Posts from January 2018

An Addition To The AVC Comment Policy

Yesterday I went to see what the community was talking about and found this at the top of the comment threads:

I thought to myself “oh shit, the token scammers have arrived” and immediately deleted those comments and left a reply saying that I am going to update the comment policy.

So I did that this morning.

There will be no token promotions in the AVC comments, period.

I am fine with discussing the merits of various blockchain/crypto technologies and tokens, but outright promotion is not cool and I won’t allow it.

I hope this is clear and everyone understands why it is necessary.

USV Manager Bootcamp

Our USV Portfolio Network Team built a new offering last year called the USV Manager Bootcamp.

The idea is to offer management training classes to our portfolio companies that are too small to be able to offer those classes themselves.

Last week was the sixth bootcamp and the self reported results are pretty impressive:

As I tweeted out last week, this is something other VC firms can do as well. It’s a perfect example of something that works for a portfolio of companies.

If you want to learn more about how this works, our Portfolio Network Team wrote a blog post about it last week.

A Low-Volume, High-Conviction, High-Support Investor

My friend Mark Mullen and his partner Jim Andelman are announcing a new VC firm in Southern California today. They call themselves Bonfire Ventures.

I love how they describe themselves as “a low-volume, high-conviction, high-support investor.” That is who you want at your side when you are starting a business. There are a number of those types of firms out there, USV is one, Bonfire is another, and there are plenty more. But there are also plenty of the other variety; high volume, low conviction, can’t get them on the phone when you need them investors. So finding a high conviction investor to lead your seed or Srs A round is ideal and we have one more VC firm like that now.

Bonfire is based in Southern California, one of the hottest venture capital regions right now, and is focused on “B2B” companies, a sector that Mark and Jim have focused on for the last decade.

I’d like to congratulate Mark and Jim on getting Bonfire off the ground and welcome them to the high conviction club. It’s a good group of VCs and we can always use a few more.

The Co-Founder Relationship

If you were making a list of things that could go wrong on an seed, angel, or Series A investment, you would have to put the co-founder relationship right up there at the top of the list. Not every startup has co-founders. Some just have one founder. In some ways, that is a bit easier to “underwrite.” At least it is clear who is in charge and why things are happening or not happening.

With co-founders, it is always a bit unclear where the issues are coming from. Founders don’t generally like to disclose their issues to their investors and Board. If it gets really bad, the stuff comes out. But often it stays under the covers where you, as an investor, can’t do much about it, other than wonder what is really going on.

Frequently one of the founders is the “business person” and the other is the “technical person.” That works pretty well as each person has a domain where they are “the boss” and that means they aren’t in each other’s hair so much. But there are many places where that framework breaks down. Examples of areas that create co-founder stress are compensation, raising money/dilution, product strategy, resource allocation, marketing, and PR, among many others.

The co-founder dysfunction impacts everyone in and around the company, but mostly the team underneath the founders. It is like being in a family where mom and dad aren’t getting along. There is stress and strain, messed up decision making, and everyone is walking on eggshells.

So what can be done about this issue?

Here are some suggestions:

1/ The Board and investor group should talk directly and honestly with the founders about the challenges of staying aligned and those conversations should start before an investment is even made. By putting the issue on the table, making it something people are allowed to talk about openly, there is a much greater chance the issue can be managed effectively.

2/ The team underneath the founders should feel like they have the right, and the responsibility, to talk to the Board and investor group when founder dysfunction gets really bad. In general the idea of the team going around the leaders to the Board is a big “no no” in startup land, but there are a few places where that needs to happen, like outing illegal or dishonest actions, or harassment. Likewise, if the co-founder relationship is so bad that the company is being seriously harmed, the team should feel a responsibility to come to the Board with that information.

3/ There are some great “founder conflict” coaches out there. This is a bit like marriage counseling. The co-founders meet with a coach together regularly to diffuse and manage their conflict. I have seen this work very well. Most CEO Coaches will do founder conflict coaching, and if they don’t do it, they can recommend someone who will.

4/ Founder divorce is something that happens pretty regularly. If two, or three, people can’t figure out how to work well together, then one, or possibly more, will have to leave. Sometimes founders can figure this out on their own, but often the Board and members of the team will get involved as well. I have not seen the data on this, but I would imagine a minority of founder teams make it all the way to the finish line without one or more leaving along the way, often for reasons of unmanageable conflict.

Founder conflict is pervasive in startup land but is not discussed very often. That should change. It is normal. It happens. You aren’t the only one who is experiencing it. It is OK to talk about it, put it on the table, and deal with it.

DISCLAIMER – This post is absolutely not about any company, any founder or founders, or anything specific at all. It is just about something that we frequently see and is worth talking about. If you think I am writing about you, your company, or your founder, you are wrong. But I am happy to talk about it nonetheless.

Audio Of The Week: A16Z’s Alex Rampell

I found this wide ranging interview quite interesting.

Alex has been an entrepreneur and is now an investor.

He is operating at the intersection of traditional fintech and crypto, which is a place USV also often occupies.

Board Feedback

Something I am a huge fan of is Board Feedback. I’ve written about this a lot here at AVC and I am writing about it again today. Because it is important and not done regularly in my experience.

A founder/CEO and their team spend a lot of time preparing for a meeting, and then they give the meeting their all, and often the Board leaves and nothing is really said about it.

That sucks. For everyone, but most of all for the CEO.

Here is what I try to do and mostly do. I sometimes mess this up but not often.

After the meeting ends, at least one director, ideally the Chairman if there is one who is not the CEO, or the lead director, or the director who is there in person, should lead an executive session without the CEO and get feedback from all of the directors and observers and then they should sit down with the CEO and provide that feedback in an honest and open way.

The sooner you do this the better. No CEO should ever be wondering how the Board Meeting went, what people are thinking, and how they are doing.

And yet that is often the case. That is malpractice. It is wrong. It should not happen.

Explainability

Last week I started getting lots of stories about Kendrick Lamar and SZA in my Google Now news feed on my phone.  I thought to myself “why all of sudden does Google think I’m interested in Kendrick Lamar and SZA?”

Then I recalled sending a text message to my son about the new Kendrick/SZA song from the Black Panther film and thought “Google saw that text message and added Kendrick to my interests.” I don’t know if that is in fact the case, but the fact that I thought it is really all that I am talking about right now.

That whole “why did I get this recommendation” line of thinking is what the machine learning industry calls Explainability. It’s a very human emotion and I bet that all of us have it, maybe as often as multiple times a day now.

I like this bit I saw on a blog post on the topic today:

Explainability is about trust. It’s important to know why our self-driving car decided to slam on the breaks, or maybe in the future why the IRS auto-audit bots decide it’s your turn. Good or bad decision, it’s important to have visibility into how they were made, so that we can bring the human expectation more in line with how the algorithm actually behaves. 

What I want on my phone, on my computer, in Alexa, and everywhere that machine learning touches me, is a “why” button I can push (or speak) to know why I got that recommendation. I want to know what source data was used to make the recommendation, and I’d also like to know what algorithms were used to produce confidence in it.

This is coming. I have no doubt about it. And the companies that offer it to us will build the trust that will be critical to remaining relevant in the age of machine learning.

DuckDuckGo Moves Beyond Search

Our portfolio company DuckDuckGo which offers a search engine that doesn’t store your search history or track you announced some new offerings this week.
Here’s a quote from the announcement:

Over the years, DuckDuckGo has offered millions of people a private alternative to Google, serving over 16 billion anonymous searches. Today we’re excited to launch fully revamped versions of our browser extension and mobile app, extending DuckDuckGo’s protection beyond the search box to wherever the Internet takes you.

As I understand it, you can get this browsing protection via the DuckDuckGo mobile app and from their browser extensions.
You can get them here:

FirefoxSafariChromeiOS, and Android

DuckDuckGo is moving beyond search into a broader suite of privacy offerings. They have built up the trust of users over the years and can now apply that to a wider set of problems.

Along the way DuckDuckGo has built a great business too. As founder/CEO Gabe Weinberg explains in this interview with Techcrunch, DuckDuckGo has been profitable since 2014.

It’s very satisfying to me to know that in an era where billions are being made walking all over our privacy, a great business can be built protecting it.

ADP Acquires WorkMarket

ADP announced this morning that they have acquired our portfolio company WorkMarket.

This is a bittersweet moment for me.

WorkMarket has been a big part of my personal portfolio for almost eight years.

USV and Spark seeded WorkMarket in June 2010, backing two serial entrepreneurs Jeff Leventhal and Jeff Wald.

The idea was to create a cloud based SAAS application to allow enterprises to manage their contingent workforces which were growing in size and complexity. It seemed like a timely opportunity at the time and it was. Eight years later the SAAS contingent workforce management market is in the hundreds of millions of dollars annually and WorkMarket is the creator and leader of it.

But like all startups, the WorkMarket story has a number of twists and turns. The market was a bit slower to develop than we had initially hoped and it wasn’t until the last few years that big companies started to include contingent workforce management in their SAAS budgets.

We also lost one of the two founders, Jeff Leventhal, when he stepped aside at the end of 2014 and was replaced as CEO by Stephen DeWitt who was recruited to the opportunity by Jordan Levy, who has been everything you could ask for in a co-investor.

The last few years at WorkMarket have been amazing. The senior team that Stephen and Jeff Wald built is among the best that I have had the opportunity to work with. And the contingent workforce market really exploded in 2016 and 2017.

But like all exploding markets, the expanding opportunity brought a lot of new entrants and buyers interested in getting into it. And one of those big companies, ADP, made us an offer we could not refuse, both in terms of the financial opportunity and the fit with their business. ADP has been helping enterprises, large and small, with human capital management solutions for decades and has the customer base, market knowledge, and capital to lean into this opportunity in a way that a venture backed startup never could.

So WorkMarket is now part of ADP and I am pleased with that outcome. Jeff Wald will take over leading WorkMarket for its next phase and he is well suited and deserving of that role. He has been the one constant for the eight years that I have worked on WorkMarket. Everyone else who was there at the start has come and gone. But Jeff and I saw it through from start to finish and I appreciate that very much.

I also want to acknowledge Stephen and the senior team of Grady Leno, Jim Chou, Marcy Shinder, and Tom Benton. As I said, this is an amazing team and it has been a pleasure to watch them build the product, market, and customer base. They are all superstars in my book.

This is the way of the VC business. You get inspired by an idea and a couple founders. You spend a lot of time helping them build something. You give a piece of yourself to the business. And one day, you are done. That day, for me and WorkMarket, is today and I have enjoyed the ride very much.