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.

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.

What Happened In 2017

A VC : Venture Capital and Technology

As has become my practice, I celebrate the end of a year and the start of a new one here at AVC with back to back posts focusing on what happened and then thinking about what might happen. Today, we focus on what happened in 2017.

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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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 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).

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.

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.

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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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.

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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What’s Going On?

A VC : Venture Capital and Technology

A lot, to be honest. It’s Crypto Week in NYC this week. The last two weeks have been a blur, with so many things happening that I can’t keep up or write about all of them. But, here are a few. 1/ The Rockets ended the sweep nonsense talk going on in the bay area with a trompsing of the Ws last night in Houston. Thank God. 2/ The Celtics are showing how great a job Danny Ainge and Brad Stevens are doing running that team.

Having A Foot In Both Camps

A VC : Venture Capital and Technology

At our annual CEO Summit, which took place last week, we kick things off going around the room with each attendee (there are over seventy at this point) mentioning something they are struggling with right now. When it got to my turn, I said that I am struggling to be “all in” on crypto and also “all in” on my current portfolio companies. A few of my current portfolio companies are in the crypto space, which makes it easier. We have been investing in crypto since 2012.

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

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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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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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.

The Jetsons

A VC : Venture Capital and Technology

When I was a kid, two of my favorite cartoons were from Hanna-Barbera ; The Flintsones and The Jetsons. I particularly loved The Jetsons. From Wikipedia : the Jetsons live in a comical version of the future, with elaborate robotic contraptions, aliens, holograms , and whimsical inventions. [3] 3] [4] The original series comprised 24 episodes and aired on Sunday nights on ABC beginning September 23, 1962, with primetime reruns continuing through September 22, 1963.

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.

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.

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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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.

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.

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.

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.

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.

USV Manager Bootcamp

A VC : Venture Capital and Technology

Our USV Portfolio Network Team built a new offering last year called the USV Manager Bootcamp. The idea is to offer management training classes to our portfolio companies that are too small to be able to offer those classes themselves.

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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Our Model

A VC : Venture Capital and Technology

This past week our portfolio company MongoDB went public. I think that occasion presents an opportunity to talk about USV’s model. We are a small firm. We raise modest sized funds (by modern VC standards). Our first fund was $125mm, our second fund was $150mm, and we have now settled on $175mm as a good number and our past three funds have been that size. Our typical entry point is Seed or Series A although we have an Opportunity Fund that allows us to enter later when that is appropriate.

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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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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.

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.

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.

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.

Being Public

A VC : Venture Capital and Technology

Two former USV portfolio companies had tough earnings calls last night. And you look at that and you might say “why would any company want to go public?” ” But here is the thing. Being public is about being transparent, accountable, and owning up to the issues and dealing with them. I think it makes companies better. If you are losing your biggest customer, you have to tell the world and deal with the consequences.

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.

Audio Of The Week: A16Z’s Alex Rampell

A VC : Venture Capital and Technology

I found this wide ranging interview quite interesting. Alex has been an entrepreneur and is now an investor. He is operating at the intersection of traditional fintech and crypto, which is a place USV also often occupies. USV TEAM POSTS: Bethany Marz Crystal — January 26, 2018 The Lisa Frank Sticker Experiment Albert Wenger — January 26, 2018 Mycroft: Open Consumer Voice Platform. crypto entrepreneurship hacking finance VC & Technology

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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.

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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