Trading R&D

I read this post this morning on why this fintech analyst and investor is “short ethereum”.

The pro-bitcoin and anti-ethereum arguments are interesting and worth digesting if you are into the blockchain sector as I am.

But more interesting to me is that we are talking about some fairly cutting edge computer science here. Ethereum is still very much a work in progress. A computer science experiment. And a very ambitious one too.

And yet they are tradeable, like stocks, bonds, currencies, etc. You can short them or put on a hedged trade (long BTC/short ETH).

Biotech has long been like this. There are publicly traded biotech companies that are doing cutting edge science and you can place bets on wether these experimental projects will succeed in developing some new medical miracle, or not.

But “tech” has not really been like that. You had to be an angel or early stage investor to make these sorts of bets in the software sector.

Not any more. You can buy and sell alt-coins, token, ICOs, or whatever else you want to call these digital assets.

It is fascinating to see this happening and think about where it might go.


All I have to say this morning is go Cubs.

Man I loved how they came back last night.

Well done.

I’m rooting for the Cubs to go all the way this year.

Trust Disrupted

Techcrunch has created a six part mini series about bitcoin and the blockchain called Trust Disrupted. They will release one episode each day this week.

Here is the first episode:

How About A City Instead Of A Wall?

Sometimes the best answer to a challenging issue is the exact opposite of what the conventional wisdom is.

We just spent a week in Mexico City and, as I always do when we travel to Mexico, I came away impressed with the character and work ethic of the Mexican people. They are entrepreneurial and hard working and always have a smile on their face. I have great respect for the people and culture of Mexico.

So when I read this piece on a proposal to build a “binational border city” instead of a wall between the US and Mexico, it got my attention.

Mexican architect Fernando Romero has proposed a new city be built between New Mexico and Texas in the U.S. and Chihuahua in Mexico. It would look like this from the sky.


I like the contrarian thinking. Instead of restricting trade and cross border economy between the US and Mexico, expand it.

It is my strong belief that globalization is a reality and we can’t put the genie back in the bottle. We should accept it and figure out how to work with it to everyone’s advantage.

The Hard Raise

In the summer of 2003, Brad Burnham and I set out to raise a $100mm early stage venture capital fund. We had both been successful VCs in other firms and we had a thesis that the second wave of the Internet was upon us and that large networks were going to get built in this phase. The term “web 2.0” had not yet been coined and Facebook had not yet been started (LinkedIn was being built around this time).

It took us a year and a half to raise that fund. We traveled all around the country (and to the UK too which was a total waste of our time and money). We spent our own capital raising that fund. We believed in ourselves and our thesis, but it was very hard to get others to understand it. Sometime in the spring of 2004, someone got it. And then a few others did. And by the summer, we had a group together and we were able to build to a first close in November of 2004. We had our final close in February 2005, eighteen months after we started. That was a hard raise.

But that fund, USV 2004, has been one of the very best venture capital funds ever put together. The numbers are public because many (most) of our investors are public pension funds who have freedom of information act (FOIA) obligations to report the performance of the funds they invest in. At that time (early 2000s), the big VCs in the bay area were kicking out FOIA obligated limited partners out of their funds. That was a huge win for us and we got a bunch of those FOIA obligated LPs into our fund. Without FOIA, I am not sure we would have gotten USV 2004 done. But we did.

There is a correlation between hard raises and strong performing investments. It is not a perfect correlation by any means. Some great investments are obvious (Facebook in 2010, Airbnb in 2014) and get done easily by the company and perform very well. And many hard raises are hard because they aren’t good investments.

But there are some investments that are very hard to get done that turn into incredibly strong performers. We have had a few of these in our portfolio over the past year as the expansion capital stage (Series C and D) of the venture capital market has contracted. We have seen companies need as much as six to nine months to get a financing done and we have seen founders and CEOs get rejected by more than fifty investors during that process.

I like to tell them the story of USV 2004. I believe Brad and I got over 100 rejections during that process. Rejection hurts but it is part of the game, particularly when you have a hard raise.

One of the reasons hard raises can turn into great performers is that they often mean you are doing something others aren’t doing, you are early to an opportunity and others don’t see it. That certainly was the case with USV 2004. That’s the contrarian bet in action.

Another reason hard raises can turn into great performers is that you learn something from all of that rejection. Brad and I learned that we weren’t explaining the opportunity clearly and crisply enough. We went and read Carlota Perez on a friend’s suggestion and she helped us frame the “second wave” argument in a much cleaner and clearer way. And once we started investing the capital, we had a framework, influenced by Carlota’s work, that we could execute against. The fundraising process, and all of that rejection, helped harden our investment thesis to great effect.

It is this second reason that I am seeing in action in our portfolio. As these expansion stage companies struggle to raise capital, they are forced into a cathartic (and at times painful) process of self reflection. What is their sales process? Is it efficient? What is their unique value proposition? Is it really unique? What kind of company are they building? Will it be large enough to justify all of this investment?

And as a result, these companies are coming out of these hard raises with better businesses, better operating models (lower burn rates!!), and bigger visions to go execute against.

And I suspect that many of these rounds that have taken six to nine months to get done are going to turn into really strong performers for the investors who have ultimately decided to get behind them. We are using these opportunities to “lean into” these investments with our funds. We are always deeply reserved for our portfolio and believe in doubling down on investments when we have conviction. And, as an investor, you should always be open to having conviction around an investment that is having a hard time getting done. Because they can, at times, be among the strongest performing investments out there.

Fun Friday: October Baseball

I wrote in early September that I thought the Mets could make it into October. Well I was sort of right. The Mets were a shambles for most of the year but in September they called up their Triple A Las Vegas team and those scrappy kids got them into the wild card game in which our last standing young arm, Thor, went head to head with arguably the best post season pitcher in the game right now and held his own for seven innings. We all know that the Mets’ season ended with a three run homer in the top of the ninth. I am thankful to the Mets for giving us more of a season than we thought was possible at the all star break:

But now that the Mets are out, I have thrown myself 100% behind the Cubs. As I explained on Twitter yesterday, I can relate to them:

So as we do on Fun Friday, let’s get into the comments and talk. Who are you rooting for in the postseason?

Chromebooks in K12

I started working actively on K12 education about five years ago when a few of us helped start The Academy For Software Engineering. Early on in that process, I made it a point to visit about a dozen high schools around NYC and talk to the Principals and teachers in those schools. I was curious about a lot of things, mostly how you make a good school (answer is hire a great Principal), but also what kind of tech infrastructure was in the schools.

On the latter point, I learned that most schools had broadband and wifi, but the implementation was often poor and in need of significant upgrade. The good news is that many K12 schools have seen significant investments in broadband and wifi in the past five years through a number of federal, state, and local programs. But there is more to do on this point.

In terms of computers, I saw a range of approaches. There were computer labs where an entire room was outfitted with desktops. Windows machines were quite common but so were desktop Macs. But most schools were using laptop carts. They look like this:


The ones I saw in use in the NYC public schools generally hold thirty laptops and power cords.

Teachers would wheel one of these carts into their classroom and students would grab a laptop and use it for the entire class and then put it back.

Five years ago, most of the laptop carts I saw were filled with MacBooks. I was aghast when I saw that. I did the math and assumed that a laptop cart filled with Macs was costing these schools something on the order of $30k or more. And someone had to manage all of the downloaded software on these devices. It seemed like an expensive and painful solution.

It was around this time that Google launched its first Chromebook. I told everyone who would listen to me that putting inexpensive Chromebooks in these carts was going to be a better solution. An added benefit of using browser based software on these devices is that the student can grab any device in the cart, log in using their email address, and immediately be provisioned with their work and applications in the cloud. It seemed to me that this was going to be the way to go.

I read today that Chromebooks are now being used by 20mm students.  I have no idea what percent of those are in the US, but if we guess 50%, then that would be 10mm students in the US. There are somewhere around 50mm K12 students in the US, so that suggests that Chromebooks may have penetrated 20% of classrooms in the US. That is encouraging to me.

More and more software is coming to market that makes learning more fun in the classroom. A good example of this is our portfolio company’s Quizlet’s Live tool that allows teachers to create real time learning challenges in their classrooms. Much of this software is free to use with premium upgrades (freemium model!) and can drive down the cost of curriculum for the schools and teachers.

But you need computers in the classroom to make this stuff work and the Chromebook is a much more affordable and manageable solution than a laptop. I am thrilled to see the K12 system adopting them.

Pixel Envy

I was all set to get the iPhone 7 as part of my six months Android, six months iOS rotation. I am due to get back on iOS.

But yesterday’s announcement of Pixel and Pixel XL by Google has got me thinking about not doing the rotation, at least not now.

I have serious Pixel envy. It looks like exactly the phone I want right now.