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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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Don’t Be Gunshy Because You Dealt With Bucketheads The Last Time Around

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For all of you out there who are wondering, Amy is doing fine. We’re in Boulder, she’s happy, in some pain, but enjoying the delightful impact of Percocet, and making her way through MI-5 Season 8. Thanks for all of the support, emails, and kind words.

I’m about to head out for a five hour run (broken into three separate segments) in preparation for the 50 miler I’m doing in April after I help her take a shower (which ordinarily I would be excited about), but first I thought I’d write some thoughts about a call I had with an entrepreneur yesterday.

The call was about a potential financing he is considering. I’ve gotten to know him some from a distance over the past year and am impressed with what he’s created. He originally just called me for advice on his financing strategy but I started the call by telling him I was interested in exploring leading a round, would be willing to give him advice also, and would quickly tell him if I was dropping out so he could flip me into “advice only mode” if we weren’t going to end up being a potential investor.

We had a wide ranging conversation over an hour about the current state of the business and how he’s thinking about the financing. Several times over the course of the hour he sounded defensive about a particular issue – well – not defensive, but uncertain. He’d frame what he thought was a negative in the context of the way he’d heard it from a previous potential investor (let’s call them BucketHead Ventures) who hadn’t gotten to a deal with the company in the past.

One of these was around churn – he asserted that one of the clear weaknesses of the business was the high churn rate. I pressed him on what he meant and we went through some numbers. He didn’t have a high churn rate at all – in fact, his churn rate after a customer was paying for three months was minimal. The problem – described by BucketHead Ventures as “high churn” – was a combination of what happened in the first three months and BucketHead’s inability to do cohort analysis, so BucketHead looked at absolute churn on a monthly basis rather than on a cohort basis.

In my head, I thought to myself “bucketheads – they pretend to understand businesses like this but have a total miss at a basic level.” The entrepreneur understood the miss, but had internalized BucketHead Ventures feedback and was letting it color his view of his business. And, more importantly, it was making him gunshy. Instead of articulating a powerful story about low customer acquisition costs with minimal downstream churn, he lead with “the worst problem with the business is our high churn rate.”

I see this all the time. While some entrepreneurs think all VCs are bucketheads (they aren’t), other entrepreneurs think all VCs understand this stuff (they don’t). Even ones who seem to be experts, or should be experts, or claim to be experts. Especially the ones who claim to be experts. Often, they are just bucketheads. Listen to their feedback, but don’t let it make you gunshy if you think they are wrong.

Book: The Business of Venture Capital

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In the fall of 2010 Mahendra Ramsinghani reached out to me by email about a new book he was working on called The Business of Venture Capital: Insights from Leading Practitioners on the Art of Raising a Fund, Deal Structuring, Value Creation, and Exit Strategies. He asked for two things: (1) some of my time for him to interview me and (2) intros to other VCs and LPs. I made a pile of intros and didn’t think much more of it.

A few months later Mahendra send me and my partner Seth Levine an early draft of the book. We each gave him a bunch of feedback. I was deep into writing Venture Deals: Be Smarter Than Your Lawyer and VC with one of my other partners – Jason Mendelson – and it was neat to see how Mahendra’s book complimented ours. I also appreciated how much work a book like this was and tried to give substantive feedback.

In June 2011 Mahendra sent me and Seth a final draft of the book. I read through it and thought it was really good. When the book came out in October Mahendra sent us final copies. I turned the pages, smiled, and then went about my business.

I finally met Mahendra in Ann Arbor when Jason and I spent the day there in November, prompting my post College Is Like A Sandbox. Manendra and I spent some time talking about an idea he had for a new book and I agreed to help him with it (more on that later this week in another post.) In the mean time when I got home I dug up The Business of Venture Capital, put in on the top of my infinite pile of books to read, and figured I’d get to it soon enough.

If you are interested in becoming a VC, are a junior VC, an associate, a principal, or even a partner who is relatively inexperienced, this book is aimed directly at you. If you are an angel investor working with VCs, this book is for you. If you are an entrepreneur who wants to know a lot more about venture capital, this book is for you. It’s thorough, covers all aspects of the venture capital business, has many interviews and pithy quotes and thoughts from a wide range of experienced VCs who were interviewed by Mahendra, and is incredibly readable for a 350 page book about “venture capital.”

My review of it is really simple: “I wish I had this book in 1994 when I made my first angel investment, and then again in 1996 when I made my first VC investment. Wow – it would have saved me a lot of time, energy, confusion, and grief.”

The book is expensive, but if you are a VC, you can afford it. It’ll pay for itself many times over.

I Can Has A VC

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My friends at Cheezburger Networks have been rolling out what we have internally been calling Cheezburger 3.0. It’s called Cheezburger Sites and lets anyone create their own humor channel on the web.

In my never ending effort to poke fun at myself – and other VCs – I’ve created a site called I Can Has A VC. It’s just getting started – feel free to send me videos and photos of VCs doing stupid things, or stupid things masquerading as VCs.

And – if you has a sense of humor, go for it!

We Read All The VC Bloggers So You Don’t Have To

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As a VC who has been blogging for a long time I’ve been fascinated by the VC Blogger phenomenon. I’ve been subscribing to, reading, forwarding, occasionally commenting, and setting up networks of feeds for a while.

With the relaunch of AsktheVC we’ve resurrected something we used to do periodically which is highlight a great VC post. However, we are taking a different tact this time around with our new motto.

“We read all the VC Bloggers so you don’t have to.”

It’s not quite the gray lady, but hey, we are just VCs and bloggers, not real journalists. Jason and I already have some great posts up from guys like Jeff Bussgang (Flybridge), Mark Suster (GRP), Fred Wilson (Union Square Ventures), Roger Ehrenberg (IA Ventures), Charlie O’Donnell (First Round Capital) and 500 Startups. We’ll provide a little additional insight, or at least a pithy comment.

We’ve also got a full list of known VC bloggers (at least to us) on the sidebar of AsktheVC. If we are missing anyone (I’m sure we are), please email me and I’ll add them.

Warning To All Entrepreneurs About Bad Investor Behavior

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I received an email from an entrepreneur today asking me about something that made my stomach turn. It’s a first time entrepreneur who is raising a modest (< $750k) seed round). There are two founders and they’ve been talking to a VC they met several months ago. Recently, the VC told them he was leaving his firm and wanted to help them out. This was obviously appealing until he dropped the bomb that prompted their question to me.

This soon to be ex-VC said something to the effect of “I can easily raise you money with a couple of phone calls, but I want to be a co-founder of the company and have an equal share of the business.”

In my email exchange with the entrepreneur, I asked two questions. The first was “is he going to be full time with the company” and the other was “do you want him as a third full time partner.” The answer was no and no. More specifically, the VC was positioning himself as “the founder that would help raise the money.”

I dug a little deeper to find out who the person was in case it was just a random dude looking for gig flow. David Cohen, the CEO of TechStars, has written extensively about this in our book Do More Faster – for example, see the chapter Beware of Angel Investors Who Aren’t. I was shocked when I saw the name of the person and the firm he has been with (and is leaving) – it’s someone who has been in the VC business for a while and should know better.

I find this kind of behavior disgusting. If the person was offering to put in $25k – $100k in the round and then asking for an additional 1% or 2% as an “active advisor” (beyond whatever the investment bought) to help out with the company, I’d still be skeptical of the equity ask at this stage and encourage the founders to (a) vest it over time and (b) make sure there was a tangible commitment associated with it that was different from other investors. Instead, given the facts I was given, my feedback was to run far away, fast.

Entrepreneurs – beware. This is the kind of behavior that gives investors a bad name. Unfortunately, my impression of this particular person is that he’s not a constructive early stage investor but rather someone who is trying to prey on naive entrepreneurs. Whenever the markets heat up, this kind of thing starts happening. Just be careful out there.

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