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Musings of a VC in NYC
Updated: 3 hours 13 min ago

Ignoring vs Not Replying

August 6, 2019 - 9:37am

I had an exchange recently that has stuck with me and so I thought I would write a bit about this topic.

When someone tweets at me, emails me, texts me, tags me, etc, and I don’t reply, they assume I either did not see it or am ignoring it. That might be true but generally, it is not the case.

What is more likely is that I saw it, I got the message, I understand it, and I may even be acting on it. But for any number of good reasons, I have chosen not to reply to it.

There is a very big difference between ignoring something and acting on it, but that difference is not visible to the person sending the message. And so they assume that it is being ignored.

Sometimes I will like the message (if it is on social media) to acknowledge that I saw it. But if I don’t actually like the message (eg “you are the dumbest person in the world Fred”), I might not do that. Or I might. It sort of depends on my mood.

But the truth is I read a lot more and act on a lot more than I acknowledge publicly. And that is the case for many people I know who for various reasons (volume, legal, PR, etc) can’t or don’t reply to many messages.

So my point is don’t assume your messages are being ignored. They may be having the desired impact. But you may not know it.

Categories: Blog articles

Reserves

August 5, 2019 - 5:27am

One of the unique things about early stage investing is the ability (and in my view, the need) to continue to invest in the companies for multiple rounds of investment.

Late stage, public market, private equity, real estate, and most other popular forms of investing typically involve a single or a time limited series of investments.

But at USV, we typically will make four to six investments in a “name” over five to seven years.

And we do this style of investing with a fixed pool of capital.

So we have gotten very analytical about modeling out our reserves for our follow on investments.

What we do is maintain a spreadsheet of every investment in a given fund and the likely amount and timing of future follow on investments as well as the probability of us having the opportunity to make those investments.

We then run a Monte Carlo simulation 1000 times and draw a distribution curve of outcomes and then manage our funds against that.

We have a “cushion” for error which is our ability to recycle roughly 20% of our funds and that has come in handy on every fund we have managed at USV.

I think the proper allocation of follow on capital into the portfolio and making sure you can follow your winners and defend your position in certain situations is absolutely critical to producing top tier returns.

It is not as important as portfolio selection (which comes from our thesis) or our work on the boards of our portfolio. Those two things are the most critical factors in our performance.

But I think capital allocation/fund management is third on the list and is a missed opportunity for many early stage investors.

Categories: Blog articles

Striking The Right Balance

August 4, 2019 - 5:06am

I was talking recently to a friend who advises a lot of boards. I asked him his view on boards overall.

He said that he saw two styles, both of which he found problematic.

The first style is the “rubber stamp board” that does whatever the CEO asks of them.

The second style is the “meddling board” that acts like it is running the business.

He told me he sees very few boards that manage to strike the right balance.

I sit on a lot of boards and have been doing so for thirty years now. I have been on rubber stamp boards and I have been on meddling boards. And I agree that both are problematic.

What I have learned over the years from those not great experiences is that boards must respect the line between governance and management and never cross it. But they also must govern. They must push back on things that don’t make sense and they must exercise the authority that has been vested in them by the shareholders.

This need to strike the right balance exists in many other contexts in our lives. It is the essence of good parenting. It is the essence of good management.

To a large extent boards reflect the CEOs that report to them. Strong willed successful CEOs can often construct rubber stamp boards because that is what they want. And weak ineffective CEOs find themselves with meddling boards who are trying to manage the poorly managed company from above.

Neither of these situations is good. The weak and ineffective CEO should be replaced by the board instead of trying to manage from above.

And the strong willed CEO must have checks and balances placed on them, no matter how well they are doing.

A great board chair can be transformative for a board. They can stop the meddling and force the necessary management changes. And they can stand up to a strong willed CEO and build the trust and respect that can lead to a well functioning board.

This is why I do not believe that CEOs should chair their boards. They should find someone who has a lot of board experience, knows how to strike the right balance, and vest in them the authority to lead the board to the right place.

I have been on boards that do strike the right balance and are chaired properly. It is a pleasure to work on these boards and a well functioning board is a thing of beauty. Every CEO should want one.

Categories: Blog articles

Video Of The Week: What Coinbase Is Up To And Why

August 3, 2019 - 5:17am

Brian Armstrong, CEO of our portfolio company Coinbase, gave this talk to the Company at a recent all-hands. In it, he describes the founding story for Coinbase, and then goes on to describe the Company’s Mission, Vision, and Strategy.

Categories: Blog articles

Funding Friday: Bellwether

August 1, 2019 - 6:23pm

I saw this project this morning and backed it immediately.

Bellwether is Sam Greenspan‘s next project (after doing 99% Invisible for five years).

Bellwether is about the future and what might happen. It is half journalism and half sci-fi storytelling. And it is delivered via 30min podcast episodes.

Finally, Sam has stated that he cares more about building a community around this project than the money he’s raising and so he will not consider this project a successful Kickstarter campaign unless he reaches 1000 backers or more. He’s at 652 as of this morning.

Categories: Blog articles

Employee Equity: How Much?

August 1, 2019 - 6:08am

I wrote a blog post about this topic in November 2010 that has become one of the most searched on and referenced AVC posts of all time. The numbers in that blog post are long out of date and so I now have a popup on it warning people not to use those numbers. However, the methodology in that blog post remains sound and is used by many startup companies.

Yesterday, Matt Cooper, the CEO of our portfolio company Skillshare, published a very detailed blog post on how Skillshare uses that methodology in their employee equity program.

He includes updated multipliers for the NYC startup market in that post, which is something many readers have been asking me for over the last few years.

The reality is that these multipliers differ from market to market. They are highest in the Bay Area, high in NYC/LA/Boston, and lower in other parts of the US and in Europe, and even lower in other parts of the world. And, like all markets, they change over time. So it is hard to maintain a valid set of multipliers and I have given up on doing that. A startup could be created to maintain those numbers, or an established company like Carta, which has access to the raw data, could do it.

But even with the vagaries of what multipliers to use, the methodology that I laid out in my initial blog post on the topic is best practice in my view and anyone who is struggling to figure out how much equity to be offering employees would be well served by reading Matt’s post.

Categories: Blog articles

NBA Top Shot

July 31, 2019 - 11:25am

I’ve written on this blog about extensible blockchain games, the ability to own the virtual goods you earn or buy in your games, and the idea that these virtual goods can move from game to game. I think this is a big deal and possibly the thing that brings blockchains and crypto tokens to the mainstream user.

So, here’s an awesome example of that. Our portfolio company Dapper announced today that it is building a blockchain game with the NBA called Top Shot.

Here is the idea behind the game:

NBA Top Shot will feature a social experience built around digital collectibles as well as a complementary head-to-head game designed to create a fun, authentic and accessible fan engagement on blockchain. Like other sports games or fantasy brackets, fans who play the game are tasked with creating their ideal squad, but in this game, their rosters are built by acquiring live in-game moments from the NBA season. These moments, such as a Kevin Durant 3-point shot, or Joel Embiid dunk, which are acquired as digital collectibles or tokens, can then be either owned forever or used to compete against other players in online tournaments and leagues.

NBA Top Shot will start offering crypto-collectibles in the fall, with the game to follow in early 2020. You can get early access by leaving your email address here nbatopshot.com

Categories: Blog articles

Turning A Loss Into A Win

July 30, 2019 - 5:20am

One of the traits of successful founders is their ability to turn a loss into a win.

You take a lot of losses as a founder, particularly in the early days. Investors pass on your funding pitches, people pass on your job offers, customers pass on your sales efforts, competitors take your customers and your employees, you get sued, you miss critical ship dates, morale tanks, and on and on and on.

But inside of each of those losing moments is the opportunity to turn it into a win.

You lose out on an important hire and in a pinch you promote a promising person from within and they turn out to be a superstar.

You lose out on a hotly contested sales opportunity and you do a post mortem with the customer and learn that you have a huge hole in your product and you fill it and start wining business.

You whiff on financing effort and so you cut your burn, execute for three more months, and go back and get term sheets from everyone you talk to.

My point is that losses are opportunities to win. You just have to see them as such and find the win in the loss.

This is all about resilience, optimism, and tenacity. The most successful founders have it in spades.

And it can be a learned skill. But you have to get your head in that space to learn it.

Categories: Blog articles

Haven

July 29, 2019 - 11:52am

Our portfolio company Open Bazaar released a new mobile app called Haven today.

The idea behind Haven is:

Finally, people anywhere in the world can connect directly to each other using their mobile devices and trade privately with no credit cards, no banks, and no tech companies tracking their activities, or charging listing and transaction fees. 

Here’s what the front page looks like:

And here is what an item listing looks like:

Note that you can pay for this coffee maker in Bitcoin and Litecoin.

Haven is built on the Open Bazaar protocol:

Haven creates a mobile window into the groundbreaking OpenBazaar network powered by cryptocurrencies like Bitcoin, Bitcoin Cash, Litecoin and Zcash (Ethereum coming soon). Over 250,000 nodes have been created by people using this peer-to-peer network since the release of version 2.0 and tens of thousands of listings have been put up for sale from crypto tokens to original paintings by popular artists to business services. OB1 expects Haven to rapidly bring even more users onto the network who are eager to shop, chat and send cryptocurrencies privately from their mobile phones.

If you want to check out Haven, you can do that here.

Categories: Blog articles

Certainty Of Close

July 28, 2019 - 4:53am

On Friday, I had two separate conversations with founders about fundraising strategies.

Both had an easier path that would likely get them to a closing quickly but might cost them some economics and a harder/longer path that would allow them to maximize economics.

I gave them both the same advice which is that certainty of close is super important, particularly early on in a venture when you see an opportunity and want to capture it before someone else does.

Most decisions are not black and white. There is usually a lot of grey in between. Fundraising is always like that. There is rarely an obvious right answer.

Many founders are advised to run a competitive process, get as many quality offers as you can, and use that competitive dynamic to maximize economics.

While that is a great strategy if you have the luxury of time on your side and the ability to spend several months focused on raising capital, there is often merit to the quick close that maximizes certainty over other things.

Both conversations on Friday ended in a discussion about people and how important they are in all of this. The answer to that is that they are the most important factor of all when raising capital.

If you are comfortable with the people involved and have a high degree of confidence that they will be great partners, then everything else is secondary. That is true for at least the first five years of a venture. At some point, in very late stage or public financings, the people issues lessen and you can optimize for other things.

But early on, if you optimize for anything, optimize for the people you work with. Otherwise you are taking on risks that can and will blow up in your face.

After that, I might put certainty of close next on the list, as long as the economics of the “bird in the hand” are ones you can live with and the people are known quantities. You can rarely go wrong with that combination.

Categories: Blog articles

Video Of The Week: Albert Wenger on AI and Attention

July 27, 2019 - 4:36am

This is a talk my partner Albert gave at an AI conference in Berlin last month. Although he gave it to an AI conference, it is really about where we are in our society and what we need to do about it. It is about 20mins long.

Categories: Blog articles

Funding Friday: “Arduino Meets Crypto”

July 26, 2019 - 4:43am

This Kickstarter project is for a circuit board that makes it easy for developers to create IOT devices that work on Blockchains. It currently supports Ethereum, Whisper, and IPFS. I backed it this morning and am sharing it with all of you in case you want to as well.

Categories: Blog articles

Extensible Games

July 25, 2019 - 5:34am

The promise of blockchain games and non-fungible tokens (NFTs) is extensible games. Imagine if developers could build new worlds/games/experiences on top of Fortnite and you could take your character, your weapons, your vehicles, etc with you into those new worlds/games/experiences. That is what I mean by extensible games.

We are seeing the beginnings of that in blockchain games now. There are many game experiences that third-party developers have built on top of Cryptokitties (built by our portfolio company Dapper Labs).

And now Dapper Labs is pushing this idea even further by turning their CheezeWizards game over to the community.

The idea is pretty simple actually. This summer gamers will be competing to win the first CheezeWizards battle royale. But after that ends, the players will still have their Wizards because they are NFTs. The Wizards are like Bitcoin or Ethereum or any other cryptotoken. They can be stored in a wallet and used again and again in new games.

So Dapper Labs has released all of the CheezeWizards IP under an NFT license and is inviting developers to build new game experiences for all of these Wizards that are now out there.

And they launched the CheezeWizards Hackathon yesterday with over $15,000 in prizes for the winning game experiences.

I will be judging this hackathon along with a number of other crypto investors and I am excited to see the gaming experiences that developers build on top of CheezeWizards.

Categories: Blog articles

A Resilient Grid

July 24, 2019 - 4:45am

During Hurricane Sandy, all of lower Manhattan lost power for several days when a transformer blew at a ConEd plant on 14th Street.

Driving around lower Manhattan at night in the aftermath of Sandy was one of the strangest moments I’ve experienced as a NY’er. The traffic lights didn’t work and everything was pitch black.

Except NYU. As you approached Washington Square the city lit up again. That is because NYU has its own power plant, a cogeneration facility next to NYU’s Courant Institute.

Similarly, when the west side of Manhattan went dark a few weeks ago in what is turning into a summer of blackouts, everything was pitch black except the new Hudson Yards development. That’s because on the top of the Hudson Yards Shopping Mall, there is a massive cogeneration facility that powers all of buildings in that development.

So when I heard Mayor de Blasio ruminating over the weekend about a government takeover of ConEd, I thought to myself “he’s got it all wrong.”

We don’t need more centralized control of our power grid, we need a more decentralized power grid.

NY State has been pushing in this direction for years now under the leadership of Richard Kauffman, Chairman of the New York State Energy Research and Development Authority (NYSERDA). The state has deregulated the energy markets, they have created substantial incentives for property owners to build out renewable (solar/battery/etc) capacity in their buildings, and they have put forth a vision of an energy grid that is not reliant on any one entity to stay up.

Back in the 1960s when the Department of Defense designed ARPANET, the precursor to the modern Internet, they designed a network that was entirely decentralized and therefore massively resilient (anti-fragile in Nassim Taleb speak).

That should be our goal with our energy grid as well. We should want energy production and consumption to happen at the edges of the network and we should want redundancy in the cables that connect everything together.

We aren’t there today and it will take a lot of work over many years to get there. But that should be our goal.

And we certainly should not be putting our energy system into the hands of a centralized and bureaucratic government. That would lead to more blackouts, not less.

Categories: Blog articles

When Things Just Start Working Again

July 23, 2019 - 11:25am

Several times this week something that was not working magically started working again through no intervention of mine.

I find this to be very frustrating.

I would almost rather something stay broken than magically fix itself.

First, I enjoy fixing things. I’m an engineer, a tinkerer, and I get great satisfaction out of debugging/troubleshooting/fixing things. It is such a great feeling when you figure it out and it works again.

And second, when something fixes itself, you don’t know what did the trick and if it breaks again, you won’t be able to easily fix it.

For the same reasons, when we call an expert to fix something, I always ask them what broke and how they fixed it so I can do that the next time. It isn’t that I actually want to fix it next time, but I certainly want to be able to if I have to.

I know plenty of people in my life who don’t feel this way. They just want things to work and don’t really care why or how they do.

But I am not wired up that way.

Categories: Blog articles

Smart Thermostats

July 22, 2019 - 4:49am

My colleague Dani sent me this chart last week:

I believe this is more or less a proxy for smart wifi-enabled thermostats in the US.

Those would be Nest, Honeywell Lyric, Hive thermostats and a lot of others too.

Those are pretty big jumps from 6.5% to 8.9% to 11.4% given that people don’t generally swap out thermostats unless they are doing a renovation or building a new home. Maybe there is more thermostat swapping going on outside of those “construction” moments than I would expect.

In a few years, more than 20% of homes will have heating and cooling systems that can be “managed” by software, either on-premises or, more likely, in the cloud.

That is pretty exciting.

I wonder what level of adoption is “critical mass” or “escape velocity” ?

Certainly 50% would be, maybe 25% will be.

I really like the area of networks, platforms, and protocols that will allow us to efficiently manage our energy consumption. It has been hindered to date by a closed “last mile”, but that is changing and I think the opportunity is approaching.

Categories: Blog articles

Parenting

July 21, 2019 - 5:08am

Parenting is the hardest and greatest job that I have had.

It presents the thorniest problems and generates the greatest rewards.

We had the pleasure of spending most of yesterday with our three kids and their significant others.

The occasion was our oldest daughter’s masters thesis presentation at her MFA program.

She is an artist who works with computer generated imagery and animation.

The work she made for her thesis was a five to seven minute animation loop and I probably watched it five or six times yesterday afternoon.

It was the first time I had seen it and I was amazed at its beauty, its quality, and the emotions it conveyed.

Needless to say, I am proud of her and also all of the other artists that showed their work alongside her.

We then spent the rest of the afternoon with our other kids hanging out and having fun with them.

Then we all got together for a late (for me) dinner that was celebratory and fun.

As the dinner ended, I sided up next to The Gotham Gal, put my arm around her, and said “that was a good parenting day.”

She looked at me and smiled.

I have loved all of parenting; rocking them to bed, the late feedings, changing the diapers, teaching them things, family vacations, the teenage years, leaving home, the college years, and the early adult years.

As I write those things, I also recall the challenges of each of them and the moments where we did not know what to do in certain situations.

But we figured it out and got through it and moved on to the next stage.

We certainly got better at it over time but we have never felt that we have parenting figured out.

Now we are in the phase where our kids are adults and accomplishing things that amaze and impress us.

They understand things we don’t understand, they do things we can’t do, and they are having successes that we have little part in.

That makes me feel so good.

I don’t believe our work is done. I believe we will be parenting for as long as we live.

But I do believe that the work is easier and the gains are richer.

But most of all I am reminded that our best work is done at home and the fruits of it are measured in joy.

Categories: Blog articles

Video Of The Week: CEO AMA

July 20, 2019 - 4:29am

AMA stands for “Ask Me Anything.” I have noticed a trend of CEOs doing these AMAs for their customers and broader stakeholder communities.

A good example of a CEO who is doing this is Brian Armstrong, CEO of our portfolio company Coinbase.

Brian has been doing this for several months. You can see all of them on their YouTube channel.

Here is the one he did with LJ Brock, Coinbase’s Chief People Officer, yesterday.

Categories: Blog articles

Funding Friday: Medicine Of Time Travel

July 19, 2019 - 4:04am

A few weeks ago, I got an email from a reader. She asked if he could subscribe to this blog without the funding friday posts. He thought they were “spammy.” I replied to him “think about them as the ads” and politely told him that wasn’t possible.

I love funding things. And I love sharing the things I fund with all of you.

I saw this project this morning and backed it instantly. A musical art project. Awesome.

Categories: Blog articles

Climate Adaptation?

July 18, 2019 - 4:37am

While society debates how to deal with climate change, there are some scientists who are now saying that that time has passed and we now need to start planning society’s adaptation to the climate tragedy we have created on planet earth.

This scientific paper from roughly one year ago is super depressing. I am linking to it because I read it this week and it certainly made me consider how our way of life may change dramatically in my lifetime.

I am not yet ready to throw in the towel on our ability to react to the mounting evidence of a rapidly warming planet and dramatically slow it down with actions like the Paris Accords, recent laws in New York City and New York State, and everyone’s personal actions in what we do and how we do it.

And there is no benefit in getting depressed or defeatist about the climate change threat.

I think the opposite is true. It is time to stop debating whether the planet is warming. It is even time to stop debating about who is going to pay for the massive investments we need to make immediately to slow that warming. It is time to start making them.

Categories: Blog articles