20VC Brad Feld on Why Market Size At Early Stage Is Not Helpful, His Biggest Learnings From The Boom & Bust of The Dot Com and How The Best VCs Work For Their CEOs

In this episode, Harry Stebbings interviews venture capitalist Brad Feld, co-founder of Foundry Group and co-author of "Venture Deals," a seminal book on venture capital. Feld discusses his journey from entrepreneur to angel investor to VC, emphasizing the importance of building enduring businesses and the role of VCs in supporting CEOs. They explore the transition from angel investing to VC, the impact of market cycles, and Feld's philosophy of working for the CEO to enhance company success. The conversation also touches on the latest edition of "Venture Deals," which includes new sections on venture debt and selling companies, and Feld's recent investment in Boundless, a company aiding immigrants with green card processes. Additionally, Stebbings promotes Activecampaign, Intercom, and Ezra, services that enhance customer experiences and health.

• Harry's passion for venture capital sparked at age 13.
• A seminal book, "Venture Deals" by Brad Feld and Jason Mendelson, was pivotal in shaping Harry's thoughts about venture capital.
• The new release of "Venture Deals" is highly anticipated and promoted with a giveaway sponsored by SVB Silicon Valley Bank.

"It's an interesting story, but the truth is a real turning point for me and my passion for venture was when I read one seminal book that changed the way I thought about venture venture deals by Bradfeld and Jason Mendelsohn."

This quote highlights the significant impact "Venture Deals" had on Harry's life, marking a turning point in his interest in venture capital.

• Brad Feld, as a founder of Foundry Group, has made notable investments in companies like Zynga, Sendgrid, and Fitbit.
• Brad's writings are influential within the venture capital industry.
• Harry expresses personal gratitude to Brad for his mentorship and friendship.

"I could not be more thrilled to welcome Bradfeld back to the show today. Bluntly, I feel incredibly lucky and proud to call him a dear friend and mentor."

Harry's quote reflects his deep respect and appreciation for Brad Feld, both as a professional in the venture capital industry and as a personal mentor.

• ActiveCampaign enables businesses to create unique customer experiences.
• The platform offers automations that integrate with existing sales and marketing tools.
• Over 80,000 companies use ActiveCampaign to achieve their sales goals.

"With their platform, you can create unique customer experiences that attract, nurture and convert leads into customers into repeat customers."

This quote summarizes the core functionality of ActiveCampaign, emphasizing its role in enhancing customer experiences and driving sales.

• Intercom provides a chat bubble feature for websites to engage customers effectively.
• The company offers conversational bots and tools to extend business capabilities.
• Unity's success story with Intercom shows a significant increase in customer acquisition.

"But it doesn't stop there. Intercom extends your team with conversational bots and guided tools inside your product."

The quote explains the additional features that Intercom offers beyond the initial customer engagement, highlighting its comprehensive approach to customer interaction.

• Ezra offers full-body MRI scans for early cancer detection.
• The service is expanding to San Francisco and Los Angeles.
• Ezra provides affordable payment plans and discounts for podcast listeners.

"Ezra offers radiation free full body MRI scans that look for cancer, precursors to cancer, and other disease states that can compromise your health."

This quote describes the health screening services offered by Ezra, focusing on the benefits of early detection of cancer and other diseases.

• Brad Feld rejoins the podcast after two years since his last appearance.
• The episode marks a significant number in the podcast's history, being the 2853rd episode.

"Brad, I'm delighted to be here. What episode are we on?"

Brad Feld's quote is a casual inquiry about the current episode number, indicating his return to the show after a considerable time.

• Brad's journey to venture capital began as an entrepreneur and progressed to angel investor before becoming a VC.
• He shares his experience of transitioning from an operator to an investor.
• The discussion includes the learning curve and personal challenges Brad faced during the transition.

"I took a path to venture that went from entrepreneur to angel investor to randomly becoming a VC to then bracing my reality as a VC."

Brad Feld's quote outlines his unconventional path to venture capital, which started with entrepreneurship and evolved into a venture capital career.

• Brad describes the messiness of transitioning from an angel investor to a VC.
• He emphasizes the importance of focusing on people and products when making investment decisions.
• The transition involved learning to trust founders and CEOs to be in charge.

"It was a mess. And it was a mess for me personally at two levels."

Brad Feld candidly expresses the difficulties he faced while shifting from an angel investor role to a venture capitalist, highlighting the complexity of the transition.

• Brad discusses the importance of product and market opportunities in the investment process.
• He notes that successful companies often have a market opportunity that appears either nonexistent or infinite at the time of investment.
• The conversation also touches on the evolution of a founder's focus from product to company growth.

"The interesting trajectory of that is that early in the life of a company, the product does matter a ton."

This quote by Brad Feld explains the critical role of the product in the early stages of a company's life and how it influences investment decisions.

• Brad observes that mistakes during the transition from product to company are varied.
• He emphasizes the importance of learning from failures and running continuous experiments.
• The notion that one can master the process and avoid all mistakes is challenged by Brad's personal experience.

"It's all over the place. And part of it's because I've made myself so many different categories and types of mistakes."

Brad Feld acknowledges the diversity of mistakes that can occur when a company transitions from focusing on a product to scaling as a company, underscoring the complexity of business growth.

• Brad reflects on how experiencing the ups and downs of the market has made him more pragmatic rather than conservative.
• He underscores the need for optimism and critical thinking in venture capital.
• Brad shares insights on how to navigate hype cycles and maintain a level-headed approach to investing.

"I think it's not made me more conservative. I think it's made me more pragmatic."

Brad Feld's quote conveys how his experiences with market fluctuations have shaped his approach to investing, opting for pragmatism over conservatism.

• The discussion begins with a reflection on the rapid industry growth from 1997 to 2000, followed by a steep decline in 2001 and 2002.
• Critical thinking is emphasized over a simple pattern recognition approach to economic cycles.
• The importance of understanding fundamental economics in businesses is highlighted.
• The concept of a business needing to be fundamentally sound and capable of generating long-term profit is discussed.

"1997 to 2000 was incredible, positive ramp up, and 2001 and 2002 was an even more aggressive ramp down. There are a number of lessons from it." "But the idea that you'd be one of the world's most valuable businesses and your fundamental economic characteristics don't generate a long term profit cycle, well, that's not going to work."

The quotes reflect on the historical economic trends and the critical lesson that for a business to be financially valuable, it must have sound core economic principles that allow it to eventually generate profit.

• Market predictions are often incorrect and random.
• Entrepreneurs should focus on making their businesses endure through various economic cycles.
• The necessity for businesses to navigate through changes such as shifts in capital availability, customer spending, and market downturns is underscored.
• The importance of maintaining an optimistic yet pragmatic approach in venture capital is discussed.

"I have no idea. And more importantly, I don't care. I have never been a predictor." "Make sure you've got a business and you know how to make your business be enduring."

Brad Feld expresses indifference towards market predictions, emphasizing the importance of building a resilient business rather than focusing on trying to predict economic cycles.

• Foundry Group's consistent investment cadence is described.
• The significance of having a clear understanding of where the next funding for a venture platform will come from is explained.
• The strategy of maintaining a consistent investment pace across economic cycles is advocated.

"Yeah, at Foundry Group, we've had a strategy of always invest at roughly the same cadence all the time." "I think you should define your pacing as a fund manager as part of your strategy and then adhere to your pacing."

Brad Feld outlines Foundry Group's investment strategy, which involves maintaining a consistent investment pace regardless of market conditions, suggesting that this approach transcends market cycles.

• The discussion includes differing perspectives on the current oversupply of capital in the market.
• The approach of not overfunding companies prematurely is promoted.
• Historical examples of market overreactions and their aftermath are provided.

"I don't know that the oversupply of capital is the biggest challenge." "But that's not a logical construct. Long term, that's going to normalize."

Brad Feld expresses skepticism about the oversupply of capital being the most significant challenge, noting that current high valuations may not be sustainable in the long term and emphasizing the normalization of market conditions.

• The phrase "run your fucking business" is discussed as advice given to more mature companies.
• The emphasis is on the importance of operating a business efficiently and effectively to accrue value.
• The quote is presented as a strong encouragement to focus on business fundamentals.

"Well, anyone who's ever been involved in a company that I've been an investor in, in a boardroom or CEO at some point, again, not necessarily at the very early stages, because there's so many different things that are going on at the early stages." "It's usually the equivalent of me throwing a fit."

Brad Feld explains that his strong statement is meant to drive home the point that, for a business that has reached a certain level of maturity, focusing on running the business well is essential for value creation.

• The focus is on the importance of a startup's growth rate in relation to its burn rate.
• Startups can be successful even when losing money, provided their growth rate is high.
• CEOs and leadership teams should concentrate on the core economics of their business.
• The goal is to execute business plans while managing capital effectively.

"a month every month, and we're going to now grow based on losing half a million dollars a month every month. And if we lose half a million dollars a month every month, we've got basically capital that will last us forever. And if we can get our growth rate in the 50, 60, 70, 80, 90% on that kind of a burn, that's equivalent to being effectively profitable because we could easily change those dials, slow our growth down, become profitable."

The quote explains a strategy where a company focuses on aggressive growth even while incurring significant losses, with the understanding that the growth rate can be adjusted to achieve profitability when necessary.

• The concept of "fake CEO" days is introduced, referring to time spent on activities that don't contribute to running the business.
• CEOs should prioritize their time on tasks that directly impact their business's success.
• The term "fake CEO" originated from Mark Pinkus of Zynga, describing days spent on non-essential activities.

"There's one other layer of that, which is a lot of times entrepreneurs do things that are not really additive to what's needed to their business. [...] I think ceos spend a lot of time having fake CEO days."

The quote emphasizes the importance of CEOs focusing on actions that truly add value to their business rather than being distracted by peripheral activities.

• VCs can also fall into the trap of "fake VC" days, which involve low-impact activities like excessive networking and visibility.
• Brad Feld suggests that VCs should focus on activities that generate economic value for their funds and portfolio companies.
• Time should be spent on meaningful collaborations rather than superficial interactions.

"Oh, I don't know. Maybe spending some time doing interviews on podcasts, for sure. [...] And it was just this enormous amount of what was effectively lightweight, low impact networking that consumed a lot of time, maybe raised my profile some, certainly improved my network, but didn't really get to the core of helping generate economic value for the fund and for the companies that I was involved in."

Brad Feld describes activities that are often mistaken for productivity but do not contribute significantly to the core objectives of venture capitalists.

• Establishing genuine relationships is crucial for effective collaboration in venture capital.
• Real connections are formed through working together, not through superficial networking.
• It is important to engage with other VCs and entrepreneurs in a meaningful way that goes beyond just socializing.

"The only real way to get to know someone is to do something with them. [...] And how they behave in that context and how they interact and relate to you in that context is what matters."

Brad Feld discusses the importance of building relationships through collaboration and shared experiences, particularly in challenging situations.

• Early board members should find ways to be helpful to founders rather than asserting authority.
• The primary responsibility of board members is to support the CEO and contribute to the company's success.
• Board interactions should be continuous and involved, not limited to formal meetings.

"As an early board member, try to figure out ways that you can work with the founders to be really helpful to them, rather than put yourself in a one up, one down position with the founders."

Brad Feld provides advice on how to be an effective board member by focusing on supporting and working with the founders.

• Board members should model behavior that promotes safety and trust for CEOs.
• Personal relationships with entrepreneurs can enhance the level of trust and safety.
• Radical self-inquiry and personal development are important for both investors and CEOs to improve leadership and build strong relationships.

"The only way to get that is to do stuff together. So the surface level, I think, is that binary switch of do I want to even engage or not in the first place? But the real action is when you're doing stuff together."

The quote highlights the necessity of active collaboration to create a sense of safety and trust between investors and CEOs.

• The discussion shifts to Brad Feld's book "Venture Deals," which has been influential in the VC community.
• The reason behind writing the book and its impact on educating VCs and entrepreneurs is explored.

"Now this book has been so formative, I mean, for me, but also a generation of vcs over the last decade, really."

The quote reflects the significance of "Venture Deals" in shaping the understanding of venture capital for a new generation of investors.

• Brad Feld began blogging at feld.com due to his interest in RSS.
• Writing publicly was seen as a muscle-building exercise.
• The blog later became a platform for sharing insights on venture deals.

"I started blogging. And I really just started blogging feld.com because I was interested in RSS as a protocol."

This quote explains the initial motivation behind Brad Feld's blogging, which was an interest in the technology of RSS feeds.

• Brad Feld and his partner Jason Mendelsohn encountered a challenging investment deal.
• They faced issues with the entrepreneur's legal representation and the existing investor's strange demands.
• They recommended a new lawyer to the entrepreneur, which led to a successful investment deal.

"And it was stupid. We're making an investment in something and literally the process was stupid."

Brad Feld is reflecting on the inefficiencies and difficulties they encountered during an investment process, which sparked the idea to improve the system.

• The term sheet process was identified as problematic for entrepreneurs.
• Brad Feld and Jason Mendelsohn wrote about 30 blog posts to educate on venture deals.
• The blog posts became popular and were used in academic settings.

"This term sheet thing is stupid. It's so fundamental and we've done so many of these, and over and over again, the entrepreneurs just have no insight into the specifics, what matters, why it matters, how it matters, how to think about it, what they should be negotiating about, how to negotiate."

Brad Feld is discussing the lack of understanding entrepreneurs had about term sheets, which led to the creation of educational blog posts.

• The blog posts on venture deals were converted into a book called "Venture Deals."
• Writing a book was more challenging than anticipated, with the original posts making up only 10% of the book.
• The book includes additional content such as chapters on VC fund workings and letters of intent (LOI).

"Let's write a book. Let's take those blog posts and turn it into a book called Venture Deals."

This quote marks the decision to expand the educational content from blog posts into a comprehensive book format.

• Subsequent editions of the book have added new sections and refined existing content for readability.
• Topics like crowdfunding, venture debt, and hiring a banker for company sales were included in later editions.
• Feedback from readers and friends helped shape the content of the book.

"Neither of us expected it to be. We fantasize about it being an important book and a popular book, but it's been very rewarding, the impact the book has had."

Brad Feld reflects on the unexpected success and positive impact of the "Venture Deals" book.

• The book "Venture Deals" has had a foundational impact on individuals in the venture industry.
• Brad Feld's work has influenced people's understanding and love for venture capital.

"For me the impact has been completely foundational to really also my love of venture in the early days it was kind of one of the first resources that I picked up and it spurred so much of why I love our industry so much."

The speaker expresses the significant influence that "Venture Deals" had on their professional development and passion for venture capital.

• Brad Feld advocates for directness when saying no.
• Being clear and straightforward is often appreciated by others.

"Simply say no. The number of people that are afraid to just say I'm not interested continue to blow my mind."

Brad Feld emphasizes the importance of being direct and unambiguous when declining something, which he finds surprisingly rare.

• Brad Feld recommends the books "Reboot" and "The Moment of Lift" by Melinda Gates.
• He values books that combine memoir, storytelling, philosophy, and advice.

"I think that Jerry's book is an incredibly important book to read for any entrepreneur and any leader."

Brad Feld is recommending Jerry Colonna's book "Reboot," highlighting its importance for entrepreneurs and leaders.

• Brad Feld is not particularly concerned with broad changes in venture capital.
• He wishes for an increased signal-to-noise ratio, with more genuine interactions.

"I feel like we're in a moment of peak noise. There's just an enormous amount of noise in the system."

Brad Feld is commenting on the overwhelming amount of irrelevant information in the venture capital industry, longing for more meaningful communication.

• Brad Feld finds declarative advice difficult to process for entrepreneurs and VCs.
• He suggests using assertions as data for others to consider rather than directives.

"I think declarative advice is really difficult to process if you're an entrepreneur, and it's also very difficult to process if you're a vc, especially in real time."

Brad Feld criticizes the giving of absolute advice without room for discussion or consideration, advocating for a more balanced approach.

• Boundless is a Seattle-based company helping immigrants with green cards.
• Brad Feld was motivated by the founder's story and the importance of legal immigration.

"Boundless is company that's focused on helping immigrants get green cards."

Brad Feld shares his latest investment in Boundless, underlining the company's mission to assist with the U.S. immigration process.

• Brad Feld expresses his delight in the progress of the podcast and values his friendship with the host.
• The host thanks Brad Feld for his support and contributions to the podcast.

"Harry it's a total delight. It's fabulous to see the progress you've made since episode 65 on lots of different dimensions. But I treasure your friendship and thanks for having me on the show again."

Brad Feld conveys his enjoyment and appreciation for the podcast and the relationship with the host.

• The podcast promotes a giveaway of a signed copy of "Venture Deals."
• Acknowledgments are given to Activecampaign, Intercom, and Ezra for their services.
• The host expresses gratitude for the support and looks forward to future episodes.

"And if you'd like to win the incredible venture deals, then simply email into venturedeals@foundrygroup.com with the code first episode for your chance to win a signed copy."

The host announces a giveaway, providing listeners with an opportunity to win a signed book, and acknowledges various sponsors and services.