Posts from February 2020

Video of the week is back. This is the first video of the week post since we launched AVC 3.0. I don’t plan to do this every week, but I will do it some weeks.

About a month ago, my partner Albert and I took the stage at the Upfront Summit and talked to Erin Griffith of the New York Times about USV’s developing interest in companies focused on tackling the climate crisis.

For those reading via email, if the video embed doesn’t show up, you can find the video here.

Rocketbook is a serial Kickstarter creator, having done five successful projects already. They make notebooks and note pads that you can write on but also save your work to the cloud.

They are back with the Rocketbook Orbit which is a “legal pad” that saves your work to the cloud. I backed it this morning.

Back in 2009, I wrote a post called The Venture Capital Math Problem.

I was reminded of it yesterday when I saw this tweet:

1/ It is so damn hard to predict the future.
This 2009 piece from @fredwilson (literally the best in the biz) predicted significant venture industry contraction when in fact the last 10yrs have seen massive expansion.https://t.co/B88t5W6yYA

— Ben Siscovick (@bsiscovick) February 26, 2020

In that post, I argued that the venture capital business could not sustain more than $20bn a year of new capital coming into it and continue to produce good returns to the investors in VC funds.

The venture capital business has been raising north of $50bn per year for much of the last decade and so far, the returns continue to look quite good.

So what did I get wrong in my attempt to solve the venture capital math problem?

I think it set the problem up correctly but I got one assumption very wrong and it was this:

And I assume that the biggest exit each year is $5bn. Yes, it is true that some venture investments turn into businesses like Apple, Google, Microsoft that are worth $100bn and more. But it is also true that most VCs are long gone from those deals before the valuations get to that level. So for the sake of solving this problem, I’d assume the largest exit each year is $5bn and then you have a power law distribution of another 999 deals.

……..

I’ll assume that the biggest deal, $5bn, represents 5% of the total value of all 1000 exits and that the total value of all exits is $100bn per year.

That was off by maybe an order of magnitude or more. Uber IPO’d at $70bn and still trades at north of $50bn. Zoom is now trading at $32bn. Out of the USV portfolio in the last decade we have Twitter at $26bn, Twilio at $16bn, and MongoDB at almost $10bn and a number of high quality public companies trading in the single digit billions.

I suspect that last paragraph that I quoted should read “the biggest deal, $50-100bn, represents 5% of the total value of all exits (likely north of 2000, possibly a lot more) and the total value of all exits is $1-2 trillion per year”

By that math, keeping all other assumptions, formulas, and math the same, the max that can be invested in VC is maybe as much as $100bn per year and we are still well below that level based on the numbers I am seeing.

So what did I learn from this mistake?

I learned that you can’t assume that the past is a predictor of the future. And I learned that it is helpful to ask yourself “what could go right?” instead of “what could go wrong?”

It is also true that the last decade has been one of incredibly low interest rates/cost of capital, and conversely very high PE and revenue multiples on growth stocks. And we have seen companies like Uber, Facebook, etc stay private much longer so the VCs have exited at much higher valuations than was once the case.

We cannot assume that will continue either and it may well be true that the $50bn-$100bn that is going into the venture capital business right now will not get the same returns that the $20bn that was going into the venture capital business in 2009 has gotten.

But regardless, I was dead wrong in that post back in 2009 and I have learned from it. As I have aged, I tend to underwrite to the upside not the downside. That has not been my nature but I have learned that it works better, particularly in the VC business.

Finally, I do not regret writing that post one bit. As I replied to Ben’s tweet when I saw it:

One of so many bad calls I've made over the years. All public. All available for critique. But I can, and do, learn from my mistakes and so can anyone else because I've made them in public.

— Fred Wilson (@fredwilson) February 27, 2020

My partner Rebecca brought an appreciation for and an understanding of marketing to USV and it has made us better investors and it has helped us assist our portfolio companies with their marketing efforts.

Rebecca is going on Simulmedia Live tomorrow at 2pm ET to talk about startups, marketing, growth strategies, and how she thinks about all of these issues in identifying attractive investments and helping our portfolio companies with their growth strategies. If you want to listen in, you can register here.

Simulmedia is a USV portfolio company that offers internet style advertising products via a national scale television advertising network. As more and more internet channels have become saturated, many startups and growth companies have turned to Simulmedia to help them make TV work the way that their tried and true internet channels have worked for them.

It should be an interesting discussion tomorrow.

I mentioned it yesterday but given its impact on global health and capital markets, I thought I’d share a few things I’ve read and watched in the past few days that I found helpful (both shared on Twitter by my friend Phil).

This is a conversation that was held last week at Johns Hopkins Business School:

This is a good article from The Atlantic

This is the Johns Hopkins Live Map.

I like the headline of The Atlantic piece:

You’re Likely to Get the Coronavirus. Most cases are not life-threatening, which is also what makes the virus a historic challenge to contain.

I think we should prepare ourselves for Coronavirus to be like the flu. It will be everywhere, including the US, and many of us will get it. A few of us will get really sick but most of us will not.

I am not suggesting we should not be alarmed and do what we can to protect ourselves, our families, our companies, our communities, etc, etc. We absolutely should. If you run a company, you should prepare your employees and your company for a worsening outbreak.

But I do not believe we should panic. I think there will be panic and that is understandable. But, I think remaining calm, getting prepared, and understanding what is going on and what is not going on is the best approach.

I am going to spend much of today in my Zoom room participating in several meetings around the country and around the world.

If you look at Zoom’s stock price over the last month, since the outbreak of the Coronavirus, you will see that the market thinks that I am not the only one who will be doing that.

The combination of limiting travel due to Coronavirus fears and the desire to lower carbon footprints tells me that we may have reached videoconferencing’s moment.

Maybe attending a meeting in person is a thing of that past and video’ing in is our future. If so, we may look back at this winter of 2020 as the moment that happened.

These guys have been using Kickstarter, and a bunch of other online platforms, to support their live shows riffing on “campy B-movies.” I love the underground, indie creative community and these guys are a great example of that. I backed this project this morning.

Earlier this week I purchased 1% of a collection of five 1985 Nike Air Jordan sneakers using our portfolio company Otis’ mobile app.

I paid $330 for ten shares (out of a total of 1000 shares) implying a value of $33,000 for the five pairs, or roughly $6600 each.

This page shows the highlights of this sale, including a video, a link to the investment deck, and a link to the offering circular.

The Air Jordans offering sold out quickly but luckily I got a push notification on my phone alerting me to the “drop” and I was able to secure an interest in the collection in less than a minute. It was a lot of fun to do. I have bought interests in nine collectibles via the Otis app over the last few months.

The idea of breaking up collectibles into small interests and creating/making a market in them is a very interesting idea. It allows people who appreciate these items and understand their value to participate in the appreciation without having to be super wealthy. I like that very much.

I also like that Otis is a “crypto adjacent” business. Our friend Jesse Walden coined that term and I really love it. It suggests that there are non-crypto based applications, like Otis, that will deliver on some of the promises of crypto and prime the pump for what a fully crypto-based application can do for us. Otis could have been built on a blockchain and these security interests in Air Jordans could trade on a blockchain, but that is not how it works today. It may go there in the future. But regardless, we are starting to see how technologies like crypto can open up a market to everyone, or at least a lot more people, and that is very exciting to me.

Our portfolio company Recount Media is doing some of the finest reporting on the presidential race right now. This 2 minute 16 second video goes back over Mike Bloomberg’s debate appearances in his time as NYC’s Mayor and shows how many of the questions he faces now were in fact questions he faced back then.

It’s interesting to watch this and see if we see some of the same responses this evening.

Please don’t take this blog post as an endorsement of Mike Bloomberg. I am very much in listen and learn mode right now and don’t need to make a choice until NYC votes in late April. A lot may change between now and then.