Posts from entrepreneurship

From Start-up To Stand-out: What Distinguishes High Growth Potential

My partner Rebecca brought an appreciation for and an understanding of marketing to USV and it has made us better investors and it has helped us assist our portfolio companies with their marketing efforts.

Rebecca is going on Simulmedia Live tomorrow at 2pm ET to talk about startups, marketing, growth strategies, and how she thinks about all of these issues in identifying attractive investments and helping our portfolio companies with their growth strategies. If you want to listen in, you can register here.

Simulmedia is a USV portfolio company that offers internet style advertising products via a national scale television advertising network. As more and more internet channels have become saturated, many startups and growth companies have turned to Simulmedia to help them make TV work the way that their tried and true internet channels have worked for them.

It should be an interesting discussion tomorrow.

#entrepreneurship

My 1985 Nike Air Jordan Investment

Earlier this week I purchased 1% of a collection of five 1985 Nike Air Jordan sneakers using our portfolio company Otis’ mobile app.

I paid $330 for ten shares (out of a total of 1000 shares) implying a value of $33,000 for the five pairs, or roughly $6600 each.

This page shows the highlights of this sale, including a video, a link to the investment deck, and a link to the offering circular.

The Air Jordans offering sold out quickly but luckily I got a push notification on my phone alerting me to the “drop” and I was able to secure an interest in the collection in less than a minute. It was a lot of fun to do. I have bought interests in nine collectibles via the Otis app over the last few months.

The idea of breaking up collectibles into small interests and creating/making a market in them is a very interesting idea. It allows people who appreciate these items and understand their value to participate in the appreciation without having to be super wealthy. I like that very much.

I also like that Otis is a “crypto adjacent” business. Our friend Jesse Walden coined that term and I really love it. It suggests that there are non-crypto based applications, like Otis, that will deliver on some of the promises of crypto and prime the pump for what a fully crypto-based application can do for us. Otis could have been built on a blockchain and these security interests in Air Jordans could trade on a blockchain, but that is not how it works today. It may go there in the future. But regardless, we are starting to see how technologies like crypto can open up a market to everyone, or at least a lot more people, and that is very exciting to me.

#crypto#digital collectibles#entrepreneurship#Sports

Being In The Flow

I have been investing in developer tools since the earliest days of my VC career. The first investment I led in the late 80s was a financing that provided the funds to acquire a programming editor called Brief. It was a text-based editor for PCs. That investment worked out but we didn’t make a lot of money on it. Brief was eclipsed by other better editors.

But that did not cool my interest in developer tools. I have always believed that supporting the people who build software is a great business and it is.

At USV, we have made developer tools a key area of investment and some of our most well-known successes like MongoDB, Twilio, and Stripe are developer tools.

But as I learned from my Brief experience, all developer tools are not equal in terms of creating business value.

Last week, I was discussing this in a texting session with my partner Nick. And he observed that the tools that have produced the most value for the founders and investors, including USV, are the tools that are “in the flow” and not on the side.

That was quite an “aha moment” for me as it clarified something that I have longed felt intuitively but could not articulate. Now I can.

I think this is true for many other areas of software. If you build software that sits in the flow of something important (mission critical, recurring, etc) then it will increase in value over time, and sustain its value, much more significantly than something that “sits on the side.”

So when thinking about what to build or what to invest in (it is the same thing, just depends on if you are investing time or money), try to be in the flow.

#entrepreneurship#VC & Technology

Entertainment vs Utility

The news this week that HQ Trivia has finally called it quits reminded me of this post I wrote back in 2012 about the difference in sustainability (and thus value) between entertainment and utility apps.

What is interesting to me is if you could use a social app or an entertainment app to get to another place (distribution, platform, blockchain, financial services, etc, etc). That feels like a much more sustainable place to be.

But very few social apps and games have been able to do that. And the result has been a predictable boom/bust cycle that has not produced a lot of value for founders or investors.

#entrepreneurship#VC & Technology

Tech Jobs For All Who Want Them

The tech sector is the fastest growing sector of the economy in NYC and around the US and around the world. The tech sector offers high paying jobs and a growing number of them.

But, as we all know, the tech sector lacks the gender and racial diversity that would allow everyone to benefit from this growing sector of the economy. Most of the studies that have looked at the lack of diversity point to a skills gap standing in the way.

So last year Tech:NYC (where I am co-chair) and a few large employers (Google, Verizon, Bloomberg LP) and the Robin Hood Learning and Technology Fund commissioned a study of the skills training programs in NYC to see where there are gaps and what must be done to close them so that tech jobs are available to everyone in NYC who wants one.

This report was done by the Center for an Urban Future and was released yesterday. You can read it here.

What the report reveals is that NYC has a rich and expanding ecosystem of tech skills training opportunities, including K-12 and adult education. But, as we all know, the quality is uneven and so are the outcomes.

The report makes twelve recommendations which are detailed here. They are:

1. Make a significant new public investment in expanding and improving New York City’s tech education and training ecosystem. 

2. Set clear and ambitious goals to greatly expand the pipeline of New Yorkers into technology careers. 

3. Prioritize long-term investments in K–12 computing education. 

4. Scale up tech training with a focus on programs that develop in-depth, career-ready skills. 

5. Build the pipeline of educators and facilitators serving both K–12 and career readiness efforts. 

6. Close the geographic gaps in tech education and skills-building programs. 

7. New York City’s tech sector should play a larger role in developing, recruiting, and retaining diverse talent. 

8. Increase access to tech apprenticeships and paid STEM internships through industry partnerships, CS4All, and the city’s current Summer Youth Employment Program. 

9. Expand efforts to market STEM programs to underrepresented students and their families. 

10. Develop and fund links from the numerous computer literacy and basic digital skills-building programs to the in-depth programs that can lead to employment. 

11. Expand the number of bridge programs to provide crucial new on-ramps to further tech education and training for New Yorkers with fundamental skills needs. 

12. Develop major new supports for the non-tuition costs of adult workforce training. 

I participated on the advisory board of this study and support all of these recommendations. Elected officials and policy makers in NYC (and really everywhere) should read and heed these recommendations.

The tech sector faces many headwinds in society right now for a host of reasons. Not all of them can be solved by an employee base that mirrors the planet. But many of them can be and we need to work to get there.

I want to thank the Center For An Urban Future, Tech:NYC, Robin Hood Learning and Technology Fund, Google, Verizon, and Bloomberg LP for giving us a roadmap on how to get there.

#economics#employment#enterprise#entrepreneurship#hacking education#hacking government#management#NYC#policy#Politics

The Management Rights Letter

A friend asked me over the weekend “why do VCs ask for a management rights letter when they make an investment?”

A management rights letter is a short agreement between a company and an investor to allow them certain “management rights.” These are typically the ability to attend board meetings, the ability to have access to financial reports on a regular basis, and the ability to advise and consult with the management of the company.

While it is nice to have these “rights”, the need for this letter actually has very little to do with how venture capital firms want to work with a portfolio company.

The existence of these letters has everything to do with where the venture capital firms get their funds from. If a VC firm has pension fund investors who are subject to ERISA regulations (as USV does), then they need to be a “venture capital operating company (VCOC)”. And one of the best ways to make sure you are considered a VCOC is to have management rights letters for all (or most) of your investments.

This post on Startup Lawyer explains it well:

Venture funds request these rights in order to obtain an exemption from regulations under the Employee Retirement Income Security Act of 1974. Absent an exemption, if a pension plan subject to ERISA is a limited partner in a venture fund, then all of the venture fund’s assets are subject to regulations that require the venture fund assets to be held in trust, prohibit certain transactions and place fiduciary duties on fund managers. However, a “venture capital operating company” is not deemed to hold ERISA plan assets. To qualify as a VCOC, a venture fund must have at least 50% of its assets invested in venture capital investments. In order to qualify as a venture capital investment, the venture fund must receive certain management rights that give the fund the right to participate substantially in, or substantially influence the conduct of, the management of the portfolio company. In addition to obtaining management rights, the fund is also required to actually exercise its management rights with respect to one or more of its portfolio companies every year.

http://www.startupcompanylawyer.com/2007/12/03/what-is-a-management-rights-letter/

So as annoying as these letters are, it really doesn’t make a lot of sense to try to negotiate away these agreements as the venture capital firm that is asking for it really does need these rights in order to be in business with their limited partners.

#entrepreneurship#VC & Technology

Marketing

I used this title for possibly the most regrettable blog post I have written on AVC back in 2011.

My friend Alex’s post on the topic this weekend has made me revisit my thoughts on the subject of marketing.

Alex starts off his post with this assertion:

2019 was the year when VCs and startup founders soured on paid acquisition.

I am not sure if that is true, but if it is, it suggests a dramatic change in the startup playbook.

Back in 2011, I wrote:

He said “every company needs a marketing budget.” It seemed like a strong reply but in truth not one of our top performing companies had a marketing budget in their initial business plan.

That is certainly no longer true. The 2010s were a decade in which startups mastered marketing and channels like Facebook and Instagram emerged to satisfy their demand.

But what if that game is over? What if that well has gone dry?

Alex suggests we have to go back to virality and customer to customer marketing in his post.

I think we are more likely headed to something new and I am not entirely sure what that is.

And the Google/Facebook/Instagram well has not exactly “gone dry”. But it sure feels like steady-state to me now. It is a must-do but you can’t beat the competition there anymore because everyone is there.

So here we are. At the cusp of something new because we need it. Now we need to figure out what it is.

#entrepreneurship

What To Work On

My partner Brad likes to ask about the distinction between doing things right and doing the right thing. His observation, which I totally agree with, is that many people and companies do things right but don’t do the right thing. Taking the observation one step further, I have seen that doing the right thing the wrong way can actually result in something important and successful whereas doing the wrong thing the right way rarely does.

So that begs the question “what should I work on?”

First and foremost, I believe we should all work on projects that interest us, where we have insights that others don’t have, and that motivate and inspire us and others.

I also think that working on something that meets this first test is necessary but not sufficient.

Beyond that test, which is a must, I believe we should be working on something that can have a large impact. Coming from a venture capitalist, I am sure many people will read that as “make a lot of money.” But that is not what I mean. Impact can be measured by money. But it can also be measured by the number of people that will use your product or service. It can be measured by how it changes the way people think and how they react to your product or service or innovation. Even if Tesla fails as a company (which I do not think will happen), they have changed the way the automobile industry operates forever. That is an example of impact.

And then a third very important thing is how you are going to address the problem, how you are going to market, how you are going to make money (the business model), and how you are going to defend your market position and business. This is often where the magic is. Let’s say you have an insight on how to use video to deliver education to young people to significantly improve learning. You could build a business that delivers that technology to the existing school system. Or you could build a business that goes directly to the students and bypasses the existing school system. These are two very different “go to market” strategies, they imply two very different business models, and they will result in very different long term market positions. Your choices on “how” will ultimately define your work more than anything and getting this right is so critical.

A lot of entrepreneurs ask me for help in figuring out what to work on. I tell them that I can’t tell them what to work on. That has to come from within and nobody can give it to you.

But I can give you a framework because choosing what to invest in is a lot like choosing what to work on. One is an investment of money (and time). The other is an investment of time and yourself. The latter is such a larger investment and the risks are much higher. But the framework is similar.

You must work on something that inspires you and others, you must work on something with a significant impact, and you must do it in a way that makes getting where you want to go as easy as possible and keeps you there as long as possible.

#entrepreneurship

What Will Happen In The 2020s

It’s 2020. Time to look forward to the decade that is upon us.

One of my favorite quotes, attributed to Bill Gates, is that people overestimate what will happen in a year and underestimate what will happen in a decade.

This is an important decade for mankind. It is a decade in which we will need to find answers to questions that hang over us like last night’s celebrations.

I am an optimist and believe in society’s ability to find the will to face our challenges and the intelligence to find solutions to them.

So, I am starting out 2020 in an optimistic mood and here are some predictions for the decade that we are now in.

1/ 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. This is the decade we will begin to see this re-allocation of capital. We will see carbon taxed like the vice that it is in most countries around the world this decade, including in the US. We will see real estate values collapse in some of the most affected regions and we will see real estate values increase in regions that benefit from the warming climate. We will see massive capital investments made in protecting critical regions and infrastructure. We will see nuclear power make a resurgence around the world, particularly smaller reactors that are easier to build and safer to operate. We will see installed solar power worldwide go from ~650GW currently to over 20,000GW by the end of this decade. All of these things and many more will cause the capital markets to focus on and fund the climate issue to the detriment of many other sectors.

2/ Automation will continue to take costs out of operating many of the services and systems that we rely on to live and be productive. The fight for who should have access to this massive consumer surplus will define the politics of the 2020s. We will see capitalism come under increasing scrutiny and experiments to reallocate wealth and income more equitably will produce a new generation of world leaders who ride this wave to popularity.

3/ China will emerge as the world’s dominant global superpower leveraging its technical prowess and ability to adapt quickly to changing priorities (see #1). Conversely the US becomes increasingly internally focused and isolationist in its world view.

4/ Countries will create and promote digital/crypto versions of their fiat currencies, led by China who moves first and benefits the most from this move. The US will be hamstrung by regulatory restraints and will be slow to move, allowing other countries and regions to lead the crypto sector. Asian crypto exchanges, unchecked by cumbersome regulatory restraints in Europe and the US and leveraging decentralized finance technologies, will become the dominant capital markets for all types of financial instruments.

5/ A decentralized internet will emerge, led initially by decentralized infrastructure services like storage, bandwidth, compute, etc. The emergence of decentralized consumer applications will be slow to take hold and a killer decentralized consumer app will not emerge until the latter part of the decade.

6/ Plant based diets will dominate the world by the end of the decade. Eating meat will become a delicacy, much like eating caviar is today. Much of the world’s food production will move from farms to laboratories.

7/ The exploration and commercialization of space will be dominated by private companies as governments increasingly step back from these investments. The early years of this decade will produce a wave of hype and investment in the space business but returns will be slow to come and we will be in a trough of disillusionment on the space business as the decade comes to an end.

8/ Mass surveillance by governments and corporations will become normal and expected this decade and people will increasingly turn to new products and services to protect themselves from surveillance. The biggest consumer technology successes of this decade will be in the area of privacy.

9/ We will finally move on from the Baby Boomers dominating the conversation in the US and around the world and Millennials and Gen-Z will be running many institutions by the end of the decade. Age and experience will be less valued by shareholders, voters, and other stakeholders and vision and courage will be valued more.

10/ Continued advancements in genetics will produce massive wins this decade as cancer and other terminal illnesses become well understood and treatable. Fertility and reproduction will be profoundly changed. Genetics will also create new diseases and moral/ethical issues that will confound and confuse society. Balancing the gains and losses that come from genetics will be our greatest challenge in this decade.

That’s ten predictions, enough for now and enough for me. I hope I made you think as much as I made myself think writing this. That’s the goal. It is impossible to be right about all of this. But it is important to be thinking about it.

I know that comments here at AVC are broken at the moment and so I look forward to the conversation on email and Twitter and elsewhere.

#climate crisis#crypto#economics#employment#entrepreneurship#Food and Drink#hacking energy#hacking finance#policy#Politics#Science#VC & Technology