The Canvas Spindown

Our portfolio company Canvas made the decision to shutter operations early last year. But there is a bit more to entirely dissolve a company. Chris Poole, the founder of Canvas, describes the remaining work he had to do to entirely wind things down in this post.

Chris is a special person. Working with him has been such a pleasure. You get some great things from failure. One of them is my relationship with Chris.

The Reboot Podcast

A few weeks ago Jerry Colonna and I got on Skype and had a 40min chat about startups and what goes on in them. As most of you know, Jerry and I started a venture capital business together in the mid 90s and have been close friends since then. So this is a public conversation between friends, which is usually a recipe for a good discussion.

The first five minutes is some stuff about Jerry’s new business, It’s worth listening to, but if you want to skip it, click on the soundwave at 5mins in and you will get to the start of our conversation.

DIY vs Delegate

I am a bad delegator and very much a do it yourselfer (DIY). It’s one of the many reasons I am certain I’d make a terrible CEO.

CEOs must delegate. At scale, they should only do three things; set the vision and strategy and continuously communicate it, recruit and retain the very best people, and keep the company funded. Everything else has to be delegated at scale.

But when you start a company, you (and your cofounders) have to do everything yourself. There is nobody to delegate things to. And hiring a bunch of people to do things like schedule your meetings, answer the phones, keep the books, review contracts, interview candidates, etc is a bad idea because it uses up money which is always in short supply at the early stage of a startup. You can, and should, see if there are service providers who are inexpensive who can help. Bookkeeping is one area where that is certainly true. Reviewing contracts and recruiting is harder to hand off to an inexpensive third party. I wish it were not.

I like it when I see a founder team that is resourceful, has range, and can do a lot of this stuff themselves. I like to see them running lean and mean and spending money on the things that really matter (product!!!!!).

But at some point they need to start delegating this stuff. And first time founders often make the mistake of waiting too long to take things off their plates. For one, they like the control and insights they get from doing things themselves. For another, they are often lean to a fault (penny wise and pound foolish).

Knowing when it is the right time to start handing things off and hiring is an art not a science. It has something to do with the availability of resources. And it has something to do with the scale of the organization. When the CEO is still scheduling her own meetings when there are over fifty employees, something is wrong. Investors can help a lot. We have pattern recognition. We can see two very similar companies (size, stage, etc) and compare how much delegation is happening in one vs the other. We can make suggestions.

One suggestion I frequently make is to find a “utility infielder” for your first business hire. This is someone who can do a lot of things well but nothing spectacularly well. This is often someone who has done this role before in a startup and likes working in companies that are between five and fifty employees. There are people who make a career out of this job. It is lucrative if you value equity over cash compensation. You can build a nice portfolio of early stage equity grants doing the “first business hire” gig for two or three years at a time and then doing it again and again.

Doing a startup is an evolution from DIY to Delegate. And timing the evolution is important. If you haven’t done it before, ask people who have for advice on this. Allocating your time (your most precious resource) is critical to the success of your business.

Backing Up Your Files

I read an article a few weeks ago about a class of malware called ransomware. The author’s mom had clicked on some sort of attachment which installed the malware on her computer which in turn locked all of her files and delivered a ransom note to her requiring $500 for the decryption keys. The ransom had to be paid in bitcoin, of course, and the price escalated the longer she waited to pay the ransom.

I immediately thought of my situation. I like to think I would not have clicked on the attachment. But even if I had, my files are backed up into the cloud. As long as my cloud backup service doesn’t back up the encrypted files and overwrite the earlier versions, I’ve got unlocked versions of everything. I think I am good. But I made a note to ask around about this.

I’ve been backing up my hard drive for as long as I can remember. There was a time when I backed up to local storage. But starting in the late 90s, I used a variety of online backup services, what we would now call “the cloud”, to backup my files.

My rationale for backing up my files was always fear of a hard disk crash. I’ve lost important files over the years and I’ve spent a small fortune to get them back, usually by hiring someone who knows how to work miracles on a corrupted hard drive. But I have not worried about this issue for at least a decade, maybe more.

But when I read the article about the woman whose files were being held hostage, I realized that many people still don’t backup their files every night. Just like many people don’t use strong passwords. Just like many people click on attachments they should not click on.

My number 10 prediction on the What’s Going To Happen post was:

10/ cybersecurity budgets will explode in 2015 as every company, institution, and government attempts to avoid being Sony’d. VCs will pour money into this sector in the same way they poured money into the rental economy. and, yet, the hacks will continue because on the open internet there is no such thing as an impenetrable system.

It is not just big companies and institutions and governments that need to be diligent about information security. It is all of us. The consumerization of technology works both ways. We are all targets and we all need to protect ourselves. Backing up your files is one of those things we should all do. Another thing to add to the new year’s resolution list.

Ethics and Morals

At the end of the Berlin talk I posted yesterday, there was a question about ethics. It was directed at startups and how they build a culture of ethical behavior.

But ethics and morals is an issue that extends beyond startups. It is an issue for all businesses and business people.

The Gotham Gal recently told me a story about one of her portfolio companies. I am going to leave names out of this post because I don’t want to get in the middle of something that, at least right now, is between the parties involved.

Her portfolio company went out to raise an early Series A for a business that was in market and ramping. They met with a VC who passed on the deal. A few months later they saw a competitor emerge in the market with an identical business plan and a website that was eerily similar to their own. The CEO of the competitor was the son of the VC who passed on the deal. And the VC was the seed investor in the competitor.

There was no NDA or non-compete between the parties involved so it is not clear that anything illegal transpired here. But it sure feels unethical to me. And I bet it feels unethical to you too.

At USV, we work very hard to avoid these sorts of things. We do not start or incubate businesses. We do not have EIRs sitting in pitch meetings while they think up their next startup. We put big moats around our existing portfolio and try hard not to invest in anything competitive. If we are looking at investing in a competitor, we let the entrepreneur know that before we meet with them.

I am sure we have messed up a little bit here and there over the years on these rules. But we try really hard to live up to our ethics, values, and morals and I think we do a decent job. And we get to see great deals because of that.

This unnamed VC will not see great deals if this behavior continues. You can’t behave this way for long before the market becomes aware of it. So even if the legal system can’t take care of this situation, I believe the market will. As it should.

Video Of The Week: The Berlin Conversation

Last month, my partner Brad and I found ourselves in Berlin at the same time. We decided to do an event for entrepreneurs in Berlin with the help of the folks from Tech Open Air Berlin. We rented a space, brought in some entertainment and food, and then had an hour long conversation about technology, startups, trends, and a little bit about Germany and Berlin.

Brad and I started USV together in 2003 and we’ve worked closely together for over a decade now. We rarely (if ever) do public appearances together so this was a pretty special event for us. I think this video does a good job of showing how each of us comes at the issues from a different place but get to the same answers most of the time. It’s been a very successful partnership and I think this video shows some of why that is.

Feature Friday: The Dashboard

Our portfolio company Duolingo did something interesting this week. They launched a new product by adding a dashboard to the existing product.

For those that don’t know, Duolingo is the most popular language learning app on mobile phones (and the web) around the world.

They saw many students and teachers around the world adopting the Duolingo app as learning tool in the classroom even though Duolingo was built as a horizontal product without any specific use cases in mind. So they thought that building a version specifically designed for schools would be a good idea. And the big new feature that allowed them to do that was a dashboard for teachers. The students use the same app they’ve always used and the teachers get a tool to help them understand, manage, and react to each student’s individual progress.

This is a great example of the consumerization of vertical applications and markets. There are plenty of companies that try to sell technology into schools and school systems top down. They build all the features to support schools day one and then attempt to get schools and school systems to purchase their product.

Duolingo was shipped as a free mobile and web app that anyone can use to learn a language. Teachers and students adopted it. And then Duolingo shipped a single feature, the dashboard, that makes the service way more useful and impactful in the classroom.

Duolingo is entirely free to use, including the new Duolingo for Schools. Duolingo monetizes its business by providing certification services like Duolingo Test Center. I wrote a bit about this freemium model in education last summer. I think its a powerful model when combined with a bottoms up (consumer) go to market approach.

The State Of Bitcoin – January 2015

This is a slideshare from Coindesk:

I think this slidedeck shows that 2014 was a tough year for bitcoin, something I mentioned in look back and look forward posts. This year has started off poorly with problems at Bitstamp and the price breaking below $300, probably in relation to the Bitstamp issues.

It’s tough times for the bitcoin sector but venture capitalists continue to make investments and transaction volumes continue to rise. I believe we are witnessing a transition from one phase (monetary and speculation driven) to another phase (new applications and bitcoin as a platform) and there will be a shakeout as the transition happens. I think we are well into that shakeout.

Some Thoughts On Workplace Diversity

Intel made news yesterday when they announced a $300mm fund to “to be used in the next three years to improve the diversity of the company’s work force, attract more women and minorities to the technology field and make the industry more hospitable to them once they get there. The money will be used to fund engineering scholarships and to support historically black colleges and universities.”

The diversity reports coming out of the big tech companies in the past year have shown very little inclusion of african american, latino, and other “underrepresented minorities” in the tech sector’s workforce. And we all know that women are very much unrepresented in the tech sector, particularly at the top levels of leadership.

There are many, including plenty of AVC community members, who will say “so what?”. And there are many who will debate the reasons for this. I don’t think either of these things are particularly debatable. Diversity is a good thing for many reasons. It opens up a company to a multiplicity of ideas, opinions, and connections to the market. And the reasons for this lack of diversity stem from two primary (and related and self reinforcing) things, not enough women and underrepresented minorities setting themselves early enough on a career path in tech and societal biases against tech as a “proper career” for women and underrepresented minorities. These two issues have to be tackled head on and in parallel.

I applaud Intel’s move and the leadership they are showing. I have no doubt that the other big tech companies will follow their leadership in some way.

I have been working on this problem for about five years now, mostly in NYC, and in partnership with many people and many efforts that are doing great work. There are too many to list in this post. There is no shortage of effort and impact. We just need more of it.

If I have one learning and one piece of advice for the big tech companies who are likely going to start making big investments here, it would be to start as young as you can and invest all the way up from there. What I mean by that is look at early childhood education, look at elementary school, look at middle school (this is really important), and look at high school.

While Harvey Mudd has been able to achieve gender balance in its undergraduate computer science program, I think its a big ask of higher education to solve this problem all by themselves. Too many women and underepresented minorities have made decisions that take them off the pathway to a technical career long before they get to college.

I believe the biggest impact we can make is in our K-12 system, where kids first find their passions, figure out what they are good at, and start learning the skills that will set them on their way. We need to invest in STEM (or STEAM) programs that work in the K-12 system, we need to overinvest in targeting them at young women and underrepresented minorities, and we need to sustain these efforts from elementary school, through middle school, into high school, and we need to guide these young people to a pathway that can give them challenging work and a good income throughout their careers.

The guide part is important. I’ve met a ton of guidance counselors and parents who don’t think “this is the right path” for someone, when it clearly is. That’s part of the societal bias at work. I don’t think we can change the societal biases without creating role models and we can’t create role models without opening up opportunities more broadly for the underrepresented. That is why we have to attack these two issues in parallel.

I will end with the observation that there are many terrific people and organizations working on these problems and having a big impact but in a few small pockets. We need to invest in them and help them scale. This problem is being solved already and the strategies and tactics are fairly well known and validated. We don’t need to invent new things for the most part. We just need to find, fund, and support.

If anyone out there wants to get involved in doing that, you can reach out to me and I will point you in the right directions.

More On The Coin Center

Last September, I blogged about a new policy organization called the Coin Center that had been formed and that USV was supporting financially along with a number of other entrepreneurs and investors. At the time, the Coin Center had only one employee and there wasn’t much information about them on their website.

In the roughly three months since that blog post, the Coin Center has already established itself in Washington DC as a credible and trusted source of information and education on bitcoin and blockchain issues and has also built a real organization that can deliver on all of that.

Today, the Coin Center has launched a fully functioning website that explains in detail what they do, has educational resources on it, introduces the staff and board, and of course, allows anyone to support it.

If you are active in the bitcoin and blockchain space or care about how it evolves and how policy makers and elected officials think about it, you should be aware of the Coin Center and consider supporting it.