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Brad Feld
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In
last month’s issue I pointed you to Brad Feld’s blog, which
covers many interesting topics for startup entrepreneurs.
Today I am excited to ask Brad, Managing Director with
Mobius
Venture Capital, to share his perspectives on the areas
he’s involved in: venture capital, software, the Internet,
and blogging. After you read this interview, I invite you to
take a moment and visit his
blog,
which covers a myriad of very interesting topics. Take a
tour - you won’t be disappointed.
Anthony: Brad, can you tell
us about Mobius Venture Capital and its investment focus?
Brad: Mobius is an early stage
venture fund that invests in information technology (IT)
companies. We have investments that span a wide spectrum of
segments in IT, ranging from business software and services
to IT management, consumer software, telecom-related
services and equipment, components and semiconductors. We
are currently investing our $1.25 billion fund, which we
raised in 2000. We have about 70 portfolio companies across
our funds, primarily early stage ventures. The majority of
our investments are Series A type investments, although we
will invest in Series B, Series C and some later stage
deals. We’re not locked into having to be the first investor
in a company, and are happy to participate later on. For
example, I just closed a Series C investment in a late stage
company called Klocwork, where I was the third investor to
the table.
Anthony: Are your
investments mainly in Colorado, or do you get involved with
investments in other geographies?
Brad: I invest across
different geographies. I’d say about half of my portfolio is
in Colorado. All the other Mobius partners are in
California, so we have a very significant presence on the
West Coast. I have a couple of companies in other parts of
the country - for example, one in Chicago and another in New
York. Although Colorado is the center of my personal focus,
my investments are not exclusively here.
Anthony: What attracted you
to the venture capital world?
Brad: I started off as an
entrepreneur. I had a self-funded company that I started in
1987 with a partner. We raised $10 (it’s about all we had at
the time) and built a successful company. We were profitable
- we had to be because that was the only way we could pay
our bills. In 1993, I sold that company to a public firm and
worked with the acquiring company in a couple of different
capacities. I was involved in some of their M&A and
investment activities. That’s really where I got my first
taste for investing. Later I did a lot of angel investments
in the 1994-1995 time period with some of the money that I
made from selling my first company. During that time, I
helped start a number of businesses, which led me directly
into the venture business. So I took a classically
entrepreneurial route where I had a successful business,
became an angel investor and then ultimately got organized
within an institutional group to make venture investments.
Anthony: What investment
areas do you specialize in?
Brad: Historically, the
majority of companies that I’ve been successful with are
companies that sold something to a business. So most of my
investments tend to be business software and business
services, including infrastructure related technology. For
example, I recently made investments in NewsGator and
FeedBurner. Both are software related companies that provide
very critical infrastructure in and around RSS. These are
pretty typical investments for me. Occasionally, I’ll invest
in companies outside that area. For example, I was an
investor in a very successful Colorado company called
ServiceMagic, which was bought by IAC last year.
ServiceMagic is a business to consumer marketplace for home
contractors and real estate. There was significant venture
funding in their segment and they were one of the winners.
So we ended up having a very successful investment. But
that’s an atypical type of investment for me to make.
Anthony: The VC industry is
undergoing important transformations, including a shakeup
within the ranks and a reach for new directions. Can you
talk about these new trends, and how you see the industry
evolving?
Brad: I think there are many
different perspectives on this. If you look at what happened
to the venture business between 1999 and 2001, you had a
huge increase in both the amount of capital being invested
and the number of people in the industry. And that obviously
fell off a cliff as a result of the Internet bubble
bursting. For some period of time though, there was a
capital overhang and the people remained in the industry.
We’re coming up to the tail end of that situation and are
seeing a number of VC professionals leave the industry.
Also, many of the top tier venture firms are raising funds
that are significantly smaller than the large funds they
raised in the middle of the bubble. This is a normal trend,
as we return to a more rational supply/demand balance
between the amount of capital being invested in early stage
companies and the number of early stage companies being
created.
I’d also like to point out that, with the large amount of
capital influx into the market during the bubble, when an
interesting company got funded, 10 to 20 other similar
companies would receive funding too. And you’d end up in a
situation where that specific early stage segment became
overfunded. Now, we’re seeing VCs look for underserved areas
and, in some cases, migrate away from core technologies. New
focus areas include clean tech and power. We’re also seeing
more activity in the consumer market than we did before. So
people are gravitating towards areas that they think are
interesting, and where there is less concentration of
investments and deal activity.
There is a great deal of debate about whether the venture
business needs to or will structurally change. I have a
variety of points of view on this. But I’d say that we’re a
long way from having a clear understanding of where the
industry goes long term if you wind the clock forward 5 or
10 years.
We’re also seeing a substantial amount of focus right
now, especially among US based investors, on a couple of
specific markets, namely India and China. Many traditional
US funds are looking at making investments in India and
China, working with companies over there and thinking about
how to best orient their future activities towards those two
markets, both from the market standpoint as well as from the
supply of start-up companies.
Anthony: How about Leveraged
Buyouts (LBOs) as a new focus area for VCs?
Brad: In the last 24 months,
there have been a number of high profile tech buyouts, which
historically the private equity world didn’t pay much
attention to. The reason being that tech businesses often
weren’t solid cash flow businesses, or that people were
nervous about the core sustainability of the business vs.
what you typically see in private equity in buyout
situations. A natural trend would be to go down market with
smaller size deals. So instead of multi-billion dollar
transactions, you’d start seeing more deals in the 50 to 200
million dollar buyout size. I’ll add that this is not an
area we focus on at Mobius. We have done some consolidation,
where you do a rapid build up by acquiring a number of
companies in one particular segment. And we’ve had some
success and some failures with that. However, we haven’t
specifically tried to do any buyout of any other companies.
We tend to use M&A as a tool to expand the growth of our
companies rather than a means to an end by acquiring
ownership of a company.
Anthony: How do you see the
software industry evolve as it emerges from its crisis with
innovative delivery vehicles such as Software as a Service (SaaS),
Open Source, and others?
Brad: All of this is important
and represents the natural trajectory of the technology
business. If you asked the question in 1993, it would be
around client/server in Windows-based clients. And if you
asked the question in 1997, it would be around Internet
e-commerce. SaaS has been around since the late 90s. There
were a number of companies in the predecessor of this space,
which is the ASP (Application Service Providers) market.
That phenomenon did not end very well. There was a lot of
trouble in that segment, especially when companies were
trying to use other people’s software technologies versus
their own. We’re starting to see SaaS become an effective
delivery mechanism because of both the improvement in the
quality of the tools on the web and the overall connectivity
and performance. That’s because when you have better
bandwidth and better performance, you can do a lot more on
the server side than on the client side. Open Source has
also been around for a long time. It’s just today’s version
of free software. The Free Software Foundation has been
around for nearly 20 years. As an ecosystem, Open Source and
the ways it has evolved are very compelling. A very
significant code base is obviously Linux, but there are many
others such as mySQL, Jboss and Apache, which are starting
to have a presence in corporate IT, and becoming part of the
landscape. You’re going to continue to see those trends
evolve, and you’ll see some new trends appear as the next
wave in the next couple of years.
Anthony: You published a
great article on your blog titled ”The Internet at 35,000
Feet, Circa 2005”, in which your prediction is "You ain’t
seen nothing yet." What more can we expect to see the
Internet deliver?
Brad: The biggest thing that
I’ve become obsessed with lately is how stupid my computer
is. I’ve been using the computer and integrating it into my
work existence since the mid '80s. And the amount of stuff I
have to tell my computer to do for me has probably
increased, not decreased, over that period of time. And when
I talk about my computer, I’m not necessarily talking about
the machine that I'm sitting in front of, but all of my
computing infrastructure, which today is a half dozen
different desktop computers, some servers, the mobile
devices - all connected together via the Internet - and then
a whole bunch of online services and applications that I use
via the web. So I have this entire computing infrastructure
that I'm manipulating and managing and it’s just dumb in
terms of its understanding of what I want to do, its ability
to anticipate what I’ll be doing, and its capacity to
calibrate itself over time. What’s interesting, of course,
is that all this information and data exists out there
somewhere. So the idea that the computer can exploit this
data in more intelligent ways is powerful. That’s one
thread.
There is another thread I think many people are
experiencing. I am now always connected no matter where I
am. It’s very unusual for me not to have access to the
Internet through either my mobile device or my computer, and
to subsequently not have access to my computing
infrastructure. Interestingly, one of the few places where I
don’t have access is on the airplane, and that’s about to
change, as you see internet access on airplanes become a
standard offering. The dynamic of how people interact with
all the computing machinery when they are always connected
no matter where they are is as radically different as it was
when people shifted from dial-up to broadband. I think
you’re going to see user interface paradigms continue to
evolve to the point where the computer is configurable for
the user. So for a more advanced user, you’ll have a
different user interface than for a less advanced user. The
whole concept of self-publishing and blogs has been very
enlightening to a lot of people because it just demonstrates
that when you lower the friction associated with creating
and distributing content, you have an overflowing
preponderance of individuals who are interested in
interacting with it. And that’s broader than blogs when you
think of all the different services, the social networking
activities, and the personal databases that are starting to
become prevalent all over the web.
Anthony: What are your
thoughts on the “flat world” as depicted by Thomas Friedman
in his book titled The World is Flat?
Brad: It’s a huge question
you’re asking, and I’d say that I have a little experience
in this area because we have a number of companies in our
portfolio that have a presence in either India or China, and
we've outsourced part of their software development,
engineering, product development or manufacturing to those
countries. I think the most enlightening comment around it
is the notion that Friedman propagates in his book: Several
billion new players coming out to the playing field. In
fact, the number is a couple of hundred million in terms of
the workforce from those two countries. But if you think of
the workforce in the US, or the workforce worldwide, we've
at least doubled it in terms of high quality people in the
segment that we’re in. That’s a very powerful construct that
was enabled by all the money that was spent in 1997 to 2000
to establish broadband connections across the ocean and the
current infrastructure build up in those two countries. This
allowed their labor supplies to actively engage in the work
product that we’re developing. I think the communication and
the coordination friction is where the problem and the pain
is going to be in the near term.
Anthony: As a follow-up to
the previous questions, how fast do you see the playing
field being leveled on the financing side as emerging
markets develop their funding sources locally and
internationally?
Brad: There are some local
financing activities in many of these markets. In addition,
US investors started getting on airplanes and going over
there to try to understand what’s going on, make some
investments, and work with established investment banking or
financial infrastructure in those markets. They also started
to build out teams. You’re seeing a little bit of that now,
where dedicated teams as well as equity investors are
getting formed in those regions. The level of sophistication
of each of those countries in terms of the equity market is
high. They’re accelerating at a very rapid rate. I think
it’s not competitive in a negative way to the US capital
market. If anything, it increases everybody’s focus on
making sure that what they’re doing in their markets is
differentiated. The broader the landscape, the more active
things are going to be. And ultimately the better, because
there’s more competitive pressure, and you’ll end up with
better innovation.
As far as liquidity events are concerned, they’re mixed
and they’re country specific. You see some Indian companies
list locally, and some list in the US. China is going
through its own structural determination of what’s the best
way to generate exits both from the public market listings
as well as acquisition transactions. I think all that will
sort itself out over the next couple of years.
Anthony: You are a strong
proponent of blogging, and a Blogger yourself. Why do you
blog, and how much time do you dedicate to this activity?
Brad: Blogging is an
interesting phenomenon. I’ve been doing it for over a year.
I’ve always been a decent writer. I publish articles
periodically, sometimes interviews. I’ve often written
articles for magazines and online sites and have always
enjoyed the process of writing. I do spend a lot of time
writing, although much of that time is spent in email.
Blogging has given me a different avenue for communicating
my perspective and promoting ideas that are important to me;
sometimes including my company, sometimes not. I developed a
very interesting feedback loop with a lot of people who give
me great feedback, ask good questions, and point me to
interesting things. Just using the blog as a focal point for
my thinking. Long term, it’s a pretty powerful vehicle for
someone who wants to be as transparent as possible about
what they’re up to, which is one of my goals. Everybody has
their point of view on how to be successful in the venture
business. I found that working as closely as I can with
entrepreneurs and immersing myself in the things that I am
investing in makes a huge difference in a positive way.
Given my interest in the universe that surrounds blogging,
which includes RSS, search and the infrastructure dynamics
associated with it, and self-publishing, it’s very
instructive for me to participate in it rather than just
observe it.
I'm a fast writer. Even some of the longer essays that I
write don’t take me that much time to compose. Focused
writing time for me is often done in dead time: when I'm on
an airplane, or I’m at home early in the morning. I found
that I spend a lot of time consuming information and reading
content. But they’ve been a pure substitute. I don’t watch
much television, just movies on TV. So I’ve never been short
on time to read magazines, and keep up with what’s going on
in the industry. What I've found is that I don’t do much of
that anymore because I get all that information online off
the blogs. There’s a handful of magazines I still read on a
weekly or a monthly basis. However, I read much less random
content because I am seeing so much of it in real time.
Regarding the writing time, and the amount of time I spend
blogging, it’s about 3 to 5 hours a week.
Anthony: Will the profile of
a successful entrepreneur be different in tomorrow’s world?
And what advice do you have for today’s entrepreneur?
Brad: Nothing different from
today: courage, conviction, vision, ability to communicate,
passion for what they’re doing, great leadership skills,
huge integrity, and a desire to win.
Having been either an entrepreneur or around
entrepreneurs for the last 20 years, I think that if you are
completely passionate about what you’re doing, that’ll
dramatically increase your chances of success. For a
start-up entrepreneur that’s doing his/her first business,
or for someone who’s very experienced, if you want to win
you must get in there and really go for it. It may sound
simplistic, but in a lot of ways that’s the biggest driver.
I don’t know any successful entrepreneur who's said, "Boy,
that was easy!" If you love doing it, just do it with
relentless passion.
Bio
Bradley Feld is a managing director of Mobius Venture
Capital. He co-founded the firm in 1996. In 1995, he founded
Intensity Ventures, a company that helps launch and operate
software companies. Intensity Ventures was a venture
affiliate of SOFTBANK.
Previously, Mr. Feld served as chief technology officer
of AmeriData Technologies following AmeriData’s acquisition
of Feld Technologies, a firm founded by Mr. Feld in 1988,
which he had developed into one of Boston’s leading software
consulting firms. He also directed the diversification into
software consulting at AmeriData, a $1.5 billion
publicly-traded company acquired by GE Capital.
Mr. Feld serves as director of or advisor to a number of
Internet-related and software companies. He holds S.B. and
S.M. degrees from the Massachusetts Institute of Technology.
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