Announcing the Global EIR Coalition

Yesterday morning, over scrambled eggs and smoked salmon with Jeff Bussgang of Flybridge Capital (he had yogurt), we talked about immigration reform and our broken immigration system. Both Jeff and I have been working hard on making it much easier for immigrant entrepreneurs to get visa’s to start their companies in the US. Both of us have been unsuccessful in our efforts at a national level. At the end of the discussion, we decided to start the Global EIR Coalition to open source our approach and try to help every state in the US implement a similar program.

Last year Jeff and a bunch of his friends in Massachusetts created the Massachusetts Global Entrepreneur in Residence pilot program. The MA GEIR was a brilliant approach to a state level solution to this problem. The MA group did extensive legal work on this and the MA legislature passed a bill for it as part of their 2014 Jobs Act.

I watched from the sidelines with intrigue. I had become very discouraged at a federal level and have been spending mental cycles pondering state’s rights issues and state level approaches to things. I have deep respect and admiration for two our Colorado’s congressman – Michael Bennet (senate) and Jared Polis (house) – each which have worked very hard on immigration reform – and have learned a huge amount from them, including how hard it is to get things done in Washington. I also have enormous respect for Mark Udall who was Colorado’s senior senator and one of the original sponsors of the Startup Visa bill.

So when I started seeing what Jeff was doing in Massachusetts, I started working on a similar approach in Colorado with Craig Montuori, and Chris Nicholson of Venture Politics. This culminated in our recent launch of the Colorado EIR program.

One difference between the MA and the CO programs is funding. In MA, there was originally $3 million of state funding. I decided I wanted to try this in CO without any state funding, so I just funded the program myself for the first year to the tune of $150,000 (CU decided it was important to provide some funding directly as well, so they are contributing $50,000 to the program.) Unfortunately, after the election, the new MA governor defunded the program (although he has reinstated $100,000 of funding) so the group in MA is now working on a funding approach that does not rely heavily on the state.

As we iterate on this, we are learning an enormous amount about what works and what doesn’t work. Jeff and I agreed that we should amplify and expand our learning, so other states can build off of our experience as well as help us figure out a long-term, sustainable approach. We are clearly in experimentation mode, but with strong support intellectually from local leaders, such as Phil Weiser (Dean of CU Boulder Law School and head of Silicon Flatirons.)

While I’m not giving up on a federal solution, I plan to put my money and my energy into a state level solution. The dynamics around gay marriage and legalization of marijuana have intrigued me greatly, and as I read early American History, I understand (and remember) the original dynamic of the United States, where there are States that are United from the bottom up, rather than simply a federal government dictating policy top down.

As someone who loves networks and hates hierarchies, this is the right approach for my psyche. I’m ready to take another big swing at this from a different angle.

If you are working on something similar in your state, please reach out to join the Global EIR Coalition. Today is our first day in existence, so expect us to be chaotic, underfunded, and under-resourced just like every other raw startup. But, like Steve Blank and Eric Ries inspire us to do, we are just launching, aggressively doing customer developing, and iterating rapidly.

And, if you are a foreign entrepreneur who wants to build your company in Colorado, email me to apply to the Colorado GEIR program.

For Jeff’s perspective on what we are doing, take a look at his post Hacking Immigration – The Global EIR Coalition.

The Long Lost Myth of Capital Efficiency

I miss capital efficiency. It seems like you were our best friend just yesterday.

Were you a myth? A lie? A justification by VCs to explain away their lack of capital to invest? A rationalization by entrepreneurs to explain away their inability to raise capital?

Do you remember all the blog posts about how companies needed so much less money? All the articles about how capital efficient businesses were a result of AWS, better software development tools, easier starting points, better scaling technologies, and lots of other things.

Do you remember when it was “all software, all the time?” There was no discussion of hardware, or any need to build hardware companies. Internet of Things wasn’t yet a buzzword. If you had any notion of manufacturing in your business VCs would immediately say “you can’t build scale and value like a software-only company.”

This was all just five years ago. Oh how things change.

Was it just bullshit? Or is it actually a parallel universe of happiness?

I’m going to assert it’s a parallel universe of happiness based on the successful companies in our portfolio that I would categories as capital efficient. We have a bunch of them. And we’ve learned that it is a lot easier to make a 10x return on capital on a company that has only raised $10m then it is to make a 10x return on capital when a company has raised $100m.

And we like that. We aren’t afraid of going for a 10x (or more) return of capital on companies that have raised a lot more money, but when a company can become cash flow positive on a small amount of capital (say $5m – $10m) and grow over 100% year-over-year without raising another nickel of equity, well that’s a silent killer.

If you want a few more discussions about this, I did a quick search on “venture capital capital efficiency” and came up with:

Seems like our little corner of the universe might need an episode of Mythbusters.

Why We Pass Quickly On Things

I passed on something referred to us by a close VC friend (who I’ll call Joe) who I’ve done a bunch of investments with over the years. A few minutes later I got the following email from the entrepreneur.

hey brad – 

if you get a moment, i’d love to hear your unvarnished reasons for the denial. thanks for the time…- i remain a huge fan of your blog…….

I get asked regularly for feedback on why we pass on something, especially when we pass after a single email interaction. As with many things, it’s useful to start with your strategy, assuming you have one.

In Foundry Group’s case, our goal is not to invest in every great company, it’s to invest in ten potentially great companies a year.

As part of our strategy, we have purposely constrained our fund size ($225m per fund, which lasts about three years and covers about 30 investments) and our partnership size (four partners, no associates.) As a result, our goal is to say no in 60 seconds. Sure, we’ll miss some great opportunities, but that is fine as long as we believe (a) there are more than 10 great potential companies for us to invest in each year and (b) our deal flow dynamics are such that we see a lot more than the 10 we end up choosing to invest in.

Based on our current deal flow dynamics, if we had unlimited time, unlimited capital, and unlimited partner resources, there are at least 100 companies each year that we would invest in. This 100 number is not “deal flow” – this is actually investments that we’d make. So given our strategy constraint, we could miss investing in 90% of the things we wanted to invest in and still have enough new, great, potential investments to execute on our strategy.

Many of our quick passes are in the “it’s us, not you” category. There are a few things driving this. Following is the response I sent to the entrepreneur above in response to his question about why I passed.

1. Stage – this is later than our usual entry point. If you’ve raised more than $3m, we generally don’t engage. We don’t have to be the first money in, and we love to work with Joe, so I squinted and made an exception since you’d only raised $4m

2. Focus – We are very selective since we only do 10 new investments a year. I wrote a post about this a while ago (http://www.feld.com/archives/2009/06/say-no-in-less-than-60-seconds.html). I took the first meeting / call because of Joe. I tested high level response internally against the other 100 things that are in front of us. It was no where near the top (we have this discussion continually and use each other for reactions).

3. Engagement – I’m in Dubai next week and then Canada the week after that. Then I’m home for a week, in Cleveland, then in Boston/NY. So the next month is one of those months where nothing much new is going to happen on my end. We hate to play the slow roll game with entrepreneurs – one of our deeply held beliefs is to either engage or not engage quickly. Given #2 and then considering #3, I know that nothing is going to happen for a while and I have no interest in being the schmuck that just hangs around waiting to see if something happens.

Fundamentally, the quick positive reaction was “neat + Joe is awesome” then weighed down by 1, 2, and 3 above, resulting in “I’ll face reality quickly on this – we aren’t going to get there on it…”

While at some level this might not be satisfying to the entrepreneur, and I’ve had many challenge me to go deeper in my exploration of their company, given 20 years of investing it’s usually pretty clear when something is not going to happen. The reasons vary greatly, but having a strategy that causes it not to matter in the long run has been something that we’ve spent many hours talking about and making sure we understand.

Ultimately, understanding what we do, how we do it, and the strategy behind it is key to us being able to run Foundry Group with just the four of us. I take inspiration from a lot of people on this front, including Warren Buffett and his approach to his headquarters team for what is now one of the largest businesses on the planet.

There are clearly more than one way to run a successful VC firm – our goal is to run it the way we think we can be successful at it.

Mentors 11/18: Clearly Commit To Mentor Or Do Not. Either Is Fine

I’m hanging out with Morris Wheeler and his family for a few days in Cleveland. I first met Morris through my friend Howard Diamond, currently the CEO of MobileDay (which I’m on the board of). Both Morris and Howard are extraordinary Techstars mentors, so I was motivated this morning to knock out another post in my Deconstructing The Mentor Manifesto series as foreplay for me starting to work on my next book, #GiveFirst.

When we started Techstars in 2006, the concept of a mentor was very fuzzy. There were many people who called themselves “advisors” to startups, including a the entire pantheon on service providers. While the word mentor existed, it was usually a 1:1 relationship, where an individual had a “mentor”. It was also more prevalent in corporate America, where to make your way up the corporate ladder you needed a “mentor”, “sponsor”, or a “rabbi.”

We decided to use the word “mentor” to describe the relationship between the participants in the Boulder startup community who were working with the founders and companies that went through Techstars. We had our first program in Boulder in 2007 and had about 50 mentors. Many were local Boulder entrepreneurs, a few were service providers who were particularly active in the startup community (including a few investors), and some were non-Boulder entrepreneurs such as Dick Costolo (ex-Feedburner – then at Google) and Don Loeb (ex-Feedburner – also then at Google, now at Techstars as VP Corporate Development). Basically, I reached out to all my friends and said “would you be a mentor for this new Techstars thing we are doing?”

At the time, we had no real clue what the relationship between mentor and founder would be. We knew that we wanted real engagement – at least 30 minutes per week – rather than just an “advisor name on a list.” We expected that engaging local mentors would be easier than non-local mentors. We defined rules of engagement around what mentoring meant, which did not preclude early investment, but did preclude charging any fees during the mentoring period.

Over time, we realized – and figured out – a number of things. When I talk about the early days of Techstars, remember that the concept of a “mentor-driven accelerator” didn’t exist and that the idea of an accelerator was still in its invention phase.

One of the biggest lessons was encapsulated in this part of the mentor manifesto. As mentorship became a thing, we suddenly had a supply of mentors that overwhelmed us. Everyone wanted to be a mentor. In 2008, we knew a little about what was effective and what wasn’t, so we continued to try to be inclusive of anyone who wanted to be a mentor, although I’m sure we blew this in plenty of cases. But we started seeing lots of mentors who did a single flyby meeting with the program, but never really engaged with any of the founders or companies in a meaningful way.

It probably took us until 2011 to really understand this and put some structure around it. By now, we had programs in multiple cities and managing directors who had different styles for engaging the local mentor community. And, mentorship was no longer a fuzzy word – it has shifted over into trendy-language-land and everyone was calling themselves a mentor, even if they weren’t. And being a mentor for a program like Techstars suddenly started appearing as a job role on LinkedIn.

Today we’ve got deep clarity on what makes for effective mentorship. And, more importantly, what makes a mentor successful and additive to an accelerator. A fundamental part of this is a commitment to engage. Really engage. As in spend time with the founders and the companies. It doesn’t have to be all of them – but it has to be deep, real, and with a regular cadence (at least weekly) over the three month program.

If you aren’t ready or able to commit, that’s totally cool. Don’t be a mentor, but you can still engage with the program and the companies through the philosophy I’ve talked about many times of “being inclusive of anyone who wants to engage” (principle three of the Boulder Thesis from Startup Communities).

And yes, this one is a hat tip to Yoda’s “Do or do not, there is no try.”

Bringing Depression Out of The Shadows In Startups

I’ve been very open about my struggles with depression over the years. A few weeks ago, I participated in a Q&A with Greg Avery at the Denver Business Journal titled Brad Feld Q&A: Bringing depression out of the shadows in startups. It was part of a more extensive series on Depression, entrepreneurs and startups.

Since I’m still getting emails about it, I thought I’d republish the Q&A here.

Q: How common is the issue of depression in the startup world?

A: Very common, although it is rarely discussed. While the line between stress, deep anxiety, and depression often blurs, most entrepreneurs struggle with broad mental health issues at various points in their lives.

Q: How hard was it to acknowledge your struggle to yourself? And how hard was it to explain it to your partners and your peers?

A: Initially it was extremely hard. When I was in my mid-20s, running a successful company and clinically depressed, I was afraid to talk to anyone other than my psychiatrist about it. I was ashamed that I was even seeing a psychiatrist.

I was afraid people wouldn’t take me seriously, or would stop respecting me, if I talked about how bad I was feeling. The only people I talked openly about it with was my business partner, Dave Jilk, and my girlfriend — now wife — Amy Batchelor. They were amazingly supportive, but even then I was deeply ashamed about my weaknesses.

Q: When did you start to be so open about it?

A: After I became depressed for the second time, in my mid-30s — in 2001 just after Sept. 11 through the end of the year. The last three months of 2001 were awful for me after an 18-month stretch from the peak of the Internet bubble — spring 2000 through Sept. 11, 2001. That was a relentless slide downhill on all fronts.

Sept. 11 was the trigger point for this depression. I was in New York City after a red-eye from San Francisco, landing at 6 a.m. on 9/11. I was asleep in my hotel room in midtown [Manhattan] when the World Trade Center towers collapsed. While I was never in harm’s way, I was terrified, exhausted, and emotionally distressed.

Once I got back to Boulder, I didn’t travel for the rest of the year. In 2002, when most of my VC and entrepreneurial colleagues were having a terrible year, I acknowledged how much I had struggled in 2001, although I was still relatively discreet about it.

When I got depressed again at the end of 2012, I was open about it this time as it was happening and throughout the process. I knew at this point how to handle it and that it would pass.

I also knew many, many entrepreneurs also struggled with depression but, like I had been earlier in life, were afraid to discuss it.

Q: How much does the issue of mental health differ in startups from the world at large?

A: In general, I don’t know. But leaders and entrepreneurs are programmed to “never show weakness”, so I expect there’s much more pressure to keep it hidden and suppressed, which if you’ve ever been depressed, can make things much worse.

Q: Looking back, how much has your work, or work style, been a factor in your depression?

A: There are many things about my depressions that I still don’t understand. I have been able to identify trigger points for the various depressions, which include physiological exhaustion, boredom, and major life changes [divorce, dropping out of a Ph.D. program].

Most recently, things started with a 50-mile race I did in April 2012 that I never physiologically recovered from, followed by a near-death bike accident in September 2012, a very intense stretch of work which included writing two books in the midst of everything — “Startup Communities” and “Startup Life” — the death of my dog, and ultimately a kidney stone that required surgery.

At one level, I was exhausted. I was also bored — my work was fine, but I wasn’t learning very much. I’m hugely intrinsically motivated and have always believed that I’m fueled and motivated by learning. In this case, I was teaching a lot, mostly around “Startup Communities”. But I wasn’t spending any time learning. After coming out of the depression, I realized this was a huge part of things and have subsequently redefined my intrinsic motivation as a combination of learning and teaching. Now that I’m 49, I realize this makes a lot more sense.

Q: How well does the startup and VC world handle issues of mental health? What would you change about it?

A: Until a few years ago, we generally sucked at it. The philosophy around leaders and entrepreneurs never showing weakness dominated and we were told never to let ourselves be vulnerable. Fortunately, leaders like [venture capitalist and professional coach] Jerry Colonna have helped many leaders and entrepreneurs understand the power of being vulnerable and we now at least have an open and productive conversation around it.

Q: Can an executive afford to show any vulnerability and still hope to succeed in leading employees and attracting funding?

A: Yes absolutely. It’s all about culture, style, and self-awareness. And, it’s much easier to be yourself, allow yourself some vulnerability, intellectual and emotional honesty on your path to being a great leader.

Q: What would you say to a founder who’s grappling with depression but feeling their success might hinge on not letting it be known?

A: I mostly try to listen, be empathetic, and introduce the person to other peers who have struggled with the same thing. I talk openly about my experiences, but claim them as mine, rather than suggest that there are generic solutions.

When ask directly what to do, I offer opinions, but I don’t lead with them, nor do I expect that I will — or that I can — solve the person’s problem. I can simply be a resource for them.

Q: Have you actually had these conversations?

A: I’ve had these conversations many, many times.

Q: What do you suggest to people who need help?

A: Talk to your mentors, your peers, and your partners. Take the risk of being vulnerable.

Q: Are there resources you’ve discovered that are particularly geared or well-suited to entrepreneurs?

A: Jerry Colonna’s Reboot.io is the best organization in the world for this.