Posts from VC & Technology

Founder Friendly

Long time VC watcher, writer, and analyst Dan Primack suggested on Friday that the days of VCs trying to out “founder friendly” each other are now over.

It is an interesting observation and was worthy of a reply. The VC industry is highly competitive for the best opportunities and we certainly do try to ingratiate ourselves and our firms to the entrepreneurs who will decide who gets to invest in their companies and who does not. Being “founder friendly” is an important way to do that.

But there is another important participant in the VC/entrepreneur relationship and that is the Company the entrepreneur creates and all of its stakeholders; the employees, the customers, the suppliers, and even the community around the Company.

Having worked with entrepreneurs for over thirty years now, I have developed tremendous admiration for what they do and for the Companies they create. Entrepreneurs are a very special breed of people.

But there are times when interests diverge and what is best for the Company and it’s stakeholders may not be what an entrepreneur perceives to be in their own best interest. This creates a conflict situation and VCs are often caught in the middle of it.

I’ve been there many times and my mantra in those moments is “what is best for the Company?”. It has to be that way and, many times, when it is all over and done, the founder realized it was in fact best for them too.

Of course, reasonable people will disagree about what is best for a Company. That is what Boards are for. They are the bodies made up of reasonable people who can and should debate these issues and find resolution and make the hard decisions.

I reject the notion that being led by its founder is always what is best for a Company. It is often so, but certainly not always so.

Orthodoxy in thinking and believing is quite troublesome. There is no one way to do things and no single truth. You have to figure things out all the time based on facts and circumstances, based on a combination of experience and knowledge. If you do that well, you will get a lot right but never everything right.

I have heard from quite a few founders that they read the book Hatching Twitter and came away thinking that they would not want to work with me. That sucks for me but I don’t regret anything I did or said in the events that were described in that book.

You must try to make the right decisions for what is best for the Company and if that means being labeled unfriendly to founders, so be it.

A Public Record

AVC has been going on for almost 14 years now. I write every day, mostly about tech and investing in startups and observations about entrepreneurs and entrepreneurship.

WordPress says I have posted 7,622 times. That is more than once a day but that is because I used to post multiple times a day. Now I can barely find the time to write once a day.

Anyway, posting your thoughts and investment ideas every day creates a public record.

That can be bad when you are consistently wrong about something, like I have been about Apple since Steve Jobs left the company.

But all in all, I would not have it any other way.

A few days ago, Founder Playbook posted a timeline of my writing on Bitcoin and Blockchain, stating that “Since 2011, Fred has been bullish, yet critical, on the crypto market.”

I have been a believer in Bitcoin, Blockchain, and Crypto since 2011 and my confidence in this macro investment thesis gets stronger every day.

And I will continue to critique the sector, calling it out when I see things like greed, infighting, or other issues that get in the way of its collective success.

One could do a similar lookback on my roughly decade long obsession with social media that led me to blogging and ended around the time I fell for crypto.

I tend to get obsessed about one thing and write a lot about it. Which creates a public record. You can’t hide from that, but then again blogging is the opposite of hiding.

Greed Isn’t Good

The famous Gordon Gekko line that “greed is good” is bandied about quite often to explain why capitalism, and the pursuit of riches, is a positive thing for the economy, society, and the world at large.

Greed is not good. There is a fine line between the profit motive and greed.

I am a firm believer in the profit motive. It drives many of us to work hard, make new things that can move the world forward, and better our lives and the lives of our children, and others, through philanthropy.

But when the profit motive is taken to excess and you enter into the territory of greed, things go bad quickly.

We have seen this in the tech sector in many places, we have seen it in wall street, in real estate, and elsewhere. And we certainly are seeing it crop up in the crypto sector as well, particularly recently.

I like the concept of checks and balances. It is important to make sure to stay on the right side of the line between what is reasonable and what is excessive. Surrounding yourself with the right people, who have been around this issue a lot, can help a lot.

There are a lot of temptations out there when a lot of money is sloshing around. It is good to resist them.

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.