Archive for the ‘NVCA’ Category

My “First” Rock and Roll Video (a.k.a “Come to VentureScape 2013!)

For those of you who know me, I have always loved being a musician.  For a while, I thought that I would make my living as a drummer, but the world conspired against me.  That being said, I couldn’t be grateful enough that I ended up as a venture capitalist.

Last year, I spearheaded the Foundry Group “I’m a VC” Video.  It was as ton of fun and I’m certainly proud of it, but musically it’s a parody song and I don’t have the same emotional attachment that I do with the real music that I create, especially those songs that I co-write with my business partner Ryan McIntyre for our band Legitimate Front.

Completely separately, I’m on the Executive board of the National Venture Capital Association, where I’m the Chairperson of the 2013 annual meeting, now called VentureScape 2013.  (Plug:  Sign up for the event!).  When I was drafted to come up with a different format than past years I knew that I wanted “fun” to be part of the event.

We decided to throw a huge party the night before the main event and thanks to Silicon Valley Bank, we are going to have a great event that revolves around….. wait for it….  MUSIC!  For the first time ever VCs are going to get together with their favorite folks and listen to world class music headlined by Pat Monahan of Train fame!

As part of the new format of the event (it’s not just the party, either, check out the agenda!), Emily Mendell, V.P. of Communications at NVCA created some great videos to promote the event.  Today’s video:  VC Rockstar Dreams and it features the music of Legitimate Front!  I love that Ray Rothrock and Marc Cadieux, both of whom will be performing as well, were in the video as well.

This is probably the closest that I’ll ever come to making a real video of my music, but it was a wonderful experience.  Check it out for yourself below.  And oh, yeah…. Come to the event, May 14th at the Great American Music Hall!

Notes:  Yes, that is really me lying on the street outside in San Francisco.  And yes, I was told that a person once died in the exact spot that I “performed” in.  All for the love of art.  Special thanks to Long Haul Films for a GREAT job.


February 26th, 2013     Categories: Hobbies, Just For Fun, Music, NVCA, Venture Capital    

Colorado Is Now #4 Ranked Destination for Early-Stage Venture Capital Investment

One of the cool perks of being on the National Venture Capital Association board of directors is that I get to see lots of interesting data on the venture capital industry.  The research staff, along with PriceWaterhouseCoopers  are constantly looking at trends and data that provide unique and useful insights into the ecosystem and publish under the MoneyTree brand.

Today, however, I got wind of some new MoneyTree data that pulled at my heart strings unlike any data that I had seen before.  In fact, I was all of astonished, proud, humbled and inspired.  The news?  In 2011, Colorado ranked 4th in the country behind California, Massachusetts and New York for seed/early stage dollars invested into startup companies in the state.  The state has grown in leaps and bounds with 63 firms investing $290 million into 41 companies in 2011 compared to 2006 when 41 firms invested $89 million into 32 startups.

Wow.  I knew that Colorado was kicking tail, but this was really amazing news.  It backs up what I’ve been telling people for a long time:  Colorado is a top five destination for VC investment and I think it’s only getting stronger.

So why is our nearly average populated state so decidedly above average when it comes to starting companies?  It’s combination of many things (great universities, Techstars, lots of engineers, well educated people, great mentors and active community leaders), but one thing really stands out:  our entrepreneurs.

I think Colorado is breeding and attracting a type of entrepreneur that is unique to venture investing.  While driven, smart and motivated as all entrepreneurs are, the Colorado population seem to always be acutely aware of their local communities and always make sure to give back and pay forward to future generations of company starters.  Its you folks, who are creating the amazing companies that investors are interested in.  So much so that we are now the fourth most popular destination for early-stage investing.

So congratulations Colorado.  Congratulations to all of the entrepreneurs who are creating great companies and great jobs while never forgetting about their communities.  I’m proud to be a small part in your collective worlds.


May 1st, 2012     Categories: Entrepreneurship, NVCA, TechStars, Venture Capital    

Great Quarter for Venture Exits

The numbers are out and believe it or not, Q1 of 2010 saw the most venture-backed company M&A transactions EVER in a single quarter.  Let that sink in for those of you around this business in the late 1990s. 

Also, the data showed more quarterly venture-backed IPOs since the fourth quarter of 2007 and 8 of the 9 IPOs are trading above their initial offering prices. 

This is really encouraging.  Fingers crossed.  Also, if you are interested in more detail, check out the NVCA’s blog about the numbers

April 1st, 2010     Categories: NVCA, Venture Capital    

Why There Will Never be a Standard Set of Seed Documents (a.k.a “Why Brad Feld will Fail”)

My partner Brad recently wrote a blog post commenting on the proliferation of standardized seed financing documents.  The post was motivated by the highly-publicized release of the fourth instantiation of such a standard series of documents, this time by Ted Wang at Fenwick & West with collaboration from a group of bay-area early stage VC’s and angel investors.

If you are keeping score at home, there now exist the following sets of standards that have been made public:

(**Disclosure: I had participation with the TechStars set**)

Brad noted that it seemed silly to have four different versions and decided to invite everyone together in a room to come up with one, universally accepted set of model documents.  The immediate response was tremendous.  33 comments to the post and countless more emails from lawyers, entrepreneurs, VCs all praising the effort and wanting to know how they could get involved.

And all I could think was “Feld, you haven’t a clue what you’ve gotten yourself into.  This is going to end badly.” (and then the second thought was “Damnit, I bet all of these emails end up in my inbox too,” which they did, but then gave me fodder for this blog).

Why? Because there will never be a standardized set.  Not because there shouldn’t be, but rather once you introduce humans to execute the task, it simply doesn’t work.

And those humans are called lawyers and venture capitalists (and not entrepreneurs).  Despite all the handwringing about “doing it for the entrepreneur” I don’t think these two sets of humans will ever get their act together well enough to do what they say they want to do.  Here is why.


Lawyers are like congress people.  If they aren’t involved in something, it’s nearly impossible to get their vote.  If they are involved then they are obliged to be “value additive” to the process.  In other words, the more lawyers, the more support and the more bloated of a document set, because everyone needs to get in a point to save face.

If you don’t believe me, see the NVCA model documents (I’ve been in the room while they have been drafted).  While the documents are great in that every potential scenarios has been imagined (and even more importantly to show you what should never be included in financing documents by their omission), the documents are too complicated for 90% of the folks out there doing the deals.  And then you add in the east-coast / west-coast differences (I think many east-coast terms can be entrepreneur unfriendly) and now you have a treatise as opposed to streamlined set of documents.  (As an aside, I don’t want this to turn into a east coast / west coast debate.  If you want to see what I think about terms, read this series).

Many of Brad’s email responses included this not-so-veiled threat: “you need me as part of your syndicate, or I won’t sign off on the documents and you’ll not have broad support.  My firm is important [insert canned marketing paragraph here].”  At the end of the day, Brad would have had 50+ lawyers in the room and we’d be right back to where we started with the NVCA project.

Even more importantly, however, lawyers are driven by more important things (to them) than helping entrepreneurs save legal costs.  Lawyers are driven by fees and thus they want to acquire more clients.  Releasing a set of documents that get you on the cover of peHub and Techcrunch is good for business.  You may streamline some hours, but you are betting on more clients.

Therefore, you have no incentive to join other groups, as it’s your name that is getting all the good publicity.  Why be a part of “working group X” when you can be “Joe Smith, super lawyer to the entrepreneur?”  While I can’t disclose the particular emails, rest assured that this paragraph is much more than an assertion, but a fact.

Lastly, there is also pride of authorship, by lawyers, even in situations where the documents should be boilerplate – as the case is here.  Every firm has their set of documents that they consider “better” than others.  Are they?  Or are they lazy and haven’t even read the other firms’ (or maybe they don’t have access).  I haven’t read them all.  I don’t want to either, but I can tell you that I’ve only seen a few firms out there that actually have better forms.

Bottom line:  Too many cooks spoil the soup, while the celebrity chefs don’t even want to cook with you.

Venture Capitalists:

Let’s not let the lawyers take all the blame, though.  While I do think the incentives of the VCs are good here, we have our own issues.

First, we, as the business drivers of the provisions, can’t necessarily agree on the basic terms.  That is problem one.  I don’t have a way to fix this one.

Secondly, most VCs aren’t lawyers and their level of deal comprehension varies greatly.  (Note: there are plenty of non-lawyer VCs that can take me to the woodshed, so this isn’t a statement that all lawyer-VCs are better).  So what do we, as an industry do?  We hire lawyers to produce a standard set of forms that we might not completely understand ourselves.

The end-result is our trusty lawyer tells us “our forms are better” and we take it for granted never minding the misalignment of incentives (lawyers want to make money, we want to save money for the entrepreneurs).  In fact, if you ask some of the business people around the table of these four sets, they really can’t tell you how any of these documents differ from the others.  They will always refer you to their lawyer.

Want more proof?  The latest set of documents from Fenwick and supported by a number of investors has a provision allowing for $10k of investor counsel fees.  If the investors really understood everything in the documents and were prepared to take them “as is” I would expect that number to be zero.  In fact, the three other sets of standardized documents have $0 fees for investor counsel.

Bottom line: until the VCs truly understand everything in these documents, they are going to continue to rely on the forms of their favorite lawyers and not those generated by others.

So which of the four forms are better to use?  I don’t know.  I’ve only read half of them.  And I don’t really have the burning desire to read more of them, as I predict even more proliferation.  That being said, here are a couple of interesting factoids.

1.  Yokum Taku has a nice post and matrix comparing the documents; and

2.  I heard from one name-brand law firm that working with one of these standardized sets (which I won’t name either for professional courtesy reasons) is a horrific experience in spell checking, capitalized term mismanagement and sloppy draftsmanship.  So just because they are released and publicized doesn’t mean they are necessarily any good.

So my prediction?  My dear partner Brad, while heart in the right place, will fail to come up with one set of widely used seed documents.  Sad, but true.

Of course the horrible irony is that none of this is intellectually difficult.  Maybe I’ll just come up with my own set of documents and…. oh wait……

March 15th, 2010     Categories: Entrepreneurship, Frustrations, Law, Law Firm 2.0, NVCA, Venture Capital    

Just When You Thought It Was Safe for Venture Capital Regulation…

Last week, venture capitalists perked up when reform out of the House of representatives carved out VCs falling under the tight scrutiny that private equity and hedge funds are soon to endure.

If you’d like to read about the regulation issue, it’s part of my letter to Obama on innovation policy blog a while back.

Yesterday, however, we’ve another battle to fight and it’s with the Private Equity Council.  The PEC is the lobbying group for the dozen or so largest private equity firms in the world.  Their mouthpiece, Doug Lowenstein, in prepared remarks said:  “We have and continue to support requiring registration of managers of private equity, venture capital and hedge funds.”

It sounds nice on the Hill and I’m sure many people will applaud Mr. Lowenstein’s desire to let the government monitor his firms actions, but is this altruistic or are there other ulterior motives going on here?

What he doesn’t tell you is this:

1. He only represents the largest of the large funds.  You know, the guys who can easily take down $50 to $100m in management fees (each person) per year?  What’s a couple extra million out of your pocket for compliance issues especially when you know that this financial burden of regulation and compliance will cripple your smaller competitors?;

2.  His clients are the ones who used risky leverage to cause some of the disruption in the economy that we’ve seen.  VCs don’t use leverage.  And in fact, our $28 billion dollars deployed as an industry last year is a pittance to what these funds can deploy in a single investment, if they wish. I think Terry McGuire, Chairman of the NVCA says is best when he argued that defining a venture capitalist — as opposed to a hedge fund or private equity investor — could be done using the Treasury’s guidelines for systemic risk, which identifies things such as leverage and counterparty risk.

So what might seem like a noble effort to be transparent and do “their part” seems hollow when one looks at the benefits they’ll gain by hurting their competitors, helping to harm an asset class that doesn’t introduce systemic risk in to the economy (VCs) and allows them to get off the hook for the previous injuries they’ve created in the macro economy.

Don’t support the hype.  Realize that club of a dozen or so massive PE firms is not the voice that we should be listening to support innovation and a healthy economy in this country.

October 8th, 2009     Categories: NVCA, Policy, Venture Capital    

An Open Letter to Mr. Obama on Innovation Policy

Dear Mr. President,

I feel compelled to write you a letter to express my thoughts and frustrations regarding innovation policy in our country.  While I have modest expectations that you’ll actually read this, perhaps someone in your inner circle will and represent my thoughts.

First of all, I hope that you realize how very fortunate we are as a country to have an innovation and entrepreneurial engine at the heart of our economy.  It is part of our culture and is a pervasive mind set that is the envy of the rest of the world.  Furthermore, it was not created, nor is it (currently) regulated by the government.  If you look at the venture capital industry as a proxy (since many innovative startup companies need some financial backing to prosper), one can see how important this ecosystem is.  The latest report from the National Venture Capital Association called "Venture Impact" talks about the important of venture-backed companies in the macro U.S. economy.  Among the highlights:

- Venture-backed companies employed more than 12.1 million Americans in 2008;
- Venture-backed revenues were $2.9 trillion in 2008, equating to 21 percent of US GDP; and
- Venture backed companies grew jobs and revenues faster than their non-venture counterparts from 2006-2008.

Best of all, none of this costs the government anything, nor does it require any bailouts.  The jobs created in this country are real, high paying and reflect the newest opportunities in the world economy and aren’t shipped overseas.  One would think that you would want to do everything in your power to encourage growth in the innovation sector and make sure current proposals don’t unnecessarily negatively impact this gift that our economy has been given.  So I propose to you some things that your administration should and should not do.

What your administration should do:

1. Reform immigration policy.  My partner Brad Feld wrote a post last week on the "Startup Visa Movement," based upon the earlier writings of Paul Graham.  The basic premise is this:  we should openly encourage and enable people from different countries to move to the United States, start companies and create jobs.  Clearly, there would need to be some limitations and thresholds to ensure that the companies created were "real," but I am frustrated by how many foreign founders are being forced home due to our overly-restrictive policies.  I’ve seen two companies this year in Boulder, Colorado, that would have received U.S. venture funding and stayed here, but won’t be able to.  There are many of such cases across the country.  

Also, we still don’t have a handle on the H1-B issue.  Every year, our U.S.-based investments struggle to hire all of of the computer science talent that they need and their growth is stunted.  It’s time to de-politicize the immigration debate and concentrate on ways that we can make this country’s workforce even stronger. 

2. Enact real patent reform.  There are many points of view out there – from abolishing some types of patents, to materially revising the way jurisdiction is handled in patent cases, but, regardless, the loud chorus from the innovation economy is that the patent process is not working.  Patents are too costly to obtain, are too uncertain in the rights they grant when obtained and then all too often, end up with meaningless lawsuits that amount to nothing more than a tax on innovation in favor of lawyers.  We need to clearly define what is patentable and what should not and re-architect the system to deal with the realities of a connected world.  

3. Push for FASB to "figure out" valuation methodologies.  Over the past few years, venture funds have had to "mark to market" their investments.  This "FAS 157" (or Topic 820, as it’s been recently renamed), has placed a tremendous burden on venture firm managers and their investors.  In short, not even the accountants can tell us how to accurately value our portfolios and there is tremendous cost and uncertainty about the asset class because of it.  I’ve written about the issues, here, in detail.

4. Get a handle on Sarbanes Oxley / help with opening of the capital markets.  The last financial meltdown earlier this decade brought about increased regulations through Sarbanes Oxley.  While some credit the act for deterring and lessening fraud in public companies, it’s easy when almost no companies are going public.  In my opinion, the frauds perpetrated in the most flashy cases (Enron, Worldcom, etc.) were the work of bad actors and lazy accountants.  They were not systemic in the industry and even the rules today can be easily circumvented by two unscrupulous executives with a criminal agenda.

What the effect has been is to stop the flow of companies going public which has greatly hurt venture capital returns and has driven venture firm investors (limited partners) out of the market.  This has severally constrained the amount of capital able to fund new and innovative businesses.  I think a complete review of all of these rules needs to be undertaken, as I’ve had many conversations with entrepreneurs who don’t even want to go public due to all the red tape involved with Sarbox. 

The secondary effect has been a rush to other foreign markets, whether they are in London, China or India and thus the U.S. is losing its market share of new offeringings and further weakening our financial industry.  

What your administration should NOT do:

1. Regulate the Venture Capital Industry.  We aren’t hedge funds.  Nothing we do increases "systemic risk" in the economy.  In fact, the entire VC industry invested a total last year of $28 billion dollars (not an atypical year).  That sum is less than half the amount that Bear Stearns was borrowing every night before its collapse.  Regulating us, in the best case, foists additional costs upon us that smaller, early-stage VCs can’t afford and worst case, materially and negatively impacts the VC industry’s ability to fund new companies.  Lastly, it should be noted that investors in VC funds are of the highest sophistication levels.  This isn’t the case of protecting the average investor.  The WSJ recently had a great opinion piece supporting this position

2.  Increase taxes, especially capital gain taxes.  There is quite a bit of research that shows correlations between low capital gains taxes and high GDP growth rates.  I won’t pretend to have a PhD in economics (although I did manage to get an undergraduate degree from the University of Michigan in it), but many of the entrepreneurs I speak to say they specifically take the outsized risk of starting a business because of the potential financial gains.

Additionally, changing the characterization of venture capitalist’s carry is inconsistent with how VCs invest – long term with high risk of capital loss.  I also have a hard time delineating between founder shares and VC carry and wonder if VC carry is changed will founder shares be next?  The reason behind capital gains treatment was to incentivize long term investing and also to help make up losses from risky asset classes that benefit our society in the long run.  This is precisely what VCs do. 

3. Engage in activities that will devalue the dollar.  One thing to keep in mind is that with some of the current issues detailed above, it is harder and harder for VCs to raise money to fund startups.  Small businesses must do more with less.  If the dollar becomes devalued, these companies would effectively have less money to spend on hiring and other activities to make them successful in the global marketplace.

Again, Mr. President, I urge you to consider how your policy makers are taking into account one of the most important drivers of this country’s economic future.  This is not about venture capitalists:  it is about the ecosystem of innovation which venture capitalists spend their lives funding.  We’ve been blessed in this country with a large population of entrepreneurs and we need to foster this culture so that we can maintain our competitiveness as the greatest economy in the world.  To that goal, the government can largely stand out of the way and help on the margins to tweak some things that will benefit all. 

I humbly ask for your consideration. 

September 21st, 2009     Categories: Entrepreneurship, Frustrations, NVCA, Patents / IP, Technology, Venture Capital    

Big News From the NVCA Annual Meeting

The NVCA annual meeting ended a few hours ago and there were several pieces of news that I thought were noteworthy.  Normally, all the best content is saved for the last day, but not this time.

Outgoing Chairman of the NVCA, Dixon Doll has been spearheading research on the capital market crisis along with ideas on how to fix it.  In case you weren’t aware of the crisis, check this out from the NVCA press release on the initiative:

During the last decade, the number of initial public offerings (IPOs) by venture-backed companies has declined to alarmingly low levels, culminating in the 2008 drought when only six companies entered the public markets.  Given the proven contribution of venture-backed companies to America’s economic growth, the NVCA sought analysis and recommendations from leaders throughout the capital markets ecosystem over the last several months.   The resulting set of proposals looks to the venture capital industry, investment banking,  accounting professions, law firms, stock exchanges and the government to enact measures to restore a vibrant IPO environment once the overall economy stabilizes.

Perhaps the most amazing statistic coming out of the meeting was that venture-backed companies now account for over 20% of the U.S. GDP.  Let that number soak in and say "wow."  But more than just alerting us to the issues, Dixon and his group have come up with a Four Pillar Plan to re-energize the capital markets.  The four pillars are Ecosystem Partners, Enhanced Liquidity Paths, Tax Incentives, Regulatory Review.  The detail can be found in the presentation below, or on the NVCA press release.

I’m excited about what the NVCA is thinking about here.  It won’t be easy, but we need leadership here and I’m pleased the NVCA is taking this lead.

On a personal note, I’m happy to say that I’ll be intimately involved with this and other NVCA initiatives as I’ve joined the board.  It’s a great honor and I look forward to helping out in any way that I can. 

April 30th, 2009     Categories: NVCA, Venture Capital