Editor’s Note: This post was originally published on Seattle 2.0, and imported to GeekWire as part of our acquisition of Seattle 2.0 and its archival content. For more background, see this post.
By Alyssa Royse
Entrepreneurs like to complain about VCs not “getting” them.Or their ideas. Or their businesses. Or VCs not knowing when they are beingsnowed. Or….
I’m often baffled by the companies that do and don’t getinstitutional funding. I’ve tried to figure out why some total duds get big VCcash, and I’ve had a hard time finding the through line. It’s tempting to saysomething like, “they’re just stupid.” But come on, that’s obviously not thecase.
Nor are they uncaring, reckless, or out of touch. Wait,maybe they are out of touch.
A couple weeks ago, I was having dinner with friends – asusual, I was cooking too much food and drinking too much wine. Amongst thosegathered were a local VC (who is just awesome) and his wife (who, frankly, iseven more awesome.) Because a disproportionate number of those gathered were inthe startup world, we inevitably allowed conversation to drift to startuptalk. And then ‘the wife’ said it.To paraphrase, with questionable accuracy, she said, “I always tell him, beforeyou consider investing in anything, ask a middle-schooler what they think of theidea.”
Which reminded of me of the often-quoted Guy Kawasakisentiment that you should always get a woman’s opinion. It’s not because he thinks women are genetically superior (though he does saythat,) it’s that we’re better at evaluating a bad idea when we hear it. Heblames it on the fact that men have a “killer instinct” that makes thempredisposed to think that any idea that will lead to “killing” an existingcompany or product is a good one that should be pursued. This killer instinct(which I think sounds very similar to the instinct to get laid,) supposedlyclouds men’s ability to think clearly and rationally, and sometimes makes themmake stupid decisions, (which again, sounds very similar to that instinct toget laid.)
Hmmmm, now I think we’re on to something. I mean, really,there are shockingly few women VCs in Seattle (or anywhere, for that matter.)We have a bunch of guys making decisions to fund companies that are, generallyspeaking, run by a bunch of guys.
Unfortunately, it is women who make up the majority of thepurchasing power in the US. 85% of all consumer purchasing – of everything fromcars to travel to homes to household goods and services, many of which are researched andpurchased online – is done by women. Do you know how women make decisions? If you do, then you can write thealgorithm, market it and have the next killer startup. Barring that, however,we make decisions based on the intensely fuzzy, deeply biochemical andintuitive logic of “gut instinct.” How many men do you know who can successfullynavigate the gut-instincts of women?
Hold that thought, we’ll get back to it.
The other thing you’ll notice as you look through therosters of our local VCs is that they are all experts in their fields. At firstblush, that sounds like a great thing. But it might not be. Anyone who is in anexpert in any field is holding on to so many innate biases that they may not beable to cleanly evaluate the broader market appeal of a company.
A genius computer engineer may be brilliant at evaluatingwhether or not some system of code will successfully execute a task, and the market value of that task being executed efficiently. But theymay not be so good at assessing whether or not consumer markets – people whoare not experts in computer engineering – will actually want to use theservice. They may get so excited about the cool technology – how innovative,disruptive and proprietary it is – that it automatically seems like a goodidea. An idea worth investing in and owning.
It doesn’t get any better when you throw in people who are“experts” at business. They are likely to use their same limited MBA lens tomake sure all the bullet points are hit, all the classical elements of a solidbusiness plan are there, and judge it based on how it looks on paper.Unfortunately, startups and entrepreneurs are inherent rule-breakers, and theyhave to be in order to break through. So, expert assessment of adherence tobusiness rules may not be useful when fostering innovation.
It’s not that they’re stupid, in any way. It’s that they areclassically short-sighted. After all, any of us can only see things from ourown perspective. So, when the VC world is filled mostly with men who areexperts in their industry, it stands to reason that they would evaluate thingsfrom that perspective and get most excited about ideas that appeal to men whoare experts in their industry. Which is not what the larger market, for anyproduct, is comprised of.
It’s starting to look to me like the problem with VCs isn’tthat they’re stupid, (and we’ve all heard people say that,) it’s that they’retoo smart. They’re experts.
What if my friend and Guy Kawasaki are right? What if wesimply need more women and middle-schoolers using their gut-instincts toevaluate the viability of a company? If you take technical expertise out of theevaluation equation, how might that look?
Well, I’m just one woman, but I can think of a few obviousthings that would and wouldn’t have happened if I were making the call:
1. There is no way that a woman would have invested in EarthClass Mail. Here’s why, technically speaking: it was stupid. They pulled inmore than $21 M, including more than $7M from Ignition. I think the closestI’ve ever come to an actual fist-fight was telling an ECM investor that it madeno sense to think they were going to replace the postal service because nobodywould want strangers opening their mail, only to be stored in incredibly expensivefacilities that could not be used for anything else, or sold, when the companyfolded. Especially since gifts, packages and magazines would still be shippeddirectly to my house, so my address would still be on all the DM mailing listsand junkmail would still arrive. Every woman I talked to shared that sentiment.But the men I talked to were throwing money at ECM because it was soparadigm-shifting.
2. There are several local companies, whose founders arecurrently in jail, that would not have been funded by any woman. Why? In somecases, because the claims the companies were making were the businessequivalent of, “really, baby, it’s 10 inches.” But also because the peoplerunning those companies were just plain slimy and most women saw through it,the whole time, and were not the slightest bit surprised when the stories oftheir deceit and demise turned up on Techflash. Gut instinct.
3. Then there are great little companies like Braincandy that Ithink most women would fund, because it’s a product that most of us would buy(if we had kids.) You had a great team, a great product that was fullyproduced, a proven market, proven market appeal, great distribution partners.All they needed was that last push to fully fund the marketing. If I had amillion bucks lying around, I’d still give it to them. Was itparadigm-shifting, killer and destined to be the next Google? Nope. Would ithave been successful and made a good X return for investors? Yup.
I love men. I love experts. I love smart, geeky, gutsypeople who are willing to put it on the line to support innovation. I have yetto meet a VC in Seattle that I didn’t really like. That said, I think it’spossible that the problem with most VCs is that they’re men who are experts intheir field, and most markets are not. And that when one has too much “data”they may ignore logic and instinct.
