Posts from November 2015

Tightening Your Belt

In the wake of the Thanksgiving weekend, this post could be about something else. But I’m talking about getting a handle on your company’s spending.

A number of our portfolio companies have recently reviewed their spending (largely without any prompting from their board and investors!) and have concluded that things got a bit out of control. It is amazing how easy it is to take costs out of your business after two or three years of hypergrowth where the focus was on hiring, growing, expanding, and retaining the team.

In many cases, these efforts to reduce spending have been done without impacting headcount. There are a lot of vendors who can be renegotiated, replaced, or done without. In other cases, companies let attrition happen without replacing everyone. And in other cases, companies choose to part with folks who are not working on things that are truly critical to the business. In all of these cases, our portfolio companies have found that they can continue to hit their goals with a lower spend. That, in and of itself, is an important realization for an organization.

The thing of it is that most employees appreciate it when these hard decisions are made. They run their own personal budgets and understand the concept of tightening the belt too. They feel better when their employer is making hard and important choices. Many managers worry about the signal they are sending when they go through belt tightening. It can be a negative signal if it isn’t explained properly. But it can be a very positive signal when the proper context is placed around the spending cuts.

When the business becomes profitable more quickly, when the cash runway extends by a year or more, when the budget is no longer stretched and new initiatives are now possible, the team understands the value of belt tightening and embraces it as much as the investors do.

If you’ve been a growth spurt for the past few years and have not taken the time to do some belt tightening, it might be a good time to do that.

Lists

For as long as the web has been around, there have been entrepreneurs trying to build businesses around lists. And I’m having a tough time thinking of any company that has really nailed it in this category.

For one thing, there are two modes of listmaking; making lists for yourself (task management) and making lists for others (publishing). It would seem that by focusing on the single user case (making lists for yourself) a startup could bootstrap itself into a network (making lists for others). But to my knowledge, no startup has successfully done that. I wonder if nailing the single user case forces a company to build features that are orthogonal to the publishing use case.

It is certainly true that there have been some decent exits in this category. This past summer, Wunderlist was bought by Microsoft. Wunderlist is a great product, but to my mind focused more on the single user case and it never really broke out into a network.

Listmaking is the kind of thing that really lends itself to the internet architecture. There are a relatively small number of people who are obsessed with listmaking. But most people are into consuming lists. So, it would seem that, if you can get the obsessed listmakers on your platform, you can build a publishing network that millions will use without having to create any of the content. That’s a recipe for success.

Entrepreneurs continue to explore this area. Recently Expa launched Kit which is listmaking for products. This is an idea that has been tried a lot without any obvious breakout successes. So it is still vacant whitespace as far as I can tell.

I wonder if listmaking is really a vertical thing instead of a horizontal thing. That would suggest that there will be successes in verticals like food, travel, shopping, reading, film, music, etc but that each will be its own thing and not part of some meta listmaking community.

I frequently use the Foursquare app to make lists while I am traveling or doing something new and interesting. Yesterday the Gotham Gal and I went on an art gallery walking tour in the lower east side of NYC. I made this list of art galleries below Houston Street while we were doing that. It is simple to build a list on the go in Foursquare if you know how to do it. I would love to see Foursquare invest more energy in helping users make lists and consume lists. Using a geolocated and geosorted list on your phone while you are exploring a new area is a powerful and magical experience on a smartphone.

I am somewhat perplexed by the lack of breakout success to date in listmaking. It’s an obvious category. And it is certainly not for lack of trying. The commercial internet is 20+ years old now. So you’d think someone would have cracked the code by now. But I don’t think anyone has.

Video Of The Week: Steve Jurvetson

I’ve taken to turning on the Bloomberg TV channel with the sound off in my home office. Yesterday I was working on some stuff and I saw Steve Jurvetson talking to Emily Chang. So I turned up the audio and listened. I don’t invest in the same stuff Steve does, but I respect his focus on areas that are “out there” and not in the conventional VC investment universe. That is a recipe for success. I also like his observation that five partners is about the max for a well functioning venture capital partnership. I totally agree with that.

Here’s the entire interview:

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.

Quizlet

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