Blog articles

The Micro And Macro Of Mobile

A VC - 18 hours 9 min ago

Here’s a great podcast featuring my favorite analyst Benedict Evans, talking about macro and micro stuff in mobile.

Categories: Blog articles

On Getting An Outside Lead

A VC - July 28, 2014 - 5:09am

There are some “truths” in the venture capital business that I have been hearing since I got into this game in the mid 80s. One of them is that getting “third party validation” by going outside of the current investor syndicate to find a new lead is good for the investors. I have come to believe this “wisdom” is nothing more than lack of conviction on the investor’s part.

What “super powers” do VCs have that allow them produce above average returns year after year after year? Well you could argue that some of us have the ability to see things before others see them. That might be true but it is hard to sustain that for a long time. You might argue that some of us have brands that allow us to get into the conversations with the best entrepreneurs when others can’t. That is most certainly true. You could argue that some of us have a tight focus on an investment strategy and work it tirelessly and don’t veer from it. That is most certainly true.

But short of those three things, I am not aware of a sustainable model that produces above average returns on investing in “new names”. However, there are two “super powers” that VCs have at their disposal that can produce above average returns year after year if they use them correctly. Those are the right to a board seat and the right to invest in round after round after round. I talked a bit about the latter one last week.

Taken together, these two rights put VCs in a position to intelligently invest in their existing portfolio companies. I believe that you can turn an average portfolio producing average returns into an average portfolio producing above average returns by intelligently investing in your existing portfolio companies.

It is one thing to take your pro-rata, and I talked a lot about that last week. But it is another thing to lead the next round and increase your ownership. It’s this latter move that I think many of us in the VC business instinctively avoid for fear that we are “falling in love with our companies.” Anyone who has been in the VC business for a long time has made the mistake of believing too much in a portfolio company and supporting it beyond when you rationally should. I have made that mistake so many times I can’t count them on two hands. It is my signature failure and I have not been able to stop doing it.

But, I would argue, the worse mistake is to know you’ve got a winner in your portfolio long before anyone else knows it and you allow a new investor to come in and lead the next round when you easily could and should. The upside on your best investments is the thing that allows an early stage VC to take so much risk and lose money on so many investments. Increasing the upside on the best investments is a rational move in light of the distribution of outcomes in a VC fund.

I would caveat all of this with a few things:

1) You have to let the entrepreneur do what they think is best for them and their company. If they want an outside lead, then by all means you should support that and work as hard as you can to make it happen.

2) You have to think about the amount of “dry powder” the current syndicate has and make sure that you aren’t using all of it up by leading a round when you should really be bringing in a new investor.

3) If an insider is leading a round, you should put a very fair deal on the table for the entrepreneur and the company. An inside lead is not about getting a “sweetheart” deal. It is about putting in place a fair deal for everyone.

4) If the valuation expectations of the founder and the company are unrealistic, then you should suggest that they go test the market. If there is a better offer out there at a better price than you would pay, that is always a good outcome for everyone.

There is a lot of signaling risk in all of this. If you are known to be aggressive in offering to lead inside rounds, and you don’t make that offer, then that puts the entrepreneur in a tricky spot. Of course the entrepreneur can say that they don’t want an inside lead and they want to expand the investor base. But even so, smart investors may know. Truth be told, there is signaling risk in everything that the existing investors do and anyone who thinks otherwise is just not seeing straight.

Two of my favorite examples of this strategy are YouTube and our portfolio company Etsy. At YouTube, Sequoia led the Series A and as far as I can tell (I’m not 100% sure), they led every round after that until the company sold to Google. That allowed Sequoia to allocate more and more capital to what was an incredibly great company and investment and get a massive return on a sale that sure felt like a monster at the time. At Etsy, USV participated in the seed round with some angel investors. We led the Series A and the Series B and increased our ownership substantially by doing that. On the Series C, Rob Kalin decided to get an outside lead and we were totally supportive of that decision. In both cases, I expect (or know) that the VCs had a better idea of how things were going (well!!!!) than anyone outside of the company.

There was a meme in the comment thread on my post last week (104 comments) about “insider trading”. I’d like to say something about that without getting legal or technical. In my view, insider trading is taking advantage of someone buying a stock from you or someone selling stock to you when you know something that they do not. It is illegal and should be. Purchasing stock from a portfolio company is unlikely to be insider trading because how can anyone suggest that you know more about a company than the company knows about itself? I guess that’s possible, but it’s a hard argument to make with a straight face. So while this insider lead thing may smell to some as insider trading, I am very confident it is nothing of the sort.

So in summary, when you have conviction that one of your investments is doing really well, you should have the courage to offer to lead an inside round (assuming you have sufficient capital including future reserves to do that). You should make the case to the entrepreneur and the board why that is a good idea. And if they decide to go outside and find a new lead, you should support that decision and do everything you can to make that strategy a success. I don’t think enough VCs do this and I think they should.

Categories: Blog articles

Freemium In Education

A VC - July 27, 2014 - 7:09am

We’ve been investing in the education sector for a few years now. We started our exploration of online education in early 2009 with an event called Hacking Education. The takeaways from that event have informed a lot of what we’ve invested in since then.

One of the key takeaways was that learning could and should become free. Our friend Bing Gordon said this at Hacking Education:

From an economic point of view, I would say the goal… is to figure out how to get education down to a marginal cost of zero. 

We have invested with Bing in online education. Bing and his partners at KP led the most recent round in our portfolio company DuoLingo. DuoLingo is the most popular language learning mobile app in the world. And one of the reasons for that is that DuoLingo is free.

So you might ask “how can you make money giving away a learning app?” This past week DuoLingo answered that question with the commercial release of the DuoLingo Test Center.

The DuoLingo Test Center is currently free but it won’t be for long. Give it a try if you’d like to see how it works. Once the DuoLingo Test is accepted at schools and employers, the company plans to charge $20 to take its test.

There’s an established incumbent (monopoly) in this market called TOEFL. If you’ve come to the US to study, you’ve probably taken this test. It’s a lot more expensive than $20 per test and DuoLingo is out to prove it can do this testing less expensively and better.

But what this example shows is something more than how one company plans to monetize its free app. It’s a model for freemium in online eduction. Provide the education for free but charge for the certification (testing). This is a very elegant implementation of freemium as its an easy on ramp and the customers who get the most value are the ones who pay.

I am pretty sure this will become the dominant monetization model in online education. We are already seeing it emerge in other sectors. A number of the attendees at Hacking Education predicted this over five years ago. It made sense to me then and it makes even more sense to me now.

Categories: Blog articles

Video Of The Week: New Tools For Filmmakers

A VC - July 26, 2014 - 10:43am

Here’s a talk that my partner Andy did with our friend Jason Hirschorn last year about the changing landscape of filmmaking. It’s about 45mins long

Categories: Blog articles

Fun Friday: How Do You Take Your Coffee?

A VC - July 25, 2014 - 12:23am

It seems like its been a while since we’ve done a Fun Friday around here. I’m not sure why that’s the case but its time to change that.

I’m sitting here in the Soho House in Berlin drinking a nice cappuccino and thinking about all the ways one can consume coffee.

image

I have one cup of coffee a day. No more because it makes me wired. No less because I’m addicted.

Because I only allow myself one a day, I’m obsessive about making it a good one.

I prefer espresso coffee and my primary drink is a Cortado which is also called a Gibraltar. Its usually a double shot of espresso with a small bit of steamed milk. Think of it as a mini Cappuccino. I generally get it in a shot glass. My favorites are at Kava in NYC’s west village, Blue Bottle Coffee in NYC and SF, and my absolute favorite is at Intelligentsia in Venice Beach California.

I do like an iced cappuccino on a hot steamy morning like we have in NYC in the summer. My favorite iced cappuccino is from Jack’s in the west village of NYC and Amagansett NY.

I have various coffee shop lists on Foursquare. This is my favorite coffee shops in Manhattan list.

So that’s how I like my coffee. How do you like yours?

Update: Wil suggests “post a selfie of you and your morning coffee in the comments”. I think that’s a great idea!

Categories: Blog articles

The Pro-Rata Opportunity

A VC - July 23, 2014 - 11:44pm

Mark Suster has a good (and long as is his wont) post up on the topic of the changing structure of the VC business.

Mark focuses on something important that is probably not getting talked enough about when people talk about the VC business these days. I like this slide from his post:

suster slide

“Capturing pro-rata” is sooooo important in early stage venture. You make 20 investments in a fund. One is going to return the entire fund. Two more are going to return it again. A few more are going to have strong outcomes and return it again. The rest are noise when it comes to fund returns (but you better not treat them like noise).

Guess what? Early stage VC is a lot like poker. You want to go all in on your best hands. And if you make a seed or Series A investment, you get something called the pro-rata right. That means you get to invest an amount in every private round going forward that allows you to keep your ownership at the current level. A pro-rata right in Facebook, Twitter, Dropbox, Airbnb, Uber, ……….. is worth a lot. And early stage investors get those rights for free in the early stage rounds.

At USV, we recognized this early on but did not know what to do about it. So we let our pro-rata rights go unused in Zynga and Twitter because we did not have the funds to take those allocations. Brad agitated about it. It bugged him. I was also unhappy about it but did not want to increase our fund size so that we could take these allocations. I strongly believe in small fund sizes. It’s a core of our strategy at USV.

So we came up with The Opportunity Fund. It’s a companion fund that is designed to “capture pro-rata” as Mark puts it. We raised our first one in late 2010 and our second one earlier this year. It has been a big success. It is now so much a core of what we do that we now raise an early stage fund and an opportunity fund as a pair. You can’t invest in one without investing in the other. They have different economics for the LPs because they require different amounts of work on our part and because we don’t want to commit to put the entire Opportunity Fund to work (we did not put the entire initial Opportunity Fund to work).

When a company hits escape velocity, the investors in the inside are the first (after the entrepreneurs) to realize it. And if you’ve watched hundreds of rockets go up in your career and dozens hit escape velocity, you start to be able to smell escape velocity coming. That means that “capturing pro-rata” is an opportunistic thing. Seeing something before others see it is one of the few legal and sustainable ways to make money that I know of in the investment business. And so having a vehicle to do this aggressively is a huge weapon in the hands of an experienced VC firm.

Yes it is true, as Mark points out in his post, that public market investors are also coming into the private markets in a big way to capture all of this valuation expansion that used to happen in the public markets. But they do not have the one thing that we have – the pro-rata right. And so using it becomes even more important.

I am glad that Mark took the time to write his post on this topic. It’s a big change that has happened fairly quickly in the early stage venture capital business (all post financial crisis) and the ramifications of it are important to entrepreneurs, VCs, public market investors, and LPs. I’m very pleased that USV has been early to this theme and a thought leader in it.

Categories: Blog articles

Independent Directors

A VC - July 23, 2014 - 2:20am

Boards are important. They might not do the day to day work of company building but they set the tone at the top. The group that the CEO reports to has a big impact on the CEO’s mindset which trickles down.

If you raise capital for your business you are likely to get investors on your board. If you choose well you might get some good board members that way. But you might also get indifferent or worse.

The biggest piece of advice I give to entrepreneurs on the topic of boards is to get some independent directors on their board. Ideally these would be peer CEOs who have a lot of experience building and managing companies.

Recruiting board members takes time. Most entrepreneurs prefer to recruit people who work for them and can impact the day to day effectiveness of their organizations. And so they prioritize that.

What they miss by putting off the work of adding independent directors is that they should be also investing their time in improving the effectiveness of the group they work for.

If your board is you and your cofounder(s) and some investors you have a suboptimal board structure. Do yourself a big favor and recruit a few strong and experienced independents. It is well worth the time and energy you will spend on it.

Categories: Blog articles

Flurry

A VC - July 22, 2014 - 12:50am

Yesterday our portfolio company Flurry announced it was being acquired by Yahoo!

I thought I’d provide a bit of history since this was an interesting investment for us.

Back when Apple was launching its app platform in the winter of 2008, we met with Greg Yardley who had teamed up with Jesse Rohland to build an analytics service for app developers. We had known Greg from his work with Seth Goldstein at Root and we were fans. And it seemed to be a smart idea to give developers the ability to see what people were doing in their mobile apps. So we provided seed financing to Greg and Jesse along with our friends at First Round.

Pinch launched the first iOS analytics service and got rapid adoption. But they ran into some challenges, the two primary ones were monetization and getting onto Android and Blackberry (which was relevant back then). And that’s where Flurry entered the picture.

Flurry was a pivot into the same business as Pinch was in. They were already on Android and Blackberry but were far behind Pinch on iOS. They were led by a hard charging CEO named Simon Khalaf who had big ideas for monetization. It was a match made in heaven. So the two companies merged and Flurry became the surviving company.

Flurry continues to lead the mobile app analytics business. According to Simon’s blog post yesterday, there are 170,000 developers with 542,000 mobile apps using the Flurry service.

And now Flurry becomes a Yahoo! branded offering. There is no question that the Flurry data and its advertising products (powered by Flurry’s data) will be a great fit for Yahoo!’s mobile ambitions.

So we have a happy ending to a startup story with a few twists and turns. This is an example of where 1+1 equaled a lot more than two. I’ve been involved in a number of “startup mergers”. Some work. Some don’t. This one worked beautifully.

Categories: Blog articles

Free International Roaming With A Premium Upsell

A VC - July 21, 2014 - 1:24am

I just landed in Berlin after an overnight flight from the US.

In the past, turning on your phone after landing overseas could be an expensive experience as the phone downloads all the email you received since taking off at international mobile data rates.

I’ve used a host of techniques over the years to avoid the experience of landing, turning on my phone, and immediately getting a text message that I’ve blown past my international data roaming cap.

I’ve turned off mobile data and waited until I got to hotel WiFi to download my email but that meant no mobile data for directions to the hotel. I’ve bought SIM cards in airports. And more recently I’ve rented a pocket WiFi before traveling overseas.

But last year the Gotham Gal and I switched back to T-Mobile after they introduced free low bandwidth international data roaming for all customers in the US.

Here is the experience when I land. I turn on the phone, it finds the local mobile network, connects, and my phone lights up with notifications and emails start coming in.

In addition I get a text message from T-Mobile offering to upgrade me to an international data pass that offers 4G in 100MB buckets at roughly $10/100MB.

I buy the upgrade every time and am happy to pay for the higher speeds.

But the important thing here is the customer experience. No longer do customers have to fear turning on their phone. No longer do customers have to jump through hoops to procure an affordable mobile data plan. If you want faster speeds, T-Mobile makes it drop dead simple to upgrade right on your phone.

This approach to international mobile data should be adopted by all the mobile carriers. It’s a great experience.

Categories: Blog articles

Messaging, Notifications, and Mobile

A VC - July 20, 2014 - 5:51am

I’ve written about this stuff before, but I continue to be interested in it.

I actively use the following messaging apps on my phone:

Kik – my primary channel for The Gotham Gal, my daughter Jessica, and USV people

Snapchat – my primary channel for my son Josh

SMS – my primary channel for my daughter Emily and a lot of my friends

Hangouts – secondary channel for my daughter Jessica and USV people

Twitter DM – primary channel for people who don’t have my cell number

Though I don’t use them, I realize the following apps are quite popular in the US as well

WhatsApp

Facebook Messenger

Skype

Viber

Tango

Line

So how is it possible that we can all have and use four, five, six or more messenger apps on our phones?

It’s because the notifications channel is the primary UI on mobile, replacing the home screen, and its easy to communicate with people using a variety of applications on your phone.

What I’m wondering is if we will see even more fragmentation in our messaging behavior on mobile in the coming years, or if five to six apps per person is status quo, or might we see some consolidation?

I personally don’t see any reason for consolidation and if I had to make a bet, it would be on further fragmentation. Each of the apps I use offers something slightly different than the others. And so for certain people, and certain kinds of conversations, one messaging app is preferable to another. It’s very possible that entrepreneurs will continue to come up with unique and differentiated experiences and that will drive further fragmentation.

Categories: Blog articles

Video Of The Week: My Talk On Bitcoin, Crowdfunding, and Charitable Giving

A VC - July 19, 2014 - 6:02am

I gave this talk at NYU last week. It’s about three things I am spending a lot of time on and thinking a lot about these days.

The talk is about 30mins long and the Q&A goes on for about as long after the talk.

Categories: Blog articles

Feature Friday: A/B Testing Headlines On WordPress

A VC - July 18, 2014 - 5:35am

AVC community member Shana Carp has been building a neat service that A/B tests headlines for WordPress posts and helps you figure out the one that will bring the most traffic.

It’s called BayesianWitch. You can sign up here and add the plugin to your WordPress.

Although I think it’s a great idea for someone who wants to optimize their posts for more traffic, I have not implemented it here at AVC.

As I told Shana, I like to write my own headlines and I am not that concerned with traffic. There’s already a healthy number of people who come here every day and engage.

But if you are still building your readership and want to make sure you’ve got a headline that pops in social media channels like Facebook and Twitter, you should give BayesianWitch a try.

I am sure Shana will be hanging out in the comments and please let her know what you think about the service, how it works, etc, etc.

Categories: Blog articles

Newsletter – July, 2014

Beyond Money - July 17, 2014 - 12:43pm

Contents

  • From Visby to Bisbee
  • Website improvements, slide shows, and videos
  • My upcoming events
  • Ecuador leading the way toward a “Commons Economy”
  • Kalikalos Summer School/Vacation.
  • Bitcoin—the currency and the technology
  • J. W. Smith and the Institute for Cooperative Capitalism Worldwide
  • More lessons in global economics, finance, and internet access

From Visby to Bisbee

Last year around this time I was in Visby, on the island of Gotland in Sweden where I was privileged to be able to attend the annual Almedalen event, an exciting convergence that brings together a wide variety of business people, politicians, academics, grassroots activists and ordinary folks for several days of presentations, discussions, and festivities.

This year I’m in Bisbee, Arizona, a former mining town turned artist’s mecca and tourist destination where I have the use of a comfortable house while my friends who own it summer in New England. Bisbee is located in Cochise county which is in the southeastern corner of Arizona, close to the Mexican border. I’ve gradually been adjusting to small town living and finding it to my liking. At five thousand feet elevation, the climate is pleasant—not too hot, and the summer monsoons have provided abundant rains over the past couple weeks. The ocotillo plants, which most of the time look like clumps of dead sticks splayed out toward the sky, are now covered with lush green leaves and tipped with red blossom tassels. _____________________________________________________

Website improvements, slide shows, and videos

The slower pace of small town Arizona has given me the opportunity to focus much of my energy and attention on consolidating the considerable body of work that I have built up over the past three decades, work that has taken a variety of forms—articles, books, websites, presentations, and interviews. Thanks to modern technologies, much of this work has been recorded and thus can be made readily available to present and future generations. I’ve spent a lot of time going back over my accumulated material—reworking and updating it, finding ways to make it more accessible, and in some cases, publishing it for the first time. I’m proving (to myself at least) that an old dog can learn new tricks, and I’ve been having a fun doing it.

I’ve been using Power Point for several years but up to this point had not tried to learn more than its basic functions, nor had I made much of an effort to learn how to edit audio and video files. With the acquisition of Power Point 2010, which has some powerful new features, plus some new found motivation on my part, I’m now beginning to master it along with audio editing software like WavePad and Audacity (both are free). Together, these tools are enabling me to create videos of reasonably good quality from many of my Power Point presentations that have been recorded over the years. I am posting these for viewing on my Vimeo channel at https://vimeo.com/tomazg/videos.

One of my best presentations, A New Paradigm in Exchange and Finance: The pathway to peace, justice, freedom, and a dignified life for TG-PBIbySL-0496CRsall, was delivered at the Public Banking Institute conference in Philadelphia in 2012. I’ve made a video of that slide show presentation, which you can view at https://vimeo.com/100765695.

I’ve also done some work on my YouTube channel. I’ve sought out and collected materials in which I am featured. You can find these in my YouTube playlist labeled, My presentations and Interviews.

These links are also provided in a new menu button labeled, My Videos and Sites, that I’ve added at the top of the home page on my website http://beyondmoney.net/. That button also brings up links to my other sites.

As you explore my sites, please let me know if you find any broken links, errors, or other problems. You can reach me at thgreco@mindspring.com.

_____________________________________________________

My upcoming events

I’ve been invited by the Sunbelt World Trade Association to give a presentation in Tucson on Monday, August 18. This presentation will describe how local businesses can create local liquidity on the basis of their own production and collaborative credit, thereby reducing their dependence on bank borrowing and protecting the local economy from the ill effects of national and global monetary policies (Details at http://beyondmoney.files.wordpress.com/2014/07/2014-tucson-flyer-063014.pdf). If there is sufficient interest, I may follow that up with a workshop covering the issues that need to be addressed in preparing to launch a complementary community currency for southeastern Arizona.

In October, I’ll be going to the San Francisco Bay area. I will present at Living the New Economy conference in Oakland, October 23-26 (http://www.bayareaneweconomy.org/), being organized by the people at Bay Bucks, a complementary currency and trade exchange for the SF Bay Area. Their banner reads: “We help local businesses cut costs, increase revenue and in the process, build local resilience.”

On October 30 I will present, The Evolution of Money and its Potential to Improve Humanity at the Institute of Noetic Sciences (IONS). Details can be found here.

_____________________________________________________

Ecuador leading the way toward a “Commons Economy”

In 2013, the government of Ecuador embarked upon a program to rethink the fundamentals of its economy and plan its transition to a free and open knowledge society. Friend and colleague, Michel Bauwens, founder of the P2P Foundation was engaged to lead a ten month process of research and discussion.

David Bollier has provided a good overview of the project and a progress report in his magazine On The Commons.

_____________________________________________________

Kalikalos Summer School/Vacation

If you’re in the market for a European vacation combined with an educational and community-building experience, you must check out Kalikalos Summer School where you can experience “Alternative holistic holidays on Mt Pelion above the sea.” Their three campuses are all in close proximity to one another in one of the most beautiful parts of Greece. This short video will give a good idea of what to expect.

_____________________________________________________

Bitcoin—the currency and the technology

The story of Bitcoin goes way beyond alternative currency. As a “virtual commodity,” Bitcoin represents a step backward toward a more primitive form of currency, but the “block chain” technology that Bitcoin uses has far reaching applicability. An interesting article that speaks to that point appeared in The Telegraph (UK). Titled, The coming digital anarchy, the lead-in to the article reads, “Bitcoin is giving banks a run for their money. Now the same technology threatens to eradicate social networks, stock markets, even national governments. Are we heading towards an anarchic future where centralised power of any kind will dissolve?

An interesting counterpoint to that one is Matthew Slater’s excellent article, What happens after the crypto-revolution?

And the nerds among us would do well to read Marc Andreesen’s New York Times article, Why Bitcoin Matters. Andreesen has invested almost $50 million in Bitcoin-related start-ups. He begins by painting this picture:

“A mysterious new technology emerges, seemingly out of nowhere, but actually the result of two decades of intense research and development by nearly anonymous researchers.

Political idealists project visions of liberation and revolution onto it; establishment elites heap contempt and scorn on it.

On the other hand, technologists – nerds – are transfixed by it. They see within it enormous potential and spend their nights and weekends tinkering with it.”

_____________________________________________________

J. W. Smith and the Institute for Cooperative Capitalism Worldwide

The Institute for Cooperative Capitalism Worldwide (ICCW) is the latest project of J.W. Smith, a long-time scholar and advocate of economic democracy, who has been writing on “full and equal rights economics” for many decades. I’ve know J.W. for many years and have a high regard for his work. I first became aware of him from reading his book, The Worlds Wasted Wealth. Now in his eighties, J.W. is still going strong and making a difference. His latest book is Periphery of Empire is Free: Empire’s Citizens Soon Will Be Free, which is being offered as an e-book at the bargain price of $5.50, along with books by William Kotke, Alanna Hartzok, and others.

The ICCW seeks to publish e-books by authors who share this full and equal rights philosophy. See their “creative commons” page. For responses and questions you can contact Dr. J.W. Smith at cc@ccus.info or phone 623-875-4624 .

________________________________________________________

More lessons in global economics, finance, and internet access

Whenever you need to take a short break from whatever you’re doing, Clarke and Dawe’s video can provide you with some deep insights about the global financial crisis, with a few chuckles thrown in.

And for a few more laughs relating to an important current topic, view John Oliver on net neutrality, and sign the petition to protect internet access at The Daily Kos.

Wishing you a pleasant summer,

Thomas


Categories: Blog articles

The Kickstarter Film Festival

A VC - July 17, 2014 - 4:31am

The fourth annual Kickstarter Film Festival is upon us. Tomorrow night in Fort Greene Park in the fine city of Brooklyn NY from 7-11pm, Kickstarter will be showing films, and featuring musicians and local food purveyors. The festival will be replayed in Los Angeles on Sept 12th, and also in London later this fall.

Here’s a short trailer for the festival:

Here’s the website for the festival. It lists all the films that will be featured. Attendance is free.

And here’s a blog post that talks about how they selected all the films that will be featured. 

It’s going to be a beautiful night in NYC tomorrow night. If you are considering your weekend plans, think hard about spending friday night in Fort Greene Park watching the amazing things that emerging filmmakers are doing right now.

Categories: Blog articles

No Pain No Gain

A VC - July 16, 2014 - 4:31am

One of my favorite observations about places to vacation is that the harder it is to get there, the better they are:

Aspen beats Vail

Montauk beats East Hampton

Tulum beats Cancun

And I think the same is often true of Internet services.

My friend Brad Feld tweeted this out yesterday:

i’ve grown tired of spotify and pandora – listening to the same stuff. so i’m going to try soundcloud for a while – any hints?

— Brad Feld (@bfeld) July 15, 2014

I replied with a suggestion on how to get started

@bfeld follow me (and others) on soundcloud. here’s me https://t.co/574mN3PCi6 and here’s my liked tracks https://t.co/Y4NB3TEo8o

— Fred Wilson (@fredwilson) July 15, 2014

But regardless of my help, Brad is in for a harder time getting SoundCloud working for him than getting Pandora working for him. But if he sticks it out, follows the right people, curates tracks by liking them and reposting them, he will find there is a richness to SoundCloud that simply doesn’t exist on “just hit play” audio services.

The same is true of Twitter. I read this research note on Twitter yesterday:

Twitter: Study Vol. 3 suggests fixable user issues and mass market potential; Buy – MKM Partners 
MKM Partners finished another proprietary study on TWTR. Findings: 
-User attrition is the key issue for TWTR. Like other volumes, this survey shows polarized indicators of stickiness 
-Strong indications that improved user experience and streamlined content mgmt would fix churn issues 

So Wall Street is finally figuring out that Twitter isn’t Facebook. It exhibits “polarized indicators of stickiness”.

Which to me means, some people love Twitter and become obsessed with it. And others churn out quickly.

Twitter is a lot like SoundCloud. You have to do a lot of work to get to “that place” with Twitter. You have to follow the right people (for you). You have to favorite, retweet, reply, and engage. But when you do there is a richness to Twitter that doesn’t exist on simpler and easier social nets.

I am sure we can find many other examples of this. That might be a good exercise for our comment discussion.

When it comes to social media, no pain means no gain.

Disclosure: USV provided early stage venture capital investments to both SoundCloud and Twitter. And I personally own a lot of Twitter stock.

Categories: Blog articles

The Smart Watch

A VC - July 15, 2014 - 4:37am

Last week, at an event I attended, I was at the bar after dinner and a few people sat down wearing the latest Android Smartwatch from Samsung.

There were a bunch of oohs and aahs.

I mentioned that I’ve never worn a watch and can’t imagine ever wearing one, no matter what is on it. I just have never gotten used to wearing something on my wrist, though I have tried many times.

I don’t think the ability to see notifications and calls coming in on my wrist instead of my phone will change that.

This reporter from New York Magazine suggests that nobody other than tech moguls and geeks are interested in smartwatches.

I don’t really have an opinion on whether the smart watch is going to be a hit or not.

But I do know that pulling my phone out of my pocket will remain the primary way I connect to the world when I am out and about.

I am not bearish on wearables in general however.

I really like wearing a “necklace” which I blogged about a few weeks ago. I like the vibration on my neck when a call comes in. I like being able to easily connect to the audio services on my phone without taking out the phone.

I can imagine there will be a plethora of wearables in the market in a few years and some of us will tend toward the watches, others will tend toward the necklaces, others will adopt the rings, and some will go for the glasses.

It will be fun to watch this market evolve.

Categories: Blog articles

Bitcoin and Charities

A VC - July 14, 2014 - 4:42am

Tonight, at 6:30pm at NYU’s Eisner and Lubin Auditorium, I am giving a talk on the topic of Bitcoin and Charities. If you want to come, the ticket is $25, paid in Bitcoin, and all ticket proceeds are going to CSNYC.

We are expecting about 300 people right now based on ticket sales and there are another 100 seats left so there’s room if you want to come.

Here’s why I think Bitcoin will become important to charities.

Traditionally non-profits have spent upwards of 20% of their budget raising money.  The Internet, software, and the crowd have dramatically changed that.  Non-profits like Charity Water, DonorsChoose, and others have shown that using the Internet and the crowd can bring those costs down considerably. And now we have crowdfunding networks like CrowdRise that can help every charity be like Charity Water and DonorsChoose.

But there remains a pesky cost to online fundraising that is harder to eliminate and that is the payment processing fees. A charity may be able to lower their cost of fundraising from 20% to 5% by using these online tools, but virtually the entirety of that last 5% is going towards credit card processing fees.

This is where Bitcoin comes in. If you own Bitcoin, at Coinbase or in your own wallet, you can gift your Bitcoins to charity and save them pretty much all of their online fundraising costs.

The nirvana of charitable fundraising is that all of the money raised goes to the cause, not the operations and fundraising costs of the non-profit. Some non-profits have founders or boards that cover the overhead and fundraising costs so that all funds raised go to the cause. That’s how CSNYC works. The Gotham Gal and I cover the operating and fundraising costs. So if you make a donation to CSNYC, all of your funds go to our mission (which is bringing CS Education to the NYC public schools).

But most non-profits don’t have founders or boards that can support them like that. So when you make a donation, you are funding not only the mission, but the costs of raising those funds. The Internet and bitcoin can change that.

If you run a charity or work at one, consider signing up for a fundraiser on CrowdRise and connect with CrowdRise about accepting Bitcoin as an option. There is no less expensive way to raise money than that.

I will get into all of this in more detail tonight, including providing a basic description and history of Bitcoin, how it works, and why it is important. I hope to see you there.

Categories: Blog articles

Platform Monopolies

A VC - July 13, 2014 - 8:08am

There’s an article in the NY Times Sunday Business Section today that lays out a very important question we have all been dancing around but will increasingly be dealing with. The article is nominally about Amazon’s fight with Hachette but it is really about internet platforms and monopolies.

The author of the NY Times piece tells the story of Vincent Zandri, an author of mystery and suspense novels, who has moved all of his publishing activities over to Amazon’s platform and is enjoying the benefits of doing that.

This could easily have been the story of the journalist who moves her writing from The Wall Street Journal to her own blog, or the story of the filmmaker who moves from the Hollywood studio system to Kickstarter and VHX. It could be the story of the band that leaves their record label and does direct deals with SoundCloud and Spotify. It could be the story of the yellow cab driver who moves his driving business to Uber or Sidecar.

The story of Vincent Zandri is the story of our times.

The Internet, at its core, is a marketplace that, over time, removes the need for the middleman. That is very good news for the talent that has been giving up a fairly large part of its value to all of the toll takers in between them and their end customers.

Take Etsy for example. Before Etsy, if you made knit hats, you would sell them to a boutique for $10, and that boutique would turn around and sell them to your customers for $25. Now you sell them to your customers on Etsy for $25 and pay a 20cents listing fee and 3.5% of the transaction and a payment processing fee. In the old model the knitter made $10 per hat. In the new model, the knitter makes about $23 per hat. That’s a big deal. And you see it all over the place in the Internet marketplace economy.

But there is another aspect to the Internet that is not so comforting. And that is that the Internet is a network and the dominant platforms enjoy network effects that, over time, lead to dominant monopolies.

We see that with Google today. Google’s global search market share is around 70%. It would be larger if not for China and Russia, where the governments have given benefits to local players. But even with its current market share, Google is pretty close to a monopoly in search. It is a benign monopoly for the most part and, as such, has largely stayed out of the sights of regulators. I, for one, am happy with that game of chicken between Google and the regulators.

Amazon is increasingly looking like a monopoly in publishing. This part of the NY Times piece is how all of these Internet stories have played out:

At first, those in the publishing business considered Amazon a cute toy (you could see a book’s exact sales ranking!) and a useful counterweight to Barnes & Noble and Borders, chains willing to throw their weight around. Now Borders is dead, Barnes & Noble is weak and Amazon owns the publishing platform of the digital era.

The same could be said of Google, Twitter, YouTube, SoundCloud, Uber, and all of the dominant networks that are emerging around us. From laughable toys to dominant monopolies in less than a decade.

It’s strange for me to write this post because this is our playbook at USV. We invest in networks that can emerge as dominant platforms by virtue of network effects. We like things that are laughed at. The more they are derided, the more we want to invest.

But here’s the rub. When a platform like Amazon emerges as the dominant monopoly in publishing, who will keep them honest? When every author has left the publishing house system and has gone direct with Amazon, what does that world look like?

That is the question the NY Times is asking in their story this morning. And that is an issue that we at USV have been confronting for a while now and we are investing against it.

We have invested in Wattpad, which is a bottoms up competitor to Amazon, as opposed to Hachette which is a top down competitor to Amazon. We think its easier for a more open, less commercial platform like Wattpad to keep Amazon honest than it is for a legacy publishing house.

We have invested in Sidecar, which has built a true open marketplace for ridesharing. We think its more likely that true peer marketplace will keep Uber honest than the legacy fleets of limos and taxis that are fighting for their life against Uber right now.

But maybe most importantly, we are investing in bitcoin and the blockchain, which is the foundation for truly distributed peer to peer marketplaces without the Internet middleman.

For this is the truth that we are now facing. For all of its democratizing power, the Internet, in its current form, has simply replaced the old boss with a new boss. And these new bosses have market power that, in time, will be vastly larger than that of the old boss.

So, as an investor, when you see a dominant market power emerge, you should start asking yourself “what will undo that market power?” And you should start investing in that. We’ve begun doing that, but are not anywhere near done with this effort.

Categories: Blog articles

Your Pitch Sucks

The Emergent Fool - July 12, 2014 - 2:10pm

I have yet to meet a founder who knows how to pitch their company so that it immediately resonates with investors.

[ I've moved this post to Crowdfunder, and Google dings you on SEO if you have the content in both places. ]

 

Related posts:

  1. Why Crowdfunding Changes Everything
  2. Investing in Superstars, part 4
  3. Revenue Sharing

Categories: Blog articles

Video Of The Week: The High Road With Mario Batali

A VC - July 12, 2014 - 7:55am

A month or so ago, I taped an episode of The High Road With Mario Batali. We went to the Frick Museum, we bowled in the basement of the Frick, we ate grilled cheese sandwiches, and we rode around on the upper level of a double decker bus. Mario asked me a bunch of questions along the way. It’s about ten minutes long and it came out well. I apologize in advance for the ads at the start and in the middle.

Categories: Blog articles
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