Posts from January 2014

Tyrone sent this video to me and I started watching it this morning on Chromecast in my family room. I don’t think I’ve seen Chris and Marc do anything together publicly. Since they are two of the smartest people I know, and since they work together now, it’s pretty neat to see them riff off each other. And Eric Ries is no slouch either. The entire video is about 45 minutes. I’m a third of the way through it and thoroughly enjoying it.

For those of you who have made a habit of visiting usv.com regularly to see what the usv community is reading and discussing, we now have a way of getting that via email.

Here is how

1. go to usv.com
2. on the upper right, click “Log in with Twitter”. If you don’t see that option you are already logged in and can go on to the next step.
3. once you are logged in, click “Settings” in more or less the same place on the page
4. under Settings, make sure we have your correct email addres, then look for Daily Email and check that box
5. hit Update

You will now get a daily email with the top stories/links on usv.com.

On that settings page, you can also make sure we have you properly auth’d with Disqus.

You will also notice tabs on that page to see all the links you have shared, the bumps you have handed out, and the places you have been mentioned by others on the site.

In a double sided marketplace, of which we have many in our portfolio, it is always tricky to figure out who your customer is. Many marketplaces punt on this question and answer with “both”.

I think it’s hard to run a business with two different customers. It can be done but it is hard.

Yesterday, Kickstarter published some year end stats in a beautiful presentation. I would encourage all of you to take a quick spin through them. It will take you between 10 seconds and a few minutes depending if you watch the videos.

Even though Kickstarter served over 3mm project backers last year, they have never been confused who their customer is. Their mission is is “to help bring creative projects to life” (from their about page).

So Kickstarter focuses on the creative project and the project creator. And by doing that, they end up serving millions of people a year who come to Kickstarter to back a project, or two (between 25% and 30% backed more than one project in 2013), or a hundred (almost 1000 people did that in 2013).

So if you can figure out who your customer is and if you focus on them and their needs and serve them well, you can build a large two sided marketplace that can grow and sustain itself. Kickstarter is a great example of how to do that.

I remember a time when I was growing up when many of the savings banks and insurance companies were mutual companies. A mutual company is one where the customers own the company, more or less. It seems like the concept lost favor and many of these banks and insurance mutual companies were “demutualized” in the 80s and 90s. I don’t really profess to understand all the reasons and history behind mutualization and demutualization. I suspect some of you may know a lot more than me about this stuff.

I started thinking about mutual companies after reading Joe Nocera’s column in the New York Times which was based on his read of Jaron Lanier’s “Who Owns the Future?”

Joe asks in the title “Will Digital Networks Ruin Us?” and here is the money quote:

the value of these new companies comes from us. “Instagram isn’t worth a billion dollars just because those 13 employees are extraordinary,” he writes. “Instead, its value comes from the millions of users who contribute to the network without being paid for it.” He adds, “Networks need a great number of people to participate in them to generate significant value. But when they have them, only a small number of people get paid. This has the net effect of centralizing wealth and limiting overall economic growth.” Thus, in Lanier’s view, is income inequality also partly a consequence of the digital economy.

At USV we invest in digital networks, so this is a fundamental question that we think about a lot. We would not want to be investing in something that “will ruin us” and we don’t think we are investing in something ruinous. But we do talk about this issue all the time.

I will come back to the mutual company thing in a bit, but first I want to say that Joe and Jaron are leaving out the notion of consumer surplus in their analysis. The newspaper costs money. Twitter is free. In a world where “we” create the newspaper instead of the NY Times Company creating it, the newspaper can and will be free. That is happening all over the place, because of the efficiency of digital networks, and the result is a large amout of consumer surplus that is landing in all of our laps.

But maybe that is not enough. Maybe the creators of these networks ought to mutualize so that their users, who are creating the value, can participate in the upside. We have not seen anyone do this to date. We have talked to a number of startups and networks about the idea. We have not seen any takers yet. But we will continue to have the conversation because this is worth trying and seeing how it would turn out. The result could be a much more sustainable and lasting network. Something for everyone to think about this morning.

UPDATE: My partner Brad wrote a long and thoughtful comment on usv.com about Joe’s column. You can read it here.

I just finished filling out a sixteen page questionnaire for an investment the Gotham Gal and I are making. I fill out this identical form about once or twice a month for various investments we make. Each time I get the form, I find a version I filled out previously in my archived email and copy the answers line by line. It’s complicated and I want to make sure I answer the questions correctly.

This form is created by lawyers to make sure that we are qualified and/or accredited investors. They also use this form to verify our tax and regulatory and compliance status. If you make an investment in a venture fund, a hedge fund, a private equity fund or a private placement, you will probably fill out a similar or indentical form.

Here’s the thing. I am literally answering the exact same questions again and again. I take great pains to make sure I answer them the same way each time. And it is a chore. I hate doing it.

Though the size of the accredited/qualified investor market may be small, I really don’t understand why there isn’t a web service where I can go, fill this form out once, and then certify that the answers are correct, and then simply auth with this service each time we make an additional investment.

If such a service exists, please point me to it and I will recommend it to the lawyers who handle these sorts of transactions.

USV requires our investors to fill out these same forms. When we close our next fund, we are going to hack together a web based system in partnership with our portfolio company CircleUp. But this isn’t really CircleUp’s business and they are doing this as a favor to us and our investors.

What we really need is a third party to offer this service to all accredited and qualified investors and we need the market to adopt it. It would make me and many others very happy to stop filling out these forms.

I took the past two weeks off. I turned on my out of office notification, checked email less, stayed on top of things but reacted to less, did zero meetings, did fewer calls, and didn’t go to the office at all. I slept eight hours most nights and a bit longer on a few. It was great. I’m relaxed and rested.

To celebrate the new year, going back to work, and to put an exclamation point on the rested and relaxed thing, I am going to archive all email in my inbox. If you sent me something and did not get a reply, please send it again if it is still important.

My oldest daughter asked me yesterday if I was excited to go back to work, expecting a resounding yes. I told her I was going to miss vacation. I’ve read a few books and I have a bunch more I want to read that I probably won’t get to until my next time off. I’ve been enjoying rolling over and going back to sleep at 5am/6am even 7am. I’ve been very happy working in my home office with a nice view, the music cranked, and no time pressure.

So I’ve got mixed feelings about going back to the grind. A lot less than my son who starts school again today, but a few nonetheless. Like all things, the VC business has its good and bad. The good is working with incredible partners and entrepreneurs and getting to see the future imagined every day. The bad is the firehose of hopes and dreams that comes at you relentlessly every day which results in a crazy schedule, time pressures all around, and never enough time to think and breathe.

Maybe I will figure out how to manage it better this year. Maybe that can be my new year’s resolution. But I’ve been trying and failing for over twenty five years. Hopes and dreams are a hard thing to resist. And that’s a good thing.

During my year end vacation, I read a few books and saw some films. The two I want to talk about today are Dave Eggers’ The Circle and Spike Jonze’s Her. I am a fan of both artists and have consumed most of their prior work.

Though they are very different works, both take us on a trip to the near future and show us what our lives may be like. And, though I am more than a little bit involved in the industry that is taking us to that place, I came away from both disturbed and a tad bit agitated.

Banksy says that “art should comfort the disturbed and disturb the comfortable” And in that context both the Circle and Her are great art. If you are disturbed by the ever increasing role of technology in our lives, both works will comfort you. For me, they shook me out of my comfort zone and made me wonder whether all the things I believe in and advocate for are going to work out so well.

In The Circle, a young woman named Mae goes to work for the top tech company in silicon valley which is called The Circle. Eggers creates a company that to my mind is mostly Google with a fair bit of Facebook thrown in. Anyone who has spent any time in Silicon Valley will instantly recognize this company and all the great things about it. But the way Eggers tells the story, the dark side of The Circle is revealed slowly and surely. I don’t want to ruin the story for anyone who is reading it or will read it but I will say that the idea of radical transparency, something that I have advocated for many times on this blog, is taken to an extreme that even I would not be comfortable with.

I kind of hated The Circle. Many times I wanted to put it down. My wife and daughter urged me to finish it. Though I really like Eggers and his writing, I absolutely hated Mae and her story. It made a mockery of an industry that I love. And it made me uncomfortable loving it.

Her is about a man named Theodore who is depressed coming out of a recent divorce. He mopes around all day. He installs a new OS that is “personalized” and all of sudden he is in a relationship with Samantha who is a lot like Siri, his very own personalized operating system. Again, I am not going to describe much more than that in case you want to see it. The thing that made me literally squirm in my seat was the idea that a real person could have such an intimate relationship with a machine. I was completely uncomfortable the entire two hours.

However, I loved Her. It did not mock, but it sure did question. And all I wanted to do coming out of the movie was think about it and talk about it.

I know a lot of people in tech who are excited about the coming of the Singularity. I am not one of them. While I love machines and artificial intelligence/machine learning and all that it can do for us, I love humans and humanity a lot more.

These two works of art are, to my mind, about that human vs machines question and are an attempt to ask society if its happy with the place we are going to and getting there fast. If you work in tech, you should watch Her and read The Circle. Those of us who are building this future ought to subject ourself to this kind of art most of all.

Kevin Marshall sent me a link to this talk that Luke Wroblewski did at Google last year.

I watched it on my family room TV via Chromecast yesterday and was taken with a bunch of the big points he makes in it. It does get a little long in the tooth in the last thirty minutes but the first thirty to forty minutes are great.

Brad Feld told the story of his first VC investment (after making 40 angel investments) on his blog yesterday.

The Gotham Gal told the story of her first angel investment on her blog today.

I was involved in both stories and both investments worked out well. Yoyodyne sold to Yahoo! and Curbed sold to Vox Media, both for similar amounts interestingly enough.

My first venture investment didn't work out so well. It was in a company called Software Developers Company (SDC) which if my memory is working may have been a thinly traded public company. SDC was in the business of distributing programming tools for PC software and wanted to move up market into owning software development tools. They had negotiated a deal to purchase an editor called BRIEF and a version control package whose name escapes me (might have been VCS?) for something like $2.5mm. But they didn't have the cash.

So I negotiated a deal to invest the funds into the company for a revenue share on the sale of both products plus a warrant to buy stock in SDC.

SDC ran into financial difficulties and although the sales of BRIEF and the version control software product were doing fine, they could not make the royalty payments. So we were faced with a quandry, take back the products, which we could do by contract, or restructure the deal. I recall that we restructured the deal, insisted that new management be brought into run SDC, and I think we eventually got most or all of our money back.

That deal taught me a few big lessons. The first is to avoid complicated deals. It seemed like such a smart deal structure but it really wasn't. The second is to avoid fast talking salesy entrepreneurs who don't know how to operate a business. That more or less described the entrepreneur who was running SDC when we did the initial deal.

I worked the SDC deal as a team with Milton Pappas, who was one of two founders of the VC firm (Euclid Partners) where I started my career. Milton did a lot of the heavy lifting on the management change and I learned a lot from him on that deal and many others. There really is no substitute for learning the VC business from older more experienced partners and I am blessed to have been able to do that for a decade at the start of my career.