Posts from February 2019

Chris Burniske reminded me yesterday of something I said a while ago:

"The lesson I’ve learned in my career is to invest into the post crash cycle. When you do that, and do it intelligently, you are rewarded greatly" – @fredwilson 4 years ago (in the last #crypto bear market): https://t.co/Fwy1J8ydRr

— Chris Burniske (@cburniske) February 27, 2019

We are in the post crash cycle in crypto and that has made the sector interesting to me again. Prices are way down and there is a lot of great work being done on projects we are invested in and projects we want to invest in.

And no better place to soak up all of that progress than at Token Summit IV, run by our friends William Mougayar and Nick Tomainoon May 16th in NYC.

When William asked me if I thought they should do it this year, I said “hell yes” but also suggested that they dial it back in line with crypto prices. And that is what they have done.

They are capping the number of attendees at 550, about the same number they had at the inaugural Token Summit in May 2017. They are planning to do it at an intimate venue and keep the content and attendee list very tight.

The first 200 early bird tickets are available for purchase immediately at a price of $699. After 200, anyone can sign up but they will be “invite only” and they are selecting signups based on quality, experience and diversity of thought they bring.

This year’s Token Summit will focus on the following issues:

• Cryptonetworks and open source blockchain protocols versus startups: what are the differences and similarities?
• Open finance: what are the challenges to getting open, global financial products in the hands of millions of users?
• dApp development: can next-generation dApp platforms be a catalyst for greater adoption?
• Latest practices in extracting blockchain data for insight: what can we learn and why is this important now?
• Are we decentralized yet? Is there an optimal criteria for decentralization, and how do we get there?
• How do we quantify the value of blockchain protocols, and applications?
• What are the success factors in deploying decentralized protocols?
• Decentralized governance – what is working now versus what is experimental?
• Tokens evolution- what are the best cases with real innovation, real users and real benefits?
• The regulatory front: Is the US losing its position as the standard bearer? Is there a perfect jurisdiction?

I don’t write a lot about Etsy here at AVC. It is a public company and I am the Chairman so I have to be careful.

But today Etsy is announcing something that makes me so proud. I have to tell you about it. Etsy is the first major online shopping destination to offset 100% of carbon emissions from shipping.

Here is Etsy CEO Josh Silverman’s blog post on this news.

Etsy has been committed to clean energy for a long time. They will power 100% of their operations with renewable energy by next year. But the company understood that they could not stop there and needed to think about the carbon footprint of their network of sellers shipping products to buyers. And so they have taken the next step of offsetting all of the carbon emissions related to shipping on Etsy. This initiative comes at no additional cost to Etsy buyers or sellers.

To celebrate the launch of carbon offset shipping on Etsy, they are going to do something tomorrow to make a splash.

To jumpstart our efforts and celebrate this milestone, tomorrow (February 28), we will also offset shipping emissions for the entire US ecommerce sector for the day. In the US alone, every day approximately 55,000 metric tons of CO2e are emitted into the atmosphere by delivering packages from online orders. Offsetting this impact for one day is the equivalent of protecting 100 square miles of US forests for one year.

https://blog.etsy.com/news/2019/on-etsy-every-purchase-makes-a-positive-impact/

I am a believer in doing well by doing good. There is a lot of that across our portfolio at USV and across our personal investments in tech and real estate. One of the good things we need to do for our world right now is reduce our carbon footprint. And we need to do that urgently. So I am thrilled and proud of Etsy’s leadership and work here. Well done Etsy.

I walked out of my house in LA this morning and was greeted with this sight:

I thought “ugh” and debated picking it up and putting it where it belongs.

I am all for progress and understand that there are costs and benefits with everything.

This post explains how electric scooters can and likely will result in massive reductions in carbon emissions (and that Steve Jobs was a big fan of electric scooters).

With that electricity subtracted, the net amount of mitigated carbon equals 17,130 metric tons. Let’s reduce this number by 20% for people who would have walked and for chargers picking up scooters in their cars. Now we’re looking at a total amount of 13,700 metric tons of CO2 mitigated by not driving a car.That’s the equivalent of taking 105,000 cars off the roads around the world, each day.

https://medium.com/cleantech-rising/the-environmental-impact-of-electric-scooters-8da806939a32

That is a big deal. It is really hard for me to be against electric scooters when I see people riding them to work instead of driving or being driven in cars.

But the way electric scooters have been rolled out here on the west side of LA leaves a lot to be desired. I have counted at least five suppliers of electric scooters in my neighborhood. There seems to be no limit on new entrants. And the big product market fit innovation that unlocked electric scooters, the dockless network (which I’ve been a fan of on this blog), is also the cause of much of the “ugliness” of them.

I have no doubt that the electric scooter providers will innovate on the model and the product and figure out how to alleviate many or possibly all of this ugliness over time. But until then we will be picking up scooters from our lawns and sidewalks.

It is no wonder that large swaths of society are getting tired of tech companies, startups, and disruption and are starting to say “no mas.” We in startup land have learned that the winners beg for forgiveness instead of ask for permission. And you won’t find a bigger fan of and promoter of permission-less innovation than me and my colleagues at USV.

If we wait for those in power to grant permission to innovate we won’t get anywhere. Most everyone understands that.

So we end up with ugliness. And that is a big challenge for innovators. Can we innovate a little more beautifully? I don’t know but I hope that we can try. If we don’t, we will see even more backlash than we are seeing now.

Mark Suster wrote a post this weekend laying out some rules for being a good board member before the meeting, in the meeting, and outside of the meeting. It is a very good list. I particularly like his rules for outside of the board meeting and agree with him that is the most important part of being a board member.

I try to follow these rules except “let others speak.” That is a joke but I am known for taking up a lot of airtime in meetings, not only board meetings. It is something I’ve been working on for thirty-five years and something I expect I will be working on for the rest of my life. I just get so into it and can’t help myself.

Which leads me to my rule for being a good board member.

It comes down to one word.

Care.

If you care, really care, deeply care, like the way a parent cares for a child, you will be a good board member.

Of course, you have to do a lot of work; preparation work, people time, relationship work, reading, studying, etc to be good at this job.

But all that comes easy if you just deeply care about the company, the people running it, and everybody in and around it.

I was talking to a friend this past week who is looking at an early stage company and trying to figure out how to value it.

He pointed to a similar company that has a public market cap of $250mm.

I asked him how many rounds of financing or how many major milestones does this early stage business need to accomplish before it can get to the same place the similar publicly traded company is at.

He said he thought it was going to take three big steps after this financing to get there.

So I said, “it is worth roughly $30mm after this round.”

He said “how did you determine that?”

I said “If you assume the value will double from round to round or milestone to milestone, and after three more of those it will be worth $250mm, then it should be worth $30mm after this one.”

I then said “work back from $250mm, to $125mm, to $62mm to $31mm.”

I call this the doubling model and I’ve used it as a framework for thinking about value appreciation in startup financing for over thirty years.

Here is a simple spreadsheet that shows how this works. It does not include the impact of employee equity grants in it so the numbers would change a bit if I added that. Assume the employees would own 20% of the company at exit.

This is just a framework, nothing more.

But I find it is very helpful in thinking about what is fair and reasonable at various stages of a companies development.

You can also scale this back. If a company only needs ~$20mm to get to positive cash flow, but only has $150mm of potential value at exit, you would get something like this:

The two big assumptions that drive this framework is that a company should always target to double valuation round to round and never dilute more than 20% per round. That minimizes dilution and also gives the existing investors the comfort and confidence that things are going roughly to plan.

If things are going great, you can take valuation up more than that from round to round, but in my experience that often catches up to you and the next round is flat as a result, which is not a great thing for anyone.

And everything is ultimately governed by the total size of the opportunity (TAM), how the market will value that at time of exit, and the capital requirements to get there. Those are the fundamental drivers of value in startup land and this framework attempts to respect them.

Trust is rising as a central issue in tech and the Internet. We spend a lot of time at USV thinking about trust and talking about trust. It is part of our current investment thesis.

Rachel Botsman is a writer who focuses on trust and her talk at DLD last month was quite good.

This is such a cool project. I backed it the minute I saw it.

Savills World Research, a global property agent, has been ranking the world’s top tech cities based on a bunch of criteria for years. In this year’s rankings, NYC tops SF to become the number one tech city in the world.

This is just one survey and I am certainly not going to assert that NYC has surpassed the bay area in terms of the best place to start a tech company.

But the bay area is absolutely struggling with some challenges. Labor and real estate costs have skyrocketed in the last decade. And from what we are seeing it is easier to convince someone to leave the bay area and move to LA or NYC than it has been in the past. The bay area is not an easy place to live and work anymore.

Truth be told, NYC has some of those same issues, but it has the benefit of five boroughs, a mass transit system that even with all of its problems moves 5.5mm riders a day, and a vibrant business community that is diverse and talented.

Another truth is that any of those thirty cities would be a fine place to start a company. Tech has gone global and so has tech talent. And investors are eager to fund innovative tech companies in many places around the globe.

USV has portfolio companies in about a dozen of those top thirty cities and, while we limit our investments to North America and Western Europe, we certainly hope to increase that number in the coming years.

But regardless of all of that, I am proud of what NYC has been able to accomplish over the last twenty-five years. In the mid 90s, I doubt NYC would have been a top ten city on this list. And now it is number one. Well done Gotham.

Our portfolio company SoundCloud launched an important new feature today. Distribution.

There are plenty of services a musician can use to get their music onto the major streaming music services. There has been CDBaby, TuneCore, DistroKid, and many more. So why do musicians need another option?

Because if you grow up on SoundCloud, starting in your bedroom or parent’s basement, and you have all your music there, it is nice to be able to send some of it, or all of it, to Apple Music, Amazon Music, YouTube Music, Spotify, Tencent, and many more.

This service is free if you have a SoundCloud Pro or Pro Unlimited account.

Here’s the value proposition (from SoundCloud’s blog post):

With the first and only distribution tool built directly into a streaming platform, you can think of your SoundCloud account as mission control for your music: the only place where you can share tracks instantly, connect with your fans, manage your content, and get paid for your plays – everywhere. Simply choose from your uploaded tracks and albums and distribute to all major music services while keeping 100% of your rights and payouts (we take nothing) and getting streamlined payments directly from SoundCloud.

I am excited to see this launch as it is a key piece of SoundCloud’s position in the market, as the place creators go to start sharing their music, and stay to manage it as they grow their fan bases and careers.