20 VC 066: FOUNDRY GROUP WEEK 1: Seth Levine: 'VC Is Not A Scalable Business'

Seth Levine is one of the most successful VCs on the planet having Co-Founded Foundry Group, Seth has made investments in the likes of Fitbit (IPO), Admeld (acquired by Google), Zynga (IPO) and Gnip (acquired by Twitter). The Foundry Group now has 5 funds, 4 early stage and 1 growth fund, totalling over $1bn in assets. Prior to Foundry Group, Seth started his career in venture with Mobius Venture Capital and lead the IPO of FirstWorld in 2000. Seth writes an awesome blog on technology, venture capital and colorado at www.sethlevine.com. If you enjoyed today's show, share the love on Twitter by clicking here! In Today's Show You Will Learn: 1.) Where it all started for Seth and how he made his move into the technology and venture industry? 2.) Question from James Altucher: Do you have to be in Silicon Valley to get the best access to deal flow? 3.) How has Foundry group developed since 2006 as VC firm? 4.) Why are all funds raised by Foundry the same, $225m? How is VC fundraising the same as startup fundraising? 5.) Question from Elizabeth Kraus: How does Seth stay motivated having enjoyed so much financial success with Foundry Group? 6.) What areas of tech is Seth most excited about? Items Mentioned In Today's Show: Most Used Apps: Slack, Voxer, DarkSky Seth's Fave Book: The Old Man and The Sea by Ernest Hemingway Seth's Fave Blog or Newsletter: Hidden Brain Seth Most Recent Investment: Sourcepoint As always you can follow Harry, The Twenty Minute VC, Seth and Foundry Group on Twitter here! For a more colourful view of Harry's world and maybe a few mojito sessions, check out Harry's Instagram here!

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  You're listening to the 20 Minute VC with your host, Harry Stebbings. Wow, what an incredible week it has been so far. And it just gets better and better as part of our feature of Foundry Group. First, we have Brad Feld on the show. And now today, I'm delighted to welcome his co-founder of Foundry Group, Seth Levine. Seth is one of the world's most successful VCs. Having co-founded Foundry Group, he has made investments in the likes of Fitbit, AdMeld, which was acquired by Google, Zynga and Nip, which was acquired by Twitter. The Foundry Group now has five funds, four early-stage and one growth fund, totaling over one billion in assets. Prior to Foundry Group, Seth started his career in venture with Mobius Venture Capital

• 0:45Harry Stebbings?

  and led the IPO of First World in 2000. And Seth writes an awesome blog on technology, all things VC and Colorado at www.sethlevine.com. But before we jump into today's amazing interview with Seth, does your company's job page look identical to every other job's page? Check out HiringScreen, who allow you to seamlessly integrate your existing careers page with their cutting-edge technology, allowing your logo and job descriptions to be powered by the smartest algorithms in the business. You can find them at www.hiringscreen.com. But ladies and gentlemen, without further ado, may I introduce to you Seth Levine,

• 1:28Harry Stebbings?

  co-founder and partner at Foundry Group.

• 1:37Speaker 01

  You have now arrived at your destination.

• 1:39Harry Stebbings?

  Seth, welcome to the 20 Minute VC. It's an absolute pleasure to have you on the show.

• 1:44Speaker 02

  Thank you for having me, Harry.

• 1:45Harry Stebbings?

  Now, this is part of the incredible Foundry Feature Week. And we'd love to start off by you taking us back to your younger years and where it all started for you.

• 1:55Speaker 02

  Yeah, so, um, well, going way back, I grew up in Boston and needed to get some, some time away from the East Coast, so I, I went to college in the middle of the States, uh, in Minnesota, in a small liberal arts college called McAllister. Always planned to be a psychologist and, and professor. And my plan got somewhat thwarted by, uh, taking too many econ classes as well as psych classes. I ended up as an econ major as well, uh, which has now become, really, you know, the study of economics and the study of psychology have become very interrelated, uh, in ways that are really exciting to watch. Back then, it was, it was pretty novel. I was certainly the only one in, really, in, in the history of my college that had done that joint major.

• 2:38Speaker 02

  Now I think it's very common, um, for people, but, uh, but anyway, I, I ended up through, for a bunch of different reasons, um, not pursuing an academic career and I, I actually landed a job on Wall Street. I was there for a couple of years and decided that, uh, banking wasn't really for me. Um, and so I, uh, I'd spent my summers growing up in, in Colorado. My dad was from here. And so I, uh, called up a CEO that I'd been working with and just asked him if I could, if I could have a job at his telecoms company. And so he hired me and, uh, I came out to Colorado in 96, um, really for lifestyle reasons. I, I wanted to, um, to have a little bit more balance than I had when I was a, when I was a banker.

• 3:23Speaker 02

  And so I worked for this telecoms company doing business development. Basically, we were cutting deals with utility companies to lease access to their dark fiber. And my boss from that company left and he hired me and, and I ended up at, at the company that he was at. It was really a restart of another telecoms company that we turned into more of a datacoms company. Um, and he actually, despite the fact I was still pretty young, he gave me really the corporate finance half of the CFO role at that business. And so I, uh- I handled all the corporate finance, M and A, corporate planning, business modeling, and things like that, built up a team to do that there. That company went public in March 2000, March 8th, 2000, not to be confused with March 10th,

• 4:06Speaker 02

  2000, which is when the NASDAQ hit its high. Of course. Sadly for me, about six months too early, or five months and 28 days too early. Hate it when that happens. But, yeah, no, I never quite got out of that stock. But, but anyway, it was a very interesting experience to live through that. And our, that company had been private equity backed. And so when the markets sort of took a downturn and we, we didn't have the access to capital that we needed, the private equity guys sort of had the business take a different direction and decided to sell off, certainly the majority of the revenue of the, of that company. They wanted to focus on another area of the business. And so they actually had me run, run that business, which was about a $50 million top

• 4:51Speaker 02

  line business. And how old were you at the time? I was so 26, 27 when I took over that portion of that business. It was actually a couple of different business lines. A really interesting experience for me. I'd been a manager. I'd managed groups before and I, maybe at the time I had, oh, I don't know, 15 people, let's say, reporting to me. But, you know, all of a sudden I had 250 people in the organization and, and it was really a trial by fire. Fortunately, fortunately for me, I had some really good mentors to kind of help me through that transition. And fortunately for me, I was able to successfully sell each of the, the pieces of that business. And I had made the decision along the way that I didn't want to stay with the core, core business.

• 5:35Speaker 02

  And so when I sold the last piece, I was looking for something else to do. And just, well, the advice that I received from another mentor of mine was, you need to go work for someone amazing. And, and so I, I asked him who he thought I should go work for. And he said, you should go work for Brad Feld. And I said, awesome, could you introduce me to him? And I knew who Brad was, but we had never met, never crossed paths. And so he introduced me to Brad and I got an intro to Brad through someone else. And of course Brad was crazy busy, this is 2000 and you know, he's got thirty boards and I think it was like a three-month wait to get on Brad's calendar.

• 6:20Speaker 02

  But I ended up meeting with Brad and the timing was fortuitous and it was SoftBank Venture Capital at the time, later renamed itself Mobius Venture Capital. And Brad's group was hiring and so I ended up in this process and got a job at SoftBank Venture Capital, which at the time was supposed to be a two-year job. Hired as an associate at Mobius for two years. And I just thought, and I was, I think I was twenty-eight at the time, I wasn't married, I didn't have kids, and I thought, if I'm gonna do this, now is the time. Because I had done a lot of corporate development, I'd had some management experience at that point, and I had a couple of other offers that were way, much better offers from a financial perspective, but doing more of the same.

• 7:04Speaker 02

  And I thought, you know, I really wanted to try venture capital. And so I decided to, you know, to go in a very different direction, in some respects, take a step back and, you know, become an associate. And, you know, all of a sudden I went from having, you know, from managing a group that did modeling and everything else to, you know, running my own spreadsheets and cap tables again. I just, you know, that experience is so important, right? I think that, and this is really, I guess, what I wanted to get back to, was maybe away from being a manager and more being a doer again. And this, you know, my job at Mobius was very much being a doer. I didn't have anyone reporting to me, so everything I wanted to have done was something I had to do myself. And so, anyway, that's how I ended up in venture and that's how I met Brad.

• 7:49Speaker 02

  Fast forward a number of years, you know, my two-year job turned into three, turned into four. Eventually they created sort of a junior partner position at Mobius and I got promoted into that, you know, very junior partner. And then Mobius went to raise another fund, its seventh fund, and Brad, of course, had been really the top performer at Mobius. And so he was integral in that process. And at some point in that process, I actually said to him, hey Brad, you know, I'm not quitting today, but I'm not gonna stay at Mobius, with Mobius Seven, I'm not interested in, you know... Being a junior junior partner at Mobius and you know that's probably not the experience that I'm looking for at this point and some months later and I think Brad at that point knew that Mobius was struggling raising a fund and some months later that kind of

• 8:34Speaker 02

  morphed into a discussion with Brad about well maybe we shouldn't do Mobius maybe we should do something else together and at that point Brad and I established a really strong working relationship and friendship and so you know that conversation evolved from you know from one conversation hey what do you think to you know actually deciding that you know we might want to do something and you know that's when we called up Ryan and Jason and said hey this is sound crazy but we're we're thinking maybe maybe we should do something different what do you guys think and and you know over several conversations that evolved into what became Foundry hey let's do this let's do it together and and in Ryan and Jason's case let's move move out here and in Ryan's case move his family

• 9:18Speaker 02

  as well out here and that's what became Foundry which we really started working on in earnest in 2006 and then we we and that's the year that Ryan and Jason moved out and then in 2007 we started raising our what became Foundry Group 2007 our very first fund which we closed in November that year.

• 9:38Harry Stebbings?

  And the Foundry Group's located in Boulder and a blossoming startup community and the first question then comes from our friend James Auscher and he wanted to know that everyone thinks that you have to be in Silicon Valley to get the right access to deal flow you know you Uber Airbnb etc. Do you agree with that?

• 9:59Speaker 02

  No unequivocally no and I think I hope Foundry would serve as a case study that that's not the case.

• 10:05Harry Stebbings?

  Sure.

• 10:06Speaker 02

  So so a couple of things one is I would start by acknowledging that the density of entrepreneurship in Silicon Valley is incredibly high and so there's no question that there are many great businesses the ones that you mentioned but but many many many others the list is very long that are being started and built in in California and Silicon Valley you know that said there are lots of other great startup markets that are evolving and I think one of the things that we're seeing Change in the venture business and in the entrepreneurship business, if you will, is that there's sort of a democratization of entrepreneurship going on whereby it's

• 10:46Speaker 02

  easier to get access to those things that you used to only get access to by being in a densely entrepreneurial community. And maybe another way of saying that is you can create a virtual community for yourself almost no matter where you are, and we're seeing pockets of entrepreneurship pop up all over the place. Sometimes, like in the case of Boulder or New York, for example, many other markets around the country and around the world, that has resulted in larger pockets of entrepreneurship. And certainly, we've seen that in Boulder, and really, I've been witness to that in the almost now 20 years that I've been in the Denver Boulder market, of just the emergence of Boulder as a startup market, or the Front Range, really, as a startup market.

• 11:29Speaker 02

  So I don't think that the Valley has the entrepreneurial market locked up. I think that there are lots of great reasons to start a company in Silicon Valley, but I think there's lots of great reasons to start it out of Silicon Valley. In terms of building a successful venture business, you know, I will say, I feel like Foundry had to be and was very scrappy, especially at the beginning. And I think it's easy to forget that, you know, of course, no one knew who Foundry was seven, eight years ago when we started the business, and the way, and Brad had some name recognition going into that, and so that obviously helped, but we really, we worked

• 12:10Speaker 02

  our asses off and traveled a lot and spent a lot of time in other markets where we wanted to make investments in order to get ourselves into the deal flow. And then, of course, now that we've got the reputation that we've been able to garner, now it's a little bit easier and more deal flow comes to us rather than us necessarily having to seek it out. But I hope Foundry serves as an example that you can build an investment business, a venture business, wherever you want, as long as you're willing to put the work in. And of course, in Foundry's case, we've had many successful investments outside of the Bay Area. And so only about a third of our investing has been in California. A third has been in Colorado and a third has been spread really across the rest of

• 12:53Speaker 02

  of the US, which is our investment, you know, target market, the the the full US market. And, you know, we have some concentrations in New York, in Portland, Seattle. We've done a few things up in Boston, so it's we've kind of naturally gravitated to a few markets. But, you know, a full third of our portfolio is outside of Colorado and outside of California.

• 13:13Harry Stebbings?

  And you said that the Foundry Group was was scrappy at the beginning. How do you feel then that you've kind of sleekened out and improved your your process as as an investment firm?

• 13:23Speaker 02

  Well, I think it's important to recognize that venture capital is not a scalable business by any stretch of the imagination. And in in particular, it's not the way that Foundry is going after, which is that we're not, we're not looking to build a legacy. We all the partners do their own work. We don't have any analysts or associates. And so, you know, we've had to be really thoughtful about in what ways and in what areas kind of venture capitalists add value to a business? And in what ways are we just creating busy work for ourselves? And we needed, we've needed to be very focused on those things that that give us real leverage. And so there are a few examples of that, but I I think, I think when you, when you have too much time on your hands and and maybe a little bit too much proximity in some cases to your, to your investments, as a venture capitalist,

• 14:08Speaker 02

  you have a tendency to to feel like you're doing a lot of good by, you know, swinging by for a day, for example, or holding monthly board meetings, things that that end up chewing a lot of time up at the company. Maybe time that that a venture capitalist doesn't realize is is being taken to prepare for those sorts of meetings, interruption in sort of their normal process and flow. And I, I think we've been very thoughtful at Foundry to design the interactions that we have with the companies that we invest in, in a way that's beneficial to them and beneficial to us, but it's relatively streamlined. And so that might mean, certainly in our case, we tend to have quarterly board meetings, not, not more frequent, right? Maybe with some, some operational updates in between.

• 14:47Speaker 02

  We're very, we we're very heavy users of technology, not just email, but, but Slack and Voxer, for example, probably the two most used pieces of technology inside of Foundry after email.

• 15:00Harry Stebbings?

  What do you use for calendaring? What, what, do you have a specific app or or software that you use to make sure your calendars are all integrated and coherent?

• 15:09Speaker 02

  We have so far been on just Google Calendar. We are experimenting a little bit with Clara is the latest experiment in a calendaring solution that we hope will automate some of the calendaring challenges that we have. Now, we each have an assistant as well and that's that helps. So while we don't have people that help us on the investment side, we do we do each have someone who helps us with travel, with calendaring and things like that.

• 15:39Harry Stebbings?

  And you said VC is not a scalable business, very fascinating to hear. And that's kind of clear through your funds, which are always $225 million, am I right in saying?

• 15:51Speaker 02

  That's correct.

• 15:52Harry Stebbings?

  So, out of pure interest, why 225?

• 15:57Speaker 02

  Well, the first, so we wrote an investment memo for the first, for our first fund, an offering memorandum, and we were trying to raise 175 million. And it's funny, too. So when we when we started raising that fund, and this is, I think, true to the experience of many entrepreneurs as well, when they're raising money for their businesses, you get no's before you get yeses. And so we, you know, at the time, there was really no such thing as an emerging manager. And we were, we were four guys who were, who were trying to sort of kind of create a name for ourselves in the business, but we're really, you know, only Brad had been kind of a full investment partner at a recognized venture firm.

• 16:41Speaker 02

  And the rest of us were associates or junior partners, and we sort of cobbled together our various track records that Ryan had done, made an investment in Postini, so he had one really big win at that point.

• 16:55Speaker 02

  And, you know, Jason and I were, from an investment perspective, more junior than that. Jason had been the general counsel of Mobius, very experienced in back office, and I had been this, you know, sort of junior, junior partner at Mobius. And so it was, you know, it was hard, it was hard to raise that first fund. And it was funny, something happened, and there was a time in the middle of 2007 where I actually didn't think Foundry was going to come together, which was really, it was a challenging time for me. I really, I mean, truly had put up my entire life savings to back my portion of the startup cost for Foundry. And there was a point at which I thought, you know, this wasn't really going to happen.

• 17:34Speaker 02

  Fortunately, we had kind of in the middle of that summer, a few really key LPs say yes. And then, you know, again, I think it's not dissimilar to some experience of entrepreneurs. And then it sort of steamrolled and all of a sudden lots and lots of people wanted to wanted to come in. And so we ended up choosing two twenty five because we felt like that was a manageable number. And when we chose it, we knew that that was going to be the number for the rest of our time as investors. Because we'd always said in our in our fundraising process that we were going to raise a series of funds. They were all going to look exactly the same and in terms of dollar size. And then when we were done, we were going to be done.

• 18:15Speaker 02

  We weren't going to be hiring people to backfill and sort of have this long tail that that some partners do. And which, you know, is perfectly fine, but for our model, that wasn't what we wanted to do. We simply wanted to run our business until we were done. We figured that would be about twenty years together and then then we were going to shut the lights out. And that that's that was the plan and that that is how the plan has worked out. And that's what our expectations are for the next, you know, ten to twelve years.

• 18:40Harry Stebbings?

  And then Elizabeth Kraus, a friend of ours, wanted to ask that with the recent success of Fitbit and seeing what it can return for your fund, is it difficult to stay motivated?

• 18:53Speaker 02

  No, it really isn't. And, you know, it's we had this conversation very explicitly because we we did have to decide whether we were going to raise sort of this this next foundry fund, the one that we just announced closed last month.

• 19:08Harry Stebbings?

  Absolutely. Congratulations on that.

• 19:10Speaker 02

  Thank you very much for that. And so we had a real conversation. This was really kind of the end of last year and we already could kind of see where Fitbit was headed, how that would impact both the returns of the funds, but obviously, you know, fund return translates into return to to us as the principals. And so we already saw that. And so that was a conversation that was purely about how passionate are we about what we're doing?

• 19:39Speaker 02

  How we're doing it and whom we're doing it with. And so we already, we made that decision and we made it together as a group. Now, I think the reality is that, you know, Brad has been kind of in that boat for longer than the rest of us in terms of, of working for passion reasons, not working for, for salary or income reasons. And so it was interesting to kind of have his perspective into that conversation. But, you know, really what motivates us is working with entrepreneurs and, and our passion for technology and, and technology and where technology is headed, right? What we're, uh, those things that we're most excited about that are changing in the world in general and specifically in the world of technology. And that's where the motivation comes from.

• 20:22Speaker 02

  And so, you know, yes, the, I guess the pressure's off in some respects.

• 20:27Speaker 02

  You know, we sometimes talk about entrepreneurs who've had, you know, had their first win and, and maybe they're not as worried about, you know, buying that house that they want or, you know, the ability to send their kids to college. And in a lot of cases, they become even more passionate because then they're working for, for the, for the joy of the idea and the passion that they have for their project. And I think we've entered that phase of foundry where, you know, the four of us very fortunately have been successful in business and, and as a result, both for our investors and for ourselves. And we're now working just because we're passionate about what we're doing. And, and I think that makes, that made this last fund in the, in the decision to raise that fund for us, a little bit of a different decision, but also something that really focused us in on what we're most passionate about.

• 21:12Harry Stebbings?

  And you said that exciting new technologies, you know, groundbreaking tech really makes you passionate. What areas then are you particularly excited about?

• 21:21Speaker 02

  I would point to a couple of different areas. So one is, which is a little mundane, but, but something that I've been spending some time in and I've made a few recent investments in. We, we had this sort of great, there was the original wave of, of kind of technology that came into business and, and that resulted in, you know, many large sort of consolidated companies, Oracle, SAP, et cetera, who built these large ERP type packages. And then we had kind of the, the, um, the next Wave of that where pieces of what were those packages were rebuilt for kind of the next generation of web technologies and that went down market a little bit, right? Things like Salesforce and Concur, things like that.

• 22:04Speaker 02

  And I actually think we're seeing another wave of that into even smaller businesses. And of course, every time you take a step down in terms of the sophistication and the size of the business, you take an order of magnitude, or in some cases several order of magnitudes, step sort of outside of the smaller box that you were in in terms of the number of businesses that can be impacted by that. And I'm actually, I'm very passionate about this. I believe that there is a lot of technology that will make business in general in the US, of course, the vast majority of businesses in the US have 30 or fewer employees. There are a lot of technologies that can, that have been built for larger businesses

• 22:45Speaker 02

  that now can be rebuilt for smaller businesses and really impact the US economy and small businesses and the proprietors of those businesses, their lives in a positive way. And so I'm really excited about that. We saw the first wave of that in the, sort of the Salesforce and Concur and other software that was built for smaller, but still relatively large businesses. In some cases, went down a little bit further in market, but is harder to use if you are a 10-person shop or a 15-person shop. And now we're seeing technology get repurposed yet again for a smaller market. So I'm super passionate about that. I'm also very passionate, I should speak for Foundry, we are very passionate about

• 23:30Speaker 02

  sort of this coming wave of how humans interact with their devices. And we've been investing in this really since our very first fund and it's been a continued investment theme for us. But there's a lot of exciting technology advancement going on in terms of how people are interacting with the machines around them, whether that's their smartphone, whether that's their TVs at home, whether that's their computer, whether that's their car. And so there's a, I think there's a lot of innovation to take place in that area. Those are just two, two of the several areas that we're most passionate about at Foundry.

• 24:06Harry Stebbings?

  And we're going to move into a quickfire round now where I say a short statement and you give me your immediate thoughts.

• 24:11Speaker 02

  Okay.

• 24:12Harry Stebbings?

  Most used apps on your phone.

• 24:15Speaker 02

  Outside of mail, it's Voxer, Slack, and then Dark Sky, which is a sort of a hyper-local weather app.

• 24:26Harry Stebbings?

  Awesome. And your favourite book?

• 24:29Speaker 02

  My favourite book is Old Man in the Sea by Hemingway.

• 24:33Harry Stebbings?

  What business, tech, finance leader do you admire most or look to emulate?

• 24:39Speaker 02

  My answer to that is maybe a little bit of sort of off the question, but I'd probably say Nikola Tesla. I think he was such an innovator, not a contemporary, but I really admire, I admire, I admire his passion for what he was doing and obviously his creativity and innovation was really unparalleled, really in the history of inventors.

• 25:04Harry Stebbings?

  The highlight of your career?

• 25:05Speaker 02

  Highlight of my career was probably when we closed the first Foundry fund and it actually was happening.

• 25:14Harry Stebbings?

  Angelist syndicates, do they threaten the traditional VC model?

• 25:18Speaker 02

  No, I think that they enhance the traditional VC model and it's great to see, I talked about the democratisation of entrepreneurship, I'm equally excited and passionate about the democratisation of capital.

• 25:29Harry Stebbings?

  Your most recent investment and why you said yes?

• 25:33Speaker 02

  My most recent investment is a company called Sourcepoint, which is helping publishers around the web deal with the fact that thirty percent or more in some countries that their traffic is ad-blocked. It was founded by Ben Barokas, who was the founder, one of the founders of Admelt. I would back almost anything that Ben did. I really have had now an eight-year relationship with Ben and we're close friends as well as business collaborators and I just love the way that he thinks.

• 26:01Harry Stebbings?

  Fantastic. And then finally, your favourite newsletter or blog?

• 26:04Speaker 02

  I would have to say it's The Hidden Brain.

• 26:09Harry Stebbings?

  Okay, I haven't heard of that.

• 26:12Speaker 02

  Yeah, Shaker Vedant is a behavioural scientist, he's a correspondent on NPR, and he writes about the intersection of really psychology and social science, that sometimes there's economics mixed in with that and that just plays to kind of my passion and some of my educational background.

• 26:29Harry Stebbings?

  Well Seth, what a brilliant way to close off the second episode of the Foundry feature. Thank you so much for joining us on the Twenty Minute VC.

• 26:37Speaker 02

  Thank you for having me and thank you for featuring Foundry this week.

• 26:43Harry Stebbings?

  And that brings Foundry Group Week 1 to a close. But do not shed a tear because we will be back in September to bring you Foundry Group Week 2, where we will be talking to Jason and Ryan. But before we leave today's show, a very wise man once said that the hiring process was like dating. It's all about the first impression. So give your careers page the first impression it deserves and really impress potential candidates. And you can do this by visiting HiringScreen at www.hiringscreen.com. And if you have any questions, just tweet them at #HiringScreenRH. Thank you so much as always for your continued support and we can't wait to see you in the next episode.