Posts from VC & Technology

USV Climate Fund

As I alluded to in a post earlier this week, we have some new things going on at USV. Today my partner Albert talks about one of them on the USV blog.

Over the last few months, USV has raised a climate fund. Our thesis for this fund is:

The USV Climate Fund invests in companies and projects that provide mitigation for or adaptation to the climate crisis.

https://www.usv.com/writing/2021/01/usv-climate-fund/

We believe that the time is right to invest in companies seeking to mitigate the climate crisis by either reducing carbon emissions or drawing down carbon from the atmosphere. We also believe the time is right to invest in companies providing solutions for adapting to the climate crisis that is already underway and may not be able to be completely mitigated.

This is the third strategy we are executing at USV. Each one has a fund associated with it. We have our core early-stage fund that is investing in what we call Thesis 3.0. We now have our climate fund investing in our climate thesis articulated above. And we have our Opportunity Fund that invests in more mature companies across both theses. And we have one team of generalists that works together to invest all three of these funds.

I encourage all of you to go read Albert’s post which has a bit more information about what we plan to invest in around the climate thesis and how we intend to do it.

#climate crisis#VC & Technology

Back To Work

It seems that many of us took most of the last two weeks off. I did as well. I paid attention to the things that needed to get done but not to much else.

Instead, I spent a lot of time with my family, long walks with our dog, and watched a ton of movies and dove into a couple of books. I also watched a decent amount of NBA basketball, which I am glad to have back.

The time off really helped. I kind of knew that I needed it, but actually taking the time revealed how much I needed it. I slept better and feel better.

I don’t think I did more than two or three video calls for business in the last two weeks. What a blessing that was.

Now it is time to get back to email, back to Zoom, and back to work.

I am excited to dive into some new things we have going at USV which we will formally announce in the coming weeks but have already been covered by others. There are no secrets in the VC business these days.

I am very hopeful that we can get back to meeting in person in the not too distant future. That would be so great. Until then, see you on Zoom.

#VC & Technology

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

What Happened In 2020

It is my tradition to end the year looking back and start the year looking forward. So today, I will write about 2020 in the context of tech/startups/VC/crypto.

While it is inarguably the case that 2020 was a terrible year with a global pandemic, racial strife and ugly politics in the US, and an economic downturn that is impacting exactly the people who have already been hurt the most, it was an inflection point for the tech/startup/VC/crypto sectors and a very significant one. These sectors, which had been growing in their global importance over the last twenty years, all of a sudden have emerged as the most important sectors of the global economy.

We are seeing structural declines in the importance of massive sectors like carbon based energy, commercial real estate, retail, and more. And technology based products and services are benefitting from these losses.

Some obvious examples:

1/ Zoom and other video conferencing services gain when employers allow/encourage/require their employees to stop coming to offices leased from the commercial real estate sector.

2/ Electric vehicles/batteries/software gain when fewer and fewer consumers are buying gasoline from the carbon energy sector.

3/ Technology based commerce solutions gain when less people venture into stores to buy groceries, clothes, and other consumer products.

These changes are not temporary, although the velocity of the changes may be. Technology based services have improved significantly this year, rising to the moment when consumers needed them, and they will continue to improve relative to legacy offerings. And consumers have installed the apps, left their cards on file, and adopted different routines. The genie is out of the bottle. It is not going back in.

In USV’s year end review process, we asked our team if there was anything about the work model we adopted in the pandemic they want to keep. What we heard was most people want to be in the office two to three days a week, not five. And that makes sense, particularly in a dense urban region where transportation options are crowded and time consuming. One of the big ahas of 2020 was how much time and productivity is wasted on commuting and how much more productive we have all become without it.

Financial markets, flush with stimulus money that mostly found its way to brokerage accounts instead of the families that actually needed it, understood these changes quickly and we witnessed extraordinary gains in technology stocks and crypto assets. This was largely a speculative affair, driven by people stuck at home trading stocks and crypto for their own accounts or with other people’s money.

But here is the thing about speculative frenzies – they are generally directionally correct but off in their order of magnitude. And they finance the trend that they are directionally correct about. It may be the case that Tesla’s market capitalization is too high, but that allows Tesla to raise $10bn without diluting more than a few percentage points. And that $10bn will go towards accelerating the conversion of the auto industry from carbon-based fuel to renewable energy. And that is a good thing for society.

There is no question that crypto is in yet another speculative bubble, but like I said, it is speculative bubbles that allow emerging technologies to go mainstream and finance themselves. Odd as it may seem, a lot more people want to buy Bitcoin at $28,000 than wanted to buy it at $5000. That’s just how things are. And it is important to understand that.

Startups and the investors who finance them benefit from all of this. 2020 was a great year for early-stage companies and venture capitalists. And some profound changes are afoot that will allow startups to flourish even more in the coming years. We now have virtual capital raising so that startups don’t need to travel to raise capital. This makes it easier to raise money and makes geography matter much less. And we have remote work becoming mainstream which means startups can be located anywhere and hire from anywhere. Capital and talent are the heart and soul of startups and both are now available to a founder from anywhere. It is hard to understate how transformational and important this change is.

So when we look back at 2020 in a few years, we will see that it was the year that everything changed for tech/startups/VC/crypto and set the stage for a decade of transformational change. And god knows that the world needs a lot of that right now. That will be the topic of my post tomorrow.

#VC & Technology

The Rise Of Everywhere

This is a theme I have come back to many times over the last decade but in the wake of all of the headlines about high profile founders, VCs, and companies leaving the bay area, I thought I would return to it.

There is no question that the bay area is losing some talent to other markets but I don’t think that is anywhere near the most important thing. It is also the case that Google and Apple show no signs of leaving the bay area any time soon. Silicon Valley will remain a mecca for talent and tech for as far into the future as I can see.

What is more important is the rise of everywhere. In the most recent Pitchbook 2021 predictions, they project that Silicon Valley will make up less than 20% of all VC deals in 2021. The way that happens is not less funding in Silicon Valley. The way that happens is way more funding everywhere else.

In the first decade of USV, the 2000s, we mostly invested in NYC and Silicon Valley. In the second decade of USV, the 2010s, we invested throughout North America and Western Europe. In the third decade of USV, I suspect we will extend our geographic range even further. We already have.

If there is one megachange in VC from the pandemic (there may be many), I think it is the comfort with making investments over video without the founder or the VC traveling to meet each other. Related to that is the rising comfort of VCs and founders working closely with each other over video and not traveling to work with each other in person.

I am not saying that founders will stop traveling to raise money, although I think that may stick post-pandemic. And I am not saying that VCs will stop traveling to attend board meetings. But I am saying that we will see less of both and the result of that will be a massive increase in the geographic range of where investors can and will invest.

If you add to that the rising comfort of companies employing people remotely and the rising number of people in tech living somewhere other than the big tech hubs, we will see a massive increase in the number of founders starting companies in places other than Silicon Valley, NYC, and a few other locations. This is not just happening in the US, this is happening everywhere.

So let’s stop worrying about Silicon Valley, it will be fine, and start celebrating the rise of tech entrepreneurship everywhere. That is a profound thing for the world and something to be incredibly happy about.

#entrepreneurship#VC & Technology

Rapid Innovation

When people ask me why I prefer to invest in software-based innovation vs other important areas like biotech, hardware, energy, etc, I always point to the speed at which software can be built, released, and iterated on.

This is a personal comfort thing for me. I am not saying that these other areas are not important. They are. Society needs innovation in areas outside of software. And there are fantastic returns to be had to those who are prepared to take on those risks.

But there is something very frustrating about innovation that cannot be released to the market quickly.

I was reminded of that yesterday when I read David Wallace-Wells’ piece in NY Magazine about the Moderna Covid Vaccine. David writes:

By the time the first American death was announced a month later, the vaccine had already been manufactured and shipped to the National Institutes of Health for the beginning of its Phase I clinical trial. This is — as the country and the world are rightly celebrating — the fastest timeline of development in the history of vaccines. It also means that for the entire span of the pandemic in this country, which has already killed more than 250,000 Americans, we had the tools we needed to prevent it .

https://nymag.com/intelligencer/2020/12/moderna-covid-19-vaccine-design.html

You can’t make a vaccine and ship it to the world as soon as you’ve made it. There are many good reasons for that. But if that were not the case, as David points out, we might have been able to avoid the entire pandemic. We had the technology to end the pandemic before it landed in most of the world.

And it makes me wonder if there are lessons from the world of software, where we “move fast and break things”, that can be adopted by other areas of innovation. Can we re-imagine how we test medical innovations so that they can come to market and save lives much more quickly? Can we re-architect how the energy markets work so that they can be re-shaped as quickly as software markets are? Can we stitch atoms together more like we stitch bits together so that physical things (buildings, devices, etc) can adapt more quickly?

I don’t know the answers to those questions. I am just wondering outloud. But I know this, innovating in software is so much easier than innovating elsewhere and it would be better if that were not the case.

#VC & Technology

Thoughts On Charles Duhigg's New Yorker Piece

I saw this tweet in my feed yesterday and read the New Yorker piece when I woke up this morning:

Here’s what I think. There is more truth to that article than anyone in the venture capital industry wants to admit.

The idea that capital alone can create a strong company is a flawed idea that the VC industry pursued with a lot of passion for most of the last decade. The flameout of WeWork and the tarnished stories around other “fundraising as a strategy” startups will hopefully put an end to that approach of building companies, but I won’t hold my breath until that happens.

It is true that we VCs enable the bad behaviors outlined in that piece and we must look a little more carefully at ourselves in the mirror in the morning and, as the Gotham Gal likes to tell me, “get over ourselves.” I won’t hold my breath until that happens either.

All of that said, the vast majority of VC-backed companies are not WeWork. The vast majority of VC-backed companies are innovative, led by good people, and are creating value the old fashioned way, by supplying their customers with high quality products and services. We should not let a few bad apples spoil the whole bunch.

Cautionary tales like WeWork and the others outlined by Charles Duhigg are healthy. But they are not the entire story, thankfully.

#VC & Technology

Knowing What You Are Looking For

There are many ways to invest successfully. Public stocks, bonds, private equity, real estate, venture capital, etc. And within each category, there are so many different investment opportunities.

In public stocks, there are something like 5,000 listed stocks in the US. In venture capital, there were something like 30,000 companies that raised venture capital in 2019.

How do you make sense out of all of that opportunity?

I’ve always been a fan of knowing what you are looking for and ignoring everything else. We call that thesis based investing at USV, but it is actually more than that.

We can say that we are looking to back trusted brands that increase access to capital, wellness, and knowledge, and we do. But we do more than that. In each of those sectors, we go deeper and identify specific areas within them that we want to target. We call those “deep dives.” We identify areas we want to focus on and areas we don’t want to focus on.

All of this is a relentless effort to figure out what we are looking for and then go out and find it. It is not a static thing. It is a dynamic thing. A pandemic comes along and rocks our world. Time to revisit the thesis and the deep dives. When the pandemic ends, and it will, we will factor that into our thinking too.

In a world with so much opportunity, it pays to ignore the vast majority of it and focus on a tiny bit of it. That may seem counterintuitive, but I am certain that it is the right thing to do.

#stocks#VC & Technology

The Star Pupils

I was looking at the numbers on an early-stage VC fund that the Gotham Gal and I are invested in. I am not very familiar with the portfolio but this fund was formed in 2012. There are 24 names (investments) in the portfolio and 3 of them have produced 92% of the value in the fund.

This is more or less the pattern of every early-stage venture capital fund I have helped to manage and every early-stage venture capital fund I have invested in over the last thirty years. I believe it is a fundamental law of early-stage investing that a small number of investments will produce that vast majority of the returns.

But here is the thing. You may get your returns from a small number of names, but you cannot simply focus on them.

I liken it to a teacher and a class full of students.

There will always be the “star pupils” but the teacher’s job is to serve all of the students. The reward may be to watch the star pupils shine, but the job is not. The job is to serve all of the students equally, or possibly to help the students who are struggling more than the others.

That mindset has helped me navigate this challenging issue in the early stage venture capital business. The work is often in one place and the rewards in another.

#VC & Technology