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Musings of a VC in NYC
Updated: 1 hour 19 min ago

Understanding Your Investors

February 3, 2019 - 11:38am

To some extent, this blog has been about demystifying venture capital and in particular me and the firm I work at, USV.

There are many reasons why I think that is a useful exercise. When I got into the VC business in the mid 80s, it was a fairly opaque business and that did not change a lot over the next 15 years. When the Internet came along, it promised more transparency and I thought that using the Internet to help facilitate more understanding about VC was a good idea.

But also it was, and is, a self interested move. I believe that entrepreneurs are more likely to take money from a firm that they feel like they know, like, and trust. And in the hyper-competitive world of startup finance, being an open book can pay huge dividends. We have seen that to be true again and again.

So understanding your investors is important and reading VC blogs is a good way to increase your understanding of the people who may invest or have invested in your company.

One area that entrepreneurs should take some time to understand is the way that VC funds are structured. The economic terms (management fee and carry) and the durability of the capital (investment period, fund life) are particularly important as they will influence the behavior of your investors.

I have written a fair bit about these issues here at AVC as have others like Brad Feld.

One area where fund structures are different is in the crypto sector. Because crypto tokens become liquid much more quickly than startup equity, and because investors in the crypto sector will want to own publicly traded crypto tokens, the hedge fund model has been adopted by many of the investors in the crypto sector.

Joel Monegro, co-founder of Placeholder.vc and a former USV team member, wrote a good crisp comparison of the venture fund model and the hedge fund model on the Placeholder blog yesterday. USV is an investor in Placeholder.

Joel writes:

The effect of these differences is that hedge fund managers have a greater incentive to maximize short-term profits, as they can be severely affected if the fund underperforms in any given period, while VCs are incentivized to maximize long-term, realized value in order to increase their payout. And this is reflected in how each type seeks profits: in general, hedge funds will tend to trade around market fluctuations, while venture funds tend to build and hold investments to optimize for long-term value.

USV has invested in a half a dozen token funds, often as an initial LP to help the fund get going, and most of the funds we are invested in use the hedge fund model. Placeholder uses a VC model.

So we don’t have a strong point of view about which approach is best. Certainly in terms of maximizing our liquidity, the hedge fund model is best. But for entrepreneurs who want patient stable capital, it may be true that the VC fund model is preferable.

This is something to watch over the next five to ten years as this sector matures and we learn about which structure is preferable for entrepreneurs, fund managers, and fund investors.

We already see hybrid models emerging where a hedge fund structure is used but long lockups are required for investors. It will be interesting to see if the way management fees and carry payouts will evolve as well.

One thing is for sure. Entrepreneurs need to understand how the capital they are taking into their company is structured and what expectations and requirements the suppliers of that capital have negotiated with the fund managers. If you aren’t asking those questions of your investors, you should be.

Categories: Blog articles

Video Of The Week: Reasons For Optimism

February 2, 2019 - 10:35am

My partner Albert gave this talk at DLD 2019 a couple weeks ago.

Categories: Blog articles

Funding Friday: Make 100

February 1, 2019 - 8:14am

Kickstarter has a tradition of starting January with the Make 100 campaign, which asks creators to make 100 of something and put it up on Kickstarter for funding.

I backed this Make 100 project earlier this week:

You can see all of the Make 100 projects here. Check them out. They are fun and fascinating.

Categories: Blog articles

Mark Leslie On Entrepreneurship, Leading, and Selling

January 31, 2019 - 9:30am

I have had the pleasure of sitting on a few higher education boards with Mark Leslie. He’s a very accomplished and wise person. I respect him a lot.

In this talk with Peter Levine, Mark talks about some of the most important concepts in starting, leading, and building companies. Listen to him. He’s knows what he’s talking about.

Categories: Blog articles

Funding Female Founders

January 30, 2019 - 7:55am

As a follow up to yesterday’s post, I asked Zach to calculate the percentage of teams with at least one female founder in our last two core funds.

Yesterday, I wrote “I don’t have the exact data on me and it would take more time than I have right now to calculate it, but my guess is that over the last four years, about thirty to fifty percent of the teams we have funded have had at least one woman founder on them”.

Well I am pleased and proud to let you all know that my guess was correct.

Here is the data:

Percentage of investments with at least one female founder:

USV 2014 Fund: 33%

USV 2016 Fund: 43%

Certainly we have more work to do, the female founder ratio is not 50/50 yet, and we have work to do on other areas like people of color, etc.

But I am quite pleased that USV is female founder friendly.

Categories: Blog articles

Changes In VC and Startups Take Time

January 29, 2019 - 7:49am

Starting and investing in startup companies is a long lead time business. It takes on average seven to ten years for the seed and early stage investments we make to turn into something.

So looking at data across the entire VC landscape can be confusing. Important trends can be lost in the noise.

Look at these two charts from the All Raise and Pitchbook analysis of the funding of female founders:

The first one tells a troubling story. Female founders are getting a tiny amount of the supply of venture capital and the percentages are not changing much.

The second one tells a promising story. The percentage of teams getting funded that are all male founded is declining and the percentage of teams that have women founders on them, or are all women founders, is rising.

The first chart is dominated by late stage companies (think companies that are 5-10 years old) and the second chart is dominated by earlier stage companies.

Let’s look at this data in five or ten years.

I think we will see a different story.

I don’t have the exact data on me and it would take more time than I have right now to calculate it, but my guess is that over the last four years, about thirty to fifty percent of the teams we have funded have had at least one woman founder on them.

The times are changing in venture, thanks to the hard work by a number of women founders, women angels (like The Gotham Gal), venture capitalists, and some men too, and it is having a big impact. We just can’t see it in the aggregate funding numbers yet.

We will.

Categories: Blog articles

The Send To All Mistake

January 28, 2019 - 9:07am

I believe I’ve written about this before but I see it made so often that I feel compelled to write about it again.

Entrepreneurs, VCs, and others in the startup ecosystem often send an email introducing a company to all of the partners (or most) at our firm. And that email is addressed to all of us, not one of us.

The result is that none of us feel ownership in the introduction and though we generally figure out who should reply, it can result in the email going unanswered for a while or longer.

On the other hand, if an email is sent to one partner, with possibly a copy to others, then the recipient feels a responsibility to reply and the email is generally answered.

I send emails to busy people a lot. And what I have learned is that I need to address them directly, write the note personally so that it is obvious that I have written it myself, and then copy someone (usually their assistant, but often a colleague as well) to make sure they see it.

Email is such a challenging medium to operate in that when using it, you must be very careful to optimize the chances of a reply.

Sending an email to all is generally not a form of optimization that works.

Categories: Blog articles

Funding Films, Continued

January 27, 2019 - 12:17pm

The Gotham Gal and I have been at the Sundance Film Festival this weekend. We’ve seen a nice mix of documentaries and feature films. And in the feature film category we’ve seen mainstream crowd pleasers like Mindy Kaling’s Late Night which Amazon bought for a bundle and indie films that may struggle to find a mainstream audience.

We tend to prefer the latter and among the best of the indie variety that we’ve seen was a film called Ms Purple that we saw yesterday morning at its world premiere.

Ms Purple raised almost $75k on Kickstarter (a USV portfolio company) a few months ago which funded much of the post-production costs and licensing expenses. A total of 373 patrons invested an average of $200 each (some way more, some way less) to help this film come to life.

From my experience yesterday morning, I would say it was a fantastic investment. Ms Purple is about the challenges that immigrant families navigate in the US, and about the tensions that exist in sibling relationships, particularly when a parent is dying.

Ms Purple’s filmmaker (writer and director) Justin Chon is exactly the kind of artist that Sundance and Kickstarter exist to serve. While I hope his stories can and will go mainstream, they need to be heard even if they don’t.

And funding mechanisms outside of the studio model/system insure that they will.

Categories: Blog articles

Video Of The Week: From Agile To Immutable

January 26, 2019 - 8:20am

Two weeks ago, my colleague Nick traveled to Hong Kong to attend a Blockstack event (Blockstack is a USV portfolio company) and deliver this talk, which covers some important questions/issues in the crypto sector.

This short tweetstorm sets up the video well, so I will start with that and follow with the video which is 17mins long.

In a nutshell: On the one hand, we have the "agile" approach to building apps: start small and iterate quickly. On the other hand, we have "immutable" decentralized systems, which are — by design — stable and hard to change.

— Nick Grossman (@nickgrossman) January 24, 2019

This presents a challenge when trying to find product-market-fit. Being agile means prioritizing user experience, but retaining control. Being decentralized means prioritizing security and handing over control

— Nick Grossman (@nickgrossman) January 24, 2019

Both at the application layer (e.g., cryptokitties, numerai, augur) and at the blockchain layer (bitcoin, ethereum, eos, etc), this tension is playing out, and it will be interesting to see what will ultimately become a new paradigm for developing platforms and apps take shape

— Nick Grossman (@nickgrossman) January 24, 2019
Categories: Blog articles

Funding Friday: Funding Films

January 25, 2019 - 7:37am

The Gotham Gal and I are at the Sundance Film Festival this weekend and we are going to watch all sorts of films, from features, to documentaries, to short films, and more. It is a blast to see such a variety of films and the filmmakers who made them. We will see a few of these films that were funded on Kickstarter.

So I’m featuring a documentary about surf culture in the 60s that needs another $30k (ish) to finish the film and show it at an upcoming film festival. I backed it this morning and maybe some of you will too.

Categories: Blog articles

The Founder’s Commitment

January 24, 2019 - 7:19am

The people who start companies are special people. We call them founders in the startup world and I have had the opportunity to work with many of them over the years.

They bring all sorts of important things to the companies they start (or help to start). One of those things is a level of commitment, responsibility, and care that others rarely bring to a company.

I was reminded of that today when I saw what Eric Wahlforss, one of the two founders of our portfolio company SoundCloud, wrote about his decision to step away from the company after 11 years:

After 11+ years of building SoundCloud, it is time for me to take a break, reflect and think about what’s next.

I will be stepping back from day-to-day operations and into an advisory role on March 1st.

I am incredibly proud of what we have achieved and deeply grateful. pic.twitter.com/71DQ8h0Sjv

— Eric Wahlforss (@ericw) January 24, 2019

Eric did pretty much every job in the company at one time or another, including being the CEO for a three month period in 2016. He gave SoundCloud everything he had for eleven years.

Startups are incredibly chaotic organizations with a lot of change. Very few people can make it through all of that chaos for a decade or more. But founders can and do.

Eric is an example of that and I am incredibly grateful to him, and his co-founder Alex, for the level of care and responsibility they brought to SoundCloud (not to mention the original idea and the original product!)

We meet with founders all the time and a few times a year decide to back them with our firm’s capital. One of the things we look for is that commitment, responsibility, and care, the “founders commitment.” It has to be there or it isn’t going to work. Because building a company is really hard. But also incredibly rewarding.

Categories: Blog articles

Capitalism and Inequality

January 23, 2019 - 8:19am

I was talking to a friend about AOC’s proposal to increase marginal federal rates to 70% to fund investments in fighting climate change. My friend said he was disappointed that she didn’t propose a top federal rate of 83.25% so that the marginal rate in NYC would be 100%. He was joking but his remark is important because it speaks to the nuance of the marginal rate, something AOC and her followers don’t really understand as much as they claim.

It reminds me of a heated conversation I had with my kids and their friends during our family ski trip over the year end break. Our kids, like most millennials I know, are struggling with the notion of capitalism at any cost and the massive income and wealth inequality that we are witnessing.

This headline I came across on Twitter today kind of sums it up well:

.@AOC: Economic system that allows billionaires is “immoral” https://t.co/qINA2oXiwu pic.twitter.com/Z3mSVRXuti

— The Hill (@thehill) January 22, 2019

I am in the business of helping founders start companies which results in some of them becoming billionaires. Contrary to what some think, my wife and I aren’t in that club ourselves. But I know a fair number of billionaires and I have had a front row seat to the process of them going from not having a penny in their pockets to billions on their balance sheet.

And we are participants in the “economic system that creates billionaires.” I do not think it is immoral and I do not think billionaires are immoral. I do think the inequality that we allow in our country is immoral.

To me, these are two different things. And that is the gist of the discussion I was having with my kids and their friends over the year end holiday. They asked me why I don’t believe in massively raising taxes on the rich to pay for all of these new social programs that the candidates on the left are proposing.

I am a fan of many of these social programs, like medical care for all, like more affordable education for all, like new approaches to what we once called “welfare” and now is taking shape as Universal Basic Income. I have been called a communist, a socialist, a liberal, and more on this blog and all of those labels could be accurate in someone’s mind. I believe that society must find ways to support the basic needs of everyone, which include wellness, knowledge, and income. That we do not is immoral. That we allow billionaires is not.

I am a capitalist and a business person. I understand that increasing taxes on the wealthiest leads many of them to move their income and assets to lower tax jurisdictions and can be counter productive, particularly when you go beyond a certain threshold. I also understand that government is bloated and there are many places where we could cut spending to fund these new innovative programs that could help counter the immoral wealth imbalance we have in our country.

I believe that technological revolutions, like the industrial revolution and the information revolution, create opportunities for entrepreneurs to reimagine how the economy should operate. Those entrepreneurs, like Rockefeller, Carnegie, Morgan, Bezos, Page, Zuckerberg, build very powerful monopolies and amass billions.

As these revolutions reimagine how the economy should operate, many people lose jobs, can’t find jobs, find themselves in lower paying jobs, and there is real dislocation that results. And you get this “immoral wealth imbalance.”

The one part of the economy that seems immune to re-imagination is the government. If we were to force it to go through the same technological revolution that the private sector is going through, we would see massive efficiencies, and massive job losses, that would free up a huge amount of capital that could be used to pay for things like medical care for all, affordable education for all, and some amount of income for all.

That is what I am for. That is what I explained to my kids and their friends that I am for.

Times of change are times of change. And we can’t change some things but not everything.

I will end with a story from a book I read a few years ago. The book is called The Prize that was written by Dale Russakoff and is about the effort by Chris Christie, Cory Booker, and Mark Zuckerberg to fix the broken Newark NJ public school system.

The story takes place at an anti-charter school rally. Dale meets a woman who is protesting against the charter schools that are replacing the district schools. As she is talking to this woman, she explains that she is late to the rally because she had to spend all morning in line trying to get her child into the new charter school in her neighborhood. Dale is perplexed. Why would she be protesting charter schools if she is that committed to getting her child into one? The woman explains that most of her family works in the district schools and will lose their jobs if the city moves to charter schools.

And that’s where we are. We are not willing to move away from the things of the past to get the things of the future. So our elected officials decide to try to give us both and we struggle with how to pay for it all.

I am not for the emerging progressive Robin Hood narrative. I am certainly not for the entrenched conservative Let Them Eat Cake narrative. I am for a new narrative that understands that everything must change if we are to find ways to support everyone in our society.

Categories: Blog articles

What Kind Of Coach Do You Want?

January 22, 2019 - 6:44am

My colleagues and I are asked all the time for recommendations for coaches, mostly for the founders and CEOs we work with, but often for others on the senior team. I am a huge fan of coaches. I think they can be game changing for leaders and their teams.

I always ask a bunch of questions to find out what kind of coach someone wants before making suggestions.

A key question is whether you want answers or questions from your coach.

My partner Andy wrote a bit about this, in a very different context, the other day.

I’ve spent a large portion of my career investing in early-stage companies. Part of that job is to advise and counsel, to assist a company in reaching its potential. I try to ask for feedback on how I am doing in that job. A constant thing I hear is to provide more direct answers to problems posed to me. Typically, I am told, I answer their questions with further questions.  

Yet, I think it’s important to tolerate ambiguity. Maybe there isn’t a direct answer. Maybe I don’t know the answer. Maybe I want to assist others in coming up with their own answers.

I have to confess that I am more of a “why don’t you try this?” sort of advisor.

Andy is more of a “why do you want to do that?” sort of advisor.

Both can be very valuable but it really depends on what you want/need in an advisor. Getting answers when you want questions can be frustrating. Getting questions when you want answers can be equally frustrating.

So think about what it is you want from a coach before going out and finding one. Getting the fit right is important.

Categories: Blog articles

MLK Day Quote

January 21, 2019 - 8:00am

Martin Luther King Jr. was a man of words. He used them to inspire, to rally, and to ultimately bring change. The change he brought is the reason we remember him on this day every year.

Many of his words are broadly applicable, well beyond the worlds he occupied.

This quote strikes a nerve for me as we work with many founders and leaders:

A genuine leader is not a searcher for consensus but a molder of consensus.

Martin Luther King Jr.

Leading is knowing where you want to go and working to get others to want to go there too. That could be your team, your board and investors, your customers, or the entire world.

Molding is the word I like most in that quote. It describes the work of leading correctly. You can’t will people to follow you. You can’t expect people to follow you. You need to work to get them there.

Categories: Blog articles

Screen Time Tracking/Management

January 20, 2019 - 7:42am

In my “What Happened in 2018” post I wrote this:

And the usage of screen time management apps, like Screentime on iOS, is surging. We know we are addicted to tech, we don’t want to be, and we are working on getting sober.

I wrote that based mostly on anecdotal data but we have been looking for better data and have not found it.

So Dani and I worked on a survey that she ran last week and we got these results from a survey of 1,000 adults in the US using Google Surveys:

  • 24% use an app to track their screen time.
  • 34% of iOS users use an app to track screen time vs 19% of Android users.
  • iOS users are twice as likely to use the default screen tracker app than Android users.
  • People across age groups are equally likely to use an app to track their screen time.

Here is a graphical representation of that data that Dani put together:

What we don’t know is what these numbers looked like a year ago, but I am fairly confident that we are seeing a surge in the usage of these tools to manage screen time.

We will run this survey again mid-year and again at the end of the year to see if this trend continues.

This is a good trend in my view but it does mean that there is a governor on the amount of usage time that consumers have on their mobile apps and that will make it a bit harder for new mobile apps to gain traction and market share.

It will be interesting to see if usage of mobile apps, including the most popular ones like Instagram, show any signs of slowing down.

Categories: Blog articles

Video Of The Week: Our Partner Rebecca Kaden

January 19, 2019 - 9:39am

Rebecca Kaden, who joined USV in late 2017, was on Bloomberg last May. Somehow, I had never seen this. So I am running it today. If you don’t know Rebecca, you should meet her. She’s leading our efforts in a bunch of areas that she talks about in this interview.

Categories: Blog articles

Funding Friday: Return To Sender

January 18, 2019 - 10:00am

I love short films. I think they are a great way to tell a short story on a shoestring budget. I have seen some great ones over the years. So when I saw this Kickstarter project this morning, I backed it instantly.

Categories: Blog articles

Executive Sessions and Continuous Feedback

January 17, 2019 - 10:05am

I’ve written about these two related but different topics before but I’ve been doing a lot of board meetings as we kick off 2019 and I am reminded of how important both are.

At the end of every board meeting, the board should meet alone with the CEO in an executive session, followed by a session without the CEO, followed by a session where at least one director, but possibly all of the directors, meet again with the CEO.

This requires a fair bit of time to do right. These three back to back sessions will easily take thirty minutes to do right and could take as much as an hour.

When a board meeting goes three or four hours, it is tempting to wrap when everyone has “hard stops” and punt on these executive sessions.

But that would be a big mistake.

CEOs need to know where the board stands on the meeting, the big issues, the team, the strategy, and most importantly the performance of the CEO. And CEOs need to know that in real time and all the time.

The big problems that I have run into with companies over the years often have to do with misalignment between a management team and the board, and most acutely misalignment between a CEO and the board.

A process by which the CEO gets real time, regular, in person feedback from the board will alleviate many of these issues. These can be hard conversations and they can be difficult for the CEO to understand and process. None of this is easy stuff. But when people know where they stand and can react to it, things go better. It is when people don’t know where they stand and are grasping for straws when things go most badly off the rails.

The executive session/feedback process is also used by audit committees to manage the relationships between the board, CFO, and external auditors. I have found that they are incredibly important in that setting too.

If you aren’t doing executive sessions with your board, start doing them. And if you do them, but you skimp on them frequently due to time issues, shorten your board meetings and protect your executive session time. These sessions need to come last and that makes protecting them challenging but I believe a board meeting without an executive session is a bad board meeting.

Categories: Blog articles

“If The Train Is Delayed, Find Another Way Home”

January 16, 2019 - 10:34am

I worked for a man named Bliss McCrum (and his partner Milton Pappas) in my mid 20s. They taught me the venture capital business. They were in their 50s, around my age, at that time.

Bliss one time gave me this business travel advice. He said, if the train is delayed or stops at a station and can’t move, get off the train and find another way home. His experience told him that once delays start happening, they tend to get worse, and you are better served by ditching plan A and finding a plan B.

I have used that advice many times over the years, and while it is not perfect, it has been on point more often than off point.

Today I had a 6:30am flight to SFO from LAX. When I picked up my phone as I was leaving the house for the airport, I saw a text from Alaska Airlines that my flight had been cancelled and they were booking me on the next flight.

Bliss popped into my head and I thought, “I’m going to get to LAX and get on the 7am flight that I usually take.” I had wanted to get to SF super early today so I booked the first flight out of LAX to SFO instead of my usual 7am flight.

Once I got to LAX, I was able to get onto the 7am flight, and then headed to the gate where my new flight was leaving from. That required getting on a bus and heading to a new terminal. This is what the guts of LAX look like at 6am.

Once I got to my gate, I learned that my 7am flight was delayed into SFO by 90 minutes, thus pushing my arrival back two hours from when I wanted to be there.

Again Bliss entered my head and I thought “what about San Jose?”. So I went to the board and saw that there was a 7:30am flight getting into San Jose at 8:50. I went to the service desk and asked if there were any delays getting into San Jose this morning and was told there were not.

So I swapped my SFO ticket for a SJC ticket and got basically the same seat on a similar plane.

I’m in the air to SJC right now and hope to land in about 30 mins\utes and then get in a car and be taken the hour+ that it will take to get to into San Francisco. But at least I can call into the start of my meeting instead of missing the first couple hours completely.

I have to thank Bliss for the inspiration to scramble today instead of just taking what the airlines were giving me and being chill about it. I think it worked out well and I’m going to be able to participate in the entirety of my meeting today. Thanks Bliss.

Categories: Blog articles

The Daily Dose

January 15, 2019 - 10:57am

At the bottom of the first post on this blog is a widget that contains links to recent blog posts by other USV team members. Many USV folks blog regularly and this widget surfaces those posts to all of you and everyone who visits the various blogs of the USV team members.

Other than me, there are a few other USV team members who blog regularly; Albert, Nick, and Bethany are the most prolific writers at USV. Andy and Brad are the best writers but we don’t get a lot of production out of them.

Since the start of the year, Bethany, who runs USV’s portfolio network, has produced a dozen blog posts, on topics like Hamilton In Puerto Rico, Nostalgia Creep In A High Growth Company, How To Measure A VC Firm’s Platform Efforts, and a lot more.

I am just one window into USV and the VC/startup world in general. I encourage those who are interested in this stuff to seek out other voices as well. Right now, Bethany is one fire. You should check her blog out.

Categories: Blog articles