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Video Of The Week: Dieter Shirley and Non Fungible Tokens

A VC - May 26, 2018 - 6:11am

Non Fungible Tokens (or NFTs) are one of the most interesting things to emerge in the blockchain sector in the last year. Dieter Shirley came up with the ERC721 spec and the name and I talked to him about both and a lot more on stage at Token Summit last week.

If it seems like I am shouting every time I talk into the mic, I was. It was very loud in the room and I wanted to make sure people heard us. The video is about 30mins long and we covered a number of interesting topics.

Categories: Blog articles

Funding Friday: The Bottery

A VC - May 25, 2018 - 5:07am

I like 3D printing and I like ceramics.

So when I saw this project on Kickstarter this morning, I backed it instantly.

Categories: Blog articles

GDPR Is Upon Us

A VC - May 24, 2018 - 5:45am

As we all know from the flood of emails coming into our inboxes explaining that privacy policies have changed and more, the dawn of the GDPR era is upon us.

Technically companies have until tomorrow, May 25th, to get into compliance with GDPR.

USV portfolio companies have been working on getting compliant for more than a year and we have been active in helping them do so and advising them on best practices.

I blogged about GDPR here at AVC last September in hopes that all of you would also start working on getting compliant.

If you have customers or users in Europe, you must comply with GDPR. But many companies are taking the approach that they will be GDPR compliant with all of their customers, regardless of geography.

For this reason, GDPR is the biggest user data privacy regulation to hit the Internet, at least in the last decade, and possibly forever.

There are some good things in GDPR. The basic notions that users have the right to control how their data is used and to opt-out of that usage seems right to me.

But like all regulations, the implementation and compliance details are painful in parts and there certainly could have been a lighter weight way to get to the same place.

My hope is that the US and other countries copy some of the better parts of GDPR but go without the overwrought elements.

The other thing to note about GDPR is that we should expect revenue headwinds from it for the next few quarters. Less emails will be going out. Less engagement will be going on. And less revenue will be generated.

I am OK with that. It’s a price to be paid for a step forward for user’s rights. No pain, no gain.

Categories: Blog articles

Measuring and Boosting Engineering Velocity

A VC - May 23, 2018 - 7:57am

I have been recommending our portfolio company Code Climate‘s relatively new Velocity product in most of my recent Board meetings.

I hear from management teams again and again that they want to understand their engineering utilization and velocity and benchmark it.

Everyone feels like they are not getting enough production out of engineering but have no way of knowing if that is just how they feel or the reality of the situation.

Velocity is a great tool to figure all of that out.

Becuase you can’t manage what you can’t measure.

If you feel like you need more visibility into your engineer team’s production, check out Velocity.


USV TEAM POSTS:

Rebecca Kaden — May 30, 2018
Our Investment in Modern Fertility

Categories: Blog articles

Paying Your Dues

A VC - May 22, 2018 - 9:44am

I was watching last night’s game between the Celtics and the Cavs and I was thinking about the fantastic young players the Celtics have on that team, Jayson Tatum, Jaylen Brown, Marcus Smart, and Terry Rozier. As good as those players are, it felt like the enormity of what they have accomplished this year and the stage they are now on caught up to them a bit in Cleveland.

I’m rooting for the Celtics in this series so I hope they turn it around in the next three games and earn their way to the finals.

But it would not surprise me if they don’t.

As their coach Brad Stevens said last night after the game:

“I mean, everything is tough. In this deal, it’s a blast to have to grit your teeth, get up off the mat and go after it again. That’s part of it.”

What Coach Stevens understands is that you have to pay your dues in life. It takes time to learn to win at that level.

I watched LeBron James’ interview after the game and his experience playing on the big stage was just oozing out of him.

But LeBron had to go through the trial by fire too.

I’m thinking about the last two years in his first stay in Cleveland. Those were bitter pills for him to swallow.

But swallow he did, and learn he did, and now he is arguably the greatest player to play the game

The other greatest player to play the game, Michael Jordan, also had some tough losses in his rise, notably to the three consecutive losses to the Pistons in 87-90.

Michael also learned from those bitter pills and went on to be the greatest clutch player in the game.

Of course, what is true in the NBA is also true in startup land.

There are no shortage of ridiculously talented young founders out there. We have a number of them in our portfolio.

But they too will find it challenging to step onto the big stage and deliver in crunch time. And their missteps will hurt too.

But as Brad Stevens said last night “everything is tough” and you can grit your way through it and come out the other side, battle-tested, and with rings on your fingers.

But there are no shortcuts in life for most of us.

Categories: Blog articles

CryptoTwitter

A VC - May 21, 2018 - 4:31am

Last week, I was asked this question on Twitter:

Crypto Twitter

— Fred Wilson (@fredwilson) May 14, 2018

But if you want to read CryptoTwitter, what is the best way to do that?

I have curated a bunch of people to follow in my timeline over the last seven years so CryptoTwitter is part of my personal Twitter.

But for those where that is not the case, what is the best way to get CryptoTwitter?

Twitter Lists are a great way to do that.

I believe Twitter Lists are still organized in reverse chronological order and are not filtered in any way. So that is a good thing in and of itself.

I like this Twitter List, called Crypto Thought Leaders, made by richardx.

If there are other CryptoTwitter lists that people in the AVC community like to use, please recommend them in the comments.

Categories: Blog articles

The Finance To Value Framework

A VC - May 20, 2018 - 6:02am

There are two major failure modes in startups.

The first common failure mode is the thing you make doesn’t get adopted. That’s called not finding product market fit in startup lingo.

The second common failure mode is “getting too far out over your skis” and it happens to companies that do find product market fit but mess things up by building an inappropriate cost structure (and capital base) and it all comes crashing down on them when they either can’t continue to raise money at ever increasing valuations and/or when they can’t grow into their cost structure quickly enough.

The first failure mode comes with the territory. The world of startups is all about experimentation. Most experiments fail. If this happens to you, it sucks, but that is what you signed up for.

The second failure mode is entirely avoidable and way more common than you might think.

The capital markets are efficient over the very long run but highly inefficient in the moment. So just because investors are willing to throw gobs of money at you and your company, it doesn’t mean that it is smart to take it. And, as I have written numerous times here before, having lots of capital does not derisk your business plan. In many cases, it amplifies the risk of your business plan.

So how do you stay in balance and avoid getting too far out over your skis?

I like this framework that I call “Finance To Value” which means you finance your business to regular valuation targets that are driven by fundamental value analysis.

The first thing you need to know is how your business will be valued by a buyer or the public markets when it is a scaled business. I like to use EBITDA and Revenue multiples for this work. And the best place to get them is from bankers who work in your sector and/or investors who are active in your sector. The key point is these multiples are what you are going to be valued at upon exit or IPO, not currently.

Revenue multiples work better for this than EBITDA because very few companies have positive EBITDA during their growth phases.

Here are some examples. Please don’t use these multiples without verifying them with someone who knows your industry and your business. These are simply examples:

E-commerce business – 1 to 2 times revenues

SAAS business – 6 to 8 times revenues

Marketplace business – 4 to 6 times revenues (which can be less than 1x GMV depending on your take rate)

Once you know this number for your business (and don’t be aspirational or agressive in determining it as that will just lead to problems), you can apply the Finance To Value framework.

There are two Finance To Value rules:

Don’t raise more money in a given financing round than you can create in incremental value during that capital window.

Don’t let the post-money value of your round get higher than you can grow into during the capital window.

So let’s apply it to a fictional company.

Let’s say you have a SAAS software company that is doing $10mm of annual recurring revenue and you want to raise money to fund the business for the next 18 months. Let’s say that your business is growing at 40% per year and that your annual recurring revenue will be $18mm in 18 months. And let’s say that the post money value of the your last round was $60mm.

So using a revenue multiple of 6x revenues says that you should not raise more than 8×6 or $48mm. But that means you won’t create any incremental value. If you want to create incremental value then you should raise some fraction of that, maybe half of that.

Also, you should not let your post-money value get beyond $108mm (6×18). So if you raised the entire $48mm, it would be a flat round with your last one.

This is a bit of art vs science, but what those two calculations tell me is that the right raise for this company would be something like $20mm at $70mm pre/$90mm post, leaving some cushion to miss plan and still be able to raise an up round.

The challenge for founders and CEOs operating in startup land is that investors are often willing to throw more money at an opportunity at a higher price than you should accept. Who wouldn’t want more capital and less dilution?

But that is how you get out of balance. Don’t be tempted by the money and the valuation. Stay in balance and always make sure you can get the next round done on fundamentals.

If you stick to that practice, you can significantly reduce the possibility of getting too far out over your skis.


USV TEAM POSTS:

Bethany Crystal — May 28, 2018
How to Get a Whiteboard into Your Apartment Via the Roof

Categories: Blog articles

Video Of The Week: How Play Made the Modern World

A VC - May 19, 2018 - 4:47am

I got to spend a fair bit of time with my friend Steven Johnson this past week, in preparation for our crypto talk on Thursday night and before and after that talk.

Steven has this wonderful quality of being able to observe both history and the present and make connections between the two and also to weave those observations into narratives that make for great stories.

A persistent theme in his work is the role of play in the advancement of society. He argued in Everything Bad Is Good For You that playing video games and watching TV are actually educational and productive uses of our time. And in Wonderland, he argued that play led to many important societal advances.

This talk at RSA, delivered in the wake of Wonderland, is a great articulation of the value of having fun to moving society forward.

I enjoyed it very much and I hope you do too.

Categories: Blog articles

Funding Friday: Food Security for Puerto Rico

A VC - May 18, 2018 - 4:19am

An AVC community member sent me to this GoFundMe project last weekend and I backed it.

They are raising $20k to build two hydroponic vertical tower farms in two communities in Puerto Rico.

A tower farm looks like this:

This is from the project page:

Puerto Rican families need sovereignty over their own food supply. Before Hurricane Maria, Puerto Rico was 80% reliant on imports to supply the island’s food. Now they are 100% reliant on imported food. 

People need access to fresh water and food to live. There is no time to waste in launching the agricultural revitalization that Puerto Rico so desperately needs. The local government is financially over-extended and has limited support from FEMA. Lives depend on us.

And this is the team behind this project:

Green Food Solutions was co-founded by Electra Jarvis and Mary Wetherill. We are a vertical farming company. We sell, install, and maintain hydroponic vertical farms and provide educational presentations and workshops as part of our commitment to health, the environment and food justice. We are based in NYC and grow food out of a 10,000 square foot greenhouse in the Bronx. 

If you want to make this project a reality, you can back it here.

Categories: Blog articles

What’s Going On?

A VC - May 17, 2018 - 4:28am

A lot, to be honest. It’s Crypto Week in NYC this week.

The last two weeks have been a blur, with so many things happening that I can’t keep up or write about all of them.

But, here are a few

1/ The Rockets ended the sweep nonsense talk going on in the bay area with a trompsing of the Ws last night in Houston. Thank God.

2/ The Celtics are showing how great a job Danny Ainge and Brad Stevens are doing running that team.

3/ Our portfolio company Blockstack launched a Dapp Store yesterday, featuring Dapps across all of the competing chains. When I saw that on Twitter, I said this:

An app store for Dapps across many competing platforms. That’s how the decentralized web rolls https://t.co/tI2d7jelCE

— Fred Wilson (@fredwilson) May 16, 2018

4/ I will spend the day at William and Nick’s Token Summit and will chat on stage with the CriptoKitties folks at 3pm today.

5/ My friend Steven Johnson, who wrote the seminal mainstream piece on blockchain for the NY Times last year, and I are going to talk crypto tonight at the NY Hall Of Science. Talking with Steven is one of my favorite things to do.

6/ We have completed our Employee Equity Project and are now vetting the data with the USV portfolio companies before publishing it more widely. But I can tell you that the salary multiples that I shared in 2010 in the original Employee Equity – How Much? blog post have risen at least 3x since over the last eight years. I have added a note to that original blog post alerting readers that the multiple table in that post is not accurate anymore.

7/ The Gotham Gal pointed out on her blog yesterday that buying convertible notes in angel rounds delays the start of the clock ticking on the QSBS capital gains exclusion. A great point and one that I have not seen made in the ongoing argument to “convert those notes!”.

8/ Paul Vigna of the WSJ and co-author of a great book on crypto interviewed me and Balaji Srinivasan, CTO of Coinbase, on stage at Consensus yesterday. It was a fun talk, featuring a high five between us at one point. The video will be online at some point soon and I will blog it. But until then, here’s a fun drawing of the talk.

Categories: Blog articles

The Maturation Of A Market

A VC - May 16, 2018 - 5:07am

Yesterday’s announcement that our portfolio company Coinbase is launching a suite of institutional products for the crypto market made me step back and think about the evolution of their institutional business.

Coinbase started out as a place for individuals to buy, sell, and hold Bitcoin. They launched that in 2012.

In 2015, Coinbase added the GDAX exchange where institutions, other exchanges, and large traders could trade Bitcoin.

By the middle of last year, it became clear that many big institutions were entering the market and needed a lot more. And so Coinbase went back to the drawing board and developed a plan for a comprehensive suite of institutional products. And that is what they announced yesterday:

  • Coinbase Custody
  • Coinbase Markets
  • Coinbase Prime
  • Coinbase Institutional Coverage Group

What started out as a simple web and mobile app for buying, selling, and holding Bitcoin has evolved into a full-fledged financial services company, serving both the consumer and institutional market.

Say what you will about crypto, it has become an important asset class and the market is maturing before our eyes.

I have had the opportunity to watch a bunch of markets go through this cycle over the course of my career and it always gives me chills to watch it happen.

Categories: Blog articles

Off Grid Crypto Transactions

A VC - May 15, 2018 - 5:03am

One of the benefits of decentralization is that you can build “censorship-resistant” applications.

The best example of that is Bitcoin, a store and transfer of value system that governments can’t interfere with.

Censorship resistant money, as it were.

But if these transactions are going across a wire that is controlled by the government or some other censor (Apple, Google, Facebook, etc), then you haven’t really accomplished your goal.

Enter mesh networks.

Yesterday, our portfolio company GoTenna, which makes a popular and inexpensive mesh networking device, announced something pretty interesting, a mobile app called TxTenna that will allow off grid Bitcoin transactions.

From that blog post:

Today we are pleased to announce that the Samourai team took our suggestion, and went well beyond our expectations! The result is the TxTenna app.

A transaction using the TxTenna app works as follows: Using the Samourai Wallet app the user creates a standard bitcoin transaction and signs it. This is possible while offline and without wifi or mobile access.The Samourai Wallet app then passes the offline transaction to the TxTenna App and TxTenna broadcasts it to nearby mesh nodes via a paired goTenna mesh device. Other goTenna devices in the area relay the transaction until an internet connected goTenna node also running TxTenna receives it and forwards it to the Bitcoin network.

I am excited to see the TxTenna app come to market in the coming months, but more than that, I am excited by the idea of the possibility of off-grid crypto transactions. I think they are necessary in theory and possibly in reality.


USV TEAM POSTS:

Albert Wenger — May 23, 2018
Shoulder SurgeryNo Uncertainty Wednesday today. I had shoulder surgery yesterday to repair a rotator...

Categories: Blog articles

Having A Foot In Both Camps

A VC - May 14, 2018 - 4:20am

At our annual CEO Summit, which took place last week, we kick things off going around the room with each attendee (there are over seventy at this point) mentioning something they are struggling with right now.

When it got to my turn, I said that I am struggling to be “all in” on crypto and also “all in” on my current portfolio companies.

A few of my current portfolio companies are in the crypto space, which makes it easier. We have been investing in crypto since 2012.

But most are traditional internet-based businesses that use subscriptions, advertising, and/or commerce to monetize.

I am very happy with the progress of these portfolio companies and am very engaged with them, their teams, their strategies, and their businesses.

My portfolio has not been in this good shape in I don’t know how long and I am quite enjoying my work with these companies.

As I said to the assembled CEOs, I am not going to show up at a board meeting for these companies and suggest they scrap their existing business models and launch a token and an ICO.

So it means that I have to have a foot in both camps.

One in traditional internet businesses and business models.

And one in crypto, which is re-writing most of the rules that these traditional businesses operate under.

It can be challenging.

Most of the reading and research I am doing is in crypto.

Most of the new pitches I take are in crypto.

But most of the board meetings and one on ones and other portfolio company engagement is around traditional businesses.

I am trying to keep the two mindsets separate in my brain right now.

Maybe there is a time that they come together.

I don’t think that time is now.


USV TEAM POSTS:

Albert Wenger — May 23, 2018
Shoulder SurgeryNo Uncertainty Wednesday today. I had shoulder surgery yesterday to repair a rotator...

Categories: Blog articles

Happy Mothers Day

A VC - May 13, 2018 - 5:03am

It is a bit strange that we set aside one day a year to honor Mom and motherhood because where I sit it is something we need to honor every hour of every day.

Motherhood is one of the most beautiful things about life.

The combination of unrelenting love and equally unrelenting demands is a potent mix.

It is the thing that makes us grow up and be what we are.

So let’s celebrate motherhood and the mothers in our life today, and every day.

Happy Mothers Day.

Categories: Blog articles

Video Of The Week: Vitalik’s Talk At Edcon

A VC - May 12, 2018 - 4:43am

One of the most important questions in crypto land right now is “whither Ethereum?”

To get a sense of the answer to that question, it helps to listen to the important speeches Vitalik gives.

This one, at Edcon in Toronto last week, was quite helpful to me.

Categories: Blog articles

Funding Friday: The Shot That Made Me

A VC - May 11, 2018 - 4:20am

I backed this photography project earlier this week.

It looks like it may not get funded but that’s a shame because it is a great project.

Categories: Blog articles

And Now A Word From Our Sponsor

A VC - May 10, 2018 - 3:50am

I’m running an advertisement here today.

I’ve been Chairman of two public companies in my career and the leaders of those two companies sat down and talked yesterday.

I enjoyed watching that very much and hope you do too.

In this nine-minute video, Jim Cramer talks to Josh Silverman, CEO of Etsy, about what makes Etsy “special” and how being special allows them to compete and win against Amazon.

Etsy CEO on Amazon Handmade: It doesn’t really threaten our business from CNBC.

Disclosure: I am the Chairman of Etsy, have been on Etsy’s board for 12 years, and my wife and I own a lot of Etsy stock.

Categories: Blog articles

The Jetsons

A VC - May 9, 2018 - 6:44am

When I was a kid, two of my favorite cartoons were from Hanna-Barbera; The Flintsones and The Jetsons.

I particularly loved The Jetsons.

From Wikipedia:

the Jetsons live in a comical version of the future, with elaborate robotic contraptions, aliens, holograms, and whimsical inventions.[3][4] The original series comprised 24 episodes and aired on Sunday nights on ABC beginning September 23, 1962, with primetime reruns continuing through September 22, 1963

In the last few weeks, I have been feeling that we are heading into a future that looks quite similar to The Jetsons.

I got a deck last week for an eVOTL company (which is not something we would invest in at USV) and shared it with a few colleagues and said “The Jetsons”.

The Jetson’s family robot Rosie is way better than Alexa but maybe in a decade or so, Alexa will be able to do all that Rosie did for the Jetsons.

George Jetson works for a company that is similar in many ways to SpaceX.

George’s boss is a robot. Maybe we will all be experiencing that too in time.

Anyway, I am going to figure out how to go back and watch all of the 24 original episodes.

I think sci-fi is as good of a crystal ball as we have to see into the future and the writers at Hannah-Barbera did an amazing job of that back in the early 60s.


USV TEAM POSTS:

Lauren Maz — May 16, 2018
The Mosaic Series at Yieldmo

Categories: Blog articles

Subscribing To AVC Via Email

A VC - May 8, 2018 - 4:04am

About a month ago I put all of AVC traffic behind “https.”

This is something you can do with one click of a button if you are behind Cloudflare, as AVC is.

I should have done this a long time ago, but only got around to doing it last month.

In the process, I broke the subscribe via email feature and only fixed it this morning.

So, this is as good of a time as any to mention that you can get this blog delivered via email every morning.

You can subscribe via email (or RSS if you prefer that) here.


USV TEAM POSTS:

Lauren Maz — May 16, 2018
The Mosaic Series at Yieldmo

Albert Wenger — May 16, 2018
Uncertainty Wednesday: Updating (Intro)

Categories: Blog articles

Giving Publicly Traded Stock To Charity

A VC - May 7, 2018 - 4:39am

One of the best things about having highly appreciated publicly traded stock is that it is the most attractive way to make charitable gifts.

The Gotham Gal and I do this all of the time and I encourage others (founders, early employees, investors, angels, etc) to do it.

Here’s how it works:

Let’s say you have shares of Facebook that you got when you joined back in 2006.

Let’s say that your exercise price was $3/share and that is your cost basis.

Let’s say you want to make a $100,000 gift to a great cause that you are deeply involved with.

Instead of taking out your checkbook (who does that anymore?) and writing a $100,000 check, consider gifting some Facebook shares.

At $175/share, a $100,000 gift would be 571 shares.

So you ask the charity if you can gift shares. Almost every time I do that, the answer is yes. They give you a brokerage account that you can “DTC” the shares to.

And you instruct your brokerage firm to move the 571 shares to the charity’s brokerage account and you have made a $100,000 gift.

But, because you no longer have to pay the capital gains taxes on those shares when you sell them, and neither does the charity, you have a much more tax efficient gift.

I figure that a stock gift costs about 10-20% of the dollar value of the gift if you live in a high tax location like NYC.

Here is how I get to that math, using NYC tax rates:

$100,000 gift

less $50,000 for the tax benefit of the charitable gift deduction

less $38,000 for the capital gains taxes that do not have to be paid on the stock

equals $12,000

So if you have highly appreciated publicly traded stock and are interested in giving to good causes, consider gifting stock instead of cash.

It is a great way to be generous.


USV TEAM POSTS:

Bethany Marz Crystal — May 15, 2018
Secret Backyards of NYC

Albert Wenger — May 14, 2018
World After Capital: Getting Past Capital (Labor)

Categories: Blog articles
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