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New Time Zone

A VC - October 3, 2017 - 5:33am

We are in Asia for the next three weeks and I will likely be posting in the mornings Asia time which means late afternoon/evenings in the US.

As much as I would love to meet regular readers on this side of the world, this is a long planned vacation with my wife and some good friends so I won’t be working or taking meetings.

But I do plan to blog. Some habits die hard and that is one of them.


USV TEAM POSTS:

Albert Wenger — October 11, 2017
Last Uncertainty Wednesday we dug deeper into understanding the distribution of sample means. I...

Categories: Blog articles

Guns And Mental Health

A VC - October 2, 2017 - 6:59am

Another mass shooting and the outcries that we must do something return.

I do think we need to do something and I am a fan of more gun safety regulation.

But we also need to enforce the laws that are on the books already.

I would imagine that the Las Vegas shooter used an illegal weapon last night.

Why can’t we enforce the laws that are already on the books?

And the people who commit these horrible crimes are mentally ill.

Anyone who could turn a gun on innocent people is clearly not right in their head.

So while we fight for more gun safety laws, a fight that is hard and where little ground has been gained in recent years, we should also fight for better healthcare for mental illness.


USV TEAM POSTS:

Albert Wenger — October 11, 2017
Last Uncertainty Wednesday we dug deeper into understanding the distribution of sample means. I...

Categories: Blog articles

Airpods

A VC - October 1, 2017 - 8:43am

I broke my Pixel a few weeks ago and have been using an old iPhone since then.

I was hoping to hold out until the new Pixel comes out, but I couldn’t hold out and got a new Pixel this week which I’ve now cut over to.

The one thing I am going to miss about the iPhone was the Airpods that I got when I went back to iPhone.

The Airpods are the best wireless headphones I’ve ever used, by a wide margin.

I am going to miss them.

I am going to find the closest bluetooth version of them I can for my new Pixel.

If anyone has any suggestions, I am all ears.

No pun intended.


USV TEAM POSTS:

Albert Wenger — October 9, 2017
Support idyll - Interactive Narratives

Categories: Blog articles

Audio Of The Week: Why Crypto Tokens Matter

A VC - September 30, 2017 - 3:22am

This is a conversation between two friends of mine; Chris Dixon, partner at Andreessen Horowitz, and Fred Ehrsam, co-founder of Coinbase.

It is excellent. I highly recommend it, particularly for those that want to make sense of crypto and what is happening in this market.

Categories: Blog articles

Funding Friday: Grow Your Own Lampshade

A VC - September 29, 2017 - 3:30am

I backed this project today and am excited to share it with all of you.

Categories: Blog articles

GDPR

A VC - September 28, 2017 - 3:56am

We have been spending a lot of time in Board meetings lately talking about GDPR.

GDPR stands for General Data Protection Regulation and is an EU regulation that, as written, will impact most Internet companies regardless of where they are located.

If you have not heard of GDPR and are running or working for an Internet company, you should wrap your head around it asap.

This Wikipedia entry does a pretty decent job explaining GDPR at a high level.

I heard someone explain GDPR as the “privacy equivalent of SOX.” I think that is a decent way to think about it.

This is serious regulation and complying is going to be hard and a lot of extra work. It will also impact product development and add overhead to that. The penalties for non compliance are massive and you cannot simply ignore this.

All that said, we did this to ourselves. The tech/Internet industry has run roughshod over user privacy for almost two decades now and we created the conditions for this regulation to pass.

The privacy equivalent of SOX.

So wrap your head around GDPR and prepare your company to comply. There is no other option.

Categories: Blog articles

Longer Tweets

A VC - September 27, 2017 - 3:32am

I’ve got mixed feelings about Twitter’s experiment with allowing longer tweets (280 characters vs 140).

Like many users expressed on Twitter (of course) yesterday, I’m quite fond of the 140 character limit.

I don’t like the constraint when I compose tweets, but I love it when I consume them.

There are few things that make Twitter unique, defensible, and essential (contrary to many Twitter haters, it is all of those things).

At or near the top of the list is the sort bursty stream of information Twitter presents to the consumer.

There is no other place where I can consume a firehose of information across so many topics as quickly as I can on Twitter.

Just looking at these tweets from Jack and Biz, I am not sure 280 characters is going to be a good thing for the consumption experience.

This is a small change, but a big move for us. 140 was an arbitrary choice based on the 160 character SMS limit. Proud of how thoughtful the team has been in solving a real problem people have when trying to tweet. And at the same time maintaining our brevity, speed, and essence! https://t.co/TuHj51MsTu

— jack (@jack) September 26, 2017

Originally, our constraint was 160 (limit of a text) minus username. But we noticed @biz got 1 more than @jack. For fairness, we chose 140. Now texts are unlimited. Also, we realize that 140 isn’t fair—there are differences between languages. We’re testing the limits. Hello 280!

— Biz Stone (@biz) September 26, 2017

On the other hand, I think running experiments like this is the right thing for Twitter and every app out there to do.

And they can’t run an experiment like this without telling the world about it. I’m seeing longer tweets in my timeline. They can’t keep that a secret.

The one piece of advice I would give the Twitter product team (who explained themselves in this blog post) is that they should test 160, 180, 200, 220, 240, 260, and 280.

I suspect they will get the biggest impact with slightly longer tweets but not all the way to 280.

I frequently run out of characters in my tweets. But generally not by a lot. If I had another 20 or 40 characters, that would reduce my character limit frustration significantly.

It’s also easier to introduce gradual change to a user experience than radical change.

And doubling the tweet size is a pretty radical change.

So I’m glad everything is on the table at Twitter in an effort to improve the user experience. That’s how it should be. But I’d be careful about this experiment and test a wider range of tweet sizes if I were them.

Categories: Blog articles

Rich Media Art Display

A VC - September 26, 2017 - 5:22am

I enjoy rich media art and I’ve always wanted to figure out how to display it in an easy way.

We have some rich media art displays in the USV office. We have an Electric Objects and a Meural. They are nice, but they are proprietary systems and at least one of these companies has folded already.

What I’ve always wanted is the ability to showcase rich media art with standard off the shelf hardware.

So when we recently replaced an old TV with a new one, I took the old one and put it on the wall in my home office.

And when the Gotham Gal got a new Mac Mini, I took the old one and mounted it to the back of that display.

Then I cleaned up the old Mac Mini (basically a factory reset) and then launched a browser and went and found some art.

There is a lot of rich media art on Vimeo and you can put a playlist together and run it in full screen mode in the browser.

Here is my display doing that:

I also have been playing around with Sedition Art’s Art Stream service. It’s a subscription service that lets you stream twelve curated works of art that are updated weekly on your display at any time.

Here’s my display doing that:

There are some services out there that are based on Chromebit that I am interested in trying. I got a Chromebit and am working on setting that up. I will report back on that once I get it working.

My conclusion is this. If you have old displays and computers that you don’t need anymore, they are easy to turn into rich media displays. You should try it. It’s great.


USV TEAM POSTS:

Albert Wenger — October 4, 2017
Uncertainty Wednesday: Sample Mean (Cont’d)

Categories: Blog articles

You Make Money With Wins, You Make Friends With Losses

A VC - September 25, 2017 - 2:50am

Brad Feld has a great post about the emotional toll of the collapse of the internet bubble.

Near the end, he writes:

When I reflect on my relationship with Seth, Jason, and Ryan much of the intense loyalty between us was forged in the period during and after the debacle that was the collapse of the Internet bubble. Some of my lifelong friendships, with people like Len Fassler, Dave Jilk, Jenny Lawton, Will Herman, Ilana Katz, and Warren Katz were solidified by the intensity of this time frame.

There really isn’t anything like going through a painful process with someone or a group of people to forge the bonds of friendship, loyalty, and trust that make for great professional and personal relationships.

When I look for partners in a business deal, I always start with the folks who I’ve been through tough times with. Because I know that they will hang with me again, just like they did the last time.


USV TEAM POSTS:

Albert Wenger — October 4, 2017
Uncertainty Wednesday: Sample Mean (Cont’d)

Categories: Blog articles

Diversification (aka How To Survive A Crash)

A VC - September 24, 2017 - 4:03am

I was emailing with my friend Harry this past week and we started talking about crypto and the inevitability of a massive crash. I am certain the big crash will happen. I don’t know when it will happen and I think it may be some time before it does. But better safe than sorry. So I’m going to write some thoughts about how to survive it.

I told Harry my personal story of having 90% of our net worth go up in smoke in the dot com bubble and crash.

The only reason it was not 100% was that we owned two significant pieces of real estate that were about 10% of our net worth before the crash and became our entire net worth after the crash.

We were not diversified. We had all of our money in venture capital and internet stocks and had ridden that wave all the way up. Before Flatiron Partners (the venture firm I co-founded at the start of the Internet boom), we had no net worth. So everything we had, we made in the 1996-2000 period. And we essentially lost it all when the bubble burst.

Had we not sold Yahoo! and other stocks to purchase the real estate and pay the taxes on the gains, we would have been wiped out completely.

You might think “you could have sold when things went south” and that is a good point. But when things blow up, your first instinct is that they will come back. They didn’t this time. The selling just continued. A few companies we owned a lot of went bankrupt. These were public stocks that went all the way to zero. So, while it is true that we could have and should gotten out when the bubble burst, we did not, and in some cases could not.

So selling when a market blows up is not the best way to protect yourself from a crash. Selling long before it blows up and diversifying your assets is a much better way. Like we did with real estate, but with a lot more than that.

I like a mix of cash (t-bills, money market funds, etc), blue chips stocks (Amazon, Google, etc), real estate (income producing with little to no leverage), and a risk bucket (venture capital, crypto, etc). I think 25% in each would be a good mix. We have more in the risk bucket but I am in the VC business professionally and have been for 30+ years. 25% in each is where I’d like to get to in time.

I have advocated many times on this blog that people should have some percentage of their net worth in crypto. I have suggested as much as 10% or even 20% for people who are young or who are true believers. I continue to believe that and advocate for that.

But we don’t have that much of our net worth in crypto. We probably have around 5% between direct holdings and indirect holdings through USV and other crypto funds. I think that’s a prudent number for a portfolio like ours.

I know a lot of people who are true believers in crypto and have made fortunes in it. They are “all in” on crypto and have much of their net worth (all in some cases) invested in this sector. I worry about them and this post is aimed at them and others like them. It is fine to be a true believer and being all in on crypto has made them a lot of money. But preservation of capital is about diversification and I think and hope that they will take some money off the table, pay the taxes, and invest it elsewhere.

That is the smart and prudent thing to do. I wish I had done it during the internet boom. I did not, but the next time we made a bunch of money, I did. I learned the hard way. I share my story so that others don’t have to.


USV TEAM POSTS:

Albert Wenger — October 2, 2017
Las Vegas Mass Shooting and Life’s Fundamental Asymmetry

Categories: Blog articles

Video Of The Week: Matthew Zeiler at Code Commerce

A VC - September 23, 2017 - 5:40am

Matthew is the founder and CEO of our portfolio company Clarifai.

Here is his talk (11mins) from last week’s Code Commerce conference in which he talks about how to use AI to grow your business.


USV TEAM POSTS:

Albert Wenger — October 2, 2017
Las Vegas Mass Shooting and Life’s Fundamental Asymmetry

Categories: Blog articles

Feature Friday: Coinbase Vaults

A VC - September 22, 2017 - 2:21am

Vaults are the crypto equivalent of a savings account.

If you have crypto assets that you don’t plan to spend/send frequently, you can put them in vault and get increased security.

Coinbase has had a vault offering for Bitcoin for the past three years and they have now launched the same vault product for ETH and Litecoin.

It appears as an additional account in your Coinbase accounts screen:

With the vault, you get a 48 withdrawal period (so nobody can move funds out of your account for 48 hours) and multiple signers on a withdrawal.

You can have three signers and require all three to sign a withdrawal or you can set up five and require three of five to sign a withdrawal.

I like to keep some crypto assets in my wallet and the rest in a vault. It is more secure.

If you have crypto assets at Coinbase, I encourage you to set up vaults for them.


USV TEAM POSTS:

Nick Grossman — September 30, 2017
Changing Seasons

Categories: Blog articles

Our new feudal world order

Beyond Money - September 21, 2017 - 12:24pm

Charles Hugh Smith’s article, Loving Our Debt-Serfdom: Our Neofeudal Status Quo, exposes the stark reality and brilliantly explains our current predicament.

Smith begins by defining the terms, Neoliberal, Neocolonial, and Neofeudal, then goes on to explain how they operate in today’s world. He says,
“Neofeudalism is a subtle control structure that is invisible to those who buy into the Mainstream Media portrayal of our society and economy. This portrayal includes an apparent contradiction: America is a meritocracy–the best and brightest rise to the top, if they have pluck and work hard– and America is all about identity politics: whomever doesn’t make it is a victim of bias.
Both narratives neatly ignore the neofeudal structure which disempowers the workforce in the public sphere and limits the opportunities to build capital outside the control of the state-corporate duopoly.”

He goes on to describe the control mechanisms that characterized historical feudalism and outlines their present neofeudal manifestation, saying, “Our system is Neofeudal because the non-elites have no real voice in the public sphere, and ownership of productive capital is indirectly suppressed by the state-corporate duopoly,” and backs it up with numbers that show the growing income and wealth inequality and crushing debt burden of the lower classes.

Read the complete article here. Highly recommended!

# # #


Categories: Blog articles

Happy New Year

A VC - September 21, 2017 - 2:50am

Today is Rosh Hashanah, the Jewish New Year.

I’d like to wish a happy new year to all my Jewish friends and colleagues and readers.

I don’t personally identify as any particular religion.

I was brought up Catholic, married into and raised our children Jewish, and I appreciate both of these religions.

I also feel great connectivity to Buddhism and have many wonderful Muslim friends.

There are bits of all of these belief systems that I connect to and appreciate.

But mostly I am a fan of spirituality and belief systems.

Being human is a strange, wonderful, and, at times, unnerving experience.

Spirituality and belief systems help us with our humanity and make our time on earth a bit easier.

If we could have that without all of the other stuff religion brings, that would be a wonderful thing.

Today is a day for my Judaism. I will attend services with my family, hear the shofar, wish everyone Shanah Tovah, and celebrate with a big meal with friends and family.

Rosh Hashanah is my favorite Jewish holiday and I plan to enjoy it. Shanah Tovah.


USV TEAM POSTS:

Nick Grossman — September 30, 2017
Changing Seasons

Albert Wenger — September 29, 2017
The Estate Tax and Universal Basic Income: Who Deserves What?

Categories: Blog articles

Mexico City

A VC - September 20, 2017 - 10:51am

Mexico City is an amazing place. The Gotham Gal and I were there around this time last year.

The people, the culture, the energy are all great in Mexico City. It feels like a place on the move where good things are happening.

So I was upset to hear about the devastating earthquake last night.

We have had so many natural disasters in the last month and I understand that we may all be fatigued from giving to all of these needy causes.

But I took some time this morning to give and thought I’d share with all of you where I sent some funds in case you want to do the same.

  1. Salma Hayek’s Crowdrise Campaign to UNICEF’s on the ground relief efforts: I donated $1000.
  2. Bitso’s (Mexico’s largest crypto exchange) Campaign to benefit Red Cross and Brigada de Rescate Topos Tlaltelolco A.C.: I donated 2 ETH.

It feels good to send some funds to organizations on the ground that are actually helping people in a difficult time.

Categories: Blog articles

Why Amazon Should Come To NYC

A VC - September 19, 2017 - 3:39am

USA Today reported that NYC is working on a proposal to encourage Amazon to locate its second headquarters “HQ2” in NYC.

I can’t imagine a better place for HQ2 than NYC.

Here are ten reasons why Amazon should stop thinking about any other place and just pick NYC:

  1. NYC is headquarters to many global companies. It has the transportation systems, building stock, and talent base that companies need and desire for their headquarters.
  2. It has 8.5mm people, enough to satisfy Amazon’s insatiable appetite for talent.
  3. It is home to the entrepreneurs, creators, innovators, and big ideas that Amazon is looking to surround itself with.
  4. It is home to the second largest tech sector in the US.
  5. NYC is committed to teaching computer science to all of the 1.1mm students in its school system by 2025 and is already 1/3 of the way there.
  6. NYC/NYS has embarked on massive infrastructure investment to upgrade its transportation hubs like LGA and Penn Station.
  7. There are something like fifteen direct flights from NYC to Seattle every weekday.
  8. NYC has the largest Amazon customer base of any city in the US (I am guessing on this one. But it has to be true).
  9. NYC will welcome Amazon with open arms unlike some of the other cities that Amazon is considering.
  10. NYC has the most diverse workforce in the US.

So if any AVC readers know how to get this post to the team at Amazon that is making this decision, please send it to them. I am certain NYC is the place for them. They will love it here.

Categories: Blog articles

Worry

A VC - September 18, 2017 - 5:42am

I remember when I was in my early 20s and just starting out in the venture capital business, I came across an old wall street saying that “a market climbs a wall of worry.” I didn’t understand it and that made me want to. I read a bit about the saying and came to understand that bull markets require an uneasy feeling.

Worrying is a fundamental characteristic of most investors I know. Greed and fear are the two opposing elements of market forces.

I read a board deck this weekend from a portfolio company that is absolutely crushing it and forwarded it to our team at USV with a short memo outlining all of the risks I am worried about. Not a single enthusiastic comment was in that email.

Why is that? Because although we invest on “what could go right”, we manage our investments on “what might go wrong.”

I believe one of our greatest assets to our portfolio companies is to be an early warning sign of trouble. If we can help the founders/leaders and their teams be aware of risks on the horizon, they can manage against those risks. And if there is one thing investors, particularly ones who have been around a while know about, it is how things can and do go wrong.

Of course, how you worry is critical. You can’t weigh down the leadership teams with your worries. You can’t fill up the board meetings with angst.

You have to be supportive, optimistic, encouraging, and positive in your interactions with founder/leaders and their teams. But you must also flag areas where there could be trouble. Getting that balance right has been a work in progress for me for my entire career.

So being a worrier is an important characteristic in an investor. But you have to mostly keep those worries to yourself and your partners/team (this is a place where partners are invaluable). And you have to decide when a worry is significant enough to share it with your portfolio companies and then you need to find the right moment and narrative to communicate it. When you do it right, the teams appreciate it immensely.

Categories: Blog articles

Some Thoughts On Burn Rates

A VC - September 17, 2017 - 4:11am

The startup and venture capital businesses are based on a general idea that you can and should invest heavily into your business in order to increase value creation, amplify it, and accelerate it.

These investments mostly take the form of operating losses, driven by headcount, where the monthly expenses are larger, often much larger, than revenues.

These losses are known in the industry vernacular as “burn rates” – how much cash you burn on a monthly basis.

But how much burn is reasonable?

I have been thinking a lot about this in recent years.

Instinctively I feel that many of our portfolio companies, and the startup sector as a whole, operate on burn rates that are too high and are unsustainable.

But it is hard to talk to a founder, a management team, or a Board about burn rates objectively.

There are no hard and fast rules on burn rate so you end up getting into an emotional discussion “it feels right vs it feels wrong.”

That’s no way to have a conversation as important as this one.

So I’ve been looking for some rule of thumbs.

One that I like and have blogged about is the Rule of 40.

The rule of 40 makes an explicit relationship between revenue growth rates and annual operating losses. Below 40 is bad. Above 40 is good.

But the issue with the Rule of 40 is that it is oriented toward businesses (like SAAS) where there is a well-understood relationship between value and revenues and ones that are reasonably developed.

So I’ve been deconstructing the Rule of 40 in hopes of trying to get to a more fundamental truth about burn rates.

And what I have come up with is this:

Your company’s annual value creation (valuation at the end of the year minus valuation at the start of the year) should be a multiple of the cash your company has consumed during the year.

That seems simple and obvious and that is a good thing.

But in order to make this work you need to lock down two things;

  • how are you going to objectively measure valuation absent a financing event?
  • what is the multiple?

The latter one is easier I think. The multiple should be large. 1x is clearly not enough. I don’t think 2x is either. 3x is borderline. I like 5x. I would want a 5x return on my annual burn.

I think annual value creation should produce a 3-5x return on annual burn. That feels like a good solid range to me.

The first question is trickier. If you have revenues, then using a revenue multiple to establish value is a good way to do this. You can look at comparable company financings and acquisitions and also public company valuations to figure out what revenue multiple to use. But you should be careful to understand that revenue multiples are a function of revenue growth rates. The faster your revenue is growing the higher they are.

So let’s do an exercise here to flesh all of this out.

Let’s say you are a $10mm annual revenue company in 2017 growing to $18mm in 2018.

And let’s say that you look around at public comps and companies similar to your are trading at 6x revenues.

So you can estimate that your business is worth $60mm this year and $110mm next year.

So there will be $50mm of value creation in 2018.

If you want a 5x return on your burn, you should not burn more than $10mm in 2018.

If you are willing to accept as little as 3x, you should not burn more than $16mm in 2018.

That’s how this rule works.

I like it because it is objective and will lead to rational discussions about burn rates vs emotional ones.

It does break down in pre-revenue companies where it is harder to objectively measure value creation. You can use financing valuations as a proxy in pre-revenue companies but then you quickly get back into emotional territory as the end of year valuation will be an aspirational number and unreasonable aspirations/expectations are what lead to unsustainable burn rates in the first place.

Categories: Blog articles

Audio Of The Week: Andy Weissman on Twenty Minute VC

A VC - September 16, 2017 - 4:24am

In this podcast, my partner Andy talks a lot about USV’s investment process.

It’s a good interview.

Categories: Blog articles

Fun Friday: Crypto Crystal Ball

A VC - September 15, 2017 - 6:07am

Chris Burniske posted this Twitter poll a few days ago:

Given the tense #crypto market environment right now, are you expecting:

— Chris Burniske (@cburniske) September 14, 2017

I voted for option one. I think the crypto markets will be under pressure for at least the remainder of the year. But I am a buyer so that may be wishful thinking on my part.

Where do you think crypto is headed for the remainder of this year?

Categories: Blog articles
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