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23. The Changing Landscape of the Tech Industry: Diversity
Hosted by Chris Castle, with guest Claire Lee.
Opportunities for women and underrepresented people interested in running their own start-ups are greater than ever before. In this second half of a two-part episode, Claire Lee, the head of the early stage group at Silicon Valley Bank, talks about the work she's involved in to improve access to capital and mentorship for individuals that have been traditionally left out. She explains why diversity in your company's make-up is essential to its success, and concludes with tips on how to get your startup's legal, payroll, and staffing affairs in order.
Chris Castle continues his conversation with Claire Lee, the head of the early stage group at Silicon Valley Bank. In this half, Claire begins by providing hard data that indicates companies which are founded by individuals from diverse backgrounds are wildly profitable. She goes on to say that conversely, the members in the top VCs firms are of a disproportionate make-up. She concludes that in order for more funds and ancillary services to be available to start-up founders, the individuals distributing the capital also needs to change, in order to give everyone a fair shot at success.
Claire goes on to point out that in addition to money, mentorship is a valuable (and limited) resource in Silicon Valley. A good partnership with a VC includes them granting access to advisors, potential board members, and potential customers. Her passion extends beyond just funding good ideas; it's about making connections between people and helping them to grow.
The episode concludes with advice and encouragement for anyone interested in founding a start-up. If you feel that you can solve a problem in ways that no one else has before, that passion will manifest itself into an opportunity in one way or another, whether that's within a start-up accelerator or in a digital community. Surround yourself with people who believe in you.
Links from this episode
Several resources for founders just getting started with their idea were mentioned on this episode:
For legal assistance, the following firms were offered:
For staffing, Atrium was one option which Claire named.
Chris Castle: Hello, and welcome to Code[ish]. I'm developer advocate Chris Castle, and this is the second part of our conversation with Claire Lee from Silicon Valley Bank. Something she's passionate about and puts a lot of her energy toward is supporting women and other under-represented people who want to start a company.
Claire Lee: Yeah, so representation I think is an economic imperative. I don't think this a pet project, or a pink project, or anything really to do with gender. I can't help but look at it from an economic standpoint. Jobs and wealth creation, when you think about the US, domestic market as well, the more diversity we have in that group, the stronger I think the companies that are being built and funded. There was a really great piece of work done very recently in conjunction with the National Venture Capitalist Association. They have a fantastic paper if anyone wants to you can just Google it, find it online. It cites that 60% of these companies that are on average, I think, employing over 1,200 people and they're worth collectively almost $250 billion, aggregate valuations, 60% were founded by immigrants. These are first-generation immigrants. When you think about diversity and inclusion, and D&I, as we know is a hot topic, it's maybe the CSR of our time. Corporate social responsibility, that's something I kind of grew up with. This seems to be, to me to be the CSR of our generation. There's a lot of talk, there's some action, there's some programs, there's some meaningful interventions but then we're not moving fast enough.
Claire Lee: Yeah.
Chris Castle: Okay.
Claire Lee: Going back to what we were saying earlier about trust and transparency, and how attractive is your brand, who represents you and who ... Your people are your biggest asset and therefore, if you are going to have a similar group of people who just they all look like each other, talk like each other, think like each other. You won't have your ideas challenged the same way that you would if you had a very diverse group of people from very different backgrounds. That's true for ethnicity, and nationality, and race, gender, educational background and level, all of the above. We are all different but we're strikingly similar at the same time. Giving humans the ability to fulfill their potential in whatever way they require is super important. I'm trying to really grow access for all of the different constituents out there and democratize access to this industry as a whole. That means that more venture capital needs to go to female founders. More venture capital needs to go to founders of color. More capital from LPs, limited partners, needs to be funneled into first time fund managers to female fund managers, female first time fund managers, fund managers of color.
Chris Castle: Yeah, so there's layers of-
Claire Lee: There's layers.
Chris Castle: It's not just the companies we want to be diverse, or the founders that we want to be more diverse, but it's those providing funds and ancillary services for those companies also.
Claire Lee: Right. You peel back the layers of the onion. I have a thesis when I think about this, it to me jumped out as being what I call a single digit club. Less than 10% of the general partners at the top VC firms that are deploying the majority of the capital in the US, and probably around the world are female. The diversity in that constituency is not great right now, although it's improved and it continues to do so. Thanks to groups like All Rays and the Watermark conference, which we've really gotten behind, it is shining more of a spotlight on it but we don't actually have a lot of data. When we do have gender disaggregated, it is actually very hard to find attribution and really understand what has moved the needle. Is it causation versus correlation? It's just really hard to put your finger on what works, what doesn't. You have to have multiple efforts and that's why I'm really applauding startups that come out and try to attack, for instance, bias in AI when it comes to recruiting or really interesting solutions when you think about your workforce. How do you really get to know your employee as an individual without of course, getting into issues around privacy and data protection?
Claire Lee: Again, giving everybody a fair shot and an equal playing field that really looks at the skills whether you're a technical co-founder or non-technical. Bringing those together I think is really important but the single digit club, when you think about these constituents, whether it's 2% of venture capital globally, went to female founders or at least a startup with at least one female co-founder. When I looked at our startup outlook report from February, the data also confirmed to me the third leg of this stool, if you like, which is how many women are in positions, senior executive positions at the most significant corporations. That number is still shockingly low. Actually, when you look at women in the boardroom, it's declined in the last five years.
Chris Castle: Wow, okay.
Claire Lee: I think we're making progress in some areas, but when I think about the three legs on this stool it's hard for me to feel really anything less than slightly disappointed. Verging on depressed some days when you look at the data and you say, "Right, 2% or 7% to 9% GPEs, okay and we're making progress." When you look into the boardroom, and more importantly, what the startups today are choosing to do with the venture capital and the funding they're securing and who they're hiring to run the company. In a lot of cases, I have to say, you end up with an all male founding team, a lot of the time all white male founding team. Then they go on to hire the next 10 as we say. A lot of them are really talented women. You end up having a woman in a supporting role again, as Chief Operating Officer. Guess what? That means I'm playing second fiddle in the orchestra and you are playing the solo.
Chris Castle: Yeah.
Claire Lee: Not just the credit you get, but you get the bulk of the wealth that's generated from a successful endeavor and therefore, you go onto deploy that wealth. Really to me, it's about getting greater access but more importantly, how do you give those companies a really good shot at success such that the wealth ends up in the pockets of others besides just white males. That's something that Ellevest and Sallie Krawcheck is obviously working at along with All Rays, and Alice, and a range of companies that we're really pleased to support. Astia Global and other groups. Startup Grind who have a fantastic resource called, VC Corner. We just featured a female VC from Baidu Ventures on our last VC Corner. Again, you have to take action and to quote Michelle Obama, "If you can't see it, you can't be it."
Chris Castle: What are things we, the existing establishment can do to lower barriers for diverse people to work with us, to be my boss?
Claire Lee: Yeah, by the way, female bosses rock apparently.
Chris Castle: Yeah, I agree.
Claire Lee: That is a great question. First of all, think about it with the lens of geography. What's fascinating is watching again, you think about the directionality of capital, and Silicon Valley is a fantastic proxy for how venture capital is deployed globally.
Chris Castle: Yeah, it's like a little Petri dish.
Claire Lee: It really is, right. It's got the incredible, like the intersection of everything I talked about earlier right there. It's highly concentrated. That's both great, positive, and also I guess it's hard to penetrate. You can't just get off the plane at SFO and go knock on doors of VCs in San Francisco or Sandhill Road. To your point, you got to build an access network and greater ally ship, I guess is a good word. You talked about it, advocacy, evangelism, within a network from day one. Without having the outcome as, I'm going to raise a huge check from Kleiner Perkins, or Sequoia, or Benchmark, or whoever. I think it's really incumbent on you to be extremely tenacious and resourceful from day one without really pitching anything. This mentality, and Tech Star is very good at this, they really help founders understand how to give first. It's a very solid thesis and it's part of their philosophy and their operating model, actually. If you give first and you're resourceful, and you have genuine connections, authentic relationship, when it comes time for you to say, actually I need help with ... That will hopefully show up as good karma.
Claire Lee: As I said, it's concentrated. The capital invested in the US, 75% of all the US venture capital really actually is in four cities in three states. That's Boston, New York, Los Angeles, and SF Bay Area. I guess to quote what you were saying earlier is one thing that I need to go to the valley or to one of those four cities to raise money? I don't think the answer is yes because entrepreneurship is everywhere, but when you think about access to the mentors and those people who are funding businesses, potentially it is-
Chris Castle: It's still all there.
Claire Lee: Something you've got to really look at. You've got to research this, like everything else. The ability to raise pre-seed, seed, and even series A is becoming, I think, harder. The gap actually between the haves and the have nots is widening. Big difference between obviously serial entrepreneurs, repeat founders versus first time founders. Again, what's the one huge advantage you would have if you for instance left a company tomorrow, decided to start a company? It would be the fact that you can say, "Oh hey, I'll call Claire at SVB and see how she's going to advise me."
Chris Castle: Right.
Claire Lee: Then I would introduce you to more people, mentors, advisors, potential board members, potential customers to trial your product. That makes a very big difference. Secondly, I think SVB, we're lucky because as I said we get to work with the pre-series A companies in my team, and then help them scale. 60% of all the US venture capital backed companies that IPO'd in 2018 are clients of Silicon Valley Bank.
Chris Castle: Wow.
Claire Lee: Yeah. We're seeing a lot of really interesting insights here. One thing that came up recently, which is fascinating is around this release of talent. When you see these unicorns that are IPOing, going public-
Chris Castle: Yeah, there's so many.
Claire Lee: That might mean-
Chris Castle: There's so many that have happened in the past six months and are coming too. Right?
Claire Lee: Yeah, there's a lot coming. Stitch Fix being one of them, a fantastic example of a female founder and CEO who built that business, continues to drive enterprise value. I'm actually optimistic that we'll see a bump in new company formation in some of the hottest sectors like AI, robotics, ML, and cannabis, and crypto currency, et cetera, the others. Even in angel investing as we see these companies go public and then people obviously choose to move on and do something new.
Chris Castle: Yeah, with their newfound wealth.
Claire Lee: Right, exactly. When you couple that with what you and I spoke about earlier that I think there's a generation as well, a younger generation who are more curious or I mean, maybe they are less risk averse or something as well. They're also less wedded to these big brands. It manifests in different ways, for instance the rental economy, the on-demand economy. The fact that they don't buy and own cars.
Chris Castle: Yeah, sharing. Time sharing of things, I guess.
Claire Lee: Renting your furniture.
Chris Castle: Cars, house.
Claire Lee: Renting absolutely everything. I do feel like when you look at those macro dynamics and these trends that we're seeing, it's a really interesting, it starts to seem for a really interesting next five years in tech because you'll probably see, I hope, more inclusion, diversity, and representation in the generation of startup entrepreneurs and founders in the coming decade as a result of some of these things that have been the foundations for the last 10 years.
Chris Castle: Right, yeah. The consumers of the existing startups that are IPOing in the next five years are going to go on to be the founders of new startups.
Claire Lee: Correct. The other thing is I think we're seeing a much larger international representation in the US as well. We've always been a country of immigrants, as I said earlier. 40% of the companies in Y Combinator's latest cohort came from outside the US. We're also seeing programs like Stripe Atlas having a real impact in, as I said, really democratizing that access to company formation. If you want us to incorporate and get a Delaware C Corp, an EIN, and a bank account from Silicon Valley Bank quickly and easily, Stripe Atlas is one of the ways to do that, and that's globally if you're an e-commerce company. There's some really great solutions and innovations that have appeared on the landscape in the last few years so I'm optimistic it's going to get easier.
Chris Castle: Yeah, that's cool. There's tools, like how do you make it easier for people that want to start companies using various tools they need to build a product, or build a company, or create the legal entity or whatever it is. Then there's also guidance, coaching, mentorship, things like that, which I guess can come from networking like you were talking about earlier. I don't know, I just feel like mentorship and coaching can be such a powerful thing. Google is so easy now, right? I can find Stripe Atlas or I can find different ways to get templates for legal documents that maybe I need for incorporation of a company. I always have found it harder, and I think many people find it harder to find someone who's been there to help them or to explain the ropes to them. Do you know of any resources there, events, meet up groups or things like that where people can ... I guess initially there's probably people out there that are like, what is it like to be a startup founder? I have no idea if I want to do it but I think it sounds interesting. How do I find out what it's like?
Claire Lee: I think if you travel to Antarctica and it's hard and lonely, that would probably be similar.
Chris Castle: Yeah, right.
Claire Lee: It is extraordinarily hard.
Chris Castle: That's the truth, right? Everyone says that being a startup founder or CEO seems like such a public position but you hear from so many people that it's a really lonely thing to be a startup founder.
Claire Lee: Yeah, I mean look, it takes eight, ten years. That's a serious gestation period for anybody. I'm really proud of some of the clients that we've worked with and others that came out of Astia Global, one of these great resources for female co-founders. Astia, a lady called Surbhi Sarna who I met maybe eight years ago actually when I first moved to the Bay Area with Microsoft. She started nVision Medical, which is early detection of ovarian cancer, it's a device. She really struggled to raise money and even despite interventions, and introductions, I think she continued to struggle to raise money. Then I believe, was acquired by Boston Scientific or Boston Medical in 2018 for north of $200 million dollars.
Chris Castle: Wow.
Claire Lee: Amazing and rare. Not everybody is going to have that outcome, in fact I think the large majority in the next decade will probably see embracing alternative methods of financing, one of them of course being debt finance, which is what we do.
Chris Castle: Right, yeah.
Claire Lee: As I said, SVB pioneered this category of venture debt, which is putting debt beside the equity because equity is actually really expensive capital when you think about going out and doing your product development, and you're prototyping, and acquiring your clients, and your employees, and building the infrastructure. Our goal is really twofold. We're trying to reduce the cost of formation and operation and then we're trying to increase your probability and accelerate your trajectory of success with the access to customers and really helping you grow your company faster and cheaper than you would and hence, mitigate the risk of going out of business. Look, I think it's not for everybody.
Chris Castle: Yeah.
Claire Lee: Just to reel off some of the partnerships, I've mentioned some of them before, but apparently going through a name brand accelerator does increase your likelihood of raising a series A brand in the US so think about that. There's been a really great evolution of the likes of Tech Stars, Y Combinator, another one I love in the Bay Area at Stanford is actually a 501C3. They don't take equity and that is Star Techs, so if you have any affiliation with Stanford you can apply for that, it's a fantastic accelerator. Then you have a lot of other fantastic vertical accelerators and incubators. That's an increasing trend we're seeing so again, if you have a consumer idea, then you might want to go and hang out with others who have a consumer startup.
Chris Castle: Yeah, right. Makes sense.
Claire Lee: That builds in relevance. Second I think, when you think about access to capital, again, you don't have to go seeking equity from day one. There are really clever ways to do it. You can, as I said, open an account with SVB, you can incorporate using Stripe Atlas, there's credit card offerings and ways to grow really quite sensibly in the first few years and then go and look at burn rate calculators from our friends at LTSE. They have runway.io and captable.io, then there's Carta, formerly eShares. There's a lot of great companies who are really good at what they're doing, if it's either a functional area that they've just really nailed it like trying out HR in Gusto. Then you've got obviously, dev tools as we know on platforms, which help with distribution and customer acquisition. The mentors and the people you surround yourself with from day one hopefully are going to be people who absolutely believe in you. Use their Rolodex very actively to help you and identify things early on that just don't work. Taking advice is really tough, you need to understand which pieces of it you want to acknowledge and address, and which you want to ignore.
Chris Castle: Right.
Claire Lee: Just stay true to yourself, and stick to your guns, and get on with it. I think that's the tricky part, is really deciphering which is valuable.
Chris Castle: Advice is cheap, right? Yeah, it's easy for me to give my opinion and my advice, right? You have to figure out whose to take. Very often, it's conflicting.
Claire Lee: Yeah, probably the best way to success is to fail frequently. Then not fail one day. That's usually how these things are created through a lot of hard work and failure. I think it was Churchill who said success is going from failure to failure without any loss of enthusiasm, which is actually true. That goes for all of us I suppose.
Chris Castle: It seems like humans learn the most from failure not from big successes or constant success, frequent success.
Claire Lee: If you're not making mistakes you're not learning. If you're not learning, you're probably not going to succeed. It's ironic.
Chris Castle: Yeah, it is.
Claire Lee: It's painful.
Chris Castle: It's painful, right yeah, but it's required. It's a requirement of life and different pieces of life.
Claire Lee: Yes.
Chris Castle: Yeah. Well, cool. Is there anything that you would like to leave with our audience here about starting a company, or ways to maybe start a company, or things to think about to make it easier for others to start a company?
Claire Lee: Yeah, just if you have an idea you're really passionate about it and you're solving a real "problem", but if you're absolutely compelled to do something about it, you can't sleep at night because you think everyone else who's trying to solve that problem is an idiot, then think about who you could go do this with. By the way, companies with three co-founders, the data shows us that they're more successful. It is tough being a solo founder, but people do it. If you really want to do it, you're thinking about it, and you're sick at the thought of not doing it because no one else is doing it right, just go do it. Two, go and find the amazing resources in your town, city, village, wherever. Then in the virtual world there is a lot of access to resources online.
Chris Castle: Right, even I imagine the Estonia e-residency program, which is something I just found last night, which provides a framework for people to start companies in the EU without even living there, digital nomads.
Claire Lee: Yeah, these digital-
Chris Castle: There's so much out there.
Claire Lee: Exactly, the digital communities are fantastic and you've got this combo of online and offline, this omni channel approach to everything now. Startup Grind is another great community, they're global. As I said, Tech Stars is global. Another great group is Endeavor Global, that's for companies who are maybe slightly more mature but again, there are so many institutions, organizations, industry groups. You have expertise in for instance, the legal channel as well with law firms from Orrick and Gunderson, and Cooley, and WilmerHale, and all these other firms. Plus, you now have a new company called, Atrium founded by Justin Kan who again, trying to provide access to legal expertise for companies in a cost effective manner, but in a way that helps them avoid the common mistakes and pitfalls that others have experienced before.
Chris Castle: It sounds like the guidance is, don't be shy and just get out there and search, and connect with people, talk with people, find resources online.
Claire Lee: Yeah, I mean I'm going to-
Chris Castle: You can't do it alone. You need-
Claire Lee: You cannot do it alone.
Chris Castle: A co-founder and other people and companies to help you.
Claire Lee: Absolutely. I can't reinforce enough how really, you just have to surround yourself with that energy, people who believe in you, not necessarily your product or your idea because that might fail and you might have to pivot about 10 times before you get it right.
Chris Castle: Right.
Claire Lee: They need to believe in you, and I think surrounding yourself with people who can really get stuff done is very important. I'm going to butcher this phrase but the quote from, I think it was Mark Twain who said, you regret the things you don't do, not the things that you do.
Chris Castle: Right.
Claire Lee: I think that is a fantastic phrase for a startup-landia.
Chris Castle: Yeah, that's great. Well, let's leave it at that. Thanks very much, Claire, for joining us for this episode of Code[ish].
Claire Lee: You're welcome, it was fun.
A podcast brought to you by the developer advocate team at Heroku, exploring code, technology, tools, tips, and the life of the developer.
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