The genesis of the idea was to get our three portfolio companies in our Digital Life Theme together – namely Cloud Engines, Memeo, and Pie Digital – for a day or two of knowledge transfer and collaboration. After mulling the idea around, we decided to extend the gathering beyond our own portfolio and invite executives and board members of venture-backed and public companies that play in the broader Digital Life universe.

On the first day, we hosted board meetings with our portfolio companies followed by a dinner as a group at Restaurant 4580, one of our favorite places to enjoy an evening with a medium sized group. We began day two with a closed session where our three companies got together and talked about topics and issues relevant to each of them. In the second half of the day, we had an open session that included executives from companies as diverse as Apple, Comcast, CBS, Bug Labs, Boxee, EchoStar, Liberty Media, Sling Media, Sonos and Qwest. This afternoon session was organized around a series of interactive panels dealing with topics from building extraordinary consumer devices, marketing new products, and working effectively with strategic partners.

The day was concluded by a fireside chat with John MacFarlane, CEO of Sonos and Blake Krikorian, founder of Sling Media, moderated by Stewart Alsop. The discussion of what the digital living room would look like in five years continued well into what was a fantastic dinner at 14^th Street Bar & Grill.

We had a great time hosting this superb set of people in Boulder. In addition to plenty of insights, we had a lot of fun together participating in a wide range of conversations that wouldn’t have happened at a larger conference. We’ve now got focused events covering three of our four primary themes – we expect it’s just a matter of time before we do something around our Human Computer Interaction Theme.

We’ve been flattered with the feedback on our new Foundry Group website design.  We had a lot of fun putting it together and are really happy with how it turned out. Websites for venture firms can be a challenge and in our case we wanted to create a site that was informative, serious but not stuffy and corporate. It was also important to us that it reflected our personalities.

The front page picture for us is the real highlight of the new design.  Our intent was to poke fun at ourselves; not to imply that we were about to form the new Foundry Group band (although Jason and Ryan are indeed in a band together). The shot is actually a take-off on the iconic Reservoir Dogs picture (not of U2 as some have speculated). 

The picture came about almost by accident. After taking a bunch of individual candid shots (some of which ended up on our respective bio pages) we headed out to take some more industrial looking “Foundry” pictures in an alley near our office. Just before we left Seth’s wife, Greeley, called to suggest that we stage a Reservoir Dogs picture for fun. It was the last photo we took that afternoon and it wasn’t our intention at the time to use it anywhere on the site (we took a bunch of different group shots that day specifically for that purpose).  Fast forward a few weeks to when the photographer sent us the proofs. Upon opening these final shots of the day the unanimous and immediate thought was “this has to be on the front page of our new site”.

We’ve kept much of the content from the prior version of our site and continue to have the focus of much of the site on our blog as well as information on the companies in which we have investments.

For us, there was another important announcement at the meeting this week – that Jason has joined the board of the NVCA. This is a both an important and well deserved honor that puts Jason in a position to significantly effect our industry over the next four years of his term on the board. Jason has been involved with the NVCA for years, particularly founding and working actively with a group that put together the NVCA’s model financing docs (if you are a venture backed company that has closed a round in the last few years chances are pretty high that you benefited from this effort).

We’re extremely proud of Jason and the leadership he’s shown on a national level in our industry that led up to this significant honor. Please join us in congratulating him on this great achievement.

1. Don’t buy a television for the next 6 months. This is certainly counter to what retailers and producers would want us to say, especially given the current state of the economy, but all the major brands are introducing exciting technologies in the first half of 2009. The TVs are thinner (some less than 1mm!), brighter (LED backlighting rocks), faster (240mhz refresh rate) and offer superior contrast ratios (1,000,000 to 1 and even higher). Next to the best of today’s generation of panels, there is no comparison. Having been to CES a few years in a row, this year seemed to demonstrate the biggest improvements on imaging. If you don’t buy a TV in this generation, hold on a couple of years until OLED TVs are commonplace and then sit a back and look at the best displays we’ve ever seen. For now, we’ll geek out on LED backlit generation two screens.
2. Everyone is trying to make things easier on consumers. It only took 20 years or so, but consumer device manufactures, both large and small are finally focusing on the consumer experience. Maybe this is the effect of Apple’s entrance into the consumer device ecosystem, but this year, in particular, showed many instances of deep thinking about usability. What was of particular interest to us were some of the startups that attended the show and instead of presenting groundbreaking technology, rather have executed on current technologies to bring the consumer a needed digital solution with the ease of use never seen before at an unexpectedly low price.
3. 3D on TV. Full HD TVs and projectors that have incredible 3D-images (glasses needed) are now consumer available. Clearly the amount of content available will drive how popular these devices become, but the technology is really impressive to experience. We played a VW racing game in 3D and would have been happy to sit there all afternoon, or at least until the inevitable headaches set in. There was also a prototype of a 3D TV that didn’t require the viewer to wear glasses. It was pretty rough, but cool at the same time. We have our doubts that the entire universe of content will ever go 3D, given how different the production tools and processes are for live-action movies and television. However, for media like video games and CG animated content which are largely “3D native” already, there should be less of a hurdle to create appropriate 3D content, and probably better justification from a user-experience perspective as well.
4. SanDisk has a power marketing department. SanDisk had their usual large presence and this year the big announcement was a 2GB Rockband-branded SD card. All for the low price of 13 bucks. Yes, you can buy a regular SD card for about 4 bucks, but why not pay an extra $9 for a cool sticker? Well done, SanDisk. Also, similarly, one can now purchase a cool looking Godfather-branded USB thumb drive, (not from SanDisk) but it does contain some Godfather content, at least. Speaking of content, SanDisk also brought out a new MP3 player for lazy people called the slotRadio. The MP3 player comes with 1000 preloaded songs based on standardized genre playlists chosen by the company, not the user. Over time, a user can order new cards to put into the MP3 player’s slot, each card having a different genre of music pre installed. The only controls on the device are play and skip (i.e. no “back”). Call this the MP3 player for people who really don’t like music.
5. It was virtually empty at the show. Okay, that is a gross overstatement, but the hotel rooms were half the price of last year and it was definitely easier to navigate on the convention floor. The folks at CES claimed there was only an 8% drop in attendance, but it felt like a lot more. Our bet is that folks who registered beforehand didn’t buy plane tickets and hotel rooms and didn’t show up. CES probably included these folks in their numbers. After all, they have booths to sell based on attendance. Some reports have the attendance at 22% down.
6. Nobu is still excellent. Enough said. Guy Savoy was also scrumptious.
7. Human Computer Interaction. We were excited to see the continual refinement and presence of next generation human computer interactions. Frequent readers to our blog will note that we are huge fans of HCI. We wouldn’t say there was anything earth shattering, but it was nice to see multi-touch and other similar technologies progress.
8. Connectivity matters. Connecting more devices to more content in more places was a big theme. On the wireless front, there was a wealth of smart phones, LG’s new Dick Tracy-esque watch cell phone, lots of in-car connectivity (satellite TV, in-dash computers with mobile Internet, etc.), and a push to deliver more relevant content (traffic, weather, sports, etc.) via traditional GPS devices. And while the idea of accessing the Internet on a TV seems a bit passé (WebTV pioneered the idea about 14 years too early), 2009 just might go down in history as the year that this idea truly came to fruition. TV manufacturers seem to have embraced the idea—we think having this built into TVs is a big step forward when it comes to the average consumer—and the wealth of newly available content like NetFlix streaming movies and Yahoo’s widgets should make for a more compelling experience than WebTV’s original email-on-your-TV proposition.

We made seven new investments in 2008. Two of the investments were seed rounds, four were first rounds, and one was a second round investment. We invested across three of our themes: Glue, Human Computer Interaction, and Digital Life. We covered plenty of geography with investments in the Bay Area, Los Angeles, Seattle, Boston, and Boulder.

While the global economy took a major downtown in 2008, we are strong believers that great companies can be started in any economic environment. We invest in the very early stages of a company’s lifecycle with a view that it will take them three or more years to hit their stride. As a result, we don’t try to time markets. Instead we pace our investments deliberately and strive for a consistent investment pace through the investment period of our fund.

Following is the rundown by month.

March: Gnip is developing an infrastructure service that helps solve the “many to many” API communication scale problems of web services companies. Gnip has launched their data portability service and currently are processing around 10 million transactions a day between dozens of data producers and data consumers.

April: Smith & Tinker is creating a hybrid platform that integrates the best features of online and offline gaming with the goal of reinventing play for the connected generation. Smith & Tinker’s first game – Nanovor – will ship in 2009.

June: Topspin Media has built a CRM platform that allows recording artists and their management to control marketing, monetization, analytics, and distribution of their assets including digital merchandise and ticketing. Topspin is already powering artists such as Byrne & Eno and Paul McCartney’s band The Fireman.

July: EmSense has created the first scalable physiological and brainwave measurement technology platform, enabling quantitative testing of an audience’s cognitive and emotional engagement during a media experience.

September: Trada is developing an online advertising marketplace. Trada will drive a new level of efficiency and effectiveness into online advertising campaigns.  Look for Trada’s launch in 2009.

September: Pie Digital has created an “IT department in a box” for the average consumer. Their affordable software platform, desktop device and service dramatically simplify the installation, maintenance and expansion of home computing equipment and networks.

December: Brightleaf is a legal process automation company aimed at providing business and legal solutions to legal departments and law firms. While we don’t often invest in companies in vertical markets, Brightleaf is right in line with Jason Mendelson’s Law Firm 2.0 philosophy.

We also participated in follow on rounds for three companies that we initially funded in 2007: AdMeld, Lijit, and Zynga along with a follow on round for Gnip.

Thanks to all the great entrepreneurs we’ve had the chance to meet and work with this year. Whether we funded your company or not, thanks for spending time with us. You guys are the heroes of the innovation process!

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.

You can get a sense of how our thematic approach translates into specific investments through our Portfolio Companies blog category and our list of current portfolio investments.

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.

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.

This is somewhat of a departure from the typical venture capital model, in which venture partners are often islands unto themselves – free to pursue their version of venture capital in whatever way they see fit and to whom their fellow partners function less as a sounding board and more as an arbitration panel through which they must pass deals before they can be officially approved.  While we recognize that our business will still be built on individual reputations and that it’s simply not practical (or wise) to have every partner involved in every aspect of the businesses in which we have investments, we believe that our team philosophy will ultimately drive better returns for the companies in our portfolio and subsequently for our investors.  For us – who each bring different expertise and backgrounds to Foundry – this is a core operating philosophy and one that we believe characterizes the next evolution of the venture capital business.

As a practical matter, this philosophy results in different behavior than one finds in a typical venture firm.  For starters, we don’t have a concept of “my” deal, and as a result we are quick to share new opportunities across the firm.  The person who is the initial contact on an investment isn’t necessarily the one who ultimately takes the lead on working with that company.  Typically, we very quickly get several partners involved in potential investments – both to share opinions and feedback, but also so investments don’t become sponsored in a way that makes any one person feel that he needs to lobby for “his” deal.  When we get serious about a potential investment, we strive to get the company in front of all five Foundry partners early in our evaluation process.  This surfaces potential issues early in the investment process. We often then have the partner with the greatest concerns take the lead on exploring those areas further.  This is in sharp contrast to the typical venture model where a single partner typically works on a project through the point when they decide they’re serious about an investment, then brings in a partner or two for a quick second look and finally brings the company in for an up or down vote by the full partnership. (In many venture firms, it’s not unusual for this full partnership meeting to be the first time any of the other partners has had an opportunity to review the investment.)  We believe that by involving the full group earlier in the decision making process we make better informed investment decisions in which each of the five of us has had meaningful input.

Our team approach doesn’t end once we’ve made an investment.  While it’s not practical for all five of us to share responsibility for every deal (and we do have individual board responsibilities), we typically have several partners involved with each of our investments.  For us, this starts with fluid information sharing at the firm (the topic of a future blog post) so that each of us knows in some detail the key priorities for our portfolio. In some cases several partners attend board meetings (one as the board member, another as a board observer).  It also means that we are thoughtful about which partner takes a given board seat and that our thinking on that may change in through the life of an investment. In fact, we’ve already had one example where we made a change in our board representation based on where that company was in its lifecycle and the relevance of our individual partners’ skill sets.  While this won’t be a frequent occurrence it underscores our belief that we best serve our investors and our companies by thinking of our investments as “Foundry” investments, rather than as individual partner investments.

We recognize that our philosophy towards managing our firm may be different from others, however we strongly believe that our team approach yields better investment decisions and broader, more meaningful impact on our portfolio of investments.

In early 2007, Brad was one of the founding members of the Entrepreneurs Foundation of Colorado (EFCO). EFCO was created to encourage the various constituencies of entrepreneurial companies in Colorado (including founders, employees, and investors) to incorporate philanthropy early in the creation of their companies and contribute to the long-term health and sustainability of our community. To date, eighteen entrepreneurial companies in Colorado have joined EFCO – Foundry Group makes nineteen.

The mechanics of EFCO are straightforward – companies contribute 1% of their post-Series A equity to EFCO. This is done in the form of a warrant that is only exercisable in a change of control so that there is no administrative overhead on the company. At the time of the grant, the company also allocates the future gift to a community foundation, a specific charity, or some combination. When the company has an exit event, the cash generated from this gift is distributed to the designated organizations.

The Entrepreneurs Foundation has chapters in eight other major cities around the country and one in Israel. To date there are approximately 700 member companies (representing over 20,000 employees) who have contributed over $15 million to support various charities. In Foundry Group’s case, we are contributing 1% of our carried interest (the functional equivalent of 1% of our equity) to the Community Trust Endowed Fund of the Community Foundation Serving Boulder County.

In addition to the financial contribution, EFCO serves to engage all employees of an EFCO Member Company in the process of philanthropy – to the extent that they want to. In August EFCO will have its first major Entrepreneurs Foundation of Colorado Members event where it will gather as many members and their families together for a half day to learn more about local philanthropy, engage in a specific family friendly project that benefits our community, and have some fun together.

We are proud of how quickly the Colorado entrepreneurial community has embraced the Entrepreneurs Foundation of Colorado. Given that many well known venture capital firms participate in the Entrepreneurs Foundation program on a national basis, we hope others follow our lead and up the ante by participating financially.

For those of you who don’t know, Ryan and I met in 2000 while at the California offices of Mobius Venture Capital, became quick friends and even started a band or two. (Shameless Plug Alert: Our band Soul Patch has recently released a new album. Check out the web site and buy on CDBaby, iTunes and Amazon. Become a fan on Facebook!). When the concept of the Foundry Group was born, one thing that the five of us agreed on was the need for one (and only one) office.

It didn’t take us long to decide that both the Boulder and Foundry Group opportunities were what we wanted to pursue with our careers, so, after a combined 27 years in Northern California, we sold our homes in the Bay Area and moved to Boulder in mid 2006. We’ve now been here almost 2 years. What have we learned?

Boulder is an entrepreneurially vibrant community. We were both surprised and encouraged by the sheer amount of startup activity there is in Boulder. It’s not just a by-product of having several good universities nearby; rather it’s really part of the culture and fabric of the community. I’d compare this to Ann Arbor, MI, where I went to school. Many people compare Ann Arbor to Boulder (without the mountains). While I see plenty of similarities, Ann Arbor is missing the ingrained culture of entrepreneurship (and associated risk profile) although it may have similar engineering and management talent.

Boulder is a supportive community. There really is a sense of community here. While there is a ton of activity, I don’t know if we’ve ever been to place that is as supportive in each other’s efforts. Instead of competition, there is collaboration. Whether it’s the Boulder NewTech Meetup, the Boulder OpenCoffee Club, Boulder Software Club, or TechStars, there is a general sense of community and responsibility to help the entrepreneurial community grow. I can’t say that I ever felt that sense of responsibility and “giving back” in the Silicon Valley that I feel here.

Boulder makes nationwide travel much easier. As national investors, it’s much easier for us to travel anywhere in the US from a central location like Denver. We’ve even been able to take day trips to New York, an impossible feat from the Bay Area, at least without a private jet. While an East Coast day trip is not the most fun one can have, our families appreciate us being home at night. And getting back and forth to Los Angeles and San Francisco, where we travel most frequently, is a relatively painless and efficient experience.

Speaking of travel, both Ryan and I (coincidentally) live on the same block in a neighborhood a few blocks away from our office. Our “commute” to the office is infinitely easier than our prior commutes in the Bay Area. The time saved can be spent on work or play, but either way, it’s not spent in the car. (For those voyeurs among you, you can check out our neighborhood by going to Google Maps and clicking “Street View”.

Being in Boulder helps focus our West Coast activities. There is no doubt that the volume of startup activity in the Bay Area dwarfs that of Boulder, and we have often been asked if we are concerned that we are missing out on opportunities by not having an office in the Valley. On the contrary, we consider being outside of the (sometimes provincial) echo-chamber of Silicon Valley to be genuinely useful. After experiencing life as VCs in the Valley for several years, we experienced a very real “time tax”, which resulted from taking meetings with entrepreneurs and executives we knew we were unlikely to invest in, but we felt were ultimately necessary to participate in in order to maintain our relationships with friends and colleagues in the area. Not being in California every day means we can opt out of that process. With our new location in Boulder, we still have our great networks and deal flow in California, but we have removed the Sand Hill Road friction from our day-to-day lives. When we do go to California to look at deals, meet with entrepreneurs or attend board meetings, we are better focused at the matters at hand and tend to have higher quality meetings, since those meetings have passed the “is it worth hopping on an airplane to meet face to face?” test.

Boulder’s culture encourages a healthy work-life balance. Boulder has an incredible amount to offer with easy access to mountains, hiking trails and natural beauty. People actually have time and focus to concentrate on things outside of work. It’s definitely a slightly saner pace. It’s not that people don’t work hard – they do – but there is a certain amount of balance that isn’t completely explainable unless you live here. For us, it’s meant that the hours we do work are more efficient and our brains are sharper.

So is Boulder utopia? No, nothing is. Ryan and I will “forever” tease our partners who told us that winters were mild in Boulder. Upon our arrival, we had the “opportunity” to experience the worst winter “ever” in 2006-2007. We’re also being told this winter is “below average,” which means that we’ve clearly brought bad luck with us. Either that or we were sold a bill of goods. More on that next year, I suppose. Also, we both miss some of the culinary options of the Bay Area, but we’d be in the same situation if we lived anywhere else but New York or Los Angeles (with apologies to Chicago). Finally, we must mention that the Denver Airport has the worst parking facilities in the world. They are regularly full, making for some tense moments pre-departure.

But in general, Boulder is a great place to live, work, play and (in Ryan’s case) raise kids. We’ve embraced our new hometown, and we look forward to continuing our integration into the community, both from professional and personal standpoints.