Posts from VC & Technology

Understanding VCs

I saw Joe Fernandez‘ tweet a few days ago and thought “he is making an important point.”

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.

Gold, Silver, and Bronze

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.

Video Of The Week: Brad In Berlin

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).

In Defense Of Bubbles

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.

Reboot Podcast With Jerry and Brad

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.

Hailo and MyTaxi

The news broke this morning that our portfolio company Hailo is combining forces with MyTaxi.

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.

On The Beach

I’m taking the weekend off to spend it with my entire family (parents, brothers, wives, children) on the beach.

Here are a couple podcasts that Harry Stebbings did with my partners Albert and Brad in case you want to spend some time going deep on USV this weekend

Podcast w/ Brad

Podcast w/ Albert:

Active vs Passive Investing

When you buy a stock in the public markets, that is passive investing.

When you buy 10% of that public company in the open market and then seek to obtain board seats, that is active investing.

When you buy a REIT, that is passive investing.

When you buy vacant land, build an apartment building, and lease it up, that is active investing.

When you buy a treasury bill and collect interest, that is passive investing.

When you make “hard money loans” to developers, that is active investing.

When you toss some money into an angel deal that others are leading, that is passive investing.

When you lead a seed round and take a board seat, that is active investing.

Both models work, but when you do passive investing, it is best to invest in liquid markets so you can get out when things aren’t going your way.

When you do active investing, you are most likely investing in illiquid markets and you have to invest your time, energy, and intellect to make sure things go your way.

It is hard to “beat the market” when doing passive investing. That doesn’t mean you can’t make good money doing passive investing, particularly over a long period of time.

But like everything else in life, if you really want to make big gains with your investments, you are going to have to invest your time, energy, and intellect as well as your capital.

And that means being an active investor.

That’s how I like to invest and it limits how many investments you can make. It is hard to scale “active investing.”

One of the things I see in the angel, seed, and VC markets is investors and firms trying to scale their investing while pretending to be active investors.

I don’t think that is possible.

You have to either choose to be active and concentrated or passive and diversified. Either model works, but I think you need to be one or the other. It’s not really possible to be both.

The State Of The NYC Tech Ecosystem

Matt Turck has penned a “State Of The City” post about where the NYC tech ecosystem is right now. I get asked this question all the time and I haven’t been doing a great job of answering it. I will use some of Matt’s work the next time that happens.

Here’s some of my favorite points from Matt’s post. If you live and work in the NYC tech ecosystem, or care about it, you should go read the whole thing.

NYC as a leading AI Center:

The New York data and AI community, in particular, keeps getting stronger.  Facebook’s AI department is anchored in New York by Yann LeCun, one of the fathers of deep learning.  IBM Watson’s global headquarter is in NYC. When Slack decided to ramp up its effort in data, it hired NYC-based Noah Weiss, former VP of Product at Foursquare, to head its Search Learning and Intelligence Group.   NYU has a strong Center for Data Science (also started by LeCun).  Ron Brachman, the new director of the Technion-Cornell Insititute, is an internationally recognized authority on artificial intelligence.  Columbia has a Data Science Institute. NYC has many data startups, prominent data scientists and great communities (such as our very own Data Driven NYC!).

 

NYC as a home to “deep tech”:

Finally, one trend I’m personally particularly excited about: the emergence of deep tech startups in New York.   By “deep tech”, I mean startups focusing on solving hard technical problems, either in infrastructure or applications – the type of companies where virtually every early employee is an engineer (or a data scientist).

For a long time, MongoDB was pretty much the lone deep tech startup in NYC.  There are many more now.  A few of those are in my portfolio at FirstMark:  ActionIQ, Cockroach Labs, HyperScience and x.ai.   But there’s a lot of others, big and small, including for example: 1010Data (Advance), BetterCloud, Clarifai, Datadog, Dataminr, Dextro, Digital Ocean, Enigma, Geometric Intelligence, Jethro, Placemeter, Security ScoreCard, SiSense, Syncsort or YHat – and a few others.

 

The Diversification and Broadening of NYC’s Tech Ecosystem:

One way of thinking about New York’s tech history is one of gradual layers, perhaps something like this:

  • 1995-2001: NYC 1.0, lots of ad tech (Doubleclick) and media (TheStreet)
  • 2001-2004: Nuclear winter
  • 2004-2011: NYC 2.0, a new layer emerges around commerce (Etsy, Gilt) and social (Delicious, Tumblr, Foursquare), on top of adtech (Admeld) and media
  • 2012-present: NYC 3.0 – in addition to the above, just about every type of technology covering just about every industry

Certainly, the areas that put NYC on the map in the first place continue to be strong.  New York is the epicenter of the redefinition of media (Buzzfeed, Vice, Business Insider, Mic, Mashable, Bustle, etc.), and also home to many great companies in adtech (AppNexus, Tapad, Mediamath, Moat, YieldMo, etc.), marketing (Outbrain, Taboola, etc) and commerce (BarkBox, Birchbox, Harry’s, Warby Parker, etc.).

But New York has seen explosive entrepreneurial activity across a much broader cross-section of verticals and horizontals, including for example:

  • Fintech: Betterment, IEX, Fundera, Bond, Orchard, Bread
  • Health: Oscar, Flatiron Health, ZocDoc, Hometeam, Recombine, CellMatix, BioDigital, ZipDrug
  • Education: General Assembly, Schoology, Knewton, Skillshare, Flatiron School, Codecademy
  • Real estate: WeWork, HighTower, Compass, Common, Reonomy
  • Enterprise SaaS: InVision, NewsCred, Sprinklr, Namely, JustWorks, Greenhouse, Mark43
  • Commerce infrastructure: Bluecore, Custora, Welcome Commerce
  • Marketplaces: Kickstarter, Vroom, 1stdibs
  • On Demand: Handy, Via, Managed by Q, Hello Alfred
  • Food: Blue Apron, Plated
  • IoT/Hardware: littleBits, Canary, Peloton, Shapeways, SOLS, Estimote, Dash, GoTenna, Raden, Ringly, Augury, Drone Racing League
  • AR/VR/3D: Sketchfab, Floored

 

 

I like the NYC 3.0 moniker. It’s a very different place to start and invest in tech companies than it was even five years ago. Bigger, deeper, broader, and scaling nicely. Just like the companies themselves.

Nailing It

I saw dozens of pitches for what was essentially YouTube between 1998 and 2005. But when YouTube launched, it was pretty clear pretty quickly that they had nailed it and nobody else before them had.

I saw way more pitches for what was essentially Pokemon Go between the arrival of the iPhone and now. But when my daughter told me to download Pokemon Go and play it, I immediately realized that they had nailed something that nobody had before them

AVC regular LIAD tweeted this today:

You are not alone LIAD.

I recall seeing John Geraci‘s ITP senior thesis project in 2005 which was a web version of this idea powered by Google Maps, and understanding that we all want to interact with interactive media in the real world.

I’ve always loved the idea that we could do a massively public treasure hunt together using the web and mobile. But it took over ten years since I first saw this idea to have it really happen.

It made me smile when Emily told me to download it and I am still smiling days later. And I have a gym right outside my front door.

gym on W side hway