105. Pat Muoio - Venture Capital, Cybersecurity, Cryptanalyst

Pat Muoio is a partner at Sinewave Ventures where she assess the technical value and viability of emerging technologies and make investment recommendations in the federal marketplace. Prior to joining Sinewave, she worked in cybersecurity and cryptography both in the private sector and at the Department of Defense. She has a PhD in Philosophy from Yale University.

What do we talk about in this episode?

Pat shares her journey from getting a PhD in Philosophy and a planned academic career, into cryptography at DOD, to cybersecurity and into her current career in Venture Capital (VC).

1. The world of start up investments (VC 101). Seed, Series A and Series B funding, Angel investments and more.
2. Advice for being successful at getting funding. The importance of the pitch and framing it to what's important to the group you are pitching it to.
3. Women founders are more successful than male founders, but it's still much more difficult for women to get funded than men.
4. Pat's experiences in VC and in the tech space.
5. How VC firms are funded.

Music used in the podcast: Higher Up, Silverman Sound Studio

Resources

Seed funding is the first official equity funding stage. It typically represents the first official money that a business venture or enterprise raises. Some companies never extend beyond seed funding into Series A rounds or beyond. You can think of the "seed" funding as part of an analogy for planting a tree. This early financial support is ideally the "seed" which will help to grow the business. (https://www.investopedia.com/articles/personal-finance/102015/series-b-c-funding-what-it-all-means-and-how-it-works.asp)

The first round after the seed stage is Series A funding. In this round, it’s important to have a plan for developing a business model that will generate long-term profit. Typically, Series A rounds raise approximately $2 million to $15 million. In 2021, the median Series A funding was $10 million. (https://www.investopedia.com/articles/personal-finance/102015/series-b-c-funding-what-it-all-means-and-how-it-works.asp)

Series B rounds are all about taking businesses to the next level, past the development stage. Investors help startups get there by expanding market reach. Companies that have gone through seed and Series A funding rounds have already developed substantial user bases and have proven to investors that they are prepared for success on a larger scale. Series B funding is used to grow the company so that it can meet these levels of demand. (https://www.investopedia.com/articles/personal-finance/102015/series-b-c-funding-what-it-all-means-and-how-it-works.asp)

A business incubator is a workspace created to offer startups and new ventures access to the resources they need, all under one roof.In addition to a desk or office, incubators often provide resident companies with access to expert advisors, mentors, administrative support, office equipment, training, and/or potential investors. (https://www.shopify.com/blog/what-is-business-incubator)

About 60% of companies that reach pre-series A funding fail to make it to Series A, so the success rate is only 30%-40%. About 65% of the Series A startups get series B, while 35% of the companies that get series A fail. (https://spdload.com/blog/startup-success-rate/#:~:text=About%2065%25%20of%20the%20Series,Noissue.)

Cryptanalysis refers to the process of analyzing information systems in order to understand hidden aspects of the systems. Cryptanalysis is used to breach cryptographic security systems and gain access to the contents of encrypted messages, even if the cryptographic key is unknown. (Wikipedia)

Transcript

Episode 105 - Patricia Muoio

​[00:00:00]

Kathy: Welcome to ordinarily extraordinary conversations with women in stem. I'm your host, Kathy Nelson, an electrical engineer who loves to hear and share stories of other women in stem. Before I get into introducing today's guest. I do have a couple of things I'd like to share. I've been doing this podcast for about three years in, this is my 105th episode. 

I completely produced this podcast on my own and independently, and I don't have any advertisers. So if this podcast is important to you, you can support it through Patrion. You can search for my podcast name and find me. And, um, there's three different levels that you can support the podcast at. You can also find a link in the episode notes or on my website, which is www.ordinarily-extraordinary.com. 

And I would love to be able to connect with my listeners. You can find me on Facebook, LinkedIn, and Instagram, or email [00:01:00] me at ordinarilyextraordinarypod@gmail.com. I'd love to hear from you and you can let me know what topics and stories you'd like to hear about on the podcast. This week's conversation has a couple of aspects to it. And honestly, the more conversations I have to this podcast, the more tentacles I find that deal with women in stem and the different routes. 

That women take to get into stem and today's guest covers a lot of that. This episode features Dr. Pat Muoio. She is a partner at Sinewave Ventures, a VC firm, where she assesses the technical value. And viability of emerging technologies and makes investment recommendations. Prior to getting into the VC space. Pat worked in cybersecurity and cryptography, which we also talk about. 

Also, she has a PhD in philosophy, or as I like to say, she has a PhD squared. And she shares how she went from that educational background into the tech space and then into VC, which I think is just fascinating. I've had several women founders on this podcast and the investment world is not something that I have known much about and is [00:02:00] obviously an important component into women being able to start their companies. So pat also provides a little investment 101 into our conversation as well. 

She has just a wealth of knowledge and experience in so many facets. I really just absolutely enjoyed the conversation that I got to have with her. And I hope you enjoy her story. 

Hi Pat.

Pat: Hi.

Kathy: So I'm really excited to talk with you. VC is something that has been on my mind a lot lately and your experience in STEM and the VC world, I'm just really excited to, talk with you and hear about your background and how you got into it and pick your brain a little bit.

And thank you for being on the podcast.

Pat: Thank you for having me.

Kathy: All right. So one of the things that I like to do is talk about what do you do for a job? So what do you do for a job and what does a typical day in your life look like?

Pat: Okay so my job is general partner at Sinewave and I am part of the [00:03:00] investment team. There are three partners, and so we are the investment team and the work is divided. No two days are the same and a lot depends on what's going on or whatever. But in a typical day, a lot of what I do is try to assess companies to see if their technologies and companies we'd want to invest in.

So this involves a little bit of research. This involves sourcing from variety of places, other VC firms, portfolios, accelerators, and incubators. Companies that are brought to our attention by colleagues in our network. So we find a company that's intriguing do some research on it in the background, and then a lot of the day is spent on calls with these companies where they pitch what they're about and we have opportunity to ask questions, see whether they fit with our investment thesis see what we think of the technology, see if we want to move forward.

So that would be a typical first call. And then also mixed in with the day, there's actions say on [00:04:00] typical things that are actions to run a company, hiring running an annual meeting talking with investors stuff like that. If it's a day where we're talking to a company, say for the second time, then we would Have arranged ahead of time, what are the areas we want to probe at?

And we would be asking questions specifically in that area. So a lot of it would've to do how does the product fit the market? What are the customer responses like how does the technology really work specifically? And we would do different deep dives for different companies depending on, what we needed to know about them, what we thought was the, critical risk in the company and so on.

After we've, involved the companies and decided, yeah, this is something we might want to go forward with, we then do a different set of calls, which is calls to some of their customers, calls to some of their partners, calls to people we know who are in the same general vertical, to see what the [00:05:00]space is like.

And and just a lot of checking up on, trying to get more color on what the company has told us about themselves from different points of view. And then ultimately we'll make a decision. And the decision process is always consensus. The three of us just talk it through.

If any of us really don't like it, we don't do it. and so that's just how an investment decision goes. On a typical day, you may have one company that you're doing the first call to when another company you're doing the second call to and a diligence call, for a third company, oh, lot of my time is spent on Zoom and on calls and and then a small amount of my time is spent on kind of admin stuff.

I also have the role of helping set our investment strategy. And so a portion of my time is spent Reading up on where technology's going, thinking about future trends, what are good investment areas, formulating investment thesis, [00:06:00] say, this is something that we should go into for these kinds of reasons. I also do some writing that gets picked up by various industry journals and so on, stuff for our blog. It's a very mixed bag,

Kathy: Are there specific kinds of companies that your firm invests in?

Pat: yes, so our firm is very, what we call thesis driven. That means we have. A clear idea of what we want to invest in. And it's well articulated both in our own minds and we can write it down and speak to it. First it's articulated with respect to stage. So we do early stage companies, which are seed, what's called series A and what's called Series B.

So these are all companies. SEED is, they have a technology, but they don't have any customers yet. But the technology works, and they're just getting into the stage where you would be doing proofs of concept or pilot projects with companies in A round, they will have done project proofs of concept.

They would have proved that the product is something that the market's [00:07:00] perhaps interested in. They would have initial revenue but they really haven't, hit the growth curve yet. And a B round is really a growth round, right? The Technology is stable, proven, good amount of revenue, and now you're just trying to get the sales to, to take off.

And so there's different questions at different stages and so on. But we like to work the earlier, the better actually with the company because there's more we can do for them early on than later. And we like to really help our companies succeed. Apart from stage. There's the type of technology it is.

So we're convinced that The future of technology is that data will drive industry, data will drive business. All decisions are going to be increasingly made in a data-driven way. And so the ability to process and help humans absorb huge quantities of data is what we're sent. We're centered on finding companies that enable that.

This practically means [00:08:00] computing companies, so cloud companies, high performance computing companies that help you use the special chips for AI and so on. So things that deal with distributed computing, that's one set of companies analytics and AI companies that, help you look at your data and automatically draw conclusions or insights from it and present those to the user in any of a variety ways.

And then cybersecurity companies, which enable you to use your data safely so that you're sure that the data that's informing your decisions hasn't been mucked with that the systems that are processing your data can keep it safe and and that you can be safe from the variety of attacks and so on that would compromise any data-driven system.

So those are the sort of content areas that we we concentrate on.

Kathy: So has your company has it always and it obviously not always been in like certain areas of that since technology changes all the time, but has that like always been the concentration of your company or does it change over time?

Pat: [00:09:00] Yeah. We have found, so this, data will drive, industry, data will drive business. And state has been steady since we've been investing, which Sinewave has been in business for eight years now. And so that has stayed steady. And as we think about it, we've divided it up into these various rails that I spoke to, those three rails, and those have stayed steady also. It's always the case you're going to need to compute on something and know what that is changes over time. That there is something is the same. You're always going to have to worry about how you're making sense of your data, and you're always going to have to worry about keeping it. Save. So that's been stable.

What has changed over time is the next level detail down. And for example, the cybersecurity world, when we first started, we were very high on endpoint. Endpoint was new then. The idea of protecting your compute platform rather than your perimeter was a growing idea. And we were investing in that at that point in time.

Now endpoint is fully grown up. There's strong [00:10:00] players in the market, including one company that we invested in. And so that's not an area that's useful for venture investment anymore. But coming along, there's this notion of an identity based security. And we are starting to turn to a whole lot of zero trust stuff, a lot of this identity based stuff and moving with the times as the market is changing.

Obviously, there's huge changes in the AI world. When we initially invested it technologies we invested in with technologies that it just enabled you. To train models and deploy them. There wasn't a whole lot of algorithmic sophistication involved in those technologies. It was a lot more engineering and plumbing to make AI work.

Now we're looking at companies that are where the brains of it is really what's at issue. And so the topics the broad rails stay the same. And the subtopics seem to change over time. We look at it I keep my eye on it all the time and probably every six months or so we sit down and talk it through, what are we seeing?

Is this still [00:11:00] proving true? Is this not interesting anymore? And and we update our thinking on specifically what are we looking.

Kathy: I know you talked about seed series A, series B funding. Can you walk me through Because honestly, until this morning when, and I had a conversation with actually one of my old bosses, I worked for a startup for a while and he explained to me how funding works because I'm an engineer, I don't really know anything about funding, so he gave me like a VC 1 0 1.

I'm wondering if you can walk through that for me and for the listeners so that so somebody who doesn't have an understanding of what these different types of funding are. Like how does someone go from Hey, I have this idea. I don't know how to get it to market. Like how does that whole process work from a standpoint of getting funding and going through the processes?

Pat: Yeah, and the process is very different for different industries, different parts of the country, so on and so forth. So I'll give you a generic idea so you have an idea. Generally the. The idea is something you spend [00:12:00] some time working through making sure you're flushing it out and so on and so forth.

And eventually you're convinced enough that this is an idea that you want to try to make a product and a company out of. Then you need to get to the point of prototyping that idea doing some rudimentary code and so on. Depending on. Your particular financial situation as a founder?

The game at that point is very different. There are some founders who are repeat founders who made some money out of their last companies. They fund themselves. They bootstrap through that stage with their own money. There are people who have personal connections and they can do what's called friends and family rounds early on where they get people who know them to give them some money to tie them over this initial time.

It's very hard to get an institutional investor that early when you're at this sort of idea, PowerPoint stage without a prototype. And

Kathy: [00:13:00] Would, can I quick ask a question? Would the friends and family would be that be the same as an angel investor?

Pat: So angel investors Are, they're the same in the sense that they're individuals who have money, they're willing to put in. Angel investors are often not related to the founder, but they have as they're as a way of making wealth and interest in investing in early companies. And so there are individuals who will who do want to invest in ideas at the idea stage before there's any proof of those.

And that's what angels are. Some people are plugged into this sort of network of angels, some people have very little ability to, to even know how to find them, and so the early stage of venture is , or venture in general is largely unfair, and the early stage of venture is very unfair.

So the people who are well-placed tend to do better at it than people who are really struggling to find connections in this space. They're starting to be what are [00:14:00] called incubators and accelerators actually, they're not starting to be. They've been around for a while. Universities have innovation centers where they help students start up their companies and some of these institutional kinds of give you a leg up to the first step.

Organizations we'll give you money and generally they'll take some percent of the company of the eventual company. Because often there's not even a company at this point. To enable you to get through this early stage and actually build something. And a lot of these accelerators and incubators you'll work within with them for, say, nine months or a year.

There's a term associated with it and they'll help you out thinking about the market, figuring out what kind of investors you can approach, what, how should your your marketing line be, or your theme of your company. So they not only give you money, they give you help in entry into the larger venture market.

And so that's a pretty useful [00:15:00] set of organizations, particularly for founders who don't come from situations where they have easy access to money from others.

Kathy: Okay. So I know I derailed you at the friends and family. So let's go back to friends and family. So where do you go from like friends and family?

Pat: So after you've done, get, gotten this early money or some way to keep yourself alive while you're doing your first prototype, that's when you can then go out for your first, for your real seed. That's called the pre-seed stage. And then it's the seed stage where you can approach institutional investors.

You can more formally approach angels to look for larger checks based on some proof that your idea Will work, right? So you will have coded something, you will have a design partner or a first customer who has worked with you and shown that it actually matches the way [00:16:00] some businesses want to do work.

And so there's likelihood, not only is it good technology that works, but it's also good technology that works that somebody wants. So then you go out for a seed round and there are venture firms like ourselves that are interested in seed. There are some venture firms that just do seed. And so you find the companies that are willing to invest in this earlier rounds and you have, you pitch to them.

And depending on, how well you match their investment thesis, how compelling your story is, how strong the team looks. You'll get some investors at that point in time. Then you use your seed stage. To prove product market fit in generally, and what that means is you you have your technology, it works not, fully fleshed out.

There's still other functionality you want to add. You still might have to scale it out, whatever, but it does a thing that works. And you Spend this seed stage finding more design [00:17:00] partners or customers to show not only is it something that somebody wants, that actually looks like there's a real market for this, that this is something that fits a need in this space.

And once you've done that, you will have some small amount of revenue at the end of the seed stage, say 2 million, 3 million, or you'll have a a deep formal relationship with a couple of well-known brands so that you get credibility that you know they're interested in working with you.

You have something that shows, that gives credibility to your claim that this is the product that, that will make it in the market. And then you go out for your a round. Which is generally a larger round and requires more more financial evidence in your briefing as to, projections as to revenue, projections as to cost projections as to where you'll be at the end of the round, some milestone that you will meet at the end of the [00:18:00] round.

And and then you go and you pitch that again to the VC firms that are interested in that stage. Is this making sense?

Kathy: Yeah. Yeah. It is.

Pat: Okay. Okay. And so then you, so you get to your A. You raise your A and your job at your A is to show yes, it, not only does it fit the market, but I can really sell it so this is when you start building in your sales teams.

We start building up your marketing teams. You do a lot of your product led growth activities. You start laying. And a company on top of a technology is how I tend to think of what happens between seed and A and seed. You still have an interesting technology and a, you're starting to build a company around it, and then you go for your, you get to about 10 million in revenue and you go for your B round, which is to accelerate, you . Make your sales go exponential or generally in a round, that kind of linear.

And then you try to hockey stick your revenues with your B rounds and later. And there a lot of the emphasis [00:19:00] is your investments put towards sales motion and so on and much less towards engineering and and stuff like that. And the a, there's still, the a is where you would address, for example, scaling and a whole lot of other and build, finish out your techno, your technology, perhaps address your security mechanisms more formally.

Stuff like that is what you do in the A and then and then you're off to the races.

Kathy: So by B you're like a real company. Okay. How many companies make it from going from.

Pat: Yeah.

Kathy: Startup or from like an idea to seed to Series A to series B and being successful, like I'm assuming that some drop out at each stage.

Pat: Yeah. the answer is not many. I would, I think my colleague my, one of my other partners knows all these stats. You'd probably need to talk to him if you really want

Kathy: I can fact check it, at least for [00:20:00] what's available internet.

Pat: But anyhow, I think that about 10% of companies survive the seed, raise an A. And I think the cutout is a little less steep from A to B, but still pretty steep.

And that once you've passed your B the cutout is the, so the cutout is steepest. The early steeper, the earlier you are in the process. And in the end, I would say probably 5% of companies survive.

Kathy: Okay. Does that are there companies that you work with that you're like, just really sad to see them not be successful? Because, not only are you investing in them, but I'm assuming, and I don't know this, is there like an emotional piece of hey, like this is something I really like that you want to see it being successful, or is it like just business and not personal?

Pat: Yeah. And and we at Sinewave have been very fortunate that not too many of our companies were unsuccessful. So

Kathy: So you guys are doing good with picking companies. 

Pat: Yeah, but there was one. And and this is something that I think also speaks a little [00:21:00] bit to my journey as an investor. So there was one company we picked early on.

It was a cyber security company. Cyber security is an area that what I have fairly high level of expertise in. And it was doing something that was a problem that when I was working for the government, I knew was an important problem to solve. I knew it was a hard problem. I really wanted this technology to work.

We knew when we invested it that the big tech risk was wood at scale. That was a networking thing. And they were working with networks that were little and and the real. It was also computationally expensive. And so the question of scale was a real one. It turns out it didn't scale. And it was like, and that, that hurt, as you say, from the point of view, The company managed to sell itself in a kind of breakeven way.

But the idea didn't make it. And the technology didn't really succeed. And it was something that I had really wanted to succeed. There's other companies [00:22:00] where, you know you work with the founders and you really become, you like them and you really want them to do well. So far I haven't had any is incident where I've had that type of a personal disappointment.

But you, I, at least I do. Quote, unquote invested emotionally in these things. And I think that makes you a better financial investor if, you know you can put your if you find things you can put your heart and your energy behind, likely, that's a better kind of investment to make. 

Kathy: This may be a dumb question, but again, I'm going to go with, I just, I don't know anything about, about vc. Where does the money come from that you invest in the companies?

Pat: Yeah. Venture firms need to raise money so that they can give money to companies that re need to raise money. And so one of the hard jobs of a venture fund, which fortunately has not been something that I've been the main lead for at Sinewave is fundraising.[00:23:00] Our initial fund was raised from generally high net worth individuals.

That there are people who want to invest in, in venture and and we pitch to them and or, and get that kind of investment. There are also entities called family offices, which are generally some member of the family or members of the family had a business of some sort that they made a lot of money in and they want to Increase their money or maintain their legacy through investment in venture and other types of investments.

And in our initial fund, it was almost exclusively individuals and family offices. And the approach there is just like the seed approach is a little less formal than the later round. Similarly, the approach to individuals and family offices is a lot more personal. They, they need to understand you and trust you, and they realize this is a startup venture firm and you don't [00:24:00] have, financials to give them, to prove that you're going to be good.

As we raised, so that was our first fund. We raised the second fund, largely the same composition, but we got a few institutions to invest then university endowment and I'm not remembering what else. And now with our third fund, we're moving again to be a more institutional based set of investors.

And and as I think this is fairly typical for venture firms, that as the f the fund matures, the investors become more professional financial investors big banks retirement funds all sorts of stuff like that. That makes sense. But you have to do your ditch.

Kathy: Is there a point that you get enough payback from who the companies you've invested in, that you become self-sufficient?

Pat: There are some companies called green companies, evergreen Companies. That's what it's Evergreen, that where their model is, they'll [00:25:00] reinvest their profits to keep themselves alive. So they raise their first fund and they never raise again. Most funds are not evergreen, most funds because you need to pay the money back to your investors.

You need to keep some money. 

So these evergreen funds exist, but they are rarer. And and the model is that for each new fund you do a raise. Again, sometimes you get to the point where your reputation is solid enough and your same investors pretty much re-up almost automatically, and so the fundraising burden becomes less. But you're still getting new money for a new fund just from the same people, because you have that relationship now,

Kathy: So you have to do both sides of pitching and listening to pitches.

Pat: yep.

Kathy: Okay. Interesting. Okay. So how would a company that is, or somebody has an idea and they're looking to Move this along and get funding. How can they prepare themselves to be successful [00:26:00] in getting in getting investors?

Pat: Yeah. I think it's important that when they are developing their pitch, they think about who are they pitching to and what will that person care about. A lot of times it's very tempting, you're so fond of this idea, you're so wrapped up in the beauty of this invention to not realize that what makes it intriguing as an invention to you is going to either be for one, understandable or interesting to the person who you're trying to pitch to.

And you need to be able to speak to what problems does it solve, what use cases is it set for? How is this going to, Make a difference in the market. How is this different from the rest of your competition? and so you, you have to really look at yourself from the outside in.

I, and this is something I try to coach many of our companies on, and it's a very hard lesson for founders to get. [00:27:00] We have one company and they're brilliant company. it's a healthcare imaging company, and they went into this, Driven by their commitment to reducing long-term brain injuries.

The brain health mattered to them. They were neuroscientists. They really had a very strong interest in helping it reduce that problem. The problem of brain illnesses in the world. And and then pitch the first, 10 minutes of it was really impassioned, about the problem, how bad brain, Alzheimer's ms, the harm it does to people, the value of the cost in lives and so on.

All of which, was credible and brilliant and really, obviously heartfelt and important. But wasn't. Selling them right? And you have 50 minutes take it or leave it, and if you use 10 of it on something [00:28:00] that isn't one isn't what the investors are going to assess you on, but also two might just, I don't know, lose their attention.

For some reason if, brain injury is hard to think of how anyone wouldn't worry about that. But if there were something else that you might actually alienate them. So anyhow, the point is what motivates you and what you think is great about your company is not necessarily what will sell best about your company.

And the other thing is to evidence some sign of business acumen. a lot of founders. are engineers, technologists of some type or another, not very well versed in finance. Not actually interested in

Kathy: Hence my questions. I'm an engineer.

Pat: exactly. And completely understandable. When a company, when a venture firm is investing in you, they want to know, not only is your technology going to be good, but is this a company that's going to thrive and you

Kathy: Can you run a business? 

Pat: Exactly, and you need to show that you [00:29:00] can, that you've thought about this, that you can understand numbers in, in ways that you need to, or that you have brought on a partner who has that, that you've rounded out your team. Which is another, I think, important thing for for early founders to consider is rounding out a team and presenting a strong team with many of the dimensions that are required to make a successful company present in it.

And, oftentimes you have e team where the C E O and the CTO O and the C O are all, nuclear engineers, whatever. Something that's very

Kathy: you'd have a C F O that's not.

Pat: Yeah, exactly. Something that's extremely relevant to developing the idea and the technology.

But that alone isn't going to get the company to be successful. So putting some diversity in your in your leadership team is a very important thing. And diversity in all types, diversity of mind is one thing that people speak to, but I also think diversity in the sense of, women and [00:30:00] minorities and just getting points of view that are not yours always makes the conversation a more effective one.

Kathy: I do want to come back to that. I do have one more question about about VC itself. So how would a founder or potential founder, how do they find VC firms to pitch to and how do they get, like on your calendar to pitch to you?

Pat: Yeah. So some of it's just, web research, we're all out there saying what we are and what we're looking for and stuff like that. A lot of times for the later stages founders rely on their early investors to help them find new investors. We do a lot of venture VC introductions for our companies.

So if the company's out raising money and we know that, this VC firm cares about that topic, we'll talk to that VC firm, say, here's this company. They're really exciting for this reason. Will you take a call with them, whatever. So there's a lot [00:31:00] of networking to get to to get. Warm intros rather than just having to do cold calling, but a lot of it is cold calling, send an email.

I get a ton of emails my company. Does this, are you interested? And that's, you just have to have I, myself am an introvert, have a hard time. I'm asking anybody for something if I don't know them and blah, blah. But you have to get over that.

You just have to get over that, and you just have to have a thick skin about that and go out there and find people to connect with. And a lot of times too companies founders have advisors, somebody from their school, college somebody who they officially have as an advisor for the company.

Somebody that's mentoring them for other reasons. And using that network as well to get to investors is also very useful.

Kathy: I mentioned that I talk to my former boss who ran a small company that I used to work for. One of the things that I was talking with him about is is there an opportunity to put together and maybe this exists, this, I guess this is more of my question, [00:32:00] does something exist where you can bring companies or, if you're looking for like tech companies to invest in and VC firms together, is there any kind of like community that does that?

Pat: Yeah, there are a couple, as I mentioned, the accelerators do that for companies that are in their accelerator. They'll have their pitch days and many VCs go to those. And so you can get to, several at once

Kathy: Is that kind of it would be like a job fair, like to equate

Pat: Yes, exactly. It is like a job fair, but it's a company fair.

There are other companies or organizations that do sort of broker, they run these days where they'll just, and I tend to participate in quite a lot of these. They'll run these days where, they have 20 or 30 companies on the agenda. Each of them has three minutes. And and they say what they say and investors can decide if they want to contact them or not.

So that's a

Kathy: kind of like speed dating.

Pat: Yes, it is. Yeah, exactly. And so that's [00:33:00] a good way to see a lot of things quickly and to get a sense of what's in the market find a couple of good companies in there. I don't know the success statistics or any of those approaches but there are ways to do that.

And there's, and and I think they're an important part of the ecosystem, and that, in my mind I would like to see strengthened. See more entities of that type would perhaps themes or, special areas of focus or whatever. So that you would get a, one of these ones I go to, as I say, there's, 30 on the agenda in a day, and probably three of them are really even options from what we're interested in.

So we can get them some that are set up to be more thematic. That might be a thing.

Kathy: So would there be an opportunity for there to be some kind of like a women in STEM

bring that together? Or is that not a thing? Because the different, it's too hard from like a technology perspective, there's too many probably different things.

Pat: One, there's, there [00:34:00] aren't that many. So there are accelerators and and various organizations to support female founders. However most of them are dealing with consumer businesses. There, there are very few women doing enterprise technology businesses, founding enterprise technology businesses.

I've had a personal interest in trying to find them. But there, there are not many. And this woman in STEM thing I just don't think at this point it, there's a population that would even make it a viable event. And that's unfortunate. But that is the state of. Of the market right now.

And I did a panel earlier with two women founders and talking through this issue about, why is it hard for women to get into venture? And there are a lot of barriers. The questions that you're asked are different. Things that people would give the guy, would give a man a benefit of [00:35:00] the doubt.

They will not give a female a benefit of the doubt. And if a male does not know his numbers or, hand waves over some of the details, they're like But if a woman hand waves over anything, that's the kiss of death. I have heard from some female founders that they would ask questions that were just inappropriate

Kathy: And so on and so forth.

Pat: it is a very asymmetric power situation, right? You're basically then begging for money and and it's fairly nasty. 

Kathy: I had a woman that, a founder that was on my podcast who said she was basically propositioned like I may fund you if you have sex with me. I was like, I did not know that was a thing like,

Pat: I know. It's really sad, in this day and age that's Still part of the environment, but the environment, there aren't many female investors in enterprise tech. There's starting to be more, there's starting to be also organizations of female [00:36:00] investors. But again, the emphasis is often on consumery businesses.

That, that doesn't really quite match up, certainly with our mandate. And and that's the other thing that I find and I, and maybe it's just a, or I find it frustrating that, it's assumed that a woman's business is going to be in fashion or makeup or food and not in tech, but the vast majority of women's businesses seem to be in, in those kinds of girly fields.

Kathy: If you look at the numbers of like women who go into tech or women who go into engineering, 

Pat: no, I get 

Kathy: lower of those entering. One of the things I'm trying to change that we're hoping to change, but so yes, there's going to be less and I, and it's hard to start a business and I mean there's just there's I think a lot of factors.

One of the things I want to ask you about, cause I think this is interesting. So when I was looking up statistics of successful women [00:37:00] founded companies versus successful male founded companies, the statistics that I found is that companies with a female founder performed 63% better than companies that were founded by men.

Which in my mind, when you talk about the men can like hand wave over things

From statistics, it sounds like the women should be the ones that can hand wave over things because their businesses are statistically more successful.

Pat: Going back to the point I made about founders being able to show business acumen and to show how they might how the market might receive them. And I think women are better at that. I think women are more Concerned with or sensitive to how they're being viewed. And so I think they can understand the marketing into which they are selling because they pay attention to the queues they're getting from their buyers.

I think that's part of that. I think the business acumen is another part of [00:38:00] that. A lot of the time, the household budget is a woman's thing. Just having to make ends meet is something that a surprisingly large number of entrepreneurs don't understand. And so I think there are good reasons why women are better at business and And I, like you say, I think they should be given the benefit of the doubt because of those stats.

But they are not, and perhaps, because they had to come up the hard way. Maybe that's another reason why they are better at it, because they know they're not going to be, nobody's going to cut them any slack and that's not really very fair. But it does help them be successful in some sense.

Kathy: I also want to talk about your experience being female in the VC world, because as you mentioned, there's not a lot of women that are in the VC space providing investments either. What has your experience been being on that side?

Pat: Yeah. So my firm [00:39:00] is small and there are certainly in our partner discussions, I don't feel marginalized or. Or that my opinion is lesser. I do think even in my small firm, There is a sense that because I'm a woman, niceness, it ought to be my mode of engagement with everyone.

And, no critical reparte or anything like that kind of a thing, which I find problematic to say the least. And so there is some of that in my engagement with other VCs. And here. So a little bit about my history. So I was in the government for 30 years and I joined this VC firm at a fairly high level and did not know anything about VC when I started.

Kathy: had to have a 101 

Pat: didn't even do the research or ask anybody, so I just jumped right in. In my initial like board meetings with other [00:40:00] VCU guys I did not feel like my voice was heard, but I am willing to Can see that it might be because my voice was tentative because I didn't really feel like I knew what I was doing to start with.

Nowadays I don't feel quite the same, but it is a male world and you, I came from department of Defense, which is also a male, so I'm pretty used to how you have to act in male worlds and certainly that's what I do. So it isn't a friendly environment. 

Kathy: Is it changing? Is it getting

Pat: is a cha. Yes, it's again, my sample is pretty small, but for example, one of my companies, there's a board where there are four women on the board and that's the whole board, right?

So that's a very, and it's not a woman owned company. So that's a very nice welcome change. And the tone of that board is different. What that board tries to do for that company is different. So there is.

Kathy: probably not propositioning the

Pat: Yeah. No. Yeah,

Kathy: the founders.

Pat: that's right. [00:41:00] I'll get my dates elsewhere. Thanks. and so I do think in situations like that it makes you see the value of asserting sort of the female persona in this space.

But it's not frequently done. And some environments where most environments where you're the only woman exercising that persona is not the thing to do. 

Kathy: You want, you, you're supposed to be one of the guys, which is, we talk about that a lot on my podcast and I've been an engineer for 30 years. I felt very much that way when I started out working hard to be my authentic self now, but for a long time I couldn't, or I didn't feel 

Pat: No, 

Kathy: like I could,

Pat: And I think and it's, it's subtle little things. Like your voice isn't as loud and so you get talked over and

Kathy: the microaggressions.

Pat: you turn into a heartbeat and scream at people just so that you can be heard. That's not the person I want to be, so it's yeah, it's problematic.

I'd like to say it's getting better but it's not at a rate of speed [00:42:00] that makes me happy. I think I do this to myself. I enter environments anti, not anti, I guess largely male environments to try to bust them from the inside is my life's goal, I guess. so anyhow.

Kathy: And just so statistics that I found on the internet about women in VC is that it is 8.6% of all venture capitalists, 8% of firm partners, and 7% of board seats. Across the United States. And when we talk about stem, it's about, I think 17% women in engineering. I think overall in STEM is maybe like 27%.

So you're even smaller. You're even in more of a minority than STEM fields. And if you're in tech, in vc, I'm guessing it's probably, like the Venn diagram there is really

Pat: tiny. Yeah. Yeah. So yeah. And I, and part of it is, the world of money is a male world. Like you say, the tech world is a male world, and so [00:43:00] the intersection of those worlds is not a large it is certainly not going to have many women in it. I think a lot of venture capitalists were at one point entrepreneurs and that was very male for very long.

And so the people who have graduated out of thatare going to be male. There's starting to be organizations of women who have made their money in areas other than venture forming venture firms or organizations to support women in venture. And I think there's a growing networking ca capacity that didn't really exist a few years ago.

And hopefully that will help. but like you say, there's so few. Women founders, there's going to be so few. It's just the signs are not, the sources are not the, or is not very rich for potential women VC partners. Where they're going to come from is hard to see.

Kathy: Let me ask this. One of [00:44:00] the founders that was on my podcast talked about girl Boss. So the woman who is from Girl Boss of the Netflix series. So she apparently started a VC firm with a bunch of other women to invest in.

Hard would it be for someone to do that? Let's just say as an example, if I wanted to start to fund startups for women in stem, how hard is it to start a VC firm that could do that?

Is that like a huge undertaking? I don't, I have no idea how that

Pat: I don't know. I don't deal with the legal setup or anything like that at the firm. So I don't know, legally what, whether there are requirements. 

Kathy: But like

Pat: but the other big issue would be where are you going to get the money? And if you try to do it in a crowdsource kind of way, and they're all crowdsourced VC funds.

Kathy: I think that's how, like what she did, I think she, that's 

Pat: Yeah. I Did, I imagine if you could get the funding in a way like that rather than in the official pitchy kind [00:45:00] of way. I imagine setting up the entity is I was going to say, I imagine it's not too hard, but there are all sorts of rules about what kinds of financial resources you have to be a legitimate investor and blah, blah, blah.

So I guess I don't know enough to say how hard would it be? You'd have to figure out legally what the issue is. But the

Kathy: amount of money that you have to start to to do vc,

Pat: so as an individual, you can only invest if you have a million dollars in net worth outside your house.

Kathy: but if you were to get like a group of crowdsource it,

Pat: So crowd, I don't know how crowdsourcing works. So I imagine the entity would have to have

Kathy: A certain amount of

Pat: some certain amount and and more and whatever. Yeah, but the idea is you have to. The reason for whatever these rules is, they want to make sure that the entity has some stability because venture is a long-term thing, right?

It's not something we talked about, but venture fund last 10 years, the [00:46:00] first three years you invest in companies and then the next seven years they're fate plays out is how it works. And so you need to provide something that gives people confidence. You could live the 10 years.

Kathy: Yeah. So you need to have some backing enough money to back it so that you are not going to fail.

Okay, let's jump into what you did before you did VC. So you talked about, jumping right in without any, any kind of like background in, in finance or anything. So what did you do before you did vc and what was your path from, because I also see that you have bachelor's degree in philosophy, a PhD in philosophy, which I'm like, is that like a doctors of philosophy of philosophy?

Pat: Yes it is.

Kathy: And you're like a, like that, like a PhD squared. Is that kinda

Pat: exactly. Exactly.

Kathy: has your like career trajectory been because you've been in tech but not coming from like tech

Pat: Yeah.

Kathy: an education standpoint and then in tech and then into finance, which I [00:47:00] think is just, it's really fascinating to me..

Pat: Yeah, I've actually been extremely fortunate in my career So yes I did my schooling in philosophy. I was a graduate school philosophy, full idea to go be a professor of philosophy and lived that lovely academic life. Got thoroughly disgusted with academics because it is just so snippy and so backed 

Kathy: Did finance seem better.

Pat: I'm older now,

Kathy: I get that. Totally. Get that.

Pat: but anyhow, at that point, so anyhow, I decided I didn't want to go into academics and so I was looking around for job opportunities. at that point, In time, the agency actually gave a test to figure out, how well you could think. so I took that test and I did well on it.

And I got hired by the agency as a crypt analyst. And the reason why that gets you to be a techie without a tech background is cryptanalysis is not really something, at least not then that was taught anywhere. And a [00:48:00] lot of it is critical thinking and exploration and not any particular set of rules or algorithms or whatever that, that you could do for it.

But it got me into tech because you would run your experiments on computers. You're trying to break something, you would run the your trial idea on a computers what effect it had and so on. So I became a computer person at a point in time where, Not many people were. So anyhow, so that's how I got into being a techie was through this liberal arts opportunity to enter the tech world.

And I turned out to be just very good at technical analysis of all types. So I did signals analysis for a while. I did all sorts of architecture development and and then I went into sort of tech leadership in the areas of computing signals analysis intelligence analysis, and finally cybersecurity.

And the last third of my career, I was in research in those [00:49:00] various fields. And the last portion of that research, a lot of my attention was devoted to, was not a lot of it but I had a, an objective to Do outreach to industry and academia to get technology from elsewhere into the government space to make it easier to collaborate with outside investigators.

And that problem was actually very hard. The language is very different. The investment cycles are very different. Just the ways of working were very different. And I was ending up my government career with this notion that really it should not be that hard to get Technology into the government to enable collaboration and entrepreneurship to have a role in the government.

So as I was doing some of these outreach things, I met my now partner at the firm who was thinking of setting up a firm whose job it was to find good commercial companies and help them navigate their way into the government. And I thought this is [00:50:00] exciting. I'll do that. And then so, uh, we talked about this for a while.

He set up the firm and then I joined him from even before it existed. And we know we talked about our strategy for the investment thesis and so on. And so that's how I got into it. What I learned at the agency that I think makes me somewhat good at it is How to assess where technology's going, what problems need to be solved and what it's going to take to solve them.

When is the solution not really of the type that's like the, I gave you the example, the thing that didn't scale, when is the solution thought through pragmatically in a way that is going to work in the world it's meant to deliver into. And so I brought this sort of understanding of how tech needs to be.

That really helps with investment decisions. And so that's my path. It was a strange one and it was largely accidental at every point. But it [00:51:00] works out well.

Kathy: the best careers are.

Pat: I know backwards, it looks absolutely brilliant. It looks like this woman steered herself through this wonderful career, but going forward, it didn't have that same that same tenor to it.

Yeah. So that's me. Yeah. That's how I got where I am.

Kathy: What did you find harder to work in tech or VC as a woman.

Pat: when I was working in tech I was very motivated by the problems I was solving. I found that to be very important and to, drive my work and that is missing in VC it's very hard to. For me it's very hard to sacrifice, to make money for others, or to even to make money for yourself.

It just doesn't have the same kind of interior motivation. So from that point of view, I liked tech better. I also really liked the conversations I had with my colleagues in the tech [00:52:00] world. the agency has actually very smart people at it. And the, there, there was just a level of wit and it was just really good set of people to be involved with.

I love the people at my current firm. Excellent people, also witty, but the, it's just not the same shared motivation or whatever that, that sort of put a fire in that other work. So I guess I would say I like the tech work better. I found it way more internally satisfying. I find this much more profitable.

So everything in its time, right?

Kathy: I guess in a way, I would think that makes sense from an order standpoint as opposed to if you reversed it, I guess it might work if you reversed it too, because then you would have the money to do the stuff that you wanted to do in tech. I don't know,

Pat: yeah. I don't think you'd have that same fervor though. I try, I tried to think about that. If I had done these backwards, made my [00:53:00] fortune and then made my impact, and I can't see that would've worked. I think this order worked out way better

Kathy: it's always nice when you can look back at your career and think that this worked well.

Pat: Yeah, I'm very fortunate in that. the agency gave me the opportunity to move around in a variety of technical areas and didn't have this same well, you don't have a degree in blah blah, so you can't have this job, and so yeah, I, that was very I'm very much a what do you call that?

I like to accumulate diverse experiences. And so that worked out really well for me.

Kathy: Is there anything that we haven't talked about that you want to talk about on

Pat: Talk about things I actually never thought I would talk about, so Oh, good for you.

Kathy: I do like to end my podcast with asking if there's any advice for girls or young women thinking about going into stem, but I think [00:54:00] a better question that I'd like to and I know that you provided some advice about this, but what would be your advice to women founders?

Pat: Well, I think that, Sad but true. I think you need to develop a thick skin to be a female founder. You have to know what you are worth. But accept that no one else is going to grant that at face value. And and that you need to stand strong in your worth and, and just let things slide that are eroding because she'll get eroding comments and whatever.

Unfortunately you shouldn't have to, but you will. you need to really be driven by some strong internal motivation. and just remain confident in the fact that you know more about what you are doing [00:55:00] than any of these people, regardless of the tone or the arrogance of their questions.

And I feel that sounds very depressing. I also think it's a the business side of it can't be underemphasized. And I think the extent to which You can cultivate that side of yourself and demonstrate a perspective that others in the field are less likely to have. I think that's a strong opportunity and I want to encourage people to take advantage of. The rewards are great. I, you can really, bring about important new technologies and change the way work is done and keep that in mind when other stuff might get you down.

Kathy: Good advice and I don't, even though it might seem depressing, I think it's better to have honest advice than false advice.

Pat: Yeah.[00:56:00]

Kathy: So thank you for the advice.

Pat: Okay. 

Kathy: I'm, 

I'm really glad that I had you on the podcast and that I got to meet you and have this conversation. So thank you very much.

Pat: It was a pleasure and hopefully the listeners enjoy it.

I hope you enjoy this episode of ordinarily extraordinary conversations with women in stem and pet story. If you liked this podcast, please like it. Share it. Tell your friends. And if you can go rate it on any of the podcast platforms and review it, that helps bring these women's stories to more listeners because it helps people find my podcast. 

You can find a list of definitions, acronyms. And resources in the episode notes, and you can also find me Kathy Nelson at www.ordinarily-extraordinary.com. Or you can also email me at ordinarilyextraordinarypod@gmail.com and please join me for future episodes. Thank you. 

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