Tag: Foundry Group
Woof! We just announced Foundry Group’s investment in Rover.com this morning. We led a $7m financing in the leader in digital dog boarding that connects dog owners with approved, reviewed, and insured sitters. Rover.com is part of our marketplace theme, which now includes investments in SideTour and PivotDesk. I’m psyched to be joining the board, working with my good friend Greg Gottesman at Madrona on another Seattle-based company.
Two years ago we probably wouldn’t have considered Rover.com as it would have fallen outside our active themes. Marketplace is a good example of how our themes evolve. Seth and I worked together on ServiceMagic in the 1999 – 2004 time frame (IAC acquired it in 2004 for $180m) so we had a deep understanding of how a heavily metric-based buy/sell marketplace worked. However, at Foundry Group, we didn’t start paying attention to this theme again until we made a seed investment in SideTour coming out of the TechStars New York program. In this case, Seth had been SideTour’s mentor and we classified it as “other” as we sometimes make exceptions and invest in companies outside our themes when (a) we love the founders and (b) we are interested in what they are doing.
Last summer, Jason mentored the founders of PivotDesk as they went through TechStars Boulder. At the end of the summer, we decided to invest as well as categorize SideTour and PivotDesk together in the same theme, which we originally named RAM, after Ryan’s initials, which happened to be the same as the abbreviation for “remnant asset monetization”, the key element of each of these companies that we were interested in.
Specifically, we aren’t interested in investing in any two-sided marketplace. Instead, we are looking for ones that have a very clearly defined inefficiency around “remnant assets”, or assets that expire if not used in a timely fashion. We’re also looking for ones that have huge under-accessed supply or demand, where mobile and location have an immediate impact on utilization, and where existing transaction friction – either as a result of process or trust – exists.
Rover.com was the first of over 100 companies we’ve seen in the last three months that fit these criteria. As a bonus, we loved the entrepreneurs and the domain, as three of the four of us are dog lovers (Jason, sadly, goes for cats, but we have Cheezburger for that.) Furthermore, it’s our fifth investment in Seattle, joining SEOmoz, Cheezburger, BigDoor, and Gist (now part of RIM). And it’s got two linkages to Startup Weekend (where I’m a board member) – they are both Seattle-based and Rover.com was conceived at a Startup Weekend.
I’m psyched to be an investor. And, every time I get in my Range Rover, I’ll think of Aaron. Especially when I’m with my golden retriever Brooks.
I always enjoy hanging out with Jason Calacanis. We first met in the mid-1990s when Jason was hanging out in NY doing Silicon Alley Reporter. I can’t remember who initially introduced us – it was probably Fred Wilson.
We covered a lot in the hour+ interview for This Week In Startups. Things like why I didn’t retire at age 30, what Amy’s ring tone is, Startup Communities, Boulder, what motivates me, the different between mentors and advisors, my biggest failures in the Internet bubble, the Foundry Group investment strategy, my angel investment strategy, why Fred Wilson and USV has been so successful, why the objective of a VC is a straightforward and how to define success as a VC, why the answer to “how is a VC fund doing” is “check back in a decade”, hiring for culture fit vs. competence., why entrepreneurs get to – and should – define their culture, why you can’t change people (and how my first marriage blew up), why investors are like D&D characters, examples of bad behavior of VCs and entrepreneurs, more stuff about VC and entrepreneur interactions, what the best board meetings are, a reminder that people lie, Lance Armstrong and ego, CEO coaches, the first person I ever fired, and a bunch of other stuff.
Jason – you are the Internet’s Charlie Rose. Well done.
I’ve been a huge fan of Xconomy since its debut several years ago. It’s been a refreshing resource for a bunch of startup communities, including Boston (where it started) and Seattle. Over time they’ve added New York, Detroit, San Francisco, and San Diego and are now considering expanding to Boulder / Denver (I encouraged them to combine both as each city is on fire and there’s no reason not to link them together at this point.)
We (my partners and I at Foundry Group and David Cohen at TechStars) are helping them get enough initial sponsors to bring on a full time writer in the Boulder / Denver area. The sign up for the Bring Xconomy to Boulder/Denver page has all the details.
Companies who have already signed up include Application Experts, Foundry Group, FullContact, GoSpotCheck, Gnip, Linksmart, Orbotix, PaySimple, PivotDesk, Precog, Rally Software, SendGrid, Simple Energy, SnapEngage, Standing Cloud, Swiftpage, Sympoz, and TechStars.
Come join us, sign up as a founding sponsor, and help get a great new resource covering the activity in our startup community.
I love this time of year. I get up at 5am, catch up on email (holy shit – is it already 6:37?), write a blog post, go for a run, and then have a completely jam packed day full of working with amazing people. Some days are awesome, some days have crushing challenges, all of them are stimulating.
For as long as I can remember, I’ve run incredibly hot from Labor Day through Thanksgiving. The boundaries seem to be the holidays and the bookends are Amy‘s birthday (9/14) and my birthday (12/1). We often find ourselves in New York around Amy’s birthday and in some exotic warm beach place (like Mexico) on mine. Between the two is complete and total chaos, which is delicious when I give myself up to it rather than fight it.
Here are a few of the things going on this fall.
- We just closed Foundry Group 2012 – a new $225 million fund. We’ll start investing out of it before the end of the year.
- Companies we’ve invested in are doing major launches. Fitbit launched two new products yesterday (Fitbit Zip and Fitbit One), Return Path launches three today (Email Intelligence!), and MakerBot launches several magical things on Wednesday. Who needs Christmas – every day is Christmas around here.
- My fourth book, Startup Communities: Building an Entrepreneurial Ecosystem in Your City comes out at the end of the month.
- The Startup Revolution has begun. If you wonder why this matters, take a look at this Kauffman Foundation research on The Ascent of America’s High Growth Companies.
- I’m running a marathon in Utah (St. George), Vermont (Burlington), and Michigan (Detroit) in October. This is the first time I’ve done three weekends back to back (I’ve done two before).
- Amy and I are traveling all over the United States like nomads – San Francisco, Boise, Oklahoma City, St. George, Chicago, Des Moines, Burlington, Seattle, Detroit, Boston, Montreal, Toronto, Lexington (KY), and Palm Desert. I love this country (and Canada). I’ve learned how to ship my clothes to different places – that makes the travel a lot easier.
- Amy and I are finishing up the next book in the Startup Revolution series – Startup Life: Surviving and Thriving in a Relationship with an Entrepreneur which should be out by the end of the year.
- A second edition of Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist – which I wrote with my partner Jason Mendelson comes out, along with a teaching guide that Jason and Brad Bernthal (CU Boulder) wrote.
- I’m spending all of my extra time with my three partners at Foundry Group, who I love working with, including a top secret two day retreat, time together at Defrag and Blur, and a few magic meals along the way.
As my dad likes to say, “if you aren’t living on the edge, you are taking up too much space.” I’m enjoying the edge this semester.
If you happen to talk to Kelly along the way, tell her thanks for putting up with me. Or send her flowers. Or chocolate.
I’ve been using Yesware since the first alpha release. While I’m theoretically not a salesperson, I believe every CEO and professional plays the role of a salesperson. And many people, especially in young, fast growing companies, are salespeople even if that’s not their title. As far as I’m concerned salespeople are the unsung heros of most US companies.
The brilliance of Yesware is that it was conceived and built by salespeople, for salespeople, from the perspective of living in email. Most salespeople I know live in email, hate their CRM system, and are constantly switching between the two while bemoaning the idiocy of the whole thing. The whole CRM thing is for sales managers who want to actually track what the salespeople are doing. But it’s all about email for the salespeople. And that’s what Yesware is focused on.
As a seed investor in Yesware, it has been pretty awesome to watch the product evolve and and the user growth spread to over 40,000 users through word of mouth only. As a result of our word of mouth approach, the product has to be great and responsive to the users.
As an investor, I’ve encouraged the team to push a new release once a week, focus on both registrations and daily active users, and instrument every aspect of the product so we can see what’s happening at a very granular level. While Yesware is only available for Gmail, it’s been an outstanding platform to iterate aggressively on and get this kind of feedback. Now that Yesware has nailed the use case with the seed financing and has a serious user ramp happening, it’s time to go after Outlook.
I’m psyched for the Yesware team and proud to be involved with them.
I discovered Josh Breinlinger’s blog this morning via a tweet from @stefanobernardi. I added it to the Ask the VC blogroll, read carefully through his post VCs are liars. And so am I, and declared it the VC post of the day.
And – Josh is right – it’s super hard to say “you suck” or “your team sucks” as a reason for passing. Most VCs aren’t willing to do this as they either don’t want to deal with it, don’t have the emotional constitution for it (it’s hard to say no constantly throughout the day, every day), or don’t recognize that’s the actual reason they are passing.
At Foundry Group, our most common reason for passing is that what you are working on doesn’t fit within our themes. We try to pass on these companies in less than 60 seconds. If you assume that you are one of the 1,000 or so companies a year we see that fit within our themes, we quickly narrow it down to about 100 companies that we spend real time on based on one of three reasons.
- We don’t like the team
- We aren’t excited about the business
- You are too late stage for us
We usually figure this out in the first meeting. You’ll rarely get past interacting with one of the four of us if one of these three is the case. I’ll come back to this, especially point #1, in a minute.
If you end up in one of the remaining 100 companies a year we look at, recognize that we’d probably like to invest in your company. So by this point we like the team – that’s the not the reason we end up passing. Nor is it the business. Our challenge is that we can only invest in a dozen companies a year. We’ve purposefully constrained the number of companies we invest in a year to 12 +/- 2 (our fund is $225m, we have four partners, and have no interest in ever growing bigger.)
100 companies a year we love? 10 – 14 potential investments a year. How do we choose? At this point it’s completely qualitative. We just spend time going deep, individually and together, on every company in this set. We dig into the people and the product. It’s usually pretty obvious when all four of us are off the charts excited about investing. If we aren’t, then we don’t.
The toughest cases are the ones where we are excited, but something qualitative is holding us back. This is always either people or product. But it’s not because we think the people (or the product) suck – we are way past that point. Rather it’s something that just doesn’t catapult it into our “we are out of our mind with enthusiasm about investing.”
So – in our case, the equivalent of “the people suck” happens early – as we narrow from 1,000 to 100. In those 900 that we pass early in the process on, often people issues are the drivers. It’s not necessarily that the people suck, but it’s often the team doesn’t inspire us, we don’t click with them, we think there are weaknesses somewhere that are significant, or we just don’t get the right vibe. We are often wrong on this, but if asked will be blunt about it. It’s hard, so it’s more “reactive” when someone asks rather than “hey – we’ve decided to pass because you suck”, but we try to never hide behind something else when someone asks for feedback.
Having now done this for 18 years (eek) and said no to people about investing somewhere between 10,000 and 100,000 times, it’s really hard to tell someone the reason is them. But, when asked, I try. And I’ll keep trying.
Everyone needs a diversion. We’ve updated our Foundry Group web site with the new Liquidation Preference beer photo. Yes – we make beer – or at least my partner Ryan McIntyre and our long time friend Matt Galligan does.
If you miss our old web site pictures, you can now get to them via the diversion tab on the top right. Seth as Frankenstein, Jason as Don Draper, or Ryan at Mr. Pink (or was he Mr. Blonde?) – how could that not make you smile.
And with that, I leave you with our hard hitting documentary on the lives of four venture capitalists. Time to stop procrastinating and do my next call.
Yesterday I sent emails out passing on participating in two seed rounds for companies I really like. They had lots of investors trying to invest and each company was competitive with two other seed stage companies we’ve seen in the past 30 days. All are exciting, all are working on something that we like, and all of them are at the starting line with different strengths and weaknesses.
So far this year the number of high quality seed investments we are seeing in themes that are relevant to us is overwhelming. This is an awesome situation – for us and for entrepreneurs – and something I’m extremely excited about. But it forces us to think about our strategy, especially at the seed stage, and make sure we are comfortable with it. We are, but it occurred to me that it’d be worth putting it out there both so it’s known how we are thinking about seed investing and to get feedback on how we are approaching it.
First, some background. We’ve made a conscious decision as a firm never to grow – either number of partners or size of fund – so we are limited to the number of new investments we can make a year based on our approach. This translates into about a dozen new investments a year plus or minus a few.
Our strategy is “early stage” – so we are comfortable with seed investments, first round investments, and what might in the past have been called Series B investments if the company hasn’t raised much money to date (less than $3m). We summarize this as saying to entrepreneurs that if you’ve raised less than $3m so far, we are a target for you; if not, we aren’t. We are willing to invest as little as $375k as our first investment (e.g. Next Big Sound) or $15m as our first investment (e.g. SEOMoz).
We only invest in companies in our themes and only invest in US-based companies so we can say no in 60 seconds to 99% of the companies we see. Our goal isn’t to invest in all of the great companies; it’s to invest in around a dozen great companies a year. We are geographically agnostic – anywhere in the US – about 33% of our investments are in Colorado, about 33% are in California, and the rest are spread around the US. We are syndication agnostic – happy to invest alone and equally happy to invest with firms we like to work with. And we are very patient – we’ll lead our own follow-on rounds (at markups if warranted), are willing to invest up to $10m in a company before we declare “the moment of truth” as we’ve seen many companies break out in year three or year four of their life, and play for many years with the goal of building meaningful companies.
Finally, we believe strongly in active engagement as a seed investor. It’s not natural to us to make a bunch of passive seed investments or to toss $100k directly into a company without engaging with the company at the seed stage. We don’t have a seed program, nor do we expect to – if we invest, we are in for the long term.
So – what do we do?
1. Pass on the cluster: Per the intro to this post, if we see a cluster of seed investments in an area that we like, we are passing on all of them and trying to engage with them with the goal of leading the next round for one of them. Our belief is that we have to earn the right to invest and we want the entrepreneurs to choose us. At the same time, we want to invest in entrepreneurs who want to work with us and view us as a unique resource for them rather than just another check. In almost all cases like this, the seed round is easy to raise right now, which is awesome for the entrepreneur and gives her more choices downstream. We hope to earn our way in as one of these choices, while at the same time getting to know the entrepreneur better over a reasonable period of time. Of course, part of this is keeping the individual entrepreneurs plans confidential so we are very careful not to share any information between companies, although we’ve found several clusters where all of the entrepreneurs know each other and are already friends.
2. Support accelerators – especially TechStars – to create more seed opportunities: We co-founded TechStars and are investors in the program. Last year we helped put together (and invested in) Star Power Partners, which invests $100k in a convertible note in every TechStars company. As a result, we are tiny indirect investors in all of the companies that go through TechStars. Many of these companies raise less than $3m coming out of TechStars – all of them are subsequently in our zone for the next round financing.
3. Support other seed stage VCs: We’ve actively supported (as investors in their funds – individually, not through Foundry Group) many seed stage VCs including Jeff Clavier (SoftTech), David Cohen (Bullet Time), Manu Kumar (K9), Chris Sacca (Lowercase), Dave McClure (500 Startups), Eric Norlin (SK), and David Beisel (NextView). We don’t expect anything for this other than a role as a typical LP, but we view it as increasing the seed ecosystem.
4. Stay firmly focused on our strategy: We’ve seen strategy drift destroy VC returns, create chaos within VC firms, and make a mess of many VC / entrepreneur relationships. We know what we do well and are intent on continuing to do it for a long time.
As I mentioned at the beginning, we’re always thinking hard about how we do things and would love any feedback.
Today SEOMoz announced that Foundry Group has led an $18 million financing and I’m joining the board. Rand Fishkin (The Wizard of Moz) has an incredibly detailed post up titled Moz’s $18 Million Venture Financing: Our Story, Metrics and Future describing the financing process and company history in great depth. In it, he includes all kinds of numbers that people writing articles about financing are always asking for but never getting – it’s an extraordinarily (in my experience) transparent description of what, why, and how it went down. My partner Seth Levine also has a nice post up about our previous miss on financing SEOMoz titled Getting It Right The 2nd Time. And the official press release has a bunch of Internet Memes (thanks to Cheezburger) along with the liberal use of the word fuck.
Instead of going through the history of the financing, which is amply covered in the other posts, I’m going to talk about TAGFEE. What’s TAGFEE? It’s the tenents of SEOMoz. From the SEOMoz website:
Our goal is to have everything we create and cultivate – be it software, content, corporate culture, or professional relationships – live up to these tenets. We acknowledge that we are entirely responsible for SEOmoz’s reputation; the level of success we achieve, the brand image we create, and the contributions we make to the marketing industry are a direct reflection of our ability to uphold the TAGFEE code.
At my first company (Feld Technologies) we had a set of precepts and at Foundry Group we have a set of deeply held beliefs. When I first saw TAGFEE I immediately flashed to these two concepts. As I got to know Rand, Sarah Bird (COO), and other Mozzers, I realized they lived by TAGFEE. I loved it and it was one of the big factors that attracted me to the company. Following are my observations of how TAGFEE works in practice at SEOMoz.
Transparent and Authentic: Just go read Rand’s post Moz’s $18 Million Venture Financing: Our Story, Metrics and Future. The next time someone says that they are being transparent, call bullshit on them and point them at Rand’s post as an example of real transparency.
Generous: Everyone I talked to about SEOMoz reinforced that the company consistently goes above and beyond the expectations they set with customers, partners, and each other and hold themselves to an incredibly high standard in terms of interacting with and giving back to the industry that allows them to exist.
Fun: When I showed up at the company a week before the financing closed to say hi, everyone was gathered with margaritas and cupcakes. We did a 30 minute Q&A thing where Rand and Sarah went through in detail the deal that was happening and how it impacted everyone. The cupcakes were yummy and there was much laughing after everyone realized I wasn’t the homeless person that Sarah suggested I was (as in “Brad isn’t here – this is just some homeless person who wandered in.”)
Empathetic: I saw this in my interactions with Mozzers, Rand, Sarah, and people near to the company. I also see it in the Moz community. Amazingly direct, clear, and emotionally enlightened responses and interactions to everything, regardless where on the spectrum of “awesome” to “shitty” an issue lands on.
Exceptional: This is one exceptional company, in everything they do. They aspire to build something incredibly important and durable. And exceptional.
I’ve watched Rand and SEOMoz from a distance for a while. I know many people who have worked closely with the company. And I’ve been able to spy into Rand’s life a little through the lens of his wife Geraldine (who we call the hilarious cupcake blogger woman in my house). It’s one big TAGFEE universe and I’m spinning around in circles chasing my tail in happiness that I get to be involved in it.
We had our Foundry Group annual meeting yesterday. I enjoy our annual meetings – we get to spent a focused chunk of time with our investors. We have a straightforward meeting – a dinner for our advisory board the night before, drinks after for all LPs, our advisory board meeting first thing in the morning, and then the full meeting until lunch time. There’s no crazy party, no big events – just substance on our part and direct interactions with the investors supporting us. Our goal is simple – provide a clear update about what is going on in our funds, talk about what we are thinking about, and get direct feedback from our investors.
We spend the day before the meeting as a team putting the final touches on our presentation and reflecting on the previous year. We always talk about our key principles that we established when we started Foundry Group in 2007. One of these key principles is a “thematic investing approach.” An important part of our themes is that they are continuously evolving (if interested, we publish details on how we are currently thinking about themes on our Foundry Group website.) Our LPs understand this well and always like to hear how we are currently thinking about themes at our meeting.
On Tuesday, we realized that we have made several investments yesterday that have a concept in common – that of raving fans. I first thought of raving fans when I read Ken Blanchard’s book by the same name in 1993 when I was CEO of Feld Technologies (my first company). The message rang true for me then and still does today. The tl;dr version is “Your customers are only satisfied because their expectations are so low and because no one else is doing better. Just having satisfied customers isn’t good enough anymore. If you really want a booming business, you have to create Raving Fans.”
Our investment in Sympoz (owners of Craftsy) is an example of a company built on raving fans. Craftsy is a community of people who love to make things – knitters, quilters, sewers, jewelers. If you know a knitter (I do – Amy is a fanatical knitter as is my mom Cecelia) you know that knitters are “raving fans of knitting.” We invested in Sympoz in our Distribution theme, but it has this special characteristic around its community that felt a little different to us.
We classify our investment in SideTour as “Other”. We say that we aren’t slaves to our themes – we’ll occasionally do something outside of a theme if we love the entrepreneurs and have a special connection to them. In the case of SideTour, they were one of our favorite companies in their TechStars New York class and we were infatuated with the types of experiences they were talking about providing in their marketplace. As we were talking about Sympoz (which is doing extraordinarily well) and SideTour, we realized that the “raving fans” concept applies to each of them.
I had a call yesterday with another entrepreneur running a company that we passed on the seed round. We all like the entrepreneur a lot, but the company didn’t feel like it fit in any of our themes and was too vertically oriented for us. The company is doing great and as we were talking about it a week or so ago we said “it feels a little like Sympoz, but has some characteristics of SideTour.” Yesterday, when I was talking to the entrepreneur, I realized it also was about a community of raving fans.
I love raving fans as the phrase for this theme since it sets an incredibly high bar of the dynamics of the people in the community these companies appeal to. These aren’t “vertical social networks” or “vertical exchange marketplaces” – there is something deeper going on in the relationship between the people and the company, and the people and community. And it’s something that is magically enabled by the current state of technology – mobile, video, real-time social – a bunch of things have come together than make this work.
Look for more on raving fans from us as it evolves. For now, you have a little bit of a window into how we think about themes.
Update – My partner Seth reminded me that our investment in CrowdTap (in our Adhesive theme) is all about helping brands interact with their raving fans, Todd Sawicki said “dude – how about Cheezburger” (in our Distribution theme) and Jeff Malek, the co-founder of BigDoor (in our Glue theme) said “ahem!” So it seems like we’ve got a lot companies involved in the construct of raving fans!