AdExchanger just posed an interview that I did with them that touched on some of our ad-tech investments as well as our overall investment philosophy. I’ve cross posted an unedited version of that interview below.
1. Why get into the venture capital side of the business? Do you ever get the entrepreneurial "itch"?
I first got into venture capital about 10 years ago and I love my job. I was running a few business units for a small public company and while I enjoyed the operational side of my job, I was also responsible for M&A and partnerships and had a particular affinity for the transactional side of my job. While I consistently have the entrepreneurial itch, I actually think this makes me better at investing – it reminds me of why I’m in business (to support entrepreneurs who are the real stars of the show). I’ve also co-founded a few companies (including Trada which is a company in the Foundry portfolio that helps advertisers better execute paid search campaigns; I wrote about that experience recently on my blog: http://www.sethlevine.com/wp/2010/08/trada-from-the-beginning) and I’m very close to many of our portfolio companies at an operational level which helps to satisfy the entrepreneur in me.
2. What is Foundry Group’s investment philosophy?
Unlike many venture capital firms that invest in certain geographic regions or specific technologies and sectors, Foundry Group’s investing activity is largely driven by a thematic approach. The themes we pursue tend to be horizontal in nature and are often driven by underlying technology protocols and standards or emerging market trends and customer needs. Rather than looking for short-term hits, we focus on themes that have the ability to drive a cycle of innovation (and hence provide multiple investment opportunities) over a period of five to ten years or more. My partners and I have written extensively about this thematic approach on the Foundry Group blog: http://www.foundrygroup.com/wp/category/themes/
3. You’ve invested in AdMeld, Triggit, Lijit, Medialets and Trada among others in the ad space. Foundry Group is an advertising start-up "bull" it would appear. Thoughts?
I’m extremely excited about the portfolio of companies my partners and I have put together at Foundry Group which includes some great ad tech companies which you list above. We think of these investments as part of our “Glue” theme – meaning that they’re all essentially connective technologies that help increase the velocity, accuracy, transparency and availability of online advertising. I believe that online advertising is going through an important transition with the rise of real-time bidding platforms and advertisers increasing ability to buy audience vs sites. Our investments in many of the companies above follow that idea. Additionally, mobile is becoming an increasingly important platform as devices become more powerful, more flexible and better connected. Obviously our investment in Medialets – the market leader in rich media mobile advertising – reflects our belief that mobile in general, and rich media on mobile specifically (which is really the kind of advertising that mobile was made for) is a rising area in advertising. We’ve been fortunate to be able to work with some of the companies and people that are at the leading edge of digital media and I think we’ve put together a great portfolio of companies in this area (and I’d add Mandelbrot Project to your list above, although we’re not talking much about what they’re up to yet).
4. What are some key overall, characteristics that Foundry companies share?
I’ll resist the temptation to answer with some superlative VC cliché about how great all our management teams are or disruptive the underlying technologies are becoming. Rather, I’d say that the one truly common trait across our portfolio of companies is the obsession these businesses have with their product. This product obsession starts with the CEO and pervades the management teams and operations of our companies. They eat, sleep and breathe product. From my perspective the results of that obsession is obvious when you look at what each of our companies is doing to change their respective markets.
5. Can you identify a couple of common errors that entrepreneurs make when raising funds?
I think there are two relatively common mistakes that entrepreneurs make when fundraising. The first is trying to do too much in the first meeting. The goal of that meeting isn’t to sell the investor on making an investment, it’s to whet the investor’s appetite and leave them wanting to learn more. Entrepreneurs should structure that first interaction to do exactly that. The second most common mistake is not asking what the process is on the investors side and as a result mistaking activity for progress. Every firm (and angel) has their own process – understanding that process and making sure you know how a firm reaches a decision (who has to be won over, in particular) is extremely important. The adjunct to this point is that while relatively few entrepreneurs methodically do it, it’s important to perform due diligence on the investors you’re talking with, just as they’ll be performing due diligence on you. Find entrepreneurs they’ve worked with before, in particular those at companies that didn’t work out as planned, and ask how the firm and the specific partners were to work with. You can also use this as a chance to understand from a third party both the partnership dynamic within the firm as well as what their perspective of the investment process looks like.
6. Given the scope and size of Foundry Group’s investments today, it would appear you’re at an inflection point. At the very least, your current group can only manage so many investments after all and the fund itself is nearly fully-invested is it not? What’s next?
We have a very specific, and somewhat non-traditional view of the firm we’re building at Foundry. Our intention is not to create a legacy or have a business that survives the 4 founding Foundry partners. We have no associates at the firm and all do our own work. Our current fund is $225m and our intention is to raise a series of funds of the same size and then be done. As we like to say: “last one finished shuts off the lights”. To be clear about where we are as a fund and a firm, we have plenty of capacity to continue to make new investments.
7. Can you talk a little bit about the growth of the Boulder startup community and what makes it unique to other startup communities such as Silicon Valley, NYC, Boston, etc.?
I think Boulder is increasingly becoming known as one of the leading start-up cities in the United States (for example, here’s a recent BusinessWeek story naming Boulder the #1 city in the country for start-ups). And I can tell you from living here that there is a ton of great energy in this community – from TechStars (which started here) to the Boulder Open Coffee Club, to our local NewTech Meetup to Ignite Boulder. Interestingly (and somewhat different than other markets) the Boulder start-up scene is both very distributed (there are a large number of leaders in the Boulder start-up community) and collaborative. I don’t know that I’ve ever been in a city where people involved in start-ups were as willing to help each other out as they are in Boulder.
8. What are your thoughts about M&A and IPOs – and a successful exit for ad tech startups? Do you see a window developing?
We’ve all seen the global statistics – August was an unusually strong month for mergers and acquisitions. The interest rate environment as well as the relatively large cash balances of many large corporations appear to be driving somewhat of a resurgence in acquisition activity. I’m cautious that these high level data (driven by large global transactions) will be both sustainable and mean an more favorable overall environment for venture backed businesses. The time I’ve been in the venture capital business has been perhaps the worst IPO environment since the venture asset class came into being, so I’ll refrain from making any predictions about whether we’ll see any kind of sustained resurgence of the IPO market (but we can all hope together….)
9. If a startup wants to get a meeting with a VC for potential investment, any tips? Any tips on pitching Foundry Group in particular?
If you have a direct (or indirect) path to an introduction – through another entrepreneur or someone else you know – that’s always the best way in to any VC. It provides additional context which is helpful. That said, many VCs these days (Foundry included) are pretty open about what they’re interested in. I always appreciate it when people engage with me on topics that I’m writing or tweeting about. And to give this some additional context, Foundry has funded several companies that first reached out to us because of a blog post (including one company where our first communication was through Twitter).