I had a really nice week off the grid. More on that in another post.
I woke up this morning with a very long run in mind. The air quality in Longmont is awful because of the forest fires and, after checking the weather on my iPhone and seeing an air quality index of 138, I decided that a run wasn’t going to happen.
So, I ate breakfast with Amy and read the Sunday New York Times.
That was an error. Breakfast was great, but the NY Times was awful. Well, the paper wasn’t awful, but it made me feel awful. I hadn’t read any news all week, including any tech news, and 15 minutes of turning the pages made me anxious.
I think that’s the last time I’m going to read the NY Times.
I needed a palate cleanser. I saw on Slack that my partner Moody released episodes two and three of his Venture Kills vlog. Since I’d finished off The Last Dance during the week, I figured watching Moody might work to shift my mood.
I should have just watched this and skipped the NYT. I feel mostly back to normal now.
My partner Chris Moody decided to be a vlogger and has started a new video series. I suggested he hang out on TikTok but he prefers trying to get famous on Youtube.
So far he has 57 Views but 102 Subscribers. I find that fascinating.
We are running the Venture Deals Online Course again this summer. But before I get to that, I want to highlight a blog post from a Black colleague. I’m getting, and reading, many of these each day. For the foreseable future, I’ll highlight and amplify one at the beginning of each post I do, in case you are interested.
Today’s post is from Ruben Porras, who is a Techstars alum (Director of Operations at CreatorBox.) He wrote Black Lives Matter. At Work. In Life.
The country, collectively, has grieved five times in 60 years. People of color have collectively grieved five times in 2 weeks. And we carry that into work, school, our relationships, and are expected to be okay— even if and when we’re not.
Well, white friends, white allies, I’m done being uncomfortable alone. If you’re a white ally in racial justice, if you’re committed to being anti-racist, if you see that our peace, our harmony, our healing, and progress are bound together, then its time for you to share in this uncomfortability.
I encourage you go to read Ruben’s post Black Lives Matter. At Work. In Life.
We are running the Venture Deals Online Course from June 28, 2020 – August 21, 2020. We usually only run it twice a year (Spring and Fall), but given the Covid crisis, we’ve had many requests to run it this summer.
We’ve now had over 20,000 people take it. The last cycle was particularly fun as several of the AMAs I did had around 1,000 people on it. Someone also set up a Slack channel for the course which I was active in and met a number of new friends.
Registration is open now. Please sign up if you want to take the Summer 2020 Venture Deals Online Course.
I do a lot of random podcasts and especially like to be an early guest on new ones to help get them started.
001 – Brad Feld
The first five episodes are with me, David Cohen, Susan Conover, Amos Schwartzfarb, and Charlie O’Donnell.
Andrew Waine is the producer. He’s currently a senior at the University of Florida finishing his Bachelor’s degree in the Summer of 2020.
He reminds me of a young Harry Stebbings of the 20 Minute VC who reached out to me early (I was on Harry’s 65th episode in 2015), hustled, and did a fun interview with me where we cover the following topics.
You will even find out where I learned that “even pigs can fly in a hurricane” around minute six.
Harry Stebbings just released a new episode with me on the 20 Minute VC. I love how Harry uses all caps to title the episodes.
20VC: BRAD FELD ON WHY MARKET SIZE AT EARLY STAGE IS NOT HELPFUL, HIS BIGGEST LEARNINGS FROM THE BOOM & BUST OF THE DOT COM AND HOW THE BEST VCS WORK FOR THEIR CEOS
I adore Harry. I did an interview with him early on (#65) so it’s particularly fun to do an interview number that is great than this year.
We cover the following topics, among others. Plus, there is a special book giveaway and a few other gems buried in the episode.
1.) How Brad made his way into the world of venture following 40 angel checks and how that led to his co-founding Foundry Group? Why did Brad find the transition from angel to VC in the early days such a challenge? What 2 core things did he focus on when writing angel checks? How has that changed now as a VC?
2.) How did seeing the boom and bust of the dot com impact Brad’s investing mindset today? How does Brad think about investing through market cycles and the right way to think about investment cadence? Why does Brad believe that to be successful as a VC you have to be fundamentally optimistic?
3.) Where does Brad believe we are today in the cycle? Does he agree with Bill Gurley on the biggest challenge being the “oversupply of capital”? What must entrepreneurs understand with regards to market cycle dynamics and how they can and need to future-proof their business?
4.) From analysing his best investments, why has Brad come to the conclusion that TAM in the early days is really not helpful? What are the commonalities in how Brad’s most successful companies approach experimentation?
5.) What does Brad mean when he says, “don’t have fake CEO or fake VC days”? What does he mean when he often says, “run your fucking business”? What in Brad’s mind would constitute a “fake day” vs moving the needle for your business? What does Brad think is the best way for VCs to truly get to know one another? Why is, “hey let’s do a deal together one of the most hollow and fake statements in venture?”
6.) Brad has sat on some of the most meaningful boards of the last 2 decades, what have been Brad’s biggest learnings on what it takes to be a great board member? How does that change with the progression of your career? What advice would Brad give to me, having just gained my first board seat? If the VC does not support the CEO, what is the right process? Why does Brad believe the VC should work for the CEO?
7.) What is Brad’s biggest advice when it comes to learning how to say no? What advice does Brad hear most often that he commonly disagrees with? Why does Brad feel we are in a moment of peak noise in the ecosystem today? To be a great leader, what 2 skills does Brad believe you need to have?
There are some blog posts that every entrepreneur should read.
Hunter Walk at Homebrew recently wrote one of them.
It’s titled Oh Shit, Your VC Just Quit Her Fund! What a Good CEO Should Do Next.
He covers three cases:
The real gold in this post is in the Too Early To Tell category. Hunter has a great lead in:
“Here’s where I think founders and cap tables
shouldbe more proactive. The default is to let the firm assign another person at the fund (hopefully a GP) and then just keep working on the plan of record as if nothing changed. My experience suggests this will be neutral to negative long term,unless you end up in the “killing it” camp by next fundraise.”
Hunter’s notion that founders and the CEO should be proactive here is right on the money.
At Foundry, we periodically load balance our boards. This is a different phenomenon than the one Hunter is talking about, although we’ve learned to be clearer about what we are doing when we are doing it. I recall a personal low point when a founder/CEO who is a close friend asked to go for a walk and started the conversation with “You could have told me that you were leaving my board in a more graceful way than a one paragraph email.” Very true.
The lesson once again is things change, communicate clearly, and be proactive.
My partner Seth Levine has written several posts over the years on the
His 2019 post, titled creatively How To Get A Job In Venture Capital is excellent. Things have changed in the last decade since his 2008 post titled How to get a job in venture capital (revisited), which was an update from his 2005 post titled How to become a venture capitalist. All three posts are worth reading.
Following is a teaser for each of the key points Seth makes.
If you are interested in a job in venture capital, go read Seth’s posts How To Get A Job In Venture Capital (2019). And How to get a job in venture capital (revisited – 2008). And How to become a venture capitalist (2005).
Several years ago, I wrote a post titled Why VCs Should Recycle Their Management Fees.
From the start of Foundry Group in 2007, we have felt strongly about this. We feel that if an LP gives us a $1 to invest, we should invest at least that $1, not $0.85 (the average fee load over a decade for a typical VC fund is 15%.) Our goal for each fund is actually to invest closer to 110%, which means if an LP gives us a $1 to invest, we are actually investing $1.10.
Our long-time friends and LPs at Greenspring recently wrote a great post titled Creating GP-LP Alignment: Why Terms Matter. The post specifically discussed three items: Management Fees, Recycling, and Carried Interest.
The entire post is worth reading, but I especially liked their section on Recycling which includes a handy chart showing that recycling means that you only need to generate a 3.65x gross multiple to achieve a 3.00x net multiple to your LPs, vs. a 4.10x gross multiple if you don’t recycle. The section from their post follows:
In addition to management fees, the process of reinvesting realized proceeds into new investments, or recycling, can also meaningfully impact net returns and alignment. While management fees cut into the dollars available for investment, recycling can have the opposite effect, increasing the investable pool of capital while offsetting a proportion of management fees. To illustrate this point, we revisit our $100 million fund example, and in this case show how recycling $15 million, equivalent to the fund’s management fee, positively impacts the fund.
The fund that chooses to recycle fees requires a 3.65x gross multiple to achieve a 3.00x net multiple, whereas the fund that does not recycle proceeds to offset management fees requires a 4.10x gross multiple to achieve a 3.00x target net multiple. As long as re-invested capital is prudently deployed into opportunities capable of generating strong results, recycling is an impactful way for GPs to increase net returns, which ultimately benefits investors and themselves.
Now, imagine if you recycled 110%. Your investable capital would be $110m. You now require a 3.45x gross multiple to achieve a 3.00x multiple. Plus, as a bonus, you get $56m of carry (vs. $50m of carry in the case where you don’t recycle proceeds.)
Many fund agreements, including ours, require us to pay back all fees and expenses before taking carried interest. We think this is another element of GP-LP alignment and have supported this from our first fund. As a result, if you recycle at least 100%, it is more realistic to think of your management fee as a risk-free, interest-free loan against future carried interest, instead of additional compensation.
As a result, our goal is to generate as much of a return on the dollars invested, and get as many dollars invested as we can in each fund. Recycling allows us to do this and brings the gross and net returns closer together, reducing the spread to the carried interest from profits on investments.
While many GPs focus on their gross numbers, in the end the only numbers that really matter to LPs over time are the net multiples.
That’s worth remembering.
I’m a recent conversation with Eric Paley, he gave me an amazingly wonderful analogy for how the career of a VC unfolds. He said:
“Being a VC is like taking a walk from Boston to San Francisco”
I’d never heard that before so I said: “tell me more.” He went on an awesome ramble, which I’ll try to capture below.
You start out on a sunny day in Boston. You put on your new, clean walking shoes. It’s just walking. It’s fun, fresh, and exciting. It’s a new experience, with lots of hopes and expectations in front of you. You get tons of support and encouragement from all of your friends. You meet plenty of new and interesting people. It’s just walking.
After a few days, you feel like you are getting into a rhythm. You feel you are good at this. It’s still easy and exciting, but now you know what to expect each day.
At some point, you find yourself in the middle of Ohio. It’s raining. Your shoes are worn out. You’ve got blisters and a sore ankle. Your backpack smells – a lot. While it’s still just walking, it’s not much fun anymore. But you grind through it, buoyed by the occasional sunny day, even though it’s now cold outside.
By the time you get to Chicago, you can’t remember why you are walking San Francisco. But you keep walking.
I’ve been doing this for 25 years. While it’s just walking, I’ve crisscrossed the country a bunch of times. And I keep walking.