Cameron Lester, Azure Capital Partners: Bias Disallows Disruptive Investment

Transcript follows & video below.  This is Part I of the interview. You can view Part II here

What is your sweet spot, in what kinds of businesses do you like to invest?

So we invest in technology & internet companies. So typically earlier stage companies in 3 major areas: software & web based applications; IT & technology infrastructure & consumer internet. For example in the software space we were the major investor & the only investor in VMWare In the consumer internet space we were the largest shareholder & early backer of BillMeLater which we sold to ebay for $1B in late 2008. In the communications & IT infrastructure space we’ve been backers of companies like Calix which we took public earlier this year & Worldwide Packets which we sold to Ciena for $300M in 2008.

Cameron Lester

What percentage of women startups do you get pitches for? And what percentage have you funded?

So interesting enough we’ve actually backed quite a few women. So over 20% of our portfolio today is represented by women CEOs.

Cameron Lester

Wow that’s the highest I’ve found with anyone, brilliant work!

Well we’ve had a lot of luck with women CEOs. We’ll talk about pattern recognition in a few minutes. The first woman CEO that we backed was Diane Greene of VMWare. At the time that was a very young company. They were doing just a few million dollars in revenue. It was a husband & wife team which is also kind of an unusual leadership team to back. We had done a bunch of research on the space & actually were impressed with the opportunity. We had no idea VMWare would eventually become. It exceeded our expectations but clearly that was a winner for us. We’ve been backing women CEOs not as a strategy. We’ve been backing them because the way that we do our investments here is we try to actually avoid bias & do quite a bit of industrial research on market opportunity in the space & business models. We then use the evidence & our findings to make the decisions on who to invest in. We find that that yields quite a bit better results. In fact a lot of times when we invest, it’s viewed as a bit contrarian because we’re ahead of the curve. But the result of that is that I think we have more of a representative selection of CEOs because we’re trying (we’re all victims of bias) not to let bias be the driver of the investment decision. That being said, the success of the women CEOs that we have in our portfolio certainly reinforces the view that we should continue to be very balanced in our approach.

Cameron Lester

Have you noted differences with women entrepreneurs in how they pitch & build businesses?

You know I have to say, I’ve gotten that question before & I think that it’s very difficult to assign some sort of distinct characteristics to women CEOs relative to male CEOs.

Cameron Lester

It’s hard to generalize, isn’t it? Cindy Gallop, Founder of IfWeRanTheWorld, said in a recent interview: ‘VCs fund in their own image: white, male. The cycle is self-perpetuating, so (predominantly male) VCs have a preconceived notion in their heads of what they think constitutes the kind of entrepreneur to back. John Doerr apparently said, ‘If you’re a white, under30, tech geek with no social life and a Harvard/Stanford dropout, line up for VC money.’ He didn’t say ‘male,’ but he might as well have. If it had been a 17-year-old Russian girl who came up with ChatRoulette would there have been as much interest in funding whatever she might do next?’  What is your take on this Cameron, & if this is happening how can women startups find an opening in this culture?

So the “old boys network” exists in almost every industry, right, & I think that Silicon Valley is no different. The success of this community is in large part the fact that there are established institutions that have continued to generate quite a bit of successful outcomes. So Stanford community for example, there’s a huge number of alums that have come out of that school that have done very well. I think that the other pattern that people have seen generate a lot of success is people coming out of successful tech companies whether that be a Google, or before that a Netscape & then starting their own businesses. So I think vcs have in general been victim to the fact that they see if you come with a Stanford background or another Ivy League background or Havard background & you have worked at an Apple or a Google or a Netscape or pick your hot tech company & you’re typically younger therefore associated with working the 100 hour weeks & you’re well spoken therefore you can be viewed as someone who can market your business to customers, future other investors or acquirers, then you’re somebody that should be backed. So as we sit in partner meetings & somebody comes in with that school background & that pedigree in terms of where they worked & pitches. If they speak well & they have that background there’s a comfort zone. That being said, I think that that can lead to a lot of erroneous decisions. The way to make money in this business is not to make money by backing what everybody else is backing. The way to make money in venture capital is to think against the grain & be ahead of the curve to invest in something that has yet to be discovered by everybody else & to build it into something great. Whether it’s a male CEO or female CEO doing that is really irrelevant. What we’ve found is, at least in the experience we’ve had in over a decade of doing this is that there’s a crop of women CEOs who are doing great things in this industry. What we’re trying to do as a firm here is to back something that doesn’t necessarily check all the boxes but has the potential to be great. I think if you take that mindset, you get out of the trap that you’ve just described of backing the pedigreed male CEO from the right school with the right work background.

Cameron Lester

And it’s obviously been successful for your firm, hasn’t it?

Absolutely, absolutely!

Cameron Lester

Cindy also says: ‘I think not as many women as men actively seek VC money because they’re not as tapped into the boy’s network as male entrepreneurs are. Young male entrepreneurs can very easily become the flavor of the month and get introduced around from one VC to another — get the perception going that they’re ‘hot’ and get their funding. It doesn’t happen for women that way.’ Do you think that networking with Venture Capitalists is harder for women entrepreneurs?

I think that that is changing. We’re noticing perhaps because they’re fewer of them, women have a very serious attitude towards helping one another & networking & providing insight & resources. I was just meeting with one of our women CEOs & I was listening to her talk about how she had gotten together over the weekend with another one of our women CEOs who she knew prior to Azure & before we had ever invested in those companies. It’s a relationship that they’ve kept for years. They were working to help each other sort out some of the issues that they had with their respective companies. I’ve been invited to a couple of events over the past year of women CEOs & entrepreneurs networking & helping each other. So I think there is a concerted effort on the part of the successful women entrepreneurs in the valley to really build their own set of networks & help those who are less connected get inserted into the main stream venture capital entrepreneurial network. I think that this is a work in progress, 10 years from now it’ll be much further along. But I do think that these types of initiatives & the kind of rallying cry that I’ve seen here amongst some of the most successful women CEOs is having a good effect. That coupled with the fact that some of these women CEOs are generating great results is what ultimately gets everybody’s attention.

Cameron Lester

Yes, the proof of the pudding!

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