Black Friday

As the holiday shopping season kicks off, we’d like to leave you with a 15 second message from our sponsor about where to do your holiday shopping this year.

The Direct Connection

It is an amazing thing. I can sit here in my home office and type into my computer and then hit publish and directly connect to millions of people around the world. People have told me stories of seeing AVC in a browser in China, Africa, and many other far flung places. And the people reading my words respond back to me with words of their own.

The technology that allows this is powerful but this direct connection happens because of something more. It happens because of the words I type and the frequency with which I type them. I know this and it is what compels me to type into my computer every day.

This direct connection is a blessing. It has changed the way I think. It has made me appreciate different cultures, different ways of thinking, and opposing points of view. It has opened my mind.

So in a time when the world seems headed in the opposite direction, I am reminded of the power of this direct connection, which is increasingly available to everyone on this planet. It makes me hopeful that the phase we are in is a temporary bump in a road which ultimately leads to a more peaceful and connected world. And I am thankful for that.

A Chart To Ponder

I was looking at some charts this morning. This one of the NASDAQ got my attention.

nasdaq chart

You can see the wind we’ve had at our back since the financial crisis of 2008/2009. Seven years of good financial markets.

My career as a fund manager started in 1996. We had five years of good times followed by three years of bust. Then we had five years of good times followed by two tough ones. Now we’ve had seven years of good times.

I will leave it at that. Sorry to be a bummer this morning.

Power Law And The Long Tail

If you look at the distribution of outcomes in a venture fund, you will see that it is a classic power law curve, with the best investment in each fund towering over the rest, followed by a few other strong investments, followed by a few other decent ones, and then a long tail of investments that don’t move the needle for the VC fund.

But that long tail is comprised of entrepreneurs and their teams. People who have given years of their lives to a dream that was ultimately not realized.

And as I have written many times over the years on this blog, I spent the majority of my time on that long tail. This is irrational behavior if you think about fund economics, but I believe it is rational behavior if you think about firm reputation.

The best thing you can do for this long tail is find a good home for the portfolio company. That could be everything from a modest acquisition to an acqui-hire. If you have to do a shutdown, then I like to see it done on terms the entrepreneur can live with.

All of these actions require irrational economic behavior from the investor(s). The goal is to get an exit that everyone can feel good about. The goal is not to maximize the VC’s returns from a failed investment. Because it doesn’t matter to the fund economics one bit but it can matter a lot to the entrepreneur and his or her team.


There are some investments that take years to make. They are often our best investments. Quizlet took something like five years to go from a company we got interested in to a USV investment.

In March 2009, we hosted an event we called Hacking Education. That was the official start of our focus on education. From that event came a thesis on how we would approach investing in education. We would invest in lightweight services and networks that allowed anyone to learn anything. We would not invest in services sold top down to the existing K-12 and higher education system. We wanted to obliterate, not automate.

We started hunting around for services and networks that fit our thesis. One that caught our attention was Quizlet, the leading web and mobile studying tool. We got an intro through Christina. Eventually Andy got a meeting. We found out that Quizlet had been bootstrapped, was profitable, and was not interested in raising outside capital. But Andy did not take no for an answer. He kept calling on them. He brought me to meet the two Quizlet leaders, Andrew and Dave, in September 2012. We got the same story in that meeting but we did make an impression. We started inviting them to our events in SF and they usually would come. So we kept doing that and kept stoping by to say hi when we were in SF.

Earlier this year Dave called me to say that they were going to raise outside capital. He and Andrew had concluded that the opportunity to build and develop peer to peer learning and studying tools for web and mobile was so large that they could not continue to bootstrap. So we jumped onto the opportunity and threw ourselves at it. That process had a number of fits and starts but we hung in there and eventually the financing came together the way Andrew and Dave wanted it to and we joined our friends at Costanoa, Altos, and Owl in a $12mm Series A round for a ten year old company. Just writing those last few words makes me happy. You don’t see many Series A rounds for ten year old companies. But when you do, they are generally good ones to do.

So what is Quizlet? Well if you have kids in middle, high school, or college, they probably use it. Quizlet is a studying/learning tool written by Andrew Sutherland for his own use ten years ago when he was studying for a french test. He put it out on the web a bit later. He was joined by Dave Margulius who helped him turn Quizlet into a business by implementing an elegant freemium business model. Quizlet is free for anyone to use. But if you want to do certain higher value things, you can pay a small amount every month for access to them.

Quizlet lets anyone create a study set and practice it online and on mobile. And it also allows anyone to use someone else’s study set. Quizlet is peer to peer learning. Over 100mm study sets have been created by users and over 1bn study sessions have been done on Quizlet. Quizlet has been a top ten education app in the mobile app stores for years, a fact I was constantly reminded of every time I went to look at the education category in the years we were chasing this investment.

Here are some examples I just found by searching around:

Just imagine a massively open database of 100mm study sets like that which is growing by the day. And you get why we have been and continue to be so interested in Quizlet.

There are over 7bn learners on planet earth. Within a decade, the vast majority of them will have a mobile device connected to this massively open database of study set which is available for free. These 7bn learners will be able to contribute and consume these study sets. And in the process the world will become more educated and more literate. That is hacking education and that is why USV is so excited to, finally, be an investor in Quizlet.

App Streaming

We’ve talked a lot here at AVC over the years about the difference between web and mobile and the pain points around mobile web and getting users to download your native app and the challenges of dealing with all of this stuff. Deep linking and app constellations are part of the solution but the mobile environment remains a far cry from the web where you could follow links all day long and never need to download anything.

Google, which has a strategic interest in making mobile more like the web, is working on something called App Streaming which allows a user to get the benefit of a native app experience without having to download the app. Here’s a blog post that talks about how all of this works.

This is still pretty experimental but I think its an important tool for companies who are struggling to grow users/usage on mobile.

I started writing about deep linking in mobile apps in mid 2012 and it took many companies, including Apple and Google, two to three years to implement deep linking in a way that makes it truly ubiquitous to users.

I hope it won’t take as long for app streaming to come to market and get adopted by the mobile operating systems and app developers. The more we can do to make the mobile experience web-like the better in my view.

Video Of The Week: Building Global Companies Quickly

Bloomberg’s Emily Chang did a great interview with Reid Hoffman earlier this week. I first caught some of it on Bloomberg’s TV channel.  I cannot find the entire video but parts of it are available on Bloomberg and YouTube.

Here’s a segment I like where Reid talks about a course he’s teaching at Stanford on rapidly scaling global companies and how different types of companies require different strategies to do that.

Update: Emily sent me a link to the entire interview on Twitter this morning. It is here

Feature Friday: Google Now Stories

The Google Now app has slowly but surely become one of the most used apps on my phone. I use it to keep track of my favorite sports teams, stock prices, weather, travel times to my meetings, and, most importantly, stories I want to read. I have never told Google Now what I want to read about but using all that Google knows about me, and that is quite a bit, Google Now always has something interesting to read for me.

This morning there were roughly twenty story cards in my Google Now feed. They are an eclectic mix of stuff. This screenshot from my phone shows a small sample of them.

google now stories

I like the user experience of swiping the stories out of my feed after I’ve read them or if I don’t want to read them. I can also leave them in my feed to “read later” by not swiping them away.

I also like the “is this card useful” question that you see in the screenshot above. I’m not sure what causes that prompt but I always answer it because I know it’s making Google smarter about me.

I’ve tried many news apps over the years. None of them have ever stuck for me. Google Now stories has stuck. It’s really good.

Getting The Deal Done

There’s a scene in Ben Horowitz’ book The Hard Thing About Hard Things when LoudCloud was burning through cash and financing options were challenging and so they went public. The valuation of $450mm was much lower than they had hoped and getting the deal done was hard but they got it done. It saved the company and ultimately the company, after changing its name to Opsware, sold to HP $1.6bn.

Here’s the opening text from a story about that LoudCloud IPO:

Shares in the company climbed 15 cents, or 2.6 percent, to $6.15 on a volume of 15 million shares. This gives the company a market value of about $450 million, less than half the $1.1 billion it planned for in its earlier filings.

Thursday, Loudcloud raised $150 million when it sold 25 million shares for $6 each to large investors such as mutual and pension funds. Lead underwriters Morgan Stanley and Goldman Sachs twice changed the size of the offering to make it more appealing to investors.

Initially the company planned to sell 10 million shares, or a 9.6 percent stake of the company, at a range of $10 to $12. The terms changed to 20 million shares, or a 30 percent stake, at a range of $8 to $10 in mid-February. Thursday, the company altered the terms again, offering 25 million shares at $6 each, or 34 percent of the company.

“It’s desperation,” said Dave Nadig, a portfolio manager with, who said he will not buy the stock. “I think they’re pretty much standing on street corners trying to find people to buy. They need the $150 million to build their business.”

Sometimes you just need to get the deal done. When you are burning through cash and need to finance your company, the terms might suck, but the cash doesn’t. So you do the deal and live to fight another day. Marc and Ben did the right thing at LoudCloud and Jack Dorsey did the right thing at Square.

If you believe in your business and yourself, take the money and get back to work. A financing is not an exit. The price matters less than the cash most of the time.

Knee Jerk Reactions

Warning: This post is going to generate a debate in the comments that will likely be upsetting. Don’t wander into them if you can’t tolerate strong opinions. That said, free speech and passionate debate is a cornerstone of the world the terrorists want to destroy and I am proud of the fact that it happens here daily.


I’ve held back on commenting on the horrible events in Paris last friday night, thinking that I don’t have much to add to the discussion. But as horrible as that night was, the knee jerk reactions that are now coming out of the mouths of supposedly rational people are even more horrible. As my partner Albert asserted this past weekend,

Turning against Muslims or against refugees is a terrible response as it only confirms the apocalyptic ideology of the attackers

The knee jerk reactions of politicians and governments to terror attacks over the past twenty years have not helped the situation and have likely fed necessary energy into the jihad movement. I am not a student of martial arts, but I do understand the principal of using your opponent’s energy against them. I believe the terrorists are doing a wonderful job of turning the energy of the free world against us. And we have to stop letting them do that.

So what should we do instead? Drink champagne. Go to a football match or a Knicks game. Sit at a cafe and have an espresso. Go see live music or perform live music. Have sex with someone you love no matter what their gender is.

And what should governments do? I am with Albert that we should continue use our considerable investment in data science to infiltrate and understand these terror networks. I want to print something he wrote in that post over the weekend because I agree with it completely and can’t say it any better:

But I am staunchly for collective intelligence. Collective intelligence in this case against terrorism, but also more broadly against crime and most importantly as a basis for improving education and healthcare. I cannot see how society could avail itself of the benefits of collective intelligence in any form of government other than a transparent democracy. And conversely it makes no sense for democracy to deny itself those benefits.

Insisting on privacy because we fear our own governments will continue to pit citizens against secrecy-seeking governments in a spy versus spy society. Many will protest that we are already there. Maybe so, but why double down on a mistake? Snowden’s revelations have given us a unique opportunity to start over. I would pardon Snowden on those grounds alone.

Governments can and should tell their citizens what information they are collecting and how they are using that information. And companies should disclose which of these programs they participate in. Any and all such programs should have oversight by elected politicians and transparent reporting on their scope and effectiveness.

As for the potential for collective intelligence to help, we see it all around us on the Internet. From the uncannily accurate do you know so-and-so suggestions on Facebook and LinkedIn to the related products on Amazon. I can also observe the effectiveness of collective intelligence from behind the scenes in many of our investments and in particular with Sift Science which does fraud detection. Combining a lot of data really does work.

Democracy, human rights and progress through critical dialog and collective intelligence. We need all of those more than ever.

That’s what I think we should be doing. I do not think we should be demonizing religions and people seeking refuge. Demonizing is the behavior the terrorists want to see from us. We should not let them have that victory.