Posts from policy

Network Equity

Our portfolio company LaRuche is leading an effort in France to allow platforms to share the equity in their businesses to the broader network of participants on their platform. As more and more businesses leverage the power of networks to create economic value, there is a question of whether the network participants should share in the value they help create.

Reddit has expressed a desire to share equity in Reddit with its community and went as far to announce that intention when it raised capital in the fall of 2014. The last I heard, Reddit had put those plans on hold in anticipation of more regulatory clarity around this issue.

Regulatory clarity is what is lacking, both in the US and in other countries, and France is no exception. Marc-David Choukroun, co-founder and CEO of LaRuche, wrote a tribune in Les Echos, the leading financial newspaper in France, explaining his views on the issue. I’ve pasted a translation of it here:

Long seen as the future, the sharing economy is now accused of being responsible for all society’s ills. In response, some experts on the new economy have suggested that platforms should be transformed into cooperatives. But is that really such a good idea?

By Marc-David Choukroun, CEO of The Food Assembly (La Ruche qui dit Oui !).

Not so long ago, the sharing economy was seen pretty much universally as a sort of magic bullet for the social and environmental crises of our times. Then, all of a sudden, the tone changed. The new economy was blamed for a whole swathe of ills, including widespread job insecurity, excessive commercialisation, and generalized fraud. The spectre of “Uberisation” is hanging over the world. The problem is that, while attempting to apply this concept to just about anything, we foolishly let the debate become polarised between the partisans of California-style capitalism and the white knights of the common good.

In the midst of this great wave of criticism, which has often been justified but sometimes excessive, the following idea is increasingly being put forward: that online platforms should be transformed into cooperatives. Give or take a few details, is the sharing economy not a form of unconscious mutualism? Indeed, leading specialists in the new economy met recently at a conference entitled “Platform Cooperativism” in New York to debate this question.

There are upsides to the idea: after all, the concern of fair sharing of value between users, freelancers and platforms themselves is a fully legitimate one. But I am rather afraid that this idea may be a bit more difficult to put in place than it seems. As things stand, the structure of a cooperative involves a lot of complications that make it ill-adapted to digital companies.

In 2011, I co-founded a collaborative platform called “La Ruche qui dit Oui !” (“The Food Assembly” in English). At the time, the concept of the “sharing economy” hadn’t yet emerged. And to be quite honest, we didn’t care much about labels. We knew that if we were to have any chance of taking the slightest bit of ground from the giants of food distribution, we could not afford to remain just one more “local food” initiative. And if, as we say in start-up jargon, we were to “scale up”, then the form of a commercial enterprise was a must.

Is there a legal structure that is perfectly suited to this sort of hybrid entity, somewhere in between a conventional business and a network? We very seriously considered the cooperative option a year ago. The conclusion was clear: as things stand, the idea doesn’t really stand up. The form of a cooperative involves a certain number of requirements that are complicated, and above all incompatible with managing an innovative start-up. Firstly, their governance is arduous and complex, while agility is needed. And secondly, the diversity of statuses and motivations in our network – some are guided by a spirit of activism, while others are simply seeking some extra income – is one of the strengths of our model. Another major difficulty is that the shares in cooperatives are fixed at their nominal value of issue, which is just inconceivable for a growing start-up(*).  

It is also difficult for cooperatives to raise funds, as the complexity of their structure tends to deter investors, yet the costs of developing and maintaining a platform are far from negligible: the largest collaborative platforms employ hundreds of developers. It is therefore best to avoid economic purism and one-size-fits-all solutions.

That does not mean that the issue of sharing value fairly should not be raised – far from it. It is evident that the success of a collaborative model relies largely on the commitment of the members of its community of contributors. It would be fair to be able to involve this new type of entrepreneurs in the company’s capital. In an economy that involves more and more freelancers, this is even a key issue.

Yet instruments to reward them already exist and simply need to be adapted, such as stock warrants for business creators (bons de souscription de parts de créateur d’entreprise, BSPCE) in France. These are stock options that can be awarded free of charge to the employees of a company. To strengthen our ties with the freelancers in our network, this instrument could simply be expanded beyond employees alone – for a new sharing of risk, a new sharing of value is needed. A cooperative system compatible with the digital economy still needs to be built, so let us start by laying the first foundations.

Marc-David Choukroun is a co-founder and the CEO of The Food Assembly (La Ruche qui dit Oui !).

(*) On this specific point, it is important to note that a number of exceptions are possible, complicating matters further still.

Like many political debates, there are many views on this issue. The purists would like to see cooperativism strengthened and applied to these platforms. Others want to regulate these platforms to protect the workers/freelancers in a union style model. But the middle ground, which seems more sensible to me, is to allow platforms an easy and elegant way to share their equity with network participants so that the broader ecosystem can share in the value these platforms are creating.

I hope the French government sees the wisdom of this approach. It would be great if governments around the world, including, of course, the US government, would evolve the legal and taxation frameworks around the sharing of equity so that network platforms can choose to share the value creation with their broader ecosystem.

Wifi In The Subways

I’ve been writing about wifi in the subways since 2005. Ten+ years later we still don’t have ubiquitous connectivity in the NYC subway system.

On Friday, NYS Governor Andrew Cuomo and Tom Prendergast, Chairman of the MTA, announced plans to accelerate the rollout of TransitWireless to all 278 underground subway stations so that all of them have wifi by the end of 2016.

They also announced the addition of USB charging ports on subways cars with 200 getting them this year and another 400 getting them next year. And they also announced plans to replace the MetroCard system with a mobile payments system that uses smartphones and smartcards.

It is great that the MTA is finally getting serious about joining the 21st century. If you live in other parts of the world or the US, or if you are a New Yorker who travels a lot and uses public transportation (like me), you know that none of this is particularly cutting edge. Many transit systems around the world have had this technology for years.

I would like to applaud Governor Cuomo’s focus on infrastructure in the past year. The investments in LaGuardia, Penn/Moynihan Station, the new rail tunnel under the Hudson, the local regional rail systems, and now, the subways, are all critical investments that NYC has needed to make, but has not made, in this century.

But if we can go back to wifi in the subways for a minute, I am pretty disappointed that we are not being more aggressive with the wifi rollout. Why stop at the subway stations? Why not put wifi in all of the tunnels throughout the city. When you ride the subways, you spend more time in the tunnels than the stations. If we want our kids to be able to do their homework and their reading (and their coding) on the way home and the way to school, wiring the stations will not be enough. We need to wire up the entire system.

And the TransitWireless system is too hard to log into all of the time. It should be wide open wifi that all phones can connect to immediately without having to log in. I never use TransitWireless because it’s a pain in the rear to log into and by the time you log in, the train has arrived and you are on your way. Why do these companies who build out supposedly free wifi systems always make them so damn hard to access. If its free, make it wide open and easy to use.

Finally, while I’m on a rant, why don’t we have a single SSID, NYCWIFI, that all of these free and open systems use. So once I connect in one place, I will automatically connect in every place. Then local shops and restaurants could also use that SSID and we’d slowly but surely build a single massive open and free wifi network around NYC.

So, while I am pleased about the accelerated rollout of TransitWireless and the other big infrastructure investments that the Governor is pushing, I don’t think we are thinking nearly big enough yet. Internet connectivity is a requirement to do business, to learn, and to stay connected to friends and family. We need way more of it in NYC and we aren’t getting it fast enough.

Video Of The Week: Albert and Peter Kafka

This isn’t actually video, it’s audio, but it’s a good one and so I’m making it the video of the week. My partner Albert and Peter Kafka talked a few weeks ago on the Recode Decode Podcast. Peter is one of my favorite tech journalists. He’s been around for a long time, he knows his stuff, and he asks hard questions and is appropriately cynical. He’s the real deal.

What Is Going To Happen In 2016

It’s easier to predict the medium to long term future. We will be able to tell our cars to take us home after a late night of new year’s partying within a decade. I sat next to a life sciences investor at a dinner a couple months ago who told me cancer will be a curable disease within the next decade. As amazing as these things sound, they are coming and soon.

But what will happen this year that we are now in? That’s a bit trickier. But I will take some shots this morning.

  1. Oculus will finally ship the Rift in 2016. Games and other VR apps for the Rift will be released. We just learned that the Touch controller won’t ship with the Rift and is delayed until later in 2016. I believe the initial commercial versions of Oculus technology will underwhelm. The technology has been so hyped and it is hard to live up to that. Games will be the strongest early use case, but not everyone is going to want to put on a headset to play a game. I think VR will only reach its true potential when they figure out how to deploy it in a more natural way.
  2. We will see a new form of wearables take off in 2016. The wrist is not the only place we might want to wear a computer on our bodies. If I had to guess, I would bet on something we wear in or on our ears.
  3. One of the big four will falter in 2016. My guess is Apple. They did not have a great year in 2015 and I’m thinking that it will get worse in 2016.
  4. The FAA regulations on the commercial drone industry will turn out to be a boon for the drone sector, legitimizing drone flights for all sorts of use cases and establishing clear rules for what is acceptable and what is not.
  5. The trend towards publishing inside of social networks (Facebook being the most popular one) will go badly for a number of high profile publishers who won’t be able to monetize as effectively inside social networks and there will be at least one high profile victim of this strategy who will go under as a result.
  6. Time Warner will spin off its HBO business to create a direct competitor to Netflix and the independent HBO will trade at a higher market cap than the entire Time Warner business did pre spinoff.
  7. Bitcoin finally finds a killer app with the emergence of Open Bazaar protocol powered zero take rate marketplaces. (note that OB1, an open bazaar powered service, is a USV portfolio company).
  8. Slack will become so pervasive inside of enterprises that spam will become a problem and third party Slack spam filters will emerge. At the same time, the Slack platform will take off and building Slack bots will become the next big thing in enterprise software.
  9. Donald Trump will be the Republican nominee and he will attack the tech sector for its support of immigrant labor. As a result the tech sector will line up behind Hillary Clinton who will be elected the first woman President.
  10. Markdown mania will hit the venture capital sector as VC firms follow Fidelity’s lead and start aggressively taking down the valuations in their portfolios. Crunchbase will start capturing this valuation data and will become a de-facto “yahoo finance” for the startup sector. Employees will realize their options are underwater and will start leaving tech startups in droves.

Some of these predictions border on the ridiculous and that is somewhat intentional. I think there is an element of truth (or at least possibility) in all of them. And I will come back to this list a year from now and review the results.

Best wishes to everyone for a happy and healthy 2016.

Knee Jerk Reactions

Warning: This post is going to generate a debate in the comments that will likely be upsetting. Don’t wander into them if you can’t tolerate strong opinions. That said, free speech and passionate debate is a cornerstone of the world the terrorists want to destroy and I am proud of the fact that it happens here daily.

—————————————————-

I’ve held back on commenting on the horrible events in Paris last friday night, thinking that I don’t have much to add to the discussion. But as horrible as that night was, the knee jerk reactions that are now coming out of the mouths of supposedly rational people are even more horrible. As my partner Albert asserted this past weekend,

Turning against Muslims or against refugees is a terrible response as it only confirms the apocalyptic ideology of the attackers

The knee jerk reactions of politicians and governments to terror attacks over the past twenty years have not helped the situation and have likely fed necessary energy into the jihad movement. I am not a student of martial arts, but I do understand the principal of using your opponent’s energy against them. I believe the terrorists are doing a wonderful job of turning the energy of the free world against us. And we have to stop letting them do that.

So what should we do instead? Drink champagne. Go to a football match or a Knicks game. Sit at a cafe and have an espresso. Go see live music or perform live music. Have sex with someone you love no matter what their gender is.

And what should governments do? I am with Albert that we should continue use our considerable investment in data science to infiltrate and understand these terror networks. I want to print something he wrote in that post over the weekend because I agree with it completely and can’t say it any better:

But I am staunchly for collective intelligence. Collective intelligence in this case against terrorism, but also more broadly against crime and most importantly as a basis for improving education and healthcare. I cannot see how society could avail itself of the benefits of collective intelligence in any form of government other than a transparent democracy. And conversely it makes no sense for democracy to deny itself those benefits.

Insisting on privacy because we fear our own governments will continue to pit citizens against secrecy-seeking governments in a spy versus spy society. Many will protest that we are already there. Maybe so, but why double down on a mistake? Snowden’s revelations have given us a unique opportunity to start over. I would pardon Snowden on those grounds alone.

Governments can and should tell their citizens what information they are collecting and how they are using that information. And companies should disclose which of these programs they participate in. Any and all such programs should have oversight by elected politicians and transparent reporting on their scope and effectiveness.

As for the potential for collective intelligence to help, we see it all around us on the Internet. From the uncannily accurate do you know so-and-so suggestions on Facebook and LinkedIn to the related products on Amazon. I can also observe the effectiveness of collective intelligence from behind the scenes in many of our investments and in particular with Sift Science which does fraud detection. Combining a lot of data really does work.

Democracy, human rights and progress through critical dialog and collective intelligence. We need all of those more than ever.

That’s what I think we should be doing. I do not think we should be demonizing religions and people seeking refuge. Demonizing is the behavior the terrorists want to see from us. We should not let them have that victory.

Fun Friday: Daily Fantasy Sports Services Debate

The NY State Attorney General shut down FanDuel and DraftKings earlier this week, saying this:

Our investigation has found that, unlike traditional fantasy sports, daily fantasy sports companies are engaged in illegal gambling under New York law, causing the same kinds of social and economic harms as other forms of illegal gambling, and misleading New York consumers … Daily fantasy sports is neither victimless nor harmless, and it is clear that DraftKings and FanDuel are the leaders of a massive, multi-billion-dollar scheme intended to evade the law and fleece sports fans across the country. Today we have sent a clear message: not in New York, and not on my watch.

So, let’s debate this in the comments and we can use the new Twitter polls to quantify the debate.

Winner Takes Most

The history of the Internet and mobile is that in many categories the winner takes most of the market:

  • Search – Google
  • ecommerce – Amazon
  • Social – Facebook
  • Ridesharing – Uber

We can go on and on with making a list like that and I have left off many many markets, but I think this short list I made at least gets the point across.

The reasons are many, but at the core are network effects and the fact that the more users and data a service has, the more value it can create for its customers and users.

We strongly believe in network effects at USV and look for them as the primary form of defensibility in the investments we make. We don’t always get things right and we certainly don’t always end up investing in the company that wins the market. But we understand how these things work and invest with the mindset that winning a market can result in a very large return on investment.

Lately, we’ve been wondering if there is an end to this pattern on the Internet and mobile. We think it is possible that an open data platform, in which users ultimately control their data and the networks they choose to participate in, could be the thing that undoes this pattern of winner takes most. The blockchain is the closest thing to emerge that looks something like that. But the blockchain hasn’t (yet?) shown that it can produce something important like Google’s search or Facebook’s social graph and until it does, we are just waiting.

This is an issue for society to ponder. As I have spent time in Europe this past month, it’s easy to see that the search engine they use here is Google, the social graph they use is Facebook, and so on and so forth. If the US produces the networks that win most of the market, that’s an issue for the rest of the world. The Chinese have dealt with that issue by protecting their market. The rest of the world (mostly) has not.

Will that always be the case? Will the countries with the most sophisticated tech startup communities end up winning the global economic race as we transition from an analog to a digital world in which the winners take most of the market?

It’s unclear to me how all of this plays out, but it’s been on our minds at USV and we are talking a lot about it. So I figured I’d talk a bit about it here too.

TPP

TPP stands for Trans Pacific Partnership, a far reaching free trade deal that US and our Asian trading partners have been working on for years. The TPP was in the news yesterday because Hillary Clinton came out and said that, in its current form, she cannot support TPP. You can read her reasons for taking this stance.

You would think as a free trade loving, free market loving venture capitalist I would be a huge proponent of TPP. But I am not.

I am very concerned about the copyright provisions in TPP which feel very much in the old world model of intellectual property protection and which would make it hard for the US government to evolve copyright laws in an era of digital content, more open innovation, and remix culture.

The EFF has a great discussion of these issues on its website so instead of reciting them here, you can read a detailed discussion of the copyright issues in TPP here.

One of the problems with these big multi-national trade negotiations is that it is super hard to get everyone to agree on everything in them. That is why they are negotiated in secret and the end result is then voted yes or no in each country without any amendments.

I realize that perfect is the enemy of the good and you need to have a comprehensive view of a trade bill like this and not focus on one issue. But copyright law is a big deal for the innovation economy and if I were in Congress, I would be seriously thinking about voting no on TPP.

Trickle Up Economics

For something like 30 years, we have been hearing about trickle down economics in which we lower tax and other burdens on the wealthy, these wealthy individuals invest in the economy, and the benefits of those investments “trickle down” to the middle and lower class. That may well be what happens when the burdens are lowered on the wealthy, but as we all know the wealthiest in the US are gaining ground on everyone else and have been for a long time. This is not a critique of trickle down economics per se. There are other things going on, including a transition of value from labor to capital as a result of technological progress, that are driving the gains of the wealthiest right now.

I would like to propose another approach that I call “trickle up economics” in which we lower the tax and other burdens on the lower and middle class, we invest in educating their children (and them), we make sure they have the skills to get good jobs in the economy of the future, and we make sure they have access to things like good transportation, safe neighborhoods, healthy food, quality health care services, etc that are required for them to be fully functioning citizens in our society.

If we do all of that, we will have a stronger workforce and a more entrepreneurial and innovative society, and that will drive wealth creation in the US that will “trickle up” to the wealthiest people in the US.

The american dream has always been about opportunity. You start out with nothing and through hard work and a good body and mind, you make it and lead yourself and your family to a better life. That, by the way, is the story of the Gotham Gal and me. We arrived in NYC in 1983 with not a penny to our names. Nada. Nothing. I am not even sure how we came up with the security deposit for our first apartment. But we had good educations and had secured good jobs. And we worked for everything we have. We made it.

I am so optimistic about the United States and our economic prospects. I am optimistic about our people. I just want to see us invest in our people. All of them. Because I am sure if we do that, the benefits will trickle up throughout society.