Posts from June 2019

I have worked in three venture capital firms over the last thirty-three years and am intimately familiar with the performance of the fifteen (ish) venture funds raised and invested by these three firms. Much of what I have written about fund management and investment performance here at AVC over the last sixteen years comes from my observations of these funds and firms.

Starting in the mid-00s, The Gotham Gal and I started investing in other venture capital funds, always limiting these investments to firms where we knew the partners well and had sat on boards with them.

And The Gotham Gal started angel investing around the same time, often writing the first check into startups. She has made something like 140 angel investments over the last dozen years, mostly into companies founded by women.

We keep good records on these personal investments and I now have another data set to observe.

Across these three sources of data (my firms, other firms, angel investments), there are well over 1000 individual angel, seed, and early stage venture capital investments over four decades.

I have no plans to publish this data. It is not in a single database and there is a ton of confidential information in it.

But I can observe things about this data and have been doing so and will continue to do so.

One of the great truths about early stage investments is that you have to be patient with them. The losses come early and the winners take longer to realize.

It takes seven to ten years to get to real liquidity in a portfolio of early stage venture investments. You can’t short cut it. It just takes time. But come years seven, eight, nine, and ten the returns will start coming in.

I am not sure why seven to ten years and not five to seven or not ten to fifteen. It’s seven to ten. That’s how it has always been and seemingly always will be.

There are a dozen electric scooter companies operating in Paris right now. There are so many that the Mayor just announced that she will reduce that number to three with new rules for electric scooters in Paris.

But before we get into the new rules, I want to stare at that first sentence for a bit.

In less than a year, twelve companies have started operating electric scooter services in Paris.

Paris is the largest electric scooter market in the western world right now.

To enter this business, you need capital to purchase the scooters from China, you need a mobile app on iOS and Android to allow users to locate, unlock, and pay for the use of one, and you need a small team to handle the local logistics.

Apparently those are not significant barriers because a dozen different companies have been able to do it in less than a year.

There are many things that are attractive about the electric scooter business. It has taken off as a transportation option for consumers and is the fastest growing new transportation technology in terms of revenues in history.

Electric scooters also are a much cleaner way to travel than cars or other gas powered technologies.

So there is a lot to like about this business.

But if anyone can open up shop and compete with you with little to no differentiation and your only defensibility is the time it takes to download a new mobile app and put in your credit card, well then one has to ask if this is or will be a good business.

And that is where the Mayor of Paris comes into the picture. She wants to limit the number of scooter providers to three, by requiring licenses and issuing only three of them.

That will sufficiently lower the competition in Paris, lead to a triopoly which may stabilize pricing and margins, and possibly reduce the number of scooters littered all over Paris.

Winning a license will be a political process and there are many issues with that. And the three companies that win a license will become acquisition targets for the big players which are increasingly the ride share companies (who themselves have very low barriers to entry but now have public currencies to buy with).

There are many who have wondered whether ride share will ever be a good business. The public market caps of Uber and Lyft suggest that it will be or that there are plenty of people who currently think it will be.

Scooters are ride share on steroids. Even easier to get into the game with possibly a larger market opportunity.

It will be quite interesting to see how this plays out and how much regulation will be needed to tame this market.

Given all of the discussion of SEC regulation of the crypto sector on this blog over the last week or two, I thought I’d post a video of a discussion of the topic at last month’s Token Summit in NYC.

As expected, the SEC sued USV’s portfolio company Kik this week. Here is Kik’s response to the news:

This part of Kik’s response explains that the SEC is stretching the interpretation of the Howey ruling (from almost a century ago) in its efforts to claim jurisdiction of crypto token regulation:

For the reasons set forth in our Wells Submission, the SEC’s complaint against Kik is based on a flawed legal theory.  Among other things, the complaint assumes, incorrectly, that any discussion of a potential increase in value of an asset is the same as offering or promising profits solely from the efforts of another; that having aligned incentives is the same as creating a ‘common enterprise’; and that any contributions by a seller or promoter are necessarily the “essential” managerial or entrepreneurial efforts required to create an investment contract. These legal assumptions stretch the Howey test well beyond its definition, and we do not believe they will withstand judicial scrutiny.

https://www.prnewswire.com/news-releases/kik-responds-to-sec-complaint-300862114.html

I believe that crypto networks are different than companies and that crypto tokens are different than securities. I look forward to seeing these issues debated in a court of law instead of the basement conference rooms in DC.

If you are interested in supporting Kik’s case, you can do so by contributing crypto tokens to DefendCrypto.org.

We arrived in Paris this morning and, after dropping off our bags, we walked to our favorite cafe for breakfast and on the way we passed a Bird scooter waiting patiently for a rider.

We don’t yet have Bird scooters in NYC, at least to my knowledge, but apparently they are available in Paris.

It is impressive how quickly Bird has built out its international footprint. In the winter of 2018, I started seeing them in our neighborhood in Venice Beach Los Angeles.

And now less than 18 months later they are in Paris (and likely many other cities in Europe).

I have no idea how good of a business electric scooters is. There is no shortage of competition and, as I’ve written about here before, the dockless system can be a nuisance leading to inevitable regulation.

But Bird is not waiting to figure all of that out before building out a global footprint. It is impressive. I hope it works. The benefits from an environmental perspective are significant.

The Gotham Gal and I are going on vacation for a couple weeks.

I will turn on my out of office responder and stop responding to most emails.

I plan to continue to write here daily but the timing of the posts will change. They will probably happen much earlier in the day on US time.

I am hoping for a bit of distance and reflection from the world of tech and startups and maybe that will result in some good writing. Who knows? One can hope.

Dani and Nick and the rest of the USV team worked on a talk about “Why Trust Matters” that we presented at the recent USV CEO Summit. Dani published it on the USV blog yesterday.

It is a great deck. So I’m embedding it here so the AVC community can check it out.

There have been many calls to break up the large Internet monopolies; Amazon, Google, Facebook, Apple, etc.

Breaking up a large monopoly feels like a very 19th/20th century move to me.

I would prefer that politicians and policy makers think about opening up as the better intervention.

A good way to explain this is to go back to the architecture that Twitter used in its early days when there were many third-party Twitter clients. Imagine if Facebook, Instagram, Twitter, LinkedIn, etc were protocols, not applications, and there were many high-quality clients to participate in these networks.

Then the clients could innovate on things like content filtering, promotion of high quality content, business model, etc

If we are going to “break up” these large social media platforms, I would urge elected officials and regulators to think about pushing them to move from platforms to protocols instead of just ripping them apart.

We could do the same thing with search. Our portfolio company DuckDuckGo has built a nice search business by building a different user interface on top of one of the two leading search indexes. If we made it easier and reliable for others to innovate on top of the core search engine, then there might be many more options in search.

In mobile, a good first step is to open up the app stores and allow the browsers to have the same access to the operating system as native mobile apps.

In commerce, if I could checkout as easily everywhere as easily as I can on Amazon, there would be more competition for my shopping dollars.

I think you get the idea. It is very true that the big Internet services have built centralized monopolies and have consolidated their market positions. We do need more competition in these core services. And the best way to do that is force them to open up their services, not break them up.

During the past week, I have traveled through airports using TSA Pre and Clear and plan to travel internationally soon using the Global Entry system. I have recently renewed my TSA Pre and Trusted Traveler accounts.

I am also in the process of renewing my NY State Drivers License and am going through the process of getting an “Enhanced” one.

Here is what one needs to do to get an Enhanced NYS Drivers License:

Enhanced

• is Federal REAL ID compliant
• costs an additional $30 on top of the regular transaction fees
• requires an office visit to prove your
  • identity- *if your name has changed bring in marriage certificate(s), divorce decree(s) or court order document(s)
  • NY State residency
  • U.S. citizenship
  • date of birth
  • Social Security status
• shows your full legal name (first, middle, last) as listed on your legal documents
• shows your residential address (where you live)
• has an American flag displayed on the document

And, because I am an investor in a friend’s bar and restaurant businesses, I am in the process of submitting a NY State Liquor License application which requires the following:

• a photocopy of BOTH your driver’s license and your passport
• a fingerprint ID card which is obtained at your local precinct
• two passport photos
• three months of recent bank statements

In each and every experience, I am doing much of the same work over and over again. Copies of passports and licenses. Bank statements and utility bills. Fingerprints (digital or ink-based). Retina scans. Social security cards. Birth certificates. Marriage licenses. Completing questions about bad behavior (or lack thereof). Etc. Etc.

It makes me want some sort of identity service in the cloud, that I control, not a third party, and not the government, that I could authenticate with using fingerprints, retina scans, or two/three factor logins, and then digitally “sign” all of these forms.

My fear is we will get there but it will be the government or Facebook or Google or Apple that builds this. It would be quite useful but also quite scary for a single entity to control all of that information for each and every one of us.