Startup Churn

We encourage all of our portfolio companies to measure their churn rates by cohort. It is very revealing.

I saw this tweet by Liad this morning that shows startup churn by cohort.

I don’t know the source, but the data is sobering.

Some of the churn is companies getting sold. Some of the churn is companies getting profitable. But most of the churn is companies failing.

We have looked at our portfolio this way and our portfolio has performed much better than this. Some of that is selection. Some of that is support. And some of that is tenacity of the founders.

But, as Liad says in his tweet, startups are no cake walk.

The SEC Speaks On Tokens

Yesterday the SEC issued a report of investigation finding that DAO Tokens are securities under U.S. law. This report sent shock waves across the crypto sector leading to roughly 10% declines in the major cryptocurrencies. I must have received a dozen or more emails from people saying that “ICOs are over.”

I don’t think ICOs are over. I think regulatory clarity is going to be good for the crypto sector long term and while this report does not give us total regulatory clarity, it does give us some very valuable insights into what the SEC is thinking about tokens.

Specifically, we now know that:

  1. The Howey test is the regulatory framework through which to evaluate whether a token is a security.
  2. A token that return profits to holders will be considered a security.

We likely know a lot more regarding jurisdictional issues and what the SEC is going to regulate and what they are not. But I will leave it to the lawyers and other SEC watchers to weigh in on that. I am not a professional and don’t want to pretend to be.

At USV, we have been urging our portfolio companies and others in the crypto sector to get good legal advice before embarking on an ICO, investing in ICOs, and more. That legal advice, given as far back as several years ago, more or less anticipated much of what was in this report.

You could see this coming if you did your homework. None of this is surprising to me and to most of the folks in the crypto sector who have sought legal counsel on these matters.

In fact, if you look at all of the regulatory actions that have been taken in the US over the life of cryptocurrencies, you will see that it has mostly been straightforward application of existing laws, on AML, KYC, taxes, securities, etc. Almost all of this could be, and in many cases, was anticipated by those who took the time to consider what the regulators might do and would do.

None of this means that the crypto sector in the US (or elsewhere) won’t be harmed by bad regulations. That has always been a big risk to the sector and remains one. Regulators must be careful to “do no harm”, here in the US and elsewhere. To date, I would say they have done a good job on that. I encourage them to continue that track record.

But mostly I would encourage all entrepreneurs, investors, and others who are actively participating in the crypto sector to get good legal advice before doing anything significant. The regulators are watching. Closely. So know the rules and play by them.

Zemanta – From SeedCamp to Outbrain

In the summer of 2008, I attended the SeedCamp in London and the winner of that class was a company called Zemanta, out of Ljubljana Slovenia. I was taken with everything about Zemanta; a small team (three founders), out of a place that I had never been to and had barely heard of, winning the SeedCamp with a really smart blogging tool that I just had to have on my blog.

USV invested in a seed round that summer that was led by the SeedCamp folks and Eden Ventures. Zemanta was USV’s first European investment. Today, we have ten out of sixty-seven active portfolio companies (~15%) based in Europe.

The seed investment in Zemanta led to a nine year journey with Bostjan and Andraz, who founded Zemanta along with Ales.

The blogging tool is amazing. It recommends links and images in real time as you type into your blogging tool. I still have it running in my WordPress web application. It looks like this right now.

Zemanta sold the blogging tool to a company called Sovrn a while ago and refocused on the native advertising market. They understood how to place related content into a content feed as well as anyone and they decided to focus the company on that. Bostjan and Andraz recruited Todd to lead the new business opportunity. Over the course of the last three years, Zemanta DSP has become the leading buying tool for native advertising.

And the largest company in the native advertising market, Outbrain, became their largest customer. So a few months ago, Outbrain asked the Zemanta founders to join their team and help build some important new technology for Outbrain. After haggling for a few minutes, the deal was sealed and Outbrain now has an office and a team in Ljubljana.

Like every investment, Zemanta taught me a few important things. I learned how to work with founders from a different part of the world, I learned that Ljubljana is a lovely little city with wonderful cafes and restaurants along a gorgeous river, I learned that you can keep a company alive for almost a decade on less than five million dollars if you have a crack team of product managers, data scientists, and software engineers in a place that most people don’t know about, and I learned that tenacity wins, always.

I am pleased that Zemanta has found a home inside a larger company with a bigger opportunity, I am pleased that Ljubljana has a startup success it can point to, and I am pleased that USV is now a shareholder in Outbrain, an investment I mistakenly passed on a decade ago. But mostly I am pleased that Bostjan and Andraz, with a lot of help from Todd, were able to go all the way, from startup to exit, never losing that which makes them special. That’s a big win in my book.

Comment Policy

Our portfolio company Disqus, the company that makes the comment system we use here at AVC, released a new feature last week.

This new feature allows a blogger/publisher to put their comment policy above the comment thread.

You can see it here, at the end of yesterday’s post, above the comment thread.

For those of you who use the Disqus comment system on their blogs and/or publications, here is a knowledge base post detailing how to use this new feature and containing some advice on how to set a comment policy.

As always, we encourage comments here at AVC. But please be nice or leave. It makes everything so much better.

SegWit2x Update

I posted last week about the debate between the SegWit2x Bitcoin update and the threat of a soft fork.

Since then a number of important things have happened.

BIP91 locked in on Thursday and and yesterday BIP91 enforcement was activated.

That means that SegWit is now active on the Bitcoin network.

This is a big deal because the most contentious protocol change in the history of Bitcoin, the introduction of SegWit, has finally happened.

The SegWit2x road map is not complete yet, as the next step will be to introduce a block size increase.

Jeff Garzik, who has been leading the SegWit2x implementation, has a good interview up on Coindesk explaining all of this and more.

Bitcoin has a lot of great things about it. As Jeff says in the interview, it is by far the most secure blockchain. But it’s developer community has had a hard time finding consensus and moving forward together.

SegWit2x is an opportunity for that to change. And I am encouraged by that.

Video Of The Week: Mesh Networking For Wireless Connectivity

Daniela Perdomo, founder and CEO of our portfolio company goTenna recently gave a talk at the New York Times about how mesh networking can improve wireless connectivity in urban environments.

It’s a short talk (~7 mins) and explains how mesh networking technologies can (and will) solve urban wireless connectivity issues in the coming years.

Also, goTenna launched a map of its mesh network yesterday. Here is what it looks like as of today:

Funding Friday: Token Filings

Public market investors who like to buy into IPOs have Edgar, a database of SEC filings that they can browse through to learn important information on upcoming IPOs.

Investors in token offerings have not had the same thing. Until yesterday.

AVC regular William Mougayar has launched TokenFilings.com which is essentially Edgar for Tokens.

Yesterday we got Coindexter. Today we get TokenFilings.

The crypto community is building stuff that makes this sector more interesting every day.

Reminds me of what the Internet used to be before the big guys took over.

Coindexter

Our former USV colleague Jonathan Libov finally took the covers off a side project he’s been working on since he was at USV.

It is called Coindexter and it’s “a collaborative library for long-term investors in decentralized, blockchain networks.”

You can contribute to Coindexter, like a wiki, or dive into research areasthat interest you. Feel free to ask a question if there’s something you’re looking to learn.

Check it out if you are into token/crypto investing.

USV Team Posts

If you are reading this blog via email, you are missing out on a great new feature.

At the end of the first post on AVC, there is a widget that shows other blog posts by USV team members.

This is what it looks like today, featuring three posts by my colleague Bethany. I suspect she added her blog’s RSS feed to the widget yesterday.

This is a classic old school link sharing network. A number of my USV colleagues, including Nick, Albert, and Jacqueline also participate in this.

So we’ve added a little bit more USV to AVC. And that’s a good thing. And long overdue.

Succession Planning In Partnerships

I read today that the founders of KKR have named Joseph Bae and Scott Nuttall as co-Presidents and heir apparents. I’ve written before about succession planning in investment firms. Getting this right is challenging. There are a lot of stakeholders; the investors, the partners, the employees, the portfolio companies. Everyone worries about what might change under new leadership.

I am a fan of gradual but clear and transparent transition, which is what KKR is doing and what we have done at USV.

Our partners Albert and Andy have been running USV for the last eighteen months as Brad, John, and I have focused our time on our portfolio companies and new investment opportunities (which Albert and Andy also do).

Giving everyone clarity about what is going to happen but allowing the transition to play out over time seems to work best in investment partnerhsips, which contrasts with the quick handovers which seem to work best in operating businesses.

Partnerships are complex and powerful operating models. When they work well they are a beautiful thing. But they are easy to mess up and so transitions need to be handled with a lot of care.