AVC: Recent Episodes
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Over the last few years, I’ve moved my internet life from web2 to web3 and rarely use any web2 services anymore.
So I am starting a series called “I’ve Moved Onchain” to explain this journey to everyone and today’s opening post is about blogging, naturally.
I’ve blogged at AVC.com for a very long time. I started out in September 2003 at avc.typepad.com but moved to avc.com a few years later.
AVC.com has been my home for blogging for over twenty years.
AVC.com has served me very well over the years but it lacks a few things that really matter to me.
First, the posts are stored in a closed database hosted by me in the cloud.
Second, the services that I use to create AVC.com are not “composable” meaning that others cannot build things on top of AVC.com and the services that create and display the posts I create here.
Third, the identities of the authors (me) and readers (you) here at AVC.com are not tied to any sort of portable identity and reputation system.
While none of these issues may seem like a big deal to you, they are huge deal to me as I will explain in a bit.
So when web3 blogging services started cropping up, I started to use them.
My first rodeo was at Mirror.xyz where I kept avc.mirror.xyz for most of 2021, 2022, and 2023. This was my first post at avc.mirror.xyz on March 18, 2021.
I really wanted to blog at AVC.xyz and that became an option for me in November 2023 when I joined Paragraph.xyz and wrote this Hello World post.
These web3 blogging platforms store all of my posts onchain at Arweave. These posts are available to anyone to read regardless of what blogging platform I use. And if I get abducted by an alien and fail to pay my hosting service, they will still exist onchain. Forever. That’s a huge deal to me.
They are also composable web3 services. Any developer can take what I create at AVC.xyz and build on top of it. That’s also a huge deal to me. My partner Nick describes the composability benefit so well in his post today on USV.com.
And my identity and the identity of my readers are mapped to a web3 wallet address that authenticates who they are, what they do onchain, and allows developers to create reputation systems on everyone. Given my fight with spam and trolls and jerks and assholes that largely drove me away from blogging and commenting in the latter part of the last decade, this last bit really matters to me.
At the start of this year, I took everyone who receives an email when I post here at AVC.com and imported that email list to Paragraph.xyz. So a lot of the AVC readers have been getting emails of my posts at AVC.xyz this year. But even so, I still get a ton of daily traffic here at AVC.com and I have not posted anything new here since January 10, 2024.
I do not plan to post here at AVC.com going forward, but I will keep the archive up and I may choose to cross-post a thing or two here whenever I want to reach the broadest audience.
My home for blogging is and has been onchain for a while now and if you want to follow my writing, please go visit avc.xyz and subscribe to receive my blog posts via email by clicking the green subscribe button on the upper right.
But what about Mirror.xyz and avc.mirror.xyz? you might ask.
Well, I am also thrilled to be able to say that Mirror and Paragraph have merged and these two leading web3 blogging services will now be one. And, as you may know or suspect, USV has invested in both of them and now will be a major shareholder in the merged company. I am very excited about that. Here is Paragraph’s blog post about the transaction and here is Mirror’s.
The team that built Mirror.xyz is now turning their attention to a new app called Kiosk and they blogged about that today. So USV is now also an investor in that project.
Over the last thirty years, our lives moved from offline to online. They are now moving onchain. That’s a wonderful thing and I hope you will join me in moving onchain as well.
USV TEAM POSTS:Nick Grossman — May 2, 2024
Doubling Down on Onchain Publishing with Paragraph
The Partnership for NYC, alongside its partners at the MTA, the Port Authority of New York and New Jersey, NJ TRANSIT, and NYC Department of Transportation, launched a call for applications for the 6th annual Transit Tech Lab this week.
To kick off this year’s program, the Transit Tech Lab is seeking early and growth-stage tech companies with compelling solutions to one of three local transit system challenges:
- Customer Experience Challenge: How can we improve customer experience by better communicating service changes, reducing delays, and augment safety and cleanliness initiatives?
- Resilience Challenge: How can we build a more resilient and adaptive transit system?
- NYCDOT’s Curb Activity Challenge: How can we maximize the city’s curb space to serve the multiple and varied needs of New Yorkers?
Representatives from each participating agency will evaluate applications based on the technology’s impact and the applicant’s product, team, and overall value proposition. Finalists will advance to conduct a proof-of-concept over an eight-week period; the companies demonstrating the most compelling technologies that align with the agencies’ objectives have the opportunity to secure a yearlong pilot.
Applications are due Wednesday, February 28. Interested applicants are invited toattend an information session on February 1 at 1pm ET.
If you know of a company or emerging innovator that would be a good fit for this year’s Transit Tech Lab, please let us know about them via email or encourage them to apply here: https://transitinnovation.org.
USV TEAM POSTS:
Last summer I sat down with Tom Secunda, who co-founded Bloomberg LP with Mike Bloomberg, to talk about areas of shared philanthropic interest. Tom told me that academic institutions do not have access to the kind of AI/ML infrastructure that the top tech companies have and he wanted to fix that. His idea was a consortium of Universities in New York State, the New York State Government, and philanthropic donors. His vision was a large shared facility in upstate NY with state-of-the-art AI/ML infrastructure that participating academic institutions could make available to their faculty for cutting-edge AI/ML research.
Tom is a convincing person. He convinced me that this was a good idea last summer and he went on to convince Governor Hochul and the top Universities in New York State and his fellow philanthropist Jim Simons.
I am glad Governor Hochul and her team were quick to recognize the promise of this idea. Today, Governor Hochul will announce Empire AI in her State of the State Address.
Empire AI will be a “state-of-the-art artificial intelligence computing center in Upstate New York to be used by New York’s leading institutions to promote responsible research and development, create jobs, and unlock AI opportunities focused on public good.”
Over $400mm of public and private funding has been committed over ten years to build and operate the Empire AI facility. New York State is contributing $275mm and over $125mm is coming from participating Universities and philanthropy.
I am excited to see New York State step up like this. Other states, like Massachusetts, have done something similar but this NYS effort is significantly larger. I expect more states will follow now. Cutting-edge AI/ML research should not be limited to large tech companies. We need our academic institutions to be on equal footing. This model, particularly if more states adopt it, can help make that possible.
New York is one of the leading AI centers in the US, along with California and Massachusetts. We see this every day as entrepreneurs building AI companies come knocking on our door. It is very encouraging to see our local government supporting and investing in this new area of economic development.
I want to congratulate Governor Hochul, the leaders of our academic institutions, and Tom Secunda, for their vision and initiative here. This is important.
USV TEAM POSTS:
Chris Dixon, who leads the A16Z crypto fund, and has been an entrepreneur, VC, and friend of mine for over twenty years, has written a book called Read Write Own that is available for pre-order now and will start shipping at the end of the month. Chris gave me a copy right before the holidays and I read it over the last week.
I asked Chris why he wrote the book and he had two answers, one personal and one practical. The personal one is “I have focused my career on investing in blockchain networks. During the recent downturn, I felt a need to rearticulate to myself why I am doing that.” The practical one is “I want to explain blockchain networks to young adults who are thinking about where to start their careers, to the mother of the software engineer at Coinbase who wants to understand what her child is working on, and to lawmakers and regulators in DC who need to understand why they are important.”
What Chris calls Blockchain Networks, I call Web3. The term Web3 is important to me because my investing career first took meaning during the initial phase of the web, which I think of as Web1. It took off during the second phase of my career which many call Web2. And I’ve spent the last decade of my career imagining what a better version could be, which I call Web3.
Chris takes the same journey but he calls these phases Read, Write, and Own. The initial phase of the web, when the web browser arrived, was mostly a reading experience. Then in the early 2000s, the web became two-way and we could Read and Write. What Blockchain Networks have unlocked is the ability to own things on the web. You can own your identity. You can own your social media posts. You can own your money. You can own your art. You can own your music. And so on and so forth.
Chris’s book has three parts. The first part is a history of the web and how we got to where we are right now. The second part is a detailed description of what makes Blockchain Networks work and why they are important and powerful. The third and final part is a series of descriptions of new kinds of applications that are being built on Blockchain Networks.
While I enjoyed all three parts of the book, I was energized by the final section. Chris imagines a future that is very different from where we are today. It is one I very much want to see emerge. I think you will too.
You can pre-order Read Write Own here.I encourage you to do that. I expect you will turn that last page and be excited, like I am, about what is coming now that we can own the Internet instead of it owning us.
USV TEAM POSTS:
As we enter 2024, the capital markets have found their footing and are moving higher. The Fed has taken interest rates as far as they want at this time and inflation has come down. It seems that a “soft landing” is likely. That is good news for the innovation economy because healthy capital markets are a necessary support system.
However, optimistic capital markets are necessary but not sufficient for a healthy innovation economy. We also need innovation. The good news is we have a lot of that and more is coming in 2024. I have never seen an environment with more innovation in the forty years I have been in the tech sector. It is breathtaking to see.
Let’s start with Artificial intelligence (AI) which was the big event in 2023. The AI “stack” has emerged with Large Language Models and other important models (like audio, imagery, video, etc) operating in the cloud with well-documented and supported APIs that are available to developers to build on. And possibly even more important is the emergence of very good open-source AI models that in many cases can outperform the closed-source models. With the AI stack well developed and supported, we are moving into the application era of AI, much like the browser brought us the application era of the web and the iPhone brought us the application era of the mobile device. This is a big deal. While in 2023, everyone was rightly focused on the large language models like OpenAI, Anthropic, Gemini, Llama, etc, we will see new AI-first applications emerge in 2024 that will start to move the focus and the conversation up the stack. And we will see legacy applications embrace AI to make their products better and to remain competitive with the AI-first disrupters.
But like web3 before it and the internet before that, this new technology will bring litigation and regulatory scrutiny that will raise, and ultimately resolve many important issues. Let’s start with litigation. Should I, as the author of over 9,000 blog posts that have been used to train these large language models, be entitled to some of the revenue they will make? OpenAI generated over $1.5bn in revenue in 2023. Should I get some of that? And do I need to join The New York Times and other publishers in suing to get some of it? That is just one of many issues that these AI models have raised and they will need to be resolved. I believe it will take years of litigation and regulation before we understand what the appropriate business model and norms are for the AI economy. But fortunately, like web3 and the Internet before it, the tech sector will not wait for those issues to be resolved. Trillions of dollars are being invested in the AI sector and that will continue for as far as this eye can see. Innovation never waits for rules and regulations. But it eventually gets them.
That’s a good segue to web3, which has seen a full frontal attack from regulators and lawmakers in the US and elsewhere. 2023 was the year that web3 held its ground and 2024 will be the year that regulators and lawmakers come to terms with web3. We will finally start to see regulatory clarity emerge in the US like has happened in the EU and elsewhere.
But as important as regulatory clarity is to web3, it pales in importance with the need for a “ChatGPT moment” for blockchain-based technologies. AI developed for over forty years before its coming out party. I think it will take web3 less than half that time. Satoshi gave us the playbook to build a decentralized internet stack back in 2008 and I feel quite confident that we will have massive mainstream applications running on this decentralized stack well before 2028. I think we will see mainstream decentralized applications emerge in 2024 as we now have inexpensive and fast transactions and simpler user interfaces. Vitalik wrote a nice piece about this a few days ago.
AI and Web3 are two sides of the same coin. AI will help make web3 usable for mainstream applications and web3 will help us trust AI. Together they will lead to a more powerful, more resilient, more trusted, and more equitable Internet.
But none of that will matter if we don’t accelerate our focus on our warming planet. Earth continues to warm at a faster rate than has been predicted, causing increasing pain and suffering across the globe. It is hard for humans to react to something that is thirty years out. It is a lot easier for humans to react to something that is happening to them right now. So this pain and suffering will force an acceleration of the energy transition from carbon to clean energy.
The energy transition is being powered by innovation in energy generation (renewables, nuclear, etc), energy storage (batteries, storage networks, etc), and smarter energy distribution. In the process of rebuilding the infrastructure and systems by which we power this planet, we are also modernizing the energy stack and making it decentralized, modular, and programmable. If you think you’ve seen this movie before, you have. And the good news is that there could even be a happy ending if we move fast enough to make this transition happen in the next twenty years.
The new energy stack has been coming together for the last decade but slowly and very much under the radar. I believe that 2024 will be a coming out party for the new energy stack and I am excited to be investing in this area and helping to make it happen.
So if we have healthier capital markets and more innovation than ever, what is up with the venture capital ecosystem? Well, that’s not such a happy story. Limited Partners, the folks that provide the capital to the venture capital funds, have taken a beating over the last few years and are cautious right now. In addition, we are seeing many large firms scale back or even shut down. And new firms are struggling to raise funds. This is a rationalization of a sector that got very big very fast in the last decade and will need time to find a new normal. Because venture funds have a ten-year life but often take much longer to fully liquidate, the venture capital business changes more slowly than the businesses it funds. I think we are a couple years into a transition that will take at least the first half of this decade to play out.
So while the capital markets will likely be robust in 2024, I do not expect that venture capital investing and venture capital fund formation to grow that much year over year in 2024. I think both will grow but not nearly as fast as the sectors that surround VC.
To sum it all up, we are in a golden era of innovation with AI and Web3 leading to a new more intelligent, resilient and decentralized Internet and the emergence of a new energy stack which will power our lives new ways that will not continue to warm our planet. There are opportunities every which way I look to back founders and founding teams building these new technologies. I think 2024 is going to be a terrific year for tech.
USV TEAM POSTS:
I like to bookend the New Year holiday with two posts, one looking back at the year that is ending (What Happened) and one looking forward to the year ahead (What Will Happen). This is the first of these two posts. The second one will run tomorrow.
I ended my What Will Happen In 2023 with this advice:
Buckle up, hang tough, and be smart.
What I did not predict in that post, although we had been discussing the possibility internally at USV for several months at the time I wrote it, was the failure of Silicon Valley Bank and several other banks that focused on the startup and web3 sectors.
I feel like that moment, which hit us in March, marked the bottom of the downturn, although it has taken at least the rest of the year to work through the carnage and there is still a bit more to come.
That look-forward post also missed the biggest new thing in tech, Chat GPT, which had initially launched about a month before I wrote it. That was a big miss as 2023 will most certainly be remembered as the year that AI went mainstream with consumers, thanks to Chat GPT and other consumer interfaces to large AI models.
To some extent, these two things are related. The end of the 2022/2023 tech/startup downturn happened when two things came together. The first is the end of a period of rising interest rates that had sent the stock market and broader capital markets reeling. The second is the emergence of a new tech megatrend, AI, which has been developing in front of our very eyes for as long as I have been in tech, so that is over forty years now.
But before something can become mainstream, it takes a consumer interface that allows everyone to see the power of the technology firsthand. That thing was Chat GPT and it will rightly take its place along with the iPhone, Netscape, the Macintosh, and other consumer products that brought a new technology into the mainstream and provided for a wave of technology innovation that followed.
Of course, a lot of other things happened in tech, startups, and web3 in 2023, but these two things are the ones that matter the most. Markets have settled down and are poised to move higher and we’ve got a new megatrend that will drive innovation, investing, and the economy.
So while it was a very difficult year, I also think 2023 was an incredibly important year and sets us up for an exciting new period in tech. More on that tomorrow.
USV TEAM POSTS:
Every year I put together a playlist at the end of the year with some of the new music I found and got into.
Most of these songs are under the radar which is my favorite kind of music.
So I hope you find something new that you like in here.
USV TEAM POSTS:
I got an Oura ring a couple of years ago and have been working on improving my sleep and sleep habits ever since.
For much of my adult life, I have been a poor sleeper. I have always been able to fall asleep quickly, but I have been plagued by two sleep issues. The first is waking up in the middle of the night and not being able to get back to sleep. The second is waking up early, like 4:30/5am, and being wide awake.
So I’ve been working on those two things.
I still wake up in the middle of the night. My Oura ring tells me that I was up from around 4am to 4:30am last night. What I’ve learned about waking up in the middle of the night is that accepting it and not fighting it is the key to falling back to sleep. When I wake up in the middle of the night, I always wake up with something on my mind. It could be work, it could be something personal, it could be something else. I often work out stuff I’m struggling with in the middle of the night. But now I let it happen and not fuss about getting back to sleep. And I fall back to sleep most nights within thirty minutes.
The sleeping later thing has been harder to crack for me. I wake up with a lot of energy and I want to get out of bed and take on the world. For over twenty years, I have been blogging first thing in the morning when I wake up. I am doing that now. That is because I wake up with things on my mind and I want to work them out and for me, that means writing.
But for the last year, I have been forcing myself to lie in bed instead of jumping out of bed. I started sleeping until 5:30ish last year, I started sleeping until 6ish this year, and recently I have been sleeping until 7ish.
My sleep time has gone from 4-5 hours a night to almost 8 on a good night. I got 7:45 of sleep time last night, for example. I don’t always get that much sleep, but I get it a lot more frequently.
Longer and better sleep has a lot of health benefits. And at age 62, I need all of the health benefits I can get. I want to age gracefully and be mentally and physically fit for as long as possible. Better sleep is part of my plan to be able to do this.
Better sleep comes with some tradeoffs. I don’t have the two hours in the morning when everyone else is still asleep to read, write, and clean out my inbox. So I am writing less and my inbox is a disaster. But it seems like the right tradeoff to make. I moved my workouts to the early evening a few days a week so I no longer workout every morning. That gives me back some time in the mornings that I’ve given to staying in bed longer.
I understand that not everyone can make these tradeoffs. When we had a young family, we got up when our kids got up and we went to bed every night exhausted. A lot of my sleep issues started when our kids were very young. My work schedule is very adaptable and I can do things like move my workouts to the early evenings without missing a beat at work. I am lucky that I have all of this flexibility and I am using it to stay healthy and fit.
My experience over the last two years tells me that sleep habits can change and those of us who are poor sleepers can become good sleepers. I started with a device (in my case an Oura ring) that let me measure my sleep. I find that measuring helps to manage. But ultimately it is behavior change that helps the most.
For me, that meant working out more, eating better, drinking less, and fretting less.
I do not consider myself done with this journey to improve my sleep. I think I will be working on this my entire life. But I have made a lot of progress, I am sleeping better, and for those of you who struggle with sleep, I can assure you that you can improve your sleep too.
USV TEAM POSTS:
NYC Tech Week is next week. It will be a week filled with events for the tech sector to engage and connect with each other.
A particularly great part of tech week is VC Open Office Hours.
There are over 100 VC investors signed up to participate next week.
Here is how it works:
1/ you select four investors (out of more than 100) that you want to meet
2/ you get up to four twenty minute meetings
3/ you discuss your idea with the investor in hopes of getting them interested enough to take another meeting
4/ nobody should expect to walk out with a commitment to invest
As of this moment (Thursday morning Oct 12th) about half of the available slots are still open. But if you want to participate, you probably should act fast as I think this will sell out by the end of today, certainly by the end of tomorrow.
Go here to participate.
USV TEAM POSTS:
On Saturday, September 9th, the Gotham Gal and I arrived at JFK airport after an eight-hour flight from Paris. While waiting for our luggage, I got pushed a notification in my web3 wallet that there was an NFT drop underway that I could participate in. So I clicked on the link, signed the transaction, and nothing happened (or so I thought). So I tried again. Again nothing happened. Frustrated, I turned my attention to the luggage, retrieved it, got in a car, and headed home. On the way home, I tried again a few times to no avail.
It turns out that each of my failed attempts to mint an NFT was a scam that allowed a thief to eventually take 46 of my most valuable NFTs out of my wallet. I did not realize any of this until I woke the next morning to a text from a friend saying:
did your wallet get compromised? your NFTs from fredwilson.eth were transferred out and sold
That’s when I realized that all of the failed minting activities from the night before were actually me getting scammed.
For much of August, I along with a lot of NFT enthusiasts had been participating in something called “Onchain Summer” which was a rollout of the new Base layer two blockchain from Coinbase. Part of Onchain Summer was a daily NFT drop. You simply clicked on the link in the message in your web3 inbox and went and minted. It was fun and I collected some great NFTs that way.
The message I was scammed with looked exactly like those Onchain Summer messages but was not from the same sender. I should have noticed that but did not. Mistake number one.
The fact that I signed a transaction and nothing happened should have been a sign that something was wrong. Normally when you sign a minting transaction, a new NFT shows up in your wallet. When it did not, I should have sensed something was wrong. I did not. Mistake number two.
The fact that I was signing transactions in the same wallet where I keep my NFTs is also bad practice and I knew it. The best practice is to hold NFTs in a “vault” wallet where you never sign transactions and to have a separate “mint” wallet where you hold nothing but do all of your signing. Mistake number three.
What I was doing by signing those scam transactions was giving the thief access to a number of smart contracts that secured multiple NFTs that I owned. So even though I did not sign 46 scam transactions, the thief was able to take 46 NFTs.
Signing transactions is risky business and needs to be done carefully. I knew that but did not take the required care on the evening of September 9th.
This story has a happy ending. With the help of my USV colleague Nikhil, I have recovered 38 of the 46 NFTs that the thief took from me for a fairly modest sum. As I put it to a friend, it cost me between weeks and months of my personal ETH staking rewards. It was enough to sting and that’s good. It was a lesson that I learned the hard way and it was worth every ETH that it cost me to get them back.
There are a few NFTs that I am not going to try and get back, but I am still trying to buy back these two NFTs that the thief sold to others who are likely unaware that they are holding stolen goods:
Anticyclone #212 currently held by this wallet
WoW #8105 currently held by this wallet
If you recognize those wallets and know who holds those NFTs, I would appreciate an introduction so I can offer to buy them back at their cost.
I do want to thank everyone who sold me back my NFTs (including the thief who we bought quite a few from). Many people sold them back to me at their cost when they heard they were taken from me. I really appreciate that.
USV TEAM POSTS:
I’ve written about this topic before. It is an important topic and I want to raise it again. Boards often discuss CEO performance without really knowing how things work inside the company. And CEOs often have very little visibility to how they are doing and what the board thinks about their performance. When you work […]
For many years, there were three ways to subscribe to AVC: 1/ Email – Get new posts delivered to your inbox 2/ RSS – Get new posts delivered to your RSS reader 3/ X – Follow AVC on X X revoked the API access that I was using to autopost three or four months ago. […]
I got a new Pixel 7 last week and have started the tedious process of moving over to a new phone. One of the more painful chores in moving from one phone to another is moving the Google Authenticator app and all of the two factor codes to the new phone. My partner Nick told […]
USV has been an investor in the Helium network since 2019. I have always loved the idea of using web3 technologies to let consumers to “peer produce” a communications network creating a people-powered network. Helium started out powering communications between low-power “Internet of Things (IOT)” devices but with the introduction of Helium Mobile back in […]
I’ve written about this topic a bunch over the years. It is something I’ve been interested in for quite a while. Our homes are filled with big hunks of plastic hanging on the wall that are off most of the time. They look like this: Now that’s a lovely scene. Some nice plants. A cool […]
The New York Times had a piece yesterday suggesting that tech will no longer be a growth engine for NYC and the surrounding metro area as it has been for the last twenty years. I am not going to link to the piece because it is behind a paywall but if you want to read […]
The venture capital sector has been in a sustained downturn for almost eighteen months. How does this downturn end? Well, it may have already ended, but let’s see about that. We will know for sure in a few quarters. The NASDAQ peaked at roughly 16,000 in November 2021. By June 2022, it was down 33%. […]
I spent a good part of my childhood at West Point, the US Military Academy. I got an email yesterday with photos of the flooding at West Point. My dad and brother used to work in that grey stone building called Mahan Hall. And the same storms that did this to West Point did worse […]
Like tens of millions of others, I downloaded Threads onto my phone yesterday and signed up. The thing that Twitter has been missing since it killed off its ecosystem over a decade ago is competition. And as we all know, lack of competition is a very bad thing. In governments and in products. Competition keeps […]
EV sales in the US are on the rise, reaching 7% of all car sales in Q1 2023, up from 4.6% a year earlier. If that rate of growth continues, EVs will be 10% of the US car market by next year. Most people who own an EV charge it at home, using an EV […]
The term “censorship resistant” is used a lot in the decentralized computing/web3/crypto space to talk about a core feature of these systems. I don’t love the term censorship resistant because it is a wonky term. Software that is encoded in smart contracts (and other ways) on fully decentralized blockchains can’t be shut down or turned […]
Smartphones have had voice input for over a decade now and yet I don’t know that many people who use voice input regularly. I would guess that maybe 10 to 20% of smartphone users are using voice input regularly. That’s a guess based on absolutely no data other than observing friends, family, and colleagues. However, […]
The last time I posted was May 23rd, three weeks ago. There was a time when I wrote every day. When I had not yet posted on any day, I felt like something was missing, like I had not yet had my cup of coffee. Clearly, I have moved on from that need to write […]
Back in 2014, USV got subpoenaed by the New York State Department of Financial Services (DFS) over our web3 investing activities. We hired a law firm, answered the subpoena, and that ultimately landed me in public testimony in front of the DFS staff.
In my testimony, I explained to the DFS staff that the difference between the US and China is that the US respects the freedom to innovate:
REMINDER: ANYTHING THAT CHINA BANS, INVEST IN!@fredwilson @cameron @tyler @BarrySilbert @Winter #Bitcoin pic.twitter.com/LGtDYef7U7
— Mr.Buidl (@MrBUIDL) May 21, 2021
I was reminded of that moment yesterday when, in our quarterly call with our Limited Partners at USV, we were asked if the regulatory pressure on web3 in the US would result in us cutting back our web3 investing.
To which I responded:
When they want to shut it down, I say double down
The most powerful technologies send waves of fear through the establishment.
When you see that fear in their eyes, invest in the cause of that fear.
USV TEAM POSTS:
This is the second post in a row where I am bringing back an old tradition.
This time it is Fun Friday, something I haven’t done in about five years. Like last week, the catalyst is our portfolio company Blackbird Labs, which I posted about a few months ago.
Blackbird is a platform for the restaurant industry to build loyalty/membership and related business models on.
Upside Pizza, which makes some of the best slices in NYC, launched the Upside Pizza Club this week using the Blackbird platform.
While a free slice every day for a year is nothing to sneeze at, I am most excited about the idea of the private concert series that Upside is running at its Nolita location over the next five weeks. Pizza, beer, and live music on a summer evening is my idea of a great time. I suspect it is yours too.
So if you live in NYC, you might want to join the Upside Pizza Club and get access to these concerts. And a free slice every day for the next year too.
You can join here for $199.
USV TEAM POSTS:
It has been a long time since I did a Funding Friday here at AVC. I used to do them every Friday. We have funded a lot of bars, restaurants, coffee shops, and bakeries here over the years. Here are a few examples.
L’Appartement 4F
Land To Sea
There is a new wrinkle in crowdfunding restaurants, bars, coffee shops, bakeries, etc courtesy of USV portfolio company Blackbird, which I recently wrote about.
Blackbird is a loyalty/membership platform for the hospitality industry and it allows operators to issue memberships in-store (at check-in or check-out) or elsewhere. Although Blackbird did not imagine its platform being used for crowdfunding, operators have started to use it that way.
A great example is gertrude’s, a new restaurant in Prospect Heights Brooklyn which hopes to open next month.
gertrude’s is offering anyone the opportunity to become a member in advance of opening and there are three levels of membership:
The benefits of each membership ladder on top of each other and get better and better.
If you live in NYC, particularly if you live in our near Prospect Heights, you can help gertrude’s pay for the cost of opening the store and get your money back in the form of dining opportunities and long-term membership benefits.
This strikes me as a fantastic way for restaurant operators to defray (or ideally fully fund) the cost of opening a new venue. They give up less equity and spend less on raising it and their customers become VIPs and regulars and enjoy the benefits of that. A true win/win.
If you want to help gertrude’s get open, go here and become a member.
USV TEAM POSTS:
There has been a lot of discussion about how AIs can make art and possibly replace artists, but I think the opposite is more likely to happen. Artists have been using AI to make art for a while now and the pace has picked up a lot in recent years.
I have always loved the work of Ian Cheng who makes computer-generated simulations that evolve using artificial intelligence. His works change infinitely. The first time I saw that, maybe ten years ago now, it made me rethink many ideas I had about art.
With the introduction of NFTs, artists can now make, release, and sell AI-generated art much more easily.
This week, our portfolio company Bright Moments has a big event in Tokyo, and one of the collections being shown features eleven top AI artists.
Though I could not make it to Tokyo this week, I was able to acquire a number of fantastic works in the collection.
My favorite is this piece by Claire Silver which is one of a series she calls paracosm.
Claire said this about the work:
This collection is a visualization of part of the artist’s paracosm. A text-to-image model was trained on some of their memories of that world and its inhabitants.
I also quite like Helena Sarin‘s Kogei Kats. I picked up this one:
Helena’s website says that “Since 2021 her main creative energy is directed towards the #potteryGAN – making ceramics using her GAN/AI work as designed to 3D functional objects.” I really dig that.
I am very bullish on the creativity that AI will help artists bring to the world. It is a tool, like a paintbrush or a camera, or a kiln. And they will use that tool to make work that will bring great joy to our lives. They already are.
USV TEAM POSTS:
I was approached by a company this week that has trained a large language model on all of the blog posts I have written here at AVC. There are 9059 of them for those that are counting. They wanted to offer me a chat bot called “ask Fred.”
I told them no thanks.
Let me explain.
I am totally fine with anyone using all of the content I have produced here at AVC to train their AI models. When I started AVC, I put a creative commons license on the content here. It has always been my view that anything I write here is in the public domain. You can repost it. You can do what you want with it. I just need attribution and a link back to the original post. That’s been my deal since the earliest days of AVC.
But an AI is not me. When you ask me something, you get my brain on the problem.
I have put a lot of what is in my brain onto the page here at AVC. But I have not put all of it.
I also don’t think an AI has my humanity, my ego, my empathy, my love, or my hate.
Maybe someday that will change. But we are not there yet. I think we are a long way from that.
So if you want to ask Fred something, you will still have to approach me.
USV TEAM POSTS:Albert Wenger — Apr 30, 2023
What’s Our Problem by Tim Urban (Book Review)
Andy Weissman — Apr 28, 2023
Trust and Artificial Intelligence
Mona Alsubaei — Apr 25, 2023
CarbonChain
Samson Mesele — Apr 25, 2023
Joining the Venture Climate Alliance
Ten years ago, a small group of folks in the K12 Computer Science Education community in NYC decided to put on a “mock job fair” for high school students who were taking computer science classes in the NYC public schools. That was the start of an annual day of engagement and learning for high schoolers considering a career in tech.
Yesterday we got the Fair back in person after three years of not doing it or doing it remotely. And it was so great to be there. This is a picture of all of the students making their way around the various booths learning about careers in tech.
Most everyone in the tech sector would like to have more diverse companies but there are no easy ways to accomplish that. Ultimately we need to get young people interested in careers in tech much earlier in their schooling and show them what those pathways look like.
This photo is of a team from Justworks doing exactly that.
I want to thank all of the sponsors who made this event possible:
And most of all I would like to thank Jennifer Klopp, Executive Director of Gotham Gives, who led the effort to get the Fair back in person this year and the team at the NYC Public School System and Tech:NYC who helped get the students and the tech companies there.
Yesterday was one of those days for me where a lot of the work I do across different areas of interest comes together in a single place and time. And those are great days for me.
USV TEAM POSTS:Mona Alsubaei — Apr 25, 2023
CarbonChain
Samson Mesele — Apr 25, 2023
Joining the Venture Climate Alliance
Grace Carney — Apr 19, 2023
AI Learning Summit
I am the Chair of the Etsy Board and have been an investor and board member at Etsy since the mid-2000s. It is a company that I love and get great joy from being part of. Last year Etsy quietly launched a feature that has completely changed the way I use Etsy. It is called Etsy Lens.
Etsy has millions of items for sale in its marketplace but shopping on Etsy is generally not intent-driven. It is idea-driven. Most people don’t go to Etsy and enter “pizza oven” into the search field. A more common search would be “red pillow for my couch.” As a result, searching on Etsy can be a bit of a “hunt and peck” experience, even as the search on Etsy has improved enormously in the last few years.
I was in a coffee shop in a hotel in NYC this morning and saw an antique typewriter that I thought was great. I opened my Etsy app and got the search field.
I clicked on the camera icon and my phone took a photo of the antique typewriter:
I clicked the blue checkmark and Etsy gave me these search results:
I have been using Etsy so much differently since finding out about Etsy Lens. I see things that I like when I am out and about, use the Etsy app to photograph them, search Etsy for similar things, favorite and curate them in my profile, and then buy the ones I love.
When I showed Etsy Lens to the Gotham Gal, she said “Take photos of things you like to find things you will love.” That sums up Etsy Lens so well for me.
USV TEAM POSTS:Grace Carney — Apr 19, 2023
AI Learning Summit
USV’s current thesis is:
Enabling trusted brands that broaden access to knowledge, capital, and well-being by leveraging networks, platforms, and protocols.
https://www.usv.com/#thesis-3-0
That last word is powerful but unfortunately less understood than the other words in that sentence.
Protocols have been around forever and are well-understood codes of conduct between people.
In computer science, protocols are the same thing, codes of conduct.
I like this definition of computer protocols from the Cloudflare website:
Standardized protocols are like a common language that computers can use, similar to how two people from different parts of the world may not understand each other’s native languages, but they can communicate using a shared third language. If one computer uses the Internet Protocol (IP) and a second computer does as well, they will be able to communicate — just as the United Nations relies on its 6 official languages to communicate amongst representatives from all over the globe. But if one computer uses IP and the other does not know this protocol, they will be unable to communicate.
https://www.cloudflare.com/learning/network-layer/what-is-a-protocol/
Protocols have been around for as long as computers, but we are at the beginning of a golden era of protocols that I like to call “web3.”
Until recently protocols were mostly free and unmonetized. We all use the HTTP protocol every day to access web pages. We all use the SMTP protocol every day to send email. But these protocols are free to use and don’t make money for any company or project or individual.
With the arrival of Bitcoin back in January 2009, we got a protocol that had monetization built in.
And since then, computer scientists have been creating web3 protocols for all sorts of things, most of which have a token that monetizes the protocol.
The monetization is not just about enriching the creator(s) of the protocol. It is also used to incentive usage of the protocol and operation of the protocol. In the Bitcoin protocol, that is operating mining computers that secure the Bitcoin network. In the Helium protocol, that is operating hotspots that connect the network. In the Ethereum protocol, that is staking to secure the network. In the Filecoin protocol, that is operating storage systems that provide decentralized storage.
It is the monetization that sustains these protocols and makes them reliable for others to use and build on them.
And with sustainable and reliable protocols, we will get a new architecture of services that will be much more interoperable.
Let’s look at mobile messaging. Most of my friends and family are on iPhones. I use an Android. Messaging does not work very well between iPhones and Android phones. Many people in the world use Whatsapp for mobile messaging. But Whatsapp doesn’t speak to iPhone’s messaging app. Nor does Signal. And Signal doesn’t talk to Whatsapp. And so on and so forth.
If every mobile messaging app was built on a monetizable protocol, that was sustainably reliable because operating it made people and companies money, and if developers were incentivized to build on it so they could also make money, we would have a different situation. All of our mobile messengers would interoperate with each other.
The same situation will play out in every computing sector over the next few decades as these web3 protocols are designed, built, shipped, and built on. We are in the early days of this golden era of protocols, but we already have many working extremely well in the decentralized infrastructure and decentralized finance sectors.
It upsets me that protocols are both so powerful and also so poorly understood by the media, the mainstream, and the government.
The White House recently put out a document that said “crypto assets currently do not offer widespread economic benefits” suggesting that web3 was not economically important to the US. While the economic benefits of web3 are not widespread today, they are quite powerful and will eventually impact every economy and every market. And pouring cold water on them will not make them go away. Thankfully.
USV TEAM POSTS:Albert Wenger — Apr 8, 2023
Thinking About AI: Part 3 – Existential Risk (Terminator Scenario)
Six months ago, I wrote about Direct Air Carbon Capture and ended with this:
I remember hearing that “we’ve spent hundreds of years taking carbon out of the ground and putting it into our atmosphere and we are going to spend hundreds of years taking carbon out of the atmosphere and putting it back into the ground”. I believe DAC will be a big part of how we do that.
I used that quote again on a blog post I wrote yesterday on the USV blog about Noya, a Direct Air Capture company that USV recently invested in.
Sometimes when I write about something here at AVC, it is a sign that it will end up on USV.com. This was one of those times.
USV TEAM POSTS:Albert Wenger — Apr 8, 2023
Thinking About AI: Part 3 – Existential Risk (Terminator Scenario)
I have watched so many leaders over the years in my various roles as lead investor, board member, board chair, investor, and advisor.
And one thing I have learned from this front-row seat is that leading from the heart is very powerful.
A leader can be the most brilliant product person, strategist, entrepreneur, and business builder, but if they cannot get people to follow them, trust them, and care for them, they will not be an effective leader.
This is a hard lesson to learn. It is a fairly natural tendency to hold your emotions in check when you are in front of a large group of people. We are taught to project strength in moments like this.
And it is also a natural tendency to hold back the most difficult-to-process information, like a fundraising process that is not going well, or conflicts in the board room, or a co-founder relationship that is fraying, or the loss of the biggest customer, or a key supplier relationship that is at risk.
And yet, it is these exact moments where leaders develop that followership, trust, and care from the team.
I am not suggesting that leaders should become deeply emotional every time they talk to the team. I am not suggesting that leaders share every little detail about the business with the team. I understand that some details about the business need to stay confidential until the appropriate time to communicate them. There is a balance to all of this.
I am suggesting that more transparency, more vulnerability, and more honesty is the winning formula and when you are choosing between the two, choose these things.
One of my favorite stories about this comes from a particularly difficult moment in my career where I had to transition a founder out of the company they started. It was the night before the all-hands where the CEO transition was going to be announced. I asked the founder if they were going to attend the all-hands and the founder said no. I then asked the founder what I should tell the team. The founder said, “tell them you fired me because that is what happened”.
The next day I stood up in front of the entire company and told the team the Board had asked the founder to leave the company they started and that the Board had asked a member of the team to step into the CEO role.
After the all-hands ended, there was a line of about twenty or thirty people long to talk to me. And every single one of them waited in line to tell me the same thing which was “thank you for telling us the truth.”
It was a powerful lesson for me. And like most of the lessons I’ve learned in business, I learned it from a founder and their team.
If you are struggling to build the level of trust you want with the team in your company, try a little more transparency, vulnerability, and honesty in your communication style. It will pay dividends.
USV TEAM POSTS:Albert Wenger — Apr 8, 2023
Thinking About AI: Part 3 – Existential Risk (Terminator Scenario)
The first project launched this week on our portfolio company Blackbird‘s platform.
It is a friends and family program at a restaurant in Williamsburg Brooklyn called Gertie.
Blackbird wrote about it today on their excellent Supersonic blog:
Throughout, when you tap Gertie’s Blackbird-powered NFC chip (shown above), wonder awaits. On the first tap, a free cookie sourced from a nearby bakery comes your way. On the second, coffee is on the house. Over time, one-size-fits-many freebies give way to the kinds of perks you’d expect as a regular, like a personalized coffee mug that is always at the shop awaiting your arrival.
I also really love how Blackbird’s founder Ben Leventhal describes the company’s mission:
Blackbird is here to create meaningful connectivity between restaurants and their customers. By connectivity, we mean direct connectivity, where guests know that the more they show up, the better their experience is going to be. We hope to help restaurants think about benefits as a line of business, not just a bunch of random comps. If we can, restaurants will begin to deliver magic at scale, and get more profitable in the process. We’ll turn good restaurants into bonafide thrill rides — spontaneous, consistent, and compulsively enjoyable.
The Blackbird platform is a great example of what can be built on a web3 stack when most of the web3 stuff is under the hood, invisible to the users but powering things that can’t happen on a web2 stack. Some people call this “web 2.5” but I just call it awesome.
Blackbird will continue to introduce capabilities and develop its platform much further. So in the weeks, months, and years ahead, when you see this on the host stand when you walk into an establishment, you will be in for some of that awesomeness.
USV TEAM POSTS:Albert Wenger — Apr 3, 2023
Thinking About AI: Part 3 – Existential Risk (Loss of Reality)
USV is an investor in Bolster, a marketplace for fractional and full-time executive talent for startups and growth companies.
This week Bolster launched a daily short (5min) podcast and email with actionable insights and advice from founders, operators, and investors. It is called The Daily Bolster.
I did a Daily Bolster episode and it is featured today. I’ve embedded it below and you can watch it here if you are reading AVC via email.
The daily email contains a short pull quote from the daily podcast which in and of itself is quite useful but is also a prompt to spend five minutes and watch or listen to the daily podcast.
I strongly recommend founders and operators in the startup and growth sectors subscribe to the daily email and podcast. You can do that here:
Subscribe to The Daily Bolster Email
Podcast:
Subscribe on Apple Podcasts
Subscribe on Spotify
Subscribe on YouTube
USV TEAM POSTS:Albert Wenger — Mar 26, 2023
Thinking About AI: Part 2 – Structural Risks
Mike Zamansky is the person who got me interested in K12 Computer Science Education in NYC, a cause I have now contributed almost fifteen years of my life to.
Our family’s public charity, Gotham Gives, has been funding the work we do in K12 Computer Science Education in NYC for the last decade and a month or so ago, the Gotham Gal recorded a podcast with Mike talking about the early days of our journey into K12 Computer Science, how we met, and what transpired.
That podcast is up on YouTube and I’ve embedded it here. It’s about ten minutes long.
USV TEAM POSTS:Albert Wenger — Mar 14, 2023
The Banking Crisis: More Kicking the Can
Last Thursday, three new blog posts hit USV.com announcing our three new analysts:
This is our tradition at USV. When someone starts at USV, we ask them to write a post on the USV blog introducing themselves. This helps founders who come to talk to us about their companies understand the folks they will be talking to.
Grace joins us from Silver Lake where she was working on their ESG strategy.
Nikhil joins us from Daffy where he was helping to build charitable giving software.
Matt joins us from Aerofarms where he was working on vertical farming.
At USV, they will work with all of us areas helping us find, invest in, and support founders working in our thesis areas. I am excited to work with them for the next two years.
USV TEAM POSTS:Nikhil Raman — Mar 2, 2023
Joining USV – Nikhil
Grace Carney — Mar 2, 2023
Joining USV – Grace
Matt Mandel — Mar 2, 2023
Joining USV – Matt
Nick Grossman — Feb 27, 2023
Being in Motion
I saw Dan Primack assert that the venture capitalist’s customer is their limited partners in this tweet about the Citizen app, the recap, and their VCs:
Regular reminder that, ultimately, VC funds works for their limited partners, not for their portfolio companies. https://t.co/0uGuk8KUZo
— Dan Primack (@danprimack) February 25, 2023
I DM’d Dan to let him know that is not the right way to think about the venture capital business.
Back in 2005, in the early days of this blog, I wrote this post on the topic.
The entrepreneur is the customer and the LP is the shareholder. That’s the only way to think about the venture capital business that makes sense to me.
https://avc.com/2005/11/the_vcs_custome/
I encourage everyone to read that post. It is one of the most important things I’ve written about the VC/founder relationship and I would not change a single word in it almost twenty years later.
USV TEAM POSTS:
When a new technology comes to market, we often look for “native” applications of that technology.
What is a “native” AI application?
What is a “native” Web3 application?
I have not seen a better articulation of “native” than my partner Albert’s post from 2009 on native mobile applications.
He started out by laying out the new primitives that mobile smartphones made available to developers. In the case of mobile, he cited:
- Location
- Proximity
- Touch
- Audio Input
- Video Input
He then went on to say that it would be the combination of these primitives, more than any individual one, that would make for native mobile applications.
And then he went on to lay out some of the applications he was seeing that were native.
If you want to figure out what the native AI applications or the native Web3 applications will be, or the native AI/Web3 applications, start by laying out the new primitives and going from there.
USV TEAM POSTS:Albert Wenger — Feb 16, 2023
Building Out the Climate Capital Stack
First and foremost, this is not tax advice. I am not a tax advisor and you should never take anything you read here as tax advice. If you read something here that makes you think you should take some tax-related action, please always consult your tax advisor.
With that disclosure out of the way, I would like to talk about 83b elections.
An 83b election is a choice a taxpayer can make to pay the taxes in full at the time of the grant of an asset that vests over time and would otherwise be taxed as the asset vests.
So why would you want to do that?
Well, if the value of the asset at the time of grant is quite low and the taxes would not be significant to you, you might want to make an 83b election. Otherwise, you will be taxed as the asset vests and if the asset increases in value, those taxes could be significantly larger.
Let’s look at an example. Let’s say you join a company that is very early stage and you are one of the first employees. Let’s say you are granted 100,000 shares of restricted stock that vest over four years and the current value of each of those shares is $0.10. That means the entire grant is worth $10,000 (100,000*0.1). If you file an 83b election, you are volunteering to pay the taxes on that $10,000 even though the shares vest over the next four years. The taxes on that $10,000 will depend on where you live, but will generally be in the range of $2500 to $5000.
Now let’s say you decide not to file an 83b (or worse, you never heard of an 83b election and nobody suggested you file one). Let’s say one year later, your first vesting period happens, and 25,000 shares vest. And let’s say that the stock has increased significantly in value to $1/share over the first year. That means that the 25,000 shares that have vested will generate $25,000 in taxable income to you and the taxes you will owe on them will be in the range of $6,000 to $12,000. And you still have 75% of your grant unvested and the stock might keep going up, creating more taxes for you over the next three years.
The downside of the 83b election is you will have paid the taxes on the stock even though you may leave the company and not vest into any or all of it. That is the risk you are taking when you file an 83b election and you must consider that risk when you make the election. In life, there are generally no free lunches.
If you are being granted restricted stock, founders stock, or some other asset that vests over time, you should ask your employer and your tax advisor if you should file an 83b election. There is a good chance you will want to.
The reason I decided to write about 83b elections today is that USV signed onto a comment letter to the IRS last week asking them to make e-filing and e-signing of 83b elections permanent. You can read the comment letter here.
83b elections are an important tax strategy for founders and early employees in startups and they should be used more frequently than they are. And it should be dead simple to file one. Taxes are hard enough for the average startup employee to understand and comply with. We should not make it harder.
USV TEAM POSTS:Nick Grossman — Feb 8, 2023
Beautiful Permanence & Messy Change
I’d guess that upwards of half of USV’s portfolio companies have changed the name of their company during their lifetime. It is not hard to understand why. Founders start out with an idea and not much more. By the time they have built a product, built a team, and found product market fit, they might be doing something a bit different or a lot different than where they started out.
Most often the name change comes in the first few years when the business opportunity comes into clarity and the original name becomes an issue.
But occasionally it comes much later in life.
A good example of the later in life name change is our portfolio company Dronebase which changed its name to Zeitview this week. We made a seed investment in Dronebase eight years ago about six months after the company was formed. So the company is in its ninth year.
Zietview does aerial inspections of buildings, renewable energy infrastructure, and telecommunications systems using advanced AI/ML software. It is a high-growth business that just raised a $50mm late-stage round.
Over time, the company has adopted many techniques to acquire the imagery that they use to do the AI/ML inspections. Drones are still a big part of the mix but only when they are the best way to acquire the imagery.
So it came time for a rebrand. The Company took its time, thought a lot about it, hired a rebranding agency, surveyed all of its stakeholders, cleared all of the typical conflicts, and landed on Zeitview. They rolled out the name change this week.
I will miss the name Dronebase. I have had good success investing in companies with “base” in the name But I am already warming to Zeitview. The two-syllable name with a well-known noun in the second spot is always a great approach to a name.
USV TEAM POSTS:Rebecca Kaden — Feb 2, 2023
Welcoming Liza Landsman to Stash
I’ve never done a cleanse. But many of my friends and family members have done them. There are various flavors of cleanses but the basic idea is you cut back your consumption of food and drink and replace it with mostly liquid nutrition for anywhere from a day to a month. I believe the most common lengths are in and around one week.
As I understand it, the theory behind the cleanse is it helps your body eliminate all sorts of toxins that build up over time from a poor diet and other unhealthy practices and allows you to reset. I’m told that people feel great when they complete the cleanse.
I like to think of what we’ve been going through in the tech sector/startup land/venture capital over the last year as a cleanse. Things had gotten so nutty, frothy, and out of control that we needed a reset. It was not just valuations that got out of whack, although they certainly did. Cost structures got out of whack. Compensation structures got out of whack. Company cultures got out of whack. Venture capital firms got out of whack.
Things just moved too fast, we lost track of what made sense, and focused on doing more than thinking. Everyone was reacting to everyone and everything. All of this hyperactive behavior was driven by fear of missing out and the idea that the path to success was more, more, more.
So now we have stopped eating all of that bad food and drink and are on a liquid diet of cost containment, extending runways, focusing on unit economics, getting back to deal sizes and valuations that make sense for the long run, and growing profitably.
The first few days of a cleanse are apparently unpleasant. And the last year of the tech downturn has also been unpleasant. Lots of people have lost good-paying jobs. VC portfolios have been marked down upwards of 50% and more. Stock prices of publicly traded tech companies are down between 30% and 80%. It has been hard for many people.
It is my view that we are entering the part of the cleanse where the body has adjusted and is starting to feel better. Everyone is starting to get comfortable in the new normal.
This cleanse is likely to continue for most, if not all, of 2023 but I think it gets easier from here. At least for most people who work in tech and startups.
And when it is over, sometime in the next twelve to eighteen months, possibly sooner, we should all feel a lot better. New technologies are emerging that provide a lot of opportunities to start and build new companies. The pool of talent that is sitting on the sidelines and available to work in these new companies is quite substantial. We are already seeing the seeds of all this being planted now.
For established companies that grew up in the go go years, my mindset is to survive the downturn and invest in new products and services that the market will want when things snap back. Many/most of the companies that I get to work with are doing just that. I think they will be rewarded for getting back to basics, building and shipping new things, and improving their products and services meaningfully during the downturn.
I’ve been through a few down cycles now that I am in my fifth decade in tech/startups/venture capital and while they are all a bit different, they all eventually end and those who survived, invested and built, and improved their market positions materially during the downturn have always been rewarded for that. I see no reason why that would not be the case this time as well.
USV TEAM POSTS:Andy Weissman — Jan 26, 2023
Hume AI
Rebecca Kaden — Jan 24, 2023
Journey Clinical’s Series A
Albert Wenger — Jan 21, 2023
Termination Shock (Book Review)
I wrote last week that I have started coding again. And I have been amazed at how much easier it is now that I can code and deploy in the cloud without having to spin up anything myself.
But the other massive improvement in programming is the “AI assist.”
I am working in a Javascript library called jQuery and I don’t really understand its commands and syntax very well.
So I turned to ChatGPT last week and got back this:
That is like having every line of code commented out so you know exactly what it is doing. Once I understood what the code was doing, it was pretty simple to edit it to do something different.
GitHub also has a service called CoPilot that I have just set up so I haven’t used it yet. They call it “your AI pair programmer” which sounds like exactly what I need. I hope to get it working this week and that will help me even more.
Like all things AI, some will say that machines will replace humans in writing code. I think that could happen, but what certainly is happening is machines are making humans more productive in writing code. AND AI is allowing humans who aren’t very good at writing code to be able to do it much more easily.
The machines replacing humans narrative is powerful. But the narrative I prefer is that AI is making things available that have been expensive and unobtainable for so many. And that is not limited to programming. It is true of so many things.
USV TEAM POSTS:Albert Wenger — Jan 21, 2023
Termination Shock (Book Review)
It has been many years since I’ve written code. I’ve hacked around in HTML and CSS a bit on this blog and a few other places. But I have not actually written an application in a very long time. I think it might be thirty years since I’ve done any real programming.
Over the year-end break, my partner Nick taught me how to use GitHub Codespaces and Netlify to quickly spin up development and deployment environments. I forked his Google Sheets NFT Playlist app and have been making changes to it to suit my needs.
Forking someone else’s application is a lot easier than starting from scratch. I always encourage teachers who are introducing students to coding to start that way. There is nothing more intimidating than a blank screen.
Coding is like solving puzzles. It stretches the mind and causes you to think in different ways. I quite enjoy it and I’m glad that I am doing it again. Debugging something to make it work correctly is also a lot of fun for me.
It is really amazing how easy it is to write and deploy code in the cloud these days. I hope that I will use my new Github Codespace and Netlify accounts to make some fun things this year and beyond.
USV TEAM POSTS:
I read last week that the NYC Department of Education has banned ChatGPT from its networks and devices. I understand that reaction and mentioned the issues that AI/ML create for educators in a post a few weeks ago.
I attended a dinner this past week with USV portfolio founders and one who works in education told us that ChatGPT has effectively ended the essay as a way for teachers to assess student progress. It will be easier for a student to prompt ChatGPT to write the essay than to write it themselves.
However, I would like to suggest that educators embrace these new tools rather than block them.
We are entering an era when AIs will be available to everyone to use to do work, entertain ourselves, and many other things. We cannot put this genie back in the bottle. We need to embrace it.
I think a better approach would be to require students to use ChatGPT to write an essay or at least help write an essay and then have the students compete to see who can leverage this technology to create the best essay. That would teach the students to use these tools rather than pretend they don’t exist.
I own a slide rule that my dad gave me. He used it for many years until calculators emerged. He told me when calculators first showed up, many educators wanted their students to continue to use slide rules. But eventually, they realized that calculators were better and embraced them.
I think the same thing will happen with AIs. So we might as well get busy integrating them into education instead of banning them.
USV TEAM POSTS:Albert Wenger — Jan 2, 2023
A Philosophical Start to 2023
I want to focus this post on the macro environment for tech, startups, web3, and climate because that is where my head is at right now.
I believe that sometime in the first half of 2023, the central banks around the world will start backing off the tightening that they have been engaged in as inflation continues to ease and the economy continues to cool. Interest rates will level off in the first half of 2023 and I think there is a good chance of a “soft landing” or a very mild recession in 2023.
With that macro view in mind, what would that mean for tech, startups, and web3?
The largest tech companies will emerge from this downturn leaner and more profitable and growing more slowly. They will be mature businesses that behave like the blue chips that they are. I think these companies, like Apple, Amazon, and possibly Google, will see their stocks come back into favor ahead of everything else in tech. I am hedging on Google because I believe the massive advances in AI/ML that we are seeing right now may be a threat to their core search franchise.
Startups are going to have a tough year in 2023. While many have gotten their burn rates way down, most startups still are losing money and will eventually need to raise capital in 2023. Because most startups avoided raising in 2022, there will be a glut of startup companies in the market for capital this year and while there is plenty of venture capital sitting on the sidelines waiting to be deployed, VCs will be much more selective, instead of funding everything that moves as we’ve done over the last few years.
Good businesses with product market fit, positive unit economics, and strong leadership teams will raise capital although it will be at the new normal in terms of valuation. I believe that “new normal” is more or less where we were in 2015 where seed rounds were done around $10mm, A rounds were done around $15mm to $25mm, B rounds were done around $25mm to $50mm, and growth rounds had a cap at 10x revenues. This new normal will lead to many flat rounds, down rounds, inside rounds, and rounds with a lot of structure on them. None of that is good, but the worst of those options is rounds with a lot of structure. I believe founders and CEOS and Boards should take the pain of a new valuation (flat, down, whatever) over structure.
But there is a huge number of startups out there that have not really found product market fit, have not created positive unit economics, and have unresolved issues in their founding teams and leadership teams. These startups will struggle to raise capital at any price and most of them will fail. This has already started to happen but because so much capital was raised in 2021 and the early part of 2022, it has taken longer for these companies to fail. I think we will see a lot of startups in this category go under or taken out in fire sales in the first half of 2023.
While all of that sounds gloomy and downright horrible, I do think the startup sector will end the year in a much better place. The good companies will have gotten funded, the bad ones will have shut down, and VCs will be back to competing with each other to win deals, which is where founders always want VCs to be.
I think web3 will behave similarly in some respects but different in others.
I think the large caps in web3 (BTC and ETH mainly) will start to attract more interest from investors and should do well in 2023. I am more bullish on ETH personally because it has the best underlying economic model of any web3 asset.
Like the startup sector more broadly, web3 will go through a triage of sorts in 2023. Projects and protocols that have found product market fit, have real token economics, and ship new features quickly will attract new interest and rise in value. But many web3 projects have not found product market fit, have weak or no token economics, and do not execute well and I think we will see many of them continue to flounder and fail in 2023.
There is a much larger overhang in web3 right now when compared to the broader startup and tech sectors. There are entities that are insolvent but have not been restructured. There are funds that are so far under water that they may be forced to liquidate. These kinds of activities will produce ongoing sell pressure on web3 tokens for at least the first quarter of 2023 and maybe for much longer.
While there are compelling values out there in web3, I am not convinced that it is safe to go back into the water just yet unless you have a very strong stomach and a very long time horizon.
Climate, where USV has been actively investing for the last three years and now has two funds dedicated to the sector, has mostly been spared the carnage that has hit the other parts of USV’s portfolio. 2022 brought largely good news to the sector in the form of the oddly named Inflation Reduction Act (IRA) that will flow billions of dollars of capital into the sector over the next decade. Many leading VC firms have dedicated climate funds now and we see huge amounts of capital available for climate startups with strong teams and novel approaches.
Last year I predicted 2022 would be a big year for carbon credits and while we saw a lot of growth in the market for these credits, particularly among the large tech companies, I was way too optimistic about how fast the market would grow. That said, I think 2023 will bring more growth in this market which provides the underlying business model to many of the new climate startups VCs are funding right now.
We are also seeing a noticeable movement of tech and startup talent into the climate sector in search of new problems to solve, more meaning in their work, and many more job openings too. I think 2023 will be a big year for this talent migration.
There is a pattern to much of this and it is that 2023 is going to be a tough year for most but those that get through it should find themselves in a good place, with leaner cost structures, less competition, and healthier employer/employee dynamics. Surviving is thriving in 2023.
So to everyone who is reading this, Happy 2023. Buckle up, hang tough, and be smart.
USV TEAM POSTS:
I like to bookend the New Year holiday with two posts, one looking back at the year that is ending and one looking forward to the year ahead. This is the first of these two posts. The second one will run tomorrow.
What happened in 2022 is the bottom fell out of the capital markets and the startup and tech sector more broadly.
Back in February 2021, I wrote a post called How This Ends. In it, I wrote:
I believe it ends when the Covid 19 pandemic is over and the global economy recovers. Those two things won’t necessarily happen at the same time. There is a wide range of recovery scenarios and nobody really knows how long it will take the global economy to recover from the pandemic.
But at some point, economies will recover, central banks will tighten the money supply, and interest rates will rise. We may see price inflation of consumer goods and labor too, although that is less clear.
When economies recover and interest rates rise, the air will come out of the asset price bubbles that have built up and the go go markets will hit the brakes.
I went on to say that I had no idea when all of that would happen, but I was confident it would.
Well, it happened in 2022.
The air came out of the asset price bubbles that had built up over the last decade and were accelerated/exaggerated by the pandemic. There have been a number of other factors at work, like a war in Europe, that made things even worse, but it is my view that most of what happened in 2022 was entirely predictable, expected, and necessary.
In the areas that USV works in; tech, startups, and web3, there have been a number of important downstream effects of the popping of the bubble and they are worth enumerating.
As the capital markets, including crypto/web3, came undone, companies reacted by adjusting their burn rates to reflect that the growth at any cost phase was over and it was time to get on a path to breakeven. That has meant layoffs across the tech, startup, and web3 sectors. The voracious appetite for talent has waned. Spending for growth has largely stopped and most tech companies and startups are growing more slowly but with better unit economics and lower cash burn.
Some startups have failed, particularly the ones with upside-down unit economics or with a lack of product market fit. I think we have just seen the start of this trend and I plan to talk more about this in tomorrow’s post.
The sector with the largest impact, obviously, has been web3. Many large centralized entities; lenders, exchanges, crypto funds, etc, blew up when the value of web3 assets declined 70-90% over the course of 2022. The carnage has been massive and reminds me of what happened to the web sector in 2000/2001. Some of this has been markets doing their thing, but not all of it was. There was fraud, mismanagement, irresponsible risk-taking, and more, at play in the web3 sector.
And yet, I am not aware of any leading decentralized protocols blowing up in 2022. The smart contracts that run these protocols did what they were programmed to do and they have come through intact. It is a testament to the power of decentralized protocols over centralized entities and, for me, the major lesson of 2022 in web3.
I used the word necessary a few paragraphs ago to describe what happened in 2022. I understand that this year has been painful for most and devastating for many. I am not immune to it. Our family’s net worth has taken a massive hit. The carrying value of USV’s assets under management has been cut in half this year. And yet, I am fine, my family is fine, and USV is fine. Many are not. I understand that and have a lot of empathy for those who lost so much, including their jobs, this year.
And yet, I know that the unwinding of an unhealthy and unsustainable growth at all costs/cheap capital environment was necessary and will be healthy in the long run. We already see many of our portfolio companies operating at much more sensible cost structures with clear paths to profitability at much lower growth rates.
The ending of the war for talent in tech also is incredibly healthy. Some leading tech company CEOs I know believe they can operate with much lower headcounts in product/engineering/design than they have been for the long term. That talent can move into new startups and new growth areas, like climate and healthcare, that need it.
Like all transitions, this is messy, painful, disruptive, and ugly. And this year has been all of that and more. I am happy to see it in the rearview mirror and looking forward to better things in 2023. Which will be my topic for tomorrow.
USV TEAM POSTS:
As usual, here are some songs that stuck with me this year.
fredwilson · Backing It When No One BelievedI hope you enjoy it.
USV TEAM POSTS:Andy Weissman — Dec 15, 2022
Mombak
Albert Wenger — Dec 11, 2022
The Eutopian Network State
Samson Mesele — Dec 9, 2022
USV 2022 Climate Fund
I have written many times about the Hour Of Code here at AVC.
It is the highlight of the annual Computer Science Education Week which is the first week of December, which is this week.
Yesterday Marco Argenti, Goldman Sachs’ CIO, and I went with NYC Schools Chancellor David Banks to the Hospitality Management High School in the Hell’s Kitchen neighborhood in Manhattan to do an Hour of Code with the students there.
In the class we attended students were using the Scratch programming environment to make a small robot move around a course while also navigating some real world problems.
In this photo you can see three young women with their robot and a laptop with Scratch on it:
At the end of that exercise, the students got the opportunity to ask Marco and his colleagues about working as a software engineer. This is a post the Goldman team wrote about the importance of this work.
Many AVC readers know that getting computer science education into every building in the NYC public schools has been a long standing passion project of mine. It’s hard work getting the business community engaged with this work and supporting it financially.
But every time I get the opportunity to go into the schools and see the teachers and students working on computer science problems, I get a boost of energy in my system to keep going and push even harder.
I was particularly excited and pleased to see Chancellor Banks so engaged and excited about what he saw yesterday.
Chancellor Banks and his team at the Dept of Education are very focused on creating pathways to rewarding careers for their students. The Chancellor calls it his “north star.” So they are a fantastic partner for this work I do and I appreciate everything the DOE, the school leaders, and the teachers do to help the young people of NYC become computational thinkers and be computer literate. It will make a big difference in their lives.
USV TEAM POSTS:Samson Mesele — Dec 9, 2022
USV 2022 Climate Fund
Nick Grossman — Dec 7, 2022
Ostrom
Albert Wenger — Dec 5, 2022
Not-Yet-Full Self Driving on Tesla (And How to Make it Better)
The advances in AI over the last year are mind-boggling. I attended a dinner this past week with USV portfolio founders and one who works in education told us that ChatGPT has effectively ended the essay as a way for teachers to assess student progress. It will be easier for a student to prompt ChatGPT to write the essay than to write it themselves.
It is not just language models that are making huge advances. AIs can produce incredible audio and video as well. I am certain that an AI can produce a podcast or video of me saying something I did not say and would not say. I haven’t seen it yet, but it is inevitable.
So what do we do about this world we are living in where content can be created by machines and ascribed to us?
I think we will need to sign everything to signify its validity. When I say sign, I am thinking cryptographically signed, like you sign a transaction in your web3 wallet.
I post my blogs at AVC.com and also at AVC.Mirror.xyz which is a web3 blogging platform that allows me to sign my posts and store them on-chain. This is an attestation at the end of last week’s blog post.
You can see that “author address” and click on it to see that it is one of the various web3 addresses I own/control. That signifies that it was me who posted the blog. It is also stored on-chain on the Arweave blockchain so that the content exists independently of the blogging platform. That is also important to me.
I think AI and Web3 are two sides of the same coin. As machines increasingly do the work that humans used to do, we will need tools to manage our identity and our humanity. Web3 is producing those tools and some of us are already using them to write, tweet/cast, make and collect art, and do a host of other things that machines can also do. Web3 will be the human place to do these things when machines start corrupting the traditional places we do/did these things.
USV TEAM POSTS:
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