Venture capital is not just “dumb money.”

On this episode of Recode Decode, hosted by Kara Swisher, Aspect Ventures co-founder Jennifer Fonstad talks about how venture capital works in 2018, when Silicon Valley entrepreneurs have access to more money from more sources than ever before.

You can read a write-up of the interview here or listen to the whole thing in the audio player above. Below, we’ve also provided a lightly edited complete transcript of their conversation.

If you like this, be sure to subscribe to Recode Decode on Apple Podcasts, Spotify, Pocket Casts, Overcast or wherever you listen to podcasts.


Kara Swisher: Recode Radio presents Recode Decode, coming to you from the Vox Media podcast network.

Hi, I’m Kara Swisher, executive editor of Recode. You may know me as the person responsible for putting that white ring on the HomePod, but in my spare time I talk tech, and you’re listening to Recode Decode, a podcast about tech and media’s key players, big ideas and how they’re changing the world we live in. You can find more episodes of Recode Decode on Apple Podcasts, Spotify, Google Play Music or wherever you listen to podcasts. Or just visit Recode.net/podcasts for more.

Today in the red chair is Jennifer Fonstad, the co-founder of Aspect Ventures. It’s an early-stage mobile-focused investment firm that has backed companies including BirchBox, HotelTonight and the RealReal. She previously was managing director with Draper Fisher Jurveston and is currently a member of the Council on Foreign Relations. That’s fancy. Jennifer, welcome to Recode Decode.

Jennifer Fonstad: Thank you very much for having me.

Thank you for coming. I’ve wanted to have you for a long time, actually, and this is my week of interviewing venture capitalists so it’s great to have you here. One thing I’ve started, when I’m talking to people … Getting people’s background and how they got to where you got. I’d love to hear a little bit of your journey story, I guess it’s kind of a San Francisco way to say it. How did you get to … You have one of what I think is the biggest women-founded venture firms, is that right?

Yeah, so it’s been reported that we have the largest women-founded fund in venture, though at this point our team is about half men and half women.

Yeah. You don’t discriminate.

We have no gender lens when we make our investments, we look for great entrepreneurs across the board.

All right. But you started in a more traditional venture climb, essentially. Can you go through a little bit of your background, how you got to where you are?

Sure. So I actually am in my 21st year in venture. I started out at DFJ and I was there for 17 years.

From college or where ..?

So I joined right after business school, through a program called the Kauffman Fellows, which was a program where you apply and if you pass through the many hoops you match with a firm, and you are a fellow for two years and then that fellow decides whether they want to bring you on.

Right. So why venture? What was the thinking?

Interestingly, I worked on a political campaign many years ago, I took a year off from my business career and worked for Mitt Romney when he was running for the U.S. Senate against Ted Kennedy.

Wow, in Massachusetts.

In Massachusetts in 1994.

Right, which he did not win.

He did not win. But you know, he talked a lot about making investments in venture. He was the first investor in Staples, for example.

He was at Bain so he was doing it …

He was at Bain Capital, and he talked about that notion of helping to build a company from the get-go, and he talked about stocking the first shelves at the first store at Staples. I had never heard about venture capital until I spent some time with him and learned what that was like, and was very intrigued.

So when I was at business school, I spent some time on that and applied for the Kauffman Fellowship and matched with DFJ and was off to the races.

And so it was DFJ here in Silicon Valley?

Yes.

Yeah. And what was your idea of what venture capital was?

Well, so what I like are very fast-paced environments where there’s a lot of chaos and I can put some structure and pattern match around chaos, and so I saw technologies really exploding, particularly around the internet at that time. And I’d spent a lot of time trying to understand how the internet was going to emerge in to the market space, and thought that this would be an environment where I would thrive.

So you, were you technical? Did you study that in college? Were you a computer science [person]?

I didn’t have a technical background but I am a very technical person. I spent a lot of time when I was in junior high and high school taking things apart, rebuilding them, taking cars apart, rebuilding them, so I was …

Mechanical engineer.

And my father was an engineer by training and so that was sort of my mentality, where is started intellectually, and I went to Georgetown School Foreign Service …

So did I.

And got a bit of policy wonkish thing.

Did we go there at the same time?

I don’t know? Perhaps.

Maybe.

It was fairly fun.

Yeah. Kinda.

A great time to be there.

Sort of. So you didn’t go into foreign service ether.

I did not go into the Foreign Service. I actually went and spent a year teaching in Western Kenya instead as my nod to my foreign policy degree.

A lot of people didn’t go into foreign service in the Foreign Service school. A lot of people did, actually, and the CIA and places like that. You’re not in the CIA, are you? You wouldn’t tell me.

I can’t tell you.

You can’t tell me, that’s it. So you didn’t go into computing yourself, you wanted to get into the investment of computing. Why was that?

I think the main reason … So I wasn’t technically trained so I wasn’t doing a lot of coding. Most of my, as I mention, was more mechanical, but I began my professional career at Bain & Company, which was a lot about business strategy and pattern matching. So that’s where I felt I was particularly strong.

So when I thought about … And I’m not particularly strong at management, which actually I think most entrepreneurs at least have a sense of how to take on that management role, so for me it was much more about pattern matching and helping great entrepreneurs be successful rather than being that entrepreneur myself.

Right. Being that entrepreneur.

Also it turns out launching Aspect then, I am now an entrepreneur.

Yes, you are an entrepreneur, as Ron Conway likes to say.

So I moved into that startup world on my own, in my own way.

So you were at DFJ for 17 years, and that would make you one of the very few women in venture capital at the time, correct?

Interestingly, there were more women in venture than there is now on a percentage basis.

Huh.

There was about … 10 percent of the investment professionals were women at that time, now it’s about 7 percent.

Right. So just less, we’ll talk about why that is later. So you started there. What was that like in the early days of making investments, and what were you focused on? That was … what years were those?

I joined in 1997.

Right, so the beginning of the internet boom.

And it was at the beginning of the internet boom. I joined DFJ when it was their fourth fund and it was five investment professionals. Tim, John, Steve, myself and Warren Packard, and we had a $90 million seed fund, and we went to work trying to find interesting, primarily internet companies, although the firm itself was a broad technology.

It was. It was much more in other things. And what was your thinking at the time of what you were looking for, and how you would source those deals? Did you have a philosophy?

Yeah, so I mean it was really about trying to find great entrepreneurs and so you looked in a lot of different places. I spent a lot of time out talking with engineers and on college campuses at Stanford and out in young companies talking with others founders. A lot of folks spun out of existing companies at that time. That’s a pattern that we continue to see today. Some of the best companies are started by spinning out of a prior technology company, so that’s where we spend our time.

And what did you like at the time? Because that was pretty early. That was post Netscape but pretty early. Way before Google, way before … Yahoo had just gone public, I think.

DFJ had just invested in Hotmail. So I sort of joined just as Microsoft was contemplating purchasing Hotmail, and that was quite an interesting negotiation strategy, negotiation and conclusion, and I was involved early on in our firm investing in a company called GoTo.com, which actually invested in the concept of paid search.

Right, they did.

Which Bill Gross had conceived of down at Idea lab, and so I was involved in that from the very beginning.

Where’d it go, over to Disney?

It was acquired by AltaVista.

AltaVista.

It went public, then it was acquired by AltaVista and then it was actually acquired by Yahoo.

Right, that’s right. Yahoo, then Google bought the tech. It was complicated.

It was a very complicated life journey for the company but it was a fantastic investment for DFJ.

So you were focused … What was your thinking at the time of what was going to happen to the internet?

So I think we thought that it’d be growing … Every technology wave seems to have accelerated or logarithmic growth. And we saw even some of the early numbers, particularly through our experience of Hotmail, as showing fascinating logarithmic growth, where you’d have these clusters where a new technology would be captured in one geographic or community cluster.

In this case Hotmail had a founder that was from India, so you saw it start to blossom in India and then expand out globally. You could see how quickly these clusters could grow. And so we were just looking for new waves of clusters of growth.

Mm-hmm. And when you were …

So for example, we were early investors in Skype, very similar type of logarithmic growth, or early investors in Baidu. We were the first institutional investors in Baidu, which is now one of the largest search engines in the world, based in China, as you know. So those types of growth patterns were what we were looking for.

And then you went through the fallow period.

The fallow period.

I don’t know what else to call it, the crash?

Yes. The post-internet boom. How about that?

Right. And what did you guys do during that period?

We actually went … We were very patient investors. We did a number of things. I was very passionate about health care and health care IT at the time, now called digital health. So I went as an early institutional investor in Athena Health at that time, and I made …

Back then?

Yes.

Wow.

That was in 1999.

Wow.

And that was a thread that I followed throughout the early 21st century with …

Why was that?

Well, I was very passionate about trying to change the way health was delivered.

You’re still working on it.

I’m still working on it.

It’s just astonishing that it’s the one thing.

It fascinating.

They’re going to change currency, everything else before they finish health at all. I think.

We’ll have a whole new monetary system before we solve the problem.

What were you trying … because it seems obvious that it should have worked, right? That digital would change health care, correct?

Well, I think we’re continuing to see amazing … and now with more data available, we’re starting to see more applications for it. And you know, these mobile devices enable us to both capture data and monitor our health in ways that are still unprecedented. So part of it’s the way we charge for health care, and as a system still constrain choice.

Right.

And consumers have always viewed their experience with their medical [system] as being somewhat paternalistic. Often it started with the employer as managing that for you and now it’s shifting more towards the consumer-based service. But how do you then manage that, manage quality, manage payments, manage risk? Those are the challenges that we’re trying to grapple with today.

Still to this day. Absolutely. But you were early.

There’s a big shift away from solving reactive problems to, you know, you’re sick so you need to be taken care of, to how do you think about preventative, how do you think about wellness. How do you change that? So we’re seeing all these health trends that are underlying that. So VitaHealth, for example, which is one of our current investments at Aspect, is using an online coaching platform to manage chronic conditions and they have super significant …

So you have diabetes or …

Diabetes, or obesity, smoke secession, actually emotional health as well.

Mm-hmm.

These are all issues that, if left to their own devices, can be very damaging for your personal health as well as for an employer, so they’ve been able to show significant change in behaviors and in outcomes.

Right, it can help.

Because you can have an interaction. And as it turns out that if people believe that someone actually cares at the other end about your health and your wellbeing, they’re more motivated to change their behavior.

Interesting. So you were early in health care, you’ve been through six cycles then, and then through …

You’re making me sound old.

No, yeah, we’re both old Jennifer, older. Older.

Older.

Older than we were before. But you stayed at the same firm for that long, what was … because a lot of people .. Like I interviewed Sarah Tavel and she’s shifted to a bunch of different ones. How do you look at your doing that, and why did you do that?

Why did I stay?

Yeah, why did you continue at … The evolution of venture capital people always talk about it changing but it really hasn’t changed, since it’s conception almost, in little tiny ways it has. But when you look at sort of that sweep of what’s happened, and we’ll get to you starting your own firm. How do you look at that? Not the journey, but why did you stay at one firm? What was the thinking? People don’t do that anymore. It’s changed really significantly.

Yeah, so I give Tim Draper a lot of credit in terms of being very forward thinking — as he is continuing today with all this cryptocurrency investment — but he was always about, “What can we do to really drive the change in productivity and entrepreneurship?”

So I would actually that there has been some fairly significant changes in venture. When venture used to mean a hyper, hyper local business where you’d just have a group of people, a group of friends around the table that might throw a few dollars in the middle of the table and get a company started. But today it’s a global business, and DFJ was very much at the forefront of getting that started by starting up venture funds across the world, which I was able to sit on investment committees of funds in Vietnam and Israel. That’s a pretty dramatic change to think about how venture capital’s evolved.

For me, it was both an opportunity for me to learn and to grow, and as you know I did have that bit of a Georgetown policy wonkish thing. I really did enjoy the international aspect of that. What I really wanted to do, though, in starting Aspect, was driving back to company-building 100 percent of my time and not spending my time on those global initiatives. But at the time, when I was younger and the firm was growing, I was still learning a lot. It was very exciting to meet Robin Lee from Baidu and have the opportunity to help build an amazing company in China.

Sure. So why start your own firm? You were partner at DFJ, a senior partner, correct?

Managing partner.

Managing partner. So why start your own firm?

Yes. So Theresia Gouw who’s my co-founder …

Who was at Accel.

Who had been at Accel Ventures for 15 years. She and I actually worked together at Bain & Company back when we both started our careers.

Oh wow. I forgot that.

We worked on the same case team at Bain, four-person case team for over a year.

What was the company?

We were working on Anheuser-Busch.

What was wrong with it?

We were trying to help them better predict their beer output and match demand with supply, particularly around different …

Oh wow. I would even know where to start.

Well, it was actually at the time a very data-driven exercise which was very …

I guess it’s how much beer people drink and this is how much you have to have made by this …

Basically.

Doesn’t that stuff keep forever?

Well, but it was on a 30-year brewing cycle at the time. So you’re trying to predict and you’re trying to match it to demand by SKU across the country. So anyway, it was a fascinating experience.

Wow.

And so Theresia and I already had …

I could never work at Bain. I’d be like, “I don’t know.”

I think you’d find your way.

I don’t think so. Anyway, so you were on this beer deal.

Yes, so we had the opportunity to work together then and we went different directions, so she went to Stanford Business School I went to Harvard Business School and when I joined DFJ, one of the first support …

You guys are such slackers.

She was a founding business development VP at a DFJ startup. And I showed up at the first board meeting as a board observer and we reconnected at that time. And when she wanted to get into venture she gave me a call a couple of years later and jumped into Accel and we had 15-plus years of collaborating on all types of changes in our industry and in our firms.

I had started an entity called Broadway Angels, which was an angel network, to really bring myself closer to a lot of the spin-outs that were coming out of a lot of these tech companies like Facebook and Google at the time, with many of my friends, Sonya Perkins and a number of others, and was bringing Theresia into that and was pretty excited about how that, the types of companies that we were seeing. And I was at DFJ and doing investments in DFJ but I was allowed to make small investments, $50,000 or less checks through Broadway Angels, and anything larger I’d bring to DFJ.

That was a great opportunity for them and for me. But what I found was that I was really excited about the companies that I was seeing and being able to do company-building again in a way that wasn’t so much about firm management, it was much more focused on company-building and helping entrepreneurs be successful, which is where I started my career.

And it felt like there was an amassing change, getting back to change in our industry, when I first started in the venture industry, I think maybe 10 percent of DFJ’s deals had any prior investor. The angel network was very small. Ron Conway was sort of it and it was still sort nascent at that time. But cycle forwards 20 years and you have incubators, accelerators, seed funds, angel networks, micro funds. And so the amount of capital available to get a company started is unprecedented.

But what ended up happening is that we ended up with an industry which was very barbell-like. So you had a lot of money available at company formation, you had a lot of capital available to accelerate growth and scale with bulge bracket firms, but what was missing was in the middle, which was the classic series A: How do you build a company?

Right, for the next step.

For the next step. We’d stay with those companies for the full lifecycle. So I thought that was really where the opportunity was.

In the series A.

In focusing on series A, in rolling up our sleeves and focusing on company-building and collaborating with other investors to help do that. And so I was talking to Theresia about that at lunch over at Stanford one day, I said, “Hey, maybe we should do this together.” And by the end of lunch we were already collaborating on what we were going to do.

Was there any of, “We’re sick of these big firms, these big dude firms, and we want to start our own”?

You know, it was really not about that, actually. It was really much more about our excitement to sort of focus on this area again, which is where we had both started our careers and we felt that both of our firms had grown so large. I joined DFJ when it was 140 million under management and when I left it was about 3.5 billion under management, so …

Right, very different experience.

It was a U.S.-only seed fund to a multi-stage, multinational investment firm.

You know, it’s interesting, so many people … The reason I’ve been talking about this is the idea of getting small, not getting larger. We’ll talk about SoftBank and other things like that when we get back. We’re here with Jennifer Fonstad, she is … are you managing partner or just partner at Aspect Ventures?

Co-founder.

Co-founder at Aspect Ventures. We’re going to chat, we’ve been talking about her career so far as a venture capitalist and when we get back we’ll be talking about what she is investing in now and where she thinks things are going.

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We’re here with Jennifer Fonstad, she is the co-founder of Aspect Ventures, which is a venture capital firm that focuses on series A investors. Jennifer, let’s talk a little bit about … We talked about how you got to where you got and creating your own firm, talk about the challenges. How much money do you have under management now? Oh, she’s [thinking].

$331 million.

Which you’ve had in how many?

So we just announced raising our second fund, which is why I had to do the calculation.

Right. You’ve just finished your second fund. Let’s just talk about what you think is interesting to invest in and some of the investments you’ve made, and then about what’s happening. Because you know, one of the things that’s happened is SoftBank has their mega fund. They’re not in series A but they’re moving closer and closer. There’s a lot of money in the system.

Let’s talk about what you think are interesting investments right now, and what you guys are looking at versus … Some people are looking at cryptocurrency, some people are focusing in on, SaaS was a big thing for a while. Talk about what you guys have done and then what you think is interesting.

Sure. So we typically invest around themes, and then we see new themes emerging as you would see typically as new technology trends are cycling in. About a quarter … a little over a quarter of our fund is actually focused on software security and that’s because we have seen some pretty major shifts on how people think about software and security.

In the old days, it was about building a giant wall and hoping for the best and today it’s much more about assuming a break-in. It’s about capturing those break-ins and containing them and eradicating them as quickly as possible and minimizing damage. So it’s a fundamental shift. And also the types of companies that are using security software has changed. It’s not just financial institutions and the government, it’s Vox Media and pretty much everybody on the planet now has to think about software security.

The paradigm has really changed the way you think about security, and so there’s been an explosion of new opportunities. So about a quarter of our portfolio is in that. We’re also quite interested in using AI and machine learning to focus on specific business problems. So companies like Troops, which is using AI for solving problems for sales leaders and sales managers in companies by serving between a Salesforce and then Slack, and then working over on Slack as a communication vehicle and they can fetch and receive and aggregate information for sales team while they’re on the fly.

Because everybody’s working off of mobile systems but many of the legacy systems are super hard to access while they’re out selling. And so how do you manage that as a sales team? And so using AI and that application has been really powerful in using. There’s a number of AI applications for business applications, VitaHealth uses that for example, managing their relationship through the coaches.

Mm-hmm.

So that’s one area that we’re seeing a lot of interesting. And we sort of tied to that big data as being a theme. Using data in new and interesting ways has been … and analytics framework has been really interesting. We’re also looking at a lot in blockchain, but blockchain particularly around how you use the technology, again, for solving specific business problems.

Right, as opposed to bitcoin.

As opposed to trying anticipate how this new monetary system is going to emerge.

It’s the pickaxes you’re looking at.

We’re looking at the picks and shovels.

Picks and shovels rather than … I think that’s where everyone’s going to make the money, not the …

Yes. I think we’re in early days and there’s some fantastic companies coming up with a number of different problems. It’s again a new technology paradigm, and when you have a new technology paradigm it’s really the creativity of the entrepreneur and thinking through, “Well, how can I use this technology paradigm to solve this problem?” Because it wasn’t solvable before but not this … Being able to use blockchain for identity in different ways can cut out the middleman in a lot of applications and things like that sort of stuff.

So you’re looking at that. You didn’t, I noticed very clearly, you didn’t mention consumer stuff or …

Yes, so we … So digital health is another area that we continue to think, you know, mobile devices continue to offer that type of application and there’s a number of consumer elements to it and even if it’s through an employer, at the end of the day it’s consumers that are using these applications, so that’s a fundamental way.

There’s also … We’re investors in a company like Crew, for example, which uses an application, it’s like an everyday man’s What’s App for how they manage their experiences in a shift workforce like at McDonald’s, or if you’re a baggage carrier at Dallas Fort Worth for American Airlines and you want to change your shift, or you want someone to grab a part for you out of a supply thing and you’re using Crew for that type of application. So they may have business applications but at the end of the day, they’re consumers that are using it to do their work.

So like Slack for those kinds of jobs.

Exactly.

And then, no social media, no those kind of … There’s tons of applications, photos, things like that, heavy consumer items.

Yeah, so yes. We’re typically focused on … We will certainly do consumer investments, we’re investors in BaubleBar for example, and BirchBox as you mentioned, so we do have some applications and investments in that area as well.

In commerce. In the commerce area.

And The RealReal, as you mentioned.

Yeah, and how do you look at those markets? Because there has been less interest in those markets recently, I’ve noticed.

So again, you’re trying to understand what is the long-term competitive advantage of that type of a play. So what is it about their platform or their approach, or the business model that’s different? So HotelTonight was very innovative.

Which was one of your …

Which is one of our companies as well. It was very innovative, and how they thought about using data for last-minute hotel purchases.

Mm-hmm. I just rented a hotel with it.

Did you? Excellent. And how was the experience?

Good. It’s always good. I never have a problem with HotelTonight. I don’t think about it a lot, it’s a utility as far as I, you know what I mean, in terms of …

Yeah, but that’s the point. It becomes a utility premium.

What’s interesting is that it’s always $20 less than my company’s [limit].

Best discount?

Yeah. It’s real … and I don’t know why. I’m like perplexed.

But that’s getting back to how you use data in new and effective ways.

Right, I guess. But I just … Still, I call them.

It’s seamless to you, but on the back end that’s a very complex algorithm platform to do.

So you’re all over the map on these kinds of things. Do you have to now, in venture capital, get particular about an area or not? Do you just feel like …

We typically invest in themes, so we’ll have three or four themes we’re investing in in a particular time frame. That’s why I mentioned, security software’s one that’s been emerging, digital health has been …

I haven’t had people here talk about security software recently. It’s not an area that …

So for example we had a company of ours go public a couple of months ago, ForeScout Technologies, which has done very well in the public markets. But the problem they’re solving is they can go into a security framework of a large company like Vox Media, for example …

Oh, do you want our business?

I’m just, you know, I’m just saying.

Trying to protect me. I know, thank you.

I’m trying to take care of you here. But what will happen is that Vox may think that they have a certain number of devices hanging off the network, and through the ForeScout Technology — which is an agentless technology, meaning you don’t have to put something on a device to discover it — they’ll find up to 30 percent to 40 percent more devices hanging off the network than even the CIO typically knows about.

Right. Right.

Those plus-40 percent devices means that they are all potential security breaches.

Absolutely. I have an Eero thing and I’m shocked by how many people are hanging off my network. I’m like, “Who is this?” and I just cut them off, one after the other, which I enjoy doing. It’s turns out my neighbor …

I can see you taking pleasure in that.

I did. It turned out to be my neighbors, my cheap neighbors, who go into my network. I must have given them access years ago and now they’re not … Sorry, neighbors. Sorry, Bob.

So when you think of venture capital, one of the changes that obviously happened was the enormous amount of money in the system. You have SoftBank going in with their giant funds, which I think is really shaking up a lot of people.

Do you think about that a lot? The amount of money in the system? Because there’s a lot of money, as you said, in the early stages and that still continues. That seed area is still full of money, and then you have now the growth area full of money. Do you worry about what’s occurring with all this money shoving into the system?

You know, it’s interesting, I think there is still a lot of capital companies started and I think that there is still capital available on the bulge bracket. And I still feel, though, as if that fundamental company-building, in the early stage where there’s some proof points, but how do you cross that chasm? Are you just caught here in the middle, crossing that chasm?

Right.

That’s still an area where it’s an art, not a science, and that’s understanding the patterns of what’s likely to work and what’s not likely to work, and how to help those companies navigate that. It’s still an area that is, I think, too high-risk for the growth folks. And for the seed folks, they typically try to get all their ownership early on so they don’t want to — or need to — take on that additional risk at that stage.

And so that’s an area where I wouldn’t say there was an abundance of capital that’s pushing or skewing that in a meaningful way, even in this marketplace.

How do you then differentiate yourself in terms of getting into those rounds, the right rounds you want to get into?

So Aspect is a little different in a couple of ways. One is that we’re highly collaborative, so we think … We’re trying to build the right syndicate for the entrepreneur. We actually work with other firms so we can lead a deal or we can follow a lead or we can go alongside. We’re not trying to push a certain amount of dollars into a deal or use sharp elbows to get to a certain ownership level. We’re trying to build the right syndicate of the entrepreneur and we’re a different perspective, typically, around the table than they might otherwise come across.

So it’s your sell point to an entrepreneur? Or a different perspective? Or?

Yeah, so it’s typically coming from a different perspective. We often come from deep experience in many of the themes which we’re investing in. We have some of the most experienced investors in digital health, security and blockchain out there today, and that experience lends itself to finding good entrepreneurs that we want to work with, and then we want to build the right syndicate for them.

That collaborative piece has been super welcomed by the entrepreneurs, because for them, they want to build the right set of networks. They want to have a different network at the table than they might typically get on Sandhill Road. So that’s one dimension.

The other piece is that we work in teams and so we’re not lone wolves. We work as a team, so it’s always two or more folks that are working with each company. So again, it’s double the resources that are focused on making that company successful.

And what do you think is critical for entrepreneurs in this environment from venture capitalists? It used to be a very different relationship.

You know, that’s a really great question. And I think what’s really great about that question is there’s a lot of discussion around crypto currency and how that might change venture capital over time.

Yes. Yeah.

And actually, what’s interesting for me when I looked at these opportunities is it doesn’t really matter what the underlying financial mechanism is, whether it’s a token or equity. What’s really important is the exercise of company-building. When you’re the company that still is trying to figure out what it’s growth pattern is going to look like, who are its early customers? That skill set of what it takes to build those companies is what good venture capitalists excel at.

I can’t think of a successful company where it didn’t have a really great board and group of investors around the table who really understood how to help that entrepreneur along the way. Every single company that’s been successful I’ve touched at either DFJ or through Aspect, at seed. It’s not to say that entrepreneur can’t be successful, but it gives them a huge leg up.

And what do you think the most critical aspect that you contribute is?

I think I’ve seen almost everything.

Such as?

Just in terms of everything from how to get a company funded, I think between Theresia and I, we’ve helped over 500 follow-on financings. I mean, it’s … Getting a company through that process is … It may seem easy, but no company goes exactly straight and up to the right. And when they do, they still have some rocky periods.

So we’re able to navigate a lot of that and have a lot of experience around that. We typically bring very different networks. Even Theresia and I, when we came together, had very different networks that we brought to Aspect, and we’re now built up a team of professionals with their deep expertise in some of these areas.

So you can put them to use.

So now we’re bringing that together in a very collaborative way for our industry and it’s been fantastic. We’ve had … Over half of our deal flow is from other venture people who bring them to us and that’s how we deal.

Because you play well. Well, we’re going to talk about that and more, about how you … You use the word “collaborative” a lot, which I don’t hear a lot in venture capital. And then you referred to the idea of lone wolf, which are … Many venture capitalists continue to operate that way.

When we get back we’re talking with Jennifer Fonstad, she is the co-founder of Aspect Ventures, which is a women-led venture firm. We’re going to talk about that issue, too. I don’t know if that necessarily makes a difference, but it’s unusual in Silicon Valley. When we get back.

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We’re here with Jennifer Fonstad, she is the co-founder of Aspect Ventures. I did mention, it’s a women-led firm, which is unusual. Why is that unusual, Jennifer? What is the problem?

I think that there haven’t been many firms founded by women only, so I think there’s a little bit of novelty to that. However …

Why is that? It’s you and Aileen Lee, I’m trying to … Who else is a women-led firm?

Yes, we were talking about that earlier. Canaan Ventures has a number of women.

They have a lot of women, not women-founded.

And Skill Ventures as well. What’s really interesting about it is we think of ourselves more as a next-generation firm, where we’re both pretty experienced venture capitalist who have done a lot of company-building, who happen to be women, and it does lend itself to bringing different networks to bear. It does lend itself to having a different perspective at the table many times, and I think that’s been a hallmark of both Theresia’s and my success in our careers.

And so that’s what we’ve brought in to build Aspect and we’ve brought into it, as we talked about, this notion of collaborating and building the right syndicate and being very entrepreneur-first in how we think about building our own teams, and how me manage internally and externally.

But there’s no … I want to get to why that is. Why haven’t there been more women-founded firms? Is there … You could look at … There’s lots of reasons starting with sexism and things like that, but what you imagine … Is it just that women haven’t started them? Or there’s a bias for women from LPs, or …

I think there’s a lot of reasons for it. I was reflecting on … So I joined the industry, as I mentioned, 21 years ago, and even the group of women … There were a number of women that were senior before me, but many of them … For example, they were very senior in their firms, they even were involved in co-founding firms. Foundation Capital, for example, was co-founded by a woman.

Many of them were never married, or if they were married they didn’t have children, and so they had to dedicate their entire careers to building the firms that they built and this next generation that … We’ve been able to have a family. We’ve been able to engage and do our work professionally and have support within the firms.

And so then the generation that’s coming behind I think is even more fired up because they’re getting a lot more mentorship. There’s been a real concerted effort by women in the venture industry to provide mentorship for the next generation, so that’s the virtuous cycle, I think, that will continue to branch out and broaden the number of women.

I think ultimately, because women have different networks and different perspectives, there’s been a lot of studies that have shown that that type of diversity leads to better performance and better outcomes. Certainly at corporate management that’s been shown, and on corporate boards that’s been shown. And when women are continuously demonstrating success in the venture industry and we’re bringing in a deal that someone couldn’t have gotten otherwise, you’re going to start to see a lot more firms recognizing there’s real value to having that diversity in their own internal communities.

I get that. One, it’s the right thing. Two, it’s probably good for business. Three, it gives you more perspective and more innovation, presumably, but four, it still stays the same. The numbers remain. As you said, the numbers went down from, what was it?

10 percent to 7 percent.

Why?

You know, it’s … I’m not exactly sure what the underlying trend was. I think you mentioned, we talked about how there’s always … Our industry, every eight to 10 years, goes through a boom and bust cycle. People leave the industry during the down cycles, so I think that there was perhaps a lot more women that left the industry during the down cycle than has been picked up on a percentage basis.

Because remember, these are all on percentage basis, so the absolute numbers may be increasing but they’re not keeping up, necessarily, on a percentage basis. So there’s a lot of us that are working hard to try and change that today. What’s the underlying cause of it? I can’t speak to that. I can only speak to my own experience and I do think that we’ve had the opportunity …

I’ve had unprecedented opportunity at DFJ, I was very lucky. I had great mentorship with Tim Draper. I think mentorship really matters a lot. I think that I have also been willing to take risks, and many people say that women require a lot more information before they’re willing to take risks, and that’s getting comfortable with taking risks, and imperfect information is something that I’m actually quite comfortable with and always have been, but I don’t know that everybody is.

And so helping, bringing the next generation along and helping them feel more comfortable with that will be part of the mentorship exercise.

When you look at some of the controversies around venture capital, a lot of them have to do with sexual harassment and behaviors and things like that. Is that a product of this, of just the way things are?

I think the #MeToo movement has brought a lot of transparency more generally across many industries, venture capital being one of many. The number of law firms — we haven’t talked a lot about law firms, law firms also are smaller organizations that a lot has been … The promotion cycle is such that it’s hard to navigate that, and so those …

I think we’re seeing a broader movement about transparency and I think there’s a broader recognition that there is more impact on performance by having that diversity, and as that gets better understood, people feel they’re missing out, there’s almost an arbitrage play, right? If you’re really smart you’d bring diversity in early because you’re taking advantage of that.

Sure. Yeah. Absolutely.

There’s more customers that are that way. So the smart firms today in the venture industry recognize that they’re missing out on an arbitrage play, and so they step in there are laggards and there’s creative deconstructionism in our business.

So where …

So they may not make it.

Speaking of that, where do you imagine … Let’s finish up talking about where venture capital is going and where do you think, when you look at the overall business of venture capital, how do you … Again, as I said, it hasn’t changed much. It has a little, you know, there’s parts of it that have changed. There’s definitely more professionalization of the seed area. There’s obviously a ton more money in the top area.

You referred, just sideways, to the idea of cryptocurrency changing that too. Where do you … When you’re thinking about where you’re going in the next 10 years, what do you imagine are the big trends that you have to watch out for, as a venture capitalist?

I think the biggest trends will be around this new monetary system that’s emerging. I think that how entrepreneurs think about that in a way where they’re still bringing in the company-building support that venture has provided, and venture capital evolving to recognizing that there is a lot of different ways of raising capital and basically being rewarded for risk-taking.

Right.

Which is essentially what an equity-based economy is about. You’re going to see that be a … Those who understand that shift I think will do really well because it’s …

So you’re essentially saying entrepreneurs will be like, “What do I need you for because you’re just dumb money?”

Well, so the truth is we’re not dumb money. When you find really talented people to help you build a business … Entrepreneurs take incredible risks and put an incredible amount of their heart and soul and energy and time into building companies, but it still takes a village to build successful companies. And we play a small part in that and the role that we play on the board and as advisers.

But what I’m saying is, I think you’re saying that you have to have that.

How we get compensated for it will be shifting.

Right, right.

And I think that’s going to be an important trend we’ll be thinking about.

And what about the money that you bring in? You won’t need to have … The whole LP system, would that change?

I think that’s a possibility. I think that how that gets compensated and again how you’re compensated for risk, even for the folks that bring capital to us, is going to be evolving over time as well.

So yeah, I think that’s going to be one of the biggest trends. We also have acceleration of data and how we use data in unique and powerful ways. A number of venture firms are using data as a driver for how they make decisions, or at least more of a factor in how they make decisions.

Because they feel like they sometimes do gut, right?

You know, it depends on who you ask, but we like to think that it’s an informed gut, that it’s data driven based on pattern matching.

Right, but it reminds me a little bit of the Moneyball thing where there … You know what I mean? That guy looks like a good player. He looks physically like a player that should be good. The old scout system.

That’s so misleading.

It’s misleading. And then, of course, sometimes …

I don’t know how anybody makes money based on looks.

But they do.

Perhaps somebody does, I don’t know.

They all do, but they all do. That was the whole aspect of the data was more indicative of success than the …

Right, I mean, that’s where people find that sometimes biases come in based on that, for sure.

I mean in a lot of ways, people are talking … Someone, I’m sure you’ve heard this — when women will have more money in the system of entrepreneurs is when there’s a Marsha Zuckerberg versus a Mark. I was like maybe there was one and you missed her?

Right.

Because she didn’t look like Mark Zuckerberg, you know what I mean? She didn’t physically present the way you imagine things to be, and so I have this vision of this small little girl, I don’t know, in Tanzania who can solve cancer and we don’t … She’s never going to get to do it, you know what I mean? She’s never even going to get the chance.

Lost opportunity.

That’s what I mean. We don’t know who we didn’t know, right? But of course that’s used as an argument for, “See? Look, all the successful people look like this,” or they present like this. Which I think is … You can’t prove to something that didn’t happen. You can’t … You know what I mean?

People have a hard time getting their head wrapped around opportunity lost. That’s certainly true. The only way you can demonstrate opportunity lost is if someone else finds the opportunity, and that’s what Aspect tries to do.

Right, right. I want to finish up just talking … I know you have a hard stop, where you … Areas that you really would like to get in to. You talked about what you’re in now, but what do you see as super promising that’s maybe further down the line and stuff that you think is overblown right now.

So another area that’s very promising is … Our genetic code is essentially data and how we think about using that genetic code as data to solve a lot of health problems. Getting back to that fact that we have this large amount data. We have this huge amount of data that we’re still learning about at an incredibly rapid pace about our own bodies and how our bodies work.

Mm-hmm.

I think that that …

Full of privacy issues and scary issues too.

Probably, but what I find exciting about that is because we’ve been able to unlock so much more of that data now, you’re going to see the capacity to use that information in new and novel ways to solve health problems. And so for me, I think we’re really only at the beginning of that.

I would agree.

It’s super exciting. Some great entrepreneurs are coming out of existing biotech companies but also out of academic institutes.

The human body is all data. It’s all data.

It’s all data, so think about what you could do when you access a code you never had before.

I had a blood problem when I was pregnant, I found out when I was pregnant, and when I was getting my blood drawn because of it, one of the people who was drawing said, “Oh this happens a lot with pregnant women.” “How do you know that?” He’s like, “Oh, I just see it.” I’m like, “Where is that information?”

Where does that information reside?

It’s on a piece of paper somewhere which is near another piece of paper that relates to it. And I kept thinking, the data’s all in places it can’t be [accessed]. It’s not being able to relate to each other or see patterns.

Bear in mind that modern medicine really was only invented towards the end of the 19th century. The first medical school was really the end of the 19th century.

I know.

It’s like 130 years. It’s super young.

I don’t care, we’re not moving fast enough. You know what? I can order a pen right now and it’ll be here in 15 minutes. They can move a little faster in health care.

Well, I think they’re starting to. I think that’s what’s exciting. Once you get access to this data, what can you do with it? And when you talk about the unknown frontier, I think we’re at the cusp of that.

There’s some applications, like I was a seed investor for a company called NanoString which is a public company now. They use a marker in their lab system for identifying if you have breast cancer and if a particular treatment would be likely to be successful or not. They can determine that whether you have that marker or not. Simple, simple.

Right. Sure.

But you’re just going to have an explosion. You’re going to have an explosion of that and then your ability to diagnosis and not miss radiological diagnosis where …

What do you need radiologists for?

You basically can use that information through image recognition software. It will fundamentally change how we do diagnoses.

We don’t need them. Sorry, radiologists.

Yeah. Everywhere I go I give a speech, I say “If your kids are radiologists, get another job.” You don’t need them and they’re wrong. They misdiagnose.

But they’ll be freed up to do other things. These are brilliant people.

This is how technology people … “They’ll be freed up to do other things.” Maybe they’ll just be out of work.

Or they’ll be entrepreneurs.

Or they’ll be freed up for the other things, you’re such a tech, Silicon Valley person. There’ll be opportunities for all. I’m like, maybe not. I’m the negative force.

All right, so what do you think is over-hyped in the system?

What do I think is over-hyped? Certainly there’s a little bit of hype around cryptocurrency, despite the fact that it’s going to change a lot about how we think about our business and our world, a lot of it’s getting back to fundamentals about the problem solving. So when you migrate away from that to a speculative nature, I think that tends to lend itself to hype.

All right. And last question. I always ask people what thing have you done that’s been super successful as an aspect of your personality versus something you’ve done that you wish you’d done differently? If you had to give advice to young venture capitalist, or someone thinking about it.

I think that I was really nervous about starting a family when I was young. I had only been in venture for less than a year and was sort of pressed to be a partner, pressed to get deals done. There’s a real pressure, particularly as a young women in a firm that had never had a women before, it certainly didn’t have a maternity leave policy, and may have even wondered whether I’d show up again when I gave birth. So I thought that was a real risk that I took.

And then I kept repeating that with having four children. But I think that that was the best decision that I ever made, because DFJ was super supportive of my building a family and I’m lucky to have that richness, because I learn from my kids about technologies that they’re excited about and science that they’re excited about.

So that’s the role of your children, to tell you about technology.

Well, but you know, they’re a different minds. They’re coming out …

Oh my god, my son wrote me the other day, he’s like, “Zero people like Snapchat, Mom. Please speak to them about it and here’s why.” And he sent me a multiple …

Exactly.

He was right about everything.

Right, that’s the point is they’re right. Listening to the younger generation, they’re right. I mean, we are constant learners. We are always learning, so for me, I found that I took a risk in that and it’s enabled me to be a constant learner and continue to broaden my horizons.

What’s something that you wish you’d not done?

Well, I certainly … Wish that I hadn’t done?

Of just a characteristic that hindered you.

Honestly, I’m an introvert, and so I would say I really struggled not being able to understand that really early in my career. I think it changed the way I related to people early on.

So you can’t bro it up. You’re not a bro-it-upper? I can’t see you doing it, Jennifer.

Not quite my M.O.

I’m a bro-it-upper.

Are you?

I’m good at bro-ing it up. I sure am.

I can see that. So that was a challenge for me.

Meaning what did you do to solve that? Just stayed an introvert? Or?

I think I’m still learning even today. Again, we’re all learning beings and so I still learn how to make sure I’m communicating well. And particularly with everybody that I interact with, I want to make sure that I care about them but sometimes because I’m an introvert I’ll go inside my head sometimes. It’s always a challenge.

Right. Because you’re in a social business, right?

Ours is a social gig.

It is. You have to sort of impress people, the investors that are investing in you or the entrepreneurs you want to give your money to, right?

Well, the advantage of being an introvert is I can think things through in great depth in a way that’s super helpful to some of our companies and our team. That’s the positive side of that. So you know, celebrating and not giving up on the positive element of that, I’ll continue to grow. It’s what we all do.

All right. Jennifer Fonstad, thank you so much. This was really interesting talking to you. Jennifer is the co-founder of Aspect Ventures. It was great talking to you, thanks for coming on the show.

Thanks for having me. Awesome.


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