Brad has been an early stage investor and entrepreneur since 1987. Prior to co-founding Foundry Group, he co-founded Mobius Venture Capital and, prior to that, founded Intensity Ventures. Brad is also a co-founder of Techstars.
In addition to his investing efforts, Brad has been active with several non-profit organizations and currently is chair of the National Center for Women & Information Technology and co-chair of Startup Colorado. Brad is a speaker on the topics of venture capital investing and entrepreneurship and writes the blogs Feld Thoughts, Startup Revolution, and Ask the VC.
Brad holds Bachelor of Science and Master of Science degrees in Management Science from the Massachusetts Institute of Technology. Brad is also an art collector and long-distance runner. He has completed 23 marathons as part of his mission to finish a marathon in each of the 50 states.
Brad join Startup Grind Denver to talk about his path from founder to investor, and the emotional ups and downs along the way. Watch the full video here, and read our highlights below.
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What led you to be an entrepreneur and, later, a venture capitalist?
I started my first company in college, and that company failed about a year later. I started my second company about a year later and that company failed about a year later and it wasn't really until my third company, which I also started when I was in school, that I started to have some success with it - but the interesting arc around that was, while I was doing that, my first real job between my senior year of high school and my first year of college was for a startup that was a husband and wife team called Petcom Systems in Dallas where I lived.
I was their first employee, and I cut an interesting deal with them not really realizing was interesting deal. They paid me 10 bucks an hour. I wrote software for them, but I also got 5% royalty on all the software that I wrote on gross revenue. So you know I learned two things pretty quickly: one is, if I worked 80 hours a week instead of 40, I make twice as much money - that was pretty easy. But as a freshman in college, I was getting paid with these royalty checks which come randomly in the mail each month - sometimes for a thousand bucks, sometimes for $2,000. One month I got check for a little bit over $10,000. Yeah you're freshman in college you get check for $10,000 bucks what do you do, right? I lived in a fraternity and we are across from a Chinese restaurant. I took all 60 people I lived with out to lunch.
It really gave me this, early on, dynamic of the involvement and engagement in both working in the context of a startup but also having influence over what I was doing and how I was doing it. So I really never worked for anybody. Even that company Petcom, Chris and Helen were the two founders, theoretically I worked for them but I was a 18 year old writing software, and they just let me do what I wanted. Chris loved to drink Coors beer. The drinking age of 21 by now, but by about 4 o'clock in the afternoon he breaks out a couple of Coors beers and he walk over to my desk and puts one on my desk - that kind of environment. Not an alcoholic lush environment, but one that wasn't constrained by like rules and how I was gonna work was really appealing. So that's how I started working with startups and I've never looked back.
I sold that successful company, I refer to it as my first company even though it was really my third company. My first successful company was self-funded. I had a partner named Dave Joke, and we had 10 shares of stock that we sold to ourselves for $10 - a dollar a share. I had 6, he had 3, and my dad had one. My dad was an advisor, was on our board, was an early customer - sometimes that was good sometimes that was not so good, but he was very helpful. We sold the company seven years later to a public company, we had 7 shares - uh, no - 10 shares of stock and fortunately they were worth a lot more than the dollar, but we built a business that was self-funded and never really thought about investment or venture capital. We just had to make money every month and we did.
We sold the company in 1993. Between 1994 and 1996 while I worked for the public company that bought us, I made about 40 angel investments in tech companies - mostly internet software related companies - with the money that I had made. It was, you know, $25,000 to $50,000 dollar investment, so not huge investments but very much angel investment, and lots of them. My timing was particularly good because it was at the very beginning of the rise of the commercial internet so many of those companies failed but a number of them ended up being very very successful. That was what really led me into investing.
I straggled the line between being an operator and investor until about 2001. I started a couple of companies after I cofounded the venture capital firm Mobius, which turned into Mobius Venture Capital in 2007. But I was still starting companies. I was co-chairman or chairman and I didn't theoretically have an operating role - but if you’re chairman of a company and you fire the CEO, you kind of end up being the CEO until you hire a new CEO - so I had a couple of those situations.
In 2001, when the internet bubble burst my whole world was got completely fucked up. I had lots and lots of companies that I was invested in, and a handful of companies in which I was straddling this line between investor and operator, and by 2002 I realized that I literally just didn't have the emotional energy to do both, and I actually didn't like the job of CEO. I was a good CEO but I didn't like the job, and I really liked the job of investor in the context of what the work was, what the interactions were about. Then is when I decided - alright - for the balance of what I do I'm going to be the investor.
Then for your accelerator TechStars, you built around a mentor-driven approach. Who was the biggest mentor in your career, and what do you think makes a good mentor?
I've been really fortunate to have a number of mentors over a long period of time that have had enormous influence on me going back to when I was in high school and a patient of my father's - a guy named Jean Scott who was a successful computer technology executive when I was getting interested in computers - also started a company. He would get together with me once a month or once every other month with my dad. We would have lunch together and we talked about computers and technology and business.
He had a friend, a guy named Mr. Green who owned Bonanza - it was one of his businesses, and he owned multiple businesses - and I would hang out with him, too. He was interested in computers so very early on I had these mentors, probably my age now when I was a teenager then, who put energy into me, spent time with me. I was very curious and they were very interested in that dynamic and that has continued.
The guy that bought my first company, one of the two partners in the business, Len Fassler, today is 83. I would say he is probably the most significant mentor I’ve had. In addition to buying my first company, he took me under his wing. I spent two years working very closely with him. He and I even started a company together with two other, raised $42 million dollars out of the gate, went public, and at the peak was worth $3 billion. In the end it went bankrupt after the internet bubble burst, and it was easily the biggest failure I've had, but also the biggest emotional range. From nothing to a 2,000-person company that was worth 3 billion dollars, to nothing again. We took no money out, so It wasn't that, on the way up, we were making money on our stock. Our investor who invested $40 of the $42 million had a billion dollar gain on their stock and they never sold a share, either. That's a tough thing: more money than you ever imagine making cumulatively in your lifetime, in one moment in time vanishing.
But Len and I thought through that together and we learned a lot from each other. We went on to do other stuff together: he started another company that I invested in that end up doing okay. If you ask Len today, did he learn more from me or did I learn more from him, he would say that he learned more from me, and I of course should say I learned more from him. Those are the mentor relationships you're going for. You're going for a mentor relationship that becomes a peer relationship where both a mentor and the mentee are learning from each other and you trying to do it over a long period of time. It is not a transactional experience of, “hey, would you be my mentor?” That’s not how it works. Since you develop a relationship, in some ways the best ones are ones that don't even have a label on 'em.
What do you actually do to help your companies?
Primarily, I spend a lot of time helping them with business model and fundraising.
For young & aspiring entrepreneurs, how would you go about building that sort of relationship?
Well, I think there is magic in the context of engaging other people. I assure you this is not my filtering mechanism for getting out of here at the end of Startup Grind: it's a practical tool to use in the context of trying to engage other people. Don't ask somebody else for something; instead do something useful for them that is positive or impacts their world. Just start from that frame of reference. If you want to engage with me, don't ask me for something - do something that helps my world. It doesn't have to be a big deal but start from that. Don't do it if it doesn't have any benefit to you; only do stuff that has benefit to you, but also helps my world. If you can't think of something in that vein, then I'm the wrong guy for you.
If you start from that frame of reference, recognize that not everybody is going to respond to it - and that's okay. Just because somebody's not responsive doesn't mean they're bad person, doesn't mean they don't care about you, doesn't mean they think what you're doing is stupid. It just means they might have not enough time, they might not be able to prioritize it, they might be under some stress about something else. It might have gotten stuck in their spam filter - you don't know - but that's the way to engage. Start by doing something useful, keep doing it and showing up, and before you know it it’ll start to develop a relationship.
What kind of theme or strategy does your current investment company, Foundry Group, use?
At Foundry Group, I have three partners: Seth, Jason, Ryan and myself. We're all equal partners and we don't have any other people in the firm on the deal side. We don't have any principles or associates. We don’t have any EIRs or venture partners. We each have an assistant and we have a back office and that's it. All four of us work on everything together, so even though one of us may be on the board, all of us interact freely with all the companies that we're involved in. Most of my investments come from my personal network (60%) and the next largest category is my existing portfolio. I really like first time founders and I really look for people for whom the company they are looking to matter really matters.
We have a set of filters, and if the company you're working on doesn't go through the filters then we don't engage. One of my goals is to say no in 60 seconds to everyone. Those filters are relatively straightforward.
You have to be in the US. We only invest in US based companies.
You have to have raised less than $3 dollars. We don't have to be the first investor in a company, but if you raise more than $3 million you're too late for us.
You have to fit in one of our themes. The themes are very broadly horizontal and somewhat abstract - not things like video or social networking or mobile.
Our themes are, for example, something we call human computer interaction, where the premise is that the way that we as humans will engage with computers in 20 years will be as radically different as it is if we look back 20 years. We're looking for companies that are changing the way that humans and computers interact.
Another theme of ours is the theme we call glue and for anybody here that’s old, you might recognize the phrase middleware. Glue is basically middleware: it's the software that sits between the machines. We really are interested in the machine to machine interaction in that particular theme.
Another theme would be protocol. For those of you that know about technology protocols, there are ITF Protocols, oro SMTP - which is the protocol underlying email, and we've got a bunch of email related investments that would be in our protocol theme.
So if you're not in one of the themes then we pass. If you get through that filter, since we know these themes really well, we're not worried about things like your total available market and your go-to-market strategy and your revenue. We know that because we know these areas really well, so we're very comfortable with that.
We spend all of our time on the following when we're trying to decide we want to invest in something:
Number one, do we have affinity for the product? We don't have to love the product, we don't have to use the product, but do we have affinity for it. It is something that we're interested in? I've made so many investments in companies where I didn't have an affinity for the product and I’ve come to the conclusion that as an investor life is too short. You wanna actually care about the thing that the company is making - it's not because it does the world good, it’s because you just have to have an intellectual and emotional interest in it.
Number two, are the founders obsessed about the product they're creating? When I talk about obsession, I am talking about healthy obsession, where the thing you're working on you care deeply about. It’s the thing you can't rest until you just get right. You can hear it in 5 minutes - you have a sense whether the person is going through the motions, whether they're interested in what they're doing but they're not obsessed. Obsession isn’t “Today I’m making a machine that makes bread, but tomorrow I can make a sports car.” Obsession is, “If that makes bread, I am going to make the best bread machine in the world, and the bread that comes out of the machine is going to be the best bread - and let me tell you about 5,000 years of making bread, and why this machine is going to make bread in a different way.”
The third, do the founders want to work with us as much as we want to work with them? It’s both directions. We have to really want to work with them, and they have to really want to work with us. You can feel that pretty quickly in the interaction: 5-10 minutes you get a sense of it. You try things and you decide that you know is this really somebody I want to go spend the next 10 or 15 years working with, because building companies takes a long time and, you're going to spend a lot of time together. You're going to have a lot of fucked up things to deal with. And if you don't want to work with that person, it's going to be really hard in those moments where is not working.
So that's how we approach investing.
Foundry Group is raising its next fund - tell us about that.
We raised our fifth fund - close it literally yesterday. Our first fund in 2007 was $225 million. Our next fund in 2013 was $225 million. The latest is $225 million fund, and we also have a late-stage fund for existing portfolio companies also at $225 million.
We do about 30 new investments over a three year period, then continue to invest in those companies, including some from our previous fund, Mobius. The last Mobius fund was raised in 2000, and we continue to support these companies.
We’ve been investors for 15 years. We have a company here called Return Path, which some of you may know, with a 500 person office and a hundred million-ish top like revenue. We want to be partners with our founders for a long time, and they want to be partners with us. Matt Lamberg, the CEO, is still an incredible close friend, as is his co-founder George Bilgre. You’re building long lasting relationships where you care a lot about the people you work with, and they care a lot about you. I hope by 2025, there are some people from this new fund that we just funded that I am still working with and good friends.
Why does your fund remain the same size every cycle?
When we created our fund, the founders created a set of deeply held beliefs. It’s not that they can’t change ever, but they are deeply held. One deeply held belief is that we would never grow, as a firm or in staff size. It’s a reaction to one of the most painful parts of the experience at Mobius, which was of growing like crazy. Part of growing like crazy was that the amount of time experienced investors spent investing and working with our companies was much less than it could have been, because they spent all the time working with people who were much less experienced, training and managing them, and recruiting the next partners.
It also makes raising the next funds much easier. We told our initial investors we are going to raise the fund, and that every following rounds were going to be of the same size, deployed in 3 years - plus or minus a little, at about 10 investments a year. It has made raising our following funds so much easier, as when there is a fixed size of the pie, because if you’ve done well, your investors will say, “Whatever other people don’t want, we’ll take.” Things move very quickly.
You wrote the book Startup Communities. Can you comment on how Colorado could grow into a stronger startup community?
I separate startup communities into “Leaders” and “Feeders” - and the leaders have to be entrepreneurs, while the feeders are everyone else. Feeders for a startup community are important, but they play a different role: they tend to be things like governments, universities, nonprofits, service providers, investors, lawyers - and more. The entrepreneurs are part of this unstructured, messy network: it’s constantly changing.
If you read Startup Communities, or by Bouder thesis around how you can create a vibrant startup community anywhere, there’s four principles:
Number one: the leaders have to be entrepreneurs.
Number two: you have to take a long view - at least 20 years.
Number three: you have to be inclusive of anyone who wants to engage at any level.
Number four: you have to have activities and events that engage people in entrepreneurial activities all up and down the stack.
If you're in the Denver startup community, do yourself a favor and go do some stuff in the Boulder startup community and meet some people there. It’s not a big deal to drive to Colorado Springs, either. And Fort Collins has some pretty good beer, and you can drive right through Longmont, which also has some interesting entrepreneurs. So cross-fertilize, build relationships with people in other places, and bring them back to where you are - invite them back. Link the startup communities together, versus trying to organize it.
Who are your heroes, dead or alive?
Albert Einstein is a hero. He did life his way, and he lived a life mostly in his head. The things that he came up with have had profound influences on the world - not just scientifically, but in other vectors. He wasn't bashful about promoting himself, but he loved to be by himself - thinking. That fills me up with joy.
I think Warren Buffett is absolutely fascinating. I am fascinated by him because because he did business his way, too. He had a strategy and over a very long period of time, he executed his strategy consistently. He made his own decisions, and made them quickly. He has a very strong partner in Charlie Munger, and I’m sure he has other strong partners in Berkshire Hathaway. He was never bashful about stating what he thought.
Len Fasser is also in that category. In some ways, I hope that what I do on this planet continues to transmit and exude the values that I learned from Len, so that there is a connection in terms of what he has done for so many other people.
Any fictional heroes?
The lead character in Zen and the Art of Motorcycle Maintenance, whose name is never really revealed, is his internal identity Fajerous. He’s a very complex character. It’s a book I recommend every entrepreneur reads. It teaches you about the notion of quality, and what it takes to make it, but taking you on a journey of a person descending into madness. It’s the boundary line between genius and madness, it takes you there. It’s a fun one, but it’s a tough one.
And who’s your favorite present or past entrepreneur?
I have a montage of entrepreneurs who I put in this category. I think of Warren Buffer, and put him in that category. I’m an enormous fan of elements of Steve Jobs, of elements of Bill Gates. I’m about 10 years behind them, but when they were in their mid-20s, I was in my mid-teens. I locked onto them.
I think Cameron Howe absolutely kicks ass - the protagonist of AMC’s “Halt & Catch Fire,” focused on the start of the computing innovation in the 1980s.
What’s your biggest piece of advice to entrepreneurs?
We are all going to die, so pick a thing you want to do, and do it. Pick a place you want to live, and live there. Do it for you knowing you are going to die, and all the time between here and there is all the time we have. If you’re spending that time on stuff you don’t care about with people you don’t care about in places you don’t want to be, that’s a bummer. If you’re a founder & entrepreneur, part of the definition is taking control over what you create - including where you are and what you do.