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
Eligible Dates: Now - 12/31/2016
Promo Code: GOATLAS25

RealtyShares
Sign up for RealtyShares and get $100. Directions: Sign up, link a bank account, enter referral code HOLIDAY by clicking on the link in the "bank account confirmation" email. You can expect payment to appear in your linked bank account within 30 days.
Eligible Dates: Now -12/31/2016
Offer link
Promo Code: HOLIDAY

Skillshare
Gift the gift of learning with Skillshare e-gift cards (available in 6 or 12-month increments).
Eligible Dates: Now -12/31/2016
Offer link

SoundCloud
Re-enroll in your subscription of SoundCloud and receive three months of access for just $9.99
Eligibilty: Users who have subscribed to SoundCloud Go, but no longer have an active subscription (US, UK, and AU)
Eligible Dates: Now - 12/15/2016
Offer link

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

Hello From a New Analyst

Hi all!

My name is Jacqueline Garavente and I’m excited to introduce myself as one of two new analysts joining the investment team here at USV.

Prior to this, I worked in the AI sector at IBM Watson and a few years later went to a startup, Dataminr, where I applied open source data to study complex criminal networks (if you ever want to talk ISIS and cartels on Twitter, I’m your lady). I wound up at USV through a confluence of luck and powerful network effects. AKA, I saw a retweet that USV was searching for a new analyst and dashed to apply at 10 pm when applications were due at midnight.

I feel privileged to join this team at a time when technology continually diminishes our preconceived notions of what constitutes an “insurmountable problem.”  I am most captivated by the innovations in artificial intelligence (NLP, Machine Learning) and decentralized networks.

In my spare time I like to think about govtech, economic development, networks and where to find the best bagels in NYC. I like to read at least one new book per week and I’m looking forward to soliciting book recommendations from a new network!

I also look forward to chatting with all of you. Please feel free to reach out @jacqgaravente or jacqueline at usv.com

Fat Protocols

Here's one way to think about the differences between the Internet and the Blockchain. The previous generation of shared protocols (TCP/IP, HTTP, SMTP, etc.) produced immeasurable amounts of value, but most of it got captured and re-aggregated on top at the applications layer, largely in the form of data (think Google, Facebook and so on). The Internet stack, in terms of how value is distributed, is composed of "thin" protocols and "fat" applications. As the market developed, we learned that investing in applications produced high returns whereas investing directly in protocol technologies generally produced low returns.

 

Value distribution on the web

 

This relationship between protocols and applications is reversed in the blockchain application stack. Value concentrates at the shared protocol layer and only a fraction of that value is distributed along at the applications layer. It's a stack with "fat" protocols and "thin" applications.

We see this very clearly in the two dominant blockchain networks, Bitcoin and Ethereum. The Bitcoin network has a $10B market cap yet the largest companies built on top are worth a few hundred million at best, and most are probably overvalued by “business fundamentals” standards. Similarly, Ethereum has a $1B market cap even before the emergence of a real breakout application on top and only a year after its public release.

 

Value distribution on the blockchain

 

There are two things about most blockchain-based protocols that cause this to happen: the first is the shared data layer, and the second is the introduction cryptographic “access” token with some speculative value.

I wrote about the shared data layer about a year ago. Though the post has gathered some dust since, the main point remains: by replicating and storing user data across an open and decentralized network rather than individual applications controlling access to disparate silos of information, we reduce the barriers to entry for new players and create a more vibrant and competitive ecosystem of products and services on top. As a concrete example, consider how easy it is to switch from Poloniex to GDAX, or to any of the dozens of cryptocurrency exchanges out there, and vice-versa in large part because they all have equal and free access to the underlying data, blockchain transactions. Here you have several competing, non-cooperating services which are interoperable with each other by virtue of building their services on top of the same open protocols. This forces the market to find ways to reduce costs, build better products, and invent radical new ones to succeed.

But an open network and a shared data layer alone are not not enough of an incentive to promote adoption. The second component, the protocol token[1] which is used to access the service provided by the network (transactions in the case of Bitcoin, computing power in the case of Ethereum, file storage in the case of Sia and Storj, and so on) fills that gap.

Albert and Fred wrote about this last week after we had a number discussions at USV about investing in blockchain-based networks. Albert looked at protocol tokens from the point of view of incentivizing open protocol innovation, as a way of funding research and development (via crowdsales), creating value for shareholders (via token value appreciation), or both.

Albert’s post will help you understand how tokens incentivize protocol development. Here, I’m going focus on how tokens incentivize protocol adoption and how they affect value distribution via what I will call the token feedback loop.

 

Token Feedback Loop

When a token appreciates in value, it draws the attention of early speculators, developers and entrepreneurs. They become stakeholders in the protocol itself and are financially invested in its success. Then some of these early adopters, perhaps financed in part by the profits of getting in at the start, build products and services around the protocol, recognizing that its success would further increase the value of their tokens. Then some of these become successful and bring in new users to the network and perhaps VCs and other kinds of investors. This further increases the value of the tokens, which draws more attention from more entrepreneurs, which leads to more applications, and so on. 

There are two things I want to point out about this feedback loop. First is how much of the initial growth is driven by speculation. Because most tokens are programmed to be scarce, as interest in the protocol grows so does the price per token and thus the market cap of the network. Sometimes interest grows a lot faster than the supply of tokens and it leads to bubble-style appreciation.

With the exception of deliberately fraudulent schemes, this is a good thing. Speculation is often the engine of technological adoption [2]. Both aspects of irrational speculation — the boom and the bust — can be very beneficial to technological innovation. The boom attracts financial capital through early profits, some of which are reinvested in innovation (how many of Ethereum’s investors were re-investing their Bitcoin profits, or DAO investors their Ethereum profits?), and the bust can actually support the adoption long-term adoption of the new technology as prices depress and out-of-the-money stakeholders look to be made whole by promoting and creating value around it (just look at how many of today’s Bitcoin companies were started by early adopters after the crash of 2013).

The second aspect worth pointing out is what happens towards the end of the loop. When applications begin to emerge and show early signs of success (whether measured by increased usage or by the attention (or capital) paid by financial investors), two things happen in the market for a protocol’s token: new users are drawn to the protocol, increasing demand for tokens (since you need them to access the service — see Albert’s analogy of tickets in a fair), and existing investors hold onto their tokens anticipating future price increases, further constraining supply. The combination forces up the price (assuming sufficient scarcity in new token creation), the newly-increased market cap of the protocol attracts new entrepreneurs and new investors, and the loop repeats itself.

What’s significant about this dynamic is the effect it has on how value is distributed along the stack: the market cap of the protocol always grows faster than the combined value of the applications built on top, since the success of the application layer drives further speculation at the protocol layer. And again, increasing value at the protocol layer attracts and incentivises competition at the application layer. Together with a shared data layer, which dramatically lowers the barriers to entry, the end result is a vibrant and competitive ecosystem of applications and the bulk value distributed to a widespread pool of shareholders. This is how tokenized protocols become “fat” and its applications “thin”.

This is a big shift. The combination of shared open data with an incentive system that prevents “winner-take-all” markets changes the game at the application layer and creates an entire new category of companies with fundamentally different business models at the protocol layer. Many of the established rules about building businesses and investing in innovation don't apply to this new model and today we probably have more questions than answers. But we’re quickly learning the ins and outs of this market through our blockchain portfolio and in typical USV fashion we’re going to share that knowledge as we go along.



[1] Also known as App Coins, as coined – pun intended – by Naval in 2014

[2] Edward Chancellor writes a thorough and entertaining history of financial speculation and its place in society (you’ll be in awe by how similar cryptocurrency speculation today is to prior bursts of financial exuberance!) and Carlota Perez describes the important role of bubbles in the development of new technologies by attracting financial capital to research and development.

USV Opportunity Fund, circa 2016

Over five years ago USV launched its first “Opportunity Fund” - a pool of capital meant as a complement to the core activities of our early stage funds. A few years thereafter, in 2014, we raised a second Opportunity Fund. Both of those funds have been continuously active. In light of making our first investment in our 2016 early stage fund, we thought this would be a good time to take a look back (and forward) at this investment strategy.

To date, the Opportunity Funds have invested in 15 companies in sectors such as financial technology, infrastructure, marketplaces and consumer services, located in both North America and Europe. The initial investments have ranged from $7.5 to $15 million, and we have made follow-on investments in many cases. About two-thirds of these investments were in companies in which we had previously invested out of our early stage funds.

The Opportunity Funds give us the ability to invest in more developed companies where we think our perspective can add value to the business. It also gives us flexibility to invest in companies that we missed in the early stage. As we wrote in 2011: “We hope you'll think of USV as stage-agnostic, highly-focused investors who can add value to your company.”

Importantly, these funds are designed to operate in a way that complements our core activities.

The first way they do this is by letting us support portfolio companies across a wider range of stages and at higher valuations than we can with our core funds. An example of this is the round we recently led for Foursquare.

The second way is by developing relationships with entrepreneurs over longer periods of time, which in ultimately results in an investment opportunity outside of a bidded investment round. A good example of this is Cloudflare, which was led by Brad.

The third way gives us a very real opportunity to invest in companies that squarely fit within our thesis but we missed during their earlier stages. Lending Club and Realty Shares fit into this bucket.

In many of these examples, founders felt that USV's approach and experience was relevant and we structured a deal outside of the usual fundraising process that worked for both sides.

We have plenty of capacity in our existing Opportunity Fund and are actively looking for new investments. If you think this focus is relevant to your business, please reach out to us.

Payjoy

Sometime in the late 90s I picked up my first mobile phone, a Motorola StarTAC. The sound quality wasn’t great but it was a radical change to no longer be tethered to a wireline. Next up was the Blackberry, which combined voice with email, and quickly became the device of choice for many. Then, in 2007, the iPhone was released and the smartphone era began.

Today I use a Google Nexus 6P, and it’s hard to imagine living without a smartphone. My guess is I use at least 10 different applications every weekday. At USV, we’ve invested in many mobile-first applications across a variety of services, including Foursquare, Soundcloud, SigFig, DuoLingo, Figure 1 and Clue, but these are only a small fraction of what’s available in the app stores. Smartphones also provide an alternative connection to the internet for those who cannot afford the costs of, or don’t have access to, broadband services.

Over the past few years, the smartphone has become an essential device for work, play and daily life. It also provides an alternative connection to the internet for those who cannot afford the costs of, or don’t have access to, broadband services. Last year the Pew Research Center published an excellent study on the importance of smartphones.

The average price of an Android phone is still over $200, and is not projected to go below that anytime soon. The best unlocked smartphones can easily exceed $500 and are out of reach for many. Our newest investment, PayJoy, addresses this problem by providing underbanked consumers with an innovative financing option at lower cost than normally available to borrowers with little to no credit history.

PayJoy will finance 70-80% of the price of a smartphone over 3-12 months at a monthly cost of $50-150, depending on price and term of payment. Similar to platforms like Lending Club and Funding Circle, PayJoy uses an off-balance sheet model that connects purchasers with a financing source. If customers fail to pay, after multiple notices PayJoy’s technology locks the phone until payment has been received. To date, default rates have been quite low, as you would expect for an essential device.

For many of its customers, PayJoy is their first financing product and the first step towards developing a credit history and using internet-based financial services.

PayJoy currently operates only in the United States, but we believe there is a large global market for its services. We are excited to lead this Series A round to provide PayJoy with resources to expand outside the US, and we look forward to working with PayJoy’s three founders, Doug, Mark and Gib

USV 2016, LP

This week, we will close our first investment in USV’s 2016 fund, which has total capital commitments of $175 million, the same size as our 2014 fund. This will be USV’s fifth early-stage fund. We continue to make new investments in our second Opportunity fund, which is not fully invested and has an investment life extending into 2018. As many of you know, our Opportunity funds invest in later-stage and non-traditional opportunities. We’ll do a separate post on this topic soon.

As has been the case since we organized our 2012 fund, the 2016 fund will have five investing partners: Brad, Fred, Albert, Andy and me. I’m leading the first investment, which we expect to announce in July. Andy is in discussions about a possible second investment. It will take us approximately three years to identify 20-23 companies for the new fund. Since the firm has more than 60 active companies today, we will likely have a slower investment pace than the last two funds, but who knows?

There is one change with the new fund. In past funds, the key man provision in our fund formation documents was focused on USV’s founders Fred and Brad. This provision gives limited partners a second look at a fund if named members of the general partner become inactive. In the 2016 fund, the provision focuses on Albert and Andy. They will take an increased leadership role and lead more investments in this fund cycle. Fred, Brad and I will be active in all investment decisions for this fund, but it seems time to acknowledge the leadership role that Albert and Andy have been playing and will play at USV going forward.

We all love what we do and the partnership we have developed, but last summer Fred, Brad and I independently concluded it was time to cut back a bit as we discussed the next fund and examined our gray hairs. VC requires long time horizons, at least ten years and often fifteen or more. We still have four companies remaining in the 2004 fund and 15 in the 2008 fund.

We have been talking to our limited partners, companies and colleagues privately about this transition for about a year, but last month at our CEO summit we learned there continue to be unfounded rumors that Fred and maybe Brad were retiring. This amused us greatly since on most days we share email threads almost every hour and the firm’s activity level on investment, network and policy matters has never been higher.  You can find Fred’s thoughts on this topic at avc.com.

Each investment fund is an adventure as we build a portfolio and help our companies succeed. As anyone reading this post knows, it's an exciting time to be in this line of work. We are grateful to everyone who supports us. USV 2016 is now open for business and we are committed to managing it until it is fully liquidated, almost certainly until 2030 or beyond.

Mediachain

"This picture of Justin Bieber getting choked at a nightclub looks like a Renaissance painting"

This photograph, and its caption, were posted on Imgur on April 17th. It quickly made it to the front page of Reddit, ultimately garnering over 5,000 comments.

As the picture made its way through my streams, I was struck by the many details: the different people, some interested, some disinterested; the seemingly different vertical levels of the bystanders; the colors. But I also found myself interested in something more: Who was the photographer? What was she doing to get that photo? Did she take others around that time? Was this taken, as it seems, from a phone?  While we're great at sharing pictures on the web, we're also notoriously bad at maintaining their context, their stories, as they spread across different networks and platforms. And not only photos, but maybe more generally, any media.

Looking to learn more, I turned to Google Image search for answers, but instead received a cacophony of results sorted by Google's ranking algorithms, linking out to celebrity gossip aggregators. Attribution for the creator was nowhere to be found.

Mediachain approaches the problem millions of creators and users encounter daily in a novel way. This team asked, “What if information about media were open, and developers could utilize technology similar to that which powers Shazam or Google Image search to easily retrieve it?”

This is precisely what Mediachain is: a universal media library.

Had the above image been registered in the network, just by seeing it in my feed, I could look up its Mediachain and find its history. Why would that matter? I might be able to find out identity of the photographer, send her a micropayment, see what social network it originated on, see the press the image received, find more images by her and any number of other things. All of this would be possible via any number of applications that a developer might build that implements the Mediachain protocol.  

How does this work? The protocol allows anyone to attach information to creative works, make it persistent and discoverable in a blockchain-based database. And because it is completely decentralized, there is no central point of control or failure. The data is maintained by participants of the network and no permission is required to contribute or access it, making it an ideal place for collaboration between creators, developers, platforms, and media organizations. It is applicable to any form of media - images, gifs, videos, written works, and also music.

Imagine if the monetization of media followed the content, instead of flowing from a platform. For example, being able to pay a musician directly by virtue of hearing their song play, no matter where you got it: from an mp3 in an email, via a link on Soundcloud, or even by hearing it on the radio.

Mediachain represents the type of permissionless innovation that we continue to support at USV.  We are excited to be investing in Mediachain, along with a16z, RRE, and other investors to advance the sharing and programming of media everywhere.

Developers who are interested in the project can find out more and get involved by joining the community on GitHub or through their public Slack.

11 Years of the USV Investment Team

As part of our (currently open) analyst hiring process, we ask applicants to record a few videos of themselves answering questions about their views on USV, venture capital, and the web & mobile app ecosystem.

So, in the spirit of fairness, and in order to give everyone out there a better view into how things work here at USV and where our alums have gone on to since, we decided to get in front of the camera ourselves.

Below, you'll find a video update from every staff member of the USV investment team since the firm's inception. We asked everybody: when did you join USV and how has your perspective on tech changed since then?

In chronological order:

Charlie O'Donnell - Founder, Brooklyn Bridge Ventures / USV 2005-2006

Andrew Parker - General Partner, Spark Capital / USV 2006-2010

Eric Friedman - GM, Expa / USV 2008-2010

Christina Cacioppo - Product Development Lead, Dropbox / USV 2010-2012

Gary Chou - Founder, Orbital / USV 2010-2013

Nick Grossman - USV 2012-present

Brian Watson - Product Manager, VSCO / USV 2012-2014

Zander Pease - Co-founder & Head of Product, Nomad Health / USV 2012-2014

Brittany Laughlin - Founding Partner, Lattice Ventures / USV 2013-2016

Joel Monegro - USV 2014-present

Jonathan Libov - USV 2014-present

Bethany Marzewski - USV 2016-present

If you made it this far, nice work! And if these videos got your more interested in the USV analyst position, please consider applying here. Deadline for applications is 11:59pm Eastern time on Tuesday May 31.

Hiring a New Analyst

We are kicking off another search for an analyst at Union Square Ventures (USV). As in the past, we will recruit for this position using an open process. While this results in a lot of work sorting through applications, we are often inspired and always learn something when we engage with potential candidates. We also believe the quality of your work as it is reflected in your dialogue with others on the Web is a more important indicator of your potential than any traditional credential. We look forward to hearing from you!

The analyst position at USV is a two-year role based in New York City. As an analyst, you'll learn what the venture capital business is about and gain insight into many fascinating technology startups. Our past analysts have launched a seed fund, joined one of our portfolio companies, joined another venture firm, joined another venture backed startup and worked on their own start-ups.

We are open to candidates ranging from recent college graduates to candidates with a graduate degree (though formal degrees are not required) and/or several years of relevant work experience.

Analysts help us manage the day-to-day activities of the firm in a number of areas, including:

  • Performing market research and due diligence for potential investments, which could entail financial or web-analytics modeling, or testing products and services
  • Meeting with entrepreneurs who have started businesses in which USV may be interested in investing
  • Reporting for our investors, which includes helping value our investments, writing quarterly updates, and packaging the material for our investors
  • Working with USV portfolio companies, including research projects, competitor analysis, valuation work, and attending board meetings
  • Designing and executing projects of your own direction that help USV and/or our portfolio companies

We're looking for someone who demonstrates:

  • Deep understanding of the ecosystem of web and mobile services
  • Strong drive and the ability to self-direct - your work and time is open-ended by nature and you must be able to identify and execute on opportunities to contribute to the team with little, if any, management or direction
  • Strong written and oral communication skills - well-argued opinions are a necessity
  • Strong interpersonal skills - you'll often be talking to entrepreneurs and other investors on behalf of USV
  • Strong organizational skills - you’ll be keeping track of documents for a large portfolio of investments
  • Comfortable working with data in Excel and Google Sheets
  • Ideally, some prior design and/or programming experience

Our application has two parts:  

First, we're looking to see links that will help us get to know you. This could be your personal blog, Medium, Tumblr, Github profile, Twitter or Snapchat account - whatever represents you best. We expect your online presence to represent who you are, not who you think an employer wishes you were, so please don't waste time sanitizing your web presence before sending us there.

Second, we'd also like to hear from you directly, so we're asking each applicant to record two short videos answering these questions: "Why are you interested in the analyst role at Union Square Ventures?" (up to a 60-second response) and "Which web or mobile services most inspire you?" (up to a 90-second response). We're using Ziggeo to collect the video responses securely and privately.

To apply, visit usv.com/apply. You will need a Twitter account to log in. None of the information you submit will be shared outside of USV. We'll be accepting applicants until 11:59pm Eastern time on Tuesday, May 31st.

If you have questions, please leave them in the comments below. Otherwise, we're looking forward to hearing about what you find compelling, what you've made, how you think, and why you're into what we do.

Update #1 - 6/6/16:

Last Tuesday, we closed applications for the USV analyst position, and have begun reviewing applications.  We love the open format of the analyst hiring process, because it introduces us to a lot of people we otherwise might not have connected with through our existing networks.

We received roughly 330 applications, and are reviewing them as a team now. Each application has two videos, and every application is reviewed by at least one partner and one staff member at USV (most by more than that).  So, it takes a while for us to review them all, though we block out a significant chunk of time to do that.

We plan to review all of the applications by the end of next week, and then have initial responses regarding next steps.

Thank you again to everyone who applied, and to everyone who helped by recommending the position to people they know.  We’re honored to have such an interesting and diverse pool of individuals interested in working with us, and we’ll look forward to getting back in touch with next steps very shortly.

Jobbatical

Today we lead mostly sedentary lifestyles. Once we learned how to harvest the planet's natural resources for our survival all those thousands of years ago, we abandoned our nomadic way of life and settled down by the rivers. We learned that being close to one another makes us more productive, so we built houses, villages, factories, marketplaces, skyscrapers and cities. But our thirst for discovery and experience – the pursuit of opportunity, really – survived. So we invented ships that can traverse the oceans, networks of railroads that cover entire continents and airplanes that can take us around the world in a matter of hours. And we've continued to use these tools to the point where the real cost of moving humans around the world is bottoming out.

This, along with other macro trends (global wealth, health, infrastructure and public safety metrics all up and to the right), is leading more and more people to satisfy their wanderlust by pursuing opportunities around the world, and we think it’s creating a big opening for companies to build services that remove the frictions that come with modern nomadism.

Jobbatical is one of those companies and today we’re very excited to announce that we’ve partnered with the team to build a marketplace for career opportunities around the world.

The specific opportunity here is an interesting one: the rapid global shift towards internet-based businesses made tech startups a strategic priority for dozens of countries around the world and venture investors are putting more capital to work in increasingly diverse geographies. So the number of properly capitalized tech companies outside of gravity centers like San Francisco, New York and London is skyrocketing but the bulk of talent remains concentrated in these saturated locations (or looking to move there).

Jobbatical is redistributing that talent more evenly around the world with a proposition that’s as daring as it is reassuring: work elsewhere – anywhere – for a year. It’s a simple message that has earned the company a talent pool of over 30,000 people looking to take jobbaticals and over 1,200 companies in 40+ countries looking to hire them.

The unit – the year, the jobbatical – is particularly important. A year is short enough to attract talent by reducing the mental friction associated with moving across the world, but it is long enough to make an impact on both the company and the individual. Jobbaticals are structured around a specific goal to be achieved in a specific time frame, making the transaction an honest conversation by definition. And of course, if employer and employee both decide to continue their relationship, nothing stops them from doing so. It’s a bit like a one year trial.

This is not the kind of service that touches millions of users overnight, but the implications are profound – changing the very definition of what a job is. It’s going to be less of a big bang and more of a long conversation. It starts with a narrow slice of tech, but it’s a model that can spread to all industries. It’s going to take a lot of hard work to turn this idea into a successful business but we’re convinced that Karoli, Ronald and the rest of the team are well up to the task. We’re very impressed with their ambition and dedication to building this global router for human talent and are very excited to be working with them.

Welcome!

A New Face for the USV Network

Hi! I’m Bethany Marzewski, and I’m thrilled to be taking over Brittany’s position as the new network General Manager at Union Square Ventures. In this role, I’ll work with the great teams at USV’s 60+ portfolio companies to expand the programming and infrastructure that we hope empowers all of our entrepreneurs to learn from each other and build better businesses.

Stepping into this role feels a lot like joining my extended family. Having spent the past four years in a variety of sales and marketing roles at a USV portfolio company, Stack Overflow, I’ve already experienced first-hand how USV’s network helps their companies help each other. When I started at Stack Overflow in 2012, they were around 50 employees, and as a journalist-turned-marketer, I had to quickly get up to speed with a lot of sales and marketing concepts. WhiIe I learned that not every answer lived within the walls of our then-office at 55 Broadway, I soon realized that being a part of USV’s network meant that I never had to look far for guidance or advice.

When I needed to better understand the Stack Overflow customer base, I discovered an in-person interview framework from the team at Meetup and the best statistical analyses tools to use from Flurry. When we were gearing up to announce our Series D funding last year, I took a page from the PR book of Foursquare. And when we wanted to effect change in diversity in tech—both internally at Stack Overflow and externally in advising the thousands of companies who used our recruitment tools—companies like Kickstarter and Tumblr gave us a lot to think about. In fact, USV’s diversity summit last year inspired me to partner with several portfolio companies and lead a new initiative, Beyond Coding, which set out to help native New Yorkers launch their careers in tech. Now, I couldn’t be more excited to have the opportunity to share what I learned and extend these relationships to even more people within the network.

Prior to my time at Stack Overflow, I leveraged my journalism degree from Northwestern University to take on roles in writing, communications, and consulting. Today, I’m still very involved in the Northwestern alumni network, where I serve as President of the Medill Club of NYC. When I’m not attending a local tech meetup or sporting my purple pride at an NU football game, you’ll likely find me lingering around New York’s theatre district to hit up a Broadway show. Okay, let’s be honest: I’ll be in the Hamilton lottery line.

I feel really lucky to continue to be a part of the USV network from a different vantage point, and I can’t wait to learn more from all of the portfolio companies about best practices in talent management, strategy, diversity initiatives, and more. I look forward to getting to know many of you in the months and years to come. If you have feedback on how we can make this network even stronger, I’m all ears! In the meantime, you can find me on Twitter at @bethanymarz.

Veniam's new round of funding

Our portfolio company Veniam announced today that they had closed a significant new round of funding led by Verizon Ventures. The funding will allow Veniam to deliver on the promise of "smart cities" by connecting thousands of vehicles in public and private fleets to create city-scale mesh networks. These networks will allow local transportation systems to offer internet access to commuters at higher speeds and lower cost than existing cellular networks. They also allow cities to affordably collect sensor data to improve security, and streamline the management of transportation infrastructure. Veniam has the hardware, software, networking, and real world operations experience to offer complete solutions, not just technology. That means they can deploy today. This funding will be used to grow their teams in U.S., Europe, and Asia to support deployments in cities around the world including,  New York, Singapore, Barcelona, and London. We are excited to see these networks go live. We are confident that public and private fleets will benefit from this unprecedented level of connectivity. We are even more excited to see the creative, unanticipated uses of this connectivity that we know will emerge over the next few years. 

Foursquare: Building the Business

We first invested in Foursquare in 2009 when the company was just getting going because we believed that location was a native aspect of smartphones. Since then our conviction about the importance of location to the mobile experience has continued to grow.

Foursquare too has grown: The company's location data now enriches the experience of 50 million people every month across the company's website and apps. The same data also powers two rapidly growing B2B business segments: Pinpoint, a programmatic ad platform, and Enterprise Solutions which include foot traffic analytics and a places API for developers (used by Apple, Twitter and more). It is a great tribute to the tenacity of the entire Foursquare team that these products and associated revenues were built during a time period that the company was routinely written off in the media.

Now the company is on the path to profitability and we are excited to lead a $45M financing that enables Foursquare to continue growing as an independent location intelligence company. There is a fantastic leadership team in place to guide this next phase. Dennis will focus on using location to create new magical moments, with Jeff taking over as CEO. Steven who has built the revenue side of Foursquare is stepping up to the role of President. Engineering will continue to be steered by Andrew working hand in hand with Jonathan now heading up product. Kinjil, Rory, Meghan and Brian round out the team leading the marketing, finance, people and legal functions respectively.

You can find more about all of this in posts by Jeff and Dennis.

Introducing Koko

Last week, Farhad Manjoo of the New York Times mused in his column that the Internet was getting meaner:

“If you’ve logged on to Twitter and Facebook in the waning weeks of 2015, you’ve surely noticed that the Internet now seems to be on constant boil.  Your social feed has always been loud, shrill, reflexive and ugly, but this year everything has been turned up to 11”.

It’s hard to argue the point. The question is, are we seeing the inevitable end state of an open permissionless medium, or is this just an ugly adolescence - one that we as a society will struggle through to reach a much better place.

We know the Internet can create amazing social value, by using collective intelligence to organize the world’s knowledge and making it immediately accessible. Google, Wikipedia, Stack Overflow, and Duolingo have shown us that. But it is nice, at times like these, to be reminded that the Internet can also bring out the best in people.

We are pleased to announce today that we are investing alongside Joi Ito  in Koko, an app that does just that. Koko uses an innovative form of crowdsourced cognitive therapy to help everyone manage the day to day stress of modern life.

While doing PhD work at the MIT Media Lab, Koko co-founder Rob Morris wondered if crowdsourcing could be used to improve people's mental health and emotional well-being. To test his thesis, he built a platform to crowdsource cognitive therapy helping people facing stressful situations to rethink the causes of their stress by putting their situations in a more positive light.  As a part of this thesis work, Rob conducted a clinical trial and recently published the results in a leading medical journal. The bottom line - it works. The use of the platform significantly improved mental health outcomes compared to a control group. Most interestingly, the people who helped the participants rethink their situations, were not trained professionals. They were other participants in the trial or Mechanical Turk workers who received minimal on the fly training. But the most exciting part was that the people who provided the most help on the system appeared to benefit the most. Perhaps this should not be a surprise - it makes sense that helping someone think more flexibly and positively about their life naturally reinforces one’s ability to do the same in their life.

Here is what a few of the early users have to say about Koko:

“Every time I use the app - whether to post my own struggles, rethink someone's post, or just read others' replies - my ability to rethink situations gets stronger. Koko shows that changing your viewpoint *changes everything.*”

“The biggest benefit of Koko, other than feeling like part of a caring community, is that I find myself thinking differently and it's really made an impact in my life and my overall sense of wellbeing.”

“Koko is real brain training with the real human problems. Whether it's defining your own problems or using your lateral thinking to help someone else rethink theirs or just plain learning from others. All done in confidence and support.”

All of us at Union Square Ventures are thrilled that we have been able to support Rob, and his co-founders, Fraser Kelton, and Kareem Kouddous’ effort to bring Rob’s work to a much larger audience. Koko is now available as an app for the iPhone (Android is in the works). If you are dealing with stress (and who isn’t), I encourage you to download the app and join the community that is helping themselves by helping others. If nothing else, it will remind you that the Internet can make a real positive, and lasting difference in people’s lives.

USV Thesis 2.0

Union Square Ventures has always been a “thesis” driven firm. We maintain specific principles about the internet that guide our investment decisions. While other things like stage and to a lesser extent geography, also matter, our thesis or point of view is the primary thing that guides our decision making.

We last wrote about this a few years ago, in Investment [email protected], where we attempted to describe this view of the world. There, we also tried to describe how dynamic the thesis is, or can be. A few years later, we have a better idea of how our thesis has evolved and now presents, circa 2015.

Since USV was founded, we have focused on the applications layer of the internet. The layer that sits on top of the relatively open and robust infrastructure of the internet, the infrastructure that allows for permissionless connectivity.

Initially, the investments related to that applications layer were what we called “large networks” - that is - broad based, mostly consumer-oriented networks that could, or at least aspired to, touch many many people (hundreds of millions or more).

Brad reduced this to 140 characters a number of years ago:

This thesis brought us to companies like Twitter, Tumblr, Etsy and Soundcloud - large networks that, to this day, have proven defensible through network effects.

Over time, it became harder - and it’s still hard - for newer entrants, newer broad consumer networks - to gain scale because to do so requires them to displace the time users devote and spend on the new incumbent networks, such as Facebook.

As a result we turned our attention and applied the thesis to those services that support the larger networks - so called “enabling technologies” - that were horizontal in nature, yet also broad with respect to the numbers of networks they could potentially support.

These enabling technologies are basically businesses that provide essential services to the new crop of web companies.

These are investments such as Twilio (a communications service), MongoDB (a database service), Cloudflare (a network and security service), SiftScience (fraud protection), and Firebase (a synchronization service). And a more recent investment - Clarifai (image and visual recognition service).

Then, roughly in the 2012 time frame, we also turned our attention to thinking about market-specific networks: networks in high-value niches that are differentiated and defensible, partially because they are domain-specific. These networks generally have more subtle or less obvious network effects, precisely because they involve something more specific and tight.

These often fall into specific categories - like education or learning (Edmodo, Codecademy, Skillshare, Duolingo, Quizlet, Stack Exchange), financial marketplaces (Lending Club, Funding Circle, Circle Up, C2FO) healthcare and medicine (Figure 1, Human DX, Clue), science and engineering (Science Exchange, SimScale), the law (Casetext) and company ownership management (eShares).

These more subtle network effects also include platform shifts, such as mobile (Amino, Figure 1 or Duolingo), venue shifts (enterprise security delivered in the cloud, such as Cloudflare), and data networks like SiftScience, which delivers fraud protection by aggregating data points across thousands of domains.

Finally, and more recently we have been thinking and talking about the blockchain and bitcoin. When we analyze the network effects of the large internet platforms, it appears that part of their defensibility is through the centralization of data - user data, interaction data and transaction data.

We started to see that blockchains - by basically being a decentralized data layer - could over time erode those advantages.

So we turned the thesis to the exploration of services that could undermine larger networks by decentralizing the data asset that the large networks have. While this area is obviously early, we have made a handful investments in this decentralized layer including Coinbase (banking and brokerage), OB1 (buy and sell marketplaces) and Onename (identity).

Finally, as infrastructure providers gravitate towards the applications layer, they are underinvesting in connectivity itself at a time when the demand is growing and new technologies are available. Inasmuch as the internet itself is an enabler of creation and creativity, we believe that businesses like Veniam (the "internet of moving things") and one other unannounced investment we have made will be foundational layers for future generations of technology. So, we have also made a few investments in those telecommunications infrastructure companies with innovative technologies or business models (Access 2.0).

Importantly, the way in which we invest against this thesis is also cumulative - we don’t simply stop investing in any one area as we uncover other ones. It looks something like this, a chart of our active investments over time from 2004-present:

USV Investments by Thesis over time

To capture this image into a current version of our investment thesis, we’ve reduced it again today to 140 characters.

This is USV, 2015: 

SimScale

We are excited to announce our investment in Munich-based SimScale. SimScale makes complex engineering simulations, such as mechanical stress and fluid flows, available to anyone in the world with a web browser. These kinds of simulations were pioneered in the aerospace industry and are now also fairly widely in use in automotive manufacturing.

SimScale broadens access to simulations in three important ways. First, the system is entirely accessible by web browser with a unified workbench for all different simulation types. Second, the pricing plan is straightforward and affordable even for individual engineers. Third, SimScale offers a community with public projects so that people can learn simulation from each other.

For instance, as a sailor, I am interested in simulations of boat hulls. I was excited to see that there is already a simulation of a boat passing through a wave. So I have copied that simulation, like I would fork an open source repository on github, and am now examining it and modifying it in my own workspace.

Or consider someone who wants to 3D print a camera attachment for a drone. They can now simulate whether that part is strong enough not to break for different weights of the camera and accelerations of the drone. Somebody who doesn't know how to do this themselves will be able to find others in the SimScale community who can.

SimScale sits at the convergence of many important technological and organizational trends. From a technology perspective, CAD modeling is becoming ubiquitous and there are exciting advance in CAD modeling just around the corner with AR and VR technologies. 3D Printing lets anyone be a manufacturer, for instance through our portfolio company Shapeways. SimScale provides an important link between the two by making it possible to simulate properties and thus iterate even more rapidly.

From an organizational perspective, we are seeing in engineering, as in many other disciplines, an erasure of traditional boundaries between amateurs and professionals, between formal degrees and self taught, and between working inside a corporation or independently. With SimScale, someone could become the leading expert on simulating boat hulls and do so from anywhere in the world.

So if you have an interest in simulation, go ahead and sign up for a free SimScale account, explore the community and start your own project from scratch following one of the tutorials or by copying an existing public project. Also, SimScale is hiring!