Posts from May 2015

Reading the comment thread from yesterday reminded me of something fundamental and true. It is easy to critique but hard to do.

A big part of my job is to sit on boards and when you do that, your primary role is to evaluate the performance of senior management, particularly the CEO.

As someone who has never had an operating job, and never been a CEO, it is easy to sit there and say “she didn’t do this, he should have done that, she didn’t articulate that very well” and I have found myself doing that from time to time. But I try to remind myself that running a company is a hard job and the people who do it well are few and far between.

That doesn’t mean we should be soft on the management team. I believe it is our job to be constructively critical, but also supportive and positive. Everyone can and should work on getting better at their job. When you stop doing that, it surely is time to hang up the cleats and retire. But calling for a CEO’s head is not something I do lightly. You can’t really backtrack from that position once you take it. So I try like hell not to go there unless it is absolutely required and there is no ambiguity about it in my mind.

I was talking to an entrepreneur yesterday and somehow the topic of Netflix came up. I told the entrepreneur that I had enormous respect for Reed Hastings. He said he did as well and bought Netflix when it IPO’d back in the 90s. He told me he would listen into the quarterly earnings calls for the first ten years he owned the stock. And Wall Street was so negative on Reed, his strategy, and the company’s performance. But Reed hung in there, had conviction about the business and where it was going. Twenty years later, Netflix has built one hell of a business and proved most, if not all, of the skeptics on Wall Street wrong.

When Wall Street calls for a CEO’s replacement, they might be right but they might be wrong. A good board will not be pressured by Wall Street. A good board will be attentive to the business, will hear the critiques and try to understand them, will make sure they know what the culture and dynamic is inside the company, and will understand the business model, the financial levers, and the financial performance. A good board will evaluate all of that, provide clear and unambiguous feedback to the CEO so he or she knows exactly where they stand, and will support the board and the management team privately and publicly until they decide it is time to make a change.

I will end with this. Being the CEO of a highly public company (whether it is traded privately or publicly) is particularly hard. You are constantly getting criticized and talked about in the press/blogs/communities. I respect the people who take these jobs. And I root for them to succeed. It’s about the hardest job you can have.

I like how Dick answers the question about whether he’s going to be CEO of Twitter by the end of the year. It is about time that Twitter articulates how large their audience really is and why their usage numbers can’t be compared directly to Facebook, Snapchat, and Instagram.

Full disclosure, I own a lot of Twitter and am a big fan of the company and of Dick. I do not plan to be more critical of Twitter in the coming months.

We have some fun office art at USV. The most recent addition is an Electric Objects digital frame.

Here’s a short video of it in action.

If you have cool art in your office, or home, please share it with us.

I saw this chart in a Harvard Business Review piece called The Great Decoupling earlier this week:

The “decoupling” is the divergence between labor productivity and employment/wages that happened in the US in the 1980s and has become quite pronounced over the past thirty years. During the great postwar boom, productivity and wages grew in lockstep in the US. Of course, we don’t see any data from the 19th century and the first half of the 20th century so it’s not clear that labor and wages have always grown in lockstep. But something certainly changed in the 1980s and the result has not been good for median family income which has been stagnant in the US for almost thirty years now.

The chart and the HBR piece is the focus of work done by Erik Brynjolfsson and Andrew McAfee, faculty members at the MIT Sloan School of Management. They attribute this great decoupling to the emergence of “digital technologies.” I would imagine the initial decoupling had as much to do with globalization and the pressure on wages that global competition for jobs in many sectors created. But, as we’ve discussed here before, the mechanization of information work, which Brynjolfsson and McAfee call “The Second Machine Age“, will accelerate this trend and it already seems to be doing that.

When I showed this piece to may partner Albert, he responded with disappointment for the policy ideas that the professors put forth as potential solutions. Those ideas are; education, infrastructure, entrepreneurship, immigration, and basic research. Albert is right that those are not new or original policy ideas and though I spend a fair bit of time and money on three of them, I do wonder if they will not be enough. So does Albert and here’s a policy idea he has been suggesting.

We got something in our office last month that is a game changer. It’s a Beam Telepresence Robot that allows anyone who is authorized to take control of the robot, drive around our office, attend meetings, or pop into someone’s office for a conversation.

The use case I like best is attending meetings with the Beam. We have had a big screen in the front of our conference room with various videoconference applications on it for years. It works well but it never feels like you are sitting around the table with the rest of the group. With the Beam, you get that exact feeling. It’s the closest I’ve felt to being in the room from a remote location.

I also like being able to grab the Beam and take a quick trip around the office and check in with people while I’m away.

Here’s a video that shows four use cases. You will get a sense of it and how it works from the video.

We have the Beam+ which is really fine for our office. It’s $2000 and I am thinking we should get another so we can have two remote people in our conference room at one time.

We haven’t yet had entrepreneurs use the Beam to pitch us, but I’m sure that will happen soon. And I think it will be a better experience than coming in over the big screen in the front of the room.

The thing I always think about when making an investment is not what it is worth, but what can it be worth. To determine what something is worth, you can look at comps (which I posted about here), or you can let the market tell you what it is worth by running a process.  But the really interesting number is not what it is worth today, but what it can be worth.

For this, you need to use your imagination. When we invested in Twitter, we had to imagine that hundreds of millions of people around the globe would use Twitter to find out what was going on, and that Twitter would be able to build an advertising business around that behavior that would result billions of dollars of annual revenue, and that Twitter would be able to generate positive cash flow on that revenue, and that the public markets would welcome Twitter and value it as a multiple of those revenues and that operating cash flow. We did imagine that, although to be honest, we did not imagine as big of a success as evidenced by the fact that we stopped investing in Twitter after three rounds, which was a mistake that, in part, led to the creation of our Opportunity Fund.

So when valuing a venture stage opportunity, you have to imagine the product can scale to be used by many more people, or companies, or both, than are using it now. For that exercise, you need to study the product, the roadmap, and the use cases and be sure that your imagination is possible and not delusional. You also need to figure out what an annual revenue per user (ARPU) might be and apply that to the potential size of the market. Then you need to study the economics of the business and figure out how much of that potential revenue might flow to the bottom line.

Finally, you need to figure out how the market might value that cash flow. That’s where a comps analysis might be valuable. But you have to factor in that the market might not be valuing companies when you exit in the same way they are now.

After you figure out what it might be worth, you need to discount that back by 3x, or 5x, or even 10x, to discount for the risk that none of this might happen.

When you do all of this work, in today’s environment, it’s hard to make an investment. Because often the math doesn’t work. Which tells me that many people aren’t doing this work.

Much has been written about the potential to replace menial and dangerous jobs with machines. One of those dangerous jobs that is already being replaced by machines is the foot soldier. Over the past decade the US has ramped up its drone program and reduced the number of men and women we put in harms way in service of our foreign policy and national security goals.

It’s worth a national discussion about the morality and legality of using machines to take out our enemies. We haven’t had that as far as I can tell. And we should.

But the truth is we are fighting more and more of our warfare with unmanned machines and the trend is clearly in that direction. It’s hard for me to see how we turn around and go back.

So while it is not entirely clear to me how this plays out over time, it does suggest that we may be burying less of our young men and women in military cemeteries in the coming years. Which is a hopeful thought on this memorial day in which we remember our fallen soldiers.

I’d like to call out a really great blog post (and talk) my colleague Nick Grossman delivered last week. He called it Venture Capital vs Community Capital, but to me its about the endless cycle of domination and disruption that plays out in the tech sector. This bit from the post rings so true to me:

So there’s the pattern: tech companies build dominant market positions, then open technologies emerge which erode the the tech companies’ lock on power (this is sometimes an organized rebellion against this corporate power, and is sometime more of a happy accident).  These open technologies then in turn become the platform upon which the next generation of venture-backed companies is built.  And so on and so on; rinse and repeat.

So, all that is to say: this is not a new thing.  And that seeing this as part of a pattern can help us understand what to make of it, and where the next opportunities could emerge.

Nick wrote the post and did the presentation for the OuiShareFest, an international gathering of folks interested in the peer economy. Nick starts out noting that the early enthusiasm for the peer economy has moderated with the understanding that a few large platforms have emerged and have come to dominate the sector.

Nick’s presentation and post, therefore, was a reaction to those emotions and a reminder that what goes around comes around eventually. That is certainly what I have observed in the thirty plus years I’ve been working in tech. Rinse and repeat. Same as it ever was.

Last week we had a discussion at the New York Public Library about Bitcoin. Andrew Ross Sorkin moderated a discussion between Nathaniel Popper, author of Digital Gold, Bitcoin Chief Scientist Gavin Andresen, and me. Here it is: