean, there’s interesting evidence that people, customers, even friends are more willing to give you honest feedback if they don’t think you’ve yet invested too much of your lifetime and money into something.
You don’t want to tell someone their baby’s ugly when they’ve already given birth but if you can think of some analogy. It’s just that you want them to say, do you think if I did this and this, would it improve this? Or what do you think of this? Give me your honest feedback.
Shubha Chakravarthy: I haven’t bought the dress. Do you think I should buy it?
Gwen Edwards: Right. In fact, one of the things I love to encourage entrepreneurs to do. I think this is so powerful is to talk to potential customers. Take CIOs as an example, or chief strategist, anybody who’s in a buying decision at an enterprise. These ultimate customers are so used to being pitched that if they think they’re going to get a pitch.
You know, you walk in the room virtual or not and they’re like this – I don’t know if you could see how my arms are folded but it’s like “Okay, what you got?” They’re defensive. They’re ready to criticize and show that you’re not as smart as you think you are because you’re in there saying “I’ve got this greatest thing since sliced bread.” “Oh really? But you haven’t seen my environment”.
Versus going in at a time when you’re pretty confident. You’re going to move forward. You haven’t invested a lot yet and getting in to see the right kind of buyer and customer when you’re able to say, “I’m about to make a major decision in my life. I’m about to raise a significant amount of money or whatever it is. And I would really love your advice. I’m not in your shoes. You run this mega million dollar division or billion dollar division. Would you be willing to spend 30 minutes with me?” People do things like that. That customer is going to love to be open and love to tell you about their biggest problem.
“It’s interesting you’re solving for that but really we have a bigger problem.”
And to be in a position of saying, “Wow, What’s that?” “Oh, let me noodle on that”. Think about it. And then you have built and opened a door that you’ll be able to continue to go back to because that person’s helping you build as well as define.
And who loves nothing more than to do that and have people that are innovators actually listen to them.
Shubha Chakravarthy: Do you think that really happens that you would have an enterprise customer who would be willing to talk to you and say, “I’m willing to talk to you for 30 minutes and just give you my advice?” Is that realistic today too?
Gwen Edwards: Yep.
Shubha Chakravarthy: And is there a right way to do it versus the wrong way even if you don’t have the contacts and the networks?
Gwen Edwards: I think you need the contacts and the networks. It’s a question of working your way to finding those. People that have been in particular domains have those connections. I think it’s about saying, “who should I talk to, to get their input? . Not to pitch the sale – but to get their input.”
I used to love to do that in my own experience and background. It was natural for me. But it was natural in the context when we evolved this product to the next level.
I was always in roles where I would be bringing in like presidents, CIOs through conversations and built lifelong friendships which is kind of interesting. But, yeah, people love that.
Shubha Chakravarthy: A couple of questions on that.
How long is reasonable given that I’m funding myself in most cases, two months that I have to do this or three months is the answer.
What’s a good target for me to set so I forced myself to get out there especially if I’m an introvert?
Gwen Edwards: I would say, just from experience and knowledge of how incubators are operating as well. I would say six to eight weeks at a minimum you have to keep doing that.
Let’s say you’re trying to get feedback on an early version of a product and you get that feedback. I would say you probably know when you have enough or when you start to get consistency.
If you’re getting way all over the map responses, then you probably haven’t identified the right people to talk to in a specific enough way in a classic product market fit of people you’re talking to, maybe that needs to be differentiated a bit more.
Giving that more depth of understanding and then finding more people like those so you’re really understanding the nature of the role and responsibility of that person.
And then knowing that some people are natural early adopters and they’re going to be more eager and others might buy that in a hundred years. It’s definitely not something you do in two weeks and then freeze your design.
Understanding Business Models
Shubha Chakravarthy: I think that everything that you’ve talked to resonated a lot particularly from the point of view that- is there a need in the market which is the single biggest question.
But then there’s another question, which is, it might be needed in the market but is it needed in the market at a price that I can actually sell at and make money off of?
Which brings us to the question of the business model. This is something that I have seen and sure you’ve also seen founders struggle with, especially when it’s purpose driven or these cure cancer types of things.
What are the common pitfalls you see in the founders from a business model perspective and what counsel would you give them for them to avoid these kinds of business model mistakes?
Gwen Edwards: I think it’s really about a bunch of things. It’s figuring out what you think somebody would pay that doesn’t have to come from asking someone. They often won’t really know but it certainly can come from guesstimating, comparables and alternatives.
And sometimes the biggest competition is just status quo, getting people to move or to try something new. What I find more challenging is developing an understanding of the cost of goods.
Those are concrete things that people can figure out but trying to appreciate what margins are going to need to be financially viable. The next part of that is in their go to market strategy do they have to use expensive channels to get to these customers?
A classic challenge with consumer products is when you go through retail, there’s a huge part of the revenue that you give away. And so people try to come up with alternatives like packages and monthly shipments.
I think it’s recognizing that you’ve got the end customer’s willingness to pay and then got all these elements that are in the path before getting there. Like consumer products, one reason why investors and companies do well when they have a monthly subscription or something that’s sticky or a product with the razor blades for example.
You’ve got a product but then you have a monthly service or subscription. Something that causes that customer to remember you, to think about you, be interacting in some way with your product or service.
Sometimes you can build really successful companies where the product has very little margin but there’s a huge margin on all the add ons. That’s kind of fun.
In my experience, probably the most challenging are companies in material science. When you think about why, I remember learning those are tough – the market is tough. And I thought, here’s this great innovative science.
But I would say the conclusion is the further you are away from the end customer the harder it is to build that knowledge base. And then how do you iterate? How do you know you’re on the right path? So, like in a material science company you’ll have to pick your lane, your domain with this fundamental material that could be transformative to five different industries.
How do you pick and how do you learn the elements of supply chain and distribution within that vertical? Where are you in the product ? Are you an element? Are you a science piece that’s really game changing? Are you the full product?
Software is obviously easier to make mistakes and fix. We all like software for that reason. You don’t have to return the goods and have inventory and there’s all kinds of benefits to software.
It used to be the case that angels predominantly invested in software companies. Now we’ve got hardware with software and all kinds of nuances but I think it’s that flexibility that makes it less risky.
Shubha Chakravarthy: I just love the insight that you brought into it and particularly a couple of angles that I hadn’t thought of prior to this conversation is obviously software was attractive or virtual digital products are attractive because of the margins but you brought the second issue of distance from the customer.
The chances are higher from a hard goods perspective that you’re going to need some intermediaries. That takes off chunks of value because you repay them to play a part but it also creates a distance from the customer that I hadn’t thought about, which was very insightful. That is why hard goods are probably less attractive to investors than software based businesses. That was pretty insightful, at least to me. Thank you for sharing.
Gwen Edwards: Welcome. It’s interesting. You almost need to find it. It’s hard for early stage but ideally it’s a rule of thumb.
Importance of Knowing Your Customer
Gwen Edwards: You also never want to lose touch with the actual end customer. Some large companies like Cisco are really good at that, they’ll get distributors to distribute their products but they will always own that relationship.
They’ll have the data to know where their products are registered on whose systems and they might have a hundred distributors pushing their products but they are never in a position where they’re behind and dependent on a distributor’s performance.
Shubha Chakravarthy: I think you nailed a really important point. Let me push you a little bit on that. Let’s say I’m Cisco, I’ve got the resources. I can actually demand that I know who my customers are. But if I’m a smaller startup. Amazon’s a bad example but it’s a classic example. I’m selling my stuff on Amazon. There’s no way I’m going to know who my customers are.
The only other way I could do it is, for example, by selling a refrigerator. You have to register with me because I’m going to have to service it. I have a legitimate reason to ask for the end user.
But if you don’t have that, have you seen startups or companies using methods to get that control of the end customer when they are actually reliant on distributors?
Gwen Edwards: Yes, but it’s tricky. What it often entails is expanding the additional money to have some direct sales. And it’s not a direct sales force but think about a few key people that are out learning, knowing, working with the customers directly.
Let’s say you wanted to build a product to compete with Cisco and their distributors. You would be finding that early customer and talking to them that you’d like to explore this idea with them. Are they having these kinds of issues?
When you come up with the solutions, going directly to those customers to make the sales, you don’t have to have very many. And those big channels or the Cisco’s of the world will very soon find out about you. That you’re out there in their market. And they either might buy you or kill you, right? But I think it’s that cat and mouse.
It’s like I want to know what the mice really like to eat. And I’m going to build my own mouse trap and then I’ll really know.
Shubha Chakravarthy: But it’s a double edged sword, right? On the one hand you don’t want the Cisco’s of the world to find you because they might kill you.
I think it’s also bringing up not to digress too far down the path but to me, at least it presents an interesting strategy question in terms of how far do you go. And do you actually make channel choices that you want to go direct to them?
You want to stay in below the radar and just reach these customers, which has implications on your volume, your scale, all of that good stuff?
Or do you want to try to go big and figure out how you’re going to survive against the Goliaths of the world, such as the Cisco’s? But this interesting question, I think as a founder you have to consider.
Strategies for Scaling Your Business
Shubha Chakravarthy: Which brings me the question of scale. Obviously there’s a question of how big do you want to get and in what period of time, and I think many founders, at least from the ones that I talked to, may intellectually get it.
They haven’t internalized the concept that this question of scale and growth are very intricately intertwined with how you’re going to fund and how you’re going to grow your business.
So what have you seen in terms of founders who do this well? Should you be thinking about scale at the get go? How should you be thinking about scale and what are some sound practices for you to think about relative to the scale of where you want to get to?
Gwen Edwards: I’m going to go back to this bifocal thinking and I’ll give you my bias which is not everybody’s bias. I love to see companies figure out what it’s going to take to get to the cash flow breakeven, not profitability. I don’t want you to make a profit. Anything that’s beyond what you need. Invest it back into the company. But I love to see companies be able to reach a point of optionality.
I don’t know if you’ve heard people talk about that but where there’s the notion is in theory, you don’t have to raise more money. You can survive or may want to raise more money to continue to grow or to scale. There’s usually never enough capital. You always could do more with more even though we as entrepreneurs had to be able to gauge what am I giving up for that capital. How expensive is it in a down market?
You might want to hunker down a little bit and if you’re cash flow positive just keep going but not raise to scale until you can get your money at a better price. Or unless you think there’s a competitor out there that may come in and take more market share in a down market. You make the judgment decision to take more money even though it may be expensive but at least you’re in a good position.
If you’re burning cash and you’ve got a runway of even six months that goes quickly then you’re going to get more stressed and need the money. You just end up paying a big premium for not having raised enough in a different value inflection points.
I think about scale as something that conceptually you have to understand. At what volume level do your unit costs go down and at what point do you have the benefits of scale of virality perhaps? Like the scale that comes from AR. It’s a renewal.
How do you make sure the customers are happy and focused on that? But that’s very different than going after new customers from a cost perspective. It’s always harder to get new than to retain old and existing. I think having the ability to be aware of the power of scale and what does that do to your business is very important. How do you have that compounding effect?
Then you would be able to have a good, exciting business model and plan that could be executed. You’re thinking through to execute it. And then I would pull back and say, that’s the goal. How do I get to where I’m in control of that, ideally?
Shubha Chakravarthy: There’s definitely a reward for capital efficiency. Women are better off already because they tend to run more capital lean businesses. But is there also a bias that pushes you towards lower capital intensity businesses?
All else equal, you can always run a leaner shop for a given capital requirement than otherwise. But my question to you is, should that be pushing me towards a less capital intensive business to start with because my chances of hitting cash break even sooner are high? Just curious about your thoughts.
Gender Differences Among Investors
Gwen Edwards: Yeah, there is an interesting gender issue, I don’t know if I should call it bias or not. It’s actually not common knowledge but we know that from different studies that women do tend to ask more conservative questions.
We’re asking questions that mitigate risk and how certain are you that you can achieve those numbers. And men have a tendency to ask more aspirational questions. That’s really interesting. A man might ask how big could it be? Well, what if you had 50 million? What if you’re asking for 10? What if you had 20? It’s that desire to push to grow.
I think there is a gender difference and being aware of that gender difference is really important for both women and men. I’ve caught myself a few times and it’s kind of fun because then I can say, “Oh wait, let me stop asking female questions”. How big could this be? You kind of play with the model and it’s quite fun and different.
Shubha Chakravarthy: I was just going to say that I’ve definitely read about the prevention and promotion bias in terms of the founder’s gender. And it sounds to me like you’re bringing in the investor point of view.
Gwen Edwards: Yes. It’s there with the investor too.
Shubha Chakravarthy: Fascinating, It brings a whole other question in terms of women funding women but as attractive as it is, I won’t go down that path for the moment because we have a limited amount of time.
One other question on business models and then I want to move on to getting funding. What are the biggest barriers you’ve seen that derail startups from getting funded successfully? Top two to three things, and what can founders do to minimize their chances of that happening?
Preparing for Investor Diligence
Gwen Edwards: I would say my most important piece of advice where I’ve seen people get derailed is even if they have a great pitch. So everybody’s excited. Let’s go to the next level.
You start to ask questions and if they’re not ready for diligence because they’ve decided to go pitch a few investors and see what happens. I think I just need a few million dollars as if it grows on a tree and then they’re not ready.
I don’t want to say they don’t ever get a second chance but to get a second chance with the same group, if it’s an angel group is really hard.
Especially if you had to say, “Oh my gosh, I didn’t realize you didn’t have this or this”. And they end up taking three months or something. You can’t put them in front of the group again. An angel joins a group and they want to see great companies once a month or every other month and active groups from monthly.
Even if it isn’t a group process I’ve had this happen personally where I’m kind of managing that relationship so they’re not exposed to the whole group yet. But if it takes so long because they haven’t really thought things through. And then they’re asking me for more advice. What do I think of this? And what do I think of that?
On the one hand there’s a mentor relationship that can be nice but if you’re looking at them as somebody who’s just trying to coach a little bit to help them raise money, it’s not pleasant. I’m not paid to help you do this. I’ve got a lot on my plate and it turns people off.
I think it’s maybe distinguishing between who are you approaching that you want to be an advisor, a consultant to you, or who are you meeting with because you approach them to be an investor and that’s how you’re interacting with them. I don’t mean to make it sound like it can’t be friendly.
I worked with one company and a woman for almost nine months and then brought them to our group. That was very unusual and it’s kind of a neat story. Because I wasn’t sure how attractive the company would be to the Golden Seeds group. Without exception everybody loved what this person was doing. It was so counterintuitive but the reason they loved this entrepreneur and what she was doing.
Without exception, people said “She really knows her customer”. When we asked about this and about that – this person had been in the industry in which they were building this new capability for 20 years or more and knew it inside and out. That impressed people and it involved CIOs and ITs, infrastructure. It was very good.
But I think that the key thing is diligence. A silly example but makes the point. I remember we were in a kind of a deep dive session one time after a presentation. And I said, “ we really should take a look at your cap table. That tells us a lot right away.” I could tell the person didn’t know what a cap table was.
And I got the cap table two weeks later instead of an hour later. I remember thinking that’s interesting but you can find all kinds of things. I would say that especially for some entrepreneurs but anybody, it’s just a huge difference in momentum between having to stop and say, “ I didn’t really develop financials like that” or “let me think about it.”
Then you lose momentum which is what most entrepreneurs don’t appreciate until they sit on the other side of the table. The investors are being bombarded with “oh take a look at that” or some friend sends you something or you go back to your group’s next monthly meeting and everything looks better on the surface.
Meanwhile, you’ve got this thing over here that’s struggling. If it doesn’t come back in a pop up, in a really positive way then it loses energy. I’ll just give you another example. There was an entrepreneur, two I’ve seen, one that was just fabulous. They had every piece of diligence practically that you could want to ask for in the appendix of their deck. I’ve seen that only once, I was stunned. ****
It was so powerful. Now they still had a data room but they even had pictures, photos of signed contracts with the signature and the name of the you know, government but the customer, which was not generally available but it’s like in the deck, organized. ****Imagine what that does. You’re not even hunting through their contracts to review them.
You can, when you want to go deeper, but if you just want evidence that this really was Department of Energy signed by so and so and here’s the dollar amount, next question, boom if that isn’t credibility building! Versus, “That’s pretty confidential. I don’t know if I can share that yet or blah, blah”.
Shubha Chakravarthy: These are really vivid and compelling examples. I love that. Which brings us to the next big topic, which is around getting funded.
You’ve already covered a lot of the big ones. Like, do you know your market? Do you have your financials? Do you have the base level of financial sophistication? So I’m not going to go cover those because you talk quite a bit about that.
The Importance of Clarity and Simplicity
Shubha Chakravarthy: I want to understand from an investor standpoint, when you go in and look at an idea.
I don’t want to say deck but when you look at an idea, what are the two, three most compelling things you must have for you to even say, “let’s take a deeper look”?
Gwen Edwards: I think it’s about clarity of the idea, how that’s articulated and how compelling it is. That’s going to cut across all the different domains. Clarity is really telling. And it may not mean that the entrepreneur is not good or the idea is not good.
It may mean that they’re not yet ready to articulate it because they’re still kind of struggling with too many words, too many examples and too much around the problem to find describing the problem.
We can get the problem in about one minute. Why is what you’re doing to solve it so unique and why are you, personally who’s asking for money, for your pocket, the right person to execute on this idea are the two things.
And then you can get into important weeds like the financials and everything else and exit strategy which is important. But I think it’s those first two things that are critical because as they say, no good business plan survived the first encounter with a customer and so, you’ve got to have the team that can morph and think quickly and what they’re trying to do is it has to really engage you and that because it’s really compelling.
It’s not just a slight improvement that’s incrementally better than something else.
Articulating Complex Ideas Simply
Shubha Chakravarthy: Two things that I took away, I heard clear and I heard compelling in terms of what’s really is to what extent is clarity related to simplicity. I’d like to understand a little bit from an investor standpoint because one thing I’ve heard and seen in some decks as well is if it’s not simple to understand then it’s much harder to get anyone engaged.
Is clarity really around simplicity? And then from a “compelling” standpoint, the main thing I heard was the delta relative to the status quo is the driver of how you think, how compelling you think an idea is.
I’d just like you to comment on those kind of takeaways from what you just said. For example, If I came to you and said, “my drug helps cure cancer”. It’s very complex. It’s a very hard and difficult thing to do.
It’s not easy but it’s simple. Versus if I told you that I’m going to do, if they’re like five steps for me to go from a to a problem being solved, it may be easy but it’s not clear. It’s not simple.
Gwen Edwards: I get totally. I hear what you’re saying. I would say it is in the simplicity of how the complexities are articulated. How’s that? An example, like you have a cure for cancer.
The compelling statement is “imagine if in two years from today we have a compelling solution for leukemia in children or early stage leukemia. We know that to be the case because we already have a proof point of X.”
And you’re like “Wow okay, I’m interested. Now tell me.”
And then if your next statement was “Hi I’m Dr. So and so who just spent five years at the such and such with the following credentials and I am compelled to work on this problem because I have seen deaths. I know this can be solved “.
Then the complexity is in where are you at with clinical trials? And how sure are you? And what if this happens? The person would have to acknowledge and there’s always a risk that this could happen, that could happen.
But even if this or that. We know we’ll have an improvement because of whatever. That’s compelling because it’s not a black or white.
Shubha Chakravarthy: I was just going to ask one other follow up question on that.
Why You? Demonstrating Founder Fit
Shubha Chakravarthy: You talked about compelling and clear. I get it. Now there’s also a question of why you, in certain cases where domain expertise is absolutely critical, right?
I’m talking about solar energy and I come and tell you I have a PhD in whatever, it’s obvious. What about a less obvious nexus?
If there’s a less obvious nexus and a less obvious requirement that I have a PhD in oncology or whatever the case might be, what are some good ways for founders to demonstrate that they are the right person at the right time for the right opportunity?
Gwen Edwards: I think it really would be describing their background and if it isn’t domain related it might be just experience related or why they really want to take this moon shot. There’s a particular moment in time.
It might be around that they have a particular expertise and they’ve always wanted to match that with their cofounder with somebody like this, who their co-founder is, that they’ve known each other for 10 years or 5 years, went to graduate school together.
And there’s some story which makes it clear that they have some secret sauce or some sauce that you can’t just go down the street and hire somebody for.
Shubha Chakravarthy: So the takeaway is it’s all fine and dandy to have a passion from your first answer, to our first thing in the conversation was about you need to have a passion, but that’s not enough. It’s necessary, but not sufficient.
You have to back it up with a credible reason why you’re the person to be at the helm of this startup. And that de risks it in some significant way. Is that a fair takeaway from what you just said?
Gwen Edwards: Absolutely.
Shubha Chakravarthy: Awesome.
Now the founder has sold you. It’s a clear case. It’s compelling. There’s enough of a delta and I’m the right person.
Due Diligence: What Investors Look For
Shubha Chakravarthy: You get into due diligence. Can you walk us through what you’re looking for as an investor in early stage startups from a due diligence perspective and what you would want a founder to know about due diligence?
Gwen Edwards: The answer to that question definitely varies by stage. The longer the company’s been around the more complex the diligence is. But that’s just because of potentially IP and challenges to the IP etc.
All of the contracts that you have in place for manufacturing for anything distribution. I could give you an example even of an early stage company that we discovered had signed an exclusive distribution agreement with a major player that really impacted their potential market and potential exit. So that was a challenge.
We ended up working around that in a complex way but what we had to be pretty excited about the company to even bother. I would say that the first piece of the diligence that we really do is that we have a team, break it into two sections but definitely want to do our own evaluation around the market and competition because people often don’t see competitors that we might see. So, we’ll do an assessment of that.
And to the extent that they can provide good market data, 3rd party research, customer interviews that they’ve done and actual customers. Those are things that you don’t want to overuse because they’re precious to the entrepreneur. Maybe someone else has done some interviews and we can have access to those and just do a little bit of quick checking, where we try to make it constructive.
I’ll often say, “what would you like to know from this customer? Would it be helpful for you to know how they’re thinking about us or so that it can be a win-win”. Then there’s understanding how the IP has been protected. Ideally, there’s been more than a patent filed. If it’s patentable, occasionally we’ll find a company that says it’s patentable.
They’ve talked to patent attorneys but haven’t yet filed. So that’s a challenge because it’s vulnerable. Every conversation you have, right? I would say that diligence is something that happens at every step along the way too. Like that, learning that it hasn’t been filed yet. And is the filing of it. And money for IP protection.
One of the first items in your use of proceeds. It’s not that high on your own radar, things like this. It’s a lot of just getting to know somebody and how they think and putting those things together and trying to figure out what to do next as a result.
Then there’s product. So just testing, how do we use this? Is it usable? Is it something we can look at yet?
The other piece is at the early stages just understanding other investors that have come in and what are their thoughts? Do you have a board at this point? Who’s on the board that could shed some light on how they see the company progressing and a lot of those conversations are most constructive in the context if we came in, how could we be most helpful or everybody has blind spots, what should we be looking for?
Then the same with references like personal references. Every entrepreneur should think about who are their top references are that they’re willing to use over and over. I think those are the main things.
I didn’t mention financials. That’s always top of mind. We love to drill down into models because it helps us understand what assumptions the entrepreneur has made in reaching those conclusions on revenue in terms of length of sales cycle, even because that compounds how quickly can you grow, you think it’s going to be a three month sales cycle and we think it’s a nine month that’s a big discrepancy or why do you think it’s three, what is the basis for that?
I think the most critical thing is understanding in diligence, how somebody thinks, operates, behaves, communicates, and then being comfortable with that relationship and because it’s a partnership and it lasts for a long time.
Shubha Chakravarthy: If I’m a founder, clearly you’re doing a 360 on me. It’s pretty, I’ll use the word intrusive, right? From a founder’s perspective.
Preparing for Due Diligence
Shubha Chakravarthy: Is there a way for me as an operating founder to do things a certain way that will make it easier for due diligence to go smoothly?
In other words, are there disciplined ways of operating? What are those big things that help about a founder or their way of operating that helped things like due diligence go more smoothly?
Gwen Edwards: Absolutely, For example, let’s start with the cap table. A cap table is so telling. One reason why I love to look at them right away is because it tells you that you once had another co founder. Who’s Charlie Brown? You ever mentioned this person?
Well, he left.
Why does he have so much equity? You didn’t negotiate an exit package. He’s still on and we call that dead equity, right? But it’s things like that.
I would say it’s for an entrepreneur to know smooth sailing here. So I’m going to operate. I would say if we could back up to the beginning and do more coaching at an early stage or help with really good educational programs for entrepreneurs, it’s start with the end in mind.
So know what you’re going to be asked and know how to build your company so that you’ve got all those I’s dotted and t’s crossed and the discipline of that is so powerful. It’s going to make it much more attractive to be acquired. You’re gonna have documents buttoned up from day one.
And if there was ever an unhappy employee that left and people will look for a risk of a lawsuit and because of this having a document that they left, they signed, and everybody’s moving on. There’s a release and that kind of stuff.
So I think it’s basic business practices with employees and founders before you have employees and contractors and what contracting terms you agree to or taking money from a strategic but not giving them first right of refusal to your company for the next forever, things like that.
So how, I guess it’s a really good question. How can we, as an ecosystem do more to inform entrepreneurs at the beginning? So that it isn’t just, let’s go build this, let’s just get an MVP going and we’ll then raise money instead of, as Ron Weissman said, I’ll give him full credit, “I want to see more MVBs, minimally viable businesses”, because it’s not just about the product obviously.
Shubha Chakravarthy: Love that, it’s just almost like giving them a due diligence checklist and say, “Hey, this is coming down the pike in six months. So you better start thinking about it now. So you don’t have to do too much work in remediation”.
And my other pet peeve on that is you better know what your financials are going to look like from day one because it’s not something that you put together at the end and hope that it’s just going to go away in terms of financial model”.
Gwen Edwards: Right. The cool thing about that and what you just said is let’s take financials which people often think, “That’s a pain in the neck and it’s so academic it doesn’t matter”.
If you had a good financial model that you built with a fractional CFO maybe and you’re iterating and you’re thinking about, well, what if I did things this way? Or what if I did, how would that change things for me? You have a tool and you can iterate on it.
It’s not like I hate for people to think it’s a pain in the neck because everything that we look at and ask for like IP. It’s not a pain in the neck. It’s designed to create value for the company. So that at the end of the day value can be extracted for all shareholders which the majority goes to the founder.
They’ve been efficient with their capital. I hope that helps. There’s so much about starting out in the right way. Just so much to learn. It’s amazing. Even about vesting and what standard vesting or standard amount of stock to give an advisor or board member or that just people need good counsel early on. And I think it saves a lot of pain and agony down the road.
Shubha Chakravarthy: Awesome. I know you’ve been very generous with your thinking and I want to cover one other are in some depth. And that’s about succeeding as a woman founder.
Challenges and Success Factors for Women Founders
Shubha Chakravarthy: There’s a lot said on the internet, but I really want to understand as you are someone who invests in women founders, what do you think is the biggest factor that affects the success of women building and capitalizing scalable ventures?
Gwen Edwards: I wish I could say there’s just one thing. I think there’s many factors that make it challenging to be a woman and succeed as an entrepreneur from what you might need in your personal life, depending on what your personal life is like.
We don’t have the same support systems typically that men have and even women whose husbands are in the business with them and that has its own complexities that often makes it harder to be funded.
But it’s often still the woman that supervises the household help or getting the birthday presents. I hear all the stories. It’s not equal and I don’t know if it ever will be. So I think we just in some ways try to just keep moving forward and do our best.
I think one of the most difficult things is realizing that there’s still a significant gap in pre money valuation for female led companies versus male. And what’s really disheartening about that is that it means that entrepreneurs pay more for every penny that they earn, that they get to work with and are more heavily diluted.
I think the challenge for everybody is people want to have good returns and people that are investing in women would love nothing more than to prove what a great exit. Look at this unicorn and look how well this person did and to be able to talk about valuation as a good standard valuation. I think that’s a challenge we still are not as women getting the same percentage relative to men even with something we track with the HALO report as part of the Angel Resource Institute.
We’ve been doing all of this detailed research finding that sadly, since 2019 the percentage of the total dollars that’s invested in the early stage is decreasing for women slightly but it’s not even flat.
I think the other thing is that the systemic biases that are everywhere whether it’s walking in the door to make a sale to an enterprise CIO or negotiating a manufacturing contract. There is still systemic bias.
It makes it harder for that CEO that’s a woman to get the same deal. We just have to be aware of that and try to be as helpful as we can at each step of the way and know that’s a reality until we can create more opportunities in a broader playing field.
We’ve got to have more female customers to sell to and decision makers and board members and then people will not look at gender. They’ll just say, “You happen to be a woman today coming in to pitch me on whatever. Great. Have a seat. I’ll get the coffee.”
Shubha Chakravarthy: I’m waiting for that day.
Gwen Edwards: Exactly. But we often say we can’t do everything and I’m glad that there’s many people that are mobilized to help women at every level at board level, at executive roles, on the fundraising side.
So, it’s a lot better than 10 or 20 years ago, although many of us didn’t think we’d still be here 20 years ago pushing the same rope up a hill. And it’s backsliding a little bit which makes it discouraging.
But time will tell and will prove that women can be extraordinarily good leaders, tenacious and persistent. We definitely need to be bragging about exits.
Right now that’s been hard in the market but we definitely had some great women leaders and great exits and maybe we could make those even more publicly pronounced.
Shubha Chakravarthy: I’m here to interview them all if you want to make them available.
Gwen Edwards: Sure.
Shubha Chakravarthy: I want to normalize success for women.
Gwen Edwards: Good, Okay.
Controlling Your Economic Destiny
Shubha Chakravarthy: My question is there are some things that I can control as an individual woman founder and there are systemic bias I can’t really control a lot of that. At least from a financial and economic perspective as a woman founder what are the things I can control?
Specifically, you talked about pre money valuation as an example. That I come in as a woman founder lower pre-money valuation. Is there something I can do to influence that? Is that how I position the business? Is that how I design the business? Can you talk about what is in our power as women founders to control our own economic destiny?
Gwen Edwards: I think that what you can and we can do is-here’s the double edge sword. If anybody male or female is too inflexible in a negotiation or says, “Nope. I want X dollars. It’s too much. Non negotiable”.
I actually witnessed that maybe a year ago with an entrepreneur that we were asking her the valuation was way too high. And we were all kind of stunned. Where did this come from? So ask the question nicely, how flexible are you on valuation? And they, instead of saying, “Well I’m happy to talk about what you think is fair. And here’s why I came up with this number but if you think it’s off base, let’s have a conversation. I certainly don’t want to let that get in the way between moving forward unless there’s some huge gap and let’s talk about it. Happy to do it.”
We got an answer that was more like, “No, I’ve thought about it. And no, that’s the valuation.” Well, we continued to be nice but that ended the discussion. I mean, they’re like why bother.
Shubha Chakravarthy: Got it.
Gwen Edwards: I want to just say that a person has to demonstrate that they’re flexible because in reality investors know that whether you’re talking about 500,000 or a million even in the scheme of things it’s not going to make or break your return or break the company.
It might be emotionally important to the entrepreneur. Sometimes that needs to be taken into consideration. Sometimes it isn’t really a material difference but I do think one way an entrepreneur can manage that conversation is back to thinking about the rounds and how much to raise it each round.
I once used this example with an entrepreneur who said that they needed 5 million. They were raising 5 million. And I said, “That’s interesting. The stage you’re at, what do you think your company’s worth today?” Well, they didn’t know. So I said, “Let me tell you the problem with just saying you’re going to need 5 million and you don’t know what it’s worth because if it’s only worth 5 million and you raise 5”.
Shubha Chakravarthy: You’re giving up 100%?
Gwen Edwards: Yeah, exactly. And if you say it’s only worth 5 and that might be a stretch at the stage and you want 6. You’ve given up control and I got this blank stare. So you don’t want to do that.
Therefore, go back and think about how much money do you need and then add a little bit more to get to a significant value inflection point so that after you’ve got something you need to prove takes risk away for the investor. And once you get to that point then you can increase your valuation.
That amount of dilution that you take at the lower valuation isn’t going to hurt you the entrepreneur because you’re taking in only a little bit of money. So it’s learning how to think in chunks so that you can protect yourself. You’re helping that investor that’s willing and ready to commit.
And you’re giving them the sense of, “I’m only going to raise so much and if I want in, I better get in and I’m only going to take in 500,000 or a million dollars at this number. Then I’m going to go crazy and I’ll come back to you if you don’t want to take the risk now, happy to come back in 18 months and prove us that I’m going to deliver this.”
Of course, the valuation is going to be higher and then the investor has a nice decision to make. Also depending on who’s around that investment table, the investor might decide or one investor might say, “I like this entrepreneur. I’m just going to put a little bit in. I want to be in on this” and another might say, “what? That’s fine. I like them too. But I’d rather wait. I don’t like a safe note or this or that, I’ll wait, I’d like to join you on the next round”.
Well, then they built that relationship. They’ve got connective tissue. They’re going to the next. It’s all those things. So I think that certainly the entrepreneur can control how much they raise and how they use the money.
It’ll obviously be easier said than done, because we’d all rather have far more money one time and done.
Shubha Chakravarthy: I agree with you. But that aside, living in the real world, what that’s telling me is that I’m seeing a huge benefit of having or removing strategic and financial naïveté on the part of entrepreneurs.
To what extent is financial naïveté a deterrent to women doing well in the startup world and how different is that systemically from the male founders you see?
If it’s not different, are you seeing a disproportionate treatment between naive, financially naive female founders and entrepreneurs and equally financially naive male founders?
Gwen Edwards: Very complex question. I think you’re asking two things.
Maybe you’re asking, do I think women entrepreneurs might be taken advantage of because they’re naive?
Shubha Chakravarthy: Like if you come in, it’s caveat emptor. This is a commercial transaction, right? So the skeptical hard headed part of me says, I’m not here selling you a consumer product. You’re entering into a business transaction and I have every right to assume that you’re an informed buyer. Therefore, shame on you if you don’t know your basic cap table and how all those equity scenarios are going to play out on the one hand.
On the other hand we know that women don’t have access to that. I’m not hanging out with women who are comfortable talking about money. We know this is an issue whereas men may be hanging out with other guys. We’re talking about cap table all day long. Who knows, right?
I don’t know. Right? Is that an issue? And if it is then, am I getting penalized just because I’m financially more naive? Not that anybody’s trying to take advantage of me but this is the commercial world.
Gwen Edwards: I think you’re onto something. Let me say I’d like to think. I don’t want to think that women are taken advantage of because they’re not as savvy. Maybe that’s partly because one of the things I personally love to do is actually show an entrepreneur what’s behind the curtain to show them how we calculate valuations.
Because I think at the end of the day there are no secrets. If they understood how we do it then they’ll realize that. For example, revenue is way more important than valuation for the exit. But I do think you’re onto something in that there are more women who are maybe shy about owning the financials. They like to bring in their CFO for that part of a presentation or have them on call.
When we find that we just really push them to say no. Try harder to be the person that pitches that entire thing. Now I’ve seen two women co founders recently where one of them was the COO did step in on the financial side. They kind of shared the presentation.
That didn’t bother me because I thought they’ve got their roles and their co founders equal. Equity owners so it was okay but it would be awkward if the CEO’s the woman, and then she has the CFO male talk about the financials.
That detracts from the confidence you wanna have as an investor in that woman as the CEO. Because that CEO is gonna need to maybe hire and fire a CFO and not be dependent on what they say.
Shubha Chakravarthy: So is that fair to draw the conclusion that if you did see that scenario where you saw a female founder not in control or ownership of her financials? Is that either a conscious or unconscious ding against her in terms of evaluating the team which is so important?
Gwen Edwards: Yeah. I would say it’s conscious. I wouldn’t even say it’s an unconscious ding. I would say it’s a conscious ding.
Shubha Chakravarthy: Got it. So we’ve covered like a whole bunch of things and I could talk to you for a couple of hours more as tempted as I am but I want to be sensitive to your time.
Advice for Women Founders in STEM
Shubha Chakravarthy: So what top three pieces of advice would you offer women founders especially those in STEM fields?
Because they have an additional layer of bias that they have to face in technology over and above finance which is what we’ve talked about. Especially if they require outside risk capital from angels, maybe VCs.
What are the three things that you tell them: take care of this, do this, and these will have a disproportionate impact on your likelihood of success?
Gwen Edwards: I would say to be as to exude and ooze the competence that you clearly have. I think more women are more competent than they brag about. And I think that it shouldn’t even be thought of as bragging. It’s just like being clear about and confident then you can be fun.
It doesn’t have to be a serious transaction or set of meetings all the time but it’s like, I’m so and so and it’s a confidence that if women can get comfortable exuding that confidence it removes the need for arrogance. Nobody likes arrogance, even women with other women it’s like, just be real.
And the more real you are and competent, the more awe people have about you. Like, you’ve done all this or whatever. So I think that’s one thing. I actually think about that question and having heard a lot of men pitch.
There’s something about women pitching that I find even more appealing. And I think it’s that they generally don’t have a bravado that comes across sometimes with men. If I could coach men I’d say just like drop half of that like you get these pitches where I’ve raised X amount of money. I’ve raised 30, how many millions in their four companies.
And I love to say, Really? How’d that work out for you? How’d that work out for your investors? Why are you here talking to me? Like it’s just funny. And I think there’s – people measure the notches on their belts. And one of those is how much money they’ve raised instead of what did they do with it? And did it matter?
Like we’re not here to brag about how much we can extract from people but how much can we return to the world. I have definitely enjoyed working with women. They bring those qualities and I think women exude trust and trustworthiness.
It just kind of comes naturally with being relational and maybe more open than pushing for a transaction to close. These are kind of natural attributes.
The other thing is that as women we just want to stay focused on the elements of the business, so if there’s ever a question of what’s next, well, I’m talking to a woman, I live in that world, so I don’t really think about it in that way.
But I think it’s just really important to be continuing to be focused on. What’s next? So, we did ABC, we said we were going to do DEF. I think being super well organized and demonstrating execution skills which happens even in a conversation is important. I think we’re ready to do DEF. Does that sound good to you? Or I’m going to wrap up with ABC.
I think those are just building skills. I think women may have an advantage in STEM companies. As somebody that’s lived in tech and the reason I say that is STEM fields are very fact based and I remember noticing for the first time how interesting it is that when a woman’s running a company that requires clinical trials and things like this, you’ve got time, you have that clinical trial has to take place and you can do other things.
I think a lot of what was happening in tech, early days of tech was more, we’ve got to just push these things out and get them viral and go before it falls apart or get somebody to buy it and make it real. I think in the sciences, it’s very real.
A lot of the attributes of women being thorough, clear and honest. So I’m hoping that we’ll see less bias around STEM investments.
Shubha Chakravarthy: I’m with you on that provided that they can get over the bro culture and the cultural issues that are holding them back at least from what I see in here.
Gwen Edwards: In STEM as well as in tech.
Shubha Chakravarthy: Yes, in tech more than in STEM,
Gwen Edwards: Yeah No, I’m very aware of the tech bro culture.
Shubha Chakravarthy: STEM. No, in science, I have not heard about it in science. There are other issues.
Gwen Edwards: That’s refreshing, right? Very refreshing.
I’m meeting so many lovely, amazing PhDs and MD PhDs and these brilliant women that are doing things that they don’t seem to be affected by any bro culture. And I’m like, Whoa.
Shubha Chakravarthy: It’s about time. Right? Just fantastic. I have just one comment. I talked to a really successful investor earlier this week and he had invested in Loom and Calm and many of these amazing startups.
And it was funny because he said that and he’s a very self aware investor, a very objective one. He said, “I wish there was a way that I wouldn’t get carried away by the bravado that male founders pitch with. Even though I know that they have bravado, I still get carried away”.
And it’s so different from what you just said, which is it’s turning you off. So that whole investor gender dynamic plays into this as well. But I mean, we don’t have time to get into that but I just found that interesting when you mentioned this and I just literally a couple of days ago heard the opposite point of view.
Gwen Edwards: Wow. Yeah.
Shubha Chakravarthy: Most of the investors are male. So guess who wins, right?
Gwen Edwards: We have a nose for it.
Shubha Chakravarthy: Just, yeah,
Gwen Edwards: For that bravado. Yeah, it’s been developed over millennia.
Shubha Chakravarthy: Yes.
Final Thoughts and Reflections
Shubha Chakravarthy: So this has been amazing. Is there anything at all that you wish I’d asked but I didn’t ask you that you’d want to get across?
Gwen Edwards: No, I think you have great questions and I love your own summary. Maybe there’s a better way to help entrepreneurs get some strategy and financial acumen early. I want to think more about that. I think that’s really super valuable.
Shubha Chakravarthy: Awesome. This has been an amazing conversation. You’ve been generous with your insight, with your time and everything else. So I really thank you for it. And I know that our listeners, as well have an amazing time. So thank you so much. This is a joy.
Gwen Edwards: Thank you so much. It’s been great.
