A Different Approach To VC

I wrote this to my partner the other day. I’m not going to provide the context. It doesn’t matter. It could have been about almost anything in the startup sector right now.

“the biggest thing that is wrong with the startup sector right now is entrepreneurs and their teams are too focused on valuation and not enough focused on business fundamentals”

There are a bunch of reasons why we’ve ended up in this place and my friend Bryce talked about some of them in his talk at XOXO. He posted the transcript of his talk this week. It’s a good read.

But in case you aren’t going to click through and read it, here are a few choice quotes from it:

  • I think there’s something that comes with being an outsider in an insider’s game.
  • Once you start taking other people’s money, it becomes very difficult to stop taking other people’s money.
  • they are building for investors and not necessarily building for customers
  • So we can’t talk about venture capital without talking about Unicorns, right?
  • 99.93 percent of companies are using a product, venture capital, that really doesn’t work for them.
  • you have entrepreneurs building companies, building customer bases, designing interactions with their users in order to make themselves appealing to venture capital
  • Turns out when you invest in things that VCs won’t, you end up with a bunch of companies that VCs don’t want to invest in.
  • what if we surrounded our founders with other people who weren’t focused on fundraising and valuation, but focused on revenue and customers?
  • Rather than make people move, we decided to let people bloom where they are planted.
  • The reality is we tried and weren’t able to pull it off.
  • Just last week, our largest investor passed.

Bryce is not having an easy time raising a dedicated Indie.vc fund. Neither did Brad and I when we raised the first USV fund in 2004. We got 20 passes for every yes.

I’m a contrarian and that tells me that Bryce is on to something. As you might imagine, the Gotham Gal and I said yes when Bryce asked us.

Trying Something New Today

A couple days ago Jay Rosen reached out to me on Twitter asking if he could do a guest post on AVC:

I really don’t like guest posts. I’ve done them, of course, mostly in my MBA Mondays series but also in times of crisis and confusion, like the time I asked JLM to explain TARP to us. So I suggested something else to Jay:

And he delivered on it yesterday:

So here’s how this adaptation of the guest post concept will work.

First, I’d like you all to read Jay’s post. It’s about Twitter building an editorial team and becoming an editorial company.

Now, I will respond here at AVC.


Twitter is a news company. It is where people go to make and break news.

That’s my line, not theirs. But I will gladly give it to them if they will use it. Because that is what Twitter is. It’s not a social network like Facebook. It’s not photo sharing app like Instagram. It’s not a messaging app like Kik. It is not a video sharing app like YouTube. It has elements of all of those things because people use Twitter in different ways. But at its core, Twitter is a news product. It reminds me more of The New York Times than Facebook and I use it more like The New York Times than Facebook. In fact, I use Twitter more than the New York Times for what I used to use the New York Times for.

But the issue with Twitter is that in order to get value out of it like I get value out of it you need to customize it. The reason I get value out of it is that I have configured Twitter to work for me. I have curated a list of just under 1000 people I follow. I like dozens of tweets a day which tells Twitter a lot about me. I reply to tweets which further tells Twitter about me. And then Twitter can recommend “who to follow” and “what I missed”. These products are fantastic and deliver for me bigtime every single day.

But imagine a new user who Twitter knows nothing about. How the hell are they going to get value out of Twitter? Or imagine the casual user who does not want to figure out who to follow and doesn’t want to engage in order to tell Twitter more about them. How the hell are they going to get value out of Twitter? The answer is Twitter the company is going to curate Twitter the news product for folks like that. And they are going to do that by hiring editors to curate various streams. This effort is called Project Lightning and that is what Jay was posting about.

So first and foremost, I am a huge fan of Twitter the company making Twitter the news product better for folks who are not power users of it. This is long overdue and badly needed. Not just for Twitter the company or Twitter the stock. It is badly needed for Twitter the product. Twitter is a network. The more people who are on it, the better it is for everyone who uses it. So addressing the new user and casual user segment of the market is something Twitter absolutely needs to do. And in full disclosure, I own a lot of Twitter the stock and I am “conflicted” in what I write here. Which is why you should pay more attention, not less, to this post.

Now on to Jay’s meta question. What editorial voice will Twitter assume? Who is the soul of Twitter’s editorial pulpit? We all know Rupert Murdoch detests Bill de Blasio so when we read negative stories about the Mayor in the NY Post, we expect it. We all know The New York Times is a “liberal rag” so when they decry Trump’s tax plan as regressive, we know where they are coming from. But where will we expect Twitter’s curation products to be coming from?

I hope Twitter doesn’t try to be “fair and balanced” also known as boring. I hope they have an agenda or ideally multiple agendas and I hope they are transparent about them. I loved Dick Costolo’s line that “Twitter is the free speech wing of the free speech party.” I hope they keep that stance. But does that conflict with bad people using Twitter to do bad things? Yes, of course it does. How will they walk that fine line? Telling us how they plan to do that would be a good first step. They can evolve it over time, but please tell us how they are thinking about it right now.

I also love Jay’s point about Jack’s obsession with raw and real-time news, like police scanners, which provided the formative idea for Twitter. I would love to see Twitter do a channel for that kind of stuff. The more real-time the better. A news product should be obsessed with the news and the more obsessive the better.

I also like Jay’s point that “it will be easy to argue with the choices Twitter makes in curating the news.” And argue they will. That’s what Twitter’s user do, right in the product. So Twitter ought to amplify that in some way or multiple ways. Having a voice, an agenda, and an attitude doesn’t mean silencing the naysayers about those things. The media outlets that amplify the naysayers seem to do better, not worse, on the Internet.

In summary, I am very bullish on a curated Twitter. I will use it and I am sure that hundreds of millions of others will too. But Jay is right that how Twitter the company curates Twitter the product will be important. It must have a voice, an agenda, an attitude, and a soul. There are many experienced people in the world of journalism who know how to deliver that. But of course, it all starts at the top. Which is why I hope they keep the team that is in place there right now. It is a good one and it is the right one.

Trickle Up Economics

For something like 30 years, we have been hearing about trickle down economics in which we lower tax and other burdens on the wealthy, these wealthy individuals invest in the economy, and the benefits of those investments “trickle down” to the middle and lower class. That may well be what happens when the burdens are lowered on the wealthy, but as we all know the wealthiest in the US are gaining ground on everyone else and have been for a long time. This is not a critique of trickle down economics per se. There are other things going on, including a transition of value from labor to capital as a result of technological progress, that are driving the gains of the wealthiest right now.

I would like to propose another approach that I call “trickle up economics” in which we lower the tax and other burdens on the lower and middle class, we invest in educating their children (and them), we make sure they have the skills to get good jobs in the economy of the future, and we make sure they have access to things like good transportation, safe neighborhoods, healthy food, quality health care services, etc that are required for them to be fully functioning citizens in our society.

If we do all of that, we will have a stronger workforce and a more entrepreneurial and innovative society, and that will drive wealth creation in the US that will “trickle up” to the wealthiest people in the US.

The american dream has always been about opportunity. You start out with nothing and through hard work and a good body and mind, you make it and lead yourself and your family to a better life. That, by the way, is the story of the Gotham Gal and me. We arrived in NYC in 1983 with not a penny to our names. Nada. Nothing. I am not even sure how we came up with the security deposit for our first apartment. But we had good educations and had secured good jobs. And we worked for everything we have. We made it.

I am so optimistic about the United States and our economic prospects. I am optimistic about our people. I just want to see us invest in our people. All of them. Because I am sure if we do that, the benefits will trickle up throughout society.

AVC – A Publishing Dinosaur

I was listening to Benedict Evans and Chris Dixon talking about micropayments, ad blockers, web and mobile publishing, and a few other interesting topics this morning and they were making the point that publishers have to go to platforms where their audiences are these days (Facebook, Apple, Medium, etc). I thought about that in the context of AVC and realized that we are most certainly a dinosaur. I publish using a wordpress instance running on a server in the cloud on my own domain. Direct traffic is the largest form of traffic AVC gets. Organic search still drives as much traffic as social. RSS still generates a meaningful amount of traffic (it is called (other) in the chart below).

all traffic channels

Within the social category, Twitter is king and Facebook is an also ran.

social category

Referrals come mostly from Twitter and Hacker News


All of this results in 250,000 web sessions a month, plus RSS and email which about double that. Over the course of a year, it’s over 5mm user sessions across web, email, and RSS.

This pales in comparison to a real commercial publication. But it’s not too bad for a small community tended to by a single operator.

We are most certainly old school in terms of the way this audience comes together.

Maybe that’s why the audience has been flat for over five years now.

2008 to 2015

But it still works very well for me and hopefully for all of you too.

Mobile Web Is Top Of Funnel, Mobile App Is Bottom Of Funnel

comScore released a mobile web/app report last week that is very insightful. The data is US only so it is skewed in that respect and many interesting things are happening outside of the US and the report misses them. But regardless, there are some important conclusions from the report and the title of this blog post is the biggest of them. You can download the comScore report here if you are willing to give them some of your personal info.

First things first. Mobile web unique visitor growth is faster than mobile app visitor growth and the lines are diverging.

mobile web growing faster

This is because your mobile website is the top of the funnel for your user acquisition on mobile. It is where people land when coming from search, email, social media, text links, etc, etc.

The mobile web scales much better. You can build a large audience on mobile web much more easily than via mobile apps.

mobile web scales better

The things that worked in the desktop world tend to work well in the mobile web world, but don’t work in the mobile app world. So you have to use a two step process in mobile. Mobile web is top of funnel and mobile app is bottom of funnel.

But if you want users to stick around for long periods of time and come back regularly, you must get them to your mobile app. Here’s why:

app dominate time spent

I like to think of this way. The mobile web is the window of your store. Users window shop on your mobile website. Getting them to download and install and use your mobile app is like getting them to come into the store. And that’s where the action is long term.

Disclosure: I was a seed investor in comScore in the late 90s, served on their board for something like eight years, and I still own some comScore stock.

Feature Friday: Slash

I’ve been using this third party keyboard on my iPhone called Slash. I met the company at Techstars NYC this week. They are part of the current crop of companies.

It turns any text input field on your phone (messenger, email, twitter, etc) into a command line interface.

This short video from Dennis Crowley’s tweet shows how it works in iMessage.

You can slash foursquare, soundcloud, youtube, spotify, and many other resources to help you quickly send web content and other stuff around.

It’s yet another example of the return of the command line interface.

A Critique of VC, Founders, and Tech

This talk by Maciej Ceglowski (the founder of Pinboard among other things) is mostly a discussion of ad:tech and privacy issues. It raises a number of interesting points and echoes a view of ad blockers that my partner Albert has convinced me is correct (that they are a logical extension of the user agent concept embedded in web browsers).

But the most biting critique is saved for the end of the talk and aimed at the VC and founder communities and the tech sector more broadly.

Our venture capitalists have an easy answer: let the markets do the work. We’ll try crazy ideas, most of them will fail, but those few that succeed will eventually change the world.

But there’s something very fishy about California capitalism.

Investing has become the genteel occupation of our gentry, like having a country estate used to be in England. It’s a class marker and a socially acceptable way for rich techies to pass their time. Gentlemen investors decide what ideas are worth pursuing, and the people pitching to them tailor their proposals accordingly.

The companies that come out of this are no longer pursuing profit, or even revenue. Instead, the measure of their success is valuation—how much money they’ve convinced people to tell them they’re worth.

There’s an element of fantasy to the whole enterprise that even the tech elite is starting to find unsettling.

We had people like this back in Poland, except instead of venture capitalists we called them central planners. They too were in charge of allocating vast amounts of money that didn’t belong to them.

They too honestly believed they were changing the world, and offered the same kinds of excuses about why our day-to-day life bore no relation to the shiny, beautiful world that was supposed to lie just around the corner.

Even those crusty, old-fashioned companies that still believe in profit are not really behaving like capitalists. Microsoft, Cisco and Apple are making a fortune that just sits offshore. Apple alone has nearly $200 billion in cash that is doing nothing .

We’d be better off if Apple bought every employee a fur coat and Bentley, or even just burned the money in a bonfire. At least that would create some jobs for money shovelers and security guards.

Everywhere I look there is this failure to capture the benefits of technological change.

So what kinds of ideas do California central planners think are going to change the world?

Well, right now, they want to build space rockets and make themselves immortal. I wish I was kidding.

I don’t agree with all of Maciej’s critiques, but he is directionally correct, particularly the bit about profits, revenues, and valuations. He nailed that. There is more truth to his critique than many would like to admit. That’s why I am copying and pasting it here. It’s important to look at yourself sometimes and think you could use some work.