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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Wet But Ok In Boulder

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Amy and I took one of our Qx vacations last week – where we go off the grid entirely for the week (no phone, no email, no computer stuff). We were originally going on a walking trip to Prague with some friends, but decided we needed 12 hours of sleep a night for a week so we gave our trip to some other friends and headed to Vail to hide out for a week in a fancy hotel with room service and a spa.

All went according to plan until Thursday. I woke up at about 10:30 and wandered into the living room of our hotel with the goal of going downstairs and getting some coffee. The TV was on – which is weird since we don’t watch day time TV – and Amy seemed really agitated.

“Boulder is flooding,” she said.

“Huh? That’s weird,” I replied.

“They are having massive flash floods.”

Flood in Eldorado Springs and Boulder

Photo Credit: Jenna Rice

We spent the next hour glued to the TV, the web, and Twitter trying to figure out what was going on. It only took an hour – it was clear this was going to be awful given the weather system. Even though we were 120 miles away, we were incredibly anxious. And the constant stream of news – and water – didn’t help. As we started seeing areas we knew well, like the Boulder Creek, Canyon Road, 36 on the way to Lyons, and Lyons being flooded and destroyed, the severity of it all sank in.

I generally stayed offline until Sunday. We monitored everything through Saturday, checking in with our friends and offering help to a few folks we knew were stranded. We felt helpless to really do anything and it made no sense to go back early since many of the roads into Boulder were impassable so we just hung out, tried to keep relaxing, and sort of stayed in touch and offered help where we could.

I got back online yesterday. By that point things were settling down. I don’t necessarily mean getting better; rather the extent of the damage was becoming clear. And the rain was still coming down.

450 Driveway Destroyed

 

This is a photo of what used to be the driveway to our house in Eldorado Canyon. And the picture above it is the road to our house – or what used to be the road – through Eldorado Canyon state park. We have no idea what condition the house is in – we’ll find out more today when we try to get up there using our hovercraft.

Thanks to everyone for all their well wishes. We are fine – many are worse off – so we are going to turn our attention to them and see if we can be helpful now that we are back in town.

And yes – it’s still raining, although the weather people say it’s finally going to stop today.

Zayo Group – One of Boulder’s Amazing Startup Stories

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I’m intensely proud of both the amazing startup community in Boulder as well as the many significant companies that have been – and are being – created in the little town of 100,000 people I call home. I regularly talk about the ones we’ve invested in through Foundry Group, but this only covers a part of the awesomeness that is going on here as Foundry Group has a very tight thematic focus.

As Boulder continues to gain visibility as a great place to create companies, I’ve decided to highlight some of the entrepreneurs – and their companies – who have contributed to Boulder in significant ways.

Dan Caruso, the co-founder/CEO of Zayo Group, is one of them. I first met Dan around a decade ago when Howard Diamond, another incredible contributor to the Boulder startup community, introduced us. Howard was at Level 3 at the time – they had acquired his previous company Corporate Software (which I was an investor in) – and he knew Dan through that experience. Over the last decade, I’ve gotten to know Dan, watched as he’s built an incredible $6 billion market cap company headquartered in Boulder, while contributing relentlessly to the Boulder startup community.

I asked Dan to write a guest post talking about Zayo’s story. It’s great – and follows. Dan – we are lucky to have you – and Zayo – in Boulder.

“Fiber in Downtown Boulder?” was the title of an email sent to me by Brad, after he had heard from one of his CEOs that Zayo is constructing fiber in Boulder. “If true, how can I help?”, he continued.

Years ago, when I first met Brad, I didn’t “get” him. I had recently left Level 3 Communications. I was one of the day one execs of LVLT, as well as an early member of the management team of MFS Communications. It is understandable that I considered myself to an accomplished entrepreneurial-minded executive. Yet I felt so disconnected to Brad and the culture around him. It took me several more years to understand Brad, and during this time I developed a deep appreciation of his passion for entrepreneurism. I was drawn to his unique ability to promote ideas, create awareness, and fuel momentum. I sought to mimic his propensity to leverage social media.

“How can Brad help?”, I pondered.

“Help me create more awareness about the contributions that Zayo is making toward the Front Range entrepreneurial community.

Brad, entrepreneurial as ever, delegated the task back to me. “How about you write a post for my blog?”

Sensing an opportunity, I responded “How about I write two?” This is the first. The next one will describe our extensive fiber build across the front range.

I will provide a quick synopsis for those who prefer a two-paragraph summary. In late 2006, Zayo was a pure start-up headquartered behind Nick and Willy’s on 8th and Pearl. Today, Zayo has eclipsed $1.1Bin revenue and $600M in EBITDA, leading to an estimated Enterprise Value in the vicinity of $6B. We have 3 offices in Colorado, with our headquarters on the 2nd floor of 29th Street mall. In addition to directly employing 250 people across the Front Range, we indirectly employ many more related to our multi-million dollar fiber build across the front range. Dozens of recent graduates of Colorado’s university system are Zayo-ites.

Boulder is an incredible entrepreneurial community, and I enjoy being immersed in it. I am excited to see this innovative energy spreading across the front range, through Startup Colorado and other initiatives. I am proud that Zayo is a vibrant example of our community’s robust start up ecosystem.

For those who prefer a slightly longer version, here is the Zayo Story in a nut shell.

In June of 2006, we sold what remained of ICG Communications to Level 3. The ICG team went to Level 3 as part of the transaction. I didn’t.

Two years prior, ICG was a public company preparing for its second bankruptcy. My group was the only that offered an alternative to Chapter 7/11. We paid them $8.7M and took them private. By the time we sold to Level 3, our total proceeds to equity owners and management were $225M. For those without a calculator nearby, that’s a 25X return in 2 years.

Nonetheless, I was out of a job.

Though ICG was headquartered in south Denver, we opened up a small satellite office on 8th and Pearl — right behind Nick and Willy’s. In the sale to LVLT, we kept a portion of this office. One by one, many of my colleagues extracted themselves from Level 3 and pondered “what now”. By late 2006, we formed Communications Infrastructure Investments. Today, CII d/b/a Zayo Group.

Our investment thesis was simple. Bandwidth was busting — and this would continue beyond our children’s lifetimes. Fiber was the workhorse of the Internet — and nothing would alter its importance for as far as the eye could see. Most importantly, drinking too much tequila leads to a hangover that makes it hard to look at — let alone taste — tequila again.

Point 3 requires more of an explanation. The late 1990s saw a fiber tequila party that started out wild — investors poured money into start-ups and fiber networks were constructed throughout the land. Way too much fiber tequila was gulped, and the ensuing telecom meltdown caused a hangover of epic proportion. As we hit the early 2000s, investors and strategics felt their stomach’s gargle at the sight of a fiber-labeled tequila bottle. You know that feeling?

Our ICG experience gave us different perspectives. First, many fiber networks had consolidated into a handful of platform. The balance between supply and demand of bandwidth was rapidly improving.

Second, we saw an opportunity to be a consolidator of the remaining fiber properties. We called these fiber orphans — companies whose roots dated to the telecom boom but which had not yet been consolidated into a nationwide platform. These companies somehow navigated their way through the meltdown. By 2007, they were doing quite well. However, the tequila hangover persisted and few investors or strategics were paying attention to them.

Third, we developed a thesis around “Bandwidth Infrastructure”, a term we coined. We did not desire to be a traditional telecom company. Instead, we sought to provide raw fiber, wavelengths, ethernet, IP, and technical space to those entities that needed a whole lot of bandwidth. Circa 2007, this was considered a ridiculous approach. Even today, we are sometimes poked by rivals for our infrastructure approach.

Between 2007 and 2013, we acquired 25 companies. We now have over 80,000 route miles of fiber, mostly in the U.S. and London. Our fiber is connected to nearly every significant colocation, hosting, and carrier hotel facility. Our biggest customers are the wireless carriers and big content/Internet companies. We raised $2.7B of debt and $870M in equity in three rounds. Our initial investors have not sold, though they are enjoying a 4 – 5X mark. Our equity IRR has averaged around 50% since inception.

Zayo is in this for the long term… the very long term. My aspiration is to be at the helm of Zayo for a few more decades. Zayo will be to bandwidth what Amazon is to the cloud and what Equinix is to colo. Zayo will foster the development of additional start-ups, either within Zayo or as spawning-offs. The bandwidth supplied by Zayo will positively effect the lives and livelihood of countless people throughout the world. As Zayo continues its quest, it will bolster Boulder and the Front Range’s reputation as a top tier centers for Entrepreneurship and Innovation.

The Hitchhiker’s Guide to the Boulder Startup Community

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David Cohen just put up The Hitchhiker’s Guide to the Boulder Startup Community. It’s a short presentation that you can look at below and is a great way to get a lay of the land in the Boulder Startup Community.

This will be an organic document so if you are doing something that you want us to add, just leave a note in the comments and we’ll update the doc.

A Critical Vote on the Off Ramps In Boulder’s Energy Policy

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Please ask Boulder City Council to vote NO on proceeding with inadequate decision criteria November 15.

There is a critical vote in Boulder City Council on this Thursday, 11/15, about the “Off Ramps” in the exploration to explore the municipalization of Boulder’s power system. My understanding was that this was still in an exploration phase. Apparently, this particular vote is to effectively eliminate the “off ramps” that would potentially cause Boulder not to municipalize in case it wasn’t economically feasible.

My partner Jason wrote an important post yesterday titled Boulder It’s Time to Get Serious About Our Energy Situation – Call City Council. His key finding in his early exploration was:

This Thursday, on November 15, 2012 the City Council will vote on these off ramp metrics.  In other words, this is the framework they will rely on to determine whether or not Boulder is going to go-it-alone on power.  And I feel these metrics are very flawed and bias the decision to separate, rather than unbiased to get us to the correct decision.  I’ve spent time with several folks in the community who are experts on these matters and who are spending their own time and money analyzing these metrics.  They are convinced they are flawed and I’m convinced their scientific method is sound.

Please send an email to Boulder City Council immediately (send the email to council@bouldercolorado.gov) that you do not support a vote for adequacy of the “off-ramp” decision metrics proposed by Heather Bailey (which are the current metrics).  They do not represent our risks of greatly increased electric rates, reduced reliability, and unsupportable bond debt due to creating a Boulder municipal power enterprise.

Please vote NO on proceeding with inadequate decision criteria November 15.

For more detail, take a look at the thorough presentation by Roger Koenig.

Separating Regional Economic Development Fact From Fiction

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Today I read the following headline in the Boulder Daily Camera: “Phillips 66 to sell 432-acre campus in Louisville.” This was quite a reversal from the headline in the Denver Post 4.5 years ago titled “Conoco deal fuels optimism.” For anyone who drives up and down Highway 36 between Boulder and Denver (or from Boulder to DIA) we regularly see this huge, empty, relatively ugly former StorageTek headquarters site which has been sitting “about ready to be developed any day we promise” by Conoco Phillips. As of today, this is no ambiguity that Conoco Phillips (now Phillips 66) won’t be developing anything on the site.

Here are some snippets from the article in the Denver Post on 2/21/08.

“Touting his vision for a new energy economy and ending months of speculation, Gov. Bill Ritter on Wednesday revealed that ConocoPhillips has purchased the former StorageTek campus in Louisville.”

“This will push the new energy economy for Colorado,” Ritter said. “This will provide economic security, environmental security and energy security.”

“While the number of jobs the region will gain is still in question, the company will bring thousands of employees to the training center each year.”

“It’s a perfect example of Colorado’s new energy economy, and we are very much looking forward to welcoming ConocoPhillips to Colorado,” said Matt Cheroutes, director of communications and external affairs for the state Office of Economic Development and International Trade. “This will lend to our ability to attract companies to Colorado’s new energy economy. This certainly could mean opportunities for significant job growth in the state.”

“It certainly reinforces the great work that Gov. Ritter has been doing to grow this renewable-energy cluster,” said Joe Blake, president of the Metro Denver Economic Development Corp. “This just signals to me that Colorado is at the center of this right now on a worldwide basis.”

There’s plenty more but the summary is that in 2008 government leaders declared victory when the land was purchased and asserted all kinds of validation and economic development as a result of it. Of course, we now know that none of it happened and the land – which was supposed to be fully developed by 2012 – is still vacant.

I see this all the time in my travels around the US with regard to economic development activities. There is this incredible focus by government on attracting big business projects, headquarters projects, and speculative development projects. Sometimes major financial incentives, usually in the form of tax relief, is offered as a sweeter. In the situations where this works, I can imagine a long term economic benefit to a region.

However, the sale of a piece of property doesn’t signal anything. And, like many other economic development victories, it’s a total non-event until something is done. Yet politicians and their economic development folks assert that amazing things will happen as a result. These aren’t hypotheses (e.g. “if they actually develop this project amazing things will happen”) they are statement of facts about how they will happen. If you read the article as well as look at the development that has occurred immediately adjacent to the site (apartments and a hotel) you can see how the speculators show up right away.

It’s all very arbitrary feeling to me and doesn’t surprise me at all. When the land was purchased and everyone in state and local government raved about how amazing it would be for the Boulder area, most of the entrepreneurs I know barely noticed it. And four years later it hasn’t had any impact on the Boulder startup scene, positive or negative, that I’m aware of.

It’s another example of what I talk about in Startup Communities as the disconnect between government and the startup community.

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