Let Your Winners Run

I met with a group of very experienced and sophisticated investors yesterday who make up the investment committee of a large charitable foundation that is an investor in USV. I gave them a two minute brief on our macro investment thesis (large networks of engaged users that can disrupt big markets) and then took them on a tour of some of these large networks (Lending Club, Kickstarter, Etsy, Twitter, and Codecademy).  Then I took questions.

This group doesn't spend a ton of time on AVC, Techmeme, Hacker News, or the tech industry in general. And yet the questions they asked me were as good as I ever get. I guess four decades of investing teaches you a lot.

One of the best questions I got was "when do you decide to sell?". Such a great question and such a hard one to answer. I've got scars from this one.

I explained that first and foremost, we generally don't make that call. The entrepreneur and her management team generally makes that call and the board is asked to ratify it.

But when and if we get to weigh in on the timing of the exit, my view is that you look to exit your weakest investments as soon as you can and you let your winners run as long as you can.

USV 2004 is instructive. Between 2004 and 2008, we made investments in 21 companies. So the youngest portfolio company in that portfolio is four years old now. Most are five to six years old. And a few, like Meetup and Return Path, are ten years old or more. We've exited six of the 21 investments, you can see them here, under past investments at the bottom.

We still have fifteen investments active in that portfolio including Zynga and Twitter and we own large blocks of stock in both of those companies. We own stakes in thirteen other portfolio companies most of which we believe are super strong companies that are building large and sustainable businesses. We will likely exit a few weaker investments in that portfolio over this year and next. But there are at least ten companies in the USV 2004 portfolio that we would be happy to own for the rest of this decade.

This does create a bit of an issue in that we raise ten year venture capital funds. So we are supposed to wind things up in the 2004 fund in another two years. But I am fairly sure that my partners and I and our limited partners will be happy to let this fund play itself out over a longer period of time.

I've made the mistake of exiting investments too quickly. Back in the middle of 2007, my previous firm Flatiron exited our investment in Mercado Libre at the IPO selling our entire position for about a 10x gain. In the almost five years that MELI has been public, it has gone up 5x. So had we held our position for another five years, we'd have made 50x instead of 10x. That stings. Lesson learned.

When you have portfolio companies that are category creators, category leaders, who are well managed, and growing 50% per year or more and delivering 20-30% pre-tax margins (or more), and who have no existential threats to their market leadership, you might want to hang on to them for a bit. They may be just getting going on the valuation creation thing.

#VC & Technology

Comments (Archived):

  1. PrasannaKrishnamoorthy

    What happens if one of your big winners doesn’t want to go public, but wants to stay private? There has to be some liquidity event for investors right?

    1. Aaron Klein

      In theory, you could sell your interest to another fund to get liquidity.

    2. Richard

      Second Market

  2. Alan Mendelevich

    How does this extension of the fund work? Do you ask your investors to let you run the fund indefinitely?

    1. fredwilson

      usually one year at a time, each time requiring LP approval

  3. William Mougayar

    Do you have to sell all of your position in a given company in order to officially “close that fund”? In other words, if you have a great winner, can you sell a part of your holdings to give the fund a healthy multiple and keep the rest to let it run longer and account for it differently? 

    1. jonathan hegranes

      That is an excellent question…  Coming from a lot of experience with public equities, that is often a strategy.  Taking a little bit off the table, locking in some profits, letting the bulk of your position run, and repeat.  And hopefully repeat again and again as your winners grow to be a greater than desired % in your portfolio.  Might be an interesting shift in thinking for VCs to apply this type of public equity portfolio management.

      1. fredwilson

        we do just that. we’ve done it in twitter and zynga, for example. when you have a 50-100x return, you can sell 10% of your position and post some nice gains while letting the vast majority of the position run

    2. fredwilson

      we can distribute out the stock to our LPsbut we wouldn’t like to do that in privately held companies

      1. John Revay

        Assuming your LPs  don’t want distributions in non public companies.My recollection was at the end of funds (after extensions) – there are secondary funds or investors that offer to buy shares in remaining non public portfolio companies – at some discount.

      2. Brad Lindenberg

        Hi Fred, I was wondering if you ever do all common stock deals, i.e. level playing field for VC and Entrepreneur without any preference hierarchy?If the entrepreneur is strong enough and the idea is a killer idea, and the train is leaving / has left the station… Does this happen? I’ve read that Mark Pincus is tough on VC terms.

        1. fredwilson

          not going inwe have recapped companies and gone all commonbut that happened four or five years in when it made sense

  4. RichardF

    Hindsight is a wonderful thing.  But your last paragraph is really instructive.

  5. Donna Brewington White

    That’s a nice looking investment page, Fred.I guess I haven’t looked at this page in a while.  Even though I remember when some of the newer companies were added, it’s adds a different perspective seeing them included in the array and observing how they fit into the mix. Inspiring.  And intriguing to wonder what the next one will be… (just changed spacing)

    1. RichardF

       just keep reading Donna and keep an eye out for one of Fred’s Oreo tells 😉

      1. Donna Brewington White

        I love when he does that.  

      2. William Mougayar

        I think all he’s saying is Zinga, Twitter and 8 others are long runners, and some other weaker companies will be exited in the next 22 months. I think that’s normal stuff for a VC.

        1. awaldstein

          I agree.But there is nothing ‘normal’ about this portfolio. It’s amazing.

          1. Donna Brewington White

            Yeah, I had to work hard not to gush.Pretty. Darn. Inspiring.  Nice family photo album.

          2. awaldstein

            ‘family photo album’ for certain.This is a runway spotlighting the shifts in community and commerce that are reconfiguring the marketplace.Nothing less. 

          3. John Revay

            Like your reference to the family album.  Impressive looking children

        2. RichardF

           I was talking about what the next USV investment might be William, Fred quite often throws out a few signals about what they are considering investing in.

        3. Donna Brewington White

          I think Richard is referring to those times when Fred has announced a new investment and some of us have had that smug feeling of having seen it coming based on a comment or two made here and there.  Even if we didn’t really know that we knew until after it happened.

          1. William Mougayar

            Right. But I didn’t see anything specific hints here, did you?

          2. Donna Brewington White

            Nada.But, then, I’m not an expert “oreo tell” reader — better after the fact realizing that I saw one.

  6. jason wright

    Why the imperative for the USV investor to close the ten year portfolio at the end of year ten?

    1. fredwilson

      its the way it is always doneof course that doesn’t mean it should be done that way

  7. DonRyan

    That is simple and profound all at the same time. Trim the weeds and let the flowers bloom. Is there an outer limit (in years) of how long you’ll let a fund run or I assume that is something that is played by ear. Interesting post. 

  8. William Mougayar

    Isn’t it paradoxical that while the #1 objective of a VC’s investment is to eventually sell, they don’t get to make that call. #justsayinBut in reality, the VC can influence that selling, and often plays the role of a broker or referral source, right?

    1. markslater

      i am asking that in a different way. getting in, and getting out hold equal weight no?

    2. Jess Bachman

      Well if the main points to any deal are economics and control, presumably the VC would be in a position to make that call if they have enough control.  This is likely the case with weaker startups and not so much the case with USV.

    3. JamesHRH

      I believe that Fred has selected his LPs in a way that the ‘perhaps we should alter the LP agreement re: expiry’ will go pretty smoothly.

  9. Kasi Viswanathan Agilandam

    Are you making some big statements to be read in-between the lines to your portfolio companies?”Let the winners Run” – today’s”Not to swing at every ball thrown” -day before yesterday.

    1. Aaron Klein

      I’m reading them that way and I’m not even a portfolio company. 🙂

      1. andyswan

        kind of the point of avc.com, no?  🙂

  10. Donna Brewington White

    With regard to Mercado Libre:  In retrospect was there anything you could have known that would have led to a different conclusion?  Was this an avoidable mistake given where you were at the time or would you have needed a crystal ball to have made a different decision?Although I guess a 10X gain is still a win.

    1. Aaron Klein

      Always good to learn from the past but imagine if the stock had collapsed and five years later a 10x had turned into a 2x.Wisdom isn’t about perfect foresight, it’s about making the best decisions you can with the data at your disposal.But the end of that post included some interesting new data points to consider (some quantitative, some not).

      1. Rohan

        I agree. wrote the same in reply to Mark.It’s easy to do all this in hindsight. Never helps.No point regretting anything. When we took the decision, it felt right. And that’s the best we could have done with what we had..

  11. jason wright

    “I gave them a two minute brief on our macro investment thesis (large networks of engaged users that can disrupt big markets) and then took them on a tour of some of these large networks (Lending Club, Kickstarter, Etsy, Twitter, and Codecademy).”It’s a good thesis, but to me it has always seemed incomplete, as if there should be at least a subordinate clause added to round it out.When I see Zynga I’m concerned. Zynga is at present clearly a success in the context of the thesis and is therefore a great financial capital investment. What concerns me is its impact in a broader social context, the context beyond financial capital investment. What lifestyles do Zynga users live, what are they learning, what values are they being offered, what behavior is encouraged, what outlook is nurtured? Sometimes people have to be saved from themselves, and gaming can become utterly addictive and socially regressive.

    1. Kasi Viswanathan Agilandam

      There is a flip-side to it i think.One of my psychologist friend says the following about people in India being addictive to watching movies and wasting their time. You won’t believe there are people who watch the same movie more than 10-times.”Think about this crowd left to roam around the roads without that entertainment … they will bring more harm to the society than good. Peoples mind has to be entertained … empty mind is devils workshop”.Though i am not convinced about his argument … i can’t refute as well.

    2. Aaron Klein

      I disagree completely.I really don’t like social gaming. There, I said it. I’ve tried it once or twice and just can’t get into it. (Though something more intellectual like words with friends might do the trick.)But that being said…the same statement you made about social gaming has been made before about movies, television, bourbon, dating and theme parks.We’re a great country because we give people the freedom to be themselves. Some people love social gaming and that’s their right.

      1. jason wright

        The freedom to allow people to be themselves. Fine, but is consumption what defines a person? It would be fair to say that what you eat is what you are, and that’s a subjective qualitative assessment, naturally. Most agree that Coca Cola and McDonalds in excess are unhealthy. I think Zynga in excess is unhealthy. The Zynga numbers suggest it is being consumed in excess. This is my point. For a financial capital investment to be a success there needs to be excess consumption. The thesis isn’t addressing that tension between capital and social needs.Would you advocate the legalization of drugs?

        1. Aaron Klein

          This view that “the sheeple are robots devoid of intelligence who we must centrally plan the entire world to protect” is a dangerous one and on the wrong side of history.

          1. jason wright

            That’s a distortion.Please don’t put words into my mouth please. Thank you.The thesis could do with a balancing clause. Capital needs a benevolent guiding hand, because in the wrong hands and unchecked it can become an evil force.

          2. Aaron Klein

            Oh good heavens. You just wrote elsewhere that some people need saving from themselves. Give me a break. Either stand up for your point of view or disavow it, one or the other.

          3. jason wright

            The polar mind. Everything is black and white. It’s all shades of mud brown.

        2. Aaron Klein

          Dude, sorta not cool to edit your question to a completely different meaning and add a question AFTER I reply.Here’s what you wrote that I received via email: http://d.pr/GXvH

          1. jason wright

            Any editing wasn’t an attempt to unseat you.Your reputation remains as it was. I was merely revisiting my own thoughts. I hadn’t read your reply before the edit. Chilled.

        3. LE

          I think in order to prove your thesis you’d have to survey addicted zynga users (I’m assuming that is what you are saying) and see what their addiction was before they became obsessed with Zynga. In general people replace one addiction with another one.By the way are you saying Zynga users are addicted and squandering time, money or both?Same goes by the way for those home shopping networks. You could also extend this thinking to impulse buying in stores as a result of product placement and packaging as well.

          1. Aaron Klein

            True.If the central planners had their way, there would be no Zynga, no Home Shopping Network, no Oprah Book Club, and Facebook would cost $9.95 a month because we’d have no “tracking.”Thank God we’re a nation of individuals and FREEDOM.I have the freedom to build what I want. You have the freedom to not use it.

          2. jason wright

            I’ll sum up my visceral response to Zynga – it’s shit.We all have our heroes and Mr. Pincus isn’t one of mine. 

          3. fredwilson

            have you met him? have you hung out with him. have you had him for a friend for close to twenty years. have you seen him bury his best friend? have you seen his charity, his love, his humanity?i think the answer is probably no to all of these.but i can answer yes to all of them.be careful to make impressions from what is written and not what is experienced

          4. fredwilson

            speaking of swapping one addiction for anotherhttp://fredwilson.vc/post/1…

        4. fredwilson

          by what measure do you say they are being consumed in excess?i am almost certain that people play console games for much longer periods of time than social games

          1. jason wright

            I don’t think Zynga is operating the scarcity model Fred.When you described Apple as “evil” in 2010 a member of the audience countered that Apple sells boat loads of stuff. Your response was to say that selling boat loads of Coca Cola and McDonalds isn’t necessarily the measure of ‘good’.Having people playing for hour after hour after hour on Zynga (and other similar sites and products) is good? – I think it’s evil.I do think sophisticated LPs think in an ethical and moral way about the kind of investments their fund managers make. They have their own reputations to safeguard and constituencies to listen to.

        5. LE

          “The thesis isn’t addressing that tension between capital and social needs. “Social needs always will take a back seat to making money. A top institutional owner of British American Tobacco is Thrivent Financial for Lutherans.http://finance.yahoo.com/q/https://www.thrivent.com/ab…It only took a second to pull up this example. I’m sure there are thousands of similar examples.

      2. ErikSchwartz

        Do you think that cigarette companies are right to increase the level of nicotine in their product in order to make it more addictive and drive further consumption and profits?

        1. Aaron Klein

          Farmville will not give you lung cancer.

          1. ErikSchwartz

            No. It won’t.But getting addicted to gaming can still screw up your life in profound ways.

          2. Aaron Klein

            So can getting addicted to startups and failing to take a job on Wall Street.

          3. ErikSchwartz

            But that is not a design goal. The question I, and others are getting at is at what point does making a product addictive start to move into morally grey areas? My greatest professional successes came in the area of gaming, but I have avoided the space for ten years because I find doing what it takes to win in the field is just a little too morally fuzzy for me.

          4. Aaron Klein

            Fair enough. I think our values are more aligned than you think. I just disagree with imposing my value system on everyone else. Wrote about that a few seconds ago here: http://www.avc.com/a_vc/201

          5. ErikSchwartz

            I am not suggesting it should be illegal or banned, people should be free to make all the bad choices they want. It’s just not something I choose to be involved with anymore.

          6. LE

            “making a product addictive start to move into morally grey areas? “This also has happened with slots apparently where as a result of the electronics the reinforcements come in and sustain the pleasures at a much higher rate.http://www.8newsnow.com/sto…(link to 60 minutes report in the story).

        2. LE

          Not what I would do. But in all honesty it’s not like I wouldn’t do business with a cigarette company so am I part of the problem then?You are no doubt familiar with the protagonist (Jeffrey Wigand) in “The Insider”.Forgetting what is truth and what is fiction in that movie for a second one of the dilemmas he had was his wife and her view of the world. He had a job and earned a good income and had a nice lifestyle for his family. So he made a deal with the devil and later tried to get out of that and lost his family. His wife didn’t care what was right and wrong. She cared what the neighbors thought and about her material goods. People at the country club, in general, don’t care how you make your money. It’s easy for people to say others should do the right thing if they aren’t in their shoes and don’t have their pressures. Kennedy’s are all for these social causes which is great. Trust fund.In business, in many cases you have competition doing dishonest things. As I’ve always said and observed “an industry can only be as honest as it’s competition”.

        3. Rohan

          That’s a great question, Erik.In such things, I find that it’s a line you decide to walk and the decision is personal.The simple fact here is that if you don’t do it, someone else will simply because there’s money to be made.If you’re passionate about it though, I’d rather you do it versus some other person because I have faith that you will atleast do so with ethics in mind..Better you than someone else is my thought.(And ‘you’ is someone who decides to do it conscious of the fact that there are grey areas)

      3. Rohan

        Completely completely completely agree.If Jason had said this for tobacco – I would have nodded.But, gaming has a lot of a positive impact as well. It helps people do something fun on quick breaks, it gives them something to do with friends who might be far away.. and there’s definitely many many goods that come out of gaming.Of course people need to find a balance. That’s a given.. and I ‘d go beyond movies, television – why even healthy food and books present a hazard if overused or overdone..

    3. matthughes

      You make an interesting point.But what about the un-told positive social and economic impact of a successful company like Zynga.How many mortgages is Zynga supporting? What about college tuition? How many employees do they have (I’m sure that number is available somewhere)? What about the small service companies that Zynga undoubtedly hires, i.e., catering, transportation, maintenance, et al. Not to mention, what other technology companies will Zynga ultimately inspire?Many people are benefitting in a really positive way from the eco system Zynga has created.

      1. Jess Bachman

        That argument has never held water for me.  Drug cartels pay mortgages, college tuitions, put food on the table.  If Zynga were dissolved tomorrow, the money in it’s ecosystem would flow elsewhere.

        1. matthughes

          Thank goodness Zynga exists then.Otherwise that money would probably flow to the drug cartels.Which would be a bad thing assuming you believe Zynga has a slightly better moral position than the drug cartels. 

          1. Jess Bachman

            Likely… they have the same clientele.. addicts!

    4. Jess Bachman

      The cultural profit, or rather, anti-profit is a tough sell to LP’s I’d imagine.Unfortunately you are right about Zynga, I have seen first hand lives destroyed by Zynga games.  I know people who have actually turned to prostitution to support a social gaming habit.  Social gaming is awesome, but Zynga adopts a very specific rat-pellet model that feels predatory and I would lump them in with Rent-a-Center and Payday loan companies that prey on the weak.

      1. LE

         I know people who have actually turned to prostitution to support a social gaming habit.  Social gaming is awesome, but Zynga adopts a very specific rat-pellet model that feels predatory and I would lump them in with Rent-a-Center and Payday loan companies that prey on the weak.(My emphasis). It’s comments like this that make this blog great reading.

        1. Donna Brewington White


      2. kidmercury

        i share your viewpoint that zynga’s contribution to society is minimal, and that this is disappointing in a way in light of the company’s size and success. but people who turn to prostitution to support a social gaming habit have deep psychological problems for which zynga’s games are merely an available hook; were the games not there, they would find another hook (gambling, drugs, too much television, junk food, etc). 

        1. LE

          “zynga’s contribution to society is minimal”I don’t play zynga and I don’t watch sports. But I recognize that both have entertainment value and therefore they do contribute to society even though it’s not how I choose to spend my time. I always have a problem when people try to pass judgement on what others do if it doesn’t fit their own mindset of what is acceptable (this is not directed at you but while I am on the topic..) Sure, I probably do that from time to time.I personally feel that we have many examples of religion being harmful and addictive and causing adverse behavior. But nobody is going to take that on and suggest people hold practice of it to acceptable levels. 

          1. kidmercury

            lol i’ll take on religion! that stuff is the worst. anyway i don’t hate zynga, but they don’t inspire me either. i look at google and amazon and i find them inspirational. jeff bezos is practically my hero. zynga is a smart company and if their share price ever falls to very low levels i’d seriously consider buying it — i think in many ways it is the smartest of the bubble 2.0 crowd. but i don’t find it inspiring. maybe that’s just me, and that’s fine; i don’t begrudge them for their success nor do i ask them to do anything they don’t want to do. if they want my inspiration and loyalty, though, they will need to do more. and judging by the comments in this thread, i’m not the only one with that perspective.

    5. andyswan

      I do my thing, and you do your thing.  I am not in this world to live up to your expectations, and you are not in this world to live up to mine.You are you and I am I.And if by chance we find each other,it’s beautiful.–Fritz Perls

      1. jason wright

        Poetic, but some people need saving from themselves.

        1. andyswan

          You play lifeguard, I am going to enjoy swimming. Just leave my pool alone, deal?

          1. jason wright

            You swim alone?

        2. Rohan

          And who makes that call? And if you’re going to make that call, that’s fine..But what about the people who, by your definition, actually don’t ‘need saving from themselves’.. but are misunderstood by those who make that call?Can we, as humans, be trusted to make such calls? We, who are every bit predictable irrational – and yet like to think of ourselves as rational?I’m sorry. But that just doesn’t work for me. 

          1. jason wright

            This is why I dislike libertarians. They hide behind a philosophy that in essence allows them off the moral hook. In reality they are grossly self absorbed individuals without acare for their fellow human being. They construct a value system that allows them to walk on by when someone actually needs helping, and they can do it and remain in their comfort zone.

          2. Rohan

            I don’t know how or why you consider me a ‘libertarian’.There’s a lot you’re implying in that paragraph that I could take as offensive.But I’m reminded of a quote (surprise surprise :))’The narrower the mind, the broader the statement.’So, I don’t know if I am a libertarian or not but I definitely wouldn’t label someone as a ‘type’ and assume they stand for all the negatives that I associate with that ‘type’. There’s a fine line between making such an assumption and drawing a correlation with skin color in my book.And if that’s the level of conversation, I have no time or patience for that.I’d rather spend that time working to make a positive difference in this world..

          3. Aaron Klein

            What utter bullshit.I’m not a strict libertarian (though I am libertarian-minded). The libertarians I know have been among the most generous donors to our education project in Africa.Why? Because it’s about breaking the cycle of poverty and building sustainable self-sufficiency.Your model of “saving people from themselves” is what gave rise to communism, totalitarianism and many other brutally repressive forms of government.Freedom won. Join the bandwagon.

          4. kidmercury

            i think you misunderstand libertarianism……perhaps it is advantageous to think of it in terms of natural law (although, technically, that is more associated with anarchism, but the distinction is sufficiently subtle). if you believe in natural law you believe conventionally immoral stuff (war, theft, ripping people off, etc) is not advantageous to one’s self (i.e. what happens to your long-term revenue once people realize you’re a thief). rather, serving others is advantageous to one’s self (i.e. create real value and you get repeat customers). the libertarian/anarchist/natural law view is that moral behavior is decided by the marketplace/collective instinct/divine force/etc. government’s role should provide minimal interference to natural law (libertarian) or should not exist at all (anarchist). 

          5. Modernist

            Darwin invalidated morality’s epistemology when he demonstrated how the construction of any animal’s identity is a passive process.  If libertarians could re-frame individual responsibility more practically, and less moralistically, they would get more respect from thinkers.  As it stands the scientifically bankrupt reification of “individual responsibility” poisons the brand of libertarianism.

          6. jason wright

            Rohan, I’m not saying you are a libertarian. I don’t dislike you. 

          7. Rohan

            Hahaha. You had me laughing there Jason (as you often do. :))I see what you’re trying to say with your point about people need to helped to save themselves from themselves.I can see the good intentions behind it. I just think that it’s not a ‘sustainable’ way of doing things because very few people have it in them to not lose themselves in such missions. Very very very few. ‘Anyone can handle adversity. To test a person, give him power.’The way I see it – there’s always going to be bad/negative stuff in this world. And this is almost always caused by circumstance.. All we can do is do like all the generations before us – thank the heavens for having had good circumstances and do what we can with what we have to make this world a better place.. in our own ways. 

        3. Aaron Klein

          Who gets to appoint the saver?

    6. Aaron Klein

      Forking this conversation up higher in the thread, because I’m seeing something right now that strikes me as funny.I’m working from my local Starbucks this morning. I don’t come over here every day, more like every few days.But EVERY DAY that I am here, there are two people, wearing their pajamas and headsets, sipping on cokes from McDonalds, playing World of Warfare on their laptops and slowing the Starbucks wi-fi to a crawl.They never buy anything. One time the power went out, and I have never heard so much swearing over the preemptive termination of a WOW game in my life. Especially over an Internet connection that you’re not even paying to support.As you might guess, I don’t have an incredibly high opinion of these folks or the values they hold dear (which appear to be pajamas, free wi-fi and WOW). If they’re unemployed, then I’m sorry they’ve fallen on hard times, but there are a million better things to do with their time.But guess what? Those are my values.And I don’t get to impose my values on everyone else.So instead of banning Zynga, maybe we should ban whatever check they are getting that is enabling them to turn the safety net into a friggin’ hammock.Because I’m not paying for their gaming habit, but I sure as heck am paying for their hammock.

      1. andyidsinga

        thats a funny story :)I’ve been seeing more and more pajamas lately too. Other week ago I saw a woman at a gas station get out of her car, run inside (probably to pay) then come running out and get in again. The look she had a look on her face like “I’m running fast so nobody sees me” ..its was rather entertaining 🙂

        1. Aaron Klein

          It’s the same pajamas every day that I’m here.So who knows? Maybe they are poor. And I’ve been there. It sucks to be poor.But if they are trying to stop being poor, they are doing it wrong.

          1. andyidsinga

            no doubt – I certainly didn’t mean to say being poor is funny or entertaining – just the pajama trend.I’ve never been poor (been broke but not poor – big difference as you know) – always very solidly middle class – been very fortunate to have supportive parents, friends and bosses.I’ve known people who are poor though – almost all hard workers – almost none with the support system I have.

          2. Aaron Klein

            I didn’t take your comment as making fun of being poor…just amplifying what I was saying.I still remember the day when my dad was denied his unemployment check because he had a business license…for a business doing a run rate of $900 in annual revenue.That’s $900.00, no K or MM. 🙂

          3. Andrew Hoydich

            Exactly, who knows? First off, maybe they aren’t poor at all. But maybe they are. Maybe they work the night shift somewhere and are perfectly content with the situation they are in. Work during the night. WOW during the day. There are a lot of possibilities. Wearing pajamas to starbucks =/= you are poor

          4. Aaron Klein

            Agreed.If they’re not poor, they really ought to buy some coffee though.

      2. kidmercury

        alas, the sword cuts both ways. banker bailouts and monetary expansion have created bubbles in the internet sector and thus created an abundance of opportunities for those in the internet sector, subsidized by a devalued dollar paid for by all dollar holders (i.e. which includes the unemployed WOW players). you might be paying for their hammock, but they’re paying for bubble 2.0. 

        1. Aaron Klein

          I’m not sure I buy that.Technology has seen hyper growth long before banker bailouts and the printing press became the norm. We’re certainly all paying for Bubble 2.0, that’s for sure.

          1. kidmercury

            anyone who wants to and can track the money flow. the federal reserve publishes money supply statistics on a weekly basis — we’re still hitting new all-time highs. banks create money under the current monetary system and we can see this via goldman sachs/jp morgan’s takeover of everything, congress included, and the bonuses they get for pushing paper around which are well documented. then look at where the capital behind the big funds that blew this bubble comes from (i’m not talking about USV which is too small a fund to single handedly blow bubbles). i’m talking DST (goldman money) and chris sacca’s jp morgan fund among others. it trickles down from there. 

          2. Aaron Klein

            Don’t misunderstand – you and I are on the same page in regard to the printing press being at all time highs, and the virtue of banker bailouts.All I’m saying is that the technology industry was a magnet for money long before we hit those all time highs or took those bailouts beyond child’s play.The folks in pajamas are clearly quite good at their computers and if we could pry them away from the hammock, they could likely make quite the fine living. But that would require work.

        2. Dave Pinsen

          If the gamers are on the dole (which we don’t know for sure), then they are ‘paying’ for the bubble with Aaron’s money. 

          1. kidmercury

            here is the way i see it: the banking cartel (i’ll call them goldman for short) makes the big pie of money. they keep 75%. they give 20% to sectors they want to bubble-ize (i’ll call that facebook for short). then they give 5% to welfare so that they shut up and play games so as to avoid something like what happened in the arab spring or what’s happening in greece now. from this perspective, i find it silly that the facebook crowd is saying they pay for the welfare crowd and looking down upon them accordingly. in my opinion the facebook crowd and the welfare crowd both suck for playing the goldman game.

      3. LE

        In general Starbucks has a hands off attitude toward monitoring or altering patrons behavior. That said the managers do care about feedback. You might try writing to the district manager for that store after saying something to the manager. I’ve done that in the past several times and they trip all over themselves to please me now. I’m glad I’m not a celebrity. I hate the attention actually.

        1. Aaron Klein

          I may have to try that…

      4. Dave Pinsen

        The manager of that Starbucks should kick the gamers out, especially if they aren’t buying anything.

    7. fredwilson

      they are playing games and having fun. no different than going to the movies. but a lot less expensive and in most cases free

      1. jason wright

        If in most cases it’s free where is the mechanism that throttles excess consumption?Clearly Zynga operates a model that will encourage excess consumption. You make my earlier point for me.

  12. Cindy Gallop

    Thank you, Fred, for the female default pronoun. 🙂 #changetheratio

    1. Donna Brewington White

      Of course you noticed that. ;)(So did I.)

      1. awaldstein

        And I. I’ve taught myself to write in the plural to avoid ‘his’ but considering a change.

        1. leigh

          see my cynical comment above.  

        2. Donna Brewington White

          As in the royal “we”?I’ve been resisting this comment but finally gave in. Blame it on Engagio.

    2. Dave Pinsen

      I didn’t catch that until you mentioned it. Do you know offhand what percentage of USV portfolio companies are led by female founder/CEOs?

      1. fredwilson


        1. Dave Pinsen

          Maybe after she graduates from USV, @christinacaci will be your first.

  13. Cindy Gallop

    But of course. 😉

    1. jason wright

      He’s after the female vote – so political. Shoot me.

  14. tapTank

    I love that Fred used “her management team” Thank you! #changetheratio

    1. leigh

      I”m probably having a cynical day but it made me roll my eyes.Love the sentiment but tired of the pronoun and want more real world examples.Until then, would prefer him/her or s/he 

      1. Rohan

        I had a similar-ish reaction – not so much out of cynicism.. I think changing language is a good start. But just using ‘she’ doesn’t feel like there’s more being done on it. And here, I’m probably completely wrong because Fred is likely supporting Joanne on a 100 things to make more happen..Still, would like to see more of that here if we really mean it.At the end of the day, taking a simple example – all MBA monday guest posts were males. So, using she alone is not enough – was what crossed my mind!

        1. fredwilson

          here’s my view on that. i must invest in the best teams and ideas without any bias on gender, race, religion, etc, etcand so we do thatand the result is all the guest posts come from menhow do we change that?to get more women coming and pitching us. that ratio is like 99/1 or something like that.so i’m trying to change my language and see if that helps

          1. Rohan

            Thought as much.Makes sense.I guess with these things, you never really know.Only way to find is out is to test it..

          2. leigh

            I think inclusive language does help (as does open communities like AVC – which by the way has a lot more women participating in the past year vs. the four before that)….I just much more prefer the his/her or s/he bc it says inclusive without pretending that the real ratio isn’t 99/1. Half the challenge has been getting people to believe that there even is a problem in the first place. I would hate to have people misinterpret what is about inclusive and assume it means there isn’t an issue (if that makes any sense at all)….

  15. Thomas

    Hey Fred,What about your next  investments, i mean for 2012, 2013 …?

    1. Jess Bachman

      It would seem to be the case that USV won’t be making any big bets in the next two years.

      1. Kyle Comeau

        New investments would be part of a different portfolio. They would go into the USV 2010 fund.

      2. fredwilson

        we are making “big bets” all the time. currently at the rate of something like eight new investments per year

    2. fredwilson

      what do you want to know about them?

  16. John Revay

    Selling Mercado Libre at the IPO, wondering if there were other forces at play1. Flatiron (the entire fund) was winding down2. I think I read that JPMorgan Chase were big investors in Flatiron, maybe there was pressure from some of the LPs to get liquid as soon as practicalHindsight is almost always 20/20#Greatrun

    1. Tom Labus

      No question about hindsight.And guys who never made the trade who tell you afterwards they knew all along.

      1. awaldstein

        So right.I have one really painful example from 99-2000. Super great startup. Real revenue. Real product and ramp.Chance to sell. Bubble came. Nada. Shit happens even with the best intentions. 

        1. Tom Labus

          And that’s probably the norm!!

    2. fredwilson

      good guesses

  17. Bala

    #thankyouforsharing #AwesomeTrackRecord #learningALot

  18. Ronnie Rendel

    BS”D. You make it sound so easy…

  19. Mark CloneZuckerberg

    With the the more successful companies the VC are unlikely to have a choice when selling. Zuck of course controls FB – while Zuck only owns 24% (control over 50% voting). This is the case with the most successful companies that go to the VC with the right timing – not too early (common 1st timer mistake). Look at Google, Oracle, etc all similar to Facebook in their ability to retain control because they had invested enough to command a higher percentage of ownership (less risk to the VC). That’s when the VC must trust and go along for the ride. BTW – Fred interesting non-standard use of the pronoun Her for the entrepreneur – how many USV companies are run by women?  

    1. fredwilson

      zero. that’s why i used it.we need more women coming in here to pitch us.i figure if i start using her on this blog, we might see that happen

      1. Mark CloneZuckerberg

        If you are serious, why not set up an “Intro to Entrepreneurship Seminar”  and invite a group of 15-20 high profile women technology executives. Take 16 hours and coach them through what it takes to start a company?An invite-only event in NYC from USV would bring in some great talent from the East Coast and help you potentially create a new portfolio company or two. I think it would be much more effective that dropping a pronoun in a blog – albeit a well-read blog. 

        1. fredwilson

          Changing my choice of words is one of many things my wife and I are doing. Check out http://itp.nyu.edu/we/2012/That's pretty much what you suggestedMy wife started it with her friend Nancy

  20. Conrad Ross Schulman

    Are there tax advantages when holding company stock for 1, 3, 5, or even 10 years?

    1. fredwilson

      once you pass a one year hold period, the tax advantages are gone

  21. Joseph Zaccardi

    Just some random questions…Do you get a lot of pressure from your LP’s to wind down the fund at the correct time? If you were getting a lot of pressure from a large LP and wanted to extend the fund’s life, do you have a strategy for dealing with that?

    1. fredwilson

      not if you have strong performance and have returned a lot of capital back

  22. Tom Labus

    “But when and if we get to weigh in on the timing of the exit, my view is that you look to exit your weakest investments as soon as you can and you let your winners run as long as you can.”But how do you know which ones are which?If I’d gotten out of a lot my trades (sell) at the right time, I’d be drinking wine in Spain.

    1. fredwilson

      in VC its pretty easyit’s probably a lot like gardening

  23. Mike Kijewski

    I’m assuming you ask your LPs for a two year extension around year 10. How do you return value to LPs after year 12? Dividends? Return actual shares of stock? Or will LPs be happy keeping their investment in the form of stock held by the fund for up to 16 years (your example of holding positions from the 2004 fund through the rest of this decade)?

    1. fredwilson

      i don’t have the answers to those questions yet Mikebut i need to

  24. bryanbirsic

    There’s so much talk in early-stage VC about how to pick early portfolio winners, where to back up the proverbial money truck, that it’s easy to forget that you still have an equally difficult decision in when to sell. Though I have faith in the long-term value of the USV portfolio – having seen a bit of what it takes to do that, it frankly floors me – there are obviously investors who regret not selling earlier. The list of tech Icaruses is a long one. As innovation cycles quicken, and thereby market leadership reigns quicken, it’ll be interesting to see how VCs adapt their selling philosophies.

  25. Carl J. Mistlebauer

    Posts like this remind me that I am sooooo in the wrong place….Or just seem to attract all the wrong people….Tried to form an impromptu brainstorming session to establish an “incubator pit” locally and that is getting nowhere.Then tried to talk a group of students to put together a book of their short stories, poems, and visual art projects to seek funding via Kickstarter and now they all chickened out….A whole lot of talk but can’t seem to get anyone to believe that we can locally become part of this bold new world….I’m just nuts…its time to runaway from home.  

    1. andyswan

      Cocktail parties favor the talk.Life favors the walk.Fortune favors the bold.

    2. Kasi Viswanathan Agilandam

      Hold on.Be patient. It is just a passing cloud. If United States of America cannot … where will you go. To bricks and costa rica?

    3. LE

      “A whole lot of talk but can’t seem to get anyone to believe that we can locally become part of this bold new world”The people who you want are the needle in a haystack and that’s the pebble you need to snatch.You have to find them in your community. The others just want to wait tables at the diner, do personal injury law on main st, be local realtors, go to the rotary and attend church pancake breakfasts. That’s the speed they operate at.  Sundays visiting family  is what floats their boat. (Every Sunday.)I was watching something last night about stars before they were famous. That’s the stuff that is pumped out in popular culture that says anyone (it could be YOU!) from a small town can make it big if they just go to Hollywood. Which has happened more than a few times. (By the way this is the same stuff that Silicon Valley does..but anyway.) One of the examples of this is Brad Pitt.  He came from Missouri Oklahoma (as if it matters) and decided to go to Hollywood and the rest is history.But the truth is that probably only 1% (an arbitrary number that I just made up) that go to Hollywood will make it. There are just as many Brad Pitt’s that never left Oklahoma and are selling real estate and performing in local theater or visiting grandma every Sunday. (FYI successful people tend to be selfish..)So what you have to do is find those Brad Pitts locally and get them together. Not try to get a bunch of average people to buy into the dream.One of the advantages of being in a hot bed (such as SV or NYC) is that you get a collection of people that were motivated enough to get up and leave main st. So right there you have the right mix for something to happen.

      1. Carl J. Mistlebauer

        LE…Jerry Colonna talked about knowing ones self and leadership and what’s really funny is that since high school I “know” my role…I was the guy who blocked shots, grabbed rebounds and started fast breaks, and set mean picks….no one drove on the basket against me because the part of the hardwood was mine…In other words I was never the attention getting point scorer and I love being the “Dennis Rodman” of business….its all thinking, anticipation, and hard work.The glory can go to someone else because I really don’t care….As I tell my employees, “..my job is to catch you when you fall…your job is to climb higher and go out further on the limb because you know you got me.”We talk a lot about “passion” and honestly, I can fire up anyone with any potential for passion or ambition…..and you are absolutely correct, I am looking for “a needle in a haystack.”Like a told a bunch the other day:If you have a fishpond in your backyard you realize real quick that the old saying “…do you want to be a big fish in a little pond or a small fish in a big pond?” is bullshit….Fish can only grow big in a big pond and there is no way a big fish can exist in a small pond….Then I go home and say, “Damn Carl, its time you listened to yourself and took your own advice…..”  :)I have to quit talking to myself so much…..

        1. fredwilson

          i told my son that his future in basketball is grabbing rebounds, setting picks, getting put backs, and blocking shotssounds like his game is just like yours

          1. Carl J. Mistlebauer

            Well, you need to tell him that it takes “wisdom” of the game to truly excel at that game.Then it takes “rhythm” or the ability to grasp the flow of the game on a minute by minute basis and the ability to transition from offense to defense (just think of the court as three sections, offense, defense, and then the center or the transition area).Then finally it takes not self confidence but self respect….for two reasons, one you are going to find yourself in a lot of two on one or three on one situations and you got to figure out how to make your opponent “blink” when you are outnumbered. Then you got to view the lane as “yours” and you got to block a shot as if the ball is “yours.”Find him old videos of Bill Russell, Dave Cowens, and Dennis Rodman; these were all big guys who lost themselves in the sheer joy of the game….Tell him for fun he can be the assist leader on the team too!

          2. Carl J. Mistlebauer

            …oh, and tell him to jump rope like a boxer; it improves your speed, eye hand and hand feet coordination and run up and down looks of stairs, both forward and backwards….

    4. andyidsinga

      start a local xyz hacking group ( can be any subject ) – first member you.First project + demo – your project ( this is most important part ).pick a monday eve and take over a local cafe that will happy to have the extra traffic. dorkbotpdx does this ..you could copy them 🙂

    5. fredwilson

      you can do that every day here at AVC Carland thank god you do

      1. Carl J. Mistlebauer

        Yes, I consider my visits to AVC as intellectual voyeurism….

    6. Emily Merkle

      been there remains to be seen if I am still doing that

  26. markslater

    i’ve always wondered whether VCs see the entrance or the exit as the hardest part of managing their portfolio. It seems that you guys spend most of your time navigating the entrance – reviewing companies, etc – and that exiting these investments is secondary – aren’t both just as important as each other? should this not mean that equal amounts of time are spent on both? is that the case? where we sit – it seems like 80% of your time is spent scouring for the next investment. 

    1. ErikSchwartz

      I would imagine once a fund is fully invested (as the 2004 fund is) the focus shifts massively.

    2. Mark MacLeod

      As Fred says, it’s management’s call to exit. You can’t force it on them. I do spend a lot of time with our portfolio companies on building strategic relationships that could turn into exits. But we don’t focus on selling. The best outcomes are when companies are bought not sold.

      1. fredwilson

        yesssssthat last line is so trueit is one of my “isms”

    3. Rohan

      I’m going to take a random shot at this, Mark.. and we’ll wait for Fred to see if they make sense.My gut says the split is – 50% – looking for new investment35% – managing existing portfolio companies/adding value15% – exit options..

      1. fredwilson

        wrong, see reply above

        1. Rohan

          Ahaaaaa. You know I had a niggling feeling it might be that. But went with what I felt might be considered ‘pragmatic’. Gotta tell me gut to listen to my gut.. hahaAnd I see you are on a reply spree..

    4. Joseph Zaccardi

      The exit is extremely important, but from my experience talking to VC’s, and participating in VC simulations in school, the exit strategy is actually part of the review process. After the initial investment, it is just a matter of updating the expectations on a possible exit strategy as you receive new information.As with any investing, you don’t want to put your money into something unless you have a clear strategy to realize the profits from that investment within your investment horizon (or a clear strategy to exit the investment if your thesis breaks down).

      1. fredwilson

        we violate your rulewe don’t consider exit strategy when we make an investmentwe just consider whether it fits our investment thesiswe believe if the entrepreneur can build a great business, they will get a great exit

        1. Emily Merkle

          amen. if you’re planning to leave before you get to the party – does not communicate super confidence. I can understand exit principles/boundaries that if triggered may cause exit – things happen even with the best laid plans. Sold on credo of know your value. all involved. if someone wants to work with me seriously – we agree to certain tenets that if broken are deal breakers . if a vc operates to screw their young – well karma is a bitch 🙂

    5. fredwilson

      80% of my time is in between the entrance and the exitthat’s where all the value is created

  27. Luke Chamberlin

    Really interesting to me that one of your investors is a large charitable foundation. This is why I don’t like the lines people draw between public and private, non-profit and for-profit. Money moves in all directions.

    1. fredwilson

      that is certainly true. it feels good to me that some of our returns are going to fund good causes

  28. markslater

    if anyone had any doubts about the validity of THESIS based investing – look no further than this portfolio. It was absolutely NOT obvious that these companies were winners to most of us. But if you buy in to thesis and you invest religiously based upon that – you end up with a portfolio like this. 

    1. fredwilson

      thanks mark

    2. JamesHRH

      Mark – any idea who or what firm originated – or is credited with originating – thesis investing?Vinod Khosla had a bandwidth creation theme in the late ’90s, which is the first instance that I know about (my knowledge is v ltd, I assume, compared to an industry insider….)

  29. jmcaddell

    Fred, when you get to that liquidation event, I wonder if the best solution with a winner is to take some money off the table, lock in that appreciation, but leave a healthy amount (50%?) still in play to ride for the long run.What are your thoughts on this?regards, John

    1. fredwilson

      yes. that is exactly what we try to do if we can

  30. Jan Schultink

    Having an investor who is willing to work according to the company’s exit schedule rather than the fund’s limited partners is a huge blessing for a company.

    1. fredwilson

      i agree

  31. Jess Bachman

    Why are venture funds on ten year cycles?  Is it arbitrary? Just the way things are done?  Is that when the patience runs out?

    1. leigh

      yes and I wonder if that timeline is getting shorter……

      1. Rohan

        We’re in the age of the instant aren’t we?Timelines seem to be getting shorter on everything..TravelCommunicationBroadcasting..Even the frequency of ups and downs in the economy..

    2. fredwilson

      it’s the way it has always beenof course, that is no reason to do somethingbut it is why we do it

      1. testtest

        10 years. that’s about a juglar cycle. 

  32. matthughes

    I’m curious about this charitable foundation.It sounds pretty cutting edge.It’s none of my business but I’m curious about their strategy…

    1. Rohan

      They’re just trying to maximize return on their endowments I would think so they can (hopefully) do more of the good stuff.I don’t think it’s uncommon. Again, I may be completely wrong..

      1. matthughes

        It’s common for sure.But given their understanding of the process at a really high level, that seems very uncommon.That peaked my curiosity… 

    2. fredwilson

      their investment strategy?

      1. matthughes

        Their entire fundraising strategy really…I’m increasingly interested in creative charitable fundraising.i.e., How much of the capital they earn via their investments is reallocated directly to fundraising v. funding programs they support? Probably not something you can answer but I am curious. 

    3. John Revay

      Assuming Fred can not disclose their name,I once worked for a VC (in their back office), we had the Ford Foundation as one of our investors.  I am sure there were others…that is one of the names that comes to mind.

  33. Steve Hallock

    Early in my trading life, this was the hardest thing for me.  It seems to be human nature to want to take profits on winners and ride losersI believe this comes from a basic desire to be right.  Taking profits guarantees rightness and riding losers is the sticking to a wrong with hopes of reversal.  Getting over that need to be right has been one of the most important things in my life – it helped me in trading, later helped me in management, and boy has it helped me in my marriage!

    1. kidmercury

      definitely. i think it is the paradox of trading/investing: the key to winning is to accept losing…..

      1. ShanaC

        Maybe most of life is a paradox

        1. kidmercury


          1. ShanaC

            Whoo hoo! I got you to say that I said something true

          2. Donna Brewington White

            Go Shana!

        2. Rohan

          Not just maybe. I think all of it is about finding balance between the 2 sides..Truly the greatest paradox of them all..

          1. Emily Merkle

            heh balance…life is intense. beautiful. dangerous. love. Balance if you can; I have never been able to.

          2. Rohan

            I don’t think any of us can for sustained periods.It’s a pursuit.. 🙂 The simple concepts are always the hardest..

      2. CJ

        This is the first lesson in becoming a great poker player, there honestly aren’t very many meta lessons to learn in poker, it’s just the few that exist are hard to master.  #1) Accept that you can’t win every hand, in fact, accept that you’ll lose most of them.  #2) Maximize the return on your winners, minimize your losses on your losers.#3) Accept that the chips you use to play hold no value beyond being a tool to manipulate your opponents – or stated more succinctly, Don’t give a fuck about the money.  A chip is a tool, it’s not $5, $100 or $1000.  It’s a hammer to use to beat with, a wedge to be used to pry something open, an illusion to be used for misdirection.  But it’s not money.  But I digress…

        1. fredwilson

          you’ve read my VC/poker analogy, right?

          1. CJ

            I just did, awesome read.  I love analogies as learning devices, they hold the power to explain something very complex in very understandable terms.  I assume that you’re a helluva poker player Fred, wondering how much do you think that’s helped you in business?  And when are we having an AVC poker tourney? I’d fly in from Chicago to attend that! 🙂

          2. Conrad Ross Schulman

            wow an avc poker tournament sounds incredible for charity.Rules:1: must be avc member2: all proceeds go to charity3: 1st place winner gets a guest blog postI’m in. When is this happening? Meetup? Where can we host this? usv headquarters? General assembly? #letsdothis

          3. Emily Merkle

            I prefer craps – high risk high reward – so i hear

          4. fredwilson

            I am terrible at poker. I have ADD

      3. Donna Brewington White

        …and in negotiating.

        1. Emily Merkle

          there is no losing in negotiating. why would anyone agree to a bad deal – if they know it. but then – not everyone is out to screw all comers

          1. Donna Brewington White

            Two of the greatest lessons I’ve learned about negotiation:1.  The willingness to walk away from the deal puts you in the strongest position. (That’s what I was referring to.)2.  When you’ve reached an impasse, the one who speaks first, loses.

    2. Donna Brewington White

      There you are!Did you see Jerry Colonna’s post on Monday and the example he used of the founder with the need to be right?From a recruiter’s perspective, I’ve seen that need to be right have crippling consequences in a leader’s development and on his/her effectiveness.  Also, I look for it on the client side because it stymies the team and the culture.   BTW, wait until that toddler of yours is a teen.  (He is a toddler now, right — or close?)  Getting over the need to be right will REALLY be tested then.  (As my teens have taught me — correction — are teaching me — but it is making me a better person and probably better at my work —  shhh… don’t tell them!)

    3. Emily Merkle

      dude humility is a bitch but net net pays off 🙂

    1. K_Berger

      Good call!

    2. Emily Merkle

      know when to run!! 🙂 

  34. JaredMermey

    Piggy backing a few of @wmoug:disqus ‘s questions…Does the VC have to sell its share when the company decides to sell? Is a tag-along clause usually present forcing the VC to give up its position if the company decides to go forward with a liquidation event?

    1. fredwilson

      yes they do

  35. pointsnfigures

    Agree with your sentiment, but might have a disagreement over your example.  I traded my own money for 24 years.  It’s very difficult to know when to exit a winning trade.  I have several examples where I stayed with winners too long and turned them into losers, or got out too fast, or, got out too slowly and still made money.  Every time you do that there is a cognitive dissonance that takes over.  The important thing isn’t the timing, it’s the discipline of making good trades and following a system to get out of them, win or lose.  It also helps to be extremely objective and unattached from your investment.  I have severe scars from emotional attachment in certain investments.It’s a great exercise and one I do on almost a daily basis when I look at my portfolio of start ups and stocks.  The key is to try and bat over .300. Hit over .300 when you trade, invest in start ups, or play baseball and you go to the Hall of Fame.  You have to make sure the other 70% of the time it’s not fatal. 

    1. kidmercury

      agreed with your comments about discipline and the challenge of exiting, at least on the public market side where i live. some exit factors i look for are:1. technical analysis reversal signs (i.e. reversal candlestick at resistance on volume spike). i’m not sure how investors in today’s public markets can cope without technical analysis2. if a sector as a whole doubles within 6 months, i think a crash is increasingly likely — even if the fundamentals are supportive. real bull markets grow fairly quietly and slowly without too many people noticing; rapid price appreciation is in my opinion cause for concern.    

      1. pointsnfigures

        Tech analysis is a good guideline but boy has it screwed me up plenty of times.  In other comments on this I saw Fred say he invests with his gut. In some cases, that’s right.  I missed on two good “trades” by not following my gut. One was an investment in a company, one was selling.  Both times it cost me money.  On point two, I might agree with you but it just depends.  Unfortunately we have to look at the circumstances.  Facebook doubling in value was something that wasn’t a bubble.  Zynga masquerading as a game company(when it’s really a data company) might not be bubblicious.  I prefer to put some numbers around it-try to use them to help me make a decision but in the end there is the human factor of the entrepreneur.  There is a lot of randomness there and you do have to follow your gut.I am attempting to raise my first fund.  I don’t have a long track record as an “investor”-so if anyone invests with me I suppose they will be following their gut!

    2. fredwilson

      very true

    3. Emily Merkle

      I read that very approach on a discussion site for traders – by someone I hold it the very highest possible regard – Tides

  36. Cheryl Lasselle

    3 Things – Noteworthy – let winners run post: 1. Value creation discussion 2. Keys for identification of winners in technology- Select portfolio companies that are or have –  a. Category creators +  leaders   b. High growth-profit example-50% growth with 20/30% pre-tax margins   c. Look at management 3. Comments generated from this post.

  37. JLM

    Fred/USV — long ball hitters w/ men on base.  Ted Williams like.Gives “well played” a whole new meaning.Where do we send the tuition checks?

    1. fredwilson

      a good college friend of mine put $100k into our first fundhe said to me “i have a bunch of kids and need to put them through college”it gives me enormous pleasure to know that my partners and i are going to do that for him

      1. leapy

        wow – I bet that focused your mind a little. what a responsibility!

      2. Emily Merkle

        wow. that is fucking fantastic.I would love to have a chase to pay it forward for my hero who walked the walk.

  38. Dabelon

    What were some of the other great questions they asked?  Or maybe those are for other posts!

  39. LE

    I’ve made the mistake of exiting investments too quickly. Back in the middle of 2007, my previous firm Flatiron exited our investment in Mercado Libre at the IPO selling our entire position for about a 10x gain. In the almost five years that MELI has been public, it has gone up 5x. So had we held our position for another five years, we’d have made 50x instead of 10x. That stings. Lesson learned.Let me jump on this as others have.One of the mistakes that people make in investing or even general decisions is not looking at the downside to the decision. At the time you sold that investment you hopefully had considered the upside potential but more importantly what the downside was if you didn’t exit. As long as you considered carefully the issues you made the correct decision. You can’t predict the future. You evaluated with what you knew at the time the way you perceived things. Or maybe your partners had other motivations for selling (they wanted to buy a vacation house).Now of course it’s possible to make a decision for the wrong reasons and in that case it’s “lesson learned”.I know someone who made a decision which involved either keeping half of a business or getting all the real estate that business owned at the time. He decided to keep half the business. As time played out it became apparently that keeping the real estate would have been the better decision. But here’s the thing. He made the wrong decision not because real estate values escalated greatly. He made the wrong decision because of an emotional need to prove that he could beat his partner at business as a competitor. He knew taking the real estate (getting 100%) was a better option even back before real estate went up in value.That is a lesson learned.  

  40. Richard

    Fred – The VC industry talk in terms of total return (10x)  and particualarly for your investors, this metric doesnt tell the whole story. Your investment class is part of a portfolio for your investors, so the comparable metric is the annual return. But even an annunalized return does not tell the whole story, for it is missing the risk of the invesment. To compare returns across asset classes something known as the sharp ratio tells a better story, it is a return/risk ratio.  In a nut shell this simply means that while an investment may go from 10x to 2Ox over some period of time, by  factoring in its  time horizon and volatility, you and they will have a better feel for its relative performance. (i am sure fred knows this but thought it would be helpful for the those who do not).

    1. Emily Merkle

      and – dying to know how to control for massive amount of levers/mega dynamic industry / major bleeding edge tech / many unknowns but virtually unlimited potential that is Very Real. doing well by doing good does not hurt

      1. Richard

        Not exactly sure where you were going with this. Is your question, how do you place a valuation on these?

        1. Emily Merkle

          what are the main factors in terms of impact & how much data is there to draw inferences to make best possible decisions? I have a very specific situation re: multiple industries but I do not know if I am getting wild with my imagination or if it is truly that complex/powerful/a cool issue to optimize 🙂 

  41. Marcus Oberholzer

    I understand the point about VC’s having limited authority to make call to “sell”. But beyond that, once VC’s do control their own destiny, how analytical do investors get in figuring out when to sell?When I build cost models for clients in the government to help determine a “fair and reasonable” price for a piece of engineered equipment, I try to include in those models (to the extent possible) some parameters for each input, and attach a statistical distribution to allow for some risk or uncertainty (followed by an uber-dorky monte carlo simulation). The idea is to come up with a “range” of prices to more realistically understand the true price of something.Is it feasible to do similar modeling for venture investments? I guess the question boils down to the practicality or accuracy of estimating revenues/expenses too far in the future for tech startups in general. Probably more art than science at that point…but hey, I’m an engineer, so I thought I’d ask.

    1. fredwilson

      we are “gut” investors and don’t use models very much

      1. Emily Merkle

        models are fairly good in estimating value / no true price and value is in the eye of the beholder. 

  42. Brian Hirsch

    Fred,I’ve struggled with this same issue over the years with winning portfolio companies.  My gut has always been to let the winners run as well.  The big issue is there are sometimes divergent interests between GPs and LPs.  In your Mercado Libre example above, from a GP perspective it hurt to sell at the IPO because the GP leaves a lot of money on the table personally and hurts the fund’s returns.  From an LP perspective I’ve heard the opposite.  It’s our job to exit once we have liquid stock in the public markets and return cash vs act as a portfolio manager for liquid public positions.  I’ve had LPs tell me that if they love the company they can choose to either buy it back in the market or not sell if the GP distributes liquid stock instead. I think each situation has to be looked at independently and each LP may have different goals and desires when it comes to how their GPs manage liquid holdings.   

    1. Dan Abnormal

      Exactly. Give the money back to the LPs and let them decide what to do with it.  With MercadoLibre, maybe the LPs would have chosen to buy back some stock when it bottom out under $10.  Then they would have gotten 10X return instead of just 5X if you held it for them.

      1. Emily Merkle

        just trying to think more quaintly about these variables that are considered in every complex maneuver really -vc/global economy/etc – gov’t private etc + media / politics/ so many moving parts. I want to learn from those who can teach me the numbers – i am a global/conceptual thinker but did not go to bskool or anything 🙂 thx

      2. Emily Merkle

        pls. define LP / situation ?

    2. fredwilson

      great point

  43. PMarchetti

    My start-up co-founder was an early Yahoo! employee.  He and a few of his former colleagues made a rule that when the stock hit a certain point, they would sell and not look back.   Several of them sold at the top of the market in early 2000.  The lesson being that you have to make the best decision at the time based on what you know and be satisfied with the outcome. Sometimes you’ll win and sometimes you’ll lose.  But my cofounder did exceptionally well in the end while many of his buddies who hung on through 2001 waiting for the market to lift did not. 

    1. Dave Pinsen

      @philipsugar:disqus mentioned hedging above. The beauty of hedging, when it comes to publicly traded companies such as Yahoo!, is that it can let you limit your downside without capping your upside. Selling your shares isn’t the only way to limit your downside.

  44. kidmercury

    just wanted to drop a link for crowdfunder.com. i generally see petitioning congress as an effort with very low or negative margins, but at the same time it’s such a bummer to be priced out of these opportunities. then they try to sell us on it after it goes public and the bubble is well developed — lol, no thanks, i’ll go for the less developed bubbles. crowdfunding lets the poorer folks get in on the game, let’s make it a reality.  

  45. Mark Essel

    MBA Mondays, Time Value of MoneyOne comment on Mercado Libre, you should be comparing a 10x sure return vs a discounted potential return 5 years later. Given USV’s portfolio IRR for a given vintage, 5 years could mean a multiplier of 5.378 or more (40+% IRR)

    1. Rohan

      I don’t even know if you should look at it that way, Mark.It’s easy to look at these things in hindsight I guess and pickout what you did wrong..What if Fred didn’t sell Geocities to yahoo when he did? What if he waited till the dot com bubble.I guess all you can do is take the best decision based on the information you have…Hindsight is helpful and unhelpful at the same time (another paradox, Shana..)

  46. mitterpach

    Fred, how and when do you consider investment as weak, please? Do you measure only income or are there other factors as well?

    1. fredwilson

      the numbers rarely matter in that determinationit has to do with product market fit, the team, etcnumbers are a symptom, but not the cause

      1. Carl J. Mistlebauer

        “numbers are a symptom, but not the cause”  I love that one!   Add, “…and they can lead to a wrong diagnosis” and you pretty much summed up my argument with the IRS.

  47. PhilipSugar

    Again, lets put this in context.The key to this is the word “portfolio” = “a collection”From a vc perspective this is spot on (I forgot what was the URL of this blog?)From an entrepreneur whose “portfolio” = 1 company at the time, hedging one’s bet’s might be an interesting discussion.If you would like to buy me a beer, I can describe the case where 10X goes to zero. I’m sure Charlie might like one as well.

    1. fredwilson

      i’ve been there and done thatthat is one of the reasons that entrepreneurs and their teams get to pick when to exit

    2. JamesHRH

      Phil – i don’t see Fred saying that. He’s not saying anything other than what he’s saying – sometimes, the IPO is not the end of the road, by a long shot. And, when USV catches a winner, it can be surprisingly long horizon of strong growth.Your PoV is valid, but I don’t see Fred advocating for founder’s not getting a return and being locked in – the secondary markets are allowing founder’s to do exactly what Fred says that USV does (clear out 10% and let the bulk of the investment run).I agree totally w @howardlindzon that this is a startling transparent and valuable post, that the AVC community seems to have whiffed on.

    3. Emily Merkle

      I see usb approach a tad differently; not collection but the care and feeding of an enmeshed ecosystem – shared rock solid foundation; clear cross pollination opportunity…

  48. Rohan

    To persist.. or to move on.One of life’s eternal questions I guess..

    1. Richard

      “Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics is equally unpredictable, both as to duration and degree. Therefore we never try to anticipate the arrival or departure of either. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” Said by?

      1. Rohan

        Ha. I had no clue Rich.And Google told me it is Warren Buffett.. 🙂 Deep. 🙂

        1. Emily Merkle

          lol well put – tho how about eliminating greed & fear?

          1. Rohan

            I don’t think either can be eliminated.They are part of what makes us human.The yin will always exist to balance the yang.. 🙂

          2. Emily Merkle

            if we reframe those desires as outsize desire to consume – anything and reward such lust as consumption that serves to achieve goals for greater good – harnessing strong forces. fear has to be conquered through – mesh fuggghedaboutit..:)

  49. Robert Thuston

    Fresh perspective on your view as a VC. I like thisNote to self: When you build a product in the future that fits USV’s theme. Be persistent. They only take in 5 investments a year.

    1. fredwilson

      we make closer to eight new investments per year

  50. Max Yoder

    Thanks for writing this, Fred. Posts like this are why I love blogging so much. With some concentration, a couple hundred clicks of the keyboard, and the press of a digital “Publish” button, you’re able to take what you’ve learned over the years and share it with the entire wired world. We’re all wiser because you took the time to express your opinions and outline your insights. What a cool thing it is to be alive in today’s world.

  51. JamesHRH

    Experienced retail broker: ‘buying stocks is easy; selling stocks is hard.”

  52. jason wright

    “have you met him? have you hung out with him. have you had him for a friend for close to twenty years. have you seen him bury his best friend? have you seen his charity, his love, his humanity?i think the answer is probably no to all of these.but i can answer yes to all of them.be careful to make impressions from what is written and not what is experienced”.Meeting and hanging out with someone isn’t a requirement for being inspired by them. Many of the most inspiring of people are long since dead, but it’s their legacy that inspires.Is Zynga a legacy to inspire? It doesn’t inspire me. He shouldn’t want to be remembered for it. He has time to come up with something more worthy of the view you have of him. I’m not assassinating the man, I’m challenging him to use his talents to positively enrich the culture. Zynga enriches, but not the culture.

    1. fredwilson

      it doesn’t have to inspire youbut don’t insult someone you don’t know

      1. jason wright

        Where is there an insult in saying that he isn’t a hero to me?

        1. JamesHRH

          Jason – poor form here.Just from reading the thread, it is a little sad that you have no remorse over calling the product of one of Fred’s good friends (and the source of one of his best investment returns) “shit”.I get that you will respond with ‘just voicing my PoV’. Its allowed, for sure. But it is just a little sad that you care so little for the impact of your words on others.When you mature a little, the act of expressing yourself will have a little less need attached to it.But, even before that happens, you should still be able to realize that the second or third response in this vein, from you, is inappropriate and obtuse behaviour.Check yourself, is my advice. It will look good on you in the long run.

          1. jason wright

            James – I stand by my comment about Zynga. I don’t go with the flow for ‘likes’ or to be liked. I say it as I see it. I don’t do retraction in the face of belittling. Someone has to stand up for those who are harmed by such companies but have no voice in a mass media dominated by the paid content politics of corporate agendas.Zynga equals zombification, and worse.I go back to my central point. The AVC thesis is incomplete.

      2. Emily Merkle

        I would agree with that sentiment. often we see things that are very straightforward to us but to another are different; I personally do not rank Zynga as my Model To Emuate but then again, they are creating an awful lot of beneficialness to some major constituencies. I have worked – hard – for plenty of companies that were publicly derided. Maybe Zynga is the founders’ first massive smash in a progression

  53. laurie kalmanson

    fred — so awesome.a metal ladder in the rain is likely to touch lightning — i love the model of looking to the future and the next thing to be disrupted.i was thinking about your post when i stumbled on match safes, or vespa cases, on ebay; matches used to be so precious that people carried them in gold, silver and enamel boxes, which collectors buy today.i wrote a post on matches = iphones: http://lauriekalmanson.blog

  54. howardlindzon

    Just awesome.  A great share.  thx.  and congrats

    1. JamesHRH

      Totally agree.

  55. Moises_Eilemberg

    Great post. Although, if you can check off all the strenghts you mention in the last paragraph, you could make a straightforward case to hang on. It’s almost never that good, right?

    1. fredwilson

      RarelyNice to hear from you Moises

  56. Mark Moran

    Here’s another way to look at this:What you paid for a share of stock in a company should have NO bearing on your decision to buy or hold right now.If you’re in at $50 a share, and the offer price now is $20, but in all likelihood it is going to $10 or $0, sell now, take a tax loss, and re-deploy the funds in a more promising investment.If you’re in at $50, and the stock price is now $500, but the stock is undervalued, then hold on until the stock is fairly valued.In 25 years of investing, this is the single most important lesson I have learned. I own a fair number of shares of Apple, purchased at $11. I still think the stock is significantly undervalued at $516, and I have no temptation to sell here, not even on days when the stock rises more than the price I paid for it back in 2003. On the other hand, whenever I have a need for liquidity, I aggressively analyze the losers in my portfolio, and if I find that the reason I purchased one of them is no longer valid, out it goes.

  57. Prokofy

    Meh, Kickstarter is not such a large network. Seems like a pretty rarified club of tekkies and pals in fact. When I first went there, it appeared as if you could just register and start filling out your project. I filled a lot of it out and then jammed on the picture issue — I realized I couldn’t raise money using somebody else’s “Creative Commons” picture and would have to find a public domain picture or my own. So while I was sorting that problem a week or two went by, and when I came back, the system seemed changed (or was always like that) and now had a vetting system. I had to *apply* to even be accepted to put up my proposal. I saw all kinds of people with “0” and weak proposals, so I had to wonder why this was being done.Needless to say, I wasn’t accepted. It was a journalism/translation project which isn’t typical of their lots, but they just didn’t like it. That was annoying and at first I felt crushed as I had had such high hopes, reading so much about how wonderful Kickstarter was. For me, finding networks of interested people was as interesting as trying to raise the cash.Then I discovered there are other sites. So I moved to IndieGoGo where you don’t have to clear through a vetting committee but can simply post your project and then work it from there. It’s more international in focus and seems a better fit for me.

    1. fredwilson

      kickstarter is huge in terms of the amount of money it raises for artists. this year they may generate 2x what the NEA gives artists each year (or more).indiegogo can’t hold a candle to kickstarter in terms of the amount of funding it generates. its an order of magnitude smaller if not moreand the reason is it is not curated at all and it’s not an all or nothing modelkickstarter cares for both the artists and the backers. the backers are an important part of the market

      1. Prokofy

         So what, Fred? These big free services that scrape data should be like utilities open to the public — Facebook and Twitter and Etsy are all like that. Kickstarter is a Silicon Valley Old Boys’ club. They pick software projects first and everything else after that — and only pick politically-correct projects. It’s clear to see. Who cares if it raises more money than anybody else for a select elite? That’s not useful to the rest of society.It doesn’t matter if IndieGoGo is tinier or a wannabee or whatever, *it’s open to the public* and that matters. Kickstarter could still curate and feature their top picks or let the crowd deside, such as it is, but closing off projects is a recipe for death. Kickstarter cares about itself and its VC people and its clique first and foremost.Kick

        1. fredwilson

          so what?what is important is building the biggest market that can allow the most creators to get access to the most capitalkickstarter is doing thatindiegogo is not

          1. Emily Merkle

            Fred – you are such a fucking gem. market – touch everyone creators – no barrier to entrycapital – we al share and we can grow it together 

    1. fredwilson

      I know them both very well. Both are friends. Both have strengths and weaknesses. As do I. As do you

  58. Adam Hertzman

    Why not sell a portion of the investment? It seems to me that managing a portfolio ought to be about managing risk. If you had sold half of Mercado Libre at IPO and held the other half, you would have had a 30X gain instead of 10X. If the remaining half had done completely bust, you would have still held onto a 5X gain.I’m still not sure why so many people treat investments as “all or nothing.” Back when I was in b-school, two thesis groups were up for $10,000 prize. They hedged by agreeing to split the $10,000 between the two groups regardless of the outcome, thus guaranteeing a return.

    1. fredwilson

      Yup. That’s right

  59. zackmansfield

    Fred, interesting post.  Remember your post on Geocities where you noted how you sold off 1/3 of your position for 10x what you paid and held the remainder, saying you didn’t regret selling off a little even though it meant “leaving money on the table”: http://www.avc.com/a_vc/200…Such a hard decision to know when to sell (especially when you have a high flying winner like Geocities – or Twitter/tumblr/kickstarter/etc).  Certainly a “high class problem” but still doesn’t make it easy.  Thanks for being so open about how you think about this stuff.  

  60. Ryan King

    In the case of Mercado Libre, wouldn’t it have been better to sell blocks off over a longer period of time?In fact isn’t that always the best bet?

    1. fredwilson


  61. parkparadigm

    Letting your winners run is a key – and surprisingly hard – element to being a good trader/investor. All sorts of psychological biases all too often drive the opposite behavior (running losers, cutting (ie taking early profits) on winners.  And I’m a disciple of Warren Buffett’s view on the ideal holding period (for truly great companies) being “forever.”  That said, most (all?) of us have limited capital, and in this context I try to look at trading decisions as a question of weighing relative (risk-adjusted) opportunity costs:  will the future expected returns of a winner – adjusted for risk/volatility – match or exceed the returns of the alternative investments one could make with the proceeds.  ie (suspending belief for a moment) if the winner is certain to return 3x over next X years but another company is certain to return 10x over the same time, the decision is easy: sell first/buy second with proceeds, even though first is still clearly a “winner”.  Obviously the reality is this calculus as such is not a science (although science can support the decision making process) as one is never “certain” of future expected returns. However this cognitive framework can be very helpful when working through the very painful decision of whether or not to sell an investment that you are convinced will continue to perform strongly.

    1. Emily Merkle

      why do you see the complex juggling of variables that go into doing due diligence on an investment “science” many other things to consider that are squishy – qualitative/perspective/knowledge/holistic view etc blah 🙂

  62. paramendra

    Fred Wilson, you are really something. 

  63. jason wright

    http://www.thisweekinstartu…A nice interview about all things VC. After 50 minutes talks about selling and when to.

  64. testtest

    “We still have fifteen investments active in that portfolio including Zynga and Twitter and we own large blocks of stock in both of those companies.”you’re not able to sell zynga stock until the 15th anyway, yes. due to the lock-up period. so you couldn’t sell it anyway, fred?

    1. fredwilson

      we have sold Zynga a few times privately