Our New Fund – Announcing Foundry Group Next 2018

This post originally appeared as Announcing Foundry Group Next 2018 on the Foundry Group website.

We are happy to announce the closing of our seventh fund, Foundry Group Next 2018. The $750 million fund combines all of our prior fund strategies – our early stage, early growth, and partner fund investments – into a single fund.

For historical reference, our early stage funds (FG 2007, FG 2010, FG 2013, and FG 2016) are all $225 million in size. Our first early growth fund raised in 2013, Foundry Group Select, is also $225m in size. In 2016, when we raised Foundry Group Next, we approximately doubled the size of that fund to $500 million since 30% of it was going to be invested in partner funds and 70% in early growth. So, at the beginning of 2016 we effectively raised $725 million (FG 2016 and Foundry Group Next). Foundry Group Next 2018 is simply the combination of those two funds rounded up slightly.

Our strategy is unchanged – we’ve just combined all of our investing activity into one fund going forward. When we started Foundry Group, we had four equal partners. We now have seven equal partners. We invest all over the United States and Canada. We have a deliberate and focused set of themes that encompass almost all of our investments. We are syndication agnostic, being indifferent between investing by ourselves or with co-investors – especially our partner funds – where we mostly have long and successful relationships. Our goal is to have significant ownership in companies we are investors in (often over 30%). We are very long-term investors, focusing on net cash on cash returns, rather than short-term or intermediate IRRs.

While we have an early entry point from our historical early-stage investing, we don’t have to be the first investor in a company. With the Cambrian explosion of seed funds that has occurred in the last five years, we’ve chosen to invest in these funds directly (which we call our partner funds) rather than try to chase seed investments all around the country. If a company hasn’t raised more than $5 million, we are a good target, as long as it is in the US (or Canada) and in one of our themes.

We are full lifecycle investors and willing to invest, and lead, Series A, B, and C rounds. We refer to B and C rounds as early growth – essentially financings with valuations between $50m and $300m pre-money. By being syndication agnostic, we are happy to lead multiple rounds of companies we are already investors in, but we also love to welcome in co-investors who we like and respect, along with any of our LPs who want to participate directly alongside us.

We have a small team (16 people total). The seven partners all work directly with the companies and partner funds. We have a CFO, a General Counsel, six EAs, and one fund investment associate. We don’t expect, or intend to add anyone to our team going forward.

We’ve worked hard to have a network-centric view of the world. As a small team based in Boulder, Colorado, we have developed a very broad network which includes all of the entrepreneurs we work with, our LPs, VCs we co-invest with, our partner funds, several startup studios, Techstars, and many other colleagues through our writing, startup community leadership, and non-profit activities. We think of ourselves as one node on a mesh network, an important node, but not a central node through which everything must flow. We subscribe to the notion of #GiveFirst and try to be helpful to everyone we come in contact with.

We know who we are at year 12 in our journey as a firm, love what we do, and try very hard to do it clearly, honestly, authentically, and transparently with everyone we interact with. Creating and building companies is extremely hard, and we have deep respect for everyone we get to work with through all the ups and downs.

We very much look forward to continuing to work with everyone we currently work with, as well as another group of great entrepreneurs and VC fund managers in our Foundry Group Next 2018 Fund. We are also happy to welcome a small number of new Limited Partners to our family. We are pleased to partner with such a great group of investors.

Thanks for allowing us to be part of your journey.

– Jason, Ryan, Seth, Brad, Lindel, Moody, and Jamey

Working At Threshold

I’ve been toying with this idea of working at threshold. It first came to me as I considered a recent hike where I wasn’t synced up with my partner. When hiking, I like to move as fast as I can up a slope at a pace that is sustainable for at least a given section. That’s also the way I prefer to run. Some people like to run hard and fast, above their threshold, and then stop and walk before running hard again. That’s not for me, even though it may ultimately have the same time and distance result.

The interesting thing about hiking or running in this analogy is that finding the right partner or set of partners, that have the same rhythm or style of working can meaningfully improve your threshold. One of the things I miss most about Austin is my running partner, Glenn Stotts. You wouldn’t know it to look at us (he’s tall, long-legged, and thin!) but we were excellent running partners. On good days, we would yo-yo back and forth, pulling the other along at an ever-increasing threshold. Running with Glenn, from around 2010 to 2015, was incredibly gratifying and we meaningfully increased our thresholds because we had found the same rhythm.

I feel like I’ve found that same set of benefits from my partners at Foundry Group. Brad, Jason, Seth, and Ryan have had a special relationship since forming Foundry Group in 2007. They’ve become best friends along the way but I think combining that emotional connection with sustained effort in the business has also meaningfully increased their output and effectiveness as a group. We’ve worked hard to add in three new partners to the mix and it feels like we are hitting our stride as a pack.

One of the cultural norms for us is that we all work hard. And we all do the work ourselves. We tend to work an investment or project on a single or small-team basis, constantly reporting back to the partnership, getting feedback and also knowing that they are there to back us up or pick us up when things aren’t going right. Perhaps its the high communication level, or witnessing your partners doing the work that is the motivational cog. It’s also true that we’re all competitive and we sure don’t want to disappoint each other. Whatever the case, the effect has been that all of us work at a higher threshold because of each other.

In fact, we run the risk of spinning each other up too much. It’s fun to be part of a team that pushes you to be a better version of yourself but it’s also hard to keep up! We all like our work and it can become addictive at some level. Each of us tend to take on slightly more than we can chew and have an automatic response to “fill” any blank space. This actually isn’t healthy long-term as we tend to run about 120%. It’s fun and we all like to be spun up but it can affect our work, and our personalities, not to mention any idea of balance and putting our families first. One of my partners read this post and added the comment – “One interesting observation is that we tend to individually take on too much. But, as partners, I think we are good at looking out for each other and helping (or simply pointing out) when someone gets too deep. Basically, we often look after each other better than we look after ourselves.”

We’re in a constant push to optimize our time and be brutally efficient while still being responsive to random goodness. I don’t think we’ve found the right way to regulate our pace but there is a certain seasonality to the work that tends to save us from ourselves. I can feel that we’re all running hot right now and I’m looking forward to a summer season that allows us to pull back to a more reasonable threshold. Maybe the analogy holds, think of summer as a flat part of the trail before the natural push of work in the fall. Either way, I’m glad to be part of this team. We’ll keep working to find the right cadence as we keep pushing our threshold higher.

Now, if I could just get Glenn to move up to Boulder and help me get back into running shape!

Up Early

I’ve always been a natural early riser. Even as a child, I would put myself to bed at sunset and rise at dawn. My parents tried to make this a feature rather than a bug by teaching me to turn on the coffee maker. That didn’t really work out, as the coffee would be all wrong or burned by the time they roused. Perhaps that’s why I never learned to like coffee?

I must also admit there are times when I wish that I could sleep later. My mother put a sign in my room during high school admonishing me for staying out too late (I found a similar one above).  Yes, there are times when I stay up too late and have too much fun when the curse of being an early riser is painful!

The early morning remains my favorite time of day and I’ve come to appreciate this time more as I age. The quiet of dawn, whether sitting near the hearth or (preferably) out in the field, is a time for reflection and anticipation of the future.  It feels like you’re getting ahead of the race.

These quiet moments are hard to steal in our constantly connected world. Whether you’re a night owl or an early bird, I encourage you to find a moment of repose and be grateful for the quiet of that moment.

And if you’re lucky, you’ll then hear the pitter patter of your eldest daughter’s little feet coming to join you as she too has been struck as an early riser…

 

 

Acknowledging the grace of this life

I’ve had two of my good friends lose a parent in the last month. One lost a mother unexpectedly to complications of the flu. The other lost his dad today, after a more than 3-year battle with cancer. His note to me was beautiful.  I pretty much tear up every time I read it.

“RIP Dad. Was so nice though. My brother and I at his bedside holding his hands. He started having labored breathing and unresponsive. I told him that my brother and I were both here and that it’s ok to go. He raised his eyebrows, opened his eyes, looked at both of us then took 2 deep breaths and passed. It was so strange…he was definitely holding on for that moment. I feel so lucky”

We are all so lucky to acknowledge the grace of this life. I lost my dad to cancer in October of 1991, he was 46 and I was 17.  I’m now 43 and I can’t imagine that he only had 46 years on this planet.  It weighs heavy on me.

One of the favorite things I heard when my own father died was from a school vice-principal, David Parker. He had just lost his own mother. He said that while you may be sad today and can’t see past the feeling of loss, you’ll come to realize how lucky you were to have him at all. That has become very true for me. I miss my Dad often (and still have a giant hole there) but I know how lucky I was to have him.

None of us can control how long we have on this planet. We all try to bend the odds or do our best to ignore the fact that we all have a certain ending. The passing of my friends’ parents has reminded me that we all need to face that end and live our lives every day in appreciation for the grace of this life.

Sending love, especially to my two old friends.

A Ridiculous Day at Foundry Group

It was one of the most frequently asked questions when we announced me joining Foundry Group. It usually came in the form of a question but was sometimes a statement.  

“Are you going to be in one of those videos?” or “You know, they are definitely going to make you be in a video!”  

Of course, I knew that Jason and the gang had another video in mind. And I knew it would likely be embarrassing and fun all at the same time. However, it’s one thing to consider and accept the notional idea. It’s entirely another experience to actually find yourself singing into a microphone and posing for cameras in silly attire. The last time I participated in something like that was high school. And let’s be honest, I’m really glad those videos never made the jump from VHS.    

It was a ridiculously fun day at Foundry Group. Jason is our creative director and all other roles mixed into one. None of this would happen without him. It takes a lot of work to make this all come together; not least of which is to dream up a song, pull together a video sequence and then make all of us extend ourselves to come up with something legitimate. or at least humorous.

There are a few moments worth calling out. The day started out incredibly cold. We were up on the side of a hill, actually on the roof of Jason’s house.  We each were wearing some sort of gear to sketch out our interests.  I’m glad I was a fly fisherman and not a runner in shorts and tee shirt like Brad!

We then moved into the various sequence and location shots. These all provided some good humor. Boulder really isn’t one of those places where you see a bunch of suits walking down Pearl Street!  Much less with a camera crew and singing into a mic.  

One particular moment that had me shaking my head was to find myself walking down Pearl Street in full cowboy regalia – hat, boots, chaps, spurs, holster and cap gun. Boulder is also not a place that you carry guns, not even cap guns. I was confident however that the Lululemon bag would keep me protected from having to shoot my way out of a hacky sack circle!

I should note that in this moment of walking down Pearl, I realized that my two companions (Micah and Jaclyn) had decided to walk about fifteen feet behind me as if they were not associated with me. Memories of middle school and walking in the mall with my so very uncool mother came flashing back. Now I was the one that these two were distancing themselves from….at least Micah took these pics.

I did at least get to show off the custom FG boots that all the partners received once they brought a Texan into the fold! And if you were wondering, I did already own the chaps.

I would be remiss if I didn’t include this picture of Jaclyn. It appears that she is drinking on the job and, to be fair, it would be completely reasonable given the wig here. Her expression tells you enough about a day like video day at Foundry Group!

And then there’s Jamey. Words leave me.

I’ll part with another link to the video here. And tease you with the idea that we’re already after Jason to come up with the next iteration, one that makes a lot of sense when you look back at the first video.

Thanks to Jason and the gang for a ridiculously fun day at Foundry Group – 

BREAK THE INTERNET TO SAVE NET NEUTRALITY

We have just hours. The FCC is about to vote to end net neutrality—breaking the fundamental principle of the open Internet—and only an avalanche of calls to Congress can stop it. So we decided to help “Break the Internet” on our sites. You can also support on TwitterTumblrYoutube or in whatever wild creative way you can to get your audience to contact Congress. That’s how we win. Are you in?

More info here.

 

Burst Your Bubble

We are spending turkey week down at our family place on Lake Texoma. The house is located in the Red River Valley with rolling hills and Fall colors, the lake, the wildlife, and surrounding topography of rolling hills and forest giving way to farmland. These form a beautiful landscape that is as close to a sense of “home” as any place else for me. I have lots of good memories here and I hope we have many years where we continue to visit.  One benefit of being in this place is that it changes my perspective and “Bursts My Bubble”.

I think it’s really important that all investors get outside their own bubble and see how other people and communities live on a daily basis.  

Our place here is near the communities of Durant, Oklahoma and Denison, Texas right on the border. To give you a sense of scale, Durant has a population of around 16K and Denison is modestly larger at approximately 23K. Each of the towns are lovely in their own ways but it would be hard to describe them as growing and thriving economies. They are hubs for the farming and small business communities with some bleed over from Dallas (45 minutes south). Their demographics skew older with a hollowing out in the middle. Many people are living paycheck-to-paycheck. My family has a number of rent houses in Denison that are left from my grandparents. These are generally low-rent ($300-450 per month) housing stock. Many people struggle to stay in these as their hourly wages leave little room for other necessities. One unexpected car repair or trip to the doctor can mean that they are missing rent or the electricity gets turned off.

Interacting with the local businesses, shopping at the local Wal-Mart, and talking to people can give you a real sense of place. Especially when you’ve been able to do this over many years. Small business, farming, and retail are the mainstays of this economy. Many of the most promising young people in these communities left for Dallas, leaving behind those that are less educated, many with young families they are struggling to support with retail jobs. This is not uncommon in small town America.

If you live in Silicon Valley, Austin, or Boulder with their affluence and prosperity, then you’re probably going to lose touch that much of our country is struggling. If you’re an investor, I encourage you to get outside your bubble several times a year and check-in to see how those outside the tech sector are doing. It will serve you and your companies to have a perspective beyond the echo-chamber of the tech sector.  And you just might find some good memories along the way. 

 

Home

We’ve spent the last two nights in Fort Worth, Texas.  We stay with my mother when we’re down here, very near the neighborhood where I grew up. We come down to Fort Worth about once a year as we normally visit our lake house a few hours away to see my family. I left Fort Worth in 2001 to move down to Austin for business school; having lived here for the first 27 years of my life. Yet, it still surprises me the sense of nostalgia I get when visiting this town.

I drove by the house where I grew up, the middle school, the railroad tracks, the best friends house. I spent time on TCU’s campus for a meeting. I had lunch at an old haunt in downtown and ordered the same fajitas. Visited some friends in my first office building (which still smells the same). Drove through the now-gentrified neighborhood south of downtown where we used to go eat lunch at the Paris coffee shop. It was funny to have a meeting at a fancy wine-bar there now. Later this morning, I’m seeing a friend and mentor that originally hired me at KPMG for my first “real” job. I’m bringing my girls over to fish on their pond. I’ll see old friends tonight at the TCU vs UT football game and spend time with my parent’s friends that have known me since the beginning.

Fort Worth remains home for me. The place I’m from. That doesn’t mean I don’t love living in Boulder. That doesn’t mean I think Fort Worth is a better place to live or I don’t miss Austin. I don’t have to love one more than the other, they aren’t mutually exclusive. Home is more of a concept, a sense of familiarity, a sense of belonging, much more than a place.

It’s good to be home.  I’ll be wearing purple tonight at the TCU game, cheering for a football team but perhaps I’ll really be cheering being home.

Window Shopping

I’ve got bad news for aspiring fund managers. Fundraising is only getting harder.

I spend a fair amount of time each week connecting with LPs. We may see each other at events and annual meetings, or just set up calls to check in on pipelines and prospects. I’m often trying to get the other LP to focus on some of our Partner Funds that are closing out a fundraise. I want our Partner Funds to have good, supportive LPs and to get back to the work of investing rather than fundraising. In that context, I’m always trying to figure out which, if any, of these LPs have an appetite for new relationships. We are only planning to add a few new names each year as we’ve built out much of the Partner Fund portfolio. I also see our friends at Cendana and Greenspring adding a few seed relationships as they are focused on seed and/or have raised dedicated fund of funds for seed managers. We would welcome more dedicated fund of funds or traditional LPs to join us.

The bad news is that I don’t know a traditional institutional LP that is still looking to build out its seed portfolio. We maintain a long list of LPs that we’ve seen show up in seed funds and have relationships with many of them. The consistent message in all my interactions of late has been a lack of interest or appetite for new relationships. I’m hoping that many of these LPs have just exhausted their annual commitment budgets but I’m afraid it’s something more than that.  

Many of the generalist FoFs and more active traditional LPs have filled their portfolios and will decide to re-up here and there but not add a lot of new exposure. There has been almost no liquidity, and other institutional LPs are dealing with larger funds coming back to market more quickly with little capital/bandwidth left for a seed portfolio. A lot of the individuals and family offices are tapped out after several funds and may have committed more than they intended to a very illiquid part of the asset class.

It’s not a pretty answer for new managers setting out to raise funds. Most LPs are still game to take meetings, especially when you can get another GP or LP to refer you into them. New managers should chase all those meetings and show up in person whenever possible.

However, it feels like many LPs are simply window shopping with no real appetite for making new commitments. We do see the occasional commitment that looks like a spontaneous purchase. We find it really hard to predict these purchases or to know where to point fund managers. We will sometimes see a new LP that hasn’t traditionally done seed VC show up and pull the trigger on a new fund. We’re seeing these from the smaller endowment and foundation crowd these days.

It seems even harder for funds under $50 million, as traditional LPs can’t even really look at these, and only a few FoFs will play in this range. These are getting filled out by family offices with perhaps less than two institutions playing along. Oddly, the smallest funds may be the hardest to raise. Funds less than $25 million are stuck in friends and family territory with individuals, a few family offices, and the GPs at hedge funds, large PE and VC firms as fundraising targets. I struggle with how to help these small funds and where to point them for capital.

Maybe we have enough seed funds already? It certainly feels that way in certain ecosystems. Maybe this is the system beginning to self-govern? We actively support more fund formation, and we’re excited about the explosion of new companies that seed managers are chasing. Part of the Startup Communities and Techstars message is that great companies can be formed anywhere and local capital needs to be grown over time. We can only hope that the market is somewhat rational, funding the right managers that are additive to the system.

I’ll close by wishing all the GPs speed and certainty in closing their funds, even if we can’t invest in all the good ones.  And if you’re an LP that wants to do more than window shop, call me to see what I’m looking at and where I’m investing.

Saying “No” too often is part of being a good investor

 

One of my favorite comments about our Partner Fund portfolio came from a well-known VC at a high-flying fund. She noted that we get to work with “all the good people in venture.” I suppose people are the price of admission for our family. However, we can’t invest in “ALL the good people in venture.”

We plan to invest in roughly 30 total Partner Funds for our current portfolio. We’ve disclosed 15 of those and we have five more in various stages of closing right now. We’ve known some of the funds for years, while others came to us early in their life as they formed a team and strategy. There are another five that we’ve been working with and holding a spot for as they come back to market. That leaves us just a few slots for consideration over the next year.

We start with something we call the “good human” filter. We then look for those opportunities where their strengths match their strategy and fund size. The nuance of balancing these mostly qualitative characteristics is the hard part of getting our Partner Funds strategy right.  

The explosion of fund formation over the last few years and our view into that expanding market has presented us with a wealth of opportunities far beyond our fund size and capacity. We decline quality funds multiple times a week where we know they are “our kind of people” and have a compelling strategy. We wish we could be more prolific, but in these cases we try to give some real feedback and be transparent in our process and decision making. We do our best to make time for good people and hope that we can provide support, if not capital to many of these.

Unfortunately, we have to say “No” far more often than we get to say “Yes”. It is part of being an investor and forces good discipline into the strategy we’ve designed for ourselves. However, we are certainly missing the opportunity to partner with some great firms and good people.  

With so much negativity in the media around our industry, we are glad to see so many “good people” in venture.