Posts from VC & Technology

A friend and I dined last night at a restaurant that opened in our neighborhood last summer, in the middle of the pandemic. For the first six months of its existence, they could not welcome diners into the space that they had spent time and money creating. They carried on, figured out how to make money serving customers outside. As the NYC economy starts to recover, they are still standing. And they are now welcoming diners into the lovely space they created for them a year ago.

Resilience is an extremely valuable trait when you are starting and running a business. In a bull market that rewards other things, it is often overlooked. But I don’t overlook it.

A reporter asked me recently about a company that I am on the board of that has become very successful. I told the reporter that for years, the founder carried on while every competitor left the market in search of a viable business. The viable business arrived eventually and the founder was rewarded for his patience.

Sticking with something, even when the chips are down, is hard. Many people (most?) can’t do it. They are impatient. They want the easy money.

While the world has been going through a painful and deadly global pandemic, the tech sector has experienced a bull market of epic proportions that has lifted all boats and made some incredibly wealthy. But that bull market will eventually end and things will get harder for founders and CEOs and investors.

And that is when resilience will be in short supply. So look for it in founders now, when it is less necessary.

Buying something from the creator or issuer is often called the “primary market.” Reselling it to someone else is often called the “secondary market.” I have spent my career in the primary market, buying equity from very young companies and holding it for many years usually until a sale or IPO. That has worked well for me over the years but recently, I have watched a vibrant secondary market develop for private company shares and I think that is a good thing as I believe more liquidity is better than less liquidity in most, maybe all cases.

I was reminded of this yesterday when I purchased tickets to a Knicks game against the Warriors next week at Madison Square Garden. As a season ticket holder, I was able to get into a pre-sale to purchase two of the two thousand seats that will be available at that game, the first Knicks game at MSG with fans in almost a year.

Those tickets come with some very serious, and appropriate requirements including obtaining a negative Covid PCR test within 72 hours of the game. After discussing the requirements with my son last night, we decided it wasn’t for us and I put the tickets on StubHub. Although I probably could have and should have marked them up, I just wanted my money back and the tickets sold in a matter of minutes and I was made whole.

I knew I could do a secondary sale when I purchased the tickets and I also knew that as a season ticket holder, I had the ability to buy when others could not, and that I had to move quickly. Knowing that I could resell them took the risk out of moving quickly and I was able to do that with confidence.

That’s an example of how secondary liquidity reduces risk and increases trust and confidence in a market.

Going back to startup equity, I believe that we will continue to see more and more secondary liquidity for startup equity. Our portfolio company Carta has recently launched a market for exactly that called CartaX and I believe it will be an important source of secondary liquidity for founders, employees, and investors in startups. As we de-risk the investments of time and money that everyone is making in these startups, I believe that will draw more talent and more capital to the startup sector.

And that is a good thing.

In early June, I wrote this post explaining that I and we need to do more to reduce the inequality issues for Black people in tech, venture capital, and startups.

I think MLK day is a good time to talk about what has happened since that post.

We have identified a number of areas where we must do better:

• Increase the number of Black founders we back
• Increase the number of Black team members at USV
• Increase the number of Black VCs we work with and support
• Increase the number of Black board members in our portfolio
• Increase the number of Black leaders in our portfolio
• Increase the number of Black employees in our portfolio
• Increase the number of Black engineers in our portfolio
• Increase the number of Black investors in our funds
• Increase the number of Black college graduates going into tech, venture capital, and startups
• Create pathways for Black students to study STEM and find their way into careers in tech, venture capital, and startups

We have ongoing projects, workstreams, investments, and efforts in each and every one of these areas and we have made tangible progress in almost all of them.

I believe that the inequity issues are so severe and deeply rooted that it will take a concerted effort over a number of years to truly erase them.

But we are making progress and if we keep at it, across many dimensions, we can get where we need to go. Roughly 15% of Americans are Black. Until we can look around the room and see at least one Black person for every six in the meeting, we haven’t done enough. Today is a good day to remind ourselves of that and recommit to the work that needs to happen.

Yesterday, I had a gap in the middle of the day. So the Gotham Gal and I took an hour-long walk with our dog Ollie. It cleared my head and when I got back to work, I was full of energy and clarity.

I’ve been working exclusively from home since the end of November 2019 when we left NYC to go to LA. It has been a stretch of incredible productivity for me.

I am not arguing against going back to the office. As I’ve said in many posts recently, I can’t wait to go back to the office. But I am sure that many of us have had the same experience that I have had working from home during the pandemic. It has its advantages.

And in that realization exists the possibility that we are on the cusp on a revolution in how many of us can find work life balance going forward.

My friend Tom wrote this post last week suggesting that a husband and wife can now work a total of 50 hours a week between them and have two full-time jobs and raise a family. This part sums up the idea pretty well:

Why do I think 25 hours/ week is the equivalent of a 50-hour week (counting commuting)?

Given a nine-to five schedule with an hour for lunch, the 40 hour work week was only 35 to begin with.

As an ex-CEO, I think that at least ten hours of each workweek go to socialization, surfing the internet, checking with the spouse or checking up on the children, chatting on smartphones etc. (Mary thinks only five).

Meetings and travel to meetings waste a huge amount of time and money. One reason that Zooming appears not to have reduced productivity is that many of the meetings weren’t productive to begin with.

Office space and often parking are expenses to the employer but they are not income to the worker. If office space and all its attendant costs can be drastically reduced, employers can afford to pay more dollars in salary for the same productivity.

Commuting expense including perhaps even the second car, daycare, clothing and dry-cleaning bills, and paid before and after school activities whose purpose is to supervise school age kids are all expenses which go away when parents can work from home. Even if the WFH employee has less gross taxable income, he or she will have more cash at the end of each month.

https://blog.tomevslin.com/2021/01/newnormal-the-50-hour-family-work-week.html

Even if Tom is off by a bit with his math, he makes a terrific point. Companies can ask for less of a family’s time, pay them more, and get the same amount of work done using the techniques we have perfected during the pandemic.

I realize that not all jobs lend themselves to this approach. But maybe more than you think. Take doctors. We used to have to go see doctors in their offices. Now with digital health services like those offered by our portfolio companies Brave and Nurx, the doctors are seeing the patients from their homes (or wherever they are).

Teaching is another occupation that presents a lot of opportunity to rethink time and location. Many teachers have been learning how to help their students master new things from their kitchen counters over the last year.

I want to say it again. I am not suggesting that we won’t be going to offices anymore. I am not saying doctors won’t have offices anymore. I am not saying teachers won’t be in classrooms anymore.

What I am saying is that we can and should be asking how much of our work time needs to be in person, face to face, and how much can be virtual. And I am certain that we will be asking that. In our year-end reviews at USV, we heard again and again from our team that they wanted to ask those questions. They should. Commuting and business travel are not the necessities they were last century.

And, naturally, this coming work-life balance revolution presents tremendous opportunities for new products, services, and companies. We have been seeing many of them crop up over the last year and have invested in a few of them.

From bad comes good. This pandemic and all of the things that have come with it has been awful. But I believe it will unleash all sorts of new behaviors and businesses that will be for the better. If you squint, you can see them coming.

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.

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.

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.

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.

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.