Posts from VC & Technology

Succession Planning In Partnerships

I read today that the founders of KKR have named Joseph Bae and Scott Nuttall as co-Presidents and heir apparents. I’ve written before about succession planning in investment firms. Getting this right is challenging. There are a lot of stakeholders; the investors, the partners, the employees, the portfolio companies. Everyone worries about what might change under new leadership.

I am a fan of gradual but clear and transparent transition, which is what KKR is doing and what we have done at USV.

Our partners Albert and Andy have been running USV for the last eighteen months as Brad, John, and I have focused our time on our portfolio companies and new investment opportunities (which Albert and Andy also do).

Giving everyone clarity about what is going to happen but allowing the transition to play out over time seems to work best in investment partnerhsips, which contrasts with the quick handovers which seem to work best in operating businesses.

Partnerships are complex and powerful operating models. When they work well they are a beautiful thing. But they are easy to mess up and so transitions need to be handled with a lot of care.

Working Across Many Time Zones

I was in Europe for most of June and working on a lot of things with people in the bay area. The nine hours of time zone difference was challenging. I was doing a lot of calls in the evenings with people who were just waking up.

There were many times when I woke up in Europe to a brief window where I could talk to people in the bay area who were still working and had not wrapped things up for the day before.

Our portfolio at USV spans ten hours (Estonia to San Francisco/Los Angeles).

Being based in NYC helps a bit as we have longer overlaps between Europe and the Bay Area than those two locations have with each other.

But I continue to find working across many time zones challenging.

Yesterday I had a conference call between people in five time zones. Getting everyone to agree to the correct time was almost laughable.

I’ve learned to use the time zone feature in Google Calendar to make sure I’ve got the time right. That helps me a lot.

As the world becomes more globalized, we find that we can do business more easily across time zones. And so we do more business across time zones.

That in turn leads to longer days.

When I am in LA, I often wake at 5am to an inbox that is full and active.

When I am in Europe, I am often on conference calls on the way to dinner.

I suspect there is someone working at a USV portfolio company at every hour of every day.

And new technologies is pushing this trend even farther.

Traditional capital markets open and close. The NYSE will open for trading today at 9:30amET after being closed all day yesterday for the July 4th holiday.

But crypto traders can trade on GDAX 24/7 and do.

So the tech and startup business is quickly becoming a 24/7 affair.

It wasn’t that way at all when I got into the business in my mid 20s.

But thirty years later the pace and rhythm is very different.

Keeping up with that pace and rhythm can be exhausting if you let it be.

Doing The Heavy Lifting

Most venture capital investments are made, over time, by syndicates. This means a group of venture capital firms develops around a company, usually built over multiples rounds. Some of the firms in the syndicate agree to (or require) having a partner from their firm join the Board of the company.

If you look at the roughly dozen boards I am on, most of them have multiple venture capitalists on them. Some also have independent directors, something I believe strongly in and have written about frequently.

Not all venture capital firms in your syndicate will be the same. Not all of the VCs on your board will be the same. Some will be challenging to deal with. Some will be unproductive and distracting. Some will be nice to have around but won’t do much. A few will roll up the sleeves and do the “heavy lifting.”

It is this latter group that is super valuable. You saw it in action last week when the partners of Benchmark apparently negotiated a change in leadership at Uber. That is hard, painful work. But someone has to do it. And I have seen the partners at Benchmark do it before. They don’t shy from the tough stuff. Nobody enjoys doing things like that, but they know when it is needed and they step up and do it.

I was talking to another VC I work with yesterday about a completely different situation. The company is doing great. We have some important decisions in front of us, all good choices to have to make, but selecting the right ones will matter a lot. This VC has been deeply engaged in the process, providing a lot of super valuable advice, and saying things that need to be said, even if they are not popular. I feel incredibly lucky to have someone like that in a syndicate with me. And I told him that yesterday.

You can put together a list of the top VCs by returns. That is done annually. It’s all nonsense. There are a ton of shitty VCs on that list. Returns matter, for sure. But what really matters is who shows up when the hard conversation has to be had. What really matters is who provides the right advice at a critical time. What really matters is who puts aside their own personal interests and does what is in the best interests of the company. What really matters is who steps into a vacuum and provides leadership when it is badly needed.

When you are picking investors, you should call around and check references. Ask about this stuff. Find out who does the heavy lifting and who goes along for the ride. Pick the one who does the heavy lifting. Because you will need it, frequently.

Open Source Funding Documents

Cooley, one of the top startup law firms, has open sourced the legal documents required to do a Series Seed or Convertible Note financing.

They are available on Cooley’s CooleyGo document generation platform and also on GitHub.

Kudos to Cooley for doing this. We need to make the transaction costs of getting a financing done as low as possible and putting the legal docs into the public domain is a great step forward in doing that.

ICOs and VCs

The Brave browser team concluded an ICO for their Basic Attention Token yesterday in about thirty seconds. This led to this tweet:

Of course folks will see ICOs as the end of the hated VC era of startup funding. And there is some truth to that.

But I see it a bit differently:

  1. Brave was VC funded prior to doing their ICO. We talked to Brendan when he was doing his seed round. He’s a great entrepreneur and technologist and he has assembled a terrific team. Although we are not investors in the company, we are sympathetic to the cause they are addressing. VC has had role in the Brave story. It helped them launch a product and get to the point where they could do a highly anticipated ICO.
  2. USV has a number of portfolio companies that will do ICOs. I have mentioned Kin and Filecoin in a previous blog post.  There will be others. Like Brave, it often makes sense for a company to raise VC to build the team and tech and get to a place where it can do an ICO.
  3. Not every company can do an ICO. Contrary to the hype machine working on ICOs right now, they are not simply a funding mechanism. They are about an entirely different business model. The token that you sell in your ICO is the atomic unit of your business model. You are selling some of it to raise capital but the main purpose of the token is to monetize your product or service.
  4. The investors who bought your token, like public market investors, may be gone tomorrow, next month, or next year, having moved on to the next big thing, leaving you with little to show for it other than the money you raised. VCs, at leas the best ones, are there for your company in good times and bad. There is a difference, trust me.

So, while ICOs represent a new and exciting way to build (and finance) a tech company, and are a legitimate disruptive threat to the venture capital business, they are not something I am nervous about and they are not something USV is nervous about. We are excited about them when they are the right thing for our portfolio companies and we are encouraging those companies to use this new approach. We are also investing in tokens, through token funds, and directly on or own.

Now I need to go put on my sweater vest.

Video Of The Week: My Talk With David Kirkpatrick at Techonomy

Last wednesday morning, I went to Techonomy NYC and talked with my friend David Kirkpatrick for about 30mins.

That conversation is below.

There is one gross misrepresentation in the talk. David and I were talking about my efforts to ignore Trump and I said that the Gotham Gal spends “two to three hours a day on that stuff” which is not anywhere close to accurate. She reads the NY Times religiously in paper form every day and does pay a lot more attention to Trump than I do, but it’s not anywhere near two to three hours. I apologize to her for suggesting such nonsense.

Seeing Through The Fog

I was talking to my friend Simon yesterday and he observed that the essential skill of entrepreneurs and early stage VCs is to “be able to see through the fog of an emerging market and pick out the winning idea.”

And of course, I agree with that. It is something that we have done pretty well at USV over the years.

But how do you do that? Is seeing through the fog a skill that can be learned?

I think seeing through the fog can be learned but it takes time and practice.

Some people are innately good at it and they seem to be able to do it naturally.

But I was not that person. It took me years to be able to do it well and I think there are a few things that helped me a lot.

  1. Focusing on a sector and dedicating yourself to it helps a lot. I have been investing almost exclusively in Internet-based businesses since 1993 and that has helped me understand the dynamics, economics, and unique characteristics of doing business on the Internet. That framework helps me see through the fog.
  2. Doing the upfront work to have a thesis before investing in a sector is important. My partner Brad taught me this trick back when we started USV in 2003. He insisted that we have a thesis before we raised our first fund and started investing. That thesis has evolved a lot over the years but we have always had one. When we wanted to start to invest in verticals, like financial services, healthcare, and education, almost ten years ago now, we took deep dives on those sectors and developed a thesis about how they would emerge, where the value was going to be, and  where we wanted to focus before making a single investment in these verticals. That has served us incredibly well as we have built/are building fantastic portfolios in all three verticals.
  3. Avoiding the noise is particularly important. This is hard to do unless you have a thesis. But even if you have a thesis, there is often a ton of noise around other things that you have to ignore. Otherwise, it will pull you in all sorts of directions, waste a ton of your time, and possibly lead to bad investments. I like to think of having blinders on when we are starting to invest in a new area. It is critically important to not let the hype and bluster and bullshit misdirect you.
  4. Using the technology of the emerging sector really helps. That is often not easy. I remember when I first started playing around with Bitcoin in 2011, it wasn’t simple to get a wallet, mine some Bitcoin, use an exchange. But I did it because I wanted to use the technology and understand how it worked. Getting your hands dirty by using the technology as early as you can will you help to see through the fog. I strongly recommend it.
  5. Reading everything that is written on an emerging sector is critical. I am not talking about books, they usually come too late. I am talking about academic/research/white papers and blog posts written (often poorly) by the leading technologists in the sector. There are sometimes early observers/pundits in these nascent sectors and some of them can be quite good. Find them and follow them.
  6. Meeting with as many people working in the emerging sector as you can will help a lot. I don’t just mean entrepreneurs but you should meet as many of them as you can. I mean everyone and anyone who is working in the sector, investing in the sector, writing about the sector, and engaging in the sector. It’s a lot of work (and travel if you don’t live in a place people come to a lot), but it is invaluable.

When something new comes along, like the Internet in 1993, Web 2/Social in 2003, Mobile in 2007, or Blockchain in 2011, initially it is opaque, like mist, as Simon said to me. But amazing business opportunities will emerge from that mist and those entrepreneurs and early stage investors who jump onto the right ones will be rewarded greatly. It takes a prepared mind to do that and you have to do the work before the opportunities start emerging from the mist. That is how you get the clarity to see the best ideas through the fog.

Being Public

Two former USV portfolio companies had tough earnings calls last night.

And you look at that and you might say “why would any company want to go public?”

But here is the thing. Being public is about being transparent, accountable, and owning up to the issues and dealing with them.

I think it makes companies better.

If you are losing your biggest customer, you have to tell the world and deal with the consequences.

If you are making a leadership change, you have to tell the world and deal with the consequences.

Both of those companies are great companies, in which the Gotham Gal and I are a very large shareholder, and in which we believe in totally and completely.

Nothing is always up and to the right, even though you might want it to be.

The great companies are the ones that have the guts to bare it all and keep building.

Which is why I think being public is a good thing for the companies we work with that are large enough and have unique and differentiated businesses and business models.

I think more tech companies should be going public and I have been saying that for quite a while now and last night doesn’t change my views one iota.