# 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 20VC · Sep 30, 2019 · 51 min · 10,467 words Speakers: Harry Stebbings, Brad Feld Source: https://www.996.fm/episodes/20vc--ep-38fa6f98/ ## Cold open **Harry Stebbings** [0:00]: You know, people often ask me, Harry, how did you fall in love with Venture at the age of 13? 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 Brad Feld and Jason Mendelson. In many ways, it has guided a large part of my life and passions. And now there's a new release of Venture Deals, an updated edition, the best yet. And thanks to our friends at SVB, Silicon Valley Bank, we will be giving away a 100 copies to a 100 lucky listeners. Now for your chance to win a signed copy, email venturedeals@foundrygroup.com with the code first episode for your chance to win. This is made possible, as I said, by SVB, the bank that works with the brightest minds in technology, helping to move your idea forward. ## Intro **Harry Stebbings** [0:45]: And to honor this very special giveaway, I could not be more thrilled to welcome Brad Feld back to the show today. Bluntly, I feel incredibly lucky and proud to call him a dear friend and mentor. He's always been there for me and to me is one of the most special and wonderful people in this ecosystem. As one of the founders of Foundry Group, his firm have backed the likes of Zynga, SendGrid, Fitbit, and many more incredible companies. His writing is globally read by some of the brightest minds in our industry, and I think our industry owes Jason and Brad a huge debt of gratitude for their incredible work on venture deals. 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And last but by no means least, did you know that fifty percent of all cancers are detected late and that people who detect cancer early are four times more likely to survive? Ezra offers radiation free full body MRI scans that look for cancer, precursors to cancer, and other disease states that can compromise your health. I'm excited to announce that New York City based Ezra will be launching in San Francisco and Los Angeles in the coming weeks. The Ezra full body scan costs $1,950, and they also offer installment plans for as little as a $180 per month. Also, minute VC listeners get 10% off their first Ezra scan by signing up at ezra.com/10vc. That's /10vc. But I cannot wait for this one. So without further ado, I'm delighted to welcome Brad Feld at Foundry Group. 3210. You have now arrived at your destination. ## Conversation **Harry Stebbings** [3:38]: Brad, what can I say? It is absolutely fantastic to have you on the show. It's been two years since our last episode, but thank you so much for joining me today, Brad. I'm delighted to be here. What episode are we on? We are on episode 2,853 just to make me feel really old. **Brad Feld** [3:54]: Unbelievable. I looked it up before the show, and I was on episode 65. **Harry Stebbings** [3:58]: There we go. I mean **Brad Feld** [4:00]: crazy, Harry. **Harry Stebbings** [4:01]: Let's just say I've done my ten thousand hours, but I do wanna start. You you mentioned episode 65 there, Brad. I wanna start with that. And for those that maybe didn't hear episode 65 because I think it was about only my mother that listened back then, tell us, how did you make your way into the world of venture, and what was the founding of Foundry for you and the team? **Brad Feld** [4:19]: Sure. I took a path to venture that went from entrepreneur to angel investor to randomly becoming reality as a VC. That path was I started a company in the nineteen eighties, which was a self funded business. We raised $10, and we had 10 shares of stock, a dollar a share. Fortunately, when we sold it, it was worth a lot more than a dollar a share, but we still had 10 shares of stock. That company was acquired by a public company in 1993. So I got the experience of going from being a CEO of a tiny little company to being on the executive team of a fast growing public company that also then bought a bunch of companies. So I started investing basically all of the money I made from that first sale. I invested in other startups from '94 to '96. I also learned how to buy companies because the guys that had bought my company were masters at that. Two people, Len Fastler, who's still one of my closest mentors, and Jared Polk, also a very good friend. And from that, as an angel investor, I did about 40 angel investors in a three year period and woke up one day and was investing with a group of people that were part of a company called SoftBank. And that was in 1996. And four of us, me and three of the people that worked for SoftBank ended up raising a fund that was called SoftBank Technology Ventures. It was originally called SoftBank Technology Ventures four. It was our first fund, but SoftBank had three prior funds. And SoftBank was our sponsor, so they provided some of the capital, and we were part of their ecosystem. And all of a sudden, woke up, and I was a VC. **Harry Stebbings** [5:46]: Can I ask, Brad? And this is a transition that I've been going through, and it's not necessarily an easy one, actually, I think. And I don't think it's talked about enough. But in terms of transitioning from angel to VC, how did you find that transition in terms of the institutionalization of your mindset and your process? Was it challenging? And how did you go through that process? **Brad Feld** [6:03]: It was a mess, and it was a mess for me personally at two levels. One was the timing, which was this incredibly chaotic and aggressive investing time frame. If you go back to 1995, '96, that was the beginning of the rise of the commercial Internet. And it was a very transitional time for investing because nobody really thought when I say nobody, very few people really understood what the Internet meant and what the implications of the Internet were gonna be. There were some very early leaders and some VCs who were investing in it. But generally speaking, there was a lot of misunderstanding around what the Internet was, and the tools suck. And so you ended up in this world where building very, very basic things was very hard. So existing companies, you know, large businesses that had significant software businesses, they sort of looked at it and like this is a toy. Right? So it's still very in the emergent stage. So that that was one layer. The other layer was I was going through my own transition from being an operator to being an investor. And when I started as an angel investor, I really was only focused on two things when I made a decision to invest in a company. The first was the people. Did I wanna be partners with these people? And the second was the product, and did I care about the product? Did I have an affinity for And I was a very product centric entrepreneur and product centric investor, so that was important to me. But the transition that was difficult was learning early that I wasn't in charge, that the founders were in charge, the CEO was in charge. I was chairman of a handful of companies. I cofounded a handful of these companies. I still straddled the operator investor boundary line, and it took until the collapse of the Internet bubble in 2001, 2002 for me to just sort of raise my hands and say, can't do both of these. I can't be an operator and an investor. I have to choose, and I chose to be an investor at that point. **Harry Stebbings** [7:48]: I expected this to go off schedule. I didn't quite expect it this early, have to admit. But I do just have to ask one element there. You said obviously about the primary element of the founder, but then also the product. I'm also today much more enamored and intrigued by the market from a meta perspective, always concerned that products change so rapidly, iterations occur, and actually the product you invest in today isn't what it is tomorrow. How do you think about product versus market and that thought process process when evaluating opportunities today? So most of the **Brad Feld** [8:14]: companies that I've invested in over the years that have been really successful, at the point of the initial investment, the market opportunity, you'd look at it and you'd either say it was zero or infinite. And it was one of these things where the venture cliche of total available market, especially at the early stages, is really not that helpful, especially when you're coming into a world with a product obsession, even if you're displacing an existing incumbent product. The interesting trajectory of that is that early in the life of a company, the product does matter a ton. As the company starts to grow and develop, the great founding CEOs start to view the company itself as the product. So they evolve from being product focused and the thing that they're really working on all the time is that initial product, to being company focused where what they're working on is the growth and development of the company. You actually see this in some companies that look like they're scaling really well and then fall apart for various reasons is that the founding CEOs often get distracted and stop putting the energy into really working on the company. And really charismatic founders can often get a lot of money raised, before you really understand that there's cracks in the foundation because there isn't that scaling from product company. **Harry Stebbings** [9:25]: Can I ask, in that scale from product to company, where do you see commonalities maybe in where people make mistakes, be it not surrounding themselves with that experience c suite, whatever that may be? Where do you see the commonalities in terms of the product to company transition? It's all over the place, and **Brad Feld** [9:38]: part of it's because I've made myself so many different categories and types of mistakes. I think a really good investor and really good entrepreneurs recognize that the path to success is a combination of endless experiments where there's two branches. There's a success or there's failure on the individual experiment. If you fail, you learn what you can from the experiment and then go run the next experiment. If you succeed with the experiment, you do more of that. And when I think about all the different categories of experiments that I've been involved in, whether I've been the one running them or somebody else and then founders of a company or the CEO of a company has been running them and failed, if I look at a successful company, you know, there's hundreds or thousands of these experiments along the way. I look across all the different companies I've been involved in, there's not a category that you say, well, this one happens over and over again. There are lots of different categories of mistakes that happen over and over again. And I have an internal joke that I say to myself and Amy. My wife hears me say frustrated with myself around making a mistake, which is, man, I'm not gonna make that mistake a fourth time. Right? It's this whole idea that, okay. I made a mistake, and I learned from it. I never make it again. And, like, you know, twenty years later, you're like, damn it. I made that mistake again. And it's just the nature of this kind of stuff is that there's so many degrees of freedom in creating a business that you don't end up in this place where you have like, okay. I've got total mastery over this, and it's gonna work now every single time. **Harry Stebbings** [11:00]: Do have to ask? You mentioned your entry there into Venture. And I had Josh Hoffman on the show before, and he spoke about kind of experiencing the booms and busts. He said it made him more conservative as an investing mentality. How did seeing that, having now kind of witnessed the time that you spent at SoftBank and also the.com, how did that really impact your investing mentality today, do you think, Brad? **Brad Feld** [11:19]: Couple of different ways. I think it's not made me more conservative. I think it's made me more pragmatic. That's the word I would choose. I think to be successful as a VC and frankly as an entrepreneur, you have to be optimistic. You have to be fundamentally a positive, optimistic thinker. You can't be cynical. You can be cranky. You can have, you know, sort of abrasive personality. That's different. But you fundamentally, at your core, have to be optimistic. The challenge with being optimistic is when everyone is shouting from the rooftops about how awesome something is or everyone is screaming about how awful something is, you end up having to put a lot of energy into figuring out critically what you think about a particular situation. And at Foundry, my partners and I talk about it as critical thinking, and, you know, we make plenty of mistakes, but we like to say we make our mistakes, not somebody else's mistake. And in the context of that, this idea of, you know, reflecting on the Internet bubble and the experience of both the up and the down. I mean, 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 if you take that and just apply that and say, okay. Well, that happened. That's gonna happen again, and that's gonna happen again, and that's gonna happen again. That's not critical thinking. If you look at the individual mistakes that were made along the way and you can abstract them out and say, okay. Well, that aspect of, for example, suspension of disbelief around the core fundamental economics of a business, at some point, the business has to be a good business for it to be financially valuable. That's something that's actually quite useful. And it doesn't mean that at the early stages of a business, you would say, well, you know, you gotta get profitable, you know, right now or else you're dead. No. You can have a totally different trajectory. 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 gonna work. So it's figuring out those lessons, abstracting them, but still carrying on with a very optimistic view of what's **Harry Stebbings** [13:30]: going on and how it works. I mean, I love that in terms of kind of having that and retaining that optimistic view. It it does make me think that we're in the longest bull market we've seen in many, many years, many decades even, almost to a case where everything seems so good that then you say it will continue in this way forever. Now some on the show said that we're in a thirty year shift towards all industries adopting technology, and this is just gonna continue. And others say, you can never avoid market cycles. We will see a downturn. I'm interested, Brad. Where do you land on this, and will it continue forever? **Brad Feld** [13:58]: I have no idea. And more importantly, I don't care. I have never been a predictor. I'm very careful at the end of the year when my inbox fills up with people sending, you know, from various magazines and press things, sending me emails saying, what are your 10 predictions for year plus one? I'm very, very careful to hit right bracket on all of them immediately and make them disappear from my inbox. So the interesting thing about where we are is it's very easy to prognosticate about what's going to happen with certainty, and it's almost guaranteed that those prognostications are gonna be incorrect, and any one individual prognostication will be incorrect. Somebody will be right, but it's random. And there are many, many, many more intelligent thinkers about the macro dynamics in the macro cycle. And the more important thing I think for entrepreneurs specifically is to understand how to make your business enduring through whatever the cycle dynamics exist. Make sure you've got a business and you know how to make your business be enduring if all of a sudden the availability of capital reverses rapidly, or if capital becomes much more expensive, or if a very significant percentage of your customer base suddenly withdraws budget and stops buying whatever it is you're selling, or if, for example, Christmas doesn't happen. There's a whole bunch of companies that have already forgotten that in 2008, Christmas literally didn't happen, and it didn't happen because of the global downturn recession, whatever, financial crisis. And the interesting thing was, I think, like, two months before in the August, September cycle leading into Christmas, retailers were placing the biggest orders for products ever in the history of Christmas. Like, there was the expectation that there was gonna be this incredible q four, and then it just didn't nobody showed up because everybody freaked out because all of a sudden, there was this rapid reversal of the macro. Macro. So I think it's more important to, as a entrepreneur specifically, understand how to think about what the future cycles might be and how to respond to them. As a VC, I think VCs take this forward looking, again, I used the word optimism earlier, optimistic posture. They need to for as long as they can. I used the word pragmatic. When things change, you have to be pragmatic. If you're reactionary and fearful and, you know, all of a sudden everybody says, oh my god, the world is ending. You know, you must do these things. As a VC, that's not that helpful. It's more helpful to have a steady hand and say, alright. Here's where we're at. Let's figure out how to get through and navigate what might look like something that's not nearly as positive as the thing we were just experiencing three minutes ago. And that applies to the macro, but it also applies to everything that happens in a business on a day to day basis because there's all kinds of things that are terminal for company even when times are really good. And as an investor, if you can help the companies either navigate through the things that are potentially terminal for them or just deal with your reality when something's all fucked up and it's not going well and deal with it. And sometimes you get to a better place and sometimes you don't, but that's part of your job as an investor. **Harry Stebbings** [17:05]: Can I ask, putting on the fund manager hat, I'd I'm super interested to hear you said there about kind of navigating the landscape as a founder? In terms of as a fund manager, I speak to a lot, and they say they're changing their cadence of investing. Either if they've just raised the fund, they're going much slower so they can hold down until hopefully that supposed impending winter's over, or they're spending it much quicker to raise the next fund and have that dry powder. How do you think about changing cadence of investing according to potential downturn and that mindset? How would you respond and think about that? **Brad Feld** [17:33]: Yeah. At Foundry Group, we've had a strategy of always invest at roughly the same cadence all the time. So we make about 10 new investments a year, and we've been making about 10 new investments a year since 2007 when we started Foundry. Some years, we make 12. Some years, we make eight. So it's not that we have to make 10, but it's a little bit of variability. And that cadence is one where we believe that it will transcend all of the cycle dynamics. It's important as a venture platform to understand where your next money is coming from for your next fund. So having a deep relationship with your existing limited partners. And if you're gonna raise your first fund, understanding whether your existing LPs are gonna be your next fund's LPs or whether you're gonna raise a bigger fund or whether you're gonna add different LPs. So understanding that complexion is important. We've taken a strategy where our first four funds were all exactly the same size and were roughly the same LP base. So every three years, we raised a new fund. And if you think about the timing, right, we raised our first fund in 2007, we raised our next fund in 2010, we raised another fund in 2013, we raised another fund in 2016, and you could say, you know, well, we've been in the longest bull cycle forever. In two thousand and eight and nine, again, this thing that, you whatever know, the label is, global financial crisis applied, like, the whole world was gonna end. Every bank was gonna be nationalized. Governments were gonna run everything. Money wasn't gonna be valuable anymore. Interest rates all went negative or maybe they're negative again, but, you know, whatever. And there's this view that commerce and capitalism as we knew it was gonna end. And, you know, that was 2008, 2009. We we just kind of marched forward. And if we look at over a long period of time, including, by the way, going back to the Internet bubble, and you say, well, gosh, 2000, 2001, 2002, did you make any investments in 2001 or 2002 that were successful for us or the prior firm that we were part of? One of them was Postini, which was a 2000 I think it was a 2001 investment. It's massively successful. Did it almost go out of business? Yeah. It almost went out of business. Did it have something that was foundationally valuable? Of course. And did it have a team and and a group that was running the company that really believed in what they were doing? Yes. And so then they could transcend through and navigate their way through things where lots of other companies didn't. So I am very skeptical of the we must invest faster to get to the next fund, or we must slow down to make our capital last longer. I think you should define your pacing as a fund manager as part of your strategy and then adhere to your pacing. And most people recognize that time diversity is really valuable in the in the configuration of a portfolio. **Harry Stebbings** [20:12]: I'm totally with you in terms of kind of the importance of temporal diversification. I do wanna ask a question there. You mentioned that potential negative interest rates and availability of capital and really the oversupply of capital. And we have Bill Gurley on the show, and he said the oversupply of capital is his biggest challenge today. Would you agree with him? And with the many years of Venture, Brad, do you not slightly look at some of the pricing today and just feel very uncomfortable? I know I do, and I don't have the decades of hindsight experience. **Brad Feld** [20:37]: Sure. There are a huge number of companies that get valuation marks, and you look at the valuations, and you just sort of shake your head and say, I don't understand that. At least I say that. I don't know that the oversupply of capital is the biggest challenge, and some of it may be the way that we invest invest as a firm and where we go looking biggest for investments, which is we're not living in a world of Bay Area super high inflated rounds with way too much capital going into companies. That's not our normal type of company that we're funding and investing in. We're actually on the other end of the spectrum. It's not that we resist doing larger financings for companies when they're successful. We actually are obviously very supportive of that. But until a company has clearly hit a success point, we don't wanna overfund it. And we'd rather have multiple rounds of investment where we can continue as an investor to get more capital to work in the company at reasonable prices then end up with a huge amount of capital that comes into a company too early in its cycle at too high a price because that'll price us out of being able to continue to invest. And so culturally, the companies that we're attracted to, it's not that they're super low burn rate companies, but they tend to have founders who are not trying to optimize in the short term for overly high valuations or huge amounts of capital. The other comment I'd make about oversupply of capital is and even just in the last couple of years in venture, in the last five years in venture, I think it's happened a few times, and people have very selective memories about it. I don't remember the year. I think it was 2013 or '14. But there was a year where in q four, the b to b SaaS market values on the public market dropped by about 50%. And it was q four drifting into q one. But what happened in q one was for January and February in q one of the next year, the venture community basically said, it's winter, nuclear winter again for b to b SaaS companies. And all of the hedge funds and sort of late stage public players, you know, public players that did late stage private vanish. And Bloomberg, I think, was the article that got circulated around, had a a graph that showed the number of financings led by hedge funds or crossed over public private investors in b two b SaaS. In previous couple of quarters, it was, like, 20 or 30 a quarter, and it went to, like, two and then zero. And, of course, at that moment in time, everybody's like, my god, capital's gone. If you started investing in b to b SaaS companies at that moment in time when everybody said, oh my god, capital is gone, you made a fortune. Because today, the b to b SaaS multiples on high growth companies are on the other end of the spectrum. Like, does anybody really believe that a b to b SaaS company should be valued at 20 times forward revenue? Maybe, I suppose, and the public markets value some that way, but that's not a a logical construct long term. That's gonna normalize. And at the same time, you know, at that moment in time where people said there's no money available, I think the best as people saw with a few exceptions were maybe three or four times forward revenue. That was like what a great b to b SaaS company did. So I tell that long story. It's like there's this very short term window where people are focused on being prognosticators about what's happening. Sorry to overuse that word. Important thing, I think, from a venture perspective as a supporter of the CEO of the founders of a company is not to respond one way or the other to the availability or lack of ability of capital, But to go back to this notion of, okay, what do we need to do independent of what the characteristics around capital are to build a valuable business here over a long period of time? **Harry Stebbings** [24:16]: I mean, speaking of kind of building that valuable business over the long period of time, I I do wanna put back any operator hat now because you said before, and I love this, you said run your fucking business. So super obvious maybe, but why did you say this? And what did you really mean behind it, Brad? **Brad Feld** [24:31]: Well, anyone who's ever been involved in a company that I've been an investor in in a boardroom or a 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. You're trying to get your business going. But at a point where you have a real business, you have real revenue, you have a real customer base, you you have a market position, has heard me say some version of that, and it's usually the equivalent of me throwing a fit. My temperament is not a volatile temperament. So, you know, when I say something like run your fucking business, it's not me being aggressive or angry, it's me trying to underscore the notion that, okay, we're now in a zone where actually having a really good effective business is gonna accrete value faster than lots of other things. A lot of times that's become profitable, but sometimes it's, hey, we've decided, you know, we've got $20,000,000 of cash in the bank. We've decided that we're gonna lose $500,000 a month every month, and we're gonna now grow based on losing $500,000 a month every month. And if we lose $500,000 a month every month, we've got basically capital that'll last us forever. And if we can get our growth rate in the fifty, sixty, 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. And so it's getting the CEO and the leadership team focused on the core economics of what they've got and using that to then execute on the business going forward. 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. There's a whole lingo, I'm and trying to remember where it came from in real time. I think the first time I heard the phrase was from Marc Pancas when he was running Zynga, I was on the board of Zynga. I think that's where I first heard it, and I love it, which is this idea of being a fake CEO. And Marc had done, like, a day's worth of PR stuff, and he ended up being on some magazine cover for something about how great Zynga was doing at the time. And we were talking at the end of the day, it must have been, and he said, I just had a fake CEO day. And I said, what do you mean by that? He says, I just spent a whole day doing stuff that has nothing to do with actually running the business. And I think CEOs spend a lot of time having fake CEO days, and I think VC spend a lot of time having fake VC days. And if you really wanna be successful by the way, that translates to everybody on the leadership team, every every we're throughout a company. Don't have fake fill in the blank days. Make sure you're spending your time on the things that are actually gonna matter to your business, which then equates to run your fucking business. **Harry Stebbings** [27:08]: Sorry, Brad. You know me. I'm always looking to improve. What would a fake VC day be in your mind? **Brad Feld** [27:13]: Oh, I don't know. Maybe spending some time doing interviews on podcast. Sure, I think VC spend way too much time, you know, seeing and being seen. It's one of the joys of being in Boulder, Colorado is that the people that I end up spending time with face to face, it's much more intentional. During the era that I was at SoftBank and then Mobius, I spent a decade in the Bay Area one to three days a week, and much of the time that I spent in the Bay Area was in the office, company, company, network, company, network, and then at the end of the day, event, and the next morning, event. 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. Another example of fake VC days would be the endless amount of time that VC spend with each other, whether it's in a partnership or it's in sort of the guise of getting to know each other to do something. And, you know, every VC that listens to this will will recognize as, hey. Let's do a deal together someday. And, hey. Let's do a deal together someday is one of the most hollow statements in the world of VC because that's so different than, hey. I'm working on this thing that I'd really love to get you, other VC involved in to help. Like, that's a real statement. And that's different again than a VC saying, I've got this great thing. You really should look at it. And the time spent sort of in the first or the last of those two modalities is much greater than the time spent in the middle modality, which is, I've got this thing, and Harry, would be really helpful for me if you got involved in this thing. And if you're not interested, I totally get it. I'll bring you another thing. That's substantive versus all the time spent on the other ends of the spectrum. **Harry Stebbings** [29:18]: Can I ask, do you have to have that existing relationship, though, to know whether that person is specifically the right person for this deal due to expertise, stage, insertion point, whatever that may be? Do you not have to know that person or for that person to have a very explicit brand where they've already articulated why they like certain deals to really know that person's the one for that deal specifically? **Brad Feld** [29:39]: Yeah. It's an insightful point. The answer is absolutely. However, in my own experience, the only real way to get to know someone is to do something with them. So the first of your evaluative criteria is a decision that you wanna work with somebody else based on whatever external information you have. And then the second piece of evaluative criteria is actually working with them and and learning about them. And there's lots of ways to do things with other people that are relatively lightweight where you learn what they're like. And it's different than the, okay, I'm gonna go check references or I'm gonna go interpret the public persona of the person or I'm gonna go hang out and spend a lot of time with the person. Because in a positive environments, VCs, entrepreneurs, I mean, most people present themselves well. Right? I like to say the great salespeople in the world, the great VPs of sales are best at selling themselves. And if a VP of sales can't sell themself to you, that's problem. Interestingly, VCs are the same way. Most VCs are really good at selling themself. That's not where it matters. Where it matters is when things get all screwed up or when you're having tension or when there's exogenous pressures on the other person that have nothing to do with you or the company you're involved in and how they behave in that context and how they interact and relate to you in that context is what matters. 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, and that's I think that's where the relationships are really built. Good and bad? **Harry Stebbings** [31:10]: Totally agree with you in terms of that's where the relationships are built. In terms of, like, a real VC day, I think, obviously, sitting on a board is absolutely a kind of core part of our role. I am really interested that, Brad, you know, you sat on some of the most incredible boards over the last decade and a half. And so tell me, what would you advise me having just joined my first institutional board, and and what kind of wisdom and tidbit would you give to me having just joined that board? I'm super interested to hear this one. **Brad Feld** [31:32]: I think when I reflect on my early board meetings, and, again, I had a lot of them. Right? Because I did all these angel investments, and I joined the board of the 40 companies I invest in. I was probably on the board of half of them, 15 of them, 10 of them. I don't know. Maybe 20 of them. I didn't know anything about being on a board because my first company didn't have a board. And in those board meetings, most of the entrepreneurs, because the companies were so early, didn't really have a formalized board dynamic. So my experience was that those were what would be called today working boards versus governance boards. There was a lot of discussion. There was a lot of back and forth. There was a lot of digging into problems, and they were boards that had a continuous characteristic. So it wasn't that you show up at a board meeting once every month or two or three and then had no interaction. A number of these companies, you know, I'd work out of their offices a day a week. I spent lots and lots of time with the entrepreneurs, and it was across multiple companies, not just one. So if I cycle it back to advice, it would be 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 where you're responsible somehow as a board member for some abstract set of things. I and my partners at Foundry like to carry around sort of one decision we have to make at a board level, and we talk about it as the only decision we wanna make is whether or not we support the CEO. And if we support her, our job is to work for her, and every CEO needs something different. And so there's not this canonical thing you apply to the CEO. You're constantly learning, interacting about what is helpful to that particular CEO. If for some reason you decide you wake up and you decide you don't support her anymore, it's your job to do something about that, which does not mean that you need to replace her or fire her. It's that you need to then identify and understand why you're losing support for or why you've decided that you no longer support her and to then work to try to get back to a place where you support the CEO. And, ultimately, if you don't, as a board and as an investor, that's usually the only real tool you have to make changes to replace the CEO. All the other activity, while there's lots and lots of decisions to make and, of course, there's formal governance dynamics that are required, ultimately, I try to put myself in the position of working for the CEO and helping the CEO be successful. And I think as an early board member on your first couple of boards, taking that approach is really healthy because then you'll be someone who's really adding to the success and growth of the company rather than somebody who's sort of sitting back. And if it's successful, great. But you didn't really contribute that much. And if it's not you're part of the problem probably. **Harry Stebbings** [34:11]: Can I ask, in terms of really supporting the CEO, I think a lot comes from a feeling of a safety that they need to feel? How do you, Brad, and and what have been some lessons on how to create that environment of safety for the entrepreneur? This is a safe space for them to discuss anything about their business and anything about their life even in some cases. How do you create that safe space as a board member? **Brad Feld** [34:29]: Couple of different things. I think for starters, I've tried to model that through my own behavior. I've been blogging for many, many years. I'm very open about a lot of personal stuff. I've talked about my own struggles with depression and anxiety, and not just whining and complaining about it, but also talking about sort of how I work through different things and how I approach stuff and, you know, not using words like empathy and transparency just to put labels on stuff, but trying to actually model that sort of behavior as a leader. So I think step one as a VC is to try to live your way the way you are, whatever that is. You don't have to be like me. You don't have to be like somebody else. You have to be like you and actually do the work on you to understand that. I think that's the starting point to then be accessible to the CEO and to founders. The second, and this is a age old thing that I've heard since I was a young entrepreneur, is there are some investors who believe they should have a personal relationship and a friendship with the people they invest in, and there are other investors who think that they should have only a professional relationship. I'm of the first category. I don't actually think you can have a solely professional relationship with an entrepreneur in a startup and fast growing context. I there are certainly places where you can have a non personal business relationship, but I think the value of the personal relationships, you don't have to be super close friends, but you just have to have the ability, again, back to your question of safety, the ability to have some emotional engagement with the person. And by the way, part of having another person feel safe with you is that you have to expose yourself and be exposed in the presence of them. People are interested in this. I encourage them to get to know and and to follow and pay attention to Jerry Colonna. He just came out with a book recently called Reboot. His firm is called Reboot. And people that don't know of Jerry, Jerry was Fred Wilson's partner in their first venture fund together at Flatiron Partners in in the nineteen nineties, and Jerry is an extremely close friend of mine. He has a combination of phrases that they talk about as the Reboot way, and it's secret. And the secret is that to be a great leader, you need the combination of practical skills development. So you have to get good at being a great leader through actual the things you do, practical skills development. But you also need it's a plus sign or an and clause, not an or clause, radical self inquiry. And the radical self inquiry does not mean that you need to go to therapy every week, although I'm a proponent of that. I think that helps because you get to go hang out on planet Harry, and you pay somebody each week to have to listen to you for fifty minutes. I mean, I I feel sorry for my therapist sometimes because he'll have to listen to talk at him for fifty minutes, but it's his job. I pay him and say, hey, sit there and listen to me about whatever's in my brain. That radical self inquiry on all dimension, and I think great leaders who do their work get better over time, and leaders who don't do that work hit ceilings. And in the interaction between an investor and an entrepreneur or an investor and a CEO or a board member and a CEO, if both parties are engaged in this notion of radical self inquiry because they wanna be better leaders independently, their ability to work together in that way is really enhanced. If on the other hand, one or the other doesn't, it's a very lopsided interaction, and it's very hard to develop that real relationship over time. **Harry Stebbings** [37:46]: Listen. I I totally agree with you in terms of the development of that relationship. I do wanna jump on one element there. You mentioned that Jerry Colonna's book, which obviously I thought was absolutely fantastic. If if anyone listening hasn't read it, it really is a must. But I do wanna talk about Venture Deals, Brad. Now this book has been so formative, I mean, for me, but also a generation of VCs over the last decade, really. And so I wanna start with Venture Deals. When did you start writing it? And what was the core reason behind your writing it? **Brad Feld** [38:10]: So in 2004, I started blogging. And I really just started blogging feld.com because I was interested in RSS as a protocol. Blogging had been around for a while. I always like to write, and I just figured, you know, let me try to figure out how this RSS thing works. I'll start blogging. I'll write in public. Who knows where it'll go and what it'll be, but it'll be good muscle building exercise. Shortly after, within six to twelve months, my partner Jason Mendelson and I were working on a deal, and it was stupid. Like, liter you know, it was we're making an investment in something, and literally, the process was stupid. The lawyer for the entrepreneur was terrible. Probably a divorce lawyer, not a corporate lawyer. We were not the first money in the company. There was already an investor. The investor's approach to it was really strange, and the things that that investor wanted were dumb. And the entrepreneur was stuck because the entrepreneur really wanted us as investors but was having a really difficult night time navigating the advice. In this case, it was a he. He was getting from this early investor and from his lawyer against the backdrop of what we thought were noncontroversial things. And then on the other end of the spectrum, the things that were coming back at us were just nuts. And we realized, you know, pretty early on, we had a very frank conversation with the entrepreneur early in the process. We encouraged him to add another lawyer to the team that we said we would pay for in this case, which was unusual. It ended up being a lawyer that we didn't have to pay anything for because the lawyer very quickly, the entrepreneur understood that he had the wrong lawyer and hired that lawyer to represent the company. And we got through the deal, and we ended up making the investment, and it was a it was a happy thing. It ended up being a successful outcome. In the end, the company got bought for I think we made three or four times our money, and everybody was happy. But that we're looking at each other and said, we should just 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. Just the context is missing. So we started writing blog posts about it, and we wrote about 30 blog posts over a year or two period. It was when twenty four was happening. So if you go back to feld.com and you search for venture deals and you look at some of those old blog posts, I'm always talking about Jack Bauer and what he did last week and how he got from one part of LA to the other end of LA in two minutes during a commercial break because I think that's just one of the magic tricks of TV. And the end result of that series was it was incredibly popular. People would PDF it, and every now and then we get a PDF from a professor saying, I'm passing this out as course notes in my entrepreneurship class or my whatever. And around two thousand and nine or ten after we'd started Foundry, Jason and I were sitting around and we said, you know what? Let's write a book. Let's take those blog posts and turn it into a book called Venture Deals. And what we didn't realize when we said that was how hard it was to write a book. And it turns out that those blog posts only represent about 10% of the book. And we didn't just take the blog posts and cut and paste. That's how we started. Right? We had this document. We looked at it and says, oh, goody. We have to do 50,000 words, and these blog posts add up to about 6,000 words. Awesome. We got some work to do. But then when you read the blog post in the context of cutting and pasting the blog post, you're like, yeah. This is not a book. This is not how a book works. So it took us about I don't know. Maybe it was it was longer than a year, maybe a year, year and a half. And we wrote the book. We got a lot of feedback early from some friends who encouraged us about different things they really wanted us to write. We had dinner with a friend who was an entrepreneur who said, it would be so awesome if there was a chapter about how VC funds work. Like, we don't really understand how VCs make their money and what their motivations are and what their incentives are. So, you know, we did a chapter on that. We had another dinner with another friend. We're talking about the book, and he the LOI thing is like the term sheet thing. Like, I get this LOI, and I don't know what matters and why I should care and which things I should fight on. And I end up with my big, expensive lawyer from Cooley or Wilson and Seeney, and they're telling me what I need to do, and I'm afraid of scaring the buyer away. And how should I approach it? So we ended up you know, we wrote a chapter on LOI. And over the years, this is the fourth edition which has come out. Over the years, we've added sections in like that with each subsequent edition. And we added a section on crowdfunding. The fourth edition that's just come out has a section on hiring a banker to help you sell your company if you're a private company. It has a section that we got help from our friends at SVB on, which really deconstructs venture debt and how venture debt works, how to think about it, what the guardrails are for you as an entrepreneur. So all these things that we've added over the years, while at the same time going back, it's amazing in in a when you write a book, especially a book like this where you're trying to make it very readable versus legal and technical, you know, you read it over and over and over again, and you still we still had these sections in the first edition and the second edition and the third edition where you we'd read it or somebody would point out, I read this three times, and I still don't have a fucking clue what you meant. And so almost ten years later, we're still going back and rewriting sections to try to make them more, more readable. But that's how it came about. It's been an amazing journey. We 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. **Harry Stebbings** [43:26]: I mean, you know, I've told you this before, I think, but 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. So you also blame for me me doing the twenty minute VC. But I do wanna finish, Brad, on the quick fire round. So I wanna say a short statement, and then you hit me with your immediate thoughts. Are you ready to rock and roll? I don't understand. No. Of course, I'm ready. Let's go. Okay. So what's the biggest advice on **Brad Feld** [43:54]: how to say no the right way? Simply say no. The number of people that are afraid to just say I'm not interested continue to blow my mind. And when I wanna say no to something or I wanna move on or I disagree, just being direct is the best way to do it. Yeah. **Harry Stebbings** [44:12]: I'm I could definitely do with improving that. **Brad Feld** [44:14]: Have to admit. When somebody wants to say, I'm not interested, I encourage them to say, I'm not interested. When somebody wants to say, that's not an acceptable term, I encourage them to say, that's not an acceptable term. And then let the other person say, explain. You know, why? Let's let's engage. Because, you know, I don't know, 75% of the time, the other person says, thank you for saying no. **Harry Stebbings** [44:33]: No. I'm with you. I should definitely pick this up more. We shall see. Fingers crossed. Tell me, other than Venture Deals, which is my must read book, what book would you say is the must read and why? **Brad Feld** [44:42]: Well, I mentioned Reboot earlier, and I think that Jerry's book is an incredibly important book to read for any entrepreneur and any leader. So I put that one high on the list. The other book, which I'll add to it since I said reboot earlier, that I thought was a fantastic book was Melinda Gates' book from this year. I don't know Melinda other than from a distance, but she wrote a book like Jerry's book that's a combination of memoir, storytelling, philosophy, and I would say advice, frame of reference. And weaving those things together is extremely hard to do, and I think she did a great job of that as well. Bonus points, by the way, would be for Jean Case's book, Be Fearless. Also did the same kind of thing, wove together memoir, philosophy, storytelling, and advice. **Harry Stebbings** [45:31]: What change would you like to see happen in the world of venture, Brad? **Brad Feld** [45:34]: I actually don't really care that much. Like, I I think it's exogenous to me what happens sort of broadly speaking. I would though answer the question with I feel like we're in a moment of peak noise. There's just an enormous amount of noise in the system, and the noise does start to grate on me over time. And I think an increase in the signal amongst the noise, where the signal includes people relating to each other in real ways rather than in the ways they want other people to perceive them. What advice do you hear **Harry Stebbings** [46:04]: most often given that **Brad Feld** [46:06]: you **Harry Stebbings** [46:06]: disagree with? **Brad Feld** [46:07]: You should do underscore. 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. So I think the declarative statements I wouldn't shift the other direction and say your whole world should be an interrogative or your whole world should be Socratic. But intermixing when you make an assertion, to make the assertion as data for the other person to process and to internalize and decide what they wanna do with versus a directive. **Harry Stebbings** [46:39]: Tell me, Brad, your most recent investment and why you said yes and got so excited. **Brad Feld** [46:44]: So my most recent investment was in a company called Boundless. It's a Seattle based company. It came out of Pioneer Squirrel Apps, PSL, which we're also investors in both the studio and the venture fund. Boundless is a company that's focused on helping immigrants get green cards. And in The US, it's well known that the immigration system has some major issues, some that are structural and some that are political and some that are simply bureaucratic. And it's very, very difficult even today to navigate through the green card process in a cost effective way. And the thing that motivated me to do it was a combination of the founder, Xiao, who is amazing. Personal story is amazing. His ability and skill as a CEO and leader are awesome. But also my own belief that the of the importance of legal immigration in The US and the criticality of us doing things sort of broadly from lots of private sector ways to try to improve the dynamics around legal immigration rather than just waiting for the government to do **Harry Stebbings** [47:47]: Brad, I mean, it's super exciting to see the times ahead with balance. But I do wanna say, as I as I've said to you many times before, you know, you've supported me for many years now, and I just so appreciate what you've done. So thank you so much for joining me again today. Thank you for putting up with my terrible English accent over the last few years, and I really appreciate it. **Brad Feld** [48:03]: Harry, it's a total delight. It's, 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. **Harry Stebbings** [48:17]: I mean, to say I absolutely love doing that episode is such an understatement. I wanna say again a huge thank you to Brad for all he's done for me over the last few years. 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. And if you'd like to see more from us behind the scenes, you can do so on Instagram at h Stebbings nineteen ninety six with two b's. 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