Posts from January 2018

ADP Acquires WorkMarket

ADP announced this morning that they have acquired our portfolio company WorkMarket.

This is a bittersweet moment for me.

WorkMarket has been a big part of my personal portfolio for almost eight years.

USV and Spark seeded WorkMarket in June 2010, backing two serial entrepreneurs Jeff Leventhal and Jeff Wald.

The idea was to create a cloud based SAAS application to allow enterprises to manage their contingent workforces which were growing in size and complexity. It seemed like a timely opportunity at the time and it was. Eight years later the SAAS contingent workforce management market is in the hundreds of millions of dollars annually and WorkMarket is the creator and leader of it.

But like all startups, the WorkMarket story has a number of twists and turns. The market was a bit slower to develop than we had initially hoped and it wasn’t until the last few years that big companies started to include contingent workforce management in their SAAS budgets.

We also lost one of the two founders, Jeff Leventhal, when he stepped aside at the end of 2014 and was replaced as CEO by Stephen DeWitt who was recruited to the opportunity by Jordan Levy, who has been everything you could ask for in a co-investor.

The last few years at WorkMarket have been amazing. The senior team that Stephen and Jeff Wald built is among the best that I have had the opportunity to work with. And the contingent workforce market really exploded in 2016 and 2017.

But like all exploding markets, the expanding opportunity brought a lot of new entrants and buyers interested in getting into it. And one of those big companies, ADP, made us an offer we could not refuse, both in terms of the financial opportunity and the fit with their business. ADP has been helping enterprises, large and small, with human capital management solutions for decades and has the customer base, market knowledge, and capital to lean into this opportunity in a way that a venture backed startup never could.

So WorkMarket is now part of ADP and I am pleased with that outcome. Jeff Wald will take over leading WorkMarket for its next phase and he is well suited and deserving of that role. He has been the one constant for the eight years that I have worked on WorkMarket. Everyone else who was there at the start has come and gone. But Jeff and I saw it through from start to finish and I appreciate that very much.

I also want to acknowledge Stephen and the senior team of Grady Leno, Jim Chou, Marcy Shinder, and Tom Benton. As I said, this is an amazing team and it has been a pleasure to watch them build the product, market, and customer base. They are all superstars in my book.

This is the way of the VC business. You get inspired by an idea and a couple founders. You spend a lot of time helping them build something. You give a piece of yourself to the business. And one day, you are done. That day, for me and WorkMarket, is today and I have enjoyed the ride very much.

Pacific Time

It’s that time of year again. The Gotham Gal and I are spending the rest of the winter out west.

Blog posts will start coming in around 6am PT/9am ET.

We plan to spend this winter in Utah (where I am now), LA, and I will also be in the Bay Area a fair bit.

I find this time of year to be particularly invigorating for me.

Getting out in the fresh air and skiing, biking, and that sort of thing always gets me going.

But it’s mostly about reducing the back to back to back meeting grind that my work day in NYC has become and replacing it with reading, writing, thinking, and dreaming that I find so helpful.

The Gotham Gal and I are going to go out and ski the 16″ of new powder that we have gotten in the past 48 hours this morning and then go see some great indie films this afternoon.

Should be a great Sunday.

Owning Yourself

I saw the news today that HuffPo is shutting down their “contributor network.”

we are ending the HuffPost contributor platform. The platform, which launched in May 2005, was a revolutionary idea at the time: give a megaphone to lots of people ― some famous, some completely unknown ― to tell their stories. At that time, social networks barely existed. Facebook was a nascent dating site for college students. Twitter had not been invented. The platforms where so many people now share their views, like LinkedIn, Medium and others, were far in the future.

While that is sad news, it is not the least bit surprising.

I said this on Twitter about this news:

I would never outsource my content to some third party. I blog on my own domain using open source software (WordPress) that I run on a shared server that I can move if I want to. It is a bit of work to set this up but the benefits you get are enormous.

I have been asked to blog at Medium, LinkedIn, HuffPo, and many other places. I always tell them that I am not going to do that. If they want to repost something I have written here on their platform, that is cool with me. The content here at AVC is creative commons licensed and freely available for reposting with a few reasonably constraints.

But this is part of a much larger and more important narrative. We are in the “Internet Two” phase as Steven Johnson called in it his piece that I blogged about yesterday. Internet One was an open network, open protocols, open systems. Internet Two is closed platforms that increasingly dominate the market and own and control our content and us. We need to get to Internet Three where we take back control of ourselves. It is high time for that to happen. The HuffPo news is a small example of what that is so important.

Beyond The Bitcoin Bubble

My friend Steven Johnson has penned a long and wonderful piece exploring what lies beyond the speculative market in crypto tokens.

This essay, which will run in Sunday’s New York Times Magazine, but is online now, could not have come at a better time.

All most people know about Bitcoin, Ethereum, ICOs, and alt-coins, is that you can trade them and make (and lose) money on them.

But that is not what interests me about crypto tokens and blockchain technology and it is not what interests USV and the folks in this sector we work with.

What interests us is that “crypto” could well be the architectural breakthrough that we need to move beyond the current Internet market dominated by a few large tech companies.

And Steven, as is his gift, explains this beautifully and easily in roughly 9,000 words.

This is a piece that requires sitting down with a cup of coffee or tea and reading it.

I would suggest you find some time this week to do that.

Yubikeys

I saw my friend Chris tweet this question yesterday and had to respond:

Nick helped me get Yubikeys set up on all of the services I use that support them in the past few weeks. If I had a new year’s resolution, which I don’t, it would have been to start to use Yubikeys.

So what are Yubikeys?

They are a brand of “security keys” that are supported in the two factor authentication offerings at Google and many other Internet services.

They look like this:

You can buy Yubikeys here.

The idea is you keep one with you and one in a safe place in your office or home or a bank safe deposit box.

If you lose your phone, you have a Yubikey to get you back into the service.

But I don’t only use Yubikeys as “backup codes”, which I also keep stored safely.

I have started using my Yubikeys instead of a Google Authenticator code. It can be easier if you have the Yubikey handy.

But whatever you do, don’t use SMS for two-factor codes.

I was hacked this summer and the attacker tried (unsuccessfully thankfully) to port my phone number.

My partner Albert recently experienced a similar attack. He wrote about it here.

So here is the best practice as I see it:

  1. Always use two-factor authentication if it is offered. And it is almost always offered on popular services.
  2. Don’t use text messaging to deliver two-factor codes. It is not safe. You can have your number ported way too easily.
  3. Use Google Authenticator to deliver two-factor codes onto your phone.
  4. Use a Yubikey as a backup in case your phone is lost, stolen, or dropped in a swimming pool or toilet.
  5. Print out the backup codes to the two-factor services and put them in a safe place.

Personal data security is a big deal. Trust me on this. Don’t let yourself get hacked to understand why.

And Yubikeys are a nice addition to the personal security mix. I like them a lot.

Light And Love

Today we celebrate the life and teachings of the great Martin Luther King Jr.

He had a way with words and among my favorites is this quote, which seems very apropos right now:

Darkness cannot drive out darkness: only light can do that. Hate cannot drive out hate: only love can do that.

Some Thoughts On Equity Compensation

A hallmark of startup companies, the tech sector more broadly, and certainly our portfolio companies, is that they include equity in their compensation packages for their employees, often all employees.

If you work for a tech company, chances are good that you will get options as part of your compensation package.

I have written extensively on this topic over the years and even published a framework for issuing equity to employees on this blog.

That framework is now out of date as the market has moved (up in case you were wondering) and I need to update it. It’s a project and we are working on it at USV but I can’t promise it any time soon.

A few years ago I met with a very successful entrepreneur who built his company outside of the tech sector. When I asked him about equity compensation he said to me “You people in tech are crazy. I pay my employees handsomely in cash and I keep all of the equity for myself.”

I’ve thought about that comment a lot in the years since. I grew up in the business doing things a certain way and never questioned it until that moment.

The truth is that equity comp has its disadvantages. You can’t pay your rent or take a vacation with your options. They might be worthless if the company fails or is sold in a fire sale. You have to pay taxes when you exercise and if you can’t sell the underlying stock that can be painful. If you leave and can’t exercise, you could lose the equity.

And it is hard to compare two competing equity packages if you have two (or more) competing offers. Companies often purposely make it hard to understand the equity they are offering you. But even if they give you everything you need to know to value the equity, you still need to make assumptions about the future value of the equity to value it and nobody has a crystal ball.

For all of these reasons, many employees don’t really value the equity and they often don’t understand it either. But they understand the cash part of their compensation and know how to value that.

For companies, the equity they grant their employees is costly. Annual dilution can be as high as 5% per year just for employee compensation. We work hard with our portfolio companies to keep this dilution as reasonable as possible but I have never seen it, regardless of stage, much lower than 2% per year. Compound that over ten years and you can see what happens.

And companies have to expense the cost of issuing equity to their employees on their income/loss statements and the amounts can be massive when the companies get to be large publicly traded companies.

This recorded cost on the income statement is not theoretical. If you bought back as much stock as you issue to employees every year, something I strongly recommend to companies that have the cash flow to do it, the expense in terms of cash is very real.

So this issue of employee equity, whether to include it in your comp packages, for whom, and how employees should value it, if at all, is a big fucking deal for our industry.

And yet we treat it like something that is non negotiable, like it is part of the ten commandments of tech companies handed down by God to the Hewlett Packard founders eighty years ago when they were starting their company.

I don’t have any specific recommendations to make on this topic except that Boards should be thinking way more deeply and creatively about this issue than we are. We should be confronting the true cost of this practice and asking ourselves if it is best for our employees, and if so, which ones, and if it is best for our companies and our shareholders.

The answers to those questions is not definitively yes for all employees and all companies. As the unnamed entrepreneur who got me thinking about this proves.

Audio Of The Week: Empowering Women with Tech – Fereshteh Forough

A few weeks ago on the Gotham Gal’s podcast, she had Fereshteh Forough, founder of Code to Inspire, an organization that teaches women in Afghanistan to code.

There is so much to like about what Fereshteh is doing. It’s a great podcast to listen to this weekend: