Month: July 2015
Yesterday we closed our fifth fund, Foundry Venture Capital 2016, L.P. As with all four of our other funds, it’s a $225 million fund.
In 2007 we raised our first fund – Foundry Venture Capital 2007. We subsequently raised a $225 million fund in 2010, another one in 2013, and a late stage fund in 2013. Our 2013 fund was originally raised in 2012, but we didn’t start investing it until 2013 so we renamed it 2013.
Except for our late stage fund, each of our funds has 30 investments (+/- 2) in it. Each is $225 million. Each is roughly invested 1/3rd into companies in Colorado, 1/3rd into companies in the bay area, and 1/3rd into companies in the rest of the US (Boston, NY, Seattle, LA, Portland, Austin, Minneapolis, Washington D.C., Burlington, and Phoenix.)
Our investment strategy has been unchanged since we raised our first fund in 2007. We are thematic investors, an approach we pioneered with a few other firms that today is trendy (and often mislabeled). We invest $5 million to $15 million in a company over its lifetime. We are early stage investors – if you’ve raised more than $3 million you are too late for us. We only invest in the US, but will invest anywhere in the US. We are syndication agnostic – we’ll invest with other VCs or invest by ourselves.
Our late stage fund gave us flexibility to invest more money in our later stage companies. We aren’t a growth investor, but rather interested in investing more money in our winners. This fund has already seen two big exits – Gnip and Fitbit.
We view our jobs as taking a box full of money that our investors give us and giving them back a bigger box full of more money over time. It’s pretty straightforward. We try to do this our own special way while having a lot of fun doing it. We have a small number of investors (around 20) who we appreciate deeply for supporting us in our journey.
And we couldn’t do any of this without the founders we get to work with. We appreciate them more than anything. Well, other than Jason’s musical abilities. For example:
I got the following email recently, titled “Unicorns Without The Magic.”
“With the rise in venture capitalism it’s hard to say the word “start up” and not be offered an abundance of accelerator programmes, free office space, free apartments & a free bible of connections. I myself have felt the pressures of the world of start up wonders & the prospects of investment. Whilst finishing my finals at university, I created my own algorithm for a business model to achieve a sustainable competitive advantage in a digital space. Through this I’m now building my first digital ecosystem, but along with it I’ve been offered numerous places in accelerator programmes, numerous loans and a wave of unicorn magic dust that seems to be collecting in my inbox. I’m not complaining, but what happens if the purpose of a business is greater than ones own self interest and certainly greater than a VCs interest? Our purpose is to give other people the tools to create their own opportunities, which is not necessarily in line with most VCs sentiments. I know in the next five years my company will make a lot of money, but what I don’t know is how as a 23 year old entrepreneur to says yes to the right VC and no to all the magic dust.”
My short answer was:
“My advice is simple – if it doesn’t feel good / right, say no. Keep focusing on building your business. Don’t avoid the interactions, but use your filter – which seems well tuned and appropriate – to make sure you are only spending time with people who you want to spend time with.”
I was reminded of this by Fred Wilson’s post this morning Go East Young Man (or Woman). He tells Henry Ward’s story of the financing for eShares.
“We were 0 for 21 with Silicon Valley VCs. I never got close. Most of the big firms wouldn’t even meet. A few had an associate do a Skype call even though we were 20 minutes away.
After 21 meetings in SV, I took a Hail Mary trip to the east coast and met with 3 funds. All 3 invested.”
We see this all the time. Founders who are entranced with Silicon Valley VCs. They pursue them with no focus on anyone outside of the bay area, get rejected right and left, often by associates, and end up feeling like they’ve failed. Fred’s post – and Henry’s at eShares Series A – has a great punch line that reinforces the importance of a founder having an effective filter.
“Fundraising is simple: find investors that get excited about your company. It is a filtering exercise. Too many founders believe they have the wrong pitch instead of realizing they have the wrong audience.”
Special bonus points (and some 1990s nostalgia for you): Do you remember the other company named eShares which Fred previously invested in via Flatiron Partners? I sat on the board of with Fred’s partner at the time Jerry Colonna. (a) What did they do? (b) Who acquired them? (c) How much where they acquired for? (d) Who did they compete with and what happened to their competitor?
Ernest Cline’s second book, Armada, is almost as wonderful as his first book, Ready Player One. While plenty of folks on Amazon are giving it mediocre ratings, I think it’s because they don’t understand what Cline really did here.
Both books are scifi. Both books are heavily gamer influenced. Each moves fast. However RPO is complicated while Armada is straightforward. And that’s important, since RPO is missing the majority of self-referential human subtext – ala Lost – that Armada is filled with. The DHARMA Initiative has nothing on the Earth Defense Alliance. I mean, c’mon, even the EDA logo kicks DHARMA’s logo lameness.
I was born in 1965. Ernest Cline was born in 1972. The ten year period starting in the late 1970s made an indelible impression on each of us. We were too young for free love and Vietnam. But we were perfectly timed for the arc that started with Star Wars and drifted into adulthood with Star Trek: The Next Generation. And video games. And Memorex and cheesy 1980s TV and commercials (go to 25:45 in the video below for the Doublemint Twin Montage.)
It was simply awesome how many ways Cline could weave my late adolescence and early adulthood into a fast paced book about the potential end of humanity which takes place almost in real time as you are reading it (I think the book took place over – at most – a few days.) While I read the first 25 pages last Sunday, I read the rest of it this weekend. I finished it today, after an epic afternoon nap, in time to go to dinner. I should have timed things a little better so I could have watched Avengers: Age of Ultron with Amy this afternoon (somehow I’ve convinced her to watch it with me.)
If you haven’t read Ready Player One, do yourself a favor and grab it. If you have, grab Armada. Ignore the “I’m disappointed the second book wasn’t as good as the first book” reviews. It’s different – and revel in the difference.
This is not a post about a bubble, real or imagined. It’s a lesson from when I was 20 years old.
I showed up at MIT as an eager freshman. I was 17, from Dallas, with a nice pair of cowboy boots and long hair. On my first day, at the freshman picnic, I heard that 50% of us would end up in the bottom half of our class. Fifteen minutes later I was whisked away in a white van to ADP, the fraternity I ended up pledging and living in for four years, next to WILG and across the street from The Mandarin (no longer there), Mary Chung (still there and still awesome), and Toscanini’s (still there and even more awesome.) That night I met Dave Jilk, my first business partner and one of my best friends.
Dave was a senior and I was a freshman. He took me under his wing and we became thick as thieves. He was Course 6 and easily one of the best coders around, even though we didn’t call them coders there. I was pretty good also, but limited to BASIC and Pascal, which were the two languages I used to write the commercial software I was working on for Petcom. Dave was into business, read Forbes cover to cover each time it came out, and hung around with some Sloan people. We’d go to Mandarin, Mary Chung, or somewhere in the North End, eat and drink way too much, and talk about computers and business. Ok – we talked about other things that 18 – 22 year old young men talk about, but there was a lot of computers and business in the mix.
Petcom, the company I worked for, wrote PC-based oil and gas software. They had one competitor – David P. Cook and Associates (which, in a twist of irony, morphed into Blockbuster – if you don’t know the story, Wikipedia has a fun history snippet.) In addition to getting paid $10 / hour (which quickly taught me that if I worked more hours, I got paid more money) I received a 5% royalty on gross sales of the two products I wrote (PC Log and PC Economics).
In 1983 the oil business was booming and Petcom was growing quickly. As a freshman, I’d get a monthly royalty check – sometimes $1,000, sometimes $2,500, and once $11,000. I never knew what it was going to be, so I was always very excited when the blue Petcom check showed up at 351 Massachusetts Avenue in my mail cubby. I’d often grab a bunch of frat brothers for lunch, go to Mandarin, and pay for whatever we ate.
The graph gives away the punch line.
While the price of oil more than doubled between 1978 and 1979, from $14 to $31 / barrel, it had been slowly drifting down from a high of almost $37 in 1980 to $29 in 1983. But that drift was seductive since it was so much higher than the $14 / barrel in 1978 and created this sense that it would once again go much higher.
In the summer of 1985, I was working full time at Petcom. Things for the company were absolutely rocking. We had grown from three people (the two founder + me) when I started to over 20 people. We had fancy offices on the 7th floor of a building across the street in the Dallas from the beautiful Galleria Mall. Software was being sold, my royalty checks were huge (I think I made around $80,000 in 1985, but that’s just a vague guess), and life was grand.
I went back to school in the fall. That’s when I uttered a deeply stupid phrase to Dave.
“Oil Prices Will Go Up Forever”
Dave challenged me. We argued. We probably went out to dinner somewhere in the North End, ate a huge amount of pasta and red wine, and then went to The Parker House in downtown Boston and drank scotch until we eventually stumbled back to 351 Mass Ave.
In December, 1985, Saudi Arabia flooded the market for oil and by the end of 1986 the price of a barrel of oil was around $10.
I didn’t work at Petcom that summer. Their phones stopped ringing. Customers went out of business right and left. The company shrunk back down to the two founders who then started the first CD music store in Dallas, repurposing their software for the CD business, just like David P. Cook had done for the video business. My royalty checks had stopped, but fortunately I had started Feld Technologies and 1986 was the summer of 2430 Denmark in Garland, Texas.
The oil and gas business wasn’t the only one that got slaughtered by this. Texas real estate was booming, until it wasn’t. My dad, a doctor, was a small partner in a bunch of real estate partnerships. By 1990 he was a large partner in a small number of the real estate partnerships that hadn’t failed, as he was one of the few partners who could keep writing checks. I don’t know exactly how it turned out for him, but since he had staying power I expect he broke even or even made some money. But I remember the stress around the dinner table when I was home in the summer and over the phone when we talked as he was fighting through what was likely a very similar mess to the one I would encounter several times later in my life.
I learned a powerful lesson that laid some fundamental groundwork for how I think about business. In the Internet bubble, while I kept this lesson in the back of my mind, I ended up suspending disbelief, like so many others, in 2000 and into the spring of 2001. I learned this lesson again, but in a more profound way.
Through each of these aggressive down cycles, amazing companies were created. Some of the great real estate fortunes emerged from the rubble of Dallas in the 1980s. You don’t have to look very far to see some remarkable companies that survived and transcended the Internet bubble collapsing in 2001. And for many, 2008 and 2009 seems very far in the distant past, even though it still massively impacts others in a very negative way.
Oil prices do not go up forever. Neither does anything else.
The language of startups has become pervasive. It feels like it started with Eric Ries’ great book The Lean Startup when words like MVP and pivot started showing up in all conversations. Back then it was new, fresh, and focusing.
Today, there are hundreds of words that people throw around in the context of their startups. Many, like traction, are completely meaningless. If you need a dose of some of the language, just watch a few episodes of Silicon Valley.
I’ve noticed something recently. For founders outside Silicon Valley, and even plenty within Silicon Valley, the language seems forced. Fake. Awkward. Uncomfortable. Words are used incorrectly. They are strung together in meaningless sentences. They are used to obscure reality or try to avoid the meat of a question.
It’s not necessarily a cliche-ladened problem. It’s also not a verbal tick issue. It feels like some people are trying to fake it, without really knowing what they are saying.
Don’t try to fake it.
Let’s wander away from startup for a moment and use the example of my fake philosophy expertise. I’d use words and phrases to demonstrate my fake philosophy prowess such as existentialism, free will and determinism, philosophy of language, being and nothingness, nihilism, anthropotheism, and neonomianism. I barely know how to spell the last few words, let alone understand the philosophy behind them. I could give you a definition (e.g. anthropotheism is the belief that gods are only deified men), but I have no real concept of what underlies the word or the philosophy behind it, or how it fits together with anything else. I can look it up on the web (that’s where the definition came from) and if I didn’t say I had no idea what it meant, it puts me in the fake smart category. But when I start a discussion with someone who has studied philosophy, either formally or informally, I’m hosed and it’s quickly clear that I’m faking it.
An easy example from my daily life is the founder who leads off talking about his business by saying “we’ve got a lot of traction.” He then goes on to say nothing about what this means, gives no metrics indicating “traction” (whatever that is), and generally stays vague about what the company does. When he takes a breath, I ask “what do you mean by traction?” After some nonsense tumbles out, I ask more precise questions about metrics, and get answers that don’t demonstrate any real, meaningful progress of any sort. I ask a few more questions to try to find leading indicators of progress and get qualitative descriptions of why people would want the product.
Then there is the misused definition problem.
Founder: “We had $50k of MRR last month.”
Me: “How much MRR did you have the previous month?”
Me: How much MRR did you have the month before?”
Me: “Why did you have so much churn from the $27k month to the $14k month?”
Founder: “We didn’t – that was just how much we sold that month.”
Me: “What do you mean, that’s how much you sold that month?”
Founder: “Well – that’s how many $ of transactions went through our system.”
Me: “You realize that’s not MRR, but that’s Gross Sales?”
Founder: “What’s the difference?”
Me: “What percentage of each transaction do you keep in your marketplace?”
Founder: “5% – we are trying to grow market share.”
Me: “So your net revenue last month was only $2.5k, right?”
Founder: “Um, ok.”
If this happened every once in a while, that would be fine. But it happens every day. Sometimes it’s simply lack of understanding of what the words and metrics mean and how they work. But other times, it’s clearly an effort to demonstrate how much progress has been made by either avoiding the real metrics, obscuring what is going on, or trying to come up with a big number to get someone’s attention.
Don’t worry about loading up your discussion with cliches and trendy words. Focus on telling the story of your business. And don’t try to fake it.
One of my all time favorite blog posts is Ben Horowitz’s The Struggle. If you are a founder and you haven’t read it, open it up in another tab for after your finish this post.
On Friday, a CEO I know sent me the following message.
“Brad – I crafted the entry pasted below this morning for my eyes only (and for my own therapeutic purposes), but in thinking about it today, I realized that you’re probably one of the only people I know who might be able to relate or who has interacted with others with similar sentiments. I’m in a good place mentally and it simply feels good to share this with someone else.”
I read it and immediately asked if I could post it anonymously. It’s in the same category for me as The Struggle, but with a different tone. Fortunately, the CEO said yes so I can share it with you. It follows.
Sometimes I wake up and look in the mirror and don’t recognize myself.
Sometimes I haven’t slept properly in days or weeks and I look in the mirror and most certainly don’t recognize myself.
Sometimes I get frustrated that going to bed is like suiting up for battle. I know that many sleepless and restless hours lay ahead before it’s okay to go back to work.
Sometimes I see how physically drained and weak I’ve become. Long gone are the days of being a muscular collegiate baseball player with MLB scouts at my heels or a lean and mean Ironman triathlete and marathon runner. My mental desire to achieve athletic greatness is at an all-time high, but my physical prowess leaves a lot to be desired.
Sometimes I wonder about underlying health issues that aren’t noticeable in the mirror and might not rear their ugly head until years into the future.
And sometimes, I see the disappointing medical test results and wonder if I’m on a path towards failure. Sometimes I don’t even know where to get started to get back on track.
Sometimes I look around and realize that many childhood friends have steady corporate jobs, children and other pursuits. They work to live rather than live to work and they are able to parse work stresses from the rest of their lives.
Sometimes I’m jealous, but mostly I’m lonely and longing for friendship with those who understand how emotionally and physically draining running a business can be. Can’t someone else understand why I can’t commit to an 8pm dinner on a Tuesday night when I’m absolutely drained?
Sometimes I ask myself if the juice is really worth the squeeze.
And sometimes, I admonish myself for such thoughts. My life is not that hard relative to those who have more physically demanding jobs.
Most of the time, however, I love my life and my job has been a source of great energy and inspiration. I know we’re onto something big and the journey has allowed me to surround myself with amazing colleagues and supporters. I only wish that I could find the perfect harmony between health, happiness and my career.
Has the word entrepreneur become too trendy as to have lost its meaning? I’m hearing it and the word entrepreneurship being used in so many conversations incorrectly.
Here’s a simple example. On a daily basis, I have an email exchange with someone who says they are an entrepreneur. I respond “What company did you start?” They respond, “Oh, I didn’t start a company, I was the fifth employee of Company X.”
Another example is the email that I get from someone in a large company who says “I want to create more entrepreneurship within BigCo.”
Now, these are well-intentioned people so I’m not critical of them. But I’m critical of the use of the word entrepreneur in these contexts.
I like Wikipedia’s definition.
“Entrepreneurship is the process of starting a business, a startup company or other organization. The entrepreneur develops a business plan, acquires the human and other required resources, and is fully responsible for its success or failure.”
Merriam Webster’s is also solid.
“a person who starts a business and is willing to risk loss in order to make money”
This morning I read an article in the New York Times titled With Start-Ups, Greeks Make Recovery Their Own Business. Other than the fact that the New York Times hasn’t yet figured out that It’s Startup, Not Start-up or Start Up it was a good article that got me thinking about this rant.
In 2010, the Startup America Partnership finally got the US government to separate the notion of small businesses with high growth businesses. The word startup was firmly introduced into our lexicon as shorthand for high growth business and now is a comfortable one. While we are still stuck with one government organization – the Small Business Administration – that tries to help both small businesses and startups, the language around this continues to evolve.
For example, I think we are finally starting to differentiate between local businesses (your local restaurant, coffee shop, bookstore, gas station, movie theater, clothing store, art store, or anything else that sells to your local community) from a startup business (a company that might be small, but is selling to anyone anywhere in the world). The language isn’t quite right, as local businesses can evolve into startups (The Kitchen, run by Kimball Musk, is a good example). But we are getting there.
And then there are a several words trying to characterize different stages of startups. A scaleup is a startup that is scaling quickly. A gazelle, a word that has been around for a while and is becoming popular again, is a startup that has achieved critical mass and is a rapidly growing company, kind of like a scaleup, but falling comfortably into the animal taxonomy that seems to include unicorns and dragons.
And that takes us back to the word entrepreneur. Theoretically, the entrepreneur is a person who creates any one of these companies (local business, high growth business, startup, scaleup, gazelle, unicorn, but not a peppercorn.) And entrepreneurship is the act of creating and operating the business. Note the and clause – you need to be the creator and the operator to be an entrepreneur, not just the operator.
As I type this, I realize I’ve buried the lead. I’ve always loved the word founder to describe the person the word entrepreneur refers to. When I started Feld Technologies, I referred to myself and my partner Dave as the founders of Feld Technologies. This was well before anyone used the word entrepreneur (the 1980s) and for many years I used the word founder. Somehow my brain shifted to entrepreneur and entrepreneurship and that’s taken over for me. But it’s now uncomfortable, awkward, and tiresome.
I think I’m going back to founder. It’ll be interesting to see how hard it is to rewire my brain. We’ll see if it lasts. While it’s not clear to me that it matters, given my pedantic obsession with eliminating the hyphen in words like startup and email, it’ll be fun – at least for me – to see where it goes.
In the article The biggest tech company founders from every state I win the callout for Arkansas.
“Arkansas: Brad Feld has bounced around a lot: born in Arkansas, raised in Dallas, then lived in Boston for over a decade before moving to Boulder, Colorado. He’s most known for founding Foundry Group, a prominent venture capital firm that focuses on early stage investment, but also co-founded startup accelerator Techstars.”
I was born in Blytheville, Arkansas on an air force base in 1965. My dad was in the Air Force for several years during the Vietnam War after being drafted. Once he finished his service a year later, he moved to Boston to finish out his residency at Mass General Hospital. Then, in 1969, he and my mom, with two kids in tow (me and my younger brother Daniel, who had just been born) moved to Dallas, Texas. My parents knew one person in Dallas when they moved there and they chose Dallas (over Kansas City, which was a near second) as a place they wanted to build their life. My dad’s brother Charlie followed him to Dallas a year later in 1970.
I don’t view myself as being from Arkansas even though I was born there. It’s one of those weird artifacts of one’s life. I used to be able to roll it out in big group introductions when each person is asked to say one thing about themselves that no one else in the group knows. I now have to come up with something else, like the age I was when I read The 158 Pound Marriage by John Irving (answer: inappropriately young.)
I grew up in Dallas, Texas. When I went to college at age 17, I thought I’d move back to Dallas and live there after I graduated. Within a year of living in Boston, I knew I wouldn’t move back to Dallas, even though I never really thought I’d stay very long in Boston.
Twelve years later I moved from Boston to Boulder, Colorado. While I lasted 11 years longer in Boston than my dad did, I sometimes feel like I lived in Boston for 11 years and 364 days too many. Upon serious reflection, Boston was very good for me, but it never felt like home.
When Amy and I moved to Boulder in 1995, we knew one person. He moved away several months later. Then, a year later, my brother Daniel moved to Boulder. I don’t think we realized we were following the same pattern as our parents and my Uncle Charlie, but 20 years later, we are still living near each other in Boulder and 46 years later my dad and his brother are still living in Dallas.
I’ve now lived in Boulder longer than anywhere else. So – where am I from? While I comfortably say that I grew up in Dallas, I’m from Boulder and have built my life, with Amy, around being here.
My parents, who were both born and grew up in the Bronx, are definitely from Dallas. Same with my Uncle Charlie.
Until the Business Insider article put me as being from Arkansas, I had never really pondered where I was from very much. It was easy to describe where I lived, and it often felt self-indulgent to parade around as a Texan, which at some point I got over. But I never felt like I was from Arkansas or Boston.
When I say I’m from Boulder, it feels good.