Posts from May 2014

One of the many things that got my attention last week was the speech Kevin Durant gave accepting his MVP award. His remarks about his mom were very touching. He said “when something good happens to you, I tend to look back to what brought me here.” And, of course, at the top of the list of “what brought me here” is our mothers.

Like most of us, I have two Mothers in my life.

My Mother, Peg Wilson, who gave me birth and put up with all the crap that I dished out as a kid. I was a difficult child. I always wanted things my way and drove most of the people around me crazy. At the top of the list of people I drove crazy was my Mom.

The other Mother in my life is the Gotham Gal. Not only has she been an incredible mother to our three children, she took over from my Mom around the year we met and finished off the job of shaping who I am. The Gotham Gal is my harshest critic and always has been. There is nobody who can put me in my place quite like her. I don’t appreciate that in the moment, but I appreciate it after the fact.

I guess that is the ultimate thing about Moms. They shape who we are. They are demanding, loving, and giving. Thank god I have two mothers in my life. I love both of them very much.

My partner Albert gave a talk at DLD NYC last week that covered some interesting topics regarding the future of our economy and our society. It’s a short talk (only 12mins) and well worth watching.

I like to read the news on my Nexus 7 while sitting at the bar in our kitchen. The Gotham Gal sits next to me reading the paper. I like the juxtaposition of that.

I don’t like reading on the Nexus 7 when it is lying flat on the bar. I want it at an angle for easier reading.

So I purchased this tablet stand on Etsy recently.

It gets the job done, but it’s a bit flimsy. So I am looking for something a bit more substantial.

Does anyone use a tablet stand for reading on a Mac Mini or Nexus 7? And if so, what do you use? I am all ears.

I realize I’ve been writing a lot this week about the FCC’s decision next week on new rules for the last mile Internet here in the US. I promise I will return to the regularly scheduled programming soon. But this is a big issue and we need to keep up the pressure on the FCC to do the right thing here.

Today, about fifty leading VCs have signed onto a letter to the FCC asking them to keep the Internet free of fast lanes and slow lanes.

We are hoping that more angel investors and VCs will want to sign onto this letter today before we send it to the FCC tomorrow.

We pulled this together quickly over the past 24 hours, and weren’t able to directly reach as many VCs and other investors as we would have liked, so will gladly welcome additional signatories throughout the day today before we formally file this with the FCC tonight. Email nick [at] usv [dot] com if you’d like to join.

This debate is just picking up, and it will be critical for everyone who cares about innovation on the Internet to wrap their heads around this issue, and engage on it, as the FCC runs its rulemaking process through the summer and fall.

This week Nathaniel Granor, who runs the TEALS program in NYC, spoke at the NY Tech Meetup. If you are a software engineer and if you might be up for helping to teach CS in High Schools, please take two minutes to watch this.

If you want to learn more about participating in TEALS in NYC, you can do that here. But please take action quickly as the deadline to apply is this week.

A person we are working with on Net Neutrality policy wrote this email to me recently and I answered it as follows:

The Email Question:

Many people in D.C. understand that start-ups without significant outside funding won’t be able to pay those fees and won’t be competitive. However, most people think that if a company is able to get venture capital, then it can use the VC funds to pay these fees.

Fred’s post suggests that VCs won’t invest if they fear that the start-up will have to compete with established companies that can pay these fees. Can you help me understand what exactly the problem is? In other words, why can’t VCs simply pay for the access fees and thereby make the application competitive with established companies that can pay? Why would they choose not to invest instead?

My Reply:

the problem, in a nutshell, has to do with how much capital you have to invest upfront to find out if the product or service the startup has created is going to work as a business

on today’s internet, there are no gatekeepers to pay so you can put something on the web or in the app stores for almost nothing and then see if they can get to a million users or more

if they can do that, then you can invest the tens of millions you need to build a real business

this process of trial and error happens over and over again and is the essence of the internet and mobile startup and VC business

one of the reasons, for example, you see so few music startups is that those startups have to negotiate huge upfront payments to the music industry in order to even launch a service. no entrepreneur or investor would invest millions up front when the likelihood is 90% or greater that it will be a failure. so the entrepreneurs either launch without licenses and risk getting sued or they don’t even try

that is what will happen in high bandwidth content apps if this FCC rulemaking goes in the direction we fear it will go

Since its emergence as a commercial platform in the early 90s, the Internet has treated each bit equally as it makes its way over the “last mile” to your home or office. If you put up a web server and write a game that anyone could play, those bits will be treated equally with the bits coming from IBM’s web servers. There has been no fast lane or slow lane on the last mile of the commercial Internet. We have had a level playing field and that has resulted in an explosion of entrepreneurial innovation that has been very rewarding for entrepreneurs, investors, and society as a whole.

But that period of “permissionless innovation” is likely to come to an end soon if we all let it. The FCC has responded to a court ruling by proposing a convoluted set of rules that will allow fast lanes, slow lanes, and what’s even worse, no lanes. The FCC’s proposal will allow the telcos and cable companies that provide the last mile connection to your home or office to prioritize some bits over others. That’s how they create the fast lane and the slow lane. It also allows discrimination in which they can decide not to allow your bits through at all, creating a “no lane”.

Many, including a fair number of folks on this blog, have argued that we should not “regulate the Internet” and we have to allow the last mile providers to do what is necessary to make money. Sadly, we have already regulated the last mile of the Internet and have given local duopolies around the country to telcos and cable companies. For most citizens in this country, you have two choices for the Internet connection in your home. You can buy it from your phone company. Or you can buy it from your cable company. If there were dozens of choices for last mile connectivity, I would also argue for no regulation and let the market figure this out. But there is not enough competition in the last mile market to allow a true market to function. Instead we will have terms of service dictated to us and these providers will extract rents from all service providers on the Internet and the era when anyone could launch something and compete on a level playing field with the incumbents will be over.

Here’s what you need to do about this:

1) You need to be very clear that you will not accept fast lanes, slow lanes, and no lanes on the commercial Internet. A good start would be signing this White House Petition before May 15th. But you will need to do more. This rallying cry must be sustained until we rid the FCC of the idea that fast lanes, slow lanes, and no lanes are OK.

2) You need to “plug into” the Internet activists who are building the opposition to fast lanes and slow lanes. A good start would be to follow this facebook feed. I will point out others on this blog as the fight plan emerges.

3) You need to watch the FCC’s proposed rules that will be aired to the public on May 15th to see if they are going to consider “reclassification”. If they do not, we all need to rise up and go into action against these proposed rules. Because without “reclassification”, the FCC really cannot protect us from the last mile duopolies who are hell bent to build these lanes on the Internet and destroy the golden era of Internet innovation that we have experienced over the past twenty years. We cannot allow that to happen.

AVC community member Matt Myers has launched a Kickstarter project to fund his I Live Yoga project.

I contributed yesterday for several reasons; I love yoga, I think building tools for yoga instructors is a great idea, and I really appreciate Matt’s contributions to this community over the years.

Here is the video describing the project:

And here’s a link to the project’s Kickstarter page. I hope you’ll join me in supporting Matt’s project.

There is a long article on Square and Box in TechCrunch this weekend. I am not sold on the arguments the author makes about the commodity nature of both products. But the author makes a point at the end in a section called “The Valuation Trap” that I very much agree with:

A second iron law of startups might be that the higher the valuation of a startup, the fewer options it has for financing and exits…… once a company has raised mezzanine capital and is valued in the billions, its options are essentially to go public or find a very interested buyer with deep pockets. There are few other options on this side of the startup pipeline.

The past three months have not been good for highflying tech stocks and now we are seeing IPOs being postponed. Both Square and Box have recently done that.

Another thing that Square and Box have in common is very high burn rates. The author of the Techcrunch post says that Square lost $100mm and Box lost $160mm in 2013.

The combination of sky high valuations, equally high burn rates, and a disappearing IPO market is not a pleasant one. I am fairly confident that both Square and Box can and will navigate the valuation trap, but it will require making some hard choices in the coming months.

So the moral of this story is that you can push valuations when you have investors knocking down your door, but unless you are cash flow positive and expect to remain so for the foreseeable future, you do that at your own risk. You will need to find someone to top that price down the road and that person may not be there.

Epilogue: I am a VC. I am talking my book here. I don’t like to pay sky high valuations. And I like to argue against them. So understand this post in that context. But I am also an investor in companies that have found, and may or will find themselves in the valuation trap. I have lived it, felt it, and suffered from it. It is a real issue.