My First Experience As A Venture Capitalist

I often get asked how I ended up becoming a venture capitalist. When people ask me how they can become a VC, I point them to my partner Seth Levine’s excellent blog posts How to become a venture capitalist and How to get a job in venture capital (revisited)But it occurred to me today – after getting another email asking me how I’d become a VC, that I wasn’t really answering the question.

Amy likes to remind me that when I was an entrepreneur, I used to regularly give talks at MIT about entrepreneurship. I’d say – very bluntly – “stay away from VCs.” I bootstrapped my first company and, while we did a lot of work for VCs, I liked taking money from them as “revenue” (where they paid Feld Technologies for our services) rather than as investment.

Feld Technologies was acquired in November 1993. Over the next two years, I made 40 angel investments with the money I made from the sale of the company. At one point in the process, I was down to under $100,000 in the bank – with the vast majority of our net worth tied up in these angel investments and a house that we bought in Boulder. Fortunately, Amy was mellow about this – we had enough current income to live the way we wanted, we were young (30), and generally weren’t anxious about how much liquid cash we had.

Along the way, a number of the companies I had invested in as an angel investor raised money from VCs. Some were tough experiences for me, like NetGenesis, which was the first angel investment I made. I was chairman from inception until shortly after the $4m VC round the company raised two years into its life. Shortly after that VC investment, the VCs hired a new “professional” CEO who lasted less than a year before being replaced by a CEO who then did a great job building the company. During this period, the founding CEO left and I decided to resign from the board because I didn’t support the process of replacing this CEO, felt like I no longer had any influence on the company, and wasn’t having any fun.

But I still wasn’t a VC at this point. I was making angel investments with my own money and working my ass off helping get a few companies that I’d co-founded, like Interliant and Email Publishing, off the ground. I was living in Boulder at this point, but traveling continuously to Boston, New York, San Francisco, and Seattle where I was making most of my investments. During this time, I started to get pulled into more conversations with VCs, helping a few do some diligence on new investments, encouraging some to look at my angel investments, and investing small amounts in some VC funds whenever I was invited to invest in their “side funds for entrepreneurs.”

One of the VCs I overlapped with while in Boston was Charley Lax. Charley was a partner at a firm called VIMAC and was looking at some Internet stuff. I was one of the most prolific Internet angel investors in Boston at this point (1994 – 1995) so our paths crossed periodically. We never invested in anything together, but after I moved to Boulder, I got a call from Charley one day in early 1996. It went something like:

“Hey – I just joined this Japanese company called SOFTBANK and we are going to invest $500 million in Internet companies in the next year. Do you want to help out?”

Um – ok – sure. I didn’t really know what help out meant, but on my next trip to San Francisco I had a breakfast meeting with Gary Rieschel and Jerry Yang. SOFTBANK had recently invested in Yahoo! and presumably the breakfast was to vet me. I remember it being pleasant and ending with Gary saying something like “welcome to the team.”

I still didn’t really have any idea what was going on, but I was making angel investments and having fun. Charley proposed being a “SOFTBANK Affiliate” which had a small monthly retainer, a deal fee for anything I brought in, and a carry on the performance of any investments I sourced. Informal enough for me to play around with it for a while.

I was in Boston the following week so Charley emailed me and said “can you go check out this company Yoyodyne and tell me what you think?” So I went to a generic office park near Boston and met with two people who would become close friends to this day. The first was Fred Wilson, who had just started Flatiron Partners (SOFTBANK was an investor in Fred’s fund) and the other was Seth Godin, the CEO of Yoyodyne. I vaguely remember a fun, energetic chat as we met a few people at Yoyodyne, ran through the products, and talked about how amazing the Internet and email was going to be as a marketing tool.

My formal report back to Charley was short – something like “Seth’s cool, the business is neat, I like it.” SOFTBANK and Flatiron closed an investment in Yoyodyne a few weeks late.

Suddenly I was a VC. An accidental one. And it’s been very interesting since that point back in 1996.

  • http://jorgetorres.com/ Jorge M. Torres

    Cool story. It would be great to hear how you actually learned the craft of vc. Did you apprentice, use trial and error, something else?

    • http://www.feld.com bfeld

      Lots of trial and error as well as trial by fire. I’ll probably tell some more of the early SOFTBANK stories at some point.

      • Steve Bell

        We want to hear ALL of the stories involving Cigars, Brad!

        Well, age is a matter of individual perspective. I’m 59 and feel like I am just reaching my best strides in the world of business. Hey look at Rupert Murdoch! This is a game you can play very well as you grow into your “new self” each and every year.

  • Steve Bell

    I video interviewed Brad about his career history from MIT to the present day (2010) and published it on YouTube, while doing StartupTrek.net (StartupTrek TV). But we never even GOT to this story!

    The man has so many stories in him, he is sort of like a “greater Generation” guy… but he’s still a youngster! :)

    • http://www.feld.com bfeld

      Hah! Youngster eh. As 48, I’m no longer the young guy in the room.

  • http://www.startupmanagement.org/ William Mougayar

    “SOFTBANK Affiliate”- Is that what is currently called a Venture Partner?

    So, you must have had some cigars with Charley :)

    • http://www.feld.com bfeld

      Not really. It was different than a venture partner. And yes, we’ve had some cigars, although I stopped a long time ago.

  • http://bsoi.st/ bsoist

    how amazing the Internet and email was going to be as a marketing tool.

    I remember having those conversations. :)

    • http://www.feld.com bfeld

      It seems so long ago now.

      **** My new book, Startup Boards: Getting the Most Out of Your Board of Directors, is shipping. You can get it at **http://startuprev.com/boardbook *

      • http://bsoi.st/ bsoist

        You can be sure i will read that one too. Does it also come with dinner? :)

  • Blaine Berger

    It’s always interesting to hear how you first thought of VCs and the changing complexities you have pointed out since that help entrepreneurs understand various funding options and the relationships between those options.

    Maybe you are even helping VCs not to be that firm you first reacted to at MIT?

    • http://www.feld.com bfeld

      Maybe. But I think the entrepreneurs are helping change the dynamic even more.

      **** My new book, Startup Boards: Getting the Most Out of Your Board of Directors, is shipping. You can get it at **http://startuprev.com/boardbook *

  • http://www.brownsteinegusa.com/ Conrad Egusa

    Wow, amazing post Brad. I particularly love this part:

    “At one point in the process, I was down to under $100,000 in the bank, with the vast majority of our net worth tied up in these angel investments and a house that we bought in Boulder. Fortunately, Amy was mellow about this. We had enough current income to live the way we wanted, we were young (30), and generally weren’t anxious about how much liquid cash we had.”

    • http://www.feld.com bfeld

      Yeah – we were confident that in the worst case scenario, we’d be ok since I knew I could earn enough to cover our bills.

      • http://WWW.FAKEGRIMLOCK.COM FAKE GRIMLOCK

        GREAT THING ABOUT BOOTSTRAP FROM NOTHING ONCE:

        YOU KNOW YOU CAN DO IT AGAIN.

        • http://www.feld.com bfeld

          Yup. It’s a powerful thing to always remember. It conquers a lot of fear.

  • Ronaldo Bahia

    Great post. Maybe you can post about what you did right and wrong about funded companies.

    • http://www.feld.com bfeld

      Sure – I’ll do some of that this year.

  • http://avc.com fredwilson

    i remember that day like it was yesterday. great story

    • http://www.feld.com bfeld

      It made me smile writing it. It makes me realize how much of an impact you have had on the way I invest – and think about investing.

  • http://avc.com fredwilson

    you and Joanne are on the same wavelength. she posted about how she became an angel investor today

    http://www.gothamgal.com/gotham_gal/2014/01/curbed-media.html

    • http://www.feld.com bfeld

      Super fun. Great post. I’ve done a few with her now – angel investments like Rick’s Picks (yay) and Third Ward (boo) and as you know just led littleBits – which she showed me when she originally made the investment as an angel. I love her portfolio and expect I’ll do plenty more with her – and you – in the future!

  • http://avc.com fredwilson

    you and Joanne inspired me to post about my first investment

    http://www.avc.com/a_vc/2014/01/my-first-investment.html

    it was, as they say, a shitshow

    • http://www.feld.com bfeld

      A glorious shitshow! I remember that company, but I didn’t realize you were the investor. I loved BRIEF – I used it for many years as my primary editor when I was still writing code. Apparently you can download it (rewritten in 2006 for Windows) at http://www.briefeditor.com/

      • http://avc.com fredwilson

        good products don’t die easily

        • http://www.feld.com bfeld

          Truth, that.

        • Nick Ambrose

          BRIEF was great !! Wow, I had even forgotten all about it. How time flies !

  • Adrian Meli

    Love that story…

  • ObjectMethodology.com

    Great stuff!
    .
    Just to let you know I’ve decided to kinda’ go public with my “Startup to $100M” discussion group. I’m going to see if I can put together a smaller group first. Just as a test. So I’m letting people know they can contact me via: Startup100M [@] ObjectMethodology.com
    .
    As you know we’re going to try to find the ultimate forumla for entrepreneurs who want to take their business from startup to $100M as fast as possible. It’s an informal group and we already have some great thinkers involved.
    .
    Keep up the good work!

  • http://www.futuristvc.com/ Brian Borton

    “Seth’s cool, the business is neat, I like it.” Such a great summary. I’m really curious though, did Fred also invest in Yoyodyne through Flatiron Partners at that time? If not, what was the different reasoning between you two?

    • http://www.feld.com bfeld

      Yes – Fred invested via Flatirons Partners. It was one of his first Flatiron investments.

      • http://www.futuristvc.com/ Brian Borton

        I’m not surprised. Thanks for the reply Brad.

  • Jeremy Robinson

    Definitely a cool story, thanks for telling it Brad. And I love the sense of playfulness and fun that comes through as you tell the story.

  • sethgodin

    Brad, you’re selling your role pretty short. I remember sitting in that room with you, blown away by how fast you were. There wasn’t anything we brought up that you didn’t immediately understand, no hurdle we described that you hadn’t already thought about.

    I said to myself, “if this is the sort of people I’m going to get to work with, bring it on.”

    One of the best days of my career.

    • http://www.feld.com bfeld

      Big smile my friend!

    • http://twitter.com/lauriekalmanson laurie kalmanson

      didn’t know that piece then, great to see it now. #becauseawesome

  • lunarmobiscuit

    Thanks Brad. I’m sure many others like me have been wondering about that transition in your career. How many years between that step and the Foundry? and then TechStars? and then authoring? Your Vizify timeline has the last few items all scrunched together (https://www.vizify.com/brad-feld/career).

  • http://technbiz.blogspot.com paramendra

    Interesting.

  • http://www.pointsandfigures.com/ pointsnfigures

    I love this post-meant a lot to me on a variety of levels. Especially this, ” At one point in the process, I was down to under $100,000 in the bank – with the vast majority of our net worth tied up in these angel investments and a house that we bought in Boulder. Fortunately, Amy was mellow about this – we had enough current income to live the way we wanted, we were young (30), and generally weren’t anxious about how much liquid cash we had.” That makes a gigantic difference if you want to angel invest. If your partner isn’t on board, it becomes extremely difficult to do-and do well.

  • http://twitter.com/lauriekalmanson laurie kalmanson

    yoyoydyne was the door i walked thru to the internet. #becauseawesome