USV Thesis 3.0

The commitment to a thesis is part of the fiber of USV--a shared set of ideas creates a framework that allows us to operate with focus and work on what matters most to our team. But what that thesis is has evolved over time and will continue to evolve. It reflects both a changing world as well as the shifting interests of our partnership. Recently, we have been working on its third iteration.

In its earliest days, USV started with a focus on the application layer of the web. The team quickly realized that network effects play a central role in all of these applications and Thesis 1.0 emerged: Invest in large networks of engaged users, differentiated by user experience, and defensible through network effects. This post breaks down the components, but the crux of this thesis involved primarily consumer focused businesses where the value of the service to a user increases as others use it, too. These network effects create defensibility and lead to scale.

This thesis drove USV’s investments in businesses such as Twitter, Etsy, Tumblr, Foursquare, Behance, and Kickstarter. It proved to be a productive filter and guidepost. But the success of businesses that benefited from network effects dominated consumer internet to a point where it became extremely difficult for new networks to emerge, which remains true today. As a result, USV revised the thesis to include 3 new buckets which Andy broke down in this post. 1) Vertical networks and marketplaces such as those in financial services (e.g. Lending Club, Funding Circle, CircleUp, Stash); health and healthcare (Nurx, Figure1, Science Exchange, Clue); education (Duolingo, Quizlet, Tophat, Skillshare);  and ownership management (Carta.) 2) The underlying technology of networks and emerging businesses (e.g. MongoDB, Twilio, Cloudflare, Sift Science, Shippo) 3) enablers of open and decentralized data which have the potential to counteract the centralizing force of the large internet networks. The last one is the root of USV’s blockchain portfolio  (e.g. Coinbase, Blockstack, Algorand, CryptoKitties.)

Throughout these categories, a focus on companies that broaden access emerged as a common thread. This theme has become a driving force across the business models and sectors our portfolio covers. In education, for example, Duolingo allows users to learn new languages around the world, on their phones and from their couches, for free. In healthcare, Nurx creates new ability for consumers to access medical care at dramatically reduced cost. Coinbase makes an emerging asset class accessible to mass markets. Twilio allows developers anywhere to easily access the world’s voice and text communications infrastructure.

We believe we are still at the beginning of the opportunity to broaden access with the most critical implications ahead of us. As a result, we decided to revise our thesis into a third version:

USV backs trusted brands that broaden access to knowledge, capital, and well-being by leveraging networks, platforms, and protocols.

We think of knowledge, capital, and well-being as each encompassing multiple components. Knowledge includes education and learning, but also data driven insights and access to new ideas. With capital, we include financial capital from financial services innovation, whether in the current system or emerging financial platforms like crypto, but also human capital and technology infrastructure. And with well-being, we think about health and wellness, but also entertainment, connection, community, and fun.

The goal of these businesses is to build trusted brands--products and services that not only serve a purpose, but integrate into the hearts and minds of their customer in a way that is durable and important. Trust comes from true alignment and convincing the customer that their values and priorities are shared. The bar for this is higher than ever but the best businesses will continually meet it.

Many of our most recent investments fit in this thesis already, including Stash, which is opening up high quality financial services products to new markets; Algorand, which is creating a new scalable, decentralized currency and transaction platform; and Flip, which is allowing users the freedom to move around without worrying about long leases by creating an open marketplace. But the new articulation will help us continue to use our thesis as a guide for our team in shaping our portfolio.

If you are an entrepreneur building a trusted brand that will broaden access in a new way, we would love to talk to you.

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