Meme Investing

I remember when a friend of mine told me five or six years ago that he had bought some Dogecoin. I thought “what is he doing?” and dismissed it as something silly and or crazy.

Dogecoin was initially introduced in late 2013 and 7 1/2 years later it has amassed a market cap of $43bn and is one of the most popular crypto assets in the world. It may be silly and crazy, but it has also been a good investment for my friend and anyone who bought it in the early years.

For those that don’t know, Doge is an internet meme that became popular around that same time. The combination of memes and investing is a powerful cocktail that I have been ignoring for a long time, probably incorrectly.

More recently we have seen meme investing move into public market stocks like Gamestop, AMC Theaters, Wendy’s, and more. The community that drives these “meme stocks” is based in Reddit and the combined purchasing power of this community is substantial, particularly in illquid stocks (and crypto assets).

It is easy to dismiss meme investing. The market capitalizations that these meme assets trade at make no sense on any fundamental analysis. But, as I’ve come to understand, that is not the point.

Memes are fun and memes are also something to come together around. Speculating on the popularity of memes and their staying power is no different than any other form of speculation.

But more than that, and this is where my head has been going on this topic, the market caps of these memes are also economically powerful. If the board and management teams of the companies with meme stocks choose to issue more shares at these prices, they can raise a lot of capital to transform these companies. Similar opportunities could exist with meme tokens. AMC recently did this with their “meme stock.”

I’ve decided that I am going to stop ignoring and dismissing meme investing and start trying to understand it better. I think it is not something that is going away anytime soon and may turn into something even more interesting.

That said, I am not suggesting that anyone invest their retirement money or their savings for their kids’ eduction into memes. I believe it is more appropriate for speculating right now. That may change. Or it may not. That is yet to be determined.

#crypto#stocks

Funding Friday: The Wireframe Deck

I just backed this project. I love the idea of a simple deck of cards that can let anyone or any group design a website without any software or device.

So many times, I have known pretty much what I want for a website for a project, an event, a new business, or whatever, but I am a terrible sketcher and I don’t know how to use the software tools that web designers use. A deck of cards would be ideal for me and probably a lot of other people too.

Email readers can watch the video here.

#crowdfunding

Startup CXO

On Monday, a copy of Startup CXO, my friend Matt Blumberg’s new book, arrived at the USV office. I picked it up to take a quick look and thought “this a heavy book!”

So I texted Matt, congratulated him on getting the book out, and then asked why it was so heavy. He replied “because it is 640 pages, there is a section on every C-level function in that book.”

That’s when I realized that Startup CXO is not really a book. It’s a “field manual” to scaling a leadership team and company. It is the kind of book you will keep by your desk and pull out from time to time to figure out how to approach an issue or to help one of your senior leaders figure out how to do that.

And in that context, it’s a very valuable resource for CEOs and leadership teams as they scale a company and find new challenges around every corner.

The book is now out in Kindle and Hardcover. I recommend the Hardcover so you can keep it handy and pull it out from time to time when you need a quick primer on something.

#Books#entrepreneurship#management

Digital Asset Mining In New York State

Digital Asset Mining is shorthand for “proof of work consensus validation of public blockchain infrastructure”. Thankfully we have the shorthand. But it is important to understand what digital asset mining is.

Public blockchains, like Bitcoin and Ethereum, store data securely but publicly in a cooperative ecosystem that is not controlled by any company or government. When you store data on a public blockchain, it is your data, secured by your keys, and nobody can do anything to it without your approval.

That is a big deal and it is the future of all internet data. In time, all software systems will operate on top of secure public blockchains.

The consensus mechanism in public blockchains is the method that they use to cooperatively validate transactions without a controlling party.

Proof of work consensus is when computers all over the world run software (called nodes) and validate transactions and are rewarded with digital assets (tokens).

So proof of work mining and its cousins like proof of stake validating is the foundational infrastructure for the coming architecture for internet data.

Think of Bitcoin mining operations as the next Amazon, Google, and Microsoft Cloud offerings except that they are owned by everyone.

That’s a huge deal. As big of a deal as anything in tech and tech policy right now.

Ok. Now that we’ve had that discussion, let’s talk about a bill under consideration by the New York State Legislature that would put a three-year moratorium on proof of work mining in New York State. I had thought that this bill was going nowhere as of last weekend, but it seems to be back on the table now.

I am a fan of regulation on the emerging blockchain and crypto sectors. Anything as important as the next generation of internet data architecture needs regulation.

But this New York State bill is like using a sledgehammer when what is needed is a scalpel.

Three years is a long time in a fast growing emerging tech sector. The foundational infrastructure for public blockchains is being built now and regions that get going now will have long lasting businesses that provide good jobs and lots of growth. Who wouldn’t want Google, Amazon, and Microsoft operating their data centers in their state? This is the next generation of that.

The issue that has everyone up in arms is the carbon footprint of proof of work mining and that is something that is important to discuss and using regulation to address it makes sense. It may well be that proof of work consensus has no larger carbon footprint than the data centers of the cloud era, but that’s not really the point. We can and should do better. We can have a climate-neutral data architecture when we build the next-generation tech stack.

So here is what I think would be better policy for New York State:

1/ Apply a tax surcharge to digital mining operations in New York State that use fossil fuels to power them.

2/ Use those tax revenues to subsidize digital mining operations in New York State that use clean (renewable, nuclear, etc) energy to power them.

3/ Encourage digital asset mining in New York State with other policies that will bring the data centers here vs elsewhere.

4/ Become the home to the cleanest and largest digital asset mining operations in the world.

We can do that New York State. We just need to want to.

#blockchain#crypto

Community Solar

We had a situation recently where a rooftop solar project on a building we own became too expensive (because of NYC Fire Department requirements) and it no longer made economic sense to do the installation. And yet we want to avail ourselves of solar energy to benefit from the economics of solar, to reduce our carbon footprint, and to increase the resiliency of our property.

So we are reaching out to some community solar developers in NYC who have built out solar infrastructure that the community can participate in.

I’ve been interested in community solar for a while now. It makes sense to me that a group of people can build and participate in a solar installation where it most makes sense and then share in the energy that installation generates.

Community solar works best when a consumer can receive a credit on their electrical bill for their community solar output. This is possible in the states that have deregulated their electrical systems.

At USV we think community solar represents an interesting way to participate in the renewable energy business and we are looking at a few opportunities now and would like to look at more.

#climate crisis

Scaling Ethereum

One of the biggest challenges for developers building on Ethereum’s market leading smart contract platform/blockchain are the high fees and slow transactions. These issues arise from the fact that the Ethereum blockchain’s current architecture is not particularly scalable.

The Ethereum core developers have been working on these issues for years and there are changes coming in the core Ethereum protocol that will help with scalability. But the broader Ethereum community is not relying entirely on the core developers to address these issues. There are a number of “layer two” solutions that have emerged that will bring very significant increases in speed and lower fees.

One of these layer two solutions, called Zero Knowledge Rollups, is particularly exciting to us at USV and earlier this year we invested in a project called Matter Labs (also known as ZKSync) that has built what we think is the best approach to Rollups on top of Ethereum.

My partner Nick posted today about ZKSync and outlined why we are so excited about this approach. If you are a developer building on Ethereum and are looking for a good layer two solution, you should absolutely read Nick’s post. I would also recommend it for anyone who is invested in or interested in Ethereum as layer two scaling solutions will likely unlock a lot of value in the Ethereum community over the coming years.

#blockchain#crypto

The Globalization Of Venture Capital Investing

I’ve written a bunch about the globalization of the startup economy. You can start and build a tech company almost anywhere these days. That has been true for at least the last decade. But until very recently, raising capital for your startup was significantly easier if it was located in the major startup hubs, most notably Silicon Valley.

I believe the pandemic changed that equation dramatically and USV’s “deal log” is a great example of that. When I look at all of the opportunities we are currently considering plus all of the investments we have made this year to date, what stands out most to me is the location of the founders and teams. It seems to me that about half of our “new deal activity” right now is happening outside of the US. And very little of it is in western Europe where most of our non-US investing has been for the last decade.

This is a big change from where it was just last year and the year before. The emergence of raising money and supporting investments on Zoom has made it possible to have a much broader reach than was possible a few years ago.

What makes it easier for USV is our thesis-driven model of investing. We know exactly what we are looking for in new opportunities in wellness, education, financial services, climate, and crypto and so we can react to opportunities that fit into our thesis pretty much anywhere in the world. And we are doing exactly that.

It takes a long time, at least five years and more likely a decade, to know how changes in the startup economy and venture capital will play out. We won’t know how this move to invest globally will impact returns and founder success. I am optimistic that it will be a positive change for both but only time will tell.

#VC & Technology

Funding Friday: The Dirt Newsletter

So this is pretty cool. Dirt is a daily newsletter about the entertainment industry. The folks behind Dirt are funding it with a crowdfunding campaign on Mirror using NFTs.

There are three Dirt NFTs you can buy, a single edition called Rainbow Wave, an edition of 30 called Pearl Pink, and an edition of 100 called Pea Green.

I bought a Pea Green just now for .05 ETH:

If you want to join this crowdfunding campaign, make sure you have the Coinbase browser extension or the Metamask browser extension and go here and have fun and support some journalists too.

#crowdfunding

Grit, Resilience and Determination

I am returning to a topic that I have talked a lot about on this blog.

A number of years ago at our annual CEO Summit, we had Angela Duckworth speak to our portfolio about Grit, the topic of her excellent book on the subject. In Angela’s research, she determined that the single greatest determinant of success was not talent. It was grit.

I was reminded of that last night as I watched Derrick Rose lead the New York Knicks to a must-win in game two of their series against the Atlanta Hawks. The Knicks were a mess for the first half of the game and Derrick Rose singlehandedly kept them in the game.

Derrick Rose was the first pick in the 2008 draft and by 2011 he became the youngest NBA player to win the Most Valuable Player award, something he accomplished at age 23. A year later he tore his ACL and he has struggled with injuries ever since.

In the middle of this season, the Knicks acquired Derrick Rose from the Detroit Pistons and soon thereafter he came down with Covid and missed several weeks.

But after Derrick Rose came back from Covid in the last seventeen games of the season, the Knicks won thirteen of those games and landed in fourth place in the East.

And last night, he was the heart and soul of the Knicks. He kept them in the game until his teammates woke up, and he led the team in scoring in a must-win.

Derrick Rose will never be the player he was at 23 when he could beat anyone off the dribble and score at will. He could have called it quits many times in the last nine years since he won his MVP. But he hasn’t quit, he’s worked his way back and he is leading an NBA team in the playoffs. It is really something to behold.

Not everything goes the way we are expecting it to go. We get dealt bad hands and have to play them. That is way things are in life. There are people out there, like Derrick Rose, who show that you can make the best of a tough situation, keep going, and win anyway. That’s grit.

#life lessons