New Fund - Same Focus

We closed on Union Square Ventures 2008 LP last week. Our new fund, at $156mm in capital ments, is large enough for us to be able to act on our conviction and to support our portfolio, but small enough to enable us to flexibly build positions in attractive, capital efficient, Web services.

The investment focus of Union Square Ventures 2008 LP remains the same. We are convinced that the information technology enabled transformation of the global economy has only begun. The environment, however, is quite different today than it was when we closed our first fund four years ago. Then, the economy was just emerging from the collapse of the dot com bubble, and the opportunity for Web services like del.icio.us and Feedburner was not yet broadly understood. Today, the global economy seems to be headed into a recession and the market for lightweight Web services is arguably over populated and over invested.

So even though we have not changed where we invest, we continue to evolve how we invest to adapt to the changing market. Today, new Web services are popping up every day. Unfortunately, users only have so much time. Services targeted at Web savvy early adopters, will increasingly need to displace time spent with existing services to gain meaningful traction. On the other hand, more people all over the world are Web literate creating opportunity for new services designed to appeal to new, untapped, groups of users at work and at home. The potential value of the available audience is also poised to explode as the generation that grew up not knowing a world without the Web is moving out of the back bedroom (and off the dole) into the workforce.

All of this means that you will see subtle changes in the way we invest our new fund. We will be even more selective about the early stage Web services we back, looking for compelling differentiation, a discrete market focus, and clear evidence of sustainable user growth. You will also see us invest selectively in later stage opportunities that we believe are poised to grow as more users become more dependent on the Web to manage their daily lives.

Perhaps the biggest change is that there will be new faces around the office. Albert Wenger, who has been working closely with us for several years, will be joining us as a partner. Andrew Parker has made himself so essential to the operation of our business that we broke the rules on our two year analyst program and asked him to stay on as an Associate. We are recruiting a new analyst to take over Andrew’s duties in that area. We are fortunate that we have been able to add to our team without changing the feel of our firm. Albert and Andrew share our passion for start-ups, and our conviction that the Web will continue to be a disruptive force in the global economy. They also fit well into our collegial culture, where we do our own work, support the entire portfolio, and share the credit and the blame for the outcome.

We are pleased that the closing of Union Square Ventures 2008 LP will enable us to continue doing the work we love. We have a tremendous group of supportive institutional limited partners in our first fund and are thrilled that every one of them is participating in Union Square Ventures 2008 LP. We look forward to continuing the dialogue with all of you in the coming years.
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