Curtis Feeny: [00:00:00] The three big incumbents decided they were gonna go around with their little weed be gone and spray their garden and kill all the startups.

We had $200 million of fresh money, but the market went away.

You can see who's swimming naked when you drain the lake.

It's a little bit like what uh, VCs do to their CEOs when they don't do what they're told.

Someone with board experience, operating experience, investing experience, all that in one person. That's a, that's a trifecta.

I just said yes, which turned out to be one of my best decisions I ever made.

We had a $1.5 billion when this management company was founded. And by the time my, my CEO I was EVP and the, the two of us left in 2000 after about eight years together, and it had grown to about $10.5 billion.

Andrew Kazlow: Welcome to the Diligent Observer, where we help angel investors see what most miss. I'm your host, Andrew, and every week we explore what works, what doesn't, and why through conversations with experienced startup investors and operators.

Today I'm replaying one of my favorite conversations [00:01:00] of all time on the topic of startup governance. My guest is Curtis Feeny, who has personally sat on more than 35 corporate boards, including CBRE, Staples, Khan Academy, and more.

Curtis also helped grow Stanford's Endowment from $1.5 billion in value to $10.5 billion. So he's been around the block a time or two. During our conversation, Curtis explains why starting in a down market can actually be a competitive advantage. Shares a cautionary tale of a hundred million dollar revenue startup that was destroyed by scaling too quickly.

And he also breaks down how board members that are trying to protect their cap table position can actually fatally damage a company. I hope you enjoy learning from Curtis as much as I do.

Curtis, thank you for being with me today.

Curtis Feeny: Thanks for having me. Happy to be here.

Andrew Kazlow: So Curtis, I wanted to start off by asking you about the beginning of [00:02:00] your career. Uh, so you grew up in El Paso and I got to hear the, the first job. Uh, the other day we were having. Uh, drinks. And I got to hear about your first job. This was the, the Feenys versus, uh, the other guys. I, I wonder on the lawnmowing, the Lawnmowing story. That's right. I, I well, um, first career.

Curtis Feeny: well, as you said, we were having drinks, so I think my, uh, lawnmowing opponent who, who told that story, uh, was probably taking liberties on the facts, but, but, uh, here's my version and, and it's a little different than the one you heard. Uh, my dad comes home.

We, we were all the guys that we were having drinks with at the A&M bar were two of my closest friends from the poor side of town in El Paso. And we all went to A&M together. And, uh, the story you heard kind of started for me like this. My dad comes home, we have no money. He somehow goes and buys a brand new [00:03:00] edger and a brand new lawnmower. And he said, and he's a World War II vet, and, and he's, he wants his kids to be workers. I'm in fifth grade. So he says, I want you guys to go out and mow yards. You can charge for it. You give me back all the money you make until I have my mower and my edger and the brooms paid for, and then you can keep the rest.

So that was our start. He, he, he gave us seed money. He was our angel investor. So, so, uh, the, the funny part that I remember was, uh. Monday, I have a notebook. I've got names and we've got, we've got yards, we have a few. We got lined up on Wednesday. We didn't have anybody, so we just took the day off. You know, World War II vet doesn't, doesn't appreciate orders not being followed.

So he comes home and we, both my brother and I both get spankings because we hadn't mowed any yards that day. He said, I want you to mow yards every day. So, 'cause he's got money at risk. It's a little bit like what uh, VCs do to their CEOs when they don't do what they're told. So we got that spanking. And then my neighbor, Dave De Mayo, he lived down the street. [00:04:00] Well, since we're out now, cold calling because we've got motivation. We were stepping into his territory, I'm sure. And, uh, and we were lowering prices to get business. 'cause we wanted, you know, we had to make money, we had to make payroll. So that was my first job.

Andrew Kazlow: Oh, that's amazing. Uh. Well, you very shortly transitioned from the, uh, lawn care world into real estate. Uh, can you say a little bit more about that, that transition?

Curtis Feeny: Yeah. So, uh, it wasn't a direct transition. That was fifth grade. Uh, I did keep working all through grade school and high school and college, uh, because you know, when you're on your own and you don't have money, you gotta go out and make some money. So, uh, the real estate deal came about in a, in a, I would say a random way, which I, which by the way, I think most careers are random.

And then people tell historical. Uh, trendline stories to make 'em sound like they were planned, but mine was completely unplanned. Uh, went to [00:05:00] Texas A&M, got an engineering degree, worked my way through, through college in the oil patch, working for Halliburton every other semester, and then realized that the people I wanted to be were not the engineers, but the managers of the engineers telling them what to do.

So I, so I went off to business school. And, uh, and after business school and between years of business school, I, I was a techie. I was a math physics guy. So I, I took a summer job between years of business school at, at, uh, Moss Tech Semiconductor, an early RAM manufacturing company that had spun out of Texas Instruments. And so I thought I was gonna go either into oil patch or into technology, and I ended up. Because a buddy of mine was in real estate and he was a pretty, you know, one of the things in my career, I always had somebody that I wanted to be like, and one of the sort of mentor type people I wanted to emulate was this, this guy named George Lippy, who had, uh, gone to Texas A&M gone to Harvard Business School, and then he went to Trammell Crow Company and he told me, [00:06:00] and I kind of followed his footsteps.

So I had gone off to business school at Harvard and, and then I went into real estate at Tramell Crow. Largely because George did. But I had to sort of rationalize it in my own mind. Why am I doing this? And the reason I did it was the quality of people that Trammell Crow was hiring back in the late 70's, early 80's, was the best of the best that they could find.

And they were from, in fact, Goldman Sachs and Trammell Crow were competing for the exact. Uh, prototype person. And so I, I thought that of the interviews that I had, and I was talking to Intel and Hewlett Packard and, and Exxon and Halliburton, but then Trammell Crow had these quality of people that I was just thought was a, a little bit of an level above the other larger, more bureaucratic companies, right? And so that's how I jumped into real estate. And without knowing anything about it, I just thought this was. The best people, and I wanted to be around those people and they seemed to like what they were doing. And it was a meritocracy. And then you had, the harder you worked, [00:07:00] the more you were compensated, that kind of thing.

Andrew Kazlow: And you were there for a number of years, how. 

Curtis Feeny: Yeah, I ended up, um, so, so I started out in Houston, Texas. I grew up in El Paso, went to Texas A&M. And so they said, well, where do you wanna work? And I said, Hey, I'm from El Paso. I will work anywhere. I, I didn't care where I worked. I just said, you put me where you need me or whether you think there is an opportunity for me.

So they were saying, San Antonio, Houston. I said, I, I'm indifferent, which I have learned. Most people have geography preferences. And I think maybe El Paso poor side of town beat that outta me. I had no geography preferences. I was, I was happy to be, gimme a job, gimme some opportunity. They, so they said, okay, we'll put you in Houston. And then, uh, but the friend of mine, George Lippy, he was running Oklahoma and his, uh, in fact, one of my classmates, Phil Marshall, who sadly passed away. Phil had left, had left Trammell Crow. And, and there was an opening in Oklahoma. So George called me and said, do you want to go to Oklahoma? And I said, sure.

If it's an [00:08:00] opportunity, I'll, I'll go to Oklahoma City. My wife, very fortunately said, yes. Uh, this is a little cute story I like to tell about that, uh, discussion. My wife was a chemical engineer from Stanford and we had already one, one son, and she was loving her job. I was loving my job, but, but I got this opportunity to go to Oklahoma and so I came home and said, Christina. Uh, what would you think about moving to Oklahoma City? And we had talked about my career and my possibility, so she already knew this was in the discussion. So she, when I asked her this question, she knew I was, what I was asking was, do you wanna move with me to Oklahoma City? And then I did one of the smartest things I've done. I, I did not say another word. I let her sit on that question and then she kind of, after about seemed like a few minutes, she said, oh, Oklahoma, where the wind comes rushing down the plain. So that was it. That was the entire discussion. So, you know, we were young, we both grew up poor, we both were, you know, forging our own [00:09:00] way through life and it was just an exciting chapter.

So we moved to Oklahoma City. Uh, you ran the Oklahoma City office for Trammell Crow from the ages of, I was 26 and at 29 they called me and said, would you like to take over the Pacific Northwest for Trammell Crow? And of course that was a move up in every way. So I ran the Seattle, Portland, Vancouver, BC offices, and I was 29 at that opportunity.

And I said, you know, I just, part of my career strategy, if, if I had one, was to always say yes to every opportunity that came along without, without question. I, I took on the Sea Seattle job. I had never been to Seattle. The first day I went to Seattle was when I took over and I had no idea what. You know what the market was, who the people were, I just said yes, which turned out to be one of my best decisions I ever made.

Andrew Kazlow: Well, it's interesting to see that pattern even throughout the story. Just saying yes, saying yes. You have a, a saying that you mentioned to me recently. Um, [00:10:00] you were who, who? Tell me more about that, that saying that, that characterizes that. Um, 

Curtis Feeny: Oh, was, was this the quote from Joan Rivers?

Yes! 

Yeah. Yeah. So, so I, and I, I just paraphrased it and I, I, I was, uh, yeah, I was stealing a line. Uh, I read that Joan Rivers was once asked, what's the secret to your success? And she said, "I was always smart enough to walk through every open door". And I, and I, I resonate with that, of course. I thought it was a good comment. 'cause that was sort of how I had sort of stumbled through life is. You know, if an opportunity came along, the harder, the better. The, the, the, the more difficult, the better. If, if no one else wanted it, all the better. So I think my Oklahoma City, uh, decision, not many people wanted to move to Oklahoma City. It's a flyover state. Uh, we loved it, or the career was great for me. I, I learned a ton. It was a tough market, which is great 'cause you learn a lot in tough markets. And I was young and got a [00:11:00] lot of responsibility that if it, if I hadn't gone there, I wouldn't have had that much responsibility.

Andrew Kazlow: Sure. Uh, well, so Curtis, I, I want to hear the rest of the story and, and get to your venture experience particularly, but before we get there, I'm curious, you know, you talk about walking through every open door. How do you think about navigating situations where there are multiple open doors? Like it sounds like even, even your opportunity with Trammell Crow.

That was one that you were excited about, but you had a half dozen other options. What kind of frameworks do you use or would you use if you were able to go back to think through when there are multiple doors to walk through?

Curtis Feeny: Well, I think, um, I tried to take a longer term view on things and so, um, for example. Coming out of, uh, undergrad, I had offers from Exxon and Southwestern Bell and a half dozen others. This is in 1979. So the job market was good. I think good engineers were getting a lot of offers and I, [00:12:00] but I, then I got into Harvard Business School and I had to decide. Do I want to go to Exxon in Midland, Texas, which was fine by me or, or Southwestern Bell in Beaumont, Texas, which was also fine by me. And and I think it, the one thing I didn't realize then, I thought those were the best two job offers because they paid me the most, and that's not necessarily the way I think now.

So that might be one way I'd rethink that, that part of the decision. And then I got into Harvard Business School and, and I decided. I, and I had no money, so I'm gonna a little bit of a challenge to figure out how to pay for it. But, uh, my mentor at A&M, this guy named Wayne Stark, who helped a lot of Aggies go off to business schools at Stanford and Harvard, he said, you don't worry about the money.

You can get loans and scholarships and, and, and pay for it and financial aid. So, and, and he was right. And of course I, being a poor kid, I didn't know that and that, and my folks didn't know that. So I, I. I went to business school and here was my calculus. I said, four years from [00:13:00] now, I, I could take a job for two years and then go to business school and have more experience and maybe have a richer experience.

But I decided in four years would I rather just be getting out of business school or be two years into my post business school career? And and that really launched. So by the age of 26, I was almost four years outta business school. And was running an operation for one of the largest real estate companies in the, in the country. And it was in Oklahoma, which is not their top market. But it was great for me because I got all this experience. So,

Andrew Kazlow: Well, it sounds like being flexible and open to what's best long term based on what you know in the moment.

Curtis Feeny: But the, and then the overarching sort of, uh, criteria that I look at in any career, and I, this is what I tell people all the time on career management. You, you know, people want job title and function and industry and geography, which has never been my my drivers. Those are, are necessary parts of the equation.

But, uh, to me the most [00:14:00] important parts of the equation are the quality of the people, which is the reason I went to Trammell Crow. The opportunity to grow in a company that has momentum and is going somewhere. So, you know, if you're in a large bureaucratic stasis of a company, there's not a lot of opportunity to grow.

Uh, if, if a company's growing rapidly, your opportunities, if you work hard, are gonna be there. So

the opportunity to grow. Uh, continual personal growth. So your, your personal learning and improvement and getting better, more opportunities, more challenges, more things to work on. Those are important. Uh, financial.

Financial is usually an outcome, not a driver. If you have, uh, control of your own destiny in a meritocracy with good people, the financial comes, but, uh, but something that gives you those kind of. Uh, responses to your career, that that's what I always look for.

Andrew Kazlow: Okay, so you were [00:15:00] at Trammell Crow for a number of years, and then you found your way into the investing world. Um, say a little bit more about that transition. 

Curtis Feeny: Yeah, so a, a couple of people called me and said, Hey, there's this big opportunity at Stanford Management Company. It's a, you know, west Coast University and their endowment. They want to, they're setting up an endowment to manage their university's assets. Very similar to what Harvard, Princeton, Yale had already been doing. So I got several calls from a, a friend of mine, Steve Clark, who was a Trammell Crow guy. He had gone on from Trammell Crow to be, uh, head of real estate at Harvard. Another buddy of mine, John Hamilton, had heard about the Stanford opportunity and he, he mentioned it to me. Head Hunter finally calls me one of my friends, Joel Peterson, who I'm now a senior advisor at his firm, Joel Peterson had mentioned he was teaching at Stanford Business School and he said, you guys should talk to this guy, Curtis Feeny.

You have a ton of real estate he can run, run that for you. And so. I had been at Trammell Crow 12 years by then, and I was thinking, uh, career wise, I'm either gonna go off on my own [00:16:00] or repop myself. I, my personal growth, I think I, I was feeling, I had planed out on personal growth. And so when the Stanford thing came along, I, I thought it was interesting.

And my wife had gone to Stanford, so she was game for that as well. And by then, by then we had four children. So we were, it's, it was a big move. The lucky thing about my career that I think helped me, we moved so many times when I was young. Between, uh, birth and ninth grade, we had moved nine times, so I was very comfortable picking up and moving because, and it just was how I grew up. And so moving from Houston to Oklahoma City to Seattle to then Stanford was not a big deal to me. And I was fortunate. My wife growing up, small town Montana, she was, she was always game for the next, the next chapter too. So we went to Stanford.

I ended up running half the endowment. Uh, basically, uh, all the real estate, which was quite big. We [00:17:00] had a $1.5 billion when this management company was founded. And by the time my, my CEO I was EVP and the, the two of us left in 2000 after about eight years together, and it had grown to about $10.5 billion. It's now well over $40 billion. So they, they've done well without us, which is, I think it's always a good sign when your organization that you leave continues to do well. And I, I've been lucky that all the places where I've had responsibilities that they've done better, or at least as well after I left, which I, I felt very good about. So I ended up running, uh, the Stanford Real Estate and then eventually had some of the other asset classes reporting up to me and running probably about half that endowment. Uh, the more active part, my, my CEO was an investor and not an operating person. I was more of an operating person, so the more active investment classes were the ones I was involved in.

Andrew Kazlow: So say, say more about some of the things that, or some of the themes that you took away from your time at Stanford. [00:18:00] Um, coming from the operating background into this investment role, I'm always curious what stands out during that transition. So any themes that that stand out to you as you reflect on that season?

Curtis Feeny: Yeah. Well, operations and investing are very different and a lot of times, uh, great operators go into investing and don't do well, and, you know, they, they think they've mastered life. And then you, you know, you're, you're moving into a different arena. So it's different skill sets, different, uh, different ways you wanna think about it. There were a number of experiences that, that, that stuck out with me there. One, a university is very different, uh, than a for-profit business. So I had that going on. I was actually running a for-profit part of a uni of a nonprofit university. Right. So we're the, we're we're chartered to make money. And charged with that responsibility. But we're, uh, but we're really reporting. I reported directly to my CEO plus the [00:19:00] provost and president, plus the board of trustees, plus the board of the management company. You have all these different, uh. Responsibilities to these, these other leaders in the organization. And, and if you're not taking care of the president, the provost, the trustees of the university and the management company you've got, so you can't be crossed with the purposes of the underlying non-profit. And I like to say people coming from, from for-profit to non-profit make the, the common mistake of thinking that they're, they're the same, that the same things that worked for you in a for-profit worked for you in a non-profit, they don't, because a, for a for-profit is short term cash flow oriented. And they don't last that long. Nonprofits are long term not cash flow oriented. They have to, they have to make money. They have to, the numbers have to work, but they last forever. I mean, universities can be centuries old. Corporations not so much. Very few corporations are gonna because their, their, their world is short term [00:20:00] optimization, which means shorter life. So, uh, learning how to live in a, in a, in a large bureaucratic nonprofit as, as a major part of who I had to report to, I, I sat down almost monthly with Condi Rice. The future Secretary of State, she was our provost. And uh, and she was very good on balancing, you know, you gotta make money, you gotta have a budget for the university.

She was the chief budget officer for the university, basically. But you've got to also take care of the faculty, the students, the legacy, the alumni, you know, there's a lot of different, uh, mouths to feed in terms of who you're serving. So that was very different coming, probably more different than being an operator to an investor was coming from for-profit to a nonprofit. As far as the, uh, investment learnings, the, the thing I would say that that is primary in all these big university endowments and large, large investors is asset allocation. You've got to diversify to preserve your [00:21:00] long-term positioning. If you go all in, in any one area, uh, the volatility can be fatal. Um, one of my favorite stories on that was, uh. A couple of universities. New York University, uh, back in the, in the seventies was diversified with stocks and bonds. You know, this was the, the time period of 60, 40, 60% stock, 40% fixed income, and maybe, maybe even erring more on the side of equities. And what happened was, uh, this is the story I heard that New York University had. Uh, during the Carter years when inflation was very high, interest rates were very high and and assets, financial assets like stocks were getting clobbered up until about 1980 and when, when, uh, Reagan took over. Right? So you had this, this really depression of, of public stocks and equities for that 6 or [00:22:00] 10 year period. And, uh, and the story goes, NYU decided we gotta get outta stocks. And they went all into fixed income and missed one of the biggest, one of the biggest run-ups in, in equities history. And, and they, and they dropped outta the top 20. You've never seen 'em in the top 20 endowments since. And I think, uh, Emory University had a similar challenge with the, uh, Coca-Cola stock there in Atlanta, Georgia.

And they had a lot of Coca-Cola stock and, and it was great until it wasn't. And so, you know. The, uh, the long-term asset diversification strategy is where most people wanna be. And, and if you talk to, you hear what Warren Buffet says, he's sings the same song that you know, you take a long-term view, diversify your position. Don't do day trading. Don't go into the high volatility. Try to get rich quick, take a long view. Get yourself into a lot of equities. And, and, and for my own personal investing, I'm 67. I have no fixed income. I'm all equities 'cause in, in almost any 10 year period, you can find, since it's [00:23:00] been measured, equities outperform fixed income.

You just have to be able to live with the volatility. You have to have a risk tolerance for the ups and downs. If you can stay in and are diversified, you'd probably be good in the long run.

Andrew Kazlow: So say more about how, how endowments broadly think about the venture space. Uh, obviously that is a part of any completely di diversified portfolio, small part. But a, a significant part nonetheless. Say more about how the typical endowment, maybe not Stanford specifically, but the typical endowment, might think about venture fitting into their portfolio.

Curtis Feeny: Yeah.

They, uh, I think a typical endowment is a little bit jaundiced on venture, uh, more so than they used to be in the, I think that, so in other words that the shape of that answer has changed from the seventies, eighties to today. Uh, in, in the, in the [00:24:00] early days, you could, you could, there was a cottage industry.

It wasn't overfunded. Some good technology people started doing, helping startups get going in technology space and had some phenomenal returns. Sequoia and Kleiner were early in those days. Draper was around, uh, Reed Dennis was around some of the legendary, uh, Arthur Rock. These are names well known in the founding of the venture industry. And, uh, that has changed dramatically because the money got so big. Some of the returns got so big when you started having. Uh, the PC revolution, then the internet revolution and, and so on, and even things going on in biotech. Uh, some of these dollars got so big that a lot of money flooded in a lot of VCs.

You went from dozens and hundreds of VCs to thousands and over 10,000 VCs. So you had a huge, uh, increase in the supply of [00:25:00] money and the, and the number of com competing venture firms. And so I think it made it much tougher to get into this space. Uh, what happened? McKinsey did an interesting study. They did a 20 year study. That, that was very specific to the timeframe they've analyzed. So it's, it's, I wouldn't say it's universally true, but for the, for the years, 1980 to 2000, they looked at 50 VC firms. And the interesting result was, and these were the 50 most mature VC funds that existed over that entire 20 year period. And about 35 of those, uh, these are rough numbers, but it's pretty close to what they, they determined about 35 of those had random uh, quartile returns in terms of top quartile versus bottom quartile and everything in between. 'Cause you, you know, the VC industry, you wanna be in the top quartile. 'Cause if you're not, it's not as interesting of, it's not that much better than just being in all [00:26:00] equities, you know, in a diversified S&P really. So the, about 35 of them were random, whether they were gonna be in the top quartile or not. Uh, it turns out about of the remaining 15 or so. Let's say seven of them, maybe eight, uh, let's say eight or eight or so were consistently bottom performers of that group, and only five or six were in the top quartile predictably. So most of the industry did not have consistent good returns fund to fund. And the interesting thing about how the, the endowments looked at VCs, you wanted a strong team with a strategy you believed in and a market focus you believed in that was going to stick together through ups and downs because it's, you want to get, if you're Kleiner Perkins, they're not gonna have great year every year or Sequoia, but they're gonna have really good years when the market's good.

And then they'll do better than average when the market's bad. And that's, so you wanna be in a top [00:27:00] quartile fund repeatedly. You wanna stay with them. And the problem with endowments in any large investor today is you can't, you can't get into the most sought after funds because they're very closed. They don't need more money.

They, they know how much they're gonna raise. And getting into those is very tough if you weren't in from a long time ago.

Andrew Kazlow: You got into VC immediately following that period in around 2000. Um, I wonder if you could talk about that story and what the experience was like for you kinda making that transition, following that period of the maturation of the industry.

Curtis Feeny: Yeah. So yeah, so there were a lot of people trying to get into venture at 2000 and the industry was trying to hire like crazy here I was a, a former real estate operating guy, uh, and then an asset manager in an endowment. But the position I had at Stanford was very outward facing. So I knew all the VCs in the valley.

I knew most of the tech companies in the Valley. I knew a lot of private equity firms, so I had [00:28:00] offers coming at me. In the, in the industry. I was talking to both, uh, some guys at Benchmark I knew and some guys at Moore, David Al that I knew.

Andrew Kazlow: A lot of open doors. It, it sounds like a lot of open doors.

Curtis Feeny: A few I think. I think there were, you know, you, you never know until this, it's in writing, so I don't, I wouldn't say I had hard offers, like I was coming out, coming outta college.

I had hard offers and this, I thought I had opportunities, and what I decided was I would rather be a part of. Building something. This is the engineer in me probably. And so I, I called my buddies up in Seattle that were in Venture Voyager Capital, and I pro proposed the idea of jumping in with them as a, as a general partner and opening up their Seattle office and and I wouldn't have been a general partner to begin with if I'd had jumped into a VC firm, but I mean, it could've, the training would've been great and the market was great, so there were, you could make arguments for all these different ways of thinking about it, but for me, I wanted to be part of helping build something and [00:29:00] be rewarded for my own merits and, and have it be in meritocracy and not just be, you know, someone who's filling out forms or following orders that someone else gives me. Uh, so I joined Voyager Capital and interestingly, I would, I would contrast my Oklahoma City experience in real estate with my Silicon Valley startup experience in venture capital in this way. Both of those opportunities took place at a point in time where the markets were very tough in, uh, in March or April of 2000. The, the internet bubble burst, and we had just raised our fund, so I helped raise $200 million fund, uh, and when I left Stanford and joined, uh, Voyager, so we had $200 million of fresh money, but the market went away. Uh, the IPO market shut down. Startups were all hurting. Uh, if you had startups you'd already invested in, they were, they were hurting. So it was a really tough [00:30:00] time. To be in venture, but you learned a lot. And that was, uh, the same thing happened in Oklahoma City in 1983 when I took over the Oklahoma City office. The energy bubble had burst, and we had the same thing happen in real estate in Oklahoma City that happened in venture with the internet bubble bursting. So I, I ended up moving into those sort of, let's call it, uh, up upward mobility opportunities for me in very tough markets where all of my experiences were what not to do, what doesn't work and that's great for long-term building muscle to to be good when the markets do come back. If you start out in a great market, you probably are gonna pick up a lot of bad habits that don't get punished, and they maybe even, even get rewarded because the market's frothy and everything's working. If you start out in a tough market, you're not gonna get bad habits without a lot of punishment. So the, the, you know, the, the mistakes you make show up right away in a bad market as Warren [00:31:00] Buffett. I love the quotes from Buffett. He said, you know, you, you can see who's swimming naked when you drain the lake.

And that's kind of, that's kind of what happened, uh, in Oklahoma City and in, in Silicon Valley. The, the time periods I entered those markets.

Andrew Kazlow: Well, so I'm curious during your first few years and then maybe in general, like what are some of those common mistakes that you see, uh, made that often reveal themselves in down markets? 

Curtis Feeny: Well, you know, the, the venture business is, uh. And, and by the way, there's a lot of, uh, one thing I would tell your listeners is there's a lot of really good people to listen to in venture. I'm probably not the best, but, uh, Bill Gurley, he's got great podcasts, and if you can go see what Bill Gurley's talking about, he's one of the best investors out there.

You know, uh, if you can see what John dor and, and Mike Maritz and, and some of the other great investors, uh, uh. Bessemer's got, if you, you can go see what Bessemer's doing there. There's a lot of great firms, uh, by [00:32:00] Byron Dieter at Bessemer does some great podcasts. Mike Maples at, uh, Floodgate. They have, they have, I would say, a better foundation of, of how to think about venture and what they, what they're active in it to the, to this day.

So, uh, before you listen to my words, I'd, I'd listen to any of those folks, but I would say lessons learned in venture, you're betting on people. You're, you're, you're, it's often a mistake to, to fund a first round of capital with too much money if you give a, a, a startup a whole lot of money and they haven't figured out basic things like product-market fit, uh, you know, getting\ the product to a point where you can actually go test product-market fit. Uh, sometimes, uh, a lot of the venture mistakes have been made by everybody really giving, giving a company a lot of money saying, go out and market yourself while you're building the product and then start building your sales force while you're building the product. [00:33:00] And these, these are often hard to do because not many times do you get the product right, right outta the chute. And, and if you don't and you've spent all this money marketing it and selling it, and then it's the wrong product for the market. You haven't quite dialed in the exact product-market fit. Then you're outta money and, and you, and you don't have the right product. So that is probably one of the most common things. But betting on team is number one, getting product-market fit right, is way up there. And, and then, and then working the capital so that it, it's appropriate for the stage you're in, not not too much capital, but enough to get to the next milestone where you can raise more money. Uh, at some point it probably does make sense to step on the gas and hit the marketing and sales hard, but you can't do that with 3 to 10 customers.

You need, as Mark Leslie, who's one of the great entrepreneurs, and he taught for years at start, at Stanford Business School, you've gotta get the, the, the sales learning curve figured out. You have to figure [00:34:00] out. What am I, what am I selling? Who am I selling it to? What kind of person do I hire to sell it?

What kind of sales engineers and customer service do I need? You can't do that with 3 to 10 customers. You need 30 to 50 customers, and I'm talking about enterprise software here, not consumer. Consumer software is plays a little differently. Another

thing I would point out, 

Andrew Kazlow: Just to interrupt, could, could you give an example of maybe a company or an investment that you walked alongside and, and really thought through that timing and saw them hit that inflection point where, okay, now let's step on the gas. Could you give an example of a company like that in your portfolio?

Curtis Feeny: Yeah, I would say, uh, in the Voyager portfolio, one, one company that's, that's really, uh, and this, this is a current one. I am still just a venture advisor at Voyager, but I like this story. They have a, an agricultural technology product called Carbon Robotics. And what Carbon robotics did is they said, you know, the, the [00:35:00] pesticide industry has been great for farming, but, but there's residual effects.

There's it, it impacts the food. And so if you could do the weeding and the insect killing without, uh, the pesticides. Uh, then that would be healthier. Right? And everybody agrees. So what Carbon Robotics developed was a, a, a large combine looking tractor device that has, uh, dozens of sensors and lasers on it. That, that, and a lot of artificial intelligence, and it goes over row crops and it automatically finds the, the whatever the invasive element is weeds or whatever, and, and zaps it with lasers and, and doesn't affect the, the crops at all. And they're, and they're now, uh, I think a half billion dollar revenue business.

But, but they, once they sort of got the product figured out and [00:36:00] proved it in the market, and the farmers started really, uh, resonating with that product, both, both in the US and internationally, it became very clear. We're just gonna make as many of these things as we can. We've got the pricing right.

We've got the business model right and, and by the way, part of the learning curve is not just product-market fit, it's pricing. What is your pricing model? Are you a subscription model? Are you a lease model? Are you, you take all your profit out front and then sell customer service after the fact. So, so getting all those things right, and then once you have the high growth and high margin in front of you. Yeah, you can say, all right, how many people do I what? How fast do I want to grow? How many people do I need to grow that fast? How much money does it take to do that? Those things are pretty much a formula. You have a spreadsheet and you can figure it out, and, and you can, the numbers just drop out of, okay, if I want to hit this number, I need this many people.

I've got a ramp. They've got a ramp up cost with all [00:37:00] new employees, whether they're in sales or engineering or anything else. So you, you factor all that into your equation, and then, and that's when you need an operating team that knows how to do that. You can't, a first time CEO often is the, is not always, but often is not the right person to take it through that growth step.

And again, I'm talking enterprise software, not consumer. What Zuckerberg did at Facebook and, and other consumer plays very different.

Andrew Kazlow: I wonder if you could give an example of a company where you poured the gas on too soon and saw that fall apart. Um.

Curtis Feeny: Well, uh, yeah, so I was, I was on the board of a company called Verari, which was a data center company. And, uh, we got clobbered in that, uh, let's call it the '08, '07-'08 turndown, uh, the, the great financial crisis, whatever you wanna call it. We were a, we were a data center company with a good product.

We had. A lot of AI or, or machine learning and, and software that was very [00:38:00] valuable. And we raised a big round of capital. I think we were at a hundred million revenues. Our plan was to go to 200 million in revenues and we, we brought in enough capital to make that plan and we had a, a great CEO great team. And then the market fell out

from under us and, and, uh, we got caught in a, first of all, that's a heavy capex, heavy opex business margins. Uh, most VCs don't like the hardware business because the margins aren't as high. You, you get a lot, you can sometimes have high margins in, in the hardware business, but often not because, uh, competition can come and take your margins down real quickly

in hardware, it's harder to do that in software. So we ended up having, I would say a hundred, a $100 million going to $200 million plan, and we ended up with $50 million and and we had all this capital that we were investing for growth and then we, we [00:39:00] didn't hit the numbers. HP, IBM and Dell were our direct competitors is, we were in that high performance compute space, HPC. And so we, we, it is a niche space, but we were growing nicely. We had a really good product fit. And IBM, HP and Dell decided we are not gonna lose any, you know, it's a downturn in the market. Server sales were going down 25% a year from previous year, right? And it might've even been 25% a quarter in some cases. So you had a decrease in the total servers being sold, which is our business. And uh, the three big incumbents decided they were gonna go around with their little weed be gone and spray their garden and kill all the startups. And then we were one of 'em. So that was an example where we hit the gas and the timing,

I think the product market fit was fine, but the timing killed us.

Andrew Kazlow: Hmm, that's wild how many things can kill, uh, a great company. 'Cause you would think a $100 million in revenue. Like this is so there's something here, right?

Curtis Feeny: Yeah, it was a real business. It was a real business [00:40:00] growing good team. You know, as Bill Gates said, uh, maintaining a, uh, a high, high margin profit is, is, is actually defining, defies the laws of gravity. The, the, you know, the competitive marketplace does not like you to have high growth and high margin for very long because competitors swoop in and try to, and, and, and the gates back in the eighties even said, I def, I intend to defy gravity.

So he was, but you know, then that was where a high margin software company that has a, you know, uh, has a built in, uh, standard. You know, once you become an industry standard. Uh, or, or, or an industry brand in the consumer space, but an industry standard in the software space, it's very hard to unseat you.

And that's what Microsoft was able to do. And, and when you find a company like that, that becomes the standard. Google and search, Facebook and social networking. Uh, these things are very hard to unseat.

They can maintain high margins and high growth [00:41:00] for a long time.

Uh, by the way, another, another book I recommend is if you read any of Jeffrey Moore's books, uh, the Crossing the Chasm being his sort of seminal bible on marketing, strategic tech, marketing, uh, and he updated it. Uh, the more updated version kind of brings it to, into the current marketplace. One of the best books on all, all, all these subjects we're talking about

Andrew Kazlow: So Curtis, something else I wanted to ask you about is you have served on the board of, I think I saw over 35 companies now. Is that right?

And counting.

A lot. 35 and counting. Um, I'm super curious. What are some of the lessons you've learned just from sitting on these boards and seeing. Uh, these companies day in, day out as they're evolving.

I'm curious specifically about what you've seen from entrepreneurs, leaders and founders in particular, and some of the themes that, uh, make for a great board [00:42:00] interaction experience and then make for a poor board interaction experience as a company 

grows. 

Curtis Feeny: Well, and, and I'll just, I'll, I'll start by saying, I get asked all the time, how, how do you get on boards? How do you, 'cause you know, when you get my age, you're not as, as high energy as you used to be. And you don't wanna necessarily be strapped to the mast as the CEO or an operating guy. So, uh, board, you can stay in the game on these board positions and, and be helpful with your wisdom and insight, hopefully. But you don't, uh, you don't have to be, you know. 24/7, 365. So, so the, and the way I got up on almost every board I've been on was by being in the game and in, in that arena, whether it was a nonprofit board, I'm on the board of Khan Academy, I started helping Sal Khan out and after a year of me sort of throwing anything I could at him that I thought would be helpful, he asked me to join his advisory board, which led me joining his board. And, and most of the boards I've joined, uh, have been that way where I was in the [00:43:00] arena, helping, playing, and then getting asked to join the board. Now, on the investing side, when I've put money in and joined the board, and this is now getting to your question, then I'm taking an active role as a board member, and I'm trying to help guide the company and the management team to success, but not as the operating person, as a guide and advisor to the CEO. And I think sometimes boards break down when the board members one, confuse their operating background with their board responsibility. So as you know, a strong CEO coming in and telling the, the management team, this is what you have to do. And getting into arguments and disagreements with 'em is usually not as effective as a softer touch, uh, as a guide in saying, here's what I've done, here's why it worked.

You should consider this. You have to support your team and your CEO, and if you don't, it, it creates a friction that's often [00:44:00] detrimental and sometimes fatal. The other thing mistake I see boards making is when they. I'm an, I am an a round investor. I'm a B round investor. I have my preferred rights that those rounds let me have, and all of my decisions are gonna be to protect my round and my preferred position. That's not how you build a great company. You build a great company by helping the management team and the, and their employees and their customers and their ecosystem they're in be the best they can be. So if you're not helping the company be the best company it could be, then you're not optimizing the overall company result. So you'll see a lot of times when you get to these equity and debt pinch points, a company needs capital and the preferred investors in the various rounds have rights. And so they'll, they'll often do machinations to optimize or, or let's say, maximize their position on the cap table to the [00:45:00] detriment of the company.

They may, they may bring in an investor that's not the best investor because it, it looks better on their cap table, or they may do an inside round instead of an outside round because they want to take more control. They may cram down the founders and the management team more than, than is necessary because they can. In, in those cases, you sometimes break the company or damage the company more than the benefit of, of the cap table improvement that you've put in place. So that's something I've seen a lot of and uh, and when you have. Sometimes you have, uh, I like to say having an investment banker or a lawyer on your board is often good. They're very good on documents and fundraising and, and those sort of, uh, transactional parts of the business. They often don't have operational expertise or, or company guidance expertise beyond that. So one or two of those is fine, but once you have everybody on the [00:46:00] table. Uh, on the, at the board table has, uh, you know, how do I maximize my position on this round of financing and, and this documentation that's not helping build the company that's, that's trying to take air out of the room for their position on the cap table when you really ought to be focusing, you know, get that done and then let's focus on the company, not, not those part, those elements.

Andrew Kazlow: So let's say Curtis, you were being presented an opportunity for, it's called a seed round company with a very small board and there was a board seat up, uh, for discussion with this investment, what are some of the things that you would ask about to try to get an understanding for that current board's composition?

Like how would you diligence the board? That's not something that I see, uh, early stage investors spend a lot of time on, but I'm hearing is very important.

Curtis Feeny: No, no. It's, uh, your board can make or make or break the company. They tend, they, you know, boards [00:47:00] often, uh, if a company's running well, you know, the board, you, you can almost think of it as the board is, is something that's necessary governance wise, but doesn't necessarily add value. Uh, the, when a board is detrimental and, and, and starts doing this jockeying about cap table position. And, and things that are not helping the company. Uh, then I think you sometimes, uh, get into the, the, the, the detrimental parts of boards. What, what I like to see on a board is, uh, some independence. You know, you, your financial investors often deserve and, and demand and deserve a, a board seat. And, and if the financial investors in their experience have operating backgrounds. That's, uh, that to me is a, is a good combination. Someone who's got investment experience and operating experience and has sat on multiple boards. If they've been on [00:48:00] multiple boards, they've already learned the hard way, you know, what doesn't work and, and boardroom fights are

messy and, and potentially fatal. And they, and so someone with board experience. Operating experience, investing experience, all that in one person. That's a, that's a trifecta. That's, that's good. Uh, again, I don't like to see more than one attorney on a board. And this is generalization. There's great attorneys that can, that, that don't behave this way, but attorneys are trained to look at the documents and, and manage risk off the documents. And that's an important part of the business, but it's not. The, in the, in the sort of gestalt of, of running a business and building a company, it's not the most important part. So you want, you know, some, some legal expertise is good. Some. Uh, investment banking exp expertise is good. You, but you can go and hire that. What you really would like is people that have good judgment, people that have made good decisions in their life, [00:49:00] and can impart that judgment and decision making to the, to the management team and, and, uh, play nice in the sandbox. You know, I think one of the reasons I've been on so many boards is I'm there to help.

I'm not there to maximize me at this point in time. That's, that comes as a result. The result of having a great company is you, you get optimization of your own return, but, uh, the more that the board has good judgment, good background in decision making experience, that's applicable. It, you know, in some companies, depending on the sector, uh, domain expertise is number one. Uh, I usually say the quality of the team is very high, very important. Domain expertise is very important. Uh, and that's probably helpful on the board to think of it the same way.

Andrew Kazlow: I love that. And and that all comes back to your, it's all about good people position earlier. And that [00:50:00] getting the right people on on the board is of utmost importance. 

Yeah. helps.

Okay, so Curtis, you over the last decade or so have really transitioned into this advisory position in the ecosystem.

I'd love to hear about some of the lessons that you have distilled from this season and some of the things that you find are consistently helpful for younger, earlier investors, uh, which will characterize many of our uh, audience as investors that are newer to the, the journey than than yourself.

Curtis Feeny: Well, one of the. Since I, I don't know if it's because my title is senior advisor or, or just my age or what, but I think some young companies and young managers, young entrepreneurs, don't pick up the phone and call me. You know, I, I, I'm there to help. I, like, I'm, I'm working hard because I like to be in the game. And, and it's been, uh, interesting to me that, uh, the [00:51:00] company say, yeah, we, we want you to help. We're, we're there, uh, when you, when you, you know, when you come to the board meetings, when you, when you do whatever, uh, we, we, we appreciate the value add, but they don't, but they don't take advantage of it as much as I think they could.

Now, that's human nature too. Part of it is people get busy. Their, their plate is full. You know, picking up the phone to call an advisor for help might be the right answer, but it, it's just not top of mind. So that, that to me. Something I, I try to encourage with the companies and, and entrepreneurs I advise is, you know, call me anytime and, and, uh, I'm fortunate.

One of my best advantages, I have a, an assistant named April Signs, who's been with me for 25 years and and when I started working more solo as a senior advisor and then, and then just doing my own boards and investing that, one of the smartest things I did was keep her as a full-time admin so that [00:52:00] she can help set up all my calendaring and travel and, and, and, and it frees me up. But, but then it also confuses I think the entrepreneurs and the, and the, the companies that they think they have to go through her when they could just pick up the phone and call me directly. 'Cause I'm, I'm available. I'm there to help if I've signed up to be on your board or be an advisor. Call me when you think I can help, and, and then how do I add value? Having been on two Fortune 150 boards, having served on a number of large public and private boards and, and, and worked all over the country, I have a pretty good Rolodex. I can, I can help most small companies get to companies they wanna be with, uh, partners they want to do business with. People they want to hire.

I have a great ability to get networked into any of those areas. So that's where I tend to add a lot of value is helping small companies get the customers, partners, people they want.

Andrew Kazlow: Curtis, what are some of [00:53:00] the trends or things that you're seeing right now in the venture entrepreneurship ecosystem that are exciting to you, we could talk about AI. Um, happy to go there if you want, but what are some of the things that you're excited about right now? 

Curtis Feeny: Well, well, cyber's gonna be critical. I mean, cyber cybersecurity, if you look at, uh, existential threats, you know, you've got nuclear weapons, you've got cybersecurity risks, you've got, uh, probably AI risks, right? So, so coming up with good firewalls in those areas is critical. We're gonna, you know, if we're gonna go, uh, in energy, if we're gonna have a, an energy solution that works for the planet, for the humans on the planet, nuclear has gotta be part of the transition.

We can't get the power that all these developing countries and, and, and, and developed countries need without bridging the gap from fossil fuels to non-fossil [00:54:00] fuels without nuclear, so small modular reactors. There's a ton going on in that space. It's very exciting. It's for the big boys. It's not for small.

You know, you, you've got Bill Gates and large pension funds doing it. But, uh, SMR for nuclear is, is critical. Figuring out, out what are the risks in cybersecurity and in AI that, that we can mitigate somehow. That's a big open area and I think, uh, there's a book I like to recommend to people on, on cybersecurity. The name of the book is, This Is How They Tell Me The World Ends, and it's a, uh, a deep dive into a nation state hacking and cybersecurity risks by a, a top New York Times investigative journalist named Nicole Pearl Roth. So I, I'd recommend reading that book and that'll scare you. Pretty good. Uh, another couple of things, uh, that I think are going on, Peter Zion, his book is called The End of the World Is Just the [00:55:00] Beginning, another Feel Good book, and, uh, and he believes we're going into a period of deglobalization and supply chain meltdown. So if, if, think about this, if in the next 10 years the, the free trade zones of the, of the open ocean seas go away and you have globalization going away and everybody has to live in their own siloed country, uh, or or political sphere. What's gonna happen? What does that do to software needs, hardware needs a resurgence of manufacturing in the US is very likely to be a big thing.

What happens if, if we bring back onshore or near shore, all of the manufacturing comes back to either the US or Canada and Mexico, where we, where we can have a supply chain that works, that's gonna create huge opportunities. So these, these are the kind of things, water is another huge opportunity. So I like to look at the long view.

If you take the long view, these are areas I think about, by the way, on that nuclear issue, the book to [00:56:00] read is Nuclear War by Annie Jacobson. These three books will scare you. You won't go to sleep for a week. If you read those three books by Nicole Pearl Roth, Peter Zion, Annie Jacobson, they're gonna.

Andrew Kazlow: Wow. Well, we'll definitely put those in the show notes. Uh, I'm eager to pick those up. Well, Curtis, this has been a pleasure. Uh, thank you so much for joining me today, sharing your story, some of your lessons. Um, I very much look forward to the next one because. Uh, there's only so much time in today's conversation, but would love to continue learning more about your story.

So, uh, we will end it there. But thank you so much for joining us today.

Curtis Feeny: Thank you. Appreciate it.

Andrew Kazlow: Thanks for listening to this episode of The Diligent Observer. I'm your host, Andrew, and if you're an angel investor looking for essential angel intel in five minutes every week, I think you'd enjoy my newsletter. I send my best stuff, interesting deals, and more straight to your inbox so you never miss a thing.

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