On Europe Time This Week

The Gotham Gal and I flew to Paris last night and we arrived this morning. I’ve got meetings here the next few days and then we plan to enjoy Paris with some friends late this week and weekend.

I watched The Social Network on the flight over for the first time. The depiction of VCs in the film and the way the cap table got reconstructed was horrifying to me. I know stuff like that happens but it is not the way we do business nor is it the way many people in the VC and startup sector do business. So it is unfortunate that a popular film about the startup sector revolves around that narrative. It makes for a great story, and possibly is true (I don’t really know) but it does not paint our sector in a particularly good light. Otherwise it was an entertaining film with great performances.

I plan to post at my regular early morning hour so those of you on the west coast might see new posts going up before your bedtime this week.

Using CrowdRise To Help People In Nepal

When a disaster strikes, caring people all over the world seek ways they can help. Usually that means giving funds to a global relief organization like the Red Cross. But in the age of crowdfunding, giving to relief efforts takes on an entirely new flavor. You can see that in action on our portfolio company CrowdRise’s service this morning.

nepal

Crowdfunding means you can target your giving with more granularity.

You can give to this family in the US raising money to help their relatives in Nepal, who are now living in a temporary tent and are in desperate need for help.

You can give to this campaign where CrowdRise employee Mallory is raising funds to go to Nepal and help.

You can give to this campaign that celebrates Google engineer Dan Fredinburg who was killed while climbing Mount Everest this weekend.

You can give to this campaign that benefits a local relief effort.

The Gotham Gal and I have given to all of these campaigns and I hope you will consider giving to something as well.

All of the Nepal relief efforts on CrowdRise can be seen here.

The Lesson Of Title II and Time Warner Cable: Markets Have Two Sides

On thursday of this past week, I attended a small gathering of academics and policy makers who follow the technology sector. During that gathering, the news came out that the Comcast acquisition of Time Warner Cable was falling apart due to regulatory opposition. The conversation turned to the reasons why this happened.

I surmised that the reason for both the failure of Comcast/Time Warner Cable and the success of the Title II debate several months ago is that regulators and policy makers now understand that markets have two sides and you can’t just look at the consumer facing side of a market.

Comcast was correct in its assertion that they have very little customer overlap with Time Warner Cable and therefore consumers were not being harmed by the consolidation of the two networks. But if you look on the other side of their networks, to the suppliers of applications (Amazon, Google, Facebook, etc) and content (Time Warner, News Corp, Netflix) you see that the consolidation was going to be very harmful. Netflix was going to have one company standing between it and possibly half of its customers in the US. Same with Facebook. And there is no way that was going to be good for them. They may not have come out publicly in opposition to the merger, but you can bet that they came out in opposition privately.

The same is true of Title II regulation of the last mile Internet access. This was not a consumer story either. Very few advocates of “net neutrality rules” believe that this is a consumer issue. Very few have advocated that Internet access prices should be regulated. The debate has always been about the supply side of the market. The side where applications and content live. And the decision to apply Title II regulation to last mile Internet access was essentially a recognition that both sides of a network matter and that it is bad for the economy, society, and innovation to have a network attain enough market power to control what happens on the supply side of a market.

I don’t know enough about communications policy and antitrust policy history to know whether the two sided market construct has played an important role in the past. I think it may well have been an important factor in breakup of AT&T’s monopoly on wired telephony. And I expect there have been other examples as well.

But the one two punch of Title II and Comcast/TWC is a reminder that both sides of a market matter and competition (or the lack thereof) will have an important impact on how these markets function. I am a fan of both decisions and believe that our regulators and policy makers are thinking about this stuff correctly.

Video Of The Week: Albert’s TEDx Talk

My partner Albert gave this TEDx talk earlier this year. Somehow I missed it until this morning when I was looking around YouTube for something to post. I’ve heard Albert articulate all of these ideas for years. He’s influenced my thinking on them greatly and I’ve gone from dismissive, to skeptical, to supportive of experimenting with them. I suspect you will move in that direction too after watching this short (17mins) talk:

Fun Friday: Teach A Kid To Code

You know what is fun? It’s fun to show somebody how to do something powerful. It’s fun to give somebody the superpowers you have.

So if you know how to code, it’s really fun to teach kids how to do it.

And if you want to have that kind of fun, you should check out a program called TEALS. I’ve written about TEALS before here at AVC, but in short, you stop by a school on the way to work and teach a first period computer science class in combination with a teacher who works in the school.

There’s a bit more to it than that and if you want to learn more there are two upcoming TEALS information sessions that you can attend in NYC:

This Sunday in Brooklyn:

Sunday, April 26th, 2015
2:30pm-4:00pm
Brooklyn Public Library, Central
10 Grand Army Plaza, Brooklyn
Light lunch provided.
Register thru EventBrite

The Next Day in Manhattan:

Monday, April 27th, 2015
6:45pm-8:15pm
Microsoft 11 Times Square
8th ave, just north of W 41st St
Light dinner provided.
Register thru EventBrite

If you’d like a bit more information before deciding to attend an information session, read this volunteer guide, or watch this video.

Project Fi

One of the areas we are investing in and trying to build a portfolio around is next gen internet access. We have one investment and are close to another. We’d like to build a portfolio of a number of innovative and disruptive approaches to broadband internet access in the next few years.

So any new service that attempts to make internet access easier and better is of interest to me. AVC regular John Revay sent me an email today asking if I’m going to get a Project Fi account. I told him I was thinking about it. Right now it is invite only. I’ve put in a request for an invite and maybe this blog post will help me get to the front of the line.

Here’s what I like about the Project Fi offering:

1) it’s a network of networks. i get to roam on two mobile carrier networks instead of one.

2) it supplements the two carrier networks with over a million “free and verified” wifi hotspots

3) you can get mobile data internationally at the same cost as you pay for it in the US

It’s only available right now on the Nexus6, which happily is what I’m using right now.

So I’m hoping to give it a try as soon as possible. And when I do, I will let you all know how it goes.

Dumbing Things Down

I had lunch with Milton Pappas yesterday. Milton and his partners at Euclid Partners taught me the venture capital business in the mid/late 80s. We got to talking about mentors and I asked him who taught him the venture capital business. He told me General Georges Doriot of American Research and Development taught him a lot in the late 60s and early 70s. Milton and his partner Bliss McCrum started Euclid in 1971.

As we were talking about biotech, an area Milton loves and invested heavily in, he told me that he ran into so many people in that sector who were brilliant but could not communicate what they were working on simply and crisply. He returned to Doriot and told me that the General had advised him that “I don’t care how brilliant an entrepreneur is, I won’t back them if they can’t explain themselves simply and in a manner everyone can understand.”

That rings true to me. It is not enough to understand something that others don’t understand. At some point you have to convince people that what you are doing is important and they should join your company, buy from your company, invest in your company, and write about your company. I like to call this “dumbing things down” but it doesn’t have to involve simplification (although that is one way to do it). It could also involve creating effective analogies, describing a future state where the technology is in mass use, or some other technique that makes something complex easy to understand.

One of the essential techniques in bringing technology to market is simplification. Dumb things down. It’s super important.

eShares

This post is self serving to some degree as USV is an investor in eShares. But in the world of VC and startups there isn’t much that is more broken than cap table management. eShares fixes that by putting the entire cap table online and allowing your company to issue new shares and options directly from the platform. It’s kind of like writing checks directly from your accounting system. Everything gets recorded and there are no missing stock certs or broken promises.

I explained this to one of our portfolio companies last fall around the time we made our investment in eShares. One of the co-founders replied via email “we don’t need that, our cap table is all in a single spreadsheet.” A month or two later, as we were doing a round of financing, when the lawyers were doing their diligence, it came out that our cap table spreadsheet was missing some shares that had been issued but not recorded. I had a good laugh at that because it is always the case that something is not recorded. A perfect cap table is very rare, unless you are using a tool like eShares.

The VCs and angel investors aren’t hurt so much by this because our investments are large and mistakes made on our shares are easily caught. Employees are the ones who have the most to gain from eShares because they are the ones whose issuances are most often missed or not properly recorded on a cap table and these mistakes can go on for a long time before being caught. This causes issues in terms of exercise price changes and tax issues for the employee.

If you are starting a company, do yourself a favor and start building your cap table day one on eShares. If you have been managing your cap table in a spreadsheet for years and are tired of doing it that way, talk to eShares. They will help you “port” your cap table to their system. That’s part of the onboarding service they provide. And then you can start issuing shares the way you’d imagine it would be done in 2015. The way most companies is doing it is circa 1900. I’m serious about that.

If you want to learn more about eShares, contact them here.

The Rich Get Richer

The 2014 numbers for the VC category are out and it was a huge year, almost $50bn in total VC funding.

the rich get richer

But look at the numbers for “deals” vs the numbers for “dollars”.

In 2014, there were 4,356 deals vs 4,193 deals in 2013, an increase of 3.8% year over year.

In 2014, VCs invested $48.3bn, compared to $29.9bn in 2013, an increase of 61.5%.

Basically, the average deal size went from $7mm in 2013 to $11mm in 2014. But averages don’t really tell the whole story.

What is going on is that the late stage market is going crazy. There was a $100mm+ deal on average every month in 2014 and the late stage market made up 1/3 of all deals.

VCs are all about what is happening now and are not focusing as much on what will happen in five to ten years (the seed/early stage markets).

None of this should be news to those who are paying close attention. Round sizes have gone up and burn rates have gone up, but so much of this is limited to a hundred or a couple hundred companies. The rest of the market is more or less where it has been for years. The rich are getting richer. The middle class is stagnant. And the people who can’t raise a round still can’t. Only the top end of the market has really changed over the past five years.

Kind of like the entire economy, isn’t it?

Getting Your Emails Outed

So I got an email from a reporter on Friday. The note said “…. some emails from you to various Sony executives were part of the collection released on Wikileaks. I’m working on an article for [   ]  about some of them—how they depict a behind-the-scenes look at Silicon Valley dealmaking. And I plan to include a few where you’re either the sender or recipient.”

If you are looking for a clever way to do a phishing attack, this would be it because I clicked on that link as fast as one can possibly do so. Fortunately the email was mostly tame, about the Gotham Gal and I looking for a ride to a conference from LA on someone’s plane. I didn’t insult anyone and no confidential information was revealed. Phew.

I replied to the reporter that I appreciated the heads up and I had nothing other than that to say.

If you want to look at all of my emails in the Wikileaks email dump, you can see them here.

This is the future for all of us, as I’ve stated more than a few times on this blog. When writing emails, assume they are going to end up on a site like this. Because they will. I’ve been changing my email behavior over the past few years and this latest incident has caused me to be even more cryptic. I think the vast majority of my emails will start looking like “my cell phone is [   ]. i’m free at [  ]. give me a call to discuss”