Yesterday we had a chance to talk to longtime venture investor Brad Feld from the Foundry Group, whose book "Venture Deals" was recently released for the fourth time for good reason. It's a magazine of knowledge, from how venture funds really work to term terms, from negotiation tactics to how to choose (and pay for) the right investment banker.
Feld was generous with his time and his advice to founders, many dozens of who had called in, the style of conference calls. In fact, you can find a complete printout of our conversation here if you are a member of Extra Crunch.
Meanwhile, we thought we would highlight some of our favorite parts of the conversation. One of these concerns SoftBank, an organization that Feld knows a little better than many other investors. We also discussed what happened at WeWork and specifically the difference between a cult-like leader and a visionary ̵[ads1]1; and why it's not always clear right away whether a founder is one or the other. These excerpts are edited for length and clarity.
TC: We were just talking about startups that raised a lot of money, and talked about it, you were involved in SoftBank a long time ago. Your software company had raised capital from SoftBank, and later you worked for the company as an investor. This way was ahead of the Vision Fund, but you knew Masayoshi Son, which makes me wonder: what do you think about how they have invested their capital?
BF: Just for factual reference, I was originally affiliated with SoftBank with a few other VCs; Fred Wilson, Rich Levandov and then Jerry Colonna, who now runs a company called Reboot. During this period, a subgroup of us ended up starting a fund that was eventually called Mobius Venture Capital, but it was originally called SoftBank Venture Capital or SoftBank Technology Ventures. We were actually a fund sponsored by SoftBank, so we had SoftBank money. The partners ran the fund, but we were a key part of the SoftBank ecosystem at that time. I would say it was probably & # 39; 95, & # 39; 96 to & # 39; 99, 2000. We changed the company name to Mobius in 2001 because it was endlessly confused with the other [SoftBank] fund activity.
I know there are a handful of senior executives at SoftBank today very well, and I have tremendous respect for them. Ron Fisher [the vice chairman of SoftBank Group] is the person I am closest to. I have tremendous respect for Ron. He is one of my mentors and someone I have enormous love for.
There are endless piles of ink spilled on SoftBank, and there are many perspectives on Masa and on the Vision Fund. I would like to point out that the biggest dissonance in everything we are talking about is a timeframe, because even in the 1990s Masa talked about a 300-year vision. Whether you take it literally or figuratively, one of Masa's powers is this incredibly long arc on which he operates. Nevertheless, the analysis we continuously have externally is very short term – it is days, weeks, months.
The Masa and Vision Fund conceptual player is a very, very long-term game. Is the strategy an effective strategy? I have no idea . . . But when you start becoming a VC, it takes a long time to know if you are good or not. It may take a decade really before you actually know it. You get a signal in five or six years. The Vision Fund is very young. . . It is [also] a different strategy than any strategy that has ever been executed before in that order, so it will take some time to know if it is a success or not. One of the things that could cause that success to be hampered would be to have too short a view of it.
If a brand new VC or brand new fund is measured for two years in terms of performance, and investors look at it and that's how they decide what to do with VC going forward, there would be no VCs . They will all be out of business because the first two years of a brand new VC, with very few exceptions, are usually a period of time that is completely undetermined whether they will succeed or not.
TC: So many funds – not just the Vision Fund – distribute their funds in two years, where it used to be four or five years, that it's a little more difficult. When you spend all your capital, you have to raise funds, and it is [too soon] to know how your games will play out.
BF: One comment on that, Connie, because I think it's a really good one: When I started, in the '90s, it used to be a five-year fund cycle, and that's why most LP documents have a five year commitment period for VC funds. You literally have five years to commit the capital. In the Internet bubble it is shortened to about three years, and in some cases it is shortened to 12 months. At Mobius we raised a fund in 1999 and a fund in 2000, so we had the experience of that compression.
When we postponed raising Foundry, we decided that our fund cycle would be three years, and we really wanted to be disciplined about it. We had a model for how to raise capital from each of our funds during that time period. It turned out that when we look in retrospect, we accumulated a new fund every three years and eventually we lost a year in that cycle. We have a 2016 vintage and a 2018 vintage, and that's because we really invested the capital in 2.75 to three years. . .It was eventually obtained from us.
I think the discipline of trying to have time diversity against the capital you have is super important. If you talk to LPs today, there is a lot of anxiety about the increased pace at which the funds have been used, and there has been a two-year cycle in the last type of two iterations of this. I think you're going to start seeing that stretch back to three years. From a time-diversity perspective, three years is enough [of time] towards portfolio construction. When it gets shorter, you don't actually get enough time in the portfolio and it starts to hamper you.
TC: Very individually, you wrote a post about WeWork where you used the term cool about personality. For those who didn't read that post – even for those who did – could you explain what you said?
BF: What I was trying to abstract was the distinction between personalities and thought leadership. Thought management is incredibly important. I think it's important for entrepreneurs. I think it's important for CEOs. I think it's important for leaders, and I think it's important for people around the system.
I'm a participant in the system, right? I'm a VC. There are many different ways for me to contribute, and I think personally, rather than creating a personality cult around myself, as a contributing factor, I think it's much better to try to give thought leadership, including running lots of experiments, trying many things , make mistakes, and learn from it. One of the things with thought leadership that is so powerful from my frame of reference is that people who show thought leadership are really curious, trying to learn, looking for data, and building feedback loops from what they learn that then allows them to be more effective leaders in which role they have.
Personality culture is often masked as thought leadership. . . [but it tends] to be self-reinforcing about the unpleasantness that is the person or importance that person, or the accuracy of the vision the person has. And what happens to the cool of personality is that you very often, not always, but very often, lose the signal that lets you iterate and change and develop and change so that you build something that is stronger over time.
In some cases, it goes completely off the rails. I mean, just call it what it is: what business does a private company, no matter how much revenue it has, buy a Gulfstream V or what [WeWork] has bought? It's wild. ..
From an entrepreneur's perspective, I think being a leader with thought leadership and introspection around what works and what doesn't work is much, much more powerful over a longer period of time than the entrepreneur or leader wrapped in personality cult [and is] inhaling [his or her] own exhaust
TC: Have you been in that situation yourself as a VC? Could VCs have done anything earlier in this case, or is it not possible when working with a strong personality?
BF: One of the hard things to do, not only as an investor, but as a board member – and it's honestly also difficult for entrepreneurs – is to handle the spectrum you're on, where one end of the spectrum is The investor or board member dictates to the charismatic, incredibly hardworking founder who is the CEO what to do, and at the other end, leave them unlimited so they do what they want.
One of the challenges of many VCs is that when things are going well, it is difficult to be internally critical of it. And so many times, you don't focus too much on the character. Each company, as the leadership grows, has to evolve its founders, CEO, other executives. [Yet] many times for various reasons, and there is a wide range, there are moments in time where it is easier to disregard it as an investor or board member. Many investors and board members are afraid to confront it. And there are many situations there, because you do not create the governance structure of the company in a certain way, because as an investor you wanted to enter into the agreement or the entrepreneurs insist [on a certain structure] or you do not have enough influence because of when you invested, it is very, very difficult. If the entrepreneur is not willing to engage in collaboration, it is very difficult to do something about it.
Again, if you are an extra Crunch subscriber, you can read our unedited and comprehensive conversation here.