Board Feedback

One of the most frustrating things about Board meetings is that it is difficult for founders and CEOs to get feedback on them.

I’ve seen some interesting approaches to addressing this problem lately.

Some companies are sending around post meeting feedback forms and asking all attendees to fill them out.

Some CEOs have asked their Board members to send emails to them summarizing their thoughts and take aways after the meeting.

I am a fan of anything that produces meaningful feedback for management from Board meetings.

My preference is to build the feedback function right into the meeting with a post meeting executive session between the CEO and directors where the feedback is delivered face to face in real time.

The big challenge with the post meeting executive session is that all Board meetings seem to run over on time and the end of the meeting is a time crunch.

So making time for the executive session is often challenging. But it is worth it in my view.

Regardless of what technique you are using, if you are running Board meetings and not getting feedback on them, you are doing it wrong.

Fun Friday: The Story Of My Avatar

I got this tweet today:

The answer is yes I have but it was eight years ago. I thought it would be fun to re-run that post.

Here is is:


 I saw this tweet when I got up this morning:

hey @fredwilson – whats the story behind ur avatar?

While longtime readers know it, I figure many of you don’t. So here it goes.

Starting about four years ago, Howard Lindzon started commenting actively on this blog. He was funny, he was smart, and I enjoyed our banter in the comments.

One march vacation, our family made a short stop in Phoenix, where Howard used to live. He emailed me and offered my son and me two tickets to the Suns game. We took him up on that and that’s how we met for the first time.

It turned out Howard was hatching an idea for a web show for investors. Think Rocketboom meets Jim Cramer. I told him it was a good idea and encouraged him to do it. Howard would fire ideas at me and I would give him feedback on them.

Out of that came Wallstrip. Here’s a post I wrote a little over three years ago announcing the launch of Wallstrip.

One of the original ideas for the show that never really worked out was that there would be a dozen well known bloggers who would write short posts about each daily show. Howard asked me to do that and I agree to do it at least once a week.

So that’s how the avatar came to be. Howard asked his friend Jenny Ignaszewski to draw up avatars for all dozen of the stock bloggers using photos of them that were available on the web. The first time I saw my avatar was when Wallstrip launched and there it was along with Howard’s and a bunch of others.

Fredwilson

From the minute I saw it, I liked it. It uses my favorite color (green) as the backdrop and the eye color (my eyes are sometimes blue and sometimes green and sometimes something else). It looks like me, but not too much.

So I began to use it a bit here and there around the web as I set up new profiles. But by no means was it the only profile picture I used. For corporate oriented services like LinkedIn, I’d use my Union Square Ventures headshot. For social nets like Facebook, I’d use a regular headshot. I used a photo of me taking a photo on Flickr for a long time.

But then I started to realize that the Wallstrip avatar was becoming my online identity. People would comment about it all the time. Around the time we sold Wallstrip, Howard asked Jenny to do a real painting of it which I now have in my office at Union Square Ventures. It’s a real conversation starter.

Sometime in early 2008, I just decided to go with it everywhere. It’s at the top of this blog and everywhere else I have an online identity. It’s my online brand now.

Like this blog, this was not planned. It just happened. That’s the way most of the important things in my life have come to be.

AI For Legal Cases

Our portfolio Casetext was in the news yesterday for raising $12mm, but the more interesting thing about Casetext is their product, called CARA.

CARA is a research assistant for lawyers that offers a super simple proposition:

Securely upload a brief and discover useful case law

CARA uses Casetext’s wikipedia-like database of >10mm court cases and annotations and sophisticated natural language analysis and artificial intelligence to understand the brief and recommend related cases for a lawyer to analyze and possibly cite in their brief.

Lawyers seem to love CARA. According to Silicon Valley Business Journal:

Casetext’s customers include Quinn Emanuel, Fenwick & West, Ogletree Deakins, Greenberg Traurig and DLA Piper.

“CARA is an invaluable, innovative research tool,” Quinn Emanuel partner David Eiseman said in a statement. “With CARA, we can upload a brief and within seconds receive additional case law suggestions and relevant information on how cases have been used in the past, all in a user-friendly interface.”

We think the legal business is ripe for AI-driven innovation. Much of legal research can and will be automated with tools like CARA.

If you are a lawyer and do a lot of legal research, check out CARA. Securely upload a brief here and check it out.

The Disqus Demo Day Story

I’ve told bits and pieces of this story here on AVC over the years but I don’t think I’ve ever told the whole story. Y Combinator (YC) Demo Day has been going on over the past few days up in Silicon Valley and it prompted me to remember a demo day in Boston (where YC started) ten years ago:


It was the summer of 2007 and back then YC would do a summer session in Boston and a winter session in the Bay Area. Paul Graham eventually moved himself and YC to the Bay Area and the summers in Boston ended. I agree with my partner Andy that those early demo days in Boston were something special.

So a few days before demo day, Paul Graham emailed me and told me that a YC team wanted to launch its new product on AVC at demo day. He explained it was a new modern comment system that was better than the ones that came with WordPress and Typepad (which was where AVC was hosted back then). I was intrigued as I really hated the Typepad comment system. But I did not want to do any work to add a new comment system to AVC. Paul suggested I give him the login credentials to my blog CMS and he would give them to the founders. I agreed and over a few days, Daniel Ha and Jason Yan, the two founders of Disqus, put their comment system onto AVC. They left all of the old comments in Typepad and set up Disqus to power the comments on the new blog posts.

I showed up at Demo Day excited to see all of the companies (19 that day) present. When it came time for Disqus to present Daniel got up on stage, explained that the current comment systems were terrible, and that they had built a better one. Then he pointed the browser on the presentation computer to AVC, scrolled down to leave a comment, and there was Disqus running at the bottom of the post. He showed how easy it was to login, post a comment, and how it rendered nicely in line with the post. It was slick and I was impressed.

After the presentations, the investors would mingle with the founders. Paul and Jessica put out a super nice cheese and cured meat spread. I went up to Daniel and told him that I really liked his presentation. He thanked me and asked me if I would keep Disqus on AVC. I can’t remember if it was even called Disqus back then. But anyway, I told him that if he and Jason could build me one feature quickly, I would keep Disqus on AVC.

Here’s that feature request. The Typepad comment system would email me every time someone posted a comment on AVC. But I would have to go to AVC to reply. It was clunky and I hated it. So my feature request was “send me the comment notification emails with the ability to reply right in my email” (on my Blackberry at the time). Daniel said they would look into it.

I think Demo Day was on a Thursday. The following Monday, I got an email from Daniel saying that they had launched my requested feature over the weekend. So I tested the feature and it worked exactly as I had imagined it.

I had been making this feature request of Typepad for some time and they had not been able to get to it. I totally understand that a big company with a long roadmap is different than two founders with a brand new product. But the fact that Daniel and Jason had built it and shipped it over the weekend impressed me.

Disqus has been running on AVC ever since and I still love the product and the founders.

But I did not think about investing in Disqus at the time. I thought it was a utility that could be replaced by an even better comment system that would come along some day. In January of 2008, I caught up with Daniel in San Francisco and he explained that Disqus was running on tens of thousands of blogs and everyone who commented on the AVC blog with a Disqus profile could also comment on those blogs with the same profile. Then it dawned on me that Disqus was a network, not a utility. USV invested something like $300k in a seed round a month or so later and we have been investors in Disqus ever since.

To me, this is the quintessential YC story. Two “hackers” built something that the market needed over the course of a month or two during a summer in Boston (they were based in SF), demoed it to a bunch of investors, hooked one of them with the slick presentation, and eventually got the VC to invest in their company. But the part I love the most about this story is the feature request that they implemented over the weekend. That feature turned out to be highly viral because anyone who left a comment on any Disqus powered blog would get an email when anyone replied to their comment (and still do). That brought people back and the conversations flowed much better on Disqus powered blogs than on the incumbents’ comment systems. That is the power of listening to your customers. And the power of turning a customer into an investor.

Stocktoberfest East

My friend Howard Lindzon, who I met on this blog something like twelve years ago, runs an annual conference for fintech entrepreneurs and investors called Stocktoberfest.

Yesterday he hit me up on sms and told me they are doing Stocktoberfest East in NYC next week on March 29th and 30th. He asked me if I would do a chat with him. I told him that I’m not that interested in stocks but super interested in digital assets, cryptocurrencies, blockchain, etc. So we are going to do a 30min chat and I’m calling it Cryptoberfest.

My vision for this talk is a completely unprepared and unscripted talk between two old friends about all the amazing things happening in crypto land these days. It should be fun. If you want to attend, you can get a ticket here.

Using Debt Like Growth Equity

If you are in the venture or startup business and don’t read Dan Primack, consider changing that. He’s great.

From his newsletter this morning:

Indebted: Last week we noted that Wal-Mart subsidiary Jet.com had acquired ModCloth, an online retailer of vintage women’s apparel. No financial terms were disclosed, but this didn’t feel like a success for either ModCloth or the venture capitalists who had invested over $70 million into the business since its founding 15 years earlier. Here’s what happened, per sources familiar with the situation:

  • In 2013 ModCloth went out in search of Series C funding, but the process was felled by a back-to-back pair of lousy quarters. So instead it accepted $20 million in unsecured bank debt.
  • ModCloth effectively treated the debt like growth equity, rather than recognizing the time bomb it could become.
  • When the debt first came due in April 2015, existing ModCloth investors pumped in new equity to, in part, kick repayment down the road for two years. This came amid four to five straight quarters of profitability, and just after the company brought in a former Urban Outfitters executive as CEO.
  • Once the income statement returned to the red, ModCloth again tried raising equity ― but prospective investors cited the debt overhang as their reason for passing on a company whose unit economics were otherwise fundable. Insiders could have stepped up but didn’t.
  • Jet.com heard of ModCloth’s debt coming due debt month, and pounced. We’ve been unable to learn the exact amount it paid, except that the amount left over for VCs after repaying the debt (and accounting for receivables) won’t be nearly enough to make them whole.
  • 2 takeaways: (1) Debt is not inherently troublesome for startups, particularly if it’s supplementing equity as opposed to substituting for equity. But startups must recognize that not all cash is created equal. (2) ModCloth was founded in Pittsburgh, but later moved its HQ to San Francisco. It’s impossible to know if things would have worked out differently had the company remained in the Steel City, but some of its quirky retail culture did seem to get commingled with the “grow grow” tech etho

I have lived this story several times in my career and we are seeing this play out again in the market.

It is tempting to use debt instead of equity to finance a high growth company, particularly when you cannot get equity investors to value your company “fairly.” When a company has achieved “escape velocity” and is growing quickly, lenders look at it and say “there is enterprise/takeout value here and we are senior to the equity so the risk to us is pretty low.” And so they will underwrite a loan to the company even though the market hasn’t made up its mind on how to properly value the equity. So the temptation all around the table is to take the debt and kick the can down the road on the equity in the view that more time, more growth, more market validation will fix things.

This can work out well. Our portfolio company Foursquare is an example of where this did work out well. A debt deal in the middle of a business model pivot gave that company the time to re-engineer its business model and validate it. And time also allowed the company to come to terms with how the equity markets would value it and its new business model. Foursquare went on to raise another round of equity capital and refinance its debt and is in a great place now.

But, as the Modcloth story points out, debt can also work against you. If you can’t execute well post raising debt and get to another equity round or some other transaction (an attractive exit being the other obvious option), then you can have your debt called from under you and lose the control over the timing and terms of your exit. I lived through this story with a company I backed in 1999 and which was sold a few years ago in a transaction that was very good for the lenders and good for the management and very bad for the early equity investors.

Dan’s point that substituting debt for growth equity is a risky bet is spot on. That doesn’t mean it shouldn’t be done. But it should be done with care and with eyes wide open.

The Decentralized Startups

If someone were to ask what the most successful startups of this decade are, the answer would likely be Snap (market cap $22bn). Uber and Airbnb might also be on the list although those companies were launched in the prior decade (2009 and 2008 respectively).

But what might be missed is the massive success of the decentralized startups, most notably Bitcoin (BTC) and Ethereum (ETH) this decade.

Look at these charts:

During this decade BTC has gone from essentially zero to about $1000/share which is a market cap of $16.3bn.

If anything, ETH is an even more impressive story. In less than two years (Ethereum was initially released in July 2015), it has gone from zero to a market cap of $3.4bn.

And anyone located anywhere in the world can invest in these decentralized startups and profit from them, unlike the traditional startups.

Obviously, there is no way to know where we go from here. Does ETH go to $100 or $5? Does BTC hard fork and cause the price to crash?

But of course the same is true of Snap, Uber, and Airbnb. Past performance is no guarantee of future success.

And it is also true that using traditional valuation methods (DCF, etc) on these decentralized startups is really hard. One of USV’s investors (LPs in the industry vernacular) asked me how to value a digital asset. It’s a great question and one we are working hard to understand. We don’t know the answer to it yet, to be honest.

But this much I know. There’s a new game in startup land. A new way to do things. And it is working for a lot of people who are playing that game right now.

Audio Of The Week: The Riff

My partner Andy and my friend David are doing an “interview cast” which is “a 24 minute conversation about one topic, with one expert.”

They call it The Riff and their first episode is about the evolving news media landscape with CNN journalist Laurie Segall.

Here it is:

Fun Friday: March Madness

We are on spring break with our son Josh this week in Utah and we caught most of the games yesterday. I am not a huge college basketball fan, I prefer the pro game, but there is something about march madness that is so great, particularly these first two weekends where the games come fast and furious.

So I thought we could have some fun sharing our brackets, or our picks, or whatever.

Here’s mine, sorry about the chickenscratch handwriting. I failed penmanship every grade in school for very good reasons.

I’ve got Villanova, Gonzaga, Kansas, and Kentucky going to the final four and Kentucky taking the trophy.

How about you?