Brad Feld

Tag: deal flow

I passed on something referred to us by a close VC friend (who I’ll call Joe) who I’ve done a bunch of investments with over the years. A few minutes later I got the following email from the entrepreneur.

hey brad – 

if you get a moment, i’d love to hear your unvarnished reasons for the denial. thanks for the time…- i remain a huge fan of your blog…….

I get asked regularly for feedback on why we pass on something, especially when we pass after a single email interaction. As with many things, it’s useful to start with your strategy, assuming you have one.

In Foundry Group’s case, our goal is not to invest in every great company, it’s to invest in ten potentially great companies a year.

As part of our strategy, we have purposely constrained our fund size ($225m per fund, which lasts about three years and covers about 30 investments) and our partnership size (four partners, no associates.) As a result, our goal is to say no in 60 seconds. Sure, we’ll miss some great opportunities, but that is fine as long as we believe (a) there are more than 10 great potential companies for us to invest in each year and (b) our deal flow dynamics are such that we see a lot more than the 10 we end up choosing to invest in.

Based on our current deal flow dynamics, if we had unlimited time, unlimited capital, and unlimited partner resources, there are at least 100 companies each year that we would invest in. This 100 number is not “deal flow” – this is actually investments that we’d make. So given our strategy constraint, we could miss investing in 90% of the things we wanted to invest in and still have enough new, great, potential investments to execute on our strategy.

Many of our quick passes are in the “it’s us, not you” category. There are a few things driving this. Following is the response I sent to the entrepreneur above in response to his question about why I passed.

1. Stage – this is later than our usual entry point. If you’ve raised more than $3m, we generally don’t engage. We don’t have to be the first money in, and we love to work with Joe, so I squinted and made an exception since you’d only raised $4m

2. Focus – We are very selective since we only do 10 new investments a year. I wrote a post about this a while ago (https://www.feld.com/archives/2009/06/say-no-in-less-than-60-seconds.html). I took the first meeting / call because of Joe. I tested high level response internally against the other 100 things that are in front of us. It was no where near the top (we have this discussion continually and use each other for reactions).

3. Engagement – I’m in Dubai next week and then Canada the week after that. Then I’m home for a week, in Cleveland, then in Boston/NY. So the next month is one of those months where nothing much new is going to happen on my end. We hate to play the slow roll game with entrepreneurs – one of our deeply held beliefs is to either engage or not engage quickly. Given #2 and then considering #3, I know that nothing is going to happen for a while and I have no interest in being the schmuck that just hangs around waiting to see if something happens.

Fundamentally, the quick positive reaction was “neat + Joe is awesome” then weighed down by 1, 2, and 3 above, resulting in “I’ll face reality quickly on this – we aren’t going to get there on it…”

While at some level this might not be satisfying to the entrepreneur, and I’ve had many challenge me to go deeper in my exploration of their company, given 20 years of investing it’s usually pretty clear when something is not going to happen. The reasons vary greatly, but having a strategy that causes it not to matter in the long run has been something that we’ve spent many hours talking about and making sure we understand.

Ultimately, understanding what we do, how we do it, and the strategy behind it is key to us being able to run Foundry Group with just the four of us. I take inspiration from a lot of people on this front, including Warren Buffett and his approach to his headquarters team for what is now one of the largest businesses on the planet.

There are clearly more than one way to run a successful VC firm – our goal is to run it the way we think we can be successful at it.


We have investments in a lot of companies that are growing very quickly. They end up on the calling (now emailing) lists for a bunch of VC firms who have an outbound deal flow program. These emails ofter appear immediately after a large financing is announced.

Recently, I’ve been forwarded a few of these emails from CEOs of companies I’m an investor in with the question “how do I deal with this?” I realized I was giving the same advice each time so I figured it was time for a blog post on the issue.

The first email that you get looks something like this.

Hope all is well. I want to reach out to introduce myself and reintroduce my firm as you may remember trading emails with one of my colleagues a few years back. I also wanted to pass along congratulations on the round you and the team raised. It is obviously a testament to the continued progress and success you and the team have made since our last check-in.

Given you raised capital recently, I don’t imagine there are any funding needs in the immediate future, but I wanted to reach out to put our firm back on your radar screen. We seek to invest $somebignumberM+ with a huge focus on internet and therefore wanted to reintroduce us as a relevant party for the future. 

If you’re up for it I would love the opportunity to briefly introduce our firm, our strategy and portfolio, and discuss ways we might be helpful in the future. I look forward to catching up.

As a CEO, the real value to you right now is what someone like this can do for you. In addition, they are offering to introduce themselves to you in order to earn your trust and interest when you do a next financing. So taking a meeting where you (a) get a deep overview of them, (b) learn about their portfolio, and (c) ask them for specific help with specific companies in their portfolio is how you make this worthwhile while building the relationship.

My advice is to do the following

  • Go through their portfolio – make sure there are companies you want intros to.
  • Have a meeting – don’t go out of your way for it, but do it when convenient. Don’t do it on the phone – do it when you are with them or they are in your town.
  • Do NOT have this meeting about your company. It’s an intro of the VC firm to you.
  • Do NOT feel compelled to go through your business other than at a very high level.
  • Ask specifically what the VC firm could do to be helpful as you grow.
  • Ask specifically for introductions that you identified within their portfolio.
  • Give them assignments – see if they follow through.

It’s always hard as an entrepreneur not to pitch your company. But resist in this particular case – use this kind of a meeting to learn as much as you can – about the VC firm, and what they know about the market you are playing in, and how they can help you right now. If you give them assignments and they don’t follow through you learn a lot. But if they do follow through, it tells you even more and can be helpful to your business.