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Pictured above: The Foundry Group channeling Mad Men
Startup communities with their own venture capital firms located nearby are at an advantage. In Colorado, the fact that four out of top five most active venture capital firms are based within the state seems to confirm that belief. The truth however according to Colorado’s most active venture capital firm, The Foundry Group, is more complex than it looks.
The Foundry Group has a portfolio of nearly 60 companies and tends to make seed and early stage investments of $250,000 to $500,000. Based on the number of deals closed in Colorado, The Foundry Group is the most active venture capital firm within the state. But Levine believes the location of their Colorado-based portfolio companies is more coincidental than their Boulder location might suggest.
“Our investing approach is thematic- we go where our themes take us and don't constrain ourselves to specific geographies. That said, there are so many exciting companies coming out of Colorado, and that has certainly contributed to our investment pace here,” said Seth Levine one of the managing directors at The Foundry Group.
“When we started Foundry we expected that about 1/3 of our investments would be in Colorado, with another 1/3 in California, where we have deep networks, and 1/3 elsewhere in the country,” said Levine. “This wasn't something we managed to do, it happened naturally; our investments have generally lined up with the 1/3, 1/3, 1/3 expectation.”
The Foundry Group finds its investments via a number of routes, some reflecting more formal approaches to sourcing investments and other reflecting the firm’s personality.
“We source our investments from many different places. A majority come through some kind of connection; referrals from entrepreneurs are probably our best source of deal flow, but we also see referrals from other people in our circles,” said Levine. “But we also receive a large number of interesting ideas through people that have found us through our writing. We maintain an active blog as a firm, but also individual blogs, as well as through three conferences that we helped start and run: Glue, Defrag and Blur.”
Cold emails with attached business proposals don’t tend to do as well at The Foundry Group. “We receive approximately 5000 business plans a year at Foundry of which we fund between six and eight,” said Levine.
Those referrals, blogging connections and conference meetups tend to foster relationships with local entrepreneurs. And sometimes those relationships turn into investments.
“Although, we're starting to see the seed dynamic change with platforms such as AngelList, still the majority of seed capital does come from local investors. And as we've shown here so effectively in Colorado, it's not just money that's important at the seed stage it's also access to strong mentors and advisors,” said Levine. “This is a huge advantage that Colorado has over other markets - experienced entrepreneurs are eager to ‘give first’ and help others in the community out.“
This is where Levine makes a distinction between the strength of local investors and the strength of the companies they are investing in.
“It's widely accepted in the venture industry that it is somehow better to invest close to home - especially for seed or early stage investors. I think that's flat out wrong,” said Levine. “Colorado's venture environment is thriving because Colorado entrepreneurs are thriving. I firmly believe that entrepreneurs come first- the strength of our local entrepreneurial community is the seed from which all else related to entrepreneurship, especially including the investing side, germinates.”
