Posts from Current Affairs

Commercial Real Estate

With new Covid cases down 30% in the last two weeks and partially vaccinated people approaching 50%, NYC seems ready to start getting back to work.

I have been going to the office several days a week for the last two weeks and will be there again today. As my USV colleagues get fully vaccinated, they are joining me and our office is starting to fill up.

But our Flatiron neighborhood still feels empty and there is not one good restaurant open for lunch during the week.

As we head back to work, what will the new normal be?

That is a huge question looming over the commercial real estate sector in NYC and around the country.

According to this NYT piece from last week, the vacancy rate in commercial office space in NYC is almost 20% and that number is north of 15% across the largest cities in the US. And in the face of these historically high vacancy rates, more new office buildings are coming to market increasing the supply of space.

We have surveyed our portfolio companies and we understand that many will reopen their offices this summer and fall, but most will not expect their employees to be back in the office five days a week. Some will not expect their employees to be in the office at all.

I think this Jamie Dimon quote I read in the NYT piece is about right:

Jamie Dimon, chief executive of JPMorgan Chase, the largest private-sector employer in New York City, wrote in a letter to shareholders this week that remote work would “significantly reduce our need for real estate.” For every 100 employees, he said, his bank “may need seats for only 60 on average.”

We used to have 10,000 square feet in our old office that we left last month. We moved into 6,000 square feet and it feels like plenty. I think many/most companies will feel that way too.

Many of our portfolio companies let their leases expire during the pandemic, as did we. And they are now thinking about what to do going forward. I have a few suggestions:

1/ Take something temporary for the next year or two. Figure out what the new normal is before entering into a long term lease. This is what USV did. We took a nine month sublet to allow us to figure things out.

2/ Shop around and be aggressive in your offers to sublet or lease space. Many landlords will not engage in your bottom fishing. But some will, particularly in the sublease market.

3/ Avoid expensive office buildouts and focus on spaces that are extremely flexible. We have invested in office and conference pods in our sublet to reduce the need for expensive office buildouts. And the Gotham Gal and I made an entire co-working space in Brooklyn with office pods.

4/ Figure out how to integrate remote workers into your office environment. We have been investing a lot more in our conference rooms/video setups. I even suggested that we put some webcams in our office so our remote colleagues could see who is in the office at any time. I am not sure we will do that. Some feel it is creepy. But I think it’s a good idea.

5/ Offer perks to encourage your employees to be in the office. We have been ordering in great food for everyone in the office the last few weeks and everyone seems to appreciate and enjoy that.

I think occupancy expense will be a smaller percentage of our portfolio companies’ P&Ls in the future and those savings can be invested in our teams instead. That feels like a great trade and one that will lead to better companies and happier employees. And that is a very good thing.

#Current Affairs#management#NYC

Vaccinations At Scale

There was a day in the last week when four million Americans got a Covid vaccine. That’s more than one percent of all citizens of the US. One in every hundred people in the US got vaccinated on the same day. Think about that!

Mayor de Blasio tweeted yesterday that 4.7 million doses of the Covid vaccine have been given out in NYC. Assuming that 2/3 of those have gone into new arms and 1/3 have gone into returning arms, that means almost 40% of adults in NYC have gotten introduced to the Coronavirus via a vaccine.

As an aside, another 20-30% of people in NYC got introduced to this nasty and deadly virus the old fashioned way and that means that we could have two thirds of adults in NYC with Covid antibodies in their systems.

But returning to the point of this post, we are vaccinating at scale in the US now.

One of my favorite Churchill quotes is:

You can always count on Americans to do the right thing – after they’ve tried everything else.

That’s not exactly what is going on here but it is not far from it. While the US got a lot wrong in the first year of Covid and way too many people died as a result, we got one thing right. We bet on vaccines and we have now operationalized the delivery of them.

This is not a political point. The last administration should get as much, or more, credit for vaccines as the current one.

This is about me being proud to be an American once again. This mass vaccination is a beautiful thing to behold. It is breathtaking in its scale and it’s efficacy. It fills me with joy.

#Current Affairs

News Moments

There are these news moments that we remember vividly forever. The plane flying into the World Trade Center. The mob breaking into the Capitol. Reagan at the Berlin Wall. Just writing the words, I can see the images in my head.

Our portfolio company Recount Media is all about these moments. Recount captures them quickly and concisely and shares them on social media and other digital platforms so that the world can see what is going on around them.

Today, they are trying an experiment that I am quite interested in. They have taken one of their most-viewed news moments, one they published exactly one year ago today, and they have minted it into a one-of-a-kind digital news moment and are offering anyone the opportunity to own it.

The auction is going on here and I just placed a bid. My goal is not to win this auction, although it is possible that I could. If I do, I will contribute it to a DAO that would allow group ownership.

Recount explains why they are experimenting with NFTs here. I particularly like this line:

So as we approached the one-year anniversary of the Calendar, our first runaway viral video, we thought it would be fun to celebrate that breakthrough in a manner that itself is an expression of our relentless aspiration to rethink how journalism works — its form, function, and economics — in this moment of intense fluidity and flux in digital media.

One of the challenges with digital media is the limited business models available to news organizations. You either sell ads or subscriptions, or both.

Who knows whether minting news moments can help stimulate new business models, but it sure can’t hurt to try. Sticking to the old ways of sharing the news and making a business out of it is not interesting to me. Coming up with new ways of sharing the news and making a business out of it very much is.

#crypto#Current Affairs#digital collectibles#entrepreneurship

The Light At The End Of The Tunnel

In my Jan 1st post talking about what I expected to happen this year, I wrote:

I think we will see the end of the Covid Pandemic in the US sometime in the second quarter. I believe the US will work out the challenges we are having getting out of the gate and will be vaccinating at least 40mm people a month in the US in the first quarter. When you add that to the 90mm people in the US that the CDC believes have already been infected, we will have well over 200mm people in the US who have some protection from the virus by the end of March.

Seven weeks later, it seems like that is pretty much what is playing out. I have read that about half of the population of the US now has some protection against the Covid 19 virus, either via having had the disease or by being vaccinated at least once. At the current vaccination rate of 1.8mm a day, the number of people who have at least some protection against the Covid 19 virus will be about 70% by the end of March.

What that means is the virus will spread less, infecting less people, and less folks in the hospital or worse. I believe that means a gradual re-opening of the economy throughout much of the US in the second quarter with schools, stores, restaurants, and nightlife coming back. I am sure that precautions will continue for much, if not all, of 2021 because nobody wants to take this lightly after what we have all been through.

If that is in fact the case, and we don’t know for sure that it is, what does that mean for the economy, businesses, tech, and more?

I wish I knew. But I have some suspicions.

As I have written here quite a few times, I believe that habits that we have formed in the last twelve months will stick with us even when we don’t need to use them anymore. I believe work from home has proven to be very effective for some, possibly even a majority, of knowledge workers. E-commerce has delivered (no pun intended) and the gains it has made against in-store retail will not be given back much, if at all. Remote learning is here to stay. So is telehealth.

I also believe that the things we have not been able to do in the last year; travel, be tourists, see live music, live theater, live sports, and all of that will be in more demand than ever. As Joni Mitchell said, “you don’t know what you got until it is gone.” We want all of that back and I think we will embrace being with others experiencing things in the real world with a passion.

But where all of this lands is anyone’s guess. And there are many businesses whose near-term fortunes depend on how the balance of remote vs in-person lands over the rest of 2021.

I also think a re-opening may not be great for the stock market, which was a major beneficiary of the pandemic. The NASDAQ is basically up 100% since March 20, 2020. I wrote a bit about why I think that might be the case last week. I don’t know how quickly a re-opening will impact the stock market, but I do think it could.

But let’s not get negative here. And end to the Covid pandemic and a re-opening of the economy would be about the best thing that could happen to the US and the world and I am becoming more and more optimistic that it will start happening in the second quarter of 2021.

#Current Affairs#economics#employment#stocks

How This Ends

We are in the middle of one of the great asset bubbles of modern times. It has been brought on by the easy money policies of central banks around the world aimed at weathering the global Covid 19 pandemic. Interest rates are near zero or negative in most developed economies and asset prices have gone way up as a result.

When interest rates are zero or negative, the value of future cash flows is huge and that is how you get PE and EBITDA ratios of over 100 and price/revenue multiples approaching 100.

The big question is how does this end?

I believe it ends when the Covid 19 pandemic is over and the global economy recovers. Those two things won’t necessarily happen at the same time. There is a wide range of recovery scenarios and nobody really knows how long it will take the global economy to recover from the pandemic.

But at some point, economies will recover, central banks will tighten the money supply, and interest rates will rise. We may see price inflation of consumer goods and labor too, although that is less clear.

When economies recover and interest rates rise, the air will come out of the asset price bubbles that have built up and the go go markets will hit the brakes.

When will that happen? Your guess is as good as mine. It could be later this year. It could be in a few years. It could take longer. A lot of damage has been done to the global economy and it is unclear how quickly it can recover.

A good chart to watch is the one year treasury bill.

When the one year treasury yield gets back above 2%, we are leaving the easy money era. We aren’t close to that right now.

#Current Affairs#economics

The Revenge Of Retail

A number of people have been asking me what I think of the Game Stop situation. This is not really my world. I don’t trade stocks, we hold them. I don’t use Robinhood, though I have an account thanks to my friend Howard. I don’t hang out on Reddit, though I visit it from time to time.

So I have not paid enough attention to this one, but it certainly is fascinating. The generational aspect of this is important. Boomer hedgies getting crushed by young folks self-organizing in social media. It feels like a moment where you realize that the power structure has shifted and things won’t be the same.

The financial system in the US, and in other developed countries, is a rigged system and has been for a very long time. Only big institutions can get into hot IPOs. Only rich people can invest in startups. Many of these rules are designed to protect “widows and orphans” but all they really do is make the rich richer and keep those without money out of the game.

Not anymore. Whether it is crypto (Coinbase) or day trading (Robinhood), the retail investor now has the tools to get into the game and win the game.

The new startup investing is buying into the Ethereum crowdsale. Had you done that in the summer of 2014, you would be looking at roughly 1,000 times your money right now. And that crowdsale was launched by a team led by a 20 year old. Though the SEC and others would like to impose the same rules on crypto that protect the rich and keep out everyone else, that has not happened and I pray that it won’t.

The new hedge fund is the Robinhood army self organizing on Reddit. They can move a stock more easily than the largest hedge fund.

There will be calls to regulate this “madness.” But it is the same madness we have always had. It is just a different crowd in charge.

I do worry that this Game Stop short squeeze will end badly and not only the hedge funds will get hurt. Markets can be brutal. But regulating markets to protect the small investor is not the answer. As we can see, the small investor is often a lot smarter than the large investor.

What we need to do is stop printing money to stabilize the economy. And start addressing the real economic issues that exist on main street, not wall street. Monetary policy is not the answer. Fiscal policy is. That won’t stop more Game Stops from happening. They are a by-product of markets. But it will get the money to where it is needed versus where it is just gameplay.

#crypto#Current Affairs#economics#stocks

Temper Tantrum

What the world witnessed yesterday was a temper tantrum by the President and his people who, two months after losing the election, still cannot accept the results and the loss.

These are sore losers. The kind that walk off the field quickly without looking you in the eye and shaking your hand and congratulating you. These are children who cannot control their tempers and want to wail and scream so everyone can hear how upset they are.

As sickening as yesterday’s tantrum and terror were, I am hopeful that the shame of seeing the halls of our democracy sullied will finally pull reasonable people away from this man and his followers.

A friend said to me that we finally hit rock bottom in the US yesterday. If that is true, and I think it may be, then we can start the recovery now. This country needs it badly.

#Current Affairs

What Is Going To Happen In 2021

Hi Everyone. Happy 2021.

Today, as is my custom on the first day of the new year, I am going to take a stab at what the year ahead will bring. I find it useful to think about what we are in for. It helps me invest and advise the companies we are invested in. Like our investing, I will get some of these right and some wrong. But having a point of view is very helpful when operating in a world that is full of uncertainty.

Let’s start with the elephant in the room. The Covid Pandemic will end in the developed world in 2021. I think we will see the end of the Covid Pandemic in the US sometime in the second quarter. I believe the US will work out the challenges we are having getting out of the gate and will be vaccinating at least 40mm people a month in the US in the first quarter. When you add that to the 90mm people in the US that the CDC believes have already been infected, we will have well over 200mm people in the US who have some protection from the virus by the end of March. By the end of the second quarter in the US, anyone who wants to be vaccinated will have been able to do so. All of this will be aided by at least two additional approved vaccines in the US in January and new and improved protocols, like emphasizing the first dose over the second one.

The second half of 2021 will be marked by two conflicting trends. First, we will see people returning in droves to offices, restaurants, bars, clubs, gyms, stadiums, concerts, parties, travel, theaters, and anywhere that they can be social with others, ideally many others. I personally cannot wait to do all of that when it is safe to do so.

But ironically, this mass socializing trend will not materially and/or permanently change many behaviors we adopted in the Covid Pandemic. I believe that we will continue to want to work from home, exercise from home, shop from home, watch first run movies from home, order in, livestream, and all of the other new behaviors we learned to enjoy and perfect in the last year.

Where all of this shakes out will be the big reveal of 2021 and will impact many tech companies and many tech stocks. As I wrote yesterday, I think the trends that were accelerated in 2020 will not reverse in 2021, although the slope of the adoption curves will likely flatten a fair bit.

While we are out mass socializing, we will also be picking up the pieces of our world that was shattered by the pandemic. In the US, we have racial equity issues that are longstanding, real and demanding to be addressed. We also have an economy that is in tatters. And we have sectors of our economy like retail, commercial real estate, carbon based energy, and more that will never be the same. The restructuring of our economy and government and corporate balance sheets and income statements that have been blown wide open will take a decade or more to work out.

Sitting above all of this is an atmosphere that is getting warmer by the day. As I wrote in last year’s looking forward post:

The looming climate crisis will be to this century what the two world wars were to the previous one. It will require countries and institutions to re-allocate capital from other endeavors to fight against a warming planet.

https://avc.com/2020/01/what-will-happen-in-the-2020s/

At USV, we have begun that reallocation of capital and we will be investing heavily in companies and technologies that can help the world address this existential threat. I believe that many of our colleagues in the venture capital world will do the same because not only does the world need this investment, it will generate fantastic returns too. Climate will be to this decade what cloud was to the last one.

The twin terrors of the Covid Pandemic and the Climate Crisis will drive the great US migration of the 21st century and we are already experiencing it. We will see it accelerate in 2021. If, because of what we learned in the Covid Pandemic, a good job no longer requires someone to live in a low lying flood-prone city like Miami or NYC or a city that is burning like SF or LA, we will see many people in the US choose to leave those places and adopt new homes that are less impacted by the climate crisis. We call this “adapting to the climate crisis” at USV, and this will be a huge investable trend for many years to come.

I believe that governments will respond to all of these economic challenges by continuing to print fiat money without restraint and by taxing and regulating innovative new companies to protect old and dying companies. This will lead investors to continue to allocate capital to new forms of money (crypto) and new ways of creating and financing innovation (decentralized projects and organizations). We are already seeing that happen in the finance sector, with breakout projects in decentralized finance in 2020 like Compound, Yearn, and Uniswap (a USV funded project). We will see this approach accelerate in 2021 and expand into areas beyond the financial sector. The idea of financing and executing innovation inside of a global decentralized autonomous organization is such a powerful idea and one whose time has come.

As I go back and re-read this post, I am struck by how obvious and unprovocative all of these predictions are. Either that means that I am not getting far out enough on the curve to see things before everyone else does, or it means that the trends that will define 2021 have been building for years and are finally coming of age. Maybe it is a bit of both.

In any case, 2021 will be a year of returning to normal, but it will be a new normal and not like one we have experienced before. Adapting to change is my mantra for 2021. Happy New Year everyone.

#climate crisis#crypto#Current Affairs#economics#entrepreneurship#life lessons#VC & Technology

Marketing in 2021

My friends at Zeta Global (a USV portfolio company) put together this report on marketing in 2021. It clocks in a 26 pages so here are some highlights:

Those ways that artists made money in 2020 to make up for a lack of touring revenue—intimate livestreams, catalog licensing and syncs and expanded merch offerings—will continue after the touring industry returns to normal.

Desiree Perez — CEO of Roc Nation

After nearly a year of isolation, the floodgates of social life, dating, festivals, and travel will open into a social revolution once vaccines reach the minimum threshold. Jokes about the new roaring 20’s will abound on social media, and the moniker will feel earned. Young people, most notably college students and recent graduates, will make up for lost time, checking off — and adding to — their bucket lists with abandon.

Lauren Weiniger — Co-Founder and CEO of The SAFE Group

Even with the pandemic lingering into the new year, 2021 will be a banner year for the sports industry. Fan engagement and the business of sports have never been stronger, which is NOT the story you’ll hear if you simply listen to people talk about decreased TV ratings. That would be the same as evaluating the retail industry by just looking at brick & mortar store sales.

Michael Rubin — Founder and Executive Chairman, Fanatics | Partner, Philadelphia 76ers

Social Impact and ESG focus and efforts by large companies will increasingly be measured and become reporting metrics for large institutional investors. All public companies will be required to diversify their boards and executive officers.

Thomas Davidson — CEO of Everfi

We will see the rise of live shopping in the U.S. in 2021.

Imran Khan, Co-Founder & CEO, Verishop

While the COVID pandemic has wreaked unprecedented devastation in our communities, in the health care arena it has ushered in an era of rapid advancement and deployment of technology, ranging from telemedicine to at-home disease diagnostics to wearable oxygen sensors.

Cat Oyler — Vice President and Integration Leader of Momenta Pharmaceuticals

There are many more good predictions in there and lots of sound advice on how to evolve a marketing program for the new world we are operating in. You can read the entire thing here.

#Current Affairs

Consumer Trends 2021

Dan Frommer, who many of you likely know from his writing at Recode, Quartz, Business Insider and other places on the web, has teamed up with my friends at Coefficient Capital to create a 120 page report called Consumer Trends 2021.

Here’s a slide from that report:

There is no doubt that 2020 has changed a lot of things for good and consumer behavior is certainly one of them. This report does a good job of outlining what has happened and what the permanent changes are likely to be.

You can read the entire report here.

#Current Affairs