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Video Of The Week: Peter Kafka’s Interview With YouTube CEO Susan Wojcicki

A VC - June 15, 2019 - 1:22am

Peter Kafka interviewed YouTube CEO Susan Wojcicki at the Recode Conference last week.

It’s an interesting discussion about many of the issues facing YouTube and the Internet at large right now.

Categories: Blog articles

Funding Friday: A Window Pane Solar Panel

A VC - June 14, 2019 - 1:16am

I saw this project earlier this week and backed it immediately. Solar energy is not easy to adopt. But I have found that once you start, you get into it and keep going.

This might make it easier for some to start down that path.

Categories: Blog articles

Cloudflare’s Galileo Project Turns Five

A VC - June 13, 2019 - 8:49am

Our portfolio company Cloudflare provides a suite of mission critical security services, and increasingly other services too, in the cloud to their customers. Among the most well known of these security services is DDOS protection (aka denial of service attack protection). A DDOS attack is a massive traffic burst aimed at a website to take of offline.

Among the most vulnerable and attacked websites are those belonging to non-profits and other organizations doing work that upsets those in power.

So Project Galileo is Cloudflare’s effort to provide security services to these sorts of organizations for free so they can stay online and continue to do their work.

And Galileo turns five years old this week.

Matthew Prince, Cloudflare’s CEO and co-founder, wrote this blog post yesterday celebrating five years of Galileo and he explains why this is so important to Cloudflare, the Internet, and the world.

Categories: Blog articles

Helium

A VC - June 12, 2019 - 11:05am

One of the areas of blockchain innovation I am most excited about is building open, permissionless, and decentralized technology infrastructure.

The three areas that seem most obvious to me for decentralized infrastructure are compute (code execution), storage (storing files, etc), and bandwidth (network infrastructure).

And today, we are excited to announce that USV has made an investment in a decentralized network infrastructure project called Helium.

My partner Nick, who led this investment for USV, wrote about Helium on the USV blogand explains why we made the investment (as is our practice with all new investments). I would encourage you to read that blog post as it explains a lot about how Helium works, how the token economics builds the supply side of the network infrastructure, and why it fits so neatly into our investment thesis.

I would just like to point out how cool Helium is.

Anyone can run a Helium hotspot in their home:

And then they can earn Helium tokens for doing so.

You can run a hotspot in your home/apartment and do the equvalent of bitcoin mining for network infrastructure.

Helium is optimized for very long distance, low power communications. It is ideal for Internet of Things (IoT) devices. Think about electric scooters needing to “phone home” over long distances. Think about your dog’s name tag. Think about figuring out when the school bus is going to arrive at the bus stop.

We plan to run a Helium hotspot or two at USV and it would be great to see people powered Helium networks popping up all over the place and providing very low cost, low power, highly reliable long range network infrastructure.

Categories: Blog articles

Turning Streetlights Into EV Charging Stations

A VC - June 11, 2019 - 7:23am

Owning an EV in a dense urban city is challenging. Most people don’t have their own garages and so they park on the street or in large parking garages. We do the latter.

About five or six years ago, I walked into our parking garage and saw that the garage operator had installed a ChargePoint charging station in the garage.I literally walked back across the street to our apartment and bought our first EV. We now own three.

But charging with ChargePoint is not ideal. There are a limited number of these charging stations in our parking garage and more and more EVs. They are often filled up. And the rates that ChargePoint supplies electricity at are borderline gouging. They have a monopoly on our garage and price accordingly. I believe the rate we pay in our parking garage in NYC is literally double the rate we buy electricity from ConEdison in our NYC appointment.

In our homes in Los Angeles and Long Island we charge off our solar panels on our roofs and basically don’t pay to charge our EVs other than the depreciation on the solar installation costs. That is absolutely the way to go if you can afford the cost of a solar installation.

But back to dense urban areas like NYC. If we want more EVs and less gas powered cars on our streets, we need better charging infrastructure.

In Paris, where we have been for the last few days, they are trying an experiment with putting EV charging stations on street lights.

 

If the city makes those curb locations only available for charging and not parking, that could be a great option for encouraging more city dwellers to buy or rent EVs.

I believe the availability of charging options, whether it is a rational fear or not, is holding back a lot of people from moving from gas to electric. So anything that can change that dynamic is a good thing in my view.

Categories: Blog articles

Seven to Ten Years

A VC - June 10, 2019 - 1:41am

I have worked in three venture capital firms over the last thirty-three years and am intimately familiar with the performance of the fifteen (ish) venture funds raised and invested by these three firms. Much of what I have written about fund management and investment performance here at AVC over the last sixteen years comes from my observations of these funds and firms.

Starting in the mid-00s, The Gotham Gal and I started investing in other venture capital funds, always limiting these investments to firms where we knew the partners well and had sat on boards with them.

And The Gotham Gal started angel investing around the same time, often writing the first check into startups. She has made something like 140 angel investments over the last dozen years, mostly into companies founded by women.

We keep good records on these personal investments and I now have another data set to observe.

Across these three sources of data (my firms, other firms, angel investments), there are well over 1000 individual angel, seed, and early stage venture capital investments over four decades.

I have no plans to publish this data. It is not in a single database and there is a ton of confidential information in it.

But I can observe things about this data and have been doing so and will continue to do so.

One of the great truths about early stage investments is that you have to be patient with them. The losses come early and the winners take longer to realize.

It takes seven to ten years to get to real liquidity in a portfolio of early stage venture investments. You can’t short cut it. It just takes time. But come years seven, eight, nine, and ten the returns will start coming in.

I am not sure why seven to ten years and not five to seven or not ten to fifteen. It’s seven to ten. That’s how it has always been and seemingly always will be.

Categories: Blog articles

Low (No) Barriers To Entry

A VC - June 9, 2019 - 1:33am

There are a dozen electric scooter companies operating in Paris right now. There are so many that the Mayor just announced that she will reduce that number to three with new rules for electric scooters in Paris.

But before we get into the new rules, I want to stare at that first sentence for a bit.

In less than a year, twelve companies have started operating electric scooter services in Paris.

Paris is the largest electric scooter market in the western world right now.

To enter this business, you need capital to purchase the scooters from China, you need a mobile app on iOS and Android to allow users to locate, unlock, and pay for the use of one, and you need a small team to handle the local logistics.

Apparently those are not significant barriers because a dozen different companies have been able to do it in less than a year.

There are many things that are attractive about the electric scooter business. It has taken off as a transportation option for consumers and is the fastest growing new transportation technology in terms of revenues in history.

Electric scooters also are a much cleaner way to travel than cars or other gas powered technologies.

So there is a lot to like about this business.

But if anyone can open up shop and compete with you with little to no differentiation and your only defensibility is the time it takes to download a new mobile app and put in your credit card, well then one has to ask if this is or will be a good business.

And that is where the Mayor of Paris comes into the picture. She wants to limit the number of scooter providers to three, by requiring licenses and issuing only three of them.

That will sufficiently lower the competition in Paris, lead to a triopoly which may stabilize pricing and margins, and possibly reduce the number of scooters littered all over Paris.

Winning a license will be a political process and there are many issues with that. And the three companies that win a license will become acquisition targets for the big players which are increasingly the ride share companies (who themselves have very low barriers to entry but now have public currencies to buy with).

There are many who have wondered whether ride share will ever be a good business. The public market caps of Uber and Lyft suggest that it will be or that there are plenty of people who currently think it will be.

Scooters are ride share on steroids. Even easier to get into the game with possibly a larger market opportunity.

It will be quite interesting to see how this plays out and how much regulation will be needed to tame this market.

Categories: Blog articles

Video Of The Week: The State (or Stalemate) of Regulation?

A VC - June 8, 2019 - 10:13am

Given all of the discussion of SEC regulation of the crypto sector on this blog over the last week or two, I thought I’d post a video of a discussion of the topic at last month’s Token Summit in NYC.

Categories: Blog articles

Funding Friday: DefendCrypto.org

A VC - June 7, 2019 - 3:16am

As expected, the SEC sued USV’s portfolio company Kik this week. Here is Kik’s response to the news:

This part of Kik’s response explains that the SEC is stretching the interpretation of the Howey ruling (from almost a century ago) in its efforts to claim jurisdiction of crypto token regulation:

For the reasons set forth in our Wells Submission, the SEC’s complaint against Kik is based on a flawed legal theory.  Among other things, the complaint assumes, incorrectly, that any discussion of a potential increase in value of an asset is the same as offering or promising profits solely from the efforts of another; that having aligned incentives is the same as creating a ‘common enterprise’; and that any contributions by a seller or promoter are necessarily the “essential” managerial or entrepreneurial efforts required to create an investment contract. These legal assumptions stretch the Howey test well beyond its definition, and we do not believe they will withstand judicial scrutiny.

https://www.prnewswire.com/news-releases/kik-responds-to-sec-complaint-300862114.html

I believe that crypto networks are different than companies and that crypto tokens are different than securities. I look forward to seeing these issues debated in a court of law instead of the basement conference rooms in DC.

If you are interested in supporting Kik’s case, you can do so by contributing crypto tokens to DefendCrypto.org.

Categories: Blog articles

Fly Like A Bird

A VC - June 6, 2019 - 4:02am

We arrived in Paris this morning and, after dropping off our bags, we walked to our favorite cafe for breakfast and on the way we passed a Bird scooter waiting patiently for a rider.

We don’t yet have Bird scooters in NYC, at least to my knowledge, but apparently they are available in Paris.

It is impressive how quickly Bird has built out its international footprint. In the winter of 2018, I started seeing them in our neighborhood in Venice Beach Los Angeles.

And now less than 18 months later they are in Paris (and likely many other cities in Europe).

I have no idea how good of a business electric scooters is. There is no shortage of competition and, as I’ve written about here before, the dockless system can be a nuisance leading to inevitable regulation.

But Bird is not waiting to figure all of that out before building out a global footprint. It is impressive. I hope it works. The benefits from an environmental perspective are significant.

Categories: Blog articles

Getting Out Of Town

A VC - June 5, 2019 - 4:31am

The Gotham Gal and I are going on vacation for a couple weeks.

I will turn on my out of office responder and stop responding to most emails.

I plan to continue to write here daily but the timing of the posts will change. They will probably happen much earlier in the day on US time.

I am hoping for a bit of distance and reflection from the world of tech and startups and maybe that will result in some good writing. Who knows? One can hope.

Categories: Blog articles

Why Trust Matters

A VC - June 4, 2019 - 4:11am

Dani and Nick and the rest of the USV team worked on a talk about “Why Trust Matters” that we presented at the recent USV CEO Summit. Dani published it on the USV blog yesterday.

It is a great deck. So I’m embedding it here so the AVC community can check it out.

Categories: Blog articles

Open Up Vs Break Up

A VC - June 3, 2019 - 5:15am

There have been many calls to break up the large Internet monopolies; Amazon, Google, Facebook, Apple, etc.

Breaking up a large monopoly feels like a very 19th/20th century move to me.

I would prefer that politicians and policy makers think about opening up as the better intervention.

A good way to explain this is to go back to the architecture that Twitter used in its early days when there were many third-party Twitter clients. Imagine if Facebook, Instagram, Twitter, LinkedIn, etc were protocols, not applications, and there were many high-quality clients to participate in these networks.

Then the clients could innovate on things like content filtering, promotion of high quality content, business model, etc

If we are going to “break up” these large social media platforms, I would urge elected officials and regulators to think about pushing them to move from platforms to protocols instead of just ripping them apart.

We could do the same thing with search. Our portfolio company DuckDuckGo has built a nice search business by building a different user interface on top of one of the two leading search indexes. If we made it easier and reliable for others to innovate on top of the core search engine, then there might be many more options in search.

In mobile, a good first step is to open up the app stores and allow the browsers to have the same access to the operating system as native mobile apps.

In commerce, if I could checkout as easily everywhere as easily as I can on Amazon, there would be more competition for my shopping dollars.

I think you get the idea. It is very true that the big Internet services have built centralized monopolies and have consolidated their market positions. We do need more competition in these core services. And the best way to do that is force them to open up their services, not break them up.

Categories: Blog articles

Universal Biometric Identity

A VC - June 2, 2019 - 7:37am

During the past week, I have traveled through airports using TSA Pre and Clear and plan to travel internationally soon using the Global Entry system. I have recently renewed my TSA Pre and Trusted Traveler accounts.

I am also in the process of renewing my NY State Drivers License and am going through the process of getting an “Enhanced” one.

Here is what one needs to do to get an Enhanced NYS Drivers License:

Enhanced
  • is Federal REAL ID compliant
  • costs an additional $30 on top of the regular transaction fees
  • requires an office visit to prove your
    • identity- *if your name has changed bring in marriage certificate(s), divorce decree(s) or court order document(s)
    • NY State residency
    • U.S. citizenship
    • date of birth
    • Social Security status
  • shows your full legal name (first, middle, last) as listed on your legal documents
  • shows your residential address (where you live)
  • has an American flag displayed on the document

And, because I am an investor in a friend’s bar and restaurant businesses, I am in the process of submitting a NY State Liquor License application which requires the following:

  • a photocopy of BOTH your driver’s license and your passport
  • a fingerprint ID card which is obtained at your local precinct
  • two passport photos
  • three months of recent bank statements

In each and every experience, I am doing much of the same work over and over again. Copies of passports and licenses. Bank statements and utility bills. Fingerprints (digital or ink-based). Retina scans. Social security cards. Birth certificates. Marriage licenses. Completing questions about bad behavior (or lack thereof). Etc. Etc.

It makes me want some sort of identity service in the cloud, that I control, not a third party, and not the government, that I could authenticate with using fingerprints, retina scans, or two/three factor logins, and then digitally “sign” all of these forms.

My fear is we will get there but it will be the government or Facebook or Google or Apple that builds this. It would be quite useful but also quite scary for a single entity to control all of that information for each and every one of us.

Categories: Blog articles

Audio Of The Week: How About Howey?

A VC - June 1, 2019 - 6:48am

This Unchained Podcast with Patrick Gibbs of the law firm Cooley and Ted Livingston founder of the Kin cryptocurrency project is a great discussion of the Howey Test that the SEC has put forward as the framework through which to evaluate whether a crypto token is a security.

Here are links to some interesting parts of the discussion:

1/ Ted Livingston explains who Howey was and the details of that case.

2/ Patrick explains why Kin (and most crypto tokens as well) is not a security.

This is the kind of stuff that mostly interests law nerds, but it is very relevant to all developers who are building crypto tokens and putting them out into the market. So it is worth getting knowledgeable about this stuff.

And if you want to support this Kin case as it works its way through the court system and ends up creating a new precedent that could supersede Howey, you can do that here.

Categories: Blog articles

Big Brother is Slowly Killing Julian Assange

Beyond Money - May 31, 2019 - 10:09am

This is the sorry state of affairs in today’s world. George Orwell had it right; you can’t defy Big Brother without facing dire consequences. The following article by Daniel McAdams of the Ron Paul Institute for Peace and Prosperity describes what is happening to Julian Assange at the hands of the global empire and what the ultimate outcome is likely to be.

Hunting Assange

Dear Friends of the Ron Paul Institute:

As US Constitutional scholar and George Washington University Law School professor Jonathan Turley wrote this week, the US Attorney General is completely wrong in his efforts to prosecute Wikileaks publisher Julian Assange under the Espionage Act. “The use of the Espionage Act strikes at the heart of the First Amendment,” wrote Turley, who noted with approval that several prosecutors in the Attorney General’s office shared his view that the indictment of Assange on espionage charges is a terrible idea.

RPI Board Member Judge Andrew Napolitano hits the nail squarely on the head: 

Why was Assange indicted? Government killers are a mob, and mobs love anonymity. Assange assaulted their love by ending that anonymity. When the government kills and rejoices and lies about it in our names, we have a right to know of its behavior. Democracies spy on us all, yet they persist in punishing, to the ends of the earth, those who dare to shine a light upon them. Tyrannies do the same.

Amen, Judge!

What Assange has done – published leaked information undoubtedly in the public interest regarding probable criminal activities by the US government – is virtually indistinguishable from what mainstream media outlets do on a regular basis. In fact, if Assange is to be imprisoned as the publisher of information given him by NSA whistleblower Chelsea Manning, what’s to stop the publishers of the New York Times and Washington Post from being prosecuted for printing the exact same information?

If it becomes criminal to expose the criminality of our own government, then our days as a self-governing society are well and truly gone. We all become subjects to an authoritarian “deep state” rather than citizens of a republic of constitutionally limited state authority.

And that doesn’t even scratch the surface of the idiocy of pursuing Assange for the “crime” of journalism. How does it make any sense that Julian Assange – an Australian – is being charged with treason against the United States, to which he owes no allegiance nor has he signed any form of non-disclosure agreement?

The US government may believe that it runs the world through its global military empire, but the assumption that non-Americans operating outside of the United States are to be subject to US laws regulating freedom of the press is to open a Pandora’s box that cannot end well.

Should American journalists operating in Europe, for example, be expected to adhere to China’s legal press regulation framework? Should the publisher of the Washington Post bone up on the Iranian legal system lest he be nabbed in the street somewhere in violation of Tehran’s media laws?

But what if Attorney General Barr and all the rest of the “permanent state” or “national security state” or whatever we choose to call it already knows that prosecuting Assange is going to be a wrenching and possibly ultimately futile endeavor? What if the goal is not to make him disappear in a supermax prison for the rest of his life but to actually just make him…disappear?

We have learned through Assange’s attorneys this week that he is so sick he cannot even have a normal conversation. He is reportedly “gravely ill” and has been moved to the hospital ward at the UK’s gulag-like Belmarsh prison. What if Assange is getting the “Milosevic treatment” – held in appalling conditions waiting for a judicial decision while being denied adequate medical treatment and in the end passing away before the case falls apart.

That’s just what happened to Miloevic at the Hague. He was held in inhuman conditions for years while they prepared his trial. He did not receive needed medical care  and in the end he died before his trial – a trial which he was eventually exonerated.

So in the end it did not matter that the authorities could not prove their case. The case was closed. Permanently. 

How could a dead Assange possibly help the national security statists in their efforts to keep us supine subjects, never questioning endless war and encroachment on our civil liberties? Because after Assange is dispensed with, who is going to take any risks to expose the crimes committed in our names and with our money? As I said in today’s Liberty Report, we will only be left with the mainstream media state stenographers, whose publication of national security leaks mostly consists of bolstering or hampering rivals inside the deep state apparatus. Rarely if ever do they actually expose the deep state for what it is – a murderous, lying, authoritarian mob that seeks total control over all of us.

That is why Assange in a recent handwritten note urged others to continue his work exposing such evil. “Everyone else must take my place,” he pleaded. But when the state has his ruined body on display, who would dare step up? 

That is how they win. And we cannot let that happen. We must all do what we can to draw attention to the plight of Assange and the attack on our freedom of information. Our future and the future of coming generations depends on it!

Source: https://mailchi.mp/ronpaulinstitute/is-war-popular-rpi-19th-april-update-114409?e=01487c06b3

Categories: Blog articles

Funding Friday: GameBender

A VC - May 31, 2019 - 5:38am

I backed this cool project to make a game console for a scratch games today.

Games that you can edit/change are such a great way to teach kids how to program and instruct machines.

Categories: Blog articles

Unsafe Notes

A VC - May 30, 2019 - 6:18am

I was reminded yesterday how much of a shit show raising seed capital via SAFE notes is. I can’t and won’t get into why I was reminded of that, but let’s just say nobody wants to go there.

So I thought I’d repost the important parts of a post I wrote on this topic a couple years ago.

I have never been a fan of convertible notes. USV has done quite a few convertible and SAFE notes. We are not opposed to convertible and SAFE notes and will not let the form of security the founder wants to use get between us and investing in a company that we like.

But I continue to think that convertible and SAFE notes are not in the best interests of the founder(s).

Here is why:

  1. They defer the issue of valuation and, more importantly, dilution, until a later date. I think dilution is way too important of an issue to defer, for even a second.
  2. They obfuscate the amount of dilution the founder(s) is taking. I believe a founding team should know exactly how much of the company they own at every second of the journey. Notes hide this from them, particularly the less sophisticated founders.
  3. They can build up, like a house of cards, on top of each other and then come crashing down on the founder(s) at some point when a priced round actually happens. This is the worst thing about notes and doing more than one is almost always a problem in the making.
  4. They put the founder in the difficult position of promising an amount of ownership to an angel/seed investor that they cannot actually deliver down the round when the notes convert. I cannot tell you how many angry pissed off angel investors I have had to talk off the ledge when we are leading a priced round and they see the cap table and they own a LOT less than they thought they did. And they blame the founder(s) or us for it and it is honestly not anyone’s fault other than the harebrained structure (notes) they used to finance their company.

The Series A focused VC firms that often lead the first priced rounds get to see this nightmare unfold all the time. The company has been around for a few years and has financed itself along the way with all sorts of various notes at various caps (or no cap) and finally the whole fucking mess is resolved and nobody owns anywhere near as much as they had thought. Sometimes we get blamed for leading such a dilutive round, but I don’t care so much about that, I care about the fact that we are allowing these young companies to finance themselves in a way that allows such a thing to happen.

Here are some suggestions for the entire angel/seed sector (founders, angel investors, seed investors, lawyers):

  1. Do priced equity rounds instead of notes. As I wrote seven years ago, the cost of doing a simple seed equity deal has come way down. It can easily be done for less than $5k in a few days and we do that quite often.
  2. The first convertible or SAFE note issued in a company should have a cap on the total amount of notes than can be issued. A number like $1mm or max $2mm sounds right to me.
  3. Don’t do multiple rounds of notes with multiple caps. It always ends badly for everyone, including the founder.
  4. Founders should insist that their lawyers publish, to them and the angel/seed investors, a “pro-forma” cap table at the closing of the note that shows how much of the company each of them would own if the note converted immediately at different prices. This “pro-forma” cap table should be updated each and every time another note is isssued. Most importantly, we cannot and should not continue to allow founders to issue notes to investors and not understand how much dilution they are taking on each time they do it. This is WRONG.

Honestly, I wish the whole scourge of notes would go away and we could go back to the way things were done for the first twenty years I was in the venture capital business. I think it would be a better thing for everyone. But if we can’t put the genie back in the bottle, we can at least bottle it up a bit better. Because it causes a lot of problems for everyone.

Categories: Blog articles

Outschooling

A VC - May 29, 2019 - 7:54am

A few months ago I posted some data on this blog that showed the growth of homeschooling in the US with almost 5% of K12 students being schooled at home. I wrote at the end of that post:

This is a trend to watch and, possibly, to invest in

Well, invest in it we did.

Yesterday Rebecca posted our investment rationale for Outschool, a company that offers real time group classes taught largely by very experienced K12 teachers over live video.

I encourage all of you to click on that link and go read our investment rationale. There are a number of interesting trends we are betting on here and Rebecca articulates them well. There are also some examples of classes your kids can take that are amazing.

But what I want to talk about is how important services often start in the fringes and over time move into the mainstream. We are certainly betting that is the case with crypto-currencies. We have seen that with Airbnb (couch surfing>hotel alternative), Uber (ride sharing>car alternative), YouTube (video sharing>TV alternative), and so many other examples.

Homeschooling is a fringe market right now. But education is not.

Outschool can exist with excellent unit economics for the students, teachers, and company because there is a market of almost 2.5mm students in the US who need to learn things like Algebra, European History, Biology, etc, and will pay to do so.

But of course, there are over 50mm K12 students in the US and many more around the world who need to learn these subjects as well and often don’t learn them very well in the legacy schooling model.

When our kids were in school and struggled with a class/teacher/subject, we would get them a tutor to come to our home in the evenings. That is a 1%er solution and is not affordable for most families.

But the Outschool model, because of the scale it has reached in the homeschooling market, is driving down the cost of learning these subjects and can and does replace the high cost tutorial market for a number of families already. As its scale increases and economies kick in, it can reach more students and families desperate to master challenging material.

Great teachers are one of the most valuable resources we have in our society. I can trace much of what I know to a handful of these people.

But school buildings, classrooms, and the supporting Infrastructure for them are very much replaceable with new technology. Outschool is showing a way how to do that.

At USV, we seek to back trusted brands that can open up access to knowledge (and wellness and capital). Many (most?) of these brands start out on the fringes and move into the mainstream over time as they scale and the benefits become obvious to mainstream consumers. Outschool is squarely in the sweet spot of our thesis and I am excited to see what it can do for learners around the world in the coming years.

Categories: Blog articles

DefendCrypto.org

A VC - May 28, 2019 - 7:46am

Over the last year, the SEC has been investigating a significant number of token offerings that took place in 2017. While some of those offerings were scams or worse, many of the ones that are being investigated by the SEC are serious projects, started by some of the top cryptographers and computer scientists in the world, and backed by the leading token funds and venture capital firms in the US and around the world.

Sadly, the SEC looks at crypto tokens and sees securities that they want to regulate as such. They cannot seem to understand that not all of these assets are securities, they cannot seem to understand that most are commodities, currencies, or utilities like frequent flyer miles. They cannot understand that crypto tokens are unlike any assets that have come before them and that crypto tokens need new regulatory structures. They cannot understand that their unwillingness to come up with new rules paired with their “regulate by enforcement” strategy is hurting the crypto sector, pushing it offshore, and is causing most of the new projects to raise capital outside of the US and/or put together legal structures that look like Frankenstein monsters.

I have seen this play out in multiple projects and also in the exchange sector, which I posted about over the weekend. For as long as I have been involved in the crypto sector, I have been advocating and advising that companies work with the SEC, cooperate with them, and educate them. But that has not worked. I am frustrated. So are many others. Even one of the SEC Commissioners has gone public with her frustrations.

One of the crypto projects that the SEC has been investigating, where I have had a front-row seat, is the Kin project that was birthed by USV’s portfolio company Kik, where I am on the Board.

Kin is a digital currency (not a security) that is in use in over 40 mobile apps now. Last month over 1mm users earned Kin in one of those mobile apps and over 300,000 users spent Kin in one of those mobile apps. Kin is one of the most used crypto currencies in the world.

And yet the SEC won’t agree to settle with Kin on reasonable terms. Instead they want to force Kin to become a security, which would decimate its appeal as a digital currency. Imagine that a user had to go to a securities brokerage firm like Schwab to purchase a token in order to be able to use Apple’s App Store. That is crazy and yet that is essentially what the SEC wants Kin and many other crypto projects to agree to do.

So today, Kin has launched DefendCrypto.org which is a crowdfunding effort to fight the SEC in court. Kin has contributed $5mm worth of BTC, ETH, and Kin to the effort. And others are contributing their crypto assets as well. You can do so here. I have contributed a number of my crypto tokens to the effort this morning.

Whatever funds are raised by DefendCrypto.org will be used by Kin to fight the SEC in court, to help secure a favorable ruling that could well set a precedent for the entire sector. Any funds that are left after this legal battle will be set aside for other similar legal efforts in the crypto sector.

It is my hope, and Kin’s hope, that DefendCrypto.org will be an inspiration for the many other important crypto projects that are silently battling with the SEC to come public and raise capital from the crypto sector for their fights.

The SEC is regulating by enforcement, not new rulemaking, and worse, they have taken a divide and conquer strategy. It is time for the crypto industry to come together and fight back. I hope that Kin’s efforts with DefendCrypto.org represent a watershed moment/movement that will pressure the SEC to think and act differently toward this important new sector.

Categories: Blog articles
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