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Musings of a VC in NYC
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Playing Your Role

December 17, 2017 - 6:53am

Investing in many different companies, with different founders, different cultures, and different missions requires the ability to adapt to each and every one. I like to think about it as playing a role in a play.

Even though I am the same person, with the same fundamental beliefs, I end up playing very different roles in the companies I invest in and work with. The Fred Wilson that works with Coinbase is different than the Fred Wilson that works with Kickstarter and the Fred Wilson that works with Etsy and the Fred Wilson that works with SoundCloud and the Fred Wilson that worked with Twitter.

It starts with the founders and the mission. They set the course for the company. As an investor, you show up and something is already underway. You have to take the time to understand where the company is headed, why it was formed in the first place, where it is going and why. You have to figure out how to insert yourself into that journey in a way that is constructive and value adding. And you have to do that work before you invest because if you can’t figure out how to play a role that is constructive and value adding, you should not make that investment and join that Board.

Some founders start companies to make money first and foremost. It is important to understand that. They will be “coin operated” and transactional.

Some founders start companies to solve a very specific problem, often one that they themselves have. They will be very product and market focused.

Some founders start companies to chart a course that is different from others. They will be iconoclasts who like to zig when others zag.

Some founders build companies to sell.

Some founders build companies to go public.

Some founders build companies to outlive them.

What I have learned is that there is no right way to build a business, no right way to exit a business, no right way to operate a business. There are many different ways to do the startup thing. And I have learned that getting everyone on the same page about the specific way you are going to do it is critical. If everyone on the management team, investor group, and Board are bought into the long term vision and wanting to go to the same place, on that specific opportunity, then great things can happen.

If, on the other hand, there is tension between the founders about the direction, or between the Board and founders about the direction, or between the management team and the founders about the direction, or between members of the management team about the direction, then it makes it very hard to move things forward.

I know that people who read AVC, who follow the investments we make at USV, who work in USV-funded portfolio companies often scratch their head trying to figure out why what is right for one company is not right for another.

Why is it that its a great idea for one of our portfolio companies to move to a token based business model and do an ICO when it is not a great idea for another one of our portfolio companies to do that?

Why is it that it is a great idea for one of our portfolio companies to accept an M&A offer before they have reached their potential when it is not a great idea for another one of our portfolio companies to do that?

Why is it that it is a great idea for one of our portfolio companies to go public when it is a bad idea for another one of our portfolio companies to do that?

To understand these conflicting choices that companies we work with make, it is important to understand how these companies were funded, what the vision was, what they founders wanted out of the effort, what the investors signed up for, how they were capitalized, how they were managed, and how all of that changed over the years. And it is hard to understand those things from afar.

To understand it better, you need to think about each company as a different journey, to a different place, and all of us – the employees, the management, the founders, the investors, the board members – as role players in that journey. And when you choose to join a company as an employee or an investor or as the CEO, you really need to take the time to understand that journey before you step into that role. Because you will be playing it, possibly for a long time.

Categories: Blog articles

Video Of The Week: Colbert On Net Neutrality

December 16, 2017 - 4:44am

I got a chuckle out of this:

TONIGHT: The FCC voted to repeal #NetNeutrality today which sucks for everyone who uses the Internet (which if you’re reading this, is you), but it especially sucks for @StephenAtHome’s personal Etsy shop. #LSSC pic.twitter.com/7vLmoBxLyy

— The Late Show (@colbertlateshow) December 15, 2017

Categories: Blog articles

Funding Friday: Save Gawker.com

December 15, 2017 - 3:26am

I backed this project when it launched last week.

Here’s the pitch:
Gawker isn’t gone, it’s up for auction. The person who drove the site into bankruptcy wants to buy it.
We’re a group of former Gawker Media employees across editorial, tech, and business, and we want to put in our own bid to buy it back.
We believe the site can thrive in an entirely membership funded model.
The Gawker Foundation is a non-profit with a dual mission:
1.) Preserve the Gawker.com archives and make them accessible.
2.) Relaunch the site under the stewardship of former editors, new writers, and an entirely membership-funded model.

Here’s the video:

Click here to back this project.

Categories: Blog articles

SoundCloud Home

December 14, 2017 - 6:20am

Our portfolio company SoundCloud, which makes one of the most popular apps in the world, is launching a new Home experience in it’s mobile apps today.

SoundCloud is the first place musicians post their music and it is the first place listeners discover new artists.

In the past, listeners had to use a feed experience (like Twitter) to discover new artists and new music. This experience works well for power users who take the time to curate a following list. But it doesn’t work great for most users.

So SoundCloud is launching a new Home experience today which moves the feed to a second tab and replaces with a curated and personalized experience for users.

Here is what the new Home looks like:

 

If you have the mobile app, you should get pushed an update today or tomorrow with the new Home experience

It is also available on the web at https://soundcloud.com/discover.

If you want to stay current on the latest in up and coming new artists, SoundCloud is the place to do that and it just got a lot better at doing that for you.

Categories: Blog articles

Return On Hard Decisions

December 13, 2017 - 4:37am

I spent much of yesterday going through board decks and other year-end reports.

It was an incredibly gratifying experience after a hard year.

I spearheaded quite a few restructurings this year. A lot of people lost their jobs as a result of those efforts.

It was a year of hard decisions and hard conversations.

But as I sat in my office and read through the reports and decks, what came across loud and clear was that we had made a bunch of right decisions.

A lot of companies that were wandering in the wilderness are now headed in clear and exciting directions.

I continue to feel badly for the people who lost their jobs or quit their jobs in the wake of these restructurings. I realize that many of them had a hard year too and I am sorry for that.

But I feel great for the companies who have been revitalized and for the people who are working in them with a jump in their step and a feeling of optimism and purpose.

This time last year I had a bad feeling in my gut and was having trouble sleeping. I knew what I had to do and dreaded doing it.

Right now, I have a good feeling in my gut and am sleeping like a baby.

That is a nice return on hard decisions.

Categories: Blog articles

Call Congress

December 12, 2017 - 3:28am
Categories: Blog articles

Break The Internet Tomorrow

December 11, 2017 - 4:12am

Tomorrow, I am going to take AVC offline to show the FCC what the Internet will look like if they repeal the Net Neutrality rules.

It is part of a collective action called Break The Internet.

If you want to join me in this protest, you can get what you need here.

Hopefully, the Verizon shill who runs the FCC will get the message.

Categories: Blog articles

Proceed With Caution

December 10, 2017 - 7:00am

The CEO of Coinbase, a company that I am on the Board of, wrote a note to all of their customers on Friday. That note, which he also posted to his blog,  urged caution in the trading of crypto assets such as Bitcoin and Ethereum.

This is a quote from that note:

Over the course of this year we have invested significant resources to increase trading capacity on our platform and maintain availability of our service. We have increased the size of our support team by 640% and launched phone support in September. We have also invested heavily in our infrastructure and have increased the number of transactions we are processing during peak hours by over 40x.

There may be downtime which can impact your ability to trade

Despite the sizable and ongoing increases in our technical infrastructure and engineering staff, we wanted to remind customers that access to Coinbase services may become degraded or unavailable during times of significant volatility or volume. This could result in the inability to buy or sell for periods of time. Despite ongoing increases in our support capacity, our customer support response times may be delayed, especially for requests that do not involve immediate risks to customer account security. 

The reality is that much of the infrastructure that has been built up over the past seven years to support the trading of crypto assets is struggling to handle the load that the recent excitement over Bitcoin and crypto in general has put on their systems. It reminds me of the days in the mid 90s when all of a sudden everyone wanted to get online and AOL could not handle the massive increase in dial-up customers who wanted to log onto the Internet.

Of course eventually everything got sorted out and we have highly scaled systems that can support the roughly 3 billion people who “go online” every day. But that took some time to happen.

I think we are going through a similar phase of growing pains with crypto/blockchain. And things will be messy for a while. So proceed with caution, don’t get too far out over your skis, don’t invest more than you can afford to lose, and be prudent.

Categories: Blog articles

Video Of The Week: Samir Desai at Slush

December 9, 2017 - 6:44am

One of the most impressive startup executions I have witnessed in the past ten years is what the team at Funding Circle has pulled off. They have gone from a team of friends with an idea to the largest non bank lender in the western world.

In this interview at the Slush Conference, CEO Samir Desai explains how they pulled that off.

Categories: Blog articles

Funding Friday: Brooklyn Cider House

December 8, 2017 - 4:27am

I backed this project today. The idea of a cider bar and restaurant in Bushwick seems so right to me.

There is less than 24 hours left on this project. I’m hoping we can help them get across the finish line.

Categories: Blog articles

CS Education Week In NYC

December 7, 2017 - 8:19am

All over the city this week, students in NYC’s public schools have been celebrating CS Education Week by doing events and hackathons to showcase their coding skills.

Through NYC’s CS4All program, over 1000 teachers have been trained to teach CS classes in their schools. That is over 500 schools to date. Over the course of the ten-year CS4All program, over 5,000 teachers will get this training so that all 1700 school buildings in NYC will have at least one CS teacher and many will have two, or three, or even four.

Most of these 500 schools, and many others around NYC, participated in CS Education this week. I was out in the schools along with my colleagues at the Department of Education, CSNYC, and the companies that support us, including Google, Accenture, and Alexandria Real Estate.

I met this eighth grader up in the Bronx at In-Tech Academy, a 6-12th grade school that specializes in STEM education and mostly pulls from the Kingsbridge section of the Bronx. He told me that he wants to be a game designer when he grows up. I told him he was well on his way and that he just needed to keep up his schoolwork and his excitement for coding and making things.

But it wasn’t just me out in the NYC public schools this week.

A bunch of Google engineers went out to the schools and helped with the hour of code. Google has developed a K12 CS Ed curriculum called CS First and Stephen Bloch was helping a student do a lesson from that curriculum.

The thing that most excited me this week was to meet all of the NYC public school teachers who have been trained under the NYC CS4All program to teach CS to their students.

This is a photo of a teacher named Ms Calise from Horace Mann, PS90Q in Queens, where a bunch of teachers have taken advantage of the CS4All program to learn how to teach CS skills to their students.

So, needless to say, this week has been very gratifying for me. CS Education is seeping into hundreds of school buildings in NYC and will continue to do so for the next few years until it is in every school building in NYC.

I am so thankful for the generous support of corporations and non-profits like Google, Accenture, Alexandria Real Estate, Hearst, AOL, Two Sigma, Wachtell Lipton, Math For America, Robin Hood, Hutchins Family Foundation, Paulson Family Foundation, and many many others, without whom this work could not happen.

If your company or non-profit wants to join this group and help bring CS to all students in NYC, please email me or leave a comment in this blog post and I will contact you.

Categories: Blog articles

Un-Super-Vised

December 6, 2017 - 9:03am

My partner Andy and I were playing with the latest crypto craze, cryptokitties, this weekend and he suggested we sire a USV kitty.

So he contributed a parent from his collection and I contributed a parent from my collection and with the addition of some Ethereum, which I paid from my Coinbase account, we made a new kitty.

Since it is a USV kitty, we asked the USV team to send in name suggestions and Jacqueline won that contest with the wonderful name of Un-Super-Vised.

That’s a handsome cat but the thing I like most is its “lucky stripe.” God knows we need that in the startup business.

In the wake of all that excitement, Jacqueline posted her thoughts on this craze. If you want to know what to make of all of this, I’d suggest giving that a read.

Categories: Blog articles

Disqus and Zeta

December 5, 2017 - 5:43am

Today, our portfolio company Disqus, which makes the software that powers the comments on this blog, is announcing that they have joined the Zeta Global empire.

Zeta Global operates the largest independent marketing cloud for enterprises. Zeta competes with companies like Salesforce, Adobe, Oracle, IBM, and others to provide enterprises the marketing services they need to grown and sustain their businesses.

Zeta Global has grown mostly by acquisition and they operate many different businesses that they have bought over the years. They will continue to operate Disqus as an independent service and brand. The Disqus management team have joined the Zeta organization and I will be joining the Zeta Advisory Board in connection with this transaction.

The Zeta management team understands that community is part of the marketing equation and they understand that Disqus powers more communities on the Internet than any other tool, by a wide margin. I expect that Zeta will continue to invest in the Disqus comment system to sustain it as the best community tool out there.

Personally, I am happy that the Disqus founders and team have found a transaction that allows them an exit while finding a good home for the Disqus comment system in the process. They have been building Disqus since the summer of 2007, over ten years. They have done a great job staying focused, winning the market, getting profitable, and now finding a great exit. It has been a pleasure to have a front row seat to that ride.


USV TEAM POSTS:

Albert Wenger — December 13, 2017
Doug Jones Victory: Trump is Vulnerable

Categories: Blog articles

Do An Hour Of Code

December 4, 2017 - 7:54am

It is CS Education Week, which happens at this time every year to celebrate and energize the growing K12 CS Education movement.

The highlight of CS Education Week is the Hour Of Code, in which students, teachers, parents, and community members all do an hour of code during the school week.

I would like to encourage everyone in the technology business to find a school this week, maybe it is your child’s school, maybe it is the school building in your neighborhood, or maybe it is a school where a friend teaches, and volunteer to lead an Hour Of Code.

It is really quite easy to do this.

Here is a guide on how to help a local school

Here are some activities you can do for your hour of code

Here are some ways to volunteer.

I’m on my way now to a school in the Bronx.


USV TEAM POSTS:

Bethany Marz Crystal — December 12, 2017
How to Hire for HR: Lessons from 18 USV People Ops Leaders

Albert Wenger — December 13, 2017
Doug Jones Victory: Trump is Vulnerable

Albert Wenger — December 12, 2017
Battle for the Internet: Fight for Net Neutrality

Categories: Blog articles

The Early Stage Slump

December 3, 2017 - 7:08am

I tweeted out this article from Techcrunch in the middle of last week:

“we believe 2012-16 was a bubble in early-stage funding” https://t.co/VZlKOCDg5P

— Fred Wilson (@fredwilson) December 1, 2017

And the response from the Twittersphere was a desire to hear my views on it.

The data is pretty clear. The seed and early stage investing market has cooled substantially in the past few years.

On a dollar basis, the cooling off has been mild.

On a deals basis, the cooling off has been dramatic and looks to be getting worse.

So what is going on?

When I talk to my friends who do a lot of angel investing, I hear that they are being more selective, licking some wounds, and waiting for liquidity on their better investments.

When I talk to my friends who started seed funds in the past decade, I hear them thinking about moving up market into larger funds and Series A rounds.

You can see that in the data. Less deals and bigger deals.

Here is the thing. Seed is really hard. You lose way more than you win. You wait the longest for liquidity. You lose influence as larger investors come into the cap table and start throwing their weight around.

It is where most people start out. Making angel investments, raising small seed funds. They learn the business and many see better economics higher up in the food chain and head there as soon as they can.

If you hit one or two right, you can make a fortune in seed. But those bets take a long time to get liquid. And if you don’t hit one or two right, you end up with a mediocre portfolio.

The Facebook IPO in May 2012 was a real boon to the angel and seed markets. A lot of instant millionaires re-invested their gains back into startups (just as BTC and ETH instant millionaires are re-investing their gains into ICOs right now). Many startup people reinvented themselves as angel investors, AngelListers, seed VCs, and early stage VCs. As I quoted Techcrunch in my tweet “2012-2016 was a bubble in early-stage funding.” I think the bubble actually started letting out air in mid 2015.

You could see all of this in the pricing of seed rounds. For most of my career, seed rounds were sub $1mm and they bought 15-25% of the company ($4-6mm post money). At the peak of the seed bubble, uncapped notes of $3-5mm were the norm for seed rounds. That wasn’t going to work. It was unsustainable.

So where does that leave us now?

For entrepreneurs just starting out, it will be tougher to raise your first rounds. That is how it always has been so it is a return to normal. It is not great news, but it is the reality. If you price your seed round appropriately and have a good team and plan, you can raise money. But it will be harder.

For investors, it means seed rounds are going to be the place to be. When others leave the market, it is time to get in. The uncapped note will turn into a priced $1mm round at $4mm pre/$5mm post. This is as it should be. The risks of seed investing are so significant that the valuations need to be reasonable. When you lose on 60-80% of your investments, you really need the ability to make 10-20x on your winners. And getting the entry pricing right is part of how that happens.

You can tell where there is too much money and too little money by looking at valuations. When valuations are extended, that means there is too much money. That was seed in 2014, growth in 2015/2016, and ICOs in 2017. The trick is to get into these sectors before the money shows up and get out when it does. And then get back in after it leaves. And not get burned along the way.


USV TEAM POSTS:

Albert Wenger — December 12, 2017
Battle for the Internet: Fight for Net Neutrality

Albert Wenger — December 11, 2017
AlphaZero Chess: Computers Will Think Differently from Humans, Letting them Outperform Us (on Many Tasks)

Categories: Blog articles

Video Of The Week: Albert on CNBC

December 2, 2017 - 6:17am

CNBC asked my partner Albert this week at the Slush conference if we are in a bubble in crypto. This is what he said. It’s a very short (<2min) video.

Cryptocurrency to be worth trillions: Union Square Ventures from CNBC.


USV TEAM POSTS:

Albert Wenger — December 11, 2017
AlphaZero Chess: Computers Will Think Differently from Humans, Letting them Outperform Us (on Many Tasks)

Bethany Marz Crystal — December 10, 2017
Lessons in Leadership: What I Learned from an Evening Spent Dining at the Chef’s Table

Categories: Blog articles

Funding Friday: Little Book For Big Changes

December 1, 2017 - 4:28am

I just backed this children’s book project. I love it. I hope you do too.


USV TEAM POSTS:

Bethany Marz Crystal — December 10, 2017
Lessons in Leadership: What I Learned from an Evening Spent Dining at the Chef’s Table

Categories: Blog articles

Meditation

November 30, 2017 - 5:58am

I’ve been meditating every day for ten to fifteen minutes for the last couple weeks.

I am not using any technology, just old fashioned sitting and breathing.

My friend and former partner Jerry introduced me to a teacher who gave me the basics and I’ve been doing it every morning right after I wake up and before I write.

I like the addition to my morning routine. It’s very peaceful that time of the day and it’s a nice bridge between night and day.

I’m hoping for a bunch of benefits; lower stress, more presence in my personal interactions, lower blood pressure, and a healthier approach to life.

That’s a lot of asks from sitting and breathing for ten to fifteen minutes a day but I’m told it’s all there for me if I commit to the practice and keep it up.

I’m very much a creature of habit and so I’m pretty sure I can do that.

And it might improve my writing too. That would be a win for all of us.


USV TEAM POSTS:

Albert Wenger — December 8, 2017
The Quest for a Stable Coin

Categories: Blog articles

Bitcoin Gains – Tax Advice For US Taxpayers

November 29, 2017 - 5:00am

As Bitcoin has reached five figure levels this week, I have received a number of questions about taxes owed on Bitcoin gains.

That is comforting to me. Bitcoin and crypto are a bit like religion. There are a lot of true believers out there, me included.

But at least some people are stepping back and taking money off the table. I would encourage everyone to think about at least taking their cost off the table and playing with the house money at these levels.

And if bitcoin/crypto has reached an unhealthy percentage of your net worth, I would also recommend stepping back and thinking about rebalancing your asset allocation.

So, if you are US taxpayer, what do you owe in taxes on these gains?

The IRS issued this guidance back in the spring of 2014:

IR-2014-36, March. 25, 2014

WASHINGTON — The Internal Revenue Service today issued a notice providing answers to frequently asked questions (FAQs) on virtual currency, such as bitcoin. These FAQs provide basic information on the U.S. federal tax implications of transactions in, or transactions that use, virtual currency.

In some environments, virtual currency operates like “real” currency — i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance — but it does not have legal tender status in any jurisdiction.

The notice provides that virtual currency is treated as property for U.S. federal tax purposes.  General tax principles that apply to property transactions apply to transactions using virtual currency.  Among other things, this means that:

  • Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
  • Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply.  Normally, payers must issue Form 1099.
  • The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
  • A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property. 

Further details, including a set of 16 questions and answers, are in Notice 2014-21, posted today on IRS.gov.

I would strongly suggest folks read that link to “Notice 2014-21” as it includes a lot more information in it.

I have always thought about Bitcoin and other crypto assets like stocks when it comes to capital gains. When you sell the coins, you owe capital gains taxes on the gains.

But how do you calculate the gains?

  • Do you need to identify the exact coins you sold and go back to determine how much you paid for them and then calculate the gain on those coins and the taxes owed? That is like identifying a “lot” when you sell stock.
  • Do you use “first in, first out” (FIFO) to determine which coins were sold and the gains and taxes owed?
  • Do you use the average cost of your entire position and then determine the gains and taxes owed?
  • And if you held the coins for longer than twelve months, do you benefit from capital gains rates vs ordinary income rates?

I assume the answer to the last question is yes and that you can use whichever of the three methods to calculate gains but you need to use them consistently and that requires you to track your buys and sells very carefully.

But I am most certainly not a tax advisor and I do not give tax advice here at AVC. We have very good tax advisors who will figure this stuff out for us.

Hopefully, there are some tax advisors in the AVC audience who will weigh in with answers (and likely more issues to be considered). So if you are an expert in this stuff, please take the time to leave all of some answers in the comments this morning. We appreciate it.

Categories: Blog articles

Meetup

November 28, 2017 - 7:56am

I remember at our first USV Sessions event in the summer of 2006 Scott Heiferman stated that he wanted to spend 20 years building a company that would “last.” This was in an era of quick flips where many entrepreneurs wanted to build and sell as quickly as possible. I was impressed by that long term perspective and told my partner Brad that we should see if we could invest in Scott’s company Meetup.

We did invest in Meetup shortly after that, Brad joined the board, and we have been investors in Meetup for the past ten years.

Today, Meetup announced that it is becoming a part of the WeWork network.

Meetup launched in June 2002, fifteen years ago. Over those 15 years Meetup has become synonymous with the idea of community being an in person thing.

Community on the Internet is easy but prone to a lot of bad behavior. Community in person is harder but works better. Humans tend to be more interesting and more decent in person.

And with the ever increasing encroachment of digital devices into our daily/hourly/constant existence, taking the time to sit down face to face with other people is more important than ever.

Meetup, like its NYC community peers Etsy and Kickstarter, has been profitable since its earliest days. As Scott said in the Wired piece “Our number one priority was independence and to live within our means.” That has meant always balancing growth and profitability, like most businesses do.

But on the Internet, particularly now in the age of winner take most, it is hard to balance profitability and growth and very few companies do.

So Meetup decided to do something this year that it had not done in a decade, since USV invested in 2007. Scott went out and talked to investors about investing in more growth. That led to “offers from what Heiferman calls the usual suspects.”

The most interesting of the offers came from WeWork which is building another in-person network, maybe the largest in-person network of scale on the Internet. It seems like such a perfect match. And so Meetup is joining forces with WeWork who will aggressively invest in Meetup to help it scale to reach even more people who want to engage in live in person conversations.

And Scott is going to continue to lead Meetup inside of WeWork meaning he will likely achieve his goal of working on Meetup for 20 years or more.

It is always bittersweet to see a company as important as Meetup leave the USV network. But we agree with Scott that this is the right thing for Meetup and WeWork and we are enthusiastic about the potential of this combination.


USV TEAM POSTS:

Albert Wenger — December 6, 2017
Uncertainty Wednesday: Suppressed Volatility

Albert Wenger — December 5, 2017
What Does it Mean to Be Human?

Categories: Blog articles