Posts from Current Affairs

The Government Surveillance Letter

Note: The website this post is about is now down. I am not sure if that means this thing was a hoax or something along those lines. Regardless, I believe the sentiments expressed on the website are correct and that Internet companies, large and small, should ban together to express them.

Sometime last night, a letter to the President of the United States and Congress was published on the Internet. It was signed by eight of the largest Internet companies; Apple, AOL, Facebook, Google, LinkedIn, Microsoft, Twitter, and Yahoo!

The website where the letter is hosted outlines five principles for government surveiilance:

1) sensible limitations on government's ability to compel service providers to disclose user data

2) checks and balances, including court oversight

3) transparency about government demands

4) letting information flow freely, particularly across national boundries

5) cooperation between governments to create multi-national treaties

I wholeheartedly support these five goals. These issues do not only impact large Internet companies. They impact all Internet companies. When you get a National Security Letter, you have no choice but to comply, even if it violates everything you and your company stand for.

It is time for governments around the world to rethink how they go about spying on us, particularly with the help of companies, both large and small.

Some Thoughts On The SEC’s Rulemaking On General Solicitation

The JOBS Act was signed into law on April 5, 2012. This legislation was designed to make it easier for small businesses in the US to raise capital and contained a number of important and valuable changes to securities laws. One of the most promising changes in the JOBS Act is around the concept of General Solicitation. 

General Solicitation is the marketing of a securities offering (a fundraise) publicly in the open market. The Securities Act of 1933 (which still governs much of securities law in the US) prohibits "general solicitation" or other forms of advertising in securities offerings pursuant to Rule 506 and Rule 144A which are the two most common forms of securities offerings for private companies.

In response to the JOBS Act, the SEC has lifted the ban on General Solicitation and on September 23, 2013, companies can start to use public marketing in their fundraising efforts with some important conditions. I blogged about how important this could be for startups when that news came out.

First and foremost, if you want to use General Solicitation, you must limit your investors to accredited investors (investors that satisfy net worth or annual income requirements) and you must undertake some specific efforts to make sure that your investors are in fact accredited. This is above and beyond what is typically required in a securities offering where General Solicitation is not used.

But the SEC has not stopped there. They have put foreward additional rules for public comment. If anyone in the SEC cares to read this blog, they can consider this my public comment. I am not planning to send in a formal comment nor is USV or anyone else at USV.

It is my opinion, and that of those who we do business with, including our securities lawyers, that these proposed rules effectively make General Solicitation a non-starter for startup companies. If the SEC's intention, with these proposed additional rules, is to neuter General Solicitation to the point that it is legal but nobody avails themselves of it, they will succeed.

Here are a few of the most problematic rules:

1) A 15 day filing period for Form D before the company initiates its fundraising process (and before the company even knows if it will be able to raise capital). Typically we file for Form D after the raise has been completed. To do so before the company intitiates a fundraise is not realistic and ignores how startups raise capital. If there was one rule that I would most like to see the SEC remove, this would be it.

2) The requirement to formally file all written materials provided to investors with the SEC is very burdensome when entrepreneurs update their slides and other fundraising material from meeting to meeting.

3) The penalty for violating any of these rules is a one year prohibition from being able to raise capital under Rule 506. Given that startups need to raise capital frequently and they need to avail themselves of this form of securities offerings, this effectively means that a startup that violates any of these rules is likely to be put out of business. This is way too harsh and means the risk/reward analysis around using General Solicitation is skewed too much toward risk. Which means nobody will use it.

USV is an interested party to this rulemaking process in a number of ways. First, we invest in startups. The more startups there are, the better for us. So anything that creates more financing for startups is good for us. And anything that makes it harder for startups to raise capital is bad for us. Further, we are investors in CircleUp, a fundraising platform for startups that would benefit greatly from opening up General Solicitation. 

I have been investing in startups since the mid 80s. I have participated directly or indirectly in the financing of hundreds of startups, possibly more than a thousand when all of my activities are aggregated. If I am an expert in anything, I am an expert in the financing of startups. And in that capacity, I can tell you that the proposed additional rulemaking around General Solicitation is a non-starter in startup land. If these rules come down as drafted, we will keep doing things the way we have been doing them for years and possibly the single most important change from the JOBS Act will have been for naught. And that would be very dissapointing to me and many others in startup land.

Here are some other links worth reading on this topic:

Angel.co's public comment

Startup Law blog

William Carleton's blog

Brad Feld

Journalism plays a critical role in a free society

That's the money quote from Jeff Bezos' awesome letter to the employees of the Washington Post. The medium has changed from print to online and in the process so has the profitability of these important journalistic enterprises.

But the role of journalism in our society is more critical than ever, in particular good journalism which has struggled to make the transition from print to online. Jeff acknowledges this in his letter:

I would highlight two kinds of courage the Grahams have shown as owners that I hope to channel. The first is the courage to say wait, be sure, slow down, get another source. Real people and their reputations, livelihoods and families are at stake. The second is the courage to say follow the story, no matter the cost.

That's exactly right. Kudos to Jeff Bezos for using his capital to invest in something this important to our world. Super impressive move.

Where Do You Go For Breaking News?

I am not calling this fun friday as I normally do, because what is going on in Boston right now is dead serious.

I am hanging out on Twitter, following a few people who are tweeting out the latest news coming out of Boston. The folks listening to the police scanner and tweeting it out are particularly good to follow.  I am also browsing around the web to other places like Reddit and Hacker News where people are discussing the news as it unfolds.

It makes me wonder what everyone else does when big news is happening. Does anyone watch TV anymore? Does anyone use the traditional media sites like NY Times, Boston Globe, NBC, etc?

Where do you go for breaking news?

Hacking Society

Today, from 10am to 4:30pm eastern, USV will be hosting an event called Hacking Society. This is one of our "sessions events" that we do from time to time.

Hacking Society brings together a small group of thinkers and doers to discuss how networks are transforming our economy and society, and what this means for the future of innovation, competition, regulation and policy advocacy. A list of the attendees is here.

Over the course of the day, we will:

  • Discuss how the economics of networks might help solve challenging social and economic problems.
  • Examine how incumbents use their influence over the current policy process to stave off competition from networks.
  • Define a proactive, network-friendly “Freedom to Innovate” policy agenda.
  • Examine how “net native” policy advocacy works and how it can be harnessed to promote a positive agenda as well as overthrow bad policy and bad regimes.

We will record the event and make the audio available live here. We will also be livetweeting the event and invite everyone to join us at #hacksociety. We will make the audio and video recordings available on the web under a Creative Commons Attribution License (their most liberal license).

The format of a USV sessions event is a small group of folks (less than 40) around a big table talking with each other (not at each other) about a big issue that we are trying to wrap our heads around. Because the group is designed to be small, we cannot invite everyone to attend. But we hope that the stream, the tweetstream, and the recordings will allow others to participate in this event, and more importantly take the themes we are exploring forward with their own thoughts and actions. That's why we are publishing the recordings of the event under a creative commons license.

I hope you can listen in, follow the event on twitter, and engage with us on these important issues.