June 18, 2020
I have heard people ask: where will the next Silicon Valley be?
The truth is, there won’t be one. Each startup community is unique, and not even Silicon Valley could recreate itself. For startup communities to thrive, we can’t simply replicate them as models. These are complex systems.
I was recently having a chat about this with Brad Feld, someone who has personally helped me over the years. In 2013, I sent him a cold email and he responded in 30 minutes with a response advising me how to negotiate an equity refresher as a founder since I had been heavily diluted. On top of that, I actually read his book Venture Deals on my way to a meeting to pitch investors in the Silicon Valley. I had no idea what I was doing when I went out to raise capital for the first time and his book was a great resource.
I am planning on releasing my own book later this year and a lot of it is inspired by topics he has written about. In the middle of our call, I found what he was saying so fascinating that I asked him if I could hit the record button to share it with all of you.
Brad wrote a book called Startup Communities back in 2012 and he is soon releasing a sequel called The Startup Community Way , where he and Ian Hathaway describe the properties of entrepreneurial ecosystems and how interactions affect prosperity.
As it turns out, support, knowledge-sharing and collaboration go a long way — they’re just as important as other resources. Building an environment with these characteristics helps us grow individually, and it continues to do so as we give back and create value for the whole, rather than the parts. I personally get a lot of inspiration from this thinking and part of what I am doing with Latitude 4 is to elevate the startup ecosystem across Latin America.
Brad is also the co-founder of Techstars, one of the first accelerators in the US, and runs the Foundry Group, his fund based in Boulder, Colorado.
In this episode, he talks about why it is important for us to feed these ecosystems and for you, the entrepreneur, to be an active participant in your local startup communities.
My name is Brian Requarth and this is Latitude 4 Podcast.
So we built this book on the framework of how complex systems work versus the two other primary types of systems: complicated and simple.
And the definition is worth 60 seconds: a simple system is making a cup of coffee. You have to follow a couple of steps but you don't have to do them exactly right each time. It’s pretty straightforward and there's different ways to make a cup of coffee: you need some beans, you need some water, you need a device to heat the water, you need a thing to filter the water through the beans and you need a thing to catch that at the end and you're done. You might need a thing to grind the beans as well… But that’s it.
A complicated system is building an airplane: it has a rulebook and you’ve got to follow the rules. And it takes a long time to figure out how to build a 747, but once you figure out how to build a 747, you build it the same way over and over again.
So a simple and a complicated system, both have recipes. The complicated system is just a much more complicated recipe.
A complex system doesn't have a recipe. There isn’t a set of rules to follow. There is a bunch of inputs. And it happens over time: the inputs generate outputs to become new inputs - that generate outputs to become new inputs. And it's not just a single thread, you have all of these different things going on that are interacting with each other and colliding and generating new outputs, that are generating new inputs. And you can do things as new inputs and you can do things as participants in that system, but the important thing that's going on is less about the people, and more about the activities between them, and those activities are what's so powerful.
And we finished writing it just as covid was happening. Covid is a complex system, right? And it's not just one, actually in the US it’s now four.
First, it's a complex system around Health. Here’s a big one: the fundamental part of covid is that there is a two-week delay between your activity today and the outcome of your activity. Because of how long it takes to interact with people that have a disease and then how long it takes the disease to incubate, and then how long it takes to get measurements. So, literally, if today I decided: “f*ck it, I'm not wearing a mask and I'm going out in public”, I don't know what the implications of that are for two weeks. Human beings do not know how to deal with that. “Oh, it’s better, I'm going out in public without a mask!” “Hey I came home and I'm still not sick, all must be good!”.
“Things are better!”
Even though in 14 days you might be totally f*cked. And, by the way, you as a person it is not a person, it's a system — it’s your commute, it’s your family, it’s your community, it’s the people you come in contact with, it’s at your state, it’s at your country, whatever…
So we have that and we have an economic crisis going on that is a complex system: in the US, who would have thought that the federal government would dispatch 3 trillion dollars in 45 days? Nobody could have predicted that!
No way! It’s insane!
And does anybody know what that actually means? Right? Nobody has any idea what the f*ck that means.
Never had that before
The third one is mental health, which you talked about as being important to you. You know, we were not designed to sit in our houses 24 hours a day, 7 days a week.
And the fourth one in the US is racial inequity. Nothing of these are new. These are all things that were going on all the time, but the collision of these complex systems creates all of these other second-order effects.
My whole professional life has been around entrepreneurship, and my emotional intellectual life has been a continual struggle between being able to do it from right here and having to drag my meat puppet all over the f*cking planet — exhausting myself and not being able to have the time and space and ability to think and engage with people, because so much of the modality of everything is person-to-person, so...
I was made for remote work.
I saw your place out there. It looks incredible, man! This open space! And Colorado is just so gorgeous, man!
Right, and I’m in the perfect location for it. I love to be home. Because I'm in Colorado and I invest all around the US, I’ve had to learn how to be a remote worker already. I’ve historically made lots of Investments without physically meeting people in advance. I have, for the last five or six years, burnt out on travel, so I do most of my board meeting remotely anyway. People come to Boulder, but I just do it remotely. And so I have evolved into a rhythm that is a very broad remote engagement with all the different things I'm involved.
At 54, I'm still happy to be involved as an investor, I invest in Foundry... I provide lots of engagement with the companies I've got there. But my aspirational goals for the next 20 years are much more around the change to society that entrepreneurship creates and doing that in a way that creates opportunity for everyone, because I think that entrepreneurship is the grand democratizer and it's across all boundaries, right? Geographic boundaries, gender boundaries, ethnic/racial boundaries, intellectual boundaries.
I love to be involved and help others enable what they want to do, in the context of this idea of entrepreneurship really changing how our society works.
This notion of entrepreneur recycling is really important in the growth of startup communities.
I'm going to give you a very specific example: there's a lot of activity and there are some companies that get pretty meaningful, but there’s something that holds the community back and you can't quite figure it out. It's not clear. There's external people thinking “nothing is going on there” and you don't attract investors at the same level. There’s a stall in certain level and then, there's often this moment, it’s a tipping point kind of moment, where a handful of companies have exits all at the same time. And you generate a lot of wealth for founder's, but you also generate a lot of wealth for early employees, and all of a sudden you’ve got a critical mass of people across more than one company that have meaningful dollars — that obviously allows them to live their life in a different way, but then turns into reinvestment in the startup community.
And, when that tipping point happens, you see this big acceleration of the activity.
And some of it is the money, some of it is the people in the leadership, some of it is the belief from the employee. People see their peers or friends making a million bucks, 2 million bucks, or 5 million bucks, and they weren't a founder! Like, holy shit! This equity thing actually really works!
And then that collective group is now investing into the next wave of seed funds.
The Boulder version of that was around 2013/2014. So even in 2013, people were like “you can’t build big enough companies in Colorado. It’s cute, lots of startups, lots of little startups… Yeah, things get bought for a hundred million bucks, things get bought for two hundred million bucks, but you just can’t build a big thing”. And in a 12-month period, three companies had exits over a billion dollars.
Two of them went public, Zayo was one of them. Rally Software... actually Rally's exit in the end was a half a billion dollars but I think in their IPO at some point they were worth about a billion dollars. And then a company called Datalogix got bought for a billion too, by Oracle... But this happened all within 12 months. And Zayo today just went private, they’re 14 billion dollar and went private with that. So really substantial outcomes!
The couple years later example was Sendgrid, which is one of the very early Techstars companies. It was the first accelerator company to go public, of any accelerator, and then it got bought two years later by Twilio for 3 billion dollars. The wave had already started, right?
So now you've got this wide range of people that are recycling into the start of community. So, if you think about that 2013/2014, there's a big level up in Colorado, and Boulder and Denver are linked. A big level up, sort of in the 15-16 time frame and then it got turbo charged again. And it got turbo charged again not just because of Sendgrid, but if you now look at all the companies in the region that are a billion dollar private companies, companies that are sort of at that scale, 500 employees, 1000 employees… There’s a long list of them. And if you look at the investors in those companies, yes, some of them are local, but there’s an awful lot of investors in those companies that are not Colorado investors.
So you have this phenomenon where it starts to build on itself, and you say “who are the wave of leaders of that?” Many of them are people like you, you know, that were the founders and the leaders of those companies, who then continued to do whatever they did, right?
Dan Caruso, who's still the chairman of Zayo… He may be the CEO of Zayo as well, I can’t remember the titles, but Dan is running his business, that's now gone private again, but he's incredibly active in the leadership, as an investor, as a mentor… Involved in lots of different kinds of activities… He actually was the leader in bringing Endeavor Colorado or Endeavor to Colorado and on and on and on, right?
Every city needs a lot of people like you in their city.
There is a word that I learned from John Hickenlooper, who was our governor for 8 years and is now running for Senate - hopefully he'll be our Senator. I learned from him a word called topophilia. And topophilia literally stands for “love of place”. I didn't grow up in Colorado but I've been here 25 years. I love this place. It’s very interesting — if you say “do you love America?” I would say “I love the idea of being an American”. There are lots of parts of America I love and there are lots of things about America I don't love, but geographically the place that I love is Colorado. And it's more than just Boulder now, because of 25 years of being in a place and being interwoven into it.
I like to try to figure out how I can not go lead in a bunch of other places but support the thinking, support the energy, and support the evolution of a bunch of other places. Frankly, in whatever ways is useful to you, because I'll never learn your city the way you know your city and I'll never learn your community the way you know your community, but I can be a node on your network and extend into your community that way and you can be a node in my network and extend my community that way. And the fact that we can all do it using this methodology… I f*cking love it!
Thank you for listening to the Latitude 4 Podcast with Brad Feld, co-founder of Techstars and Foundry Group! Each week we’ll be talking to great founders and investors like him, so be sure to subscribe wherever you listen to your podcasts. I’m your host, Brian Requarth. Until next time!