Posts from 2018

The Nasdaq is down almost 15% from its labor day highs.

Apple is down almost 25% in the last two months.

Facebook is down about 40% since July.

Bitcoin is down about 80% from its highs last December.

Ethereum is down about 90% from its highs in January.

All of those are examples of bleeding, if you happen to own any of them.

So what do you do?

Close out your position?

Buy the dip?

Sit on your hands?

It all depends on your fundamental views on these various investments.

Here are mine.

Apple is the easiest one for me. They aren’t going anywhere, although growth is slowing as they are close to saturating the high end of the mobile phone market. It will be a value stock at $120/share. If it gets there, load up on it.

Facebook is harder. They own some incredible assets like Instagram but the outlook there is cloudier given likely regulation and it won’t be a value stock for another $100 of losses. 

The Nasdaq is even harder. Are we in a bear market now? Or just a painful correction? A bull market that is almost ten years old feels long in the tooth and I can see the arguments for a bear market more clearly than a correction.

Bitcoin will form a bottom at some point and is a buy when it does. But where is that bottom? Probably not $4500.

Ethereum feels like the easiest one to make a bull case for right now. It is hated. Everyone has lost their shirt on it by now. Nobody other than developers want to know about it. It feels like time to start nibbling on it but not loading up on it.

But the thing to understand more broadly about what is going on right now is that big sophisticated investors are reducing their risk exposure across all asset classes and have been doing that for some time. The pace of the “risk off” trade is accelerating. Which means a flight to safety is going on. And when that is happening, you really need conviction to be buying. 

Our portfolio company Kickstarter is a Public Benefit Corporation.

One of the requirements of a Public Benefit Corporation is that they publish an annual benefit statement outlining how they are doing living up to their PBC charter.

This is Kickstarter’s PBC Charter.

And this is their 2017 Public Benefit Statement, which was published yesterday.

Here is a page from the 2017 statement, which shows how much funding they provided to creative projects across the categories they support.

That is a lot of economic activity, almost 20,000 creative projects were brought to life by Kickstarter PBC and its creator and backer communities.

Innovation takes many forms. Innovation in governance and business model is particularly important right now. And Kickstarter PBC is exploring a new way of running a for profit business and showing the way for others who might want to do the same.

It is so easy to look at a headline announcing a deal and say “they overpaid.” I have done that myself plenty of times. It’s a natural emotional reaction.

But what I have learned is that you can’t really critique an investment until you know how it plays out.

Some things that look so expensive turn out to have been bargains in hindsight.

And, of course, some overpays are just that. Prices that nobody can make money on.

The current debate raging in NYC about the Amazon deal that the Governor and Mayor made reminds me of that.

Everyone is saying “they paid billions of taxpayer dollars to the richest company in the world” as an argument that they overpaid for the deal.

But this line in the Mayor’s OpEd yesterday in the Daily News got my attention:

New York City alone will net $13.5 billion in tax revenue from the new headquarters, and the state another $14 billion. That’s a nine-fold return on our investment

If these numbers are correct, the billions NYC and NYS spent to incentivize Amazon to come to NYC, will have been a great investment. 

We would take 9x on our money any day at USV.

It is easy and natural to critique an investment on the headline number. But the headline number is only half the story. You really need to see how it pans out to know if it was an overpay.

The Pivot is celebrated in startup land. Huge successes like Twitter and Slack are all the results of pivots. So surely pivoting is a good thing, right?

Well, I am not so sure. And I certainly don’t want entrepreneurs to think that pivoting is the right thing to do when their original idea fails. It may be better to let the failing startup fail and start over again from scratch.

I am not talking about the slight pivot; making a change in business model with the same product, selling a slightly different product to the same customer, going up market to a different customer. Those are not really pivots, they are evolutions that every startup company goes through. 

I am talking about the hard pivot. Changing the product, market, and business entirely. Essentially starting over from scratch.

And I am not sure hard pivots are good for anyone.

Here is why.

If you raise funding for a startup idea, you will take some dilution and you will have a bunch of investors who backed you and your idea and are believers in it. You will have assembled a team that you built with the original idea in your mind. 

If that idea fails and you pivot into a new idea, you will take all of those investors, team members, and dilution with it, whether or not they are excited about it.

You can always swap out old team members for new ones, and so the team issues are real but probably not as significant as your investor and dilution issues.

If you choose the pivot approach, you will have investors for the life of the pivot who did not choose to back your new business and may have no interest in it other than their financial interest. 

But the bigger issue is the dilution you take into your next startup. I have never understood why entrepreneurs would want to use a company and a cap table that they no longer own 100% of to do a new startup. They are just carrying baggage that they don’t have to and probably should not carry.

I understand the argument that starting a new company by pivoting with cash in the bank and a team that is already built is attractive and giving those back and starting over from scratch is harder. But the harder path is often the best path. And the easy path is often the harder one.

If you were able to do a startup from scratch once, I would imagine you can do it again. And doing it again allows you to keep a lot more of the new company and custom build it from scratch, putting together the ideal team and the ideal investor group.

I have always suspected that entrepreneurs also choose the pivot over some sort of loyalty to their investors. If that is the case, I would like to say that this investor does not want any of that misguided loyalty. 

The truth of seed and early stage investing is that the failure rates are very high. We write off investments in failed companies in every one of our funds at USV, usually multiple times. The Gotham Gal, who invests much earlier than USV, writes off investments at an even higher rate.

So early stage investors are used to failing. It is built into our business model. What we want in return for accepting this high rate of failure are the spectacular successes that we get when everything clicks; the right idea, at the right time, with the right team, the right investor group, and the right execution.

And while pivots can deliver all of the “rights”, I am not sure that they do that at the same percentage as the startup from scratch, given all of the baggage that they are carrying.

And there is nothing I dislike more than carrying on with something when I’ve lost interest, and worse, the founders have lost interest.

So my view is if you’ve failed, accept it, announce it, and deal with it. Shut the business down, give back the cash, and rip up the cap table. Then do whatever you want to do next. If it is another startup, do it from scratch and keep as much of it as you can. If it is something else, well then do that too.

Startups are not indentured servitude. And I have been around some that feel like it. That sucks. I would encourage everyone in startup land to reject that approach and focus on a better one. There are so many options for things to work on that everyone should make sure they are working on the right thing and excited about it. Anything that gets in the way of that is suboptimal in my view.

It is that time of year when we are having our families and friends over and celebrating holidays with a big meal.

And there is no better way to create that personalized one of a kind table than going to Etsy and getting the stuff you need.

This video/advertisement showcases that so well.

Disclosure: I am the Chairman of the Board and a large shareholder of Etsy.

One feature of the Pixel 3 that I really like is the return of wireless charging, something earlier Google phones had but went away.

I bought a Pixel Stand and set it up where I charge my phone when I come home.

I just place my phone on the stand and it charges. No cords involved.

You can set up all sorts of cool things like a screensaver of your recent photos and photo albums, Google Assistant so you can ask your phone questions when it is charging, and a display of your upcoming appointments.

I am still playing around with the right choices for me but I think there is a lot of interesting things one can do with this charging stand

I quite like it and just got one for my office too.

The Crypto Explorers community was seeded right here on AVC. It is a community of over 200 people who are working in the crypto sector, interested in the crypto sector, and/or are invested in the crypto sector.

They have taken five group trips to Zug Switzerland (Crypto Valley) and built friendships, learned a ton, and had some fun too.

I found out yesterday that they are going global now, with planned trips to other crypto hot spots around the world.

The next trip is in a couple weeks to Singapore on November 26-27. And spots like Korea, Hong Kong, Malta and eventually the Americas are also on the roadmap.

If you want to join this community of crypto travelers and join the trip to Singapore, you can do that here.

On the west side of Manhattan, from the west village, where we live, to the Javits Center on 34th Street and the west side highway, runs an abandoned elevated train track called The Highline.

Eleven years ago, the Gotham Gal and I took a walk on the old Highline with Joshua David, one of the two founders of Friends Of The Highline, and I wrote this post about what was going to happen.

The Highline cost something like $400mm to renovate. Some of the funds came from the city and state, but most came from private donations, like the one the Gotham Gal and I made after taking that walk.

And then we got to watch what happened. The neighborhood exploded and is still exploding. There has to have been tens of billions of dollars of investment in real estate along The Highline over the last ten years and it is still going on. I am not including Hudson Yards, which sits at the northern end of The Highline, which is another economic development story but not the one I am telling.

And into those buildings move companies and people. New homes get created. Then the coffee shops and grocery stores and restaurants come. And the local economy expands, by a lot. The city and the state taxes this economic activity and its coffers fill up a bit more as a result.

When we took that first walk on The Highline, I asked Joshua if there was some way to tax the land owners along The Highline to fund the renovation of it. It was obvious to me that the value of that land was going to go up a lot. He told me there was not. That seemed like a missed opportunity to me back then and still does. I suspect the increased land values along The Highline are an order of magnitude higher than the total investment in The Highline. 

That is the power of economic development. It is a virtuous circle. You invest, you grow, you produce economic returns, you invest, you grow. Rinse and repeat.

Why am I telling you this story today?

Well I got this tweet in my timeline sometime yesterday:

Amazon Is Getting $1.5 Billion to Come to Queens https://t.co/B4ITzuSXmj <- Why? @fredwilson Did NYC really need to pay Amazon $1.5B to come there? Will they get it back?

— Peter Radizeski (@radinfo) November 13, 2018

It is a great question. And some economist should do the work. The city probably already has.

My bet is that the City will get a return on this investment. Possibly a very large one. Twenty-five thousands jobs and all of the economic activity those jobs create are going to do a lot for Long Island City and all of NYC. 

The annual salaries for those 25,000 employees will be more than the $1.5-2bn that the city and state are committing to this project. When you add to that the real estate that will be constructed and renovated, all of the new homes that will be created for people, and the salaries for all of those construction workers, the local commerce (coffee shops, grocery stores, restaurants, etc) and the salaries that all of those employees will take home, etc, etc, I think it is a “no brainer” to be honest.

You can all tell from the posts I have written on this subject over the last week that I am a big fan of economic development. I think it is one of the things that makes a city vital and allows a city to retain its vitality. In the thirty five years we have lived in NYC, we have seen much of Manhattan and Brooklyn rebuilt. Now we are seeing Queens do the same thing. The Bronx and Staten Island are not sitting idle either. It is a magnificent thing to see and I pinch myself every time I think about it.

The New York Times is reporting that Amazon has officially chosen NYC and DC as the locations for its big planned expansion, known as HQ2.

This is big news for NYC, as I wrote about last week.

I would like to welcome Amazon to NYC. I think this is going to work out great for Amazon and for NYC.

I know there are plenty of “not in my back yard” opponents to this idea and folks who think growth is bad and we should not grow until we fix things that are straining under the load.

I appreciate all of those concerns. They are valid at some level.

But I am a fan of grow, prosper, invest, fix, grow, prosper.

And we are doing that in NYC right now.