Foundry’s ‘Mad Men’ Are Flush with Cash

Foundry Group has done an homage to “Mad Men” in a photo on its website, but the similarity between the Boulder, Colo.-based VC firm and the hit TV show ends with the suits that the partners don in the photo.

While the characters on the TV show are prone to back-stabbing and high drama, Foundry Group’s four partners are a tight-knight group of buddies who have quietly established a well-regarded VC fund whose most notable deals include social gaming company Zynga Game Network.

Foundry announced on Oct. 5 that it closed on $225 million for its second early stage venture fund, the same amount it raised for its inaugural fund that closed in November 2007.

Managing Director Jason Mendelson tells Venture Capital Journal that there was no drama in raising the second fund. “It was pretty fast and easily done,” he says.

The new fund is expected to close on its first investment soon, according to a person familiar with the deal.

Foundry’s first fund has invested in 29 companies to date, most of them (a dozen) in the Internet sector, according to Thomson Reuters (publisher of VCJ). Mendelson says the firm still has “plenty” of capital left to invest from the first fund for follow-on investments.

The most high profile company in Foundry’s portfolio is Zynga, which makes popular social games played on social networks, such as Facebook. Foundry has participated in all of Zynga’s financings, starting with its Series A in 2008. When Zynga accepted an $180 million investment from Russian investment firm Digital Sky Technologies last December, the New York Times cited “two experts in Internet company finance” who said Zynga was valued between $1.5 billion and $3 billion. Foundry Managing Director Brad Feld sits on Zynga’s board.

Foundry got off to a slow start in 2007, doing just two deals that year and three in 2008. It backed six companies last year, but really revved its engine this year, with 18 companies backed as of Sept. 13, according to Thomson Reuters (see table).

Given that Foundry’s first fund is just three years old, it’s not surprising that the firm hasn’t had any exits yet. That clearly wasn’t of great concern to its limited partners, who could see a good track record of exits from the Foundry team’s previous firm, Mobius Venture Capital. All of Foundry’s partners—Feld, Mendelson, Seth Levine and Ryan McIntyre—previously worked at Mobius.

In a January 2008 interview with VCJ, Mendelson said fund-raising went smoothly for Foundry’s first effort because the partners had worked together for at least seven years at Mobius and had several exits the previous year (2007), most notably the sale of email-security provider Postini Inc. to Google for $625 million.

The team also benefited from the sale of Sling Media Inc. to EchoStar Communications Corp. for $380 million; the sale of Stratify Inc., an electronic discovery services provider for the legal market, to Iron Mountain (NYSE: IRM) for $158 million in cash; and the sale of Feedburner, a provider of blog feeds, to Google for an undisclosed amount.

While Foundry hasn’t had any liquidity events to date, Mendelson says it has “some strong candidates for liquidity” and could see some exits as soon as next year. “Our portfolio companies are doing well, but they’re in no rush for exits,” he says.

As for Zynga, Mendelson declined to comment on the company’s financials or speculation that the company plans to go public in the near future.

The Form D filing for the new fund shows that 27 investors invested in the fund, but the document does not reveal the names of any limited partners. LPs in its first fund included Guardian Life, Morgan Stanley, Parish Capital and the University of Texas Investment Management Co., according to Thomson Reuters. —Alastair Goldfisher and Lawrence Aragon