Maha Ibrahim is a rarity twice over--a woman who is also a full partner in a venture capital firm, and a backer of women-owned businesses.

Her firm, Canaan Partners, says one-third of the entrepreneurs it's backed out of its most recent fund are women. Ibrahim sits on the boards of five of Canaan’s companies, including Cuyana, an e-commerce site co-founded by Karla Gallardo and Shilpa Shah; TheRealReal, a high-end online consigner of designer apparel led by Julie Wainwright; and gaming company Kabam, co-founded by Kevin Chou, Michael Li, and Holly Liu.

“Out of all the deals that come in, the hardest part is picking the ones that I really, really want to work with, and being very disciplined and discerning about that,” she tells Inc. “We're not going to do 30 seed deals in a year--we'll probably do four or five. We're treating every early stage seed deal as we do a Series A deal. We're not advertising that in a huge way because we're not looking for volume, we're looking for quality.”

Of course, Ibrahim says her firm takes the longview (as many VCs have). But she does have some interesting thoughts on early-stage start-ups, singling out talent, and whether all the $1 billion valuations investors are seeing are a sign of a bubble. Here's a lightly-edited transcript of our conversation.  

In a recent interview, you said you try to find start-ups in the very early stage. Why is this so important to you?

Between 2004 and 2005, we looked at the exit values we were seeing. The average exit was not in the billions, and we said, “In order to make money, we've got to pick the right deals and the right market timing, and at the same time, we have to look at earlier deals, where we can put in a very sizeable amount and work hand-in-hand with the founders to build the company.” The seed motion that goes in the Silicon Valley is more to put in 300, 400, or $500,000 in very early stage rounds. We want to put in slightly more--think up to $2 million--where we're giving start-ups enough money to get to enough milestones and it's meaningful. 

Look at Kabam: We seed funded that very early on, and it was not a gaming company when we did. We worked with the entrepreneurs to really make the decision to course direct, because the first idea they came up with didn't have merit. We could either say, “Give our money back,” or, “Let's build something together and see if we can make it big.” We want to work hand-in-hand because there's no company where the finish line looks like the starting line.

Not every founder would want to embrace this. 

We're not dictators in any way. It's important that we look at things as a supportive partnership because the founder will know the company they're founding a hundred times better than I will as an investor. We certainly have never done that, and will never do that.

What sort of guidance do you provide?

In the Kabam case--that is, version one of Kabam--we were looking at that business and saw it could grow a little bit, but not into anything sizeable. So we sat down and said, “This isn't working.” I asked, “Can we morph what we've built into something where there's a bigger market?” At that time, Facebook was opening up its API to third-party app developers and we said, “That's great. Why don't we get involved?” We try to connect things that people are passionate about. So from that we built Watercooler, which formed the second foundation for the second pivot into Kabam, the largest standalone mobile gaming company in the U.S.

How can you tell when a start-up has big potential?

At the early stage, we have to set milestones that are not terribly ambitious. It's crawling before you walk, and walking before you sprint. We try to sit down with the entrepreneur and really map out some very achievable milestones with the money we have. If they're met, they'll lead us (or others) to invest further in the business. We always invest with the notion that the idea that the entrepreneur built has potential.

What kind of milestones are you looking for?

A milestone can be getting a mobile app out the door, or getting data feedback from a core amount of users in Canada, where a lot of users test. It really depends on the company.

What makes you want to work with a particular start-up in the first place?

The first thing is market size, and the second is market timing. Do I feel like the market is huge? Maybe not today, but sometime in the future--and do I feel like this company, even though it's in its early stage, is filling the gap at the right time for something like this? When deals fail, that is by far the biggest factor. The market that they targeted just wasn't big enough, or the timing around the market didn't come to them fast enough.

There's a misconception that most women's start-ups are e-commerce or lifestyle-focused. Has the view among VCs shifted, or do they need more convincing?

I don't think [that perception] is a bad thing. Fashion is a luxury market that is a multiple tens of billions of dollars market annually. What you're seeing is a crop of entrepreneurs who are focused on very large markets. I don't care if that market is storage and security, as long as those markets are huge.
We're seeing them in beauty, in travel, but we're also seeing fantastic women in mobile, in storage. I think it's more about younger women seeing more mature women being successful in those worlds, and it gets the flywheel turning.

What do you make of all the billion dollar valuations these days? Are these companies worth it or are we close to a bubble?

People are being really aggressive and it's more a testament of the fight for quality that venture investors are more aware that the winner takes all or most, and that if you're second or third in a market, your revenue multiple is not going to be as great. So I'm not surprised that we're seeing multibillion valuations  for the leaders in our categories.