An Interview with Brad Feld Founder, Foundry Group

Date: December 29, 2008

Brad Feld: Foundry Group [music]

Larry Nelson: This is Larry Nelson with w3wc.com. We are here today with a very exciting interview series, "The Entrepreneurial Toolbox" Podcast series. Oh, this is neat. And of course we're here today with Lucy Sanders who is the CEO of the National Center for Women and Information Technology. I just say NCWIT. It's a lot easier. And of course, we're also here with Lee Kennedy, Co-Founder of Tricounties. You're also on the NCWIT board.

Lee Kennedy: Yeah.

Larry: All right. So they've managed to somehow corral this one guy that we've interviewed a few times, and he's really had a number of very interesting entrepreneurial experiences. And Lucy, why don't you introduce your guest.

Lucy: Well, we're here today with Brad Feld, and there's a lot to like about Brad. He's not also a serial entrepreneur and a venture capitalist, but he's also a blog writer of great repute. And in fact, my nephew in New York City will occasionally write to me and mention that he saw us in Brad's blog, so very well known with folks across the company. And he's also Chairman of the National Center for Women and Information Technology. So we're really happy to be here with you today, Brad.

Brad Feld: Thanks a lot, Lucy.

Larry: And by the way, he's also the Co-Chairman of the Colorado Governor's Innovation Council.

Brad: Yeah, I've been involved with trying to help our illustrious state get a little more focused on computer information technology as part of a vector of innovation, and there's actually some exciting things coming around that in the next year.

Lucy: We'll look forward to that.

Larry: Can't wait. We'll have to follow-up on that.

Lucy: Right.

Larry: Yeah. Lucy. Well, you know, today we're going to focus on something which we hope the council doesn't do which is fail. So we think that failure of course is something often talked about as entrepreneurs, that sometimes it's the need to fail, the fear of failure. And so we're really excited about this particular topic today.

Lee: Great. Brad, why don't we kick it off by hearing a little bit about your first successes. You're a well known VC, but you've also been a serial entrepreneur. So we'd love to hear about your first few startups.

Brad: Well, my first few startups were not successes. [laughter]

Lee: Oh.

Brad: The first couple of things I did were object failures. So I'd like to say my zeroeth company was a company that I co-founded in high school with about 14 of my closest friends, which in hindsight of course sounds totally absurd. And by the time they got the company started, they kicked me out of it. [laughter] So I didn't last through the starting of that company, and that one ultimately went nowhere. Another company I was involved in while I was in college was a startup called Datavision, which was started by a colleague I met through another company that I was working for on a part-time basis. And he had an idea to put together a company to do what's called cephalographic analysis on x-rays, basically to help do facial reconstruction in 1984 using computer technology, an idea way ahead of its time. We raised a little bit of money, bought some equipment, wrote a bunch of software and then failed. Another startup that I was involved in in college, actually before Datavision, was a company called Martingale, which I co-founded with a handful of my fraternity brothers when I was a freshman around the time that the Mac came out or slightly before when the Macintosh came out. And we started the company with the idea of writing graphic software for the Mac. We were all in college at MIT, and we thought it'd be pretty cool to enter data into the computer and have it, you know, draw different types of graphs, obvious.

Lucy: Indeed. [laughter]

Brad: Yeah, indeed. Obvious that's become a useful thing in the world of computing. We got a Lisa computer which is what you needed to write software for the Mac before the Mac came out. And we got one of the very early Macs, and I remember writing some ridiculous letter to Steve Jobs, complaining about the development program which of course went unanswered. And while in school we tried to write software, you know, for the Mac and made very little progress. We ended up getting a contract to do some voice recognition software for another company and made a little bit of money. And ultimately, I think we didn't raise a total of $10, 000, and we paid back the one investor $6, 000 or $7, 000 at the end. So at least he got, you know, 60 or 70 cents on the dollar back.

Larry: Right.

Brad: The next company that I seriously started after that was a company called Feld Technologies, which was very creatively named after my dad. And that started off as just me doing consulting work, but I had a partner, David Jelt , who was a college friend of mine, join me full time and then in 1987 we really launched that as a real company which we then grew with no financing into a couple million dollar business which we sold in 1993. So, that was the first real success I had after a couple of companies that went absolutely nowhere.

Lucy: When you had the failures, was it really clear to you or was it "No, no. We can make this happen"?

Brad: Well, you go through this cycle of believing sort of the optimism at the creation and inception of the company, some progress, whatever progress is, and then ultimately you start to have some problems. You either push through the problems or you don't. I mean, FELL Technology has had all kinds of things that could have caused us to fail. In fact, the very first thing we did after we started to get serious about the business more than just doing a little bit of consulting was we hired a 1/2 dozen of college friends and part-time people, and spent money we didn't have. All of a sudden, we found we were upside down $20, 000, and we had no money. We realized we couldn't do that anymore, because we had no money to pay the people who we weren't paying. We had to get to a place where we would make money. So, in the case of the other companies that failed very early, I think it was pretty clear at some point we were not making real progress. They were a little different. I think in very sort of good formidable experiences vs. other companies later on in my experience that I've had that have failed, where sort of everybody involved in those first couple of companies were, certainly in the case of Martingale, we were all students. So, it wasn't like our full-time thing that it was all that we were doing, but it was more serious than just a bunch of college kids getting together and trying to do something. When I roll the clock forward and look at some of the companies I've been involved in either as an investor or a co-founder that has some significant success, including companies that at points and times had very meaningful valuations, whether they were either public or private that went on ultimately to fail. Those were companies where in hindsight you could see the moment in time in which it was clear that it wasn't going to work, but at that moment in time, you didn't see it all. All you saw was, it's hard. It's challenging. "We've got these issues, and you're going to drive through them." By the time you realize that you're going to fail, it's usually far down the path towards failure. I mean, it's hard to unwind yourself from that place.

Lucy: Well, in fact I think that gets to the point we had around when you know it's time to quit. It seems as if it's in hindsight often, that you know it's time or was time.

Brad: Yeah. It's very easy to prognosticate about failure when you're not in the midst of trying to make a company successful or survive. I think there's a philosophy that I heard as a young entrepreneur, and I continue to hear over and over again, which is "Failure is not an option, " and that's just wrong. Failure is an option. In fact, failure is a desired outcome in many situations, because you want to get done, so that you're not spending time on something that has no potential to payoff. Our time on this plan is fine-eyed. Our productive time is fine-eyed, and the opportunity costs of the incremental time that you spend against something that is going to fail is not particularly productive time. So, it's very hard if you were the entrepreneur if you were to measure that against the opportunity costs of the time you've got in front of you, but the argument is always, "Well, I've spent so much time on this already. Clearly, I've got to make this work." There's an alternative philosophy, which is a sunk-cost philosophy, which is that you can't get that time back. That's a sunk-cost. So, you have to really decide from this point forward is the thing that you're working on something that you believe has potential to be successful in a meaningful way or not, and if or not, the incremental time to try to recover something from the past isn't worth it. That's very, very hard I think for most people to get philosophically. You have to philosophically design your perspective on it. For me, I definitely wouldn't say I'm as clinical as it might sound where I do an analysis of it. It's a gut feel. But having walked away from a lot of things that weren't working, and having seen lots and lots of things that didn't work, in some ways it's very liberating to be able to say, "This isn't working. Let's call it a day, " and move on to the next thing.

Lucy: I think, if you're deeply involved it's much harder than when you're looking at the outside, because so much passion and energy.

Brad: Of course. Absolutely. I think for people that have never failed before, it's extremely hard to conceive failing. The neat thing about the U.S. is that it's completely acceptable in an entrepreneurable context to fail. I mean, it's legal. You're allowed to fail here. Many great entrepreneurs have failed. Many things that get glossed over and look like they might have been successes were actually failures. They were just a graceful way for somebody to not sort of shine a bright light at it, and say, "Well, that didn't work--next." Many projects within companies fail. So, incredibly successful companies have specific projects that are huge failures. So that construct is one that as Americans culturally, we're really comfortable with, and it's especially comfortable or should be in the context of entrepreneurs. I think it's hard to talk about, because you never want to be labeled a failure. You never want to be involved in a failure. It's actually quite liberating to be able to say, "I failed at some stuff, and here's what I learned." I think the only time that you're really deeply unsuccessful in failure is when you don't learn something from that experience. And the clich of, "You learn more from your failures, and you learn more from your hard experiences than you do your successes, " is a good clich, and really what it underscores is that, when you are in a situation where you're failing, you need to learn something from it, so that you don't repeat that mistake. And if you repeat it a second time, you don't repeat it a third time, and you actually grow from there.

Larry: Say, Brad, one of the things I think that we skipped was that, part of your background is very, very important as it related to entrepreneurs when you have to work with them. You're co-founder of Mobius Venture Capital, and today, of course, you're a managing partner and founder with the Foundry Group. Could you just give a little capsule?

Brad: Sure. So, Foundry Group is an early-stage venture capital firm that I started with four other colleagues based here in Boulder. We invest around the United States in early-stage software and Internet companies. We look like a very normal early-stage venture capital firm. We have 225 million dollars in our most recent fund. We'll typically invest in 20 to 30 companies in that fund, an average of, over the life of the company, 10ish million dollars per company. And as early-stage investors, we'll invest as small as a quarter of a million dollars in a seed investment to as much 10 million dollars in first ground financing. All five of us invest in the same type of companies. So one of the things that's really fun is, we don't split up the types of areas by partner, but instead, we all look across a series of themes that we tend to know and understand very deeply, which we think is a big opportunity and differentiator for us as a firm, because it causes us to invest in areas that we believe in and really know deeply.

Lee: And what are the themes that you're looking into now?

Brad: Well, themes for us tend to be either a broad technology shift or a broad way that the market uses technology. So, examples of themes that we're excited about include human/computer interaction, which is the different ways that people interact with the computer today. We believe, for example, that the idea, if you go forward 20 years, the idea that we'll view the mouse and the keyboard as the primary way to interact with computers as archaic as the notion that today we'd still be using punch cards. We're very interest in a thing we call, "Digital Life, " which crosses both consumer and business boundaries, and it's the way that we as people interact with digital assets and how important digital asset of all types data, whether they're images or music or data files, or whatever interact with our universe. We're very interested in the inner workings and the plumbing between software at the software layer on the Internet, so we've a theme we call, "Glue, " which is a really the glue between different types of software systems and data transport layers, so those are examples of themes in our parlance.

Lucy: So, you've told us about some of your philosophy about failure and advice that you would give people around looking at failure from a different philosophical perspective or learning something from failure. Are there some failures that you've seen that are just unforgivable?

Brad: Yes. I have a very simple view as to where the line that you can't cross is, and I think that deceit of any sort, whether it's external or internal, crosses that line.

Pat Nelson: Hi, this is Pat Nelson, and you're listening to NCWIT's current series, "The Entrepreneurial Toolbox, " with Lucy Sanders, Lee Kennedy, and Larry Nelson, as they talk with Brad Feld about "Failure: The Value and the Tools to Carry Through." This is Part One of Two, so be sure to join us for Part Two. Are there unforgivable mistakes? Brad has much more to say, so, we'll see you again, next week with Brad Feld. [music]

Pat Nelson: Hi, this Pat Nelson, and we're back for part two of the NCWIT's series, "The Entrepreneurial Toolbox" interview with Brad Feld, and his take on failure as an entrepreneur.

Lucy: Are there some failures you've seen that are just unforgivable?

Brad: Yes. I have a very simple view as to where the line that you can't cross is, and I think that deceit of any sort, whether it's external or internal. crosses that line. So, external deceit would be cases where people are fundamentally disingenuous, lying about whatever the situation is. And internal deceit is similar, I think, which is when people are delusional about what's going on, unwilling to look inward and understand what they're actually doing, and how they're actually interacting with something. I wouldn't use the word unforgivable, but I think that's a huge missed opportunity to do self-examination. I would say that from a sort of clinical business failure perspective, I don't actually really consider any sort of traditional metrics to be unforgivable. I mean, my favorite entrepreneurs to work with and invest in their future companies are ones that have had a success, at least one success and one failure, because if you've had three successes in a row, and have never failed, you think you're invincible. Once you have that first failure, you realize that success is not a given, that you have to work hard for the success, and that there are lot's of things that, some under your control, some not under your control, that are going to impact your success of failure.

Lee: So, Brad, we'd love to hear about if you have any guiding principles on what could help you be really successful or just avoid failure.

Brad: Well, there's a long list of things that I think contribute to people's success. It's 2008. We just had an important presidential election, and I think one of the things that I hope we see and hear continually, especially in this environment where at the macro level there's a lot of anxiety and a lot of discomfort, financial markets, global crises of this that or the other thing, the sort of energy renewal and sustainability issues being in the fore, I think that from a success perspective, leadership is really key. And it's true in entrepreneurial context, it's true in a societal context, it's true in a large company. And I think at this point in my life, especially in the political sort of landscape, we've been lacking real clear leadership for a long time, and in a lot of business factors we've been lacking true leadership. Leadership doesn't mean let's maximize our personal wealth. Leadership doesn't mean let's create an opportunity for us at the exclusion of others. It's also not the other direction, where's it's completely altruistic. Let me do things selflessly for me, but that benefits everybody else. There's very clear values that drive leaders, and I think if you want to be successful as an entrepreneur, studying great leaders, thinking about what makes those leaders great, and thinking about what attributes of those leaders you share, or that are comfortable for you to emulate, is an important driver. I think that entrepreneurs who don't think about leadership, and don't understand how they relate to it...because, not every entrepreneur is the same kind of leaders. There's leading from the front. There's leading from the back. There's very visible forward force of a company. There's the quiet internal leader that motivates everybody to drive in a certain direction, but isn't terribly visible externally, and there's all kinds of things in-between. That's a big drive around the leadership side. On the other side, in terms of surviving failure, I think leadership actually impacts people in a meaningful way there, too. I think if you're failing, the best thing you can do is, shine a bright light on what's going on for yourself. Be self-aware of what's going on, and make decisions as an entrepreneur or as a manager from a perspective of emotional self-awareness, rather than getting stuck in this cycle of trying to defend yourself against whatever the reality of whatever's going on is. That's really hard. Human beings are fantastic rationalization machines, and you can always justify why something's going on, and it's very difficult to separate from that perspective and say, "OK, let me figure out...take a deep breath, let me figure out today what I need to do." Other things that I think are really important on both sides of the equation is understanding what fear does, and essentially fear freezes you completely from being able to make good decisions. And in the context of...you know there's a great line from the book, "Dune, " which is, "Something akin to fear is the mind killer." I mean, that's the abbreviation of the line. But the notion that when you're acting out of fear, you're not able to step back and think about what's going on. The thing that drives fear the most is fatigue. So what I see with entrepreneurs who are in a difficult environment where they're tired, they've been working hard, they're beaten down, things are not going their way, there's things they can control that aren't working, there's things they can't control that aren't working. When they try to just power through that, they get tired, when they get tired they make bad decisions. They start to behave fearfully and they make worse decisions. So a piece of advice to anybody that finds themselves in that situation, is even if it's just, a twelve hour night of sleep, get some rest. Separate yourself from this feeling that you have to be there and be always engaged to solve the problem. Because a little bit of detachment, a little bit of rest, a little bit clarity. Often is what causes you to have that epiphany that says, "hmm if I change this, things will get better or things will work better, or I haven't tried this yet this might be the solution to the puzzle I can't figure out."

Lucy: That's great advice.

Lee: Well and leadership is so important and I think that when you spoke earlier about learning through failure, leading through failure is something that is an extremely important thing to do. It's always east to lead when things are going well. But when they're not, I learned this the hard way. Inside bell labs when one of my projects failed, and just keeping your chin up and walking down the hall. You know and being a good sport.

Brad: That's right.

Lee: You know and really leading the team through it all.

Brad: Well if you're the leader you should accept a priority that everybody around you knows what's going on with you, and if you're trying to fake it. If you're denying reality and you know just keeping a smile on your face but everybody knows the situations dire. You lose massive credibility.

Lee: Exactly.

Brad: Where if you sit down with everybody and say, "alright here's the situation, this is where were at and this is what has to go our way and this is what opportunities we have to create to lead ourselves out of this." That's what a leader does. Versus just walking around and say, "everything's OK, don't worry, you know."

Lee: That's just a lie.

Brad: It is just a lie and that's, you know that precipitates ultimately people not having respect for you and not being able.

Lee: It undermines everything because then all the gossip in the halls and the whispering.

Lucy: Well and I think this kind of gets to the question that we had, which we just answered around the importance of management team and leadership. I would think a good entrepreneurial management team would really care about leadership in the way.

Brad: Absolutely and you know leadership in many entrepreneurial teams, not all, but almost all is not just one person, right. I mean there are cases, a few cases where there is a key leader. But once a company starts to have any number of people that has two digits in it. Almost by definition you almost you end up having a leadership team. And even when you're four people you could have a leadership team, right.

Larry: You've even got a leadership team with your five.

Brad: That's right.

Lee: With three if it's binary.

Brad: But the issue becomes one where leadership a right that a person has based on their title. Or even somewhat based on their honor ship in the company. But it's something that spreads as the organizations grow. The great entrepreneurial companies have many people at different levels in the company that are playing leadership roles in different ways. It's almost always the case in the successful ones where the accumulation of that leadership is incredibly powerful. When you watch companies that were once small that grow to be large successful companies decline, a lot of times that decline can be directly attributed to either the disengagement of the leaders or those leaders going on to start other companies or be involved in other things. So that leadership dynamic that was so powerful and driving the company through it's success, gets fragmented. There are many examples of companies that had the original founders in the company that played different roles but ultimately ended up trying to save the company from a leadership crisis. The best positive example of that, in you know the technology universally is certainly of course is Apple and sort of the brilliance of Apple under Steve Jobs are surgeons. You know you're seeing Michael Dell trying to do that with Dell computer, but then you see lots of others examples of companies that haven't managed to do that under their original founders. That's a really hard thing to do, partly because it's not just that one person. It's you know the leadership culture that gets created in the company and how that transforms. Whether or not those leaders are visible. Apple would be a good example, I mean it's not, if you don't know Apple very well the leaders in Apple besides Steve Jobs are not obvious. But there are definitely people on Apple besides Steve Jobs that are incredibly, impactful on the success of that company.

Larry: You know I'm glad that I have a chance to ask this question, Brad. Because over the years we've interviewed you a number of times. We've had you make predictions and I'm going to ask the same thing again. For you listeners out there, you can download them at w3w3.com and listen to old ones because his predictions were so good. I mean just absolutely incredible.

Lucy: So grab your pencils.

Larry: Yes, as it relates to entrepreneurs.

Brad: See I'm very clear Larry that I have absolutely no idea what's going to happen in the future. So feel free. I make predictions on just random noise in the universe.

Larry: Well I'll tell you what I wish all of the predictions I've heard were random noises. But anyhow, how as it relates to capital and also as it relates to work force trends, how do you see it come out this next year lets say.

Brad: I think that the macro environment is one that clearly everybody's obsessed about right now. What I've tried to do in my universe is separate the world between a couple of different categories. Categories of companies that are mature profitable companies and the expectation I've set with them is you're going to grow slower, you know plan to grow slower and if you grow faster than you think you're going to grow, that's great, but grow profitably. At the other end of the spectrum we have very early stage and young companies that you know, are well funded. That you know have a couple of years of capital and you know the issues there is spend your capital wisely, don't try to grow as fast, accelerate as fast as you might, otherwise accelerate. Use this time to really build a strong base. The companies in the middle are the most challenging ones, which are the ones that aren't profitable yet but have revenue and have customers. Interestingly I think those companies split very nicely into two categories. To be very clinical about it, category A are companies that deserve to live and category B companies are companies that deserve to die. It's hard for anyone, you talk about failure. Category B are companies for whatever reason, whether the venture investors continued to perpetuate their life or they've had some capital and preserved it and have managed to die more slowly. Those are companies that need to confront what their real future is and where they really are going to be. And whether it's worth spending time on it. The companies in category A, you know those are companies that I think will be able to raise capital will be hard and should look to their existing investors to raise capital and they should be very aggressive about sizing their organization so that the capital they have plus the revenue that their generating, from their existing investors gets into a place where they become those long term sustainable companies. I think you're going to continue to see plenty of early stage investing going on. There's a lot of venture capital available for that. I think you're going to see some good late stage activity going on because there are no public markets but there are plenty of late stage investors that are interested in investing in you know high growth profitable companies. I think the companies in the middle are going to face a real dearth of capital and it's going to be a real struggle for some period of time for those companies to get funded. I think the generally in sort of technology and entrepreneurial spectrum. You know the ups and downs of the economy certainly impact it in a meaningful way. But I think there's so much innovation in front of us in the next twenty or thirty years that the long term trends and the opportunity for people that are entrepreneurs and people that are interested in innovation, not just offering technology. But whatever it is, whether it's in clean tech energy or bio or life science or even in services businesses. There's a huge amount of opportunity to change the way things work. Were in a very resilient you know both country and world dynamic. Focusing too much on the short term in that context I think is a mistake. I think that if you're an innovator you have to be looking forward and you have to be optimistic about the future. You have to provide some of that leadership and if we have enough people doing that, that has a positively reinforcing effect. To some degree it creates forgone conclusion that things get moving in a real way again. If everybody's negative and hunkers down and doesn't do anything, by definition you'll start to freeze that kind of innovation. So I'm, personally I'm pretty optimistic that there's a lot of people who are restless, a lot of people that intellectually engaged in all of this stuff and want to keep driving things forward.

Lucy: We might again remember that failure is part of a life cycle, so you know sometimes it's time. Well we want to thank you for talking to us today.

Brad: My pleasure.

Lee: It seems kind of funny for saying thank you for talking to us about failure. But it really is an important topic.

Brad: A topic I know well.

Lucy: We really do appreciate it. I want to remind listeners that they can listen to the podcast at w3w3.com and also ncwhip.org and pass it along to your friends. Thanks Brad.

Lee: Thanks Brad.

Brad: Thank you guys. [music] Transcription by CastingWords