20VC How 50% Of VCs Hurt Entrepreneurs, How To Build A Relationship Of Trust With Your VC and How Entrepreneurs Can Detect VC BS with Jason Mendelson, CoFounder @ Foundry Group



In this episode of "20 minutes VC," host Harry Stebbings announces his participation in the London Marathon alongside Fred Desta of Excel to support MsUK, a charity aiding multiple sclerosis, which has personally affected Stebbings' family. He then welcomes Jason Mendelson, co-founder of Foundry Group, a leading VC fund with investments like Fitbit, Sendgrid, and Makerbot. Mendelson shares his journey from lawyer to accidental VC, emphasizing the importance of transparency and trust in VC-entrepreneur relationships. He criticizes the narcissism in the venture community and stresses the significance of consistent investment regardless of market conditions. Additionally, Mendelson highlights the potential for successful companies across the US, not just in tech hubs, and Foundry Group's recent investment in Borrowed & Blue, aimed at revamping the online wedding industry. Throughout, Stebbings also endorses Intercom and Cooley for their services in supporting businesses and venture capital firms.

Summary Notes

Introduction to the 20 Minute VC Show and Marathon Announcement

  • Harry Stebbings hosts the 20 Minute VC podcast and is active on Snapchat.
  • Harry announces his participation in the London Marathon with Fred Desta from Excel, running for MsUK due to personal connection with multiple sclerosis.
  • Harry requests support for MsUK through donations, providing links in the show notes.
  • Foundry Group, a leading VC fund, is featured in the episode with co-founder Jason Mendelson as the guest.

Hello and welcome back to another week in the world of the 20 minutes VC with your host Harry Stebbings, and you can find me sharing inordinate amounts of mojito snaps on Snapchat at htebbings with two b's. Now, before we dive into the show today, I do have a little announcement. I'm delighted to say that Fred Desta, general partner at Excel and former guest, and I will be running the London Marathon in April.

The introduction sets the stage for the podcast episode, highlighting Harry's online presence and the upcoming charity event he's participating in.

Jason Mendelson's Background and Achievements

  • Jason Mendelson is a co-founder of Foundry Group, a VC fund with notable investments.
  • He previously co-founded SRS Acquiom, a major M&A closing platform.
  • Jason served as managing director and general counsel at Mobius Venture Capital, where he oversaw operations.
  • He is the co-author of "Venture Deals," a guide to venture capital.

Now Jason is a co founder at Foundry Group, one of the leading VC funds of the past decade, with investments in the likes of Fitbit, Sendgrid and Makerbot, just to name a few. Prior to foundry, Jason cofounded SRS Acquiom, the largest merger and acquisition closing platform that completes over 200 billion in merger transactions.

Jason's credentials are laid out, emphasizing his experience in venture capital, entrepreneurship, and law, as well as his contributions to educating others about venture capital through his book.

Introduction of Intercom and Cooley

  • Intercom offers an integrated messaging platform for marketing and customer support.
  • Cooley is a global law firm specializing in startups and venture capital, having formed numerous venture funds.

However, before we dive into the show stay, you must check out Intercom. Intercom is the first to bring messaging products for marketing and customer support together on one integrated platform.

Intercom and Cooley are introduced as businesses that provide essential services to startups and venture capitalists, highlighting their roles in the industry.

Jason Mendelson's Journey to Venture Capital

  • Jason began his career as a lawyer at Cooley Godward, aspiring to lead the firm.
  • His music and software background connected him with entrepreneurs and VCs.
  • He became general counsel at Mobius Venture Capital, where he met his future Foundry Group partners.
  • Jason transitioned from law to venture capital, initially assisting to avoid lawsuits, then taking on board roles as companies succeeded.
  • Entrepreneurs began seeking Jason for funding, leading to his realization that he had become a venture capitalist.

So I started off as a lawyer at Cooley Godward in Silicon Valley. I assumed that I would be a lawyer forever and I would run the firm one day. The joke was, when I walked in there, day one, I act like I owned the place.

Jason's narrative explains his unexpected path from law to venture capital, detailing the pivotal moments and mindset that led to his career shift.

Transition from General Counsel to Venture Capitalist

  • Jason recalls a significant mistake as a lawyer that made him realize his skills had shifted towards venture capital.
  • His involvement in successful companies and relationships with entrepreneurs affirmed his new identity as a VC.

There was a point, I was sitting in my office and I made the most boneheaded lawyer mistake in the world, one that should get me fired. And I said, oh my God, I'm a horrible attorney. And then as I had a moment of like, this sucks, I've lost my skills.

Jason reflects on a personal anecdote that marked his transition from practicing law to fully embracing his role as a venture capitalist.

Transparency Between Entrepreneurs and VCs

  • The relationship between entrepreneurs and VCs has historically lacked transparency.
  • VC-driven dynamics previously dominated, with VCs holding power over entrepreneurs.
  • Jason and Brad Feld aimed to educate entrepreneurs and challenge non-transparent VCs through their term sheet series on their blog.

I think we're sort of in a local minima, if I use a math term. So if you go back in history through circa early 2000s, certainly through 2003 or four, there was almost no transparency between entrepreneurs and venture capitalists.

The discussion on transparency addresses the evolution of the VC-entrepreneur relationship, highlighting efforts to improve openness and fairness in the industry.

Transparency and Honesty in Venture Capital

  • The initial reaction to transparency in venture capital was divided; entrepreneurs appreciated it, while VCs criticized it.
  • Social media and other platforms have increased transparency in venture capital over time.
  • Some VCs claim to be transparent but revert to less honest practices.
  • The use of phrases like "trust me" or "frankly" can indicate insincerity.

"Unfortunately, I think a lot of these tools now are being used the wrong way." This quote highlights the misuse of tools meant for transparency, suggesting they are often used to create a false sense of openness.

"There are a lot of vcs who like to claim they're transparent or say trust me." This quote indicates skepticism towards VCs who overtly claim transparency, suggesting that such claims may be disingenuous.

"I've always learned when somebody says trust me or somebody starts a word, a sentence with the word frankly, they're probably lying to me." This quote conveys a personal heuristic for detecting dishonesty, implying that overt assurances of trustworthiness are red flags.

Detecting Dishonesty in VC Speak

  • The amount of money a VC firm spends on PR and marketing can be indicative of their honesty.
  • Genuine marketing efforts are sporadic and not focused on self-promotion.
  • Many VC firms do not significantly help entrepreneurs, and some even harm them.
  • Deep relationships with entrepreneurs can reveal the true nature of VCs.

"One, I look at how much money the VC firm spends on PR and marketing." This quote suggests that excessive spending on PR and marketing by VC firms may correlate with less genuine intentions.

"I would say just on the boards that I'm on, a good half of the vcs that I share these boards with, I don't respect, I don't think they're transparent." This quote reveals a personal observation about the lack of respect and transparency among many VCs the speaker has worked with.

Respect and Professional Admiration

  • Respect is earned through actions, not stated missions.
  • Qualities like self-awareness, resilience, thoughtfulness, and empathy garner respect.
  • Respect is based on a stringent set of criteria and leads to loyalty.

"I mean, in general, I respect people who tell me what they're going to do and get it done and do it in a way that is, on the balance, good and doesn't have to require somebody else losing to win." This quote defines the speaker's criteria for respect, emphasizing integrity and win-win outcomes.

Establishing Clarity and Trust in VC-Entrepreneur Relationships

  • Being direct and transparent from the start is crucial for a trustworthy relationship.
  • CEOs need a confidant for the challenges they can't share broadly.
  • Over-promising and under-delivering erodes trust, especially regarding financials.

"Well, for me, I've decided that having no filter is both my biggest asset and my greatest curse." This quote explains the speaker's personal approach to transparency and its impact on relationships.

"So I want to deal with the hard issues up front and the most important issues up front." This quote emphasizes the importance of addressing difficult topics early to maintain trust in VC-entrepreneur relationships.

Board Meeting Dynamics and Preparation

  • Sending board meeting minutes in advance allows for strategic discussions rather than reporting exercises.
  • Preparing board members ahead of time builds trust and accountability.
  • Board meetings should focus on strategy, not recapping past events.

"I think it should be the only strategy." This quote advocates for thorough preparation of board members before meetings as a best practice.

"Boy, 3 hours of somebody talking at me going, this is what we did next, and this is what we did next. Oh, my gosh, I want to shoot myself." This quote expresses disdain for unproductive board meetings that lack strategic focus.

Board Meeting Management and Efficiency

  • Board meetings require significant preparation and attendance time.
  • Speaker C describes 25% of board meetings as efficient and beneficial, with pre-meeting discussions and focused agendas.
  • Effective board meetings prioritize mutual benefit and impact on the business.
  • Majority of board meetings suffer from disengaged members and inefficient practices.

Yeah, so I'm sort of at the point, having done this for a lot of years now, where board meetings to me are spelled B-O-R-E-D... I'd say about 25% of the boards I'm on run really, really well and tight, where they send out the information beforehand, there's discussion whether it's over a Google Doc or over email beforehand, and you come in and you hit the important stuff.

Speaker C expresses disillusionment with most board meetings but acknowledges a minority that are well-managed and productive.

Geographic Diversity in Company Success

  • Successful companies emerge from various locations, not just major tech hubs.
  • Speaker C argues against the notion that big businesses can only be built in Silicon Valley.
  • Foundry Group invests across the United States and sees success nationwide.
  • Different locations offer unique cultures and advantages for startups.

Yeah, I mean, look, we've been doing this for ten years. We've invested in over 100 companies... It is that myopic arrogance which makes me laugh, because that gives us great opportunities to build wonderful companies elsewhere...

Speaker C highlights the success of companies outside traditional tech centers and criticizes the narrow perspective that undervalues geographic diversity.

Pillars of a Thriving Ecosystem

  • A thriving ecosystem requires a creative class of entrepreneurs.
  • Support systems, including legal, accounting, and financial services, are crucial.
  • Embracing a culture of failure is essential to nurture entrepreneurship.
  • Universities and the ability to attract talent are additional advantages.
  • Boulder exemplifies an ecosystem with these qualities.

Well, I mean, the first pillar is entrepreneurs, right?... But it's more importantly, the pillar of having the culture of failure is super important... It's also added bonus if you have a university around that's spinning off ideas and smart people.

Speaker C outlines the fundamental components of a successful entrepreneurial ecosystem, emphasizing the importance of a culture that respects failure and the benefits of universities and talent attraction.

Regional Deal Competition and Investment Approach

  • Foundry Group's brand and approach to investment are consistent across regions.
  • Deal competition and valuation differences are minimal outside Silicon Valley and New York.
  • The firm prioritizes sincere relationships with entrepreneurs over price competition.

Not really. I think our brand, which is ironic because we don't really try to create one, but there's four partners and there's no associates... No matter where we go, there's probably on the margin a little more valuation creep in the Silicon Valley in New York, but it's not material.

Speaker C explains that their investment strategy and brand recognition allow them to maintain a consistent approach regardless of regional deal competition.

Price as a Factor in Investment Decisions

  • Early-stage investment decisions should not be solely based on price.
  • At later stages, price becomes a more significant financial consideration.
  • Foundry Group avoids price chasing and focuses on genuine partnerships with entrepreneurs.

If I'm the only vc talking to the entrepreneur and we're both in love... Where I don't like to be in this situation is if there's multiple term sheets and the entrepreneur is focused on price... I'm not going to play this game of continually being walked up on price.

Speaker C discusses the role of price in investment decisions, emphasizing the importance of the relationship with the entrepreneur over the valuation in early-stage investments.

Narcissism in the Venture Capital Ecosystem

  • The VC and startup ecosystem has become increasingly narcissistic.
  • Speaker C criticizes the superficiality of social media and the self-promotion of individuals in the industry.

I mean, I think the entire ecosystem's become narcissistic in many ways... living the fake lives on social media and the television and hanging out with Hollywood stars...

Speaker C laments the narcissistic tendencies within the venture capital and startup communities, pointing to the inauthentic behavior on social media and the desire for celebrity association.

Evolution of Entrepreneurial Motivation

  • Early entrepreneurs were driven by an innate need to create, not for fame or wealth.
  • The industry has changed with some now entering for fame and riches.
  • Authenticity of entrepreneurship has been affected by these motivations.

It was innate in them. It wasn't about the fame, it wasn't about the fortune.

The quote emphasizes the intrinsic motivation that early entrepreneurs had, which was not focused on external rewards like fame or fortune.

Perception of Silicon Valley

  • The TV show "Silicon Valley" is uncomfortably close to reality for some in the industry.
  • It evokes sadness in those who remember the industry's more authentic past.

I can't even watch the television show Silicon Valley because to me, a lot of that looks like a documentary to me, and it just makes me sad.

This quote conveys a sense of disillusionment with the current portrayal of the tech industry, suggesting that the show hits too close to home for those who have witnessed the industry's evolution.

Innovation During Downtimes

  • Downtimes are often seen as periods of real innovation.
  • True innovators persist, while fair-weather participants, like some venture capitalists, may exit.
  • Foundry Group's consistent investment approach has led to success regardless of market conditions.

Some of the best deals we've ever done were with entrepreneurs in a down period where no other vcs would invest in them.

This quote highlights Foundry Group's strategy of investing consistently, which has resulted in successful deals during economic downturns when other investors were hesitant.

Mentors and Influences

  • Significant mentors can come from both professional and personal spheres.
  • Mentors can provide critical guidance and confidence, sometimes pushing individuals toward opportunities they may not have pursued on their own.

Eric Jensen... taught me everything I knew as a lawyer. He was the one who literally kicked me out the door to take the job at Mobius.

The quote reflects the profound impact a mentor can have on one's career path, in this case, encouraging a significant professional transition.

The other one is my dad, who he's always been, the guy who's told me I was going to do some great things even when I had no confidence I would.

This quote illustrates the emotional support and encouragement that can come from family, particularly a parent, in building one's self-belief and ambition.

Favorite Reading

  • Personal favorite books or writings can be formative, offering both inspiration and cautionary lessons.
  • Changes in preferred newsletters or blogs can impact daily reading habits.

Atlas Shrugged... it was sort of my first introduction to entrepreneurship. And it was really impactful that one person could make a difference.

The quote underscores the influence of Ayn Rand's "Atlas Shrugged" on the speaker's understanding of entrepreneurship and individual impact.

Light-hearted Anecdotes

  • Sharing humorous personal stories can humanize and add levity to discussions.
  • Anecdotes can reveal relatable, human aspects of business relationships and decision-making.

We charged it to our partner, Ryan McIntyre's room, who was also staying at the hotel.

This quote recounts a playful story of how the speakers dealt with an unexpectedly expensive purchase, showcasing their camaraderie and humor.

Latest Investment Decisions

  • Investment decisions can be driven by personal experiences and the desire to solve widespread problems.
  • The vision to disrupt and improve existing industries can be a compelling reason to invest.

We just announced this week an investment in a company called borrowed in blue... I got married two years ago and it was a pain in the neck and this is not only scratching my itch, but I believe the itch of a lot of people who are getting married.

The quote reveals the personal motivation behind a recent investment, linking the speaker's own wedding experience to a broader market need for innovation in the wedding industry.

Acknowledgements and Upcoming Events

  • Expressing gratitude for guests and introductions fosters a sense of community and appreciation.
  • Promoting upcoming charitable events invites support and engagement from the audience.

I so appreciate that. And do not forget what I said earlier about the marathon.

This quote serves as a reminder and appreciation for the support received, while also promoting a charitable cause.

Promotions and Recommendations

  • Endorsements of tools and services can provide value to listeners and reflect the speaker's preferences for efficiency and client service.
  • Recommendations may include platforms that enhance business communication and legal services tailored to startups and venture capital.

Intercom is the first to bring messaging products for marketing and customer support together on one integrated platform.

The quote promotes Intercom as a comprehensive solution for customer engagement, suggesting its utility for businesses looking to improve communication and support.

Cooley is the global law firm built around startups and venture capital firms.

This quote highlights Cooley's reputation and expertise in serving the legal needs of startups and venture capital firms, positioning them as a go-to resource for listeners involved in these sectors.

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