Thirty Minute Mentors Podcast Transcript: Interview with Venture Capitalist Brad Feld

I recently interviewed Brad Feld on my podcast, Thirty Minute Mentors. Here is a transcript of our interview:

Adam: Our guest today is one of the best known VC’s in the country. Brad Feld is the co-founder of the Foundry Group, and has been an early stage investor and entrepreneur since the 1980’s. Brad is the co-founder of TechStars, an early stage investor in Zynga and Fitbit and the author of more than 10 books, including The Startup Community Way and Startup Communities. Brad, thank you for joining us.

Brad: Thanks for having me. I'm really happy to be here.

Adam: Happy to have you here. One of the great things about being an investor and an entrepreneur since the 1980s, is that you've lived in lots of different markets, highs and lows, booms and busts. What advice do you have for entrepreneurs and investors trying to understand how to best navigate the moment we're in right now?

Brad: Well first you have to play a very long game. I believe that the essence of venture capital investing and the essence of entrepreneurship is to have a view that transcends one year, two year, three year, five year periods. In the first book that I wrote about startup communities in 2012, one of the key points I made in that book was that you have to have at least a 20 year view. And today, I have changed that to you have to have a continuous 20 year view from today. So always really taking the long view and looking back at history, you know, gives you some comfort, or gives one comfort at some level that most everything runs in cycles, not necessarily purely financial cycles. But there's, you know, there's good and there's bad in each moment. And those cycles are very hard to predict. And the intersection of them is on different vectors. And how that plays out is very hard to predict or understand. But it leads to the second thought, which is even in incredibly challenging economic environments, or moments where there's significant structural change across society, or what I like to call phase shifts or phase transformations, which is an essential part of complex system where things seem a certain way, lots of little stuffs happening, but you you assume that things are a certain way and then suddenly something changes and all of a sudden you're in a completely new place. That's just a continuous thing that happens all the time in entrepreneurship, whether it's inside a company or across an industry or across, you know, our whole society. And so as an entrepreneur and as an investor, sort of relaxing into that it doesn't make it less stressful, but knowing that those are essential parts of the environment you're in, and trying to do your best with the resources that you have in those moments, without trying to defend against or rationalize away the challenges and the stress.

Adam: Brad, what drove you to become an entrepreneur and ultimately a VC? And what are the best lessons you learned from the early days of your journey?

Brad: Yeah, I don't think I really knew anything else. My dad was a doctor and my mom was an artist. As a doctor, he had his own private medical practice that he started that he grew to be a pretty substantial sized practice with a number of partners. So I grew up while he was a medical professional, he was very entrepreneurial, and he had his own business. And that's how he thought about it. And I had this mother who is incredibly creative as an artist, but took it as a very serious discipline. You know, she worked nine to five most days in our studio during the week, and that was her job. And so I had the collision of that as a kid. I was always fascinated with technology. I was also always really interested in business, although I didn't really know what that meant, you know, until I was in probably in college even. And today, it would have been somebody who would have said, oh, you're interested in entrepreneurship. It wasn't so much that I was actually interested in business, but I was interested in creating businesses out of nothing or out of an idea or out of a set of ideas or new inventions. So from a very early age, that's how I operated. I started my first company when I was in college. I really have only worked for one company for any period of time, and that's the company that bought my first company. I shouldn't say that prior to that, the first couple years of college, I worked for a startup that grew to be a pretty good sized company. And I was their first non founder employee, I was their third employee, a husband/wife, team. So I did work for a startup for a couple of years while I was in school in the summers and part time during school, but most of my experience has been as a founder of something, whether it's a founder of a company, a founding investor of a company or founder of now, two venture firms that, you know, today, I'm a partner in one of those two boundary boundary groups. My first company I worked at, you know, like many entrepreneurs all the time, it was the only thing I thought about. I worked 100 hours a week. I worked all weekends, I prioritize my company above everything else. I got married right out of college, and I got divorced a couple of years later, because the thing that was the priority to me was not my relationship, but was my company. I was in a PhD program while I was running the company. And I spent very little time on the PhD program. And after a couple of years I got kicked out of the Ph. D program. And I deserved to get kicked out because I really was completely obsessed about my business. And that was my entirety of my focus. There's positive attributes of that as an entrepreneur, but there's also very negative attributes. And one of them if I could go back and talk to my younger self, would be to give myself individually more time and space. In the context of creating the company. I carried around a lot of responsibility that I would have carried anyway. But the incremental energy spent on it. By the time I got to a certain number of hours a week, by the time I got to a certain amount of emotional energy I didn't really have incremental gains of any meaningful rate, diminishing returns of that extra time. And I did that to the exclusion of a lot of other relationships and my own personal growth and development, especially in my 20s. As I was figuring myself out as an adult, when I was in my mid 30s, I had an incredibly, intensely positive three years of run up on the front end of the internet bubble, and then just an unbelievable collapse as the internet bubble burst. And I learned a powerful thing in the midst of that. And one of the things that was really helpful to me, a guy named one Fastlane, who was one of the two people that bought my first company. He was co chairman of that business. He and I started several companies together and in this particular company, that was collapsing in the midst of the internet bubble, which had been very successful and had gone public was worth about $3 billion at the time that a $3 billion market cap was a big market cap for a public company. We were in the midst of some real misery and just fighting through trying to have this company survive, you know, laying people off, selling off pieces of it, trying to figure out what to write about what to do to improve the business so we could just not fail. And I had a moment where day after day that was miserable. And I was at his house, I would stay with him in New York, when I would fly to New York, which is where the company was headquartered. And it was a breakfast that we were having together. And he came to me and he said, I was just eating breakfast sort of despondently you know, like, head down over the table. I was eating a bagel and I hadn't even bothered to toast. He came up behind me and he said, “Brad, they can't kill you and they can't eat. Let's go.” And like, he didn't have to be doing this work. He could have retired. He was incredibly successful, but he was committed to the people and to the team and to doing his best. And it was against the backdrop of, you know, all we can do is our best we might fail, but that's okay, get up and go do your best and I carry that around with me a lot, especially when I feel under incredible pressure. Alright, this may not work out but they can't kill me and they can't eat me

Adam: Brad, I love that. And I know that you've written and spoken quite extensively on the topic of failure. And it's a topic that I speak a lot about. And I've experienced my fair share of failure as an entrepreneur. I've experienced my fair share of failure. Every single day. I use this quote a lot. It was a quote by a mentor of mine, the former mayor of L.A. Richard Riordan, and he had this great line and he says, “Only a mediocre person never makes a mistake.” And if you're not failing, you're not trying. In order to do something great you need to take a chance and taking a chance requires failure. If you're not taking chances, you're probably not going to fail. So with taking chances comes failure. So I think there's a lot of wisdom in the anecdote you share it and agree fully with your perspective on failure, and it's important in attaining success.

Brad: I'd like to add a little something to it, because I think that was nicely said, essentially all of entrepreneurship or creating a company. And building a company is an endless series of experiments, right? If you embrace Eric Ries’s The Lean Startup methodology, or you embrace Agile software development methodologies, or kind of any contemporary thinking around how to start, build, and scale a company, you're really talking about an endless series of small experiments, many of which fail. The key when an experiment fails is to learn something, and then apply that learning to the next experiment. And when an experiment succeeds, learn from it and do more of what worked in that experiment and continue to repeat that and add on things incrementally. So this notion of constantly experimenting through the life of a company and having many many, many of the things you try not work Is elemental to the idea of starting and creating and growing a company and I think it's, it's lost a lot in an easy language. You know, we use the word pivot very loosely in tech companies. I don't think today that word is nearly as meaningful as it was when Eric Ries first started really talking about it with The Lean Startup. I think that, you know, the idea of failing fast got lost in the mix somewhere. And really what that was about was not failing the company fast it was trying a thing. And if it doesn't work, move on, keep trying different things. Try your next experiment. And so again, this notion of endless iteration, which by the way, if you go back to the conversation we were having before we started, you know, results in these, these phase changes, right, where something dramatically shifts after a while, well, you can't predict when that dramatic shift happens. By the way, the direct shift could be good or bad, but it's almost always the result of some things that have been happening along the way that suddenly create a dislocation. And in the most successful businesses that dislocation seemingly happens out of nowhere, but often as a result of the compounded learning from these endless series of small experiments, right?

Adam: I think you said that perfectly. And it certainly describes my experience as an entrepreneur, which has been lots of different ideas, not necessarily my ideas. I'm not the idea generator, but working with my business partner on idea after idea after idea. Some are great ideas. Most are awful ideas, a lot of failing, a lot of trying, within different businesses, some things work, some things don't work. And it's really just a matter of trying and, most importantly, not making the same mistakes over and over again, using mistakes and failure as learning experiences, using mistakes and failure as opportunities to grow. And to stay positive throughout to understand that it's a part of the process and an integral part of the process. So I really appreciate your perspective on the topic. Brad, what do you look for in companies that you invest in? And what do other investors who you know and respect look for in companies that they invest in?

Brad: There's no way to answer the question universally because investors are interested in different things depending on what their strategy is and how they approach entrepreneurs. I can give a couple of examples of other investors but I try to encourage entrepreneurs to think of investors as Dungeons and Dragons characters and recognize that there isn't an archetypical VC, right? Some are elves and some are dwarves and some are orcs and they have different skills and different strains and different aptitudes and a venture firm generally is a collection of these different archetypes. So even in a venture firm itself is not a singular archetype. For me for a very, very long time. I've gone through different iterations of this. But it goes back to when I started making angel investments in the mid 90’s, after I sold my first company, and I was very, very focused on product and people. And those were the two things that captured my attention if I was excited about the product. And I really wanted to work with the people; that's what ended up causing me to quickly say yes to invest in. If I wasn't interested in the product, or I didn't have a good reaction to the people involved, I said no. Today, when I think about, you know, a long history of investing, I would say it with more nuance. At The Foundry Group, we have a set of themes, areas that we know really well and those are the areas that we invest in. We don't know something really well then we don't invest in that area. That theme we say no, but assuming a company that somebody is working on is in a theme, we then focus on three characteristics. The first is whether we have affinity for the product. We don't have to be daily users of the product, but we have to care about it. And the reason for that is that when things are going well, it doesn't matter whether you care about the product or not. But when things are really under stress and when the business is struggling, when things are not working, it's really powerful. If you care about the product, as well as the investment that you've made, it brings you to the table and engages in a way with the entrepreneurs and the founders and the management of the company to really try to make things work. The second is that we look for founders who are obsessed about what they're doing. And I use the word obsessed deliberately instead of the word passion, because passion is very, very easy to say. It's also something that certain people are extremely good at articulating. The thing with passion extroverts, especially people who are natural salespeople, and people who aren't, especially people who are introverts are not nearly as effective at that. And so the obsession the way we map it, generally that the person was put on planet earth to work on this company and on this product, this, this is why they are here. The third is that the founders have to want us as an investor as much as we want to invest in their company, we really view it as a bi directional dynamic if they don't really want us as investors and as long term partners, for whatever reason, including the fact that they just view us as a commodity of money. That's totally okay. We're probably not the right fit for them. So that's how we as a firm, and that's how I individually, have evolved my thinking.

Adam: What are your best tips on how to break into and advance within the venture capital industry?

Brad: Well, my partner Sullivan has the best post ever on this. And if you just Google settleable. com, job in VC, I think it pops up our job as a VC. And when I started doing this as a VC, sort of in the 90, I would say I started investing as a VC in 96. So my first angel investment was in ‘94 and probably my first venture investment was 96. And I was one of the co-founders of what eventually became obvious venture capital is originally called SoftBank Technology Ventures and was a spinoff from SoftBank in 1997. There wasn't really a career path or a job into venture at the time for a variety of reasons. This was the beginning of the internet bubble. So then there was this big rise and there was a sort of a flood of people into the industry for a period of time, but then there was this big constriction, post internet bubble and probably until, you know, even 2010 or ‘11, there was occasionally jobs in the venture industry and lots of firms had a very clear, especially larger ones and a clear hierarchy of hiring associates are analysts, you know, to help out but that wasn't really like in a law for a partner track, it was just sort of a functional dynamic that shifted in the last decade, as many, many, many more venture capital firms who have emerged have scaled up in terms of size and impact. And as many new managers first my managers have started funds, especially at the pre-seed and seed level. And, you know, set post has some truisms in it or things that may feel relatively obvious. There is an ongoing discussion that pops up every now and then about whether people who have been operators in businesses make better VCs are not. And, you know, there's some extraordinary VCs, such as Fred Wilson who have never been operators, right? He's been a venture investor from the beginning of his career. So the debate rages. I don't think it matters that much. I think that each person that's interested in venture should think about what network they have, and then build on that path, recognizing that a lot of their own journey is going to be in and of itself, if you want to end up in venture as an entrepreneurial journey. There's a wonderful book written by Reed Hoffman and Ben Casnocha. It was the first book the two of them wrote together, called The Startup of You. And it really talked about how to focus on yourself as a startup as you're developing your own career and apply entrepreneurial activity to where you're heading as an individual, and it's probably not ironic, but very telling that Ben today is a venture capitalist. And he started his own firm called Village Global. And you know, his path to that is non traditional, because there is no traditional path. And I think that's the magic is there's lots of different people who end up being VCs at different levels. And there's plenty of jobs, you know, whether you go through business school and you get a job in a firm or you're an operator in a senior role in a company and you get a job in a firm, recognizing that that's different dynamic than what ultimately I think most people are aspiring to when they want to get into venture capitalists to either create their own firm, or be a partner in a firm, which in most cases is a very entrepreneurial endeavor.

Adam: What are your best tips for entrepreneurs on how to approach and navigate the fundraising process? What are the most common pitfalls that listeners should be aware of and ultimately avoid and what advice do you have for anyone raising money or thinking about raising money?

Adam: I'll be Brad the book salesman, right one of my, one of my earlier books is a book called Venture Deals, which is in its fourth edition. And if anybody seriously interested in this question, I'd encourage looking at it. Venturedeals.com is the website. And by the way, the subtitle gives away the book, it says how to be smarter than your lawyer and VC. So, you know, it's not just about the mechanics of raising or financing and doing a venture deal, but sort of all the dynamics around raising capital, including how venture firms work, and what the incentives are. I think the biggest mistake entrepreneurs make is that they don't actually study in advance of going out to raise money, how it's done. And there's lots of different ways to study it. Obviously, there's a book like venture deals, there's going through accelerators like TechStars. There's having mentors that are experienced entrepreneurs who have raised money. There's a peer group of other founders who have also raised money, and are just really trying to understand at whatever stage in the fundraising process you're in what is in front of you. And once you've done it once, that's helpful that gets you to a certain level. But it's not always the same, especially over time. So if you said, well, is it exactly the same to raise money in 2020 As it was in 2007? The answer's no. And, frankly, 2020 in the middle of, you know, “The COVID Crisis” is very different than even 12 months ago, because you can't get a physical meeting with anybody safe to do everything remotely. So step one is really do some, do some research, do some studying and you know, 2020, there's just an enormous amount of information available to you and access to people who will share. The second is, at the beginning of the process, be very clear about what you're trying to raise, how much money you're trying to raise and why. And in the context of that target investors correctly, I think that one of the dynamics that happened when there were a lot less VC’s and it was a lot harder to find. Figuring out how to find VC’s is that much of the investing activity and much of what an entrepreneur did was use his or her network to get access to through reference referrals to credible VC’s. And that had its own problems because it tended to be very exclusive. It tended to be hard to find, if you didn't have the network already, it would be difficult to find access to those VC’s. That shifted to today because there's so many more sources of capital, especially at the early stage in the seed and pre-seed stage. And so against that particular backdrop, one of the things that an entrepreneur can do is instead of saying, okay, there's, you know, x thousand VC’s in the U.S., I'm gonna just send them all an email and see who bites which you'd say, nobody ever does that you'd be surprised a number of HubSpot or pick your favorite, you know, marketing automation tool, email show up that you can look at and say, yeah, this is a generic email with my name filled in that somebody got from the list. That's not terribly effective. Instead, finding the 20 or 30 potential targets that you think makes sense and then working hard to leverage tools to understand how to get access to them, at worst, a warm way where you're connected to somebody who knows them. And even if that's not the case, then figure out how to engage with them if they have any sort of presence online, whether it's a blog or something on media, Twitter, and try to engage with them in a way around something that's interesting to them, especially if it's relevant to your company. By the way, another way to do that is to focus on their portfolio companies; companies that are that firm or that investors on the board of and try to navigate your way into those firms through a partnership or a customer relationship. If those firms become customers of you, that's powerful, right? Here's a signal that is an unavoidable or undeniable one if we’re found as an investor in companies, and if somebody reaches out to me and says the following seven companies are now my customers, I'd love to talk to you. I'm racing around. Well, that's an interesting email again. And it's also an interesting email to validate very quickly by forwarding it to those seven companies and saying, you know, hey, do y'all use this product every day? And is it something important to you? And if all seven go, yep, totally, awesome, then isn’t integrating it into our workflow completely worth it? Like, that's a whole different conversation, then, you know, that four paragraph email that I don't know the person and they say, I'm doing this product, it does this kind of thing. It's applicable to all kinds of, you know, B2B SaaS companies, I just the tonality, the dynamic is something. The last thing I'd say sort of on this/ rant is recognize that no matter what stage you're at, and no matter how successful your company is, raising money is difficult. And I think that the tech press generally celebrates the successful fundraisers and sort of pointed them but doesn't over indexes on that doesn't spend enough time talking about how challenging it is for the vast majority of companies to raise money. And if you enter the process, recognizing that it's going to be challenging that it's going to take a long time that you're going to have to have a lot of focus, rigor and discipline on it, your chances of being successful is much higher.

Adam: Brad, that's tremendous advice. I hope everyone listening took notes. And if not, the nice thing is you could replay the podcast and take notes. That's what I'm gonna do because I couldn't take notes. I was listening on the edge of my seat. That's amazing information and insight. Brad, if you thought that question was an opportunity for you to sell books, you're gonna like this next one, because I wanted to ask you about your two most recent books. You've written extensively about startup communities over the years, including your two most recent books, what should leaders understand about startup communities?

Brad: When I wrote the first book called just Startup Communities in 2012, the phrase startup community didn't exist. And I created the phrase with the idea of trying to describe this thing that had a single purpose. And that single purpose was to help entrepreneurs succeed. And in 2010, we were just coming out of the global financial crisis and innovation, entrepreneurship was being heralded as you know, the path out of the global financial crisis. But there was still this very heavy focus on if you want to build a company, you need to go to Silicon Valley, the only place to build companies in Silicon Valley. And even against the backdrop of that people were starting to talk about oh, and there's some other places in the world that you could build a company, you know, like New York, or like Boston, or Boulder, and Boulder didn't fit in, in that sentence, because boulder is only 100,000 people. And so it's tiny compared to those other three cities. And so I tried to start to understand what was happening in Boulder. I've been here since 1995 and what I've been involved in has caused Boulder to be such a vibrant place for creating and starting companies, and then nurturing and developing and growing them. They formed a view that not only could every city in the world that had at least 100,000 people have a vibrant startup community, it was imperative that every city in the world, over 100,000 people have a vibrant startup community because it was the sort of innovation flywheel of that city, that there'd be this continual innovation, this continual entrepreneurial renewal inside the fabric of what was going on in the city. I started working on the new book, The Startup Community, with Anne Hathaway, who's my co author. We initially started as a sequel to Startup Communities with the idea of answering the question. Now, one of the principles of the Boulder thesis was to have a 20 year view. And I had adjusted that over time to have a continuous 20 year view from today. So you're always taking this very long view into the future against the backdrop of that 20 year view, five years in, you know, 2017, five years after the first book came out the question of what should I do now kept coming up. And it was a function of lots of different things. Some startup communities were doing great. Some startup communities installed, some startup communities were new, some startup communities felt like they've been going on for a long time. Well, more than sort of. When the book came out in 2012, once they started identifying with the work, but everybody wanted more, you know, more sort of tangible, substantive action. The framework that we're going to use was the idea of a complex adaptive system. The three types of systems that we like to compare are a simple system, an example of you making a cup of coffee, you know, you put beans in, you get coffee out, you can modify the steps a little. You might have different beans, but you basically have the beginning of the process and end to the process in a couple of steps. A complicated system is one that's similar to a simple system, but it just has a bunch of steps. And the steps don't have to be done in the same order. So doing your monthly financial statements is a complicated system. When you're done, you have monthly financial statements. Once you've done the design for a Boeing 787, once Boeing has gone through the engineering and design process, it's super complicated to make a Boeing 787. But you're just following step one through step zillion. And at the incomes of Boeing 787, a complex system has no beginning and no end. There's no deterministic outcome. There's this continual set of inputs and outputs that are endlessly changing the system. And a simple one complex system for people to relate to is raising a child. You know, a child's born, if you said, when the child's 21 years old, they're gonna look like this, and here's the roadmap to get to what the child looks like at 21, you'll guarantee two things; one is that's not what the child's going to be doing at 21. And the second is they're gonna need a lot of therapy. So this sort of this notion of so many things changing along the way, is what a complex system is. When we wrote the book, we use that as the framework. But we then took many of the elements of a complex system and aligned them up with the way a startup community functions and talked about things that you can do or not do to develop and grow and evolve the startup community. One interesting example there, that's a reaction to something that I wrote about in 2012 and continue to hear about day in and day out and expect, you know, we'll hear about the other time is the phrase, there's not enough capital here. So you know, pick your random city in the world, and your subsequent startup community in the random city in the world, chances are, there will be complaints by some set of entrepreneurs that there's not enough capital. And that's not the only type of capital that you have, sort of in the context of any sort of system. And specifically in the context of startup communities. We ended up with this idea that there are seven capitals, we call them out separately, and I'll just riff off them so you quickly get a feeling for it. Short financial capital is one of them. But you also have intellectual capital, you have cultural capital, human capital, physical capital, network capital and institutional. We use that framework to help people understand that while financial capital was a resource, the startup community might have a lack of financial capital, but it's going to have a surplus of some of those other capitals. And the key of a complex system is to use the resources you have to get a flywheel going to get some positive progress. You know, hopefully some of that positive progress either creates a phase shift, or I'll use the word contagion. You can have positive contagion, where you have increasing returns or sort of an upward sloping curve that's nonlinear. And in that context, all of a sudden, lots of things start to get generated that could include the attraction and more financial. So if I pause there- I know that was a long rant on that piece- what we've tried to do is take the human behaviors that are happening on a daily basis, within start communities, give them a framework, namely complex systems that well abstract, can you can relate to it and then use a lot of the language of complexity theory to help guide people as to do more of these things and do less of these things. Recognize that spending time on this stuff is not going to have an impact, but spending time on these things will.

Adam: Brad, I want to ask you one last question. TechStars is one of the most successful accelerators in the country. And as important as anything when it comes to the effectiveness of an accelerator is the quality of mentorship provided. What advice do you have for anyone on how to find a great mentor and how to be a great mentor?

Brad: Finding a great mentor is a function of building a relationship with people and putting yourself in a place where those relationships are accessible and common. So you know, sending me an email and saying Brad, will you be my mentor, is not not a useful productive way to find a mentor. Showing up in your startup community where other entrepreneurs are engaging with each other and engaging with them is the way to start to develop relationships where you naturally end up with people who play a mentor relationship to you. Mentors can come from all different places. And they don't necessarily have to be not even more experienced than you. The most powerful mentor/mentee relationship is a peer mentor relationship where both the mentor and the mentee become peers in their relationship with each other. And they both learn from each other. So, you know, a mentor of mine for many, many years now bought that first company of mine. You know, for a number of years, Len was a mentor. I viewed him as my mentor. There was a point in time where I think if you said to Len, are you learning more from Brad or do you think Brad's learning more from you? He probably would have said, he's a very humble guy, so he might have said, Brad. I'm learning more from Brad. But at the minimum he would have said we're both learning from each other. That's where you want to get to. And I would say the same is true for mentors as a mentor. Your role is not to tell people what to do, it's not to solve their problem. But it's also not to just be available and empathetic. It's in a lot of ways a guide to helping the person you're mentoring think through what they're doing and reach their own conclusion. What you're providing somebody is not direction, you're not saying you should do X, you're providing data to them. And a powerful way to make sure you're always providing data is to preface what you're saying with the phrase, in my experience, or from my experience. So you're telling stories, or you're giving examples that are your lived experience. By the way, we all have lots of bias, right? Because we have a limited lived experience relative to other people. And so just because I have a particular lived experience against the backdrop of a particular situation, doesn't mean that my approach to it's correct. And in fact, you can learn a lot from the things that I tried that I talked about that I failed at. When I explained I tried this, it didn't work, here's why it didn't work. And so it's not that I'm giving you anti advice. Don't do that. It's that I'm trying to give you more data as you're trying to figure out how you want to navigate your request.

Adam: Brad, thank you for all the advice and thank you for joining us. How a lot of fun.