Posts from Fred Wilson

Scaling A Company While Controlling Costs

Over the last decade, the costs of scaling a company in the bay area, NYC, and many other startup regions in the US has escalated sharply. We have encouraged our portfolio companies that are located in these high cost regions to build out secondary locations where they can hire high quality engineering and other talent at lower costs. Locations in North America that have been attractive to our portfolio companies are cities like Des Moines, Indianapolis, Toronto, and a number of others.

Another approach that has worked well for our portfolio companies is to have a secondary location outside of the US, where talent can be hired a much lower cost than the US.

So it was with interest that I read this in Zoom’s IPO prospectus;

we have a high concentration of research and development personnel in China

It turns out that Zoom has most of its engineering team in China, where they can hire high quality engineering talent at much lower cost.

Look at this P&L.

Zoom spends most of its opex on sales and marketing because it has kept its engineering costs lower as a result of building product in China.

This is something to think about as you scale your company.

The Heartbeat (Continued)

I wrote a post last year called The Heartbeat in which I advocated for a cadence and a rhythm in an organization.

I was reminded of that in this exchange on Twitter over the last 24 hours:

Many of USV’s portfolio companies use an OKR process to create this rhythm in their teams. What I have learned from watching these companies and listening to how the teams talk about the OKR process is that to some extent it is “form over substance” in that the process is ultimately more important than the specific objectives and key results that flow through the process.

I am not saying that teams shouldn’t be thoughtful in setting objectives and committed to hitting them. They should.

But I am saying that the regular setting of objectives (quarterly is a time frame most companies use) and the weekly or bi-weekly reporting against them is the most valuable thing that comes from the process. It sets the heartbeat and keeps it. And that is so valuable.

Many VC firms, including USV, use a weekly team meeting, often on Mondays, to align the group, report on the week that has past, and focus on the week to come. That weekly cadence allows us to be responsive to entrepreneurs, come to relatively quick decisions as a group, and stay in sync.

Public companies report on a quarterly basis. That rhythm sets up a cadence of setting expectations (guidance) and reporting on results (earnings reports). It is not entirely different from the OKR process in a few important ways. It creates a cadence that is super valuable for execution and performance.

I am a fan of all of these processes. They set a cadence and rhythm for an organization and force decision making and provide for timely execution.

The best companies master this and working in those organizations is fun and rewarding. Setting objectives and meeting them on a regular basis is a virtuous system that brings out the best in people and teams.

Video Of The Week: AI and Society

Earlier this week, Kara Swisher interviewed Kate Crawford and Meredith Whittaker, who run NYU’s AI Now Institute.

It is an interesting and thought provoking discussion. I don’t personally love Kate and Meredith’s answers on how society should be thinking about these issues. They feel very “20th century” to me.

But regardless of what you think about their particular take on the issues, I do think we all ought to be paying a lot of attention to AI and its impact on and role in our society. It is important.

Funding Friday: Code Society

Code Society is like Schoolhouse Rock for Computer Science. They use hip hop music and videos to teach computer science concepts to diverse communities.

They are doing a $40k project on Kickstarter (and are about half way there) to create content and applications. I backed it earlier this week and you can back it here.

Orthodoxy

I am not a fan of Orthodoxy.

I appreciate the power of religion although I am not religious personally. I respect the followers of Allah, Jesus, Moses, Buddha, and other religious figures. I know that the beliefs of religious people give them great comfort and a purpose in life.

What I don’t appreciate is when a person of faith believes so deeply that they cannot tolerate beliefs that are different from theirs. I call this Orthodoxy and it has led to wars, horrible crimes, and many other bad things. It is the downside of what is and should be a very positive thing for humanity.

We see this same behavior developing in the crypto sector. Bitcoin and other cryptoassets have become a belief system. That is at the core of their value. Why would I give you $5000 of my dollars for one of your Bitcoin? Because I believe in Bitcoin and want to own it.

This faith in the value and power of cryptoassets is good. It is necessary for all of the other good things that can come of them.

But like religion, there is an Orthodoxy in these communities that borders on obsession and leads some people to be extremely intolerant of any other community or cryptoasset. The crypto community calls these people “maximalists”, a term I don’t like and don’t use.

I believe that we will see many cryptoassets emerge to solve different kinds of problems, just as we have seen many different religions develop to serve different groups of people. This diversity is good. It leads to a richness of thought and innovation that moves us forward.

If someone wants to believe deeply in one thing and nothing else, we should understand and appreciate it. But when that leads to hatred, nastiness, and ridicule, we should reject it. We should call it out for what it is and we should not accept it.

The Annual Computer Science Fair

Here in NYC, we are about halfway into a 10-year effort to get computer science classes into every public school building in NYC. We are already seeing significant impact and outcomes.

Most of the students taking CS classes at school live in neighborhoods in NYC where there are no tech companies and they can’t see the pathway that they are on if they want to be. That is where the Annual Computer Science Fair comes in.

This year was the sixth annual CS Fair. We invite high school students who are taking CS classes to take the morning off from school and come to the Armory in Washington Heights and meet tech companies that they could one day work for and colleges/universities that they could attend.

I spent much of yesterday at the Fair and had the honor of taking Mayor de Blasio, who has been funding CS4All since the early days of his administration, through the event. Here are some photos from what is always a fantastic day for me.

I hope these young women made it over to the Etsy booth
Where they could have learned how Etsy uses data science to personalize everyone’s shopping experiences
This young man from the Bronx made a multiplayer video game in javascript and told me and the Mayor that he wants to work for a tech company out of high school. I asked him to send me an email.
This teacher from Information Technology High School in Queens had two teams of students showing software projects in the student showcase. She and her students took a selfie with the Mayor.

The Annual CS Fair would not be possible without the financial support of tech companies who underwrite the expenses. I would like to thank the major sponsors for making this possible.

The Shed

Yesterday morning, in raw, windy, 30 degree weather in NYC, I took a walk up the Highline to Hudson Yards. As I made the turn west at 29th street, I saw The Shed emerge through the tall buildings.

The Shed is a new arts institution created to commission works from artists, both emerging and established, across multiple genres. It is all about facilitating and celebrating artistic innovation.

I got involved with The Shed about four years ago around the time Alex Poots was selected as the Chief Executive and Artistic Director. Alex is an impresario of the modern age, comfortable working across many genres and with artists of all kinds, from Grammy-winning musicians to kids he sees dancing in the streets. It is Alex’ ability to stitch all of this together and make it coherent, entertaining, and inspiring that infected me with an interest in what The Shed can be.

I have consulted with The Shed on technology matters and the Gotham Gal and I have been benefactors as well.

Yesterday The Shed was dedicated and the opening performance, The Soundtrack of America, which features performances from roughly thirty emerging black musicians, will open friday night. We will be there.

The person who made The Shed happen is my friend Dan Doctoroff. It was a proud moment for me yesterday to see Dan standing up on stage talking about this thing that he helped to make happen.

It is my hope that The Shed will have the same cultural impact on NYC that Lincoln Center, Brooklyn Academy Of Music, and similar arts institutions have had.

It is really rewarding to get involved in projects like this. Watching the idea come together, then watching it get built, and then watching it open. It reminds me that imagination and will can achieve so much.

The IPO Bonanza

After predicting an IPO bonanza in my new year’s day post in 2015, and being largely wrong about it for four years, we are finally seeing it happen.

I am not exactly sure what it is about this year, as opposed to any of the last five years, that has drawn all of these highly valued private companies into the public markets, but here we have it.

It does take a number of years for a privately held company to prepare to be a public company. They need to get their finance and legal houses in order, they need to beef up their teams in these areas, and they need to make sure they have a repeatable business that they can manage under the spotlight of the public markets.

Already we have seen S1s from Lyft, Pinterest, and Zoom. And we are likely to get them soon from Uber, Slack, Airbnb, and a host of others, in the coming months.

I see this as largely beneficial to the startup sector for the following reasons:

1/ We will have benchmarks from highly liquid markets in terms of what these high growth tech companies are worth. Until now, most of these benchmarks have come from illiquid private market auctions, which are not exactly the best price discovery mechanisms.

2/ Many employees, angels, seed investors, VCs, and growth investors will get liquidity from these investments and recycle it back into the startup sector. More capital means more startups and more innovation.

3/ Limited Partners, the providers of capital to venture capital and growth equity funds, will get large distributions which will give them more confidence in the startup sector and they will continue or perhaps step up their commitment to invest in early stage technology.

4/ These newly public companies will be able to accelerate their acquisition programs now that they have liquid stock and cash to fund those deals. That will further flow capital back into the startup sector.

Of course there will be negatives. It will be harder than ever to afford to live in the bay area. But tech folks from the bay area are certainly welcome in NYC, LA, and any number of other startup regions around the US. Get paid on your stock and move to a more affordable and liveable region!!!

And the monster funds that have been advocating staying private forever will have to argue why these IPOs are not what every other startup should be aiming for. And I think that argument is going to be harder and harder to make with this IPO bonanza under way.

All in all, I think the IPO bonanza that is under way in 2019 is a good thing. I have been expecting it and wanting it for years and I am pleased that it is now upon us.

Portable TV and Music

We just packed up an Airbnb that we have been living in for three months in Los Angeles and are heading back east.

This is a photo of my carry on luggage as I was packing it this morning.

That is an AppleTV and a Sonos Connect in between my “shaving kit” and my sneakers.

I brought these two devices out west and connected the AppleTV to the one TV in the Airbnb and I connected the Sonos to the receiver that powered the in ceiling speakers in the main living space in the house.

Even if the Airbnb had come with an AppleTV and a Sonos device, I would have swapped out theirs for ours for the length of our stay because these two devices have all of our services pre-confgured on them and we are logged into all of the services.

That is where the big difference is for me and the reason it is worth schlepping these devices cross country and back. The devices aren’t crazy expensive. The AppleTV is around $150 and the Sonos Connect is around $300. But setting these devices up, connecting them to all of the various services we subscribe to, and logging into each and every one can be an hour or more of work each time you do it.

All I had to do was power them up, connect to wifi, and connect to the TV and/or the receiver, and we were good to go.

It’s kind of magic to have all of your services right there on the device, organized how you like them, and ready to go.

I have friends who do the AppleTV move in hotels when they travel for business. I haven’t gone that far but I might leave the AppleTV in my carry on luggage along with my shaving kit and try that on my next business trip. Plugging in an HDMI cable into a TV is pretty straightforward in most cases.

What this means is TV and music is now highly portable. You can bring your TV and music with you when you travel and connect into the existing infrastructure in your hotel or Airbnb.

If these devices get small enough or cheap enough (or both), or if our smartphones can replicate all of the functionality of these devices, then the hospitality industry can focus on the “dumb” infrastructure and the guests can bring the smart devices.