Like many did, we spent much of this weekend watching Peter Jackson’s wonderful documentary of the Beatles making Let It Be, titled Get Back.
I enjoyed so much of the film, particularly the music, but the big thing I took away is the power of real partnerships. While this was the Beatles last recording session, what you see in the film are four partners working together creatively and wonderfully. I wasn’t really expecting that and I found it so enjoyable to watch.
I have worked in partnerships for most of my adult life, since I was in my mid 20s. I have spent 35 years in three partnerships, all of them “equal partnerships”, the kind where everyone brings their own ideas, they are worked on together, and there is mutual respect and admiration.
Partnerships are not easy. Everyone has to dial back their ego a bit and let others have their say on things. But what you get when you do that is an environment where everyone gets better than they would be on their own. And you can see that in the Beatles work. All of the four Beatles went on to have solo careers, but none of them produced a sustained level of work that the four of them were able to make together.
Watching Paul, John, George, and Ringo work together for a month to make an incredible record was a reminder that when we sacrifice a little bit of our self and commit to a team dynamic, wonderful things can and do result.
Like most holidays we celebrate, the essence of the Thanksgiving holiday hides underneath our celebration of it.
Ask anyone about Thanksgiving, and you will hear about turkey, stuffing, a big meal, family, and maybe football.
I’m fine with all of that, particularly the stuffing and family parts.
But the thing that I like most about Thanksgiving is the idea that this is a time of year to give thanks.
The story I heard is that the first Thanksgiving was done to give thanks to the bounty of the harvest. That makes sense to me given the time of year in late fall.
But regardless of why this tradition started, I am a big fan of a day set aside to be thankful.
And I am very thankful this year. Here are some reasons:
1/ We are starting to learn to live with Covid. Between vaccinations, testing, therapeutics, behavior modifications, and more, we are starting to understand the risks and the protections that allow us to live with a virus run amok. The Gotham Gal and I traveled to Paris and back earlier this month and we were able to enjoy a city we love while the virus was still very much a thing in both NYC and Paris. I am starting to attend more and more board meetings in person. The USV office has been open since March and our team enjoys being able to work together face to face. I get to go to MSG, the greatest arena in the world, and watch NBA basketball with twenty thousand other people a few times a week. While the pandemic may not be over, the panic and isolation are easing. And I am thankful for that.
2/ Technology continues to make our lives better. While the narrative has grown that tech and tech companies are bad for society, our everyday lives suggest that the opposite is true. I facetime with my mom when I used to call her on the phone. Seeing her smile warms my heart every time. I can drive to the east end of long island and back in a car that has been entirely powered by the sun. An artist can make a beautiful image and sell it in such a way that they get compensated every time that image trades hands. A founder in Egypt can (and did) raise millions of dollars for their company on one zoom with a team of investors in NYC. I can go on and on, but you get the idea. Technology continues to improve our lives and I can play a role in that. I am incredibly thankful for that.
3/ Aging gracefully is a wonderful thing. We have watched our children become wonderful adults. We have watched the things we have created have an impact on others. We have found time to give back. We have found time to write. We have found time to have great fun with great friends. Time spent on planet earth is such a gift and I’ve now spent 60 years here. I am so thankful for that.
That felt good to write. Giving thanks is awesome. I encourage everyone to take some time to do it. That’s what today is all about.
I remember about fifteen years ago, a well-known VC said to me “you need to sell a company within a few years of the founder leaving. Companies can’t sustain their innovation after a founder leaves.” I told that VC that my experience has been different on that measure and that I did not agree.
I have seen leadership teams take over great businesses from founders and get them to the next level. Etsy, where I am Chair of the Board and a large shareholder, is a great example of that. There are many others in my career as well.
However, there is a special something that founders provide companies. I’ve heard it called “moral leadership.” I’ve heard it called “the soul of the business.” I’ve heard it called “long-term thinking.”
But I don’t want to sell our NFTs. We also don’t like to sell the art we have collected over the years. We also don’t like to sell the crypto assets we hold.
But I am very interested in swapping NFTs for other ones.
Here’s how I would imagine an NFT swapping service would work.
1/ I visit the swapping service and connect with a wallet.
2/ I list the NFTs that I own that I am willing to swap.
3/ I browse the service to see the NFTs that others have listed to swap.
4/ I find an NFT I would like to swap and I make a swap offer to the owner.
5/ The owner accepts, declines, or proposes a different swap.
6/ If a swap is accepted, it is processed on-chain.
I could imagine that swaps would not need to be one NFT for another NFT, although you might start there. Over time, you could end up with multiple NFTs for a single NFT, or possibly one NFT for another plus some crypto to sweeten the deal.
I have been asking around to find a service like this and have not found one yet. If you know of such a service, pls let me know via email or Twitter. If there isn’t one, maybe someone should build it.
We have been seeing quite a few seed rounds getting done in and around $100mm post-money and that concerns me for a few reasons:
Seed stage is when a company has a good team, a good idea, but has not yet proven product market fit and a go to market model, and has not yet demonstrated a sustainable business model.
These investments have a high failure rate. In my experience, roughly half of seed stage investments fail completely, wiping out everyone’s investment, including the founding team’s.
There is a lot of dilution from the seed round to exit, in my experience, a seed investor will be diluted by around 2/3 between seed and exit.
A power law distribution exists in outcomes in any early stage portfolio and a seed portfolio is no differernt.
So given that I am jet-lagged and got up at 3:30 am this morning, I modeled this out to see how this all works. Here is the google sheet in case you want to look at my model.
Here are the assumptions:
Number Of Investments
Average Dilution from Seed to Exit
Top-Performing Investment Outcome
Power Law Number
Power Law Distribution Of Outcomes:
Given those assumptions, a $100mm seed fund that makes all of its investments at $100mm post-money will barely return the fund. And that number is gross, before fees and carry.
Total Value At Exit
Now all of this depends on a few important assumptions.
If you believe your top-performing investment, out of 100 investments, will end up being worth $100 billion, then the numbers change a lot. You end up with a 13x fund instead of a 1.3x fund, before fees and carry.
The dilution from seed to exit also matters a lot. If you believe the dilution from seed to exit is only 50% and your top-performing investment, out of 100 investments, will be worth $10 billion, then you will end up with a 2x fund, before fees and carry, instead of a 1.3x fund (at 2/3 dilution).
There are only several hundred companies in the world with market caps of over $100 billion and roughly a quarter of them have come out of venture capital portfolios in the last thirty years.
So it can happen, but it is very unlikely. In almost twenty years of producing some of the highest performing VC funds in the business, USV has never had a portfolio company become worth over $100 billion. That is a very high bar, too high to expect in your portfolio.
So, in a world where we are seeing more and more $100mm valued seed rounds, one has to ask the question what are the investors expecting? A $100 billion outcome? Doubtful. Less dilution, maybe. A different power-law distribution? Don’t count on it.
I think they are being delusional, comforted by the likelihood that someone will come along and pay a higher price in the next round. But it seems that person may also be delusional. Because when you model things out, the numbers just don’t add up.
I think a strong case can be made for seeds in the low eight figures. If you run that same model with a $20mm post-money value, you get a 6.667x fund before fees and carry. That’s a strong seed fund, probably a tad better than 4x to the LPs, after fees and carry. If you think you can get one of your hundred seed investments to a $10bn outcome, then paying $20mm post-money in seed rounds seems to make a lot of sense.
The exit values in VC have increased significantly over the last decade leading to escalating entry values. That makes sense. But the two things that have not changed materially over the last decade are the dilution from seed to exit and the power-law distribution of outcomes in an early stage portfolio.
The failure rates are so high in early-stage investing that the power-law curves are steep. If your best-performing investment, after taking significant dilution, cannot return your early-stage fund, then you are doing something wrong.
Update: I saw this tweet just now and thought that it makes a great addition to this post:
A number of friends have been asking us how to buy crypto assets. This is not the first time we’ve gotten this question and it won’t be the last.
When I first started getting this question, my answer was “open a Coinbase account and buy Bitcoin.”
Then there was a period when my answer was “open a Coinbase account and buy Bitcoin and Ethereum.”
Today, my answer is “open a Coinbase account and buy a diverse set of crypto assets.”
A diverse set of crypto assets would include Bitcoin, Ethereum, the other major layer one blockchains (Solana, Flow, Avalanche, Polkadot, Algorand, etc), the major Defi protocols (Uniswap, Aave, Compound, etc), storage protocols (Filecoin, Arweave, etc), telecommunications protocols (like Helium), some layer two protocols (like Stacks, Polygon, etc), some gaming assets (like Axie, Decentraland, etc), a maybe some NFTs.
That last paragraph is not meant to be specific. It is meant to be illustrative. And that list contains assets that I own and USV owns as well as many assets that I and USV do not own. I am not recommending any specific assets here. I am recommending a diverse portfolio and those are some good examples of what might be in one.
I do not believe the web3/crypto opportunity can be captured by simply holding Bitcoin and Ethereum anymore. You must own a broader set of assets because the market is expanding beyond the OGs now and you need to be exposed to more of it.
I believe there will be index funds that can do this for you someday. But today your options are limited unless you have the wealth and access to the premier token funds and that is hard to achieve.
Finally, I have no idea where we are in this bull cycle we are in (that is leading to so many people asking us this question right now), so I would be conservative and dollar cost into crypto. If you want to put $10,000 into crypto, I would put $1,000 a month each month for the next ten months, for example. It is hard to be patient like that when prices are rising so fast, but they can fall even faster so it is best to be careful and conservative with an asset class like this.
Finally, these are very long-term investments. If you want to buy crypto assets, you should think of them as a ten-year buy-and-hold portfolio (or longer). That will help you make better decisions as you invest in this exciting new asset class.
I wrote this mostly to send to friends who ask but figured I’d share it with everyone else too. Good luck, be careful, be patient, and have a long-term view when investing in high-risk assets.
We have been coming to Paris regularly for about 15 years and back in 2008, I started using the Velib bike share system and wrote about it here.
A lot has changed in a decade and a half when it comes to biking in Paris. There are more bikes, more bike lanes, and more bikers.
Velib is still a big piece of the Paris bike scene and they have a ton of pedal assist e-bikes in the system now. At most kiosks I see about half regular and half e-bikes. I wish NYC’s Citibike system had that mix in their kiosks.
But I’ve been using a service called DOTT this stay in Paris. Every morning I like to go out to a coffee shop that is a twelve minute walk but a four minute bike ride. So I launch the DOTT app and find the nearest bike which is usually less than a block away and unlock it with my app.
I took this one for coffee this morning:
There are bike parking stations on almost every block in Paris and so it is easy to find a good and appropriate place to leave your bike.
There are also a ton of scooters in Paris but that’s always been the case here. It does seem like the use of car transport is down a bit since we were here two years ago.
Biking around Paris is great. It’s a wonderful city to see in slow motion. Walking is certainly the best way to get around Paris but biking is a close second.
On Tuesday night the Gotham Gal and I boarded an overnight flight at JFK and arrived in Paris on Wednesday morning.
That sounds like a normal thing to do and it is something we have been doing together since we met forty years ago.
But we have not done any international travel since November of 2019 due to the Covid pandemic. So for us, it is quite a thrill to be traveling again.
I took this photo last night walking back from an evening out on the town.
Being in Europe is different. The language is different. The people are slightly different. The culture is slightly different. Soaking all of that up and in is so great.
We are here on vacation and I’m not working or seeing folks outside of friends and family. So it is going to be a great couple of weeks and I think it will bring out some great posts about things I’m seeing and thinking. I’ve already got one on e-bikes and biking forming in my head.
I’ve been hearing the term Metaverse for at least twenty years and I have always struggled with it. As I told my colleagues last week “I like the real world, I don’t want to live in a video game.”
My colleagues explained to me that I am thinking about it incorrectly. They said that as digitally mediated experiences have become a more important part of our everyday lives, we are already living in the metaverse.
I’ve started thinking about it that way and it has helped me to be more enthusiastic about these digitally mediated experiences.
I read this tweet stream yesterday and I found it very helpful in this new understanding I am developing.
But then I was passing by the Bright Moments NFT Gallery in Soho yesterday and there was literally a line around the block to get into the Bored Apes Yacht Club event. It seemed like there were thousands of Bored Apes NFT owners standing in line for hours to be able to hang out together in person. I texted my colleagues “I guess this metaverse thing is overrated”.
That’s mostly me amusing myself.
But it does suggest to me that hanging out together online is still not quite as much fun as hanging out together in person.