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Jason: Hey, everybody. Hey, everybody. It’s Jason Calacanis. This is ThisWeekIn Startups. I’m holding a book, Startup Community, by Brad Feld. Entrepreneur… No. Former entrepreneur, angel investor, venture capitalist, blogger, author, genius. One of my oldest friends, in the industry. This is the guy, who like, when he talks I listen. As you guys know, I never shut up. When Brad Feld talks, I listen. Jason Calacanis listens to Brad Feld. This is one of my favorite people to have on the program. Stick with us.
TWiST title sequence.
Jason: Hey, everybody. Welcome, to ThisWeekIn Startups. You know what this program is about. It’s about creating companies, startups, products, services that change the world, that put a dent in the universe. This show is not for people who want to pick rice. This show is for samurais, who want to take those swords out and maul, crush it, and kill, and make awesome stuff in the world. If you are a pathetic loser, who wants to sit on the bench for the rest of your life, please, by all means, switch channels. But, if you want to do something with your life, if you want to make something great, please, subscribe to the channel on YouTube and listen to the program. What I do here is, I find the most brilliant people in the world, who have year after year, decade after decade, changed the world. By either funding great companies, or making great companies or building on the boards of these companies. I have them on the program then I ask them very basic questions: How do you do it? How do you make it happen? How do you get through the hard times? What are the things that are most important for you to focus on, when your building this great company, that’s going to change the world? Today on the program, I have Brad Feld. Who is, essentially, created the entire ecosystem, in Boulder. He has invested in countless companies and is looked at as… I don’t mean to make him feel old, but he’s now like an elder statesman in the internet industry and in investing. He’s one of those guys, I read his blog religiously. When he talks as I said in the cold opening, when he talks I listen. You’re going to love this interview and discussion we’re going to have today, because, I’m going to learn a lot and you’re going to learn a lot. Igloosoftware. Yes, that’s the intranet you’ll actually like. Built on social tools, you already use: file sharing, shared folders, shared calendars, blogs, wikis, all with a secure business contact. Igloo, is fully hosted and managed, in the cloud. So, you can focus on your work, not the IT budget. Here’s how we use it. We keep track of all of our equipment, here. Check out that nice wiki. Where, we have all the equipment and how much we spent on it. How much is, da, da, da, da. This is very good, for us. I need to have all this information at my fingertip, when I need it. Then, I can check it and I can yell at somebody, for not doing their job. No. Seriously, you ned to have an intranet. Great companies, like, IDC, Deloitte, NetApp, Kimberly-Clark, RCA. RCA? I think, RCA, went out of business, in 1947. It’s, RSA. I know those guys. Aetna Insurance. All these folks use, Igloosoftware. It’s a great intranet. Bring your team in from the cold, by getting inside the Igloo. Yes. Visit: igloosoftware.com/thisweekin and you will be entered into a drawing for an iPad mini. Yes. These guys are smart. Get a 30-day free trial and enter to win an iPad mini. Which, has become my preferred device. Let’s get on with this interview. This is an amazing interview. Welcome, Brad Feld, to the program.
Brad: How are you doing, pal? Good to see you, man.
Jason: Good to see you.
Brad: This is driving me crazy.
Jason: That’s making you crazy?
Brad: I’m not crazy, anymore.
Jason: You wrote a book. Another book, “Startup Communities: Building An Entrepreneurial Ecosystem In Your City.” You actually did this in Boulder. What’s the secret? Boulder has about… 50,000 people live in Boulder?
Brad: 100,000 people.
Jason: There’s 100,000 people. Every time I meet somebody there… as I said in my Twitter account the other week and you retweeted… they’re like a genius. It’s like, I go out for sunday brunch, when I’m in Boulder, the person’s read the New York Times cover to cover, they’ve gone to yoga, they’ve gone on a hike, then they invested in 3 companies. This is the most industrious area. But, 20 years ago? Not so much.
Brad: Boulder’s got an interesting story, in that, for me it’s been a small enough place that you can get your mind around it, but a big enough place where there’s actually enough critical mass to actually do something. The entrepreneurial activity, in Boulder, way pre-dates me moving there, in ’95. I moved there, in ’95, with my wife, Amy. We were living in Boston. Had been in Boston, 12 years. When I sold my first company I was 28. I told her, by the time I turned 30, we’d move to Boulder. By the time I turn 30, we’ll move.
Brad: Two months before I turned 30, she told me she’s moving to Boulder and I could come with her. Boulder was not a place I knew anything about. I knew one person and he moved away. I literally move there, to live. What I found when I moved there was this incredible concentration of really smart people. I like to say, it’s a place, where the hippies that were going from the east coast to the west coast ran out of gas. Like, “Mountains, cool. Let’s stay, here.”
Brad: What’s happened is, over this long period of time, certainly starting before 1995, but continuing through you’ve taken this sort of this counter culture place with very, very smart people. This high concentration of independence. On top of that, a series of things, that I call the Boulder Thesis. That really are the essence of creating a startup community. It comes from my view, that you can create a startup community in any city in the world.
Jason: Any city could have one?
Brad: Any city could have one.
Jason: Everybody’s tried. Few have succeeded.
Brad: I actually go further than thinking any city can have one. I think, every city needs one.
Brad: If you think about what a city is… a city was once a startup.
Brad: Somebody showed up and said, “We’re going to have a city, here.”
Jason: Yeah. Vegas.
Brad: Vegas, L.A., anything. Boston.
Jason: That was the ultimate one.
Brad: Some dude bumped into a rock, right?
Brad: It’s really the essence of how things start. If you think about startups, startups are the essence of regenerating and creating newness within an existing infrastructure and ecosystem. Whether, it’s the technology industry, or a city, or a particular vertical market. It’s also very generational, which is that, as people create new companies, those companies, over time, become the established companies. Those established companies, constantly, need new companies to challenge them. You joke about me being an old guy. I booted up version 47 of me recently. Hopefully, I’ve incorporated all the things from the previous versions. By the time you get to be 47 years old, you’re not thinking about things the same.
Jason: You could have retired at 28, 29, 30.
Jason: You didn’t. Why is that?
Brad: I wasn’t done.
Jason: You weren’t done. It’s just that simple?
Brad: It’s that simple.
Jason: How do you know, if you’re done or you’re not? How do you go through that? Do you say, “I’m too young to stop.” Or, “I need more money.” Obviously, you didn’t. Was it that you loved the game so much?
Brad: For me, I’m very motivated by learning. I like to talk about motivation on a spectrum, from intrinsic to extrinsic.
Brad: Extrinsically motivated people: “Hey, Jason. You’re doing great. It’s awesome. Wow, Look at how incredible this is. Here’s an award.”
Jason: Right, right.
Brad: “Here’s more money. Your pictures in magazine.” That’s all fine. That’s one end of the spectrum.
Jason: It works pretty well when you’re in your 20s.
Brad: It works well when your in your 20s and it works well for a lot of different personalities.
Brad: A lot of people stay on that curve forever. For me, as long as, I was learning something. As long as, I was in a moment where whatever experience I was having, I got something new out of it. That was motivating to me. After I’d sold my first company, when I was 28, I started making angel investments. What I found was that, even in my first company, which was self-funded, we didn’t raise any money. We grew it to a couple million dollars, before we sold it. I learned an enormous amount, but I was nowhere near saturation, in terms of learning about business and creating companies and entrepreneurship. I was nowhere done learning about technology and how technology impacted humans. I was completely fascinated by the social dynamics of trying to do this stuff. I had a long way to go.
Jason: You could have basically retired in 95. Which was by the way, when the startup pistol went off for the internet.
Brad: That’s right.
Jason: Interesting timing.
Brad: My timing was good in some ways. I’d sold this company in 1993. I started making angel investments in ’94. I helped start a venture capital fund in ’97.
Jason: I think, that’s when we met. ’96 or ’97.
Brad: ’95, ’96, that time frame. I was spending a lot of time… I didn’t move out of Boston until ’95. I made investments in New York as well as Boston. I spent time on the west coast. In the Bay area, LA, and Seattle. I had a bunch of these $25K-$50K angel investments. I made about 40 of them in that 3 year time period. What was so fascinating about it was, that was an arc and it was a very positive arc, but that arc peaked. That arc peaked pretty aggressively in 2001.
Jason: It came down pretty aggressively in 2000, 2001.
Brad: That’s right. Anybody who was involved in software and internet, in that time frame, had a shitty year. Just one year, that was awful. My year was 2001.
Jason: How bad was it?
Brad: In 2001… I’ll give you a couple examples of bad. I was involved in… I was probably on 20 something boards, at this point.
Brad: Way too many boards…
Jason: That’s what… 8 more than you should be on?
Brad: I don’t know what it was, but it was too many. I had about 10 companies in 2001 that shut down.
Brad: 10. About 1 a month. You just can’t avoid it. Right? Where ever you look, something is messed up.
Jason: It’s like triage on the beach in Normandy. Not to make light of the beach in Normandy, but, people are getting blown up all around you.
Brad: The best way to describe it… You know how you have a terrible day, terrible day? An awful. You go home at the end of the day.
Jason: Amy’s there.
Brad: Amy for me. Jay for you. You get home and you do whatever you do to relax.
Jason: You try. You go for a run, smoke a doob, have a drink, whatever. Read a book.
Brad: And, you hang out. You’re like, “I’m going to go to sleep. Tomorrow’s going to be better.”
Jason: A brighter day.
Brad: By July of 2001, I woke up and I realized every day had been worse than the previous day.
Jason: It’s not getting better.
Brad: What happened was, something that happens a lot as an entrepreneur. At some point, you have to accept the reality of what’s going on. In that moment, in the middle of the year, I said, “It’s going to be going to be really crappy for a long time.”
Jason: You have to define reality.
Brad: I’m going to look forward. Let’s see what they can bring at me. Instead of fighting it, “It’s got to get better. I can’t deal with this.” I’m like, “Alright. Fuck it. I’m just going to deal with it. It’s just going to be whatever it it.” Then, what happens is, eventually you get through it. It takes time. 2002 was not a great year for me, but it was not a terrible year. It was a terrible year for a lot of other people. 2003, 2004 were hard years, but some really interesting things started to happen.
Jason: Value was being created.
Brad: By the way, a bunch of companies in 1999 and 2000 we were early investors in Postini. Which was a company started in 1999. By 2003, Postini’s a really important company. It’s not that everything gets wiped out. It’s that a whole bunch of stuff does, but there’s value and there’s persistence that entrepreneurs can play through.
Jason: Did you think of giving up during that period? It’s gotta be trying. Everyday a different company. Your reputations on the line. Did you have that self-doubt, like, “My God. I’ve made all these bets. I invested all this money. It”s all coming apart at the seams.” Did you think, “Enough. I’ll just retire.”
Brad: I had multiple points of real distress. One was, I was on four public company boards… Hang on a second.
Jason: It’s the Imperial March.
Brad: Hey, sweetie. How are you?
Jason: It’s the wife. This is the first phone call.
Brad: I’m doing this thing with Jason Calacanis.
Jason: It’s live on the air. He takes in his list of his priorities.
Brad: Yeah, yeah. No. We’re doing a live taping of a TV show thing.
Jason: Internet TV show.
Brad: Internet TV show.
Jason: ThisWeekIn Startups.
Brad: OK. I love you. That’s entrepreneurship rule one, by the way.
Jason: Is Family first?
Brad: Not even family first. If you’re partner or significant other calls you, no matter what you’re doing…
Brad: … answer. Amy and I have been doing this for as long as I’ve has a cell phone.
Jason: That’s very sweet. Can I ask, is that ring tone specifically for your wife?
Brad: That is her ring tone. Even better. It’s hers and only hers. She chose it.
Jason: Oh. I like that.
Brad: She will say to me, sometimes, “This is the Dark Lord of the Sith, calling.” So, in this time period…
Jason: The worst moments. Yes.
Brad: There’s a couple worse moments. Here’s one. I’m on four public company boards.
Jason: Star Media is one, I think.
Brad: I wasn’t on that. I was on People PC.
Jason: Oh, my goodness. I love that company.
Jason: Don’t know that one.
Brad: Interliant. Which, I’d co-founded in Message Media which I’d also co-founded. At one point in time, if you multiplied their share prices together, you got a smaller number. For the mathematicians that means that all of those stocks… This is my normal ring tone. I won’t answer it.
Jason: Yeah. Turn that off.
Brad: All of those stocks were sub-dollar. Every single public company board I was on, was worth less than a dollar.
Jason: Which means… Wow.
Brad: I spent all my time talking about reverse stock splits and Nasdaq compliance.
Jason: Pink sheets. The lawsuits are piling up.
Brad: The lawsuits are piling up. Here’s another terrible moment. I’m co-founder of a company that went public in 1999. Peak market cap was about two and a half billion dollars. We built a company that did about $200M revenue in its best year. We mastered the art of losing $5M a month. We were extraordinary at it. I mean really, really good at it. We raised a debt financing in March of 2001. That was supposed to convert into equity.
Brad: It’s one of these deals that Merrill Lynch did. It never converted in equity, because the stock price went down.
Jason: Flipped underwater.
Brad: We have $160M in debt. We’re losing $5M a month. Eventually, we have to pay the debt back, but we don’t have any operating capital to do it. There’s no financing markets, cause, now we’re into 2002.
Brad: This company goes bankrupt. After, at the peak being worth two and a half billion dollars.
Jason: Oh, my God.
Brad: None of the founders took any money out. Me included.
Brad: Then, after we went bankrupt, went through the whole bankruptcy process, sold off the assets, done, signing the little piece of paper that saying we’re done.
Jason: You lost everything.
Brad: We got sued for the D&O insurance.
Jason: Oh, my God.
Brad: That went on for another three years. At the end of that I settled for $600K. They sued us for $150M. They spent $3M to get $600K.
Brad: It was a bad trade on their part. It was just one of these things, where every day you think about it. There’s sort of this thing over you, but at the same time, you have all this other stuff that you’re doing. You have to concentrate. You have to continue to get up each day and focus on moving things forward.
Jason: Fighting the fight. Now, everything’s going so well. The markets open back up again. I guess, we had a little bit of uncertainty. Who knows what’s going on right now. You mentioned your Boulder thesis. Let’s get back to that. We know you’re not going to give up when things go bad. That’s checked off on the box. The Boulder Thesis. What is it?
Brad: There’s four elements if you want to build a startup community anywhere. There’s four principals that you have to follow. The first is that the leaders have to be entrepreneurs.
Jason: OK. That makes sense.
Brad: I separate the world of a startup community into leaders and feeders. Both leaders and feeder are important, but they’re totally different.
Jason: What’s a feeder? Like a lawyer?
Brad: University, government, lawyers, investors, venture capitalists, angel investors. Big companies that want to be involved in the startup ecosystem, the entrepreneurial ecosystem. You can have individual members of the feeders provide leadership, but the leaders, the institutions, the hierarchies, can’t do it. Cause, a startup community is this giant messy network of entrepreneurs. You have to have a critical mass of entrepreneurs, who are going to play a leadership role. That’s thing #1. Thing #2 is they have to take a 20 plus-year view, a long term view to this. People thinking that stuff happens in a year, or two, or three… it’s delusional.
Brad: Every now and then, companies are overnight successes, in a year or two. Most companies take 5, 10, 15, 20 years to do. You just keep banging away and banging away and all of a sudden, you have success. The overnight success that was 15 years in the making.
Brad: Look at the list of companies. IRobot, Harmonics. These are companies that friends of mine started or I’ve been involved with over the years. 15 years later they became successful. Third. You have to be inclusive of anyone who wants to engage, in any way, in the startup community. So, in Boulder, we do this thing where, basically anyone who wants to get involved, at any level, is welcome. We throw the doors open. If somebody wants to come to Boulder and check things out, just email email@example.com. I may not have time to meet with you, but I’ll introduce you to a bunch of other people. It’ll be very easy for you to get plugged in.
Jason: I’ve done this with you. I’ve said, “Hey, I’ve got some developers, some of them want to move to Boulder.” I sent them there. I sent them to you guys. Were incredibly graceful. You sent them to 10 CEOs.
Brad: That’s right.
Jason: Now they’re integrated into the system.
Brad: The view, simply, is that it’s not a zero sum game. It’s not, “You win. I lose.” This is better. Let’s get more of this going. There’s another part of that which is really important which is this notion of give before you get. The idea that I want to be helpful without an expectation of what I get back.
Jason: Altruism. Yeah.
Brad: It’s not altruism. It’s essentially the definition… I’m very selfish in that I want to get something back, I just don’t know what it is.
Jason: Ah. And, when. So, it’s less transactions.
Brad: That’s right. “Hey, Jason. I’ll will come on your show if you give me this.” You’re like, fuck that. What’s that. I’ll say, “Happy to do it.” I like you. I care about you. You care about me. Let me be helpful. If that’s good, it’s good for you and it’s good for me keep going. Think about the difference between and advisor and a mentor. An advisor says, “Hey look. If you give me 1% of your company I’ll help you.” A mentor says, “How can I be helpful to you?” So, it’s that kind of idea in this construct. Then, the fourth is that you have to have activities and events that engage everyone in the entrepreneurial stack. From aspiring entrepreneur, to first-time entrepreneur, to multi-time entrepreneur, to investors, to lawyers, to accountants, to people in the university, to government. Anybody that wants to participate. This is not cocktail parties. This is not going to some rich person’s house and hanging out and doing something. This is not the entrepreneur of the year thing where you get a plaque. Those things are fine, but they’re not really fundamental. It’s stuff like Tech Stars. An accelerator that for 90 days is focused on helping these ten companies and these 30 or so entrepreneurs get from starting their company to launch. Or startup weekend. Which is 54 hours of entrepreneurship. It’s a simulation. Low stakes overall but incredibly intense dynamics. Very, very interesting things come out of it. If you want to understand how entrepreneurship works, that’s a great way to do it. If you’re an existing entrepreneur and you’re looking to hire people, that’s a great place to hang out and participate to find some great people. So, those are the kinds of things. Any one of them is not enough. You have to have 20 or 30 of these things going on at any given time.
Jason: You were kind of alone, when you started this in Boulder. There weren’t that many people there.
Brad: In Boulder in ’95, when I moved there, I didn’t know anybody. The were probably a dozen entrepreneurs, who I can look back 15 years later and say, “They were playing leadership roles in the startup community”, as it existed in 1995. Today, there’s probably 100. It’s not that there’s 100 entrepreneurs in Boulder, there’s probably thousands of entrepreneurs in Boulder. Out of 100,000 people, there’s probably 5,000-10,000 people that are linked directly to the startup community in some way. There’s an incredible concentration of activity. It wasn’t that I showed up and magic happened. It was that there was a set of people that started, all of sudden, talking to each other and went on a journey together. To create something substantive over a long period of time.
Jason: How many companies have you invested in? How many founders?
Brad: As an angel investor, I’ve probably made 100+ investments.
Jason: Over 20 years?
Brad: Yeah. Really, in mostly two periods of time: ’94 to ’96 and 2006 to 2007. ’97 to 2005 I did most of my investing through Mobius. Then 2007 forward, I’ve done most of my investing through Foundry.
Jason: Foundry’s your venture capital.
Brad: Foundry Group. Which is a capital group that I’m one of four partners in. The angel investing activity is about 100. Venture investing, directly, I’ve probably made another 100 investments. Indirectly, probably 400 or 500 between the different funds. Foundry has about 60 companies that it’s invested in since 2007. Mobius might have invested in 300 or 400. Then, I’m an investor in a bunch of venture funds. I’ve been very active…
Jason: You’re an LP.
Brad: I’m an LP.
Jason: A limited partner in a bunch of other funds.
Brad: I like to invest… I’ve been very systematic about investing in first-time funds.
Jason: What’s the thesis there?
Brad: My thesis there is, if you look at history, many of the more successful and venture investing activity comes from smaller funds. As well as from first-time funds before they started adding on lots of capital.
Brad: Hungry. Less capital. Underwork.
Brad: More efficiency around it.
Brad: I’m also am a big believer in putting money into lots of things that help stoke the ecosystem.
Jason: Got it.
Brad: It’s a way for me with each of these individual investments… they’re not huge… I’m not a huge investor in any of these funds, but by being a small investor I can help those VCs who are starting off their new fund in whatever way I can be useful to them. It’s a way of having a stake in it. Then last of course in terms of the investments is Tech Stars which is now 200 something companies we’ve done through Tech Stars.
Jason: When we get back… You can think about this during my little commercial break. I want you to think about, then explain to the audience, what are the key things that when an entrepreneur comes in make you, the 2 or 3 things that make you absolutely fall in love with them so much that you cut that check. That very important first angel check. I’m sure you done it on the spot. Said, “I will invest on the spot.”
Jason: What was the shortest amount of time before you knew that you would invest in something?
Brad: 1 minute.
Jason: 1 minute. We’re going to hear that story when we get back from commercial break. We couldn’t have done this without our friends, over at eMinutes. Yes, they’re the law firm with 20 years of service to the biggest names of sports, music, and film. They’re embarking on a mission: They want to form 500 free corporations, for the first time, ever. Free for entrepreneurs. I know, a lot, of people who have taken advantage of this and saved thousands of dollars. They’re almost done. They’ve done 350 of them. They’ve got 150 left. If, you’re starting a new company and you want to be incorporated for free, including the filing fees. That’s a couple hundred bucks, in my experience. You can do it, for free, at eMinutes. Go to eMinutes.com. They have a new service. This is a great one, called, entity management. If, you don’t know what that is, when you create an entity like, LLC or a corporation: S corp., C corp., Delaware Corp.. You need to handle the minutes and the Secretary of State filings. All that stuff that gives you piece of mind, associated with maintaining a company. Because, if you don’t do it, then, you can get all kinds of penalties. It’s a whole bunch of problems. They do it for only $135, a year. It’s a fantastic price. I’m going to, actually, switch my companies over to there. They didn’t have that service, when I had other people managing ours. We were paying through the nose, for that. Thank you, so much to @eminutes, for sponsoring this very program. For 10,000 people who have enrolled in their new tool, The Entity Management tool. It’s, absolutely, fantastic. You’re going to want to take care of that, for your corporation. Entity management is very important. Go ahead and thank, @eminutes, on your Twitter, Facebook, Google+, Rise, LinkedIn, Six Degrees, or other social network. Bebo, if you’re rocking the Bebo. Listen. Thank you, @eMinutes. Let’s get back to this very exciting interview. Hundreds of companies you’ve been involved in investing in directly. Thousands indirectly let’s say. Another bunch of hundreds through all these funds that you’ve invested in. What is it that makes you want to instantly invest in something? What is it that you seek? You must have some filter now. Do you tell people what that filter is? It might be a little bit dangerous for you to say what it is. People start gaming you. But give me an idea.
Brad: I’m actually really explicit about what the filter is.
Brad: If you go to foundrygroup.com/themes, what you’ll see are a half a dozen or so themes of ours. The way we think about what we invest in at Foundry is we invest in the US. We also invest in Canada. We like to call Canada the northern United States. So, US and Canada only.
Jason: US and Canada only.
Brad: We’re early investors but we don’t have to be the first money in the company.
Jason: Got it.
Brad: So, if you’ve raised more than $3M you’re too late for us. Might be an exception very now and then but that’s typical.
Jason: Why is that? Why do you have to be the first in?
Brad: We don’t have to be the first in. That’s important. We just want to be early.
Jason: I’m sorry. Be early.
Brad: We are not mid-stage investors. I’ve done it. My partners have done it. It’s just not comfortable to us. Like, getting involved in a company at a later stage when there’s a bunch of other VCs involved is not our thing. We describe ourself, also by the way, as syndication agnostic. We’re happy to invest by ourself. We’re happy to invest with another VC. Sometimes with two. We don’t want a whole bunch of other people involved in the company. It’s not our thing.
Jason: This comes from some sort of pattern recognition. You’ve seen the movie before.
Brad: Just experience. What we like and what we don’t like. Some of it is our own… It’s not a judgement on the companies. It’s much more… I’ll cycle all the way back to this in a sec… is what we’re interested in investing in. Then assuming you’re in the US or Canada, you raised less than $3M, we then focus on are you in one of these themes, yes or no? Our themes are pretty abstract. They’re not like ‘video’ and ‘mobile’.
Brad: Adhesive. Computer/human interaction.
Jason: Distribution glue. Human/Computer interaction protocol. Interesting.
Brad: We defined them as these broad horizontal things. It’s not ‘consumer web’ it’s not ‘video’. We use these definitions as a negative filter. If you don’t fit in a theme we don’t engage.
Brad: If you do fit in a theme, we go incredibly deep on two things: People and product.
Jason: Got it.
Brad: OK? Hold that thought. If I cycle back to where I started as an angel investor… the things that turned me on were really simple. I got excited about people who were super-obsessed about a product. That’s it. If I liked you and wanted to work with you as a person and you wanted to work with me and you were completely obsessed with the product and I understood or cared about or had some sort of attachment to the product, I’d invest.
Brad: That was how I behave as an angel. I didn’t care about total available market. I didn’t care about…
Brad: … what your background was, where you went to school.
Jason: The deck?
Brad: No. Were you somebody I wanted to work with?
Jason: Got it.
Brad: Did you want to work with me? Bi-directional.
Brad: And, is the thing you’re working on, something that you are completely on fire and obsessed about it. What’s happened is as a venture firm we’ve moved into that same model. Because of these themes we know the market that we’re investing in really well. We know the competitive dynamics. We know the business model. We know how to…
Jason: What kind of entrepreneur makes that mistake? They come in and try to explain to a very savvy investor- venture capitalist, angel or whatever- why Pinterest sucks. Why Zynga, Facebook are broken and how they’re going to fix it. Everything is about how bad the most successful things in the world are. You’re saying that to someone who gets pitched 20 or 30 times a week. It’s madness.
Brad: That’s such a powerful insight. I don’t care about that at all. All I care about is what you’re going to do with the idea or the thing or the product or the place you’re going to take it. I don’t really care about how it lines up against other stuff. Yeah. I’m happy to have that conversation to understand how you’re different. Why you think there’s an advantage here. That’s part of the conversation, but that’s not a lead.
Jason: Right. People lead with that.
Brad: All the time.
Jason: Crazy. I had somebody come in and tell me how F’d up Pinterest was.
Brad: I was with somebody earlier today that showed me a product. They’ve done a lot of work on me. We’d had an interaction before. I’d actually bought their product. I liked the product.
Jason: That’s a good start.
Brad: I went and I met with them. It’s a really, really clever product. I walked in. The first thing they did was show me the product.
Jason: That’s it?
Brad: That’s it. Done. Let’s play with the product. Let’s play with their next product. Let me show you where this is going. Let’s talk about…
Jason: Let’s cut to the chase.
Brad: … what we’re dealing with here. Then you get a feeling for the person, how they think about the product, how they relate to the product. That’s what matters.
Jason: What are you looking for in terms of… product obsessed obviously here is the theme. Does the person need to be a developer? Does the person need to be a designer?
Jason: It doesn’t matter. Just that they understand it?
Brad: I’ve learned from all the different categories. From angel investing, from venture investing, and from Tech Stars. The best founding teams are 2-4 people, product-centric.
Brad: 50% of the people are focused on product. They could be designer, developer, coder, CTO, engineer, whatever. They’re entire focus in on product. 50% or less are focused on the business. So, optimal team… kind of 3 people.
Jason: Got it.
Brad: Two product people and one not-product person.
Brad: All three of them are passionate, engaged and focused on the product. But one person who’s job it is to move the business forward. One person who’s job it is to build the product. Another person who’s job it is to do something around the product which very often is an interface between the product and the customer.
Jason: The design, the marketing, the strategy.
Brad: It’s the synthesis of it.
Brad: This is the very nascent teams. They’re very small teams.
Jason: That’s what you get excited about? When you see that little one room?
Brad: Single founder, super hard. Too many people sitting around the table early on, hard. Three business guys one product guy…
Brad: Basically the 3 business guys tell the product guy what to do all day. The product guy doesn’t have any time to do anything. Everybody bitches about how nothing ever gets done.
Jason: Right. You’re changing gears.
Brad: There’s nothing nothing for the 3 business guys to do until the product guy does the product anyway.
Jason: Except distract him.
Brad: Right. That dynamic plays out as well.
Jason: That’s a red flag right there. Too many business people and not enough product people is a red flag.
Brad: Interestingly you can take… If you have a team of 4, three people are business people and one person’s a product person just repurpose one of the business people to make them product people. Some of the best PM, Product Managers, are not technical, they’re very organized. They’re good thinkers.
Jason: You gotta tell them, you could be this position on the basketball team, but we don’t need that. We don’t need 3 people to shoot the ball. Just grab some goddamned rebounds.
Brad: That’s right.
Jason: Maybe set a pick or something like that. Mark Pincus, Zynga one of your investments. Tremendous entrepreneur. Did you invest in his first company, Freeloader, too or just Fred Wilson did?
Brad: Fred invested. SoftBank invested. I was linked to SoftBank at the time but I wasn’t directly invested.
Jason: You’ve known him for two decades?
Brad: We were investors in SupportSoft. We didn’t invest in Tribe. I’m not entirely sure why. I don’t remember the… there was some narrative around it that I don’t remember.
Brad: I’ve known Mark since the mid 90s.
Jason: He has gotten crushed recently in the press. We’ve both been friends with him for a while. He’s going through hard times. He built that company into a juggernaut. What’s he like? What is he at his core?
Brad: Mark is an incredibly, incredibly intense person that is really, really focused on product. Really focused on winning. Really focused on continually getting better. He has had to go through his own personal journey. Having never been the leader of a very large company before. Each of the companies that he had been involved in were either modest by the time that he was no longer leading or got bought early like Freeloader.
Jason: Yeah. Things went public, got bought. He’s got a tremendous track record.
Brad: It’s very challenging the internal dynamic and the external dynamic. The internal dynamic is one that nobody sees and understands. The external dynamic is a classic media arc. The classic media arc is from obscurity to hero to G.O.A.T. to crash and burn to reemerge to “He’s a hero.” I gotta tear him down again. This curve goes on. The curve is actually independent and disconnected from the reality and functioning of a company. But when you become very public, both as an entrepreneur, as a person and as a company, no matter how good you are at turning it off and ignoring it, you still can’t turn it all off.
Jason: I have to say, I’ve known him like you for so long. It just breaks my heart to see him being spun into something he’s not. I know he’s not. He’s such a great guy. He’s cares about people so much. He works so hard. People have been so down on him. Immediately when the stock went down I bought shares. I’ll bet on Mark Pincus everyday of the week. The guy is the hardest working greatest guy ever. It’s just hard to see. It’s got to be hard as an investor for you to see that.
Brad: It’s hard and it’s not. I haven’t been on the Zynga board since prior to the IPO. Within Foundry we decided early on that we were not going to be public boards. That came from my experience before where I was spending this enormous amount of time on public boards.
Jason: A lot of work. You’re better at the early stuff.
Brad: This gets back to what I like. I don’t like it. I don’t enjoy that work. I like the early stage of the arc.
Jason: So you had to be true to yourself.
Brad: Yeah. One of the things that we’ve decided as a fund and as a firm is that we were going to focus on the things we wanted to do and where we wanted to play. There’s parts of it that are hard. It’s also the experience of life.
Brad: Right? I have a lot of personal loyalty, confidence, adoration to Mark. My belief is that with all the ups and downs that anybody goes through… him, me, you, whomever… If you’re really focusing on yourself in terms of becoming better and the people around you about doing something impactful over a period of time, that will improve your life experience. I think he’s on that trajectory.
Jason: He’s on there. Clearly he’s fighting the good fight. I think it’s all going to work out. As an entrepreneur how do you get through that? What are the devices, the techniques? Obviously as a VC, what percentage of your role is funding, giving advice, or being essentially a coach/therapist?
Brad: I think there’s two things entrepreneurs get tangled up in the context of perceiving how VCs spend their time. One is to recognize that there is not a single archetype. I like to think of VCs as Dungeons and Dragons characters or Magic the Gathering Cards.
Jason: You can be a dwarf, you can be an elf, you can be a ranger.
Brad: That’s right. Think about the VCs you’ve met. They have different skill sets. They have different personality types. Then they have different experience points. Different levels. Different tricks.
Jason: Ahh. I see.
Brad: It’s not that they’re a single archetype on a certain curve. It’s a bunch of different things. By the way, firms are often collections of different types of characters.
Jason: So it’s a great pack. What do they call it when you when yo have a group in Dungeons and Dragons?
Brad: I don’t know.
Jason: I can’t remember. Your cohort was something.
Brad: I played a lot of it. The word eludes me.
Jason: We got foresight or die. Go.
Brad: Thing number one is that there are multiple archetypes. Thing number two is many venture capitalists a) don’t work that hard…
Jason: That’s true.
Brad: … or spend a lot of their time on things that are relatively low impact. In my experience the venture capitalists that I’ve gotten to know over the years, that I think are extraordinary, are ones who work incredibly hard and focus on getting rid of as much noise as they can. Minimize the bureaucracy. Minimize the overhead. Spend the least amount of time on things that they don’t want to do. You say, “Brad is it useful for you to come on Jason’s show?” The answer is I want to. It’s interesting to me. Just answering your questions. You’ve asked me questions that I haven’t had to answer before. It causes me to think about things. Da, da, da, da, da.
Jason: Clarifying thinking.
Brad: You can decide what those different things are and useful. Why is writing a book useful? I will tell you, the book we wrote Venture Deals, that Jason and I wrote, had an incredible impact on many, many entrepreneurs and has been very valuable to us as a firm.
Jason: I’m sure it resulted in some great deal flow. People coming into a meeting saying, “I read your book.”
Brad: Fascinating conversations. I think powerful in terms of the overall arc. I think the VCs that decide they’re going to work hard, now you come down to this issue of the front end of the deal finding part of the process… not that significant. At Foundry Group we invest in ten new investments a year. There’s four of us. We do 10 maybe 12 new investments a year.
Jason: One every two or three months?
Brad: Let’s say every month.
Jason: No. I was saying for each partner.
Brad: Yeah. We see on an annual basis that there’s 100 companies that we want to invest in. There’s 1000 companies that we spend time with that fit in our themes.
Jason: Holy cow.
Brad: It’s not that we have to invest in a high percentage of the things that we interact with. We have to find 10 a year that we really, really want to work with.
Jason: Is that the important process, the finding?
Brad: For us, no. The finding is table stakes. If you’re not good at finding you’re not going to make any progress. But, you find many of the things that we invest in are very nascent. How can you tell whether a company is going to accelerate like SendGrid did and become this very impactful, great company?
Jason: Great company. Out of Boulder. Out of Tech Stars.
Brad: Out of Boulder. Or like a company like AdMeld. When we made the investment AdMeld it was two guys. It was Ben and Brian. Literally two guys with an idea with an AdOps background. How would you know that that would end up being a $400M sale to Google? You don’t really know that. What you know is that you have these two guys…
Jason: Your going full circle now.
Brad: … are really focused on their business. They are fully obsessed about their product. They have a lot of expertise in an area. Then you spend a lot of time with them. Helping build the business. The time that you spend with them varies. The kind of interaction that my partner Seth had with Ben and Brian at AdMeld as that business started to grow. Then when Michael Barret joined, how that expanded, is different that the kind of time my partner Ryan spends with Jim Franklin and the team at SendGrid.
Jason: Cause ones a manger and ones a ranger.
Brad: That’s right. And, the companies need different things.
Brad: My partner Jason just invested in a company called BetaBrand. The time we would spend with Chris who’s the CEO and other people at BetaBrand. It’s totally different again. Totally different with John at SimPose which is another company that’s accelerating very quickly. I think the issue is it’s not that there’s a uniform set of activities that an individual VC does. It’s not that each company needs the same sort of cookie cutter type thing. I think what’s really valuable is to focus hard on spending the most amount of time on the things that have impact on the company.
Jason: You said a lot of these VCs don’t work that hard. Then some decide to work hard. Outside of your own partners, which I know you have to list first, putting them aside, who were you thinking about when you said that the VCs work hard that you really respect?
Brad: Fred Wilson works incredibly hard.
Jason: That’s on the top of the list.
Brad: Fred and I have known each other for a very long time.
Jason: What makes him so special? This is a guy who invested in some of the biggest companies the first time around. GeoCities, etc… Got his ass kicked a little bit on that whole mobile fund. Then came back in the new fund, in Union Square after Flatiron and has absolutely crushed it. What is it?
Brad: Fred’s special a couple of ways. One is he’s incredibly focused. He and his partner Brad were very clear about what theme they were focusing on, or what thesis they were focusing on when they started Union Square Ventures. They made a series of investments that adhered to this thesis. Which was the notation of the networked world and how that was going to play out. They were ahead of the curve. They studied what they thought was going to happen. Rather than reacted to what was happening in the moment. I think that’s another mistake all VCs make. All of a sudden enterprise software, computing is hot again. Everybody’s all “We’re enterprise software.” That was three years ago when you should have been all focused on that.
Jason: ZenDesk and Yammer are already there.
Brad: What’s the next wave? I think number one he’s very deep and very thoughtful. Two, he’s very, very focused on what he wants to accomplish. Union Square could have raised much, much, much more money than they raised. Instead he’s kept his funds relatively small.
Jason: He keeps them in the $200M or $300M range.
Jason: He could raise $2B. He could be Andreessen Horowitz.
Brad: That’s deliberate. Fred’s view is the goal is not to invest in this huge number of companies and create this huge infrastructure and to have lots and lots of people and continue to invest more and more capital. It’s to focus on investing early in companies that are going to be transformational super important companies.
Jason: They don’t come along that often.
Brad: They don’t. You don’t get them right all the time. Often times when you get them right you fuck them up. When I say you I don’t necessarily mean the investor. It could be the investor, the entrepreneur, the other people around. It’s the kind of thing by focusing and being true to yourself in terms of what you want to accomplish. I think this is something that really starts to play out all the time. No criticism for what anybody wants to accomplish if they have a strategy. Fred has a strategy. His partner Brad has a strategy. Lots and lots of people simply don’t have a strategy.
Jason: They don’t have intent. They’re doing things in a reactionary way.
Brad: Here’s what I am. I’m a venture capitalist. My job is to raise money for my LPs, invest in companies, and do transformational investing. It’s a very simple job a VC has. People give you a dollar. Your job is to give them back three. They give you another dollar. Your job is to give them back three, or four, or five.
Jason: Maybe on the outlier give them back $100.
Brad: Well not on a case by case basis. The best venture fund in the history of man might be 20 times the money.
Brad: Or 30 times the money.
Jason: You’re talking about LPs putting in $100M or $20M. Those are big numbers.
Brad: That’s right. But, somebody gives you $20M, if you give them back on a net basis $60M, they’re incredibly happy. If you give them back a net basis $14M, that wasn’t very good.
Jason: They love making those bets. They know they’re going to get back some percentage of it. Is it ever a wipeout for those other VCs?
Brad: There has been a very few number of venture funds that were zeros.
Jason: Wow. How do you wind up with zero if you’ve invested in 15 things and you came out…?
Brad: Well think of all the funds that invested in the bubble. A lot of funds that invested a lot of money in 1999 and 2000 that might return 10¢, 20¢, 30¢ on the dollar. Interestingly there’s a few that return their capital. That’s another cycle of the problem is that if you invest the same amount of money in every fund over the life of a a venture firm. As an LP you’re in a much better place than if you invest different amounts in each fund. This is back to the strategy of time diversity effectively. The challenge is the opportunity for somebody like Union Square for Foundry Group, we don’t increase the size of our funds. Each fund is basically the same. The LP invests the same. The time diversity happens by definition. But if our first fund was $225M and then three years later we raised a $500M fund and then three years later we raised a $1B fund, all of a sudden we’ve got different LPs in the mix and different amounts of money. You get into this thing where the timing starts to work against you and actually matters. Go back to what we said at the beginning. This is a long term game. Some of these companies take 10 and 15 years. Fred and I are both investors in a company called ReturnPath.
Jason: Right. That was the 90s right?
Brad: It’s doing extremely well. It was started in 1999.
Brad: 2012 it’s a great company. But, we’re still investors.
Jason: 13 years later?
Brad: As investors we will make a lot of money in it.
Jason: What do your LPs think from 13 years ago, when you’re like, by the way you made some money. Do they forget?
Brad: It depends on how much. It depends on the relationship with the LPs.
Jason: Got it.
Brad: In both of our cases that particular fund, or the funds that invested early on, one was Flat Iron one was Mobius. In both of those cases those LPs are just happy when we send them back more money.
Jason: Cause they’re already in the black?
Brad: It’s nice extra money. In the case of something that is a ten year investment. But from a LP base, that might be a 20 or 30 LP base, they’re probably going to be fine with that.
Jason: Interesting. What do you think of Andreessen Horowitz raising the stakes tremendously in the space? Billions of dollars instantly, 10-person marketing team whatever it is. Some people feel they’re going too big. It’s a little bit… I don’t want to say the word spastic.. but it’s a little bit much. I’ve heard VCs say quietly, this is a little over the top, it’s too much. Are they threatened by Andreessen Horowitz or is Andreessen Horowitz just blowing the door off this?
Brad: Two separate questions. First question is how is it doing? The answer is check back in a decade.
Brad: Really. Check back in a decade.
Jason: Let’s see. TBD.
Brad: Frankly check back in 15 years. Does that dynamic threaten VCs? Of course it threatens a certain set of VCs. I think the set of VCs that it threatens many of them behave in a way that you see that dynamic, because, they respond. So all of a sudden VCs have a marketing partner. All of a sudden VCs start doing different things to try to position themselves. There’s a whole category of I have to be better, different, whatever. Then there’s a whole category of I know what I do. I’m focused on what I’m doing. I’m just going to do what I do.
Jason: That intent again.
Brad: That’s right.
Brad: Personal opinion, I don’t know. I have no idea.
Jason: It’s great for you that it’s people out there, Brad and Marc Andreessen are obviously brilliant guys. You can send one of your other companies…SendGrid could go to them for their D round.
Brad: I think that it is awesome that people are trying different things. I think that it’s awesome that there’s lots and lots of controversy around people trying different things.
Jason: You like that controversy?
Brad: I love it.
Jason: That means there’s something good.
Brad: It’s the essence of what’s going on. Innovation… There is no static in this. It doesn’t matter where on the chain you’re playing. Whether it’s as an angel investor. Whether it’s as a venture investor that’s targeted on certain things. Whether its a venture investor who’s trying to disrupt at the top end. Here’s an example of the phenomena where there are things that are the same that are different. You know the cliché the more things change the more things stay the same.
Jason: Sometimes that’s actually true.
Brad: In 2007, 2008, and 2009 all of a sudden you started hearing about high-velocity angel investors. Then it became being called super angels before they institutionalized. So then super angel became this thing that really meant micro VC. There was a period of time where angel investors were, ‘We need to make a bunch of angel investments.” The idea is…
Brad: When you started making angel investments you picked up… you thought about it. You talked to people about it. You realized pretty quickly, placing more small bets was better…
Jason: I learned that from you.
Brad: … than placing a few large bets. Well when I look back at the angel investing I was doing in the mid 90s I made 40 investments. Was that an innovation then? Not really. There were other people who had made many, many investments of relatively small amounts in a concentrated way. I think the issue is that things go through these phases where people are paying attention to things all of a sudden… this is one of the good things and the bad things about the media dynamic we’re dealing with in 2012. It’s very easy to see what’s happening. There’s a set of people who then try to turn it into a story. Then you play the hero G.O.A.T. thing again.
Jason: Right. It’s like, Oh my God, there’s angel-gate. There’s too many angel investors. There’s a bubble. If there was a bubble right now and too many company’s have been funded and angels lose 9 out of 10 investments, that’s OK. That’s how it’s supposed to work.
Brad: Two things. An angel investor who’s worried about losing, getting zeros on investments shouldn’t be an angel investor.
Jason: Yeah. You should be a bond investor.
Brad: You want to make 100 angel investments over your career. You want to have one of them that returns 100X.
Jason: You’re done.
Brad: You’re break even. Then everything else is playing with house money. Great whatever those numbers are.
Jason: That’s me. That happened to me.
Brad: That’s what you’re trying to do. Then have again intent, a strategy whatever. The other dynamic which is really important, if you’re the entrepreneur, who gives a shit?
Brad: If you’re the entrepreneur it doesn’t matter whether there’s too many companies or too few. It doesn’t matter if there’s too much money or too little.
Jason: What does matter?
Brad: What matters is that you are working with people you want to work with on a product that you’re obsessed with on doing something everyday that you think matters.
Jason: Back to product. Back to team. You recently were in the Wall Street Journal as part of this new accelerator thing. I read your piece. Very thoughtful about skill vs. fit. Culture vs. competence. I think is the way that you said it. Explain the thesis.
Brad: I believe very, very strongly especially early in the life of a company that you should always hire for cultural fit over competence. If you draw a 2X2 matrix of high-low, low-high. There’s a box in the corner that’s high culture and high competence. You will always hire that person.
Jason: Of course.
Brad: No-brainer. Low competence, low culture. You never hire that person. How about the person that’s high competence, low cultural fit. That’s a hard one.
Jason: That’s the jerk.
Brad: You should never ever hire that person.
Jason: Don’t hire the highly competent jerk who rubs people the wrong way.
Brad: For a couple of reasons. Especially early in your company.
Jason: Early on.
Brad: One he poisons everybody else. Number two, if he’s in a senior roll he’ll hire people that move the culture of the company in a direction that’s rapturous.
Jason: Now you’re getting ripped in half. You’ve seen this happen?
Brad: All the time. Over and over again.
Jason: How do you tell the entrepreneur that person’s not a cultural fit even though they’re doing their job? It seems like un-american in a way. It seems like everything America stands for. If you’re good at what you do you get the job.
Brad: It’s actually super hard. Because the natural tendency is exactly what you just said. Interestingly in a startup it’s not just competency that matters. Because the startup isn’t, I have this hierarchy and everybody does their job. As long as their doing their job the machine moves forward and that’s all good. That’s not what a startup is. A startup is this messy thing. Where there is all these weird overlaps. You have to pick up the slack for other people. There’s all kinds of weird ambiguity.
Jason: It’s like being lost in the forest or something. It’s different than just working in a factory.
Brad: There’s a difference between culture and style.
Jason: OK. Let’s hear that.
Brad: Culture is your shared values. As an organization. What’s important to you.
Jason: OK. We’re a design driven company. We work hard. We trying to have life balance.
Brad: We’re transparent.
Jason: OK. We’re transparent.
Brad: We always fulfill our commitments. People are always on time to meetings. Like there can be little trivial things there can be broad hifalutin things.
Jason: Got it. Super positive, helpful, whatever.
Brad: Then you have people. Some people are extravert. Some people are introvert. Some people like to sit in front of their screen all day. Some people like to talk. Some people like to have their headphones on and be left alone. Other people like to be in a noisy environment. That’s OK. That’s not what I mean by culture. You can have people who have a really positive demeanor and other people who have a really grumpy demeanor. That’s OK. That’s not culture.
Jason: Got it. That’s style.
Brad: That’s style. So separate between those two. Then this is the interesting one that’s really powerful. If you have people that are high on the culture curve not low on competence.
Jason: Not incompetent.
Brad: But mid-competent. Those people are worth taking a risk on…
Jason: I so agree with you.
Brad: … if two things. One, you believe that they will stretch into competence. Or you can redefine the role so that they’re into that high competence box.
Jason: The best people I ever had… this is why I love reading your stuff… you exactly describe something I knew but was never able to verbalize… if you can imagine… is the people that I look back on, the people who had the biggest impact on my companies did not have the skills I needed at that time, but they liked to create and they had my sensibility. Which I think, in a way, culture at a company is the founder or founders.
Jason: Mine was always no bullshit, work hard, transparent and face the truth, we’re warriors together. Maybe a little harsh. Maybe a little hardcore.
Brad: You’re defining… those words are what I mean when I say culture.
Brad: You’re exactly right. The culture comes from the founders. One of the brilliant things about being an entrepreneur is you get to define your own culture. You get to define what the things is.
Jason: Define your world.
Brad: That’s right.
Jason: Some don’t do it. They let the people do it around them.
Brad: Some are afraid to do it. Some get worn down because they hired too many people that don’t fit what their value is. Now all of a sudden you’re in an unwanted environment.
Jason: Got it. Unwinding that sucks.
Brad: That’s right.
Jason: I’ve had to unwind that.
Brad: This comes back to other side of it. When you realize you have people who don’t fit.
Jason: Get out. It’s just so hard.
Brad: Just deal with it.
Jason: You have to grow a pair and just get rid of them. You know what, it’s such a hard conversation to have with people and say we gotta get rid of this person because they don’t fit culture. It just flies in the face of what’s…
Brad: Of what’s natural instincts. The person is doing their job. I can fix them. Think about a relationship. Forget about business for a second.
Jason: Yeah. Let’s talk about love.
Brad: You’re in a relationship. You’re in a relationship. Your value systems are different. I married my high school sweetheart. It was good for like three days. You know when you’re walking alone on HoneyMoon Beach on your honeymoon.
Brad: Wait a second. Time out.
Jason: Not Alone Beach.
Brad: Something’s not good here.
Jason: Not Solo Beach. That was your first wife.
Brad: My first wife. Not Amy. Amy and I have been together now 20 years.
Jason: Apologies to the first wife.
Brad: That was a short, mistaken sojourn. That was a failed first relationship. We were both young. We didn’t have kids.
Jason: Yeah. It happens.
Brad: It was more like a college break-up than anything else. With a little bit of trama in it. It was intreating, when I look back on it my idea of a good time is to be at home at 10 o’clock and be laying in bed with a book.
Jason: Maybe running a marathon the next day.
Brad: No. I go to bed at ten. I get up at 5 in the morning. I’m not about 1 o’clock in the morning smoking at the bar.
Brad: That’s not me. I’ve never been like that. She enjoyed that. She wanted to be out. The idea that she was hanging around on friday night at 10 o’clock was antithetical to her world view. A simple example but take that into the mix. What happens over time? Do you think, “I’ll change that person?”
Jason: Good luck.
Brad: “I’ll change her so she likes to stay home at ten.” She’ll change me so that all of a sudden I magically like to go out till one in the morning.
Jason: This usually results in…
Brad: Not goodness.
Jason: … resentment.
Brad: Right. Anger, frustration.
Jason: How many women marry a guy… it’s stereotypical, but I saw growing up Irish. Women marry these drunks then say, “I’ll get him off the sauce.” I’ve heard that so many times from the irish girls I grew up with. “How did that work out for you?”
Brad: Right. You got a 5% chance or a 2% chance or whatever. It’s the same thing in the relationship. You’re looking for somebody who will go on a journey with you. In a business you’re looking for people who will go on a journey with you.
Jason: With an investor too. Like you’re saying.
Brad: With an investor you want somebody who’s going to go on a journey with you. Your the CEO, if I as the investor… this is a deeply held belief that we have at Foundry Group and that I have myself… if the answer is it’s a great company but I have to fire you, because I need to bring in a CEO to make the company successful, I shouldn’t have invested in the first place.
Jason: If I don’t want to spend the weekend with you, if I don’t want to go on this journey with you forget it.
Brad: That’s right. I want it both directions. I know you’re going to fuck up. I know you’re going to make mistakes. I know you’re going to have moments of crisis. I know you’re going to have troubles.
Jason: That’s sort of my angel investing thesis now too. Do I want have dinner with you?
Brad: I’m your guy. If it doesn’t work… every now and then it doesn’t work… you gotta deal with it. In terms of you in that role. Every now and then. Our view and in my view specifically, when you get to that point you’re probably already screwed up. Now interestingly, remember Dungeons and Dragons characters.
Brad: VCs think differently. Now within my partnership the four of us all think the same way. As we say deeply held belief. There are plenty of successful VCs who don’t think that way. Who view it as I need to focus on the business and then I can replace the person if I need to.
Jason: Some people have actually gotten a bad rap and changed their position on it over the years. It does happen. You’ve seen a lot of bad behavior over the decades.
Brad: Yes. I’m sure I’ve had some bad behavior.
Jason: Maybe, maybe. In fact I have a list of CEOs and let me just start at the top here. No. “In 1997 you were late for a board meeting.” Without naming names, what’s the craziest bad behavior of a VC, in relation to working on a board… then we’ll go to the entrepreneur after that… that you saw in general terms. Don’t give me the second one that’s the safe one. Give me the one that’s the unsafe one.
Brad: The worst behavior… I’ll describe it as a pattern…
Brad: … is essentially the VC that is incredibly disruptive…
Brad: … because of their interaction with the company.
Jason: You’ve been in this circumstance?
Brad: Over and over again.
Jason: What’s the worst one?
Brad: Think about the only time that the VC engages is at the board meeting. The only thing the VC does is criticize. The only thing that the person does is sort of bloviate about what the right thing to do is. Then they disappear again. Only to…
Brad: … reemerge six weeks later, eight weeks later and do the same thing again.
Jason: And pound the table again. What a douche move.
Brad: That is for me the worst to deal with. Because almost everything else you can deal with.
Jason: But, as a fellow VC when you were in that meeting with that douche, who shall remain nameless, he or she, what do you do as the other VC in the room? Do you take the person aside and say “douche?”
Brad: When I was younger I couldn’t do it or didn’t feel comfortable doing it.
Jason: Didn’t have the cred?
Brad: Or just didn’t feel comfortable with it and didn’t really understand what’s going on.
Jason: Got it.
Brad: Now it’s very obvious. As an investor I’ll simply confront the person with it.
Jason: In the meeting or post?
Brad: In the meeting. I think that one of the things…
Jason: Do you say in the meeting, listen guys…
Brad: Cut the bullshit.
Jason: … cut the bullshit. You haven’t been here for three months. You haven’t visited the company. If you want to help and you think things are so bad, why aren’t you here on a tuesday helping them out?
Brad: Not helpful. Correct. That’s right. The other thing that I would say…
Jason: Wow. It’s got to be fascinating at that meeting.
Brad: Yeah. Sometimes they’re heated but they’re heated good. Because one of two things happens. You get to a better place or you realize you’ve got a structural problem and you’ve got to deal with that structural problem.
Jason: I had the same thing happen. One of the first boards I was on this one VC would show up late. He was a really nice guy but he would show up late then talk about all his experiences from like the 80s that were not relevant. He would send the team on these wild goose chases like “My wife thinks this…” What does your wife have to do with this company and what they’re trying to accomplish? I love you. You’re an interesting guy. Keep going.
Brad: I believe that most… the first book in this series is Startup Communities. I have this series now that I’m doing. It’s called Startup Revolution. The second book is called Startup Life: Surviving and Thriving A Relationship With An Entrepreneur.
Brad: It’ll be out in January. My wife Amy and I wrote it.
Jason: Oh, wow.
Brad: The third book is called Startup Boards. The subtitle is something like: Making Your Board of Directors Relevant Again. Most venture-backed boards are an artifact of the last 30 years of behavior. If you think about how a board works it gives VCs and board members an excuse not to engage with the company.
Jason: Right. I’ll just be there at the board meeting.
Brad: I’ll be there at the board meeting. I’ll wait till the board meeting. I’ll get the invitation package before or maybe at the meeting. I’ll read through it. I’ll assign a bunch of tasks.
Jason: It’s a farce.
Brad: The company spends a day, a month in advance preparing all this stuff.
Jason: A day? Two weeks.
Brad: Two days. Weeks. Then there’s a day or two of follow-up bullshit that you don’t have to do.
Jason: Basically every two months a week’s lost.
Brad: That’s right. My view is that there’s an approach which is essentially continuous engagement. It’s the same kind of model that’s applied to software. It used to be that you released software every 6 months or every 12 months. Now you release every week or every other week. So you have this agile process now in the context of building software.
Jason: Agile boards?
Brad: Continuous development until the ultimate.
Jason: Agile boards.
Brad: Think about an agile board. Think about this idea of continuous development in the context of the board. Continuous engagement. How many entrepreneurs out there have their VCs on the AllAtCompany.com list?
Jason: I do. I have Matt Kaufman and Roelof. Both are on it.
Brad: It’s helpful because they understand the tempo of what’s going on in the company.
Jason: Yeah. They just read it. I told Roelof, “Do you want to get these?” Sometimes it turns into a 20 page spread.
Brad: There’s cupcakes in the kitchen.
Jason: It’s all nonsense.
Brad: You hit archive. If you’re in Gmail you hit mute. You don’t have to worry about it.
Jason: It’s all in a folder. I have it in a folder.
Brad: It’s this notion of continuous involvement. When you email me something I have current information.
Brad: When you need to talk about something or you have a crisis or something changes…
Jason: I ain’t got to catch you up so much.
Brad: That’s right. The other problem with board meetings and the other problem with investors in the context of this is that it’s all looking in the rearview mirror. Think about the board meetings where 80% of the meeting is reporting.
Jason: It’s all BS reporting.
Brad: You trot up, the power point slides, this and this and that.
Jason: Everything’s going to the right.
Brad: The financials. I can read. I can read a financial statement.
Jason: Flip the classroom.
Brad: In fact take the financial statements out of the board package. I want the financial statements once a month. You report once a month. Just send it to me on the 15th of the month.
Jason: Right. We’re done.
Brad: Then I’ll look at it. We don’t have to talk about it in the board meeting unless there’s something specific going on that we need to talk about.
Brad: Then you spend your meetings… the best board meetings I’ve been on are what I call one slide board meetings. OK? No power point. One slide. It doesn’t even have to be a slide. It could be a white board. Bullet points of topics we’re going to talk about. Now you could have given me a board package to read. It could have been 100 pages it could be 10 pages. I don’t care. You give me whatever I need. If I have continuous involvement with you. You now have the board’s undivided attention in a room for 3 or 4 hours. Go deep on the stuff that you really got to deal with.
Jason: Interesting. Alright. We’ve talked about the bad behavior of VCs. Let’s talk bad…
Brad: The other thing, people do lie. It’s useful to know that. It’s very easy to forget that.
Jason: People lie and cheat. It’s hard for people like us to think that. I’m assuming… I’ve known you for a long time. I know you’re not the type of guy who would ever lie or cheat cause you don’t have to.
Brad: I’m not sure I really understand what it means.
Jason: Why… this is something I don’t understand. I watch people go to jail. Bernie Madoff or who’s the dumbass… the indian guy that just went to jail for inside trading?
Brad: The McKenzie guy.
Jason: No, no, no. There was a guy he was running some Galleon fund. He got expert information form other guys. It’s like you’re worth billions of dollars, you’re worth hundreds of millions of dollars and you’re trying to make an extra $10M on some trade. Or a $1M on some trade with some inside information on Dell shares. Are you deranged? You risk it all?
Brad: What it is? It’s ego.
Jason: Is it?
Brad: Absolutely. Here’s a good one. Have you read Tyler Hamilton’s book about Lance Armstrong and the doping thing?
Jason: I have not.
Brad: Unbelievable book. This book just came out whatever 3 months ago.
Jason: Yeah. I’ve heard of the series.
Brad: Unbelievable book. I’m not a cyclist. I’m not a big cycling fan. I get sucked into it a little bit because of Boulder and my friends are into it. For ten year, 15 years whatever it is, there’s been this huge mythology around cycling. This very clear Lance Armstrong saying “I don’t do this. I don’t do this. I don’t do this.” It’s all utter bullshit. Not only is it utter bullshit it’s such a good object lesson of when somebody could have stood up and said “Look. Everybody’s doing this. Including me. Let’s stop right now.”
Jason: We’ll all start and that will end doping.
Brad: That would have been fine. They’re just perpetuating this lie. It’s all ego. So that plays out over and over again. You hear it over and over again in the context of those who are trying to create whatever their view of reality is that doesn’t necessarily link to the actual reality.
Jason: They’re trying to tell some story that’s just not reality then they start they can’t stop.
Brad: You have this over and over again in the context of VCs and VCs interaction with entrepreneurs and interactions with companies. It’s one of these things that’s fascinating because a lot of it is about scorekeeping. How well did we do on this? How well did we do on that? That’s not where it’s nefarious. Who cares? That’s just gymnastics. Where it’s really difficult is when somebody says something and the entrepreneur hears it as either a command or substantive fact that they incorporate into their world view.
Brad: Then you hear that repeated over and over again. All of a sudden that becomes influence on behavior within a company. I’ve had situations where one of the investors essentially used their own morphed weirded up world view and weren’t clear with why. A lot of times it’s different things. Motivation. I need this company to exit so I can start my next fund. Now’s really the time for us to sell the company.
Jason: A VC would pressure or lie to or manipulate a CEO to sell their company in order to close the next fund?
Jason: That’s absolutely true isn’t it?
Brad: Absolutely. It’s not that they manipulate the entrepreneur to do it, it’s that they would put pressure on the entrepreneur. If the VC simply said, “Look. It would be really helpful to me if we could get an exit for me in the near term. Because this is going to have a meaningful impact on my fundraising.” That’s so much of a different conversation than, “I’m really worried about your future performance and the competitive dynamics.”
Jason: We gotta get out now. It’s a high risk now.
Brad: We gotta sell this company. Those two things are those lies? I don’t know but the way you deliver the information is so different. The entrepreneur has so much pressure already.
Jason: How is the board ever going to put more pressure on this manic thing of founding companies?
Brad: They do it all the time. In this context of what you need for yourself. First you’re simply saying this is what I need. This is what my pressures are.
Jason: I’ve only had one VC that was Roelof Botha. It’s like marrying Marilyn Monroe or whoever the perfect woman is. He’s the perfect VC. Everything he does has been so delightful. “You want to sell the company, we’ll sell the company. You want to raise more money, we’ll raise more money. You want us to put more money in the B round? We’ll put more money in. You want us to put in less, we’ll put in less.” Some folks are just class acts like that.
Brad: I think so. Again it comes down to Dungeons and Dragons characters. Right? You have some of that.
Jason: Pick wisely.
Brad: Really make sure you know what you’re getting. Recognize that what you’re getting, just like all human beings, what you’re getting today, there’s a lot of it that is going to stay consistent over a long period of time. But, there’s some of it that changes. Right? We’re all mortal. We all die. Great quote a friend of mine told my wife the other day, “We all die in no particular order.” OK. So what matters between now and the moment that the lights go out? Depending on what happens in people’s lives, different things matter. So, recognize that as an entrepreneur cause you’re going to get those kinds of variations over time. Understanding that… by the way you as the entrepreneur are going to have those changes. You had a kid your priorities change. You get married your priorities change. You have a kid your priorities change. Your business has a down turn. You have different pressures. You haven’t dealt with a particular type of pressure before. The way you relate to it changes some. All of a sudden things work differently in different place that’s unexpected. You have trouble with a partner that you’ve been partners with for a decade. All of these things can happen.
Jason: Should all these founders have coaches do you think? Should that be mandatory when you get venture capital that you gotta have Jerry Colonna or something.
Brad: I think if you can get Jerry Colonna as a coach it’s a blessing.
Jason: Jerry Colonna is a very famous venture capitalist that you… well he was Fred’s partner.
Brad: He was Fred’s partner.
Jason: He’s had a tremendous impact. There’s not enough coaching for CEOs. I find the CEOs are all… because I done the angel investing. I guess they see me less as an angel and more as an entrepreneur… it is lonely and brutal.
Brad: This something we worked really, really hard at at Tech Stars. It fits into a couple of different categories. The first is the peer relationship between CEOs. This is true even in my first company. I got to the point in my first company we were about a dozen people. I never fired anybody.
Jason: How bad is that the first time you fire somebody?
Brad: Really hurt.
Jason: Was your leg shaking under the desk? Sweating?
Brad: Way worse than that.
Brad: Here’s the short arc of the story. I Never fired anybody cause I never worked for anybody.
Jason: It’s not possible.
Brad: We’ve got 12 people. We’ve got 1 of the 12 people who doesn’t fit. She doesn’t fit culturally and she’s incompetent. I go away to a thing called Birthing of Giants. What it is it’s a weekend retreat that INC. Magazine put on. It was 60 entrepreneurs under the age of 40. That had started companies that had a million or more in revenue.
Jason: You were the youngest.
Brad: I was one of the youngest and one of the smallest companies. Ted Leonsis was there. He had Redgate Communications before AOL bought it. Tim DeMello who went off to do a bunch of other things. The guy Mark Cohen who did DayMark. Remember the DayMark catalogs? He was there for that event. I made many, many friends that I’ve had life-long friends through this. It was a combination of young entrepreneurs, organization, and INC Magazine and a guy Verne Harnish who’s been extraordinary in a number of different places with entrepreneurship. I spent four days with my peers. It was the first time I found my peers. I’d never really known any other entrepreneurs. Boston in 1990. I’ve got a partner.
Jason: Nobody there.
Brad: I’m a jewish guy so I get stuck in this jewish software box. It’s like I can’t find… All of a sudden I’ve got 59 peers. My obsessive thing is I gotta fire this person. I came back the next week. I agonized over it another week. I knew I had to fire this person. I was going to fire her monday morning. I had practiced my speech. I spent all weekend I couldn’t sleep. I got up at 4 o’clock in the morning. Which is an hour earlier than I usually get up.
Jason: You’re staring at the ceiling.
Brad: I get to the office at like 7. She always gets there at 9:15 or 9:30.
Jason: Yeah, yeah.
Brad: 10 o’clock comes, 11 o’clock comes. This is before email. This is 1990.
Jason: You’re like what’s going on?
Brad: I get a message from our receptionist that this woman is not coming in today because she got hung up on something or another. So after all of the angst I have to wait another day to fire her. The next day she comes in about 9:15 or 9:30 and I…
Jason: You’re ready to go.
Brad: … I’m ready to go. I give her my talk. My 15 second, 30 second prepared speech. She looks at me and says, “I think it’s the employers fault when the employee doesn’t work out.” She picked up her stuff and she left. She’d clearly been fired before. Right? I’m like OK that’s done. I convene the whole company. The remaining 11 of us. We go into the conference room. I give this speech that I also prepared. Family da da. I look around the room and everybody’s quiet. Then this woman Bonnie who’s one of our softer engineers, who was just brilliant, she looks up and says, “Can I have her chair?”
Jason: You realize to you it’s the most important thing in the world. To everybody else they really want to have that Arian chair.
Brad: Piece number one was finding the right peer group. Piece number two which we worked really hard on at Tech Stars is mentorship. The idea of having experienced entrepreneurs working with first-time entrepreneurs or other entrepreneurs who are going through this new company. Where the experience entrepreneurs are not acting as advisors. They’re not saying give me this and I’ll help you with this. They’re also not telling you what to do. They’re mentors. They’re coaches. They’re helping you understand what their experiences are. They’re giving you data. They’re a resource for you to talk to. That phenomena is so powerful. Even in the absence of the relatively few amazing coaches like Jerry Colonna, of which there are a few, there’s a large number…
Jason: 98% douche.
Brad: There’s a few like Jerry who are just amazing. Those mentors who are experienced entrepreneurs play an incredible role not just for first-time entrepreneurs but other experienced entrepreneurs. Because you’re right, it’s incredibly lonely. In that moment of loneliness, yeah you can talk to your significant other, your partner…
Jason: You don’t want to burden them.
Brad: Right. You don’t. What you want is you want somebody you can go have a beer with. You want somebody you can go for a walk with. You want somebody…
Jason: A little walk and talk as we say.
Brad: … you can sit down and have a meal with.
Jason: In most cases if you tell your VCs it’s a sign of weakness. You tell your employees you rattle them and you distract them. You’re just in this weird space. You don’t want to burden the spouse. You can’t burden the VCs. Or you don’t want to appear weak. You can’t burden and distract the employees.
Brad: The peer and the mentor are so powerful. For every entrepreneur I’ve ever interacted with. There’s lots of ways to do it formally and informally. You have a board of directors. Make sure, if your a CEO one of the people on your board is a CEO.
Jason: Yeah. Absolutely.
Brad: Who is a peer of yours who can be a resource for you that sees what’s going on.
Jason: And an advocate on the board too. Not every VC is going to all out another VC who’s doing that douche move. Like you described before.
Brad: I think that dynamic around coaching is finding a special person who plays that role if you’re a CEO is magical. But, in the absence of that don’t forget to have the mentors and the peers who you have those relationships with.
Jason: On that Brad Feld. Everybody go buy the book right now. Startup Communities: Building An Entrepreneurial Ecosystem In Your City. You’re on Feld.com?
Jason: It’s so easy. You’re bfeld on Twitter?
Brad: @bfeld on Twitter.
Jason: @bfeld on Twitter. Everybody follow @bfeld. Listen. Boulder’s a great place to start your company. If you are thinking about it Tech Stars is amazing. Everybody knows Brad @fled.com he’s extremely accessible. His blog @Feld.com. I read it it’s extraordinary. Thank you to my friends at Igloo for sponsoring independent media like ThisWeekIn Startups. We couldn’t do it without you guys. What a great intranet company. You’re not going to hate. It’s really great. eMinutes thank you for supporting entrepreneurs. It’s so good to have you sponsor the program. Who I can tell you use their services or products. Or just thank them on Twitter. Because we only accept people when we use the product ourself and we really get behind the endorsement. We’re sold out for 4 or 5 months in advance. We only take products we like like SendGrid, MailChimp, whoever. And GoTo Meeting. Anything to plug? Do you have anything to plug? Nothing to plug? When is your next
Brad: I think ThisWeekIn Startups is awesome.
Jason: Oh. Thank you.
Brad: That’s self-referential.
Jason: I think you just exploded the internet.
Brad: Oh dammit.
Jason: Retweet yourself on the show.
Brad: That’s called master tweeting.
Jason: Yeah it is. I did the ultimate douche move today. I saw one of my own tweets on my phone and I favorited it.
Jason: I was like wait a minute you can’t favor your own tweets. That is so douchey. I was like, my initial reaction was, that’s a good tweet. Then I immediately was like, “Oh my God. I favorited my own tweet. Somebody’s going to see that and it’s going to confirm that’s exactly what an ego maniac I am.” I unfavorited it immediately. Really great to have you on the program.
Brad: Awesome to be here.
Jason: It’s an hour and twenty minutes discussion. We can talk for two hours and twenty minutes. We will see you next time on ThisWeekIn Startups.