A month or two ago, I sat down with my friend Seth Goldstein who is writing a book with a colleague called The Secret Of Raising Money (not yet available). We met and chatted over coffee in San Francisco and his colleague filmed the conversation. I noticed that they released a snippet of our conversation yesterday and a couple others on their YouTube channel. So this short 4min snippet of our conversation is my video of the week.
Posts from entrepreneurship
In my LeWeb talk, I mentioned decentralized identity as one of the three big things I am looking for in the coming years. I think a protocol based approach is what is needed and the idea that Google, Facebook, Twitter, LinkedIn, or some other big tech company is going to control the database of all of our identities is a nutty idea in my mind.
We’ve been looking at a lot of things and to date, the namecoin protocol seems to show the most promise. Yesterday my partner Albert wrote a post explaining how someone could build this distributed identity layer on top of namecoin and pointed to two services, NamecoinID and OneName, that are attempting to do just that.
I have just started playing around with these two services and don’t yet have much of an opinion on them. But I did set up a onename profile at onename.io/fredwilson. You can send me bitcoin there if you’d like
This sort of thing has been tried in the past. OpenID comes to mind. They have all been too wonky and none got mainstream adoption. At this point, Namecoin, NamecoinID, and OneName are also wonky. But I am hopeful that something will emerge, most likely using the distributed autonomous organization funding model that I talked about yesterday, that will lead to an open global distributed identity system that everyone and anyone can use. If such a thing were to emerge, it would be transformative in many ways.
Two years ago Congress passed the JOBS Act, promising to help small businesses and startups more easily raise capital by loosening various Securities and Exchange Commission (SEC) regulations. Two years later, it’s as hard as ever to raise equity capital and if you aren’t rich (accredited or qualified investor status), you can’t legally participate in the world of startup investing. The reason for this is that the SEC implemented the JOBS Act the way they wanted to, and in the process hamstrung its use.
As one might suspect, the world of technology is likely to solve this problem on its own. As Naval writes in this excellent post, the innovations behind the Bitcoin protocol and architecture are spilling out into the world of open source and crowdfunding. We have seen a number of exciting projects lately that are loosely organized collections of software developers building new approaches to distributed e-commerce, identity, legal contracts, and a host of other interesting and vexing problems using this method to fund their “startup” (cut and pasted from Naval’s post):
- Write software to power a completely distributed network in which any node can participate anonymously.
- Allocate scarce resources in the network using a scarce token – an Appcoin. Users need this Appcoin to use the network. Owners of scarce resources get paid in Appcoins.
- Pre-mine or early-mine Appcoins and keep some non-threatening amount. These are shares of your company, equity that will appreciate in value if the network is adopted.
- Give network operators the ability to collect new Appcoins in proportion to their contribution. Route a small fraction of each transaction output to the developer foundation (Mastercoin does this). Theserevenues are used to pay for operations, and bounties for ongoing development.
- As network usage increases, so does equity value and revenue.
- Anyone can buy Appcoins, anywhere, anytime, anonymously. Ship your code, ring the IPO bell.
We’ve been asking ourselves at USV if we should be purchasing coins in some of these “genesis block sales” instead of our normal appetite for Series Seed and Series A shares. I think the answer is ultimately yes, but we are most certainly entering into unknown territory in the process.
My partner Albert has been predicting that there will be no distinction between the public and private markets in a decade. He may have been off by eight or nine years in that prediction. It feels like its coming soon and coming fast. And that is exciting to me. Anything that creates more innovation and more entrepreneurs is a good thing for VC, for society, and for me.
Back in 2010, Scott Belsky asked me to give a talk at The 99% Conference. That’s when and where I delivered the 10 Ways To Be Your Own Boss talk.
Jack Dorsey followed me on stage and delivered this 15 minute talk. I sat in the audience for Jack’s talk and loved it. So I thought I’d feature it here this week. It’s four year old but as relevant today as ever.
I wrote a post the other day called This For That in which I suggestred that derivative ideas are challenging to execute on and equally challenging for USV to get excited about. But there are exceptions. And Github insipired ideas are one particularly interesting area to us.
I recall when Steve Martocci came to talk to us about Splice. He talked about watching musicians work and wondering why there was nothing like GitHub for them to use to store the various versions of their work. That, of course, led to Splice. And one could call Splice “GitHub for Music”. It is a lot more than that, of course, because building GitHub for Music opens up a lot of opportunities to do more for musicians. As GitHub did for programmers.
Yesterday, my partner Andy posted this link on usv.com. It’s a story about a one time programmer who left software for the world of molecular biology and after a decade in the world of academic research, is leaving to do a startup which is, not surprisingly, GitHub for Life Science Protocols. You can back his Kickstarter here. I just did.
When programmers who are used to modern tools and techniques come across other industries where the tools are antiquated and the work is frustrating, they get inspired to create similar tools to make life easier. That’s happening in a lot of sectors now, not just music and life sciences.
The power of the GitHub model is not just a repository of work and version control in the cloud. It’s the public nature of much of that work. And the reputation and identity effects for those who publish some or all of their work publicly.
Tools like StackOverflow (a USV portfolio company) and GitHub allow programmers to see how other programmers have solved similar problems. I was at a hackathon up at Columbia University last weekend and one of the hacks was a development environment that automatically queried StackOverflow and GitHub as you are writing code so that you always have in front of you the answers to the questions you are most likely to ask. The developer who did the hack introduced it by saying something like “programming these days is more about searching than anything else”. That reflects how collaborative the sharing of knowledge has become in the world of software development as a result of these cloud based tools for developers.
And this approach will naturally be adopted by other industries. And the entrepreneurs who bring these tools to other industries will most likely be developers who are inspired by GitHub and StackOverflow and tools like that. We are starting to see that in lots of interesting places.
Chris gave this talk last year at startup school. It’s great. It’s about 20mins so an easy watch.
VC is a service business like law firms and ad agencies. Our customers are the entrepreneurs we back. Our shareholders are our limited partners. When we do a good job of helping our customers create value, our shareholders benefit.
But, like law firms and ad agencies, it is hard to provide truly objective and unbiased advice when you have a conflict of interest. In the law and advertising business, clients will demand that their service providers don’t work for their competitors. The same is mostly true of entrepreneurs and VCs. There is no language in the stock purchase agreements we sign with our portfolio companies preventing us from investing in a competitor. But there is an understanding about conflict avoidance and breaching that understanding can have negative reputational consequences.
The problem that arises is that conflct is not the same to everyone. As I said to an entrepreneur yesterday, “conflict is in the eye of the beholder.” This entrepreneur had pitched me on his business via email and I told him it sounded a lot like one of our portfolio companies. He was shocked as he didn’t (and doesn’t) see it. A few months later, he went to see the Gotham Gal about making an angel investment in his company. She pointed out the exact same conflict to him. Again he was surprised. So he emailed me yesterday about the situation and I pointed out that not everyone sees conflict in the same light. But I went on to point out that the perception of conflict is conflict.
When someone feels that something you invest in is encroaching on his or her territory, you have created a perception of conflict with that entrepreneur. Even if he or she is dead wrong about that, it doesn’t really matter because they are now in conflict with you in their own mind and they won’t listen to you the same way again. And that is the most powerful leverage point a VC has when making an investment. If you cannot get an entrepreneur to listen to you objectively and rationally, then you have lost your greatest hope of postively impacting that investment. And that is a tool that VCs should not throw away lightly.
So the meta point I am making in this post is that it isn’t the facts that matter when discussing conflict. It is the perception that matters. If anyone in a relationship with you percieves that you are in a conflicted situation, you are in a conflicted situation whether you agree with them or not. Your only choice is to try to convince them otherwise before you obligate yourself to the conflict situation. Once you’ve obligated yourself, it is too late.
A friend in the VC business told me yesterday that he thinks this is the biggest issue top VCs face. Because they get to see the most interesting investment opportunities, but the opportunity cost of saying yes to an investment is that they take themselves out of the running for everything else in that category going forward. I agree that conflict issues are large and need to be front and center in everyone’s minds when making an investment decision. But I also think that large markets are large and there are ways to slice them up in ways that do avoid conflict. And if you can get an entrepreneur comfortable, you can make multiple investments in a large space. We made five or six social media investments. We’ve made a similar number of crowdfunding investments. I would like to make a large number of bitcoin related investments. If you think carefully upfront about how these markets will likely segment themselves over time, and if you can make that case upfront (not after the fact) to an entrepreneur, I think you can navigate this tricky issue.
But the thing you have to keep in your mind first and foremost is that perception is reality. And managing that is the most important thing of all.
Ben Horowitz has a great post up on his blog, called Why I Did Not Go To Jail.
I would encourage everyone to go read it. But in the event you aren’t going to do that, he tells a story about an options strike price plan that his CFO recommended to him. It turns out the plan was against the law and his GC stopped him from implementing it.
I’ve heard a lot of ideas over the years that, like this options strike price plan, sound too good to be true. And in most cases, they were just that.
I have developed a deep skepticism around anything that sounds like a free lunch. As the saying goes, there is no such thing.
My friend and former business partner Jerry Colonna has created CEO Bootcamp. It’s a four day retreat in the Colorado mountains with 19 other CEOs and a few facilitators, led by Jerry. The first CEO Bootcamp was last fall and you can see what attendees thought about it here. And here’s a blog post by Sooinn Lee about her experience last fall at CEO Bootcamp.
There are two aspects to this experience. There are the four days where attendees learn skills to help them manage the leadership role they are in, and there is the ongoing support that the group of CEOs provide each other after the retreat is over.
The CEO Bootcamp has some requirements. They are:
You’re the CEO of a tech startup that has employees.
This is the first time you have been a CEO within a company of this scale.
You’ve logged immeasurable hours and have made tremendous sacrifices.
You’ve had success with your company. You realize there is more to this game than “success.”
You may be tired, but you must be vulnerable, curious and courageous.
If you fit these requirements and want to spend four days in early April in the Colorado mountains with a bunch of peer CEOs figuring out what it takes to be a successful leader, you can apply here.
I told a Rob Kalin story yesterday and I am going to start this post with another one. When Rob left Etsy for the second time, it fell to me to tell everyone what was happening at the company’s all hands meeting. I asked Rob what he wanted me to tell the several hundred employees who would assemble to hear the news. Often there is a story concocted about the founder or CEO wanting to step back, take more time with their family, needing a break, etc. And so I wanted Rob to tell me how he wanted this story told.
Rob said “Tell them you fired me. They will know anyway. You might as well tell them the truth.” So that’s what I did, with empathy, respect, and appreciation for Rob and his work. It went well. The team was happy that I was being straight with them. I then handed the stage to Chad who took it from there and has been doing a great job ever since.
I don’t tell that story to bring up old unhappy times. Although it may for some. I tell it because Rob had the courage to allow me to tell it like it is.
And yesterday Chris Poole told it like it is. With a blog post that is simple, honest, and sad. He made the decision that our portfolio company Canvas has failed. Running out of money is always the thing that brings this moment of reality. But so often an acquihire is arranged, or the company is put on mothballs, or you just stop hearing about the company. The story of failure is buried.
I prefer the way Chris did it. We tried, it didn’t work, we failed.
The truth is, as Chris explained in his post, that the first product Canvas was a failure. The pivot to DrawQuest came too late, took too long, and now DrawQuest is a succeeding product inside a failing company. I know that Chris is going to try to find a way to keep DrawQuest going. It’s got 400,000 people who use it every month and 25,000 people who use it every day. But it has not monetized particularly well and the Company hasn’t found a good way to inject virality into the product so it can spread without expensive marketing dollars. If you know of a good home or a good steward for DrawQuest, email me. There is a contact link in the footer of this blog that will send me an email.
Chris says he is going to blog about the things he learned from this experience. Chris hates writing. But I think he will do this, as therapy for him, and as a post mortem for him and everyone else. So pay attention to his blog, subscribe to his RSS, or follow it on Tumblr.
Like his post yesterday, I expect Chris will continue to tell it like it is.