🚴‍♂️ managing 4.3B, books and exits with Seth Levine

Another VC wisdom pod with a legend today, Seth Levine. He is a partner at Foundry. Vc. We're going to talk vc. We're going to talk about life cycling, everything in between. Seth, welcome to the pod. Can you tell us a bit more about yourself and Foundry?

Awesome, Charles, thanks for having me. I appreciate it. So, yeah, well that's a pretty open ended question. I could go in a few different directions, but first let me start with Foundry because that's probably much more interesting than I am. So we're. Foundry's been around for a little while. We started the firm, I started it with three other guys in 2007, really 2006, but we raised our first fund in 2007 and that's kind of ballooned into this pretty large platform. Our first fund, we're based out of Boulder, Colorado. Our first fund was $225 million. We now manage about $4.3 billion. We initially were a pretty traditional seed series A fund. Again, context of 2007 landscape was a little bit different than it is today, which I'm sure we'll talk about, but that's evolved a bit. And over the last, especially five or six years we've really sort of leaned into a slightly different strategy which is that we invest in other venture funds with a portion of our capital. It's about 25, 30% of the capital of the new funds. And those are typically smaller kind of seed, seed focused funds. And then we tend to follow them, not always, but follow them into series A, series B deals. And so that's really been the focus is this sort of dual prong strategy of investing in funds and still investing directly in companies. That's still the majority of course of our capital, but often, oftentimes doing that behind our funds. So it's been, it's been pretty interesting. I've been in venture for over 20 years. I started Inventure. It's actually 22 years now. I started in 2001, which was a interesting time to start Inventure. I mean I knew what I was getting into. The, as I like to say, it wasn't just that the, the keg had run dry and the, at the proverbial VC party, but, but the police had already come and gone and no one was left there. So I, but I knew that when I started but it was interesting. And so that's most of what I've really done over the course of my career. I mean before that I had maybe the 10 years before that I was first in investment banking and then eventually was Kind of in general manager. I ran a couple divisions for a public company and did a bunch of corporate and M and A work on the side as well.

If your life was four seasons, how would you describe each of these seasons?

Yeah, that's interesting. The seasons of challenging one. Yeah. Well, I guess the question is where am I now? Right. I mean, I hope fall's my favorite season. I kind of like that. And of course in Colorado we have incredible, incredible seasons period. But, but particularly the fall. And I think the reason I like that is because you could still do a lot of the things that you like to do in the summer. For me, that's cycling and hiking and things like that. But, but the weather starting to change, it starts to feel a little bit different. And that's kind of, kind of how I feel about where I am in my life. Right. I've been adventure for a while. I'm not like in the winter. Right. I'm not like, you know, close to death or anything like that, but at least I hope not. But you know, but I'm starting to anticipate, you know, like the real change, things being a little bit different. I have some, I'm sure we'll talk about it, but I have some other kind of outside activities I've been doing more and more of. So you know, I wrote a book, I'm writing another one. I'm working on a company and, and all of those for me feel, feel kind of like fall. So I don't know if that was answering your question or not.

Somewhat, yes, could segue into that. But you seem hyper successful from an external perspective. You've got a lot of momentum behind you. Why are you that way? Did you make mostly good decisions in your life? Did you surround yourself with the right people? Did you had a knack for finding talent and identifying the right startups at the right time? Who or how is set that successful today?

Yeah. Well, let's start with just the obvious one, which is just lucky, right. I mean, I've been incredibly fortunate in my life. I was born at a time that, you know, where you could be prosperous. I am a white male, which gives me lots of advantages. I was born in a family that initially didn't have means, but my parents over time did reasonably well and I was able to go to college and things like that. And then I had the incredible fortune of having great business mentors who really from the get go in my career, starting at Morgan Stanley when I was in investment banking to the telecoms company, I went and worked for and worked in particular for this guy for years who was just really, it was a huge factor in my life and gave me more and more responsibility, really ahead of my time. And then I got into venture. Yeah, auspicious timing in 2001 as I mentioned, but I started working for a guy who's going to go down to history as one of the best venture capitalists that we've ever had, which is Brad Feld, my partner. And so I had the incredible fortune to work for him, learn the venture business. And then when I was ready to leave venture and talk to Brad about, you know, I'm going to move on, I don't want to stay at this. We were at this larger west coast based venture firm. I had the incredible fortune of. The timing with Brad was perfect. And he said, hey, actually I don't think we're going to raise another fund. What do you think about doing something on our own? And that was kind of what started the conversation that led to Foundry. And so, you know, so there was a lot of luck there, but obviously also, also a lot of hard work. And I think, you know, I don't know if it was my upbringing or sort of what it is, but I was, I was blessed with a certain amount of humility and I think that that's, that's served me quite well. And, and you know, I was very curious about all sorts of different things. But I think that curiosity around some emerging markets in particular led to some early successes at Foundry and you know, really formed kind of the base of my career. But it's really been the people I've been surrounded by who I think have made all the difference.

Interesting. Why vc? What's the mental model behind it? Why not go moonshot, Elon style? Why vc?

Yeah, I wonder that sometimes. I mean the reason I got into venture, I mean I was curious. I didn't think it would be a career. I had done some corporate development type stuff. I had been a, a general manager. As I mentioned, I didn't love when I, when I, my, the job that I had before I went into venture, I was running a 50 something million dollars business, business unit, actually a couple units for this public company. And I had a couple hundred direct, not direct reports, but people in my organization. And most of my job was managing, right. I was, I was managing through managers and, and I didn't necessarily love that. And then I had a few offers to go do sort of COO types or GM type jobs and I just thought, you know, I want to try something else. I enjoyed transactional work and so I, I thought I had a bunch of friends that had done venture or private equity because I'd been in banking initially in my career, and I thought, well, might as well try that now, right? Why not? And so I took a pretty big step back just in terms of salary and everything else to give it a shot, see what I see, see what I liked about it. And that turned into a career which I did not exactly expect. But. But yeah, I mean, I suppose if I wasn't doing that, I, I probably would, would start something. I'm in the middle of starting a business at the moment, so perhaps I'm still scratching that itch, but it's kind of a venture is a funny business where you can kind of do a lot of different things. Right. I mean, I have a full time and a very busy job. That's my, you know, my day job being a partner at Foundry. But, but I also do these other things, the books, the company I was just referencing. And so it kind of gives me that flexibility.

Started the fund in 2006. So theoretically you should have started seeing it pay off by 2016. Has it paid off to your expectations yet?

Yeah, I mean, the first fund in particular, which was a 2007 fund, was, was a really, just an incredible fund that was a fund that had Zynga and Fitbit and Admel and some other companies that, that people have heard of who are listening. And it was a, you know, it was a really, really successful fund. And then, you know, we follow that up with, with a, a handful of other funds. Ironically, I think our second fund might end up being our most successful fund. Took a little, taking a little longer. It was a 2010 fund. Taking a little longer to, to mature. But yeah, I mean, it's helpful to have a big, a big, a big winning fund when you start because it really forms kind of the base of the pyramid upon which you build that firm. And you know, it was never, it was never part of my thought process that we would end up managing over $4 billion. Right. That was not. If you had said to me in 2007, 15 years ago, hey, you know, you're going to be a, you know, fast forward 10, 15 years, you're going to manage billions of dollars. I, I just, I don't think I would have, I don't think I would have believed it. Right. I thought we were going to have four $225 million funds, which was the fund size of the original fund. And the intent was to, just to Keep that fund size. And then that was going to be it. And, you know, it turned out to be a few more funds than that. And then we tacked on this fund to fund strategy. So that added to the capital. And so it was. It's been an interesting ride, Charles. Been. Been pretty amazing.

Yeah. Four billion. That's a lot. That's exciting, too. It's a lot of pressure as well. Who's in charge of raising? Is it you? Is it Brad? Because Brad had the aura, the clout. Right. So it's like, who's in charge of raising the four bill?

Yeah. I mean, it's varied, right? I mean, the initial fund was raised largely on the backs of Brad and one of my other partners, Ryan, who had had kind of the start of a real track record. The other. The other two of us did not when we came into Foundry. And, you know, that's evolved over time. And Brad did a lot of the fundraising, just as he's well known. But over the last couple funds, that's really shifted. Right. And so, in particular over the last two funds, my partner Lyndell, who came in to run the fund to fund strategy, my partner Jacqueline, who is also both on the fund to fund side and on the direct side, I should say. We now all kind of work on both sides. But in any event, she started on the fund to fund side and came over to the direct side. The two of them, and me and Chris Moody to some extent as well, were really kind of more frontline. And really in this last fund in particular, Brad really didn't do any of the fundraising, which I think he was quite happy about. So that evolves over time. I think that venture firms need to have a certain amount of balance, and I think that that's a good example at Foundry of how we strive to have a bit of balance. It's a big load to be out fundraising when you're even for Foundry, which has been successful. And we don't necessarily struggle with fundraising, but you still have to go knock on a lot of doors and, you know, people want to see you face to face, understandably. And so it was, you know, many months of being out on the road, three, four weeks, three or four weeks a month, and meeting with people and making sure that we solidify that support.

How did your first exit feel? How was that day? Do you remember specifically the details when the money hit your bank account?

And I remember there's a few answers to that question. I mean, I. I remember the first company that I was responsible for that had A big exit that was a. You know, returned well, well more than $100 million, well over a 10x return. And that felt great. And I felt great that that wasn't. It wasn't about the money. Right. I mean, that was really about feeling a sense of accomplishment, feeling proud for the founders. Right. People. I did in this case, it was a company that I had let a seed investment in. And so I really felt happy for them, happy for the business, and felt a certain amount of validation. I mean, ventures, this funny business where you don't really know if you're any good at it. And even when you have one exit, you still don't know if you're any good at it. It takes a little while longer. So. Yeah, no, that was good. I mean, I do remember, obviously, you got to return your. The capital to your investors before you start, you know, getting carry checks. I. I do remember kind of the first real carry check that I received and sort of feeling like, you know, it's funny, I. When we were just starting Foundry, my wife and I had Thanksgiving with Brad and Amy. Brad. Brad and his wife Amy. And I remember Brad saying something to us that, like, your life is about to change. You just don't know it. Right. Like, he sort of could see we were on the cusp of, of, you know, we were just starting the firm and. And, you know, it was gonna. It was gonna be life changing in terms of. Of the economics to us. And that had happened to Brad years and years before. And I, I knew that that was the case intellectually, but. But I remember when. When I received that first carry check, thinking back on that conversation and just. Just sort of smiling about it. Right. I mean, it's, you know, I mean, obviously the money's great, but I think it's. The sense of accomplishment is right.

And the founders, they must have been quite ecstatic. So a little outing with them, little bottle of champagne or something.

Absolutely.

I want to ask because, yeah, it's a complex business. Also funny one, because it's like, okay, my past self, 10 years ago, did a good decision. Right. So how do you connect the serotonin with that? It's. It's interesting. How complex is it to find founder product market fit?

Yeah, I think it's really hard. I mean, look, the truth of it is that 66% of venture investments fail to return the capital that was invested in that round. So most of the time, you're really wrong. Right. Which suggests that that founder market fit is elusive. Now, our track record at Foundry is a Bit better than that, which is why the funds have done well. But it is really hard, right. And I think that there's, there are times in a, in a business where you think you don't have it and you have to search for it and eventually you find it. Oftentimes you don't. And there are times when you think you have it and then you learn a year or two later, in hindsight, you really didn't, right? You were footfalled or you, you know, sort of head faked into something. And so, you know, I think, I mean, to me that's what I love about venture is that there's this, there is a lot of unknown and, and you know, I think, I think people struggle with that. I think people also struggle with sort of the lack of feedback. Right. And when you're a venture, you know, partner at a venture, you don't really, you know, you're, you, you don't report to anyone, right. You have constituencies, the founders and CEOs that you work with, your other partners, obviously your LPs and investors, of course, but on a day to day basis. I was talking about this with someone, someone yesterday. I don't, I don't report into what to my partners and tell them what I'm doing. I don't, I don't know what they're doing at any given moment. I don't, I don't even know where in the country really at the moment. Almost any of them are. Right. I mean, I don't have a view into that. I shouldn't say that I don't care to have a view into that. Right. We share calendars, so I could go and take a look at any given moment. And I think that's a different kind of style of business, right. I mean, people are used to working in teams and we do teamwork in venture, but that tends to be much more deliberative teamwork, which is to say we don't work on teams where the teams go and do things. We put together ad hoc teams to look at a new deal to help me with something I'm struggling with, with a portfolio company to work on a project to help set up an LP event, whatever the case might be. But those teams are super fluid and they kind of change all the time, right. So, you know, obviously we come together on Mondays, as many firms do. We have lots of communication between then. But it's not, it's just different not to sort of report into someone and be beholden, if you will, to someone. And the downside to that. And there's lots of upside. The downside to that is that you don't get a lot of feedback. Right? There's no annual review process. There's no sitting down quarterly and saying, hey, this is how. How you're doing. And we've tried to replicate some of that at Foundry because we try to give each other feedback and be really kind of deliberative with each other about, hey, what's working and what's not working. But. But that's a little bit different or maybe a lot different than. Than what people kind of expect getting into. And it could be a little bit of a lonely experience. I now, I love that. And I think, you know, for me, that's been. That's allowed me the flexibility to do some other things that I'm really excited about. And I like working, working independently. And I know when I need to go and pick up the phone and call Chris or call. Call Brad or someone like that and say, hey, I'm struggling with something. Can I just walk. Walk you through it? But, but I do. I do see that struggle in other partners. And it's interesting to. Interesting to observe.

Tell us about the book, the New Builders, the why, the impact that it had, and why is it a unique piece of literature?

Yeah. Thank you. I mean, it was a real passion project for me. The New Builders is about the next generation of entrepreneurs focused on the US So entrepreneurs in America, and specifically outlines that women, people of color, and immigrants are starting businesses at a significantly higher pace than other founders. That was a surprise to me when I started to write the book. I should say when we started to write the book, I wrote it with a journalist friend of mine, Elizabeth McBride, but when she and I started doing the research for it, we had a different thesis. We did not realize that entrepreneurship was so dominated by women and people of color. Black women are the fastest growing group of entrepreneurs in the country. And interestingly, when we reported those findings to our friends in Venture, in my case, her other journalist friends, most people didn't believe us. And maybe that was the moment when we realized we were really onto something. And a lot of what we talk about in the book is that we don't do a good job of connecting capital with new builders. And the result has been entrepreneurship lagging in the United States compared to. To historical averages. And so it's, you know, we're. We're optimistic people. New builders are optimistic people. And so we, you know, the book itself is quite optimistic, but. But we sound the alarm a little bit. Hey, we need to, we need to do things a little bit differently and think about things a little bit differently. And I, you know, I think in our world we tend to Forget that only 1% of businesses get money from venture capital. Right. So that is a, obviously it's important pool of funding and the businesses that are created by VCs have a huge impact across the business landscape, especially the small business landscape in the US and globally. But it's a tiny amount, tiny percentage of the businesses that are started, most businesses, and very few businesses take debt as well. Right. The vast majority, over 80% of companies are self funded. And that's something that I think people don't necessarily focus on. And so we've tried to shine a light on that in the new builders and really talk about why those businesses matter to our, not just to our economy, but to our communities and ways in which we can and should do a better job supporting them. So the interesting thing to me, Charles, has been the half life of that book has been incredible. Right. We published it just over two years ago now and I'm still getting calls and questions about it. Elizabeth and I are still doing book events and, and speaking to corporate groups and others. And it's been really, I don't know, it's been really heartening to see how durable that the themes that we talk about in that book are and you know, and how, how resonant it's been with people as they start to really get to understand it.

I often ponder about diversity and inclusion. I think I prefer the word inclusion in the entrepreneurial world. It's like a jungle. It's really cutthroat. It's, it's high, high competition. If I think about Silicon Valley, have the best of the best. Plus they get rocket fuel. How can folks that come from a different background or a more disadvantaged background still have the same shot at success? And is an ultra libertarian philosophy to kind of let them by themselves? Adam Smith, if you want, is it the right solution or should we sprinkle a little education on it?

Yeah, I mean, I'm not a libertarian. I don't believe that that's the case very strongly so. Right. I think it's, I have plenty of friends, as they say. You know, some of my best friends are libertarians. I mean, I have plenty of friends who are libertarians. I mean, I think it's relatively easy to be libertarian when you've been advantaged. And most of the people, if not all the people I know who are identify as libertarians, have had a Lot of advantages. And I think most of them, people that I know at least that are libertarians, I don't really think are saying, hey, there's no role for government. Right? Like government shouldn't have schools, for example, or it shouldn't fund roads or public infrastructure. Right. I mean, that's the extreme, and that is libertarianism in its extreme view. I think what they're saying is that they feel like government should take, take a backseat or have a limited role. And I can understand that. Right. I mean, we, and we talk about this a little bit in the book, that there's a balance between regulation and over regulation. Right. I mean, I think, you know, we, let's all agree that, I don't know, food labels are important and there should be some regulation that requires that the label in your food to actually reflect what's in your food, for example. And, and that's not a libertarian view, right? I mean, like ultra libertarian would be like, well, you should be able to put whatever you want into whatever food and people start dying and then the markets will figure out you shouldn't eat it. Well, that doesn't sound particularly good to me. So, you know, I usually use examples like that. And people are like, well, yeah, no, I think that's right. And of course, companies shouldn't just be able to dump sludge out their back door, let's say. So, okay, if we can agree on that, that now all we're doing is we're debating about where does that line, you know, where does that line draw or come to? And, and so that's a little bit of what we talk about in the book. And, and we talk about specifically the question that you just asked, which is trying to do a better job of, I don't even want to say leveling the playing field because I think that that suggests almost too much intervention, but at least allowing new builders to have more access at. Allowing diverse entrepreneurs to have more and better access to financing and to other forms of support, mentor networks and things like that. And I think that that's critical if we're going to continue to see entrepreneurship thrive, not just in the US but around the globe.

I think we need the government in the equation until we become more civilized and. Or technology advance. Me, I'm one of these libertarians. Yet I do think that, for example, we don't have the technology yet that would stick on a bottle of juice and give us the direct content of vitamin C of E. Coli and everything. I believe there's a technological solution for everything. It's just not available yet. In a world where there's no guardrails, no governments, how would that operate? Would it be like the business that do have this sticker private company? Of course, no governments involved. They would get more buyers. And yet I've read a post of Sam Altman yesterday saying that there was no free market. So that got me thinking because I'm very much of a believer in the market equilibrium theory of everything. So, yeah, food for thought, I guess. Want to talk about the 1%, the pledge 1%, which is quite interesting. Can you tell us a bit more about that one?

Yeah, no, it's my. One of my favorite topics. I think it's. Of all the things I've done in my life, I think it's the most important. We, a group of us got together and put together this organization called Pledge one percent. It was an offshoot of some work that we've been doing before that called the Entrepreneurs Foundation. And we encourage companies to give a portion of their equity, profits, time or product back to local charities, local nonprofits. And the idea is to understand that you're building a company in context, right? It's. You're building, you have employees. They, you know, they leave your office. This is, of course, back before. Before COVID But they leave their office or they live. Leave their home office and they live somewhere, right? And we build our businesses in communities, and increasingly those communities are global, right across the globe. And that there is sort of a beauty in giving back to those local communities. And I think, you know, the success of Pledge 1%, we have nearly 20,000 companies that have taken the pledge, about $2 billion that has been directed back to local charities now through the pledge organization, which is, which is staggering, right? We're barely, you know, you think about the 20,000, I don't know off the top of my head, what percentage have already exited? But it's a tiny percentage, right? So there's a huge amount of potential gifts to charity that still exists in that organization. Of course it's growing. And I think that the reason that it's been so resonant with companies is they believe what in the mission, right? They believe that they are starting their businesses in the context of community. And it's interesting. I'm working on a new book right now. Elizabeth and I are about sort of the evolution of capitalism, right? We've come through this sort of very kind of draconian view of capitalism over the last 50 years, defined by Milton Friedman in 1970, basically, that said, hey, all your only job as a sort of a board or a corporate CEO is to maximize profits to shareholders. And we're starting to question that right. In 2019 under Jamie Dimon, the Business Roundtable says, well, actually we think that there are broader stakeholders and those include employees, those include community and others because we're building our companies in the context of those communities. Now, I believe all of those CEOs or virtually all those CEOs that signed it felt like that was still in the long term interest of their shareholders. And I believe that that's the case as well. But I think it's interesting that we're having a conversation about where does that line get drawn and, and starting to be able to have a discussion about other stakeholders other than just shareholders. And I think the fact that there's been so much blowback to Larry Fink and BlackRock and what he's saying to ESG more generally to Woke and wokenomics as the right likes to call it, I mean, I think that that backlash is a sign that one, there's entrenched interests that maybe have some reason that they don't want to have things change and that two, that we're in the middle of that evolution and you know, change tends to be messy. And I think what we're experiencing right now is like the middle of that messiness, which I would tend to embrace. I think it's okay that there is that messiness now. I'm not the CEO of, you know, Budweiser who just saw my stock drop by billions of dollars because, you know, we, we were attacked by people who didn't appreciate this marketing campaign that we had. So, you know, I understand for individual CEOs that that might be difficult and that's a lot of what we're writing about in the book. But I think it's, I think it's really important to reflect that. And I think these, these themes kind of come together. Right. And I think that that's what we, why we're seeing so many businesses join pledge is because those CEOs say, hey, we actually have purpose beyond just making money and we're going to make more money if we have purpose. Right. I think that's the thing that they really are embracing.

Very noble set. Thank you for your service to humanity, to say the least. And you're right, we would need way more time today. We only had 30, so. Yeah, sorry about that. Let's round two in a couple months from now. Where can people find out more about you, your books and pledge, 1% until then?

Love it. So thanks for the opportunity. So you can find me@sethlevine.com you can find information on the new builders@thenewbuilders.com and pledge 1% is pledge 1% com.