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Brad Feld

Brad Feld is an entrepreneur, author, blogger, and venture capitalist at Foundry Group in Boulder, Colorado, a firm he started with partners Seth Levine, Ryan McIntyre, and Jason Mendelson.

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Learn how to analyze important decisions as an entrepreneur and the importance of time
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The original version of this article appears on FeldThoughts.

I’ve made a lot of major decisions in my life – both personal and professional. For the professional ones, I’ve come up with an approach that I now use consistently. I try on the decision for a period of time – the more significant the decision, the longer the period of time. For the really major decisions, I try them on for 30 days.

Here’s an example. In 2003 I seriously thought about quitting Mobius Venture Capital. I was tired, burned out, and very frustrated. While I’d been a partner in Mobius from the beginning, I hadn’t really been engaged in managing the overall firm. I had my office and a small team in Boulder. I did my deals. I flew to the bay area often (where everyone else was located) but focused most of my energy on the boards I was on and the investments I’d made.

My whole world blew up in 2001. My portfolio melted down with the bursting of the Internet bubble. I was on way too many boards (over 25 – including four public company boards) so the entire thing was a total shit show. In addition to being miserable at work every day, I was 30 pounds overweight, drinking too much, traveling constantly, and involved in laying off thousands of people and shutting down over a dozen companies.

Then, on 9/11, all Americans participated in a massively traumatic event. I was in New York for it, having taken a redeye the night before from San Francisco. I was never in harms way, but 9/11 triggered a major depressive episode for me. When I got home to Boulder the night of 9/12 (after driving all night on 9/11 and all day on 9/12) I shut down all travel through the end of the year.

The depressive episode only lasted three months, but the shit show continued through 2002 as most VCs and Internet companies suffered a massive collapse. While my world started to settle down in mid-2002, the rest of Mobius started to more aggressively fall apart. There was no joy anywhere.

In early 2003, I started to think about leaving Mobius. While I was trying to be helpful in general to the firm and my partners, I didn’t like the way we were operating. I felt like we had way too many people, too much denial about the reality of our situation, and were making many bad decisions simply to defer the inevitable pain that was resulting from the collapse of the Internet bubble.

I woke up one morning in February 2003 and decided to spend a little time each day pretending like I had quit Mobius. I allowed myself to think about it twice a day – when I first woke up and when I went to bed at night. During the day I continued to work my ass off on everything I was doing for Mobius. But I gave myself two periods a day where I contemplated what a different work life might look like.

During these periods, I wrote down what I was relieved about. As the month went on, at the end of the day I started writing down what I was unhappy about at Mobius. In the morning I’d clear my mind as though I didn’t have anything in front of me to deal with that day, and then go into battle and deal with whatever was in front of me. At the end of the day, I’d repeat the thought process. And, at least once a week, I talked to Amy about what I was thinking about.

A clear pattern emerged for me. I didn’t dislike the work, even though most of it was not very fun. I felt a strong sense of responsibility for Mobius since I had helped create and contribute to the mess we were in. I felt a deep obligation to all the various people involved – the founders we had invested in, our LPs, and all the people who were still working for Mobius. But I didn’t feel engaged in the decision making that we – as a firm – were doing to get out of the ditch we were in.

After 30 days, I had a clear understanding that quitting Mobius was not the right answer for me. Instead, I needed to commit to engaging completely and taking responsibility for the whole firm, not just my corner of it. This didn’t mean taking over everything, but it did mean going all in on trying to make things better, whatever that meant.

In March 2003 I fully engaged in Mobius. While 2003 – 2006 was an incredible grind, I look back on that time period as one that I am satisfied with as we did manage to get Mobius to a stable place. I learned an incredible amount about running a VC firm through the work I did in that time period. And, with my partner Jason, we still manage what is left of the portfolio (still several hundred million of assets) simply because it is the right thing to do for the LPs.

When I reflect on the decision, I was only able to make it because I gave myself 30 days to really consider the decision and the various options. I’ve used this approach many times since, for decisions large and small, and it has served me well.

This post was reformulated to fit Knoitall's learning format under the permission of Brad Feld.

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Understand how fear and greed drive decisions by investors and founders Understand how to build your business under both scenarios
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The original version of this article appears on FeldThoughts.

There is a cliche in the financial world that has been around forever.

“Two things drive decisions: Greed and Fear”

For the past few years, we’ve been a zone where greed has been dominating. Every now and then a little fear creeps in and then gets squished into the corner by chants of “things are different this time” and “that’s just PTSD from the Internet bubble.”

Recently, the fear seems to be sticking around. There are plenty of people trying to kick it away, shake it off, or ignore it. But it lingers. And the smell of it gets stronger.

I had an exchange with a CEO the other day who was at an event in the bay area and commented on the attendees at the event. The telling line was:

They’ve never read the RIP Good Times deck, they don’t remember the Bin 38 fiasco, they think it’s the first go round.

I once again rolled out my favorite BSG line.

All this has happened before and all of it will happen again.

I’m a strong believer that you can build great companies in time of both greed and fear. But you have to be paying attention and operating under the right assumptions. You don’t have to believe history repeats itself, but you should accept that history rhymes. And one big rhyme is that the shift from greed to fear happens much faster than the shift from fear to greed.

If you are a founder running a high growth, VC backed company, here are a few questions to ask your investors today.

  1. What is the maximum amount of monthly net burn you are comfortable with for us right now?
  2. Based on our current course and speed, we run out of money in X months. If we can’t find a new lead investor, will you write us a check? How much and on what terms?
  3. If companies start failing left and right, do you think it will impact us in a meaningful way (either good or bad)? If yes, how?

There are no correct answers to these questions but they’ll give you a sense of how your investors are thinking along the greed – fear spectrum. You get bonus points if you ask the investor to walk you through what they were doing the last time things shifted from greed to fear and to tell you stories about things that went well for them, went poorly, and what they learned.

Don’t be afraid to explore what could happen well before it does. Our history rhymes with the famous John Galt quote “Nobody stays here by faking reality in any manner whatever.”

This post reformulated for use within Knoitall under permission of Brad Feld.

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Learn the importance of deal certainty in maximizing pricing
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The original version of this article appears on FeldThoughts.

We’ve seen several M&A deals collapse unexpectedly in the past two months. Each was at the signed LOI stage. There was no warning or evidence of an issue until the moment the CEO got the phone call from the acquirer saying the deal was off. In both cases, the explanation was vague.

I’ve also seen several financings fail to close recently. Two of them were late stage financings that were pulled by the investor at the last second. One of these investors is highly visible for doing late stage deals. The other was an investor I didn’t know much about. The explanation I heard from the founder in each case was again vague.

In contrast, we closed a deal in two weeks last month. The person on the other side was willing to give us a lower price in exchange for “deal certainty”, explicit words that she used. We are very pleased with the deal and the price and appreciated that our reputation for just getting it done resulting in a significantly lower price. Deal certainty has always been important to me and I expect it’ll become even more important in the next year.

You will be seeing a lot more deals that don’t get closed after the handshake, verbal agreement, or even a signed non-binding LOI. This is natural in this part of the cycle, when prices feel high to investors, there is a lot of competition for deals, and a goal of some investors and acquirers is to get an LOI or term sheet signed with an exclusivity period in order to give them time to make a decision.

There are also a lot of unsophisticated buyers and investors out there. They generally don’t value deal certainty, especially if they come from other industries where lots of deals fall apart.

At this stage, it’s very important that the founders, whether they are selling their company or raising money, know the experience of the buyer or investor. You need to know their process. You need to know their investors, especially if it’s a private company buying another private company. Understand the history of their deal execution. Ask about, and understand the process from LOI / term sheet to close.

Basically, don’t be naive. There are lots of investors and acquirers out there who have low to medium deal certainty. There are others how have high deal certainty. Do your work and know who you are dealing with before you engage in the process for real.

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Competencies

  • Business: Venture Capital
  • Business: Small Business & Entrepreneurship
  • Health & Health Care: Depression
  • Business: Decision Making

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