Technology

Yesterday, we had a chance to talk with longtime venture investor Brad Feld of Foundry Group, whose book &Venture Deals& was recently republished for the fourth time, and for good reason. Ita storehouse of knowledge, from how venture funds really work to term sheet terms, from negotiation tactics to how to choose (and pay for) the right investment banker.

Feld was generous with his time and his advice to founders, many dozens of whom had dialed in, conference-call style. In fact, you can find a full transcript of our conversation right here if you&re a member of Extra Crunch.

In the meantime, we thought we&d highlight some of our favorite parts of the conversation. One of these touches on SoftBank, an organization that Feld knows a little better than many other investors. We also discussed what happened at WeWork and specifically the difference between a cult-like leader and a visionary — and why itnot always clear right away whether a founder is one or the other. These excerpts have been edited for length and clarity.

TC: We were just talking about startups raising too much money, and speaking of which, you were involved with SoftBank long ago. Your software company had raised capital from SoftBank, then you later worked for the company as an investor. This way predates the Vision Fund, but you did know Masayoshi Son, which makes me wonder: what do you think of how they&ve been investing their capital?

BF: Just for factual reference, I was initially affiliated with SoftBank with a couple of other VCs; Fred Wilson, Rich Levandov and at the time Jerry Colonna, who now runs a company called Reboot. During that period of time, a subset of us ended up starting a fund that eventually became called Mobius Venture Capital, but it was originally called SoftBank Venture Capital or SoftBank Technology Ventures. We were essentially a fund sponsored by SoftBank, so we had SoftBank money. The partners ran the fund, but we were a central part of the SoftBank ecosystem at the time. I&d say that was probably &95, &96 to &99, 2000. We changed the name of the firm to Mobius in 2001 because it was endlessly getting confused with the other [SoftBank] fund activity.

I do know a handful of the senior principals at SoftBank today very well, and I have enormous respect for them. Ron Fisher [the vice chairman of SoftBank Group] is the person I&m closest to. I have enormous respect for Ron. Heone of my mentors and somebody I have enormous affection for.

There are endless piles of ink spilled on SoftBank, and there are loads of perspectives on Masa and about the Vision Fund. I would make the observation that the biggest dissonance in everything thattalked about is timeframe, because even in the 1990s, Masa was talking about a 300-year vision. Whether you take it literally or figuratively, one of Masapowers is this incredible long arc that he operates on. Yet the analysis that we have on a continual basis externally is very short term — itdays, weeks, months.

What Masa and the Vision Fund conceptually are playing is a very, very long-term game. Is the strategy an effective strategy? I have no idea . . . but when you start being a VC, it takes a long time to know whether you&re any good at it or not. It takes maybe a decade really before you actually know. You get a signal in five or six years. The Vision Fund is very young . . . It[also] a different strategy than any strategy thatever been executed before at that magnitude, so it will take a while to know whether ita success or not. One of the things that could cause that success to be inhibited would be having too short a view on it.

If a brand-new VC or a brand new fund is measured two years in in terms of its performance, and investors look at that and thathow they decide what to do with the VC going forward, there would be no VCs. They&d all be out of business because the first two years of a brand-new VC, with very few exceptions, is usually a time period that itcompletely indeterminate as to whether or not they&re going to be successful.

TC: So many funds — not just the Vision Fund — are deploying their funds in two years, where it used to be four or five years, that ita bit harder. When you deploy all your capital, you then need to raise funding and it[too soon] to know how your bets are going to play out.

BF: One comment on that, Connie, because I think ita really good one: When I started, in the &90s, it used to be a five-year fund cycle, which is why most LP docs have a five-year commitment period for VC funds. You literally have five years to commit the capital. In the internet bubble, it shortened to about three years, and in some cases it shortened to 12 months. At Mobius, we raised a fund in 1999 and a fund in 2000, so we had the experience of that compression.

When we set out the raise Foundry, we decided that our fund cycle would be three years and we would be really disciplined about that. We had a model for how we were going to deploy capital from each of our funds over that period of time. It turned out that when we look back in hindsight, we raised a new fund every three years and eventually we lost a year in that cycle. We have a 2016 vintage and a 2018 vintage and itbecause we really deployed the capital over 2.75 to three years . . .It eventually caught up with us.

I think the discipline of trying to have time diversity against the capital that you have is super important. If you talk to LPs today, there is a lot of anxiety about the increased pace at which funds have been deployed, and there has been a two year cycle in the last kind of two iterations of this. I think you&re going to start seeing that stretch back out to three years. From a time diversity perspective three years is plenty [of time] against portfolio construction. When it gets shorter, you actually don&t get enough time diversity in the portfolio and it starts to inhibit you.

TC: Very separately, you wrote a post about WeWork where you used the term cult of personality. For those who didn&t read that post — even for those who did — could you explain what you were saying?

BF: What I tried to abstract was the separation between cults of personality and thought leadership. Thought leadership is incredibly important. I think itimportant for entrepreneurs. I think itimportant for CEOs. I think itimportant for leaders, and I think itimportant for people around the system.

I&m a participant in the system, right? I&m a VC. There are lots of different ways for me to contribute, and I think personally, rather than creating a cult of personality around myself, as a contribution factor, I think itmuch better to try to provide thought leadership, including running lots of experiments, trying lots of things, being wrong a lot, and learning from it. One of the things about thought leadership thatso powerful from my frame of reference is that people who exhibit thought leadership are truly curious, are trying to learn, are looking for data, and are building feedback loops from what they&re learning that then allows them to be more effective leaders in whatever role they have.

Cult of personality a lot of times masquerades as thought leadership . . . [but it tends] to be self-reinforcing around the awesomeness that is that person or the importance that is that person, or the correctness of the vision that person has. And what happens with cult of personality is that you very often, not always, but very often, lose the signal that allows you to iterate and change and evolve and modify so that you build something thatstronger over time.

In some cases, it goes totally off the rails. I mean, just call it what it is: what business does a private company have, regardless of how much revenue it has, to buy a Gulfstream V or whatever [WeWork] bought? Itcrazy. ..

From an entrepreneurial perspective, I think being a leader with thought leadership and introspection around whatworking and whatnot working is much, much more powerful over a long period of time than the entrepreneur or the leader who gets wrapped in the cult of personality [and is] inhaling [his or her] own exhaust.

TC: Have you been in that situation yourself as a VC? Could VCs have done something sooner in this case or is that not possible when dealing with a strong personality?

BF: One of the difficult things to do, not just as an investor, but as a board member — and itfrankly also difficult for entrepreneurs — is to deal with the spectrum that you&re on, where one end of the spectrum as an investor or board member is dictating to the charismatic, incredibly hard-driving founder who is the CEO what they should do, and, at the other end, letting them be unconstrained so that they do whatever they want to do.

One of the challenges of a lot of VCs is that, when things are going great, ithard to be internally critical about it. And so a lot of times, you don&t focus as much on the character. Every company, as itgrowing the leadership, the founders, the CEO, the other executives, have to evolve. [Yet] a lot of times for various reasons, and ita wide spectrum, there are moments in time where iteasier to not pay attention to that as an investor or board member. Therea lot of investors and board members who are afraid to confront it. And therea lot of situations where, because you don&t set up the governance structure of the company in a certain way, because as an investor you wanted to get into the deal, or the entrepreneurs insist on [on a certain structure], or you don&t have enough influence because of when you invested, itvery, very hard. If the entrepreneur is not willing to engage collaboratively, itvery hard to do something about it.

Again, if you&re an Extra Crunch subscriber, you can read our unedited and wide-ranging conversation here.

What if Libra wasn&t backed by a basket of international currencies, but only the dollar?

Regulatory pushback to the Facebook-led cryptocurrency Libra has caused major partners — including Visa, Mastercard, PayPal and eBay — to pull out of the Libra Association. But one of the remaining members has floated a major change to the stablecoin that could calm concerns that Libra could hurt the world economy by challenging national currencies for supremacy.

Last week, venture partner Chris Dixon of Andreessen Horowitza16z Crypto, one of the remaining members of the governing Libra Association, spoke onstage at TechCrunch Disrupt. He said he still believed Libra will launch, but it might require some changes to get the green light from governments. When I asked what changes might assuage regulators, he told me, &For example, denominating the currency in U.S. dollars. I&m giving a hypothetical example. My understanding is the intention was never to create a new currency. Itmuch focused on the payment rails.&

We understand that Dixon meant that Libra could be pegged directly to the U.S. dollar instead of to a basket of international currencies as is the plan for Libra.

Originally, Libra was slatedto be denominated in…Libra, using the unicode symbol ≋. It would be a stablecoin backed 1:1 with a basket of the worldtop currencies that Reuters says Der Spiegel reports Facebook told a German legislator would be made up of 50% U.S. dollar, 18% Euro, 14% Japanese Yen, 11% British pound and 7% Singaporean dollar.

The purpose of the basket was to make Libravalue more consistent. A spike or decline in value of any currency in the basket would have limited impact on Libravalue, and the basket could be altered in makeup to further protect it from fluctuations.

But if it was denominated in $, the U.S. regulators in particular might be less worried that citizens might choose to use the Libra instead of the dollar. This might demonstrate that Libra sees itself as deferential to the American economic system and government Facebook must answer to.

Conversely, the Libra would become vulnerable to shifts in value of the U.S. dollar. But since many international currencies and financial systems are also linked to the dollar, there at least would be more precedent for how Libra would operate. The move could make foreign governments less skiddish about the cryptocurrency since their national currencies wouldn&t be directly influenced.

On Monday, the Libra Association will meet to finalize its membership, elect a board and create a charter governing its efforts. How Libra is denominated could be reviewed at this meeting.

Denominating in dollars could quell another worry about the cryptocurrency — that if it became popular and the Libra Association decided to change the basketcomponents or remove one currency, it could significantly impact that currencyvalue.

The French Finance Minister Bruno Le Maire previously said, &the monetary sovereignty of countries is at stake from a possible privatisation of money . . . we cannot authorise the development of Libra on European soil.&

Facebookhead of Libra David Marcus has tried to dispel this idea, saying Libra is designed to run &on top of existing currencies . . . thereno new money creation, which will strictly remain the province of sovereign Nations.& Yet regulators are still largely opposed to its planned launch in 2020.

Pegging Libra to the dollar would give the Libra Association less flexibility to maintain a steady value, but also less power. Governments wouldn&t fear that they&d need to maintain a positive relationship with the Libra Association for fear of their currency being ejected from the basket. It would put Libra more directly in competition with other stablecoins like Tether that are locked to the U.S. dollar.

a16z CryptoChris Dixon (left) speaks with TechCrunchJosh Constine at Disrupt SF 2019

Dixon also announced that Andreessen Horowitz is launching the a16z Crypto Startup School, which will offer a free, zero-equity educational program for blockchain entrepreneurs. The goal is to pass knowledge from seasoned cryptocurrency startup founders to newer entrants to the space.

Dixon says the hope is that the best students would seek investment from the fund, but that won&t be required. Those interested can sign up for more info on how to apply when itavailable, though videos of the schoolsessions will be available.

Andreessen Horowitzcommitment to cryptocurrency could make it less likely to abandon the Libra Association than some other payments companies more firmly rooted in the status quo financial system. That loyalty will only pay off if Libra ever passes muster with regulators and actually reaches the market.

The European Union is putting under the microscope the rollout of new, high-speed mobile networking technologies known as 5G in a move that could affect the technologydominant company — Huawei.

Regulators focused on specific security threats linked to technology providers headquartered in countries with &no democratic and legal restrictions in place,& according to a report in The Wall Street Journal.

The news follows the release of a public report from the European Union that enumerated a number of challenges with 5G technology.

Heightened scrutiny of 5G implementation on European shores actually began back in March as member states wrestled with how to address American pressure to block Huawei from building out new telecommunications infrastructure on the continent.

The report from earlier in the week identified three security concerns that relate to the reliance on vendors linked to technology coming from individual suppliers — especially if that supplier represents a high degree of risk given its relationship to the government in its native country.