By Marylene Delbourg-Delphis @mddelphis
Azure Capital, a San Francisco-based venture capital firm with over $650 million under management, has been remarkably successful since its inception a little over ten years go. One of its no less exceptional achievements is the number of women CEOs they back in the 23 companies in their active portfolio: five, i.e., over twenty percent! I doubt that any other fund of this size or greater even comes close to this percentage. So I sat down with Cameron Lester, one of the founding General Partners, to know more about how this happened.
“Biases are detrimental to making good investment decisions.” Did Azure follow a specific strategy? No. Cameron is very clear: “It’s not something that we went out with a strategy to accomplish. Rather it was something that developed through the natural process by which we invest.” This process is noteworthy in itself: the strength of the partnership is based on its ability to perform and leverage bottom-up, heavy industrial research, which means identifying meaningful and large opportunities before they emerge as trends to most other VCs and the general public. This knowledge-based, rational methodology enables the firm to keep away from fads and focus on what companies actually do and the relevancy of their product. This approach also curbs the temptation of indulging in standard sociological patterns and typical biases. “A person walks in this room,” Cameron says humorously, “a great presenter, Harvard or Stanford MBA, has worked at Apple or Google. They’ve been backed by maybe another great venture firm that could talk about how great they are. They are really confident, etc. The bias is ‘I don’t care what you say’ because in my mind I am thinking ‘you know what you are doing’. You have the right background. You are 33 years old. Right buzzwords. The space sounds really cool. Check… check… check… ‘Let’s back you.’ The way we do our research is fundamentally different.” What matters to Azure are interesting areas that they have identified themselves as promising, and from there they try to find the startups that fit within the model of what the partnership has decided it is going to invest. Of course, the strength of the CEO does matter, but if that CEO isn’t a male from Stanford, that’s OK. “Biases are detrimental to making good investment decisions. “When we looked at VMWare, we looked at a company with a very unique solution to a fundamental problem and we ended up funding Diane Greene.” VMWare was one of the first companies Azure backed, and they have no reason to regret it! Incidentally also, Azure threw away another bias at the time. It invested in a husband-wife company, as one of the other founders was Diane’s husband, Mendel Rosenblum. “And we continued along…” A great precedent can’t be discouraging, of course. “The women CEOs that we backed have been very strong performers. Azure currently supports Deidre Paknad (of whom I spoke in an earlier post and attracted my attention to Azure Capital!), CEO of PSS Systems, Karen Vergura at ezRez, Tracy Randall at Cooking.com, Lisa Stone one of the three women founders of BlogHer, and very recently, Wendy Lea, the CEO of Get Satisfaction.
“You always want to invest where other people aren’t focused” Cameron is not making any generalization on the style of women-CEOs, well aware that however rewarding working with the women CEOs they have in their portfolio has been, the current sample is still too small. More importantly, this is not even a relevant topic per se, and this is precisely what is great about the whole story. The driving force in Azure’s investment decisions is the very nature of the business companies are in, not the gender of their founders or any other bias. Business women can only benefit from this straightforward objectivity!
Interestingly enough, such freedom from gender prejudice itself drove highly valuable investment decisions. Because of it, Azure was able to get interested in gaining “insight into what’s happening in the female community, particularly as it relates to social media. It has less to do with women CEOs, but gave us an investment theme — and my partner, Mike Kwatinetz, has the credit for this process. In 2006, we were looking at the social media space. Our conclusion was that investing in another teen-oriented social media company would have been kind of investing in the nth company in the space. The winners had already been backed, this was our view. So, instead of trying to invest in the early adopter demographics, we looked at the most valuable demographics from an advertizing perspective and found out that women controlled over 80% of all consumer purchases. To be ahead of the curve, we looked at companies that would address these demographics. Our first investment is more related to parents, and is Education.com, a company that we incubated. The other was BlogHer. We got very lucky because we financed it in May of 2009, when the VC industry went into hiding; so we were able to invest at a very opportune time for us in a company that was just picking up steam. In the first case, the CEO is a male [my note: the CEO is a black man, Ronald Fortune]. It didn’t matter to us, but it’s an example of how our research process drove our investments.”
So, what would happen if all the VCs were both gender and color blind? It might be less of a challenge for women to get funded – provided that they have a VC-fundable business.
Note: There are dozens of articles related to the fact that women are underrepresented in venture-backed startups. Among some of the recent ones, you may want to look at Is There a Female Funding Model? by Stacey Higginbotham, Why Men Get VC Money and Women Don’t….and How that is Changing by Janine de Nysschen, or Too Few Women in Tech? Stop Playing the Blame Game by Allyson Kapin, the founder of Women who tech.