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Hard Decisions

A VC - September 24, 2019 - 4:58am

Every startup journey involves making some really hard decisions.

Yesterday our portfolio company Kik announced they are shutting down the Kik messenger and parting ways with all but nineteen of their team.

The Kik team has spent almost a decade working on the Kik messenger. Although Kik’s popularity has waned in the face of iMessage, WhatsApp, Facebook Messenger, etc, etc, it still has 10mm monthly users and almost 5mm daily users. But it has never been a profitable business in a market full of free competitors.

The decision to shut Kik and scale back to a small core developer team is all about continuing to support the Kin cryptocurrency which has over 2mm monthly people earning Kin and over 600k spending Kin across a large network of mobile apps that run the Kin SDK.

But even so, shutting down something you have worked on for almost a decade and parting ways with 90% of your team is hard.

Another thing about hard decisions is the sooner you make them the sooner you realize the benefits of making them. Postponing them is the worst thing you can do.

Kik is not the only company in our portfolio and is certainly not the only company out there in startup land facing very hard decisions right now. I see a lot of this thing in my business and it doesn’t get easier.

What we must do is support the teams making these decisions and getting to the other side of them.

I will end this with a quote that the founder of one of our portfolio companies sent me this week. I think it sums it up nicely.

My centre is giving way, my right is in retreat; situation excellent. I am attacking.


Field Marshall Foch in the Battle of the Marne
Categories: Blog articles

You Can’t Please Everyone

A VC - September 23, 2019 - 3:15am

I get a lot of feedback on this blog.

I appreciate all of it.

Even the harsh stuff (you are an idiot, etc).

One of the things I have learned from writing here is that the same words will generate very different reactions from people.

Last week I wrote about the value of bluffing.

It triggered a ton of inbound email.

I received two emails within seconds of each other.

One said “that is the best advice you have ever shared”

The other said “people will go to jail because of you”

I just shook my head and smiled.

That’s how it goes when you put your thoughts and ideas out there.

But there is also a lesson for leaders in here.

You will not be able to please everyone in your company and you can’t try to do that.

You must be true to yourself, you must be authentic. You can’t pander.

It is useful to get the feedback, to listen to it, to try to understand it.

But you can’t let it jerk you around.

You have to have the courage of your convictions and you need to be consistent with them.

Categories: Blog articles

Breaking Up Big Tech

A VC - September 22, 2019 - 5:07am

With the news that two-thirds of Americans favor breaking up big tech combined with the news that Liz Warren (the biggest advocate of the idea) has broken out of the pack in Iowa, I thought I would return to this topic.

I wrote about this back when Liz first put the idea forward.

I am in favor of reigning in the monopoly/duopoly/oligopoly power of the large American tech companies. I am also in favor of reigning in the power of large tech companies that are not resident in the US.

Doing one without the other is bad policy and could give large tech companies outside of the US (particularly in Asia) a competitve advantage.

A better approach, as I advocated for in my earlier post on this topic, are policies, like the European’s GDPR, that would impact all companies doing business in the US equally.

I do not love GDPR. It is overly bureaucratic and for the most part has resulted in all of us robotically opting into being cookied everywhere.

But users do have a right to online privacy. We also have a right to self sovereign identity and ownership of our data.

Apple is offering Sign In With Apple in iOS13 to help us reduce our reliance on signing in with Facebook and Google. That’s great but it just replaces one boogyman with another.

What we need is an open sign-in protocol in which users control their sign-in keys and also all of the data we create and have created over the years once we are signed in.

Government can force industry into a regime like that with regulations that dictate that tech companies of all sizes adopt such approaches.

That is what we should be doing to reduce the market power of big tech instead of breaking them up. That is because their market power comes from this single sign-on oligopoly and the data that comes with it.

Government should not dictate the design of such a protocol or any of the technology that is required to produce such a regime. The market can and will do that once the requirements are put in place. We have much of what we need already in the form of cryptography and user centric wallet infrastructure.

We just need a forcing function to get big tech to adopt these technologies, which they won’t do on their own because they will reduce their market powers. Which is exactly why we need to do this.

Categories: Blog articles

Funding Friday: The Truth Has Changed

A VC - September 20, 2019 - 2:35am

On the day of a massive climate strike here in NYC and elsewhere around the world, I thought it appropriate to highlight this film/tour project from Josh Fox which I have backed.

Categories: Blog articles

The Self Driving Bus

A VC - September 19, 2019 - 3:55am

If you are in or around the Brooklyn Navy Yard and want to get to the East River Ferry, you can have a self driving car take you there.

I did that yesterday:

It’s sort of like a van. There are six passenger seats in the vehicle rand I saw four of them lined up waiting for passengers next to the main gate off Flushing and Cumberland.

There is a driver in the front seat but the van drives itself. That takes some of the excitement factor down a notch. But it increases the comfort factor. I assume the driver can take control of the vehicle and drive it manually if necessary.

It makes a ton of sense that autonomous vehicles would start out in places like the Navy Yard where there is not a lot of vehicle traffic and the map is fairly simple.

If you want a taste of the future go over to the Navy Yard and get a ride. It’s free.

And while you are there check out the amazing new Dock 72 building next to the East River Ferry stop. They are leasing it up now and there are some great office spaces still available there. They have smaller offices for startups. Link here.

Categories: Blog articles

Self Confidence

A VC - September 18, 2019 - 3:53am

A friend of mine told me a story this morning about a time that he said he had the money when he did not and then he went out and found it.

It reminds me of Mark McCormack’s What They Don’t Teach You At Harvard Business School where he tells story after story of signing big deals that he had no ability to pay for and then going out and funding them.

Mark and my friend both knew they could get the money even though they did not actually have it.

When I was in college I needed a job and I found one programming in Fortran. I didn’t know Fortran. I had some cursory knowledge of Basic.

I went for the interview anyway and when they asked me if I knew Fortran, I said “yeah, I’ve done some Fortran programming” and then asked them if I could take the source code home for the weekend.

So they printed out the source code on a dot matrix printer on folds after folds of large format printer paper. I took that pile of paper home and opened it up.

It turned out that the postdoc who had written the Fortran program had literally commented every single line of code.

On one line was the code and on the next line was a comment that said something like “this tells the laser to move to the right by the amount entered.”

I smiled and knew that I could maintain that Fortran program and in the process teach myself the language. And that is what I did and partially paid my way through MIT too.

I am not advocating lying but that is what I did and that is what my friend did. But we lied with the self-confidence that we could pull it off.

There is a fine line between self-confidence and recklessness and I have been able to project the former without landing on the latter in my career. I think you need at least a little bit of the former in business. Without it, you won’t be able to go for it when you need to go for it. And if you don’t go for it, you won’t get it.

Categories: Blog articles

Hair On A Deal

A VC - September 17, 2019 - 5:36am

In a perfect world, everything about a potential investment will be confidence inducing. The team will be great and reference well. The market will be huge. The technology will be well developed. The price and terms will be attractive.

But the world is not perfect. There will always be things about a potential investment that create heartburn. A term that I have heard used over the years to describe these imperfections is “hair on a deal” as in “there is a lot of hair on that deal.”

A little hair is OK if everything else lines up. A lot of hair is not OK and can be a deal killer.

The news that WeWork has postponed their IPO plans for now is an example of when too much hair gets in the way of a deal.

There are a lot of things to like about WeWork. They have popularized a new form of work space, a new business model for it, and have they have built a global brand around shared workspaces.

I expect the company will eventually get public.

But right now there is too much hair on that deal and all the work they did over the last few weeks to clean it up was not enough, at least for now.

So the lesson for entrepreneurs is that you really need to have your house in order when you go out and raise capital. The more eyebrows you raise with investors, the worse it gets. And hair can get in the way of an otherwise financeable opportunity.

Categories: Blog articles

The Flow Blockchain

A VC - September 16, 2019 - 3:32am

Last week our portfolio company Dapper Labs, the maker of CryptoKitties, CheezeWizards, and soon NBA Top Shot, all crypto games, announced the development of the Flow blockchain.

You might ask “why do we need yet another blockchain?” and you would be right to ask that.

The answer is that Dapper has built several games on Ethereum, one of them a top-three smart contract this year (CryptoKitties) and they have found it challenging to build the games they want to create on that platform. They looked around at all of the other options and could not find a blockchain that addressed all of their issues. So they are building Flow.

Here’s a primer on Flow.

And here are the technical papers.

From that primer:

Flow’s technical architecture balances three priorities:
Scaling with Full Composability: Flow improves throughput without breaking up the network shared state. This preserves a developer-friendly environment for applications, making it much easier to write secure and composable code. 
Speed and Efficiency: Flow is capable of handling the transaction volume needed to support modern consumer applications while consuming a tiny fraction of the computing resources needed by current networks.
Decentralized Participation: The security of a decentralized system is directly related to the number of independent participants working to secure the network. Flow supports large numbers of participants with a range of technical and financial commitments, resulting in a system that’s cheap to join while being costly to subvert. 

If you are building a game, a collectibles experience, or some other mainstream consumer decentralized application, you should check out Flow. You can do that here.

And if you want to engage with Flow and the Flow community, you can do that here.

Categories: Blog articles

The Hit Rate

A VC - September 15, 2019 - 3:34am

This simple and short blog post by the folks at Correlation Ventures contains the key to venture capital returns – the hit rate.

In the Correlation post, they define “hit rate” as:

the percent of invested dollars generating a 10X or greater return

But “hit rate” could be something else. It could be the number of investments in your portfolio that return the fund. It could be the number of seed investments you make that turn into billion-dollar valued businesses. It could be the number of your seed and Series A investments that go public.

My point is that it doesn’t really matter than much how you define hit rate.

What is important is this chart from the Correlation post:

I guess they have a keen eye for correlation at Correlation Ventures. They certainly found it here.

Venture capital returns are highly correlated to a fund’s hit rate.

Or said differently, a fund’s hit rate determines their returns.

I think that is a pretty well-known fact these days with all of the obsession with billion-dollar valued companies, or “whales” as I like to call them.

We know that venture investments result in a power-law distribution of outcomes.

And so one or two companies will determine the returns in a given fund.

Sometimes that is not the case. In our 2004 fund it was five companies, but that is why that fund was so good.

The other interesting thing about that chart is why the hit rates and returns in the venture capital industry have not returned to pre-2000 levels.

I think that is all about the amount of capital in the business now. More capital means more businesses get funded. So even if you have more winners, you don’t see the hit rates move up. The numerator and the denominator have both grown in the hit rate calculations.

Before 2000, the venture capital business was a bit of a cottage industry.

In the last 15 years, VC has become an institutional asset class with the permanence and stature that brings seemingly endless amounts of capital to it.

And so the returns have stabilized in or around the 2-2.5x over ten years number, which produces high teens/low 20s IRRs, which is enough to sustain the sector.

The only thing that I think would take us back to mean multiples of 4x or better would be some sort of massive reduction in the amount of capital coming into the venture capital business. And I don’t see that happening any time soon.

But one thing about the VC business has not changed in all of the years in that chart, which is roughly how long I have been a partner in a venture firm, and that is that your big winners will determine your returns.

Same as it always was.

Categories: Blog articles

Audio Of The Week: Full Body MRI Scans And Machine Learning

A VC - September 14, 2019 - 3:09pm

My friend Gordon suggested that I listen to this podcast about MRI scans as an early cancer detection tool.

I found it super interesting and maybe you will too.

Categories: Blog articles

Funding Friday: Make Pizza On Your Camping Trip

A VC - September 13, 2019 - 7:41am

One of the things I like about Kickstarter is seeing repeat creators coming back with new innovations. I backed a project like that this morning.

I also love pizza and making it in wood fired pizza ovens.

So this project checks a few boxes for me.

Categories: Blog articles

Fractionalizing Home Equity

A VC - September 12, 2019 - 5:35am

USV recently invested in a company called Patch Homes and they are announcing that financing today along with some other important information on their business.

You can read about the financing here and USV’s investment blog post here (we do one of these for every new investment).

What I’d like to talk about is the bigger idea behind Patch and some other startups out there which is the ability to break up your home equity into pieces and sell some of it while holding onto most of it. I call this fractionalizing home equity.

In the existing home finance world, the only thing you can do with your home equity is borrow against it. And many homeowners do this. It is a big market and helps a lot of homeowners out. But once you borrow against your home equity you have larger monthly mortgage payments to make and many can’t afford to do that. And you need a certain credit score to be able to access the home equity loan market.

What Patch offers instead is to take a piece of your home equity (currently limited to $250k maximum) and sell the upside on it to a investment fund. Note that I said upside. This is effectively a call option on the equity not a full transfer of that equity. That makes things a lot simpler in many of the scenarios that could arise.

There are some great use cases for a partial sale of home equity. One example I like a lot is a family whose children are heading to college and soon will be out of the home. They plan to sell the home when all the kids are gone but don’t want to do that until then. They could sell some of their home equity, help pay for college, and then sell the house after all of the kids have graduated. There are plenty of examples like that where you are in a situation in life where you plan to sell but not just yet and you don’t want to add to your debt load and/or your monthly payments.

And that is why having more home finance options is great. It expands access to capital and that is a core part of the current USV thesis. And we are excited to be working with Patch to help them do that.

Categories: Blog articles

2019 September Newsletter

Beyond Money - September 11, 2019 - 10:46pm
Contents
  • Website improvements
  • Recent posts
  • Who owns the world
  • The Secrets of Silicon Valley: What Big Tech Doesn’t Want You to Know

_________________________________

Website improvements
We’ve recently made some major improvements to our websites.

  1. Our WordPress service on BeyondMoney.net has been upgraded to a paid “premium” subscription, so viewers will no longer have to put up with the ads that WordPress inserts into all “free” sites.
  2. Our Beyond Money Podcast page has been redesigned. We hope visitors will find it much more appealing and user friendly.
  3. Important case studies in exchange alternatives have long been resident on our other website, ReinventingMoney.com. These pages have been revised and the link has been added to the menu at BeyondMoney.net to give them greater exposure.

_______________________________________
Recent posts
New podcast episode with John Attridge
In this episode, we speak with John Attridge, CEO of BBX-UK and Ireland, a reciprocal trade community which is part of the BBX network of trade exchanges that spans 14 countries and together service more than 90,000 customers.

The empire vs. journalism and free speech
John Pilger delivers a warning on behalf of Julian Assange who continues to be persecuted for exposing crimes committed by high government officials: “Speak up now,” Pilger said, or face “the silence of a new kind of tyranny.”

Make America sane again
As in the presidential primary of 2016, The Democratic National Committee (DNC) is again trying to tilt the contest to favor its anointed ones. Likewise, other institutions of the “establishment,” like Google, are imposing obstacles in the way of candidates who are challenging the military-industrial-banking-corporate complex (Tulsi Gabbard, Democratic Presidential Candidate, Sues Google for $50 Million). Now is the time for the American people to stand up and use their power to challenge the political establishment…

Read more here.

Categories: Blog articles

September 11th

A VC - September 11, 2019 - 5:39am

We were having breakfast in lower Manhattan that morning before a board meeting. It was the CEO, another board member and me. We were sitting outside in a sidewalk cafe in lower Soho and the plane flew right over us, at a height that was clearly not normal, and banked and slammed right into the first tower.

The CEO knew right away it was a terrorist act and we quickly settled up and headed over to the company’s offices. We told everyone to go home that could go home, and then waited to see how many people would arrive at work. Once we had sent everyone home who could go home, we got everyone who could not go home and started walking uptown to our house in Chelsea. We invited everyone in to our home and went out and got sandwiches and made a buffet lunch.

Nobody did anything but watch TV and call their loved ones, if they could get a call out on the overloaded cell networks.

By evening everyone had made plans for the night or figured out how to get home.

It was a horrible day, one that I certainly will never forget, and one that changed everything in many ways.

But when I look back at it, the ability to take everyone in, feed them, and provide some community and comfort, made that day a lot easier for me and my family. I am grateful for that.

Categories: Blog articles

Bring Back The SE

A VC - September 10, 2019 - 7:26am

Today Apple is going to announce three new iPhones.

One of them should be a small form factor like the old SE.

Apple discontinued the iPhone SE at the tail end of 2018 and has stated that the next iOS update will not run on the old SE hardware.

I have a number of friends and family members who have the old SE, love the small form factor, and do not want a larger phone in their pockets, purses, and hands.

As a result, these people have been holding onto phones that have gotten a bit old and badly in need of an upgrade.

But more importantly in my view, if Apple wants to tightly control the hardware that iOS can run on (which obviously they do), then they should put a wide enough variety of hardware into the market to support their user base.

It is unlikely that any of my friends and family members are going to move to Android, where there is a wide variety of hardware form factors to choose from. The iOS lockin is very powerful.

So Apple doesn’t need to do this so much for business reasons. But I do think they should do this for other reasons.

Categories: Blog articles

Why Positive Cashflow Matters

A VC - September 9, 2019 - 5:54am

Venture backed companies have a strange relationship to positive cashflow. Because they have financial backers who can and do finance losses, they tend to operate in the red for a long time.

In the early days it makes sense to burn cash. If you do not have revenues, you can’t generate cash. And if you can’t grow your revenues without investing out ahead of income, then you also need to be able to operate in the red.

But I have often felt that this muscle memory of investing for growth at the expense of profits can become, and does become, a habit that is hard to break.

If you have positive cashflow, you can control the timing and terms of your capital raises.

If you have positive cashflow, you can buy back your stock if any comes into the market at prices that you and your Board feels is below fair value.

If you have positive cashflow, you can borrow against it to purchase other companies or finance capital requirements.

If you have positive cash flow you can offer cash incentive compensation in lieu of ever more expensive equity compensation.

I could go on, but I suspect you get the point. Positive cash flow puts you on control versus the capital markets.

And that is a very valauble position to be in and one that a number of high flying tech companies probably wish they were in right now.

Categories: Blog articles

Foreshadowing Facetime

A VC - September 8, 2019 - 12:35pm

The Gotham Gal and I went to the Brooklyn Museum today to see the Pierre Cardin retrospective.

Near the end of the exhibit was a small clip from a Jetsons episode where Jane is shopping for dresses in a boutique.

She finds a dress that she likes and decides to call her friend on the TV in the store and find out what she thinks of the dress.

This is a fairly common activity these days. You see people facetiming with friends and family before they purchase something in a store.

But in the early 60s, when these Jetsons episodes were bring written, this was very far from reality.

But they imagined it and wrote it into the show.

That’s pretty cool.

Categories: Blog articles

Audio Of The Week: What Can We Learn From The History Of The Internet For The Future Of Crypto?

A VC - September 7, 2019 - 6:33am

In this podcast, a16z general partner Katie Haun interviews a16z co-founder Marc Andreessen. It’s a great conversation.

Categories: Blog articles

Funding Friday: Malware Blankets

A VC - September 6, 2019 - 3:08am

This is a cool project that combines textiles and malware. I backed it this morning.

Projects like this always makes me wonder what someone will think of next.

Categories: Blog articles

The empire vs. journalism and free speech

Beyond Money - September 5, 2019 - 10:53am

As Julan Assange continues to languish in the maximum security Belmarsh Prison in London, a movement of journalists and supporters of free speech continues to build. The mainstream media did not report it, but a few days ago “Legendary musician Roger Waters sang “Wish You Were Here” in honor of Julian Assange, at a public concert outside the British Home Office. He was joined by journalist John Pilger and UK MP Chris Williamson in calling for the imprisoned Wikileaks publisher to be freed, and not extradited to the US.” You can read about it in The Grayzone.

In the video below, journalist John Pilger delivers a warning from Julian, “Speak up now,” Pilger said, or face “the silence of a new kind of tyranny.”

You can sign the petition to free Julain Assange at Change.org.

Categories: Blog articles
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