Investment Pace

We were hanging out with friends last night and one of them asked me how many investments I have made this year. I replied “one so far.” He said, “you are not very active.” and I replied “I do one to two deals a year and always have.” Which surprised him.

I have been investing in early stage companies since the late 80s and over those thirty plus years, I have personally led investments in about sixty companies. An average of less than two investments per year.

Our firm usually makes eight to ten new investments per year, which is one to two new investments per partner per year.

When you are making early-stage investments, which require a lot of your personal involvement over a seven to ten year period, you can only take on so many projects.

If you assume the average hold period for an early stage investment is seven years and if you make one to two investments per year, you will have between seven and fourteen portfolio companies to manage at any one time.

The low end of that range is quite manageable. The high end of that range is not. I have been there.

I believe that early stage venture capital done right is a service business in which the entrepreneur and the company they started is our customer.

We need to be able to service that portfolio company properly and that requires bandwidth at the partner level plus a team around the partners that can provide additional support.

And so that means managing the investment pace tightly and saying no to most opportunities that come in and being really committed and convinced about the projects that we say yes to.

And so that is what we do at USV and what I have done my entire career.

Doing this well is hard. Because if you only make eight to ten new investments per year and expect to produce at least one billion plus exit each year, something we have been able to do every year for almost ten years now, you have to have a pretty high hit rate on super early stage investments.

Our approach to making this work is an evolving thesis that tells us what to invest in and what not to invest in, rigor and collaboration in our decision making, and real substantial value-add post-investment.

This is not spray and pray, this is not following the herd, this is not momentum investing.

This is thesis-driven, active early stage investing, which has always produced the best returns over time and I believe always will.

#VC & Technology

Comments (Archived):

  1. LIAD

    perhaps indirectly creating a two-tiered portfolio?”thesis-driven and active’ for the 8-10 a year direct investments, but hands-off exposure to a much larger cohort of startups through investments in the various crypto funds.’federated USV’

  2. jason wright

    so not an investment you invest with partnership consensus, or vote, … how does that dynamic play out?

  3. John Pepper

    Love the portfolio company and entrepreneur as customer analogy. I view our front line team members as my main customers. The hard part is when things aren’t going well… can I continue to treat them as invaluable customers or do I, and others in management, conveniently switch to the “we pay you, we are in charge” dynamic? In our early years, and when I hadn’t established our culture adequately with new hires who had authority, too often the latter took place during challenging situations. Today – over 20 years in – I like to think our team members are always treated as our very best customers.

  4. Alex Heintze

    Have really enjoyed reading your blog posts every day for the past month! As a 21-year-old interested in VC, this article, in particular, made me think about the industry in a whole new way.

  5. Pointsandfigures

    I understood angels making a lot of small bets in many companies. Never understood it from a fund perspective.

  6. William Mougayar

    “I believe that early stage venture capital done right is a service business in which the entrepreneur and the company they started is our customer.”That says it all.

    1. Holly Hester-Reilly

      This view is the reason I’ve recently become interested in the VC world. Exposure to too much herd investing and investment race dynamics had put me off to the world, but now that I’m running a service business with many early stage startups as clients, I realized that working with a value-add, focused, thesis-driven early stage VC firm, I could serve a wider range of awesome entrepreneurs.Thanks Fred for living this model for all of us to see!

    2. JamesHRH

      This is true but not exclusively true.Sequoia does not follow this philosophy and their returns are unmatched.

      1. fredwilson

        excellent, but not unmatchedwe have matched them, benchmark has more than matched them, others have matched them

        1. JamesHRH

          Point taken, not enough context given with that comment.I was referring to the firm’s entire history….where I think their returns are unmatched, over the period of time they have existed.Fair?

      2. William Mougayar

        You’re not comparing apples to apples.

        1. JamesHRH

          How so?

          1. William Mougayar

            USV is more early stage than sequoia, and Fred’s answer addresses your inquiry.

          2. JamesHRH

            No sale on the apples to oranges.Just as an example, YouTube.They run a bigger shop, but they play in same sandbox. Why else would. @fredwilson already have benchmarks handy?

      3. Rob Larson

        I get the impression Sequoia picks and chooses where to spend their effort / where to follow this philosophy. Some entrepreneurs have great experiences with Sequoia, others have terrible experiences with them.~10 years ago Ted Schlein at KP told a small group of us that of all the VCs he co-invests with, his experience was that Sequoia was the only firm that worked as hard helping the portfolio companies as he and his partners at Kleiner Perkins did, and therefore they were his favorite firm to co-invest with. He didn’t think any other VCs in the valley worked as hard. (granted a lot has happened in 10 years)I suspect such “picking and choosing” has become more of an issue in recent years as entrepreneurs with bad experiences now have a louder megaphone available.

        1. JamesHRH

          My understanding, which is third hand, is that Sequoia sets an expectation for what the company is capable of doing and if you, the CEO/Founder aren’t making that happen, they will find someone who will.Its still about the company first, but the founder is less sacrosanct.

          1. Rob Larson

            Ah, interesting. Makes sense.

  7. BillMcNeely

    Your SoundCloud investment is a good example of these companies taking a lot of your time. I think you worked with the co for a solid 3+ months to lock in additional funding

  8. PhilipSugar

    This is back to my conversation from yesterday. Know what you are and stick to it.

    1. LE

      Know what you are and stick to it.Well when it’s raining men ‘hallelujah’. But by the same token sticking to the knitting (what Tom Peters called it) also has it’s downside.

    2. JamesHRH

      People like you may not know this, but 90% of people never develops a real sense of self… they have no real idea what to stick to.

      1. LE

        Perhaps to many video games and to much of seeking fun can lead to this.On a more serious note is there a test to see what this even means? I literally had to look it up.

        1. JamesHRH

          That’s a great question. I don’t know.Its about guidance really. Most people need some reinforcement when they are making the right choice…..someone to say, ‘Yup, that is absolutely a good fit for you.’Not many people have Fred or JLM’s or Phil’s or your instincts – by not many, I mean 10-20% of people.

          1. LE

            Thank god because if they did it would be harder for me to make a living. This is my hack for not getting annoyed with stupid people btw.Not sure if this is scientific in any way but I will note that for 3 of the 4 people you mentioned (where I am 1 of those people) we all were involved in situations where survival (w/o the help of others in a major way) was significant in the early formative years).

          2. JLM

            .When your action plan is “alive at dawn” you learn how to focus.JLMwww.themusingsofthebigredca…

          3. Susan Rubinsky

            THAT is interesting. Would love to hear all the stories. What you are talking about is GRIT. People who have grit are almost beyond any other category.

          4. LE

            I don’t like to call it grit actually. You just kind of view every thing you do really seriously and think about the consequences and try to make smart choices along the way. Look if you are smart and you think you have an advantage in life. That is really what it boils down to.The other thing I think I have a huge advantage with is this. My brain is 99 to 100% used to deciding everything on my own. So I have been trained to think and not to have to ask anyone for any advice. [1] That has been super helpful to me in terms of development. That is a really big deal. I think you get stunted by having others to lean on in many cases. Sure you can also end up in a better place though. I think that is one of the drawbacks. But mentally I can run circles around others because of that. (I don’t mean lawyers or accountants etc obviously).For example when I do deals I never ever say anything to anyone prior to the deal being done and the money in the bank. I never will ask my wife for her thoughts on a letter that I write. Or a client etc. I don’t want anyone messing with my gut or giving me any doubt. And that works for me. I have a keen sense because of this of how to act in a particular situation to come out ahead.I will give you an example from the other week no related to business. My wife and I bought a condo in a building on the beach. (Yay). So i want to install a security camera so I can view the waves when I am not there (yay). But the board doesn’t allow it. So I write a letter to the board. Now most people would simply ask if they could do that pretty please. What I do though is structure the request in terms of how it will benefit others (including the board members). I say that they will be allowed to view the camera remotely. I tell them about the professional installation company (who I haven’t even chosen yet) who specializes in this work. And I know that I have to write ‘my best offer’ prior to getting rejected and having to come back. I know not to roll that way (in this case) I know this so I do this. And I do it in real time on the fly while writing the letter w/o even thinking. Because I have done similar so many times in the past and have developed the skill over time.One of the reasons I comment so much here is it gives me a chance to re-think what I do and why I do it. I find it very helpful to verbalize my thinking and rehash it.[1] So this is sort of like JLM on the front lines in a war.

          5. Susan Rubinsky

            I love writing as a tool for clarifying and also for looking under the rock, so to say.

          6. JamesHRH

            This is great, but only works for people like you.I am terrible at generating the right idea or approach, exceptional at identifying it. Likely should have been a VC not a venture person.

          7. Vasudev Ram

            >One of the reasons I comment so much here is it gives me a chance to re-think what I do and why I do it. I find it very helpful to verbalize my thinking and rehash it.I guessed this (about your commenting here so much), or close to it, recently.After I first noticed over a period, that you comment a lot here (and in reply to all sorts of people here, as well as to the main post), I thought for a bit about why you do it so much (at least compared to others), and then guessed that you do it for practice in thinking / writing / arguing 🙂 Nice idea.

          8. LE

            Thanks, yes and what is also interesting is that you said that you thought about it. Most people don’t try to think or reverse engineer why something is the way it is. They just accept it and don’t think why. And I don’t think it’s because it doesn’t matter (after all why should they care about what I say here) as much as it’s just not the way they look at the world. My experience has been that the more you know about how people think and why something is the easier it is to get something that you want. How people operate and predictability has helped me a great deal. Most people get thrown by this because they expect precision and it’s not a precise art it’s more like card counting I am thinking ‘improve the odds’.

          9. Vasudev Ram

            Thanks. Good points, all. I agree on that last one too – “improve the odds” – it’s worth doing things that may help in some cases, but not necessarily all. And worth it even if you are not sure it will work at all – but it might. Otherwise how will we ever learn and grow? We’d be doing the same things year after year, like the proverbial guy who has “20 years experience”, but it is really 1 year of experience X 20 times.I’ve also seen people who are reluctant to do things for sometimes poor reasons. Often a reason (e.g. in the case of a relative of mine) is that they think some particular kind of effort or solution to solve some problem, will not work; they wisely nod and say “That won’t work”. I mean, this is before even having tried it, or having assessed it, even mentally, dammit.Another example: I was once, for a while. in a senior technical position in a large software team working on various assorted technologies (Unix, C, a client-server RDBMS, Java, a 4GL, message-oriented middleware, multiple networked machines, Windows-based languages and apps, etc.) for a large international client with multiple enterprise apps. A sort of mentor / technical advisor role. (I was chosen for it, not because I was all that good, but because I happened to have some prior experience with many of those skills, and no one else in the team had the same combo.) Sometimes some of the junior people would come to me with a tech problem involving one or more of these areas, and after maybe some investigation, I would outline a potential solution. Some would then ask me: “Will it work?” It’s like they wanted guaranteed solutions without even spending the time to try the solution out and see if it worked or not. Maybe for fear of “losing face” if it did not work. Fear of failure, IOW. Sad.

          10. Vasudev Ram

            And a final short example: My grandfather, a scientist, used to advise Ph. D. students in his field. They too used to sometimes ask the “Will it work?” kind of question like above. His answer to them used to be two words. forcefully delivered:”You try.”.

          11. JamesHRH

            Yes, there is something to this for sure.As a parent, you want your kids to have this sensation without the exact risk profile.

          12. Susan Rubinsky

            I think Fred’s, JLM’s, Phil’s, and LE’s instincts come from experience. I bet they all had times when they were younger when they felt lost and weren’t clear about a direction or how to get to the place they wanted to go.JLM had the advantage of the military where he lived and worked within an existing framework which enabled him to leverage his intellect and other assets.Without the framework, life is a hell of a lot harder.

          13. Susan Rubinsky

            FYI, I wrote the “I think Fred’s, JLM’s…” before I read the rest of the thread. I see that some similar commentary is below.

          14. LE

            when they were younger when they felt lost and weren’t clear about a directionI can’t say this was the case for me at least not in a way that is strong enough that I remember it.I always knew where I wanted to go to. I was the guy who told his parents that he wanted to go to private school. My sisters didn’t want to go they wanted to be social in the public school. When I figured out Wharton was the best business school I knew that is where I wanted to go (was a longshot but I pulled it off). Because I knew even as a kid that would give me an advantage in life. (And it has honestly and it’s not the education either..) Because I was also under the thumb of my parents in so many ways I also knew that making money was the only way to have freedom to do what I wanted when I wanted and not to be dependent on others. That was honestly a large part of the driving force. Like right now I have my own big office and I can set the AC at whatever temperature I want and I can work as much as I want and I don’t have to deal with anyone else other than people who pay me money. To me that is ultimate freedom and happiness.I don’t want to make like I am rich because I am not. But I have enough money that I can be happy and also that money allowed me to attract a really great woman. And more or less do what I want to do. And have fun doing so.Most importantly I have not risen to a level that is above my capabilities. I think many people do this and end up ruining their health or their relationships. You have to know your limitations.Like honestly when I hear all the yoga and meditation and drugs and alcohol others are doing that is what I think. I think ‘exceeding their limitations’. Maybe that is not the case in all cases but clearly is in many.I will give you an example. Back in the 90’s I had an interview setup with a west coast VC firm. It was my life’s dream. In the shower I started to get palpitations just thinking about it. I immediately knew (were other factors) it was because of the stress and then I wondered if I maybe was not cut out for that type of thing.

          15. Susan Rubinsky

            That’s interesting. How old were you when you told your parents you wanted to go to private school?I made my first life plan when I was in fifth grade. I was living in a crazy environment with an alcoholic Mom and step-Dad plus my own Dad was an absent alcoholic. I had this realization one day that all these people around me were crazy and that the only way out was education — I still recall that day very clearly; it was a moment of enlightenment fueled by the idea of “I’m getting the hell outta here.” I went from being a complacent B student to straight A’s in a few months and the rest is history.I actually think it was beneficial to grow up in the crazy household that I did. There were no boundaries or rules. I was basically left alone to do whatever I wanted except when my Mom would have one of her angry alcoholic moments, attacking and throwing things at you. Being the oldest, I bore the brunt of most of it. I installed a bunch of locks on the inside of my bedroom door and would climb out the window and escape on my bicycle when I was a kid. Or, another example is she threw me out of the house when I turned 18 — I was still in high school — saying “You’re 18 now, so go live on your own.” The benefit of all this is that I excelled in school and also started working when I was 13 and saving most of my money. By the time I was 16, I had saved enough to buy a car (before that public transit and my bike were my best friends). Education + Money + Transportation = Freedom.

          16. LE

            Oh probably in 9th grade? Because I got into the school in 10th grade.My wife’s parents were like your parents. They were pot heads. She drank the bong water (she is much younger than I am).So see like her (she is a Physician now) you were strong enough to rise about the craziness. My parents were not that. They were straight hardworking arrows. My parents never left the bedroom without being fully dressed. My parents did not drink at all. Maybe jewish holiday a glass of wine. I never saw my parents drunk ever. They were always solid and together. My dad always knew the answers. (Remember he survived Buchenwald and his parents and siblings died). It was kind of ‘work hard or die looser’. In the camps hard work kept you alive. Bottom line. No games no play. And you learn to love it actually.I actually think it was beneficial to grow up in the crazy household that I did.100% true same as my wife she says that.By the way I didn’t even know this type of world existed until I got divorced and started to date again. If we had gone out I would have listened in rap attention to your stories.A girl I dated (also a Physician but not my wife) her mother? Check this out. Took her for nude yoga as a kid. Made her do it w/o clothes in front of the instructor (a man). Was that crazy. How is that one? Her mother was mentally ill.

          17. Susan Rubinsky

            Yeah, I hear lots of stories like that. I also think that growing up in the late 60’s and the 1970’s, there was a lot of experimentation so parents did all kinds of unconventional stuff.Addiction is a disease as well. My mother, father and brother are all in recovery now. My brother did not benefit from that upbringing. He had no structure so went completely wild. He is a recovering heroin addict — I led an intervention last Fall. But he’s 49 years old and still acts like a teenager. It will be a long road for him.It sounds like it was a benefit to have the structure that your parents provided. Your father’s story is a formative one. One that guided his decisions for the rest of his life. I have a friend whose Dad and his Mom were the only ones to survive the holocaust. Her dad was only a baby and my friend’s grandmother successfully escaped with him while all the rest of the family died in camps. She had a similar upbringing to yours.

          18. LE

            I forgot to mention me and drugs. I knew immediately it was something that I should never even try. Not even pot. When people would say to me ‘try it you might like it’ I remember saying ‘yeah that is exactly what I am afraid of’. The private school had a great deal of that going on (there were forests and it was a boarding school so easy to do).I don’t want to simplify drug education in schools (obviously failing) but there isn’t enough of that essentially ‘you may not be in a position to stop if you start’. I figured that out at the time but I am not sure even how I came to that conclusion actually.One thing that has always bugged me to this day is school emphasis on rewards that are linked to tests and testing well (not my thing). No rewards for other things and no recognition of being smart in other ways. (Sports ranks much higher in the pecking order).Remember the story of the girl doctor who used the pizza box to heat a pizza and didn’t know paper would burn? Was class valedictorian and won all the awards. But no common sense. Think of how many kids in high school would have loved to know that.

          19. Vasudev Ram

            Also the discipline of the military, I’d say, in JLM’s case. It carries over into their civilian life after they retire from the military, probably stays with them life-long, in fact. Seen it in ex-army people who had roles in places where I worked and elsewhere. They are often hired in civilian life for roles that require strong leadership and management.

          20. Susan Rubinsky

            I like to apply Fred’s 1/9/90 rule to just about everything in life.1% of people are Creators. These people have a vision and passion to implement their ideas, no matter how many obstacles are in the way. These are the A+ players. They are driven and that drive creates the path.9% are Curators. These people have passion for other peoples’ visions and become part of the tribe to collaborate, curate and spread the word. These people often have valuable skill sets that support and accelerate the leaders’ vision. These are A players through and through. Like the Creators, these people leverage their skills to create their own paths and the lives that they envision.90% of people are Consumers. These people may have passion, and even high intellect or special skills, but are unfocused and unable to create a vision and a path for themselves. Some of these people, for whatever reason, are unable to create a plan so, therefore need jobs where other people provide the structure and goals for them. This is the herd. These are the B, C, D and F players. Obviously there will be varying levels of success and maturity within this group.This is just a general framework and I don’t even know if it can be broken. Can some B players be taught to be A players? My guess is yes. Are there some people out there with extraordinary intelligence but lack of vision? Absolutely. But overall, I suspect the 1/9/90 rule is fairly true in general.

      2. Susan Rubinsky

        There is an interesting book and seminar that grew from an idea at Stanford, called Designing Your Life.

    3. Susan Rubinsky

      I thought the same thing when I saw this post. Any person can glean take-aways from today’s post, no matter what industry you work in. Know your goals, create guidelines for reaching those goals and stick to it.

  9. Peng Jin


  10. Tom Labus

    This has been some amazing run. Congrats and future success.

  11. sigmaalgebra

    What you explain sounds excellent in all respects except two, “thesis” and hand holding.ThesisAs an entrepreneur with an excellent background in information technology (IT) from pure and applied math, yes, including computer science, but that’s essentially trivially easy, through lots of practical applications in US national security and business, IMHO there’s next to no chance in IT, for researcher, entrepreneur, to investor, a “thesis” can be more than a waste of time, a distraction, an obstacle, and a fool’s errand. IMHO, you were successful in spite of your thesis; your thesis was about as helpful as your tastes in music, food, politics, exercise, cars, …. Moreover, with only ~2 investments a year and a thesis likely evolving relatively quickly, you won’t get much experience with any particular thesis.There really are some rock solid fundamentals that last, say, at least back to 1700 or so, for a good date, back to Newton4 January 1643 – 31 March 1727Tough to invest in Newton, or Lagrange, Maxwell, Gauss, Riemann, Borel, Lebesgue, Einstein, Planck, Schrödinger, Kolmogorov, Fermi, von Neumann, Hamming, Dantzig, Tukey, etc. So, after the fundamentals, still have some work to do: IMHO, that work goes usually one at a time, usually one of a kind, “new, correct, significant”, powerful, valuable, formed by hand, usually from the mind of one person, no thesis relevant.The work has to be evaluated. How to do that? NSF, NIH, ONR, NASA, DARPA, editorial boards of peer reviewed research journals, Ph.D. committees at research universities do a lot of that. Business investing in IT needs that evaluation and still more, not less.The US Navy did well with their satellite navigation system — from the Johns Hopkins University/Applied Physics Lab (JHU/APL), and their receiver on the roof routinely located itself within 1′, one of a kind, “new, correct, significant”, …, no thesis relevant. GPS by the USAF was later and more accurate and did have the benefit of the “thesis”.Both US national security and business are awash in more examples. E.g., how about the transistor, Xerox, optical fibers, the solid state lasers for lighting the optical fibers, the first microprocessor, 14 nm line width, …. Of course, beyond IT there are more examples in bio-medical. Still, it’s usually one at a time, one of a kind, …, no thesis relevant.Yes, there’s at least one other way to do commercial IT project evaluations — traction significant and growing rapidly. Okay. Amazingly enough, can make $1 B a year doing that. My quip is, had the US done that, they would have told Szilard, Wigner, Fermi, etc. “You build the first one, test it, and build two more for delivery, and then we’ll chip in for the gasoline for the Enola Gay.”. Result: Would have missed out on one of the grand blood and treasure bargains in all of history — $2000 per casualty saved from not having to invade the home islands of Japan. Arithmetic: Manhattan Project, $2 billion. Casualties saved, 1 million. Done. There have GOT to be plenty of analogies in IT.The $1 B is terrific; but why stop there and not add some zeros?Gee, trying to do leading edge IT and refusing to consider the T, and with a “thesis” can still make $1 B a year — how much more if evaluate the T?Hand HoldingOn the hand holding of startups, hmm …. I’ll just note (1) the US is awash in successful businesses, that were startups, and never got equity funding or hand holding and (2) when have Michelangelo painting the ceiling, don’t send in a lot of museum visitors to hold his hand.

    1. LE

      Moreover, with only ~2 investments a year and a thesis likely evolving relatively quickly, you won’t get much experience with any particular thesis.Agree. (And see my theories in other comment).

      1. sigmaalgebra

        Ah, for a solution to this dilemma, apply the two standards — (1) “Always look for the hidden agenda.” and (2) “Follow the money.”. So, a guess: The “thesis” and “hand holding” are security blankets for the nervous limited partners!!! 🙂

        1. LE

          Oh I am not saying Fred has a hidden agenda at all. If he had a hidden agenda it would be stupid for him to be so public with what he is doing. That would assume also that he thinks people are stupid and that in posting publicly there wouldn’t be a single person that could call him out. So I want to point out very clearly that that is not what I was implying at all.By my theory of people, a person who has a hidden agenda would also be more likely to not have a parent of high caliber. Fred’s father was a General. So my guess is he was also a tough guy and mentally very high functioning. That wouldn’t be the type of person who would assume others are stupid that was raised that way by that type of person. He probably had a difficult time pulling the wool over his father’s eyes. People who are con men (in some way) I theorize have parents that were easy to fool. Hence they then took the position that (as a result of that formative experience) others are also easy to fool.In a sense having a parent of a high caliber contradicts selling to the masses. Because you tend to think ‘wow nobody would ever believe this’ (because you are thinking your parent wouldn’t.

          1. sigmaalgebra

            By “hidden agenda”, I didn’t intend to suggest that Fred did anything unethical. Still it may be that limited partners (LPs) find “theses” and “hand holding” very welcome security blankets for their nerves. Or, as in the movie The Big Short with Lewis Ranieri selling private label mortgage backed bonds,Ranieri: Gentlemen, these bonds are triple A rated.Fund: That’s just what the Michigan State Pension Fund has been looking for! We’ll take $20 million.I’m sure that for a VC to get a check from an LP is MUCH more difficult than that.You have a lot of hypotheses, theories, some of which maybe could be carefully tested (usual approach, gather data and do a statistical hypothesis test) and, thus, be a contribution to psychology, sociology (science of groups of people), etc. Tough to make those fields science. Tough to get theories that can be tested and yield interesting results. My brother’s summary about psychology: “All the interesting scientific questions are about people. All the solid scientific results are about rats.”.Statistical hypothesis testing: Flip a coin 100 times and get heads 61 times. Is the coin “fair”? Okay, assume that the coin is fair. Now can do some elementary probability arithmetic to see what the probability is of getting 61 or more heads out of 100 flips of a fair coin. We have two cases: If the probability is reasonably large, then nothing strange about the 61 and we have no reason to doubt that the coin is fair. If the probability is small, then (A) the coin is not fair but tends to come up heads more than half the time or (B) the coin is fair and we just observed something rare. If the rare is too rare to believe, then we “reject” that the coin is fair and conclude (A).The assumption that the coin is fair is the “null hypothesis”, that is, “null” for nothing strange. The null hypothesis gives us the math assumption that lets us do the little probability calculation.In science, typically we make a null hypothesis that our theory is false. E.g., at the Swiss-French Large Hadron Collider (LHC), likely they assumed that they did NOT generate a Higgs boson. Then they looked at the little bump in their data. Their data has lots of bumps. They did a calculation, what is the probability of a bump that big, say, just from noise, if there was no Higgs boson generated? Well, they were very, VERY careful with that calculation, insisted on a VERY small probability, checked more than twice, and did it all a second time from a second, detector designed very differently. THEN they announced that their theory of a Higgs boson had been confirmed.So, for psychology and sociology, assume the theory has no effect, collect some data, reject the null hypothesis, and confirm the theory. In this way have “tested” the theory. Could have disproven the theory but didn’t really prove it. But with a lot of tests, eventually will accept the theory. Now you can do social science!Uh, in the movie The Sting the crooks did such an hypothesis test just intuitively: IIRC “We can’t keep going into Shaw’s place and cleaning up on long shots. He’ll start to get wise.” That is, Shaw would start to reject that his customers were honest and conclude that they were cheating, e.g., “past posting”. People who are con men (in some way) I theorize have parents that were easy to fool.Modified theory: Or, second possibility, they had parents who were routinely acting, fooling, manipulating other people, and the children learned how to do that!One of the brightest people I ever knew was my MIL — whenever in public, she was on stage, in character, highly ethical “church lady”, and was REALLY good at it, reacted with astounding quickness and precision, was constantly thinking what the other people might be thinking at least three moves ahead (one of the secrets is to think and consider what the other person will think) — somehow I doubt that Einstein ever burned so much brain glucose per second as that woman. But it was all acting, manipulation. At what she was doing, as dumb as it was to do it, she was brilliant at it.In a sense, it was smart, life saving, to do it: It had been just crucial for her mother to eat during the Great Depression — she not only ate but as a widow, from her acting as worthy in the community, had a house, a car, and got all three of her children through college. Still, she, my MIL, was just flatly brilliant, genuinely gifted, at it. So was her first daughter, my wife. Astounding mind.Sort of like the story of the guy asked to add 1 + 2 + … + 100 and right away answered 5,050.”So, you saw the trick!””What trick?””1 + 100 = 1012 + 99 = 101and there are 50 such for a total of 101 * 50 = 5,050″”Cute. No, I just added them up one at a time.”I first met my wife at 7 AM as I was teaching trigonometry — she was a freshman and I, a grad student. My tests had some easy problems worth 5-10 points each … and some harder ones worth 50-80 points each. Yes, she got all the problems on all the tests. At the end, she had twice as many points as the next best student, who was pretty good. She could have left the class after the midterm, taken zeros on all the second half tests and the final, come in second in the class, and still made an A. Something like a guy at golf who on each hole is at least 1 under par except gets hole in one on all the par 3 holes.Years later she said that she had taken careful notes. That meant that she memorized everything I put on the board in class — she had a fantastic memory. I tried to explain to her how to see how to derive trig results, and she just laughed saying with contempt “Everything on the tests you had already done in class.”. Yes, but I never expected that any student would just memorize all that — it’s a LOT easier to see how to derive the stuff than to memorize it. Not for her!

          2. LE

            Modified theory: Or, second possibility, they had parents who were routinely acting, fooling, manipulating other people, and the children learned how to do that!True. Gypsies learn from parents who are gypsies. One of my businesses was located in a cute section of town and across the street was a house full of gypsies. I could observe them from my window. They did all sorts of home scams (I think) but also read fortunes. Roofing, what not. Yes, but I never expected that any student would just memorize all thatThe other side of this is that people w/o that type of memory (such as me for example) need to engineer and develop other ways ‘crutches’ to get by. And sometimes those things end up having great benefits in other ways that are unpredictable.Note also that your wife also had to be clever in another way. That is she had to recognize a fact that (in a story appears obvious) but isn’t on the surface to most ‘normal’ people. And that is also a part of selling. People tell you what they want and you give them what they want and then they are happy …. generally. My stepdaughter understands this but my stepson doesn’t. Still hasn’t figured out that it pisses me off when he wastes time on gaming and I see it happening. Honestly it bothers me more that he isn’t smart enough to simply hide it from me. The reason it bothers me is that he (and this is the kid who is tops at math) lacks a really obvious real world skill (and no I don’t think it is because he is trying to piss me off I am pretty sure he is just clueless). I mean back in the day when Dad came home you waited till he wasn’t around if you were doing something that you knew would piss him off.

          3. sigmaalgebra

            Have I ever mentioned that right from the crib the girls are good with people and the boys, with things?A lot of boys grow up, say, being told not to cry, in part, told to ignore emotions. Ignoring own emotions is no fun; ignoring own emotions is a big handicap in understanding the emotions of others; ignoring the emotions of others is a HUGE ball and chain in life. Big lesson in life: Pay close attention to the thoughts and feelings of other people and how own behavior might affect those. I have no doubt that if explained your son can understand, accept, and do well with those lessons.There is an even worse danger: Ignoring emotions can make a child feel just awful. Then other children sense this, get afraid, and reject the child. Details are in T. Berry Brazelton, M.D., What Every Baby Knows. Then, so rejected, the child feels even worse and, rejected, https://uploads.disquscdn.c… is slow to learn socialization.Good mothering can help. On good mothering for the emotions of a child, especially a boy, here is a picture worth 1,000,000 words: Easy to see that she is REALLY good with children — whenever she is with children her face lights up with a gigawatt smile.

  12. Adam Sher

    Sounds like the result of you and your firm’s careful consideration of investments is returns that may be left skewed as opposed to barbell or evenly distributed.

  13. JaredMermey

    How will crypto/token investment with its added liquidity affect pace?

    1. Steven Roussey

      That’s more of a question for traders than investors, I would think. They can sell their position in a year so why provide support after that?

  14. Richard

    It is interesting that between twitter and bitcoin, your early stage investing may have single handedly elected the president and facilitated the loss of HRC. If you knew then what you know now, would you have made the investment ?

  15. Alex Iskold

    For a specific theme, how do you pick the company to bet on? I.E. do you meet a few before you decide on the one, or its kind of obvious when you meet them that it will be the winning one?

  16. Alex Iskold

    Another question. You have a ton of deal flow. Have most of your investors have been via inbound because you made your thesis public and talked about it, or most investments you had to outreach and source?

  17. LE

    He said, “you are not very active.” and I replied “I do one to two deals a year and always have.” Which surprised him.Part of that could also be the tendency to associate you personally with any investment by USV regardless of whether you are the partner closely participating. And that makes sense. You are involved in all of those in some way and you are further associated as a major force behind USV OTC (out front of the counter let’s say).

  18. LE

    This is thesis-drivenA few non obvious reasons to have a thesis.1) Efficient way to narrow down the field of opportunities. You are in a situation where there are vastly more potential investments than you could possibly ever consider. It wouldn’t be practical to operate w/o some way of culling the list. [1] [2]2) Having a thesis is higher in the social pecking order than not. This is similar to being specialized and not a jack of all trades and master of none. People always view specialists as having more social status and capital. Focus is applauded. (Except see [3])3) Helps to justify wins in a way other than luck. ‘See there was a method to the madness’.4) Appear to work hard upfront so as to earn what you kill. (Really). Nobody wants to think that they have success primarily by luck. So it’s important to work hard to justify luck (I know I do this). Part of the work hard is coming up with and sticking with a thesis. An article about success written after the fact would always mention this in glowing terms.5) Allows you to easily dismiss requests from friends, family and others when they seek investments. “Not my thing”. Of course this (like hiring an intern after the 2 year period) doesn’t prevent you from doing so but gives you cover over your actions.[1] This is like baby naming ‘we need the letter L after grandmom’ means you don’t go crazy with 26 letters of the alphabet (I am serious about this). I am sure this is actually how the convention came about.[2] I had this when I bought things in the 90’s that I make money on now. There were to many possibilities (now there are none; at least at low cost). So I had to have a way to narrow things down. I had a thesis (but didn’t call it that) and used that to decide what to buy. Worked very well.[3] This does not appear to be true for the arts or humanities where someone can obtain godlike status from, say, playing multiple musical instruments well (even if not expert) and/or art in different mediums. In that case they are celebrated as very special. (Or character acting).

    1. sigmaalgebra

      Excellent list. Very perceptive.But, having investment theses is common in VC.It’s not common in, say, US national security or the NSF or NIH — there they (A) welcome for consideration everything, (B) to be doing the best work, can’t afford to reject based on anything as narrow as a thesis, and (C), most important, have some really good selection criteria that the information technology VCs don’t have or won’t use.

      1. Rob Larson

        Seems like every VC has a thesis, but most only run about an inch deep. Not much depth of thought.USV is an exception. A16z another.

  19. creative group

    CONTRIBUTORS:Can someone please post the AVC thesis that Fred posted a while ago. How does oneaggregate AVC information formerly posted?Thanks in advanceCaptain Obvious!#UNEQUIVOCALLYUNAPOLOGETICALLYINDEPENDENT

  20. Pete Griffiths


  21. Get Along, Little Dogies

    I can I imagine a book, “Tales from Big Sky Country” by Fred Wilson starting out with something like, “It’s tough lassoing cattle one-by-one out on the open range but on this Wednesday morning on an unseasonably chilly October day in NYC I had a meeting scheduled with a young entrepreneur who was being particularly difficult. See I thought we had agreed to terms but…”Herds of cattle certainly can and are managed by cowboys, even today. See, for example, the famous example of the the gauchos in the Pampas in Patagonia, Argentina. But of course here in the US more efficient ways to manage herds of cattle are typically employed.It is extremely likely that limited partners have begun to funnel more and more of their money to large VC firms, which I assume are more profitable, instead of Union Square Ventures. Cowboys in the American West are romantic figures. Sure they are. But most investors in the US who invest in cattle, no longer in invest in operations that employ cowboys to herd cattle on the open range.Get Along, Little Dogies…

    1. Rob Larson

      Thanks for the song – takes me back.Cowboys are more common than you think. EVERY ranch in America of reasonable size employs cowboys to manage the cattle [1]. It’s the only way to do it. If you’re smart with fences and corrals, you can get by without very many, but you always need a couple, even if it’s the the ranch owner, his wife and his kids. (and their cousins, if they’re lucky – like I was)You are probably thinking of feedlots – that is where you send the steers to fatten them up after they’re about a year and a half or so, to get them ready more quickly. And you’re right that’s the most efficient way to do that job – works in half the time. But the cows, bulls, and calves don’t live there – they still live out on the ranch. Calves are still born out on the green pastures, like they have been for thousands of years. Cowboys are still needed to care for them. And cowboy work is still the best job you could ever have while growing up, in my opinion.[1] also, every state in the US has a significant number of cattle ranches, which always seems to surprise people.

      1. The essential truth

        Thanks for correcting my apparent error.My analogy was apparently wrong but my point still stands: Fred is using an unnecessarily expensive method to choose startups. I will go back to a previous analogy I have often used: Union Square Ventures is like a mom and pop shop on Main St USA in the 1970’s which big box retailers were able to undercut and drive out of business.Sure, service businesses are inherently different than product businesses. But Vanguard is a service business which has been very successful at providing inexpensive investing advice and undercutting “bespoke” investment gurus.I suppose Andreessen Horowitz, for example, provides all of the services that Union Square Ventures does but enjoys economies of scale via both horizontal and vertical integration as well as “political access” via high-priced lobbyists.Throughout history large businesses throughout the world typically have had deep ties with central governments. These ties inevitably lead to valuable things like favorable laws (such as direct subsidies and quotas) and inside information.Furthermore, the notion that large businesses are inherently businesses is often flawed. Large businesses are often essentially powerful political actors that happen to be in business.Therefore, despite apparently correcting my analogy, you failed to defeat my argument.Fred is what Warren Buffet might refer to more or less as a “card-carrying member of the 2 & 20 club” That is Fred charges exorbitant fees for the services he provides.Please see the following quotation……Famous value investor Warren Buffett has opined in a letter from Feb. 25th, 2017 that “My calculation, admittedly very rough, is that the search by the elite for superior investment advice has caused it, in aggregate, to waste more than $100 billion over the past decade. Figure it out: Even a 1% fee on a few trillion dollars adds up. Of course, not every investor who put money in hedge funds ten years ago lagged S&P returns. But I believe my calculation of the aggregate shortfall is conservative.” According to Buffett, very wealthy investors are accustomed to superior service and products in other areas of life, and they mistakenly think superior products and services are also available in financial services, which in his view is a mistake. They end of wasting trillions of dollars on overly complex and ineffectual hedge fund strategies.

  22. sigmaalgebra

    That’s a lot of money for a skills teaching company.Computing has some long practiced ways to learn skills, and people are expected just to USE those. So, a “full stack” person is supposed to know C# and the .NET Framework class library well; just how they learned all that (thousands, maybe 20,000, MSDN Web pages) is not emphasized! Same for Active Directory, the TCP/IP calls, Visual Studio, etc.Net, in professional computing, teaching is not respected.

  23. Matt Puccini

    Great read Fred. What portfolio management tasks consume most of your time? Any ripe for automation?

  24. Nick Hallam

    Great read.

  25. John

    25 years ago, would you have offered the same investment approach as your suggesting here? Or did you develop into it over time?