Posts from VC & Technology

Firebase

Yesterday our portfolio company Firebase was acquired by Google. We invested in Firebase in the summer of last year and Albert wrote this post talking about the investment.

Firebase makes a backend that allows developers to store and sync their data in real-time.  In a relatively short time, Firebase has been adopted by over 100,000 developers. It solves some complicated problems simply and elegantly.

We believe Google will be a good home for Firebase. They have the resources and desire to continue to build out Firebase and scale it. I saw the two founders last night at our dinner in SF and they told me that Google is giving them budget to go out and scale up the engineering team. They had big smiles on their faces when they told me that.

Though our time as investors and partners in Firebase was short, we enjoyed working with them very much and are happy that they have found a good home for their company and their technology. It sure looks like the perfect match.

Getting Feedback and Listening To It

When you are VC, you live in this protected environment. You sit in your office in a glass conference room with lovely views and entrepreneurs walk in and pitch you and you get to decide who you are going to back and who you are not. People tell you what they think you want to hear. That you are so smart. That you are so successful. They suck up to you. And it goes to your head. You believe it. I am so smart. I am so successful.

You have to get out of that mindset because it is toxic. My number one secret is the Gotham Gal who brings me down to earth every night, makes me do the dishes, walk the dog, and lose to her in backgammon. Actually I have not lost to her in backgammon in over twenty years because she used to beat me so badly that I couldn’t take it anymore.

But blogging is another helpful tool in reminding yourself that you are not all that. Marc Andreessen said as much in his excellent NY Magazine interview which was published yesterday. I loved the whole interview but I particularly loved this bit:

So how do you, Marc Andreessen, make sure that you are hearing honest feedback?

Every morning, I wake up and several dozen people have explained to me in detail how I’m an idiot on Twitter, which is actually fairly helpful.

Do they ever convince you?

They definitely keep me on my toes, and we’ll see if they’re able to convince me. I mean, part of it is, I love arguing.

No, really?

The big thing about Twitter for me is it’s just more people to argue with.

Keeping someone on his or her toes, making them rethink their beliefs, making them argue them, is as Marc says “fairly helpful.” That’s an understatement. It is very very helpful.

That’s the thing I love about the comments here at AVC. I appreciate the folks who call bullshit on me. There are many but Brandon, Andy, and Larry are common naysayers. They may come across as argumentative, but arguing is, as Marc points out, useful.

The comments are also a place where people play the suck up game. It isn’t necessary to do that and I don’t appreciate it. It makes me uneasy.

So I would like to thank the entire AVC community for being a sounding board for my ideas, for pushing back when I am off base, and for resisting the suck up whenever the urge presents itself. I appreciate it very much.

Values

Most companies have a mission statement and many have a values statement. But not so many companies live their values so much that they permeate the company and ooze out from every pore; the product, the office, the hiring process, the marketing, and so on and so forth.

Last night I did an event with City National Bank and their clients. I did a chat with Robin Gill and he asked me to talk about my most successful investments. I don’t really like to stack rank my investments so I struggle with that question. But I found my footing and started talking about Etsy. Etsy oozes its values from every pore. I am not sure they have a printed out values statement. Maybe they do somewhere but I don’t think I’ve seen it. But it really doesn’t matter because Etsy’s values are hard coded into their culture and they emanate out in every conceivable way.

Kickstarter is the same way. They stand for something. It’s not just talk. It’s real. And you can feel it in the product, the office, the marketing, and in the founder and in the CEO.

Twitter is like that too. I saw that they filed a lawsuit in Federal Court to be able to publish a full transparency report of all government information requests. That’s fucking awesome. And it is not a publicity stunt. Dick Costolo once said “Twitter is the free speech wing of the free speech party” or something like that. That’s a deeply held core belief of the company and it runs deep and strong in the culture.

These are three examples that folks will have some connection to and are easy to talk about. They are not the only three companies I work with or we have invested in that live their values. Meetup and SoundCloud would be a couple of other obvious examples. But they are good enough for the point of this blog post.

Values matter. A lot. In a hypercompetitive world where technology eats at every advantage you have over time it is good to have unique and distinct values that you live as a company. That’s a form of differentiation that is not easily copied. It matters and is at the core of building great companies. The kind of companies I like to talk about when people ask me about my best investments.

Paul Graham Dropping Serious Wisdom

Every so often Paul Graham will email me something and say “can you read this before I post it?”. He did that last week. It was a talk he was going to deliver in Sam Altman‘s startup class. It was great. I told him I wouldn’t change a thing. I am not sure if he changed it before he delivered it, but what I do know is he posted it yesterday. And here it is.

I just went back to my emails with him and pulled these quotes out for all of you. These are some nuggets that I particularly liked.

On Investors – “our function is to tell founders things they will ignore”

On Selecting Investors, Co-Founders, Etc – “If you’re thinking about getting involved with someone– as a cofounder, an employee, an investor, or an acquirer– and you have misgivings about them, trust your gut. If someone seems slippery, or bogus, or a jerk, don’t ignore it.”

On Knowing About Business Before Doing A Startup – “The way to succeed in a startup is not to be an expert on startups, but to be an expert on your users.”

On Success – “Y Combinator has now funded several companies that can be called big successes, and in every single case the founders say the same thing. It never gets any easier. The nature of the problems change. You’re worrying about construction delays at your London office instead of the broken air conditioner in your studio apartment. But the total volume of worry never decreases; if anything it increases.”

On Finding The Next Big Thing – “If you think of technology as something that’s spreading like a sort of fractal stain, almost every point on the edge represents an interesting problem.”

Those are the quotes I called out in my emails back to Paul. They all resonate hugely with me. But the whole post is great. Give it a read.

How We Got To Now

For the past two years, NYC’s loss has been the Bay Area’s gain. No I’m not talking about hot startups, VC, or anything like that. I’m talking about Steven Johnson‘s two year departure for the beauty of Marin County over the grimy streets of NYC. But this summer Steven and his family came back to NYC, reminding me that the world is just and fair if you wait long enough.

I liked Steven the minute I met him. He has a wonderful smile and a gracious being, he is whip smart, and he writes beautifully and simply. He tells stories that educate. I have read pretty much everything he’s written and whenever something new comes out, it is an instant buy.

Yesterday was “pub day” for his most recent book, How We Got To Now. It’s the story of six technological revolutions that set up the world for what it is now. Those would be glass, cold, clean, sound, light, and time. The book has a companion TV series on PBS of the same name. The first of the six episodes airs on Oct 15th at 9pm

And to make things even better, I got to spend part of “pub day” with Steven yesterday. We did an event at WNYC’s Greene Space (a great venue in west soho) yesterday morning.

I believe the event was recorded and will be online at some point. If and when that happens, it will be a video of the week post.

We talked about a bunch of things, but the most interesting thing is how all of these innovations are related to each other. Steven told a story about the printing press and how when books started making their rounds, people realized that they needed reading glasses, which spurred a spike in demand for lens makers, which in turn led to microscopes and telescopes, which led to all sorts of biological and astronomical discoveries. That’s the kind of connections Steven makes in his stories. I love them.

I have the book and I am going to watch the series. If you love history, technology, and great story telling, I strongly encourage you to do both of these things as well.

Satisficing

We had one of our many (non-stop) email conversations among the USV crew last week about a situation in our portfolio where nobody could agree on something. I lamented that “VCs are such optimizers.” It takes one to know one you see.

Nick Grossman replied that he prefers satisficing to optimizing. I had never heard that term. So Nick sent me to Wikipedia which says:

Satisficing is a decision-making strategy or cognitive heuristic that entails searching through the available alternatives until an acceptability threshold is met.[1] This is contrasted with optimal decision making, an approach that specifically attempts to find the best alternative available. The term satisficing, a portmanteau of satisfy and suffice,[2] was introduced by Herbert A. Simon in 1956,[3] although the concept “was first posited in Administrative Behavior, published in 1947.

I love the concept of satificing instead of optimizing. It is something I have been trying to adopt (changing behavior is hard) for close to twenty years now with a good measure of success. But I never had a word for it. I do now. Thanks Nick!

Burn Baby Burn

Andy sent me a WSJ piece with Bill Gurley yesterday. I don’t like to link to paid content so here’s a good Business Insider summary of the article that is open for anyone to read.

Regular readers know that I’m a huge fan of Bill’s. He’s as smart as they come and I generally agree with him on things. As I was reading the WSJ piece, I found myself nodding my head and saying “yes”, “yes”, “yes”.

The thing I like so much about Bill’s point of view is that he does not focus on valuations as a measure of risk. He focuses on burn rates instead. That’s very smart and from my experience, very accurate.

Valuations can be fixed. You can do a down round, or three or four flat ones, until you get the price right.

But burn rates are exactly that. Burning cash. Losing money. Emphasis on the losing.

And they are indeed sky high all over the US startup sector right now. And our portfolio is not immune to it. We have multiple portfolio companies burning multiple millions of dollars a month. Thankfully its not our entire portfolio. But it is more than I’d like and more than I’m personally comfortable with.

I’ve been grumpy for months, possibly for longer than that, about this. I’ve pushed back on long term leases that I thought were outrageous, I’ve pushed back on spending plans that I thought were too aggressive and too risky, I’ve made myself a pain in the ass to more than a few CEOs.

I’m really happy that I’m not alone in thinking this way. At some point you have to build a real business, generate real profits, sustain the company without the largess of investor’s capital, and start producing value the old fashioned way. We have a number of companies in our portfolio that do that. And I love them for it. I wish we had more.

Next Wednesday Is The Internet Slowdown

We’ve talked a lot here at AVC about Net Neutrality. I hate that term because it’s got so much baggage now that it is essentially meaningless to me. What I want to see is a framework that everyone agrees to (application developers, bandwidth providers, last mile access providers, and the regulators) that says you can’t prioritize one bit over another in the last mile access network and you can’t charge application developers to deliver their bits to the end user.

This issue is coming to a head at the FCC as the comment period is ending and some sort of decision will be made this fall. So next Wednesday, September 10th, is the Internet’s opportunity to stand up and be heard.

If you are with me on this issue, please consider joining the Internet Slowdown campaign next Wednesday. There are all sorts of ways you can do this. You can change your avatars on your social media profiles, you can send push notifications if you operate a mobile app, you can put a slow loading graphic on your blog or website (there are WordPress widgets if you are on WordPress like I am).

And if you still aren’t convinced, please read Chad Dickerson’s piece in Wired this week on why this issue is important to businesses and everyone who uses the Internet to reach their customers and/or audience.

Video Of The Week: A Lunchtime Talk In Larkin Square, Buffalo

A few weeks ago, I spent most of the week in the upper midwest. I started out on Tuesday in Buffalo, NY, the location of my first venture capital investment, Upgrade Corporation of America. I did office hours at the Z80 accelerator and then did a lunchtime Q&A in the beautifully renovated Larkin Square with Eric Reich.

This is a video of that talk. If you want to skip all the intros, go ten minutes in. The talk is about 40mins long.

Q&A With Fred Wilson and Eric Reich – Aug 2014 from Z80 Labs Technology Incubator on Vimeo.

Reblog: Let Your Winners Run

One of the things I am going to do on this extended vacation is go back into the archives and reblog posts that I think are still fresh and relevant. I’ll start with this one from Feb 2012.

————————-

I met with a group of very experienced and sophisticated investors yesterday who make up the investment committee of a large charitable foundation that is an investor in USV. I gave them a two minute brief on our macro investment thesis (large networks of engaged users that can disrupt big markets) and then took them on a tour of some of these large networks (Lending Club, Kickstarter, Etsy, Twitter, and Codecademy).  Then I took questions.

This group doesn’t spend a ton of time on AVC, Techmeme, Hacker News, or the tech industry in general. And yet the questions they asked me were as good as I ever get. I guess four decades of investing teaches you a lot.

One of the best questions I got was “when do you decide to sell?”. Such a great question and such a hard one to answer. I’ve got scars from this one.

I explained that first and foremost, we generally don’t make that call. The entrepreneur and her management team generally makes that call and the board is asked to ratify it.

But when and if we get to weigh in on the timing of the exit, my view is that you look to exit your weakest investments as soon as you can and you let your winners run as long as you can.

USV 2004 is instructive. Between 2004 and 2008, we made investments in 21 companies. So the youngest portfolio company in that portfolio is four years old now. Most are five to six years old. And a few, like Meetup and Return Path, are ten years old or more. We’ve exited six of the 21 investments, you can see them here, under past investments at the bottom.

We still have fifteen investments active in that portfolio including Zynga and Twitter and we own large blocks of stock in both of those companies. We own stakes in thirteen other portfolio companies most of which we believe are super strong companies that are building large and sustainable businesses. We will likely exit a few weaker investments in that portfolio over this year and next. But there are at least ten companies in the USV 2004 portfolio that we would be happy to own for the rest of this decade.

This does create a bit of an issue in that we raise ten year venture capital funds. So we are supposed to wind things up in the 2004 fund in another two years. But I am fairly sure that my partners and I and our limited partners will be happy to let this fund play itself out over a longer period of time.

I’ve made the mistake of exiting investments too quickly. Back in the middle of 2007, my previous firm Flatiron exited our investment in Mercado Libre at the IPO selling our entire position for about a 10x gain. In the almost five years that MELI has been public, it has gone up 5x. So had we held our position for another five years, we’d have made 50x instead of 10x. That stings. Lesson learned.

When you have portfolio companies that are category creators, category leaders, who are well managed, and growing 50% per year or more and delivering 20-30% pre-tax margins (or more), and who have no existential threats to their market leadership, you might want to hang on to them for a bit. They may be just getting going on the valuation creation thing.