Of all the questions that we get, this one is the most common: “What do you guys like to invest in?”
Unlike many venture capital firms that invest in certain geographic regions or specific technologies and sectors, Foundry Group’s investing activity is largely driven by a thematic approach. The themes we pursue tend to be horizontal in nature and are often driven by underlying technology protocols and standards or emerging market trends and customer needs. Rather than looking for short-term hits, we focus on themes that have the ability to drive a cycle of innovation (and hence provide multiple investment opportunities) over a period of five to ten years or more. We invest across North America in a multitude of sectors tied to our thematic approach.
Examples of the investment themes we are currently pursuing include Human Computer Interaction, Implicit Web, Email, Glue, and Digital Life. As one might expect, we are always in the process of evaluating our current themes and investigating new ones, but you can always get our latest and greatest thinking from checking out our themes link. One thing that you’ll notice is that our themes revolve around software and information technology.
All of this being said, we don’t strictly limit our investment criteria to our themes—great entrepreneurs with great ideas still count for a lot in our book. In fact, our thinking about these themes can be born from and evolve as a result of our investment in an entrepreneur at the leading edge.
If you are thinking of sending us information regarding your venture, please know that we like to stick to investments that can leverage our core expertise in software, Internet and information technology. As a result, investment opportunities that don’t play to these strengths, such as pharmaceuticals, medical devices, semiconductors, real estate, retail and biotech aren’t good candidates for us.
Politics and Music
It’s a scary thing to think of these two spending time together, but the political machine and the music industry have become strange bedfellows as of late. Specifically, we’ve been following the royalty negotiations and legislative actions surrounding Pandora.
For those of you who aren’t familiar with Pandora, it’s an Internet music streaming company that allows listeners to discover new music based on what they already like. And best of all, it’s free. Jason wrote a post about his affection for Pandora recently and we all like Pandora here at Foundry Group.
Recently, Pandora has been on the brink of death, due to the threat of increased royalty payments on songs that they play. Now, it may make sense that Pandora should pay for broadcasting music, but keep in mind that traditional radio stations (AM/FM, with no static at all) pay nothing to play tracks. Satellite providers like XM and Sirius pay about 1.6 cents per hour per listener. Pandora, as an “Internet radio station” was due to pay about 2.91 cents for the same songs beginning in 2010. Of more immediate concern, the royalty rates were to go up nearly double by order of a federal panel that would have charged Pandora and other Internet radio stations on a per song basis. As a result, Pandora has been seriously considering shutting down.
So why does this discrimination between terrestrial, satellite and Internet radio stations exist? Simple. Politics. The big music labels have lobbied hard (through the N.A.B. and other organizations) to the U.S. government to increase Internet radio station royalty rates. Rationally, it would appear that the labels are better off having their tracks played as much as possible in hopes that people will either buy the music or concert tickets, but economic rationality isn’t one of the labels’ strong points. Record companies seem to think everything digital is “bad.” Furthermore, it appears that the record companies are still in the pocket of Clear Channel, the country’s largest owner of terrestrial radio stations.
We are consumers of music, whether we purchase albums/tracks, go to concerts or buy merchandise. What continually amazes us is how difficult the labels make it to buy and discover their product. We’ve watched for the better part of a decade their inability to adapt and their willingness to use strong-arm tactics to cling to their old and outdated business models. Their attack on Internet radio stations is just another example of these antics. In fact, labels’ unwillingness to adapt to the digital age in part drove our decision to invest in Topspin.
There may be some good news on the horizon, however. On Friday, September 26th, the House of Representatives passed a bill putting a moratorium on royalty rate increases and gave Internet radio a fighting chance to negotiate a fair deal with the record labels. The Senate still needs to vote for the bill and with all the current financial upheaval, it’s not clear when that will happen. That being said, we strongly encourage the Senate to pass the bill, and then we can all cross our fingers and hope that the labels and Internet radio stations can negotiate on more equal footing and structure a deal that is fair to all and keeps the customers’ best interests in mind.
Calling All Techies: Boulder Wants You!
If you’ve been following our blog, you already know that we think Boulder, Colorado, is an amazing place for tech startups. Boulder doesn’t get the same press as high-profile tech meccas like Silicon Valley, Seattle and NYC, but we do have a real culture of entrepreneurship and proximity to a major research university (and all the energy and culture that come with a college town). Equally important, the gorgeous surroundings of the Rocky Mountains mean Boulder isn’t all work and no play. Even our Silicon Valley-turned-Boulder transplant partners, Ryan and Jason, had to admit Boulder has a lot to distinguish it from the valley.
In the last several years, Boulder has been named #1 in Forbes’ “Smartest Cities in America”, #1 in Outside Magazine’s “20 Dream Towns”, #1 in Business 2.0’s “Top 20 Boom Towns”, and Best Overall in Men’s Journal’s “50 Best Places to Live” (three times in the last five years!).
It’s no surprise, then, that Boulder has experienced a significant renaissance among technology startups, especially in recent years. But with that growth has come a noticeable pain point: a shortage of great technical/developer talent. Just to be clear, this isn’t a knock against the local talent—the Boulder/Denver area has lots of really talented folks. It’s just that the need is outpacing the supply.
Rather than just bemoan the difficulties of recruiting, a bunch of Boulder’s hottest tech startups have decided to tackle the problem head-on with a really innovative job fair aimed at out-of-state technical talent. Companies like Aegis Analytical, EventVue, Filtrbox, Fuser, Gnip, HiveLive, Me.dium, Printfection, Rally Software, Return Path, and socialthing! (with more companies in the works) have pooled their resources to create a week-long job fair taking place October 27-31.
What’s unique about this job fair is that participation is by application only, and selected applicants get a free trip (airfare, hotel, you name it—no strings attached) to Colorado to meet with Boulder’s hottest startups and to check out the town. That’s pretty hard to beat!
So, if you’re a rock star developer or software engineer and want a great way to check out Boulder, make sure you apply here! Once you experience Boulder and have a chance to see our thriving tech community, we don’t think you’re going to want to leave.
Our Investment in Pie Digital
We are happy to announce the latest addition to the Foundry Group family, Pie Digital. Pie has developed an affordable software platform, desktop device and service that, together, dramatically simplify the installation, maintenance and expansion of home computing equipment and networks. Pie makes it easy for consumers to connect and maintain their computers and the multitude of other digital devices in their home, enabling them to access and share documents, music and video files without worrying about the complexities of technology support. Simply put, Pie has created an “IT department in a box” for the average consumer.
At the present time, Pie is keeping their heads down and aren’t quite ready to announce to the world all of their plans, but we can tell you that Pie is another investment in our Digital Life theme. We are excited about the idea of them making our digital lives much easier to live in. Once they publicly launch, we’ll blog about them in depth.
The company is located in San Francisco and consists of founders John Barnhill, Drew Banks and Jeff Hansen and their diverse experience base from such companies like Apple, DHL, IBM, SGI, TeleSuite, Xerox and Wang. Welcome folks, along with the entire Pie team. We look forward to your future successes.
How we use technology at Foundry
As a technology focused venture capital firm, we’re often asked how we make use of technology in running our business. While some software exists to help finance firms run their operations, there’s no magic “venture capital in a box” software (at least one that we’ve found) that would enable us to manage every aspect of running our firm. As a result we’ve put together our own technology infrastructure that helps us manage our business, better track information and more easily keep each other informed about what we’re up to.
We tend to think of the technology that supports our business in several broad categories that roughly correspond to the main functions of the venture capital business:
– tracking investment opportunities
– communicating our investment activities across the partnership
– maintaining a record of communication with our own investors (and information on their investments in our fund)
– performing cross portfolio analysis
– accounting and back-office
At the center of our technology platform is SharePoint (with NewsGator’s SocialSites added in, of course). We’ve set up a series of databases, wikis and internal blogs where we log all of the investment opportunities that we see (including information on their stage, location, how they were referred to us, etc.); communicate with each other important updates from the portfolio; track our investors and keep notes about our communication with them; and support other internal communication across Foundry (for example, various forms and templates, benefit updates, IT information, etc.). Importantly, all of this is available via internal RSS feeds so that everyone in our firm can consume information when, where and how they’d like (directly on the intranet, via our favorite RSS reader, etc.). We thank our IT guru, Ross Carlson, for doing a really nice job of developing our SharePoint infrastructure.
In addition to SharePoint, we use a few other software packages to help us manage our back-office functions. We won’t bore you with the details of our accounting and fund management packages, but one program that is central to our operations that is worth mentioning is Liquid Scenarios. Founded by a local Boulder entrepreneur, Liquid Scenarios allows us to track capitalization and financing information for each of our portfolio companies. For us this is the “system of record” for each of our investment’s capitalization as well as information about all of their financing rounds (preferences, dividends, protective provisions, etc). With all of this information in one place we can easily run new financing and acquisition scenarios (what we refer to as “the waterfall”) automatically and by investor, as well as look up round information that, until we installed this system, used to be contained in multiple financing documents (and, as such, generally took a meaningful amount of time to gather).
Similar to many technology implementations, what we’ve put together at Foundry is only as useful as the time we put into using it, and we’ve definitely had to change some of our long standing habits (particularly in our effort to log every investment opportunity we see as well as moving much of our broadcast updates off of email and on to the wiki). That said, the benefits have been both very real and quick to realize. Everyone at Foundry can quickly look up any of the potential investments we’ve seen since the founding of the firm (sorted by date, company sector, referrer, company name, etc), can quickly recap the last few months of activity across the portfolio and can easily access information about each of our investors.
Importantly, we’ve built our systems on a platform that is easily modified to adapt to our changing needs and requirements so that we can continue to innovate how we manage and run our business.
What we don’t have, however, is one system for “one stop shopping” of all this information. While we’ve developed technology that works for us for some things, we still do rely on Outlook and Excel to run parts of our business. As both investors and users, we see a hole in the current ecosystem for a company to better integrate all of these functions. Until then, we will be happy with our current system and be thankful for its general ease of use over what we used to use a decade ago.
