2017 – Off at a dead sprint!

It feels like this year has gone off at a dead sprint.  Perhaps it is seasonal cyclicality and I will see it every year but it’s very noticeable to me right now.  I think everyone caught up/saved up over the holidays and came out ready to rock.  I’ve seen a measurable increased inbound on both the fund formation and direct deal side these last few weeks.

So far, January feels like the first two miles of a marathon. The shot goes off and the field goes off at a dead sprint!  Now we’re a few weeks in and the crowd is spreading out, some people are still going out too hot, and you’re tempted to follow.  It feels good and you don’t want to miss out, you don’t want to get behind your pace, and it feels like maybe you could run ahead of your pace?!?

The good news is that you know your pace. You put together a plan. Your only job is to remember your race plan. Slow down, reduce your fear of getting behind or missing out, and run your own race.

It’s the same thing with a venture fund. Planning and raising a fund is just the beginning.  As you start to deploy your capital, you better have a plan. A plan for your team and a plan for the portfolio. You’re an investor and investors like to invest, the same way that runners like to run.  It’s always easy to say yes and go a little faster. It’s harder to say no. That’s why it’s important to rely on your training buddy or partner to keep yourself honest. Don’t be afraid to slow down.  Don’t be afraid to miss that shiny new deal.  Don’t be afraid to keep yourself honest on price and conviction. You put together a portfolio plan. Know that the race is long and save your capital. Keep those reserves to support your companies when they need it most.  

Rely on your partners, rely on your support team (including LPs), and go run your own race.  We know that the January pace is unsustainable, we know the the crowds will disperse, and that we will find our pace for the year.

I hope 2017 isn’t a hilly course – see you at the finish line.

A tough election and a harder reflection

It was 3:36AM when I checked my phone. I know there are many things wrong with checking your phone at that time but I did it anyway. Then, I honestly didn’t believe the Slack messages from my partners. I went to the WSJ to see for myself. I was wide awake at this point. We have a mess on our hands that I didn’t expect. I needed to process and think about how we begin cleaning it up.

I went to bed early last night, accepting that I couldn’t affect the outcome and thinking that i would at least deal with the results well-rested. Trump was marginally in the lead but I convinced myself that was an aberration and still thought this would end in a higher-than-expected victory for Hillary.

Status quo would continue. We would have two parties, very similar in action, that provoke each other’s base around social and cultural issues to create discord and accentuate differences in policy while still largely acting the same around foreign & fiscal policy amid a strengthening federalist system. I’ve come to the conclusion that the current two-party system is largely driven by entrenched money interests and neither could afford to move off a centrist approach. I wasn’t surprised that a perceived outsider like Trump would get traction but I believed (& still believe) that he is a flawed person. Certainly, he wasn’t electable and my Facebook and Twitter echo chamber reinforced that for me. I and my echo chamber were completely wrong.

The 1% has spoken. Just a different 1%.

“NATE SILVER 2:10 AM
Something to remember: Whatever your feelings about the state of the country right now, it’s fundamentally not that different a place whether the final call is that Clinton has narrowly won or narrowly lost. Add just 1 percent to Clinton’s vote share and take 1 percent away from Trump’s, and she would have won Florida and Pennsylvania, therefore would probably have been on her way to a narrow Electoral College victory.”

I saw this note from Nate Silver on 538.com (which was a great site for understanding flawed polling through the election) and it struck me as very true.

If Clinton had won by the expected slim margin, we could all claim victory and repudiate the xenophobic and racist messages of Trump. We could celebrate even as we continued a split government. We could highlight our system of checks and balances. The world would breath a collective sigh of relief and life would go on. However, that tiny 1% swing vote in a very few polling districts has placed us in a very uncomfortable position. In my view, the election of Trump forces us to take a hard look in the mirror and deal with a reality that I and many in my peer group seek to avoid.

“This is who America is–huge parts of her, at least. I suspect that black people, gay people, women, and religious minorities are far less surprised than college-educated, upper-middle-income white, straight dudes. They have been living this reality their whole lives. We have the luxury of pretending it is not so.”

I saw this on a FB posting. I won’t provide attribution as I don’t know the person and it was listed on a private network. It’s a great reminder.

I should have seen Trump’s election as more likely in retrospect. I grew up in a blue-collar, semi-rural suburb of Fort Worth, Texas. I was exposed to all of the racist, sexist, gun-loving, meat-eating, beer drinking, culture you might imagine. Our high school mascot was the “Rebels”, complete with the Johnny Reb mascot and confederate flags. The “locker room” talk was rampant. The not-so-subtle racism didn’t allow us to define our own relationship with race or even to talk about it with our few black friends. And honestly, I reflected that cultural image for far too long. It’s something that I’ve been trying to outgrow my entire adult life. I don’t repudiate my younger self or those people for they are in a different cultural echo chamber.  An echo chamber that we need to understand and pierce.  One that I had forgotten as I considered this election.

I believe the splitting of the American people has become more accentuated by these digital echo chambers. We have a factionalized press and too many self-reinforcing online resources that cause us to further polarize along these social and cultural lines. I found this NYTimes article to be very compelling:

“Americans are angry. That’s the sentiment that many believe is driving the 2016 election. They are angry because the rich are getting richer, the average guy is struggling and the government in Washington hasn’t done anything to stop the trend.

But it may not be that simple.

Data on the nation’s economic recovery, people’s reactions to current economic conditions and their overall sense of satisfaction with life do not suggest Americans are angry. In fact, historical measures indicate people are about as happy and satisfied with the economy and with their lives as they were in 1983, when Ronald Reagan told us it was “morning again in America.”

So why does it feel more like a 1 a.m. bar brawl?

The answer may have more to do with political parties than economics, or at least with the interaction of the two. Today’s voters have sorted themselves and polarized into partisan groups that look very different than they did in the late 1980s. And members of each side like the other side less than before. Americans aren’t annoyed only by the economy; they’re annoyed with one another.”

The rest of the article here:
American Anger: It’s Not the Economy. It’s the Other Party. http://nyti.ms/1pTJ3bp

Well, it turns out that when you poke the American people enough times and whip the partisans into a frenzy by highlighting their differences, then you end up with volatile outcomes. I’m afraid we’ve just seen this result with the election of Trump. With apologies to the office of the Presidency, Trump is a terrible outcome. But perhaps there can be a silver lining. Trump forces us to take that hard look in the mirror.

What do we want to be? How do we want to respond? With more vitriol? With more hate? With more denial?

We have challenging social and cultural differences that we’ve tried to conceal. We’ve created our own networks, our own echo chambers, and we’re ripping apart the social fabric that created America. We can be better than this. I demand it. My daughters demand it.

America is great. It need not be great again. America is great because it accepts its challenges and responds. America is great because we’re a land of immigrants. America is great because of the opportunities provided through education. America is great because we can look our neighbor in the eye. America is great because we lend a hand.

I resolve to continue forcing myself out of my tech-focused echo chamber and to embrace my local community. I resolve to give back to the community through commitment of time and resource. I resolve to understand the perspective of others and to find commonality rather than differences. I resolve to use Trump’s election as a wake up call for good. I hope you will too.

Another friend on Facebook noted that she was sending out love bombs today. This is my public love bomb. Keep your chin up and do your best to make a positive dent in the world today. I’m still proud of America, even as we look in this mirror.

Venture Optimism

I think I’ve got the fever. I woke up at 5AM on Saturday morning thinking obsessively about fundraising tips and tricks to share with my GPs. More on that later.

My spinning wheels are a reflection of my last few days in SF. Michael Kim and SVB put together a great event focused on small and emerging technology venture firms. It’s my opinion that the highly curated crowd includes some of the best investors in venture capital. The next generation that we will consider great. In addition, they are some of my favorite people in the world. Highly motivated, seeking to not only make great returns but to also use capitalism in a way that positively impacts our society. And not least they are a fun bunch of people where I’m lucky to have a number of friends. Thanks again to Michael and SVB for putting together the event and including us each year.

A few quick take-aways for me:

– I’m so happy to be focused on early stage technology. I used to invest in private markets broadly and I never would have been able to build this much context so quickly. A new level of detail surfaces when you study something closely. You begin to see patterns rather than dots.

– Venture capital is changing more than we realize. The diminished financing needs of early stage companies has meaningfully changed the risk profile of fund investments for LPs. More data on less capital should provide better risk adjusted returns.

– I couldn’t be more convinced that technology innovation will continue to disrupt traditional industries and that the rate of change is increasing. Seeing some of the early stage companies in the various portfolios is like reading good science fiction. My kids are growing up in a world far different than mine and I see technology being used for good, impactful change to the human condition.

– I believe there is a cultural and demographic transition occurring that will hasten the adoption of new technology. Digital natives are beginning to run the economy, opening enterprise and consumer to faster iteration cycles.

– Diversity of all types and backgrounds is becoming more important in tech and venture circles as the impact of technology spreads across traditional sectors. As one example, I feel confident that gender diversity has reached a tipping point that makes “girl power” a very important network in venture. Still lots of work to do but we’ve seen many more female founders in the portfolio lately and are seeing more female partners in these emerging firms.

In all the negativity around the election cycle and events around the world – it was good to be in a room full of optimistic thinkers and doers. I wanted to share my positive state of mind this morning before you put yourself back in the election funk.

Now I hear the pitter patter of small feet moving around the house and it’s time to engage with two little girls and try to subtly sway them into future coders and investors…

Why mum’s the word in the LP world….

A few of the possible reasons LPs do not shout from the roof-tops! – or even provide good feedback…

Benefit

Many LPs would ask you what is the benefit?  Why speak out?  I’m overwhelmed with interesting deal flow and the last thing I need to do is generate YMI (yet more inbound)?  Why do this at all?  I can’t even respond to the inflow as it is….

For me, writing something down forces me to a finer level of detailed thought.  I think it also helps to provide potential partners some transparency and to make yourself more approachable.   I also hope that I generate some content along the way that helps others in the ecosystem.  Finally, I hope to save myself some time and write down answers to questions I’ve been asked multiple times so I can point back to the blog posts.

Platform

Many LPs work at institutions that would prefer they never generate headlines.  I find that any organization with a general counsel has a pretty strong bias against blogging, social media, even public speaking.  LPs often have to jump through multiple approval hoops to get permission to speak or attend events.  Regular blogging becomes a step too far.  Many of these entities manage public monies and are subject to political “noise”.  Others may be private corporations that hope to stay that way.

My last platform, UTIMCO, was pretty open in this respect.  We were already so “public” that there was not too much sensitivity around my usage of social media, panel speaking, and I just needed to navigate ethics policies and political winds in my public comments.  Occasionally, a blog comment or panel statement would bubble up but overall wasn’t a problem.   At Foundry, the guys have encouraged me to raise my profile and provide content in matching their #givefirst mentality.  I do need to run any marketing or fund specific content by our CCO but we’ve really tried to make it less painful.  We all really just try to keep up with Brad’s prodigious content!

Agency Risk

LPs have little to gain and much to lose.  Certainly, it could benefit their individual profile but I think that many fear a potential conflict between their platform and their own brand.  This is really one of the reasons that some of the more naturally outspoken LPs don’t chime in too loudly.  I think many platforms discourage individuals from brand-building, as some of that brand can walk out the door.  A short-sighted view in my mind.

Natural Selection

Through natural selection, LPs generally aren’t your most outspoken group of individuals.  Many have chosen their platforms with an eye toward removing career risk, not taking on more risk.  You find many recovering accountants & lawyers (we have both on my team) and many people that have come to the role through a treasury or other service provider role.  You do find a few ex-bankers, ex-GPs and are seeing more of these in the organizations that pursue co-investments.  Generally they are the more outspoken of the bunch.

Bandwidth

LPs are way understaffed in most platforms.  You will find many organizations with a single person, or percentage of an FTE dedicated to the PE portfolio.  You often see organizations with large legacy portfolios and generally too much diversification, limiting the bandwidth available for specific asset classes or positions.  You’ll usually only see private equity teams that focus on private markets writ large, with very few focused on venture capital in even in the better-staffed entities.  Fund-of-funds have tended to be more prolific in their messaging/writing because they have motivation to build a brand (fundraising).   They are also better-staffed on a FTE/AUM basis and often focused on a specific part of the market.

Parting  Shots / Conclusions

We can do better.  I’m really proud of my friends Beezer and Douvos for taking up the #OpenLp torch with good support from a number of other LPs (too many to list separately).   I suggest we all try to provide an #asktheLP forum in much the same way my partners created an #asktheVC opportunity for others in the ecosystem.

We could get more support.  I spent a good amount of time with ILPA, Institutional Limited Partner Association, and I think they are a valuable resource (check out ILPA.org templates) but they could provide a lot more focus on venture capital rather than buyouts.  I also think that the NVCA really left venture FoFs out in the cold when they created the registration carve-out so it would be nice to see them spend more time on LPs too!

Finally, I hope entrepreneurs and GPs find it worthwhile as a number of us try to find time and voice from the LP side.

A Human User Interface….with lots of quirks

 

In information technology, the user interface (UI) is everything designed into an information device with which a human being may interact. I’ve borrowed that phrase to describe my interactions with other humans too. A human user interface encompassing personality, cultural, emotional and even physical qualities. It’s a fun way for me to describe people and how I perceive them interacting with other humans.  Maybe soon we’ll think of robots in the same way? 

RobotPhilosopher

As I’ve made this transition to a new role and I’m interacting with a lot of new people, I thought it might be worthwhile for me to share how I think about my own UI, including some of it’s quirks.  The motivation for this came from Brad’s post about an operating manual [http://www.feld.com/archives/2016/04/user-manual-working.html]

Whether you’re an LP, VC, Entrepreneur, or new friend, I’m really glad you’re in my orbit. I hope some of this introspection might be useful in knowing how best to interface with me.  I think it’s useful to read my back story here [https://www.ldeakman.com/about] if you haven’t already.

So here goes.  A few things I think you ought to know about me:

  • Focus – A central challenge of mine is having too many balls up in the air and not staying focused.  Learn how to manage me.  A few suggestions for keeping me on-task:
  • I operate on the 3 take-aways rule.  Meaning that I only think humans can remember 3 things so we need to decide what the next three steps are before our next interaction.  Too many and they get diluted.  Summarize them at the end of the conversation with me. Sometime you will owe me 3 things, and sometimes I will owe you 3, or anywhere in between.
  • Give me a deadline.  Make me report back on what we agreed to do.
  • Context is important to me. I need to understand the big picture and where group motivations/incentives lie before I can dig into the details.
  • Stay on task and keep me on task in a meeting.  Start the meeting by stating the critical decisions you want to make, and then draw out a process.  State the big picture, inputs to a decision (your assumptions) and then let’s discuss or draw it out.
  • I’m a very visual learner.  Auditory learning just doesn’t work for me.  Write it down, or have me write it down if you want me to remember it.

A few other notes about my quirky user interface:

  • I’m freaking terrible at remembering names. And pretty darn good at remembering storylines. Give me context and you’ll usually see the gears click into place.
  • Being on time is very important to me. My Dad said that he would always rather show up early and wait for somebody than have the opposite position. Yes, I go to the airport early and I hate rescheduling meetings/calls. I apologize now if that happens. I’m cringing thinking about it.
  • I can spot a misspelling at 50 feet in 10 point font. It’s weird. And it drives me crazy. I write in bullet points. I think that way too. Please don’t make me write in long paragraph form. Please line up your text. Please don’t change fonts. Please double justify when possible. I’m a strong advocate of the Oxford comma.
  • My default answer is “yes”. I need to say “no” more often. I struggle not to want to help people but I’m forcing myself to limit the time because of bandwidth restrictions, not for lack of empathy or interest.
  • I often have too many projects going at once. I distract myself by starting new projects before I finish out the first ones.  I need your help to close them out.
  • If I don’t respond quickly, I’m either overwhelmed or I don’t know the answer.  Neither are going to be useful to you.
  • “I don’t know” are three of the most powerful words and I need to use them more without fear.
  • I have a reputation for being direct/blunt. Sometimes people confuse that for being a jerk. Usually I’m not trying to be a jerk and certainly don’t want to have that reputation. In fact, it’s a lot scarier emotionally to be direct and give people feedback they don’t want to hear.  Or to transparently give them a sense for your concerns. It would be a lot easier to hide behind a grin-fuck.  [http://www.feld.com/archives/2012/02/grinfucking.html]
    • In this vein, I think it’s okay to disagree.  I understand and accept that we might not have the same motivations and I don’t dislike you for having a different position so long as it’s thought out. Unless you try to hide it, lie to me, or otherwise influence a position in a negative social manner.
    • I’ve certainly had to be a jerk and I haven’t tamed my own emotions. We all struggle to keep the rational rather than the emotional minds. There are a myriad of instances at UTIMCO that I would love to have back in do-overs.  There is always room for growth.  Let’s also say that I’m really glad that I no longer have the responsibility of playing lead investor for a large, public institution that dominates a cap table.
  • It’s better if you communicate with me by stating your conclusion and path that got you there.  I will ask your assumptions and probably ask you to argue the opposite position.  I’ve found that if I can argue both sides then I have a much better sense for the issue.  
  • I seek to always treat you with respect and ask your opinion before offering my own.  I presume that I’m likely to learn something. I accept that you may decide a different course of action and that I’m only one data point with a whole lot of personal biases built into it.  
  • If we agree to do something and you’re assigned a task, I assume it happened.  I hate having to remind someone or nagging them.  
  • I want feedback. I use the phrase “praise in public, reprimand in private”.  Don’t wait for weeks or to become emotional about something.  Just grab me.  Right then.  Or right after the interaction. Raise the issue, let us both chew on it, and circle back to it.  I try to absorb, marinate, and then respond.  
  • I’m generally very stable. There can be a ton of turmoil happening inside but I can generally compartmentalize. That said, I’m surprisingly sensitive and yes, I will cry at movies. It’s not that I don’t have tons of empathy or that I’m not sensitive to the noise around me. I try to absorb it rather than reflect it. BUT sometimes I need a time-out.  Usually I can put myself in the corner but keep in mind that you may need to remind me to take a time-out if I’m flying on emotion!
  • Sometimes I joke that I only pick on people I really like. It’s kind of true. If I’m not smiling and messing with you, then I probably don’t have much comfort with the relationship. Tell me to back off if needed. Or “not today”. BTW – I usually get it more than I give and that is totally okay.   I will growl at you if it’s too much. Please respect the bark so there isn’t a bite. 🙂

There you have it.  A lot to dump on you all at once.  

So it turns out that you’ve got an annoyingly punctual, direct, grammar Nazi in your life. Awesome.  My apologies in advance.  But when it’s all said and done, I care most about helping people and that’s what really gets me going.  Help me, help you by keeping these in mind!Robotsimple

Transition

The transition is nearly complete. And funny enough the stress level has never been higher.

It’s been a year since we firmly decided to leave Austin and move to Boulder. It was something we had been talking about for at least a year before we committed to it. Then we told our friends in January. Now, nearly 2 years on that thing we’ve been talking about has become a reality.

The movers are scheduled, houses are closing, plane tickets are purchased. The logistics are in full motion with a 1,000 moving parts that we just won’t be able to optimize. We’ve sold 2 houses, a boat, a truck, and scattered many of our goods that aren’t making the trip among friends and family vacation homes. We’ve got workers fixing things in our old houses and in our new house too. We picked a paint color on a facetime video – hope we like it when we show up. Lumens, Lightology, Room & Board, Restoration Hardware, & Amazon have all nominated us as customer of the year….

The execution is actually a distraction from the emotion. We now acknowledge that we’re likely leaving Austin and Texas with no intention or expectation of coming back. We remain super excited about Boulder and think it will be a really healthy move for us as a family and a great place to raise our kids. The two emotions of departure and arrival are actually mutually exclusive. There is a sense of change, and loss, that comes with a move. Yes, there are new dreams but you are altering so many of the plans that you had made. And you appreciate the memories but you also pine for those things that you didn’t get done. A move marks a life transition.

As much as we try to process and control it – Melissa and I both are showing signs of stress and emotion. Sleep patterns, eating habits, energy levels. The body is telling us what the mind is denying. Sometimes you just have to acknowledge where you stand.  Human like habits & stability.  We’re ready to find a new normal.

We’re spending a long weekend at Texoma with friends and family for the 4th of July. A tradition we do expect to continue. I plan to spend it engaged in the moment and remaining thankful for our time in Austin.

And hey Boulder – see you in 2 weeks!

Why venture? Why technology? Because the current innovation cycle is just getting started.

I built my first website in 1994 at TCU in a business and MIS class, it was a really poor effort but my study partner and I got an A on the project!  Before that I had played with modems, checking out the early chat rooms, and generally geeked out on my family’s Apple IIGS (It was sweet).  Sadly, I never learned to code but was lucky enough to get exposure early.  Still mad at my mother for tossing that old computer.

Apple2gs

Looking back, I suppose it was that first project in 1994 that started me down a path of understanding how internet/connectivity changed business models.  Our task was to create a website but without consideration we naturally built one that enabled a new business model (a marketplace for hunters & landowners).  The fact that we had grown up with the web as bulletin board and chat room certainly influenced us.  It’s very much the case that my young exposure to the web and the increasing information connectivity/flow throughout my early career has informed my interests and investments to date.

I think that a meaningful generational change is occurring again and it is one of a few macro considerations that are driving a huge innovation cycle.  A new and much larger generation, the Millenials, are coming into their prime consumer and working years.  They have grown up with a different experience.  They are digital natives that expect and depend on a different set of daily interactions enabled by the internet.  In part, it will be their generation driving how we use and benefit from technology in this innovation cycle.

Over the last few years, I noted the business innovation we were seeing across the book at UTIMCO.  This wasn’t just software or hardware.  These were new business models enabled by technology.  It was most obvious when our real estate lead or our healthcare lead would come talking to me about how technology was affecting their book.  Or the credit group would ask about our start-ups in that area.  Or when I went deep on education and saw what was happening, and what really needs to take place.  It was these observations that excite me about our opportunity set at Foundry Group Next.

 

Boulder or Bust.

BoulderorBust

I’ve been going to Boulder since the Summer of 1980 when my grandparents took me to visit my Uncle Tom Ellison. I doubt they made the Grateful Dead show that summer but I’m betting my uncle did! My mother’s only sibling, Tom moved to Boulder from Austin and bought a farm out by Boulder Reservoir in 1977. He later sold the farm to the city for open space but you can still see Ellison Lane on Google Maps. In 1989 Tom moved into my favorite neighborhood in Boulder, Mapleton Hill, where he lived on Highland Avenue through the 90s. His house on Highland will always be in my memory as the place where my cousins grew up and a place I would feel at home on the holidays or escaping the Texas heat in the summer.

It wasn’t until 2007 when I led UTIMCO’s first  investment in Foundry Group that I began a new relationship with Boulder. I now had an excuse to see family and spend time with one of our GPs. Double bonus.  The Foundry guys don’t mind me saying that the initial diligence trip was certainly enabled by the location! Once we had invested, the trips to Boulder became more frequent. In fact I started bringing my wife and girls along as well. We would often stay in a short term rental in that very same Mapleton neighborhood. We later anchored an investment in Techstars Ventures, another great Boulder firm. Around the same time, Melissa and I started spending a good portion of our summers in Boulder, taking the girls and even our dog to stay in Mapleton. I would take over one of Foundry’s conference rooms and even steal Jason’s bike to ride to work. I imagine you can guess where this is going…

It’s rare for an LP to build strong relationships across a firm. But truth be told, Foundry is a rare exception to many VC paradigms. Through nearly a decade of fun and working together, the Foundry partners have become close friends whom I trust and respect.  Melissa and I have had opportunities to spend time with their spouses and children. Traveling together, bluegrass and wine festivals, a bachelor party, a wedding, a European marathon, hiking, big birthdays and lots of Legitimate Front shows have provided the opportunity to really bond with the individuals, but also to see inside a super healthy partnership. Other GPs will tell you that I often hold up Foundry as the leading exemplar of firm dynamics. They also live the #GiveFirst ethos providing help, advice, and mentorship across the entrepreneurial ecosystem to both founders and VC firms. Foundry partners are seen as the “good guys” in the industry.  They would don the white hats in a Western.

When we first started exploring my potential role at Foundry, my biggest concern was whether we (and with Foundry it’s your whole family) would upset the beautiful dynamic that exists within the partnership. We didn’t want to change the balance in the existing group.  So although we had shared time in the past, we made sure that Melissa and our daughters had more time with the extended Foundry family.

Our history of fun and work combined with common ideals made this partnership feel really comfortable. I had even spent an inordinate amount of time with all of the wonderful team at the office over the past few summers. So when it came time, we, as a family, were really comfortable with the move and are really excited about joining the broader Foundry family. This is a long term commitment that we don’t take lightly. Foundry is trusting us  to be a part of their family and I can tell you that I will work a little bit harder just because I don’t want to disappoint my friends and partners.  

“Baby, Baby, Baby, I’m coming home…”

Setting aside all the wonderful partnership reasons for moving to Boulder, Melissa and I really feel like we’re coming HOME. Boulder has been our second home and we are excited to make it our primary home next summer. We laugh because we already have more babysitters in Boulder than in Austin, a yoga studio picked out, and know our way around the grocery store. As moves go, this one should be easy. We’ve found a wonderful home in Mapleton that perfectly fits our little family and my girls already have the neighborhood boys asking when they will be back to stay! CUTE for now, TROUBLE later. We’ve got two partners and a number of friends that live within a few blocks of us with schools and the office less than a mile away. Watch out Boulder, here we come…another branch of the family moving up from Austin!

I think Melissa says it best with – “I’m genuinely excited about Boulder, but separately I already miss Austin.”  A long post coming on this sentiment but I should note that I’ve told Melissa and the guys that I’m only going to amp up the Texas, and you can bet that the girls won’t forget that they were born in Austin!

 

But all along the Rockies you can feel it in the air

From Telluride to Boulder down below

The closest thing to heaven on this planet anywhere

 

There will be a time and place to talk about all the career reasons for this move. What I want to talk about here is Trust. and Family. And to borrow a term from Jamey Sperans (another Foundry LP and close friend)…….Business Love.  

Jamey coined the term “business love” at a fun NVCA speaking event we did together, when he noted that partnerships function best when there is more than common economic alignment but also true emotional engagement among members. I couldn’t agree more. I plan to spend the rest of my career surrounded by friends and partners that I respect and love. We are all in the human capital business. People matter most. I’m very blessed to share a partnership of values, ideas, and capital with some of the best investors in the world. Boulder or Bust.

Why Foundry Group Next?

The Path and the Process

As I considered my next path after UTIMCO, I went through a series of considerations that revolved around some fundamental questions: What are my strengths? Where does my passion lie? Who are my people?  

First, I sought out the intersection of the first two:  My strengths and my passion.  It didn’t take much time to determine where my focus should be: Optimizing venture capital exposure for institutional investors.

In my experience, the best fund and company founders were ones who set out to solve a problem they knew deeply.  They were functional experts who have lived the challenge.  I was keying in on my greatest challenge and greatest successes at UTIMCO by focusing in on venture capital.  

LPs large and small need help in navigating venture capital as it offers the highest returns set against the greatest dispersion of outcomes in private markets. While there are those LPs that perform extremely well, success remains elusive for many others. Consistently accessing those high venture capital returns is challenging. The best and perhaps only way to win is to bring talented investors to bear against a right sized capital base, and then allow those investors to focus, recognize early trends, and create an optimum structure that aligns incentives.

I took these lessons and this model from my experience at UTIMCO. Given our endowment’s size and public nature, we had developed a specialty for seeding or anchoring emerging GPs, an area at which I became particularly adept. And I loved helping GP entrepreneurs build their firms and funds. (On a related note, you can only help your peers form a new fund so many times without catching the bug!) I certainly wanted to stay on the path of investing in new funds: Identifying and supporting the best investors in the world to establish their own funds while continuing to work with my valued relationships from UTIMCO.

My experience helping funds had also proved to be my strength. Based on investment returns at UTIMCO alone, my net fund investment multiple was greater than 3x in technology venture funds and well north of that multiple when you looked at funds out of their investment period. I also had developed a number of meaningful relationships with top venture firms and my network proved to be incredibly strong. Focusing on venture alone made perfect sense across both criteria.  I loved it – and I thrived within it.

I knew my next step had to be technology venture with a focus on creating real partnership,  leveraging my relationships at UTIMCO and investing in new, exciting  firms.

 

What structure makes sense?

Combining a love for technology and creating partnerships made sense for me but the answer begged more questions.  Did the world really need another fund of funds? Was this really optimizing venture exposure?  

The short response was No. Yet another stand-alone fund of funds didn’t make sense. To be sure, there are a number of groups (many of whom are my friends) that do it right, but I had seen too many peers get sucked into the “assets under management game” while competing on lower fees. This strategy led to constant fundraising and poor investment decisions. Too often the portfolios became over-diversified, protecting the downside but giving away the opportunity for outperformance.

One friend in the business was Michael Kim at Cendana Capital, where he solved many of the challenges by focusing on a specialty market of micro-VCs who retained high return potential. Michael has a great business that provides interesting and complementary exposure to his clients. In working with Michael, I confirmed that there was an opportunity  to go “Next Level”.  

What is Next Level?

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I’ve always pictured LPs as sitting one level above GPs, who sit one level above portfolio companies.  As an LP, we mimicked the best themes, investment processes, and organizational structures of our GPs. In turn, our GPs were learning from, adopting, and sharing the best ideas, management techniques, and sector knowledge of their portfolio companies.  

As an LP, you benefit from some of the best knowledge and thinking available. You are provided a singular view but also limited by internal or market constraints in your ability to invest behind that perspective. I was seeing changes in company formation and financing markets that presented an opportunity to cut across the traditional roles. The opportunity is a reflection of the boom in company formation and the explosion of micro-VCs.  A recognition that successful investments may come from any market or any fund but they still require capital to scale as market leaders. The changing nature of capital efficient start-ups has affected the company and VC layer but the traditional LPs have not yet, and may not be able to adapt.  I felt that we needed to go next level – to the portfolio companies – in a capacity well beyond traditional co-investment. To combine the benefits of a diversified GP portfolio with a direct investment ability anchored in the DNA of a GP.  We needed an exceptional direct investment capability within the strategy as well.

 

What is the portfolio construction?

This is perhaps my favorite question for GPs and one that I spend a lot of time considering. What combination of GP portfolio and direct exposure adequately diversifies the portfolio while retaining upside through individual deal performance?  Simply put, what is the mix?

Based on my experience with the strong performance at UTIMCO, I knew a portfolio of funds performing at 3x or better should provide a diversified base return that returns a majority of the capital, protecting downside and setting up the possibility of an asymmetric return profile. This portfolio would also create a sustainable sourcing advantage for direct investments.

A portfolio of individual direct investments should provide upside with the potential for any single deal to return a meaningful portion of the entire capital base. The individual investments ideally of a size to meaningfully scale the underlying company while ensuring enough ownership to generate a large absolute dollar gain on the capital base.  

Access and opportunity set would define the capital base, but the GP portfolio should certainly represent a minority of the capital to allow for greatest upside from the direct portfolio, reflecting the asymmetric return goal and preserving the long upside tail of outcomes.

 

The right partners and platform

I had answered “the what” question?  Now I needed to address “the how” which quickly brought me to “the who.”  With whom could I partner to  bring an exceptional direct investment capability to bear? I needed talent that stood apart from others and brought value to the portfolio company? And then…

The Perfect Fit.

I’ve been close with Jason, Seth, Ryan, and Brad since UTIMCO funded Foundry Group in 2007.  It felt natural to reach out to them as I was thinking about my own path over the last two years. Fortuitously, they were also contemplating their future and the alignment was deep.  We have been formulating  strategy, portfolio construction, structure and alignment back and forth honing in on ideal elements for each.  When Jason called me and said, “Welcome to Foundry Group”, I knew we had something special.

Beyond the personal and the cultural fit, from an investment and strategy standpoint there was clear overlap in style and investment themes. We even share a number of previous investments.   

The Foundry Group brand is deservedly strong.  Foundry was one of the early movers a decade ago that recognized the changing venture environment, and they are clearly a star in today’s generation of leading venture firms. They are sought after by entrepreneurs and other venture capitalists as value-added investors with a sterling reputation for treating people right.

The Foundry returns have been impressive across both their early stage funds, for which they are well-known and more recently, their Select Fund which makes growth stage investments within their portfolio. From my vantage point, there may be no better partnership given their cultural  fit, sterling reputation, and history of direct investment returns.  

(Wait, there’s more!) The Foundry Group has also been quietly investing in a portfolio of other GPs over the last decade. These investments reflect their powerful network. They have befriended, advised, and sometimes sponsored other venture investors. Their #Givefirst attitude has helped them to identify the best investors early and to spread that positive DNA more broadly in the venture ecosystem.  Much to my delight, they have also outperformed even my own fund investment track record!  

By combining our respective histories and shared ideals, we think our new strategy, Foundry Group Next, will truly optimize venture capital exposure for LPs.  We will build a portfolio of direct investments underpinned by early-stage funds in a right-sized portfolio.  A portfolio big enough to support companies and GPs but not too diversified to limit returns.  We will share that #Givefirst attitude, believing that supporting entrepreneurship will help us generate returns for our investors and support a technology driven renaissance in our economy.  

I know that Foundry Group Next checks all the boxes from an LP perspective. It’s a differentiated, advantageous strategy for venture investment with the right team, focused and aligned with LPs in the proper structure. My goal to optimize venture capital exposure for institutional investors is achievable and I believe all the building blocks are in the right place.  I’m very excited to partner with Jason, Seth, Ryan and Brad in this new venture!

 

(And to make the the lawyers in our lives happy, we need to say that in no way is this announcement an offer to sell securities or an advertisement of us raising a new fund.  We have yet to announce anything regarding any new funds that we may raise in the future)

The importance of Timing.

Timing in Life is Key.


When I was formally promoted to run the UTIMCO private markets group in 2007, it was clear to me that I had a big job for someone in their early 30’s. I was recently engaged, remodeling a house, and had my hands full running a large private portfolio.  Life was very full and the opportunity in front of me was good.  I needed to put my head down and work.  And work we did.  

My thinking then was that I had no reason to look around for another path until I was at least 40.  It would give me enough time in the first chair to gain the experience I wanted, and I could continue learning as a senior investment officer for the broader endowment (there were 3 of us then).  My plan was to get my arms around the portfolio, show some real returns, and then pop my head up at 40 to check in on my path. 

When I turned 39, I knew it was time to recommit or look elsewhere.  I felt good about the situation at the office and at home:  

  • It was clear that I had developed a good team and they could stand on their own. I could leave the endowments in capable hands.
  • Melissa (my wife) and I were in a good spot, with two beautiful girls ready to start primary school, and we had saved enough money to stomach the risk.
  • It was clearly the right time in life.  One of my friends, Fred Wilson, noted that I was the perfect age to start my own thing.  With enough experience behind me to be meaningful, but an entire second half of my career in front of me. I also started reviewing the biographies of GP founders carefully, noting that many of them had started their own firms at the same age.  And I was seeing my cohort of friends begin to strike out on their own paths.  

It was Time.