Blog articles

The USV Blog Search Engine

A VC - October 13, 2019 - 2:56am

It has always been possible to search AVC. You click on the search icon in a desktop browser or you click on the menu button in a mobile browser.

But there is another way to search my blog posts, both here at AVC, and also the ones I have written on USV.com.

With our recently launched refresh of USV.com, there is now at tab at the top called “Writing.” It looks like this on a mobile phone:

You can search by type (USV blog only, team member blogs only, or all), topic, author, and date.

This search engine includes writing by many USV alums on the USV blog and all of the current USV team members who blog regularly. It is quite a library of content, mostly on tech, venture capital, startups, and that sort of thing. But naturally it veers into many other topics from time to time.

If you want to read what USV team members (current and past) have to say about something, there is now a resource to do that. And we hope to make it even better over time by improving the metadata and search functionality around this large library of content.

Categories: Blog articles

Video Of The Week: The Dangers Of A Centralized Internet

A VC - October 12, 2019 - 12:34am

Amir Haleem, founder and CEO of USV portfolio company Helium, gave this talk last year and it explains why he started Helium.

Categories: Blog articles

Funding Friday: Of Sight And Sound

A VC - October 11, 2019 - 5:01am

I backed this project this morning. I am a big fan of artistic collaboration and the amazing things that come from it

Categories: Blog articles

How to get the job done!

Beyond Money - October 10, 2019 - 1:51pm

Several months ago while hiking in Sabino Canyon near Tucson I noticed out of the corner of my eye something astonishing. Fortunately, I happened to have my phone with me so I recorded it. I’ve recently taught myself some video editing skills so now I am able to share the experience. The video below clearly shows what can be achieved when there is coordinated action working toward a common objective. Are humans as smart as ants?

A prime example of stigmergy

You can also find it on YouTube at https://youtu.be/Vg-8J72Jp-Y. Help it go viral.

Categories: Blog articles

Heading East

A VC - October 10, 2019 - 4:04am

The Gotham Gal and I are heading to Europe for a couple of weeks of vacation.

I will not be working the next two weeks but do plan to blog about whatever is on my mind.

The Gotham Gal, as is her custom, will blog about the various fun things we are going to do on this trip.

I am looking forward to some down time, some good books, and seeing the sights and sounds of different places.

I am a big believer in vacations. We all work hard, get ground down, and taking some time with friends and family to unwind, clear the head, and refresh is always a wonderful thing. I am excited to do that myself.

Categories: Blog articles

Principles Over Profit

A VC - October 9, 2019 - 11:03am

I was pleased to see NBA Commissioner Adam Silver say this with respect to the controversy over Houston Rockets’ General Manager Daryl Morey’s tweet in support of the protest movement in Hong Kong:

The NBA will not put itself in a position of regulating what players, employees and team owners say or will not say. We simply could not operate that way.

The NBA faces the potential of a backlash in China that could impact the league’s business interests there.

That could reduce the profits of the league and players and owners.

But the NBA is putting principles over profits here and that is a good thing.

We have faced this issue a number of times over the years at USV and we have tried to do the same.

We have also been on boards of companies that have faced this issue over the years and we have advocated for this approach.

It is not an easy choice. Companies have employees to pay, families to feed, and customers to serve. And principles are not always shared by everyone and the lines are not always clear

But one thing is for sure. The search for profits can lead a founder, a CEO, a team, a Board, and a Company to forget their principles and that is never a good thing.

Categories: Blog articles

Cards

A VC - October 8, 2019 - 3:41pm

I played cards all through college and on and off since then. I don’t have a regular card game right now and I miss playing cards.

I was talking to a friend of mine recently and she complained that her son was more interested in playing poker than going to college. I told her that I thought he could learn more from poker than some schools and many majors.

I don’t think playing cards is a replacement for reading the great novels and I don’t think cards can replace the fundamentals of writing, math, and science.

But I do think that cards are a great compliment to all of that and I think there are things you can learn from playing cards that are hard to learn elsewhere.

Here are a few of the things I have learned from playing cards:

  • How to evaluate risk and return quickly
  • How to trust your instincts and comfortably act on them
  • How to read a room and size people up
  • How to bluff (a better word than lie which I used in a recent post)
  • How to keep large sets of numbers in your mind and available to you
  • The joys of a group of friends getting together frequently and regularly

There are many more but those are some of the ones that come to mind at this moment.

I think playing cards is a great way to learn many important life skills and I have found it to be very helpful in the venture capital business. So if your child seems obsessed with cards, I wouldn’t lose a lot of sleep over it. It might be a great learning experience for them.

Categories: Blog articles

Cross Laminated Timber

A VC - October 7, 2019 - 5:19am

Cross Laminated Timber (or CLT for short) is a structural building material that can replace concrete and steel in new building construction.

I wrote about CLT back in April and mentioned that the Gotham Gal and I are in the process of making two CLT buildings right now.

The paper version of the New York Times has an excellent op-ed today that explains why making buildings out of wood is much better for our climate than making them out of concrete and steel. What CLT does is make it possible to make tall and strong buildings out of wood.

This explanation from that NYT op-ed is particularly good:

Trees remove carbon dioxide from the atmosphere and store it in their wood. … This will allow us to pump carbon from the atmosphere and store it both in forests and in cities.

There are challenges to making buildings out of CLT. For example, CLT is not yet an approved building material in the five boroughs of NYC. That is changing however. It looks like the city will add CLT to the NYC building code soon.

I strongly encourage the NYC City Council to act quickly and approve the addition of CLT to the NYC building code.

Categories: Blog articles

Unclogging Manhattan

A VC - October 6, 2019 - 8:45am

A big thing happened this past week in my part of lower Manhattan where I live and work.

Fourteenth Street was closed to cars between 6am and 10pm except for “local traffic.” Basically if you are in a car during those hours, you can go for up to a block, but no more than that.

It is remarkable to see the transformation of Fourteenth Street, a street I walk down multiple times a day going to and from work.

I took that photo around 11am today. The street is empty. The only thing you notice is the buses going from the East River to the Hudson in something like ten minutes, a trip that used to take more than thirty minutes.

This only happened because the L train subway line, which goes under Fourteenth Street, was supposed to close for 18 months for tunnel repairs. They figured out how to keep the L train running but on a reduced schedule. But they went ahead with the Fourteenth Street closure anyway.

It is my hope that this will turn out to be a massive success and will lead to closure of other cross streets like 23rd, 34th, 42nd, 57th, 79th, 86th, and 96th.

It could be transformative for the cross town buses and a lot more too.

We need to find ways of getting around our city that don’t require cars. The closure of Fourteenth Street is a big step in that direction.

Categories: Blog articles

Audio Of The Week: Crypto In China

A VC - October 5, 2019 - 6:48am

A bunch of friends and colleagues were in China a few weeks ago for a big crypto conference and since then, I’ve had a number of fascinating conversations about the crypto sector in China.

Over the last few years, it has become apparent to me and others that China is innovating in the crypto sector in ways that the US and other western countries are not. This is happening for many reasons, including stronger user value propositions for crypto in China, a different regulatory environment, and a vibrant crypto trading sector.

This podcast explores many of these issues and is a good listen if you want to understand what is going on in the Chinese crypto sector better.

Categories: Blog articles

Funding Friday: Thirdwing

A VC - October 4, 2019 - 3:32am

We went to the theater last night. I think there is nothing like live performances. But theater is expensive and requires work to plan an evening in advance.

So many of us just end up staying at home and streaming something on our TVs.

Thirdwing is the merger of the two and I backed it this morning and am sharing it with all of you.

Categories: Blog articles

Smart Home Data Aggregator?

A VC - October 3, 2019 - 4:50am

The devices in our homes are getting smart. That is awesome. We can manage our energy consumption and much more with a lot more precision and intelligence now.

But I find myself logging into one app to get data on my thermostats, another to get data on my security system, another to get data on my solar panels, and another to get data on my electric vehicles. And then there is all of the billing data from the various utilities and other providers we have.

It’s a bit of a production each month when I want to see how we are doing. And I use a spreadsheet to collect and analyze all of this data.

It makes me wonder if there is a Yodlee or Plaid for smart home data and if there is a Mint-like application that pulls it all together for you.

Of course I could go do the homework to figure that on my own, but I assume I’m not the only person in the AVC community who has this need. So it’s better for me to blog this question here and we can all find the answer in the comments.

And if there is no good answer, well then that is a good startup opportunity.

Categories: Blog articles

Our Helium Hotspot

A VC - October 2, 2019 - 3:50am

Back in June I wrote about a company we recently invested in called Helium.

Helium is creating a decentralized low power and low bandwidth wireless network for the exploding number of smart devices out in the world.

We got our hotspot yesterday and I connected it this morning and we are now providing bandwidth in Manhattan and earning Helium tokens as a result.

Categories: Blog articles

That’s Not Fair

A VC - October 1, 2019 - 5:15am

I saw some news this morning and immediately thought “that is not fair.”

And then I reminded myself that life is not fair.

Of course we all wish that life would be fair. It should be fair.

But it just isn’t and if you go through life wanting it to be fair, you are just setting yourself up for a lot of disappointment.

All of that said, I have found life to be more fair over the long run. Things tend to even out over longer time frames.

But in the short run, we have to be prepared to get the short end of the stick and then figure out how to make that a winning hand anyway.

Categories: Blog articles

Reckoning Reflections

A VC - September 30, 2019 - 6:08am

The post I wrote yesterday generated a lot of discussion. I followed it on Twitter and engaged with much of it there.

One of the best things about writing is all of the feedback you get. It helps to sharpen your arguments and also makes you rethink them too.

Here are some of the takeaways:

  • Some readers interpreted the post as arguing for only investing in high gross margin businesses. I don’t believe that is the right takeaway. The better takeaway is that high margin businesses are often less dependent on capital markets because they can internally generate cash more easily. That is not the case with low margin businesses. So how you value and how you finance low margin businesses becomes very important. They can’t be valued too highly or you risk a financing crisis.
  • Bill Gurley tweeted his blog post from 2011 that “all revenue is not created equal.” That is a great way of saying what I was trying to say.
  • Apple and Amazon were put forth as great lower margin businesses. Amazon is a roughly 25% gross margin business and trades at a little over 3x revenues. Apple is a roughly 40% gross margin business and trades closer to 4x revenues. I think that emphasizes the point that revenue multiples ought to reflect gross margins.
  • Many people argued that operating margins and growth rates should be the two numbers that matter most in valuing a business. I totally agree. But it is hard to have 40% operating margins if you have 40% gross margins. The truth is that operating margins will be highly dependent on gross margins. But there will be edge cases where that is less true.
  • I got a lot of people saying “isn’t this totally obvious?”. To which I say “it should be but clearly it is not.”

The most important takeaway for me is that the public markets are showing us in tech/startup/VC land that the economic fundamentals of a business, even those that are driving massive disruption in their markets, really does matter and that we need to pay attention to them when we finance these companies.

Categories: Blog articles

The Great Public Market Reckoning

A VC - September 29, 2019 - 9:29am

Dan Primack wrote in his friday newsletter:

Public market investors have become less willing to leave their comfort zones, and it’s manifesting most obviously in the IPO market.
Novel disruption has fallen out of favor, with many preferring more time-tested models like enterprise SaaS and biotech.
Peloton yesterday raised over $1.1 billion in its IPO, pricing at the top of its $26-$29 range, but its shares then got crushed (although still valued well above the last private mark). Its CEO talked to Axios yesterday about the falling stock price.
Endeavor, the live events and artist representation firm led by Ari Emanuel, last night canceled an IPO that originally was to raise over $600 million, before it was later downsized.
WeWork… well, you know the story there.
Yes, all three companies have dual-class shares. Yes, all three were highly valued by venture capital or private equity investors. Yes, all three were unprofitable for the first half of 2019.
Those characteristics are also true of Datadog and Ping Identity, both of which had successful IPOs this month and continue to trade above offering.
The trio’s real similarity was that each had a very complicated story.
Peloton is a high-end hardware and SaaS business that produces original media content, sells apparel, and runs its own delivery logistics.
Endeavor began life representing movie stars and Donald Trump, but later expanded into a massive live events business that includes the UFC and Professional Bull Riders. Plus, it’s got a streaming platform.
WeWork… again, it’s different.
All of this comes against the backdrop of Uber, which also had a very complicated story and an IPO that emboldened short-sellers.
Up next: A lot of biotech startup IPOs, but no high-growth, complicated tech unicorns.
“We’re about to get a bit of a break from those sorts of deals, which I think is good for everyone,” a top Wall Street banker told me this morning.
Private markets follow public markets, so don’t be surprised to see some valuation and/or deal size pullback for these “hard to comp” companies.
Particularly if SoftBank fails to raise Vision Fund 2.
Goodbye to egregious governance terms. Dual-class will survive, but WeWork laid a third rail for others to avoid.
U.S. IPOs have still outperformed the S&P 500 in 2019, although the gap has shrunk significantly this month.
Or, put another way: The sky isn’t falling, but it’s gotten a lot darker. And, for some, downright stormy.

While all of this is true, I think it is a lot simpler than that.

The public markets are a lot different than the private markets.

Financial transactions in the private markets are controlled by the issuers, happen when the issuers want them to happen, and are generally auctions, particularly in the late stage markets.

Public market investors can buy and sell stocks every day based on what is attractive to them and what is not. If they feel like they missed out on something, they can get into it immediately.

For this reason, valuations in the private markets, particularly the late-stage private markets, can sometimes be irrational. Public market valuations, certainly after a stock has traded for a material amount of time and lockups have come off, are much more rational.

For the last five or six years, I have been writing here that I very much want to see the wave of highly valued and highly heralded companies that were started in the last decade come public. I have wanted to see how these companies trade because it will help us in the private markets better understand how to finance and value businesses.

And now we are seeing that.

And what we are seeing, for the most part, is that margins matter. Both gross margins and operating margins.

If you look at the class of companies that have come public in the last twelve months, many of the stocks that have performed the best are software companies with software margins. One notable exception to that is Beyond Meat.

  • Zoom – 81% gross margin
  • Cloudflare (a USV portfolio company) – 77% gross margin
  • Datadog – 75% gross margin

If you look at the same list, many of the stocks that have struggled are companies that have low gross margins.

  • Uber – 46% gross margin
  • Lyft – 39% gross margin
  • Peloton – 42% gross margin

Some other notable numbers:

  • WeWork gross margins – 20%
  • Spotify (down almost 30% in the last two months) gross margins – 26%

I believe that we have seen a narrative in the late stage private markets that as software is eating the world (real estate, music, exercise, transportation), every company should be valued as a software company at 10x revenues or more.

And that narrative is now falling apart.

If the product is software and thus can produce software gross margins (75% or greater), then it should be valued as a software company.

If the product is something else and cannot produce software gross margins then it needs to be valued like other similar businesses with similar margins, but maybe at some premium to recognize the leverage it can get through software.

But we have not been doing it that way in the late-stage private markets for the last five years.

I think we may start now that the public markets are showing us how.

Categories: Blog articles

Audio Of The Week: Nick Grossman on Venture Unplugged

A VC - September 28, 2019 - 3:21am

My partner Nick did this podcast recently. In it he talks about how we think about and make investments at USV, our thesis on crypto, and a number of our crypto investments.

If you want to bypass all of the intros and sponsor messages, fast forward to 3mins.

Categories: Blog articles

Funding Friday: Deep Green

A VC - September 27, 2019 - 3:19am

This project is art meets climate activism. I backed it this morning and now am sharing it with you.

Categories: Blog articles

Founder Control

A VC - September 26, 2019 - 3:23am

I have not written a lot about this issue.

As I said in this post, I am generally a “one share one vote proponent”, but I have supported founder control provisions in a few companies where I was or am on the board. These provisions make me uncomfortable but there are solid arguments for them, particularly when you are taking a company public and want to be able to keep it independent.

But the truth about founder control, as I stated in this post from back in 2012, is:

If you want to maintain control of your company, focus on running it well or find a team to run it well, and make sure you have plenty of cash to operate your business and that you never find yourself in a position where you are running out of cash and have nowhere to go but your exisiting investors. Do those two things well and you will be in control for as long as you want to be in control.

We saw that play out with WeWork this week. The founder had a 10:1 supervoting provision and controlled a majority of the board seats.

Until he didn’t.

I don’t know anything about how that all went down.

But I can only imagine that WeWork was running out of cash and needed funds from its existing investors and the founder had to cede all of that to keep the company afloat. Or some version of that story.

So all the agreements and such are only as solid as the performance of the business. They can all get torn up in a nanosecond if things don’t go well.

Categories: Blog articles

Staying Focused

A VC - September 25, 2019 - 4:02am

With all the crazy stuff going on all around us all day long it can be tough to stay focused.

But I would argue that is exactly why we must stay focused.

Some people do this by getting off social media apps like Instagram, Facebook, and Twitter.

Some people do this by using features like Screen Time to manage phone addiction.

Some people do this by adding meditation and other mindfulness practices to their daily routines.

All of these are good things and helpful.

For me, it is important to keep the things that really matter to me (family, friends, USV and our portfolio, my causes) front and center in my mind and tune everything else out.

I know what happened yesterday. But I don’t let it take up too much space in my brain.

It is not that I don’t care about all of it. I really do.

But I can’t do that much about it and I can do a lot about the things that I am focused on.

So I focus on them and let the craziness pass me by.

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