45 Minutes With @albertwenger

It's really easy to appear intelligent when you are surrounded by smart people. I've written a fair bit about how my partner Brad is responsible for much of USV's investment thesis and the deep thinking we do as a firm.

But USV is also extremely fortunate to have had the benefit of Albert Wenger's big brain for the past five years, since he helped Joshua build and sell Delicious to Yahoo!

Since I don't have anything particularly interesting to say this morning, I thought I'd feature this interview with Albert that Rocky Agrawal did in our office recently. It's 45 minutes so it's a long listen, but there are a lot of good insights in here.

One more thing while we are talking about Albert – He's been doing this great weekly column called Tech Tuesdays where he essentially explains how this technology we are all using works. He's got a survey up on his blog looking for some feedback about where to take Tech Tuesdays next.

#VC & Technology#Web/Tech

Comments (Archived):

  1. Julien

    Albert is one of these very few VCs who not only know code, but run their own little website/venture!Also, Soundcloud really needs a “listen later” button that will just send that snippet to my iPhone’s SC app!

    1. Ela Madej

      +1 for listen later

      1. fredwilson

        i use the favorite button for thatSC favorites is my listen later stream

    2. markslater

      agree – i cant listen right now and will forget to later.

  2. LIAD

    Two very smart guys.The depths of Albert’s Tech Tuesday posts are something to behold. Working from bits and bytes all the way up the stack was a worthy undertaking.I’m also a fan of Rocky. I like how he distills things. His recent VentureBeat article post the Groupon clusterfuck last week highlights this well.He succinctly defines Groupon as: “not a coupon or a marketing company. At its core, Groupon’s U.S. business is a receivables factoring business. They give loans to small businesses at a very steep rate (the price of the discount plus Groupon’s commission). Groupon is essentially a sub-prime lender that does zero risk assessment”. – hard to argue with really.

    1. Aaron Klein

      The intensity with which he went after Groupon was a bit over the top but it was tough to argue that he wasn’t generally correct. I remember saying that GRPN was either going to innovate themselves into the next generation local marketing company or be a disaster…no in between.They were way too early on taking money off the table and IPOing. A huge object lesson to the rest of tech.

      1. LIAD

        Agreed. He was extremely aggressive in his attacks.Perhaps though, he’s now been vindicated. First investor lawsuits against them dropped this morning – http://bloom.bg/HSfPhI

        1. Aaron Klein

          No doubt.

        2. Brandon Marker

          He was vindicated when GRPN sent me a deal to travel to Waco, TX –as if that was some kind of vacation? That was the day I unsubscribed to any and all Groupon e-mails.

          1. JLM

            Hmmm, once you get beyond the Elite on the circle and don’t dare wander far from the milkshakes, you are in No Mans Land, my friend.

          2. Brandon Marker

            I just imagine a tour of all the fortune 500 industrial factories..

      2. Cam MacRae

        I think his aggression was (mostly) warranted but wish he’d directed some in the general direction of the regulator; I cannot think of another market in the developed world where that IPO would have been allowed to proceed as it did.

        1. Aaron Klein

          I’m not sure how you blame the regulators on that one. If you comply with the law, they can’t just willy-nilly say “you don’t feel right…so no IPO for you.”Investors simply need to be really cautious with IPO stocks. They are fraught with risk. Even though we could, Riskalyze.com won’t consider stocks until they have a 3 month track record.

          1. Cam MacRae

            That presupposes somewhere beneath all the misdirection and creative accounting they actually did comply. No doubt it will all come out in the wash – perhaps they’ll be exonerated.

          2. Aaron Klein

            If fraud was committed, people should and will go to jail. Those laws have been on the books for a long time and are well tested.

        2. Rocky Agrawal

          I have plenty of ire for the process, too. I will be writing this stuff up. But I’m just one guy who does this on the side. I can’t write even 1/3 of the stuff that I’m thinking about.

      3. JLM

        Groupon will go down as one of the all time great head fakes in the history of mankind, business and investing.The deal for the merchant is nonsense and typically is just bottom feeding by an existing customer base.So I bought $200 for $100 at my favorite Austin BBQ joint — Green Mesquite.No new customer, no additional visits (even I can only eat so much BBQ), no additional revenue and, in fact, 50% less revenue from JLM.Groupon will be a disaster.But, hey, what the Hell do I know?  Could be wrong as I often am.

        1. Aaron Klein

          Agree. The only way they were going to build a valuable business was to innovate beyond 50% off daily deals.They built a large audience with that loss leader.But is it a valuable audience? And why are the new products so underwhelming?I share your outlook at this point. And there’s no do-over for those guys.

          1. JLM

            There are no barriers to entry to compete w/ these guys locally and regionally.  I get 20+ “deal” emails daily.I only need so many Brazilian bikini waxes annually.Yeah, I get one or two.  

          2. Aaron Klein


          3. sigmaalgebra

            You mean you “get” one or two or “give” one or two?

          4. JLM

            @sigmaalgebra:disqus I don’t even know where to go with that other than to laugh.Pretty damn…………………………………………………………………………………………………………………………funny!

          5. sigmaalgebra

            Consider a candidate Texas business idea:Summer is coming.  Texas has a lot of high school and college football players who need summer jobs. Texas has a lot of Gulf coastline.  Texas has a lot of young women who want to have good suntans.  Sun can be really hot in Texas. Soooooo, have the JLM Secret Scientific Sun Sauce business, private label, bought by the barrrel, with a range of sun block levels, but available only via professional application by JLM employees with good football experience! Did I mention bikinis?  I should have mentioned bikinis!I don’t know much about Texas.  Maybe it wouldn’t work!

          6. ShanaC

            *sigh* you make me want to hide my bikini….

          7. FAKE GRIMLOCK


        2. fredwilson

          My son is in a stock market game in his 10th grade math class.He has 10 longs and 1 shortHis one short is GRPN

          1. JLM

            Haha, he ain’t the only one.  Look for an email I sent to you this morning about T shirts.

          2. Richard

            One of my hats is that is a food entrepreneur (vegan) and have worked with groupon, it was very clear to me at the time that critical analysis  into their model was not part of their culture, whether it be coupon expiration dates (which they just settled with the govt for) or lack of a decent data mining  platform or a defensible “local”position (where the large user base has less leverage)  it was clear to me that they had a lot of work to do within their company.

          3. LE

            Key word: “game”.

          4. Cam MacRae

            I’ll raise you: “casino” 🙂

          5. David Noël


          6. ShanaC

            wow. what are the longs though?

          7. sigmaalgebra

            You mentioned bikinis:  I was only looking for “something funny”!  There are some extremes in Texas to poke fun at!  And since elsewhere on this blog once JLM mentioned NOLA fancy houses, poking fun at Texas girls is open season!But  bikini or not, and even if looking good in a bikini, which might not last much longer than the life of a butterfly, the best and most attractive part of a girl or woman is between her ears and not affected by a bikini. Besides the French, who are relatively good at making women look good, realize that while a bikini might be of high interest to a junior high boy from a US bible belt state it is not the clothing direction that makes a woman most attractive. E.g., one of the girls I most remember was in the ninth grade and invited me to her party and wore some sheer pastel floral print dress, over a satin layer or some such, with a very full skirt, all tied up with satin ribbons, and decorated with bows. She was a very pretty girl, but I doubt that a bikini would have been more attractive.For just one point, a man building a business can look at some women, see high maintenance, various state community property laws, the divorce rate, and various divorce lawyers and be just terrified of “letting a woman in his life”. If he does let her in, then he wants to be sure what’s between her ears.

          8. ShanaC

            I know already, which is why I only own 1 bikini 🙂

          9. Rocky Agrawal

            That’s a terrible high school. He can’t have GRPN as a short because no one is lending it to be shorted. 🙂 He has to buy puts instead.

          10. Andrewcallen

            wow, that is a terrible high school.  should he be creating tangible value instead of betting on derivatives of value created by others? 

          11. Rocky Agrawal


          12. David Semeria

            Too right! 🙂

          13. sigmaalgebra

            Good! He can study the Pythagorean theorem as usual in the 10th grade!So, there is a stock, and its price next week will be Y. There are five stocks with prices X1, X2, …, X5 now that we want to use to estimate Y.Let our estimate of Y be Z. So, for a simple approach to the estimate, we want some numbers, say, b1, b2, …, b5 so thatZ = b1*X1 + … + b5*X5We want to pick the b1, …, b5 to minimize the ‘risk’ of our estimate so that our error E[(Y – Z)^2] is as small as possible. Once we do this, we will rediscover the Pythagorean theorem:E[Y^2] = E[Z^2] + E[(Y – Z)^2]because fromY = Z + (Y – Z)we have a triangle with sides Y, Z, and Y – Z and in an important sense sides (Y – Z) and Z will be perpendicular and, thus, part of a right triangle.The important sense? Under meager assumptions, Y, Z, X1, …, X5 are all points in a Hilbert space which is a complete inner product space where the inner product determines what is perpendicular. In this Hilbert space, the inner product of, say, Y and X1 is just E[Y*X1], and they are orthogonal (perpendicular) provided E[Y*X1] = 0. Indeed, for all b1, …, b5 the set of allb1*X1 + … + b5*X5is a generalization of a plane in geometry; the estimate Z is in this plane, is the unique point in the plane closest to Y, and is the unique perpendicular projection of Y onto the plane. Nice result: All of this holds even if the X1, …, X5 are not linearly independent which says that in a sense we have made progress on what is usually regarded as a show stopper, over fitting.That’s enough for the 10th grade!

        3. Mark Essel

          And note how much money the early founders and investors took off the table in later deals. If you believe strongly in a company, you don’t liquidate the lion’s share of your holdings.

          1. Aaron Klein


          2. FAKE GRIMLOCK


        4. kidmercury

          i agree with almost everything……i would only change “will be a disaster” to “is a disaster”……the controversial super bowl ad, the joke press releases, raising a billion dollars……lol almost a case study in what not to dobut to their credit getting a lot of users and revenue is tough. even if you are selling something of no value, it still requires some type of marketing talent and organizational management skills. so i give props in that regard

          1. JLM

            Haha, agree with you more than you agree w/ yourself.  I did say it was a “great” head fake.

        5. PhilipSugar

          See my post on Groupon 18 months ago.  Aaron even commented.

          1. JLM

            You, my man, were the first and your were right as rain!  Well played!

          2. Aaron Klein

            Indeed. And you were dead on.

        6. sigmaalgebra

          I thought that Groupon was a new way to get local merchants in a gas war competition with each other with Groupon taking a cut:  E.g., with Groupon, all the Austin BBQ spots have a new way to compete to get new customers and/or get competitor’s customers.  So, Groupon is a little like worms in a community of dogs: All the dogs suffer; the worms do well; some of the weaker dogs die.Somehow I suspect that soon when a Groupon salesman comes into your favorite Austin BBQ spot to sign up another “deal” the spot owner will see selling $200 of BBQ for less than $100 and throw the guy out, just from principle or anger, even if the owner knows that some BBQ spot down the street does sign up. If necessary, all the Austin BBQ spot owners will have a ‘meeting’.And, you are correct: Groupon has next to nothing for a barrier to entry. Besides, as for Austin BBQ spots, it’s a geographically local business which means that, except for the computer software overhead, Groupon has little or no advantage over competitors in every little community in the world. Then in nearly all those communities, there will be competitors from local business people better connected locally than Groupon.Maybe another analogy is the old trading stamps, and like trading stamps I have to suspect that Groupon will die out.If Groupon continues, then I have to suspect that some countries will have some ‘defensive responses’: Some laws could be passed. Or, Groupon salesmen get flat tires, can’t rent hotel rooms, and tend to feel funny after eating in restaurants, or worse.I wouldn’t want to be a Groupon salesman in, say, Sicily!

          1. JLM

            Sigma, babe, in Texas one has ONE’s BBQ joint and does not commit BBQ adultery just because of pricing.You got your best girl and you got your slimey girl.But you only have one BBQ joint.

          2. sigmaalgebra

            I understand fully!  I know about BBQ!  I know next to nothing about Texas beef brisket BBQ, but I know a lot about chopped picnic pork shoulder BBQ!  Why?  I grew up in Memphis!  I can do a good imitation indoors with just ‘oven-Q’.  But with some parts like littleBits and the software role I outlined, I could build a temperature controller to keep an outdoor smoker going for, say, 18 hours at right at 225 F.  So, I’d start with a ‘pulse width modulation bang-bang’ controller!  That is, fully open and then fully close the vent about once a minute while varying the fraction of time the vent was open.

        7. awaldstein

          Nope…I think you are correct.Wacko model. No brand value. Not scaleable reduction in customer acquisition costs. No social integrity.

        8. Stuart Campbell

          Actually it’s a lot worse than that. The gross revenue is $100 of which Groupon takes somewhere in the range of 30-50%; Green Mesquite was hit 65-75% per transaction. Groupon is a great deal for consumers, unfortunately for the business that is where the benefit ends.

      4. Tom Labus

        They’re looking to hire Jon Corzine to straighten out their financials!

        1. Aaron Klein

          That will certainly end well.

        2. JLM

          John Corzine the KSM of finance.  What a weasel shit.

    2. LE

      “I’m also a fan of Rocky.”Same. I also love the “street cred” photo of Rocky (above).Re: Groupon. I’ve sold to small business and owned a business which sold specifically coupon advertising to small business (my ex wife operated – attached photo).   This is a business that takes a tremendous amount of hand holding and you have to literally show up at the door of the business owner to get the ad copy and get ad signoffs. Takes a tremendous amount of labor (and parking tickets as I’ve mentioned). There is no such thing as signing up a customer, the orders flow in, and you move to the next customer.   At least Groupon doesn’t have to collect money. Most importantly, it’s difficult to do without physically being where the customer is for all phases. (Several previous owners were not able to operate it remotely and sold it for that reason. )Even though Groupon is a different model my napkin arithmetic said that their sales expense would never drop significantly going forward. 

      1. awaldstein

        Well said.I sold Voip phone services to the SMB. Really a challenge. Customer acquisition is a nightmare and finding verticals is tough.GroupOn has neither solved the cust acquisition issue not understood the social loops.

    3. ShanaC

      It’s a brutal way of thinking out SMB and Groupon. It means banks have escaped their duty, for one

    4. Michael D

      LIAD, interesting to hear the comparison to Receivables Factoring. Based on what I’ve seen from Rocky and his writings about Groupon and their payment terms to vendors they really are very similar to a Factor . The major difference being only a small portion of your outlay gets returned to you within 5 days. Your comment caught my eye as I am in the Factoring business . Great take on it.

  3. JimHirshfield

    “Big brain” +1Nice guy too. Ok enough – don’t want his head to get _too_ big.

  4. tyronerubin

    crazy I was listening to this talk by Albert Wengerthis morninghttp://vimeo.com/34721030

  5. kidmercury

    this was a fun interview. in my opinion rocky did a great job of asking tough questions without creating a confrontational, tense environment. at least that is the perception i got as a listener. i don’t really see the difference between bubble 2.0 and bubble 1.0. sure there are more internet users but the valuations are even higher. and as albert noted bubble 1.0 had many great ideas, stuff like kozmo was great back then and it’s still a great idea now. but when you dump a lot of money in the formula for scaling profitably gets lost in a sea of seemingly infinite money and untrained, short-term speculators start coming in. and while there may be more revenues now most of these companies are still reporting losses.  no doubt the embarrassingly weak bond market is driving public and private stocks. i think this trend will continue, and dividend stocks will benefit greatly.   last i read on the JOBS act it was really getting watered down, i hope the crowdfunding provisions are not too regulated. i agree with the idea that there will be an adverse selection problem, although i don’t really think it is a problem. crowdfunding will get the opportunities too small to be of interest to accredited investors. in the long run i believe the internet favors a greater number of small markets rather than the one worlders which are more compatible with conventional financing models. 

  6. kirklove

    Albert rocks. And is super nice to boot.

  7. awaldstein

    Big fan of his tech columns. I send them to clients often.

  8. Cam MacRae

    Great listen – very interesting thoughts about disclosure and peer produced commentary.

  9. markslater

    albert was involved in the investment in twilio?if so that explains alot.

    1. fredwilson

      yes, he sourced it and manages it for us. he is on the Board

  10. Mark Essel

    Groovy, I gave Albert a mouthful of suggested topics.

  11. Yaniv Tal

    great interview. albert has a really well calibrated sense of the market. i liked his point about how regulation in the internet age should insist that public companies disclose their source materials instead of just their final numbers. increased transparency will continue to be one of the greatest drivers for economic efficiency in the coming decades and there is still a lot of room for growth. people have the skills to make their own projections based on the data and should have the choice to play with the numbers themselves instead of having to swallow figures that have been reduced beyond recognition and veiled by half baked assumptions.

  12. William Mougayar

    I listened to the first half & will go back later for more…What stuck with me:In the previous bubble, there were not bad ideas necessarily, but many went public prematurely, with over-extended cost structures that were not sustainable. They went ahead of themselves. Valuations went ahead of traction.In today’s environment, the opportunity to create more meaningful businesses is great because there are a lot more users on the Internet. Some business ideas from 2000 just needed the user scale that we have today, e.g. in financial services.Will When the music stops.



      1. William Mougayar

        Too much money make dumb entrepreneur drunk, no matter what bubble bath they in. Right money to smart entrepreneur make both VC & entrepreneur smarter.

      2. fredwilson

        i agree with the too much money thing. we keep investing more or less the same amount every year in more or less the same number of companies. that’s the only way i know how to constrain ourselves.

  13. Elie Seidman

    the best way to look smart is to surround yourself with smarter folks. I’ve done that – very successfully – over the years. Most of my good ideas actually come from my team – and my two co-founders – Ariel and Eytan – in particular. I take full credit for the bad ideas. 

  14. ShanaC

    Im tempted to send this to one of my old college professors for history of business since the 1980s

  15. Rocky Agrawal

    Fred, Thanks for featuring this. I had a great time with Albert and I’m glad to see this get more exposure! Next time I’m in NYC, would love to do 45 minutes with you.A few thoughts on the comments here. In terms of me “going after” Groupon, I like to think of it as aggressive reporting and analysis. I came to this story by accident and pursued it because I hated seeing small business get hurt by people trying to cash out quickly. I’ve sat across from dozens of businesses who have suffered significant losses because they ran a daily deal.While some people were losing their life savings running Groupons, execs were laughing their way to the bank. Lefkosky and his affiliated entities took $400 million out before the IPO. $900 million of about $1 billion in financing went to cash out insiders. That’s crazy.I think such tactics damage the ecosystem for innovators who are trying do the right thing and help small businesses.As I discussed with Albert, I think the right approach to take small amounts of money from large numbers of people. A typical small business can spend $10-$20 a month on online marketing. So lets get that from millions of them. Most small businesses can’t spend $5,000-$20,000 on marketing — that’s what a Groupon run often costs. But by packaging it in a clever way, Groupon convinced people to buy a terrible product they can’t afford.I think it’s finally possible for someone to build a profitable business while helping small businesses and creating consumer value. As a technologist, I think it’s idiotic that in 2012 the “innovative” business model of Groupon is a boiler room combined with massive volumes of untargeted spam. We should be using big data and algorithms to deliver great experiences while creating value for all parties.The other reason I focused on Groupon so aggressively is that I think it has the potential to sour public market investors on the Internet space. Every company needs to be looked at individually and I don’t want the stink of Groupon ruining the prospects of great companies. See my interview on CNBC after I spoke to Albert: http://video.cnbc.com/galle…I think there is much that needs to be improved in terms of the IPO process. I’ll write about that as well.In case anyone is wondering: my avatar on soundcloud is me on my Commodore 64 in 1984. (I’m old.) I was a master BASIC programmer.Disclosure: I have Jan 2013 puts on Groupon at $10. Frankly, I don’t think it will take nearly that long. Unlike your son, I can’t find any shares to short.

    1. LE

      “A typical small business can spend $10-$20 a month on online marketing. “For a vanity ad they might spend as much as $50 to $100 at a time. So for example if you approach a small business and offer them an ad in a school play brochure (and assuming they aren’t being altruistic) they will buy the ad because the cost is low without regard to the nominal distribution.  Say $50 gets your ad in front of 1000 people. Go to the same business person and ask them for $500 to get their ad in front of 100,000 people and it’s no go. They won’t (in general) part with more money and not because they don’t have the $500. (It’s similar to the same reason people buy lottery tickets). The ad is a lottery ticket to them. They say “if I get 1 customer the ad pays for itself”.  It’s an easy impulse sell.Back in the day one of the most effective advertising I ever bought was yellow page advertising. I think I was spending something like $2000 per month on that (today’s dollars). It worked great and I built an entire business from the initial first ad (which was smaller and cost less). The high cost kept out the competition. Not necessarily because they couldn’t afford it. Just the risk to them (you commit to an entire year) was a barrier.That said a business person will pay plenty for advertising if it brings in customers obviously. But one thing I learned is that it is much more profitable to sell advertising that is not trackable. In a way that’s how much of the legacy industry worked. John Wanamaker use to say “I know only half of my advertising works I just don’t which half”.



    3. fredwilson

      it was a really good interview Rocky. email me the next time you are in NYC. we can talk more about Groupon if you’d like then.

      1. Rocky Agrawal

        Ha! I may fly back out just for that conversation!

  16. Ben LeBlanc

    I learn something almost every time I hear Albert speak or read a post of his. For a tech user who knows nothing about how it actually works, Tech Tuesdays have been great. But I particularly enjoy his posts on broader subjects such as philosophy.And, he’s a very nice guy to boot.

  17. Alan Mendelevich

    Too bad Soundcloud embed doesn’t show up in Google Reader. I guess it would makes sense to included a link in the text in addition to the embedded player.

    1. fredwilson

      ah, right. i will do that next time. thank you for pointing that out.