Posts from July 2022

Remote, Hybrid, or In-Person?

We have been watching our portfolio of ~130 technology companies wrestle with this decision for the last two and a half years. Brought on by the covid pandemic and the work from home moment that it created, there has been a sea change in the way that technology companies organize themselves to get work done.

Ben Horowitz observed this in a piece last week where he described A16Z’s decision to embrace a hybrid model that he called “HQ in the Cloud.”

It turns out that running a technology company remotely works pretty darned well. It’s not perfect, but mitigating the cultural issues associated with remote work turns out to be easier than mitigating the employee satisfaction issues associated with forcing everyone into the office 5 days/week. 

https://a16z.com/2022/07/21/a16z-is-moving-to-the-cloud/

Most people are happier having a lot of flexibility around where they work. We have seen that people who are raising families have benefitted from the flexibility of working closer to where their families are and the ability to be somewhere quickly. But that is only one example of why flexibility around where you work is so powerful. Many job functions require, or at least benefit from, the ability to concentrate without interruption or distraction. A quiet home office is vastly better than a busy open workspace for that kind of work.

And then there is the commute. I am writing this on a commuter train heading into NYC. For a time in my life, I took a train like this into the city every morning at 6am and got back on it to go home at 6pm. It was almost an hour each way, so I spent almost two hours a day, five days a week, commuting. This can be a productive time, particularly if you are commuting on mass transit like I am right now, but many people don’t have convenient mass transit options in their lives and must drive to and from work, often in traffic. Eliminating the need to commute to the office might be the single best reason that people are happier having a lot of flexibility around where they work.

The numbers are telling. As of this spring, only 38% of NYC office workers were in their office on a given day based on this survey by the Partnership For NYC (a leading business group in NYC). The numbers are similar in the Bay Area and Los Angeles. Some cities around the US have much higher numbers but I have not seen any city higher than 70% on this score.

The Partnership concluded that remote work is here to stay:

Remote work is here to stay, with 78% of employers indicating a hybrid office model will be their predominant post-pandemic policy, up from just 6% pre-pandemic.

https://pfnyc.org/research/return-to-office-survey-results-may-2022/

But I want to return to Ben’s quote and talk about the cultural issues. I don’t believe we (the tech sector broadly) have done a good job of “mitigating the cultural issues with remote work.” I think a lot of the challenging morale and retention situations in our portfolio and across the tech sector suggest the opposite is true.

Here is the quandry we face:

People are happier with flexibility around where they work.

Companies, teams, and organizations are happier when people are working together.

Aren’t companies just collections of people? Yes. But groups of happier people are less happy together when they don’t get the face time that makes group dynamics easier.

We all know that people are nicer to each other in person. Email and slack and zoom don’t bring out the best in people. Having a meal together does.

So what should we do about this quandry?

I don’t think the answer is restricting flexibility around where people work. That feels like table stakes now for knowledge workers. I think the answer is figuring out how to get people back together more frequently in ways they want to convene in person.

There are many ways to do this and we have seen some good ones.

At USV, we have two days a week where we meet together and as a group with founders (Mondays and Thursdays) and those days tend to be much more popular to be in the office. We don’t require people to come to the office on those days, but we do see that most people opt into coming in those days. We also make sure to order a great lunch on Mondays and Thursdays. We could and probably should add an after-work happy hour and/or sports teams/leagues to make those days even more attractive to the team. The basic idea is to make coming to the office an attractive option a few days a week.

One USV portfolio CEO suggested a great idea in a CEO zoom we organized on this topic a year or so ago. He said that he wanted his teams to come together for a week at the start of a project and again for a week at the end of a project. He wanted them to be together to kick it off and again to ship it. I think that’s a great idea and have been encouraging the teams that I work with to do that.

Our portfolio companies used to do exec team offsites a few times a year. A few of them are now doing them monthly. That makes sense to me. I can’t imagine an effective exec team that isn’t in person together at least once a month. And yet so many of the exec teams I have exposure to are not spending nearly enough time together right now and have not for the last few years. This same thought can be extrapolated to any team in any company.

Those are just some examples of things that can be done and should be done to get people working together again in an age of remote work that is not going to end. I am sure there are many other great techniques and if you lead a company and/or an HR team, you should be collecting and using as many of them as you can right now.

At USV, we feel pretty strongly that getting people back to working together in person is important to the success of our portfolio companies and the broader tech sector. So we recently opened our new office in NYC that is designed to host individuals and teams from our portfolio and the broader tech ecosystem that need somewhere nice to work together. Think WeWork meets SohoHouse meets VC firm. We are still working out the kinks this summer and plan to open it up more broadly in the fall. Stay tuned for more on that here and elsewhere.

All change has good and bad downstream effects. The broad-based adoption of remote work in the tech sector (and beyond) is allowing people to balance work and home life in ways that are extremely beneficial to them. But team morale and the broader cultural needs of companies have suffered and we need to recognize that and address it. We can’t accept that as the new norm. It is unacceptable the way it is right now. A hybrid model that provides continued flexibility while creating a lot more face time is the long-term answer and we must keep innovating until we find the right balance.

#employment#enterprise#management#VC & Technology

Valuing a Venture Capital Portfolio

Every quarter our firm goes through a process to value our entire portfolio. Those values, on a schedule of investments we publish to our investors every quarter, flow through to our financial statements and capital accounts and establish how much an interest in our partnerships are worth at that time.

We have always taken this process very seriously and approach it with a lot of rigor. Every partner is highly engaged with this process. Although we have a fantastic financial team at USV, we do not simply outsource valuing the portfolio to them because we understand that those who are closest to the portfolio companies will have the best view of what they are worth.

We have a few rules and I would like to share them:

– Be conservative. The auditors try to get us to mark our portfolio up to reflect “market prices” but we prefer to keep our portfolio marked below market prices, particularly in times of market froth. This leads to a fair bit of haggling with our auditors that is mostly a waste of everyone’s time but we feel that it is important to maintain our conservative posture.

– Get Ahead of Market Pullbacks. We like to move quickly to take our marks down when we see the market environment changing. Public stocks often lead private valuations by several quarters so we like to look to public market comparables and mark down quickly.

– Never Mark Higher Than Potential Sale Value. Every time we have a significant M&A exit in our portfolio, I like to check that the proceeds to USV exceed our current mark. I believe we have always met that test. I hope we always do.

– Take Total or Partial Write-Downs In Advance of Problems. When a company is having real issues, we like to take total or partial write downs. We sometimes reverse them if the company recovers. If you might lose money on an investment, it is always best to signal that ahead of time.

– Have Multiple Sets Of Eyes On The Marks. We debate and discuss the marks with each other. This is all about getting multiple sets of eyes on the marks. While the partner closest to the company will always have the best sense of value, debating and discussing often leads to a better answer. We do this in everything we do at USV. It’s a huge part of our culture.

Valuing a private investment or a portfolio of private investments is an inexact exercise. Because there is no liquid market for most of our positions, we don’t really know what someone would pay for them right now. So we do the best we can, take a very conservative posture, and revisit them quarterly. That has worked well for us over the years.

Q1 of this year was a down quarter for USV and we expect we will see additional markdowns in Q2. But our markdowns have not been as steep as the decline in the Nasdaq over the last six months. That is because we maintained a conservative bias throughout the last few years and resisted the efforts of some to get us to behave differently. And that feels good and right to me.

#VC & Technology

Some Thoughts On Twitter (continued)

I wrote the post at the bottom and linked here when Elon Musk announced his intention to buy Twitter in late April. I am relieved that Musk has decided he does not want to own Twitter. I never thought he would be a good shepherd of the Twitter network and maybe now we have the opportunity to find a better ownership/governance model for it.

I understand why the Twitter Board and management team feel they must force Musk to perform on the agreed-upon deal. They have shareholders to protect and an obligation to do what is best for them. If Musk really does not want to own Twitter and is not just trying to renegotiate the deal, then eventually both sides will come to some settlement that enriches Twitter and lets Musk out of the deal. That will likely be a lot more than the $1bn breakup fee. I hope that we don’t end up with Musk owning Twitter at a lower price. That would be a bad outcome for the shareholders and for the Twitter network.

I would like to see the Twitter Board and management team continue to press Musk to perform on the deal, and at the same time start working on a plan to decentralize Twitter and move it to the thing it has always wanted to be which is a core communications protocol for the Internet. A first step in that direction would to broadly re-open the API and allow third-party clients to be built on Twitter with a business model that covers the costs of operating the Twitter network. Longer-term, Twitter should move to a fully decentralized protocol, like Bitcoin or Ethereum, but that will take some time to do.


When I read the news a few weeks ago that Elon Musk had offered to buy Twitter, I wrote this:

I continue to believe that decentralization is the right long-term answer for a core communications protocol of the Internet and hope that Elon will think about doing just that once he owns it and is not concerned with the stock price and meeting quarterly revenue targets.

My partner Albert wrote this yesterday:

https://twitter.com/albertwenger/status/1518684477052096515?s=20&t=m8f3FHeCqU72HUGvzqOhPw

Albert’s suggestion would return Twitter to where it was a decade and a half ago when it first launched and that would be a fantastic first step towards full decentralization.

I continue to believe that a single person owning one of the most important communications protocols of the internet is a bad idea, but maybe it can be a bridge to something better.

Certainly being a public company has not been the right ownership model to make the big fundamental changes which are badly needed.

#Web/Tech#Web3

The New AVC

AVC has been around for nineteen years and it has evolved over the years from a place I’d post multiple times a day to once a day to now once a week. There was a time when there was a vibrant comment community at AVC with many posts getting over a hundred comments and replies. That’s long gone and now it is just me posting here with some chatter occasionally on Twitter.

As anyone who has tried knows, posting every day is a mighty big commitment. I am relieved to have given that up, gradually, a few years ago.

What is left at AVC is a place where I can write when I have something to say that I want to say out loud. That last bit is important because there are many things I will say privately these days but not publicly. At this stage of my life, AVC is for conversations that are helpful, productive, and constructive. Everything else can happen elsewhere.

The entire catalog of AVC posts remains online and can be accessed in the archives. If anyone wants to see the progression, it is right there out in the open for anyone to see. The comments are there too for the posts that have them.

The AVC archives are a journey through the evolution of social media. From an experiment in the early 2000s, to a happening in the late 2000s, to mainstream in the early 2010s, to a mess in the late 2010s, to something to be incredibly careful with now.

At least that is my journey with social media. I continue to believe that technology that gives everyone a voice, that gave me a voice, is an incredible thing. But like many incredibly powerful technologies, it has to be used carefully or it can create more bad than good.

And that’s what I’m seeking to do here at AVC. Create more good than bad. Use the technology carefully and constructively. It has taken me a few years to land here but I’ve been here for a while now and I thought I’d explain it that I understand it myself.

#Weblogs