Last week I met a holographic lifeform who calls himself Uncle Rabbit.
I now have a new friend, created by Looking Glass, the hologram company out of Brooklyn (we’re investors, and I’m on the board). A hologram + ChatGPT. A robot, but made of software and light instead of atoms. And with a lot more character.
The video above shows Shawn Frayne (CEO of Looking Glass) talking with Uncle Rabbit about … me. Then, they create a short science fiction story about me, carrots, and holograms. Finally, Shawn integrates my personality with Uncle Rabbit, and hilarity ensues.
Regular readers will know that one of my favorite categories to invest in is things-as-predicted-by-science-fiction. So, naturally, I’m interested in computing interfaces from sci-fi that you can speak directly to. Iron Man’s Jarvis or the potty mouth alien child in the movie Her. You get the idea.
Over the years, I’ve seen (and chatted with) many AI assistants and bots chasing this science-fiction future. But last week, I met a holographic lifeform who feels completely different.
If you want to know more, head over to Uncle Rabbit. And do yourself a favor and eat more vegetables (Uncle Rabbit told me to say that.)
Introducing the Rocky Mountain Artificial Intelligence Interest Group (RMAIIG)
If AI’s current excitement and hype interests you, I encourage you to join the Rocky Mountain Artificial Intelligence Interest Group (RMAIIG).
The monthly Meetup will follow the fascinating and rapidly evolving world of generative AI tools. The RMAIIG community is focused on exploring and discussing the latest developments in AI, particularly tools like ChatGPT, DALL-E, Midjourney, Microsoft’s Bing with Chat, and Google’s Bard and workspace tools. The group will also look at the impact of these tools on business, education, the workplace, law, entrepreneurship, and society.
RMAIIG was founded by Dan Murray. I met Dan in 1995, shortly after moving to Colorado, and we have been friends ever since. Dan started the Rocky Mountain Internet Users Group (RMIUG) in 1994, almost 30 years ago, eventually growing to over 15,000 subscribers on their email lists. Dan was also friends with a dear friend of mine, the late Larry Nelson, who was a fixture (with his wife Pat, of course) at the Internet user group meetings.
Their first meeting is Tuesday, April 11th, and covers a deeper dive into ChatGPT. The group is taking speaker suggestions and ideas for a venue for quarterly in-person meetings when they aren’t on Zoom. I encourage Rocky Mountain readers to get involved if they’re interested in exploring the rapidly-changing world of AI.
When LLMs Collide With Software Development and Economics
Paul Kedrosky and Eric Norlin of SK Ventures wrote an interesting and important essay titled Society’s Technical Debt and Software’s Gutenberg Moment.
The abstract follows. I encourage you to read the full essay.
There is immense hyperbole about recent developments in artificial intelligence, especially Large Language Models like ChatGPT. And there is also deserved concern about such technologies’ material impact on jobs. But observers are missing two very important things:
- Every wave of technological innovation has been unleashed by something costly becoming cheap enough to waste.
- Software production has been too complex and expensive for too long, which has caused us to underproduce software for decades, resulting in immense, society-wide technical debt.
This technical debt is about to contract in a dramatic, economy-wide fashion as the cost and complexity of software production collapses, releasing a wave of innovation.
Leading Through Crisis: 96 hours after the fall of SVB
On Tuesday, David Cohen (Techstars co-founder/chair) and I did an AMA for Techstars founders about the SVB crisis. The team at Techstars turned it into a podcast for our Give First series.
The teaser from the podcast follows:
The fall of SVB will go down in history as one of those ‘where were you when …’ moments. For David Cohen, he was sitting at a sporting event when his phone began buzzing incessantly. For Brad Feld, he was couch shopping with his wife.
Feld is no stranger to crises and his instincts kicked in quickly.
“I shifted into problem-solving mode,” says Feld.
But then, almost as quickly, the government stepped in and money began flowing. Crisis averted. It was time to reflect.
Listen as Feld and Cohen share insight into what they saw in the VC and startup community, how communication made all the difference and how many came together to support each other.
They also tackle the looming question weighing heavy on founders’ minds: how will this affect the future of startups.
As for the couch? Tune in to find out.
Since the middle of last week, there has been extreme stress on founders, startup leaders, and the extended startup community. This stress accelerated on Friday when the FDIC shut down and took over Silicon Valley Bank. By late Friday, anyone who banked with SVB was concerned about … well … everything.
Once it became clear that payroll accounts needed to be funded on Monday to make Wednesday’s payroll, we focused on the immediate short-term to ensure our portfolio companies’ thousands of employees got paid on time. We bank at SVB, so our maneuverability was also unknown, so we searched for what I’d consider heroic options from various sources.
While this de-escalated on Sunday night after the US Government took decisive action, the level of stress and anxiety, especially for first-time founders, was extreme. I had many 1:1 conversations, emails, and messages with our portfolio company CEOs, along with several open Zoom lines where people could ask questions and just commiserate and feel part of a shared community. Much of this focused on addressing the immediate problem. But, many founders told me that just feeling part of a larger community was helpful.
Much will be written about this. Maybe I’ll get around to my version someday.
But, once again, I saw and experienced the extreme stress and anxiety that founders, CEOs, and leaders of startup companies face almost daily. It reinforced the importance to me of continuing to help destigmatize mental health (and mental fitness) issues across the startup community.
Yesterday, Aaron Gershenberg, a long-time friend and LP of ours from SVB Capital, emailed an introduction to Naveed Lalani, Founder & CEO of Pioneer Mind. Naveed has launched a Founder Mental Health Pledge for Investors and Startup Leaders.
He’s announcing the first supporters tonight. Foundry is supporting it as a firm, and I’m supporting it personally along with my partner Jaclyn Hester.
The pledge follows:
We make a commitment to take an active role in encouraging mental healthcare for founders and the greater startup community.
We pledge to encourage the founders we partner with to invest in their personal mental health and build a workplace culture that promotes mental health.
Ensuring the mental health of founders and their teams is crucial and leads to the highest probability of startup success. We pledge to be supportive of founders treating the direct cost of caring for their mental health as a legitimate, worthwhile, and encouraged business expense – including therapy, coaching, group support, and app-based solutions. Founders should look at their mental health as a business priority.
Research shows that more diverse teams perform better and are more innovative than homogeneous teams. I’ve written about this before, and it’s covered extensively in my book Startup Boards: A Field Guide to Building and Leading an Effective Board of Directors.
We’ve made this an operating principle at Foundry. We encourage all our portfolio companies to add multiple independent directors and build diverse boards. I believe that boards with too many investors, without operator voices, are not what an early-stage or growth company needs. I’ve been willing to give up my board seat to make room for an independent director (for example, at Bolster.)
A few years ago, I attended a dinner I was invited to in Aspen hosted by Him for Her. I generally dislike these events but walked away impressed. The conversation was exciting and powerful, and I realized it extended my network with people I wouldn’t have otherwise met.
Since that meeting, I’ve become a regular host and supporter of Him For Her, a non-profit organization that aims to accelerate board diversity. Over the next decade, they have a bold goal of dramatically increasing board diversity.
Their approach is simple: they host executive roundtables across the country (remote and in-person) and build curated referrals for board openings for free.
It works. We’ve received referrals for many companies and seated over a dozen new female board members.
I’m proud to support an organization that recently celebrated 100 board placements. Him for Her celebrated this milestone by ringing the bell at Nasdaq. 50% are first-time directors, 40% are women of color, 53% are full-time executives, and 10% are first-generation college graduates. They come from 25 different U.S. metropolitan areas. In addition, 28% of the board placements are for public companies, with the rest being private companies, although eight of those companies have gone public.
While leaving independent board seats empty or choosing someone you know is easy, this is risky. Diversity of experience and thought, along with an independent vs. investor perspective, is something every CEO can use, especially in this market environment.
Honoring Cecelia Feld on International Women’s Day 2023
Today is International Women’s Day.
Imagine a gender equal world. A world free of bias, stereotypes, and discrimination. A world that’s diverse, equitable, and inclusive. A world where difference is valued and celebrated. Together we can forge women’s equality. Collectively we can all #EmbraceEquity.
I’ve been fortunate to have many incredible women influence my life and how I think about gender and gender equity. My mother, Cecelia Feld, is the first of them.
My parents modeled excellent behavior for me as I was growing up. They were equal partners in their relationship. While they were an incredible couple, my mother was independent of my father. She was a leader in her community, unafraid to take on anything and unconstrained by the social norms of the time. As a full-time artist, she was ambitious professionally. She embraced her identity as a mother but also as a woman, a professional, and a lifelong learner.
When I went to college at MIT, which at the time was 80/20 male/female (they’ve made a lot of progress since 1983) and suddenly encountered a lack of gender equity everywhere, at least I had a baseline of what gender equity looked like.
Cecelia has explored working with many different media over the last 50+ years as an artist. She’s always been a photographer and extensively documented her travels with photographs. In honor of her on International Women’s Day 2023, please enjoy photographs of women from a few places in the world that my mother has taken over the years.
GlueCon will occur for the thirteenth time, on May 24th-25th, in Broomfield, Colorado.
My Foundry partners and I helped Kim and Eric Norlin create Gluecon in 2009 because we saw the need for a developer-focused event to explore emerging technologies around the cloud and APIs.
The first year that GlueCon occurred, it seemed like nearly every session began with someone defining “what cloud computing is.” In the interim years, dozens of products and startups have launched or used GlueCon as one of the venues for their early premieres. Twilio, Docker, and Kubernetes all appeared on the GlueCon stage long before they were known by the wider tech community.
GlueCon has always prided itself on being a welcoming community that seeks quality interaction over being lost in a sea of people on an expo floor. We’ve long held GlueCon at the Omni Interlocken — a space that allows the attendees to come together in an informal fashion, making it easy to meet just about anyone you’d like to while at the event.
It’s always been fun to host a national tech conference in Boulder. In addition to bringing in plenty of people from around the country, we always get focused attendance from a bunch of tech leaders in Boulder and Denver.
Some of this year’s presenters include:
- KellyAnn Fitzpatrick and Kate Holterhoff from Redmonk
- Adrian Cockcroft, ex-Cloud Architect (Netflix) and VP (AWS)
- Dormain Drewitz, VP, PagerDuty
- Alex Williams (interviewing an industry leader) from The NewStack
Topics cover everything from Observability to WebAssembly to Generative AI for developers to Microservice architecture. You can view the full agenda here.
We hope that we’ll see you at this year’s GlueCon. Use “feld15” to grab 15% off of your registration.
There have been many different language translations of Venture Deals since it was first published in 2012. The first German translation of Venture Deals 4e is out, and Florian Kreis did an amazing job.
Florian aimed to modify the book as little as possible, even if the relevant passages did not correspond 100% to German best practices but were still feasible to implement. He believes the structures originally developed in the U.S. have become the international standard and are a great role model for Germany.
However, the challenge in revising the book this way is putting these structures into the context of German law. Sometimes, this required minor changes or simply using the correct language. In other cases, it was a lot more challenging.
Following, in Florian’s words, are several examples of things he had to modify more extensively.
Corporate law: In Germany, most companies in general and most VC-financed companies are structured in the legal form of a “Gesellschaft mit beschränkter Haftung” (GmbH). Larger companies often convert to the “Aktiengesellschaft” (AG) later, especially if they want to go public. Both the GmbH and the AG are corporations. In addition, many GmbH & Co. KG companies exist in Germany. They correspond in their structure roughly to a Limited Liability Company (LLC). GmbH & Co. KG companies have decisive tax disadvantages for startups and are, therefore, rarely used in this area. The GmbH has a great advantage in that it can be structured very flexibly. You can deviate from the legal regulations to a very large extent, and in practice, you do so. Most of the VC structures from the US best practice can be integrated into the GmbH structure. Often, this integration results in VC-financed GmbH companies having little to do with the GmbH as envisaged by the law.
Board of Directors: There is no board of directors in Germany. In the GmbH, the most important body is the shareholders’ meeting. The shareholders are represented there and usually have voting rights in proportion to their shareholdings. In addition, there are the managing directors as executive bodies. In the VC sector, it is common to introduce a third body in addition to the shareholders’ meeting and the management. This third body is often referred to as an advisory board (Beirat), sometimes also as a supervisory board (Aufsichtsrat). In practice, certain functions of the shareholders’ meeting are transferred to such an advisory board, for example, the appointment and supervision of the managing directors or the decision-making capacity in the case of protective provisions. In the end, however, it is the shareholders’ meeting that remains the most important body in the GmbH.
Conversion right: In Germany, there is generally no conversion right entitling the holder of preferred shares to convert them into common shares at any time. This may not seem like a big deal at first glance, but it has extensive implications under various aspects, such as the structure of the liquidation preference. In the USA, the conversion right ensures that holders of preferred shares are not disadvantaged compared to holders of common shares; in Germany, this legal consequence must result directly from the structure of the preferred shares. In some cases, this causes confusion in terms of terminology: In Germany, the participating preference is referred to as the “nicht anrechenbare Liquidationspräferenz” (non-compensable liquidation preference), while the non-participating preference is referred to as the “anrechenbare Liquidationspräferenz” (compensable liquidation preference). Hence, the negation is exactly in reverse. However, the lack of a conversion right also has implications for anti-dilution protection: in the U.S., this is usually done by adjusting the conversion price. In Germany, anti-dilution protection is achieved by issuing additional preferred shares. The lack of conversion rights must also be considered when structuring voting rights.
IPO issues: Possibly the biggest problem for German venture-backed companies is the very low number of IPOs in Germany. The boom years of 1998 (79 IPOs), 1999 (175 IPOs), and 2000 (142 IPOs) are long gone. In 2022, just as in 2009, there was only one IPO; typically, there are between three and 16 per year. Since the attractiveness of investments is also largely related to exit channels, this aspect affects the availability of capital and company valuation at every stage. It is not uncommon for companies wanting to go public to relocate their registered office to the USA at an early stage. There are also legal differences: Registration Rights, for example, are not legally binding. Piggyback rights are permissible, but due to legal regulations, they are not mandatory. Even though the regulations may not be binding or necessary in individual cases, they can help to bring the topic of going public into focus at an early stage and make it a subject of discussion.
Employment Issues: There are significant differences between Germany and the U.S. regarding employee issues. There is a reason why on page 264 of Venture Deals 4e, it states, “We’ve encountered some challenging situations in certain states in the United States that made firing almost as challenging as firing in parts of Europe.” This must have meant Germany… If a company regularly has more than ten full-time employees, terminations may only be made for certain reasons. Then you may only terminate those employees you actually still want to keep. These issues were problematic twenty years ago when the unemployment rate in Germany was relatively high, and terminated employees could not easily get a new job. Today, things are different: For some years, German has had a shortage of skilled workers, and companies are usually happy if they can find suitable employees.
Employee option pool: The framework conditions for employee option pools remain a major problem in Germany. The tax framework and valuation issues are particularly complex and not very employee-friendly. While there was a major law reform in 2021, the regulations are still inadequate. Even after the 2021 reform, employee option pools will continue to be structured via phantom stocks, as this is the only way to reliably avoid the dry-income problem. This topic is important and complex, so I dedicated a separate chapter (chapter 20) to it in the German edition.
Regulatory framework: There are major differences between the U.S. and Germany in the regulatory framework, which in Germany is supervised by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). This affects not only the large IPO in the late stage but also the small crowdfunding round in the early stage.
Other special features: At various points in the book, there are references to the German Standards Setting Institute (GESSI), which was founded by the Business Angels Netzwerk Deutschland e.V. (BAND) and the Bundesverband Deutsche Startups e.V. (German Startups Association). GESSI develops standardized sample contracts comparable to the National Venture Capital Association in the USA, which are available online at www.standardsinstitute.de. The book also contains information on the INVEST program, with which the Federal Republic of Germany supports investments in early-stage companies. Unfortunately, some of the explanations in this regard are already out of date following the most recent amendment to the law on February 6, 2023.
Samples: The samples in the Annex of the German edition, i.e., the Term Sheet and the Letter of Intent, are essentially based on the samples of the U.S. edition. The detailed work here was probably the most time-consuming. In the case of sample contracts, every word and every concept must be correct and corresponds 100% to the German legal situation. Both samples are bilingual. I partially dealt with the additional space requirements associated with bilingualism by merging the two-term sheet samples from the US edition into a single document.
Florian – thank you for the incredible and time-consuming effort here.