Leveraging Company Engagement Across the USV Network

Imagine that you are the first finance leader hired at a 25-person, Series A startup. Chances are, there won’t be another person on your team for awhile, so you can count on personally managing all of the systems needed to get your business through the next two fiscal years.

Naturally (as things never go smoothly), within your first six months, you find yourself caught between mitigating future audit risk and restructuring client billing, all while trying to process payroll on time. You’ve been trying to find time to research new account systems so you are prepared to scale with the business but just haven’t found the time.

What do you do?

Meet the USV portfolio network

Across our active USV portfolio network of 70 companies, it’s highly likely that there’s at least one other person thinking about some of those same challenges. Our goal is to design an experience that makes it as easy as possible to find that individual and get your questions answered.

Here’s how we leverage our network to forge meaningful connections for our 8,000+ portfolio network members.

Today, the largest company in our active USV portfolio network has just over 700 employees; our smallest has only four people. Despite the varying industries, sizes, and stages of each company in our portfolio network, our companies have one indisputable thing in common: They move fast. Whether it’s preparing for a new product launch, embarking on a hiring spree, or re-architecting the system backend to be localized, the companies in our USV network are running a mile a minute.

The worst thing we could do with the USV network is slow them down.

To that effect, our network programming sets out to enable two key functions: Information routing and collaborative ideation.

To route information and resources through our network as quickly as possible, we capture relevant datapoints about what our network members are thinking about, then facilitate introductions to people thinking about the same business needs. This may happen via Slack (where over 80,000 messages have been sent in the past 2 years alone), via in-person meetups, or through direct introductions.

This year, we have already connected more than 300 USV network employees to each other in direct, 1-to-1 introductions. These introduction topics range from “Help me think through my new system architecture” to “Help me find a new technical recruiter” and “Help me find people thinking about mobile retention best practices.” By keeping our pulse on what people across our network are thinking about in real time, we can help employees across every level of a company find somebody else who may be puzzling through a similar challenge.

To facilitate collaborative ideation among our portfolio network members, we bring people together for day-long discussions with peers to offer a new perspective, share challenges, and yes, even vent on similar frustrations. At these day-long events (called summits), we crowd-source discussion topics and ideas from our network members, then lean on them to drive discussions.

By the end of 2017, we will have facilitated over 100 events for employees at USV portfolio companies, tailored to everyone from executives to executive assistants.

You may be wondering about how we encourage an environment of transparency and trust among so many different companies at once. Given that our companies are building business models in different areas or sectors, business leaders across all functional areas readily swap tips, pitfalls, and lessons learned. It also helps that many of our companies also share common growing pains associated with managing large networks of users, data, or information.

Sometimes, in the case of broader topics that affect many businesses the same way, our portfolio companies team up to tackle these challenges in tandem. This year alone, the natural connectors within our network have stepped up to host nearly a dozen diversity & inclusion roundtables, a shared policy list, and workshops on narrower topics, such as PR and communications best practices.

Getting Connected

Think back again to the conundrum you faced as the only finance hire at a 25-person company without enough hours in the day to tackle all of the problems on your plate.

It’s hard to be the first person (often, the only person) doing your job at a company. For many, it makes the leap from a larger business to a startup downright terrifying. But we hope the strength of this network makes every new employee feel a little bit more like they have the security of a larger organization.

In this example, by leveraging our USV finance network, you can immediately get your question in front of 100+ finance professionals, all working at fast-paced startups, each coming from a different background. Chances are, at least one other person in this network has researched and identified billing systems for their company. And given your overlapping company stages, a one-hour introductory call may save you 10-15 hours of your own research time.

We see network connections happening across all levels of our organizations.

Last year, before Quizlet had launched any products internationally, they attended our globalization summit in San Francisco and learned how a dozen other companies had approached globalization. (They came back to that same summit this year -- to share back with the newer companies needing advice.)

Just this week, we called on the VP of HR at one of our later stage companies to lead a discussion for 20 people leaders at different companies about year-end performance reviews and best practices. In December, in anticipation of the new GDPR compliance policies that will impact nearly all of our companies next year, a trust and safety expert from our network stepped up to lead a workshop for our companies to work together on this process.

At each point in a company’s life cycle, new changes, challenges, and problems surface. Our USV network is here to help companies grow collectively smarter and learn on each other through these changes.

If we’re doing our job right, with each new investment we make, the experience of being an employee at a USV company gets a little bit better. This is the power of network effects at work.

Quantitative Investing in Shampoo

Can a machine help you invest in shampoo? Coffee? Another consumer product?

Last week, the USV portfolio company CircleUp announced the closing and launch of CircleUp Growth Partners  - a $125 million fund that will use a quantitative machine learning approach to invest in early-stage consumer and retail brands.  

We believe this is an important evolution towards using data technology to make investment decisions - a theme we at USV have invested in many times ranging from Lending Club to Funding Circle to Numerai. CircleUp Growth Partners is slightly different. The Fund’s thesis is that one can use machine learning to determine early-stage equity decisions in consumer companies. This machine learning platform, Helio, identifies and evaluates companies across billions of data points. The Fund is live right now - Helio recently analyzed 3,400 vitamin and supplement companies and flagged HUM Nutrition as being in the top 3% for brand score. This ultimately led the Fund to make one of its first investments in that company.       

The provocative proposition is that a system like this can run these types of analyses at scale and pinpoint brands earlier and with more efficiency than traditional investors. Consumer investors historically have had to spend around 75% of their time sourcing deals manually. Helio is able to automate this entire sourcing process and provide data-driven insights to help companies grow.

Helio has also been applied to two other business lines - credit and marketplace.  CircleUp originally operated solely on a marketplace model but has recently launched a credit arm that provides working capital to consumer companies. These three business units all provide data back to the model, which in turn makes each better in its own domain. This is a data network effect - Helio is continually improving.      

The focused industry of consumer goods should lend itself well to this approach; consumer packaged goods all share the same business model, and data proliferates across the industry.

Could data-driven investment models like that of Circle Up be extensible to sectors beyond consumer goods? It will be interesting to see how these approaches might affect capital formation more broadly, as data applications move to designing new financial products and services we have not yet even considered.

The USV Portfolio Network: Now 70 Companies Strong

At Union Square Ventures, we spend a lot of time thinking about networks. Financial networks, social networks, data networks, and yes, even decentralized networks. But the most “meta” version of this is the network we’ve spent the past seven years cultivating among the employees of our active portfolio companies -- our USV portfolio network.

The USV network enables cross-pollination of ideas among our portfolio companies by fostering connections between people thinking about similar business challenges or problems.

We invite every employee (regardless of seniority) from each of our portfolio companies into the network. Due to this access, with every added node (i.e. company), our portfolio members become collectively smarter and better equipped to make the best decisions possible in their day-to-day. In this way, we hope to break down silos across companies and democratize access to knowledge about best practices in building businesses.

Because knowledge and experience are powerful and intangible resources, access to the network as a resource allows each of our businesses to become incrementally more successful.

If you work for a USV portfolio company, there is no additional hurdle or secret password: You’re in the network. While you may be working at a small startup, you have access to the knowledge and experience of a large corporation.

Right now, we estimate that the total size of our network is approximately 8,000 employees across our 70 active investments. If you add in our extended “alumni” community, comprised of former employees or current employees at exited portfolio companies (such as MongoDB, Twitter, Etsy, Twilio, and Lending Club) the reach of this network jumps to 20,000+.

That’s on par with the total number of employees at Facebook and equal to the number of Boston Consulting Group alumni.

Here’s our best guess about how our current active portfolio network breaks down by functional area:

Needless to say, when you’re part of a group of people that’s 8,000 strong, it suddenly doesn’t seem so scary to take a job as the only finance leader at a 25-person company.

To access these network connections, employees at USV companies are invited to join more than 100 portfolio-only events each year. Each “summit” event is organized as an “unconference” format: crowd-sourced ideas, open questions and discussion groups based on different topics or challenges creates the framework for the sessions.  

A selection of events this year includes day-long summits on scaling, internationalization, engineering leadership strategies, and integrating product management into organizations. We also offered recurring roundtable discussions among curated groups for finance, legal, or human resource professionals, as well as opportunities for discussion on broader topics such as diversity, inclusion, and women in leadership.

Event themes are surfaced by employees in the portfolio network, and all programming is specially curated for the entire portfolio. In this way, we surface relevant and timely topics that can have direct impact across multiple growing businesses at once.

The businesses we invest in each grow stronger when more data is contributed to their platforms. Similarly, with each new investment we make, the experience of working for a USV portfolio companies gets a little bit better. These are the network effects among our portfolio.

We hope one day you’ll be a part of this network too.

And if you happen to be on the job hunt now, we encourage you to check out the 2,000+ job openings across 58 portfolio companies currently hiring.

New Adventures: Joining Union Square Ventures in NYC

I am excited to share that I am joining the Union Square Ventures partnership alongside Albert, Andy, Fred, John, Brad, and the rest of the fantastic USV team.

What struck me first about each of my future partners at USV is that they so clearly love what they do and the founders they do it with.  While their investments in many category-defining businesses speak for themselves, I quickly learned that their passion around entrepreneurs and innovation, deep curiosity, hunger, and belief in seismic change is contagious. They have an ability to think at a universal level about massive societal shifts, and then drill that thinking down to the tangible, messy, uncertain, exciting beginnings of early-stage businesses. They have the conviction to make bold bets and believe the unlikely possible, and they know that this industry is not only in a moment of change now; it is constantly in flux. That the magic of entrepreneurship and the creation of the new is its constant evolution. The USV team embraces this change with excitement, not fear, and continually looks to push their thinking. Most importantly, they have a track record of being standout partners to the entrepreneurs they back. Every founder I talked to said essentially the same statement: they dream big; they are in it with us.

These are the same values I learned to place importance in at Maveron, a firm and team I love and believe in and whose belief in me has been a monumental gift. There is no doubt in my mind that this is an apprenticeship business and my Maveron partners allowed me to learn from both exceptional consumer investors and people I deeply admire. Dan, David, Jason, Pete, Anarghya, Elise, and Clayton taught me not only about investing but, most of all, about the necessary combination of head and heart, what it means to be a true team, and that, in our business and all businesses, it is all about the people. I’m grateful for the opportunity and experience, and equally so for the fun and friendship along the way. I can’t wait to find many opportunities to collaborate in the future.

A huge part of my motivation for this next adventure is my excitement about getting back to NYC and digging into its entrepreneurial ecosystem. New York City is my hometown, a community I care about, and a group of founders and creators that I am passionate about working with. I grew up loving the curiosity and sense of possibility New York inspires, and I can’t wait to dive further into how that helps form the great companies of tomorrow. Coming home is fun for many reasons, but coming home to such a hotbed of innovation and dreamers, particularly in the categories that excite me the most, is simply awesome.

Next up: exploring the intersection between our core USV thesis around network effects, whether centralized or decentralized, and the entrepreneurs building the standout consumer businesses that integrate into our hearts and minds. In each generation, no matter the changes, great consumer brands have emerged into the fabric of the world, and technology is accelerating their growth, reach, and potential more than ever before. Thinking about how to stretch the USV scope to include these breakout consumer businesses that I’ve become passionate about at Maveron is an exciting piece of this partnership. I'm equally eager to stretch my own scope, too. More on that soon as we continually evolve and iterate the USV thesis together.

If you’re a founder or potential founder building something transformational, I’m so eager to meet you. I’m on a new adventure and I’m ready to dive into yours, too. You can reach me at [email protected]

 

6 Ways Great Companies Use Board Decks to Their Advantage

This past summer at Union Square Ventures, Max Heald joined us as our summer intern. During his 10 weeks at USV, he helped us better aggregate insights shared across our portfolio companies through data collection. As part of this process involved reading through company board decks, he came away with a few top takeaways from his project, which he recently posted about on his Medium account. Below, the full text of his original posting:


After graduating from college in June, I had the chance to spend three months at Union Square Ventures, helping with a project that created anonymous aggregate insights for USV portfolio companies by analyzing data across stages, customers, and industries. In order to not put a lot of extra reporting effort on our companies, we approached this project by drawing from data in existing board decks. This work afforded me the unique opportunity to familiarize myself with many of our portfolio companies’ board decks, and the communication styles of the leadership teams behind them.

I quickly found out that there is no one standard board deck for a USV company (and in fact, we’re proud of that), but I did observe a few commonalities among the most effective decks.

At a high level, the best decks accomplish three things:

  1. Address two information needs simultaneously (the board’s need for information and the team’s need for advice)
  2. Speak about progress and pain points frankly
  3. Highlight a company’s unique culture

Here are 6 ways I saw this done best:

1. They place metrics in context

There’s a difference between telling someone, “Our GM decreased by 8% last month”, and “Our GM fell by 8% because we ran a promotion which netted us a 20% bump in total clients.”

The best board decks anticipate questions in advance, and answer them with clear, concise data. My favorite example is a simple graph of total ARR versus a bar graph of ARR broken down by addition and subtraction of clients, and expansion and contraction of client spend. Our portfolio company eShares does an excellent job of this:

Another excellent example of effective data context is a 12-month trailing P&L. Most of the decks I read had monthly data for the most recent quarter, and projections for a few months out. I ran into a couple problems here: First, many companies’ board meetings happen infrequently enough where there are significant gaps in data. This makes it extremely difficult to understand a company’s financials in the context of their most recent fiscal year without making a data request to the company, something we generally like to avoid. In the case the data does overlap, however, it still requires piecing together information from multiple decks to get a decent view of the last year. As a recent college graduate / workaholic, I’m happy to do this. I imagine a board member of a venture-backed company would be less inclined.

For these reasons, the 12-Month Trailing P&L is perfect; not only is it an easily-updated table, but it’s a way to view the scope of a company’s financials over a substantial amount of time. Though things often change drastically from quarter to quarter, most investors want to see how the company has grown through multiple phases. And though projections are usually wrong, including them for the next quarter or two is usually worth doing, too.

2. They structure decks to gather input

Board meetings are typically the only time when all of the key stakeholders of a company are in the same room, so naturally, it makes sense to wring as much as possible from these discussions.

Some of the best decks I read do this by kicking off the deck (and thus, the meeting) with a board-only Q&A. This encourages board members to come in prepared to fire away to the CEO and their leadership team.

Structuring a deck this way offers an incredible method of ensuring preparation from the stakeholders of a company, and structuring meetings effectively. Give them the data, and let them loose. It also sets time for the outside stakeholders who know a company best to have an unfiltered discussion during which unexpected ideas may rise to the surface, before the team then uses the rest of the time to address their own pre-planned questions.

The best of these team-led sections of decks tend to focus on a few key issues, rather than providing comprehensive data streams; evaluating potential key hires, discussing a fledgling revenue stream, or a potential acquisition offer could all be strategic issues worth spending time on.

Great board decks balance gathering information on what the team needs help with, and providing critical updates the board needs to hear. Again, it’s about style, and leaders of a company will know what’s best. But by structuring decks to gather key input from the stakeholders in the room, teams can ensure they are putting board meeting time to its best use.

3. They are frank about what they need to do better, even if they don't know how

Board meetings are not pitches. As obvious as this is, there is no need to sugarcoat, talk around, or avoid data points which are less than ideal.

The most effective board decks I read were direct about what the teams could improve, and asked for specific feedback from the board on how they could accomplish it, or better yet, on their already-thought-out plan for accomplishing it. Board members are a brain trust for a company, and they know it better than anyone outside the team- if there is a place to be blunt about the challenges a company is facing, it’s with them.

4. They pull out the numbers that matter

Most companies track many statistics for internal use, but when it comes to two-hour board meetings, there are often a few key metrics which are the best indicators of the health of a business. As with discussion topics, narrowing in on these metrics can focus the conversation and give the board a broad understanding of the company’s situation quickly. In the interest of time and productive conversation, it’s usually better to go deep than broad.

Considering SMART metrics (Specific. Measurable. Achievable. Relevant. Timely.) here might be a useful litmus test for figuring out what to track. Whether it is gross margin, active users, and LTV, GMV and MRR, or even a statistic uniquely effective for the business, the best board decks bring out the key levers of the company for a more productive discussion.

5. They highlight key wins, and the people responsible for them

Most decks I read tended put these up front, or worked them into their brief overview of company progress, as a way to kick off the discussion on a high note. The part I enjoyed most, though, was how many companies would include recognition for the non C-level employees who spearheaded these big wins for the company.

Especially for people who prefer “the right people knowing” of their contribution over more public, company-wide recognition, this is an excellent way to show appreciation for team members who excel.

6. They let company culture inform the deck’s style

Board decks are art. And art often tells us as much about the artist as it does about itself. I came across a consumer platform company’s deck which really popped; translucent spreadsheets and statistics against varying hues of neon. A security-focused company’s deck was a stoic black-and-white, the pre-set Powerpoint template unchanged in any way. Jobbatical’s deck, as you can see below, throws in just a bit of personality.

Each of these three decks conveys a different company culture. One focused on imbuing its office with as much liveliness as the platform they’re building. One so serious about security, it doesn’t have time for design. One playful, unorthodox, and a little weird, in a great way.

Every board meeting is a chance to for company leaders to communicate to their stakeholders what they have built. Half of that work is communicating the culture of the workplace they have created. And since these decks are meant to be read as well as presented, it’s crucial that culture is communicated through the style of the deck, and not just the presentation of it. The best teams know this, and use it as a way to demonstrate their leadership.

A final thought:

While they may not be built to be as flashy as a pitch deck, board decks can be an incredibly strategic and constructive communication tool for your business.

They are a chance to show your stakeholders how well you can synthesize the key levers of your business, discuss them efficiently and effectively, and communicate directly any problems that need to be tackled. They are an art, and a chance to show off the culture and team you have built.

And as an opportunity for a demonstration of effective leadership, to the stakeholders who are the most active supports of your company, they are well worth the effort.

Max recently graduated from Northwestern University, where he was an Agile coach and two-time founder. He is currently interested in venture and startup roles that allow him to meet and learn from great founders.

You can follow him on Twitter at @max_heald, or reach him at [email protected]

The Unknown Path to a Decentralized Future

Some companies with currently centralized services have been criticized for issuing tokens and raising money in ICOs. There are even allegations that venture investors are pushing companies to do so as a ploy for liquidity. I suspect that some situations like that do actually exist, but I know from first hand conversations that many of the entrepreneurs pursuing this route are doing so out of a genuine conviction that it is the right path to a decentralized future.

Most startups that have come into the crosshairs of one of the large centralized players (Google, Facebook, Amazon, Apple and maybe a few others) have experienced how difficult it has become to grow a new offering. The new incumbents are aggressively managed, have nearly limitless financial resources and most importantly leverage their existing network effects to keep potential competition at bay.

Along come blockchains and crypto currencies. Here is a new technology that represents a foundational breakthrough: the ability to build decentralized networks that have consistent data without being controlled by a corporate or government entity. It is a technology that is potentially disruptive to the large players, exactly because it goes against the core of their existing businesses, which is the control and rent extraction from networks.

Now there are two schools of thought as to how to get to that decentralized future where networks are owned by their participants and anyone can innovate on top of the network. One group believes that we need to start from scratch and build new protocols outside existing services. There are good arguments for that position, such as being able to iterate on a protocol with few users on the basis of feedback from early adopters. Another group though believes that existing services, some with millions of users, can give a new protocol immediate critical mass. They also point out that it may be possible to take a stepwise path where some centralized elements remain at first (for instance, ones that demand throughput right now that’s not yet achievable on blockchains) with a view to decentralizing those elements in the future.

I believe we should be pursuing both approaches. Getting to a decentralized future is too important to restrict right now how we are going to reach it. We will know in a decade or two what worked, but until then we shouldn’t be attributing ill intentions to fellow travelers simply for choosing a different path. We can be critical of specific steps and proposals. We can suggest how they might be improved. We can demand (increased) transparency. We can start or fund or own efforts. By all means: let’s do more, rather than less.

Flip

A Google search for “apartment lease” returns 86 million results. Which makes sense. One of the constants in life is finding a place to live, and signing a long-term contract for that living place. That constant — that lease — remains in force even though changes in our lives may not line up neatly with that one- or two-year period. Many things happen to us while we are stuck with a long-term house or apartment lease: new job opportunities, new roommates or relationships, new family members, and so much more.

If you could construct a service for home rentals that would reconcile that conflict between life and lease, what would it look like? Probably like Flip — a marketplace for flexible housing specifically designed for leases that last for any duration, starting at one month.Just take a look at this word cloud below, which pulls from descriptions on Flip listings, where people explain the circumstances that drew them to the platform

Since 2016, 15,000 people have listed spaces (rooms, apartments and houses) on the Flip marketplace. Unlike traditional housing platforms, Flip is completely end-to-end, by qualifying every user, handling all payments,  legal documents and landlord approvals. Today, over 50,000 people have used it to search for a new home across New York, Los Angeles and San Francisco.

We are leading Flip’s latest financing round, as it is the type of market or domain specific network that USV focuses on. In market-specific networks, closing the loop on a transaction is the key to unlocking network effects, and Flip does just that.  

As importantly, Susannah Vila and Roger Graham, the founders of Flip, aspire to enable seamless access to all all housing, everywhere, for everyone. Flip accomplishes this via a fully digital platform that does not assume that fixed lease terms are necessary. Instead, it works from the idea that the rental housing market should be truly liquid, and that if housing were transacted on one digital platform, it would be easier and more affordable for everyone to get on a lease or off of a lease.

Flip’s mission is to provide seamless access to all housing for everyone, everywhere. We think that is one measure of increasing individuals’ economic freedom; we are excited to be able to support this company’s development.

 

Blockstack Browser and Token

Today Muneeb and Ryan from Blockstack delivered the morning keynote at the Consensus 2017 conference here in New York. They made two important announcements: first the availability of the developer edition of the Blockstack Browser and second the news that there will be a Blockstack Token. To understand the importance of both of these announcements, it useful to look at some of the history of the Internet. 

The Internet got going in the early 1960s but for the first quarter century its usage grew slowly. Broad usage really didn't take off until the creation of an easy to use consumer layer with the Web and the availability of developer tools in the mid 1990s. Now fast forward to today. We all use the Internet every day for nearly everything we do. But now we are seeing some critical problems that have emerged based on the basic architecture of the Internet. For instance there is a lot of blind trust into lower level infrastructure, such as certificate authorities that can result in large scale man-in-the-middle attacks (for example a recent event in Turkey which resulted in endusers believing they were connected directly to Google when they were not). Even more importantly, state in the current Internet is maintained in databases operated by companies such as Twitter, Facebook and Amazon which hold and control users' data. 

Blockstack aims to resolve these problems using blockchain technology and by building the developer tools and consumer layer to make this new decentralized Internet broadly available. The Blockstack system has now been up and running for 3 years and has a community of over 5,000 members. 

How does Blockstack address these problems? With Blockstack endusers (individuals and companies) control their identities, storage and payment credentials directly. This is accomplished by keeping the namespaces — both enduser names and addresses for applications — in a blockchain. The blockchain here is a virtual chain that currently sits on top of the Bitcoin blockchain but could be migrated to another blockchain in the future. In fact the chain has been migrated once already as it started out on top of Namecoin. The virtual chain layer requires only minimal guarantees from the underlying layer and allows for separate scaling. 

The Blockstack blockchain itself in turn only contains keys and pointers. All the enduser data is stored in existing storage systems, such as S3, Dropbox, Google Drive etc. But the way it is stored there is fully encrypted and distributed across these systems. That way each underlying storage system is used like a dumb hard drive and the use of multiple systems provides resilience at high performance. This is provided by Blockstack's Atlas Network and Gaia Storage components.

Now that all of these components are in place, how do consumers access these systems and how can developers build applications? This is where the Blockstack Browser comes in. By running a local application, consumers can use any existing web browser (Chrome, Firefox, etc) to access the new decentralized systems. Right from there they can do things like register names, make payments, configure their storage. This feels just like using an existing centralized system and requires no special skills or knowledge. Similarly, developers can now write decentralized applications without having to learn all the details of the underlying systems. Instead, they can write in Javascript and implement the authentication and data access APIs exposed by Blockstack. 

Finally, how does the Blockstack Token fit into all of this? For the Blockstack network to work there is some degree of scarcity that has to be maintained. For instance, there is a need for names to be unique. Whenever you have scarcity, you need an allocation mechanism. To that end Blockstack will introduce a token some time later this year. The Blockstack Token will be mined at the layer of the virtual chain and will power operations such as name registration. It will also be used to let Blockstack network participants vote on protocol changes, including a potential migration to another underlying blockchain in the future. 

So if you are a developer and want to start building apps for the Blockstack Network, head on over and download the developer preview.

Protocol Labs

Protocol Labs made a series of announcements earlier today including that Union Square Ventures made an equity investment in the company late last year. We are thrilled to be working with Juan Benet and his team and excited to be able to share some of our thinking here. 

As most of you know all of us at Union Square Ventures believe in the decentralized, emergent, permissionless innovation that was so central to the vitality of the early Internet. Prior to the Internet, the media industry was dominated by a small number of companies that controlled access to in their respective mediums, print, television, radio, cable etc. It was the broad adoption of a set of open protocols, like TCP/IP, SMTP and HTTP, that allowed any creator on the planet to get to any consumer and unleashed the wave of innovation that led to the consumer Internet we know today. That vital innovation is threatened today by consolidation at the applications layer of the Internet. Publishers find themselves becoming commodity content suppliers in a sea of undifferentiated content in the Facebook news feed. Web sites see their fortunes upended by small changes in Google’s search algorithms. And manufacturers watch helplessly as sales dwindle when Amazon decides to source products directly in China and re-direct demand to their own products. 

The source of this market power is control over the data we all contribute as we interact with these services online. The key to mitigating the market power of the web giants is open protocols further up the stack. If an open public communications network (the Internet) unlocked the distribution bottlenecks that characterized the media industry, an open public data layer is the key to and unleashing another wave of innovation. It is the mission of Protocol Labs to coordinate the efforts of a large and passionate community of open source contributors to create these protocols. 

It is an audacious mission. As you move higher in the stack the complexity of the protocols is exponentially greater. Luckily, they are not starting from scratch. Juan Benet, the founder of Protocol Labs, is the creator of IPFS (the Interplanetary File System) an increasingly popular protocol that allows content on the web to be addressed directly instead of by reference to a file located on a specific server. This subtle but profound change means that a provably unique piece of content is no longer tied to a specific server but can exist anywhere there is a little surplus storage capacity on the web. Protocol Labs and everyone else working on open protocols today has another advantage that was not available to the creators of the original Internet protocols. They have blockchains. 

Blockchain based crypto tokens have been have been described as the native business model of open source software. They have the promise of being able to fund the critical shared infrastructure of the information economy in a way that equity can not. Protocols are more valuable when they are open and shared broadly. But equity is most valuable if a company can extract monopoly profits from a resource they exclusively control. When a protocol incorporates an incentive in the form of a crypto token it can resolve this inherent contradiction. 

In the next few weeks, Protocol Labs will be introducing Filecoin, a crypto-token to support the development of a next generation protocol that enables a decentralized data storage layer on top of IPFS. By funding this effort through the sale of a token rather than the sale of additional equity, they ensure that the creators and consumers of value in the storage network (the people who buy storage with tokens and the people who earn tokens by storing files for others) will benefit directly from the success of the network and the protocol that defines it. This happens because the protocol sets limits on the number of tokens that can ever be issued. Because the tokens are the currency in this marketplace for storage, as the protocol becomes more broadly adopted and the marketplace for storage grows, demand for the token increases, and the currency appreciates. So the tokens that investors purchase in a pre-sale to fund the engineering effort to build the protocol, the tokens people hold in their wallets in anticipation of buying storage and the tokens people earn by providing storage capacity all grow in value over time. 

The bitcoin protocol demonstrated that it was possible to finance an enormous computing infrastructure - reportedly one with a hashing power greater than all the super-computers in the world - with an crypto-token. But it does so at a great cost. Securing the bitcoin blockchain could by 2020 consume as much electricity every year as all of Denmark. With Filecoin, Protocol labs, hopes to secure the network with useful work - work that has to get done anyway - storing files for people. Over the next few years, Protocol Labs plans to develop a series of protocols that could become the infrastructure of a more decentralized economy. By funding these efforts through sales of crypto tokens, they ensure that the economic value of the protocols is shared broadly. By designing systems that secure the network by doing useful work, they respect the limits of our natural resources. 

But they have also made one more investment to further the development of this shared infrastructure, they have invested heavily in the legal design of the Filecoin token and the pre-sale process in the hopes of demonstrating that these offerings can be done responsibly in respected jurisdictions. We have already made the point that the pre-sale of a crypto-token is different than equity. It is also not a commodity, a currency or a futures contract. It is something new. As such, it does not fit neatly into any existing regulatory or legal framework. Many of the recent offerings of crypto-tokens have avoided the difficult task of fitting the round peg of crypto-tokens into the square hole of existing regulatory frameworks by raising money in a foundation based in Switzerland, and offering the token for sale in a jurisdiction like Malta or Singapore. This is a reasonable approach. The reality is that these offerings are inherently global. Pretty much anyone anywhere can participate, and the recent returns in the sector have caught the eye of investors around the world. In the near term, it benefits the existing holders of the token to have access to global demand in an unregulated offering, but not all of these offerings will end well. Protocol Labs is playing the long game. They believe that a pre-sale of a crypto-token is an important new funding mechanism that will support the creation of a rich ecosystem of protocols that decentralize the web, democratize access to services and spread the wealth created by networks beyond a narrow cohort of equity owners. To further that goal, they are working with an army of lawyers to create a mechanism that is defensible under U.S. law and regulation - one that can hopefully be a template for others who want to build infrastructure that lasts. 

Protocol Labs is creating new infrastructure in an new way. We think their commitment to the re-decentralization of the web will lead to protocols that are powerful, broadly embraced and generative. Their approach to financing their work will spread the value that is created more broadly. Their commitment to investing in a legal approach that respects the current regulatory environment while not compromising on the promise of the new technology will be a foundation others can build on. We are thrilled to be along for the ride.

goTenna

Disruptive innovations often start out as worse versions of something that already exists. Worse along all dimensions except for one, but one that turns out to really matter because it unlocks a new use case for which the incumbent does not work at all or is not affordable. The PC was slower, had less memory and less storage than a minicomputer. But it was massively more affordable and could be set up and run without the help of the centralized IT department. That’s why the early adoption of PCs was in parts of companies that did not have minicomputer access.

Direct networking among consumer mobile phones is a disruptive innovation. It doesn’t give you the bandwidth of, say, LTE. If there is extra hardware involved it only works between participants who have that hardware. But it has one crucial advantage: it works even when the mobile network infrastructure is down (e.g., during an emergency) or where it doesn’t exist at all (e.g., when hiking in the deep countryside).

Extra hardware paired with your phone is exactly the approach that goTenna has been pursuing for phone-to-phone communication. They have been shipping tens of thousands of their first device which are in use by outdoor enthusiasts and also by emergency responders.

goTenna’s latest product, goTenna Mesh is about to ship and supports mesh networking. That means as more people in an area have the product, phone-to-phone connectivity improves for everyone. Including one super cool feature: with SMS network relay, if any phone in the mesh also is connected to the SMS mobile network then all the goTenna-enabled phones can relay regular text messages out through the SMS-capable device.

We are excited to be leading the Series B round for goTenna. The team has accomplished all of this on very little capital to date, including the development of the mesh protocol and of a hardened Pro device which will start shipping later this year. We believe this is a disruptive innovation in connectivity, and a perfect fit with the Access 2.0 portion of our current investment thesis.

If you are excited too, you can pre-order a set of the new goTenna Mesh units. And if you are truly excited you should check out the terrific opportunities for joining goTenna’s team.

Upgrade

In July 2011, we were fortunate to lead the Series D financing round in Lending Club, founded in 2006 by Renaud Laplanche. Along with Zopa (UK company) and Prosper, Lending Club was a pioneer of the now-familiar marketplace lending model, which cut interest costs for high quality borrowers by as much as 50% (not a typo) and at the same time offered investors attractive risk-adjusted returns not available elsewhere. This was a fundamental innovation in financial services that is thriving globally and will continue to gain in importance.

During the next four years, we watched Renaud and his team execute extremely well, growing from $20mm a month in originations at the time we invested to $500mm a month when Lending Club went public in December 2014. Lending Club originated over $20 billion in loans to over 2 million borrowers, saving consumers substantial amounts. Scaling a company at this rate is very difficult. Renaud and his team did as good a job as we have seen.

In retrospect, Lending Club probably went public too early. Financial services companies are held to high standards in the public markets these days, regardless of size or vintage. In May 2016 the company faced compliance issues and Renaud left the company, a difficult and unfortunate event for all involved.

Today, Renaud and his new team are announcing the launch of Upgrade, a new marketplace for consumer credit. We think of it as Lending Club 2.0 and are excited to be Series A investors in this new venture, along with our friends at VY Capital, Sands Capital, FirstMark Capital, Ribbit Capital, Silicon Valley Bank and others.

In our view, we are still in the early innings of the marketplace lending model. We believe Upgrade’s team and business plan makes it well positioned to quickly become a leading company in the industry, benefitting both borrowers and lenders. We look forward to helping Renaud steer his ship once again.

USV Session: Building the Healthcare Stack

The USV portfolio network consists of 67 active companies with over 7,000 employees across the US, Canada and Europe. We believe in using the power of networks to help our portfolio companies build better businesses through peer to peer learning, external network relationships, and shared resources. On average we host 60 portfolio events each year and, in 2017 we are on track to host nearly 80 in total.

Within the USV portfolio, we have several companies working in the healthcare space. Based on their feedback and recommendations we organized an intimate session with leaders from the USV portfolio, USV partners and staff, and external industry leaders. We held this discussion at our office and called it “Building the Healthcare Stack”.

This “Hacking Healthcare” event was the brainchild of USV CEOs who wanted to connect with other healthcare organizations and professionals that are spearheading initiatives and development within this industry. They wanted to debate high-level areas such as telemedicine as well as dive into granular challenges facing open source health data and patient care.

In USV fashion we organized this as an “unconference” style conversation and segmented the day into 4 high-level topics.

  1. Open Source Health Data
  2. Reinventing the Patient experience
  3. Treatment and Telemedicine
  4. Big Data for Big Outcomes

Our goal for this session was for participants to come away with thoughtful perspectives on a variety of areas. We chose specific, complex topics that would seed provocative and unfiltered discussions and I have chosen to highlight 3 of the top takeaways.

1. Healthcare companies are investing too much money in walled gardens

When thinking about medical facilities (hospitals, doctor’s offices, research centers, etc.) every single one of them controls their own data — what they collect, how it is stored, cleaned, and analyzed. There is no universal system that allows patient data to connect and talk to each other.

One reason why walled, healthcare gardens exist and in fact flourish is that there are no financial incentives to open them up. As a result, healthcare organizations only see the world through their own institutional myopia. This nearsighted mentality can have lasting effects on the staff, patient experience and culture. An example of a set standard are the Press Ganey scores which are calculated from post-appointment patient surveys. Some facilities use these scores to award bonuses which can cause tension and wrongfully placed incentives for the physician. This can also shift their priorities from treating someone as effectively as possible to focusing on personal, soft skills and excellent bedside manner. As we see more digital health companies emerging in the space, we may need to find ways to blend and ultimately open up some of these datasets.

2. How can we open source healthcare data?

In software, open source data is anything made publicly accessible for others to use or modify. But what does this mean when talking about personal data in healthcare, such as patient records and diagnoses?

One view in favor of open sourcing health data is that asynchronous medical care is absolutely required to improve the efficiency of the medical industry. In theory, this could allow a patient to visit any clinic in the world, see a physician, and get a diagnosis utilizing their existing data. This diagnosis could be based on the patient’s medical history as well as aggregated data from other doctors and facilities.

One point made against open source health data is that since clinical data is not being captured in structured data formats, there would need to be major, additional regulation around the input and “cleanliness” of the data points. It would also be extremely time consuming and costly to implement this open source database. Finally, if this data is open to anyone, then patients would of course have access as well. Is this in fact useful to you as an individual or rather is it too much clutter and detail to comprehend in a relevant way? If it is accessible to anyone, it could be incredibly susceptible to abuse and malpractice.

3. More data ≠ better data.

Some of the participants challenged the group on whether healthcare data should be considered “big data.” One opinion was that big data is dependent on the quality of the data, not quantity. In other words, if you feed bad data into the system, the AI and data output will produce bad results. Deep learning has struggled to work in healthcare as, contrary to other industries, there is not a lot of big data to be analyzed yet. Let’s take Facebook for example — if you think about facial recognition technology, Facebook services millions of people through their tagging feature. There is not that kind of system built yet for health systems.

Another crucial issue worth mentioning is that there is a tremendous amount of bias in datasets. When aggregating data in a machine learning context it is difficult to deduce evidence based conclusions. The methods used to analyze and collect data vary from one provider to another and every facility wants to use their data to help control their own standard of care. A suggested solution to this issue is to build a business model focused on aggregating data on a patient level. This would allow facilities to recognize the behaviors of individuals (habits, socializations, family complexity, etc.) and collect rich, unbiased data.

Staying in line with the idea that less data is better, what is the least amount of data that could be collected to achieve optimal results? For example, if a pregnant woman is asked if she previously had a premature birth (Yes or No response), based on her answer she could receive more targeted treatment and precautions to reduce complications and medical bills. Rather than attempting to tackle big healthcare data, one could focus on “small data for small outcomes”. This would result in more precise patient data through light-touch interactions which would lead to better facility / patient habits.

_ _ _

I wish I could say that we unraveled answers to some of these complex questions. Instead, the conversation between 30 industry leaders was rich, unfiltered and provocative — in our eyes, a success. Everyone was willing to share critical developments, milestones and roadblocks. Industry giants heard the voices of mighty, lean startups and vice versa. Arguments and compromise ensued, relationships were built and partnerships were seeded.

With some of the brightest minds in medicine, technology, insurance, non-profit, and academia, some leaders around the room had been confronting these issues for decades — others for less than a year. Out of all of those brilliant minds, not one person could pinpoint the solution to one of these healthcare challenges. Personally, I left with hope that big strides are being made in this industry. On behalf of USV, our hope is that we can continue to facilitate open and transparent conversations like this across the country and world.

Call for Genomics and Software-driven Biology Startups

Everyone knows the big Web 2.0 companies use hundreds of data points to determine which ad we might prefer. And yet — in the deathmatch against disease, we reduce human health to single variables. 

Granted, this has partially been due to immature technology and infrastructure; after all, an assembly line of PhDs can only annotate the genome so quickly. There is also a hard limit on a human’s ability to find patterns within the noise.

In the last couple of years however, a few trends have reshaped the landscape for startups working at the intersection of computer science and biology: 

1) the hardware layer of the genomics stack has been commoditized, 

2) the cost of genomic sequencing has fallen below the threshold required for routine reads, 

3) data storage is effectively free, and

4) sophisticated computational tools, including deep learning, have matured, allowing us to apply strategies that were not possible before

               

  

      

 

Once in a while, there is an inflection point that completely changes the rules of the game. We saw this in the early 2000s, for example, when suddenly you didn’t need a big check to build your own servers and infrastructure, just to get a website up and running.

               

 

What this shift enables, is a new generation of biotechnology companies very distinct from its predecessors, with characteristics not unlike the software and machine learning companies we are familiar with.

                

 The characteristics that make software startups so appealing — that you can test your idea cheaply, that you can de-risk early, that you can scale quickly, etc — will be found in this new generation of biology companies also. In fact, many of these startups should really be thought of as machine learning/software companies with domain knowledge in biology. Just as we saw an explosion of web startups running many experiments at a low cost in the mid 2000s, we expect to see a similar phenomenon in the biology space.

                            

 

And clearly genomics is a big-data problem — arguably the biggest today. The thing is, most people think of the genome as a static tell-all dataset. In reality, even your somatic dna changes at an astonishing rate; in fact, we can predict your age, within around a 5 year confidence interval, from your genome. That would not be possible if your genome was static. So we need to reframe the genome as a dynamic real-time data stream of what is happening in the body. Then of course, we also need to couple longitudinal genomic datasets with time series biomarker data before we can use our new tools to understand human health a little better. 

We have been excited to meet teams that are fully leveraging the promise of this new era. A couple weeks ago, for example, we met cancer diagnostic startup Freenome, which uses cell-free dna from liquid biopsies to detect cancer at an early stage. If that sounds scary, at a very high level, it is just a machine learning categorization algorithm. What is exciting is that they have essentially taken an agnostic approach to the problem. Healthcare is a notoriously slow-moving industry, but imagine that in the future, new findings will simply be incorporated through a software update.

Beyond disease diagnosis, we have seen startups working in agriculture genomics, drug response, and even designing a new genomic programming language, that have all captivated our imagination.

It will be tempting at times to dismiss these startups as naive; after all, many of them are tackling highly complex problems that generations of scientists have given blood sweat and tears to, only to make tiny contributions. And indeed, there are many technical and commercial bottlenecks we have yet to overcome (next post). However, we have seen impressive real-world results, and we are excited about what is to come.

Top Hat

Even back when I was in graduate school, I found the price of textbooks to be high and their quality to vary widely. Now that I have children taking college courses, I was shocked to find textbooks that cost over $200 and are still large physical objects that have to be lugged around! The high prices and lack of innovation are the result of a market structure which has become highly concentrated among just a few textbook publishers. That's why I am excited to announce that USV has led a new round of financing for Toronto-based Top Hat, which last year launched a content marketplace for higher education.

I first met Mike, the founder & CEO of Top Hat, shortly after he had started the company. He told me about his exciting vision for bringing innovation to the higher education market. But then he said he was getting going by replacing Clickers. For starters I didn't know what those were as they had come after my time in college. Once I figured out what a Clicker was, I admittedly thought going after those was, well, boring. But Mike was right and I was wrong. Starting with classroom engagement turned out to be the perfect basis for establishing a large footprint in higher education. We stayed in touch as Top Hat grew and then last year the team successfully used their user base to launch a content marketplace.

While it is still early there are many positive signs about the potential for the content marketplace that remind us of other successful marketplaces we have invested in over the years such as Etsy and Science Exchange. In addition to individual professors adding content by themselves there are also new behaviors emerging and we are particularly excited about collaboratively developed content. Much work remains to be done but the company is now well funded to execute on that.

Our investment comes from the USV Opportunity Fund, which we set up in part for this type of situation where we have developed a relationship with an entrepreneur over time. Also worth noting is that Toronto continues to impress us with its quality and diversity of companies. We now have five investments there, placing Toronto third as a location in the USV portfolio after New York and San Francisco.

Tucows

Union Square Ventures has made a substantial investment in Tucows, a 23 year old company company that has been publicly traded for over 15 years. Since we have never before invested in a public company, that requires a bit of an explanation.

All of us at USV feel fortunate to have participated in the wave of innovation unleashed by the open Internet. That innovation is now threatened by consolidation at the application layer and the access layer. Watching football over the weekend and seeing every carrier advertise video and music services on national television that don’t count against your data cap punctuated, for me, the end of the era of permissionless innovation that gave rise to Twitter, Tumblr, Etsy, and Kickstarter. As Fred pointed out  when large companies can pay to play, start-ups ability to reach consumers has been seriously compromised.

We are investing in Tucows because we believe they have built a great business, but also because they have been a stalwart defender of the open Internet. We are excited to be working with them now because they are challenging the incumbent access providers and the conventional wisdom, by building modern fiber networks in local communities across the U.S.. They are doing this at a time when telephone and cable companies are exploiting their natural monopolies in these communities, underinvesting in their outdated networks, raising prices and using the excess profits to buy back their stock, and buy their way into global entertainment businesses, pleasing shareholders but doing nothing for the communities they serve.

Tucows is doing the exact opposite. They are using hard won profits from the competitive wholesale domain name business to invest in modern fiber networks in cities like Charlottesville VA, Holly Springs, NC, and Centennial, CO. They believe, as we do, that, a modern communications infrastructure is the most important investment any community can make to expedite the transition from a 20th century economy based on undifferentiated manufacturing to a 21st century economy based on highly specialized manufacturing and services.

While they are at it, Tucows is exploding the myth propagated by the cable and telephone companies that the only way to finance a fiber network is to return to the gatekeeper model of the cable industry where the network build is subsidized by fees extracted from content providers in exchange for access to consumers. Tucows is committed building open networks that offer unfiltered, unthrottled, and unfettered access to consumers.  Open networks preserve the defining feature of the open Internet, permissionless innovation. It is that feature that ensures applications layer services have the freedom to innovate. More importantly, without open access to the Internet, no community can protect the economic, political, or personal freedom of their citizens. And without those freedoms, communities will have little chance to successfully manage the transition to a modern 21st century economy. Individuals in these communities will need unfettered access to knowledge to retool their skills for the new opportunities. Gig workers will need to access multiple platforms to optimize the return on their labor. Specialized manufacturers will need to fit seamlessly into global supply chains. All of this will need to happen quickly if we are to minimize the economic dislocation these communities are already grappling with. None of this will happen, if access to the Internet is mediated by vertically integrated global conglomerates.

The cable and telephone companies would like us to believe the open Internet is threatened by over reaching government regulation. In fact, it is threatened by crony capitalism. Instead of investing in local communities, the incumbents deploy thousands of lobbyists to argue that communities should not be able to invest in their own future. We are thrilled to be working with Tucows, because instead of lobbying Washington, to prevent competition, they are actively investing in fiber networks, the critical 21st century community infrastructure, and while they are at it, proving that investing in community fiber networks is a great business.

Shippo and the Power of Abstraction: Introducing USPS ePostage

Our portfolio company Shippo today announced that it is now providing all customers with access to the United States Postal Service ePostage program. Shippo is the first company to have received such a license from the USPS since 1999. But best of all, the benefits of this license go to Shippo's customers without them having to do anything themselves! Such is the power of abstraction provided by API companies such as Twilio, Clarifai, Dwolla, Stripe and Shippo.

Wait, "power of abstraction" what does that even mean? When you are a Shippo customer, you integrate the Shippo API into your service, and Shippo connects on your behalf to the USPS and many other shipping carriers around the world. So: you as the customer have a single integration that is always the same and Shippo behind the scenes maps the many different integrations it has to this one format. Next time when your hear a programmer say "abstracting" you now know they mean hiding complexity and changes behind a well defined, easy-to-use "interface" (just like the graphical user interface on your computer hides all the complexity of the operating system underneath it).

Abstraction is powerful because it hides both complexity and changes over time. In the case of Shippo each carrier around the world works slightly differently, but Shippo's API gives you a single interface. Shippo does all the hard work behind the scenes to hide the complexity. And change: Shippo just got a much better integration with the US Postal Service. It allows Shippo to respond to your queries faster and achieve much higher uptime (by cutting a dependency on USPS systems). Because this change happens "under the hood" the service to you as the customer gets better without you having to do anything!

This power is why going forward I believe all software will be created by composing APIs. Need communications? Use Twilio. Need payments? Use Dwolla and Stripe. Need deep learning? Use Clarifai. Need shipping? Use Shippo!

Digital Currency for Virtual Worlds

In Neal Stephenson’s 1992 novel, Snow Crash, we were introduced to the concept of a Metaverse, the 3d mixed reality heir to the Internet marked by a convergence of the physical and virtual worlds.  Technologists have been trying to bring this topic out of the realm of science fiction and geeks in basements for a few decades, so many are asking the obvious question: Why now? 

I think the answer to this question lies in the fact that many of the technologies needed to enable this phenomenon finally coexist:  

- High resolution portable displays (including mobile phones in a headmount retailing for less than $100)

- Larger bandwidth

- Gesture tracking (& enhanced sensory technologies)

- AND crypto-currency

You may have read through this list and said, “One of these items does not belong…” I’d like to use this post to explain why I think crypto-currency is the most intriguing piece, and one seldom associated with the potential for innovation within virtual reality.

To set the stage, I believe there are two factors that need to be aligned in order to catalyze the use of VR: Consumption and Creation. Consumption is predicated on consumer desire. For the purpose of this blog post let’s assume that the desire is there. Desire is increasingly aligning with accessibility, with the Google Daydream headset retailing at $80.

The content creation piece of the equation, however, has not been aligned with the rate at which consumers adopt the technology.  Even as the hardware becomes widely available, our current computing paradigms create roadblocks to content creation as we enter the age of the metaverse:

Hyper-centralization under a single protocol. It is almost impossible to achieve interoperability among siloed platforms. This means we are unable to create dynamically with anyone else in the metaverse.

Security. Integrity of the data is in the servers rather than placed within the data itself.

Computing Power. Think about the massive computing power necessary for these environments. I was listening to the CEO of a gaming company discuss the shift in processing power as his firm takes on VR games. In typical games today (think Playstation, Xbox) the majority of the games are rendered at 1080 pixels, 30 frames per second. In a typical VR experience, the displays are about 2000 pixels (at the end of the day you’re probably rendering closer to 3K), and you’re facing a range of 90-120 frames p/sec. If you follow the math, that’s about a 7X increase in horsepower to render for VR versus traditional PC gaming. Oh, and no pressure, all of this needs to be done in a 20 millisecond time frame as people turn their heads and move about. Even if I wanted to create a complex environment as a developer, I am operating under some serious constraints.

There is a solution that addresses these roadblocks: Blockchain and crypto-currency.

We have other blog posts (https://www.usv.com/thread/<wbr/>blockstack) that have addressed the power of blockchain to ensure security and a decentralized model that is more powerful for sharing than a single protocol. One of the greatest, and perhaps most untapped, abilities of the blockchain technology is the incentive to contribute computing power through cryptocurrency. In a hypothetical scenario, if I were to operate a virtual environment, I could invite people into my environment (invite incentivized through cryptocurrency) and they could lend their computing power within that environment. 

For reference, take a look at a Minecraft world someone has been building (for 5 years!!). I think this is a prime example of a complex world whose functionality would be magnified if others could contribute to the computing power in the environment. 

Put the computing power of cryptocurrency into perspective: When Bitcoin reached a hash rate of 1 petahash/sec in 2013, that was roughly equivalent to the computing power of every Google server in the world combined. That was 3 years ago.  Bitcoin’s hash rate has increased ~4,000% since that time (see chart below).  That’s pretty incredible if you imagine all of the computing power that could be gathered by getting a community of people together who want to build VR environments.

We ought to use shared computing resources to render virtual worlds, and use an app coin to compensate each other for doing so. What’s currently missing is a protocol powered by an app coin. If you're currently working on this, we'd love to learn more!

Blockstack Funding

Walter Isaacson from the Aspen Institute (and author of the Steve Jobs biography) recently wrote a post titled "The internet is broken. Starting from scratch, here's how I'd fix it." His core contention is that the Internet at present lacks native support for identity, security and payment. And while that's correct, it doesn't necesserily follow that we need to rebuild from scratch. Instead, we can and should use the capabilities of blockchain technology to augment the existing Internet (and in parts supersede it).

There are a number of different initiatives underway to do just that. One of them is led by our portfolio company Blockstack (which was called Onename, when we first invested). The Blockstack team has been building a stack of open protocols on top of the bitcoin blockchain (hence the name) to support decentralized namespaces and applications. Naming is critical to building trust, which Muneeb points out in his recent TEDx talk. And Ryan in a blog post describes how this can then be used to address Isaacson's original points. 

We are excited about the progress that the Blockstack team has made, in no small part thanks to a growing community of contributors. To help grow this effort, we have led a new round of funding. You can read more about it on the Blockstack Blog.

Numerai

Part of the genius of the Internet is its ability to coordinate the actions of many disparate and geographically diverse people by eliminating the marginal cost of sharing information. In the last few decades alone, we've seen this happen again and again in areas such as education, science and commerce with remarkable results.

One question we have asked ourselves over the years is how best to apply the network model to the business of allocating capital. What other components or technologies would be necessary for a global scale community of people making investment decisions?

Numerai is a hedge fund managed by an anonymous community of data scientists. It encrypts its data and allows anyone in the world to continuously apply machine intelligence to the set and anonymously submit price predictions back. Numerai turns these predictions into trades and compensates the best performing models with bitcoin.

Today, we're excited to announce that USV is leading the Series A round of financing in Numerai’s management company.

For an activity so heavily dependent on the efficient transmission and interpretation of information, the business of allocating capital has been slow to adopt the network model. Meanwhile, the pace at which the field of machine learning is advancing is rapidly accelerating. Between breakthroughs in our understanding of the science, platforms such as Kaggle, the Netflix Prize and a wealth of free online learning tools, there is an increasing supply of talent tackling all aspects of computing and data analysis. But these thousands of data scientists around the world with expert knowledge in machine learning are unable to apply that expertise to finance for lack of high quality data and trading capital.

Numerai attempts to fill this gap by acting as an interface between the machine intelligence community and global capital markets with an open-access, open-participation model. Anyone with an email and a bitcoin address can download the company’s data for free and train machine learning algorithms on it.

Every participant approaches the data set in their own unique way, producing many different solutions to the same problem. Numerai then combines each of these approaches into a single meta model, which dictates how to allocate the assets in its investment fund. In return, users are compensated in bitcoin in proportion to how much they help improve the meta model.

By encrypting its data set before releasing it to the public, Numerai turns the challenge of price prediction into a purely mathematical problem by removing the influence of human bias upon the results. Participants don’t know which securities they’re modeling nor what their predictions mean; only whether their model is performant or not. At the same time, Numerai itself does not know what algorithms the data scientists are using; their code and intellectual property remains theirs. Richard Craib, founder and CEO of Numerai, calls this a trustless relationship between Numerai and the data scientists, facilitated by encryption and anonymity.

Numerai is thus not a search for the best model; it is a platform to synthesize many different models, an invisible collaboration to build the meta model. At scale, Numerai’s fund is exposed to every model and a diversified portfolio without the risk of relying on a single and imperfect model.

This is a new kind type of capital allocation business that also has network effects - from the community, from their individual models and from the collective meta model. These network effects result in an open access fund that will generate more intelligence than a closed system built on a pre-internet organizational design.

In the year since its launch, this appears to be working: 7,500 data scientists have created over 500,000 models representing 28 billion predictions. This may be the largest ensemble of stock market machine learning models in the world.

Numerai describes this directly and succinctly: “The world doesn't need another hedge fund, it needs exactly one hedge fund that's powered by every artificial intelligence.”

More about Numerai can be found at https://numer.ai/about

Sharing Holiday Specials from the USV Network

USV network companies: Let us know if you’d like us to include your holiday offer in this list!

The potential of digital network effects has been crucial to our investment thesis from day one. As an extension of this thesis, we spend a lot of time seeking out opportunities for our active portfolio companies to collaborate with each other. Within this USV portfolio network, more than 60 companies help each other build better businesses through shared resources, relationships, and peer-to-peer learning.

And this holiday season, we wanted to share a little bit of our network with you. Below is a compiled list of holiday specials and promotional offers that some of our portfolio companies are offering through the month of December. We hope you (or your business) can take advantage of a couple of these.

Clarifai
Receive 50,000 free API credits for their visual recognition API, powered by machine learning.
Eligible Dates: Now - 12/15/2016
Offer link

Jobbatical
Expand your hiring campaigns. Attract global business and tech talent on Jobbatical.
- 1 month unlimited job openings - 900€
- 3 months unlimited job openings - 1,500€
- 1 year unlimited job openings - 15,000€
Regular price for 1 job listing is 2% of the location's annual salary up front.
Eligible Dates: Now - 12/31/2016
Offer link
Promo Code: JOBBATICALHOLIDAY

MongoDB
Get $25 in free MongoDB Atlas credit by using the code GoAtlas25. Within minutes, you can sign up your free, cloud-hosted MongoDB cluster with none of the operational overhead.
Offer link
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Nurx

For all the promise of digital technologies, medical care today is still largely provided in the same unstructured manner as it always has been. When you need to see a doctor, there are typically 5 or 6 steps you need to take before a potential outcome: finding the doctor; finding time to schedule the appointment; visiting the doctor; getting a diagnosis and prescription; visiting a pharmacy and paying for your medication. Each one of these steps, while necessary, has to be done with live communication and often in-person visits that requires the parties involved be present at the same time. This can be not only inconvenient, but also an inefficient and unnecessary waste of time for both the patient and the provider. These processes account for a material percentage of the costs of delivering medical care.

We believe digital processes, accessible via a mobile phone, and in an asynchronous manner, will over time transform how medical care is delivered, and how much it costs.

Nurx is a service that today prescribes and delivers medication from a mobile app and in doing so is redefining the doctor-patient relationship and the practice of primary care. We are announcing today that USV had led the company's latest round of financing.

Today, Nurx delivers birth control and Truvada for PrEP, conveniently and quickly, with the user in charge at every step, done via a simple text based mobile interface. We believe this is a radical new way of providing care -  by  changing unstructured interactions into structured care, by shifting work from MDs to algorithms where possible, by automatically and on the fly creating a portable, digital medical record. As a result, this dramatically lowers the cost to the user (to $15 or less) as well as potentially making the lives of medical professionals better by giving them more time for creative work with more patients, resulting in better outcomes.

Since launching earlier this year, Nurx has served thousands of users across 3 states - California, Washington and New York. It will be available in 3 more states this year and nationwide in 2017. Users love it. To supplement this growth, Nurx will be expanding their team to build new applications for messaging, apps, and other integrations that will come to define these new healthcare accessibility systems.

Beyond that, we believe this focused entry point can evolve into being the first point of contact for anything healthcare, giving the user as much control over their care as possible for as low a cost of possible. We are excited to be participating in one of the mobile medical networks for the 21st century.

 

Code Climate

Code is everywhere these days. There is code running in your watch, your car, your thermostat. You can't make a call, pay a bill, or book a ticket without code. Code is what allows companies to create new businesses and differentiated user experiences. "Software is Eating the World," as Marc Andreessen put it.

The amount of code in systems tends to grow over time. Here is a beautiful illustration of the size of various code bases. As a first approximation, the historic growth in the lines of code is exponential, which is also confirmed by this chart of the growth of the Linux kernel. One fascinating aspect of exponential growth is how quickly the future outweighs the past. We have been writing code for about 75 years but it seems fair to assume that over the next decade we will write 4-5 times as many lines of code as we have up to now. Put differently, of all code that will exist in the year 2026, 75-80% will have been written between now and then (this is based on a 20% annual growth rate).

With that growth comes the question of whether all of that new code will work. We all encounter code that is buggy, has security holes, or doesn't run at all. An extreme recent case are the US F-35 fighter planes that cost $100 million per plane but have largely been grounded because their software isn't working.

When the question of code quality comes up, many people just shrug — they see bugs as an inevitable part of software development. Worse yet, there is a common mantra that you can have any two in software: fast time to market, low cost of development, or high quality, but never all three. This is also what people used to believe about manufacturing before the rise of techniques such as lean manufacturing and continuous improvement. As it turns out when you lead with quality in manufacturing you can in fact have all three: quality, speed and low cost. The same will be true for code, which makes assessing and managing the quality of code a key challenge for the coming years.

We are excited to be investors in New York City-based Code Climate, which provides tools to do just that. With Code Climate you can make quality improvement explicit, continuous, and ubiquitous, by incorporating source code analytics throughout the workflow of your entire development organization.

You can read more about the financing and the company's plans on Code Climate’s blog. Also: Code Climate is hiring.

Hillary Clinton for President

This is the fourth presidential election during the existence of Union Square Ventures and the first one in which we as a firm feel compelled to endorse a candidate: Hillary Clinton.

As investors in technology companies, we believe that technology and innovation create broad opportunity and improve lives. But we also know that, to date, the benefits of technology and globalization have not been evenly distributed. People with access to education and capital have prospered while many others have seen good jobs lost to automation or offshoring. We understand why people whose lives have been upended are frustrated by politicians who squabble for partisan advantage instead of developing consensus solutions. We are not surprised that many feel the urge to reboot the whole system.

We agree that more of the same is not the answer. In the next few years, we need to make the necessary smart policy adjustments to ensure that the benefits of technology and innovation are shared by society as a whole.

Shutting out the world is not an option. We don’t think it’s desirable, or even possible, to return to an earlier era when America was less diverse, or the economy was less global. There is no wall big enough to protect us from a changing climate or the unintended consequences of new technologies like artificial intelligence or DNA manipulation. Now, more than ever, we must work together. We cannot unilaterally set the rules for the other seven billion people on the planet. The only way forward is through an open, respectful, and rational dialogue grounded in science.

Of the two major party candidates, we believe that only Hillary Clinton has the temperament and experience to lead us at home and represent us abroad.

We hope that everyone, no matter how frustrated with our current politics, will get out and vote. We applaud the movement to give employees extra time off on election day. If you’re not registered and don’t see the point, we hope you will reconsider and register here or here.  This is an important election and we need to make a choice among the two leading candidates -- we believe that a protest vote is a wasted vote -- and for us the clear choice is Hillary Clinton.

Shippo

Take a look around you, chances are, pretty much everything you see has been shipped, often multiple times, in order to get there. Transport of goods is a massive industry. Global parcel shipping alone is worth $300 Billion. With the shift to e-commerce parcel shipping is growing rapidly and consumer expectations for fast and cheap delivery are being set by the very largest players, led by Amazon.

Creating a compelling shipping experience for customers is hard. The industry is fragmented with many different carriers and service options. Information about shipping is difficult to find and pricing is based on multiple criteria that are not always clear. Individual carrier APIs vary widely and are often difficult to implement.

Today, we are excited to announce that USV has led the Series A financing for Shippo, a single API for all shipping needs. Shippo connects businesses to multiple shipping carriers, letting them compare rates, generate labels, and track shipments. Shippo brings access to shipping infrastructure, discounted pricing, and detailed data to businesses of any size with just a few lines of code

The complexities of the underlying infrastructure are abstracted away for developers, with Shippo taking care of the nuances and handling the edge cases. Just as Twilio made communications easy, Stripe and Dwolla payments, Shippo is doing the same for shipping. Businesses just getting started can even use Shippo without programming through a console and plugins for popular e-commerce platforms.

Shippo is building a network of customers and carriers to help optimize shipping for everyone that is already processing millions of packages to and from 230 countries. For customers Shippo provides access to more carriers and better rates and for carriers Shippo is a technology partner that allows easy programmatic integration by new and growing businesses.

We are thrilled to be backing Laura, Simon, and the Shippo team. You can read more about the financing and the company's plans on Shippo's blog. Also, Shippo is hiring.

Hello!

I'm Jennifer, one of the new analysts on the Investment Team at Union Square Ventures! 

Before joining USV, I studied statistics and computational biology at Harvard, and then worked at a hedge fund after graduation. I'm particularly interested in new financial/banking paradigms, blockchain + decentralized networks, and genomics. 

Growing up, many people around me were entrepreneurs. I was completely fascinated by the idea that you could make your own path, especially in a culture where adherence to the rules was glorified. And whether they were successful or tremendously unsuccessful, they all tried to leverage technology to make the world a better place — and I really admired that.  

I'm very excited to get to know all of you — please say hello at @jml_campbell or email me at jennifer AT usv DOT com