Posts from entrepreneurship

Playing Your Role

Investing in many different companies, with different founders, different cultures, and different missions requires the ability to adapt to each and every one. I like to think about it as playing a role in a play.

Even though I am the same person, with the same fundamental beliefs, I end up playing very different roles in the companies I invest in and work with. The Fred Wilson that works with Coinbase is different than the Fred Wilson that works with Kickstarter and the Fred Wilson that works with Etsy and the Fred Wilson that works with SoundCloud and the Fred Wilson that worked with Twitter.

It starts with the founders and the mission. They set the course for the company. As an investor, you show up and something is already underway. You have to take the time to understand where the company is headed, why it was formed in the first place, where it is going and why. You have to figure out how to insert yourself into that journey in a way that is constructive and value adding. And you have to do that work before you invest because if you can’t figure out how to play a role that is constructive and value adding, you should not make that investment and join that Board.

Some founders start companies to make money first and foremost. It is important to understand that. They will be “coin operated” and transactional.

Some founders start companies to solve a very specific problem, often one that they themselves have. They will be very product and market focused.

Some founders start companies to chart a course that is different from others. They will be iconoclasts who like to zig when others zag.

Some founders build companies to sell.

Some founders build companies to go public.

Some founders build companies to outlive them.

What I have learned is that there is no right way to build a business, no right way to exit a business, no right way to operate a business. There are many different ways to do the startup thing. And I have learned that getting everyone on the same page about the specific way you are going to do it is critical. If everyone on the management team, investor group, and Board are bought into the long term vision and wanting to go to the same place, on that specific opportunity, then great things can happen.

If, on the other hand, there is tension between the founders about the direction, or between the Board and founders about the direction, or between the management team and the founders about the direction, or between members of the management team about the direction, then it makes it very hard to move things forward.

I know that people who read AVC, who follow the investments we make at USV, who work in USV-funded portfolio companies often scratch their head trying to figure out why what is right for one company is not right for another.

Why is it that its a great idea for one of our portfolio companies to move to a token based business model and do an ICO when it is not a great idea for another one of our portfolio companies to do that?

Why is it that it is a great idea for one of our portfolio companies to accept an M&A offer before they have reached their potential when it is not a great idea for another one of our portfolio companies to do that?

Why is it that it is a great idea for one of our portfolio companies to go public when it is a bad idea for another one of our portfolio companies to do that?

To understand these conflicting choices that companies we work with make, it is important to understand how these companies were funded, what the vision was, what they founders wanted out of the effort, what the investors signed up for, how they were capitalized, how they were managed, and how all of that changed over the years. And it is hard to understand those things from afar.

To understand it better, you need to think about each company as a different journey, to a different place, and all of us – the employees, the management, the founders, the investors, the board members – as role players in that journey. And when you choose to join a company as an employee or an investor or as the CEO, you really need to take the time to understand that journey before you step into that role. Because you will be playing it, possibly for a long time.

Success And Failure

We saw the Churchill film, Darkest Hour, yesterday. I loved it

It ends with a great quote, by Churchill of course, about success and failure:

Success is not final, failure is not fatal: it is the courage to continue that counts.

I think that sums up investing and entrepreneurship well. At least it does for me.

The Top Of The Funnel

Whether you have a e-commerce business, a SAAS business, a media business, a marketplace business, or some other business model, you are going to start thinking about customer acquisition at some point.

And there are a lot of options out there for acquiring customers; direct sales, indirect sales, channel, search engine marketing, social media, email, display, etc, etc.

But the best option, if you can pull it off, is to own an organic customer acquisition channel that is large and that sustains itself.

At USV, we have investments in a bunch of companies that have very large organic and sustainable top of the funnel customer flows. Many of these companies use a number of customer acquisition techniques, but they start with the organic channel and optimize it with their product development efforts.

Here are a few examples:

Codecademy – Codecademy offers a number of subscription learning services to people who want to learn to code. But because it has been offering free curriculum for learning to code for six years now, it was the first organic result I got this morning when I typed “learn to code” into Google:

Quizlet – Quizlet offers over 200mm study sets on the web and mobile to people who want to study and master something. No matter what you want to learn, you can find a study set on Quizlet to learn it. Quizlet is the “Wikipedia of studying” and because these study sets are free on the web and mobile, they have a huge organic flow of new users every month. Quizlet offers two subscription offerings to students and one to teachers and this organic flow is the primary customer acquisition channel for these offerings.

SoundCloud – SoundCloud is the first place most musicians go to post their music on the Internet. There are upwards of 200mm tracks on SoundCloud, the vast majority of which are free for anyone to listen to. This content is a huge attraction for listeners on web and mobile. SoundCloud has three subscription offerings, two for listeners and one for creators. The organic channel is the primary acquisition mechanism for these subscription offerings.

Kickstarter – When a project creator launches a Kickstarter project, they share it with as many people as they can through email, social, blogging, etc. This brings millions of backers to Kickstarter every month. Most of those backers arrive to consider backing a specific project and move on. But enough of them stick around to see what else is going on that Kickstarter has been able to build a large and sustainable business without any need for paid marketing channels.

Etsy – Etsy is now a public company and is no longer a USV portfolio company but I am the Chairman and remain actively involved with Etsy. Etsy is similar to Kickstarter in that sellers who have shops on Etsy are actively promoting their shops through various channels. Most of the buyers who arrive on Etsy that way purchase from the seller who brought them but some stay and shop from other sellers too. Etsy explained in it’s IPO filing that the vast majority of it’s traffic was organic. That is slowly changing but in Etsy’s early years, all of the traffic was organic.

I could keep going but I think you get the point. One of the things I look for in an investment is a free and sustainable flow of customers. This big top of the funnel may not be the only way a management team will choose to build their business but it makes a great foundation to build on and the LTV/CAC is infinite.

FemaleFounder.Org

My partner Rebecca posted this to her Twitter yesterday:

FemaleFounder.org is a group of women VC investors who are doing regular “office hours” to advise and mentor female founders.

As they say “A community of women helping women”

I know most of the women who are doing this and they are all great people, investors, and advisors.

If you are a woman getting started on your startup journey, check out FemaleFounder.org.

It’s a great initiative.

Location, Location, Location

Here are some “truisms” about startup investors and location that I’ve experienced and passed on over the years:

  • Startup investors prefer to invest locally
  • The younger the startup business, the more that is true
  • Your lead investor/board member is more likely to be a local investor than your passive/follower investors
  • The location preference is more pronounced with investors who are located in vibrant startup markets
  • The location preference fades as companies mature

Last week Techcrunch published some numbers on the issue of location and startup investing using Crunchbase data on 36,700 startup investment rounds they have tracked from Q1 2012 through October 2017.

So let’s see what the numbers say about these truisms.

Startup Investors Prefer To Invest Locally

This is true, over half of all investors in startups are in the same state. But it appears that the location preference is declining over time, maybe brought on by the significant improvements in videoconferencing and other communications technologies.

The Younger The Startup, The More There Is A Location Preference

This is true. 66% of angel investments come from in state investors whereas only 58% of VC investments come from in state investors.

Lead Investors Tend To Have A Stronger Location Preference Than Passive Investors

This does not appear to be true.

Location Preference Is More Pronounced In Vibrant Startup Markets

This is very true.

The Location Preference Fades As Companies Mature

This is very true.

At USV, about 25% of our investment activity is in NYC, 50% is rest of US, and 25% is outside of US. We are not completely location agnostic as we don’t invest very far away (South Asia, Asia, Middle East, Africa, etc) and we likely over-index on NYC vs the rest of the VC industry.

But the truth about being a startup investor, unless you are located in the bay area, is you have to go where the best opportunities are. That is particularly true if you are a thesis driven investor, as we are at USV.

So as much as I’d like to walk to my board meetings, that just isn’t reality. That said, I plan to walk to a board meeting on Tuesday.

Carta

Our portfolio company eShares changed their name to Carta this week.

Why?

For a bunch of reasons, but mainly because the opportunity has gotten a lot bigger than “shares”.

As founder/CEO Henry Ward points out in this post, the opportunity is to build the ownership graph:

If you drill far enough into the ownership graph, through the pensions and real-estate trusts and all the shared ownership vehicles, you eventually get to a person. You reach their retirement plan or savings account or option grant or even a simple title representing their ownership interest. That is how our society works. The leaf nodes of the ownership graph must be individual people.

This ownership graph is large and hard to quantify. We don’t know how many corporations, properties, investment vehicles, and partnerships exist in the world. But we do know if you mapped the entire graph your leaf nodes would eventually represent every person in the world. There are 7 billion people in the world. That is a lot of leaf nodes. Who knew the cap table market could be so big?

If you and/or your company uses eShares (now Carta) to track your ownership table, you likely understand this. Using Carta is transformative for all parties. And that is why it is growing as fast right now as any software company I have ever been involved with. And the TAM, it turns out, is massive.

A lot of our best investments at USV have gone this way. We invest early, when we like the product and the founder, and then over time the opportunity reveals itself to everyone (including the founder) to be a lot bigger than anyone thought. “Sharing what you had for lunch?”, “an API for text messages?”, “a search engine for jobs?”, “a Bitcoin wallet in the cloud?” and now we can add “cap table software?” to that list.

Fintech Innovation Lab

I write this post every year because I think this is a great program.

Fintech Innovation Lab NYC is a business accelerator program that works with the largest financial services companies here in NYC to support emerging fintech companies and the founders who start them to get their companies off the ground.

This year, the lab is making a big push into insurance with a special track for entrepreneurs/companies that service the insurance market.

Here is the blurb they sent me this week to announce the kick off of their next program which will take place in the first half of 2018:

We’re looking for entrepreneurs developing disruptive, pioneering enterprise technologies for the financial services and insurance sectors. As part of the 12-week program co-founded by Accenture and the Partnership Fund for New York City, fintech companies selected by senior executives of the world’s leading financial services firms will receive mentorship that accelerates product and business development.

The participating financial institutions and insurance providers include: AB, AIG, Alight Solutions, Ally, Amalgamated Bank, American Express, AQR Capital Management, Bank of America, Barclays, BlackRock, BNY Mellon, Capital One, CIT Group, Citi, Credit Suisse, D.E. Shaw, Deutsche Bank, Fidelity Investments, Goldman Sachs, Guardian Life Insurance, JPMorgan Chase & Co., KeyBank, Marsh & McLennan, Mastercard, MetLife, Morgan Stanley, New York Life Insurance, Pitney Bowes, Rabobank, RBC Capital Markets, Scotiabank, Synchrony Financial, TIAA, The Hartford, UBS, U.S. Bank, Wells Fargo, XL Catlin and Zurich Insurance.

We are holding an information session on Wednesday, November 8, 2017 from 5:30 – 6:30 PM for any companies interested in learning more about the program. For additional information on the Lab, please have the companies contact us at [email protected].

Board Decks Best Practices

At our portfolio company CEO Summit this spring, the 60 or so leaders in attendance asked us if we could figure out a way to aggregate some insights across our entire portfolio and share the data with them. We said we would see about that.

So this summer, we hired Max Heald for a three month stint after he graduated from college and tasked him with figuring out how to do this. The first constraint was that we were not going to ask our portfolio companies for data. They have businesses to run and they don’t need us dumping a big data request on them.

So we pulled together all the data we already had on our portfolio companies, the spreadsheets, the pitch decks, the board decks, the financial reports, etc and asked Max to comb through it and see if there were insights in the aggregate data.

Of course there was. Here’s an example of something we were able to determine via this effort.

I have been telling the companies I work with to plan on eighteen months of runway from a financing and three to six months to raise the next round for years. But it is nice to see that advice validated in data.

Along the way Max saw a lot of board decks and asked us if he could write a post on the USV blog describing some of the best practices he saw. We encouraged him to do that and he published it today. Check it out.