Posts from January 2015

At the end of the Berlin talk I posted yesterday, there was a question about ethics. It was directed at startups and how they build a culture of ethical behavior.

But ethics and morals is an issue that extends beyond startups. It is an issue for all businesses and business people.

The Gotham Gal recently told me a story about one of her portfolio companies. I am going to leave names out of this post because I don’t want to get in the middle of something that, at least right now, is between the parties involved.

Her portfolio company went out to raise an early Series A for a business that was in market and ramping. They met with a VC who passed on the deal. A few months later they saw a competitor emerge in the market with an identical business plan and a website that was eerily similar to their own. The CEO of the competitor was the son of the VC who passed on the deal. And the VC was the seed investor in the competitor.

There was no NDA or non-compete between the parties involved so it is not clear that anything illegal transpired here. But it sure feels unethical to me. And I bet it feels unethical to you too.

At USV, we work very hard to avoid these sorts of things. We do not start or incubate businesses. We do not have EIRs sitting in pitch meetings while they think up their next startup. We put big moats around our existing portfolio and try hard not to invest in anything competitive. If we are looking at investing in a competitor, we let the entrepreneur know that before we meet with them.

I am sure we have messed up a little bit here and there over the years on these rules. But we try really hard to live up to our ethics, values, and morals and I think we do a decent job. And we get to see great deals because of that.

This unnamed VC will not see great deals if this behavior continues. You can’t behave this way for long before the market becomes aware of it. So even if the legal system can’t take care of this situation, I believe the market will. As it should.

Last month, my partner Brad and I found ourselves in Berlin at the same time. We decided to do an event for entrepreneurs in Berlin with the help of the folks from Tech Open Air Berlin. We rented a space, brought in some entertainment and food, and then had an hour long conversation about technology, startups, trends, and a little bit about Germany and Berlin.

Brad and I started USV together in 2003 and we’ve worked closely together for over a decade now. We rarely (if ever) do public appearances together so this was a pretty special event for us. I think this video does a good job of showing how each of us comes at the issues from a different place but get to the same answers most of the time. It’s been a very successful partnership and I think this video shows some of why that is.

Our portfolio company Duolingo did something interesting this week. They launched a new product by adding a dashboard to the existing product.

For those that don’t know, Duolingo is the most popular language learning app on mobile phones (and the web) around the world.

They saw many students and teachers around the world adopting the Duolingo app as learning tool in the classroom even though Duolingo was built as a horizontal product without any specific use cases in mind. So they thought that building a version specifically designed for schools would be a good idea. And the big new feature that allowed them to do that was a dashboard for teachers. The students use the same app they’ve always used and the teachers get a tool to help them understand, manage, and react to each student’s individual progress.

This is a great example of the consumerization of vertical applications and markets. There are plenty of companies that try to sell technology into schools and school systems top down. They build all the features to support schools day one and then attempt to get schools and school systems to purchase their product.

Duolingo was shipped as a free mobile and web app that anyone can use to learn a language. Teachers and students adopted it. And then Duolingo shipped a single feature, the dashboard, that makes the service way more useful and impactful in the classroom.

Duolingo is entirely free to use, including the new Duolingo for Schools. Duolingo monetizes its business by providing certification services like Duolingo Test Center. I wrote a bit about this freemium model in education last summer. I think its a powerful model when combined with a bottoms up (consumer) go to market approach.

This is a slideshare from Coindesk:

I think this slidedeck shows that 2014 was a tough year for bitcoin, something I mentioned in look back and look forward posts. This year has started off poorly with problems at Bitstamp and the price breaking below $300, probably in relation to the Bitstamp issues.

It’s tough times for the bitcoin sector but venture capitalists continue to make investments and transaction volumes continue to rise. I believe we are witnessing a transition from one phase (monetary and speculation driven) to another phase (new applications and bitcoin as a platform) and there will be a shakeout as the transition happens. I think we are well into that shakeout.

Intel made news yesterday when they announced a $300mm fund to “to be used in the next three years to improve the diversity of the company’s work force, attract more women and minorities to the technology field and make the industry more hospitable to them once they get there. The money will be used to fund engineering scholarships and to support historically black colleges and universities.”

The diversity reports coming out of the big tech companies in the past year have shown very little inclusion of african american, latino, and other “underrepresented minorities” in the tech sector’s workforce. And we all know that women are very much unrepresented in the tech sector, particularly at the top levels of leadership.

There are many, including plenty of AVC community members, who will say “so what?”. And there are many who will debate the reasons for this. I don’t think either of these things are particularly debatable. Diversity is a good thing for many reasons. It opens up a company to a multiplicity of ideas, opinions, and connections to the market. And the reasons for this lack of diversity stem from two primary (and related and self reinforcing) things, not enough women and underrepresented minorities setting themselves early enough on a career path in tech and societal biases against tech as a “proper career” for women and underrepresented minorities. These two issues have to be tackled head on and in parallel.

I applaud Intel’s move and the leadership they are showing. I have no doubt that the other big tech companies will follow their leadership in some way.

I have been working on this problem for about five years now, mostly in NYC, and in partnership with many people and many efforts that are doing great work. There are too many to list in this post. There is no shortage of effort and impact. We just need more of it.

If I have one learning and one piece of advice for the big tech companies who are likely going to start making big investments here, it would be to start as young as you can and invest all the way up from there. What I mean by that is look at early childhood education, look at elementary school, look at middle school (this is really important), and look at high school.

While Harvey Mudd has been able to achieve gender balance in its undergraduate computer science program, I think its a big ask of higher education to solve this problem all by themselves. Too many women and underepresented minorities have made decisions that take them off the pathway to a technical career long before they get to college.

I believe the biggest impact we can make is in our K-12 system, where kids first find their passions, figure out what they are good at, and start learning the skills that will set them on their way. We need to invest in STEM (or STEAM) programs that work in the K-12 system, we need to overinvest in targeting them at young women and underrepresented minorities, and we need to sustain these efforts from elementary school, through middle school, into high school, and we need to guide these young people to a pathway that can give them challenging work and a good income throughout their careers.

The guide part is important. I’ve met a ton of guidance counselors and parents who don’t think “this is the right path” for someone, when it clearly is. That’s part of the societal bias at work. I don’t think we can change the societal biases without creating role models and we can’t create role models without opening up opportunities more broadly for the underrepresented. That is why we have to attack these two issues in parallel.

I will end with the observation that there are many terrific people and organizations working on these problems and having a big impact but in a few small pockets. We need to invest in them and help them scale. This problem is being solved already and the strategies and tactics are fairly well known and validated. We don’t need to invent new things for the most part. We just need to find, fund, and support.

If anyone out there wants to get involved in doing that, you can reach out to me and I will point you in the right directions.

Last September, I blogged about a new policy organization called the Coin Center that had been formed and that USV was supporting financially along with a number of other entrepreneurs and investors. At the time, the Coin Center had only one employee and there wasn’t much information about them on their website.

In the roughly three months since that blog post, the Coin Center has already established itself in Washington DC as a credible and trusted source of information and education on bitcoin and blockchain issues and has also built a real organization that can deliver on all of that.

Today, the Coin Center has launched a fully functioning website that explains in detail what they do, has educational resources on it, introduces the staff and board, and of course, allows anyone to support it.

If you are active in the bitcoin and blockchain space or care about how it evolves and how policy makers and elected officials think about it, you should be aware of the Coin Center and consider supporting it.

Both Benedict Evans and I wrote posts about the year we are now in, 2015, as we enter it.

Here is mine

Here is Ben’s

My approach was to take a swing at some predictions. They generated a ton of conversation and are still generating it. It seems that people really love to debate predictions.

Ben’s approach is to put forward a bunch of questions that will likely be answered this year. In many ways, his approach is more helpful. He raises the issue without giving the answer, forcing all of us to think about how to answer it. I suspect Ben has opinions on how all of these questions will be answered, but he left his opinions out so that we can form our own.

That’s not entirely true however. My favorite of his questions was this one:

Is this the year that the Bitcoin blockchain starts producing real consumer products? If so, they’ll be on mobile first

And there you can see his opinion coming out in the latter part of that question. And I agree with him, bitcoin is easier to grok and use on mobile. A native mobile application using bitcoin and the blockchain does seem likely to be the first killer application for this technology. I referenced that a bit in this post from a few months ago.

I don’t regret taking a shot at predicting the future. That’s what we do all day long to be honest. And if we end up with a career batting average of .333, we will go to the hall of fame. I am sure I will be wrong on many (most?) of my predictions. But that’s how it goes. Asking the questions is safer for sure. But answering them is more fun. So when you look at Ben’s questions, try to answer them. It’s a good exercise for everyone to undertake as we enter the new year.

A “cap table” is a schedule of all the shares outstanding for a specific company. Here’s an MBA Mondays post I wrote back in 2011 on the subject of cap tables. If you want to know how much of a company you own, a cap table is the best way to figure that out.

Cap tables are almost always prepared and kept in spreadsheets, usually excel, but also increasingly google sheets. And, it turns out, they are often wrong.

Henry Ward is the founder and CEO of a company that is aiming to fix that called eShares. Last month USV led a Series A round in eShares and my partner John Buttrick wrote a bit about that investment today on the USV blog.

The reason I tell you this is that yesterday Henry wrote a great post about broken cap tables that everyone in the startup world should read. Here are the four big takeaway’s from Henry’s post:

1. Most cap tables are wrong
2. Most investors don’t track their shares
3. Note holders are often forgotten
4. Employees suffer most

How does Henry know this? Well part of eShares’ business is converting cap tables from spreadsheets into their cloud based application and reconciling everything to make sure it is correct. They onboard about 100 companies a month right now and they see a ton of cap tables.

Tracking everyone’s ownership in companies is a perfect application for a cloud-based network of owners and issuers. If every company used a platform like eShares, and if all these platforms talked to each other, if there was a common identity standard, then as you move from one company to another over your career, collecting equity along the way, you could access and manage all of your ownership interests in a single dashboard.

This is a service that is incredibly useful to startups and angel investors and VCs. But as Henry outlines at the end of his post, it will ultimately help employees the most. And, as we have discussed here before, employee equity is certainly more broken than cap tables are. Fixing that is a worthy mission for a startup and that is what Henry and his team intend to do.

I am interrupting our regularly scheduled programming (video of the week) to rant a bit.

Yesterday morning, Tom Labus left this comment on AVC:

You’re on the scroll on CNBC. Quoting you that “the Apple Watch will be a flop” A bit of creative editing

I had already seen Business Insider running that headline and that just put me over the edge. I got super pissed off and fired out this tweetstorm:

That led to a lot of discussion on Twitter that lasted most of yesterday.

Business Insider has been cross posting my blog posts for years on their website (totally allowed under my creative commons license) but they used to rewrite and sensationalize the headline. I hated that so much and told them so and to their credit, they’ve stopped doing that.

When someone takes the time to carefully craft their words, it is super annoying to see someone twist them into something else entirely. I know that it’s wishful thinking to imagine that media outlets that live and die on clicks will change their stripes on this one. Maybe I should get some thicker skin. But I am not sure I can on this one.