Posts from 2023

Mike Zamansky is the person who got me interested in K12 Computer Science Education in NYC, a cause I have now contributed almost fifteen years of my life to.

Our family’s public charity, Gotham Gives, has been funding the work we do in K12 Computer Science Education in NYC for the last decade and a month or so ago, the Gotham Gal recorded a podcast with Mike talking about the early days of our journey into K12 Computer Science, how we met, and what transpired.

That podcast is up on YouTube and I’ve embedded it here. It’s about ten minutes long.

Last Thursday, three new blog posts hit USV.com announcing our three new analysts:

This is our tradition at USV. When someone starts at USV, we ask them to write a post on the USV blog introducing themselves. This helps founders who come to talk to us about their companies understand the folks they will be talking to.

Grace joins us from Silver Lake where she was working on their ESG strategy.

Nikhil joins us from Daffy where he was helping to build charitable giving software.

Matt joins us from Aerofarms where he was working on vertical farming.

At USV, they will work with all of us areas helping us find, invest in, and support founders working in our thesis areas. I am excited to work with them for the next two years.

I saw Dan Primack assert that the venture capitalist’s customer is their limited partners in this tweet about the Citizen app, the recap, and their VCs:

I DM’d Dan to let him know that is not the right way to think about the venture capital business.

Back in 2005, in the early days of this blog, I wrote this post on the topic.

The entrepreneur is the customer and the LP is the shareholder. That’s the only way to think about the venture capital business that makes sense to me.

https://avc.com/2005/11/the_vcs_custome/

I encourage everyone to read that post. It is one of the most important things I’ve written about the VC/founder relationship and I would not change a single word in it almost twenty years later.

When a new technology comes to market, we often look for “native” applications of that technology.

What is a “native” AI application?

What is a “native” Web3 application?

I have not seen a better articulation of “native” than my partner Albert’s post from 2009 on native mobile applications.

He started out by laying out the new primitives that mobile smartphones made available to developers. In the case of mobile, he cited:

• Location
• Proximity
• Touch
• Audio Input
• Video Input

He then went on to say that it would be the combination of these primitives, more than any individual one, that would make for native mobile applications.

And then he went on to lay out some of the applications he was seeing that were native.

If you want to figure out what the native AI applications or the native Web3 applications will be, or the native AI/Web3 applications, start by laying out the new primitives and going from there.

First and foremost, this is not tax advice. I am not a tax advisor and you should never take anything you read here as tax advice. If you read something here that makes you think you should take some tax-related action, please always consult your tax advisor.

With that disclosure out of the way, I would like to talk about 83b elections.

An 83b election is a choice a taxpayer can make to pay the taxes in full at the time of the grant of an asset that vests over time and would otherwise be taxed as the asset vests.

So why would you want to do that?

Well, if the value of the asset at the time of grant is quite low and the taxes would not be significant to you, you might want to make an 83b election. Otherwise, you will be taxed as the asset vests and if the asset increases in value, those taxes could be significantly larger.

Let’s look at an example. Let’s say you join a company that is very early stage and you are one of the first employees. Let’s say you are granted 100,000 shares of restricted stock that vest over four years and the current value of each of those shares is $0.10. That means the entire grant is worth $10,000 (100,000*0.1). If you file an 83b election, you are volunteering to pay the taxes on that $10,000 even though the shares vest over the next four years. The taxes on that $10,000 will depend on where you live, but will generally be in the range of $2500 to $5000.

Now let’s say you decide not to file an 83b (or worse, you never heard of an 83b election and nobody suggested you file one). Let’s say one year later, your first vesting period happens, and 25,000 shares vest. And let’s say that the stock has increased significantly in value to $1/share over the first year. That means that the 25,000 shares that have vested will generate $25,000 in taxable income to you and the taxes you will owe on them will be in the range of $6,000 to $12,000. And you still have 75% of your grant unvested and the stock might keep going up, creating more taxes for you over the next three years.

You have 30 days post grant to file an 83b election so you must move quickly if you want to do this.

The downside of the 83b election is you will have paid the taxes on the stock even though you may leave the company and not vest into any or all of it. That is the risk you are taking when you file an 83b election and you must consider that risk when you make the election. In life, there are generally no free lunches.

If you are being granted restricted stock, founders stock, or some other asset that vests over time, you should ask your employer and your tax advisor if you should file an 83b election. There is a good chance you will want to.

The reason I decided to write about 83b elections today is that USV signed onto a comment letter to the IRS last week asking them to make e-filing and e-signing of 83b elections permanent. You can read the comment letter here.

83b elections are an important tax strategy for founders and early employees in startups and they should be used more frequently than they are. And it should be dead simple to file one. Taxes are hard enough for the average startup employee to understand and comply with. We should not make it harder.

I’d guess that upwards of half of USV’s portfolio companies have changed the name of their company during their lifetime. It is not hard to understand why. Founders start out with an idea and not much more. By the time they have built a product, built a team, and found product market fit, they might be doing something a bit different or a lot different than where they started out.

Most often the name change comes in the first few years when the business opportunity comes into clarity and the original name becomes an issue.

But occasionally it comes much later in life.

A good example of the later in life name change is our portfolio company Dronebase which changed its name to Zeitview this week. We made a seed investment in Dronebase eight years ago about six months after the company was formed. So the company is in its ninth year.

Zietview does aerial inspections of buildings, renewable energy infrastructure, and telecommunications systems using advanced AI/ML software. It is a high-growth business that just raised a $50mm late-stage round.

Over time, the company has adopted many techniques to acquire the imagery that they use to do the AI/ML inspections. Drones are still a big part of the mix but only when they are the best way to acquire the imagery.

So it came time for a rebrand. The Company took its time, thought a lot about it, hired a rebranding agency, surveyed all of its stakeholders, cleared all of the typical conflicts, and landed on Zeitview. They rolled out the name change this week.

I will miss the name Dronebase. I have had good success investing in companies with “base” in the name 🙂 But I am already warming to Zeitview. The two-syllable name with a well-known noun in the second spot is always a great approach to a name.

I’ve never done a cleanse. But many of my friends and family members have done them. There are various flavors of cleanses but the basic idea is you cut back your consumption of food and drink and replace it with mostly liquid nutrition for anywhere from a day to a month. I believe the most common lengths are in and around one week.

As I understand it, the theory behind the cleanse is it helps your body eliminate all sorts of toxins that build up over time from a poor diet and other unhealthy practices and allows you to reset. I’m told that people feel great when they complete the cleanse.

I like to think of what we’ve been going through in the tech sector/startup land/venture capital over the last year as a cleanse. Things had gotten so nutty, frothy, and out of control that we needed a reset. It was not just valuations that got out of whack, although they certainly did. Cost structures got out of whack. Compensation structures got out of whack. Company cultures got out of whack. Venture capital firms got out of whack.

Things just moved too fast, we lost track of what made sense, and focused on doing more than thinking. Everyone was reacting to everyone and everything. All of this hyperactive behavior was driven by fear of missing out and the idea that the path to success was more, more, more.

So now we have stopped eating all of that bad food and drink and are on a liquid diet of cost containment, extending runways, focusing on unit economics, getting back to deal sizes and valuations that make sense for the long run, and growing profitably.

The first few days of a cleanse are apparently unpleasant. And the last year of the tech downturn has also been unpleasant. Lots of people have lost good-paying jobs. VC portfolios have been marked down upwards of 50% and more. Stock prices of publicly traded tech companies are down between 30% and 80%. It has been hard for many people.

It is my view that we are entering the part of the cleanse where the body has adjusted and is starting to feel better. Everyone is starting to get comfortable in the new normal.

This cleanse is likely to continue for most, if not all, of 2023 but I think it gets easier from here. At least for most people who work in tech and startups.

And when it is over, sometime in the next twelve to eighteen months, possibly sooner, we should all feel a lot better. New technologies are emerging that provide a lot of opportunities to start and build new companies. The pool of talent that is sitting on the sidelines and available to work in these new companies is quite substantial. We are already seeing the seeds of all this being planted now.

For established companies that grew up in the go go years, my mindset is to survive the downturn and invest in new products and services that the market will want when things snap back. Many/most of the companies that I get to work with are doing just that. I think they will be rewarded for getting back to basics, building and shipping new things, and improving their products and services meaningfully during the downturn.

I’ve been through a few down cycles now that I am in my fifth decade in tech/startups/venture capital and while they are all a bit different, they all eventually end and those who survived, invested and built, and improved their market positions materially during the downturn have always been rewarded for that. I see no reason why that would not be the case this time as well.

I wrote last week that I have started coding again. And I have been amazed at how much easier it is now that I can code and deploy in the cloud without having to spin up anything myself.

But the other massive improvement in programming is the “AI assist.”

I am working in a Javascript library called jQuery and I don’t really understand its commands and syntax very well.

So I turned to ChatGPT last week and got back this:

That is like having every line of code commented out so you know exactly what it is doing. Once I understood what the code was doing, it was pretty simple to edit it to do something different.

GitHub also has a service called CoPilot that I have just set up so I haven’t used it yet. They call it “your AI pair programmer” which sounds like exactly what I need. I hope to get it working this week and that will help me even more.

Like all things AI, some will say that machines will replace humans in writing code. I think that could happen, but what certainly is happening is machines are making humans more productive in writing code. AND AI is allowing humans who aren’t very good at writing code to be able to do it much more easily.

The machines replacing humans narrative is powerful. But the narrative I prefer is that AI is making things available that have been expensive and unobtainable for so many. And that is not limited to programming. It is true of so many things.

It has been many years since I’ve written code. I’ve hacked around in HTML and CSS a bit on this blog and a few other places. But I have not actually written an application in a very long time. I think it might be thirty years since I’ve done any real programming.

Over the year-end break, my partner Nick taught me how to use GitHub Codespaces and Netlify to quickly spin up development and deployment environments. I forked his Google Sheets NFT Playlist app and have been making changes to it to suit my needs.

Forking someone else’s application is a lot easier than starting from scratch. I always encourage teachers who are introducing students to coding to start that way. There is nothing more intimidating than a blank screen.

Coding is like solving puzzles. It stretches the mind and causes you to think in different ways. I quite enjoy it and I’m glad that I am doing it again. Debugging something to make it work correctly is also a lot of fun for me.

It is really amazing how easy it is to write and deploy code in the cloud these days. I hope that I will use my new Github Codespace and Netlify accounts to make some fun things this year and beyond.