Art of the Start-Up May 29 2012

What Zynga Investor Feld Wants in New Investments

By Joseph Walker

Brad Feld isn't your typical venture capitalist.

He lives in Boulder, Colo., a city known more for rock climbing, mountain biking and marijuana than technology start-ups. He's also known for his forthrightness and transparency in discussing his approach to venture capital investing. He blogs, answers questions on the Ask The VC website. He is a managing director of the Foundry Group, which lists the business "themes" the company is investing in.

Feld, 46 years old, was an early investor and board member at Zynga and has more recently invested in MakerBot, the New York-based maker of 3D printers, and Seattle's Cheezburger Network, the parent company of Internet meme websites like FAIL Blog, where he is also a board member. Feld is also the co-founder of TechStars, the well-known start-up accelerator that mentors young entrepreneurs.

Feld spoke with FINS about what he looks for in the companies he invests in, why he doesn't look at blogs to find new investments, and why he spends so much effort molding young entrepreneurs into great leaders.

Joseph Walker: What do you look for in companies you invest in?

Brad Feld: Our process is driven off of a set of themes that we talk about very publicly. The themes are broad-reaching and include examples like human-computer interaction, the way we interact with computers, and middleware, the software that connects machines.

If something's not in a theme, we essentially don't spend time on it. We do about a dozen investments a year. I would say 95% of the things that come across our desks don't fit into any theme, so we only look at 5% of companies that come across our plates.

We invest in entrepreneurs; we get very focused on the people and the product. We invest in very young companies and small teams. We're trying to get comfortable enough with them that we want to be long term partners with the entrepreneurs.

[The process] is pretty easy for us, very quickly, over days or weeks, to decide whether or not it's an entrepreneurial team that we want to work with.

JW: What turns you off about a potential investment?

BF: There's not a generic set of things, there's not a checklist. If the person or the entrepreneurial team we're interacting with isn't interested in engaging with us that's a pretty strong signal.

JW: What do you mean by not engaging?

BF: If the entrepreneurs don't want to be open, if they're not willing to go deep into the product and the product vision. If it feels like they're doing something to just do a business rather than something they're on a mission for.

JW: How do you go deep in the product?

BF: We're all nerds. We play with the software, we buy the products if they're hardware products. We talk about current products [in the market] and where they're going.

With MakerBot, before we spent time with the company, we went online bought one [of their 3D printers] and understood what it was. We do that quite often.

JW: How do you find potential investments, or stay in the "deal flow" as you say in venture capital?

BF: A lot of people come to us, whether it's entrepreneurs or other VCs. Second is, we're very proactive about looking for entrepreneurs who are working on companies that fit into our themes. We spend a lot of time in entrepreneurial ecosystems and get very well known in the areas we invest in. Those entrepreneurs we invest in have their own networks.

And then there's random companies. Sitting next to somebody on an airplane, as random as talking with someone and talking about a specific theme and them saying there's somebody you should go talk to.

JW: Do you look to the tech blogs and other media outlets for potential investments?

BF: We spend very little time looking at that stuff from a deal flow perspective. We have a category we call silent killers, they're entrepreneurs who are especially successful but nobody knows about. Zynga is an example of a company that [was a silent killer before it started receiving media attention].

As an investor group, we're much more focused on substance than we are on hype and it's not to say you don't have substance and hype intermingled, but we focus much more on substance first.

We're attracted to companies who are very good at focusing on their customers and less on what the broader technology ecosystem thinks of them. Our view is if they build a strong customer base eventually the rest of the tech market wakes up to the fact that something special is going on. And that's OK because by that time the company has established itself as a leader.

JW: Do you look for founders to have specific skill sets? Like, some VCs only want technical founders.

BF: The founders who are most important to us have a strong product orientation. We don't have a rule like no M.B.A.s or only M.B.A.s. Those kinds of factors don't really matter to us.

JW: How much do you think about the ability of companies to attract talent?

BF: A company's ability to attract talent is extremely impactful to its chances of being successful, but I'm not sure I value that at the evaluation stage. Entrepreneurs who have a clear vision of what they want to accomplish aren't going to have trouble attracting talent. We make a qualitative assessment of whether they're going to be great people to work with.

JW: But can't someone be a visionary and at the same time very difficult to work with?

BF: Just because they're not easy to work with doesn't mean they're not great at attracting talent. It's important for great entrepreneurs to learn how to be great leaders over time. If you look at any successful company with a great leader at its helm, at one point that entrepreneur was considered difficult to work with, was considered immature. Those people learn how to become better leaders, and we put a lot of effort into surrounding entrepreneurs with people who can make them better leaders.

JW: Do you have any advice for entrepreneurs trying to get the attention of a VC?

BF: Don't be bashful about reaching out to people and building relationships over time. A lot of entrepreneurs view venture capital as an archetype and they view all VCs the same way. Look for investors who have a [personality style] that's conducive to your own.

Give before you get as opposed to constantly asking for stuff.

Do something amazing. Focus on the important part of your vision rather than spend too much energy on showing up at these events and being seen or showing up in these [news] articles.

Create a pull scenario versus a push scenario. Pull is where people are getting your attention, and push is when you're constantly pushing for attention.

Write to Joseph Walker at joseph.walker@dowjones.com



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