Blog articles

Video Of The Week: The End Of The Beginning

A VC - November 24, 2018 - 6:38am

This is a talk that Benedict Evans gave at the A16Z Summit earlier this month. If it were possible to watch YouTube in 2/3 speed, I would love to do that with this video. Otherwise, I think it is terrific in it’s ability to capture where we are in “tech” and where we are going. It is about 25mins long.


USV TEAM POSTS:

Albert Wenger — December 3, 2018
World After Capital: Access to the Internet (Informational Freedom)

Bethany Crystal — December 2, 2018
Analysis: Two Years of Blogging

Nick Grossman — November 28, 2018
A Visual Guide to the Howey Test

Categories: Blog articles

Funding Friday: Ski Maps

A VC - November 23, 2018 - 5:11am

This coffee table book of ski maps looks awesome. I backed it today and also got one for our coffee table. You can do the same here.


USV TEAM POSTS:

Bethany Crystal — December 2, 2018
Analysis: Two Years of Blogging

Albert Wenger — December 2, 2018
Speech on Twitter: Platform not Publisher

Nick Grossman — November 28, 2018
A Visual Guide to the Howey Test

Categories: Blog articles

Thanksgiving Newsletter 2018

Beyond Money - November 22, 2018 - 11:28am

In the United States, the fourth Thursday in November is designated as Thanksgiving Day, a national holiday. Days of thanksgiving were variously celebrated in the colonies from very early times, but the national holiday we celebrate today was proclaimed in 1863, in the midst of the Civil War, by President Abraham Lincoln. It is fitting that we take time to remember the many blessings that each of us enjoys, even in the most dire circumstances.

What we consistently fail to do is to recognize the misery that our actions may be causing for others. While individually, the way we live our lives may be exemplary, our collective circumstances often derive from less than benevolent actions take on our behalf by political and economic leaders. One need not look very deeply to see the absurdity of the present world order that is based on perpetual war and struggles for dominance among national and supra-national elites. When one considers the marvelous technological advances and the vast amounts of material wealth that humans have been able to produce, it is clear that no one in this world should need to live in squalor. Yet, vast numbers of our brothers and sisters around the world lack the barest necessities to live a dignified life, much less the resources needed to realize their full potential. Still others are being terrorized, bombed, detained and persecuted through no fault of their own.

The hard question for me is, “How am I complicit in all of this, and what can I do about it?”

While driving in my car I often have the radio tuned to the local NPR station. A couple of days ago I happened to hear an episode (Ep. 356) of the popular Freakonomics program, this one titled, America’s Hidden Duopoly. The discussion was about the American two-party political system, which is in essence a duopoly of political power. Many Americans have long lamented the fact that they are often required to make a choice between “the lesser of two evils.” Third parties come and go by none has ever gained enough support to offer anything but “a wasted vote.”

Is there some other way in which the problem can be addressed? One initiative mentioned in the interview that seems to hold some promise is Unite America. Their motto is Country Over Party and their focus is on “building a movement to elect common-sense, independent candidates to office who can represent We, the People – not the party bosses or special interests.” The way they propose to achieve that is through their “Fulcrum Strategy,” that is “focused on electing independent candidates to narrowly divided legislatures, like the US Senate, where they can deny both parties an outright majority and use their enormous leverage to forge common ground solutions.” The argue that it would take only 4 or 5 independent Senators to swing the balance of power.

Hmmm, that itself is a tall order, but it just might work. Another initiative that looks promising is World Beyond War.
______________

David Brooks is a familiar figure on the PBS News Hour, where he has for years been providing political commentary alongside Mark Shields. I can’t say that I’ve been all that impressed with him, but after a friend referred me to a presentation he gave at the 2018 Pacific Summit earlier this year I came away with a different opinion. I find Brooks much more impressive and insightful as a social philosopher and historian. He articulately and entertainingly provides an assessment of our present sociopolitical predicament. I recommend that you can view that presentation on YouTube.

Still, I have a little different take on the situation, something that no one else seems to be seeing. Arnold Toynbee is quoted as having said, “Civilizations start to decay when they lose their moral fiber and the cultural elite turns parasitic.” That is the situation we find ourselves in today. Our political leadership has let us down. When the power elite works to dominate and exploit us, when they can no longer be trusted to tell us the truth,  when they fail to act on behalf of peace and the common good, what is there but to revert to tribal identities and find common cause with those whom we know and trust? While pundits and politicos decry the rise of “populism,” I see it as a natural response to the failure of the power elite. Populist actions are not always tainted by racism, sexism, and scapegoating. We need to rebuild society from the bottom up, starting with the people around us, then branching out to form alliances and coalitions. But if we are to end up with something better than what we wish to replace, our actions need to be open-hearted and beneficent. With good will toward all, perhaps it is possible to have a populist revolution that is peaceful and advances the causes of social justice, economic equity, individual liberty and human unity.
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The American Economy Is Rigged

In a recent article, Joseph E. Stiglitz, former chief economist of the World Bank, argues that the American economy is rigged and outlines a few things that we can do about it.

Stiglitz begins his article by saying:
“Americans are used to thinking that their nation is special. In many ways, it is: the U.S. has by far the most Nobel Prize winners, the largest defense expenditures (almost equal to the next 10 or so countries put together) and the most billionaires (twice as many as China, the closest competitor). But some examples of American Exceptionalism should not make us proud. By most accounts, the U.S. has the highest level of economic inequality among developed countries. It has the world’s greatest per capita health expenditures yet the lowest life expectancy among comparable countries. It is also one of a few developed countries jostling for the dubious distinction of having the lowest measures of equality of opportunity.”

 

 

He then explains how economic inequality and political inequality are mutually reinforcing, each growing in response to growth in the other. When the super-rich are able to make the rules, they can rig the game to become ever richer. He concedes that “There is no magic bullet to remedy a problem as deep-rooted as America’s inequality. Its origins are largely political, so it is hard to imagine meaningful change without a concerted effort to take money out of politics.”

Stiglitz outlines a number of measures that could achieve that but all of them require legislative action. That seems like a “catch 22.” If the political machinery is so thoroughly in the hands of the economic and political elite, how is it possible to use the political process the change the status quo? I have long argued that, in view of that political reality, the only viable strategy is to design and deploy  innovative monetary and financial systems that enable us reclaim “the credit commons.” By decentralizing the control of credit, it is possible to reduce our dependence upon bank borrowing and political forms of money. This is not so far-fetched as it might first appear. For details of how it can be, and is being done, see my article, Confronting the power elite.

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Categories: Blog articles

Giving Thanks

A VC - November 22, 2018 - 4:54am

Happy Thanksgiving Everyone.

I appreciate the annual ritual of surrounding ourselves with family, making a big dinner, and enjoying all of that.

I also appreciate taking some time to look back on things and be thankful for what we have.

I am most thankful for what I have around me today, my wife, who makes everything better for everyone around her, and our three fantastic children.

But I thought I would also talk about something that has helped me a lot in the past year – taking a more meditative posture to life. I started meditating last fall and have now been doing it every day since then. But that’s only part of what I am talking about. I am also talking about doing yoga two to three times a week, and making the most out of those sessions. And then taking all of the experiences and sensations and feelings that those things give me and introducing them into the rest of my day.

I have always been high strung. I throw myself at the world and keep throwing myself at it until I am exhausted. That personality has made me who I am and produced much of the success I have enjoyed. But it is also the source of the anxiety and worry that I have experienced regularly and, at times, acutely.

Breathing, deeply and repeatedly, and taking it down a notch and sitting with that feeling is something I wish I had learned as a child. I am sure that there were people who tried. But it took me until my mid 50s to really get it. But now that I do, I have found a balance to the “go go go” way of life that I still live and enjoy.

I am very thankful for that.


USV TEAM POSTS:

Albert Wenger — December 2, 2018
Speech on Twitter: Platform not Publisher

Bethany Crystal — December 1, 2018
When worlds collide

Nick Grossman — November 28, 2018
A Visual Guide to the Howey Test

Categories: Blog articles

Bleeding

A VC - November 21, 2018 - 5:19am

The Nasdaq is down almost 15% from its labor day highs.

Apple is down almost 25% in the last two months.

Facebook is down about 40% since July.

Bitcoin is down about 80% from its highs last December.

Ethereum is down about 90% from its highs in January.

All of those are examples of bleeding, if you happen to own any of them.

So what do you do?

Close out your position?

Buy the dip?

Sit on your hands?

It all depends on your fundamental views on these various investments.

Here are mine.

Apple is the easiest one for me. They aren’t going anywhere, although growth is slowing as they are close to saturating the high end of the mobile phone market. It will be a value stock at $120/share. If it gets there, load up on it.

Facebook is harder. They own some incredible assets like Instagram but the outlook there is cloudier given likely regulation and it won’t be a value stock for another $100 of losses. 

The Nasdaq is even harder. Are we in a bear market now? Or just a painful correction? A bull market that is almost ten years old feels long in the tooth and I can see the arguments for a bear market more clearly than a correction.

Bitcoin will form a bottom at some point and is a buy when it does. But where is that bottom? Probably not $4500.

Ethereum feels like the easiest one to make a bull case for right now. It is hated. Everyone has lost their shirt on it by now. Nobody other than developers want to know about it. It feels like time to start nibbling on it but not loading up on it.

But the thing to understand more broadly about what is going on right now is that big sophisticated investors are reducing their risk exposure across all asset classes and have been doing that for some time. The pace of the “risk off” trade is accelerating. Which means a flight to safety is going on. And when that is happening, you really need conviction to be buying. 

Categories: Blog articles

The Kickstarter 2017 Public Benefit Statement

A VC - November 20, 2018 - 3:31am

Our portfolio company Kickstarter is a Public Benefit Corporation.

One of the requirements of a Public Benefit Corporation is that they publish an annual benefit statement outlining how they are doing living up to their PBC charter.

This is Kickstarter’s PBC Charter.

And this is their 2017 Public Benefit Statement, which was published yesterday.

Here is a page from the 2017 statement, which shows how much funding they provided to creative projects across the categories they support.

That is a lot of economic activity, almost 20,000 creative projects were brought to life by Kickstarter PBC and its creator and backer communities.

Innovation takes many forms. Innovation in governance and business model is particularly important right now. And Kickstarter PBC is exploring a new way of running a for profit business and showing the way for others who might want to do the same.

Categories: Blog articles

The Overpay Critique

A VC - November 19, 2018 - 4:33am

It is so easy to look at a headline announcing a deal and say “they overpaid.” I have done that myself plenty of times. It’s a natural emotional reaction.

But what I have learned is that you can’t really critique an investment until you know how it plays out.

Some things that look so expensive turn out to have been bargains in hindsight.

And, of course, some overpays are just that. Prices that nobody can make money on.

The current debate raging in NYC about the Amazon deal that the Governor and Mayor made reminds me of that.

Everyone is saying “they paid billions of taxpayer dollars to the richest company in the world” as an argument that they overpaid for the deal.

But this line in the Mayor’s OpEd yesterday in the Daily News got my attention:

New York City alone will net $13.5 billion in tax revenue from the new headquarters, and the state another $14 billion. That’s a nine-fold return on our investment

If these numbers are correct, the billions NYC and NYS spent to incentivize Amazon to come to NYC, will have been a great investment. 

We would take 9x on our money any day at USV.

It is easy and natural to critique an investment on the headline number. But the headline number is only half the story. You really need to see how it pans out to know if it was an overpay.


USV TEAM POSTS:

Nick Grossman — November 28, 2018
A Visual Guide to the Howey Test

Albert Wenger — November 28, 2018
On-Chain versus Off-Chain Computation, Turing Completeness and Zero Knowledge Proofs

Bethany Crystal — November 28, 2018
Getting people to take care of their dishes

Categories: Blog articles

Pivot or Fail?

A VC - November 18, 2018 - 4:57am

The Pivot is celebrated in startup land. Huge successes like Twitter and Slack are all the results of pivots. So surely pivoting is a good thing, right?

Well, I am not so sure. And I certainly don’t want entrepreneurs to think that pivoting is the right thing to do when their original idea fails. It may be better to let the failing startup fail and start over again from scratch.

I am not talking about the slight pivot; making a change in business model with the same product, selling a slightly different product to the same customer, going up market to a different customer. Those are not really pivots, they are evolutions that every startup company goes through. 

I am talking about the hard pivot. Changing the product, market, and business entirely. Essentially starting over from scratch.

And I am not sure hard pivots are good for anyone.

Here is why.

If you raise funding for a startup idea, you will take some dilution and you will have a bunch of investors who backed you and your idea and are believers in it. You will have assembled a team that you built with the original idea in your mind. 

If that idea fails and you pivot into a new idea, you will take all of those investors, team members, and dilution with it, whether or not they are excited about it.

You can always swap out old team members for new ones, and so the team issues are real but probably not as significant as your investor and dilution issues.

If you choose the pivot approach, you will have investors for the life of the pivot who did not choose to back your new business and may have no interest in it other than their financial interest. 

But the bigger issue is the dilution you take into your next startup. I have never understood why entrepreneurs would want to use a company and a cap table that they no longer own 100% of to do a new startup. They are just carrying baggage that they don’t have to and probably should not carry.

I understand the argument that starting a new company by pivoting with cash in the bank and a team that is already built is attractive and giving those back and starting over from scratch is harder. But the harder path is often the best path. And the easy path is often the harder one.

If you were able to do a startup from scratch once, I would imagine you can do it again. And doing it again allows you to keep a lot more of the new company and custom build it from scratch, putting together the ideal team and the ideal investor group.

I have always suspected that entrepreneurs also choose the pivot over some sort of loyalty to their investors. If that is the case, I would like to say that this investor does not want any of that misguided loyalty. 

The truth of seed and early stage investing is that the failure rates are very high. We write off investments in failed companies in every one of our funds at USV, usually multiple times. The Gotham Gal, who invests much earlier than USV, writes off investments at an even higher rate.

So early stage investors are used to failing. It is built into our business model. What we want in return for accepting this high rate of failure are the spectacular successes that we get when everything clicks; the right idea, at the right time, with the right team, the right investor group, and the right execution.

And while pivots can deliver all of the “rights”, I am not sure that they do that at the same percentage as the startup from scratch, given all of the baggage that they are carrying.

And there is nothing I dislike more than carrying on with something when I’ve lost interest, and worse, the founders have lost interest.

So my view is if you’ve failed, accept it, announce it, and deal with it. Shut the business down, give back the cash, and rip up the cap table. Then do whatever you want to do next. If it is another startup, do it from scratch and keep as much of it as you can. If it is something else, well then do that too.

Startups are not indentured servitude. And I have been around some that feel like it. That sucks. I would encourage everyone in startup land to reject that approach and focus on a better one. There are so many options for things to work on that everyone should make sure they are working on the right thing and excited about it. Anything that gets in the way of that is suboptimal in my view.


USV TEAM POSTS:

Bethany Crystal — November 28, 2018
Getting people to take care of their dishes

Nick Grossman — November 27, 2018
Crypto Fundamentals

Albert Wenger — November 26, 2018
World After Capital: Informational Freedom

Categories: Blog articles

Video Of The Week: Setting A Holiday Table

A VC - November 17, 2018 - 7:27am

It is that time of year when we are having our families and friends over and celebrating holidays with a big meal.

And there is no better way to create that personalized one of a kind table than going to Etsy and getting the stuff you need.

This video/advertisement showcases that so well.

Disclosure: I am the Chairman of the Board and a large shareholder of Etsy.


USV TEAM POSTS:

Bethany Crystal — November 27, 2018
The Fear

Albert Wenger — November 26, 2018
World After Capital: Informational Freedom

Categories: Blog articles

Feature Friday: Wireless Charging

A VC - November 16, 2018 - 4:32am

One feature of the Pixel 3 that I really like is the return of wireless charging, something earlier Google phones had but went away.

I bought a Pixel Stand and set it up where I charge my phone when I come home.

I just place my phone on the stand and it charges. No cords involved.

You can set up all sorts of cool things like a screensaver of your recent photos and photo albums, Google Assistant so you can ask your phone questions when it is charging, and a display of your upcoming appointments.

I am still playing around with the right choices for me but I think there is a lot of interesting things one can do with this charging stand

I quite like it and just got one for my office too.


USV TEAM POSTS:

Bethany Crystal — November 24, 2018
The motivation of being second place

Albert Wenger — November 23, 2018
Tail Risk: China-US Relations

Dani Grant — November 19, 2018
Looking For Syllabus 2.0

Categories: Blog articles

Crypto Explorers Goes On The Road

A VC - November 15, 2018 - 4:09am

The Crypto Explorers community was seeded right here on AVC. It is a community of over 200 people who are working in the crypto sector, interested in the crypto sector, and/or are invested in the crypto sector.

They have taken five group trips to Zug Switzerland (Crypto Valley) and built friendships, learned a ton, and had some fun too.

I found out yesterday that they are going global now, with planned trips to other crypto hot spots around the world.

The next trip is in a couple weeks to Singapore on November 26-27. And spots like Korea, Hong Kong, Malta and eventually the Americas are also on the roadmap.

If you want to join this community of crypto travelers and join the trip to Singapore, you can do that here.


USV TEAM POSTS:

Bethany Crystal — November 24, 2018
Thank you David, for this kind comment!

Albert Wenger — November 23, 2018
Tail Risk: China-US Relations

Dani Grant — November 19, 2018
Looking For Syllabus 2.0

Nick Grossman — November 19, 2018
Getting Hands-On

Categories: Blog articles

Economic Development

A VC - November 14, 2018 - 4:44am

On the west side of Manhattan, from the west village, where we live, to the Javits Center on 34th Street and the west side highway, runs an abandoned elevated train track called The Highline.

Eleven years ago, the Gotham Gal and I took a walk on the old Highline with Joshua David, one of the two founders of Friends Of The Highline, and I wrote this post about what was going to happen.

The Highline cost something like $400mm to renovate. Some of the funds came from the city and state, but most came from private donations, like the one the Gotham Gal and I made after taking that walk.

And then we got to watch what happened. The neighborhood exploded and is still exploding. There has to have been tens of billions of dollars of investment in real estate along The Highline over the last ten years and it is still going on. I am not including Hudson Yards, which sits at the northern end of The Highline, which is another economic development story but not the one I am telling.

This is a photo of the northern spur of The Highline I took about a year ago from the top floor of one of the buildings in Hudson Yards

And into those buildings move companies and people. New homes get created. Then the coffee shops and grocery stores and restaurants come. And the local economy expands, by a lot. The city and the state taxes this economic activity and its coffers fill up a bit more as a result.

When we took that first walk on The Highline, I asked Joshua if there was some way to tax the land owners along The Highline to fund the renovation of it. It was obvious to me that the value of that land was going to go up a lot. He told me there was not. That seemed like a missed opportunity to me back then and still does. I suspect the increased land values along The Highline are an order of magnitude higher than the total investment in The Highline. 

That is the power of economic development. It is a virtuous circle. You invest, you grow, you produce economic returns, you invest, you grow. Rinse and repeat.

Why am I telling you this story today?

Well I got this tweet in my timeline sometime yesterday:

Amazon Is Getting $1.5 Billion to Come to Queens https://t.co/B4ITzuSXmj <- Why? @fredwilson Did NYC really need to pay Amazon $1.5B to come there? Will they get it back?

— Peter Radizeski (@radinfo) November 13, 2018

It is a great question. And some economist should do the work. The city probably already has.

My bet is that the City will get a return on this investment. Possibly a very large one. Twenty-five thousands jobs and all of the economic activity those jobs create are going to do a lot for Long Island City and all of NYC. 

The annual salaries for those 25,000 employees will be more than the $1.5-2bn that the city and state are committing to this project. When you add to that the real estate that will be constructed and renovated, all of the new homes that will be created for people, and the salaries for all of those construction workers, the local commerce (coffee shops, grocery stores, restaurants, etc) and the salaries that all of those employees will take home, etc, etc, I think it is a “no brainer” to be honest.

You can all tell from the posts I have written on this subject over the last week that I am a big fan of economic development. I think it is one of the things that makes a city vital and allows a city to retain its vitality. In the thirty five years we have lived in NYC, we have seen much of Manhattan and Brooklyn rebuilt. Now we are seeing Queens do the same thing. The Bronx and Staten Island are not sitting idle either. It is a magnificent thing to see and I pinch myself every time I think about it.


USV TEAM POSTS:

Albert Wenger — November 23, 2018
Tail Risk: China-US Relations

Bethany Crystal — November 23, 2018
Communal meals

Dani Grant — November 19, 2018
Looking For Syllabus 2.0

Nick Grossman — November 19, 2018
Getting Hands-On

Categories: Blog articles

Welcome Amazon

A VC - November 13, 2018 - 4:39am

The New York Times is reporting that Amazon has officially chosen NYC and DC as the locations for its big planned expansion, known as HQ2.

This is big news for NYC, as I wrote about last week.

I would like to welcome Amazon to NYC. I think this is going to work out great for Amazon and for NYC.

I know there are plenty of “not in my back yard” opponents to this idea and folks who think growth is bad and we should not grow until we fix things that are straining under the load.

I appreciate all of those concerns. They are valid at some level.

But I am a fan of grow, prosper, invest, fix, grow, prosper.

And we are doing that in NYC right now.


USV TEAM POSTS:

Bethany Crystal — November 22, 2018
Thanks so much for sharing your schedule too!

Bethany Crystal — November 22, 2018
How to practice management skills around the Thanksgiving table

Bethany Crystal — November 22, 2018
The last one to know

Categories: Blog articles

Mementos

A VC - November 12, 2018 - 5:17am

I keep little things that remind me of events over my career in venture capital. And I have been doing that for most of those thirty plus years. I keep them on a bookshelf I have in my office at USV.

It started with the lucite “tombstones” that bankers would make up when a deal closed. I started collecting them in the late 80s and had them on my bookshelf until recently. I finally got rid of them. Over time, I moved onto more interesting things and started putting them on the bookshelf.

I moved offices at USV this fall and I had to put my bookshelf back together. I did that on Saturday afternoon this past weekend.

The new configuration looks like this:

The third shelf has my collection of useless consumer electronic devices that were a big deal at one time. I have a Apple Newton there, a first generation Blackberry pager style device, and a whole lot more.

I have a bunch of family photos and things my kids made for me over the years. The peace sign painting on the left of the third shelf was made by my daughter when she was ten. I love it.

I put my old Mac desktop on the right corner of the second shelf. I plan to put some digital art on there but have not yet gotten to that.

It took me about three and a half hours to put everything back on the bookshelf on saturday. I had to wipe stuff down to get the dust off. Dusting off memories, literally.

There are a few gems that I had forgotten about. The lighter that Jerry and Dan brought back from Beijing when they did the diligence on Sina.com in the late 90s. The matchbox Porsches that Mark Pincus sent me when we exited Freeloader. The “move to NYC” booklet that Rob Kalin made to convince engineers to leave Silicon Valley and move to the greatest city in the world and work for Etsy. The Dick Costolo mask (partially hidden on the upper left) that the entire Feedburner board put on before he walked back in for exec session. I chuckle every time I look at that one.

I have a ton of stuff that did not make the cut this time. Including all of the lucites. I can’t throw them out so they will collect dust in a closet somewhere and drive the Gotham Gal crazy.

Memories are important. A career of memories is a blessing. And I like to live with mine. It reminds me why I do this work and why I love it so much.


USV TEAM POSTS:

Bethany Crystal — November 21, 2018
Knowing your productivity peaks

Bethany Crystal — November 20, 2018
Thank you for sharing these thoughts.

Bethany Crystal — November 20, 2018
“There’s a strange woman living in our basement”

Categories: Blog articles

What Happens When A Founder Is Fully Vested?

A VC - November 11, 2018 - 4:51am

Let’s say you are the founder and CEO of a startup and you have now been at it for four years. The company is doing great, you’ve raised several rounds of financing, you have a product in the market that is solving a real problem, you have a bunch of customers, you have a growing team, and things are stressful but largely great.

And you realize that you are now fully vested on your founder’s stock which means if you were to leave the company tomorrow, you get to keep all of it. What do you do about that?

This is a common question I hear from founders. They ask me what is standard in this situation. And I tell them that not only is there no standard answer, that this is one of the most emotionally charged issues to come between founders and their investors and boards and companies.

This situation also exists for other founders who are not the CEO, and the issues are very similar, but for the purposes of keeping this post as simple as possible, I am going to focus on the founder/CEO role.

Here are some, but not all, of the issues that come into play in thinking about this:

1/ If a founder/CEO were to leave their company after they become fully vested on their founder’s stock, the company would have to go out and hire a new CEO and that new CEO would get an equity grant that would be between 2.5% and 7.5% of the Company, depending on the value of the business. So one could certainly argue that the founder CEO ought to get similarly compensated.

2/ But that argument about how a new CEO should be compensated essentially puts on the table the question of whether the founder CEO is actually the best person to run the Company right now or if there is someone better suited to do that who could be recruited for a new market equity grant. It is often not in everyone’s best interests to have that conversation.

3/ Many founder CEOs four years in still own a lot of their companies. A typical range would be between 10% and 40% depending on if there are co-founders and how much capital had to be raised in the early years and at what valuations. For most situations, an equity grant that would be made to a new CEO is actually a relatively small percentage of the overall equity ownership of a founder CEO and in the context of that, it is not as valuable to the founder CEO as many other things.

4/ However, the founder CEO is subject to additional dilution in subsequent rounds so a new grant would at least partially offset future dilution and that is quite attractive to founder CEOs.

5/ One of the most valuable things to a founder CEO is having a large unissued equity pool from which to hire talent into their company and any allocation of that pool to the founder CEO reduces that asset.

6/ It is generally a good practice to have all executives vesting into some equity compensation. It standardizes the executive compensation program and aligns incentives.

7/ Refresh grants for executives are not usually equal to their sign-on grants. They are usually some percentage of the sign-on grant. So the same should be true of a founder CEO getting a refresh except that they never got a sign-on grant.

8/ Investors bet on the appreciation of the equity they already own not the issuance of new equity. A founder is aligned with the investors when they too are focused on making the equity they already own more valuable.

9/ When founders get diluted below double-digit ownership, they begin to see themselves as employees, not owners and that is bad for the company, the team, and the investors. For some founders, they start to feel that way at below 20% or 15%.

10/ It is hardly ever the case that what happens after a founder is completely vested is negotiated ahead of time, during the various rounds of financings, and priced in by the investors. If a founder was to pre-negotiate a new “market grant” for themselves once they are fully vested, and that was included in the size of the option pool that is set aside and baked into the pre-money valuation, investors could model that future dilution and build that into their valuation models and price that into a round. But nobody does that because founders want to maximize valuation in the financing rounds and investors assume that the founders will be happy with their initial grant or will not be around to earn it. Both parties either naively or purposefully kick the can down the road until the issue rears its head and then the emotions come out.

So what happens in practice?

It depends entirely on the situation at hand.

If the founder CEO owns a large percentage of the business, a new grant is rarely made because the value of it pales in comparison to the annual value that their founder’s equity is increasing organically.

If the founder CEO has been massively diluted and owns a small percentage of the business, a new grant is often made.

If the business is performing very well, the likelihood of a new grant is higher.

If the business is performing poorly, the introduction of the idea of a new grant can be very destabilizing and can actually precipitate a larger conversation about who should be running the company.

A common area for compromise is a new grant to the Founder CEO that is some percentage of what a “market” grant to a new CEO would be and that percentage ranges from 20% to 50% depending on the situation. The less a founder owns of the company, the higher the percentage will be and the more a founder owns, the less that percentage will be. If a Founder owns more than a quarter of the business, this is almost never done. I certainly have never seen it done for founders who own more than a quarter of the business.

I have two suggestions for how entrepreneurs should handle this issue.

The first suggestion is that you might want to raise this issue with all of your investors before you take money from them, and understand how they feel about this issue and what their expectations are so that you know that ahead of time. Do not wait until the moment to find that out.

The second is that if you wait to raise this issue once you are fully vested, do it carefully and delicately. If it is seen as a demand, it will not go well. If it is seen as a discussion about what is in the best interests of the company, it will go better.

But most of all, remember that there is no “one size fits all” solution for this situation and that you and your board will have to figure it out on a case by case basis.


USV TEAM POSTS:

Bethany Crystal — November 21, 2018
Knowing your productivity peaks

Bethany Crystal — November 20, 2018
Thank you for sharing these thoughts.

Bethany Crystal — November 20, 2018
“There’s a strange woman living in our basement”

Categories: Blog articles

Audio Of The Week: Turning Buildings Into Power Plants

A VC - November 10, 2018 - 6:04am

The Gotham Gal and I are investors in Blueprint Power, a company that helps landlords turn their buildings into mini power plants.

Robyn Beavers, the CEO of Blueprint, was on the Gotham Gal’s podcast this past week. They talked about how Robyn spent fifteen years working in the tech, energy, and real estate industries and took all of those work experiences and combined them into the idea for Blueprint. They also talk about how the changing supply and demand for energy is opening up new revenue streams for property owners and how Blueprint enables that. 


USV TEAM POSTS:

Dani Grant — November 19, 2018
Looking For Syllabus 2.0

Nick Grossman — November 19, 2018
Getting Hands-On

Albert Wenger — November 19, 2018
World After Capital: UBI as a Moral Imperative

Categories: Blog articles

Funding Friday: Women in STEM Holiday Cards

A VC - November 9, 2018 - 3:49am

I backed this project the minute I saw it.

Maybe you might like to back it too and get some holiday cards that might inspire the girls in your life to grow up and be like these amazing women.


USV TEAM POSTS:

Bethany Crystal — November 19, 2018
Recruitment vs. retention in the short-term labor market

Bethany Crystal — November 18, 2018
The artistry of consistency

Categories: Blog articles

The Anchor Tenant

A VC - November 8, 2018 - 4:12am

Malls need anchor tenants. These are the stores that bring the folks to the mall so that they can discover all of the other amazing places to shop that sit between the big tenants.

Cities need the same. Particularly cities that are trying to develop new industries.

NYC’s tech sector has had an anchor tenant since the early 2000s in Google. I wrote a bit about this a few years ago and cited my partner Albert’s line that 111 8th Avenue (Google’s NYC HQ) is the “gift that Google gave NYC.

Big anchor tenants to a tech ecosystem provide all sorts of benefits but the biggest impacts are that they are both talent magnets (they attract people to relocate to the region) and talent sources (you can recruit from them).

Rumor has it that NYC is going to get a second anchor tenant as Long Island City is apparently a strong candidate to be one of two locations for Amazon’s HQ2. This would result in something like 25,000 new jobs for the NYC tech sector.

And another rumor is that Google is going to purchase the massive St John’s Terminal in the West Village and take its NYC workforce up to 20,000 over the next few years.

If both of these things happen, and that is still a big if, then NYC’s tech sector would have two large and well known anchor tenants. Together they would speak for about 10% of the jobs of the entire NYC tech sector.

I have had a front row seat to watch the emergence of the NYC tech sector over the last thirty years. It started as a trickle, then a stream, then a river, and it’s feeling more and more like an ocean.

NYC has responded well to the challenges of supporting a rapidly growing new industry with investments in infrastructure (real estate, connectivity, etc) and talent/education (CS4All, Cornell Tech, NYU Tandon, etc). Some areas have been lacking like transportation where we need better subways, better airports, and better regional rail systems.

I am hopeful that the continued growth of the NYC tech sector and the overall regional economy will give our elected officials and permanent bureaucracy the will and the resources to address these deficiencies and allow the NYC region to continue to develop into one of the most important tech sectors in the world. 


USV TEAM POSTS:

Bethany Crystal — November 18, 2018
The artistry of consistency

Bethany Crystal — November 17, 2018
Asking questions

Categories: Blog articles

TYWLS Digital Dance

A VC - November 7, 2018 - 5:45am

I blogged about this in the spring of 2017 but I am back with more.

TYWLS stands for The Young Women’s Leadership School, which is located in Astoria Queens in NYC. A few years ago the students decided to show off their computer science coding skills by making a “digital dance.” I posted the first one they did at the link above.

I just saw a video about their most recent digital dance and I just had to post it here.

I love this digital dance thing so much. It shows that coding skills can be used creatively. It shows that young women, particularly young women of color, can be coders and be proud of it. And it shows that technology is everywhere.

I have met some of these young women and they are impressive and I can’t wait to see what they are going to do when they grow up.


USV TEAM POSTS:

Bethany Crystal — November 17, 2018
Asking questions

Bethany Crystal — November 16, 2018
The last unpacking

Categories: Blog articles

If You Do Just One Thing Today, Vote

A VC - November 6, 2018 - 4:24am

Today is Election Day. Polls are open in every state in the US. It is time to stop the incessant back and forth, and do the one thing that counts – voting.

There is very little on my ballot here in NYC that matters much to me. The races are not close. The ballot referendums are not on issues that matter a ton to me. 

It would be easy for me to blow off voting today.

But I am not going to do that.

I plan to go to my polling place, stand in line for however long it takes, and fill out the ballot and submit my choices and be counted.

I hope everyone who reads this blog that lives in the US and is a citizen will do that today unless they have already done it via early voting.

I feel that voting is not only our right, it is our responsibility.

Let’s do it.


USV TEAM POSTS:

Rebecca Kaden — November 15, 2018
Welcoming Dia&Co to USV

Bethany Crystal — November 14, 2018
The opportunity for CS in education

Categories: Blog articles
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