Posts from Investment

Yesterday morning I attended the annual meeting of the NYC Partnership. The NYC Partnership is the "chamber of commerce" for NYC. Because NYC is one of the biggest commerce centers in the world, the NYC Partnership is a pretty interesting group and has lots of big name companies and execs involved in it.

The annual meeting yesterday featured talks by Lloyd Blankfein, Larry Summers, Mike Bloomberg, and Rupert Murdoch. I tweeted a bit from the meeting and you can see those tweets here (Dec 4th, 8:30am to 9:30am).

My favorite talk was Larry Summers' in which he addressed the administration's economic plans, priorities, and strategies.

At one point, Larry said that the US needs to "save, invest, and export more and the developing world needs to spend, borrow, and import more" (or something like that). It's certainly true that we can't continue with the model where the US borrows and goes deeply in debt to purchase goods and services provided by the developing world which then saves the money they earn and lends it to the US. That's how we've gotten into the mess we are in.

But I'd like to focus on "saving and investing". It has not been fashionable in this country to be a saver and an investor. It's been more fashionable to be a borrower and spender. Everyone wants to lease a fancy car or take out a big mortgage to buy a big home.

I'd like to see Obama make a big deal about the value of saving and investing. He's got great oratorical skills but he often talks in grand sweeping generalisms, like the "need to change." Well I think its time to get more specific about what needs to change. And if Obama were to start talking about the value of saving and investing every time he makes a speech, I think he could make saving and investing fashionable.

Saving is hard, particularly when you can barely make ends meet. But a "forced savings" plan can work for most people. Many companies do an automatic deduction for a 401k plan. It would be great if you could also do an automatic deduction and send the money to a mutual fund or money market fund. If everyone tried to save 5 to 10 percent of their take home pay, it would make a huge difference.

Investing is also important. Not gambling, not speculating. That is best left to the pros. Investing means taking some risk but not a lot of risk. It means putting money to work in the economy, and not just our economy, but the global economy. Mutual funds are a good way to do this. So are index funds. There are a lot of good places to get sound advice on how to invest wisely and patiently. We need to do more of that in this country.

Saving and investing has been part of the american culture in the past. It is still very much part of the culture among some parts of our citizenship. But too many of us have gone on a borrow and spending binge and it's time to get back to basics. And I'd like to see our President get out in front on this issue and lead the country back to a better way.

Taking a cue from the advice we give to companies all the time, we've just launched the new USV.com in beta form last night. It still has a few kinks to get out, but it is mostly there.

 

When Brad and I first thought about our firm's website back in 2004, we quickly decided it should be a blog and that is what it has always been and it is what it will always be.

Our investment thesis is not a static thing, it is a living and evolving thesis, and the only way we know how to express it is in a series of blog posts in reverse chronological order. As we've added to the firm, our website has grown to include new voices like our partner Albert and also Andrew and Eric. It was time to refresh the look and feel and organization, but we've not changed the goal of the website.

There are three things I'd like to highlight. The first is our "focus" page. On this page we've simply collected all of the blog posts that we've written over the years on usv.com that are about our investment strategy. If you read all of the posts on the focus page, you'll understand what we invest in and why. And as our focus evolves, you'll see new posts explaining how we are evolving and why.

The second thing is the portfolio company page. Each portfolio company has an entire page on usv.com and that page is dynamic. Here is the Boxee page on usv.com. It has a short explanation of the company's business and then links to recent posts from the company's blog, along with photos, videos, and tweets from the company. This page is powered by a slick tool from Magnify. We appreciate their help in making these pages come to life. I think they are terrific.

And I'd also like to highlight the team member page. It is also powered by Magnify and includes a similar set of content as the portfolio company page. Here is my page on usv.com.

The new look is the work of a talented web designer named Phoebe Espiritu. In addition to her considerable talents, she is terrific to work with. The project was managed by Eric Friedman and I'd like to thank him for all of his effort on it.

I'm very pleased with how this came out. Our business and portfolio is changing rapidly and we've now got a website that changes in real time with it. That's the way it should be.

As the venture business has grown and matured, many firms have developed specific areas of focus. Our firm, Union Square Ventures, for example only invests in web services. I believe this is a good thing for both the investors in venture funds, called LPs, and the entrepreneurs.

But there are a number of ways that firms can execute their focus on a particular area. Two of the most popular are "thematic investing" and "thesis driven investing".

They are very different.

Thematic investing involves identifying big themes and going after them. Examples from the world of web services would be "social networking", "online video", "ad networks", "social media", "real time", "mobile". I know many VCs who go about it this way. They identify the themes and then get busy filling out their portfolio with companies that fit those themes.

Thesis driven investing involves drawing a picture of where your particular area of focus is going. I like to take a five to ten year view. And once you have mapped out that picture, it becomes your thesis. And you evaluate every investment you make in the context of that thesis.

The two venture firms I've been involved in founding are good examples of these two approaches. Flatiron Partners was largely a thematic oriented firm. We identified the web as a big theme and within it we identified content, commerce, and community. And we made big bets in those themes. It worked out pretty well but we didn't see the web changing at the end of the decade as much as we should have.

Union Square Ventures is a thesis driven firm. I owe that to my founding partner, Brad Burnham, who has the discipline to force everyone to do the work to develop our thesis and the discipline to make sure we put each and every investment through the thesis test.

Just last week, we were meeting with one of our LPs and I was talking about the mobile web in that meeting. Later that afternoon, Brad walked into my office and put our thesis on web vs mobile web on the table and we made sure we were seeing the mobile sector play out the same way. An important factor in thesis driven investing is everyone in the firm needs to buy into the thesis or it won't work.

Thematic investing is good for bigger firms. It allows each partner to pick a couple themes and go after them. Thesis driven investing is good for smaller firms. It requires a tight team that works to keep themselves on the same page executing after a singular vision.

I believe thesis driven investing produces the best returns when the thesis is directionally correct and probably also the worst returns when the thesis is wrong. I believe thematic investing works less well because it can lead to "bucket filling" where the firm just runs around filling the themes with deals without much thought to why and how they will work. It also leads to a lot of "me too" investing which is a scourge that the venture industry can't seem to figure out how to rid itself of.

But both thematic investing and thesis driven investing are better than a generalist approach because they both promote domain expertise which is critical to building a sustainable investment advantage. I think "generalist" or "opportunistic" investing is likely to underperform domain expert driven investing in all but the most turbulent markets.

It would be good to talk more about how one goes about building a five to ten year map of where an industry is headed. That's a longer conversation than I have time for this morning. But I'll leave you with the thought that this blog is a part of how I build mine.