20VC: Why Lead Lime's Series D Funding Round, Why Engineers Are Underpaid & Why 74% of US Venture Firms Still Do Not Have Female GPs

Sarah Smith is a Partner @ Bain Capital Ventures, a leading US venture fund with a portfolio that includes the likes of LinkedIn, Lime, SendGrid, Jet.com and more incredible companies. As for Sarah, what a start she has had to her time at Bain leading investments in the likes Perksy and the unicorn that is Lime. Prior to joining Bain, Sarah spent 5 years at Quora both as VP of Advertising Sales and Operations and then also from 2012-2016 as VP of HR, Recruiting, and Operations scaling the company from 40 to 200 employees. Before Quora, Sarah spent 4 years at Facebook as Director of Online Operations where her team scaled revenue to $1 billion ARR while reducing churn and increasing customer satisfaction. In Today’s Episode You Will Learn: 1.) How Sarah made her way into the world of venture having seen the hyper-growth of both Facebook and Quora over 9 years in operations? What were the biggest takeaways from her time with Facebook and Quora? What lessons did Sarah learn as an elementary school music teacher that she has applied to her role in VC? 2.) Sarah and Bain led the Series D in Lime, so how does Sarah think about: Market Size: How did Sarah think about and assess market size when evaluating Lime? How does Sarah respond to Peter Fenton's statement, "I always laugh when I hear investors say they look for big markets"? Competition: How did Sarah look to get comfortable entering such a fiercely competitive space? Is capital itself a defensible moat? Dilution: With such huge future funding requirements for these companies, how did Sarah get comfortable with the level of dilution that will surely occur? Hardware & Unit economics: How does Sarah think about and respond to the current level of break rates? How does Sarah believe Lime can have positive unit economics within 18 months? 3.) Why does Sarah believe that engineers are fundamentally underpaid? How does this tie into their mindset and attitude to equity? Why does Sarah believe the 4-year vesting schedule is fundamentally outdated? What would Sarah advise founders in terms of comp package to put in it's place? Does Sarah believe the high attrition rate in the valley is a feature or a bug? 4.) Why does Sarah believe it is glib to say the lack of equality is merely the problem of VC being an old boy club? What are the more foundational and systemic problems that have caused this inequality? Why does GP commit fundamentally inhibit diversity? For firms looking to add a female partner, what is their literal next step? What does that process look like? What can they do to ensure their success in the first year? Where does Sarah see many firms going wrong here? What must firms avoid? Items Mentioned In Today’s Show: Sarah’s Fave Book: Brotopia: Breaking Up the Boys' Club of Silicon Valley, The Making of a Manager: What to Do When Everyone Looks to You Sarah’s Most Recent Investment: Perksy As always you can follow Harry, The Twenty Minute VC and Sarah on Twitter here! Likewise, you can follow Harry on Instagram here for mojito madness and all things 20VC.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  You are listening to the 20 Minute VC with me, Harry Stebbings. I really would love to hear your thoughts and feedback on how I can make the show better for you. And you can do that on Instagram at H Stebbings 1996 with two Bs. And I respond to all messages personally there. But to the episode today and a very special guest, she's gone out of her way in the past to help me and just really is a truly wonderful person in the industry. And so with that, I'm thrilled to welcome Sarah Smith, partner at Bain Capital Ventures, a leading US venture fund with a portfolio, including the likes of LinkedIn, Lime, SendGrid, Jet.com and more incredible names. As for Sarah, what a start she's had to her time at Bain, leading investments in the likes of Perkzy and the unicorn that is Lime. Prior to joining Bain, Sarah spent five years at Quora, both as VP of Advertising, Sales and Operations,

• 0:42Harry Stebbings?

  and then also from 2012 to 2016 as VP of HR Recruiting and Operations, scaling the company from 40 to 200 employees. And before Quora, Sarah spent four years at Facebook as Director of Online Operations, where her team scaled revenue to, check this out, 1 billion ARR while reducing churn and increasing customer satisfaction. But before we dive into the episode today, I'm always focused on scaling my time and I was always crap at travel booking and management. Well, not anymore. Why? Because I now use TravelPerk, the business travel management platform that even I love. It's just so super easy to book travel and actually quite fun. And my favorite, no back and forth with travel agents or your finance team, but it gives you the best of both worlds.

• 1:21Harry Stebbings?

  Companies don't just get happy travelers, but also easier management and as much as 20% in savings with 100% in compliance. Got to tick that compliance box these days. And even better, no one is going to chase people for receipts or worry about splurging on overly expensive penthouse suites. Finally, I have to say, the support is just number one rated. So you get 24/7 travel experts ready to deal with forgotten passports. Yep, I had that one before. Unexpected flight cancellations, oversized baggage requests, vegan meal options, whatever you can think of, they have you covered. And the 20 Minute VC listeners can score a free lounge pass to over 1,200 airports for a whole year. That's quite astonishing. I'm quite jealous. I quite like that. All you need to do is go to travelperk.com/20vc. That's travelperk.com/20vc.

• 2:05Harry Stebbings?

  Give them the name of the person who runs travel at your company and if they book a demo, the lounge ...pass is yours. And if TravelPerk allows me to scale my time, a lot of what we do on the 20 Minute VC is discuss scaling businesses, talk to experts, pick the brains of founders and investors who tell us about the trends to watch out for, offer tips on fundraising and teach us how to excel at any company stage. But there's no playbook for building a great business, but we can certainly learn from people who've done it before. Beyond listening to this podcast and talking to mentors and advisors in your own network, it's important to have resources you can turn to when you're tackling a new challenge. And Stripe has built those resources for you. Whether you'd like to learn how to run a pricing experiment or build a knockout landing page, Stripe gives you the information you need to start, run and scale a technology company.

• 2:48Harry Stebbings?

  And their guides are often written by or feature people like Elad Gil, experts in their space who you've probably heard on this very podcast. And you can read my favourite guide on scaling engineering organisations and many more on stripe.com/20vc, that's T W E N T Y V C. And last but by no means least, to scale, you need customers. And Intercom offers a new and better way to acquire, engage and retain customers. They've built a suite of messaging-first products, from chatbots to a totally reimagined business messenger that modern internet businesses use to accelerate growth across the customer lifecycle, from acquisition to engagement and support. And over the past eight years, they've totally reimagined what a business messenger can be, which is way more than simply live chat. Today, Intercom is used by the world's most forward-thinking companies.

• 3:32Harry Stebbings?

  Eighty-four percent of Y Combinator companies that use a messaging or live chat tool use Intercom. Astonishing fact, that one. And they have over 30,000 customers, including larger companies too, like New Relic, Atlassian and Shopify, and also smaller companies like Airtable and Coda. But you've heard quite enough from me, so now I'm delighted to hand over to Sarah Smith, partner at Bain Capital Ventures.

• 3:58Speaker 01

  You have now arrived at your destination.

• 4:01Harry Stebbings?

  Sarah, it is such a pleasure to have you on the show today. Having heard so many great things from Brad and the team at Lyman's, I really appreciate you taking the time out to join me today, Sarah.

• 4:09Speaker 02

  Well, Harry, as one of your loyal subscribers, it is truly an honor and a privilege to join you.

• 4:14Harry Stebbings?

  That is so, so kind of you. I so appreciate that. But I'd love to kick off today with a little bit on you. So tell me, how did you make your foray into what I always call the wonderful world of venture and come to be at Bain today?

• 4:25Speaker 02

  It is a wonderful world, isn't it? I just feel like we are so lucky in what we get to do. I've proved that if someone can really come from a modest any background through a collection of experiences and make it into venture. So I was born outside of Milwaukee and grew up there. My mom was a music teacher. My dad worked for the Veterans Administration and my whole family really came from generations of people who were in the public professions of teaching and government work. And so all I knew of business was that it was really risky and it didn't come with a pension. So I really knew nothing about Ivy League schools and I think the most expensive meal I had when I graduated from high school. And but I knew that I always loved working. I worked jobs in high school. I was a waitress, which was my first experience with variable comp. And I really liked the idea of feeling empowered to make my own money. But when I went to school, I did what I

• 5:10Speaker 02

  knew, which was music, since I'd grown up in a musical household and I majored in music education. And my first job out of school was teaching elementary K5 music in the Madison School District. But as luck would have it, my boyfriend at the time was actually a computer science grad and had moved out to San Francisco. And this was 2001. So I decided if there was any time to sort of leave Wisconsin, that was it. And I took the leap, moved out. This was right after the dot com bust, obviously. So lots of people were leaving the Bay Area and I was scrambling to find really any work that I could. And I landed at Sylvan Learning Centers, which is a private education company over in the East Bay. And that was really my first exposure to really running a business. I got promoted fairly quickly and was running a center, a little million dollar business, and looked up and realized I'd never had any kind of business education. I'd never taken economics, accounting, marketing. And

• 5:55Speaker 02

  so I enrolled at UC Berkeley Extension, nights and weekends, to take some classes and found that I absolutely loved it. I thought it was super interesting. And that's also where I've talked to some students who were talking about this whole MBA thing. I actually remember asking a student, like, what does MBA even stand for? And quickly realized that that was a really exciting opportunity to grow my career. And as a life-changing experience, got into Stanford Business School and was really there at a fortunate time. And I graduated in oh seven. If you can recall, this is when the iPhone had come out right after we graduated. Facebook and MySpace were battling it out in the social media area. And really, consumer web was just taking off. And so everyone, including my classmates, we were all kind of getting into this ecosystem. I worked at a bootstrap startup and affiliate lead gen.

• 6:37Speaker 02

  Really interesting business to learn that within a year, my classmate Matt Window referred me into Facebook. This was just about six months after Cheryl had joined. And so I really spent the next four years helping scale and grow many different sales and operations teams globally. And in that experience, you know, I started to see how the board members who really had a great stake in the future success of Facebook. And I sort of what struck me a little bit was that there weren't any women at the table. And I thought at some point, I just wanted to kind of better understand that. And so I actually went on to Quora, where I knew the founders and worked there for about five and a half years, running recruiting, HR operations, and ultimately monetization. And in the meantime, kind of started angel investing on the side. And a few of my classmates had started a micro fund called Graph Ventures.

• 7:21Speaker 02

  And they invited me to join in on the third fund in 2015. And that really got my feet wet in sourcing and talking to founders and actually writing checks into companies and did about 20 deals there. So in 2017, kind of in the time of the Me Too movement and a lot of the information coming out about some of the cultures of venture, I decided that was really the time to make a change. I'd turned 40, I was getting married, my family had had some health problems back at home. And so I just decided it was really time to make a leap in my career and pursue venture full time. And I I talked to a lot of different partners at a lot of different firms. I found the ecosystem to be very, very welcoming and ultimately landed at Bain Capital Ventures, which has been a fantastic fit.

• 8:00Harry Stebbings?

  I mean, what an incredible background there. And I totally love that. I do have to pick up on a couple of different strains, though. One of which was the elementary school music teacher. Can I ask, I think it's the first elementary school music teacher from a starting point that I've had on the show. What lessons have you applied from that experience to maybe management and VC?

• 8:18Speaker 02

  Yeah, so I taught in The lowest income school in Madison, ninety percent of our students run free and reduced lunches. We had all of the homeless kids in the entire city come to our school, so very transient population. And I think actually working in that environment also just gave me a lot of empathy for just a broader consumer base, not only in the middle of America, but it's a lower income brackets, which has really stuck with me throughout management and venture, and that you just really never know what privilege or lack of privilege people have had as they grow up. But as a teacher, you're really working with all different kinds of kids, and the whole goal is really helping them reach their full potential. And so you're balancing being inspirational, but also keeping order and discipline. And I think there's a lot of overlaps between that and being a manager and also being a venture capitalist.

• 9:03Speaker 02

  The other thing you learn in school preparing to be a teacher is this concept of scaffolding, where you really want to demonstrate a skill, help shadow a student as they're kind of getting competency with that skill, and ultimately help them gain independence. And as a manager, I often was thinking about the projects and tasks I think give someone that would help them, you know, gain independence, mastery of a skill that would ultimately land them in their next dream job. So there's a lot of things I think you take from teaching that can apply to help building teams and helping really people and companies reach their full potential.

• 9:33Harry Stebbings?

  I have to say, when I wrote that question, I was wondering where you were gonna go with that one. But I mean, that's incredibly aligned in terms of actually a lot of the roles of venture and founder engagement. So that's fascinating to hear. I do have to pick up on the other strain that you mentioned, which was Facebook and Quora, experiencing the hyperskating in their first hand. What were some of the biggest takeaways for you from that?

• 9:52Speaker 02

  Yeah, there's obvious takeaways I think a lot of people who are fortunate to be in those types of companies have, which is, you know, great products give you lots of room to really mess up. Having a clear mission and vision are really critical. It's sort of a once in a lifetime type experience. But I think some of the lesser known learnings or things people don't talk about quite as much is really the importance of being super, super flexible. When a company is growing as fast as Facebook was or as Quora was, it's really important, I think, not to get tied too much to any team or process. Things are changing constantly. When your company is growing one to two percent every single week, you shouldn't really invest too much in any particular process or polish. And you should also be open to really jumping into a new role. When needed. So there are often times where I was just filling the gap where there's clearly a need for leadership or help or management.

• 10:37Speaker 02

  And that is really ultimately what really helped me, I think, grow my career. I also would say that in opening remote offices, so at Facebook, I really helped open in the Dublin, Austin, Hyderabad offices. And sending a group of people from headquarters for at least 12 months to also include a office leader where people report remotely. I found really the best way to encourage cultural alignment across the mothership headquarters and the local team. And make sure that team also feels a sense of ownership and autonomy. We did that really successfully, I think, at Facebook. And lastly, I would say that in both cases of Facebook and Quora, I think quality and trust are really critical. They're very hard to build. It's really easy to lose. I think frankly, you know, Facebook is struggling with that now in some ways.

• 11:22Speaker 02

  And it's super important that companies keep their focus on on user trust.

• 11:27Harry Stebbings?

  I totally agree with you in terms of that kind of centristy around user trust. I do want to dig into some of the elements, though, of your investing today with Bain. One of them is the hot topic of the last 12 months, which is kind of scooters and micro mobility. Obviously, you love that, you know, series D into the line with Bain. So I want to deep inside your thought process here on the deal today. And this is the first time I've had the chance to do this on the show, so I'm pretty excited, as you can imagine. Let's start with the TAM. In defense of the industry and the funds that maybe put money into it, the market size is indisputable. How do you approach market sizing with this one? Peter Fenton said he always laughs when he hears investors look for big markets. So how did you think about this one and maybe respond to that?

• 12:08Speaker 02

  Yeah, it is a huge market, certainly. I mean, first and last mile transportation is estimated to be something like $40 billion globally. But to be honest, that wasn't necessarily the thing I was looking for to Peter's point. What I saw was really that this huge momentum shift in consumer behavior in 2018. If you look at the adoption of these scooters, it's nearly a vertical curve. It's unbelievable how fast consumers have adopted this new technology and form of transportation. And I think if you step back, it really makes sense because it was really a confluence of some of these bigger waves in consumer tech. If you think about it, we've learned that Taking out your phone and pressing a few buttons can equate to transportation, thanks to the rise of the rideshare industry. And then also, we have the rise of Airbnb, WeWork, Uber,

• 12:50Speaker 02

  even eBay, I would say, has taught us that we're okay sharing stuff or using used stuff if it gives us utility. And then you also have battery life and GPS technology that's gotten good enough to power a network of consumer vehicles. So you combine all of that with the fact that our cities are also not equipped to deal with increasing density of population and the traffic congestion. So consumers are really open to micro mobility and a faster way to get around more than ever. So it's not just about a huge town, but for me, this was really a story of massive momentum and a shift in consumer behavior.

• 13:21Harry Stebbings?

  It really is the case of up and to the right, like we always see, the majority of debt. But that absolutely.

• 13:27Speaker 02

  Yeah, or up and to the up.

• 13:31Harry Stebbings?

  Up and to the up, I love that. And in terms of the competition, likely the most discussed element that we see, maybe in the public sphere and to main with the likes of Bird, Voy, Tia, Flash, Dot. I think the last four or five there were just in Europe, but the list goes on. How did you look to get comfortable entering such a fiercely competitive space?

• 13:48Speaker 02

  Yeah, I think it is a competitive space. And certainly, we thought about how much was this competition going to put straight on these companies in terms of their capital needs. So I think capital is somewhat of a moat, but it's not the main moat that we bet on. In terms of this competitive landscape, we really bet on our belief that the company who has the most experience in the most markets are also going to have the most data to use in optimizing and driving the highest utilization. Those at the highest utilization in any market are going to command the most revenue, especially where there's dynamic capping as the sort of forcing regulatory mechanism. And we believe that's going to be the long-term state, that most cities are going to implement dynamic capping. It's different than what we currently have in San Francisco, which is fixed capping.

• 14:31Speaker 02

  So for those in San Francisco, it's a little hard to imagine. But in the end, most cities are going to regulate the market with this dynamic capping system. In this case, Lime already had a clear lead on everyone in scaling, but also had made incredible strides in assembling a world-class leadership team that we felt was best positioned to handle more scaling to come. And so we really felt they stood out and were the clear winner amongst all the competitors.

• 14:54Harry Stebbings?

  Can I ask, and this is maybe very basic thinking from me that I should probably know, what is dynamic capping?

• 15:00Speaker 02

  Yeah, great question. So cities really have three choices that they're facing. And by the way, they all really want this to exist. They know that their cities are really getting just crushed with traffic congestion. And so they want to enable micro mobility. So they're looking at three choices. One is no capping. So they just say, hey, as many vendors as you want, bring as many scooters as you want, which is free for all. We don't believe most cities are going to go after that because it does lead to cluttering on the streets and a lot of the constituents aren't happy about that. And there's a lot of safety issues too, with making sure that you have kind of the right number of scooters on the road. Then you also have the other side of the equation, which is hard capping, which is what San Francisco and others have implemented, where maybe somewhat randomly assign a certain number of permits of a certain number of vehicles to each vendor.

• 15:45Speaker 02

  So they might say, hey, 500 to U-Lime, 500 to Bird, 500 to Skip. And that unfortunately doesn't really have anything to do with consumer demand because usually finance are actually a lower supply than would actually have been the demand of consumers. And then that ultimately means that it doesn't become a reliable form of transportation. So the dynamic capping system, what it does is it places burden on the vendor to drive a certain utilization per vehicle per day. So the city could say, you need to prove that you are producing at least three trucks per vehicle per day. As long as you're hitting that, you can keep adding scooters to the road. So if you have 1,000 scooters, you're doing 4,000 trips per day, you can increase your supply until you get to that magic number that the city sets. And that really develops a nice mechanism for making sure there's adequate amount of

• 16:28Speaker 02

  supply to make this a really useful and effective form of transportation for consumers.

• 16:32Harry Stebbings?

  No, absolutely. I mean, speaking of, and thank you so much, by the way, for the explanation there. I totally get that now. Speaking of kind of the scooters themselves, often a discussed element is the hardware and the brake rates of the scooters. How did you think about this and get comfortable with really also that huge infrastructure required to run such a hardware intense business?

• 16:51Speaker 02

  Yeah, so one of the things that is interesting is given how fast things grew last year, it put a lot of strain on supply and the supply chain. And so a lot of companies launched with consumer grade scooters, which are not meant to be a huge scaled fleet that is shared amongst many consumers in a market. So we certainly Saw obviously shorter scooter life last year, but we talked to a lot of experts in the field and the hardware space of many of the teams that we also were evaluating. And we got really comfortable that it was possible to build a rugged enough scooter that was suitable for a scaled fleet in an urban environment. At a cost and a price point that would drive to ultimately positive unit economics.

• 17:31Speaker 02

  And if you think about it, you have to believe that any company at scale would have the ability to build a similarly tough and rugged scooter. And so for us, it came down to sort of table stakes that that would be the case. And we felt that Lyman and actually many of our competitors would be able to do that.

• 17:47Harry Stebbings?

  Can I ask, in terms of the scooters themselves, how they look, how they feel, how they ride? Did you notice that there was any consumer loyalty towards certain brands over others? Or is it maybe more of a convenience choice?

• 17:59Speaker 02

  Great question. First of all, have you tried it yourself?

• 18:01Harry Stebbings?

  Uh, do you know, I have in Paris last week for the first time and I did get a lime, I have to admit.

• 18:06Speaker 02

  Awesome. What did you think?

• 18:08Harry Stebbings?

  I loved it. It was incredible fun and it reminded me of going back to my school days really, but it was wonderful. Yeah, totally loved it.

• 18:14Speaker 02

  Yeah, awesome. So it turns out tens of millions of people have had a similar experience already in just the last year. So we do think that at some point there will be some consumer loyalty just out of convenience. But the bigger driver is really going to be proximity and location. So when you step out and you're trying to get from point A to B, you're going to really just care about which one is the closest to you. So we think it's possible that consumers will use many different products. Certainly you could imagine in the future, these companies create incentives to drive more loyalty, subscription plans, discounts, different things like that. But our view is that really, again, this comes back to the fleet that is best optimized in terms of its dispersment of the vehicles throughout the city. We believe that that is the player that's going to win the most revenue and the most trips.

• 18:59Speaker 02

  So likely it's going to be the one that's really closest to you and the scaled players are probably going to be best positioned to make sure that's the case.

• 19:06Harry Stebbings?

  Yeah, no, I totally get that in terms of that kind of convenience model. The final element I do want to touch on with regards to the scooters, so is kind of putting on maybe a slightly more diligent VC hat. The element of dilution is one that maybe one can't ignore. With such huge funding previously and probably in the future, how do you get comfortable with the level of dilution that will almost inevitably entail?

• 19:26Speaker 02

  Yeah, I guess I think about this similarly to getting into Facebook at the Series D as an investor, which also happens to be about eight months after I joined the company. So certainly the early investors in Facebook stood to do much, much better, but it was still a really, really exciting opportunity to invest in the company. And there was huge growth momentum, which is similar. You know, honestly, Lime is the first company I have seen since my time at Facebook showing that kind of sort of tornado of growth and insane momentum. I believe they have a shot at being the largest transportation company in the world. And if that happens, 2.4 billion dollar Post is going to look tiny in the rearview mirror. So my bet was really believing that Lime has the ability to get us positive unit economics and more than 15 to 20x from here.

• 20:09Speaker 02

  I actually think that can happen sooner than people might guess. And for the skeptics out there, I would actually encourage them to even take another look. If you would have been happy investing in Facebook at a $10 billion valuation.

• 20:19Harry Stebbings?

  No, I love that in terms of taking another look. And yeah, I'm sure we'll see some on Twitter from that comment. I do have to also, we mentioned kind of consumer loyalty there. We mentioned some of the hottest companies in town with Lime and Bird. And in these cases, the talent itself is the biggest war. You've been part of two rocket ships, as we said, Facebook and Cora. And you said to me before that a contrarian thought you hold is engineers are underpaid. How can I not start with this? Why do you think engineers are underpaid? And how does that tie into maybe their attitude to equity?

• 20:48Speaker 02

  Yeah, so I do believe this. I don't know about you, but I have yet to find a founder who says that they have too many engineers. They don't know what to do with them. They've had no problem recruiting. They have more engineers than they could possibly hire. I literally have never heard this from anyone. So everyone knows this is a super tight market. And in that type of world, you have to think there's got to be some more regulatory mechanism here to balance things out. And really, it just, I think, means that price has not risen enough to drive enough of the supply. So certainly you could just make a general economic argument that engineers, if you're struggling to hire, you just need to keep raising your price and raising your price until you can successfully hire. Now, in terms of the overall comp package, I don't know that it's completely unreasonable.

• 21:33Speaker 02

  I think there's probably room for it to grow, but I think we're the really interesting. Thing happens is what we noticed at Cora, which is that if you think about how most engineers or really a lot of individual employees and their risk profile, how they think about equity. If you talk to many of them, even the most savvy people often really think of equity as a lottery ticket. And if you think of it as a lottery ticket, that means you're essentially assigning an expected value of zero. And that to me always struck me as really odd because investors obviously don't assign a value of almost zero to their equity in companies. So we kind of thought, stepped back at Cora and thought, you know, why are we giving away this equity as a significant portion of the compensation package

• 22:16Speaker 02

  when the expected value to the engineer, whoever the employee is, is almost zero? Why wouldn't we instead go raise some additional capital from people who adequately value it or value it at least at a higher rate and instead convert that money that we get from investors into higher salaries to make us more competitive? And so I'm surprised to see that more companies aren't doing this. Because really, it just seems like almost, it's just like inefficiency in the marketplace. And also, if you think about for engineers or any individual employee, like it makes sense that they can't necessarily value it the same as investors because their time horizon from a financial perspective may not be the eight to 10 years that many companies are taking to go public. They may need more liquidity sooner. And so I think it's just interesting that a lot of companies, I think, still are really behind in seeing the shifts that they can maybe make in their economic model.

• 23:01Harry Stebbings?

  I think it's a fascinating perspective and for sure. So let's say I'm an early-stage founder and I come to you as one of your portfolio companies and I say, Sarah, I'm struggling to construct my comp plan. What would you advise me looking to build and retain that really strong team in terms of kind of comp plan construction?

• 23:18Speaker 02

  Yeah, so I think that we are living in a world where the four-year vesting schedule is really outdated and sort of a legacy from somewhat like 20 years ago. When companies typically went public more in like four to five years. Now, clearly, we're staying private much, much longer and most individual employees can't afford to wait that long to get liquidity. And then you combine up the fact that the average tenure of an employee in a competitive market like San Francisco is about a year and a half. So it's interesting. And why are we giving these four year grants to people when they might likely stay a year and a half? So I recommend that people really consider thinking through, what if you switched it up and you instead gave a bit more cash upfront? And you gave two year grants, alright? And then every year you gave an annual refresher.

• 24:03Speaker 02

  I think the positives of that is that you certainly you tie up less of your option pool early on. And you also have an opportunity every year to reevaluate and to grant additional grants to your employees, which also feels good over time. And I just think that's like a much more efficient way to manage expectations and to really respond to the current market conditions.

• 24:23Harry Stebbings?

  From a technical feasibility case, is that not super challenging in terms of adding those additional years? Has anything changed over the last few years to make that easier and more possible and accessible?

• 24:33Speaker 02

  Yeah, it's a great question. I was sitting at court asking, why does this still exist? And at that time, a lot of the answers were, you know, well, this is just sort of the way it's done. It's really complicated to keep track of. A lot of the stuff at that time were living in spreadsheets. Equity tracking was really a mess. And now we have, you know, great companies like Karta that have really automated a lot of this back office administration. And so I think there's a lot more flexibility that companies have in terms of how they think about granting equity. It doesn't mean that you certainly need to have some process and thought behind your refresher program and to do that early. But I think that is actually really smart on behalf of the company. To be honest, you know, when I left Facebook, it was after forty seven months. I mean, I could look ahead and my vesting schedule was about to radically change.

• 25:16Speaker 02

  And what you want to avoid is these rapid step function changes or decreases in someone's equity vesting, because that does actually drive attrition. So if you have maybe a two year or three year upfront grant and then you offer annual refreshers, you're much better positioned to keep that smooth for the long haul for the employee.

• 25:33Harry Stebbings?

  This is so unfair of me to throw this in, but I do have to. Do you think the attrition rate in the valley today is a feature or a bug? It's kind of twofold and people fall on either side of the coin.

• 25:43Speaker 02

  Well, regardless, sort of the reality, I think it's something like if you found this behavior happening in your product, you kind of have to do your best to optimize around it. And I do think that right now, the reality is That the expectations of workers coming out of school are really high. And I also don't think it's completely irrational for an individual employee to want to build a portfolio of diverse equity. I happen to stay at four or five and a half years in Facebook for four years. But it's not irrational that some individuals decide to take, you know, one to two, maybe three years of equity at a few different companies to sort of build their own equity portfolio over time. I do think it's a massive challenge for organizations because we still are used to sort of planning around careers

• 26:27Speaker 02

  and assuming that people will stay, pass on that tribal knowledge. And so I do think you want to think about, especially at the executive ranks and leadership ranks, how do you increase the tenure of those people because they have a huge impact on your organization? But I think you have to also be pragmatic and realize how do you onboard and get people productive and learning and engaged very, very quickly when they're first coming out of school? But also assume that they may only be there for a year and a half to two years and make that as kind of exciting and engaging of a journey as possible.

• 26:55Harry Stebbings?

  No, I couldn't agree more in terms of kind of efficiency within that ramp time and ensuring the highest possible level. I do want to discuss one more topic before the quick fire round. So I want to discuss the underrepresentation of certain groups in venture. You were the first female GP at Bain, but still only nine percent of GPs are women. So starting with an element of causation here, Sarah, you said to me before that there are two dominant reasons for this misrepresentation. So tell me, what are those two reasons in your mind?

• 27:20Speaker 02

  So I do think that it's easy for people to blame, quote unquote, the old boy network. But in my view, there's more systematic and structural reasons why this has happened. So if you want to get a quick tutorial, I do recommend reading Carta and the hashtag Angel's Post on the gap table. But a couple of barriers really have stood out to me. First is the GP requirement. So LPs do look to new fund managers to commit a certain percent of their own capital to the fund. So if someone's trying to raise a $50 million fund, for example, that could mean that there's this expectation of a one to $2 million GP commitment, which unless you come from money or you were one of the few women in very senior ranks of a rocket ship exit, that financial outlay really deters or eliminates the eligibility of women and maybe underrepresented minorities.

• 28:02Speaker 02

  So it's understandable that LPs want to see their fund managers have skin in the game, but I I think this potentially somewhat outdated rule really could limit the diversity of new fund managers. And the second thing is what I think of as sort of this quote unquote black box of angel investing. So when you don't come from wealth, like in my case, and you see super angels like Chris Tucker or Mark Cuban or Keith or Boyd, Peter Thiel, these are the loudest voices sometimes in the sort of Twitter audio universe making investments. It can feel like you have to be a deck of millionaire or more to get started. So I had no idea what it would take to get started in angel investing. And I talked to many women who could afford to do angel investing and also similarly had no idea they even qualify. When I break down the requirements of what it takes to be an accredited investor,

• 28:45Speaker 02

  many of them are really surprised that really the requirement is that you have to have an income of greater than $200,000 for the last two years and the next year and you could get started. And so they feel really empowered when I tell them they can get started just by writing 25K checks into early stage companies, maybe budget 100K as sort of quote unquote tuition, sort of learning the world of investing and going through the motion. And I feel like a lot of it's just helping a lot of women and underrepresented groups just break it down and what it takes to actually get started, that you don't really have to be necessarily a deck of millionaire to get started.

• 29:16Harry Stebbings?

  I couldn't agree with you all on both. I think the GP commit one is absolutely ridiculous. I think it should be proportional to net worth, quite frankly.

• 29:23Speaker 02

  Yes.

• 29:24Harry Stebbings?

  I've seen, I've seen 2% to a billionaire and it's like, whatever, that's like, you know, my pocket money, but 2% to someone else is huge.

• 29:31Speaker 02

  Yeah.

• 29:32Harry Stebbings?

  Absolutely relative. So totally with you there. So tell me, if this is why it happens, let's say we're in an all male VC partnership and we really want to add our first female GP, what should we do now? Literally, what is the next step? I think a lot of venture funds that are in this position now, what's the right move step?

• 29:48Speaker 02

  Yes. In fact, 74% of firms in the United States do not yet have a female GP. So I think this is a really pertinent question. I'm glad you asked. So a few steps I'd recommend. Number one, it's really important to make sure you have full commitment at the top, that this is truly important and a priority for the firm. Because you believe the data that it shows you will drive higher returns if you have a more diverse group and certainly if you have maybe not even just one female partner, but a couple of female partners. Make sure every partner's on board with that. And if not, there's really no point because when you bring in Someone they are not going to be successful if all of you aren't in agreement that this is critical. It's because of the success of the firm. Second, it's really important that you be clear on the criteria and what you expect of a partner. So if you're like many firms, you probably sort of hired your friends or your former colleagues, maybe even college roommates or some of your founders.

• 30:33Speaker 02

  You may not have ever actually really stopped to think about what is critical to success as a partner in your firm. You may not have any objective criteria. So take the time, write them down, check around with the group. Make sure everyone's really calibrated on what does it actually mean to be a partner here and what's important for success. It's funny, but you know, oftentimes when people talk about diversity, this whole notion of quote lowering the bar or not lowering the bar comes up. But when you actually sit down and look at it, most groups that are have not been very diverse, they even set a bar in the first place. So make sure you actually have really clear expectations. It's not sexy, but it's super important. And then third, I would say is really important to just source in earnest. So my partner, Ajit Vain, found me by asking his network for referrals.

• 31:16Speaker 02

  And Jocelyn Goldfinn from Zeta Ventures gave them my name. BCD wasn't even on my radar yet. So you have to really ask directly and earnestly for referrals and introductions. And All Raise actually has a portal for adding jobs publicly and confidentially that we share with our members. So I would say you really have to get proactive and do sourcing. And then fourth is say you'd have to ask hard questions in the interview process and also ideally let her join an investment committee or two in a partner meeting and encourage her to participate and share her views. This is really a two-way interview process. So if you find that those conversations are going well, that both sides are feeling a really good fit, then move to action and actually make an offer. I see a lot of firms dawdling at this stage and it's really important to take action and be decisive.

• 31:59Speaker 02

  The other alternative to all of that would be to start a farm team. So you could actually put some star women, maybe execs in your portfolio and business, potentially set aside 250K to a million for them to invest on your behalf to get them some reps. So get them experience, get them some exposure to investing. Don't expect those deals are going to be amazing right away. It certainly took you a long time to get good at this job, but instead coach them up and help them think through their investments, hone their craft and reach their greater potential. They'll love it. Might get their loyalty, you might get them as a partner and you certainly may get more referrals.

• 32:31Harry Stebbings?

  Yeah, I absolutely love both strategies and I think actually there's no reason why you couldn't do both at the same time almost in terms of kind of engendering the next generation and incorporating the current incredible crop into the partnership, I guess.

• 32:42Speaker 02

  Yeah.

• 32:42Harry Stebbings?

  Yeah, no, absolutely. So, okay, so that's the kind of logical next steps. Once we have that incredible person within our ranks or people within our ranks, we want to make them as successful as possible. What can be done to make your first female G P successful? And is there any cases where you often maybe see some firms going wrong or making some mistakes?

• 33:01Speaker 02

  Yeah, a few recommendations. And to be honest, these are really probably things that would benefit any new partner, regardless of gender or any other backgrounds. But first is certainly mentorship. It's an apprenticeship business and I personally had incredible mentorship from my partners in Bain. They often will jump on the phone, sit down with me, go over an investment proposal that I'm thinking of. And what they are really, really good at, that I don't even think they realize that I realize as a former teacher, is they're really great at creating psychological safety. So they will point out the merits of why I might be interested in a deal. They'll ask questions more out of curiosity, not in a how did you not think of this kind of tone. So they make me feel, you know, really empowered to move forward and also give me really good critical suggestions. After mentorship, I just recommend that you maintain your investment criteria.

• 33:46Speaker 02

  I think this is really hard sometimes when you bring in a newer member, certainly from an underrepresented group. There could be temptation to let the first few deals through or, you know, sort of be a little bit softer on your criteria just to get their feet wet. I would encourage you to hold the same standard and make sure if you know in your heart that this is not a good deal for this partner to do, don't let them walk into it. I think it's really important that you make sure that you set them up for success by helping them make sure their first few deals are going to be a runaway success. I'd also recommend you not give her the diversity tax. So it's really common, I think, good intentions, people say, great, we have our first female partner. Will you now mentor all the women in our firm?

• 34:27Speaker 02

  If you think about that, you know, that's really putting a burden of a lot of time on that one individual and it happens organically all the time, both in. And also in tech and it's really important that you actually limit those kinds of taxes and instead make sure that person's preserving as much time as possible to be successful in their part job. And then lastly, I'd recommend that you encourage professional development and be ready to invest generously and letting her go to conferences, socialize and network a lot with her peers. It's a pretty rare opportunity that as a woman, you're in a room of all women investors. So if there are things that she can go to conferences, encourage her to do that. And of course, it kind of goes without saying, but make sure you're paying her fairly. Like really make

• 35:11Speaker 02

  sure you're sitting down, looking at everything, being honest with yourself and making sure that there's no pay gap.

• 35:16Harry Stebbings?

  I totally agree with you on all of that. And especially the element of like the investment criteria, keeping the same, I think is super important. I think it's super easy, as you said, to, ah, the first few, absolutely, you know, it's kind of learning the way, but then holding that in the portfolio for a long time and having that as a potential burden in the first few years is super important. So with you there for sure. In terms of the next step, I would love to do a quick fire round with you, Sarah. So I say a short statement. As you know, you give me your immediate thoughts. About sixty seconds before one, are you ready to dive in?

• 35:43Speaker 02

  I am.

• 35:44Harry Stebbings?

  Okay, so I'm flying to the West Coast. I need a book for the trip. What book should I be reading and why?

• 35:49Speaker 02

  Sure. At Quora, we discovered that a lot of women struggle to really write and put their thoughts out there. So I'm going to recommend a couple of female writers. One, you've probably heard of is Grotopia from Emily Chang. I think it's a really interesting insight into the valley. Secondly, I actually haven't read it myself, but it has just come out. One of my former colleagues from Facebook, Julie Zo, just published a book called The Making of a Manager. And I'm really excited to hear about her insights. She's been well regarded as an amazing leader and manager within the Facebook ranks. And it sounds like she shows a lot of vulnerability in this book.

• 36:20Harry Stebbings?

  Absolutely love that amount. I'm definitely going to buy that one. What's it called? Sorry? The Making of a Manager?

• 36:24Speaker 02

  Yes.

• 36:25Harry Stebbings?

  Got it. What's the new profile for a VP of People? That was a cliffhanger you left me with.

• 36:30Speaker 02

  Yeah, so I hear this a lot from founders, I think, because I ran the people function at Quora and came from not a traditional HR background. So I hear this more and more. The founders are really looking for someone who has a balance of real world experience as a general manager and can balance sort of the risk from both the Business side, but also the human side. So I've seen the profile is successful people manager from growing organizations where there was a really good culture. So they're often coming out of sales and operations, something pretty process oriented, but also could come out of products and engineering world. People often forget, but Chris Cox actually ran HR and recruiting for a while at Facebook. So I think you can find people that come from within the ranks of a company and bring them into that role.

• 37:10Harry Stebbings?

  Now, this one is the first time we've ever had this one, but it's especially for you, Sarah. What's the favorite board game and why?

• 37:16Speaker 02

  Yeah, I'm a crazy board game geek. My husband and I spend a ton of time playing board games. So for those of your other board game geek listeners out there, I have a few recommendations. So people who like deck building games, if you like Dominion, I'd recommend you try Star Realms. We've been playing that a lot. For cooperative games, Pandemic Legacy, season one is really fantastic. And lastly, for German strategy board games, so if you've ever heard of Settlers of Catan, probably the best known one. For a game like that on steroids, we've been consumed with a game called Terraforming Mars. And we play Castles of Burgundy for a lighter weight game. But I have probably a list of 20 more I could recommend if people are interested.

• 37:54Harry Stebbings?

  I mean, my word, what a hobby that is.

• 37:58Harry Stebbings?

  I, you know, you were naming them and I was going, no, I have no idea what she's talking about now.

• 38:02Speaker 02

  Yep.

• 38:04Harry Stebbings?

  I, I will be doing an Amazon shop after this. Tell me, remote work is inevitable. How do you address the downsides?

• 38:10Speaker 02

  The downsides are, I believe, really lack of empathy and trust that could develop over time as well as loneliness. So I really think you need to create opportunities for people to connect, to express appreciation and to feel recognized. So tools like Slack are really table stakes now, but I think products like Bonusly, if you haven't heard of that, they enable peer to peer bonuses, actually on top of Slack, which really creates camaraderie across a diverse team that's living remote locations in a really elegant and lightweight way. I think you also need to be prepared to invest in travel and really bring the whole company together in person at least once a year. And if a lot of your folks are actually working from home, maybe consider a perk or a benefit of a stipend or something to actually create a really lovely office environment at home.

• 38:53Speaker 02

  Something that makes them feel like you really care about the physical environment. That they're in.

• 38:57Harry Stebbings?

  Yeah, no, I love that in terms of the style then to make the physical environment beautiful. Tell me, what advice do you most commonly hear that you disagree with?

• 39:04Speaker 02

  Okay, I hear people tell women not to join a firm as the first female partner for fear that they will be, quote unquote, the token partner. I think that's crazy. I don't know how we're gonna change things if we shun the seventy four percent of US firms who don't yet have a female partner. So rather than shaming these firms, I think we should really be helping those that are raising their hands, asking for help in diversity recruiting and welcoming the conversations. And then when they do hire their first female partner, we really should throw our support and effort behind those women.

• 39:38Harry Stebbings?

  Can I ask, is it intimidating slash difficult element though to come into? Like anyone coming into a similar group of people in that respect would be maybe daunting. Is it daunting or not really?

• 39:48Speaker 02

  Yeah, so I think in my experience, and actually a lot of my peers who are the first women in their partnerships, a lot of us do come from tech backgrounds as executives, so it's often not the first time we've been the only woman in the room. So I think in some ways, some of us have been conditioned for it. But really, I think it matters a lot what the culture of the firm is like. You know, one of the things I was looking for when I was searching and sitting in with partners and partner meetings was, how much is the conversation and the tone gonna shift because I'm in the room? And I was really ideally looking for a firm where I didn't feel like actually the way they converse with each other, the way they make decisions, the way they literally behave with each other, was gonna have to change that much just because now a woman was in the room. I don't know that's the case in every firm. Like, I think there are some firms that would really struggle with that.

• 40:32Speaker 02

  But for me, luckily, I felt Bain already had an extremely respectful and open culture. And so I felt right at home. But yeah, there are, you know, there are things that come up here and there. But I think my partners have done a really good job of encouraging me to bring up things, to speak out when I see things that maybe it might be slightly awkward or, you know, show any kind of bias. And and I've certainly done that on occasion and it's gone really, really well.

• 40:56Harry Stebbings?

  Awesome. That's great to hear. But I do wanna finish today on your most recent publicly announced investments, Sarah. And tell me, why did you get so excited?

• 41:03Speaker 02

  My latest investment announced publicly was a seed investment. In a company called Perkzy, based in New York, it's Perkzy, P R K S Y. It's a market research app for the next generation, particularly Gen Z and millennials. So the product engagement rate's really insane, which is what originally caught my attention. But I said yes to this because I really love the founder, Nadia Masri. Not just because she's super dynamic, she's part of this demographic, she deeply understands this demographic. But she's super thoughtful in how she's crafted her team with industry veterans. So she has hired some folks from Nielsen who have thirty years of experience on her as part of her executive team. So she brings a consumer and product lens that resonates with her audience.

• 41:45Speaker 02

  But her team really knows how to sell and deliver to the brand. So I'm really excited about Perkzy.

• 41:50Harry Stebbings?

  Sarah, as I said at the beginning, I've so enjoyed our Twitter interactions for a long, long time. So I'm so pleased that we got to do this and I can't thank you enough for joining me today.

• 41:58Speaker 02

  Thank you so much. It was such a pleasure.

• 42:02Harry Stebbings?

  My word, I mean, what a guest. And I do want to take the chance to say a huge thank you to Sarah. She's gone above and beyond to help me outside of the show. And so I really do so appreciate that. And if you'd like to see more from Sarah, you can find her on Twitter at S A Smith four. Likewise, it'd be great to see you behind the scenes here at the Twenty Minute VC. You can do that on Instagram at H Stebbings nineteen ninety six with two Bs. Really would love to see you there. But before we leave you today. Hey, I'm always focused on scaling my time and I was always crap at travel booking and management. Well, not anymore. Why? Because I now use TravelPerk, the business travel management platform that even I love. It's just so super easy to book travel and actually quite fun. And my favorite, no back and forth with travel agents or your finance team. But it gives you the best of both worlds. Companies don't just get happy travelers, but also easier management.

• 42:45Harry Stebbings?

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• 43:29Harry Stebbings?

  company. And if they book a demo, the lounge pass is yours. And if travel perk allows me to scale my time, a lot of what we do on the twenty minute VC is discuss scaling businesses, talk to experts, pick the brains of founders and investors who tell us about the trends to watch out for, offer tips on fundraising and teaches how to excel at any company stage. But there's no playbook for building a great business, but we can certainly learn from people who've done it before. Beyond listening to this podcast and talking to mentors and advisors in your own network, it's important to have resources you can turn to when you're tackling a new challenge. And Stripe has built those resources for you, whether you'd like to learn how to run a pricing experiment or build a knockout landing page. Stripe gives you the information you need to start, run and scale a technology company. And their guides are often written by or feature

• 44:12Harry Stebbings?

  people like Elad Gil, experts in their space who you've probably heard on this very podcast. And you can read my favorite guide on scaling engineering organizations and many more on stripe.com forward slash twenty VC. That's T W E N T Y VC. And last but by no means least, to scale unique customers, and Intercom offers a new and better way to acquire, engage and retain customers. They've built a suite of messaging first products from chatbots to a totally reimagined business messenger that modern internet businesses use to accelerate growth across the customer lifecycle from acquisition to engagement and support. And over the past eight years, they've totally reimagined what a business messenger can be, which is way more than simply live chat. Today, Intercom is used by the world's most forward thinking companies. Eighty four percent of Y Combinator companies that use a messaging or live chat tool use

• 44:57Harry Stebbings?

  Intercom. Astonishing fact, that one. And they have over thirty thousand customers, including larger companies too, like New Relic, Atlassian and Shopify, and also smaller companies like Airtable and Coda. As always, I cannot thank you enough for your support. And I'm super excited to bring you a fantastic episode with Frederick at Okta on Friday.