Approaching Venture Capital with Intention w/ Seth Levine of Foundry

Listen on
June 8, 2023

On this week’s pod ep I sit down for a chat with Seth Levine, Partner of Foundry. Seth has played a significant role in shaping the venture ecosystem over the past two decades and is known for his work in accelerating the democratization of innovation outside of Silicon Valley.

We cover a range of topics but do a double click on the importance of having a clear intention and plan for the future of a venture firm, which includes the need for VCs to adopt a business-building mindset. We agree that venture capital firms need to be better at running their own businesses and making strategic decisions for the long term, especially if the goal is to have the firm outlive its founders.

Seth is amazing and shares valuable insights into the dynamics of the venture capital industry and the efforts to advance society through entrepreneurship, a topic he covers in his book The New Builders. We chat about that book, plus the new one he’s currently working on (which I can’t wait to read).

Overall, this was a great chat. Big thanks to Seth for coming on the pod!

Links

Transcript (this is an automated transcript):

MPD: Welcome everybody. I'm Mark Peter Davis, managing Partner of Interplay. I'm on a mission to help entrepreneurs advance society in this podcast. As part of that effort today, we've got Seth Levon. He is one of the founders and leading partners over at Founder Group. And he just has played a pretty significant role as at the firm level and also Seth individually at helping to shape the venture ecosystem over the past decade.

I got to know Seth way back in 2006 when I was first starting the business. I had the fortune of doing a deal alongside him. One of my first deals actually as a vc, and he was kind enough to mention me a little bit. He was further in his career at that point than I was. So grateful to have him on.

He's since gone on to not only lead, help lead the founder group to big things. They manage over 4 billion and they have helped to accelerate the democratization of innovation outside of Silicon Valley. But in addition to that Seth is putting a lot of thought into broader socioeconomic dynamics.

He's authored a book and is working on his second, and I just find him to be a fascinating person. So I hope you enjoy this as much as I did. Here we go.

Seth, really glad to have you on today, buddy. Thank you for doing this.

Seth Levine: Thanks Mark. It's good to be here.

MPD: So if you don't mind, let's start off by just covering Foundry. I think most people know the firm Foundry's, one of the bigger names and the venture market, I think a lot of people probably don't have a full sense of the scope of what you guys do and the history of it.

Could you just do a quick

Seth Levine: overview of founder group. Sure. And let you know, just for listeners and viewers, the context here. You and I have known each other since almost the beginning of Foundry. We started the firm in 2006 and you and I shared an investment that we made sometime, I think it was late may have been, might have been early 2008 or late 2007, but it was right at the beginning of the firm.

So you've witnessed, and you were. Very

MPD: gracious enough to spend some extra time with the junior guy which mattered. So little bit of Yeah. Incidental mentorship, which was helpful.

Seth Levine: I'm glad even then I could tell that you were gonna do some interesting things. So I think that I think that ended up being, that ended up being absolutely true.

So Foundry was started by by me and three other guys. In 2000 really 2006, we raised our first fund in 2007. Turned out that was a really good time to to be investing in early stage companies. We were a kind of a classic series a seed in series A investor. And we did that for a while.

Our first fund was actually, all of our funds were $225 million. We raised a series of those funds over the course of a number of years, and then in 2016 we expanded the scope of foundries. We started investing in other venture funds. It occurred to us, we had done a little bit of that on the side just with some personal dollars, but it occurred to us that there.

There weren't really LPs that had been gps. And we thought it might be an interesting way to both provide additional returns to our investors, but also create a firm that leveraged other venture firms. So we invest typically in seed series firms. We now have 47 in the platform.

In the portfolio. And then we look. Not exclusively but primarily at their portfolios to make our series A investments. So it's been, it's been a wild ride, man. I mean it's certainly, we managed 4.3 billion. It's so reason to even say that number out loud. It's just crazy.

That's a lot. Yeah. Yeah. It's a lot of money and it's. But look, you have this at Interplay, right? You start with this sort of seed of an idea and it just starts to grow. And now you have all these different companies and you're doing all of these different things across this platform that you have.

And it's not that dissimilar to what we've done, right? We've added things that have made sense in a couple cases. We've taken some things away along the way, and then we've ended up with this, really interesting mix of assets. For

MPD: the seed managers who are gonna end up listening to this, are you guys taking.

New co funds into the portfolio on the seed side, should they be

Seth Levine: reaching out? The fund portfolio is pretty, pretty built out. Okay,

MPD: we, is there a way you want people to engage if they wanna start that relationship?

Seth Levine: I'm happy to hear from folks, Ryan and our emails are all over our websites, but mine is seth@founder.vc, so that's easy go.

So happy to hear from folks and look, part of why. Foundry never really had a vision of firm building. We never thought that we were gonna, the original vision was the four of us were gonna run it until we decided to not run it. And then we were gonna shut it down. That changed a little bit when we brought some folks in to help us with the fund platform.

It's not totally cleared. To me, what's gonna happen? I was sharing Mark with you before we we got on onto the recording that I, this is my last fund. I'm not intending on doing another one. I, what Foundry itself decided to do? I've decided to stay out of a little bit.

That had been our original idea was just shut the lights down and maybe that's what we end up doing. But but in that context, part of what we wanted to do by investing in other funds was just to. Help promote the ecosystem and provide in a weird way, this generational transfer, but that wasn't necessarily a generational transfer within Foundry.

And I think that that was for me at least, a large part of what drove me to be excited about the funds portfolio strategy. Obviously it's great to have kind of a network of funds that are surfacing interesting companies to invest in, but Right. But a lot of it for me was, I wanna, I wanted to work with some up and coming emerging managers and, help them be better venture capitalists and hopefully 20 years after I'm done.

In venture, they're still making investments and making a positive impact.

MPD: This is a really interesting concept that I think most, my intuition is most managers aren't as forward thinking about as you and I probably have been, right? Whether or not the firm and the brand transitions out with the founders of the firm, or it continues as a going concern after the founders.

And not all firms that have wanted to do that have pulled it off very well. Returns have dipped there's fighting, there's all these dramatic dynamics. I have stepped into this with the intent of building a platform that will long outlive me. And not to monetize it after that. It's not about the money.

It's about leaving behind an ecosystem that will keep helping entrepreneurs after I'm dead or retired. Yeah. Which might be the same time. So the question a, as you've thought about. Seeding the ecosystem, but not through the brand. I think it's there. There's a lot of wisdom in that.

Do you have thoughts on what works better or what people, how people should think about that

Seth Levine: decision? I think the thing that you just said that resonates the most with me is that you have a plan, right? That like you have an and I should say it differently, you have an intention. And I think it really is helpful to understand what the intention is.

Is the intention that the firm is gonna keep going and you're gonna find a way to trans transition that firm from a generational perspective? Or is the transition or is the intention not to do that? And right now, at this moment, Foundry's a little bit in the gray area. Cause we, we had initially intended on never transitioning.

Now it's a little bit open about whether we'll transition or not. So we still have some work to do on that. I think what you just described, your intention and interplay to say, no I want this to live beyond me. I think that's, that affects your decision making. Now you also said something that's really important that I think most firms get wrong, which is that, The the transfer needs to involve substantive transfer of economics.

And I think where we've seen birds absolutely, really fall down is where the founding partners try to hold onto too many ac, too much of the economics because they were the founders and they believe they built the brand. And that doesn't leave enough room for the junior folks. And in fact, there are a number of funds in our portfolio, our funds portfolio, where the partners left larger firms where they were.

Not effectively transitioning, right? Because they're, they didn't have enough economics and decided to start their own thing. And I think that, not that money is always the problem, and there's also plenty of other challenges with transitioning a firm, but I think that's something that a lot of firms really struggle with and get wrong.

And frankly, very few firms figure out that transition. Venture's such a funny business, right? Because we spend all of our time telling other people how to run their businesses. But for the most part, VCs are crappy at running. Their own business. Both in terms of how they manage style.

Your words not mine.

MPD: I might have thought of, but I didn't

Seth Levine: say it. I'm happy to say it out loud. Cause I think that it's just the irony to me of the venture business is that, VCs tend to not be great operators of their own firms. So I, I think that taking a step back and really thinking about how you act as a manager in your own firm perhaps is I don't know, an exercise that many VCs would benefit from.

MPD: I think the reason, just to take a tangent on this for a second, wife, this doesn't usually manifest in the right way, is a lot of VCs in my experience, this is just my observation of it, never thought they really went into the business of business building. It was like, Hey, we're gonna raise some money and do some deals.

Yes, we have to have a logo. Whereas I think if people who have. Who come at it from, Hey, I'm building a business and I need to think about customer service and operations and automation and systems and personal development. You take it with a different lens, and we're very much in the camp of Interplay is a company.

It happens to be a service business, but two clients, two sides of the market, entrepreneurs and LPs. But we think about it very much in that regard and then all the things you end up saying to people, you should be doing. Because they all apply. So it's this weird, it is this weird paradigm that I've noticed.

You

Seth Levine: guys and you said something important, mark, which is that you're building a company, right? Yeah. And I think that the paradigm that many VCs lack is that they're building a company or a business, right? They're building, they're thinking about it more. Like exactly as you said, doing deals.

How do I support the deals? It's transactional.

MPD: Yeah. Yeah. It's more of a brokerage type transactional. There's nothing wrong with that. And I think that does dovetail back to what are you gonna plan to do with the business if you're doing the transactional thing, yeah. Retire and shut it down. It's awesome.

Train people, help people, mentor people, but it's very different from trying to leave something behind.

Seth Levine: Yeah. Look, it's intentional and I think it's no different than the advice we give to our portfolio companies, right? Which is to understand your North Star, what you don't do is as important as what you do and use that as a framework for making decisions.

And I think, the other thing that we haven't touched on is venture is not a particularly scalable business, right? When we started Foundry, I spent most of my time of course looking at new deals. Cause I didn't have any companies that I was responsible for. And then you get three or four years in, and now you've got three or four portfolio companies that you're managing and.

You're spending a little less time looking at new things because you're, you've got your existing portfolio that need, you need to manage. Now fast forward, whatever 15 years that it's been and all of a sudden it's, wow, we have, I have 11 or 12 companies that I'm managing. Right?

You're slamming. And a few others that I'm not on the board of, that I'm also in charge of. And you spend a lot less time looking for new deals. And I think that's something that we often. We think about the business as finding the next deal. But the truth is, once you have an established platform, most of your job is how do you help companies in your existing portfolio become more successful and find a way to exit eventually.

And I think that's something that we often sort of misallocate time because really, and we talk about this a lot inside Foundry. Right now, probably 95% of our time. Should be spent and is spent working with the existing portfolio because that's what we're doing. We have an existing platform and we're adding to it, but we're adding to it.

Five, six companies a year maybe. May, maybe not even that quickly. Yeah.

MPD: And we're in a different game. We're a co-investor, right? We do not take board seats. We underwrite our own deals, but. We partner with folks that we will do play the role you're playing. So it's a completely different strategy.

I think there's two ways to do this business. The pr where people get in trouble is when they try to straddle both. Yeah. When they wanna be the co-investor on the board seats and then they're not deploying enough capital. Cause we're, we keep a high, a higher new deal cadence. We do ten eight to 12 deals a year.

Yeah. And we can sustain that cause

Seth Levine: we're not on boards. But, and you have, yeah, you have a business model.

This,

MPD: it's more two by two when they're somewhere and people get in trouble when they're not in one bucket or the other when they're halfway in each.

Seth Levine: The other thing I've noticed, mark, is that people hold onto boards for too long, right?

I, we've obviously, we work with a lot of seed and series A funds and I, I've counseled many of them you should have a strategy to get off of boards. And actually, we at Foundry have had a strategy to get off boards. What is that?

MPD: How do you, how should people think about getting off of boards?

What's the right timing, the right way?

Seth Levine: I think you need to think about what your own sort of zone of expertise looks like. And then also think about what your bi, what will support your business model. And so for many seed funds, Once you're, once the company is series A and certainly series B funded, it's time to step aside.

And in our case I've felt and I've worked with companies all the way to I p o, so it's not that I don't have the board experience through, through public scale businesses, but we've had a number of co I, I'm always looking at which boards I'm on. Are set up in a good way without me, right?

And I think that there's this cliche in venture, right? Like you wanna be the first call, which I think is such bs, right? If you're the first call for everything, you have a bad board, right? That's a crappy board. If I'm the first call for everything, the c e O can think about whether that's HR sale, m and a financing, legal, whatever.

That's, that absolutely shouldn't be the case. You should, we should have a board that has a diverse set of experiences where, Other people are getting phone calls, right? Not just me as the lead investor or me as a big supporting investor. And so as part of that, I've looked for opportunities to step away from boards.

I had this kind of funny experience, one of our companies that's really, it's done extremely well. And I stepped off the board at the series, I don't know, C or D, something like that. They had, and they had a bunch of big investors. Sapphire and GA had come in and open view, and they were really active.

In this case, I know the CEO really well. I've known him for 20 years, and I stepped off the board. They raised another round, and one of the new investors called me and basically said, Hey, what's the problem with the company? Like, why would you step off the board? I had to describe to them like, Hey, I don't, I'm not looking for check marks on the belt or whatever.

I am very comfortable with, that's the thing though, is on. And I basically said, look, I wanna get invited. It's on an I P O. Trajectory and it's basically i p scale ring. And I, I said to the C E o, I want to get invited to the bell ringing. And he and I still have a monthly update call. And I'm, I get all the board packets, I read 'em and stuff like that but I didn't need to be on the board.

He's got plenty of VCs and growth equity now on the board. And I think that's something that people get wrong. Like they wanna hold on to companies because the, it's, I don't know, ego stroking makes 'em feel good or whatever it is. And. I guess I just don't feel that way. I And Foundry doesn't feel that way.

Yeah. I think

MPD: You know what the issue is and you said it without saying it, it's not about adding value and it's not even about defending preferred share positions or decisions. In a lot of cases, the governance, it's distributed, it's managed by a lot of other people that have aligned incentives.

It's the baseball card, right? You get to put on your LinkedIn profile, the boards you're on, and. I just don't give a shit about that. I guess you

Seth Levine: don't either. We're, and we're in the season of it. Because Midas list just came out. I didn't look at it, but I've seen on LinkedIn and Twitter and stuff like that, people posting the Hey, I made the Midas list this year, kind of thing.

And that's the kind of mentality that contributes to. Sticking with companies when it's time to move on and focus on other things. And I, I think in general, VCs can have a, you have a sphere of influence within a business that's very limited, right? You choose to make the investment.

There's usually a handful, half a dozen moments in the entire life of a company that were really impactful. A key hire, a key product decision. Those are the things you wanna be at the table for and weighing in on the day-to-day stuff. Can be important. Someone needs to be there for governance and obviously we do that in a lot of companies but it, you don't have to be there for every company.

And look, you guys are the embodiment of this, right? You're not taking board seats and yet I am certain that you have meaningful relationships with many or all of the CEOs in your portfolio, and you're providing of course, value to all of them in a different way, right? Depending on what

MPD: they need.

Yeah. Yeah. We don't have to sit through the whole meeting to pick up the phone and grab coffee and work through issues. Now look, honestly,

Seth Levine: would your life be bad if you never went to another board meeting again? I would be perfectly happy to never go to another board meeting. No I'm

MPD: not a big board meeting fan.

I do think that I love the moment where there's a breakthrough, whether that's in a board meeting or any other type of event. That aha moment that's like cracked me. I love it. Yeah. But unfortunately a lot of board meetings, some months you need it, some you don't. Right? Sometimes the issue that's really at hand isn't being discussed.

Or the management isn't aware of it, or there's politics and all of those things are really limiting factors. So we very much enjoy being quiet and sary and just being really there to be helpful and supportive. That's our, that's the role we've picked for ourselves. Now. There's limitations in our model.

We can't run 4.3 billion through that strategy. There's a limitation to it. Yeah. But it suits us well. But I wanna talk about you like we Look, I started this business in oh six, my first year in there was a few firms I was paying attention to and learning from. You guys were obviously one of them.

You had been in the business before, right? That wasn't, Foundry wasn't your first stop, right? Things have changed. You've been doing this, I'm guessing, for at least 20 years. What's, how has the market evolved? And I know that there's probably a bunch of answers to this, but one of 'em, you wrote a book about.

Do you wanna talk about how the market's changed and how entrepreneurship in America has changed?

Seth Levine: Yeah, so let's talk about it broadly. And you're right, I've been in, I've been in venture for 22 years. I started in 2001, which was a interesting time to start. And the venture business, by the way, has changed significantly in that period of time as well, and I think mostly for the positive.

I'm really, it was very Silicon Valley centric when I started. We had a lot of trouble raising our first foundry fund here in Colorado, even though we had a national strategy, but people just didn't understand. The idea of running a firm that was national but based somewhere, other than the West Coast, right?

New York as a market, which is where you started in venture barely existed, right? There were so few firms. Think about that relative five back then. It's crazy to think about how different it is today. And by the way, that's one of the reasons I spent so much time in New York is I was, I recognized that I, one, I had an affinity for it and I had a good network there, but there weren't a lot of other VCs running around there.

I wasn't gonna go to the valley and, somehow make a name for myself. I felt like I wanted to go to a market that I thought was emerging. It's funny to talk about New York that way, but it felt like that in 2006, 2007. Oh, it was emergency where weren were as many people running around. Yeah. Cut. Let's take the broader context cause I appreciate you bringing it up. I did in fact, just over two years ago now, as we're recording this release I'm gonna call it my first book cuz I'm working on another one. But right now my first and only book that talked about some of the changes that are happening in the broader entrepreneurial landscape in the United States and it's called The New Builders.

And it describes people that are starting businesses in today in America are, are different than you think. It's certainly different than what's been covered in kind of the traditional business press and frankly, a little bit different than is funded for the most part by Silicon Valley.

And it's important to remember, Silicon Valley only funds about 1% of companies. That are started in the United States. So it's obviously, it's big, it's a big dollar amount. And these can be important companies and they can be impactful across the rest of the economy. But but 99% of businesses aren't taking money from venture.

And these are the businesses as you walk up and down Main Street or drive around office parks and things like that. And the truth is, the people that are starting those businesses have changed dramatically over the last 40 years. And specifically women and people of color, immigrants.

Older folks are starting more and more businesses and we talk about that a lot in the book, right? Four women are four times more likely to start a business than men. 64% of all female started businesses. Female founded businesses are started by black women. They're the single fastest growing group of entrepreneurs.

Immigrants are twice as likely to start a business as someone who was born in the us. But yet we don't really do a good job of allocating capital to them, right? People who have money have, or capital allocators, I should say, look more like you and me. And that's a lot of what we talk about in the book, which is there, there's this gap of capital and also of other sort of technical assistance, style, resources, mentorship in the same to these businesses.

And the result has been that actually the rate of entrepreneurship in the US has been declining pretty precipitously over the last. 40, but in particular last 15 years or so. Big bump after covid. So maybe we're bouncing out of it. Nothing like a recession to encourage people to start businesses.

We also sent a lot of money to a lot of people and I think that's helped free people up and enabled them to start their business. But we sound the alarm in the book about, maybe rethinking the ways in which we are channeling capital to these new builder businesses.

Which I think is really important, right? We need this dyna in our economy and this vibrancy in order to stay a strong economy, right? The small businesses, oh businesses in their first and second year account for more than a hundred percent of the job growth in the United States on a net basis.

And that, that includes venture funded companies too. And the truth is for small businesses they comprise something like 50% of employment in the United States, 40% of U S G D P. It's a big economic driver, but we don't talk about it as much cuz they don't have lobbyists. They don't, they're not in the mainstream popular culture.

We really like to talk about the high growth, unicorns as we call 'em in Silicon Valley. Companies that have the potential to be worth a billion dollars or more. But in the new builders we talk about maybe the co the economy as a whole needs. Whatever for unicorns, but we need a bunch of camels, right?

Like real actual businesses, right? Not 10 animal. And hardy kind of the workhorses of the economy. And I think that's something that we sometimes miss when we glorify these kind of scale venture backed businesses at the cost of smaller Main street businesses that are really the backbone of our, not just our economy, but also our communities.

You're talking about

MPD: a, a more diverse population building, particularly in the small business side. What's driven the demographic shift? What

Seth Levine: unlocked it? Yeah, that's a great question and it's not totally clear. Some of that is lack of opportunity elsewhere. I think when you ask black women, and we talk to many of them when we were doing research for the book there are a lot of stories of people feeling like they hit the ceiling in traditional business.

And as a result are forced to go do their own thing in order for their labor to be valued in the way that they think it should be valued. And certainly, especially in the case of black women, we have a, 400 year plus history in the us obviously longer globally of v not valuing, like literally zero value, not valuing their work.

So there's that side of things. But I think more generally that We've lost this sort of meritocracy in our economy. If you go back 50 years you, if you were born in the bottom 25% of wealth in the United States, you had a 25% chance of dying in the top 25%. Easy to remember. Cause it's twenty five, twenty five, twenty five.

Today, if you're born in the bottom 25%, you have a 5% chance of getting to the top. 25% before you die. So we've lost this idea of economic mobility. That was the American dream. Literally that's what we're describing, right? That was the American dream was no matter what your circumstances, you can make something of yourself.

And I think that in part, These demographics, starting businesses and becoming more entrepreneurial is reflective of that as the path to achieve that, right? Because we have such disparity in access to education now, both public and then college, right? We have vast disparities in access to other resources.

And so what you're finding is in those pockets that lack, that traditionally have lacked those resources, they're taking it upon themselves to go and figure it out. So I think that's, I think that's what's driving,

MPD: I heard a speaker once upon a time say, if you wanna live the American Dream, move to Scandinavia because the data in the US is not supported anymore.

The same way you used to. Yeah. It's not zero social mobility, but it's not. It's not as open of a door as it used to be, which is terrifying and sad.

Seth Levine: Because meritocracy has gone away, right? Because there are so many structural advantages to to being born wealthy, and being born privileged.

And we used to do a better job again, particularly like education to me is like the. Foundation for allowing so expensive and ab Absolutely. And if we have very disparate education systems, becau, because of the way that most places fund education through property taxes. And so that unfortunately has created a system where wealthy.

<