A VC: Musings of a VC in NYC

Some Thoughts On Crypto

A VC: Musings of a VC in NYC

The crypto sector is in an interesting phase right now. The market has rallied from its lows this past winter and is up a lot in 2019: But Bitcoin now makes up almost 70% of that aggregate market cap. In some ways, Bitcoin is the one protocol that has found lasting product-market fit.

Why USV is Joining the Libra Association

A VC: Musings of a VC in NYC

A new blockchain & cryptocurrency project, Libra , was announced today. Libra has been incubated by Facebook. USV will be one of the founding members of the governing body, the Libra Association.

Why Positive Cashflow Matters

A VC: Musings of a VC in NYC

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.

The Hit Rate

A VC: Musings of a VC in NYC

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.

Open Finance First, Open Data Second

A VC: Musings of a VC in NYC

My partner Nick put together a deck outlining USV’s approach to crypto investing earlier this year and we have been using it with founders and investors since then. One slide I particularly like from that deck is this one which describes how we think the crypto market will develop over time.

Hair On A Deal

A VC: Musings of a VC in NYC

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.

Whales Not Unicorns

A VC: Musings of a VC in NYC

I have been vocal here that I do not like the term Unicorn to describe highly valued venture-backed startups. Unicorns are mythical creatures that don’t really exist and highly valued venture-backed startups do exist. They might be rare, but they are not fictional.

Helium

A VC: Musings of a VC in NYC

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

Self Confidence

A VC: Musings of a VC in NYC

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.

Hypothetical Value To Real Value

A VC: Musings of a VC in NYC

I remember when my son came home one day in high school and told me he wanted to “day trade” along with some friends who were doing it. We opened a TD Ameritrade account and staked him with a small amount of money, enough to trade but not enough that if he lost it all it would be an issue. And off he went. A few weeks later he asked me “Dad, what is a PE ratio?”

Business Model Innovation

A VC: Musings of a VC in NYC

I’ve shared my views on this before here at AVC. I believe business model innovation is more disruptive than technical innovation. A good example of this was moving from web apps to mobile apps, which was largely a technical innovation. While the move to mobile certainly created some new companies, it largely strengthened the market position of the big Internet companies because there was little to no business model innovation. Compare that to the move from desktop computing to the web.

Fractionalizing Home Equity

A VC: Musings of a VC in NYC

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).

Tumblr

A VC: Musings of a VC in NYC

The news hit yesterday that WordPress has purchased Tumblr from Verizon (which owns it by virtue of its acquisition of Yahoo! and AOL). USV seeded Tumblr along with our friends at Spark in the summer of 2007 and were actively involved in the development of the company until its sale to Yahoo! in 2013. I maintained an active Tumblog from before we invested in 2007 until October 2016, when I stopped posting there. There was no moment when I decided to stop posting there. I just did.

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Video Of The Week: Angela Duckworth – Grit

A VC: Musings of a VC in NYC

A few years ago, we invited Angela Duckworth to speak to our portfolio company CEOs at our annual get together. It was a terrific talk that absolutely impacted the way these CEOs thought about hiring and managing their teams.

Unsafe Notes

A VC: Musings of a VC in NYC

I was reminded yesterday how much of a s**t 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.

Video Of The Week: A Reminder

A VC: Musings of a VC in NYC

As the US government thinks about regulating big tech and constraining crypto-currencies, I think a reminder about the value of open markets and freedom to innovate is important. policy

Certainty Of Close

A VC: Musings of a VC in NYC

On Friday, I had two separate conversations with founders about fundraising strategies. Both had an easier path that would likely get them to a closing quickly but might cost them some economics and a harder/longer path that would allow them to maximize economics. I gave them both the same advice which is that certainty of close is super important, particularly early on in a venture when you see an opportunity and want to capture it before someone else does.

Turning A Loss Into A Win

A VC: Musings of a VC in NYC

One of the traits of successful founders is their ability to turn a loss into a win. You take a lot of losses as a founder, particularly in the early days. Investors pass on your funding pitches, people pass on your job offers, customers pass on your sales efforts, competitors take your customers and your employees, you get sued, you miss critical ship dates, morale tanks, and on and on and on. But inside of each of those losing moments is the opportunity to turn it into a win.

Seven to Ten Years

A VC: Musings of a VC in NYC

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.

Risk Tolerance

A VC: Musings of a VC in NYC

Startup companies go through a number of phases as they mature from an idea, to a small team, to a growing team, to a small company, to a big company. And along this journey, the leadership team you need changes.

The Heretic

A VC: Musings of a VC in NYC

I am reading a friend’s book which is still in proofs and so I’m not going to talk about it yet. But there is one part of the book that really rang true for me and that is when he talks about certain kinds of problematic employees, particularly one he calls The Heretic. This kind of employee, and we have all seen this up close, is negative about the Company and disses the management, coworkers, the board, the strategy, the workplace, and everything else under the sun.

Secrets Of Sand Hill Road

A VC: Musings of a VC in NYC

One of the many great things about vacations is reading books. Vacation is the one time that I can really prioritize reading books (as opposed to everything else I read). I just finished Scott Kupor ‘s Secrets Of Sand Hill Road , a book for entrepreneurs about rasing capital from venture firms. Scott makes the point numerous times in the book that the capital raising process is asymmetric for entrepreneurs in that they do it a few times in their career and VCs do it every day.

DefendCrypto.org

A VC: Musings of a VC in NYC

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.

Funding Friday: Make Pizza On Your Camping Trip

A VC: Musings of a VC in NYC

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. crowdfunding

The American Dream

A VC: Musings of a VC in NYC

It has been 243 years since our founding fathers signed the Declaration Of Independence and the great American experiment began. These words form the moral backbone of our country and represent our core values: We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. We have not always lived up to these values.

Open Up Vs Break Up

A VC: Musings of a VC in NYC

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.

Reboot: Leadership and the Art of Growing Up

A VC: Musings of a VC in NYC

Jerry Colonna ‘s book, Reboot , came out this week. He had given me the manuscript to read so many months ago that I had to go back and read it again before I could write about it. So I bought the book yesterday and read it again over the last twenty four hours. AVC regulars don’t need any introduction to Jerry. I’ve been writing about him, citing him, and telling stories about him since the very start of this blog.

Oculus Quest

A VC: Musings of a VC in NYC

If there is a technology that has overpromised and underdelivered more than AR/VR over the last five years, I am not sure what it is. Facebook paid $2bn (or possibly more) for Oculus in the spring of 2014 and maybe a couple million Oculus headsets have been sold since then. And Facebook is reportedly continuing to spend billions more on Oculus. So when is all of this investment going to pay off? Maybe sooner than people think.

Striking The Right Balance

A VC: Musings of a VC in NYC

I was talking recently to a friend who advises a lot of boards. I asked him his view on boards overall. He said that he saw two styles, both of which he found problematic. The first style is the “rubber stamp board” that does whatever the CEO asks of them. The second style is the “meddling board” that acts like it is running the business. He told me he sees very few boards that manage to strike the right balance.

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Climate Adaptation?

A VC: Musings of a VC in NYC

While society debates how to deal with climate change, there are some scientists who are now saying that that time has passed and we now need to start planning society’s adaptation to the climate tragedy we have created on planet earth. This scientific paper from roughly one year ago is super depressing. I am linking to it because I read it this week and it certainly made me consider how our way of life may change dramatically in my lifetime.

Abridge

A VC: Musings of a VC in NYC

We seed funded a company late last year called Abridge and the company went public yesterday with their iOS and Android apps. Naomi wrote about the investment on the USV blog.

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Returning The Fund

A VC: Musings of a VC in NYC

I have always felt that every investment in a venture fund should be able to return the fund. That doesn’t mean that they all will. In fact, for many funds I have worked on, only one or two investments work out well enough that each of them can return the fund. So if you have a $100mm fund, you need to look at each and every investment and ask yourself if the company delivers on everything they are seeking to do will that return $100mm to your fund.

Labor Shortages

A VC: Musings of a VC in NYC

I read last week that there are a growing number of regions around the country where there are labor shortages. Businesses literally cannot find the workers they need to operate their businesses. Today is Labor Day, a day to celebrate the workers who built America and the labor movement that rose up to protect workers from abusive labor practices. And so it is worth noting that we don’t have enough labor in our country right now.

Reserves

A VC: Musings of a VC in NYC

One of the unique things about early stage investing is the ability (and in my view, the need) to continue to invest in the companies for multiple rounds of investment. Late stage, public market, private equity, real estate, and most other popular forms of investing typically involve a single or a time limited series of investments. But at USV, we typically will make four to six investments in a “name” over five to seven years.

Outschooling

A VC: Musings of a VC in NYC

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.

Audio Of The Week: Sarah Beatty and Montgomery Builds

A VC: Musings of a VC in NYC

The Gotham Gal loves this conversation with Sarah Beatty about her Montgomery Builds project and suggested that I give it a listen. So I am doing the same with all of you. entrepreneurship

Disappointment

A VC: Musings of a VC in NYC

Being a Knicks fan teaches you a lot about disappointment. At one point this spring, we thought we were going to get a couple top free agents and the first pick in the draft. We ended up with a lot less. Fortunately, I have learned a lot about disappointment in three decades of backing early-stage startups. Our business is one where a third of things we do don’t work out at all and another third deliver a lot less than we had hoped when we pulled the trigger.

Crypto IRA

A VC: Musings of a VC in NYC

I have an old IRA that I don’t pay much attention to. I thought about cashing it out but the tax load to do that was too much for me to stomach. So then I thought about investing it in crypto. But that turns out to be pretty hard. I think there is an opportunity out there for a crypto brokerage to offer IRAs or an IRA custodian to offer crypto, or both. Given the tendency for many investors to buy and hold crypto, it would lend itself to a long term investment product like an IRA.

Funding Friday: Break Kickstarter

A VC: Musings of a VC in NYC

Last month our portfolio company Kickstarter invited project creators to “ break conventions, but not our rules ” and create campaigns that were different from the traditional Kickstarter campaign. There are 99 “break Kickstarter” campaigns live on the platform now and I featured one of them last week. But there are many more super interesting and creative campaigns. I backed a bunch of them this week and thought I’d showcase them to all of you today.

Funding Friday: DefendCrypto.org

A VC: Musings of a VC in NYC

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.