Yesterday, we had the opportunity to speak with longtime venture investor Brad Feld of the Foundry Group, whose Venture Deals book recently re-launched for the fourth time for a good reason. It is a knowledge store, from how risk funds work to term sheet terms, from negotiating tactics to choosing (and paying) the right investment banker.
The field was generous with its time and advice to many founders. Dozens of them had joined in the style of a telephone conference. A full record of our conversation can be found here if you are a member of Extra Crunch.
In the meantime, we thought we would highlight some of our favorite parts of the conversation. One of these changes concerns SoftBank, an organization that knows Feld a little better than many other investors. We also discussed what happened at WeWork and what exactly is to be distinguished between a cultic leader and a visionary ̵
TC: We've just talked about startups that have raised too much money and what you've been dealing with SoftBank a long time ago. Your software company had raised capital with SoftBank, and you later worked as an investor for the company. This way was older than the Vision Fund but you knew Masayoshi Son, which makes me wonder: what do you think about how they have invested their capital?
BF: For technical reasons only, I was originally associated with SoftBank with a few other VCs; Fred Wilson, Rich Levandov and at the time Jerry Colonna, who now runs a company called Reboot. During this time, a subset of us formed a fund called Mobius Venture Capital, originally called SoftBank Venture Capital or SoftBank Technology Ventures. We were essentially a SoftBank-sponsored fund, so we had SoftBank money. The partners managed the fund, but at the time we were a key part of the SoftBank ecosystem. I would say that was probably & # 39; 95 to & # 39; 99, 2000. We changed the company name to Mobius in 2001 because it was endlessly confused with the other [SoftBank] fund activities.
I know A handful of SoftBank executives are very good today, and I have tremendous respect for them. Ron Fisher [the vice chairman of SoftBank Group] is the person I'm closest to. I have tremendous respect for Ron. He is one of my mentors and someone to whom I have a tremendous affection.
Endless amounts of ink are spilled on the SoftBank, and there are many perspectives on Masa and the Vision Fund. I would find that the biggest dissonance in all that is talked about is the time frame, since Masa even spoke of a 300-year vision in the 1990s. Whether you take it literally or figuratively, one of Masa's strengths is this incredibly long arc he works with. However, the analysis that we continuously carry out externally is very short-term – days, weeks, months.
What Masa and the Vision Fund conceptually play is a very, very long-term game. Is the strategy an effective strategy? I have no idea . , , But when you start being a VC, it takes a long time to know if you're good at it or not. It may take a decade to actually know. You will receive a signal in five or six years. The Vision Fund is very young. , , It is [also] a different strategy than any other strategy ever undertaken on this scale. So it'll be a while before you know if it's a success or not. Too short an assessment could lead to a loss of success.
When a brand new VC or brand new fund is measured in terms of its performance for two years and investors look closely, they decide what to do with the VC. There would be no VCs. They would all be unemployed because the first two years of a brand new VC – with a few exceptions – are usually a time frame in which it is completely uncertain whether they will succeed or not.
TC: So many funds – not just the Vision Fund – are spending their money in two years, when it used to be four or five years, that it's a bit more difficult. If you use all of your capital, you need to raise funds and it's [too soon] to know how your bets will impact.
BF: Comment on that, Connie, because I think it's really a good thing: when I started in the 1990s, it was a five-year fund cycle, which is why most LP documents have a five-year commitment period for VCs. Have funds. You have literally five years to tie up the capital. In the Internet bubble, it has been shortened to about three years, and in some cases to 12 months. At Mobius, we launched a fund in 1999 and a fund in 2000, so we've had some experience with that compression.
When we launched the Raise Foundry, we decided that our fund cycle would be three years and we would really be disciplined about it. We had a model of how we would use capital from each of our funds during that period. It turned out that in retrospect, we launched a new fund every three years and ultimately lost a year in that cycle. We have a vintage 2016 and a year 2018, and that's because we really used the capital for 2.75 to three years. , It caught up with us sometime.
I think the discipline of pursuing time diversity over the capital you have is extremely important. If you talk about LPs today, there is a lot of concern about the pace at which funds were made available, and there has been a biennial cycle in the last two iterations. I think you will start to realize that this will take three years. From the perspective of time diversity, three years [of time] speak a lot against portfolio construction. When it gets shorter, you do not get enough time in the portfolio and it starts to hinder you.
TC: Separately, you wrote a post about WeWork using the term personality cult. For those who have not read this article – even for those who have read it – can you explain what you said?
BF: What I tried to abstract was the separation between personal and thought-guiding cults. Thoughts are 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 in the system.
I am a participant in the system, right? I am a VC. There are many different ways for me to contribute, and personally, instead of creating a personality cult around myself, I think it's much better to create a think-tank, including many experiments and trials, many things, a lot of wrong be and learn from it. One of the things about thought-leadership that I think is so powerful is that people who are leading the mind are really curious, trying to learn, looking for data, and forming feedback loops of what they are learning, what it will allow they should be more effective leaders in every role they play.
The cult of personality often disguises itself as thought guidance. , , [but it tends] to reinforce oneself about the attractiveness of this person or the importance of that person or the correctness of the vision this person has. And what happens to personality cult is that very often, not always, but very often, you lose the signal that allows you to iterate, change, develop, and modify so that you build something that is in your life As time grows stronger.
In some cases it is totally off track. I mean, just call it the way it is: What business does a private company have, no matter how much revenue it has to buy a Gulfstream V or whatever [WeWork] has bought? It's crazy. ..
From an entrepreneurial point of view, I think it is much, much more powerful, than the entrepreneur or leader who engages in the matter of being a leader with thought-leadership and self-observation about what works and what does not cultivate personality [and is] Inhalation [his or her] own exhaust
TC: Were you even a VC in this situation? Could VCs have done something earlier in this case or is it not possible with a strong personality?
BF: One of the toughest jobs not only as an investor, but also as a board member – and honestly, it's also difficult for entrepreneurs to deal with the spectrum you're on. An end to the spectrum as an investor or board member dictates to the charismatic, incredibly hard-working founder, who is the CEO, what he should do and on the other end, let them informally so they do what they want.
One of the challenges of many VCs is that it is difficult to be internally critical when things are going well. Often you concentrate less on the character. Any company that is expanding its leadership needs to evolve. The founders, the CEO and the other executives need to evolve. [Yet] Many times for various reasons, and it is a broad spectrum, there are moments when it is easier to pay no attention as an investor or board member. There are many investors and board members who are afraid to face it. And there are many situations in which, because you did not set up the governance structure of the company in a particular way, you wanted to get involved in the deal as an investor, or because the entrepreneurs insist [on a certain structure] or because you do not do. You do not have enough influence because it is very, very hard when you have invested. If the entrepreneur is not ready to work together, it is very difficult to do anything about it.
Here, too, you can read our unedited and far-reaching conversation if you are a subscriber to Extra Crunch.