The Conversation

Yesterday, Matt and I published a post about vertically integrated and AI-first approaches to building companies that are transforming physical industries, specifically as it relates to accelerating the energy transition and mitigating the climate crisis. The article is a reflection of something that I've come to deeply appreciate about USV. We have conversations about topics that sometimes span a day, weeks, or months. Then, at some point, we are ready to share that conversation with the world and we synthesize it on the USV site.

My partner Andy said this phrase that I love: "USV is a conversation." I didn't understand it before I joined, but now I do. The conversation never ends. It may pause on a particular theme for a beat, but it picks back up and is in a constant state of evolution. Sometimes we've talked about something enough and the best way to move it forward is to invite the public to participate in it.

Another thing I now appreciate is how collaborative writing can be. After blogging here on my own for several years, it had been a while since I wrote articles with colleagues. Andy and I co-wrote a piece on healthcare. He has a beautiful way with words and an elegantly Socratic style. I learned a lot in the process of trying to meld our words together. The experience was unfamiliar and a little hard at first, but ultimately more fun than going it alone (and I think it yielded a better result, too). Similarly, Matt is exponentially more sophisticated than I am when it comes to everything climate related. I sent him a miserably shitty first draft that was a reflection of our internal conversations and emails around the topic, and he took the outline, evolved it, and filled it with substance.

This collaborative process is a continuation of the conversation, just on the page instead of aloud in the room. Sometimes it can feel hard to start it up, but once you're in the flow of it, it can take you to unexpected and important places.

It's Like This and Like That

One of the hallmark traits of what makes a consumer product weird is having difficulty describing the thing. That’s somewhat to be expected given the novelty of some products, particularly in this day and age when AI and crypto are enabling user experiences we’ve never seen before. 

There have been several instances at USV lately where we’ve spoken with early-stage consumer companies and struggled to define what the product actually is. “It’s like a tool that makes everyone a creative wizard, but also a network where sharing things is a ton of fun!” “It’s a game, but also like a storytelling platform mixed with a group chat!” When we articulate these things to people the commonplace response is a look of bewilderment. I think that’s a good thing. 

When we find ourselves using the Dre and Snoop refrain “It’s like this and like that and like this and a…” we know it’s time to take the product seriously and that the founder very well may be onto something special. An inability to succinctly articulate what a consumer experience does can actually be a positive signal. It means you’ll just have to try it out for yourself and see what it conjures. 

Entrepreneur & Investor Paranoia

Every entrepreneur I know falls somewhere on the spectrum between paranoid to full-blown “the world is conspiring against me” paranoid. This is no surprise because only the paranoid survive. It creeps up everywhere: will a competitor lap me? Will a key employee leave? Will I lose that partnership? I just pitched an investor, are they going to share information with people I don’t want them to? A strategic is trying to acquire us, are they just fishing for information so they can directly compete? The list is infinite. No matter how well things are going, there is always something suspect in the air.

One area where paranoia always crept in for me was when investors asked whether I thought another company was competitive. When building GroupMe and Fundera my answer always defaulted to “Yes, of course.” At GroupMe if someone wanted to invest in a group-buying company, we’d block it because we had “Group” in our name and one day we might converge. If someone wanted to invest in a SMB insurance marketplace, we’d be insulted because we wanted to be the Everything Store for SMB financial products at some point in the next 5-100 years. My feeling was that investors made their bet on us, and anything even remotely adjacent or tangentially related was a blatant affront and off-limits. If they asked, I’d block it. 

Now that I’m on the other side of the table, I think about this a lot. 

When starting Fundera, I actively sought to work with investors who knew about our space. We were building a marketplace/brokerage for SMB loans, and we were relatively new to this world. If an investor had previous exposure to SMB lending it was a plus. Two of our first investors, First Round and Khosla Ventures, had invested in OnDeck Capital, a direct lender that would become an important partner and customer of ours. This was a positive signal to me - they believed in the space. Another one of our investors, QED, had invested in another SMB lender that became an early partner and customer of ours. In no way did I view this as a conflict, it was a positive differentiator. 

But once we had an investor’s money, something changed for me. Whenever they’d try to make a new investment in a direct lending company (similar to the aforementioned ones), I’d attempt to block it, claiming it was competitive. This was irrational behavior. If it didn’t matter before, why would it matter now? I remember when one investor told me he made an investment in a direct lender without asking for my permission beforehand, I was absolutely livid. All I could see was red when he explained their new investment. (The company ended up becoming another important paying customer of ours, and the founder became a friend of mine whose next company I invested in.)

Reflecting on this, it seems hypocritical to feel this way and I’ve tried to piece together why that was the case. When the investment in Fundera (which actually felt like an investment in “me”) followed an investment in a direct lender, I felt validated, as if the investor made a previous mistake and was course-correcting by supporting us. But when the opposite happened, I felt betrayed, like the investor believed they made a mistake and we weren’t good enough. My feelings were real, but my assumptions were wrong. This was not an indictment of me as a person or a loss of belief in the potential of the company itself. It was an action reflective of a growing conviction in the space and a desire to deepen its financial investment in a theme they believed to be important. This was not supporting a competitor, it was strengthening a complement.

I think this will always be a sensitive topic and a tricky area to navigate. Some investors can be very helpful if they have exposure to a space and know the relevant players and industry dynamics. It’s easy to try to present making investments in an adjacent company as a logical and potentially beneficial thing to an entrepreneur, but investors should be empathetic and recognize that entrepreneurs have real feelings and are inherently paranoid about this. I don’t think investors should ask for permission, but they should always ask a Founder's opinion and factor it into their decision-making. At the end of the day, they’re only left with their reputation. For entrepreneurs, it’s important to internalize that these investment decisions are not a critique of them as a person or their business (unless the VC deliberately invests in a direct competitor, then they are asking to be written off). In fact, these actions can be a way of doubling down on your future. It’s hard to separate feelings and perception from intent. These situational dynamics are important and can get messy very quickly. There’s no substitute for putting yourself in the other person’s shoes.

Network Ownership and Profit Sharing

One of the things that I’ve always found compelling about web3 is the concept of user-owned networks. In web2, many networks were built on the backs of their users and developers. As the famous Chris Dixon example goes, networks and platforms do what they can to attract and cooperate with ecosystem participants early on. Then, as they hit the tops of their growth S curves, they pivot to value extraction and compete with the complementary applications that got them there in the first place. Web3 companies work to avoid this dynamic by giving the participants who help build and grow the network ownership in it. This is a powerful concept and an important ideal. It helps bootstrap networks and creates trust, guarantees, and aligns incentives. 

One of the things I am interested in is web2 companies applying this web3 superpower to their domain. I am beginning to notice more of it in the wild. There are different flavors of this ranging from profit sharing to owning actual equity in a company. Bookshop.org gives 80% of its profit margin to independent bookstore in its network. It doesn’t have to do this, but it strengthens its network and creates preference in both buyers and sellers on the platform. When I buy books online I make sure to do it on Bookshop. YouTube has done an exceptional job nurturing its community of creators by famously awarding them 55% of the network's ad revenue.

With regards to equity, Nebula TV has taken a bold approach awarding the creators who produce content for the platform with 50% ownership. And while it may have been more of a marketing stunt than a thoughtful distribution of ownership, NuBank awarded $11.2m in stock to its depositors when it went public. I am sure there are plenty more instances of this happening, and I want to learn more about them.

I find these examples exciting because they are representative of a movement that distributes ownership of internet properties across a broader set of constituents. I hope that this type of practice becomes commonplace because the people who supply the products that power networks - whether books, content, money, or otherwise - should have incentive to stick around and participate in the upside. I don’t think all companies need to give away majority chunks of ownership to their network participants, but token gestures go a long way in establishing trust and preference.  

I would like to see more of this, particularly companies that are able to harness this superpower and deliver it to users in a way that abstracts away the complexity of crypto rails. The concept is one of the most powerful things that can drive incentive alignment and value creation on the internet, and I think it can help web3 cross the mainstream chasm.

Agent Native Applications

AI is fundamentally changing the way we interact with technology. It has started with language and voice as an interface, and it will continue with the rise of agents. I think of agents as pieces of software that can do your bidding on the internet. They can navigate web, mobile, and desktop applications to accomplish tasks on your behalf. The recent Rabbit launch demonstrated to us what this can look like. 

Agents are an inevitability. If mobile applications are remote controls for real life, agents are the universal remote. This begs the question of whether web2 companies that have built business models on top of pre-AI interaction models will adapt or even participate in the agent world. If services like Uber, Kayak, and Instacart generate a meaningful amount of revenue through advertisements and cross-selling products, will they want their application interfaces to be abstracted away by an agent? Are they okay with their customers never interacting directly with their applications and losing their eyeballs? Their incentive structure is at odds with agent proliferation. This is a potential innovator’s dilemma in the making. 

New conversational interfaces made possible by AI will create a new category of “agent native” applications. Since agents will interact with them instead of end-users, these applications will be headless by nature. They may be entirely unknown to users and simply run in the background, happily playing their part in a series of chain reactions. These will be protocols that our agents call on in the world of bits and they will also bridge to atoms (eg ride-sharing, grocery delivery, etc.). 

This is likely a scenario where AI and crypto will be two sides of the same coin. AI will create the need for agent-native headless applications, and web3 will step in to fill the void. Web3 applications and protocols can accommodate the new ways in which we will use technology (i.e. conversational and voice-centric interfaces with agents working for us) because they do not need to “own” end-to-end customer experiences unlike most web2 companies. They are happy to run in the background as composable job-doers. They don't need their brand names front and center because their tokenized business models, which are primarily straightforward and network usage-based, are positioned to thrive in this world, especially relative to their web2 counterparts. 

I suspect we will see more and more of these “two sides of the same coin” scenarios emerge as AI and crypto continue to weave their way into our daily lives.

Path to the Healthcare Holy Grail

Andy and I have been working on our thesis at USV around self-directed healthcare. We published it yesterday on the USV blog. The gist is that people are fed up with the existing healthcare system, and a movement has formed at the edges of the market. It consists of individuals who want to take their health in their own hands and a variety of products and services that empower them to do so.

USV has made several investments in self-directed healthcare, and Steve and I have angel-invested in several companies that fit this thesis over the past years. I grew up in a household with two doctors. I spent a good chunk of last year researching how to prevent heart disease. I have been going on a years-long personal health journey. This is a space I care about a lot.

One of the things I've noticed is that many entrepreneurs envision the same end-state. They want to be the AI advocate and doctor that is always on and personalized to everyone who uses the service. The way they plan to get there is by accumulating large datasets on customers through a variety of different mechanisms: biomarkers through bloodwork, diagnostics and scans, self-reported information, wearable and sensor data, etc. It's a very unique moment in time where a lot of founders share a similar vision but have very different approaches to get there.

I think it's important that whichever approach a founder takes, they must build a good business along the way. Not everyone is going to get to the holy grail, but a lot of people can build great companies while they try. There are likely many different viable paths, some direct to consumer, some through practitioners in the existing system, and others I can't even imagine. Each will have their own pros and cons. I don't think this is a winner takes all market. It is so large. But value will absolutely accrue to the players that accumulate the most data the fastest, successfully use that data to create experiences that drive positive and measurable results, and build trusted brands.

There are some open questions I have and some we have discussed as a group at USV about unknown dynamics:

  • Will direct-to-consumer companies need to partner with known celebrities and medical influencers to achieve scale? We have seen how credible influencers with their own distribution channel and following can help get a business off the ground rapidly: Peter Attia and Early, Sam Harris and Waking Up, Dr. Becky and Good Inside, Andrew Huberman and Athletic Greens, Tim Ferris and Momentous, Mark Hyman and Function Health, countless celebrity endorsements of wearable companies, and many more. I do not think this is a pre-requisite for success, but it certainly has proven to help jumpstart the early stages.

  • Are many solutions marketing wrappers for someone else's product? If a company is selling someone else's product or service to accumulate data on customers, what does that mean for barriers to entry? Does the wedge need to be proprietary, or can it piggyback on something else? How does one think about exclusivity and/or other dynamics with these partners?

  • If barriers are low and the movement continues to pick up steam (as I suspect it will), will D2C customer acquisition channels quickly become a race to the bottom? We saw unsustainable margin compression in most D2C companies over the past decade. Digital acquisition channels quickly get arbitraged and unit economics go upside down. Will similar dynamics be at play and if so when?

These open questions are not deterrents by any means, but they should be proactively addressed by entrepreneurs along with a convincing view of what makes their approach genuinely unique.

I am excited to see how this space unfolds and think we will see a shift in consumer behavior and participation in self-directed healthcare much more quickly than we thought possible. Most of all, I love using these products and trying new services and am eager to continue to partner with great entrepreneurs building them. The tailwinds are strong and society is embracing change. A generation of iconic companies that empower consumers to live healthier lives are getting started right now.

Important Features

Yesterday Nick published a post about USV's thesis-driven approach to investing. We also updated our About page. There is a section called How We Operate that I love. I have had a lot of conversations lately about why I joined USV and why I think it's such a unique place. I wrote about my relationship with the firm over time, but that was only part of the story behind my decision. The rest is encapsulated by this tweet that Andy wrote:

All of these attributes are very important and unique, especially for Founders that choose to work with us.

To me, the beauty of venture capital is about the alignment between the investor and the entrepreneur. Managers of small funds make money the same way founders do, and there is something very romantic about this and it deeply resonates with me. Small funds like USV can deliver venture scale returns through concentrated investments in early stage companies. By design they are required to focus on Series A and seed. This is exactly where I like to focus because as a Founder the investors I partnered with at this stage were the relationships I cherished and found most helpful on my journey. I don't think there is a perfect fund structure in venture capital. There are many ways to do this and firms have been successful pursuing different approaches, but small funds are my strong preference and I think create the best alignment between entrepreneurs, fund managers, and LPs. Fred has written some excellent posts about this here and here.

Thesis-driven investing is important because it reflects that you know who you are and what you stand for. I also think it's also an entrepreneurial style of investing because you are painting a picture of how you think the world will unfold over the next 5-10 years and what you want to happen, and then strategically using financial capital as a tool to realize that vision with like minded entrepreneurs. A strong thesis helps Founders understand how an investor thinks and what motivates them beyond financial returns. Being generalist means that we can maneuver across social applications, marketplaces, web3, fintech, health, education, climate and more. This enables serendipitous things to happen in portfolio construction and for people to transfer learnings across all these different areas. A lot of the most compelling and exciting opportunities happen at the intersection of different fields and being generalist equips you to play at these intersections, which are often at the edge.

It was very important for me to join somewhere where partners work together as a collective. USV has long prided itself on being an equal partnership. I think this is the ideal model that creates a set of aligned incentives across the firm, and I fervently believe that incentives drive behavior. When there are no politics or people vying for a bigger slice of a pie, magic happens. When things are done collaboratively and equally, everyone roots for each other and the only winner is the team. This means that everyone is all in on every investment because everyone has a meaningful and vested interest in the success of a company and entrepreneur. When people work with USV they get the whole firm and that is quite rare and special.

Andy's tweet was less than 280 characters but it is loaded with meaning. The implications of these defining characteristics determine how the firm works and how an entrepreneur experiences USV, and they're one of the major reasons why I'm here today.

Voice as an Interface

For the last several weeks I’ve tried to use Perplexity as my default search engine on mobile. I’ve enjoyed the experience more than Google and ChatGPT and I’m going to stick with it for now. I don’t know if my usage will last for a long time, mainly because I think other search applications will quickly innovate on user experience and that for the first time in decades this will be a hot and competitive market.

One of the new behaviors I noticed for myself was that I now like to use voice as an input to search. I’ve always been a typer, especially on mobile. But new AI powered search results actually improve as my queries become much more specific and detailed, and voice is a more seamless and natural way to make this happen. Instead of a quick text blurb, a conversational approach to search now yields superior results.

Voice as a part of UX has been around for a long time (eg Siri), but I think we are about to see it explode in usage. A key part of that is the movement to natural language as the fuel by which we make software do things for us. I no longer think of voice as just an input, I think of conversation as the new UX. This leaves many open questions, like will people be speaking out loud to their personal devices all day long? Is that preferable to being hunched over our phones tapping away? Will we be comfortable expressing our private interactions with software out loud?

My intuition is that in an era where a lot of digital experiences (particularly non media or entertainment based ones) are abstracted to voice interactions, we are going to witness a lot of behavior change at a mass population level. We are also going to see a lot of creative people start opening up new experiences within voice as an interface the same way we saw people innovate on UX on our mobile screens. Perhaps one of the early impactful things AI will do is free us from the glow of our physical devices.

Relationships & Networks

Yesterday I wrote my first post on the Union Square Ventures blog announcing I am joining the firm as a Venture Partner. I've been reading everything on USV since I started in the NYC startup ecosystem in 2009, so it was a special experience to see my own words on the page. I feel very fortunate to have this opportunity.

Even though I just joined the firm, I've been connected to it for my whole career. At tumblr I had the privilege to join board meetings as a 22 year old where I watched and learned from Brad where he was a board director. That's when I learned that "good board members listen first, then talk." I have worked with Andy since 2010 when he became GroupMe's first lead investor at betaworks. For the past decade I've continued to learn from him on the board of Splice which was founded by my dear friend and longtime business partner, Steve Martocci, who is a two-time USV founder. So much of what I wrote about in this Helpful Boards post I picked up from working (and seeing Phish shows) with Andy for nearly 15 continuous years. Over the past year, I've been fortunate to spend time with Rebecca and Nick and see how they work with Founders - and I've listened to those Founders proudly sing their praises. I have also co-invested with USV in numerous startups and have been an LP since 2014. This is a special firm filled with remarkable people.

Earlier in my career I'd often look at people in the valley that I admired (ie Founders, CEOs and Investors) and wonder how they got where they were. What I've come to understand is that they were active participants in growing networks that constantly paid it forward and deeply invested in relationships over long periods of time. It's a very unique thing to come of age in a growing ecosystem. When I started at tumblr, most everyone in NYC tech could get together at the OG Shake Shack in Madison Square Park. The community was tight-knit and a lot of people who were actively engaged in it are still around today. I fondly remember how Steve and I would run around trying to meet smart people while carving out a space for ourselves as hungry entrepreneurs. A lot of the connections I made back then are some of the most special relationships I have now. In many ways, every opportunity I've had is a function of the relationships I've built along the way. And as this NYC (and now global) tech ecosystem has grown, so too has the surface area for fun and serendipitous things to happen.

I'm looking forward to this new chapter and continuing to invest in the relationships that make life fun and rewarding while building new ones with great people inside and outside this special ecosystem. Over the past year when I was prioritizing the things that were most important to me when considering what to do next, number one was making sure I was working with people I could continuously learn from and have a ton of fun with along the way. I'm lucky to make that a reality thanks to the entire team at USV and the important relationships in my life that have supported me on this journey.

12 Month Hiatus

I took a year off.

Writing that feels weird, almost like confessing to a crime. After I left Fundera/Nerdwallet at the beginning of this year, I committed to taking 6-9 months of time with one rule: I couldn't make any decisions about what to do next. I had never taken an extended break before - I had always known what I was going to do next and let momentum carry me from one place to another. It generally has served me well, but I wanted to try something new in the hopes that a break would allow me to reset and give me more clarity and confidence.

Taking time off is most certainly a privilege. I did all the cliche things one does: travel, spend time with family, read, exercise, pickup old hobbies, spend time with friends, etc. All of that was absolutely wonderful. It was also genuinely shocking and borderline frightening how fast days would go by. But the downtime can also be extremely difficult. All I've known is forward motion and planning for what comes next, so this was unfamiliar territory (although, perhaps committing to clearing my head and making no decisions was preparing for what comes next).

I learned a lot about myself over the past year. I found that so much of my identity was tied up in what I did. Telling people "I'm taking a year off" was a really strange thing to do. It made me question who I was. My whole professional career I identified as a tech entrepreneur, and all of a sudden I was in between things.

I went deep on a series of ideas that could have easily turned into startups. One was around programmatically enabling any company to build a world-class SEO program, another was a "roll-up" of internet businesses that had indestructible product market fit around people's various passions, and another was on preventing heart disease (which I will publish some more thoughts on soon because I'd really like to help someone accomplish this). I came within inches of starting one of them, but it was within my "No Decisions" window and I'm glad I stuck to it. The easiest thing for me to do would have been to start another company. It's all I've really known, and it's the thing that I most identified with. Not starting something during this period was very difficult.

I did my best to go with the flow and embrace the idea of wu wei to see where it would take me. I'm very happy with the process and thrilled with where my journey concluded. Next month I'll be tackling something new for me with a group of people I've long admired and respected. I'm equal parts thrilled and nervous. It's an evolution of what I've been doing, and I am eager to step outside of my comfort zone and embark on a new adventure. I don't think this opportunity would have emerged had I not sat still for a bit. After ample time off exploring, I feel like I have boundless energy to deploy. I'm ready to go.

Reflecting on the experience, these are some of my most important takeaways:

  • Hobbies bring great joy. I rekindled my love with tennis, joined a club, and hit 1-2 days per week. I'm playing at a 4.5-5.0 level with ex-D1 players and I love being competitive again.

  • The world is big and beautiful and should be explored in a variety of different ways if you can. Traveling to new places by myself, with family, or with friends was wonderful. I'm committed to adventure.

  • There's nothing better than quality time with family. I got a lot of it over the past several years and had the opportunity to watch my kids grow.

  • While working from home had its benefits, I am very over it. I need to be in an office with people making things happen. There's no substitute for it for me. People have different styles. Mine is in person. I also find that being in the office during the day makes me more present when I am home.

  • It's easy to mentally atrophy if the break is too long. I recommend time off to anyone who can do it. But 12 months is too long for me. Somewhere between 3-6 likely would have done the trick.

I entered this hiatus with a great deal of uncertainty. And while there's more clarity about some things, there are still countless unknowns. I'm looking forward to continuing to explore them, whatever they may bring.