A VC : Venture Capital and Technology

Doing The Heavy Lifting

A VC : Venture Capital and Technology

Most venture capital investments are made, over time, by syndicates. This means a group of venture capital firms develops around a company, usually built over multiples rounds. Some of the firms in the syndicate agree to (or require) having a partner from their firm join the Board of the company. If you look at the roughly dozen boards I am on, most of them have multiple venture capitalists on them.

Founder Friendly

A VC : Venture Capital and Technology

Long time VC watcher, writer, and analyst Dan Primack suggested on Friday that the days of VCs trying to out “founder friendly” each other are now over. It is an interesting observation and was worthy of a reply. The VC industry is highly competitive for the best opportunities and we certainly do try to ingratiate ourselves and our firms to the entrepreneurs who will decide who gets to invest in their companies and who does not.

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Investor VCs and Operator VCs

A VC : Venture Capital and Technology

The Venture Capital business is full of great firms that were founded by entrepreneurs/operators who became investors mid/late career. From Gene Kleiner and Tom Perkins in the early 70s to Marc Andreessen and Ben Horowitz at the end of the 00s, this is the iconic model of the venture capital firm and the formula that built Silicon Valley into what it is today.

When the going gets tough, the tough get going

A VC : Venture Capital and Technology

It sure feels like the long awaited headwinds have arrived and the tailwinds are behind us for now. A friend sent me this chart today. You could create a similar chart out of many tech sectors right now but SaaS is as good of an indicator of what’s happening out there as any.

Seeing Through The Fog

A VC : Venture Capital and Technology

I was talking to my friend Simon yesterday and he observed that the essential skill of entrepreneurs and early stage VCs is to “be able to see through the fog of an emerging market and pick out the winning idea.” ” And of course, I agree with that. It is something that we have done pretty well at USV over the years. But how do you do that? Is seeing through the fog a skill that can be learned? I think seeing through the fog can be learned but it takes time and practice.

Global Venture Capital Distribution

A VC : Venture Capital and Technology

Richard Florida published some stats on the distribution of global venture capital investment last week. His work focused on 2012 numbers so the data is a bit dated, but I am sure it is still directionally correct. This map summarizes his findings: The bay area numbers are stunning.

Convertible and SAFE Notes

A VC : Venture Capital and Technology

Angel/seed rounds used to be done via priced equity securities, either common or preferred. Then, starting about ten years ago, we started to see convertible debt being used in the angel and seed rounds. By 2010 this was the norm and Paul Graham tweeted this in Aug 2010: Convertible notes have won. Every investment so far in this YC batch (and there have been a lot) has been done on a convertible note. Paul Graham (@paulg) August 28, 2010. Which led me to write this blog post here on AVC.

What Is Going To Happen In 2017

A VC : Venture Capital and Technology

Happy New Year Everyone. Yesterday we focused on the past , today we are going to focus on the future, specifically this year we are now in. Here’s what I expect to happen this year: Trump will hit the ground running, cutting corporate and personal taxes, and eliminating the preferential treatment of carried interest capital gains.

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Starting Is Easy, Finishing Is Hard

A VC : Venture Capital and Technology

Starting a company has gotten much easier over the past decade. The capital requirements to get started have come way down in both software and hardware businesses. The supply of seed and venture capital has increased dramatically as well. And there are all sorts of programs aimed at helping entrepreneurs get started. All of this has caused a rapid expansion of entrepreneurship, startups, and innovation. This is all great.

What Did And Did Not Happen In 2016

A VC : Venture Capital and Technology

As has become my practice, I will end the year (today) looking back and start the year (tomorrow) looking forward. As a starting point for looking back on 2016, we can start with my What Is Going To Happen In 2016 post from Jan 1st 2016. I thought AR/VR and wearables would disappoint in 2016. They did.

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Diversification (aka How To Survive A Crash)

A VC : Venture Capital and Technology

I was emailing with my friend Harry this past week and we started talking about crypto and the inevitability of a massive crash. I am certain the big crash will happen. I don’t know when it will happen and I think it may be some time before it does. But better safe than sorry. So I’m going to write some thoughts about how to survive it. I told Harry my personal story of having 90% of our net worth go up in smoke in the dot com bubble and crash.

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You Make Money With Wins, You Make Friends With Losses

A VC : Venture Capital and Technology

Brad Feld has a great post about the emotional toll of the collapse of the internet bubble. Near the end, he writes: When I reflect on my relationship with Seth, Jason, and Ryan much of the intense loyalty between us was forged in the period during and after the debacle that was the collapse of the Internet bubble. Some of my lifelong friendships, with people like Len Fassler, Dave Jilk, Jenny Lawton, Will Herman, Ilana Katz, and Warren Katz were solidified by the intensity of this time frame.

Biggest Technology Change In The Next Five Years

A VC : Venture Capital and Technology

The Upfront Summit is happening here in LA over the next two days. The folks at Upfront asked a number of well known VCs (me included) a bunch of questions. One of them was “What will be the biggest technology change over the next five years?”

Understanding VCs

A VC : Venture Capital and Technology

I saw Joe Fernandez ‘ tweet a few days ago and thought “he is making an important point.” ” too many young entrepreneurs talk about vc’s like they’re heroes and their blog posts are scripture. — Joe Fernandez (@JoeFernandez) August 19, 2016. VCs are not heroes. We are just one part of the startup ecosystem. We provide the capital allocation function and are rewarded when we do it well and eventually go out of business when we don’t do it well. I know.

Worry

A VC : Venture Capital and Technology

I remember when I was in my early 20s and just starting out in the venture capital business, I came across an old wall street saying that “a market climbs a wall of worry.” ” I didn’t understand it and that made me want to. I read a bit about the saying and came to understand that bull markets require an uneasy feeling. Worrying is a fundamental characteristic of most investors I know. Greed and fear are the two opposing elements of market forces.

Some Thoughts On Burn Rates

A VC : Venture Capital and Technology

The startup and venture capital businesses are based on a general idea that you can and should invest heavily into your business in order to increase value creation, amplify it, and accelerate it. These investments mostly take the form of operating losses, driven by headcount, where the monthly expenses are larger, often much larger, than revenues. These losses are known in the industry vernacular as “burn rates” – how much cash you burn on a monthly basis.

Best Seed Pitch Ever

A VC : Venture Capital and Technology

I read yesterday evening that our portfolio company Twilio , which priced its IPO last night, is going to live code from the NYSE this morning. That brought a powerful flashback to the first time I met Jeff Lawson , founder and CEO of Twilio. It was 2008 in our old offices on the 14th floor of the building we still work in. My partner Albert, who led our investment in Twilio, had met Jeff and was impressed with him and his vision for Twilio. He asked me if I would meet with him and so I did.

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The End Of The Level Playing Field

A VC : Venture Capital and Technology

I am old enough to remember the gogo days of cable TV when entrepreneurs who wanted to launch a new cable channel would go, hat in hand and cap table in tow, to the big cable companies and beg to get distribution on their networks. When the Internet came along in the early 90s, we saw something completely different. Here was a level playing field where anyone could launch a business without permission from anyone.

Reserves

A VC : Venture Capital and Technology

Reserves is the term VCs use to describe funds they “reserve” for follow-on financings of their portfolio companies. Here are some things entrepreneurs should know about VCs and reserves: One very important thing that separates a strong VC firm from all other sources of capital is that the best VC firms reserve capital for follow-on financings for their portfolio companies and can be counted on to participate in subsequent financing rounds.

Greed Isn’t Good

A VC : Venture Capital and Technology

The famous Gordon Gekko line that “greed is good” is bandied about quite often to explain why capitalism, and the pursuit of riches, is a positive thing for the economy, society, and the world at large. Greed is not good. There is a fine line between the profit motive and greed. I am a firm believer in the profit motive.

The Dangers Of Being Too Early

A VC : Venture Capital and Technology

I have been reading Whiplash , a book I recommended here last week. It starts with the story of the Lumiere brothers , who are credited with the invention of “the moving picture.” ” As told in Whiplash, the Lumiere brothers started showing films to audiences in 1895 using their patented cinematograph. But by 1900, they were out of the film business and had moved on to color photography.

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Open Source Funding Documents

A VC : Venture Capital and Technology

Cooley, one of the top startup law firms, has open sourced the legal documents required to do a Series Seed or Convertible Note financing. They are available on Cooley’s CooleyGo document generation platform and also on GitHub. Kudos to Cooley for doing this. We need to make the transaction costs of getting a financing done as low as possible and putting the legal docs into the public domain is a great step forward in doing that.

Experiment and Scandal

A VC : Venture Capital and Technology

We are living in a time of great experiments. They are not happening in the lab. They are happening in the real world. And they are being financed by real people. We are witnessing the de-institutionalization of experimentation. We are returning to a time when anyone can be an inventor and innovator. Some of this has happened because of the explosion of venture capital, both in the US and also around the world.

The Emerging Architecture Of Internet Applications

A VC : Venture Capital and Technology

The bitcoin blockchain is not just going to change the way money works on the Internet (and off). It’s going to change the way Internet applications are built.

The Second Smartphone Revolution

A VC : Venture Capital and Technology

Benedict Evans tweeted out this chart yesterday: We sometimes think of the shift to mobile as finished, or almost finished. It isn’t. pic.twitter.com/l5gaiMlaoU. Benedict Evans (@BenedictEvans) March 12, 2016. The first 2.5bn smartphones brought us Instagram, Snapchat, Uber, Whatsapp, Kik, Venmo, Duolingo, and most importantly, drove the big web apps to build world class mobile apps and move their userbases from web to mobile.

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What Didn’t Happen

A VC : Venture Capital and Technology

Last year, I ended 2014 with What Just Happened and started 2015 with What Is Going To Happen. I’ll do the same tomorrow and friday, but today I’d like to talk about What Didn’t Happen, specifically which of my predictions in What Is Going To Happen did not come to be.

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The Rich Get Richer

A VC : Venture Capital and Technology

The 2014 numbers for the VC category are out and it was a huge year, almost $50bn in total VC funding. ‘ But look at the numbers for “deals” vs the numbers for “dollars” In 2014, there were 4,356 deals vs 4,193 deals in 2013, an increase of 3.8% year over year.

Selling

A VC : Venture Capital and Technology

I think selling is the hardest part of investing. Buying is, of course, critical to generating strong investment performance. Figuring out what to buy and when to buy it is what most people think of when they think of investing. But your returns will have as much to do with selling as buying. And buying is a fairly rational decision. Selling tends to be emotional. And that is why selling is the hardest part of investing.

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What Is Going To Happen In 2016

A VC : Venture Capital and Technology

It’s easier to predict the medium to long term future. We will be able to tell our cars to take us home after a late night of new year’s partying within a decade. I sat next to a life sciences investor at a dinner a couple months ago who told me cancer will be a curable disease within the next decade. As amazing as these things sound, they are coming and soon. But what will happen this year that we are now in? That’s a bit trickier. But I will take some shots this morning.

The Dan Primack Interview

A VC : Venture Capital and Technology

Dan Primack and I did a fireside chat at the Upfront Summit this past week. It generated a few news stories that went a bit viral. It is easy to take a few comments out of the context of an overall discussion and turn them into more than they were. I think that is what happened with this interview.

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An AI First World

A VC : Venture Capital and Technology

Sundar Pichai said this last week on Alphabet’s earnings call: In the long run, I think we will evolve in computing from a mobile-first to an AI-first world. That statement got a lot of pickup and attention and deservedly so. It explains how the CEO of one of the most important tech companies thinks about where tech is heading and where his company is heading. What does an AI first world look like? It was easier to think about a mobile first world.

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The Carlota Perez Framework

A VC : Venture Capital and Technology

I was reading William’s post on the potential crash in the Bitcoin sector this morning and I thought of Carlota Perez.

The No Hands Syndrome

A VC : Venture Capital and Technology

Last week I saw this tweet from Dan Primack who covers the VC sector for Fortune: At VC breakfast (90 attendees), I asked how many would invest in Bitcoin startup (not general blockchain). Zero hands. FortuneTech. — Dan Primack (@danprimack) July 14, 2015.

App Constellations

A VC : Venture Capital and Technology

I touched on the concept of App Constellations in my post on Friday about Swarm. I’ve been thinking about this concept for the past week and I think its an important development in the world of non-game native mobile applications.

Negative Gross Margins

A VC : Venture Capital and Technology

There’s been a lot of talk coming out of silicon valley lately about fast growing companies with high valuations that are going to face problems in the coming year(s). Bill Gurley said this recently: “I do think you’ll see some dead unicorns this year” Mike Moritz said this recently: “There are a considerable number of unicorns that will become extinct.” ” But how is this going to happen?

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Video Of The Week: Mary Meeker’s Internet Trends

A VC : Venture Capital and Technology

It was an easy and obvious call this weekend. I’m going to spend some time this morning watching my friend and coinvestor (on a few things) Mary Meeker do her thing. You should too. mobile VC & Technology Web/Tech

Technology In Istanbul

A VC : Venture Capital and Technology

The Gotham Gal and I are winding up a four day weekend in Istanbul. She likes to blog about the places we go and things we do so if you want to read about all that visit her blog. I expect the posts on her blog will be all about Istanbul for the next few days.

The Hard Raise

A VC : Venture Capital and Technology

In the summer of 2003, Brad Burnham and I set out to raise a $100mm early stage venture capital fund. We had both been successful VCs in other firms and we had a thesis that the second wave of the Internet was upon us and that large networks were going to get built in this phase. The term “web 2.0” ” had not yet been coined and Facebook had not yet been started (LinkedIn was being built around this time). It took us a year and a half to raise that fund.

Software Is The New Oil

A VC : Venture Capital and Technology

I was with some friends this weekend and one of them was talking about an investment committee meeting he attended and there was a discussion at that meeting about some of the threats out there in the macro investment landscape. One of them was “vanishing liquidity” and the significant change in net cash flows from the global oil sector. Oil producing regions have gone from being a massive cash generator to a relatively small one in the past few years.

In Defense Of Bubbles

A VC : Venture Capital and Technology

There is nothing the tech media and the broader press likes to ask me about more than bubbles. “Is Snapchat a bubble?” ” “Is Uber a bubble?” ” “Is Facebook a bubble?” ” “Is seed investing a bubble?” ” “Is growth investing a bubble?” ” And on and on and on. It’s like bubbles are a disease that we need to eradicate. Don’t get me wrong. Bubbles are something investors need to be careful with.