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Musings of a VC in NYC
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The Finance Function: Looking Back And Looking Forward

March 24, 2019 - 7:43am

High growth companies need to have a strong finance function. You can’t drive a car (or a plane) without some instrumentation. Most importantly, you need to know when you are going to run out of gas (or electricity).

The mission critical things that must be done in the finance function are mostly accounting related functions; pay bills, make payroll, keep track of expenses, maintain the books and records of the company. These are “must dos” and you need a person who has an accounting background to do most of them. But these are all “looking back” functions in the way I think about the finance function.

What is even more important in a high growth situation is the ability to look forward, to project, and to make sure that the company doesn’t run out of money.

In order to look forward, you need to know where you are, and that requires a solid baseline derived from looking back. So one feeds the other. But they are different.

Looking forward requires modeling and it requires the ability to anticipate. An example of this is “we are going to get a big order from a new customer next month, let’s put that revenue into the model.” But if you don’t anticipate that it may take up to ninety (or more) days to collect that revenue, then you have messed up the modeling and that is the sort of rookie error that could lead to an unexpected cash crisis.

There are many reasons why a company needs a forward looking projection to run the business but avoiding the unexpected cash crisis is number on on that list in my view.

In my experience, the people who are strong at the looking back function are often not strong at the looking forward function. You may need different people to do these roles. In a large company, there are entirely different departments that do these functions. There is an accounting department and there is a financial planning department (often called FP&A).

If you are a small company and have limited resources, you will often attempt to get both the look back and the look forward from the same person. If you aren’t getting what you want in doing that, don’t be surprised. I would rather see a small company outsource the accounting work and staff for the planning/modeling work. Accounting is a bit of a commodity, many people can do it well. Seeing the future from around the corner is most definitely not commodity and if you have someone who can do that well, hold on to them, pay them well, and make sure they are happy and rewarded in the job.

Because looking forward is really where it is at in the finance function at the end of the day. That’s where the good stuff and the bad stuff mostly happen. And when it is done well, it is a thing of beauty.

Categories: Blog articles

Video Of The Week In Two Parts

March 23, 2019 - 8:15am

This past week Laura Shin did an interview with Vitalik Buterin, the founder of the Ethereum project. I am going to run a video of that conversation next week.

Laura started her interview with Vitalik by playing for him and everyone else in the room a bit of this conversation Tushar Jain and I had last fall.

So I am reblogging this conversation so it is fresh in everyone’s minds when I run Laura’s Vitalik interview next week.

Categories: Blog articles

Funding Friday: Salvage Swings

March 22, 2019 - 6:47am

There is a lot to like about this project which I backed this morning and is ending tomorrow.

1/ They use cross laminated timber (CLT), which is a wood product that is getting a lot of adoption now. The Gotham Gal and I are building two CLT buildings in Brooklyn and we are big fans of CLT.

2/ They are using salvaged wood to make their CLT.

3/ This is public art, which is another thing I love.

4/ Swings are awesome. At age 57, I will still sit on a swing and go for it.

5/ This is part of FigmentNYC, a public art festival in NYC this summer.

So with all of that lead-in, here is Salvage Swings. You can back it here.

Categories: Blog articles

Reply Spam

March 21, 2019 - 9:50am

The AVC comments has been experiencing a wave of comment spam that has largely been replies to legit comments. I appreciate the community for flagging it and our moderators for nuking it. Keeping the comments free from spam is important to me but not an easy chore.

One idea I have, which I don’t even know if is possible in Disqus, is the idea of limiting replies to longstanding community members who are registered with Disqus and have high reputation scores.

What this will do is eliminate the reply spam, but will also make it impossible for new commenters to reply. They will still be able to leave a comment.

I think the pros may outweigh the cons.

Thoughts?

Categories: Blog articles

Respecting The Pro-Rata Right

March 20, 2019 - 10:28am

When early stage investors make an equity (angel, seed, Srs A, Srs B) investment, they typically negotiate for something called a pro-rata right which gives them the right to maintain their ownership in the company by investing in future rounds on the same terms as new investors.

I have written about the pro-rata right a bunch here at AVC. I think it is one of the most important things that early stage investors get from their investments. Obviously the ownership an investor gets is the most important thing, but the ability to maintain it by making additional investments is also very valuable and can be the source of out-performance of an early stage portfolio (against whatever benchmark one might be using).

At USV, we value the pro-rata right and exercise it very frequently. We often will make five, six, or seven investments in a company between when we make our initial investment and when we make our final investment. We even have a follow-on fund called the Opportunity Fund, that allows us to take our pro-rata in companies that continue to raise privately and delay going public. Our Opportunity Fund will also make some investments in companies that aren’t currently in our portfolio. But a large part of our Opportunity Fund thesis is about maintaining ownership via our pro-rata rights.

In the last ten or so years, companies, lawyers, boards, management teams, founders, and in particular late stage investors have been disrespecting the pro-rata right by asking early stage VCs to cut back or waive their pro-rata rights in later stage financings. This can happen as early as Series B (and happens to angel and seed investors in Series A rounds), but it is even more common in the later stage rounds like Series C and beyond.

I think this is bad behavior as it disrepects the early and critical capital that angels, seed investors, and early stage VCs put into the business to allow it to get to where it is. If the company agrees to a pro-rata right in an early round, it really ought to commit to live up to that bargain. But increasingly nobody does that and it is a black mark on the sector in my view. We make commitments knowing that we don’t plan on living up to them. It is very unfortunate.

The reason this happens is that allocations get tight in later stage rounds, particularly where the company is doing well and everyone wants to get into the round. The new investors, including the investor that is leading the round, will almost always have a minimum amount of ownership they want to get to in the round and the math tends to work out that the only way to get there is to cut back the early investor’s pro-rata rights.

Sometimes the way the gap is filled is by creating secondary for founders, early employees, and early investors. That can work and is sometimes good for everyone involved. That “trick” has been the saving grace on this issue over the last few years.

But I believe we are at a crossroads on this issue and I am wondering if early stage investors need to put more teeth into our pro-rata rights to insure they are honored. What if a company that was unable to offer a full pro-rata right to an early stage investor in a later round was forced to go back and change the price of an earlier round to make it up to the early stage investor? Or what if an early stage investor got warrants at the new round price to make up for an inability to honor the pro-rata right?

These are just two suggestions I came up with in a few seconds of thinking about it. But I would really like to force early stage companies, their lawyers, and their boards to think clearly and carefully about the pro-rata right when granting it. The current practice seems like “we can give this because we always get away with not honoring it down the road” and frankly that sucks.

Categories: Blog articles

Scam Likely

March 19, 2019 - 6:55am

The most common caller on my Android phone is Scam Likely. I am sure that most of you are in a similar situation.

Last week we were driving and two calls came into The Gotham Gal’s phone which was bluetoothed into our car and she declined both. I asked her why she did that. She said they were likely robo calls. I told her that they looked to be legit numbers to me. Later on she found out that both calls were from people she knew, but for some reason those names were not showing up on the car dash and so she declined the calls.

That led to a discussion of why spam filtering for email has gotten so good and robocall filtering for phone calls is still not great. I brought up the great work the email industry has done over the last twenty years with email signing protocols like DKIM and SPF, and the email industry’s adoption of DMARC protocol which operationalizes DKIM and SPF. We decided that the telephony industry needs similar solutions.

Well, it turns out that the telephony industry is working on them.

Jeff Lawson, founder and CEO of Twilio, a company that was a USV portfolio company and which The Gotham Gal and I are still large shareholders in, is writing a series of blog posts about how the telephony industry can fix the robo call problem.

In Jeff’s first post in the series, he explains that the telephony industry is developing their own versions of DKIM and SPF and DMARC:

Some very smart people have been working on new ways of cryptographically signing calls – a digital signature – proving ownership of a phone number before the call is initiated. One example of this is a new protocol called STIR/SHAKEN, which the communications ecosystem is working on now. Before any authentication method can be impactful at scale, it needs to be adopted by a broad swath of the ecosystem. Twilio is fully committed to efforts to authenticate calls so the identity of callers can be proven, and it looks like STIR/SHAKEN is a good candidate to do just that.

In Jeff’s next post, he will address the role that identity (of the caller and the recipient) and reputation will play in solving the robo call epidemic. I look forward to reading it.

If you want to make sure to get Jeff’s posts, you can follow him on Twitter, like I do.

Categories: Blog articles

The IPO Price and the S1

March 18, 2019 - 7:55am

In my What Is Going To Happen In 2019 post, I wrote:

I expect we will see IPOs from big names like Uber/Lyft/Slack, although I also expect those deals will get priced well below the lofty expectations they have in mind right now. Some of that will be because of weak equity markets in the US, but it is also true that most of the IPOs in 2018 also priced below the lofty “going in” expectations of founders, managers, boards, and their bankers. The public markets have been much more sanguine about value than the late stage private markets for a long time now.

And now we are starting to get the data from these IPOs. Lyft is on the road raising roughly $2bn at a post-deal valuation range of $16bn to $20bn ($62 to $68 per share).

When I see an IPO price range, I like to go look at the S1 that the issuer has filed with the SEC prior to the road show. Here is Lyft’s S1.

Here are the things I like to look for in a S1:

1/ The total shares outstanding. You can go to the table of contents of the S1 and look for the section called “Description Of Capital Stock”. In Lyft’s S1, it says there are ~240mm shares of Class A common stock plus some amount of Class B common that is not yet detailed. The Bloomberg article I linked to above says the company is going to sell 30.8mm shares at $62 to $68 per share. So there will be at least 270mm shares outstanding plus the Class B shares. The Bloomberg folks seem to be using a post deal share count of 288mm share so that is close enough. You get to fully diluted post deal valuation by multiplying the share count (288mm) by the range ($62/share to $68/share).

2/ Revenues and earnings/losses. You can go to the table of contents of the S1 and look for the section called “Selected Consolidated Financial And Other Data” and you will find the audited financial data. I like to find the quarterly numbers because that will give you a good idea of current growth rates. These are the numbers for Lyft:

As you can see the quarterly revenues are growing at roughly $80mm a quarter so a back of the envelope guess on revenues for 2019 are [$750mm, $830mm, $910mm, $990mm] for a total of ~$3.5bn, up from $2.1bn in 2018 (yoy growth of 65%).

You can also see that the contribution (net of cost of goods sold) has been about 45% over the past few quarters so if that ratio holds in 2019, there would be contribution of roughly $1.6bn in 2019.

For the operating costs, you can look at the difference between contribution and EBITDA, which you can see here:

Lyft spent ~$1.85bn on opex in 2019 ($921mm of contribution plus $943mm of EBITDA losses). That number grew from $1.1bn in 2017. I would expect Lyft’s operating expenses to be at least $2.25bn to $2.5bn in 2019.

Which gets you to this possible P&L for 2019:

Revenues – $3.5bn

Gross Margin – $1.6bn

EBITDA (loss) – $600mm to $900mm

3/ Valuation Ratios:

At the mid-point of the offering range $18bn, the price to revenue multiple is roughly 5x (18/3.5) and the multiple of gross margin (what Lyft keeps after paying significant COGS) is roughly 11x (18/1.6).

4/ Time to cash flow breakeven. This is harder because you have to make some assumptions about growth rates beyond 2019 and opex growth rates. But if Lyft can grow revenues at 60% per annum for a few more years and keep opex growth rates to 25-30% per annum, then it could get profitable by sometime in 2021. This suggests that the $2bn it is raising may be sufficient to get profitable, but it will be close.

So what does this mean for other late stage high growth high flyers?

To me it says if you have company focused on a big opportunity (like transportation) that is growing at north of 60% per year it is worth in the range of 10-12x net revenues to wall street right now. Because Lyft only keeps about 45% of its revenues after very high COGS, that works out to be 5x revenues.

Many late stage private companies are getting financed at valuation ratios in excess of this so they will have to grow into their eventual public market valuations. But that has been the case for quite a while now as the late stage private markets continue to pay higher prices for high growth companies than the public markets do.

Categories: Blog articles

The Spotify Apple Issue

March 17, 2019 - 1:30pm

Many people who follow tech know that Spotify has filed a complaint with the European Commission regarding the challenges that Spotify has doing business in the iOS app store.

I am very sympathetic to Spotify’s complaint. In my post last week on The Warren Breakup Plan, I wrote:

The mobile app stores, in particular, have always seemed to me to be a constraint on innovation vs a contributor to it.

Spotify has a huge user base and brings in billions of dollars of revenues every year but it has a challenging business model. Let’s say that 70cents of every dollar they bring in goes to labels and artists. That seems fair given that the artists are the ones producing the content we listen to on Spotify. But if they also have to share 30cents of every dollar with Apple, that really does not leave them much money to build and maintain their software, market to new users, pay for servers and bandwidth, and more.

You might say “well that’s what they signed up for” and you would be right except that their number one competitor is Apple. So their number one competitor does not pay the 30% app store fee, meaning that they have a competitive advantage.

But this is about more than money. If you look at the web page Spotify put up to explain how challenging it has been to do business with Apple, you will see numerous instances of Apple not approving app upgrades.

We see this with our portfolio companies a fair bit too. Apple has complete control over what gets into their app stores and what does not. And the process can be arbitrary and frustrating. But that is how it works and our portfolio companies are reluctant to make any noises publicly for fear of making their situation with Apple even worse.

I am not a fan of Warren’s idea of breaking up companies like Apple.

I like my partner Albert’s ideas better which he expressed in a tweet last week:

A better set of policies to restore competition in the digital age would be (1) consumer right to API access (2) consumer right to side load apps (3) restored ability for small companies to go public / sensible regulation of crypto currencies. https://t.co/4bOFTnZ5NK

— Albert Wenger (@albertwenger) March 12, 2019

If it was the law of the land that any company could side load any application onto the iPhone or any iOS device, including third party app stores, we would have a much more competitive market with a lot more innovation, and Spotify would not have to go to the European Commission to deal with this nonsense.

Categories: Blog articles

Funding Friday: Chiptunes

March 15, 2019 - 7:20am

This is the kind of Kickstarter project I really like. Small, offbeat, and totally awesome. I just backed it this morning.

Categories: Blog articles

Decentralized Finance

March 14, 2019 - 9:35am

While we wait for the blockchain/crypto technology to scale to the point where it can be the foundation of mainstream consumer applications (games, social media, e-commerce, etc), there is a sector where scalability is a little less important and where blockchain/crypto is starting to show some real signs of life.

In the crypto space, it is called Decentralized Finance, or DeFi for short. It includes, of course, all of the ICO activity largely built on top of Ethereum and the ERC-20 token. But it also includes thinks like Maker which is both a stable coin and a collateralized lending sytem. The collateral for the loans is what stablizes the Maker stablecoin. We also are seeing other lending offerings develop in the DeFi world and we are seeing things like hedging, shorting, derivatives, and more, all built on a decentralized platform where there are no intermediaries, no clearinghouses, and the need for trusted third parties is much less, sometimes not at all.

This makes sense for a number of reasons. While the transaction requirements of financial services applications are not trivial, they are also not as demanding as mainstream consumer applications where millions of users are transacting with each other and the system in real-time.

It is also the case that, unlike many of the new architectures that emerged over the years (mainframe, mini, client-server, web), the blockchain/crypto space has always had money at its core and making money, transacting in money, and everyting that goes along with that has been an early use case and for most people, the driving use case for this technology.

All technologies need early use cases. I do not think DeFi will be the only thing that blockchain/crypto is good for. I think we will see blockchains scale in the next few years to allow mainstream consumer applcations to be built.

But until then, DeFi is a good place to hang out. It uses all of the same technologies, architectures, and value systems that we have come to know and love in crypto. You can learn to build applications, use applications, and generally come up to speed on the sector while serving real customers, building a business, and, hopefully, making money.

Categories: Blog articles

The Diverse Syndicate

March 13, 2019 - 7:46am

Startups are generally not funded by just one investor. They are usually funded by a collection of investors; the angel syndicate, followed by the seed syndicate, followed by the VC syndicate.

This gives the founder the opportunity to gain insights and advice from a group of people versus just one.

I was sitting next to a VC last night who brought up the age old question – operator vs investor? She is a successful early stage investor who has never been an operator.

My answer to her question was “both.”

Yes it is fantastic to have people in the syndicate who have been or maybe still are operators. They will be able to help you with all sorts of management issues.

But it is equally important to have the investor mindset in your syndicate. Investors tend to be very attuned to financial issues like burn rate, when to raise, from whom, etc. They also understand market positioning, strategy, and similar stuff very well.

While you are at it building a diverse investor syndicate, try to get women, minorities, and other forms of diversity into your syndicate.

Treat building an investor syndicate like building a management team. What you want is a lot of differing strengths not a bunch of the same strengths.

Categories: Blog articles

Market, Team, Product

March 12, 2019 - 6:25am

I get asked frequently whether it is better to back the team or the product (the “jockey or the horse”).

It is not that simple in my view.

When I think about the big wins we have had over the years, they almost all exhibited a combination of a large market, a great product, and a talented founding team.

Some investors feel that the team doesn’t matter. They believe that you can replace the team if everything else works out. But I don’t think everything else works out if you don’t have a talented founding team.

Some investors feel that product doesn’t matter. They believe that you can pivot into something else if you have a talented founding team. While that is certainly the case, pivots are expensive in terms of capital, time, and focus. I would not choose to go through one given the choice.

And large market is critical. You can build a nice business in a small market, but you can’t build a big business in a small market.

My point is you really need all three, market, product, and team, to get the big wins that the venture capital model requires.

And in terms of finding the best opportunities, I would start with large markets, go searching for teams working in them, and writing checks only when you find talented teams working in large markets who have built excellent products.

Categories: Blog articles

The Hidden Cost Of Extending Option Exercise Periods

March 11, 2019 - 7:11am

Many people in startup land believe that the answer to the challenges around forcing departing employees to exercise vested options is to simply extend the option exercise period to the maximum (ten years) allowed by the IRS.

It certainly is one of the techniques that are available to companies and one that a number of our portfolio companies have adopted. Another option, and one that I prefer, is for a market to develop around financing these option exercises (and the taxes owed) when employees depart.

However, if you are thinking about extending the option exercise period for departing employees, you should understand that it will cost your company something.

Here is why:

Options are worth more than the spread between the strike price (the exercise price) and what the stock is actually worth. They have additional value related to the potential for the stock price to appreciate more over the life of the term of the option.

There is a formula that options traders (and companies that issue options) use to value options. It is called the Black-Scholes formula.

If you click on that link, you will quickly realize that the math used in the Black-Scholes formula can be complicated. But fortunately, there is a neat little web app that I frequently use to estimate the value of an option. It is here.

So let’s say that your company is issuing options at $1/share (your 409a) but your most recent financing was done at $2/share. Then a four year stock option is worth roughly $1.25/share.

If, on the other hand, you offer a ten year option exercise period to your employees, the value of the option rises to $1.52/share, reflecting the longer period of time that the stock could appreciate over.

That is a 20% increase in the cost of issuing stock options. You could mitigate that by reducing the number of options you issue to incoming employees by 20% but that might make your equity comp offers less attractive to the “market” because incoming employees won’t value the longer exercise periods appropriately.

Stock based compensation costs are real costs even though many in startup land think of options as “free” because they don’t cost cash. The accounting profession has attempted to estimate these costs and companies do put stock based compensation costs on their income statements. If you go with ten year exercise periods instead of four year exercise periods, expect those expenses to go up significantly. Twenty percent is just the amount in my example. It could be larger, possibly as high as fifty percent (or more) if your exercise price is a lot closer to the current value of your stock.

This extra value of a ten year stock option versus a four year option is known as “overhang” by investors. It is the cost of carrying a group of people who have a call option on your stock but don’t have to pay for it for a long period of time. Generally speaking investors don’t like a lot of overhang in a stock.

All of that said, employees are the ones who create value for shareholders. They need to be compensated for that. And I am a fan of both cash compensation and stock based compensation. I like to see the employees of our portfolio companies well compensated in stock. That has a cost and everyone should be well aware of what it is. Longer exercise periods increase that cost. I would rather put more stock in the hands of the employees of our portfolio companies than give them longer exercise periods. But regardless of where one comes out on that tradeoff, it is important to recognize that it is a tradeoff. There are no free lunches, not even in stock option exercise periods.

Categories: Blog articles

The Warren Breakup Plan

March 10, 2019 - 7:48am

Elizabeth Warren made news this weekend with her plan to breakup Google, Amazon, and Facebook (and also Apple).

Let me first say that I am sympathetic to Warren’s position. I particularly don’t like the way that Google, Apple, and Amazon use their market power in search and in their app stores to display their own products. The mobile app stores, in particular, have always seemed to me to be a constraint on innovation vs a contributor to it.

However, as you might imagine, I don’t love her proposal. I don’t think breaking up companies solves anything. And lots of rules on paper don’t either.

What we need is a competitive marketplace where new entrants have a chance to beat out old incumbents.

And I think we are on the cusp of that with crypto and the innovations in and around it.

This tweet exchange explains my high level view here:

we are on the cusp of a new architecture, based on a user's control of their own data, and monetized via protocol tokens, that will unseat all of these monopolies in time. the massive increase in ICO-based fundraising, largely outside of the US, is the counterweight to this.

— Fred Wilson (@fredwilson) March 9, 2019

I also quite like Mike Masnick’s much longer take on Warren’s plan.

What we need are policies that make it easier for startups to raise capital (like supporting ICOs instead of clamping down on them) and policies that open up the proprietary data assets of the big incumbents (like giving users control of their own data assets). Those sorts of things along with the never ending march of technology will do the trick I think.

Categories: Blog articles

Audio Of The Week: Ayah Bdeir

March 9, 2019 - 8:56am

I wrote a bit last Monday about the 60 Minutes piece last Sunday night about getting to gender equity in STEM education. My message in that blog post was that there are many innovators in this sector and not everyone will get the credit they are due.

Ayah Bdeir, who was left on the cutting room floor on that 60 Minutes piece, had a different message and one that I understand and appreciate.

Ayah is awesome and I want to shine a light on her and her work and there is no better way to do that than to repost her conversation with The Gotham Gal from last year.

Categories: Blog articles

Funding Friday: Make Your Own Robots

March 8, 2019 - 8:17am

I just backed this project. I like the part in the video where the robot passes them spices for their dinner.

Categories: Blog articles

The Business Model Pivot

March 7, 2019 - 8:25am

I saw Zuck’s post on pivoting to private interactions from public posts yesterday and I had a flashback to Bill Gates’s Internet Tidal Wave memo to his company almost twenty-five years ago.

I have always seen a lot of Gates in Zuck. They both have this incredible ability to see someone else’s product and realize that they need to build their own version of it.

But copying someone else’s product is a lot easier than copying someone else’s business model, particularly when you already have a fucking great one that makes you and your shareholders billions of dollars a year.

It will be interesting to watch Zuck do what Gates was ultimately unable to do – completely reboot the company’s business model to position itself to win the next wave in tech.

In the case of Gates, it was the pivot from paid software to free advertising supported software (aka – the attention economy that we are now paying for).

In the case of Zuck, it will be the pivot from monetizing attention to monetizing the protocol. The good thing is he is headed in the right direction, and surrounded some of the smartest people I know in crypto. The bad news is when you have this anchor called a legacy business model, it means making the right moves and making them quickly a lot harder.

Here is an example of one of those choices Facebook will need to make and make correctly:

If @facebook’s stablecoin goes the private blockchain route it will be to #crypto what @Microsoft’s Internet Explorer was to the Internet.

— Chris Burniske (@cburniske) March 4, 2019

In any case, it is game on. Being on the verge of 60 years old means I have seen this game play out at least once before and so I have a frame of reference to observe it. That’s really great. It is an exciting time again in tech.

Categories: Blog articles

Golden Handcuffs

March 6, 2019 - 8:57am

Daniel Olshansky asked me this question on Twitter:

@fredwilson Have you ever written about how to avoid "rest and vest" culture where there are employees who want to leave a company but are held down by golden handcuffs?

— Daniel Olshansky (@olshansky) March 4, 2019

I don’t believe I have ever addressed this issue here on AVC but I certainly have seen it inside of our highly valued portfolio companies.

Here is the issue. Employees join a high growth company, are issued options which become valuable as the company’s equity appreciates, and if they leave they have to exercise the vested part (and pay taxes) and walk away from the unvested part. So they stay even though they may not be happy at work. Maybe they are not in a challenging role or maybe they find themselves in a problematic management situation. This leads to “resting and vesting.”

Here are some thoughts:

1/ A four year option grant is not a gift. It has to be earned via performance over time, not just time. If there is no performance, then the employee should understand the vesting is at risk. Companies should be very clear about this when they issue the options and on an ongoing basis. This is a cultural issue and needs to be treated as such.

2/ Companies need to have performance oriented cultures where there are frequent checkins between managers and team members, with feedback going both ways, and where non-performance results in changes. These changes could be restructuring of teams, changes in management, or departures of employees. Companies that do not actively manage performance are likely to have lower morale and toxic issues like resting and vesting.

3/ Managers and company leadership must do their part to take ownership of these issues. Employees will adapt to the environment they find themselves in. If you have a rest and vest culture in your company, look in the mirror to see the problem.

4/ I would like to see a market emerge for financing of option exercises. There are companies actively working on this. I believe that departing employees ought to be able to borrow against their valuable equity at no recourse to them, so that they can exercise and pay the taxes. This would solve part of the problem, where employees can’t leave because they can’t afford the taxes (and, in some cases, the exercise price).

5/ I do not believe that the option programs are the problem here. I do think the taxation at exercise is bad public policy and I wish the US government would move taxation to a liquidity event, but I also think we can use the capital markets to address this problem.

6/ I think in the vast majority of cases, the golden handcuff problem is a result of poor management and a leadership team that is unwilling to address this issue head on and make unpopular and difficult decisions about people.

So there you have it Daniel. That’s what I think about this issue. Thank you for asking me about it.

Categories: Blog articles

Being Wrong

March 5, 2019 - 10:48am

Howard has a great (and short!) post on how blogging publicly gives you a timeline on how you were thinking at a given time. He’s right, it is awesome to be able to go back and see what you were thinking and evaluate it in hindsight.

Like my “What Is Going To Happen In 2019” post.

Sitting here two months and a few days into 2019, I could not have been more wrong about the first couple predications I made in that post.

The stock market has been on fire and the President is still firmly in charge.

Of course all of that could change.

It is still early days in 2019.

But going back and re-reading that post is super helpful in reminding me that my assumptions may be wrong and I need to re-evaluate the assumptions to make sure I am heading in the right direction.

And blogging (aka taking a stand publicly) is a great way to do that.

Categories: Blog articles

Getting Credit

March 4, 2019 - 5:13pm

Last night CBS 60 Minutes aired a piece about the gender gap in tech and left out a number of important efforts to close the gap.

My friend Rob Underwood tweeted this out about that piece:

I admire work of my friend @hadip & the org he started, @codeorg. But the incredible, brave (!) @reshmasaujani is absolutely right. Having had a chance to work a bit w/ #CSForAll movement, @60Minutes leaving out contribs of @GirlsWhoCode, @NCWIT, @BlackGirlsCode is unconscionable https://t.co/hKwXLSkVXN

— Rob Underwood (@brooklynrob) March 4, 2019

And while I completely agree with Rob that Reshma has built something amazing at Girls Who Code, I also feel that the results she and her organization are getting are what matters the most and so I responded with this:

What I have learned from watching my wife (@thegothamgal) work on gender equity in startups and my own work on equity in CS education is that you cannot worry about who gets the credit, you have to worry about the results. It makes it easier to stay focused and stay happy

— Fred Wilson (@fredwilson) March 4, 2019

Later today, a friend and fantastic entrepreneur sent me a private email arguing that credit is very important and that it is how organizations gain credibility, legitimacy, and support to keep going.

Of course she is right. Credit is important.

I also got an email from the folks I work with at the NYC public school system pointing out that the NYC public school profiled in the 60 Minutes piece was the beneficiary of the CS4All effort which I have been championing for almost a decade now and that was left entirely out of the story.

All of this is unfortunate. There is a very broad coalition of organizations doing incredible work making sure that we have gender and racial equity in STEM education. And we are starting to see the results of all of the work of these groups. It would have been nice to credit a much broader group of organizations and companies.

But this happens all the time. USV has been the seed and largest investor and a highly engaged board member in companies that are referred to in the press as an “Andreessen Horowitz backed company” or a “Sequoia backed company” or a some other such characterization. When I see that I flinch a bit but tell myself that it is the company, the founders, and the results that matters and not who invested in it.

Success has a thousand mothers and some will get more credit than others. That is the unfortunate truth of success. But if we focus on the success versus the credit then I think we will all be better off.

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