I love short films. I think they are a great way to tell a short story on a shoestring budget. I have seen some great ones over the years. So when I saw this Kickstarter project this morning, I backed it instantly.
I’ve written about these two related but different topics before but I’ve been doing a lot of board meetings as we kick off 2019 and I am reminded of how important both are.
At the end of every board meeting, the board should meet alone with the CEO in an executive session, followed by a session without the CEO, followed by a session where at least one director, but possibly all of the directors, meet again with the CEO.
This requires a fair bit of time to do right. These three back to back sessions will easily take thirty minutes to do right and could take as much as an hour.
When a board meeting goes three or four hours, it is tempting to wrap when everyone has “hard stops” and punt on these executive sessions.
But that would be a big mistake.
CEOs need to know where the board stands on the meeting, the big issues, the team, the strategy, and most importantly the performance of the CEO. And CEOs need to know that in real time and all the time.
The big problems that I have run into with companies over the years often have to do with misalignment between a management team and the board, and most acutely misalignment between a CEO and the board.
A process by which the CEO gets real time, regular, in person feedback from the board will alleviate many of these issues. These can be hard conversations and they can be difficult for the CEO to understand and process. None of this is easy stuff. But when people know where they stand and can react to it, things go better. It is when people don’t know where they stand and are grasping for straws when things go most badly off the rails.
The executive session/feedback process is also used by audit committees to manage the relationships between the board, CFO, and external auditors. I have found that they are incredibly important in that setting too.
If you aren’t doing executive sessions with your board, start doing them. And if you do them, but you skimp on them frequently due to time issues, shorten your board meetings and protect your executive session time. These sessions need to come last and that makes protecting them challenging but I believe a board meeting without an executive session is a bad board meeting.
I worked for a man named Bliss McCrum (and his partner Milton Pappas) in my mid 20s. They taught me the venture capital business. They were in their 50s, around my age, at that time.
Bliss one time gave me this business travel advice. He said, if the train is delayed or stops at a station and can’t move, get off the train and find another way home. His experience told him that once delays start happening, they tend to get worse, and you are better served by ditching plan A and finding a plan B.
I have used that advice many times over the years, and while it is not perfect, it has been on point more often than off point.
Today I had a 6:30am flight to SFO from LAX. When I picked up my phone as I was leaving the house for the airport, I saw a text from Alaska Airlines that my flight had been cancelled and they were booking me on the next flight.
Bliss popped into my head and I thought, “I’m going to get to LAX and get on the 7am flight that I usually take.” I had wanted to get to SF super early today so I booked the first flight out of LAX to SFO instead of my usual 7am flight.
Once I got to LAX, I was able to get onto the 7am flight, and then headed to the gate where my new flight was leaving from. That required getting on a bus and heading to a new terminal. This is what the guts of LAX look like at 6am.
Once I got to my gate, I learned that my 7am flight was delayed into SFO by 90 minutes, thus pushing my arrival back two hours from when I wanted to be there.
Again Bliss entered my head and I thought “what about San Jose?”. So I went to the board and saw that there was a 7:30am flight getting into San Jose at 8:50. I went to the service desk and asked if there were any delays getting into San Jose this morning and was told there were not.
So I swapped my SFO ticket for a SJC ticket and got basically the same seat on a similar plane.
I’m in the air to SJC right now and hope to land in about 30 mins\utes and then get in a car and be taken the hour+ that it will take to get to into San Francisco. But at least I can call into the start of my meeting instead of missing the first couple hours completely.
I have to thank Bliss for the inspiration to scramble today instead of just taking what the airlines were giving me and being chill about it. I think it worked out well and I’m going to be able to participate in the entirety of my meeting today. Thanks Bliss.
At the bottom of the first post on this blog is a widget that contains links to recent blog posts by other USV team members. Many USV folks blog regularly and this widget surfaces those posts to all of you and everyone who visits the various blogs of the USV team members.
Other than me, there are a few other USV team members who blog regularly; Albert, Nick, and Bethany are the most prolific writers at USV. Andy and Brad are the best writers but we don’t get a lot of production out of them.
Since the start of the year, Bethany, who runs USV’s portfolio network, has produced a dozen blog posts, on topics like Hamilton In Puerto Rico, Nostalgia Creep In A High Growth Company, How To Measure A VC Firm’s Platform Efforts, and a lot more.
I am just one window into USV and the VC/startup world in general. I encourage those who are interested in this stuff to seek out other voices as well. Right now, Bethany is one fire. You should check her blog out.
Last week I wrote about and linked to the PWC/CB Insights round up of venture investing in 2018.
Well less than a week later Crunchbase is out with its own data on 2018.
The Crunchbase numbers are much bigger, they report about $330bn of global deal volume.
But otherwise the trends are roughly the same. Flattening deal volumes and amounts raised in the early stage market with massive expansion in the late stage market.
Make no bones about it, there is a lot of money in the venture capital ecosystem right now.
In the wake of Erin Griffith’s piece in the NY Times suggesting that venture capital is toxic for some entrepreneurs, there has been a fair bit of debate about the causes of that situation.
Dan Primack tweeted this yesterday:
One thing that I think gets lost in the VC vs. non-VC discussion is that VCs don't need a company to become a "unicorn." At least not the early-stage VCs. They might want it, but unicorns weren't really a thing until a few years back, and VCs "settled" for much shorter home runs— Dan Primack (@danprimack) January 11, 2019
I pushed back on that notion in a series of tweets yesterday morning:
I think the truth is somewhere in between. Ownership levels have been coming down in VC over the last thirty years. When I got into VC in the mid 80s it was very typical for a VC to want 25% of the company. Then it became 20%. Then 15%. Now we ask ourselves if we can get to 10%— Fred Wilson (@fredwilson) January 12, 2019
It is tempting to look at what is going on in the startup/tech landscape and say that the growing amount of capital under management is the problem.
But the capital market for startups is a complex system and I don’t think it is as simple as that.
It may well be that as entrepreneurs have had more negotiating leverage over the last twenty+ years, they have pushed valuations up significantly and the capital markets (ie VCs) have reacted to that by accumulating more capital so that they can try to buy the same amount of ownership at the higher prices.
That hasn’t really worked and the VC industry typically owns a lot less of a company at exit and the founders and team own a lot more versus 25 years ago. We have seen that clearly in our own portfolios over the last fifteen years and I would assume that is true across the industry.
So while it is tempting to suggest that big bad VCs are the reason for all the problems in the startup sector, I would caution everyone from coming to that conclusion. Like all relationships, it takes two to tango, and both sides have had something to do with where we are right now.
I listened to this 40min interview of Marc and Ben earlier this week.
I enjoyed it. Marc and Ben are smart and witty and know how to work off each other.
I got a few really good laughs too, which is always a bonus with these things.
I hope you enjoy it as much as I did.
A friend sent me this Kickstarter project earlier this week. I took a look and thought “wow, that’s so great. a digital piggybank for kids with its own cryptocurrency, a mobile app, and educational games teaching them to earn and save.” I backed it this morning and though I don’t normally take the rewards on Kickstarter, I did this time. I can’t wait to give this to a kid when I get it this summer.
For most companies and projects in the crypto sector, a big issue has been how to design their token and how to get it in the hands of users, validators/miners, and investors. As Joel explained in this post, you need all three stakeholders to create a well functioning crypto-token.
There is the Bitcoin approach, which is to allow anyone to mine the protocol and earn tokens.
There is the Ethereum approach, which is to do a pre-sale.
And there are many other approaches. The last time I looked there were over 2,000 crypto-tokens that are trading on various exchanges around the world and many more that are not yet trading.
There are plenty of considerations when you design a crypto-token but certainly one of them is figuring out how to avoid having it deemed to be a security in the US. Securities are highly regulated in the US, can only be traded on regulated exchanges, come with significant disclosure requirements (many of which make no sense for an open source project), and there are limits to whom you can sell them to and how.
Most token projects and companies look at Bitcoin and Ethereum and say “we want to be like them.”
So when William Hinman, director of the SEC’s Division of Corporation Finance gave a speech at the Yahoo Finance All Markets Summit on June 14, 2018 suggesting that Bitcoin and Ethereum were not securities and laid out an argument that they were sufficiently decentralized, it got a lot of people’s attention in the crypto sector.
The basic reasoning behind the decentralization framework is that if a project is truly decentralized and there is no central actor or actors, then there really is no “issuer” and there is no possibility that the central actor(s) can act on insider information or otherwise have information asymmetry.
The crypto industry has been pressing the SEC to codify this logic in a set of rules that projects and companies can follow. But the SEC has to date been unwilling to do so.
So the Blockchain Association has stepped in and taken a stab at codifying the Hinman Test. In a post they published today, they have laid out the basic arguments of Hinman’s Framework and then outlined how one could determine if a token project was sufficiently decentralized.
This is not as helpful as an SEC published set of guidelines, but until we get that (soon I hope), this will have to suffice.
Those are the two words that come to mind when I looked at the Q4 2018 PWC/CB Insights Money Tree Report.
2018 saw the venture capital business moving to larger and larger deals. There were roughly 200 deals around the globe in 2018 where $100mm or more was raised.
And yet the number of total transactions declined slightly from 2017.
This trend is much more obvious if you look at the six years from 2013 to 2018. Total deal activity has increased less than 10% while total capital investment has almost tripled.
These trends are unsustainable. It is certainly attractive to de-risk by moving upstream to invest in more mature companies, larger rounds, etc. But if we don’t reseed our fields there won’t be as many of those mature companies in the future.
And that is why USV remains a small fund/firm which allows us to invest in Seed, Srs A, and Srs B rounds. It may not be fashionable to do that right now, but I am certain that it is and will continue to be profitable.