A VC : Venture Capital and Technology

The “VC Funnel”

A VC : Venture Capital and Technology

I saw this image in my twitter feed this morning: Which led me to this CB Insights post from last October. You can scroll down to the bottom of that CB Insights post to see how they came up with this data.

Supply And Demand

A VC : Venture Capital and Technology

I saw this chart on Semil ‘s blog this morning: What is shows is that as the amount of money raised (and deployed) in seed funds has grown over the last ten years, the ability of the companies that received those seed investments to raise a follow-on Series A round has declined (massively).

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3D Printed Homes

A VC : Venture Capital and Technology

A few years ago I was up at the MIT Media Lab, where I have been on the advisory board, and met a bunch of faculty members. The one that blew me away was a woman who was building a 3D printer that could “print” office buildings. That really stuck with me.

The VC/Company Relationship

A VC : Venture Capital and Technology

When I got into the VC business in the early 80s, the VC/Company relationship was pretty different than it is now. Capital was hard to come by, VCs commanded terms that would be laughed at today, and once they had made the investment, VCs acted as if they owned the Company (they sometimes did). The VC/Company relationship was a lot more like the current PE business than the current VC business. Back then VCs thought their customers were their Limited Partners.

The Valuation Obsession

A VC : Venture Capital and Technology

There is an obsession with the values that are being placed on companies when they finance. There has always been one but it is worse than ever. Every day, without fail, I read a headline that so and so company has raised, will raise, or is trying to raise capital at some eye popping valuation.

Investment Pace

A VC : Venture Capital and Technology

We were hanging out with friends last night and one of them asked me how many investments I have made this year. I replied “one so far.” ” He said, “you are not very active.” ” and I replied “I do one to two deals a year and always have.” ” Which surprised him. I have been investing in early stage companies since the late 80s and over those thirty plus years, I have personally led investments in about sixty companies.

Rapid Experimentation

A VC : Venture Capital and Technology

It can be exhausting to try and stay caught up on every new tech company being started. The Gotham Gal said me to yesterday, “everyone is an entrepreneur these days.” She’s right about that directionally although most companies have employees who are not founders so it is not exactly correct.

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Investor Friendly Terms

A VC : Venture Capital and Technology

At USV, we have always had simple and investor-friendly terms with the institutions and individuals that provide the capital we invest. I got thinking about that this morning in reading Brad Feld’s post about recycling management fees , something we do aggressively at USV (we have recycled between 20 and 25% of our mature VC funds). We have never charged a premium carry or off-market management fee, we return all capital before taking carry distributions, and we recycle aggressively.

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Canada

A VC : Venture Capital and Technology

I’m in Canada today to attend a board meeting. I love Canada. It’s a kindler gentler more welcoming version of the US. And it’s increasingly an important place to be for the tech sector. About 10% of USV’s active portfolio is in Canada. And 30% of our last ten investments are in Canada. We have portfolio companies in Toronto, Waterloo, and Vancouver. We also know that Montreal, Quebec, and Ottawa are attractive places to invest.

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The Jiu-Jitsu Move

A VC : Venture Capital and Technology

When a new technology or a new entrant or some new behavior comes into a market, the initial reaction is often to reject it. But, as my partner Brad likes to say, the better move is to take that new energy coming at you and use it to your advantage. He calls it the “Jiu-Jitsu Move.” ” A good example is the emergence of Wikipedia in schools about fifteen years ago.

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.

The Second Quartile

A VC : Venture Capital and Technology

As I have written about here on AVC many times, early stage venture portfolios produce a wide range of outcomes. A few investments produce the vast majority of the returns while many investments return nothing. Managing a portfolio with power law dynamics is a challenge. At USV, we tend to make 20-25 investments per early stage fund. The best four to five investments per fund will usually produce greater than 80% of the total returns of a fund (the top quartile).

Do Your Homework Before Sending That Email

A VC : Venture Capital and Technology

I saw this tweet today from our friend Arianna and I had a good chuckle: Love when people cold email me with a pitch and ask to set up a call with management. Hi, that’s me! Arianna Simpson (@AriannaSimpson) June 12, 2018. But the underlying issue is not that funny. Someone took the time to send her a pitch email but did not take the time to figure out who she was. I’m always looking for an excuse to delete a cold email instead of replying to it.

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200x Growth

A VC : Venture Capital and Technology

Back in 2011, my partner Brad suggested that USV invest in a search engine called DuckDuckGo. I laughed at the idea, “why would we ever want to compete with Google?” ” “Because they do something Google will never do”, Brad explained.

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Playing Your Role

A VC : Venture Capital and Technology

Investing in many different companies, with different founders, different cultures, and different missions requires the ability to adapt to each and every one. I like to think about it as playing a role in a play. Even though I am the same person, with the same fundamental beliefs, I end up playing very different roles in the companies I invest in and work with.

Reporting

A VC : Venture Capital and Technology

At USV, we report to our investors on our portfolio and performance four times a year, once a quarter. We produce an audited report once a year, with our Q4 results. We do that in writing and we also do a quarterly call for our investors three times a year (we combine our Q4 and Q1 calls since our annual audit process slows down our Q4 reporting). In our annual and Q2 written reports, we prepare a short update on every one of our portfolio companies. We call these “one-pagers.”

Taking Money “Off The Table”

A VC : Venture Capital and Technology

One of the hardest things in managing a venture capital portfolio is managing your big winners. A big winner can dwarf the rest of the entire portfolio and you end up sitting on enormous paper profits that you can’t get liquid on. I realize that this seems like a great problem to have, and it is, but it is still a challenging situation. We faced it in Twitter in 2010/2011/2012, in the years before Twitter went public (which happened in the fall of 2013).

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a16z crypto

A VC : Venture Capital and Technology

I guess this is the week I am going to compliment our competitors in the VC business. That meme started yesterday in my post on Benchmark and will continue today. Yesterday afternoon my friend Chris Dixon announced a new VC fund called “ a16z crypto ” which he will lead with a team of great investors, many of which are also friends, including his new partner Katie Haun who I serve on the Coinbase board with. She is a very special person as Ben Horowitz described in this post.

Where Did You Go To School?

A VC : Venture Capital and Technology

I read this post yesterday that says that 40% of VC investors went to either Stanford or Harvard. Frankly, I am not surprised. I’ve worked in this industry for over thirty years. It is full of Stanford and Harvard grads. I’ve got nothing against either school. They are wonderful education institutions and full of great people. We have Stanford and Harvard alums at USV so we are certainly a contributor to this statistic. But we don’t have 40% of our team from those two schools.

Pay Attention To The Package

A VC : Venture Capital and Technology

Tech investing is a lot about big trends and timing them. We knew mobile was going to be a game changer as far back as the mid 90s, but it didn’t really take off until the iPhone came along in 2007. We knew personal computing was going to be a big deal in the late 70s, but computers didn’t become truly personal until operating systems got graphical user interfaces in the mid 80s.

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Location, Location, Location

A VC : Venture Capital and Technology

Here are some “truisms” about startup investors and location that I’ve experienced and passed on over the years: Startup investors prefer to invest locally. The younger the startup business, the more that is true.

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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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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.

Time And Money

A VC : Venture Capital and Technology

One of the least discussed aspects of investing in startups is the value of the time commitment one makes to a company they invest in. The money part is pretty simple; you invest capital into a business and get an equity participation in the upside. Both sides of that deal can analyze that transaction and understand it fairly well. Of course neither side knows what the ultimate payoff will be, but one can handicap it. The time piece of the transaction is way more complicated.

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Developer In Residence

A VC : Venture Capital and Technology

For the past six months, Jed has been helping USV build some much-needed tools to connect people at our 60+ portfolio companies to each other. It has worked out well, so well that we decided to ask Jed to join us full time in a new role that we call Developer In Residence. Why would a VC firm need a full-time software developer? Well, we have always had people at USV who can code, but it was always a side thing, never our full-time job.

USV Thesis 3.0

A VC : Venture Capital and Technology

At USV, we are thesis-driven investors. We state clearly and concisely what we want to invest in and, implicitly, decide not to invest in anything else. That is a good thing because, as our partner Rebecca wrote in this post : The commitment to a thesis is part of the fiber of USV–a shared set of ideas creates a framework that allows us to operate with focus and work on what matters most. Today we are publishing, and committing ourselves to, version 3.0

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.

The Bloomberg Startup Barometer

A VC : Venture Capital and Technology

I came across this index from Bloomberg that tracks the health of the US startup ecosystem. This index “incorporates both the money flowing into VC-backed startups, as well as the exits that are making money for investors.

Proof Of Blog

A VC : Venture Capital and Technology

We have a tradition at USV that one of our new analysts, Dani , coined Proof Of Blog. Excited to be a part of the @usv team (it’s official now – based on Proof of Blog). I’m two weeks in, here’s some of what I’ve learned so far. link]. Dani Grant (@thedanigrant) June 4, 2018. I like that term so much. It really speaks to why we have this tradition. When someone new joins USV, we ask them to introduce themselves to our world on the USV blog.

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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.

Video Of The Week: How Play Made the Modern World

A VC : Venture Capital and Technology

I got to spend a fair bit of time with my friend Steven Johnson this past week, in preparation for our crypto talk on Thursday night and before and after that talk.

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Valuation Inflation

A VC : Venture Capital and Technology

In the blog post announcing changes at SV Angel last week , the SV Angel partners wrote: The amount of money raised in seed rounds has doubled and valuations have increased significantly. I thought I’d go back over the last three USV funds and see what I could learn about the market from our experience.

Why Decentralization Matters

A VC : Venture Capital and Technology

So the news over the weekend is that Microsoft is buying GitHub. Many companies and developers are thinking “do I want my source code hosted on a service owned by Microsoft?” ” Fortunately, the protocol that GitHub is built on, Git , is open source and there are other Git hosts, like GitLab. There are also a number of proprietary Git solutions offered by companies like Atlassian and BitBucket.

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.

Board Feedback

A VC : Venture Capital and Technology

Something I am a huge fan of is Board Feedback. I’ve written about this a lot here at AVC and I am writing about it again today. Because it is important and not done regularly in my experience. A founder/CEO and their team spend a lot of time preparing for a meeting, and then they give the meeting their all, and often the Board leaves and nothing is really said about it. That sucks. For everyone, but most of all for the CEO. Here is what I try to do and mostly do.

ICOs and VCs

A VC : Venture Capital and Technology

The Brave browser team concluded an ICO for their Basic Attention Token yesterday in about thirty seconds. This led to this tweet: The Basic Attention Token (BAT) ICO just raised 30 million dollars in 24 seconds. VC’s didn’t even have time to put on a sweater vest. briantobal (@briantobal) May 31, 2017. Of course folks will see ICOs as the end of the hated VC era of startup funding. And there is some truth to that.

Rebecca Kaden

A VC : Venture Capital and Technology

USV added a new partner today. Her name is Rebecca Kaden and she introduced herself to our world on the USV blog just now. Rebecca joins a team of fifteen people; our network team, our analysts, and our fantastic administrative team. We are all excited to have her join us. It took us a year to find the right person to add to our partnership. We have only added three people to our partnership in the fourteen-year history of USV.

Timing

A VC : Venture Capital and Technology

There is a big difference between being right about something and being right about when something will happen. Sadly, to profit from being right you either have to get the timing right or you have to hang in there until the timing is right. The latter can be incredibly painful and most investors don’t have the stomach for it. This is particularly true of short positions. It is not enough to know that something is going to blow up. You have to know how, why, and when.

My Talk At MIT

A VC : Venture Capital and Technology

I mentioned a few weeks ago that I was going to give the first annual Georges Doriot Lecture at MIT. I traveled up to MIT on April 13th and gave this talk. I really enjoyed doing it and I want to thank MIT for doing it. VC & Technology

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.