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

In this episode of the 20 minutes VC, host Harry Stebbings interviews Seth Levine, co-founder of Foundry Group, a venture capital firm with $1 billion in assets across five funds. Levine shares his journey from studying psychology and economics to a career in venture capital, beginning on Wall Street, transitioning to the telecom industry in Colorado, and eventually co-founding Foundry Group. He emphasizes the firm's "scrappy" beginnings, their commitment to maintaining a consistent fund size ($225 million), and their decision to operate without a legacy, planning to close the firm after 20 years. Levine disputes the notion that successful VC firms need to be based in Silicon Valley, noting Foundry Group's diverse investment locations. He highlights his passion for technologies that impact small businesses and human-device interaction. Levine also discusses Foundry Group's approach to adding value to portfolio companies and their recent investment in Sourcepoint. The episode concludes with Levine's admiration for Nikola Tesla and his favorite blog, "The Hidden Brain."

• Seth Levine is the co-founder of Foundry Group, a successful venture capital firm.
• Foundry Group has invested in companies like Fitbit, Admeld (acquired by Google), Zynga, and Nip (acquired by Twitter).
• The firm manages five funds, four early-stage and one growth fund, with over $1 billion in assets.
• Seth started his career with Mobius Venture Capital and led the IPO of First World in 2000.
• He maintains a blog on technology, venture capital, and Colorado at sethlevine.com.

"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."

This quote highlights Seth Levine's successful track record as a venture capitalist and his role in significant tech investments.

• Seth grew up in Boston and attended McAllister College in Minnesota.
• Initially planned to be a psychologist and professor but also majored in economics.
• The interrelation of economics and psychology is now a common and exciting field but was novel at the time Seth studied it.
• Seth was the first at his college to do a joint major in these fields.

"Always planned to be a psychologist and professor, and my plan got somewhat thwarted by taking too many econ classes as well as psych classes."

This quote explains Seth's original career intention and how his interest in economics led to a change in his career path.

• Seth started working on Wall Street but left after a couple of years.
• Moved to Colorado for lifestyle reasons and joined a telecoms company in business development.
• Later took on a corporate finance role at another telecoms company, which went public in March 2000.

"I was there for a couple of years and decided that banking wasn't really for me."

This quote reflects Seth's initial career experience in banking and his decision to pursue a different path.

• At 26-27 years old, Seth managed a $50 million top-line business with 250 people.
• He sold off the business lines as directed by the private equity backers.
• Seth received mentorship that helped him through managerial challenges and transitions.

"I was 26, 27 when I took over that portion of that business. It was actually a couple of different business lines."

The quote indicates Seth's young age when he took on significant managerial responsibilities.

• After selling the business lines, Seth sought new opportunities and was advised to work with Brad Feld.
• Brad Feld was a partner at Softbank Venture Capital, later Mobius Venture Capital, and was known for having many board positions.
• Despite a long wait, Seth met with Brad and was hired at Softbank Venture Capital, which was supposed to be a two-year position.

"The advice that I received from another mentor of mine was, you need to go work for someone. So I asked him who he thought I should go work for, and he said, you should go work for Brad Feld."

This quote describes the pivotal advice Seth received that led him to venture capital and his eventual partnership with Brad Feld.

• Seth Levine discusses his shift from a managerial role to becoming an associate in venture capital, embracing a hands-on approach.
• He highlights the importance of being a "doer" rather than a manager, doing his own spreadsheets and cap tables.
• Seth's journey in venture capital began with a strong desire to be directly involved in the work, which led to his role at Mobius.

"And so I decided to go in a very different direction in some respects, take a step back and become an associate." "My job at Mobius was very much being a doer."

These quotes emphasize Seth's conscious decision to move away from management to a more involved, execution-focused role in venture capital, setting the stage for his future career path.

• Seth Levine narrates the evolution of his career, from a junior partner at Mobius to co-founding Foundry Group with Brad.
• He and Brad, after realizing Mobius was struggling, decided to embark on a new venture, which led to Foundry Group's establishment.
• The formation of Foundry Group involved inviting Ryan and Jason to join, leading to the firm's official start in 2006 and raising their first fund in 2007.

"Eventually they created sort of a junior partner position in Mobius, and I got promoted into know, very junior partner." "And that's what became Foundry, which we really started working on in earnest in 2006."

These quotes detail Seth's career advancement at Mobius and the strategic decision-making process that led to the creation of Foundry Group, highlighting the importance of seizing opportunities and adapting to industry challenges.

• Seth Levine strongly disagrees with the notion that successful venture capital must be centered in Silicon Valley.
• He acknowledges the high density of entrepreneurship in Silicon Valley but points out the democratization of entrepreneurship and the rise of startup markets elsewhere.
• Foundry Group serves as a case study for building a successful venture business outside Silicon Valley, with investments spread across the U.S.

"No. Unequivocally, no." "I don't think that the valley has the entrepreneurial market locked up."

Seth's firm stance and observations challenge the Silicon Valley-centric view of venture capital, emphasizing the potential for success in diverse geographical markets.

• Seth Levine reflects on Foundry Group's scrappy beginnings and the effort required to establish deal flow and reputation.
• He explains that Foundry Group's investments are distributed across the U.S., with only a third in California.
• Foundry Group's approach is hands-on, with partners doing their own work without analysts or associates, which is not a scalable model but is deliberate and thoughtful.

"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." "All the partners do their own work. We don't have any analysts or associates."

These quotes illustrate the hard work and dedication that went into building Foundry Group's reputation and success. They also highlight the firm's unique, non-scalable approach to venture capital, which relies on direct partner involvement.

• Venture capitalists (VCs) can add value to a business, but they must avoid creating unnecessary busy work.
• It's important for VCs to have focused interactions with their investments to provide real leverage.
• Excessive involvement, like frequent visits and monthly board meetings, can be disruptive and time-consuming for companies.
• Foundry Group has designed their interactions to be streamlined and beneficial, opting for quarterly board meetings and operational updates.
• Technology tools like Slack and Voxer are utilized to maintain communication without being intrusive.

"And so there are a few examples of that. But I think when you have too much time on your hands and maybe a little bit too much proximity in some cases, to your investments, as a venture capitalist, you have a tendency to feel like you're doing a lot of good by swinging by for a day, for example, or holding monthly board meetings, things that end up chewing a lot of time up at the company, maybe time that a venture capitalist doesn't realize is being taken to prepare for those sorts of meetings, interruption in sort of their normal process and flow."

This quote emphasizes the importance of VCs being mindful of their involvement level with portfolio companies to avoid hindering the company's normal operations and productivity.

• Foundry Group relies on technology for efficient communication and operations.
• Email is a primary tool, supplemented by Slack and Voxer for more immediate interactions.
• For calendaring, Google Calendar is used, with experiments in automated solutions like Clara.
• Assistants are employed to help with travel and calendaring, although not for investment-related tasks.

"We're very heavy users of technology, not just email, but slack and voxer, for example, probably the two most used pieces of technology inside of foundry."

The quote highlights the adoption of technology within Foundry Group to streamline communication and maintain effective engagement with their investments.

• Venture capital is not inherently a scalable business model.
• Foundry Group maintains a consistent fund size of $225 million across their funds.
• The fund size was chosen based on manageability and a commitment to not expand the fund size in future.
• The decision not to scale the fund size is part of a broader strategy to operate the business for a set period and then conclude operations.

"We ended up choosing 225 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 had always said in our fundraising process that we were going to raise a series of funds, they were all going to look exactly the same in terms of dollar size."

This quote explains the rationale behind Foundry Group's fixed fund size, reflecting a strategic choice for manageability and a finite operational timeline.

• Success, like the return from an investment in Fitbit, can influence a VC's motivation.
• Foundry Group had discussions about their motivation to continue raising funds after seeing significant returns.
• The decision to continue was driven by passion for the work, the technology, and the entrepreneurial community, rather than financial necessity.
• A successful return can alleviate financial pressures and allow VCs to focus on passion-driven work.

"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, fund return translates into return to us as the principals."

This quote reveals the internal discussions at Foundry Group regarding their motivation to continue in venture capital, highlighting that financial success can impact the decision-making process but passion remains a core driver.

• The Foundry Group is in a phase where the founders work out of passion due to their previous successes.
• This passion influenced their decision to raise their latest fund and focus on what they are most passionate about.

And I think we've entered that phase of foundry where the four of us very fortunately, have been successful in business as a result, both for our investors and for ourselves.

This quote highlights the transition Foundry Group is experiencing, where success has allowed the founders to pursue projects driven by passion rather than necessity.

• Seth Levine identifies two main areas of excitement: technology for small businesses and human-device interaction.
• He sees a trend where technology initially made for larger businesses is being adapted for smaller ones.
• Seth is enthusiastic about the innovation in how humans interact with their devices, which has been a consistent investment theme for Foundry Group.

I'm also very passionate. I should speak for foundry. We are very passionate about sort of this coming wave of how humans interact with their devices.

This quote emphasizes Foundry Group's ongoing interest in investing in technologies that enhance human interaction with devices across various platforms.

• Seth's most used apps are Voxer, Slack, and Dark Sky.

Of mail, it's voxer slack, and then dark sky, which is sort of a hyper local weather app.

Seth shares his preference for communication and weather-related apps that provide efficiency and localized information.

• "Old Man and the Sea" by Hemingway is Seth's favorite book.

Favorite book is old man in the Sea by Hemingway.

This response reveals Seth's literary taste and possibly insights into themes that resonate with him, such as perseverance and struggle.

• Seth admires Nikola Tesla for his innovation and passion.

I'd probably say Nikolai Tesla. I think he was such an innovator, not a contemporary, but I admire his passion for what he was doing.

The admiration for Tesla suggests Seth values creativity and dedication in the field of technology and innovation.

• Closing the first Foundry fund was a highlight for Seth.

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

This quote reflects a significant milestone in Seth's career, marking the successful launch of Foundry Group's first fund.

• Seth believes AngelList Syndicates enhance the traditional VC model and support the democratization of entrepreneurship and capital.

No, I think that they enhance the traditional VC model, and it's great to see.

Seth's opinion here indicates a positive view of how new platforms can complement and improve upon traditional venture capital mechanisms.

• Seth's most recent investment is in Sourcepoint, led by Ben Barokus, whom he highly respects and has a long-standing relationship with.

My most recent investment is a company called Sourcepoint... I would back almost anything that Ben did.

The quote reveals Seth's investment strategy which includes backing entrepreneurs he trusts and has built relationships with over time.

• "The Hidden Brain" is Seth's favorite, which aligns with his passion and educational background in psychology, social science, and economics.

I would have to say it's the hidden brain.

This preference indicates Seth's ongoing interest in behavioral science and its intersection with other disciplines.

• The episode concludes with a promotion for Foundry Group Week Two and a hiring tool called Hiring Screen.

And that brings Foundry group week one to a close... we will be back in September to bring you foundry group week two... So give your careers page the first impression it deserves and really impress potential candidates.

The closing statements serve to tease future content related to the Foundry Group and to promote a hiring tool, emphasizing the importance of first impressions in the hiring process.