Exclusive interview: Initialized Capital's Alda Leu Dennis on why funding for women-led startups fell during the pandemic

The Business of Business: Why did you get into investing in the first place?

Alda Leu Dennis: I was a financial analyst before I was a lawyer, and then I moved on to being the COO of a company, and then started investing after that. But when I was a lawyer, I did work for Founders Fund as their general counsel. And so that's how I really got the interest and experience, seeing startups and seeing great investors. Founders Fund has done so exceptionally well with their first few funds. And so I got that bug to try to do it myself. And it's been so rewarding and so fulfilling to work with companies at the very early stages.

You're placing a focus on FamTech right now. I’d like to hear more about that industry and the companies that you're most excited about.

Absolutely. I mean, this year has been so crazy, right? One thing that has really struck me about it is how the entire year has been the year of the family. You have children moving back in with their parents, you have kids that are doing distance learning from home, elderly people who — my own are aging parents — who you may not feel comfortable having at nursing homes anymore, moving in with their children. I've been spending so much more time with my own family than I ever thought possible. And I've learned a lot about my kids and my husband and myself. And I think it was the gift of COVID that I was able to do that. 

Everyone else around the country is having a similar experience. And for me, I'm in the lucky position of having a checkbook where I can think about what are the problems that families have? How do we strengthen it as a country? How does technology help strengthen that core, the fabric of our society, the family, and what should exist? There's so many different facets of that, the first being childcare. 

“We’re seeing potential and taking chances on areas and founders that we previously would have been more conservative about.”

Most of us prior to COVID had school, and its childcare role on top of the education role. How can those systems be improved with technology and transformed? There's a company invested in called Kinside. They work through employers to match children with high quality, affordable childcare. So daycares, preschools, and how that ties into the employer is really the second component of thinking about this broader area of family tech, which is how our day-to-day work can be reinforced, and by having high quality childcare, having that peace of mind. 

Then there’s getting parent mothers back into the workforce, which is another thing that we saw during COVID, was how many women had to drop out of their jobs because they had these childcare obligations at home. And that has a deep impact on our economy. If we have high unemployment, the economy's productivity is suffering. So to that end, I posted on the board of a company called The Mom Project, which has almost 500,000 moms, and there are some guys, too. I think about 66% of dads or men on the site would love to find work that allows them to take care of their family obligations, but also be productive members, be mentally stimulated, and find engaging work.

I think adding these areas of interest together and putting it under a fantastic tech header might be a little bit more novel. And certainly there are companies that are supporting education — there have always been companies that are educating students in different ways. Zoom, I think, became an education company, for example, but it's always been around, and there's many different applications for its technology. We do think a lot about eldercare, children, working parents, and even non-working parents, and the stresses that you might have just organizing domestic responsibilities, that day-to-day of meal planning, or grocery ordering or paying bills, the little things.

Recently, you wrote about a potential startup idea for a problem you noticed. Are there any startups you’re waiting for to come around and solve any specific problems you see?

Honestly, I got this solicitation from a friend on what I'd like to see, and I do spend a significant amount of time watching the bills pile up. And as much as I have auto paying for a lot of bills, there's things that come in on a one off basis, whether that be dentist bills or whatnot that require payment. A lot of the time, I'm still getting out the checkbook and writing a check and putting a stamp on it, or walking down to the post office box, which seems crazy in this day and age, and it should totally be automated. So that was something that was happening top of mind then for me, and it's one of those hidden things about running a household that you have to do, otherwise things happen.

“To persevere, and be creative and resourceful about thinking about solutions is ultimately the one thing that you're searching for in a founder.”

I was thinking, “Right now I'm in this tax period,” and having to gather all these tax materials and try to do my taxes. And those types of things are super annoying. We have technology at an enterprise level that can read documents and pull out useful information. And yet, for the household experience, that technology hasn't been brought to our level yet. Those things happened to be top of mind. Luckily, we got an extra month on the tax filing deadline. But I mean, everyone has to do it. And there's no reason that it shouldn't be easier.

How often does a founder approach you with an idea that makes you think, “Oh, I didn't realize how much I needed this. But the world needs this?”

That moment, that happens all the time. Because the best thing about this job is that I get to learn about different industries and think about what problems people face, and put myself in their shoes. I'm constantly thinking, “Oh, I never thought about that. And yes, that would be very annoying if I were a concrete mixer, or I were a lawn maintenance person.” 

That is one of the best things about the job, that we get to imagine the future and invest in making it better. I feel like it happens all the time, where I'm pleasantly surprised about how like, “Oh, this totally makes a lot of sense. And why hadn't someone thought about it before?”

As you know, women-led startups have received less VC funding since the pandemic began. I'm curious to hear your thoughts about that, and what Initialized is doing to combat that.

Well, I don't know if it's universally accepted that it needs to be combatted. So thank you for the premise of your question, which is that oftentimes I think about how to make the argument that having less women in the workforce hurts our economy. That basic premise is not universally accepted. And why should we care? I wouldn't — whenever you're trying to make an argument, the best way to do it is to explain why it matters to the person you're talking to.

“How does technology help strengthen that core, the fabric of our society, the family?”

One of the best arguments to make in favor of it is that there is so much value creation to be had. It's an opportunity to be looking where people are not looking. And looking at founders in areas that are not the standard DevTools or security companies, or things a lot of people poking around on. Why it's the case — there are some theories. The most prominent theory is that there's just not that many women VCs. And it is certainly completely understandable to invest in areas that you understand, you want to invest in founders that you can relate to, and problems that you can relate to. And I don't think there's anything wrong with that, that's the approach everyone takes to a lot of things in life, which is doing what feels comfortable to them, and that they can understand. And so certainly having less female investors and less female VCs has got to be a big component of that. 

At Initialized, half of our senior investment team, half of our partnership is female. We do talk about it, we poll our founders once a year on their own self-reported demographics. It’s something that we talk about openly. We try to have a balanced partnership, and not ignore the issue. And I think that goes a long way to making people's investment perspectives acceptable.

So many studies show that even in any company, people hire people who look like them.

I don't know, like I said, I don't think there's any judgment about that. It's certainly human nature, to want to be able to relate, and certainly it's very accepted to do hiring based on cultural fit. What does cultural fit mean at the end of the day but someone that you can get along with and relate to and work well with?

When you meet a founder for the first time, what qualities are you looking for there? Is there anything specific that you're that you're keeping in mind?

The founder is so important at an early stage, and we typically invest pre-product-market fit. The companies we invest in, sometimes there's some products built. They might have some pilot customers or early customers, but they really haven't hit their stride where it's like, “Okay, how many salespeople do I need to hire, to get to X number of dollars of revenue?” There's a lot of changes as you're trying to find your product or find product-market fit. Your product itself might change, the customer that you have might change, or the team that you hire could change. The founder is the crux of it.

Ultimately, you're looking for someone who you think will be extremely, extremely — I don't know what the best word is for it — determined at finding a way through to find something that people want to buy and can't live without. It's not going to be smooth sailing. I can't think of any situation where it was smooth the whole way through. To persevere, and be creative and resourceful about thinking about solutions and alternatives is ultimately the one thing that I think, really, you're searching for in a founder.

You're working closely with Garry Tan. I'm really curious about any advice he's given you or any takeaways you have from him.

I've learned so much at Initialized, the first lesson being what I just told you, which is the importance of the founder. It's more important than the idea. It's more important, because the idea can change. Those things, sometimes people pivot. It is the most important thing when investing so early. And that's definitely something that I've learned through Garry and through my time at Initialized. 

“One of the best arguments to make in favor of [women-led startups] is that there is so much value creation to be had. It's an opportunity to be looking where people are not looking.”

I also think that the value of thought leadership, and having messages that people want to hear is so, so valuable. Initialized has done a really great job of building our founder community and our network, so that they can help one another. Garry's YouTube channel is a great example of fantastic advice that he's giving to founders every single day so that we can all learn from his years of experience and his success, both as a founder himself, as well as a venture capitalist.

With the people that you work with, do you mentor anybody? Do you impart any wisdom? Or if you did, what investing advice would you give?

We have, just recently in the last six months, brought on more junior members of our investment team. To be honest with you, our fund sizes have been relatively small. We had defaulted to having a bigger partnership with more experienced partners who could work with companies directly. It's been fantastic to have more junior people on the team, who are so excited and enthusiastic and smart about what they want to do with their careers.

I actually just got off the phone with one of my colleagues. My advice to him was to take an area that he was super interested in and has expertise in, and take it and run with it, and be the expert at Initialized in that area. And then after building the space of expertise, then go one step further. Think about what should exist, be proactive with the investments, go looking for the best team, see where there's gaps in the market, and start to think about what companies, technology, and founders can fill those gaps. Because I guarantee you there's gaps in every market.

You've also worked with Peter Thiel in the past. Is there any sort of advice that you kind of carry with you from him, like that contrarian view?

My philosophy on trying to look for other people or not looking in terms of deals, whether that be geographically or sector-wise, or founders, or even target audience-wise, is very contrarian. I think there's a lot of people who are looking in particular areas, and that's never been my sweet spot. I never wanted to run to where everyone else is and say, “Oh, can I get a piece of that.” I would rather try to find opportunities that are hidden gems. 

I was just thinking about and talking to a fellow VC yesterday. Now that people see the light of the end of the tunnel, at least in the US — I know that there are some Asian countries that have like 3% vaccination rates — what types of businesses that were hit hard by COVID are going to be able to bounce back that we know are resilient? 

For example, with Kinside, we know that childcare is not going to go away, temporarily, yes, you might have to have your child at home during distance learning, since you can work from home, or preschools might be closed down temporarily, they took a big hit. But there's going to be a need for high quality, affordable childcare going forward. 

“Your product itself might change, the customer might change, or the team could change. The founder is the crux of it.”

Similarly, I'm invested in a company called SkySelect that provides the purchasing and sourcing for aircraft, and is a marketplace for aircraft parts. I don't think that there's any chance that people are going to stop traveling. I'm watching Twitter, just like everyone else, and people are very excited about, like, “I booked my first flights in a year.” People are going to travel again. And so yes, so maybe, you know, a slower recovery, it might be more domestic first before international, but there are industries that we know are coming back and are very, very durable. I'm starting to think about that a little bit more, which is now that there is a light at the end of the tunnel, can we still get reasonable valuations and find that talent now? Because now is the time to start building for when we come out of this.

A fair amount of these startups came as a result of the pandemic, or at least during the pandemic. And these conditions were really well suited for them to thrive. There must be startups where you don't need to have the conversation of, “How are we going to pivot when this is over?”

I think you're raising a very interesting point, which is all the things that were hot last year, and that are hot right now, what does this mean for them if things return back to quote-unquote normal? What's going to happen to the Zoom stock price? What's happening to all these video event platforms? What's happening to all of these online educational tools? And certainly, there's going to be — they had very, very inexpensive customer acquisition costs last year — and there's going to be retention from that. But I don't think we know the degree yet. Certainly, we're in a long business, we're all optimists as VCs. But it is interesting to think about, okay, does this mean that we're not going to need this anymore? Or whatever that might be?

Clubhouse came to mind when you talked about event platforms. Do you see a future for Clubhouse? Do you think the valuation is a bit high?

I am actually very bullish on Clubhouse. Garry Tan, and my partner, Andrew Lee and my other partner, Kim Mai-Cutler, are our power users of the platform. And I do like the convenience of being able to access content that is sometimes interactive on a purely audio basis. And that translates to sitting in my home where I've been for two days, like I could listen to Clubhouse on the bus to work, or on the treadmill or the exercise bike at the gym. I do see a world where engaging in interactive audio content doesn't rely on people being confined to their homes.

What does the rest of 2021 look like for Initialized? What are you looking forward to?

Well, it's been really great. A great period of time for our companies. Certainly in Q2, a lot of our companies were thinking about how they could extend the runway a little bit, how they could double down on products if parts of their business were struggling. And it's no secret to you, I'm sure, that the markets have been just crazy. Coming out of the summer, Q4, Q1 has been really, really crazy. Wild. Everyone's really optimistic. I think that's great to see. 

I hope it continues, I think we’ve got great exits, and the public markets were very generous to technology companies. We’re seeing potential and taking chances on areas and founders that we previously would have been more conservative about. So I hope that continues. I think that it will — there's a lot of capital coming back to the IPOs, that the LPS are going to put back into great VCs, which will continue to fuel that investment. And then as far as Initialized goes, I think we're looking forward to seeing  how we can continue to flesh out our team, and people who could support our companies and provide operating expertise. And continue to grow our firm in a way that is helpful to our founders and our community.