Regular readers know that I am a big fan of Bill Gurley. He and I are in the same generation of VCs. We started our careers in the PC era and learned VC in the first generation of the Internet era. Bill and I also bring a “fundamental investor mindset” to our work which is not the only mindset in the VC business. We’ve never worked together on an investment, which is too bad, but I have tremendous respect for Bill and all of the partners at Benchmark.
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USV is a revolving door when it comes to our analyst program. We hire the smartest young people we can find (Jennifer and Jacqueline are our newest hires) and ask them to spend two years with us learning the VC business and helping us make and manage our investments. Then we ask them to move on to bigger and better things. It’s a great deal for both parties. We get really smart people early in their career on a steep learning curve throwing themselves at our business. And they get to learn from partners who collectively have been doing VC for something approaching 100 years.
But when an analyst walks out the door on their last day, I always ask myself privately “what the hell are we thinking.” That’s how it was yesterday with Jonathan who is leaving to be the first product manager at our portfolio company Figure1. It’s a perfect match for Figure1 and Jonathan. In fact, when he interviewed for the analyst job, Jonathan suggested we invest in Figure1, not knowing that we already had or were about to. That’s how we knew he’d be great at the job. And he was. Although, as he wrote in this fantastic post, the job was not always easy on him and it took time to learn the things you need to learn to be successful at USV.
Even though I ask myself what we are thinking letting these amazing people go through the revolving door, I remain convinced that it is the best thing for them and for USV. The USV analyst program alumni group is an incredibly impressive group of people who have gone on to do substantial things. Things they maybe would not have done if they had stayed at USV. And I remind myself that leaving my first VC job was the beginning of my evolution into who I am today.
So while I remain convinced that it is the right thing to have a revolving door at USV, I am going to miss Jonathan, as I miss Charlie, Andrew, Eric, Christina, Brian, Zander (and Gary and Brittany too).
Jonathan Libov has spent a couple years at USV in our two year analyst program and is about to move on to his next thing.
He took the time this week to write down some thoughts on what he has learned as a “junior VC” and it’s worth reading for both investors and entrepreneurs.
I particularly like where he ends the post, talking about “messing around on the fringes”:
But more importantly, talk to people who are building things. Don’t just talk to founders of investible companies, but also talk to people who are experts in their field or following modes of thought that contravene mainstream thinking. Play with their API’s and go deep in forums, even if there’s no investment in sight. Mess around in the corners of the internet.
Just as wading in the muck of cap tables and share purchase agreements is the best way for an analyst to learn the mechanics of venture investing, wading in code and API’s and forums is the best way to discover the things that others have not discovered yet. To frame it more practically: This will help you identify the opportunities that others don’t appreciate yet, and that will help you to invest at attractive prices.
Lastly, it is important to emphasize who this post is aimed at: Junior VC’s. The partners at your firm benefit from having established networks that will pass along interesting, valuable opportunities. Your job is to complement those investments with the ones they and their network would not see because they’re don’t fit the patterns they’re accustomed to. You have more freedom than they do to mess around on the fringe. Don’t waste it.
I try to hang out on the fringe as much as I can and also try to avoid being pulled into the mainstream as much as I can. I think Jonathan’s advice, while aimed at “junior VCs”, is great advice for entrepreneurs and investors alike. The next big thing is almost certainly a fringe thing today. That’s how it always is.
I saw Joe Fernandez‘ tweet a few days ago and thought “he is making an important point.”
too many young entrepreneurs talk about vc’s like they’re heroes and their blog posts are scripture
— Joe Fernandez (@JoeFernandez) August 19, 2016
VCs are not heroes. We are just one part of the startup ecosystem. We provide the capital allocation function and are rewarded when we do it well and eventually go out of business when we don’t do it well. I know. I’ve gone out of business for not doing it well.
If there are heroes in the startup ecosystem, they are the entrepreneurs who take the biggest risks and create the products, services, and companies that we increasingly rely on as tech seeps into everything.
VCs do have a courtside seat to the startup world by virtue of meeting and getting pitched by hundreds of founding teams a year and sitting in board meetings for many of these groundbreaking tech companies. We get to see things that most people don’t see and the result of that is that we often have insights that come from this unique view we are given of the startup sector.
Another thing that is important to know about VCs is that we operate in a highly competitive sector where usually only one or two VC firms are allowed to make a hotly contested investment. So in order to succeed, VCs need to market ourselves to entrepreneurs. There are many ways to do that and the best way is to back the most successful companies and be known for doing that. There is a reason that Mike Moritz and John Doerr were invited to lead Google’s initial VC round. By the time that happened, they had established themselves as the top VCs in the bay area and their firms, Sequoia and Kleiner Perkins, had established themselves as the top firms in the bay area.
Another way that VCs market ourselves to entrepreneurs is via social media. And blogging is one of the main forms of social media that VCs can use to do this. And, given that VCs have this unique position to gather insights from the startup sector, we can share these insights that we gain from our daily work with the world, and in particular entrepreneurs. If anyone has played this blogging game well enough to get into the top tier, it is me. I know of what I speak.
So how should entrepreneurs use this knowledge that is being imparted by VCs on a regular basis? Well first and foremost, you should see it as content marketing. That is what it is. That doesn’t mean it isn’t useful or insightful. It may well be. But you should understand the business model supporting all of this free content. It is being generated to get you to come visit that VC and offer them to participate in your Seed or Series A round. That blog post that Joe claimed is not scripture in his tweet is actually an advertisement. Kind of the opposite of scripture, right?
But you should also know that there is data behind that blog post, gained from hundreds (or thousands) of pitches and dozens (or hundreds) of board meetings. If VCs are good at anything, we are good at pattern recognition and inferring what these patterns are leading to. And so these blog posts that are not scripture, and are in fact advertising, can also contain information and sometimes even wisdom. So they should not be ignored either.
What I recommend to entrepreneurs is to listen carefully but not act too quickly. Get multiple points of view on important issues and decisions. And then carefully consider what to do with all of that information, filter it with your values, your vision, and your gut instinct. That’s what we do in our business and that is what entrepreneurs should do in their businesses.
If you are at a board meeting and a VC says “you should do less email marketing and more content marketing”, would you go see your VP Marketing after the meeting and tell them to cut email and double down on content? I sure hope not. I hope you would treat that VC comment as a single data point, to be heard, but most likely not acted on unless you get a lot of similar feedback.
VCs are mostly not idiots and can be quite helpful. But we are not gods and our word is not scripture. If you treat us like that, you are making a huge mistake. And I appreciate Joe making that point last week and am happy to amplify it with this post.
Winning a medal at the Olympics is a big deal for athletes all around the world. Obviously a gold medal is better but silver and bronze are pretty awesome too.
In startup land, it works out pretty similarly. In each and every big “winner takes most” market there is one big winner (the gold medal winner) and a few other big companies (silver and bronze) and then not much more.
If you look at web search, Google won the gold medal and has a $550bn market cap to show for it.
In social, Facebook won the gold medal and has a $360bn market cap to show for it.
In ridesharing, Uber won the gold medal and has a purportedly $60bn market cap to show for it.
You can do well with silver and bronze. Twitter is worth $13bn. Lyft is supposedly worth $5.5bn. But coming in second or third in a big market is generally an order of magnitude (or two) less valuable in the long run.
And you had better get on the stand and get a medal if you are working in a big “winner take most” market because fourth or fifth or sixth is rarely worth much, if anything.
These are high stakes markets where winning is everything and losing is nothing. And things play out pretty quickly. Within five years, we generally know who won, who placed, who showed, and who whiffed.
It is possible that with the emergence of decentralized networks these dynamics will change and we will be on to a very different market dynamic. But for now this is how it goes. Go big or go home.
Our partner Brad has had an interest in Berlin’s growing tech ecosystem since the earliest days of USV. One of our first investors in USV is a good friend of Brad’s from Berlin. So he has been a big supporter of what is going on in Berlin and goes there frequently, as we all do. He has developed a close relationship with Blue Yard, a new VC firm in Berlin, and he and Blue Yard’s co-founder Ciaran O’Leary did a talk there last month. It’s really good (and not too long at 24 mins).
There is nothing the tech media and the broader press likes to ask me about more than bubbles.
“Is Snapchat a bubble?”
“Is Uber a bubble?”
“Is Facebook a bubble?”
“Is seed investing a bubble?”
“Is growth investing a bubble?”
And on and on and on.
It’s like bubbles are a disease that we need to eradicate.
Don’t get me wrong. Bubbles are something investors need to be careful with. You can make money on the way up but lose it all on the way down. I’ve done that. It hurts.
So at USV, we are careful to invest early in cycles and get defensive later in the cycle and take profits when they are available. If anything, I think we have been too conservative in this regard.
However, as I pointed out in a conversation with my colleagues yesterday, bubbles are a necessary part of any technology cycle, large or small.
Carlota Perez talks about this in her seminal book on technology cycles, Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages.
But maybe the best thing written on this topic is my friend Tom Evslin‘s blog post from January 2005, when the investment world was just waking up to the fact that the Internet bubble wasn’t the end of things, but just the beginning. I particularly love how he ends that post:
Historically, the results of bubbles have usually been more empowerment for more people. Historically, bubbles have provided an explosion of funds which blasted away the entrenchments of an old oligarchy not only to the benefit of entrepreneurs but also to the benefit of consumers in general. Think of the constantly falling price of transportation and communication.
If we should find a way to stop bubbles, if we were to put the genie of irrational exuberance back in the bottle, the winners will be whoever are the incumbents at the time and the losers will be all those who could benefit from another great breakthrough in infrastructure like railroads, canals and the Internet.
Bring on the next bubble. And invest in it at your own risk. I will.
Jerry Colonna, Brad Feld, and I go way back in the venture capital business. We met in the mid 90s and worked very closely together during the late 90s. I still work closely with Jerry and Brad but not quite as intensively as we did back then.
We got together a couple weeks ago (virtually) and chatted for an hour about the personal struggles we all dealt with and overcame as we grew up in the business.
It’s a pretty revealing discussion. I just listened to it and cringed a few times. Jerry has this uncanny ability to get people to say things they don’t often say. He did that well on this one.
There is a lead in of about five minutes. The conversation starts after that.
The combined company, which will operate under the MyTaxi brand, will be the dominant taxi hailing app in Western Europe.
Hailo is huge in the UK and Ireland and has a strong position in Spain. MyTaxi operates in Germany, Australia, Italy, Poland, Portugal, Spain, and Sweden. So this combination is a great strategic fit and the new company will benefit from a lot of synergies.
Andrew Pinnington, the current CEO of Hailo, will become the CEO of MyTaxi and the company will consolidate its operations in Hamburg Germany. The combined company will be majority owned by Daimler.
Unlike the US, the regulated taxi business in Europe got on the ridesharing bandwagon early and it is as simple and easy to hail at taxi in Europe as it is to use Uber. If you travel to Berlin frequently, you will know that ridesharing in Berlin is all about taxis.
I can’t reveal numbers, but the combined MyTaxi/Hailo business will operate at a scale that puts it in the big leagues along with Uber and a number of other emerging winners in the ridesharing business.
This is a great outcome for Hailo and I would be remiss if I didn’t thank Andrew Pinnington for his incredible leadership at Hailo over the past 18 months. Without that, none of this would have been possible.