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Overview
Company: The Foundry Group
Interviewee: Brad Feld, Managing Director
Web site:
www.foundrygroup.com
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Q. What is The Foundry Group?
“The Foundry Group is a $225 million early-stage software and internet-related venture capital firm There are five partners. We are all based in Boulder, but we invest around the US. We tend to invest very early in companies, oftentimes at the idea stage, with one or two people. But they could be 10-, 15-, 20-person companies by the time we invest. By investing early, we look for outsized returns for the entrepreneurs and all the investors. Our view is that we work for the entrepreneurs.”
Q. What are your primary investment choices?
"Two things drive all our investment thinking. First we only invest in areas that we know really, really well and think have a long-term horizon to change the way that technology is either used or created. Second, we invest in the people associated with those companies and technology.”
Q. What are the themes of your current portfolio?
“We look for disruptions in the software industry; those disruptors are underneath the surface probably for almost a decade before people can describe them in the periodicals we read. That means we’re talking to innovators, the entrepreneurs every single day. In any given year we probably see 500 different startups and maybe fund 6 to 10. We live in a river of software innovation and it allows us to be good pattern matchers. In 1997 we invested in our first software as a service company that is now a big trend in the industry. We invested in our first virtualization company now acquired by VMware in 2001. We’re always ahead of the curve because we’re swimming under the surface with the disruptors while at the same time we’re talking to the batters in the market, the people that have a definitive business problem that cannot be solved with legacy technology.”
Q. What’s your approach to working with startups?
“We closed our most recent fund last fall, it was a $225 million fund. One of the themes that we’re very excited about right now is digital life and all of the ideas about how all of us as consumers deal with visual technology going forward. Another theme is human/computer interaction. We believe that the idea of a mouse and a keyboard is an archaic idea, in the same way that the idea of keypads and punch cards, from 30 years ago was archaic. We think 20 years from now there’s going to be a lot of different ways, other than a mouse and a keyboard, to interact with the computer. We’ve invested in 11 companies. They’re spread across the country, three of them are in Colorado, six of them are in California, a company in Seattle, a company in New York. And I would say that much to our pleasant surprise, two of the 11 companies in our portfolio are actually cash flow positive, which was totally unexpected.”
Q. How do you pick companies to invest in?
“WWe invest early, so one of biggest decisions I make is whether or not I support the person running the company. If I support the person running the company, I work for them. And our view as VCs is we need to do everything we know how to do for that person to help them be successful. Much of that is driven by that entrepreneur.“
Q. How does your selection process work?
“Generally it gets started with one of the partners geting interested in an entrepreneur and a company. They start to spend some time on it. They’ll bring in another one of the partners pretty early in the process, and say, “hey, this is interesting to me.” We communicate very openly, internally. On a regular basis, maybe every three or four weeks, we sit down and we go through all the different companies that we’re talking to and looking at. Because we all are working on the same types of stuff, we can very quickly say, “well there’s 15 things here, we’re not going to do all 15. So why are we spending time with them?” It’s not that we’re wasting our time. It’s fun and interesting to us. But we’re wasting the entrepreneur’s time. We make sure we continue to cull the list down to the three or four companies we are likely to do something with. We’re constantly running through that process. It allows us to pretty quickly get to a “no” with an entrepreneur, and disengage, and at least be thoughtful about it, versus dragging it out for months and months where they’re like, “I don’t know where I stand with you guys. Are you interested or not?” We try to be much more direct about whether we’re interested.“
Q. What’s your approach to working with startups?
“Early on in the life of companies that we invest in we’re typically very involved in a broad strategy of the company. We’re all nerds, we love the product, we play with the technologies, and we have strong opinions about the product so we’re often involved in product strategy. We’re also very involved in the financing strategies of these companies. We almost always play a board role in the company so we have a governance role in terms of board. When companies have transactions either where they’re buying companies or being acquired, we’re often involved in that role. Our focus is helping the CEO and leadership team do whatever they need to help them be successful, which varies from company to company. Sometimes it’s a lot, sometimes it’s a little. It’s always driven by the company.“
Q. What’s the best way to engage a VC?
“You need to network early. The best way to approach a venture capitalist is through people that they know and trust. And if you can find one or two extremely passionate people that are investors in the early stage, that love your idea and will walk you into that venture capitalist, that’s the way to go. So it’s quality of people that are helping, you not quantity. Entrepreneurs also need to understand the VC’s engagement preferences. Some VCs are very responsive to all their email from anybody. And others are completely unresponsive. For example, on my side, if you send me an email, I’ll always send you a response. Brad@feld.com, it’s easy and I’ll try to always respond. At least to say, I’m not interested, but thanks for thinking of me.“
Q. What’s your best advice for early stage startups?
“Any start-up ultimately looking for angel, angel or venture capital should really surround themselves with people who know what they’re doing and can help them. You need to develop relationships with advisors who can mentor you, and get you in front of the right people at the right time. Surrounding yourself with people who’ve “been there and done that” is really the key. It’s about getting high quality people that have really strong networks and at the right time, having them walk you in to those venture capitalists.“
Q. What’s the current outlook for startups?
“One of the myths about entrepreneurship is that you have to get to the timing right, and one of the clichés about entrepreneurship is that timing simply doesn’t matter. If you put those two together, timing simply doesn’t matter. Great companies are going to come out of good times and bad times, because really, when you’re starting a company, the amount of time it takes you to get to a place where you have success usually covers multiple economic cycles. So trying to get the timing right as an entrepreneur is irrelevant. if you have a good idea, you have passion and you have a great team, just go for it. Any time is a good time to do the start-up.“
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