A VC : Venture Capital and Technology

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. SF proper and the broader bay area make up 25% of the global venture capital investment activity (~$10bn out of $42bn).

Venture Capital Returns

A VC : Venture Capital and Technology

This post is for everyone who thinks venture capital is an easy business. Here are short term and long term returns for the venture capital business over the past ten years compared to the public equity markets in the US. Venture Capital and Technology

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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. It is not how many/most of the top venture capitalists in the business did it.

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. If you look at the roughly dozen boards I am on, most of them have multiple venture capitalists on them. Not all venture capital firms in your syndicate will be the same.

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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Convertible and SAFE Notes

A VC : Venture Capital and Technology

Honestly, I wish the whole scourge of notes would go away and we could go back to the way things were done for the first twenty years I was in the venture capital business. 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.

ICOs and VCs

A VC : Venture Capital and Technology

You are selling some of it to raise capital but the main purpose of the token is to monetize your product or service. So, while ICOs represent a new and exciting way to build (and finance) a tech company, and are a legitimate disruptive threat to the venture capital business, they are not something I am nervous about and they are not something USV is nervous about. The Brave browser team concluded an ICO for their Basic Attention Token yesterday in about thirty seconds.

What Did And Did Not Happen In 2016

A VC : Venture Capital and Technology

The truth is that startups, venture capital, and tech growth companies had a pretty good year in 2016 all things considered. 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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The Startup Curve

A VC : Venture Capital and Technology

Venture Capital and TechnologyI'm working with a few startups right now that are in various phases of Paul Graham's startup curve : Many people think startups are up and to the right all the time.

Mocked And Misunderstood

A VC : Venture Capital and Technology

Venture Capital and Technology Web/TechWhen people ask me, "how do you know which companies and services are going to be the biggest successes?", ", I usually tell them to look for the companies and services that are mocked and misunderstood.

Experiment and Scandal

A VC : Venture Capital and Technology

Some of this has happened because of the explosion of venture capital, both in the US and also around the world. 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.

Entrepreneurs Have Control When Things Work, VCs Have Control When They Don't

A VC : Venture Capital and Technology

2) Whether the Company needs more investment capital and where it is coming from. Venture Capital and TechnologyI did an interview yesterday in Buffalo, NY where I was the past couple days for the launch of the Z80 incubator.

What Do You Look For?

A VC : Venture Capital and Technology

Venture Capital and TechnologyI'm asked this question all the time. Is it team? Is it the idea? Is it product? Is it market? The answer is that it is all of them and most importantly it is the way they all come together in a single company. Why is this the right team to do this?

In Defense Of Free

A VC : Venture Capital and Technology

mobile Venture Capital and Technology Web/TechI have written so much about free here at AVC that it should be called AVFree. In fact, I've even written a post with this exact same title (almost exactly seven years ago, the summer we invested in twitter, zynga, and tumblr).

You Can Do Too Much Due Diligence

A VC : Venture Capital and Technology

It's Monday, time for another lesson I've learned in the venture capital business. MBA Mondays Venture Capital and Technology Today I will tell a story that I love telling. It has some of my favorite people in it. Back in 2004, early in my blogging career, I heard about a service that had just launched called Feedburner. It provided a number of useful services for a blog's RSS feed.

Selling

A VC : Venture Capital and Technology

In venture capital, thankfully, VCs don’t drive a lot of the sell decisions. Most sell decisions that really matter in a venture portfolio will be made by the founders and management of the portfolio company, including the timing of the public offering if that is where a company is headed. I think selling is the hardest part of investing. Buying is, of course, critical to generating strong investment performance.

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What Is Going To Happen In 2016

A VC : Venture Capital and Technology

Markdown mania will hit the venture capital sector as VC firms follow Fidelity’s lead and start aggressively taking down the valuations in their portfolios. 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.

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What Has Changed

A VC : Venture Capital and Technology

there is a large pool of money in the venture capital asset class that is opportunistic, momentum driven, and thesis agnostic. this pool of capital was "all in" on consumer web/social web in the 2009-2011 time frame. it drove a lot of activity throughout the venture capital markets because each layer of the VC stack (angel, seed, Srs A, Srs B, Srs C, etc) needs to be aware of what the next layer up wants to fund.

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 spent our own capital raising that fund. But that fund, USV 2004, has been one of the very best venture capital funds ever put together. We have had a few of these in our portfolio over the past year as the expansion capital stage (Series C and D) of the venture capital market has contracted.

The Billion Dollar Valuation Club

A VC : Venture Capital and Technology

  Venture Capital and Technology Aileen Lee has a really good post up on TechCrunch , in which she analyzes the number of companies that have been started since 2003 that have gone on to be worth $1bn or more. This is a very useful exercise in the VC business since it is these big wins that produce the vast majority of returns in the business.

How Much Money To Raise

A VC : Venture Capital and Technology

You may need to have more cash on your balance sheet for working capital reasons and you may not be increasing value at quite the same rate as you were when you were smaller. Venture Capital and TechnologyImage via Wikipedia.

Rebecca Kaden

A VC : Venture Capital and Technology

Albert joined USV in 2008, after doing a two-year stint as a Venture Partner at USV, and after spending almost a decade doing early-stage investing in a number of firms. A venture capital firm, at least our venture capital firm, is at its core, a group of like-minded investors who come together around a shared investment thesis to work collaboratively to help entrepreneurs build companies. Rebecca grew up in a venture capital firm as did I.

Loss Ratios In Early Stage VC

A VC : Venture Capital and Technology

Or you can calculate loss ratios by "dollars" meaning how much of the capital invested in the fund went into total losses. That fund will be the best venture fund I have ever worked on. Venture Capital and Technology When I was early in my career, I casually mentioned to an older VC that I had yet to lose money on an investment. He replied "that's not good, you aren't taking enough risk."

You Are Not Your Work

A VC : Venture Capital and Technology

entrepreneurship Venture Capital and Technology My friend Gary said this to me the other day in an email. He wasn't talking about me but he could have beeen. Last night I went to bed thinking about my work, dreamt about my work, and woke up thinking about my work. It's been that way for me since I started Flatiron in the mid 90s. To some extent it's been that way for me since college.

Video Of The Week: The Tech Tonic Discussion

A VC : Venture Capital and Technology

Politics Venture Capital and Technology

The Power Of Diversification

A VC : Venture Capital and Technology

If you assume that the average startup has a 33% chance of making money for the investors, a 33% chance of returning capital, and a 33% chance of losing everything and that only 10% will make a big return (>10x), then you can model this out. Venture Capital and Technology

Diversification (aka How To Survive A Crash)

A VC : Venture Capital and Technology

We had all of our money in venture capital and internet stocks and had ridden that wave all the way up. Before Flatiron Partners (the venture firm I co-founded at the start of the Internet boom), we had no net worth. I like a mix of cash (t-bills, money market funds, etc), blue chips stocks (Amazon, Google, etc), real estate (income producing with little to no leverage), and a risk bucket (venture capital, crypto, etc).

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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.

Mary Meeker's 2012 Internet Trends

A VC : Venture Capital and Technology

mobile Venture Capital and Technology Web/TechMary published this presentation this past week. I love these "state of the internet" presentations Mary does. There is so much useful information and insights in them.

Rethinking Mobile First

A VC : Venture Capital and Technology

mobile Venture Capital and Technology Web/TechI wrote the Mobile First Web Second blog post a few years ago. In that post, I talked about apps that were designed to be used on mobile primarily with the web as a companion. There have been a number of startups that have taken that approach and done well with it. Most notably Instagram, and also our portfolio company Foursquare.

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Mobile Is Where The Growth Is

A VC : Venture Capital and Technology

mobile Venture Capital and Technology Web/TechIf you look at any of the top web properties on comScore, Quantcast, Alexa or any other third party reporting service you will see that they all have been fairly flat over the first half of the year. You might think that all these big web services are flatlining. We have seen this in our portfolio too. From board meeting to board meeting, we are seeing a similar pattern. Web is flattish. But mobile is growing like a weed.

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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.

When Things Don't Work Out

A VC : Venture Capital and Technology

Venture Capital and TechnologyI have said many times that early stage VC is a lot like baseball, if you get a hit one out of every three times, you are headed to the hall of fame. And if I look back over my career, and also over the track records of the firms and funds I have helped manage, that is pretty much the hit rate I have seen. By "hit" I mean an investment that returns 5x or better. But of course, many of these hits return 10x or even 100x every once in a while.

Starting and Finishing

A VC : Venture Capital and Technology

entrepreneurship management Venture Capital and Technology AVC regular Donna White posted this to her Tumblr yesterday: I'm a crotchety old guy. I worry about all these new companies. I’m glad that they’re easier to start, but the problem is, they’re just as hard to finish as they have always been. The quote is from Mike Olson in this post. The thing in Mike's quote that really speaks to me is the difference between starting and finishing.

Who You Want On Your Board

A VC : Venture Capital and Technology

One of the guys who taught me the venture capital business used to say "success is in inverse proportion to the number of VCs you have on your board." entrepreneurship Venture Capital and Technology" He was right. For a few reasons. First of all, most VCs get on your board by virtue of financing rounds you do. If you do a lot of financing rounds, you will collect enough VCs on your board to field a basketball team. And that sucks.

Video Of The Week: Paul Graham in 2005

A VC : Venture Capital and Technology

entrepreneurship Venture Capital and Technology There are a lot of awesome people in the startup community, but Paul is among the most awesome.

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The art of important work, of making a ruckus and of inventing the future

A VC : Venture Capital and Technology

Venture Capital and TechnologyEntrepreneurs teach VCs , not the other way around. And I was lucky early in my career to back Seth Godin , who taught me a lot. When I met Seth, he was writing books and building a web company. I backed that web company, Yoyodyne, which exited to Yahoo! a few years later. But books were always Seth's passion and he's written a bunch of them.

How Well Do You Take A Punch?

A VC : Venture Capital and Technology

Venture Capital and TechnologyI was talking to a friend who has been displaced because of Sandy. They are struggling to get back to their daily routine and it is hard living out of a suitcase without access to the things they rely on from day to day. I was talking to the CEO of a company whose business was negatively impacted by Sandy. They are struggling to get the business back to where it was before the hurricane. One is a personal thing. The other is a work thing.

Some Perspective

A VC : Venture Capital and Technology

stocks Venture Capital and TechnologyI don't disagree with PG when he says that Facebook's IPO performance (or lack thereof) has the potential to impact valuations in startup land. I think it will be particularly impactful on the late stage and secondary markets where most of the IPO valuation speculation is happening. But let's put Facebook's current valuation in perspective.

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What VC Can Learn From Private Equity

A VC : Venture Capital and Technology

Finally, the first venture capital firm I helped start, Flatiron Partners, was backed by and initially housed inside a private equity firm, Chase Capital Partners, and Jerry and I learned a lot from attending their weekly investment meetings and listening to them talk about their business. Venture Capital and Private Equity are very different investment disciplines. Venture Capital is minority investing. Venture Capital requires it.