Posts from 2023

The New York Times had a piece yesterday suggesting that tech will no longer be a growth engine for NYC and the surrounding metro area as it has been for the last twenty years. I am not going to link to the piece because it is behind a paywall but if you want to read it, you can google “Tech Firms Once Powered New York’s Economy. Now They’re Scaling Back.” I talked to one of the reporters who worked on the piece and told him that their angle was incorrect. But when a publication has their mind made up on the angle, there isn’t much you can do to convince them otherwise.

If you take a real estate angle, which is how the New York Times approached the story, it is true that technology companies, large and small, are cutting back on their space needs. But that is more a reflection of the era of remote/hybrid workforces than anything else.

Here is what I told the reporter working on the story:

1/ Office leases to tech companies are down. The tech sector has embraced remote and hybrid workforces and their office space needs reflect that.

2/ Rank and file tech workers in NYC are roughly flat as many workers have left the NYC metro area but just as many have come here from other locations.

3/ Top talent in tech has massively increased in NYC since the pandemic as people with in-demand skills can now work anywhere and don’t have to be in the Bay Area anymore. There are significantly more USV portfolio company leaders in NYC today than there were before the pandemic.

I saw a headline the other day that said that more than half of the top 50 AI companies are in the Bay Area and another 10% are in NYC and nowhere else has a significant number of them. So in many ways, not much has changed with respect to the centers of gravity of the technology sectors.

Technology is the growth sector of this century and new sectors like AI, renewable energy, web3, etc will power the economies of many regions around the world. NYC will be a significant beneficiary of this, as it has been for the last twenty years.

The idea that the tech sector will not be a growth engine for NYC anymore is laughable. But that won’t stop people from suggesting otherwise.

The venture capital sector has been in a sustained downturn for almost eighteen months. How does this downturn end? Well, it may have already ended, but let’s see about that. We will know for sure in a few quarters.

The NASDAQ peaked at roughly 16,000 in November 2021. By June 2022, it was down 33%. It stayed down for all of 2022 and ended the year at roughly 10,500.

But this year the NASDAQ is up almost 40%.

What is driving this? If I had to pick one thing, I would say inflation and interest rates. Yeah, those are two things but they are tied together in times like this. As I laid out in the prior versions of How This Ends (here and here), I believe post-pandemic inflation forced the Fed to raise rates aggressively, blowing a huge hole in the asset bubble that built up during the pandemic.

Last week we got some great news. Inflation is way down in the US. That means rates may have peaked and will stabilize or possibly come down. I don’t know if the Fed makes any more moves or not. But I am not sure that really matters. What matters most to markets is expectations and I think inflation and interest rate expectations have settled down.

Private capital markets, like venture capital, lag public markets by a few quarters. That is because it takes time for private market investors to react to the public markets. The NASDAQ peaked in Nov 2021, but VC markets did not really start slowing down until the second quarter of 2022.

Now that the NASDAQ has posted a couple of strong quarters, I would expect venture capital to respond. But it won’t happen overnight. We are in the summer doldrums. It takes time for VCs to raise new funds. And deals take months to come together.

So my guess is we are mostly through this downturn. We will know for sure in a couple of quarters.

I spent a good part of my childhood at West Point, the US Military Academy. I got an email yesterday with photos of the flooding at West Point.

My dad and brother used to work in that grey stone building called Mahan Hall.

And the same storms that did this to West Point did worse to many parts of New England, particularly Vermont.

USV’s climate thesis is to invest in companies and projects that provide mitigation for or adaptation to the climate crisis. Adaptation means accepting that we’ve made the climate worse and adapting to it.

Flooding is a great example of that. As the earth warms, storms are capable of carrying a lot more water and dumping it quickly. West Point took ten inches of rain in a few hours.

USV has made investments in two companies working on flood adaptation; Floodmapp and an unannounced investment in a company helping communities become flood resilient. Flooding will be more common and we are going to need better tools to mitigate and manage it.

Along those lines, NYC’s Partnership Fund recently announced a new accelerator program focused on water. Their partner on this accelerator is the NYC Department of Environmental Protection (DEP) which manages NYC’s water and wastewater treatment operations.

This accelerator is called the Environmental Tech Lab and they are looking for early and growth-stage companies that have products that could be used by the NYC Department of Environmental Protection.

If you are building such a company and want to apply, you can do that here.

Flood and water management will be critical in adapting to the climate crisis and, unfortunately, is going to be a big business.

Like tens of millions of others, I downloaded Threads onto my phone yesterday and signed up.

The thing that Twitter has been missing since it killed off its ecosystem over a decade ago is competition. And as we all know, lack of competition is a very bad thing. In governments and in products.

Competition keeps you honest. Competition makes you hustle. Competition forces you to innovate. Competition makes you better.

So I am thrilled to see some real competition emerge for Twitter.

I am also excited to see a scaled social media platform embrace an open protocol. In the case of Threads, that protocol is Activity Pub.

As far as I can tell, Threads does not yet support ActivityPub but has committed to doing so.

I have not enjoyed using any social media apps built on the ActivityPub protocol, most notably Mastodon, but I am not sure if that is the fault of the protocol or Mastodon’s implementation. Hopefully, we will see a better implementation with Threads.

But more importantly, protocols that are widely used bring lots of developers to them and those developers bring lots of different ideas and products.

So to me, Threads is about two really important things:

1/ Competition for Twitter. Long overdue and badly needed.

2/ The emergence of a widely supported social media protocol. Which should produce a vibrant and interoperable social media ecosystem.

I’ve got some questions in my mind about how all of this will work.

What will identity look like in this “vibrant and interoperable social media ecosystem?” It can’t be and hopefully won’t be my Instagram handle. Ideally, it would look something like ENS where each and every one of us will own and control our own identity/handle, like we can own and control a domain name.

Will there be one protocol for all of social media (short form text, long form text, audio, video, etc)? Will Instagram support ActivityPub too, for example?

What role will web3 play in all of this or will web3 social emerge on a different dimension entirely?

The ability to even ask those questions and ponder the answers is a gift to me and to the world. And so, therefore, is Threads.

EV sales in the US are on the rise, reaching 7% of all car sales in Q1 2023, up from 4.6% a year earlier. If that rate of growth continues, EVs will be 10% of the US car market by next year.

Most people who own an EV charge it at home, using an EV charger. Our family owns a few different models. Here are two of them.

The reason we have two chargers right next to each other is one charges our Tesla and the other charges our other EVs. It is like an iPhone and an Android. Each has its own charging cable. I expect that is going to get sorted out soon as the EV market will work a lot better with a standard charging cable.

But what is even more interesting to me is the idea of bi-directional EV charging.

Right now, EV charging is “one way”. Those chargers take power from our home (either from our solar panels or the grid) and send it to our EVs.

But it does not have to work that way. There are bi-directional chargers that can take the power from our EVs and send it to our home.

That would be very useful in the event of a power outage. But it could also be useful to supplement our solar panels at night. Imagine our solar panels filling up our EV batteries during the day when it is sunny out and our EVs powering our home at night when it is not.

This is a nice primer on the topic of bi-directional EV charging. I like this diagram from that primer.

That is the simplest version of bi-directional EV charging. That primer has a bunch more diagrams of more sophisticated versions.

As we transition from a centralized electrical grid to a decentralized electrical grid over the next few decades, storage on the edge (homes, etc) will become critical to making the transition work. And EVs are a huge source of storage that are mostly not connected to the grid right now.

That is going to change and there are lots of opportunities to build innovative services around bi-directional charging as a result.

The Gotham Gal and I make environmentally designed apartment buildings and the one we are making right now has eight parking spots in the basement. We will outfit those parking spots with bi-directional chargers so that the cars in the garage will be connected to the apartments and they can power them in the event of a power outage. We expect to be able to offer additional services to our tenants over time using this technology.

The forty years that I have worked in information technology have seen a remarkable decentralization of computing from mainframes to computers in our pockets. And that has unleashed an enormous wave of innovation. I expect we will see the same thing in the energy grid/market over the next forty years. I am really excited to witness that.

The term “censorship resistant” is used a lot in the decentralized computing/web3/crypto space to talk about a core feature of these systems. I don’t love the term censorship resistant because it is a wonky term.

Software that is encoded in smart contracts (and other ways) on fully decentralized blockchains can’t be shut down or turned off.

So why is this a big deal?

Let’s make up a story:

Imagine that an AI is trained to teach children to read better than humans. But the powers that be decide that teaching children to read is something that humans need to do. So they make this AI illegal and block access to it.

Well if this AI is written in a smart contract on a fully decentralized blockchain, it can’t be shut down. As long as there are nodes somewhere around the world willing to maintain the blockchain, this AI will continue to run and anyone that has access to the Internet will be able to use it.

That’s a made-up story, but hopefully, you get the point. I picked AIs and education, but you could also go with self custody and your money. Or you could go with image detection and speeding cameras.

The point is that the powers that be have, from time to time, decided that certain things are bad and attempted to shut them down. Alcohol, for example. Or sex between two people who love each other, for example. Or books about racism, for example.

Fully decentralized blockchains offer something powerful. Software that can’t be turned off. Data that is open to everyone. AIs that can’t be shut down.

We are in a moment with enormous posibilities brought on by the computer science revolutions in machine learning, decentralized systems, and new user interfaces. It will be tempting for powerful entrenched interests to seek to put the genie back in the bottle on some of this stuff. But if the genie is deployed on a fully decentralized blockchain, there is no going back in the bottle.

Smartphones have had voice input for over a decade now and yet I don’t know that many people who use voice input regularly.

I would guess that maybe 10 to 20% of smartphone users are using voice input regularly. That’s a guess based on absolutely no data other than observing friends, family, and colleagues.

However, in the last week I have started to use voice input a lot more as a result of a friend encouraging me to do it.

Also in the last week, I’ve suggested to my mom that she start using voice input on her phone and I recommended that the Gotham Gal start using voice input to text and email.

So why now?

I don’t think it is because voice input has gotten appreciably better in the last couple of years. I think it is because typing on a phone is annoying and I want to do it less.

What I have observed in the last week using voice input is that the speech-to-text recognition is almost perfect.

But I have yet to figure out how to format things the way I like with voice. For example, I don’t really know how to create new paragraphs or punctuation. I don’t know how to embed links or attach files or photos.

I like to write in a list format. I don’t know how to do that with voice.

So I have a lot to learn about speaking to my phone instead of typing on it. But I think voice input is going to stick for me because I can feel the habit starting to form.

I’m excited to start engaging with my phone in a completely different way and learning new tricks.

And I expect I’ll probably write more blog posts this way.

I wrote this one entirely by speaking to my phone.

The last time I posted was May 23rd, three weeks ago.

There was a time when I wrote every day. When I had not yet posted on any day, I felt like something was missing, like I had not yet had my cup of coffee.

Clearly, I have moved on from that need to write every day.

I don’t think I have ever gone three weeks without posting in the almost twenty years I’ve been writing this blog. The 20th anniversary of AVC will be on September 23rd of this year.

So why did I go three weeks without posting?

First and foremost, I did not feel like writing.

There are reasons for that.

The last week of May was completely nuts with a ton of stuff coming at me, some planned like a move out of our family office, some expected like a family medical situation, and some completely unexpected. That week was nuts.

And then on the evening of May 31st, the Gotham Gal and I got on an overnight flight to Paris and took a long-planned two-week vacation in a city we’ve been going to for decades to rest, relax, reconnect, and enjoy Paris and each other.

I’ve always tended to write on vacation but on this vacation, I read.

I may write about what I read this vacation. Or maybe I won’t. But it was not about business, tech, or anything that I tend to write about here. I wanted to get out of that zone and take on some new territory. And I am glad I did.

I worked a bit on vacation. I always do. The VC business is about supporting people, teams, and companies. You can’t really take a vacation from that.

But you can cut back a lot on that and I did.

I also slept a lot. In Eruope, if you try to stay on NYC time, you can go to bed late at night and get up when it is almost noon. There is something decadent about that. Like going back to high school and college when there wasn’t always something waiting for you when you woke up. I also took a lot of naps.

We also walked a lot, rode bikes around town, and spent time wandering around a city we know well and love to explore.

It was a great break, one I needed, and I am mostly happy to be heading home. I am writing this on the flight back.

I don’t know if I will jump right back into writing once or twice a week but I hope so.

I like writing. It brings things out of me that I did not know I had. I don’t know any other way to get those things out of my brain and out into the open.

So hopefully you will see some new stuff from me next week. What it will be I have no clue. But I have never planned out my writing. I like to let it flow out of me in the moment.

In closing, I’d like to address this tweet from Liad, a longtime AVC reader:

I understand that a daily dose of anything is a great thing. I love my daily flat white (cortado in the summer).

But these are not dark times we are in. And I am not writing less because of a lack of excitement for the times we are in.

The combination of computer science advances in machine learning, decentralized systems (blockchains), and new forms of interacting with compute (chat interfaces, heads up displays, voice, etc) presents the most potent cocktail of innovation I have ever seen. We are also seeing amazing scientific advances in areas like renewable/clean energy, health and wellness (biotech), robotics, and many other areas.

These are bright times. As bright as they come.

I will try to write more often and shine a bright light on these things.

Back in 2014, USV got subpoenaed by the New York State Department of Financial Services (DFS) over our web3 investing activities. We hired a law firm, answered the subpoena, and that ultimately landed me in public testimony in front of the DFS staff.

In my testimony, I explained to the DFS staff that the difference between the US and China is that the US respects the freedom to innovate:

I was reminded of that moment yesterday when, in our quarterly call with our Limited Partners at USV, we were asked if the regulatory pressure on web3 in the US would result in us cutting back our web3 investing.

To which I responded:

When they want to shut it down, I say double down

The most powerful technologies send waves of fear through the establishment.

When you see that fear in their eyes, invest in the cause of that fear.