Anything's Possible

One of my favorite founders in Boston is Jason Jacobs of Runkeeper.  Every time I see Jason, I mention to him how impressed I am with what I’m hearing about the progress of Runkeeper.  Without fail, Jason graciously thanks me for the encouragement and then shares the many challenges they are facing how much work there is to do to achieve his vision.

When I was starting out as a first time venture-backed CEO, I was way more insecure than Jason.  I was afraid to talk about the challenges with my team or board, for fear of seeming incompetent or dampening enthusiasm for the company.  Instead I harbored the challenges internally and always talked about how well things were going, until someone would point out the inconsistency of how far behind plan we were.  In reality, overselling the progress is what made me look incompetent.  I really wasn’t effective as a leader until I started focusing with everyone around me on the problems, while using the vision to build enthusiasm for the company.

Now that I have a portfolio of terrific founders, I have consistently seen this as the operating mode of the very best ones and particularly of successful repeat entrepreneurs and great operational CEOs.  Ask the typical entrepreneur how things are going and they feign a smile and say “terrific.”  Most founders feel the need to constantly convince their investors and everyone in the ecosystem that the company is doing extremely well; that the operational plan is well within hand, and the company is consistently outpacing it’s own aspirations.  This is not a characteristic of great entrepreneurs.

My best portfolio founders spend their board meetings telling the investors what is wrong with the business and how they are trying to solve those problems.  They don’t feel that they need to oversell the progress, because the ambition of the vision is the reason that they are so passionate and the reason that all of their constituents are committed to the venture.  The good news is either in the numbers or it isn’t in the numbers.  Hand waiving undermines credibility.  By putting the challenges on the table great leaders demonstrate how on top of the issues they are.  Most board members hear the bad news and think that at least they have someone excellent who is completely on top of solving the problems.

I have way more confidence in those that spend their time unearthing and focusing on the problems than those who pretend they don’t exist.  Sharing the challenging realities doesn’t demonstrate incompetence; instead it demonstrates the exact opposite.  Keep everyone energized by the big vision, but don’t oversell the progress in achieving it.

In late 2008, in the midst of the financial crisis, a small band of founders got together and started imagining the fund that we all wished existed when we started our own companies. We felt that there was a gap in the market for a fund that was dedicated to the seed stage and run 100% by founders and for founders – we called it peer-to-peer venture capital.

Founder Collective I was an exciting experiment.  We had all been actively angel investing for several years before we started the fund, but would it work for two of us to be full-time while five of our partners ran startups day-to-day and worked for the fund part-time? Would smart entrepreneurs appreciate the unique elements of our offering and want to work with us?

Founder Collective has now been in business for a little over three years.  We strive every day to live up to our mission of being the most aligned fund for founders at the seed stage.

We’re delighted today to announce that we’ve closed Founder Collective II – a $70MM fund continuing the work that was started by FCI and based on the same founder-centered vision.

We support this vision by looking at the world from a founder point of view and focusing our investments at the seed stage.

Every person involved in Founder Collective is an entrepreneur.  FCII, like FCI, will be managed full time by the two of us, with our other partners working part time for FC while primarily focusing on their day jobs of running companies. We are proud Founder Collective has had the privilege to back our own partners, Zach, Bill, Caterina, Chris, and Micah, on their startups. We feel that keeps us uniquely connected to the day-to-day challenges of running a fledgling company.

By dedicating ourselves to seed, we deliberately avoid the misalignment of being a net buyer round after financing round, while our founders are net sellers.  We are not buying an option on the future. Our founders don’t feel compelled to constantly oversell to make sure we keep buying. We invest at the beginning and then sit on the same side of the table.  That makes it easy for founders to talk to us about the ground-truth of their businesses, without fear that we’ll lose enthusiasm, and hopefully puts us in a better position to help.

Founder Collective is committed to backing exceptional founders and their visions of the future.  We don’t seek out founders that validate our particular thesis within a defined set of themes.  Show us a big business that can be transformed by technology and great people eager to prove it, and we want to be part of the journey whether it’s democratizing text books, fundraising for medical care, automating agriculture, rapid testing for food safety, or rethinking ground transportation.
 

We are deep believers in the entrepreneurial ecosystems of our home turf of NY and Boston.  This will remain our focus, while we’ll continue to invest in the Bay Area where three of our partners now live.  

Chris mentioned in his original blog announcing FC that the word “Collective” may sound a bit radical, but it is intended to emphasize our focus on peer-to-peer investing.  Over the last three years we’ve tried hard to honor our name.  Our founders actively help each other and help our fund.  We learn from them every day.

We see Founder Collective II as the next step in building a sustainable collective that will contribute to the startup world for many years to come.

– David Frankel & Eric Paley