Posts from VC & Technology
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.
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.
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:
Saving myself the anguish of digging up the 2008 game spec & mock-ups we made for a AR treasure hunt/landmine avoidance game. #PokemonGO
— Liad Shababo (@L1AD) July 11, 2016
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.
I’ve been thinking about Amazon’s Lambda service which I mentioned in the Hacking Echo post last week. Lambda is not new, but last week was the first time I saw it in action. I need to see things in action to understand them.
Business model innovation is interesting to me, maybe more than technology innovation. Because new business models open up new use cases and new markets. And new markets create a lot of new value. And I am in the new value business.
Think about this value proposition:
AWS Lambda lets you run code without provisioning or managing servers. You pay only for the compute time you consume – there is no charge when your code is not running. With Lambda, you can run code for virtually any type of application or backend service – all with zero administration. Just upload your code and Lambda takes care of everything required to run and scale your code with high availability. You can set up your code to automatically trigger from other AWS services or call it directly from any web or mobile app.
“You pay only for the compute time you consume, there is no charge when your code is not running”
So we have gone from “you have to buy a server, put it in a rack, connect it to the internet, and manage it” to “you can run your code on a server in the cloud” to “you can run your code on a shared server in the cloud” to “you can pay for code execution as you use it”. And we have done that in something like ten years, maybe less. That’s a crazy reduction in price and complexity.
But we also have put a ton of code in an open repository that anyone can access and copy from.
So, like we did in the Hacking Echo situation, you can now browse GitHub, find some code, use it as is or modify it as needed, and then put it up on Lambda and pay only when you execute it.
I think this is going to make for a lot more hacking, experimentation, and trying new things.
And that is going to result in new use cases and new markets. It may already have.
We are entering the summer months when things move slower in the investor community. This is true of venture capital, but it is also true of other investment sectors as well. Summer vacations slow things down and investors also use the time to step back a bit and evaluate how the first half of the year has gone and plan for the second half.
I know many companies don’t like to raise capital in the summer months. While I understand that approach and it is conventional wisdom, I think the contrarian approach of raising in the summer can also work.
Raising money in the summer months will go slower and can be frustrating as you lose weeks at a time to vacations. Partner meetings are harder to get scheduled. And trying to get multiple potential investors on the same time frame is nearly impossible.
But the benefit of raising in the summer is that you are not competing with as many other companies to get the investor’s attention. You can more easily rise above the noise in the summer. Investors don’t take the summer off, they just slow things down a bit. So if you need to raise capital in the summer or just want to, you can make it work. You just need to allow more time for the process and be patient and flexible.
One advantage of raising in the summer is that you can take care of fueling the tank when things are slow with customers and be ready to step on the gas in the fall when things pick up again. The last four months of the year are often a sprint to the finish line and using up some of that energy raising is often suboptimal.
So if you find yourself in the market for capital this summer, don’t fret. But be prepared for a slog that doesn’t move as fast as you’d like it to. It’s the doldrums after all.
I read yesterday evening that our portfolio company Twilio, which priced its IPO last night, is going to live code from the NYSE this morning. That brought a powerful flashback to the first time I met Jeff Lawson, founder and CEO of Twilio.
It was 2008 in our old offices on the 14th floor of the building we still work in. My partner Albert, who led our investment in Twilio, had met Jeff and was impressed with him and his vision for Twilio. He asked me if I would meet with him and so I did.
Jeff came into the conference room, sat down, and said “we have taken the entire messy and complex world of telephony and reduced it to five API calls”.
I said “get out of here, that’s impossible.”
Jeff proceeded to reel them off and I said “wow”.
He then pulled out his laptop, fired up an editor, and started live coding an app. He asked me for my cell phone number and within 30 seconds my phone was ringing.
I said “you can stop there. that’s amazing”.
It was, and remains, the best seed pitch I’ve ever gotten. I’ve told him that many times and have told this story many times. I am not sure why it has never made it to this blog. But this morning is a great time for that to happen.
My partner John has a post up on USV this morning talking about our new fund, USV 2016, which we quietly raised earlier this year. We added our final portfolio company in USV 2014 last week and we are making our first investment in USV 2016 this week, led by John. In John’s post he addresses some changes we are making at USV, most notably the elevation of Albert and Andy to managing partners of our firm. This role has been held by Brad and me since we started USV in 2003.
This sounds like a big change and in some ways it is. Andy and Albert are the future of USV, at least the near term future. They have been providing this leadership role for a while now but it is time to formally acknowledge it. John, Brad, and I remain actively involved in making investments, managing investments, and driving our investment strategy. We all plan to make investments in the 2016 fund, as John is doing this week.
The VC business is a long term game and VC funds have a long time horizon, ten years in most cases, but generally they get extended for a few years more as it takes a long time to liquidate these funds. We are on our second extension on our 2004 fund and I doubt it will be totally wrapped up until the latter part of this decade. What this means for a venture capital firm is that you need to anticipate succession on a longer time horizon. At some point, Brad, John, and I will not want to sign up for investing a new fund. But well before that happens, we need to establish the new leadership at USV and start building the next generation. We have done the former and at some point in the next several years we will start thinking about the latter. Again, we are doing all of this over a long time horizon as is appropriate for our kind of business.
When Brad and I started USV, there were a bunch of things we did not want to do. One of them was stick around too long, taking too much carry, and holding on to too much control. We have seen so many VCs do this at the firms they started and we did not want that to happen at USV. With this change, we are showing ourselves, our partners, and our LPs that we were serious about that.
What we are not doing is retiring. I know there are rumors out there that I have retired, I am retiring, or I will soon retire. I don’t really care about them and have ignored them for the past year or so. But our portfolio companies hear them and it bothers them. And I understand that. So rest assured, I am not retiring. I am handing over the keys to the car and getting into the back seat. It feels good. And I am so excited to see where Albert and Andy drive the car. I know it will be to amazing places. It already is.
As Andy talked about in the podcast I posted yesterday, the style we use to decide what to invest in at USV is extremely conversational. We discuss, debate, discuss, debate, and eventually decide. It is a group thing. We don’t really make individual investment decisions at USV. We make group investment decisions. And so the group dynamic is critical. We have various personality types. And you need that.
My personal style is “strong views weakly held.” I didn’t come up with that term. My friend Jeremy introduced the concept to me. But it describes me accurately. When an investment opportunity is surfaced, I will immediately have an opinion and I will voice it, often strongly. My colleagues understand that is my style and don’t let me bully the conversation. Because they also know I will fold quickly when the facts prove I am wrong. And I don’t require too many facts to prove that to myself.
But it is helpful to have a number of people in a group who behaves as I do. It gets the discussion going. It fuels the debate. And, because everyone knows I will fold quickly if wrong, they are happy to make the investment in proving me wrong.
Strong views are quite helpful if weakly held. Strong views strongly held are only helpful if they are actually correct and even then they can stifle debate. So while we like everyone at USV to have strong views, we also like them to concede the point when facts suggest they aren’t actually right. And happily our culture encourages and rewards that.