Numeraire

Late last year, USV invested in Numerai, a hedge fund that uses data scientists all around the world to “crowdsource” stock price predictions. I blogged a bit about Numerai then.

If that business model wasn’t cutting edge enough for you, the Numerai team has now gone a step further and issued a crypto-token called Numeraire to incent these data scientists to work together to build the best models instead of just competing with each other.

When I read the Numerai blog post about Numeraire yesterday, I tweeted this out:

This is all pretty out there stuff in a world, hedge funds, that has more or less done things a certain way for the last thirty years. I’m not saying hedge funds haven’t innovated, they certainly have, but I don’t think anyone has attempted to change the behavioral economics that underpin hedge funds in quite the same way that Numerai has. It is, if nothing else, a fascinating experiment that will tell us a lot about crypto-tokens, machine learning, and behavioral science.

I must admit that some of this is over my head. I’ve read the Numerai blog post as well as the Forbes and Wired posts several times now and I am not sure if I could explain all of this perfectly at a dinner party. But I am super excited that USV has invested in this audacious experiment and I look forward to seeing how it all pans out.

The Bloomberg Startup Barometer

I came across this index from Bloomberg that tracks the health of the US startup ecosystem.

This index “incorporates both the money flowing into VC-backed startups, as well as the exits that are making money for investors. To smooth out some of the volatility, we calculated the average value for the last 12 weeks.”

I like that they are tracking both inflows (investments) and outflows (exits). What’s interesting is that over the past year, the exit chart is looking better than the investment chart:

If exits continue to outpace investments, that’s a very bullish thing for the startup sector, particularly for investors. But what is good for investors is ultimately good for founders because strong performance will lead to more capital flowing into the sector.

This chart is investments since 2007:

You can see that the VC sector ramped its investing activity significantly in 2010 & 2011 and has maintained it at roughly those levels (with some tailoff recently) since then.

This chart is exits since 2007:

You can see that exits did not start increasing until 2014, roughly three to four years after the significant pickup in investment pace. That makes sense because of the “gestation period” of startups is at least four years and in most cases longer.

I will be keeping my eye on this new index from time to time. And I will be most interested in the shape of the exit chart because it is the strongest predictor of the long term health of the startup ecosystem.

Why Ethereum?

AVC regular William Mougayar gave this presentation at the European Ethereum Developers Conference, Edcon, in Paris a few days ago. In his talk, William argues that Ethereum, unlike Bitcoin, is developing into a rich environment with many different services coming together to provide developers a wide platform to build on top of.

I am increasingly viewing Bitcoin and Ethereum as complimentary, not competitive, and see both of them as important public blockchains that will grow in significance in the coming years. But regardless of that, William’s take on Ethereum is correct and there is a lot of developer momentum and enthusiasm around it.

The Robot Tax And Basic Income

In my work to prepare for the Future of Labor conversation we had at NewCo Shift a few weeks ago, I talked to a number of experts who are studying job losses due to automation and thinking about what might be done about it. Two ideas that came up a number of times were the “robot tax” and the “basic income.”

The ideas are complementary and one might fund the other.

At its simplest, a “robot tax” is a tax on companies that choose to use automation to replace human jobs. There are obviously many variants of this idea and to my knowledge, no country or other taxing authority has implemented a robot tax yet.

A “basic income” is the idea that everyone receives enough money from the government to pay for their basic needs; housing, food, clothing so that as automation puts people out of work we don’t see millions of people being put out on the street.

What is interesting about these two ideas is that some of the biggest proponents of them are technology entrepreneurs and investors, the very people who are building and funding the automation technologies that have the potential to displace many jobs.

It is certainly true that we don’t know that automation will lead to a jobs crisis. Other technological revolutions like farming and factories produced as many new jobs as they wiped out and incomes increased from these changes. Automation could well do the same.

But smart people are wondering, both privately and publicly, if this time may be different. And so ideas like the robot tax and the basic income are getting traction and are being studied and promoted.

The latest proponent of a robot tax is Bill Gates who said this about it:

You ought to be willing to raise the tax level and even slow down the speed. That’s because the technology and business cases for replacing humans in a wide range of jobs are arriving simultaneously, and it’s important to be able to manage that displacement. You cross the threshold of job replacement of certain activities all sort of at once.

There is a lot of economic surplus that could come from automation. Let’s look at ride sharing. Today I pay something like $15 to go from my home to my office in the morning. Something like $10 of that ride is going to the driver. If the ride is automated, either the price goes to $5, saving me $10 a ride which then is surplus to me, or the profit that Uber is making goes up significantly, which is surplus to them. Some of both is likely to happen. This surplus could be taxed, either at the company level or the individual level, so that the cost of the ride doesn’t go down nearly as much and the driver can continue to compete with the robot or the driver can collect some basic income, funded by the robot tax, while they find a new line of work.

At least that is the idea.

I would not characterize myself as a proponent of a robot tax or a basic income. But I find these ideas interesting and worth studying, debating, discussing, and testing at a small scale to understand their impacts. We should absolutely be doing that.

Video Of The Week: Mark Cuban At Upfront Summit

I posted the discussion my partner Andy and I did at the Upfront Summit last week.

There were other great conversations at the Upfront Summit.

This discussion with Mark Cuban was great. I totally agree with Mark that we need more tech companies to go public and have been saying that publicly for several years.

Top Hat and Toronto

We announced an investment in Toronto based Top Hat yesterday. I RT’d my partner Albert‘s post on the investment with this bit:

Toronto is a great place for startups. In addition to five investments of ours that are HQ’d there, I know of at least one other USV portfolio company that has much of their engineering team in Toronto. The talent, mindset, and quality of the people in the Toronto/Waterloo tech/startup community is really top notch and we love investing there.

Top Hat is an interesting investment. It’s a bet that interactive learning tools for college classes can be a platform to re-imagine how the college textbook market should work. Here’s is Albert’s post in full about all of that.


Top Hat

Even back when I was in graduate school, I found the price of textbooks to be high and their quality to vary widely. Now that I have children taking college courses, I was shocked to find textbooks that cost over $200 and are still large physical objects that have to be lugged around! The high prices and lack of innovation are the result of a market structure which has become highly concentrated among just a few textbook publishers. That’s why I am excited to announce that USV has led a new round of financing for Toronto-based Top Hat, which last year launched a content marketplace for higher education.

I first met Mike, the founder & CEO of Top Hat, shortly after he had started the company. He told me about his exciting vision for bringing innovation to the higher education market. But then he said he was getting going by replacing Clickers. For starters I didn’t know what those were as they had come after my time in college. Once I figured out what a Clicker was, I admittedly thought going after those was, well, boring. But Mike was right and I was wrong. Starting with classroom engagement turned out to be the perfect basis for establishing a large footprint in higher education. We stayed in touch as Top Hat grew and then last year the team successfully used their user base to launch a content marketplace.

While it is still early there are many positive signs about the potential for the content marketplace that remind us of other successful marketplaces we have invested in over the years such as Etsy and Science Exchange. In addition to individual professors adding content by themselves there are also new behaviors emerging and we are particularly excited about collaboratively developed content. Much work remains to be done but the company is now well funded to execute on that.

Our investment comes from the USV Opportunity Fund, which we set up in part for this type of situation where we have developed a relationship with an entrepreneur over time. Also worth noting is that Toronto continues to impress us with its quality and diversity of companies. We now have five investments there, placing Toronto third as a location in the USV portfolio after New York and San Francisco.

Etsy’s Valentine’s Day Party

Yesterday, on Valentine’s Day, Etsy invited press to its headquarters in Brooklyn and took the covers off a bunch of things they have been working on for most of last year and will launch shortly. For those that don’t know, USV was one of the first investors in Etsy and I have been on the Board of Etsy for over a decade now.

Here are the details of what they talked about and showed yesterday:

Etsy Studio – This is a brand new marketplace, built from the ground up, to allow makers of craft supplies, large and small, to reach crafters all around the world. Etsy Studio will compete with retail stores like Michaels and others but with ~200x the inventory. A typical retail craft store will carry 30,000 to 40,000 SKUs. Etsy Studio will carry 8mm SKUs at launch.

Etsy also plans to bring the “joy of crafting” to Etsy Studio with its signature design and ease of use, but also with content and projects that connect what you want to make with the supplies you need to make it.

Etsy Studio will launch in April.

Etsy Shop Manager – Over the years Etsy has offered sellers the opportunity to use Etsy tools in a variety of places. They can use them on Etsy.com, they can use them in a craft fair with Etsy’s mobile apps and card reader, they can sell on their own website powered by Pattern, and soon, they can sell on Etsy Studio. And sellers can use Etsy’s advertising services, payment services, and shipping services on most of these sales channels.  If you follow this trend, it is clear that Etsy wants to help sellers sell wherever they want to sell. Etsy Shop Manager is an entirely new interface for sellers to manage their business. It puts all of the Etsy seller tools in one place and helps sellers decide which tools and which sales channels to use to grow their business.

There are a bunch of other things Etsy has been building to make all of this work like structured data and search, a new and better way to manage inventory, and the ability to check out with as many items in your basket as you want.

Since I started working with Etsy over ten years ago, they have been committed to a single idea – that there is an emerging economy of creative entrepreneurs who power a personal form of commerce that is better for everyone. Here are some stats that show the power of that idea:

  • Today, there are active Etsy sellers in 99% of the counties in the US and almost every country in the world.
  • Half of Etsy sellers start their shops to meet a financial need.
  • 87% of Etsy’s creative entrepreneurs are female.
  • Etsy’s 1.7 million sellers are able to create jobs and incomes for themselves and build value in their communities by connecting with 27 million buyers all through the Etsy platform.

Companies like Etsy don’t come around that often, but when they do, I am drawn to them. They are mission driven and they make things happen that need to happen. It’s very fulfilling to work with companies like this.

Happy Valentine’s Day

My two favorite holidays are Thanksgiving when we are thankful for family and food and Valentine’s Day when we celebrate love and the people we love.

Love is a powerful thing, maybe the most powerful thing. And I am blessed to have a lot of it in my life. 

So I hope everyone in AVC land takes time today to be with your loved ones and celebrate the love in your life.

Happy Valentine’s Day

Shout Out To SoundCloud

At the Grammy’s last night, Chance The Rapper, one of the night’s big winners, gave props to SoundCloud in his acceptance speech for Best Rap Album:

Chance talked about the importance of artists staying independent and his shoutout to SoundCloud was a well deserved acknowledgement of the power of platforms like SoundCloud in helping artists get discovered independently of the traditional music system and staying there.

Here’s the Best Rap Album of 2016, in case you missed it.

And if you didn’t know, SoundCloud is a USV portfolio company.