Blog articles

The Startup Job Market

A VC - May 21, 2020 - 4:54am

My colleague Matt Cynamon told our partnership last week that the number of jobs on the USV job board had declined from 1,553 to 871 in the past month. So we suggested he share that data and some observations on the USV blog. He did that yesterday.

Here is the chart of open jobs on the USV job board:

https://www.usv.com/writing/2020/05/how-covid-is-impacting-hiring/

A large number of those 871 open jobs are in a handful of larger USV portfolio companies that are leaning into this moment to build their teams. Many USV portfolio companies have frozen hiring or have tightened it significantly. And there have been reductions in force as well in some parts of our portfolio.

But all is not bleak. Matt ends his post with the following observation:

In our next post we’ll explore some areas where we’re seeing major opportunities for job seekers.

https://www.usv.com/writing/2020/05/how-covid-is-impacting-hiring/

I am hopeful that hiring will start to pick up in our portfolio in the second half of the year as our portfolio companies start to understand where their businesses are now and where they are headed this year and next.


USV TEAM POSTS:

Union Square Ventures — Jun 3, 2020
An Appraisal

Nick Grossman — Jun 3, 2020
Listening

Albert Wenger — Jun 2, 2020
American Carnage

Categories: Blog articles

Fiber To Home

A VC - May 20, 2020 - 1:52pm

I’ve been working on getting a fiber internet connection to the home we are quarantining in. With nine of us living and working from home together, we are consuming a lot of bandwidth. And with everyone on our block doing more or less the same thing, the cable internet connections we all have are bogged down.

As I understand it, cable internet suffers from a few problems relative to fiber. The bandwidth in cable is usually (always?) non symmetric, meaning the upload speeds are not nearly as good as the download speeds. For applications like browsing the web, that’s fine. For applications like videoconferencing, that’s not so fine.

I also believe that cable bandwidth is frequently shared with your neighbors whereas fiber is usually a direct connection to the telco’s main internet connection. That means if your neighbors are using a lot of bandwidth, that can slow you down if you use cable, but not if you have fiber.

These are things I’ve heard over the years and believe to be true but I am happy to be corrected on Twitter (click the button below) if I am wrong about any of this.

In any case, we are moving to fiber in an effort to make our large group work from home situation a bit better for everyone. And I suspect that I am not the only one doing this right now.

USV has two fiber investments, Ting (owned by Tucows) and Pilot, and I believe that both will see demand for their services increase this year and beyond as we all need and want more bandwidth.


USV TEAM POSTS:

Albert Wenger — Jun 2, 2020
American Carnage

Categories: Blog articles

American Kingpin

A VC - May 19, 2020 - 6:07am

I read my friend Nick Bilton‘s book American Kingpin over the last few weeks. It is the story of Ross Ulbricht (aka Dread Pirate Roberts), the founder and owner of The Silk Road.

It is a fascinating story with many angles; drug and arms dealing, entrepreneurship, criminal investigation, and much more. I highly recommend the book.

It reminded me that The Silk Road was the original product market fit for Bitcoin. According to Wikipedia:

The total revenue generated from these sales was 9,519,664 Bitcoins, and the total commissions collected by Silk Road from the sales amounted to 614,305 Bitcoins. These figures are equivalent to roughly $1.2 billion in revenue and $79.8 million in commissions, at current Bitcoin exchange rates…”, according to the September 2013 complaint, and involved 146,946 buyers and 3,877 vendors

https://en.wikipedia.org/wiki/Silk_Road_(marketplace)

Those 9.5mm bitcoins, which certainly recirculated a fair bit, represented roughly all of the circulating supply of Bitcoin at that time.

That does not mean that all of the bitcoins that had been mined at that time were in use on The Silk Road. A much smaller percentage of them recirculated back and forth between customers and suppliers in the market.

But I have always believed that The Silk Road was where Bitcoin first found a massive use case and it was where many people first bought and used Bitcoin.

This has led to a narrative around Bitcoin and crypto that it is shady and only useful for illicit behavior. That is unfortunate and not true.

Many technologies that ultimately find mainstream use cases (the web browser, the VHS, etc) find initial product market fit in areas that are edgy at best. And such was the case with Bitcoin and crypto.

These “edgy” use cases prove out the technology, provide an initial user base, and lead to more mainstream adoption down the road. And that is what happened with Bitcoin and The Silk Road.


USV TEAM POSTS:

Albert Wenger — May 29, 2020
The Social Media Triangle

Categories: Blog articles

Kickstarter Lights On

A VC - May 18, 2020 - 4:28am

So many of our favorite community anchors have shuttered in the wake of the pandemic. And reopening them won’t be easy.

Music venues, movie theaters, art galleries, restaurants, performance spaces, maker spaces, conferences, festivals, and bookshops are the places we hang out in, enjoy each other, and and connect to art and culture.

But these spaces also have communities of people connected to them, rooting for them, and eager to help them.

Enter Kickstarter, the crowdfunding platform for bringing creative projects to life (and a USV portfolio company).

Kickstarter is not charity, although there is certainly a need for charity in this moment. Kickstarter is a platform to engage your community, reward them, and encourage them to support your work.

A few weeks ago, Kickstarter launched Lights On, a call for projects that “sustain your cultural space, event series, creative organization, or independent business”.

https://www.kickstarter.com/lights-on

If you own or operate a cultural space, a local beloved business, an event series, or some other community treasure and want to engage your community in your reopening plan, Kickstarter Lights On is for you.

You can learn more about it here.


USV TEAM POSTS:

Matt Cynamon — May 20, 2020
How COVID Is Impacting Hiring

Albert Wenger — May 20, 2020
#DIYInternship

Categories: Blog articles

Funding Friday: Keep The Faith NYC

A VC - May 15, 2020 - 4:34am

I just backed this project and got myself a great hoodie to wear this fall when we hope to be back in NYC.


USV TEAM POSTS:

Matt Cynamon — May 20, 2020
How COVID Is Impacting Hiring

Albert Wenger — May 20, 2020
#DIYInternship

Categories: Blog articles

r/CryptoCurrency Moons

A VC - May 14, 2020 - 12:18pm

We have been looking for ways in which crypto assets can go mainstream. Our interest and investment in Dapper’s crypto games is an effort in that area. So is our involvement in the Libra project.

We also have been involved in legacy mobile and web apps that have built cryptocurrencies inside of them. Kin and Props are two examples of that.

But we are also always looking outside of our own portfolio for examples of ways in which crypto assets can go mainstream.

And I saw yesterday that two subreddits, r/Cryptocurrency and r/FortNiteBR, have issued crypto assets on the Ethereum blockchain using the ERC20 token standard. The crypto asset associated with r/Cryptocurrency are called Moons. The crypto asset associated with r/FortNiteBR are called Bricks. They are very similar assets but they are not the same.

I don’t play FortNite but I do own cryptocurrencies, so I am a bit more interested in Moons and hope to accumulate them by actively engaging in the r/CryptoCurrency community.

Here is how Moons work.

Moons are a new way for people to be rewarded for their contributions to r/CryptoCurrencyThey represent ownership in the subreddit, they are tokens on the Ethereum blockchain controlled entirely by you, and they can be freely transferred, tipped, and spent in r/CryptoCurrencyClaim your Moons in the new Vault section of the Reddit iOS or Android app! It will be rolled out gradually over the next two days and will be in beta testing until later this summer.

https://www.reddit.com/r/CryptoCurrency/comments/gj96lb/introducing_rcryptocurrency_moons/

The new Vault section of the Reddit mobile app now has an Ethereum wallet that can store Ethereum tokens, like Moon. And as you engage in the community, you earn Moons in your wallet.

I think this is an interesting experiment and could bring more users into the crypto ecosystem. I hope to earn some Moons over the next few months and you may want to do the same.


USV TEAM POSTS:

Matt Cynamon — May 20, 2020
How COVID Is Impacting Hiring

Albert Wenger — May 20, 2020
#DIYInternship

Categories: Blog articles

Location and Work

A VC - May 13, 2020 - 6:25am

I am confident this pandemic will end. At some point, we will have a vaccine, therapeutics, and/or broad based immunity. When that will happen is less clear to me. I believe that at some point, we will be able to resume living and working as we did prior to the pandemic.

However, I am also confident that we will not resume living and working exactly as we did prior to the pandemic because some of the things we have adopted to get through this will reveal themselves as comparable or better than what we were doing before.

One of the places this is happening is knowledge work which is a growing percentage of the workforce in the US. What we have seen in this pandemic is that knowledge workers have been able to be comparably productive working from home and that has caused many large (and small) employers to consider different work/location options.

Yesterday, Twitter told their employees that most of them can work from anywhere going forward:

News: Twitter will allow its employees to work from home forever. @jack just emailed the company about it. Details here: https://t.co/KvvozuQ8Qn

— Alex Kantrowitz (@Kantrowitz) May 12, 2020

A number of our portfolio companies have made that decision already as well:

This week, we rolled out Work from Anywhere.

– Will keep our NYC office as HQ (these are desks at a co-working space)
– Anyone can work from anywhere in the U.S.

— Michael Karnjanaprakorn (@mikekarnj) April 22, 2020

I can imagine large and small banks, law firms, accounting firms, media and entertainment companies, and other knowledge based businesses making similar decisions.

I am not saying that remote work is ideal. There is something very valuable about being able to be in the same physical space as your colleagues. USV will likely keep an office for exactly that reason.

But it is also true that USV is operating incredibly well during this pandemic and we have not (yet) missed a beat.

What this means for large cities where many companies that engage in knowledge work are centered is an interesting question.

I saw this chart this morning on Benedict Evans’ Twitter:

People have been calling the end of SF for long time, but it’s worth remembering just how much the price delta has opened up in the last decade. For many people it no longer matters how driven you are if you can’t afford a second bedroom pic.twitter.com/4suajjd1gS

— Benedict Evans (@benedictevans) May 13, 2020

That compares two of the most expensive cities in the US (and world) to each other. And as bad as NYC is on the affordability index, SF is way worse.

So when you combine these two situations; large knowledge work hubs getting prohibitively expensive and remote work normalizing, it would seem that we are in for a correction.

What is less clear is where knowledge workers who can increasingly work from anywhere will choose to live (and work). Will cities remain attractive for the quality of life they offer (arts, culture, nightlife, etc)? Or will the suburbs stand to gain? Or will more idyllic locations like the mountains or the beach become the location of choice? Or will second and third tier cities become more attractive? I do not have a crystal ball on this question. I suspect it will be some of all of the above.

But this may become a big deal. Like the “white flight” that happened in the 50, 60s and 70s in a number of large cities in the US. Wholesale movement of large groups of people can have profound changes on regions.

Like many disruptions, this is both bad and good. Affordability (or lack thereof) and gentrification have been a blight on our cities. If we can reverse that trend, much good will come of it. This may also be helpful in addressing the climate crisis which remains the number one risk to planet Earth. So there are reasons to be excited about this. But wholesale abandonment is terrible. We should do whatever we can to avoid that.

It is early days for this conversation. But it is one we are going to have all around the US, and possibly all around the world. So it is time to start thinking about it.


USV TEAM POSTS:

Matt Cynamon — May 20, 2020
How COVID Is Impacting Hiring

Albert Wenger — May 20, 2020
#DIYInternship

Categories: Blog articles

Investing In Learning

A VC - May 12, 2020 - 4:40am

USV has invested in the education sector for a bit more than ten years. We kicked things off with an event we called Hacking Education back in March 2009.

We have focused on “direct to learner” businesses and have mostly avoided investing in companies that sell to the established education system.

This has been a good strategy and we have assembled a fantastic direct to learner portfolio that includes companies like Duolingo, Quizlet, Skillshare, Codecademy, and Outschool.

We’ve been doing some work to understand this portfolio in the light of this remote learning moment we are in.

This portfolio reaches hundreds of millions of learners all around the world each month. Many learners use these products for free. A small percentage of learners pay. And yet this portfolio will generate close to a half a billion dollars of revenue in 2020.

Another interesting thing about this portfolio is that none of these companies have spent a lot of capital building their businesses. They have all been very capital efficient and most are cash flow positive at this point.

What this tells me is that direct to learner businesses are very attractive. They can serve a very large number of learners very efficiently, they can lightly monetize and yet produce massive revenues because of their scale, and they don’t require a huge amount of capital to build.

We hope to find more businesses like this to invest in as we think we are just at the beginning of rethinking how we want to learn and educate.

If you want to see some of this in action, you should check out Codecademy’s Learn From Home Day tomorrow, May 13th, starting at 10:45am ET. It looks to be a fun day of learning.


USV TEAM POSTS:

Matt Cynamon — May 20, 2020
How COVID Is Impacting Hiring

Albert Wenger — May 20, 2020
#DIYInternship

Categories: Blog articles

Leadership Has A Price

A VC - May 11, 2020 - 3:52am

We’ve been watching the ESPN series The Last Dance along with something like 6mm other fans who are watching it right now. It is a reminder of how dominant Michael Jordan was in the 90s and what a special player he was.

I woke up thinking about the last three minutes of episode 7 which dropped last night.

Michael is asked if his intensity has come at the expense of being perceived as a
“nice guy.”

He gets pretty emotional and says “Winning has a price and leadership has a price. I pulled people along when they didn’t want to be pulled, I challenged people when they didn’t want to be challenged. I earned that right.” … “Once you joined the team, you lived at a certain standard that I played the game. I would not take anything less.” … “One thing about Michael Jordan is that he never asked anyone to do anything that he didn’t do.”

It’s a great piece of television and captures the essence of the man, how competitive he is, and how emotional he is about it all.

It also captures the burden of leadership and what is required to get everyone to commit to each other and be the best that they can be. Leadership is not being liked. Leadership is being respected and followed.

And the last three minutes of episode 7 capture that so well.


USV TEAM POSTS:

Matt Cynamon — May 20, 2020
How COVID Is Impacting Hiring

Albert Wenger — May 20, 2020
#DIYInternship

Bethany Crystal — May 14, 2020
7 Ways to Manage Quarantine Life with a Newborn

Categories: Blog articles

Funding Friday: The Arbus Box

A VC - May 8, 2020 - 4:43am

This pandemic has challenged us all in many ways. But it has also provided time for many of us to tackle things we’ve long wanted to do.

Today, I would like to blog about an example of that.

Kirk Love is well known to many AVC readers. He is also the designer of this blog. And he is a good friend.

Kirk is also very fond of Kickstarter. He has backed over 300 projects on Kickstarter over the years and he has tipped me off to so many great ones that I have gone on to back. And Kirk has always wanted to do a Kickstarter project of his own.

Well he finally found the time to do that and he has a great project up right now called The Arbus Box. I will let him explain it to you (video link here for email recipients):

I backed it earlier this week. If you want to join me in supporting Kirk’s creative project, you can do that here.


USV TEAM POSTS:

Matt Cynamon — May 20, 2020
How COVID Is Impacting Hiring

Albert Wenger — May 20, 2020
#DIYInternship

Bethany Crystal — May 14, 2020
7 Ways to Manage Quarantine Life with a Newborn

Categories: Blog articles

Growth

A VC - May 7, 2020 - 4:46am

One of the great joys of the work I do is I get to watch the leaders of our portfolio companies grow over time.

I’ve had a number of moments over the last few months where I got off a call or a meeting and thought to myself “wow, she’s a new person.”

Growing as a leader takes time, mistakes, failure, feedback, and a lot of work. You don’t magically show up as the CEO and you are good to go. It’s not like that at all. The authority to make the final call doesn’t mean that you are good at it and that people will line up behind your decisions.

It is a process and like all processes, it requires time and patience. But for those who are committed to personal growth, there is a path.

Two syndromes I see quite frequently are “deer in the headlights” and “I’ve got this.” They are both tell tale signs of a leader who isn’t there yet.

Deer in the headlights is pretty obvious to everyone. The leader just doesn’t seem steady and solid. You can see it in their eyes. I like to provide a leader with deer in the headlights syndrome a lot of support, advice, and constructive feedback. I have seen people go from deers in a headlight to strong decisive leaders in less than a year. It helps to have a gauntlet or two to have to run through. The greater the challenges the deer in the headlight faces, the more quickly they can emerge as a strong leader.

“I’ve got this” is more problematic. The leader acts like they know what they are doing, but they don’t. And everyone around them knows it except them. I like to provide a leader with “I’ve got this” syndrome with a lot of tough love but that is usually not enough. The answer to “I’ve got this” is usually failure of some sort, often a very significant one. The key is to be there for the failing leader in that moment and help them get through the failure and come out of it with self awareness and a desire to address the issues that have gotten in the way.

These are just two of the immature leader syndromes, but they are two very common ones I have seen.

I believe that most people have the capacity to be leaders if they want that for themselves. I also believe that leadership is a skill that you never stop learning. And I believe that it requires self awareness, courage, and deep empathy.

Sitting at a table and watching a skilled leader work is quite a sight to see. And watching someone grow into that person is one of the great joys of my work.


USV TEAM POSTS:

Albert Wenger — May 20, 2020
#DIYInternship

Bethany Crystal — May 14, 2020
7 Ways to Manage Quarantine Life with a Newborn

Categories: Blog articles

AVC Comments Migration Complete

A VC - May 6, 2020 - 11:35am

Back when we launched the new AVC (AVC 3.0) and moved away from the Disqus comment system, I heard loudly and clearly that the folks who have left comments here at AVC, via Disqus, from 2007 to early 2020, would like to have their comments displayed at the bottom of all of those old blog posts.

That was not an easy thing to do because I wanted to migrate all of those comments out of Disqus into the AVC WordPress database so that we have full control over them and how to display them in the new AVC.

Disqus was super helpful in getting the comments out, but we ran into a number of issues given that massive number of comments. There were 459,000 comments left on AVC in the “Disqus era.” Think about that.

Here is an email the team at Storyware, who did the work, sent me explaining their process. They also migrated the comments on GothamGal.com and completed that last month.

At first we tried to use the official Disqus Plugin to migrate your comments, but their plugin resulted in errors each time we tried to process a batch of comments. We then looked at writing a custom migration script for the exported XML file that you obtained from Disqus. With nearly 500k comments, your migration file was 397.3 MB in size. This massive file wasn’t efficient for testing migration scripts so we tabled this, knowing that we would be migrating a small set of Disqus comments for GothamGal. 

The GothamGal export from Disqus turned out to be 27 MB, much smaller in size. We used her export file to then develop a CLI tool to process the XML file and migrate the comments into WordPress. This tool worked well, but it relies on holding a lot of items in memory: an array of the Disqus threads (your posts), an array of your Disqus comments, and an array of processed comments that we can use for associating parents with children. This same script just couldn’t handle an export file that’s the size of the one generated for avc.com

To run the Disqus to WordPress migration for AVC, we developed a plugin that allowed us to perform the following steps:

1/Process all of the threads in the XML file, and store them in a new database table. These threads are needed for grabbing the URL associated with each comment, which can then be used to associate each comment with a post in WordPress. 

2/Process all of the Disqus comments in the XML file and also store these in a new database table, which we can use to gradually migrate the comments into WordPress. We did still have to break the huge AVC Disqus export file into 16 pieces in order to save the comments from the XML file into the database

Categories: Blog articles

Learn To Code If You’ve Lost Your Job

A VC - May 5, 2020 - 4:26am

Learning to code was the thing that unlocked it all for me. I learned to hack in Basic during high school. I parlayed that into a programming job in college, which led to my first job out of college, which then led to a job that helped me pay for graduate school, which led to a job in venture capital.

That is why I have made getting computer science broadly deployed in the K-12 system in NYC and around the US the philanthropic effort that I put most of my charitable time into. I really believe that learning to code can put you on a path of opportunity.

So I was excited to see that our portfolio company Codecademy, which helps anyone learn to code online, has a program to provide 100,000 displaced workers a free subscription to their Pro product.

Here is how it works. For every Codecademy Pro membership that is bought, the company is donating 5 to displaced workers.

So far, that has resulted in 50,000 “scholarships” for displaced workers. And I am confident they will reach their goal of 100,000 scholarships for displaced workers.

If you are a displaced worker and want to learn to code for free, you can apply here (need to login first).

And if you want to learn to code and support five scholarships by doing that, you can do that here.


USV TEAM POSTS:

Albert Wenger — May 15, 2020
COVID19: Resetting Our Priorities

Bethany Crystal — May 14, 2020
7 Ways to Manage Quarantine Life with a Newborn

Categories: Blog articles

Quantitative Tightening

A VC - May 4, 2020 - 7:04am

I saw this tweet a few days ago and thought “that’s clever”:

Is $BTC a hedge against economic uncertainty? Our report "Bitcoin’s Quantitative Tightening vs. Central Banks' Quantitative Easing" sets out to answer just that. Download it here: https://t.co/EmEs2vT93d pic.twitter.com/E8gORKjZSe

— Grayscale (@GrayscaleInvest) April 30, 2020

On or about May 12th, Bitcoin will go through its third “halvening” in which the rewards for mining bitocin will be cut in half. This will reduce the “inflation rate” of new bitcoins being mined and will also change the economics of mining bitcoin.

In the past, halvenings have been bullish for the price of Bitcoin over the medium to long term, but there is no guarantee it will play out that way this time. There are a bunch of impacts to the Bitcoin ecosystem of a halvening and the past is certainly not a predictor of the future.

However, as the Grayscale tweet above points out, there is a stark contrast between the way Bitcoin works and the way central banks work. Bitcoin is tightening its money supply at the same time central banks are loosening it.

That is a reason to have some exposure to Bitcoin in my view. We are long Bitcoin and have been for many years.


USV TEAM POSTS:

Bethany Crystal — May 14, 2020
7 Ways to Manage Quarantine Life with a Newborn

Categories: Blog articles

Funding Friday: Food Bank NYC

A VC - May 1, 2020 - 7:53am

Food Bank For New York City is NYC’s leading hunger-relief organization.

During this crisis, the number of people turning to their emergency food network has increased by 50%.

Here are some interesting stats from their website:

$1 helps provide 5 meals

OR

$1/day helps provide 150 meals every month

I just donated some money to help feed people in need in NYC. If you want to join me, you can do so here.


USV TEAM POSTS:

Bethany Crystal — May 14, 2020
7 Ways to Manage Quarantine Life with a Newborn

Categories: Blog articles

Do People Care About Privacy?

A VC - April 30, 2020 - 8:06am

I got a lot of feedback on my post yesterday and a bunch of it was around the issue of privacy and whether we really care to keep our personal data private.

I think we are increasingly aware of our data and the need to have more control over it and how it is used.

When people ask me about this, I like to show them this chart:

That is the daily search traffic on our portfolio company DuckDuckGo’s private search engine.

The 65mm searches a day on DuckDuckGo is about 1% of Google’s estimated 7bn searches a day.

But it is also the case that search activity on DuckDuckGo is growing faster than Google’s search activity. If that continues to be the case, then that 1% can grow to something much more than that over the next decade.

People do care about privacy, but the sacrifices we make for privacy must come at a low enough cost that we will make them. As DuckDuckGo has improved its product, more people have used it. The combination of increasing awareness of the issue of data privacy combined with better user experiences for privacy-focused competitors will drive us all to an online experience where privacy has a lot more value to everyone.


USV TEAM POSTS:
Categories: Blog articles

Exposure Alerting

A VC - April 29, 2020 - 7:16am

Christina Farr at CNBC has a good post that details the back story of how Apple and Google came together to implement an interoperable system and a set of APIs and SDKs to allow third parties to build exposure alerting apps on their mobile operating systems.

Like many in tech, I have been interested in exposure alerting (which we used to call digital contact tracing) since this pandemic started spreading around the world. I have always believed that these little computers we carry around with us can help solve many challenging problems and this sure feels like one of them.

But I was concerned about the need for interoperability, privacy, and security. I told everyone who I talked to about this problem in February and March that I felt like Apple and Google had to implement something in their mobile operating systems for this to work. And I was deeply concerned that would not/could not happen.

But it did. And when I heard the news, I was so pleased. Difficult times can make for interesting bedfellows.

This tweet cited in Christina’s story is great:

https://twitter.com/marcelsalathe/status/1253051812183183365?s=20

Apple and Google’s APIs are coming on May 1st and I hope to install an exposure alerting app that runs on them on my phone as soon after that as I can. I hope all of you join me in doing that.


USV TEAM POSTS:

Albert Wenger — May 2, 2020
COVID19 and the Decentralization of Money

Categories: Blog articles

Timing, Luck, and Surviving

A VC - April 28, 2020 - 7:57am

This moment we have been living through over the last two months has put pressure on many companies to figure out how to keep the lights on and stay in business. It has also been a second wind for some companies that have been struggling to survive in difficult sectors like delivery, food, and e-commerce.

At the intersection of those two things lies a truth that I have seen over the years. If you stick around long enough, you can often catch a lucky break. But that lucky break can’t come for you if you didn’t figure out how to stick around long enough.

Survival instincts are something that I have learned to appreciate in founders. There are other things that are important too, possibly more important, like the ability to get the right product to market, the ability to sell, recruit and raise, and the ability to inspire and lead. Those are all necessary for success.

But the survival instinct is related to luck, which is an underrated factor in success. You can’t be lucky unless you are at the right place at the right time. And you have to survive for that to happen.


USV TEAM POSTS:

Albert Wenger — May 2, 2020
COVID19 and the Decentralization of Money

Categories: Blog articles

Not All Gross Margin Is The Same

A VC - April 27, 2020 - 7:32am

I wrote a blog post in September of last year arguing that gross margins and operating margins really matter when valuing companies. I argued that “software companies with software margins” are better businesses than tech companies that are not really software companies but a tech-enabled version of some other business.

But gross margins, in particular, can be tricky to compare. In some cases, a software business is in the middle of the revenue flow, takes the revenue, and then passes on a lot of it, and is left with what looks like a low margin, but is in fact a high margin.

An example of that is the Dutch payment processing company Adyen. Here is a screenshot of a part of Adyen’s income statement from Yahoo Finance:

So Adyen operated in the last twelve months with an 18.7% gross margin. Many would think that was a “very low margin business.” But the truth is Adyen is simply passing through that $2.1bn of revenue to financial institutions in the form of interchange and other fees. They do very little with that money.

Let’s compare that with the big retailer Macy’s. Here is a screenshot of a part of Macy’s income statement from Yahoo Finance:

So Macy’s operated at a 40.1% gross margin over the last twelve months, more than double what Adyen operated at.

That $15bn cost of revenue on Macy’s Income Statement is the cost of purchasing everything you might find in a Macy’s store, the inventory costs associated with that, and the cost and effort of displaying all of that inventory in the stores.

So while it is the case that Macy’s has more than double the gross margin of Adyen, I believe Adyen has a much more attractive business from a margin perspective than Macy’s.

That is because Macy’s expends enormous amounts of working capital and operating expense and effort in its $15bn cost of revenue where Adyen expends very little working capital and operating expense and effort in its $2.1bn cost of revenue.

The trick, I think, is to wrap your head around the cost of revenue or cost of goods sold line item in the income statement and think about what is going on there. If it is very little to no effort, and largely just an accounting entry, then you may have a “low margin business” that is actually a high margin business. On the other hand, if it is a lot of work and capital investment to produce those margins, well then you have what you have and that is often a low margin business.


USV TEAM POSTS:

Albert Wenger — May 2, 2020
COVID19 and the Decentralization of Money

Categories: Blog articles

Funding Friday: ROAR

A VC - April 24, 2020 - 2:41pm

Yesterday, Gabrielle Hamilton, the chef/owner/creator of Prune, a tiny twenty-year-old restaurant in the east village that The Gotham Gal and I and our family have always loved, wrote a piece in the New York Times that really captures the sense of loss we all feel around our favorite local places, particularly for the people who made them what they are every day, day after day, year after year.

I can’t get her words and the images and emotions they convey out of my head.

So I want this Funding Friday to be for people like her, who have given a large part of who they are to serving us.

And the cause I’ve selected is ROAR, Relief Opportunities for All Restaurants. You can follow them here:

ROAR’s Twitter

ROAR’s Instagram

ROAR and Robin Hood, one of NYC’s leading charitable organizations, are partnering with the National Restaurant Association Educational Foundation (NRAEF) to provide direct cash assistance to restaurant workers in New York City facing unprecedented economic hardship as a result of the COVID-19 pandemic.

We made a donation today and if you’d like to join us, you can do that here.


USV TEAM POSTS:

Albert Wenger — May 2, 2020
COVID19 and the Decentralization of Money

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