N.B This is the unedited transcript of the interview.
Can you introduce yourself?
Sure. I'm Brad Feld. I am one of the partners at a Venture Capital firm called Foundry Group. We're based in Boulder, Colorado, and we invest in early stage software and Internet companies all over the U.S. I am also a co-founder of TechStars, which is the leading mentor-driven accelerator, which has programs in a bunch of cities in the U.S., and has also helped create the Global Accelerator Network, which is about 100 accelerators around the world that are affiliated together.
You're an author as well?
Yeah, I have written a bunch of books, most recently a book called Startup Life: Surviving and Thriving in a Relationship with an Entrepreneur, which I wrote with my wife, Amy Batchelor. It's part of a series called Startup Revolution. The first book is Startup Communities: Building an Entrepreneurial Ecosystem in Your City. I have also written a few others, probably the most well known one is one I wrote with my partner at Foundry, Jason Mendelson, called Venture Deals: Be Smarter than Your Lawyer and Venture Capitalist, all about raising money for early stage venture deals.
Before we connected, I was thinking, "What's an interesting topic to talk with to a VC?" and the typical approach would be how to raise money for your startup. I just felt there is somewhat an abundance of resources online and I thought what's something that is not being covered and that's how to become a VC and how to be on the other side of the table. How do you go about raising money for your fund? How does that start, where people are willing to hand over so you can invest in startups yourself?
As a VC, when we started Foundry Group, which was in 2007, we spent nine months raising our first funds. It's a $225 million fund. We have about 20 institutional investors in that fund. The process for us was literally going out, we met with about 70 institutional investors in three months. About 20 of them said, "No" right off the bat, and of the remaining 50, obviously 20 of them ended up investing.
The team we had that went out and raised that fund included, obviously me, who had been an active VC since 1996, and prior to that I had been a very active angel investor. I had done about 100 angel investments with my own money, about 40 of them between '94 and '96, and then another 50 or 60 over time.
I had a very significant track record, both before the Internet bubble and after. Then my partners included people that had worked with me at the previous firm I co-founded, a firm called Mobius, and each of them had worked in different roles at Mobius. They had their own track record and experiences. We put that all together because we had worked together, by 2007, we worked together for about eight or nine years by then. We had a really good history of the four of us working together on different things. I think that was an important part of what our initial investors counted on.
That is the experience for us as experienced investors. I am also personally an investor in a lot of Venture Capital firms and I'm a very active investor in first time funds, funds from people who are creating their own firms, but had never previously either been a venture capitalist or had been part of a much larger fund, now creating their own firm. It's like what we did. I would say in many of those cases, like so many things, it's an investment in belief in the people, the managers in this case, and whatever strategy they have in terms of how they are going to approach the market.
The theme I am getting is that the team is so important. What is it you look for in a partner? What is it that your partners have apart from this relationship and the varied experience?
When we started Foundry, we had a belief that we were never going to grow, so one deeply held beliefs was that to create a firm, we would raise a fund, in this case $225 million, and every time we raised a new fund, it would be the same size. In 2010, we raised a $225 million fund, and just recently, we raised another $225 million fund.
Our premise was the four of us would work together as investors for the balance of our investing career. We are very committed to each other. We had, again, a long history together so we knew what our strengths and weaknesses are. We are all very different so we have different personalities, different approaches, but there's a very strong underlying shared culture, shared value system.
We understand how to discuss things with each other, we know how to argue about stuff, we're not emotional about the answers, so we're all okay about being wrong, and we are totally fine with the other three of us disagreeing with one of us. We've developed pretty good conflict resolution skills over time, so when we do have conflict, which inevitably comes up, whether it's a personality conflict or whether it is just a disagreement on how to approach something, we have learned how to directly address it. I think the skills that we have amongst ourselves as partners are important skills that we look for in the leadership teams we're backing as investors.
Tell me how you address a conflict. What happens in the room? You disagree with somebody, what do you say?
It varies a lot. I would start by saying the cliche is early and often. Whenever a conflict starts to arise, we address it directly at the moment that it's arising. Rather than let it fester, or let it get woven into the behavior patterns, when somebody disagrees with something or somebody feels wronged, they have permission, again, cultural permission, to bring it up immediately without apology. When you feel you are on the other side of something that doesn't feel right, you don't get rejection from saying, "I don't feel good about this, I'm not happy about this, I disagree with you." None of us have an angry personality in the context of our relationship.
We each have plenty of emotions in different parts of our life, but we've agreed that, between the four of us, conflict is a thoughtful, calm thing, not a hostile, angry thing. I think that gets rid of a lot of the tension because you can say what you think without fear of a hostile response. You can be direct with the person you have a conflict with.
I think this is another important part of it, which is if Jason is angry at me about something, Jason is one of my partners, he doesn't go to Seth and complains to Seth about something I'm doing, he comes straight to me, but he can come straight to me in public so he can confront me with it in front of Seth and Ryan, whether it's via email or when we're together. He doesn't feel like it has to be this direct confrontation just with me.
Tell me about going around to these institutional investors and pitching. Tell me what's in the deck and why, I think you said, "20 said no straight off the bat." Let's talk about why 20 of them said, "No."
For a variety of reasons, why the 20 said no, and it wasn't just 20 because of the 70, we only had 20 that invested, so ultimately, 50 of the 70 decided not to invest in us. I would say that some of them were not well-qualified, either by us or they didn't qualify us very well. You go to a meeting and you're selling bagels and the person wants to buy tuna fish sandwiches, or you're selling bagels and the person wants to buy a radio.
What we were looking for investors for was not what those investors wanted to invest in, so there was a mismatch. There were some that were very curious, where you'd start a meeting and literally the first introductions people would say, "We really just don't believe in early stage venture capital any more, we don't think there's an opportunity for making money there." My first reaction is, “Why did you take the meeting?” That was often a reaction that was in my head, not one that came out of my mouth, but that was one category.
Second was, I would say, just a lack of belief on their part that as a "new fund," essentially as a fund that was a first time fund, we would be effective, so I think there were some that just passed on that. There were a couple, in the universe that venture capitalists raise their money from limited partners, many of those limited partners have a consultant. The consultants are separate firms who provide recommendations and who do the due diligence work on the VC funds themselves.
One particular case where we had an LP who was really interested in investing, but he needed the blessing of their consultant and their consultant, which is a very large group, very well-known, was very negative on venture capital in 2007. Essentially the consultant dismissed us out of hand. In that case, it's a gatekeeper basically said, “We don't think you should do this.” Those are probably the first ones.
We probably have one or two just truly bad meetings. Interestingly, the meetings that I would consider to be bad I remember a few that I felt like we did a crummy job in the meeting and two of them ended up being investors in us, so we had a good connection with the people even though the meeting itself was awkward, wasn't very smooth, was very choppy.
Is the track record of what you have done before really significant, really important?
If you have never invested before, either as an angel investor, venture investor, and you try to raise your own fund by yourself, I think that's a fantasy. You need relationships with mentors, partners, supporters, other people who have that investing experience, especially if you try to raise money from institutional investors versus just friends and family, right? If you're trying to raise a $2 or 3 million fund from friends to make seed-stage investments, that's different than raising $50 or 100 million fund and going and doing true venture capital investing.
What's in the deck?
The deck for us was fairly short. We had about a 15-page deck. The first couple of slides were overview of what we'd done, who we were, team slide was the second slide. The next couple of slides were strategies, two or three slides describing what our strategy actually was. We have an approach we call a "thematic approach," if you go to Foundry Group/Themes, you'll see that. Thematic approach.
We spent maybe a couple of minutes setting things up. We talk very specifically about geography because we're based in Boulder, but we invest all around the U.S.. We talk about historically where we had relationships and where we had invested and why we thought we could be effective as an early stage software and Internet investor from Boulder.
We then had essentially a handful of case studies of companies that we had invested in historically. Each slide was an example and we would go through these examples. Essentially the cadence of the presentation was: here's who we are, what we've done, and what we are planning on doing, here's our strategy, here are some of the things that are unique about our approach, and then here are some examples of things we have done, the successes and how we have contributed to those successes.
That was the presentation. I would say typically a meeting was an hour long. The presentation usually took us anywhere from 15 minutes to 45 minutes to do, depending on the questions during the process. Some investors would sit patiently and at the end have a bunch of questions, others had questions on every slide. There were a couple of cases, because of our histories, where we would go off on tangents talking about our previous experiences, or previous firms, specific companies.
In a first meeting that we have, those usually happen in our second or third meeting, in our first meeting, it was usually a straight forward dynamic. Some of the meetings we would always schedule the meetings for 90 minutes on our side, even though on the other side, it was usually an hour. I would say more often than not we'd be, in a good meeting, we'd be an hour 10, an hour 15, sometimes 90 minutes before we would leave. In a bad meeting, we would usually be gone in 45 minutes.
How many meetings does it take to close the deal?
The vast majority of situations were somewhere between 2 and 4 in-person meetings. The first one was typically with one person or a person and his or her associates, the junior people that work with them. The second meeting was usually with one or more other partners in addition to that first partner. For some of the larger firms, we would end up with a third or fourth meeting like that. Eventually, if they were serious, we would get to a diligence phase which included a site visit, where they would come to us and typically spend half a day, with a dinner either before or after, and a few cases as much as a day, going very deep with our historical track record and also having one-on-one meetings with each of the partners.
The overall process, the front end of the process could have been 2 to 4 meetings. The process really didn't start, where we believed someone was interested in investing in us, until they were ready to do a site visit. That was the trigger that went from interested but not on a committed path, to making a decision, to then being on a committed path.
What's key for a good site visit?
A couple of things. One was, I think our approach was really direct and open, so we try to be very clear about who we were, what we were like to work with, what we had done, what had worked and what hadn't worked in our past. We didn't overly script anything, so the meetings tended to be very substantive, but they would go wherever the investor was interested in them going.
I even worked really hard not just to be straightforward from a fund raising and information perspective, but also very straightforward personally, so we would almost always have a meal, dinner, again the night before, the night after, and those dinners, again, were not scripted, It wasn't like people needed to sit in a certain place or say a certain thing. We just had dinner and we were ourselves and we let the personal relationships develop however they want.
They were very different, some of the people were extremely comfortable with us and we would become really close friends, others were very professional, but a little more standoffish in those first meetings. Interestingly, the vast majority of our LPs, our investors, we become very good personal friends with. We are very comfortable, we enjoy them a lot, they enjoy us a lot. We just try to be ourselves in those meetings and not be pretentious.
The other thing we did, which I really look for when I meet with an entrepreneur is, we worked hard to have our total focus and attention on what was going on. Inevitably, there is always distractions, or something's going on or something's got you as an individual distracted, whether it is in work or personally distracted, but we try to really be focused and be in the moment when we are having these discussions. Not just in the moment with the investor, but with each other.
When one of my partners was talking we have developed a very healthy respect for each other's thought process and so if Seth is talking, rather than look straight ahead or fiddle with my thumb, or scribble on a piece of paper, I actually am listening to what Seth's saying and if he says something that's interesting for me to build on, I'll interject and vice versa. It's the kind of thing where we are all participating together rather than, okay it's Seth's turn, now it's Brad's turn, now it's Jason's turn.
What makes a bad VC?
There's a long list of things. I like to say VC's are like Dungeons and Dragons characters. The mistake a lot of entrepreneurs make is to think of a VC as a single archetype or a single D&D character. You've got wizards and mages and orcs and dwarves and elves and all kinds of things. Even with any one of those character types, you've got lots of different experience points and levels and skills and all that stuff.
For starters, don't shove every VC into a single archetype. Within the 20 or so archetypes, there's a set of common threads. One is, the VC know-it-all, the VC who knows all the answers and insists on telling the entrepreneur what the answer is. I'm 47, I have been an entrepreneur, I have been an investor, I've had lots of things work and lots of things not work. My whole goal in life is to continue to learn stuff every day. There is an enormous amount of things I don't know. I'm very comfortable speaking from my experience, I am comfortable making assertions, but I'm certainly not a know-it-all.
The next classical thing that cuts across a lot is the VC who thinks he is the one in charge. You see this a lot where, "I have invested in your company, my fund owns a big chunk of your company, therefore you, the CEO, and the entrepreneurs work for me." That's just fundamentally idiotic for a host of reasons, the first being it's just simply not the way it works.
Isn't that legally correct, though?
No, it's not legally correct. It depends entirely on how the docs are written, but fundamentally, even if you own 20 percent of a company, you may have the ability as a board member to fire the CEO, and the CEO essentially reports to the Board, but the idea that you as an individual are the boss of the entrepreneur makes no sense.
It is not, again, you can split hairs over the nuance of governance and control but in terms of the dynamic of how a business works, an entrepreneurial business works, the VC doesn't run it, the VC is a supporting character. In fact, I think the great VCs are very quick to say, “My role is to help the entrepreneur win.”
The language I use is I actually say, "My job is to work for the entrepreneur and do whatever he or she wants and needs me to do." The VC does have that moment of, if you don't support the person running the company, you have things you can do about that, but that's different. That's the edge case of it's not working and you just don't believe the person can make it happen.
What, then, becomes your obligation to the institution investors? How do you keep them up to date and outline expectations and stuff like that?
Yeah, our LPs and our relationship with them is very simple. They give us a box full of money and they want a bigger box full of more money to come back to them. That's it, that's the job. As long as we do that legally, and that's the money we give them back over a period of time on a net basis, net being what they get back is more than three times what they gave us, then they're happy. That's success.
If not, what happens?
Many LPs are happier with less than three times their money back. I think our threshold internally; our mental model is we're not doing a very good job if we don't hit that hurdle. The interesting interplay and dynamic is that once the LP has committed to you, they have relatively little rights or control over you. They have some provisions that if you do things illegal or go off the rails, or the team blows up, they can essentially change the governance dynamic of the fund, but for the most part, LPs don't want to do that anyway. The reason they invested in you is because they think of your firm as a great investment.
What we try to do in terms of communication back is essentially a steady stream of consistent communication: quarterly, financial and reporting, around what we have invested in. Every time we make an investment. We sent out a short memo describing the investment.
We're very public about what we're doing. All four of us blog. We write regularly, we blog about every deal that we do, we're all on Twitter so you can follow what we are doing on a day-to-day basis, and to the extent that one of our investors wants to understand what is going on in our world, all they have to do is pay minimal attention, not even have significant attention, to all of that other stuff.
We have an annual meeting once a year, where we get together every one of our investors. Twice a year, we have a meeting with a subset of another advisory board, where we go through anything that we need formal approvals for, which every now and then something comes up. Then, on a personal basis, I'd say we probably have interaction with most of our LPs a couple of times a year at the minimum, to almost weekly with others, where we're just, again, good friends and spend a lot of time doing stuff together.
People like to paint this picture that entrepreneurs are heroic and mavericks, is it possible to do that while working 9-to-5 or is it something where you have to cut away from that and focus?
I think the effort of an entrepreneur is, and the activity of an entrepreneur is, one that is more engaging than something that happens 40 hours a week. The vast majority of entrepreneurs who I know work more hours, but the way they work and the way they think about work is very different than somebody who goes to a job at 9 and comes home at 5.
By the way, I think the vast majority of successful people on this planet, whether they are entrepreneurs or not, don't work 9-to-5, especially in the world we are in, where we're always connected to our email in our cell phones, and responsibilities traverse time zone and geography. I think the 9-to-5 mentality, for anybody who is trying to accomplish something of substance versus just have a job, and it's fine, there's lots of people who want to have a 9-to-5 job, that's a thing, but if you're trying to accomplish something significant whether you're an entrepreneur or in another context, the idea of a 9-to-5 work life is not logical.
Amy and I talk about it a lot in Startup Life. It's not that you have to work 110 hours a week, and it's not that you have to shut out the rest of your life. In fact, you can have a balance between how you work and how you live, and the things can be intermixed and having a rewarding life as you're working incredibly hard, it’s not just a nice thing to have, it actually makes you much more effective in the context of your work. It's not a segmentation of time in a clean way. It's much more complicated than that and requires a lot of, frankly, effort on the part of both the entrepreneur and the people in the entrepreneur's life to make it work for everyone.
What do you do when you have a job, and you have an idea? Is it possible? I'm trying to understand if you should just cut the job off and then focus on the idea, or is the idea something you focus on after work?
It depends entirely on what resources you have and how you want to configure your life. If you're young and you don't have overhead, the trappings that people tend to collect as they get older, whether it be house, car, family, kids, and as a result, you have a very modest means in the short term and you have something that you're incredibly focused on and excited and passionate about, by all means, quit your job and go extremely deep on in.
If you're not obsessed with the thing you are trying to start, what's the point. Your chance of being successful it's not zero, but it's lower. If you have a bunch of other responsibilities that you need to have current income for because you don't have resources for them, you have to be creative about how you allocate your extra time. Work to get to a place where you can spend 100 percent of your time on your business, but in the short term, you can move the idea forward in a meaningful way by spending time outside of work on it.
That is something that is a huge commitment, not just of the entrepreneur, but of anybody around the entrepreneur: spouse, kids, so I think a mistake a lot of people make in that phase is that they don't recognize that the people around them are going to be making as much of an investment in this new idea and this new business as they are. Because their wife, husband, friend, lover, whomever, mother, isn't going to be around that much, and when they are around, they're going to be distracted by this stuff, they might be tired.
It's just a different tempo. I think everybody has to personalize it, there is no right answer. I like to encourage people to really be aware of what they're signing up for and what they're going into.
Coming to a close now, what's the final thing you want to leave the audience? I know that's very broad.
Having been involved in start ups since I was 19 when I started my first company, and having both helped start as well as invest in lots of companies over the years, some of which have been very successful, some of which have been giant smoking craters in the ground and many in between, I think the process of creating companies from scratch is just awesome and incredibly, incredibly satisfying.
As a result, I encourage people that are interested in entrepreneurship to just do it. I think we're in a time in our society in the early part of the 21st century where we essentially have the responsibility to create our own futures, rather than rely on somebody else to do it. The best way to take responsibility for your own future in a work context is to either create your own company or be involved with helping create a company with other people. It's just incredibly satisfying, it's extremely hard. Lots.