This VC Says Stitch Fix’s IPO Paved the Way for Female Founders

December 13, 2017, 2:57 PM UTC

This article originally ran in Term Sheet, Fortune’s newsletter about deals and dealmakers. Sign up here.

Susan Lyne has quite the résumé. She was chairman of Gilt Groupe, CEO of AOL’s Brand Group, president of ABC Entertainment, and CEO of Martha Stewart Living Omnimedia. Most recently, Lyne founded BBG Ventures, an early-stage fund focused on consumer internet and mobile startups with at least one female founder.

“There were a slew of women starting companies who were having a hard time raising venture capital,” Lyne told Fortune. “Before they could even start talking about the business they were building, they had to explain to the guys around the table how women thought about their closets or whatever it might be.”

So Lyne saw an opportunity to launch a fund with a focus on female-founded companies. She spoke with Fortune about her career path, venture funding trends, and sexual harassment allegations.

FORTUNE: You’ve previously said that you believe the greatest untapped opportunity for venture capital lies in backing women. Can you elaborate on what that means?

LYNE: Every study of consumer buying points to the fact that women aren’t just the dominant consumer, but are either responsible for, or have the final say on, 80% of all consumer purchases. The fact that there are women who are building companies that directly address a pain point for that female consumer is a huge opportunity magnified by the fact that the vast majority of the venture world is ignoring them. Even if it’s not ignoring them, they’re not part of the inner circles. They’re not part of the network that venture capitalists check in with on a regular basis to find out who’s building something worth investing in.

You’ve had an interesting career path—from Disney to Martha Stewart to AOL. How has being a lifelong operator affected the way you make investment decisions?

It’s probably impacted me for better and, sometimes, for worse. Before investing, I really want to understand that there is a business model here that can work. It doesn’t mean that the company has to have revenue right now or even plan to have revenue in the next year, but I want to know that the founder knows what the business is that they’re building long-term.

They also need to be very clear about who they’re building this for—I think that comes out of operating as well. The founder needs to genuinely understand what need they are filling and how they’re going to do it that’s accessible.

Your investments include GlamSquad, Thesis Couture, and The Wing. What are some of the key elements you always look for in a founder or company before investing?

There are three or four key areas we focus on. We look for a founder who has done the work, who understands the consumers they’re doing this for, and who is utterly passionate about making it happen. It’s really hard to build a company. There are always going to be dark days, so if you’re not convinced this is the thing you’ve been put on this Earth to do, you may not make it through to the end. We really look for people who have a vision, a consumer in mind, and that they know that this is the moment for this.

A perfect example of that is Audrey Gelman who built The Wing. When she came in to pitch us, she knew she wanted to create a protective space where women could connect with other interesting women. She was convinced it was the optimal moment to do this.

Female founders received 2% of all venture funding last year. What needs to happen for this stat to change?

The biggest shift will happen when there are a half dozen women-led, women-founded companies that either exited as unicorns or IPOed. One of the reasons why Stitch Fix is an important IPO is because [CEO Katrina Lake] is the first of this new wave of female founders to take her company public. Everything about it is a great story.

Katrina had taken only a little over $40 million in venture funding. With that, she’s built a company that will do about a billion dollars of revenue this year, and it will be profitable in a few years. She’s been able to continue to grow it by investing free cash flow. It’s not only a great business she’s built—and she’s built it because she understood what women needed—but she created an entirely new business model. She did it in a way that was capital-efficient, somewhat under the radar, and it still has an enormous amount of growth potential going forward.

The second thing that we need is to get more women around the table. We are starting to see some of the all-male partnerships finally bring in a female general partner. Until very recently, most of the women brought in as partners were really just venture partners in that they could share in the profits of whatever they brought into the company but were not really part of the general partnership.

And the third thing that needs to happen is that VCs need to start making it a priority to build broader networks and make sure they are meeting a wider range of entrepreneurs.

What is an investment you decided to pass on that you still regret?

One that we didn’t move quickly enough on was WayUp, which is a marketplace for students to find part-time work. It was something where we had to cancel the pitch meeting and re-schedule it. We were not aggressive enough about getting it on the calendar fast. By the time our second meeting came around, it was oversubscribed.

One that we passed on was Parachute, which is a bedding company that has built a significant online business. We passed because there wasn’t really any tech. When we launched BBG Ventures, one of our factors was that there needs to be some element of technology. We’ve since broadened that a bit to take into account the fact that direct-to-consumer brands are their own animal and when you build them right, there’s lots of technology that’s involved along the way even though it doesn’t necessarily feel like a tech company.

Based on all the pitches you and BBG Ventures have received since the beginning of 2017, what are some trends you think Term Sheet readers should be paying attention to?

We are seeing more and more companies using machine learning to develop better services and better products. I think that even companies we invested in two years ago that did not specifically focus on AI or machine learning at the time are now increasingly looking at assets that can now become that much more valuable when you apply machine learning to them.

Sexual harassment allegations have recently come to the forefront in the venture community. How can people address and solve this problem?

I’ve thought a lot about this in the last four to five months since these stories began to break. I think there are certain kinds of industries where very powerful men have direct contact with young women who need a “yes” from them in order to succeed. Those are probably the most dangerous arenas for something like this.

We need to make sure women feel much more comfortable reporting this stuff when it happens. There just has to be a protected space for women to speak up. I do believe that the fact that it has become part of the conversation and that so many women have come forward with their experiences of sexual harassment or sexual assault has already made an impact.

What’s the best business advice you’ve ever received?

I go back to something that [former Time Warner CEO] Dick Parsons said to me when I was a much younger executive. We had been sitting at a table together negotiating something, and he came to me afterwards and said, “One thing to remember as you go through life is that it is always wise to leave something on the table—that a victory for one side or the other is a prescription for failure. So be careful. Just because you can get someone to agree to very tough terms doesn’t mean it’s going to be in your long-term interest to do that.”

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