Posts from Politics

The issue of how to tax carried interest, the profit sharing interests that VCs, Private Equity firms, and Hedge Funds receive as compensation for generating returns to their investors, is in the news again.

This time it is not a debate at the Federal level, but at the state level. There are carried interest taxation bills under discussion in California, Illinois, Maryland, New Jersey, New York,Rhode Island, and possibly other states that I am not aware of.

My view on this issue is simple and I’ve stated here publicly and regulary since mid 2007.

If you are being paid a fee for managing other people’s money and have no capital at risk on the carried interest, I don’t understand how it can be considered a capital gain.

It may be good economic policy to incentivize people to manage other people’s money and maybe there should be some tax break for doing so. That is a different conversation in my view. Though I don’t buy that one either.

But capital gains tax rates should only be available to those who put their own capital at risk. Many VCs do that in their funds. The partners at USV make up a sizeable portion of our funds. We should and do get capital gains treatment on those investments.

But we also get capital gains treatment on the carried interest and I’ve never understood why. I think it’s wrong.

Finally, because I’ve written these thoughts here before, I know that some will say “well then you should be sticking to your principles and paying ordinary income rates on all of that carry you have received over the years.”

I don’t think that is right either. If the government sets the rules, and everybody else is playing by them, I don’t think it makes sense to play by different rules. I do think it makes sense to explain why you think the rules are wrong. Which is what I am doing here.

In this talk that he gave at the Blockstack Berlin conference last month, my partner Albert argues that privacy is a strategy and not a core value in the information age.

My partner Albert went on Squawk Box along with Chris Hughes a few weeks ago.

Here is the part where Albert talked about his views on intellectual property rights and a bit more.

This post is not about the tragedy that happened at Parkland or the gun safety debate that has been re-energized by it. Those are both worthy topics but I’m not opining on them today.

I do hope that this tragedy, among so many like it, will result in meaningful changes in our society in terms of how we protect our children in school and also how we allow responsible and healthy people to own and secure their weapons.

What I am going to opine on is how Parkland is re-shaping the debate about how social media and technology more broadly is impacting our culture, our collective conversations, and our politics.

In the beginning, the tech sector believed, and told everyone, that connecting the world via technology was going to be great, a technological utopia as it were.

That, of course, turned out not to be true and what we have are both vast improvements (truly global real time communications that everyone can tap into) and equally vast problems (you can’t believe and can’t trust anything you read on the Internet).

It is the classic good news/bad news situation.

In the past few years, but most notably last year, the discussion of this topic has focused on the bad side of these changes. Fake news, hacked systems, bots, ad systems gone haywire, and so on and so forth. We collectively lost trust in social media and technology and became angry about it.

Then comes Parkland. These amazing brave and vocal young adults, victims, with the same tools in their hands.

And we see, again, the good side.

The promise of Parkland, for me, is that this technology we have built and use every day can be an impactful tool for real people with real things to say to get their words out, and for the rest of us to see them, amplify them, discuss them, debate them, and understand them.

I feel the pendulum on this issue swinging back to center, where it belongs, and I am very encouraged by that.

I listened to Sam Harris talk to Niall Ferguson yesterday on Sam’s Waking Up podcast.

Niall is a historian, an author, a journalist, and an academic.

He has just published a new book on a topic that is near and dear to me, USV, and many of you; networks and hierarchies, and how these two forms of information flow and management have impacted society over the last five hundred years (or so).

The book is called The Square and the Tower: Networks and Power, from the Freemasons to Facebook.

I bought it for our Kindles today and will get into it asap. But just hearing Niall talk about the ideas in the book tells me that this is going to be an important read for many of us.

We may think that the power of information networks to shape society is a new thing (Facebook, fake news, Trump, etc, etc) but Niall argues that there is nothing new here and these sorts of things have been going on in analog networks for hundreds of years. As Shakespeare said, “what’s past is prologue” and we should learn as much from the past as we can. That’s what historians are for, after all.

I plan on doing that and you may want to join me.

I backed this documentary film project earlier this week.

I want to see this film made and shown. If you do as well, you can back this project here.

Given the political nature of this post, I have closed the comments.

As has become my practice, I celebrate the end of a year and the start of a new one here at AVC with back to back posts focusing on what happened and then thinking about what might happen.

Today, we focus on what happened in 2017.

Crypto:

I went back and looked at my predictions for 2017 and I completely whiffed on the breakout year for crypto. I did not even mention it in my post on New Year’s Day 2017.

Maybe I got tired of predicting a breakout year for crypto as I had mentioned it in my 2015 and 2016 predictions, but whatever the cause, I completely missed the biggest story of the year in tech.

If you look at the Carlota Perez technology surge cycle chart, which is a framework I like to use when thinking about new technologies, you will see that a frenzy develops when a new technology enters the material phase of the installation period. The frenzy funds the installation of the technology.

2017 is the year when crypto/blockchain entered the frenzy phase. Over $3.7bn was raised by various crypto teams/projects to build out the infrastructure of Internet 3.0 (the decentralized Internet). To put that number into context, that is about equal to the total seed/angel investment in the US in 2017. Clearly, not all of that money will be used well, maybe very little of it will be used well. But, like the late 90s frenzy in Internet 1.0 (the dialup Internet) provided the capital to build out the broadband infrastructure that was necessary for Internet 2.0 (the broadband/mobile Internet), the frenzy in the crypto/blockchain sector will provide the capital to build out the infrastructure for the decentralized Internet.

And we need that infrastructure badly. Transaction clearing times on public, open, scaled blockchains (BTC and ETH, for example) remind me of the 14.4 dialup period of the Internet. You can get a taste of what things will be like, but you can’t really use the technology yet. It just doesn’t work at scale. But it will and the money that is getting invested via the frenzy we are in is going to make that happen.

This is the biggest story in tech in 2017 because transitions from Internet 1.0 to Internet 2.0 to Internet 3.0 cause tremendous opportunity and tremendous disruption. Not all of the big companies of the dialup phase (Yahoo, AOL, Amazon, eBay) made a healthy transition into the mobile/broadband phase. And not all of the big companies of the broadband/mobile phase (Apple, Google, Facebook, Amazon) will make a healthy transition into the decentralized phase. Some will, some won’t.

In the venture business, you wait for these moments to come because they are where the big opportunities are. And the next big one is coming. That is incredibly exciting and is why we have these ridiculous valuations on technologies that barely/don’t work.

The Beginning Of The End Of White Male Dominance:

The big story of 2017 in the US was the beginning of the end of white male dominance. This is not a tech story, per se, but the tech sector was impacted by it. We saw numerous top VCs and tech CEOs leave their firms and companies over behavior that was finally outed and deemed unacceptable.

I think the trigger for this was the election of Donald Trump as President of the US in late 2016. He is the epitome of white male dominance. An unapologetic (actually braggart) groper in chief. I think it took something as horrible as the election of such an awful human being to shock the US into deciding that we could not allow this behavior any more. Courageous women such as Susan Fowler, Ellen Pao, and many others came forward and talked publicly about their struggles with behavior that we now deem unacceptable. I am not suggesting that Trump’s election caused Fowler, Pao, or any other woman to come forward, they did so out of their own courage and outrage. But I am suggesting that Trump’s election was the turning point on this issue from which there is no going back. It took Nixon to go to China and it took Trump to end white male dominance.

The big change in the US is that women now feel empowered, maybe even obligated, to come forward and tell their stories. And they are telling them. And bad behavior is being outed and long overdue changes are happening.

Women and minorities are also signing up in droves to do public service, to run for office, to start companies, to start VC firms, to lead our society. And they will.

Like the frenzy in crypto, this frenzy in outing bad behavior, is seeding fundamental changes in our society. I am certain that we will see more equity in positions of power for all women and minorities in the coming years.

The Tech Backlash:

Although I did not get much right in my 2017 predictions, I got this one right. It was easy. You could see it coming from miles away. Tech is the new Wall Street, full of ultra rich out of touch people who have too much power and not enough empathy. Erin Griffith nailed it in her Wired piece from a few weeks ago.

Add to that context the fact that the big tech platforms, Facebook, Google, and Twitter, were used to hack the 2016 election, and you get the backlash. I think we are seeing the start of something that has a lot of legs. Human beings don’t want to be controlled by machines. And we are increasingly being controlled by machines. We are addicted to our phones, fed information by algorithms we don’t understand, at risk of losing our jobs to robots. This is likely to be the narrative of the next thirty years.

How do we cope with this? My platform would be:

1. Computer literacy for everyone. That means making sure that everyone is able to go into GitHub and read the code that increasingly controls our lives and understand what it does and how it works.
2. Open source vs closed source software so we can see how the algorithms that control our lives work.
3. Personal data sovereignty so that we control our data and provision it via API keys, etc to the digital services we use.
4. A social safety net that includes health care for everyone that allows for a peaceful radical transformation of what work is in the 21st century.

2017 brought us many other interesting things, but these three stories dominated the macro environment in tech this year. And they are related to each other in the sense that each is a reaction to power structures that are increasingly unsustainable.

I will talk tomorrow about the future, a future that is equally fraught with fear and hope. We are in the midst of massive societal change and how we manage this change will determine how easily and safely we make this transition into an information driven existence.

Click here to find out how to do that

Tomorrow, I am going to take AVC offline to show the FCC what the Internet will look like if they repeal the Net Neutrality rules.

It is part of a collective action called Break The Internet.

If you want to join me in this protest, you can get what you need here.

Hopefully, the Verizon shill who runs the FCC will get the message.