Posts from March 2014

Decentralized Identity

In my LeWeb talk, I mentioned decentralized identity as one of the three big things I am looking for in the coming years. I think a protocol based approach is what is needed and the idea that Google, Facebook, Twitter, LinkedIn, or some other big tech company is going to control the database of all of our identities is a nutty idea in my mind.

We’ve been looking at a lot of things and to date, the namecoin protocol seems to show the most promise. Yesterday my partner Albert wrote a post explaining how someone could build this distributed identity layer on top of namecoin and pointed to two services, NamecoinID and OneName, that are attempting to do just that.

I have just started playing around with these two services and don’t yet have much of an opinion on them. But I did set up a onename profile at onename.io/fredwilson. You can send me bitcoin there if you’d like 🙂

This sort of thing has been tried in the past. OpenID comes to mind. They have all been too wonky and none got mainstream adoption. At this point, Namecoin, NamecoinID, and OneName are also wonky. But I am hopeful that something will emerge, most likely using the distributed autonomous organization funding model that I talked about yesterday, that will lead to an open global distributed identity system that everyone and anyone can use. If such a thing were to emerge, it would be transformative in many ways.

#entrepreneurship

Unregulated Crowdfunding

Two years ago Congress passed the JOBS Act, promising to help small businesses and startups more easily raise capital by loosening various Securities and Exchange Commission (SEC) regulations. Two years later, it’s as hard as ever to raise equity capital and if you aren’t rich (accredited or qualified investor status), you can’t legally participate in the world of startup investing. The reason for this is that the SEC implemented the JOBS Act the way they wanted to, and in the process hamstrung its use.

As one might suspect, the world of technology is likely to solve this problem on its own. As Naval writes in this excellent post, the innovations behind the Bitcoin protocol and architecture are spilling out into the world of open source and crowdfunding. We have seen a number of exciting projects lately that are loosely organized collections of software developers building new approaches to distributed e-commerce, identity, legal contracts, and a host of other interesting and vexing problems using this method to fund their “startup” (cut and pasted from Naval’s post):

  • Write software to power a completely distributed network in which any node can participate anonymously.
  • Allocate scarce resources in the network using a scarce token – an Appcoin. Users need this Appcoin to use the network. Owners of scarce resources get paid in Appcoins.
  • Pre-mine or early-mine Appcoins and keep some non-threatening amount. These are shares of your company, equity that will appreciate in value if the network is adopted.
  • Give network operators the ability to collect new Appcoins in proportion to their contribution. Route a small fraction of each transaction output to the developer foundation (Mastercoin does this). Theserevenues are used to pay for operations, and bounties for ongoing development.
  • As network usage increases, so does equity value and revenue.
  • Anyone can buy Appcoins, anywhere, anytime, anonymously. Ship your code, ring the IPO bell.

We’ve been asking ourselves at USV if we should be purchasing coins in some of these “genesis block sales” instead of our normal appetite for Series Seed and Series A shares. I think the answer is ultimately yes, but we are most certainly entering into unknown territory in the process.

My partner Albert has been predicting that there will be no distinction between the public and private markets in a decade. He may have been off by eight or nine years in that prediction. It feels like its coming soon and coming fast. And that is exciting to me. Anything that creates more innovation and more entrepreneurs is a good thing for VC, for society, and for me.

#entrepreneurship#VC & Technology

Changing Clocks

I was in an elementary school in Brooklyn the other day and the clocks in the halls were an hour off. It was really bothersome to me. Maybe that school does not observe daylight savings time, but more likely the janitor or whomever is responsible for changing the clocks could not be bothered. Of course, the clocks in that school are now set correctly.

I’m a bit OCD about changing the clocks in our house and our cars. I hate it when a clock is set to the wrong time. And, each and every clock has its own system for changing the time. The clock in our double hung oven in our kitchen has a particularly complicated system. I had to find the manual on the Internet and look up the technique this morning after The Gotham Gal and I spent a few minutes hitting all sorts of combinations of buttons and got nowhere.

And then there are the cars. Whomever teaches people how to design user interfaces for car dashboards must have a perverse sense of humor. Each and every car has a different system for changing the clock time and each one is more clunky than the next.

But I go through all these machinations every six months because I can’t stand having clocks with the wrong times on them. Thankfully more and more of the clocks in my life are connected to the Internet and update automatically. I wish the clocks in our cars, on our ovens, and in our elementary schools would do the same.

#Uncategorized

Feature Friday: fredwilson.fm

So this is not really a feature. It’s a relaunch. But I figured I’d use this regular friday column to announce the relaunch of fredwilson.fm. I posted a few weeks ago that this was coming. And it has been live for about a week now.

Anyone can create a yourname.fm website. Here’s how:

1) get yourname.fm from your favorite domain registrar. I use Hover to store and manage all my domains but they don’t sell .fm domains. You can purchase .fm domains at GoDaddy.

2) set up a tumblr with that custom domain.

3) create a soundcloud account and start liking tracks to create a liked feed. Here is mine.

4) go to your soundcloud profile page, click on the share button, then the embed tab, and copy the embed code

5) make two edits to the embed code as shown below in red, then paste the code into your tumblr.

<iframe src="https://w.soundcloud.com/player/?url=https%3A//api.soundcloud.com/users/xxxxx/favorites&amp;auto_play=false&amp;hide_related=false&amp;visual=true&amp;auto_play=true" height="450" width="100%" frameborder="no" scrolling="no"></iframe>

So that’s all there is to it. I love having a private radio station. You might too.

While we are talking features, the one feature I would love to have added to this SoundCloud embed is a shuffle feature. Nothing better than shuffling through your favorite songs instead of listening in reverse chronological order.

#My Music

Embedding Getty Images

A few years ago the senior team at Getty Images asked me to attend a strategy session they were having. I came and talked about open platforms and how they create more reach, engagement, and ultimately value. They thanked me and asked me if there was an image in their library that I wanted a print of. I chose this image of Roy Hibbert and Steph Curry when they played against each other in the NCAA Midwest Finals in 2008.

roy steph

As an aside, the CEO of Getty, Jonathan Klein, who is a friend of mine, asked me “are you sure that’s the photo you want?” He mentioned that there are photos of Presidents, Generals, Movie Stars, and many major historical moments in their library. I told him I was sure. He got the photo signed by Roy and it hangs in my son’s bedroom. We love Roy and Steph. It’s a shared thing we have between us. This print remains my favorite gift I’ve ever gotten for a speaking gig.

Note that this photo is watermarked. I did a screenshot of the photo from Getty’s website. That’s what bloggers do when they want to showcase a photo they find on the web. But it is not what is ideal. What is ideal is to get some embed code from the website and post it legally and cleanly.

Well Getty Images has made exactly such a thing available for many of the photos in their library. Sadly not that one of Roy and Steph, yet.

But this one, from the same game, is now available for embedding.

All I did was find the image, click on the embed icon, grab the code, and place it here. Easy, simple, awesome.

Getty has done a big and important thing here. They have opened up their platform. This will lead to reach, engagement, and, I believe, more value for them in the future. Well done Getty.

#Photo of the Day#Weblogs

Hangouts and SMS

This post will be meaningless to all of you on iOS. But for those of us on Android, read on.

At some point last fall I was prompted to and agreed to make the Hangouts app the default SMS app on my phone. That replaced the default Android SMS app which then also somehow disappeared from my phone, probably in some Android OS update.

From day one of using Hangouts as my default SMS app on Android, I have been unhappy. Hangouts is a slow and clunky mobile app. That’s the antithesis of what an SMS app should be. Its unclear how to do all sorts of things in Hangouts like find a contact and send a message. And I’m always finding myself being pushed to do a Hangout when all I want to do is send a text.

In general, mobile apps should not try to do multiple things. Less is more on mobile. Google made a big mistake trying to merge two fairly different and important features into a single app.

But the biggest problem is the load time on launch. It often takes a minute or more to launch the Hangouts app on my phone. Maybe there is something wrong with my phone (memory, storage?) but I know I am not the only one with this problem so I think the Hangouts app is a problem for many.

This morning I finally hit the tipping point. I was in a cab to LaGuardia and I saw that my daughter had sent me a text last night. I clicked on the notification and waited and waited and waited to see her message. In the midtown tunnel, I went to the play store, searched for SMS apps, picked Chomp, downloaded and installed it, and then made Chomp my default SMS app in settings.

I think its possible that I did all of that faster than Hangouts could show me my daughter’s text. But once Chomp was installed and set as default, I was shown her text instantly.

The Chomp experience is so much better than Hangouts that I quickly sent out an email to a few friends who are on Android and have told me about their frustration with Hangouts. And after flying to Boston and finding a comfortable coffee shop, I am now telling all of you.

If you are using Hangouts as your default SMS app and aren’t happy, take a few seconds to download a free alternative. Chomp is great but I am sure there are others that are also great. I promise you that you will be happier. I certainly am.

#mobile

The Pro-Rata Participation Right

I’ve touched on this subject before. It is one the “three things you must have in a venture investment“.

The “pro-rata right” is the right to continue to participate in future rounds so that you can maintain your ownership. Let’s make it concrete with an example. You invest $50k in a seed round at a $5mm cap and own 1% of the company. The next round is a $3mm round at $9mm pre, $12mm post. If you don’t participate, you will be diluted 25% and will then own 0.75% of the company. On the other hand, if you buy 1% of the round, a $30k investment, you will continue to own 1% of the company. Your “pro-rata right” in this situation is a $30k allocation in the next round.

I think this is the single most important term anyone can negotiate for in a venture capital investment. The other two in the post I linked to above are the liquidation preference, which helps on the downside but not the upside, and the right to a board seat, which is important to some investors (USV is one of them) but not to all of them. The pro-rata right helps on the upside, which is where you make all of your money in venture deals, and should be important to all investors.

The pro-rata right is something that is not typically offered in a note with cap structure in seed deals. When The Gotham Gal started investing in these kind of deals we had a long talk about it. I was negative on notes and she was positive on them. She convinced me that notes with reasonable caps are OK, but I convinced her to negotiate for a pro-rata right. She gets that on all of her deals because she walks without it. And that is just one of the many reasons I love The Gotham Gal.

I was discussing a Series A round with some founders yesterday. We talked about what they should do with their seed investors. I encouraged them to offer the seed investors the right to participate in the round. I don’t know if their seed investors have the right or not. But regardless, I feel that the founders owe it to them because their seed investors were there for them before anyone else. It just feels like the right thing to do to me.

The meta point I have come to understand about early stage investing is that a small portion of your investments produce all of the returns. In those investments, you want to own as much as you can. It’s hard to own more than your initial stake, particularly as an angel investor. But it should not be hard to maintain your initial stake. You should reserve funds to do this, you should negotiate for a pro-rata right, and you should exercise your pro-rata right when you feel like the investment is doing well.

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43North - A $5mm Business Plan Competition

The folks in Buffalo NY are serious. Last year I went up to Buffalo to visit a new business incubator and was impressed by the entrepreneurial talent and community engagement I saw. But they aren’t stopping there.

They have launched 43North, which is the largest (in terms of prizes) business plan competition in history. Here are the details:

With $5 million in cash prizes, including a top award of $1 million, six $500,000 awards and four $250,000 awards, 43North is setting out to turn the best new business ideas from around the globe into reality.

Winners also receive free incubator space for a year, guidance from mentors related to their field and access to other exciting incentive programs.

43North is open to applicants in any industry, with the exception of retail and hospitality, and winners agree to operate their business in the Buffalo, New York for a minimum of one year.

The competition includes three rounds of judging:
1.  Feb 5, 2014 to May 31, 2014: 43North accepts applications via 43North.org – apply here.
2.  Sept 15, 2014 to Sept 20, 2014: Semifinalists present their plans via webinar
3.  Oct 27, 2014 to Oct 31, 2014: Finalists present their plans during a weeklong series of events in Buffalo, NY

This ambitious initiative is part of New York State Governor Andrew Cuomo’s historic pledge of $1 billion in state funding to ignite economic growth in the Buffalo, New York region.

I know the people behind this effort, Jordan Levy and Ron Schreiber. They are serial entrepreneurs and venture capitalist and are the real deal. The mentorship and coaching part of this program will be as important as the money. But getting $1mm for free to start your business isn’t a bad deal either.

If you want more information, the FAQ is here. If you want to apply, go here.

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The Berkshire Hathaway Annual Report Letter

On Friday, Berkshire Hathaway published their annual report. I always like to read the shareholder letter that fronts the report. It is available here.

The Gotham Gal and I are not, and have never been, shareholders of Berkshire Hathaway. I guess that is a mistake but we’ve done alright anyway. You don’t have to be a shareholder of Berkshire Hathaway to benefit financially from the brilliance of their managers, Warren Buffet and Charlie Munger. I look up to both of them and have internalized as much of their thinking as I can. Reading the annual shareholder letters is a good way to get inside their heads.

In this year’s letter Warren tells the story of two real estate purchases he made in 1986 and 1993. One is a Nebraska farm and one is piece of NYC real estate in Greenwich Village. Here’s how he ends each story.

The Farm – I still know nothing about farming and recently made just my second visit to the farm.

The NYC Real Estate – I’ve yet to view the property.

But in each case, he went through an analysis of the earning power of the asset, concluded that it was much higher than current performance, and further concluded that it would yield an acceptable return on the purchase price on current performance.

Here is what Warren says about those two investments and the “fundamentals of investing”:

  • You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”
  • Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake.
  • If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it.
  • With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.
  • Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth.”)
  • My two purchases were made in 1986 and 1993. What the economy, interest rates, or the stock market might do in the years immediately following – 1987 and 1994 – was of no importance to me in making those investments. I can’t remember what the headlines or pundits were saying at the time. Whatever the chatter, corn would keep growing in Nebraska and students would flock to NYU.

I don’t agree with all of those points, particularly the argument against macro thinking. I use macro thinking to find assets that will perform well in the future and avoid assets that will underperform in the future. But the basic idea that what matters most is the asking price of the asset and its future earnings power is something that I totally and completely believe in and I’ve learned that over and over and over from reading these letters over the years.

The Berkshire Hathaway Annual Report Letter is a gift to investors and if you are one, I would encourage you to read them. You can start with this year’s version.

 

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