Posts from November 2013

Employee Equity

Longtime readers will know this is a topic near and dear to my heart. I did a whole MBA Mondays series on this topic and I followed that up with a Skillshare class on the topic.

So I was excited to see that First Round Capital featured a blog post by Andy Rachleff on this topic yesterday. Andy was a founding partner at Benchmark and knows his way around a startup cap table. Andy included this slide deck in his post and I will reblog it here.

You will notice that Andy's plan differs a bit from my plan. But not by much. The important similarities are that Andy and I both encourage companies to not only grant equity at the start date but also on an ongoing basis so that employees' equity ownership grows as their tenure and contributions grow. This is critical.

Where Andy and I differ a bit is how to calculate how much equity should be granted. Andy suggests using market comps. I don't like doing that because 0.1% of one company can be worth a lot more or less than 0.1% of another company. I prefer to issue equity based on a multiple of current cash comp divided by the current valuation of the business. I lay that all out in my Skillshare class.

While I don't call out promotion and performance bonuses specifically in my Skillshare class, I am a big fan of both.

It is so great that folks like Andy are taking the time to lay out an approach and model to this issue. It is something literally every startup we work with struggles with. Getting it right is hard, but worth it.

#entrepreneurship#management#MBA Mondays#VC & Technology

Buying Your Holiday Gifts With Bitcoin

Everyone focuses on the price of Bitcoin these days and it is no wonder why. But for Bitcoin to be anything more than a store of value, we need to see a transactional ecosystem develop. When the citizens of the world will be able to buy and sell from each other and from retailers of all shapes and sizes via Bitcoin, then we will have truly realized the potential of a global digital currency.

Furthermore, transactions can help stabilize what is a very volatile currency today. There is an imbalance of supply and demand right now. If there was as much transactional activity as there is speculative activity, there would be more supply of Bitcoins in the market (as retailers who recieve them turn them into their local currencies).

So everyone who wants to see Bitcoin succeed should want to see transactional activity rise and the sooner the better. This holiday season is a great time to make that happen. We have been involved in a campaign called Bitcoin Black Friday to encourage buyers and sellers to transact in Bitcoin this holiday season.

If you have products to sell and you accept Bitcoin go here and sign up.

If you want to buy your holiday gifts this year with Bitcoin, go here and sign up.

The idea is very simple. Sellers list their products and buyers get alerted when the deals go live and big retailers sign up. I plan to do my holiday shopping with Bitcoin. I hope you all will join me.

#hacking finance#marketplaces

Fintech Innovation Lab 2014

I have written about the Fintech Innovation Lab here before. It's one of the first vertical accelerator programs that have cropped up in NYC and its one of the best. They take a handful of promising fintech companies each year and give them introductions to the top execs at the leading financial services companies in NYC.

If you are running a fintech startup and feel like you could use some mentoring, visibility with investors, and above all, some intros to potential customers, you should think about applying.

The application deadline is in three weeks, December 6th. Details and the application page are here.

#hacking finance

Software vs Hardware

One of the things I am noticing is the trend to try to solve problems with software instead of dedicated hardware. That makes sense for a whole bunch of reasons, but the biggest ones are that the marginal cost of additional user is almost zero with software and that you can iterate your product much more quickly with software.

Smartphones make this trend possible because we have a hardware devices on us most of the time. A good example of this is the Moves app. Instead of using a device like FitBit, Up, or FuelBad, the Moves app turns your phone into an activity tracker. Right now, Moves eats your battery too much which is why it is not more popular. But fixing that is only a matter of time. Of course, iOS and Android could also make activity tracking part of their operating systems, and arguably should do that, but that's another story.

Chromecast is another good example. Why buy an AppleTV, a Roku, or some other hardware device to bring internet TV to your family room when you can buy a $35 dongle, connect it to your TV set, and your smartphone can now control your TV? It would seem that all TVs will eventually come with this feature that allows your phone to take over the screen and play whatever is on the phone. Then all internet connected TV innovation can happen in software instead of hardware.

This begs the question for me how the "Internet of things" will play out. What are the "things" that the Internet will connect to. Will they be smart cameras, thermostats, and doorbells or will all of those things run on our phones in time? And how will that be made possible?

This also makes me wonder about the health care diagnostic sector. Will I be able to take my blood pressure, blood chemistry, xray, cat scan, MRI, on my phone? Those last ones are kind of crazy, I know, but I am just aksing the question to make a point. Will healthcare diagnostics go the way of the compass, the flashlight, and the game console?

I don't know the answers to these questions I am asking. But it sure does seem that entrepreneurs are finding ways to do things with software and a smartphone that used to require dedicated hardware at a rapid pace these days. I think this is a trend to pay attention to. And it may, over time, make investing in hardare based business less necessary. Which would be a good thing from my perspective.

#mobile#VC & Technology

Video Of The Week: Ben Milne on TWIST

I found this video in my YouTube suggested video feed. It's a Jason Calacanis interview of Ben Milne, the founder of our portfolio company Dwolla. It's a good discussion of why the credit card system is very expensive and why we need something better. Dwolla is trying to create something better.

#hacking finance

Fun Feature Friday: Embeddable Media In The Comments

I got wind of this yesterday in the comments to my SoundCloud post. You can now put a link to media that is embeddable (tweet, image, video, audio, etc) and Disqus will attach the media to the comment. Jim leaked the news in this comment.

So we are going to have some fun with this new feature in the comments. Leave a comment that includes a link to embeddable media and let's see what happens.

I will get us started with some music from David Bowie and James Murphy that I found on SoundCloud this morning. But you are going to have to go into the comments to hear it.


Five Years Of SoundCloud

Our portfolio company SoundCloud turned five years old yesterday. To celebrate they posted this 6 minute clip where 5 soundclouders tell their stories. What I like so much about this is that each of the 5 soundclouders have very different talents, very different use cases, and very different stories. Happy Birthday SoundCloud


Mobile Is Eating The World (continued)

This isn't the first post I've written with this headline. That was here. But both of the posts are about slide decks I saw.

I was looking at Henry Blodget's Future of Digital 2013 deck this morning and saw this slide in it:

Mobile growing

TV is hanging in there admirably. It seems to be weathering the mobile onslaught even better than the desktop web. But the mobile monster is eating everything. The jump from 2012 to 2013 should be terrifying to anyone who has a business based anywhere but mobile. That includes me. Wow.


My Avatar

My friend Howard is in town and he's going to come by my office today to see me. It got me thinking about the good old days at Wallstrip and all the fun we had. And how that led to the avatar I use here and everywhere else on the web. So I am reposting the story of my avatar which I initially told here four or five years ago.


Orginally posted on Nov 29th, 2009:

 I saw this tweet when I got up this morning:

hey @fredwilson – whats the story behind ur avatar?

While longtime readers know it, I figure many of you don't. So here it goes.

Starting about four years ago, Howard Lindzon started commenting actively on this blog. He was funny, he was smart, and I enjoyed our banter in the comments.

One march vacation, our family made a short stop in Phoenix, where Howard used to live. He emailed me and offered my son and me two tickets to the Suns game. We took him up on that and that's how we met for the first time.

It turned out Howard was hatching an idea for a web show for investors. Think Rocketboom meets Jim Cramer. I told him it was a good idea and encouraged him to do it. Howard would fire ideas at me and I would give him feedback on them.

Out of that came Wallstrip. Here's a post I wrote a little over three years ago announcing the launch of Wallstrip.

One of the original ideas for the show that never really worked out was that there would be a dozen well known bloggers who would write short posts about each daily show. Howard asked me to do that and I agree to do it at least once a week.

So that's how the avatar came to be. Howard asked his friend Jenny Ignaszewski to draw up avatars for all dozen of the stock bloggers using photos of them that were available on the web. The first time I saw my avatar was when Wallstrip launched and there it was along with Howard's and a bunch of others.Fredwilson

From the minute I saw it, I liked it. It uses my favorite color (green) as the backdrop and the eye color (my eyes are sometimes blue and sometimes green and sometimes something else). It looks like me, but not too much.

So I began to use it a bit here and there around the web as I set up new profiles. But by no means was it the only profile picture I used. For corporate oriented services like LinkedIn, I'd use my Union Square Ventures headshot. For social nets like Facebook, I'd use a regular headshot. I used a photo of me taking a photo on Flickr for a long time.

But then I started to realize that the Wallstrip avatar was becoming my online identity. People would comment about it all the time. Around the time we sold Wallstrip, Howard asked Jenny to do a real painting of it which I now have in my office at Union Square Ventures. It's a real conversation starter.

Sometime in early 2008, I just decided to go with it everywhere. It's at the top of this blog and everywhere else I have an online identity. It's my online brand now.

Like this blog, this was not planned. It just happened. That's the way most of the important things in my life have come to be.


Loss Ratios In Early Stage VC

When I was early in my career, I casually mentioned to an older VC that I had yet to lose money on an investment. He replied "that's not good, you aren't taking enough risk." I have gone on to lose a lot of money over the years. And made a fair bit too.

So one of the things I like to look at when I look at our funds and other VC funds that I am an investor in are loss ratios. You can calculate loss ratios by "names" meaning how many investments ended up being worth zero. Or you can calculate loss ratios by "dollars" meaning how much of the capital invested in the fund went into total losses. Ideally your names loss ratio will be a lot higher than your dollars loss ratio.

Our first fund, USV 2004, has an "names" loss ratio of about 40%. That means 40% of the investments we made are going to be end up being worthless or near worthless. That fund will be the best venture fund I have ever worked on. So loss ratios are not really indicative of performance of a fund. That comes from the winners and how big they are.

I just looked at the financial reports for a seed fund I have an investment in. It has a 42% "names" loss ratio three and a half years in. That sounds about right to me. I feel good about that fund. If it had a lower "names" loss ratio, I might not feel as good about it.

I am not suggesting that a high loss ratio is indicative of good performance. It is not. But it is indicative of risk taking, and importantly, taking your lumps and moving on. The worst thing you can do in early stage VC is stick with your bad investments for too long and for too much money. If the "dollars" loss ratio is higher than the "names" loss ratio, that can well be an indicator sticking with your losers too long and that can be an indicator of poor performance.

The point of all of this is losing money comes with the territory in early stage VC. It is not something to be ashamed of. But it is something you need to be doing as quickly as you can.

#VC & Technology