Posts from January 2015
I just realized we haven’t done a fun friday since mid December. It’s gotten way too serious around here. I’m sorry about that. So we are going to rectify that by posting our favorite comedy routines (youtube embeds or anything else that will work in the comment thread).
Here’s my contribution. I recently saw Jason Mantzoukas in Sleeping With Other People and he just cracks me up. So I spent some time on YouTube just now looking for something good from Jason. This bit about making french press coffee is spot on and is why I never make coffee that way.
So now I’ve made my contribution to fun friday. It’s time for yours.
I got fed up yesterday with seeing this on my phone all the time
That red notification next to the Facebook app is basically permanent because it is about messages that I need to download FB messenger to receive and clear the notification. I love notifications, they are the primary way I navigate my phone, and I am just a little bit OCD about clearing them. But I don’t use FB messenger. I use iMessage with my family, Kik with USV folks and a few others, and SMS via iMessage for the rest. So I’ve avoided downloading FB Messenger because I don’t need yet another messenger on my phone.
Yesterday afternoon I ran out of patience after seeing a new notification, clicking on it, only to find it was yet again a prompt to download FB Messenger. I decided to rant a little bit on Twitter and fired off the following tweetstorm:
I am a big fan of the “constellation” approach to mobile apps. Google does it well. Dropbox does it well. Facebook does it well. I think its a trend that will continue because less is more in the mobile app user experience and app developers and the mobile operating systems are making it easier to seamlessly move from app to app, like what happens on the web already.
But there is a bridge too far and I think using mobile notifications to force someone to download an app they really don’t want, just to clear the damn notification, is exactly that.
I’m hoping users and developers reject this approach. I’m afraid they won’t because it has worked so well for Facebook.
The Gotham Gal and I are on the west coast for a while, escaping the NYC winter now that our kids are all out of the house.
That means this blog, which normally gets updated around 5-7am eastern will get updated around 5-7am pacific this winter.
We will resume our regularly scheduled programming when NYC thaws out.
I kicked off the second topic of the week discussion on usv.com today with a post about community ownership of Internet applications and services.
If you want to read the post and/or join the discussion, go here and do that.
Here’s a teaser to get you interested in doing that:
With more and more web and mobile applications deriving their value mostly or completely from their user base (Facebook, Twitter, eBay, Etsy, Reddit, Kickstarter, Uber, etc, etc), there is a growing sense that the community could or should have some real ownership in these businesses.
I go on to explain a bit about why this has not happened except in very rare cases and what needs to get figured out to make it happen more frequently.
There’s a lot going on, including approaches unleashed by blockchain technology, to make this easier to do and we think this is a trend worth watching and discussing. That’s why we made it the topic of the week.
There was a good discussion in the comment threads to yesterday’s post. This comment from Rick made me think a follow-up post would be helpful.
Seed, Later Stage, etc. all mean different things to different people. That’s where the confusion comes from.
I wrote a post explaining how we think about seed last June. Here’s the important part from that:
The first step you need to climb is building a product, getting it into the market, and finding product market fit. I think that’s what seed financing should be used for.
The second step you need to climb is to hire a small team that can help you operate and grow the business you have now birthed by virtue of finding product market fit. That is what Series A money is for.
The third step you need to climb is to scale that team and ramp revenues and take the market. That is what Series B money is for.
The fourth step you need to climb is to get to profitability so that your cash flow after all expenses can sustain and grow the business. That is what Series C is for.
The fifth step is generating liquidity for you, your team, and your investors. That is what the IPO or the Secondary is for.
At USV, we like to invest in a company once they have launched a product and we think that they have either found product market fit or they are well on their way. If you think about the “five steps” that leads us most often to invest in the Series A stage.
But occasionally one or two people, working nights or weekends, or working in an accelerator, or working for themselves and bootstrapping, are able to get a product into the market, get adoption, and get to or close to product market fit. They don’t need $3mm or $5mm, they need $500k to $1.5mm to finish off the search for product market fit, allow them to work full time on their project, and hire a few people to help them improve the product. That is the kind of seeds we like to do at USV.
Here are some examples:
Delicious – Joshua Schachter had built Delicious working nights and weekends, launched it, got traction, and needed $1mm to leave his day job, start a company, hire some people, and scale the product.
Tumblr – David Karp and Marco Arment built Tumblr while doing consulting to others. Tumblr took off and they needed to stop doing consulting work so the two of them could focus 100% of their time on Tumblr. Spark and USV each invested $300k to help them do that.
Etsy – Rob, Haim, and Chris built Etsy themselves, launched it, and were scaling the business. They had raised a little money from two local entrepreneurs but they needed more to keep Etsy growing. We participated in a $600k seed round to help them do that.
MongoDB – Dwight, Eliot, and Kevin had invested their own money and time getting the 10gen “stack” into the market. They wanted a financial partner to help them continue to fund the effort to find product market fit. USV provided seed capital so they could do that. They ended up finding product market fit for the database, MongoDB, but not the rest of the 10gen stack and they refocused the business entirely on the database and then were able to demonstrate product market fit and get to a Series A.
Foursquare – Dennis and Naveen built the initial version of Foursquare themselves. They launched the product and started to get users who liked the product, including a bunch of folks at USV. We liked what they were up to and thought they were close to nailing product market fit. We led a seed round that allowed them to hire a bunch more engineers who essentially rebuilt the product so it could scale.
Kickstarter – Perry, Yancey, Charles, Luke and maybe a couple others got the initial Kickstarter service launched and struck a chord with it. They had raised some capital from friends who helped them get the product into the market. USV led a seed round so they could hire a team and scale into the market.
Amino – Ben and Yin built Amino, went through Techstars, got their iOS product into the market, and proved that there was a market for native mobile communities. We led a seed round to enable them to hire a few more people, get an android app into the market, and nail product market fit.
OneName – Ryan and Muneeb built and launched OneName while they were in Y Combinator. We saw what they were doing and liked it a lot. We led a seed round to enable them to flesh out the product and build out the initial use cases.
Those are not the only seed investments we’ve made at USV. We’ve made over twenty seed investments over the life of USV. But these are good examples and I think they do a good job of explaining what it is we like to fund at the seed stage at USV.
We (USV) raised a new venture fund at the start of last year and started investing it in the spring of 2014. It is called USV 2014. We have made six investments in it so far and five of them are seed investments. That’s a very high ratio for USV and we do not expect that ratio to continue over the life of the fund. In fact our next investment will be a classic Series A so we are already lowering the ratio. But it is a bit of a return to form for USV as half of the initial investments in our first fund (USV 2004) were made at the seed stage.
In our core early stage funds (as opposed to our Opportunity Funds), we make initial investments at the seed, Series A, and Series B stages. In an ideal world for USV, there would be a normal distribution of these entry points with the highest percentage in the Series A stage. Over the entire history of USV, that is very much true. But on a fund by fund (or year by year basis) it varies a lot. It is mostly us reacting to the market. When the later stage rounds are too expensive on a risk/reward basis, we tend to move earlier. And when we can get good risk/reward opportunities in the Series A and Series B stages, we tend to move later. The downturn of 2008/2009, for example, led us to move a bit later in our 2008 fund because we could invest in more mature (and therefore less risky) opportunities at attractive prices.
The current market environment has pushed us to invest earlier. Some of it is that the Series A and particularly the Series B valuation environment has gotten very expensive relative to the risk as we see it. And some of it is that we are in a period of flux, where it is not entirely obvious to us where the next big things are going to happen. We have some ideas, of course, and I have been exploring them here at AVC and we have been exploring them as a team on usv.com. We think that in times of flux it is attractive to make a bunch of smaller seed investments in areas we think are going to emerge as important in a few years.
So that explains the move to seed as our primary entry point last year. I think it will continue this year but maybe moderate a bit as some of these developing markets mature and become more investable at scale.
Ok. Now that I’ve explained why I’m thinking about seed investing a lot these days, I’d like to talk about how we do seed at USV. Here are the important points:
1) We do not take a shotgun approach. We do not view seed investments as “options”. We only make a seed investment if we have as much conviction on the team and the opportunity as we would at the Series A round. We are as committed to our seed investments, both in terms of the time we spend with them and the willingness to follow-on in them. They are core investments with as much stature in our portfolio and in our firm as any other early stage investment. This is critical to understand. And it is not true of many (most??) VC firms who make seed investments.
2) We like seed investments in teams and opportunities where they have built and launched a product already. We don’t like investing in a concept or participating in a round where the uses of the capital will be to build and launch a product. This means the vast majority of seed rounds are not a fit for us. We pass on a lot of seed stage opportunities because it is “too early” for us. That is a comment on the specific opportunity however, and not seed stage investing as a whole. This confuses a lot of people. They tend not to think of USV as a seed investor when in fact we do make a lot of seeds (over 80% of last year’s investments, for example).
3) We will often lead the Series A (and sometimes Series B) in companies where we did the seed investment. We led both the Series A and Series B in Etsy and we co-led (with Spark) the Series A and Series B in Tumblr. We were seed investors in both companies. We continue to do that where it makes sense for the founders and USV. That is not a requirement or an expectation, but it does happen and I believe it is a very good thing in the right circumstances.
4) We like to participate in syndicates in our seed investments. We don’t focus too much on ownership at the seed stage. We do focus on the investors coming together around a project. We like partnering with smart angels, seed funds, and even other VCs, if the other VCs are aligned with us on how they are thinking about the particular seed investment. Our investment with Spark in the seed round at Tumblr is a good example of two VC firms partnering up at the seed round and doing a good job working together and scaling into the opportunity.
USV will never be confused with a seed fund, but we sometimes act very much like one, except that we can and will invest 20-30x our initial investment over the life of the company. That combination (a committed and active seed investor + deep pockets) is unusual. You can get one of those two a lot. But rarely both. So if you are working in an area that is interesting to USV, and if you have launched something into the market already, and if you are doing a seed round, please do reach out to us. We are in the business of making seed investments and doing a lot of it these days.
The Gotham Gal and her friend Nancy Hechinger have put on the Women’s Entrepreneur Festival for five years now. It’s become an annual celebration of women and entrepreneurship. It was held in NYC this past wednesday and thursday. Here’s the opening keynote the Gotham Gal delivered (it is the first 12-13mins of this video. the talk afterward is also very good):
The Gotham Gal moved from an old macbook air to a new one about a year ago. When she moved all of her files, configurations, and settings from the old macbook to the new one, somehow her iPhoto folders didn’t come over correctly. She was missing a bunch of photos on her new laptop and could not seem to find them on the old one.
I tried to help out but quickly got frustrated. Somehow she had messed things up in her moves from mac to mac to mac over the years and she had not backed up her iPhoto properly.
She told me that there were years, maybe a decade or more, of photos of our family and such on that laptop and that she feared they were lost.
So last week I decided to take another shot at it, using a Dropbox feature that scans your iPhoto library and backs up all the photos in it to Dropbox. I installed the Dropbox for Mac client on her old machine and let it do its thing. It eventually prompted me with the option to backup all of her iPhoto library to her Dropbox. I clicked yes and it started scanning and scanning and scanning. It must have been crunching away on her hard drive for an hour or more and eventually it said it had found over 14,000 photos that it wanted to upload.
I thought “14,000!!, that must be all of her lost photos” and went upstairs to tell her the good news. It took over a day to upload all of the photos and it seems that Dropbox found some old buried folders that I could not find myself that contained all that she had thought had been lost.
We haven’t taken a deep dive yet on the 14,000+ photos to see if they include everything she thought was lost. But I have a strong hunch that we have.
It’s a great ending to a frustrating story. If you had a fire in your house and you had to choose the few things you wanted to get out before everything went up in flames, family photos would likely be near the top of the list, after people and pets. So losing them, or thinking you lost them, is a terrible feeling. And finding them is an amazing one.
Last week Joel sent everyone at USV an email outlining his journey through and exploration of the Dark Web which ultimately resulted in a purchase of a pair of boots for his girlfriend. Jonathan replied to all with “this is the best thing I’ve read on the Internet this year” to which I replied “except it isn’t on the Internet. it should be”.
Joel got around to posting it to the Internet earlier this week. It is here.
If you haven’t used Tor, if you haven’t bought stuff from these anonymous marketplaces, if you haven’t laundered your bitcoin, if you haven’t arranged for an untraceable shipment, you might want to read how all of this goes down on the Dark Web.
As my partner Brad explained in a follow up post on the topic of the week thread on usv.com, we were so fascinated by Joel’s exploration of these Dark Web marketplaces because it feels like a trip into the future in some ways. Brad said:
The really interesting thing about Joel’s analysis is what it tells us about the future of open, transparent and legal markets on the Internet.
All this leaves me wondering not so much if the world will move toward decentralized, and disaggregated marketplaces, but when and why. Because the activities on the dark web are largely illegal, there is no other choice. For the rest of us, we are still generally willing to depend on a centralized platform for discovery, and identity management. For the moment, we are also still willing to accept the fees, the terms of service, and the bundling, these platforms enforce. My guess is the models pioneered on the dark web will come into the light first as leaner more efficient competitors to the first generation of peer economy companies, but the question I am still struggling with is where to look. Are there legal markets where the value of a decentralized market is greater so this transition will happen sooner, or will it happen first in any market where a first generation peer economy company goes too far by economically and politically disenfranchising the value creators at the edge of their network?
This conversation gives me some small desire to go on a shopping spree myself because its easier for me to understand something with my hands than my eyes. If and when I do, I’ll report back here, as always.