The Economics of VCs Recycling Management Fees

Several years ago, I wrote a post titled Why VCs Should Recycle Their Management Fees.

From the start of Foundry Group in 2007, we have felt strongly about this. We feel that if an LP gives us a $1 to invest, we should invest at least that $1, not $0.85 (the average fee load over a decade for a typical VC fund is 15%.) Our goal for each fund is actually to invest closer to 110%, which means if an LP gives us a $1 to invest, we are actually investing $1.10.

Our long-time friends and LPs at Greenspring recently wrote a great post titled Creating GP-LP Alignment: Why Terms Matter. The post specifically discussed three items: Management Fees, Recycling, and Carried Interest.

The entire post is worth reading, but I especially liked their section on Recycling which includes a handy chart showing that recycling means that

Continue reading "The Economics of VCs Recycling Management Fees"

The Story Behind My Investment In Downstream

Earlier this summer, my friend Michael told me about a small investment his team made up in Seattle in the Amazon ecosystem. We were about to move houses and with all the impending details that process was generating, I initially didn’t give it a proper look. As we were reviewing new deals, we flagged this one for being different in nature. And as we dug in more, we began to uncover how little we know about a new potential business line for Amazon.

Today, Downstream officially launched, though it is already in the market and helping Fortune 1000 companies get smarter about their spend on Amazon. You can read about their news today here in Geekwire, and I’m happy to be co-investing alongside friends like Michael, Micah, Dave, Chris, and others in Downstream’s seed round.

For me, there were two revelations in researching this deal – 1) Continue reading "The Story Behind My Investment In Downstream"

3 tips for pitching Midwest venture capitalists

Kansas City, Missouri.
GUEST: The Midwest is a great place to live, sure, but is it a great place to grow a startup? The answer may surprise you: an unequivocal yes. Here’s what you may not know about the American Midwest: over the past three years, startup ecosystems all over the region — in places like Kansas City, Cincinnati, Minneapolis, Detroit, and of course Chicag…Read More

3 tips for pitching Midwest venture capitalists

Kansas City, Missouri.
GUEST: The Midwest is a great place to live, sure, but is it a great place to grow a startup? The answer may surprise you: an unequivocal yes. Here’s what you may not know about the American Midwest: over the past three years, startup ecosystems all over the region — in places like Kansas City, Cincinnati, Minneapolis, Detroit, and of course Chicag…Read More

Heartland Tech Weekly: Promising tech hubs won’t all rise together

An interesting report came out this week from the Center for American Entrepreneurship, detailing the progress that’s been made in American startup communities over the last three years. The report specifically looked at how the number of “first financings” — that is, the amount of startups receiving their first round of venture capital finan…Read More

Early-stage VC funding remains elusive in most U.S. cities

With Silicon Valley getting more expensive day after day, there’s talk of businesses forgoing the area for other U.S. cities, in a phenomenon often called “Rise of the Rest.” But, is startup activity in these markets typically underserved by venture capital actually rising? The nonprofit Center for American Entrepreneurship publis…Read More

A Venture Capital Career Is Like Walking from Boston to San Francisco

I’m a recent conversation with Eric Paley, he gave me an amazingly wonderful analogy for how the career of a VC unfolds. He said:

“Being a VC is like taking a walk from Boston to San Francisco”

I’d never heard that before so I said: “tell me more.” He went on an awesome ramble, which I’ll try to capture below.

You start out on a sunny day in Boston. You put on your new, clean walking shoes. It’s just walking. It’s fun, fresh, and exciting. It’s a new experience, with lots of hopes and expectations in front of you. You get tons of support and encouragement from all of your friends. You meet plenty of new and interesting people. It’s just walking.

After a few days, you feel like you are getting into a rhythm. You feel you are good at this. It’s still easy and exciting, but now you

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“There’s A Disturbance In The Force”

I say “no” every day, multiple times a day. Even though I know I’m upsetting folks, I try to be direct, open, quick, and honest. Not everyone will like it. So be it. I elect to be consistent and fair rather than liked. Yet, once in a while, when I say “no,” I carry it around with me. And sometimes, as you carry that “no” you delivered around, it starts to get heavier, and you recall it more frequently.

I had that experience last year. I called the founder to say “no” and the founder was incredibly graceful. A few days later, I ran into a mentor-investor who had also spent time with this founder and didn’t get all the way there. I told him, “I say ‘no’ often, but this one – I felt terrible.”

My mentor responded: “Ah, yes… you felt a disturbance in The Force. Continue reading "“There’s A Disturbance In The Force”"

Investing Outside The Bay Area

This is a post I’ve wanted to write for a long time, but I needed the time to digest all the other great posts on the topics by other investors, and to analyze specific portfolio data from Haystack over the last five years. Well, that time has finally come. As a warning, this post will have more subheading than usual, and it will be packed with lots of links — please click through and read them. I believe this is an important post for both founders and investors in the Bay Area and outside the Bay Area to read carefully.

When I began investing a little over five years ago, it felt like the conventional wisdom was that one had to invest in the Bay Area to harvest venture-like returns. Of course, that was not 100% true, with innovative startups and large outcomes occurring in Europe, in Asia, and other Continue reading "Investing Outside The Bay Area"

Early Stage VCs – Be Careful Out There

In addition to our own funds, we are investors in a number of other early-stage VC funds as part of our Foundry Group Next strategy. Yesterday, in one of the quarterly updates that we get, I saw the following paragraph.

“Historically, the $10 million valuation mark has been somewhat of a ceiling for seed stage startups. But so far this year, we’ve seen that a number of companies, often times with nothing more than a team and a Powerpoint presentation, have had great success raising capital north of that $10 million level. Furthermore, round sizes continue to tick up, with many seed rounds now in the $2.5 million to $4.0 million range.”

We are seeing this also and have been talking about it internally, so it prompted me to say something about it.

I view this is a significant negative indicator.

It has happened only one other

Continue reading "Early Stage VCs – Be Careful Out There"

The First Live Meeting With A Founder

Recently on this blog, I’ve been attempting to unpack how an investor can sort through deal flow and potential investment opportunities. After writing about “the quick kill” to discard of inbound flow, next I wrote about what actually captures my attention and graduates to a meeting.

So, now, what happens in the actual meeting?

This is hard to explain, actually, because I can have a range of reactions to a meeting. I understand entrepreneurs would like to know the outcome of a decision at a meeting or soon thereafter — and sometimes that can happen — but sometimes it takes a while for things to take shape.

Immediate “Yes” – It is not common, but it is possible that I leave the meeting with all the information I need and, with some quick reflection, signal the founder that I’d like to invest. This can be as short as Continue reading "The First Live Meeting With A Founder"

3 challenges the Midwest still faces in attracting more venture capital

GUEST: When it comes to venture capital activity, you can look at the Midwest in two ways. On one hand, the region lags significantly behind the East and West Coasts in total VC investment. On the other hand, this presents a real opportunity for significant growth, particularly given the region’s strong national (and international) standing i…Read More

Paying Attention To Inbound Deal Flow

About a month ago, I wrote a post about how the Bay Area seed ecosystem is generating deal flow levels that are nearly impossible to keep up with. In the post, titled “Seed Deal Flow Tsunami And The Quick Kill,” I attempted to explain how, in the face of the deal flow firehose, I get to a quick “no” which I hope is helpful for both sides.

Now, I want to write about a slightly touchier topic: What actually gets my attention?

To set the context, all new inbound deal flow comes to me via text message (20%) or email (80%). In no particular order, here are the ingredients that push me toward the feeling “Yes, I’d like to meet!” Note, these are in no particular order, and the more ingredients that are presented to me upfront, the faster I want to meet:

-A strong, brief, but Continue reading "Paying Attention To Inbound Deal Flow"

Glasswing Ventures raises $112 million for AI-focused fund

Glasswing Ventures
Glasswing Ventures, an early-stage venture capital firm based in Boston, Massachusetts, announced that it has raised $112 million for an AI-focused fund it claims is the largest of its kind on the East Coast. The capital — which was raised over the course of 18 months from a mix of pension funds, family offices, and foundation and university…Read More

Ask a Healthcare VC: Shiny new toys vs potential game changers

SPONSORED: Less than ten years ago, digital health – called “Health Care IT” at the time – was barely a blip on the entrepreneurial radar. But the sector is maturing, and the amount of money invested and the number of deals made is mounting. The first half of 2017 was record setting, with $3.5B invested in 188 digital health companies.…Read More

The Harsh Reality Of The Preference Stack

I recently shared this article and tweeted this, and I was quite surprised by the thread it triggered and the reaction it generated. After reflecting on it for a day, I began to understand why — even though this topic has been written about many times, “technology” as a sector and industry now has gone from vertical to horizontal, entirely pervasive across industries, across sectors, across geographies and cultures. And with this, every year, a new cohort enters into the “tech startup” world, and there’s no official canon to read, no “one-stop shopping” site or user manual to get briefed on the things you absolutely need to know.

So, that’s why I’m writing this short post specifically for 1) employees of early-stage startups and 2) the earliest investors in these startups, who are often themselves new to the entire sector. And as a disclaimer, 1) I am figuring this Continue reading "The Harsh Reality Of The Preference Stack"