Brad Feld

Month: February 2008

Dave Drach from Microsoft’s Emerging Business Team has a nice post up titled Wow, Venture Capital in the Rockies, it gets better every yearI agree – I think year 25 was the best one yet.

I know there are plenty of readers out there that are Warren Buffett fans based on the requests for the "Annual Letters of Buffett Partnership, Limited, 1957 – 1970."

The new Berkshire Hathaway 2007 Annual Report is out and available on line.  It’s dynamite.  Paragraph #4 follows:

You may recall a 2003 Silicon Valley bumper sticker that implored, “Please, God, Just One More Bubble.” Unfortunately, this wish was promptly granted, as just about all Americans came to believe that house prices would forever rise. That conviction made a borrower’s income and cash equity seem unimportant to lenders, who shoveled out money, confident that HPA – house price appreciation – would cure all problems. Today, our country is experiencing widespread pain because of that erroneous belief. As house prices fall, a huge amount of financial folly is being exposed. You only learn who has been swimming naked when the tide goes out – and what we are witnessing at some of our largest financial institutions is an ugly sight.

As usual, there is a lot more where that came from.

Xconomy has a post up titled Who Knew? Xconomy Uncovers the Strange-But-True Details of Boston’s Innovation LeadersMy bathroom at CU Boulder enabled me to make the list, even though I’ve never really been part of the Boston VC community.  The list includes some entrepreneurs (it is a list of the strange proclivities of Boston’s Innovation Leaders after all.)

In other VC hobby news, Fred Wilson is digging the new Soul Patch album Sooner or Later.  That would be a hobby of my partners Jason and Ryan.

Every day I tell at least one entrepreneur that I am passing on investment in their company.  Some times I tell 10.  I don’t know what the most in one day is, but it’s probably more than 25.  I try to respond to all emails so a lot of these are in the "never were appropriate to pursue" category, but at least one each day is someone that I’ve actually engaged with beyond a cold email that was randomly sent to me.

While I try to give a short explanation – which often is that the company is not in an area that I’m interested in – it gets harder when I’ve actually spent some time looking at the company, like the idea and the people, and find it relevant to one of the investment themes we have active at the time.

Over the years – I’ve come up with a set of filters to quickly turn down deals.  This is an important process as I want to limit the time I spent investigating companies that I don’t investment in.  Rather – I want to maximize my time working with my existing portfolio companies and quickly / deeply evaluating new companies that have a high chance of us funding them. 

My first pass filter has three parts to it.  The top level filter is "is this in a theme that I’m currently interested in."  If yes, then I try to determine whether or not I think the people involved can create a huge company.  If yes, then I often at least spend some time going deeper.

Assume something falls in the "yes – this is interesting / relevant to my current investment themes and yes – I’m at least interested in the people."  Before I spent a lot my time (and their time) I try to figure out where this lives in the context of all the other companies we are looking at investing in.

This is where it gets fuzzy for the entrepreneur.  You don’t know the other active companies that we are working on.  We do.  Since all of my partners and I work across all of our deals, we all have good knowledge of the depth of our current pipeline.  As a result, I can ask myself the question "is this deal potentially in the top five things we are currently looking at."

If not, I usually pass right away.  We’ll only make a half dozen new investments or so a year and we are always looking at many more than six companies that we think are potentially fantastic investments.  As a result, if something is merely good (or even great) in our mind, it’s not going to ultimately make the cut, so it doesn’t make sense to spend time on it.

This is one of the benefit of having a fund our size.  While we aren’t a slave to a specific annual deal pacing, we’ve learned through the lessons of the bubble the value of having time diversity in our investing activity.  To be hugely successful, we don’t have to do every great deal we see.  In fact, we don’t have to do every fantastic deal we see. 

Now – just because you get through the first pass filter doesn’t mean we’ll do the investment.  The cumulative number of "top five deals" we are looking at in any given year might be 50 to 100.  We are going to do five or six of them.  So we are going to spent real time with a lot of companies that we won’t invest in.  This doesn’t mean they aren’t great companies or aren’t great investments – they just aren’t "for us, right now."

We always try to be respectful of the entrepreneurs and pass as soon as we hit the "this isn’t going to happen" point.  There are different triggers for each company and it’s not predictable.  I imagine this can be frustrating for an entrepreneur because it feels like you are making process with us when we suddenly say "we are passing", but I’d like to think it’s an efficient way for you since we unambiguously take ourselves out of the hunt when we realize we aren’t going to get there.  Ultimately, this is better for you since you don’t have to consume a bunch more time with us on a low priority outcome.

As I run out of gas on this post, I’m wondering how entrepreneurs that I’ve passed on perceive this.  I know many of you read this blog because you mentioned that to me in our initial introduction.  I encourage public or private (whatever you are comfortable with) feedback on this – did you feel like the experience with me was a rational one or an arbitrary one?

I can’t decide what the most disturbing part of this is.  Robin Williams singing man-crush is reasonably close to the top.  Hollywood sure knows how to get its game on – writers strike or not.  I’m not even sure I’ve ever seen Jimmy Kimmel before.  I definitely don’t need to see him without a shirt on.

This is a two part NSFW edition of "things that amuse me, but I’m not sure why."  Only spend time on this if you are willing to give up 10 minutes of your life to some of your favorite movie stars.

Part 1: Watch this first or you won’t have the back story.

Part 2: I’m having trouble deciding between Jimmy Kimmel and Ben Affleck.  Actually, I’m not.  Neither – is neither good for you?

Seth – thanks so much for sharing this with me and enabling it me to share it with the readers of my blog.  Of course, I know I’m several days behind pop culture so please don’t remind me by telling me that this is yesterday’s humor.  And – if you haven’t seen this yet – you are even further behind pop culture than I am.

If you are a long time reader of this blog, you know I’m a huge Warren Buffett fan.  So are many of you – when I offered to send out the "Annual Letters of Buffett Partnership, Limited, 1957 – 1970" I got over 1000 requests and every week I get a new one. (FYI – if you want them, just email me a request and I’ll send them to you, but you have to promise not to post the letters per a request from Buffett.)

This morning I read through a post titled Notes From Buffett Meeting 2/15/2008This was from a Q&A session with Buffett hosted for students from Emory’s Goizueta Business School and McCombs School of Business at UT Austin.  Outstanding stuff.  Thanks Scott for pointing me to it.

The annual Venture Capital in the Rockies conference has been going on all day.  I’m taking a short 30 minute break to recharge my "extrovert battery" which is basically used up and about to flip into introvert mode (kind of like a hybrid car.)

The conference this year has been a blast and the Colorado weather gods have blessed us with two amazingly beautiful days.  Several folks, including David Cohen (TechStars CEO), Todd Vernon (Lijit CEO), and Dan Primack (PE Hub) are liveblogging the events.  Great stuff – including Dan’s analysis of the Best Conference Giftbag … Ever (and I’m sure he’s received a few.)

Congrats to Chris Onan (this year’s head organizer), all the folks involved in putting on VCIR, and all of the entrepreneurs who have come and participated.  What fun.

Go to on your cell phone via the browser.

Download the appropriate client for your phone (if it’s missing or doesn’t autodetect, please leave a comment here and my friends at NewsGator will work on tuning it.)

Run the app.  If you have a NewsGator account, you will log in and automagically see your feeds.  If you don’t have a NewsGator account you will be prompted to create one and then you are off to the races.

I just tried it on my Dash (Windows Mobile) and it worked flawlessly.

Once all the kinks are worked out, this will move to

God these guys are good.

Terry Gold has a nice long rant up on his blog titled The Auditors are here!  Now, some of my best friends are auditors, but the state, dynamics, and incentives of the accounting industry have gone from bizarre to complete utter madness.

As an investor in many private companies, I ask all of my portfolio companies to have an end of year financial audit.  Acquirers require them, you need them if you are ever planning on going public, and it’s just good overall corporate governance.

In 14 years of being an investor in private companies, I’ve never had a material accounting, fraud, or legal issue show up in an audit.  Yeah – there are occasionally minor accounting changes around the margin, but they are usually for generally irrelevant issues like stock option accounting, minor revenue recognition issues, or expense timing allocation (none of which have an impact on cash or the real financial results of the company.)

Yet – every year companies pay real money ($20k for a startup, over $100k for a real operating business) to go through a mind bending time consuming process that results in a very long rep letter that the CEO has to sign.

Terry does a good job of highlighting the problems with this rep letter.  Basically, it’s a cover your ass letter for the auditors.  Ironically, this just gives the bad people another opportunity to lie and be bad.  Terry sums it up nicely.

"I’m not picking on my auditors, or any auditors for that matter because they aren’t the ones making up all the new regulations. At their heart, I think they are trying to do a good thing by holding people accountable to a high standard, it’s just that I’m not convinced (and neither are they) that much of this is really making companies more transparent. It’s really just making it harder for the good people to comply and easier for the bad people to claim they actually did comply or that they misunderstood the rules.

In the end, nothing has really changed for me. If something is wrong, I should have known about it and I’m going to be held accountable for it.  What can we do to keep the world from becoming a quagmire of ineffective laws, regulations and rules?  Don’t assume that a new regulation will fix a problem.  Work to fix the problem.  Don’t enact a new rule and say, "there, problem solved" because you only get credit if the problem is actually solved.  Focus energy on good people who will do their damnedest to make the right decision, because it is the right decision, and don’t tie their hands with bureaucracy that the bad people will just walk right through without a second thought."

I’m not picking on the auditors either (remember – some of my best friends are auditors.) But the meta issue – the one of the way the whole process works – is stupid.