Today on the Foundry blog we detailed a new theme in which we’ve been investing for a while, but which only really came together as a coherent thematic concept in the past year or so. This theme – distribution – involves companies leveraging the inherent scalability of the Internet and it’s key platforms in targeted, but extremely large markets. I thought the history of how we evolved our thinking around distribution – basically the birth of the distribution theme – would be illustrative both around how the group dynamic works in the Foundry partnership as well as how we think about our thematic investing approach.
For us, the discussion around this theme evolved from our experience in Zynga. We have a standard slide that we share with our investors that groups our investments into the themes in which they fit. The slide has grown and changed over time (we’ve added new companies, we collapsed a few themes into Protocol, etc.). One thing that didn’t change for a long time was that Zynga sat in a column that was designated “other”, meaning essentially that it didn’t fall specifically into a theme (we like to say we’re not slaves to our themes and while we use them to guide much of our investment activity, they are not the absolute arbiters of what we’re willing to look at). At the same time, as it was clear that Zynga was going to be a very special company in our portoflio, we’d have regular conversations that sounded like:
Foundry Partner 1: “You know… we should really invest in more companies like Zynga”
Foundry Partners 2-4: “Absolutely. We should definitely do that!”
For a little while that was the extent of it. We’d talk about Mark Pincus and what a special CEO he is. We’d talk about hitting a market seam in the way that Zynga hit on social gaming. Over time, it became clear to us that while these factors were clearly important for Zynga, there was more for us to learn from Zynga’s success. As we dug deeper into what we thought the special sauce was for Zynga we talked more and more about Zynga’s ability to leverage a key platform – in their case initially Facebook – and to capture users on that platform. We also realized that while we generally don’t like vertically targeted investments (a vestige of our (bad) experiences in vertically oriented software companies, I’m sure), when you’re building a community of users like this it’s actually helpful to be vertically focused (in Zynga’s case, they were only targeting casual gaming – not other types of apps that at the time were becoming popular on Facebook). We started looking around at more companies that had similar traits and met with a bunch of them as we tried to better understand the overall “distribution” market dynamics and what we thought would separate ok companies from great ones.
It was about this time (this was probably 15 months ago) that we began talking about what we were learning as a theme and calling it – temporarily we thought – distribution (lacking a more creative name, distribution stuck). It was also around this time that we invested in StockTwits – an investment that specifically came out of our collective work considering the power of distribution over a handful of key platforms.
The journey to our distribution theme has been an interesting one, but one that’s typical of how we work at Foundry. Our motivation is to figure out what makes the best investments and our intent is to be deliberate about why we invest in various areas. Foundry now has 4 companies that fall under the distribution theme – Zynga, Stocktwits, TopSpin and Cheezburger. Expect us to add to this list.