Posts from May 2014

Our portfolio company DuckDuckGo launched a new version yesterday. Gabe wrote a short post explaining what’s new.

DuckDuckGo is on a tear and tripled direct searches in the past year.

There are a number of reasons why more and more people turn to DuckDuckGo to do their searches. First and foremost, it’s DDG’s privacy promise:

We don’t collect or share personal information.

But it also the fact that DDG is getting better and better every day. Through DuckDuckHack, anyone can make DDG better. And it is a lot better these days.

I have used DDG as my default search engine on all of my desktop browsers since before we made our investment in the fall of 2011. I would love to do the same on my mobile browsers but cannot do that yet. I used to use the !g extension on DDG searches to route them to Google at least 33% of the time. I find that I am doing that less than 20% of the time now. It may not be possible to do search better than google, but if DDG can do private search almost as good as Google, I think that will turn into a very significant business in time. It already is looking like that’s the case.

Yesterday, on stage at an event hosted by our portfolio company Disqus, it was suggested that I was “trolling Apple” with the comments I made at TechCrunch Disrupt. I explained that I was not trolling anyone and that I attempted to honestly answer a question about the changes afoot in technology. I think there is a fundamental and important distinction between a device focused strategy and a cloud focused strategy.

Carlos Kirjner is an analyst at AB Bernstein who covers Internet companies. I was reading his analysis of Larry Page’s letter to shareholders this morning (the analysis is not a public document and I cannot link to it).

In Carlos’ analysis, he wrote this:

We believe … Larry Page’s discussion about the new mobile, multi-screen world …. is really about the importance of cloud services in that world. This is by no means a trivial statement and we believe goes against a more device centric model favoured, we believe, by Apple.

Many interpreted my comments as anti-Apple and pro-Google and I guess they were. But I was attempting to make a larger point. Which is that a device centric strategy is not a winning strategy in my mind. The big gains from technology in the coming years will come from things like machine learning and collective intelligence. Hardware and operating systems are important but to some extent a commodity at this stage of the game in mobile. Yes, we will see more sensors, better screens, better battery life, and more and more technology packed into these mobile devices. But I don’t think any one company has a lock on all of the device level innovation and I worry that one company, Google, is developing a very large and sustainable advantage in machine learning and collective intelligence that will be hard for anyone to compete with.

So when I look at which top technology company is best positioned for the next decade as I see it unfolding, well that’s an easy answer in my mind and that’s the answer I gave.

Our portfolio company Coinbase is offering $10 worth of Bitcoin for every college student who opens up a Coinbase account using an email address with a .edu domain on it.

In the blog post announcing this giveaway, Coinbase says:

We believe that getting more young scholars thinking about and transacting in bitcoin will help spur the growth of the ecosystem and contribute to the ever-increasing creative ways bitcoin is being used to make the world a better place.

The big state schools were dominating the early results. This chart was published almost a week ago now:

I know that a lot of college students read AVC. So if you are one of them, go to Coinbase, sign up with your college email address, and get $10 of free bitcoin.

I touched on the concept of App Constellations in my post on Friday about Swarm. I’ve been thinking about this concept for the past week and I think its an important development in the world of non-game native mobile applications.

If you made a list of all the non-game mobile apps that have more than 10mm MAUs, it would be a pretty short list. It probably would not look much different than the top 100 or 150 free apps in the iOS and Android app stores without all the games. In a leaderboard driven world, the big get bigger and everyone else goes home. We’ve discussed this phenomenon many times on AVC, most recently here.

Early last week my colleague Brian showed me the home screen of his iPhone.

He pointed out to me that he had three Dropbox apps on his home screen – Dropbox, Mailbox, and Loom. He said he could imagine a world in which his entire home screen was populated by apps from a few of the top companies.

So that got me thinking. Not only do we have a rich get richer dynamic in mobile apps, but we also are witnessing a maturing market consolidating. The big mobile app companies, Google, Facebook, Dropbox, Twitter, Yahoo!, and most recently, if you believe the rumors, Apple, are acquiring the leading mobile apps, further concentrating the list of companies that have apps on the leaderboards and apps on our home screens.

But if that was not enough, two additional trends are worth noting in these emerging app constellations. Many of these app constellations offer a single login across all of their apps and if you are logged into one of their apps on your phone, you are logged into all of their apps on your phone. This is particularly helpful when downloading a new app that is part of a larger constellation. It is also helpful for CRM and ad targeting.

And we are seeing increased use of deep linking app to app among the apps in the same constellation. It is increasingly possible to do deep linking app to app between apps that are not part of a single constellation. Facebook and Twitter are making it easier for third party developers to take advantage of deep links in their apps to do this. But when you control a constellation of apps, it is much easier to make deep linking from app to app a standard across all of your apps. This is a very big deal because it creates a web like experience on mobile and the fluidity of that experience is very engaging, further drawing users in.

These app constellations are possibly the only sustainable answer to solving the distribution conundrum in mobile – how do I get around the app store leaderboard traffic jam? If you own a leading constellation, you can use your apps and your relationship with the users of those apps to promote and distribute new apps that you either build or buy. This promotion is “in situ” right on the mobile phone where the consumer’s attention is increasingly placed. I see this as yet another “rich get richer” dynamic in the mobile ecosystem.

It is interesting to contrast all of this to what happened in the last downloadable software phase in tech – PCs and PC Software. In that world, Microsoft’s Windows OS became totally dominant and led to a dominant application monopoly (Outlook, Excel, Word, Powerpoint, etc). In native mobile, we have a duopoly with iOS and Android and what looks like at least six App Constellations (Google, Apple, Facebook, Twitter, Yahoo!, Dropbox). There may be some other important constellations emerging. I would love some suggestions of other ones in the comments (Foursquare?).

Here’s my home screen. Other than my total and complete capitulation to Google, my phone isn’t yet a collection of app constellations – other than the USV constellation 🙂

But I think it is likely headed there along with all of your phones.

A couple weeks ago, I sat down with Mike Arrington to kick off TechCrunch Disrupt NYC. Everyone reacted to my comments about Apple, which were simply a reaction to a question posted by Arrington. I’m not backing away from those comments, but I was a bit taken aback by the vitriol that came at me in the days after this talk.

We covered some interesting territory, including privacy, valuations, and the NYC tech scene. It’s about 20mins long but you will have to wade through the opening ceremonies (3-4 mins) to get to our talk.

For the past three months, I have been checking in to locations with a different app than Foursquare. Yesterday, that app launched publicly. It is called Swarm and it’s pretty awesome.

Swarm is all about checking in and knowing where your friends are. This is the thing I love most about Foursquare. But it turns out that many people don’t want to do this. So Foursquare is removing this feature and all the stuff around it from the Foursquare app and has put it into a new app.

As Foursquare becomes more about search and discovering places, the checkin features got buried deeper and deeper in that app. It became harder to checkin and the value from checking in was less front and center.

Swarm changes all of that. Checking in and following friends around the city and around the world is the sole purpose of the Swarm app.

Swarm is fast, Swarm is simple, Swarm is smart. If you are like me and love to checkin and share where you are with your friends, check it out.

Swarm and Foursquare also represents a new trend in mobile apps. I have been calling this trend App Constellations. Facebook now has a collection of mobile apps that share a single login and have app to app linking built in. Google has a collection of mobile apps that share a single login and have app to app linking built in. Twitter seems headed in this direction with Vine. And Dropbox also seems headed in this direction too. Now we can add Foursquare to this group.

Putting a ton of functionality into a single app is not the right way to do it on mobile. Having a constellation of mobile apps that all work tightly with each other seems to be the better way. And the leading mobile app companies are all headed in that direction now. Pay attention to this trend.

Today is a big day for the Internet as we know it. The FCC will meet today to consider a proposed notice of rulemaking that could, if adopted, change some fundamental rules about how the last mile of the Internet works.

I’ve written about this issue a lot here at AVC, but if you are new to it, please read this post and this post. That should get you up to speed (no pun intended) on what is going on.

So I am participating in a virtual protest movement called #StopTheSlowLane today.

You probably got an annoying interstitial when you came to AVC this morning that made you wait and wait while AVC loaded.

I’m running the Slow Lane Widget via a WordPress plugin on AVC today and maybe for a few more days. If you would like to put the widget (javascript or WP plugin) on your site, you can get it here.

I’ve seen this widget at a few places around the Internet over the past 24 hours. I am hoping this spreads to other bloggers and ideally mainstream websites. If the mainstream Internet user can see what a slow lane really looks like, I think this issue will be clarified for everyone and the FCC will do the right thing. Which is to reclassify last mile Internet as a telecommunications service that is regulated under Title II. Last mile Internet is like water and electricity and should be regulated as such.

Last year, USV invested in Firebase. Albert wrote a blog post about Firebase back when we invested.

Yesterday Firebase announced a hosted version of their product so you don’t have to use it alongside S3 or some other host.

I wandered by Hacker News to see what the developer crowd thought about Firebase and the new hosting service and was pleasantly surprised to see one of the most positive threads on Hacker News that I have seen in a long time.

The top voted comment describes the power of Firebase really well:

I’ve been using Firebase for a couple of months now for an iOS app I’m building for a client, and it has been a fantastic experience.

For anyone who doesn’t know, it’s main selling point is that it automatically syncs with the server so you can focus on the data instead of the communication protocol or replication. Its nosql data store looks like a local filesystem, so you can save trees of data to it as JSON. It also has server-side rules written in javascript that enforce constraints on data and read/write permissions per user. They also have a free test account for developers.

“What about merge conflicts?” was my first question, but luckily it has transactions on an individual node (and its subtree) that perform an “optimistic-concurrency transactional update” which basically means a compare-and-swap where you review the current value in a callback and decide whether to try to commit that value (or a new value, say, for a counter) or give up. For most other writes, you’re usually just saving status updates where there is little or no danger of being rejected or encountering merge conflicts. If in doubt, it’s possible to get a callback with the final value.

So when it’s all said and done, I can totally see writing a full-featured app using it without a single line of server-side code. I used their hosting while it was in development to store images (like a CDN) and it’s very simple to use from the console, so if you have a build script, it could push to production with a single call. After an exhausting ordeal battling iCloud for a different project, Firebase is so profoundly better that I will never go back.

That’s the kind of unsolicited customer testimonial that most companies would die for. It’s a real tribute to the Firebase team that they have built something that developers love. We have been involved with a few companies that make products developers love (Stack, Twilio, Mongo for example) and these have all been fantastic investments for us. Looks like its time to add Firebase to that list.

Charlie O’Donnell, who was our first analyst at USV and who now runs his own VC fund, wrote a post yesterday outlining the economics of running a venture capital fund.

Charlie’s fund, Brooklyn Bridge Ventures, operates on the 2.5/20 model. That is 2.5% in annual management fees and 20% of the profits after the investors get their capital back.

That is the exact same set of economics the USV operates on.

There are many, probably most, of our peers in the VC business who charge a “premium carry” of 25% or 30%, but at USV we have never moved away from 20%. If you do your job well, 20% will make you a bundle.

Back at Flatiron, we increased our carry on a new fund just before the Internet blew up and caused massive losses in our fund and every other VC fund. That was one of the many reasons Flatiron didn’t work out so well in the end. And that taught me a big lesson. When you raise your compensation, you had better earn your increase. We did not. No more raising carry for me.

I am not going to go line by line on the USV income statement like Charlie did. But we manage $1bn across six funds which is roughly $160mm per fund. That is on the small side for our peers and probably slightly below average for an early stage venture fund. One of our funds will stop paying management fees this year because it is ten years old. And we have a couple more that are paying reduced management fees because they are no longer in their “investment period”. And our two Opportunity Funds pay nominal management fees and are mostly about carry for us.

So while we manage about 200x what Charlie does, we don’t make 200x the management fees. We probably make 50x the management fees that Brooklyn Bridge Ventures makes. We have twelve employees and our own office. The people who work at USV are well compensated for sure, but our goal is to make way more on carry than we make on cash compensation. That is the basic point Charlie made in his post and it is true for us as well.

The goal of VC fund economics is to incent the partners to focus on carry and not on current cash compensation. That means that we are focused on generating large gains on our investments and that aligns us well with the entrepreneurs we back and the investors who provide us with capital. That works incredibly well in a small fund like Charlie’s, and it works pretty well in a traditional fund size like USV’s. It can break down as the dollars under management get larger and larger and the management fees turn into huge numbers. We have purposely kept USV small to avoid that. And I think that has been a good decision for us.