Posts from April 2014

The Pied Piper Effect

I’ve said many times on this blog that I like to give away bitcoin. I have my Coinbase wallet on my phone (yet another great reason to use a phone that allows you to do what you want with it). I’ll be out at dinner with friends or wherever, and I will take out my phone and send some bitcoin to a friend. It is amazing to see the effect of owning bitcoin on people. They go from being dismissive to being fans pretty fast when they own some bitcoin.

So it was with great joy that I read that every MIT student (all 4,528 of them) is going to get $100 in bitcoin to use however they wish. This is like giving every MIT student a laptop thirty years ago. That didn’t happen, but I had to make some kind of comparison. I can’t imagine a better group of students to infect with bitcoin religion than the MIT students. This will encourage them to get into bitcoin, understand it, and build stuff on top of it.

I don’t know the two MIT students who are doing this, but I do know their largest funder. I have reached out to him this morning in hopes that I can join the funding group behind this bitcoin giveaway. It is awesome. I love it.

Use Social Sharing Platforms Like A Panel

More and more artists are embracing social sharing platforms like YouTube (video), SoundCloud (audio), Wattpad (storytelling) to get their works out and connect with fans. We have invested heavily in this category and both SoundCloud and Wattpad are USV portfolio companies. Another benefit of these platforms is you can use your followers/fans on these platforms like a panel. If you assume that the millions of followers you have on SoundCloud are more or less a representative sample of your entire fan base, then their behavior is more or less a reflection of the behavior of your entire fan base. If they like a new song a lot, it will probably be popular with your entire fan base. If they aren’t so excited about it, then maybe it won’t be a hit with your fan base.

SoundCloud announced a new feature for creators today that is a great example of this. It is called “Top Cities”. This is how SoundCloud describes it:

Plan your next tour, release strategy, and get better at connecting with your fanbase, by knowing exactly where they are — just click the ‘Top cities’ tab in your stats dashboard.

I recall seeing startups crop up from time to time where this was the entire business plan – figuring out where artists fans were so they could plan a tour. It turns out it wasn’t a great business. But I do think its a great feature. And just one example of how you can turn your followers on social sharing platforms into a panel that will allow you to understand them and connect with them better.

Consider The Alternatives

There has been a lot of hullabaloo about Airbnb here in NYC over the past few weeks. The NY Post had a field day using Airbnb as a punching bag for a week or so. It made for good tabloid media but lacked a honest discussion of the pros and cons of Airbnb and all that comes with it.

I’ve lived in NYC for over thirty years. It’s a very dense urban living environment. As the Gotham Gal likes to say, “we live on top of each other.” And clearly having your neighbors renting out their apartment to folks visiting NYC for days or weeks at a time is problematic. I think Airbnb has a lot of work to do here in NYC to educate folks about what the service is actually all about, who most of the 40,000 hosts here in NYC are, and how the service works to protect people.

Let’s take two relatively unknown aspects of Airbnb.

– identity checks – many hosts will not rent to people on Airbnb who do not have their identity checked and verified. Airbnb provides this identity check service to the hosts and a large percentage of guests on Airbnb are identity checked before they show up and rent a place.

– smoke and carbon monoxide alarms – Airbnb requires hosts to have working smoke and carbon monoxide alarms in their homes. if a host does not have one, Airbnb provides it to them.

Now let’s compare that to the alternatives. Do hotels verify the identity of their guests? Do hotels provide smoke and carbon monoxide alarms in every room? Do apartments rented out on Craigslist verify the identity of their guests? Do apartments rented out on Craigslist provide smoke and carbon monoxide alarms?

My point is this. You can attack Airbnb for all sorts of things. But consider the alternatives. Do we want hosts putting their apartments on Craigslist instead of Airbnb? Do we want tourists who only have $150/night to spend on housing in NYC to rent a room in a flophouse or the apartment of a photographer who is away for a few weeks on a photo shoot?

I think the better approach would be to have a conversation with Airbnb’s executives about how to make the service work better for New Yorkers. By making Airbnb work better here, we get the best of both worlds. A safer alternative than Craigslist and a more affordable alternative than high priced hotels. My hope is that cooler heads prevail and we find a happy medium that works for everyone.

How Big Is The Tablet Market?

Note: This post has been edited to correct some errors on the size of the global PC and smartphone markets.

Benedict Evans has a great post in which he dissects a bunch of Apple data and concludes that both tablets and PCs have topped out and the smartphone is really the only growth sector in consumer hardware right now.

Here is iPad vs iPhone sales data using a trailing twelve months filter to level out spikes from new product introductions:

iphone vs ipad

Benedict makes the argument in his post, which I largely agree with, that Android is not really cutting into the iPad’s sales any nearly as much as it is doing that in the smartphone market.

So, if we say that iPad is 80% of the market, and iPad has flattened out at roughly 80mm units a year, that means the tablet market is about 100mm units per year.

Global PC sales have also topped out (also from Benedict’s post) at about 350mm units annually.

global PC unit sales

Smartphones, on the other hand, are approaching 1bn units a year globally and are still on a sharp growth curve.

pcs vs smartphones

In theory, every person on the planet could and maybe should have a smartphone. Obviously we won’t hit that number for a very long time, if ever. But the global smartphone market is much larger than the PC and tablet markets now.

Design and build for the phone. Because that’s where the users are and that is where they will be.

Update: I wrote this before getting on a bike and riding out to Brooklyn. As I was riding across the Brooklyn Bridge, I realized the thing that could change this – price. If high quality (think Nexus 7) tablets get down to sub $50, that could change a lot. I would imagine every student would be issued a tablet like that at the start of the school year. They would become the default reading and watching devices. I think that can and will happen within five years. So maybe we are witnessing a temporary stalling of the tablet market while these devices wait to become affordable for everyone.

Feature Friday: Voice Posting

It’s Friday and I’m in Middletown Connecticut and I don’t have a laptop with me. All I’ve got is my Nexus 7 and my phone and so I thought I would I try Google Voice Recognition to write a blog post and see how it goes.

So I just fired up the WordPress app on my Nexus 7 and I hit the little button at the bottom of the keyboard that’s the microphone and I’m just talking into the Nexus 7 now and this is what being recorded.

I think it’s pretty easy to post with voice. This is working out pretty great and I think Google has pretty much got it nailed. Anybody who doesn’t like to type but is happy to talk can start blogging.

I don’t really have a whole lot to say today other than this so I will quit now.

Feature Friday is Google Voice Recognition on Android.

PS – I did not edit any of this other than to do some punctuation and make some paragraphs.

Options and Offer Letters

A CEO of one of our portfolio companies sent me a question about process in making offers and equity grants. I sent him a reply. And I thought, “this reply is a blog post”. So here is the reply with the specifics redacted. I hope folks will find this useful.

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It is a Board’s responsibility to approve all option grants. Most boards do this at the start of the Board Meeting. It is usually just a formality, but it is good governance to do that.

The management team obviously can’t wait for the Board Meetings to make offers. So most companies make offers that are contingent on board approval, but that approval is assumed that it is going to be there. Otherwise the management will be in a tough spot having made a promise they can’t keep.

What I generally suggest is that management have a standard options grant. It could be as simple as “everyone gets at least 1000 shares when they join, important role players get 5000 shares, directors get 10,000 shares, software engineers get 10,000 shares, senior software engineers get 20,000 shares, VPs get 50,000 shares. C level gets 100,000 shares”

I just made that up. You should make one that makes sense to you.

Then you get the Board to sign off on the standard grants. Then you can make offers with standard grants in them knowing that they will be approved.

If you want to go wildly off the standard grant for a special situation (relo, super star, etc), just shoot the board an email and get buy-in before making the offer. You will still want to get formal approval at the next Board Meeting.

I also suggest building an options budget. To do this you take your standard grant schedule, and then map it to your hiring and retention plan (I suggest granting options to current employees every two years as part of a retention plan) and then you will have an options budget for the next few years. That is a great thing to have.

For many of you, this is all obvious stuff. But you would be surprised how confusing all of this is to many entrepreneurs. So I figured I would put it out there.

Counting The Hits

Venture Capital is a hits business. All of the returns come from the top cohort of investments. So figuring out how many “hits” there are over a given time period turns out to be a useful exercise.

Aileen Lee posted her attempt to do that on TechCrunch a while back. I countered with a post of my own on the topic.

Those two posts started William Mougayar on a long process to figure out what the right number is. This week he published his findings.

William has found 235 global “tech” companies that were started since 2000 that have gone on to be valued at north of $250mm.

I think William’s efforts are the most exhaustive I’ve seen to date but I don’t think the list is anywhere near complete, particularly for the $250mm to $1bn cohort.

I pointed him to three or four of our portfolio companies that are carrying valuations north of $250mm that he did not have on his list. And I am sure there are many more like that out there.

My guess is an exhaustive list of global tech companies founded since 2000 that have gone on to be valued at north of $250mm would be 400-500 companies and possibly more.

It is very unusual for a company to get to $250mm in valuation in a year or two so you would not have many companies started since 2010 on this list, yet.

So if we take my guess and divide by ten years, that means there are 40-50 global tech companies started a year that go on to be worth $250mm or more.

That feels about right to me. Let’s help William compile that list. Leave him comments on his post or this post suggesting companies he has left out.

CrowdRise

Yesterday the news broke about our most recent investment, CrowdRise. I wrote a bit about it yesterday on usv.com. I thought I’d add some thoughts here as well.

Many of our best investments came to us over time. We did not invest the first time we met them, or the second, or the third. CloudFlare was like that, SoundCloud was like that, Behance was like that. Zynga was like that. FeedBurner was like that. And CrowdRise was like that. I told the story of how I met them in 2010 and we did not invest until 2014 in the usv.com post yesterday. Many things, like wine, get better over time. And when you wait on them, these companies often turn out to be great investments.

Another thing about this investment that feels right is the domain. We have been early and consistent investors in crowdfunding at USV. We like everything about this category of company. We like the democratizing aspects of a true marketplace model. We like that it supports discovery, curation, and personal connections between funders and fundees. We like that we have become recognized domain experts and have been able to invest in some of the very best companies in this sector. It was our early expertise in this sector that led to our first meeting with CrowdRise back in 2010. If you go deep on a sector that you really like, it pays dividends, again and again.

But the thing that feels most right about CrowdRise is the impact that this company and their service has on the world. Yesterday, runners in the Boston Marathon raised over $25mm on CrowdRise. If you click on that link you can see the runners, the charities, and the teams that collectively made up that massive expression of generosity. These are not fatcats donating millions to their favorite cause (which is totally fine by me!). This is everybody giving 10s and 20s in a scale that adds up to $25mm+. This will happen again at the NYC Marathon, The Ironman Triathalon, and a many other events that will take place this year.

While events drive a lot of giving, they are not everything that happens on CrowdRise. As regular readers of AVC know, we have been raising money for CSNYC on CrowdRise. If you feel generous today and want to support expanding CS education in the NYC public schools, please head over to CrowdRise and support our cause.

Everyone on CrowdRise has a profile. Here is mine. It does not show individual gifts, but it does show the fundraisers I have run on CrowdRise. Over time, I hope and expect that these profiles will live up to Edward Norton’s vision that he shared with TechCrunch yesterday:

“‘Facebook’ is who I am as defined by my social life; ‘Linkedin,’ is who I am as defined by my [business] life; and ‘CrowdRise’ is who I am as defined by my activist life,” 

If you are active on CrowdRise, I would encourage you to fill out a profile for yourself and start doing online fundraisers for your favorite causes. It’s both efficient and fun. And that’s a powerful combination.

Valuations?

I just listened to this podcast with Marc Andreessen, Chris Dixon, and Benedict Evans. And since the post I was going to write today is now delayed until tomorrow, I will simply run the podcast as my post of the day. Lot’s of great stuff in here. I particularly liked the bit (about 17.5 mins in) where Marc says “there’s no public market bet on bitcoin, there’s no public market bet on crowdfunding, etc, etc”.  We’ve got those bets and I hope we can share them with the public markets someday :)