usv investment thesis

Audrey Wang’s Newsletter

Usv's genius investment thesis development and portfolio diversification.

What makes USV so successful? How did they know to invest in Coinbase in 2013, when everyone thought crypto was a scam? (Actually, past tense is not accurate here. Many people still think crypto is a scam.)

Well, USV stays true to their investment thesis, and their investment thesis is genius. 

Before we delve into their thesis though, I’d like to address two things. One, why is a thesis important for VCs? Two, let’s take a moment to adore the sexiest takeaway from Modern Portfolio Theory - diversification.

On Investment Thesis

An investment thesis tells you how a VC thinks they can make money. It’s an opinion, a world view.   First and foremost, this thesis is the guideline for screening startups. VCs can’t simply invest in every startup that looks cool.

How else does an investment thesis serve the VC? We can look at it by breaking down the relationship dynamics in the VC world.

1/ LPs - LPs give VCs money and VCs keep LPs happy by making money.

On the LP front, a clear investment thesis helps a VC attract the right investors. A thesis helps the LP understand a VC’s specialization and purpose, be it industry-oriented or stage-specific. It tells the LP whether investing in a particular VC fund serves his/her own portfolio. 

2/ Startups (founders) - VCs invest in startups and try to help them make money, so in the end everyone makes money . (Ofc, it’s not just about the money. I’m oversimplifying the story.)

A thesis tells the founder what resources a VC may bring + the values and visions of a VC. A founder who’s looking for industry-specific expertise is likely to pick a VC who’s focused on her industry, rather than a generalist. A founder will also want to work with VCs whose long-term goals align with those of her own. VCs want the hottest companies to take their money, not someone else’s. Having a thesis helps a VC differentiate itself and swoon like-minded founders.

3/ The Public

In this case, an investment thesis serves as a community outreach. It also attracts the right talent to a fund. Although it technically doesn’t directly benefit VCs to publicly write about why they invested in what they invested in, people like me gain insight into their thought process through their writing. An investment thesis broadcasts to the community a VC’s convictions on how they can make money. It’s free education, or at least good shower thought material.

On Diversification

The biggest takeaway from Modern Portfolio Theory is diversification : Put your money in different places and you reduce your risk exposure without hurting your returns. Individual and institutional investors alike benefit from portfolio diversification.

Here’s a simple example.

Setting: You have one chance to flip a coin. You have $1mm and the opportunity to give however much you want to person A or person B.

If you get a Head:

A takes all your money

B pays you 3x (so if you give B $50, she will pay you $150)

If you get a Tail:

A pays you 3x

B takes all your money

Takeaway: If you give all your money to one of A or B, you either get $3mm or $0. Your expected value is $1.5mm, but there’s a 50% chance that you may lose all your money. However, if you give $500k each to A and B, your expected value is still $1.5mm, and you get that money with certainty.

That’s the art of diversification, a nd USV’s diversification strategy is genius.

USV does a fantastic job at both thesis development and portfolio diversification.

Here’s a chronicle of how their thesis evolved over time.

May 2012; Thesis 1.0

USV invests in large networks of engaged users, differentiated through user experience, and defensible through network effects.

Notable 1.0 investments:

Etsy – Seed, 2007

Twitter – Series A, 2007

Zynga – Series A, 2007

Meetup – Series D, 2008

SoundCloud – Series B, 2010

Dec. 2015; Thesis 2.0

As the market matures, we look for less obvious network effects, infrastructure for the new economy, and enablers of open decentralized data.

MongoDB – Series A, 2008

Twilio – Series A, 2009

Coinbase – Series A, 2013

Protocol Labs – 2016

goTenna – Series B, 2017

Apr. 2018; Thesis 3.0

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

Mundi – Series A, 2022

Parallel Markets – Series A, 2022

Fiveable – Series A, 2021

Mindset – Series A, 2021

Dune Analytics – Series A, 2021

What prompted me to write this article is really how USV pivoted from Thesis 1.0 to Thesis 2.0. There, they realized the vulnerability of Thesis 1.0 - the 1.0 companies may fall victim to the advent of blockchain technology. Thus they decided to include enablers of open decentralized data into their portfolio 2.0. ← That’s how they know to invest in Coinbase in 2013. Looking at this transition in combination with the idea of portfolio diversification, we see that the inclusion of blockchain investment really is diversification at its finest. It almost serves as a hedge to the rest of their portfolio.

I can’t rephrase their thought process better than they did. So here’s a quote from USV on why they upgraded thesis 1.0 to 2.0.

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).

Thesis 3.0, on the other hand, is basically USV telling the world - "Hey guys, we were right. Blockchain is happening. Blockchain happened. Our thesis 1.0 companies did well. Our thesis 2.0 companies did just as well. Now’s time that re-categorize our portfolio by their individual values and purposes - access to knowledge, capital, and well-being.”

Here’s how USV described their thought process for Thesis 3.0.

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.

I think Thesis 3.0 resembles Thesis 1.0 much. Thesis 1.0 focused on Large Networks of Engaged Users . Large + User Engagement = Value. Thesis 3.0 focuses on trusted brands that broaden access. Trust + Access = Value . (Here’s an article that popped into my mind when I thought about trust x web3: The Most Important Scarce Resource is Legitimacy .)

Last but not least, we shall take a moment to appreciate the rationale behind the OG Thesis 1.0.

The last component of this thesis relates to businesses that create barriers to entry through “ network effects “, in which the value of a service to a user increases as others use it. This can potentially arise in a number of ways: for example a proprietary data asset ; the marketplace dynamics of having a robust set of sellers and buyers; or through the development of a community that openly shares and exchanges information. In an era where the initial cost to develop the prototype of a product has been dramatically reduced, where there are mature and scalable open source tools and services to utilize for that development, and where cloud infrastructure is available on demand and at a variable cost, defensibility may no longer be found in the technology underpinnings – the code or IP – of a service. Defensibility may however arise through the growth of service that gets more valuable, and more interesting, with each new participant.

We can’t close this article without asking ourselves - What’s next? What will Thesis 4.0 look like? I invite you all to make some wild guesses with me. I will update this post if I can think of something not too embarrassing in the next month(s).

On another note, I think money is a self-fulfilling prophecy . There’s a reason that the rich are getting richer. If they share a conviction about what’s going to happen in the future, and they pour all their resources into making it happen, then chances are that this thing is going to happen.

Lastly, I’ve only been looking at VC/startup related things for maybe 3 months. All opinions are in their baby stage and may very well be wrong. Please take it with lots of grains of salt and pepper and cumin and everything but the bagel seasoning.

Bonne Nuit!

Ready for more?

Intersection notepad

USV Investment Thesis 3.0

Interesting guidance and change throughout the years. I would look into the thought process of the other prominent, upcoming and even newly established venture capitalists to learn the guidance. USV’s three investment theses throughout the past decade:

• Founder of Behance , Scott Belsky,  is a smart guy to learn thought/investment process from.
• Thesis 2.0 – 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  (i.e. Lending Club, Stash, Carta, MongoDB)
• Thesis 3.0 – Trusted brands that broaden access  to knowledge, capital, and well-being by leveraging networks, platforms, and protocols. (i.e.  Flip ,  Dwolla ,  C2FO ).
• Flip  is an interesting one given Americans are less  immobile   than a decade ago, meaning we as a population tend to move intrastate rather than interstate. And even intrastate mobility within our population is declining. One could very well be the concentration of human and financial capital in metropolitan areas such as SF, Austin, Seattle, NYC, LA, Boston etc. Would be interesting to see how the macro US demographic shifts plays into the LT viability of their future revenue.
• Dwolla  is another interesting one; remember using them for one of my past side projects, they charge lower fee than Stripe but they cater to businesses and startups in the single 5-digit MRR. Their pricing strategy basically segment out the Stripe fee. Interesting thing about Stripe is the early-days of Stripe was built on  just  < 10 lines of codes.
• C2FO  raised a lot of capital for US-based startups. They basically provide access to working capital for established companies and less so on startups. It’s targeting companies with challenges such as turning of inventories which cause short/medium-term liquidity demand. As the dull name of the company implies, it’s definitely in the B2B businesses.

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Union Square Ventures: The Thinkers

The New York-based venture firm has one of the industry’s most remarkable track records. Its success comes from deep thinking and unusual discipline.

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If you only have a couple of minutes to spare, here's what investors, operators, and founders should know about Union Square Ventures (USV).

• Masters of consistency . USV may be the most consistent venture capital firm of the past two decades. All of the firm’s vintages are reportedly performing in the top quartile, with several doing much better. 
• Thesis-driven thinkers . Founders Brad Burnham and Fred Wilson are exceptional systems thinkers. USV’s partners have used this ability to form theses that guide their investment practice.
• Disciplined deployers . Given its performance, USV has no shortage of suitors. Despite what must be rabid LP interest, the firm has kept fund sizes conservative. This approach differs from prevailing market trends.  ‍
• Building networks . For a venture firm obsessed with networks, it is fitting that USV has created its own. The firm offers a private community and a series of events for portfolio companies and their founders.

Lefty Gomez once said he’d “rather be lucky than good.” Many venture capitalists might make the same trade-off as the eccentric Yankees pitcher. In the grand-slam business of startup investing, a big hit can make up for a slew of strikeouts. Participating in early rounds for Google, Facebook, Stripe, or Coinbase erases a season of shanks, whiffs, and bunts. Since picking a generational business from a sea of pitches is no simple thing, it’s tempting to leave selection in the lap of the gods. Why not just shut your eyes and swing?

Some do. So many, in fact, that this “hope as a strategy” has a name: spray and pray. In small bursts, spraying and praying can work well. Anyone lucky enough to have splashed some capital on the names mentioned above may have looked, for a time, like a guru. Never mind the litany of failures; in venture capital, it is your successes for which you’re remembered.

This dynamic can make it difficult to distinguish between practitioners. If it takes just one hit to do so well, how do you know which investor is lucky and which is good? How do you distinguish the gleeful chancer from the skilled technician?

The only certain solution is to wait. Either an investor keeps hitting, or their luck runs out. Over a long enough time horizon, finesse and good fortune diverge. 

Union Square Ventures may be the most reliable slugger in startup investing. Since it opened its doors in 2003, few other funds have maintained such elevated performance for so long. USV has consistently performed in the top quartile across its vehicles. It has also logged some of the top-performing vintages of all time. Much of this success stems from the firm’s gift for thinking deeply about the future and devising a thesis that distills an investment opportunity. It is the venture capital equivalent of pointing toward center field before the pitch comes in, calling one’s shot. 

Like every successful investor, USV has been lucky. But more importantly, it has been very, very good. Today’s piece will explore the firm’s history, evolution, and playbook. Read on to learn about: 

• Flatiron Partners . Before starting USV, Fred Wilson co-founded Flatiron Partners with Jerry Colonna. The firm invested in buzzy startups like Geocities and The Industry Standard. Much of its portfolio collapsed during the dot-com crash. 
• A difficult raise . Despite their pedigree, Wilson and Brad Burnham took the better part of eighteen months to raise USV’s first fund. The University of Texas played a pivotal role in catalyzing institutional interest.  
• Two vintages . USV’s first fund was an extraordinary hit, returning ~14x of invested capital. The firm’s 2012 vintage has done even better.
• The sleeper hit . USV is well-known for investments in Twitter, Zynga, Coinbase, Tumblr, and Etsy. One under-the-radar smash was recruiting platform Indeed.
• Staying disciplined . Despite its success, USV has kept its funds small. Its latest early-stage vehicle is $275 million, a modest sum for a franchise of its stature. This discipline has helped USV maximize returns. 

Let’s jump in.

Union Square Ventures is the product of two tenured private market investors, Fred Wilson and Brad Burnham. Their journey to starting a fund involved big wins, burst bubbles, legendary entrepreneurs, and shuttered firms. It is also the New York venture market’s coming-of-age tale. 

In 1996, Fred Wilson got his chance. After spending nine years rising through the ranks at Euclid Partners, the thirty-five-year-old financier was about to helm a firm of his own. 

That opportunity had come about in surprising circumstances. During his time at Euclid, Wilson had bet $250,000 on a “ washed up ” former banker with a plan to “push” information from the internet to a consumer’s desktop machine. Instead of visiting a webpage to see the latest news, it arrived, unbidden. Headlines appeared on your home screen, not unlike a TV station’s ticker. The entrepreneur behind the invention was Mark Pincus, and his business was called Freeloader. Sunil Paul, a former AOL product manager, served as a co-founder. 

A few months after Wilson’s initial investment, Euclid Partners upped their stake, deploying a further $1 million. Softbank Ventures joined the round, with Charles Lax leading a $1.6 million investment. Both firms turned a quick profit, though perhaps not one as ample as it first looked. Eight months after Freeloader’s founding, it sold to Individual Inc. for a mix of cash and stock, valued at $38 million. That price initially implied a more than 5x return for Softbank and even more for Euclid, though a steep decline in Individual Inc.’s stock price abbreviated the reward.

Wilson had impressed Softbank’s team. Once the Freeloader deal closed, Lax proposed he join the firm’s partnership. Though Softbank ran a very different strategy in those days, there is some irony in the idea that one of venture capital’s most disciplined investors might have ended up at a firm now renowned for its immoderacy.

Wilson felt it was time for a new chapter, but he wasn’t sure whether Softbank represented the right next step. As he considered that option, another emerged. 

Wilson had met Jerry Colonna a few months earlier through the Freeloader deal. Colonna’s employer, CMG@Ventures (@Ventures), was considering investing. When Wilson arrived at Colonna’s office, he was surprised to find his counterpart sporting a ratty Yankee T-Shirt and tattered jeans. “Ok, this is an internet guy,” Wilson reportedly thought. Despite their outward differences, the two developed a good rapport. 

Colonna seemed to inspire such affinity from almost everyone he encountered. Though @Ventures declined to invest in Freeloader, Pincus treated Colonna as a confidant and advisor. As a result, when Pincus learned that Wilson was considering a new position, he felt compelled to page Colonna and share the news. Pincus assumed his first believer and close advocate would make an exceptional team. 

As it turned out, Colonna didn’t even need another meeting to be convinced. When Wilson canceled their breakfast after remembering it was his daughter’s kindergarten graduation, Colonna realized the outgoing Euclid partner shared his values. When they finally did meet, Wilson concurred. 

Rather than rejecting Softbank outright, Wilson countered. What if Softbank invested in his and Colonna’s newest fund instead of hiring him? Flatiron Partners would focus on the burgeoning New York City tech ecosystem, giving Softbank an informal presence in a potentially important new market. 

Softbank was persuaded. The firm joined as Flatiron’s first LP and was quickly followed by Chase Bank. Fred Wilson had gotten the shot to run a firm of his own. 

Flatiron Partners

Wilson and Colonna’s new endeavor coincided with the inflation of the dot-com bubble. As tech grew in the public consciousness, Flatiron attracted attention. New York magazine dubbed the firm’s partners “The Princes of New York” in one much-discussed profile. 

Flatiron’s early performance justified that moniker. Indeed, the firm’s partners proved a strong pairing, with Wilson’s high-energy and analytical abilities marrying well with Colonna’s formidable charisma. “He was the person that entrepreneurs always connected to,” Wilson said , “Bring Jerry in a meeting, and they’d fall in love with us.” Those abilities led to Flatiron selecting several early internet winners, including Geocities, Mercado Libre , The Industry Standard, Kozmo.com, TheStreet.com, and Yoyodyne, run by a green entrepreneur named Seth Godin. 

Geocities, in particular, looked like a landmark win. Flatiron led the web directory’s $8 million Series B round in 1996, following on in the Series C the year after. The first of those two investments was assisted by a young Brooklynite, Jason Calacanis, to whom Colonna had taken a shine. Calacanis drafted the company's memo, helping convince Softbank and Chase to invest alongside Flatiron. 

In 1999, Yahoo acquired Geocities for $3.7 billion in an all-stock deal. It looked like an outstanding outcome, set to return Flatiron’s fund, perhaps many times over. In reality, Flatiron never realized gains of that size on the Geocities sale. 

In 2000, the dot-com bubble burst, bringing tech to its knees and crippling Flatiron’s portfolio. Once-buzzy companies like The Industry Standard and Kozmo.com were bankrupted. Yahoo, which had traded at a high of $118.75 a share in January of 2000, fell to $9 by September the following year, pummeled by post-9/11 instability. By then, Flatiron had closed its doors, with JP Morgan Chase absorbing the entity. 

“We made a fortune and we lost it in the blink of an eye,” Wilson later said. Flatiron’s princes had discovered that roiling markets were capable of dethroning anyone.

Brad and Fred

In the aftermath of Flatiron’s closure, Colonna left venture capital and embarked on a path that would culminate in his reinvention as a founder coach. Today, he is one of the most sought-after advisors in the tech world. His business, Reboot, has established itself as an authority in leadership development. 

While Colonna discovered his calling lay beyond venture capital, Wilson’s legacy was built by persevering. He spent two years after the fall of Flatiron “licking his wounds and internalizing the lessons” he’d learned. Though without a fund to manage, Wilson retained a pulse on the battered venture scene by angel investing. One such opportunity reconnected him to an old connection: Brad Burnham. 

Wilson had met Burnham years earlier as part of an investment in financial information business, Multex. While at Euclid Partners, Wilson attended a talk by Isaak Karaev at ADP. Karaev had joined the payroll behemoth after it had purchased his startup, taking on something close to an Entrepreneur-in-Residence role. Over the course of Karaev’s presentation, it became clear he was working on something new. Wilson approached Karaev about funding his next venture and soon became one of Multex’s first investors. AT&T Ventures joined Euclid on the cap table, with Burnham serving as the telecom firm’s representative. 

By that point, Burnham had worked at AT&T for fourteen years, save for a brief hiatus. In 1989, Burnham had spun a startup out of AT&T called Echo Logic. The company translated software so that applications could be used across different computers. Though AT&T was Echo Logic’s only investor and primary shareholder, Burnham ensured he and his team had minority rights. The process of granting those protections was so arduous for AT&T CFO Bob Kavner that he created a separate venture fund to manage future incubations and invest in outside businesses. After Echo Logic ceased independent operations in 1993, Burnham joined AT&T Ventures, advancing to the role of General Partner. The firm repaid the sovereignty gifted by its parent with outstanding performance: from inauguration to 1999, AT&T Ventures turned $350 million in primary capital into $1.2 billion. (Like Flatiron Partners, the firm suffered a brutal reverse in the dot-com crash.) 

Multex’s lively board meetings gave Wilson and Burnham a chance to get to know one another and trade thoughts on the future of the internet. Those conversations would convince Karaev and the team to transform Multex into a primarily web-based business. In March 1999, Multex hit the public markets at a $750 million valuation. The company navigated the crash and eventually sold to Reuters for $250 million. 

Though Multex might have acquainted Wilson and Burnham, it was Tacoda that prompted a partnership. After departing AT&T Ventures, Burnham helped entrepreneur Dave Morgan with his newest endeavor. The two had met a few years earlier when Morgan delivered a literal elevator pitch in a Dallas hotel. “In fourteen floors, I got enough of his interest to talk to him more in the lobby,” Morgan said. After that startup, Real Media, merged with PubliGroupe, Morgan sought a second act. He returned to the online advertising space and, with Burnham’s counsel, founded Tacoda. 

Morgan’s only problem was the small matter of capital. Like Flatiron, many venture firms had buckled during the crash. Those that had survived were conserving money, knowing that LP funding was in short supply. “No venture firm was going to invest in adtech in 2001,” Morgan said. 

Without institutional capital, Morgan and Burnham tapped New York City’s angels, including Fred Wilson. Enamored with Morgan’s pitch, Wilson rounded up a consortium of venture capitalists willing to invest their own money. Venture legend Howard Morgan invested, alongside old friend Jerry Colonna, Nancy Peretsman of Allen & Company, and Jerry Rosenkranz, a prominent angel investor. 

Wilson and Burnham grew closer during the investment process and stayed in touch in the following months. The French Roast often served as the location for long discussions on the flaws and future of the venture capital industry. By early 2003, both men surreptitiously asked Dave Morgan for his opinion on a potential partnership.

“It was kind of like high school dating,” Morgan said, “Each of them wanted to talk alone about the other.” To Morgan, it was an obvious fit. “I told them, ‘you guys will crush it.’”

Morgan’s endorsement did the trick. Wilson and Burnham decided to start a new partnership, named after the neighborhood where they set up shop. In October 2003, Union Square Ventures was born.

Union Square Ventures

Despite Burnham and Wilson’s pedigree, raising their new fund was no easy feat. It took the better part of eighteen months to secure the $125 million for “Union Square Ventures 2004.” Attracting the first $20 million was particularly hard, according to one source familiar with those early days. “There was no money anywhere,” Dave Morgan said of the period. 

Winning over the University of Texas Investment Management Company (UTIMCO) proved a turning point. Senior Investment Officer Lindel Eakman committed to the fund and catalyzed a slew of interest. In the end, roughly two dozen institutions joined USV’s first fund, according to a source. All will be thanking their lucky stars today. 

Fittingly, one of USV’s first investments was into Dave Morgan and Tacoda. A few years later, the company would sell to AOL for $275 million, delivering a massive windfall to the firm. Though they couldn’t have known it then, Burnham and Wilson had nearly returned the fund with USV’s first check. 

A familiar face ran another early portfolio company. After shepherding Multex to an acquisition in 2003, Isaak Karaev started another business, Instant Information. That company would also be acquired, absorbed by EPAM in 2010. 

It didn’t take long for USV to find investments that eclipsed these early successes. 

Performance

There is no such thing as a safe bet in venture capital – but USV comes closest. Since its debut, perhaps no other fund has delivered high performance as consistently. Not only have Wilson and Burnham maintained a superb batting average across vintages, they’ve also hit some true grand slams. 

Consistency

A tenured institutional investor in venture capital funds shared their thoughts on USV. Though their firm had not backed Wilson and Burnham’s shop, they were full of admiration. “For my taste it’s the perfect VC,” they said. 

That appraisal was inspired by USV’s reliability, above all else. “The consistency is the most difficult thing,” the senior investor said, “Every single fund is way above the average.” According to this individual, all of USV’s funds have returned at least 5x. Some have delivered “substantially more than that.” No other fund – except perhaps Sequoia – has achieved such reliably exceptional returns to the investor’s knowledge. The Information previously reported that USV’s 2004, 2012, 2014, and 2016 vintages comfortably placed in the top quartile. In total, USV has raised eight early-stage funds and four opportunity vehicles for later-stage investing. (Presumably, fivefold returns are reserved for vintages with some time to mature.) 

Though USV’s work is most impressive when viewed in its totality, two vintages have proven particularly remarkable.

Vintage 2004

USV’s first-ever fund turned out to be one of the greatest in venture history. The firm’s 2004 vintage was reported to have returned ~14x on total invested capital as of 2018. Such outperformance was driven by a portfolio that included Zynga, Twitter, Tumblr, Indeed, and Etsy.

Zynga was USV’s first “high impact exit,” according to Fred Wilson. Founded by Mark Pincus, the man that had once brought Wilson and Colonna together, the social gaming company was a breakout success. Former USV analyst and current Spero Ventures GP Andrew Parker remarked, “I don’t think anyone had seen a company grow revenue so quickly. It was truly breathtaking.” Zynga went public at a $7 billion valuation, delivering a 65x return for USV. 

Twitter remains the best-known investment of the bunch. According to Burnham, there was little competition for the deal. In part, that was due to the eccentricity of Twitter’s founders. Jack Dorsey, Ev Williams, Noah Glass, and Biz Stone were not traditional hard-charging entrepreneurs. “You would never have said that Twitter was a great team,” one source noted. USV’s willingness to invest revealed something profound about the firm’s approach: ideas mattered more than founders. Burnham and Wilson were willing to overlook potential character flaws or rough edges if a concept was compelling enough. Several sources pointed to the founders of Tumblr and Etsy as other examples. “[These were] not people that New York VCs would typically back,” one investor noted. 

The market’s reticence was to USV’s advantage. The fund led a $5 million Series A, securing a roughly 33% stake in the process. Twitter later IPO’d at a $14.2 billion valuation. 

If Twitter is the vintage’s most famous investment, Indeed is the most underappreciated. Burnham reportedly knew founders Rony Kahan and Paul Forster before starting USV and made it one of the firm’s first investments. Like Twitter, the job search platform represented an obvious example of a business with network effects – a focus for USV during this era. Indeed raised a single round of $5 million before its acquisition for $1 billion. 

Etsy was a notable case because of its return profile and provenance. The investment was sourced by Albert Wenger, an operator who would become a vital part of the USV story. Wenger had known Burnham for several years when he joined USV portfolio company Delicious. The social bookmarking startup worked in the same building as its financial backer and needed a seasoned executive to help steer a green founding team. “Albert was the adult minding the shop,” one source said of Wenger’s time at Delicious. 

After Delicious sold to Yahoo, Wenger joined USV as a venture partner while pursuing other projects. Wenger ended up sourcing two deals in the first fund: Clickable, which didn’t yield a return, and Etsy. The latter went public in 2015 at a $3.5 billion valuation. 

Wenger became a general partner in 2008. Wenger was trained as a computer scientist and added a different perspective to Wilson and Burnham. He was the partner that first identified the opportunity in developer tooling and productivity. “As an engineer, he could pick up [a product] and code with it,” one source said, “he had an edge on that stuff.” Later investments in MongoDB and Twilio represent the output of that advantage. As one source said of the MongoDB financing, “That’s the kind of deal Fred and Brad would never have done without Albert there.” Today, Wenger is the de-facto head of USV, though Burnham and Wilson remain active. 

Vintage 2012

USV outgunned its inaugural vehicle eight years later. According to the institutional investor I spoke with, the firm’s 2012 offering is its best. That is in large part thanks to its stake in Coinbase . 

USV was early to recognize the disruptive potential of the blockchain. Dave Morgan recalled the firm talking about its importance long before the rest of the market. “They were telling us in 2010 that crypto was the future,” he said. The firm used a portfolio meeting around that time to explain crypto to its founders, using pieces of paper with numbers written on them to demonstrate how bitcoin mining worked.

Crypto represented a natural evolution of USV’s interest in networked businesses. The firm approached the revolution as another phase of technological adoption. “They always saw crypto as a next generation internet operating system play,” Dave Morgan said, “Not an asset appreciation play.”

Coinbase represented a tidy encapsulation of that interest. USV led the exchange’s $5 million Series A and followed on in subsequent rounds. Traditionally, the firm has done an exceptional job growing or protecting its stake in winners, often owning 15 - 20% at the time of exit. Even after selling 28% of its Coinbase holdings, USV reached the DPO with a 7.3% share. After the first day of trading, USV’s stake was reportedly worth $4.6 billion .

It’s worth noting that by the time of USV’s first Coinbase investment, the partnership had added several other talents, including John Buttrick and Andy Weissman. Buttrick brought legal expertise from his time at Davis Polk & Wardwell, while Weissman added significant early-stage experience from building Betaworks, and personal charisma. One source described Weissman as a “startup whisperer” whose arrival represented a “culture shift.” “He adds a lot of extroversion to the group,” Andrew Parker remarked. 

Nick Grossman also joined the firm during this period, becoming a partner in 2019. His expertise in policy and crypto has become a vital strength. The firm’s other partners are Rebecca Kaden and Samson Mesele. Kaden was recruited from Maveron in 2017 and authored USV’s third thesis. Samson Mesele was added as a partner in 2021 and serves as General Counsel. 

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How do you produce the kind of performance USV has managed? Though no summation can capture the operations of a firm nearing its third decade, certain characteristics seem especially important to USV’s approach. 

Devise a thesis

Venture capital can be roughly divided between thesis-driven and opportunistic investors. USV is perhaps the most prominent example of a firm that develops an explicit point-of-view about the market and invests on its merit. To date, USV has crafted three successive theses, as follows: 

• Thesis 1.0 . Large networks of engaged users, differentiated through user experience, and defensible through network effects.
• Thesis 2.0 . As the market matures, we look for less obvious network effects, infrastructure for the new economy, and enablers of open decentralized data.
• Thesis 3.0 . Enabling trusted brands that broaden access to knowledge, capital, and well-being by leveraging networks, platforms, and protocols.

The first of these has achieved near-legendary status. With the benefit of hindsight, USV’s read on the market in the mid-to-late 2000s was astute and led to investments like Twitter, Zynga, Tumblr, and Etsy. 

Thesis 1.0 is particularly reflective of Burnham’s ideas. Several sources noted Burnham’s exceptional systems-level thinking, with one describing him as “the architect” of this framework. Another referred to him as “deeply smart,” with a gift for “figuring out where the world is going.”

Wilson compliments Burnham’s abilities with his own intelligence, financial savvy, and knack for distilling complex subjects in accessible language. According to one source, the final of those qualities is a vital part of their partnership’s power. Burnham devises an overarching theorem that is sharpened and articulated by Wilson. Though oversimplified for my benefit, this depiction captures a core dynamic within USV. 

Acting based on a thesis changes the entire configuration of a venture fund. Sourcing is more targeted rather than scatter gunned. Evaluation draws from a firm framework rather than a changing rubric. And advice is based on working with structurally similar businesses rather than a salmagundi of models. Crucially, because so much relies on the thesis itself, a fund may also be able to take greater risks on founder profiles, as USV has.

None of this works, of course, if one’s read on the market is offbase. USV’s theses clearly did, helping the fund identify megatrends like the rise of social media and the emergence of crypto. 

Share your thinking

For a fund with its track record, USV prefers to stay out of the limelight, directing attention towards its portfolio. One commentator highlighted the firm’s stance in the lead-up to the Coinbase DPO as an example of its reserve. While other investors fell over themselves in an attempt to take credit, USV stayed quiet. “Fred didn’t say boo ,” the source said, “The firm said nothing. It was just silent. Because the data speaks for itself.”

Though USV shows unusual restraint when it comes to self-congratulations, that doesn’t mean it stays silent. Indeed, the firm has an established writing culture that stems from Wilson. He began his blog, AVC , around the same time he started USV and has published nearly every day since then. Other firm members may not match Wilson’s cadence but also take writing seriously.

USV seems to use this practice to test new ideas and hone its thinking. Wilson’s blog, in particular, has helped build rapport with entrepreneurs. Andrew Parker said of Wilson that founders “felt like they knew him before they’d ever met him.” 

Be a true partner

From a founder’s perspective, USV seems to fall in venture capital’s Goldilocks Zone. The firm is neither too hands-on nor conspicuously absent. “They understand they’re investors and not operators,” one founder remarked, “most investors don’t understand that.” The firm is there to provide forthright, high-quality advice without interfering. It does so by staying close to founding teams to ensure it understands the state of affairs. Fredrik Haga, CEO of Dune , highlighted this strength: 

[USV] build very tight relationships. They've stayed small in fund size and team. They understand quite deeply who we are as founders, as a company, community, and so forth. Others have more services to offer, but USV has a lot of context…Advice can often be quite generic and not that useful unless you have good context and understanding. 

Haga added that USV’s team was also “very human and have a lot of empathy.”

USV does get its hands dirty when necessary. Albert Wenger was influential in helping Twitter solve its “fail whale” problem and rightsize its engineering team. A New York Times piece from 2008 depicts Wilson crossing potential features off of Etsy’s roadmap. But the fund shows an understanding of where its role begins and ends. 

USV also seems to go out of its way to help founders during dark moments. “They do things other funds don’t do,” Dave Morgan said. That includes financing companies to close their doors the right way, helping employees out as much as possible. Pragmatically, such acts of service are repaid in the iterated game of venture capital – founders that shutter their companies often return with a vengeance. USV has funded many entrepreneurs several times over, including Morgan himself. 

The final notable way USV partners with startups is through its broader community. It is fitting that a firm so obsessed with network effects has built one of its own. Employees of portfolio companies are granted access to a Slack group that seems to serve a similar purpose as Y Combinator’s Bookface. It is a place to exchange thoughts and receive advice from fellow operators. USV also offers a “Manager Bootcamp,” “Women’s Executive Leadership Program,” and “CEO Summit.” 

Manage the timing

USV is a master of timing. The firm has shown a deft ability to pick the right moment for its investments and exits. “Timing isn’t something people are typically good at,” Charlie O’Donnell said, “It’s very rare.” O’Donnell was USV’s first analyst before founding his firm, Brooklyn Bridge Ventures. As mentioned, USV nailed the timing of social media and crypto, finding monster winners in both markets. (USV also actively invested in leading crypto funds, including Multicoin Capital . Given Multicoin’s returns, that represents another significant win.)

Just as critically, USV seems to have effectively exited many of its biggest positions. The fund sold its Tumblr stake as part of the $1 billion acquisition, long before its value declined to just $3 million. A less pronounced version of this tale played out with Zynga, with USV reportedly selling its stake before the gaming business’s decline. It seems to have timed Coinbase equally well. 

USV’s knack is more than just good fortune. The firm has a playbook for managing its winners. As Wilson wrote , “We typically seek to liquidate somewhere between 10% and 30% of our position in these pre-IPO liquidity transactions.” By doing so, the firm locks in gains, de-risks the investment, and allows for further appreciation.

Stay disciplined

In April, USV announced it had raised two new funds: a $275 million early-stage vehicle and a $350 million “Opportunity Fund.” These are modest figures for a firm of its stature and success, but they are consistent with USV’s extreme discipline around sizing. The firm has never raised funds larger than these newest incarnations, believing oversized funds can hamper returns. 

USV’s approach in this regard runs counter to the industry trend. Many high-profile funds have used the last few years to expand AUM rapidly. “People don’t say no to money,” the institutional investor mentioned earlier said, “Especially when they’re successful.” USV is the exception. “They are a special fund in my mind,” the same source noted, “They’re one of the very few managers with the track record they have that have stayed disciplined on fund size.”

USV’s success shows that venture capital can be a game of skill. If you are willing to think and work and remain disciplined, even the seemingly flukish gambit of early-stage investing can become a kind of practice, a pattern. 

Benjamin Graham once said that “successful investing professionals are disciplined and consistent and they think a great deal about what they do and how they do it.” If he were alive today, the man known as the Dean of Wall Street would not have to travel far to find those that agree with him.

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The Generalist’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. Our work may feature entities in which Generalist Capital, LLC or the author has invested.

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Union Square Ventures Teardown

• September 8, 2015
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New York-based Union Square Ventures has made prescient bets on some of consumer tech's biggest wins. We dig into what, where and with who USV is investing.

When Etsy went public earlier this year at a $1.78B valuation, the IPO marked the 5 th straight year with a billion dollar exit for New York City-based venture firm Union Square Ventures.

Indeed, the firm has recorded some of venture’s biggest wins in recent years. Twitter, Tumblr, and Zynga all count Union Square Ventures as an early investor. Given its fund size, it is probably one of the  best pound-for-pound venture capital funds  out there having shown a prescient ability (much like its larger peer  Sequoia Capital ) of getting into big exits early.

Led by a team of five partners including prominent VC investor and  blogger  Fred Wilson, Union Square Ventures (USV) raised over $330M for a pair of funds in January 2014. We dive into the firm as part of our updated “teardown” of Union Square Ventures.

• Where’s the data & viz from?  100% of the visualizations and data you see in this teardown are directly from the CB Insights platform’s  Investor Analytics  tool.
• What’s a Teardown?   A  product teardown  is the act of disassembling a product to understand its parts, functionality, etc. An investor teardown is analogous. We’re trying to understand a firm and what makes it tick by analyzing data around their financing strategy, investment thesis, key people, exit history, investment syndicates and more.

Specifically, we’ll discuss USV’s recent strategies and activity that have helped shape the firm including:

• Recent financing activity
• Recent exit activity
• Fund history
• Notable partners
• Industry focus and strategy
• Geographic strategy
• Stage strategy
• New vs. follow-on investments
• Investment syndicate

Whitepaper: Investor Teardowns

Get the 65-page report on teardowns for Union Square Ventures, Andreessen Horowitz, Sequoia Capital, and more

Financing Activity

Union Square Ventures’ deal activity has remained consistent in recent times — with just two more deals in the first half of 2015 than the same period last year. However, USV has completed 6x as many first-time deals in the more recent period. Some of the firm’s notable recent first-time deals are below:

• USV led private stock- and options-tracking startup eShares ’ Series A in January 2015. Just 7 months later, eShares raised a $17M Series B led by earlier investor Spark Capital at a $77M valuation.
• USV led free legal research website Casetext ’s $7 million Series A round in February.
• USV led image-recognition AI startup Clarifai ’s $10M Series A. Lux Capital, Osage University Partners, Google Ventures, Qualcomm Ventures, and Nvidia Ventures were also among participating investors in the round.
• USV led a $4M Series A to Figure 1 , a mobile network of healthcare professionals to share medical images and content.
• USV led a $9M Series B to La Ruche Qui Dit Oui , a France-based fair trade e-commerce platform. Fred Wilson blogged about USV’s hunt for a way to invest in the “farm-to-table” market sector.

Below is a graph of Union Square Ventures’ monthly investment activity (deals & funding participation) over time from their profile on CB Insights.

Recent Exit Activity – 5 $1B+ Exits Since 2011

Union Square Ventures has realized two exits in 2015 year-to-date (YTD). Despite the well-publicized IPO drought for VC-backed companies, Union Square Ventures-backed Etsy went public in April. Meanwhile, financial-planning startup Covestor was acquired by Interactive Brokers in April.

More notably, Union Square Ventures has notched a remarkable 4 $1B+ IPO exits and 2 $1B+ acquisition exits since 2011.

Here are its most notable exits since the start of last year:

• Etsy went public at a $1.78B in April 2015. USV first invested in Etsy’s Series A round in 2006.
• Lending Club went public at a $5.4B valuation in December 2014. USV first invested in Lending Club’s Series D round in 2011.
• Flurry was acquired by Yahoo for $300M in August 2014. USV invested in Flurry’s Series B round in 2010.

The scatterplot below highlights USV’s exits over time (those with disclosed valuations):

Fund History

Union Square Ventures’ last-raised fund occurred in January of 2014, when the firm raised $350M. The funds are split evenly between the firm’s fourth early-stage fund and its second “opportunities” fund, which allows the firm to back companies as they mature.

USV’s fund size consistency is notable especially as the general partners could probably quite easily raise larger funds if they so desired. However, this consistency is a good thing based on research. Academicians have found that fund consistency is a driver of fund performance. Simply stated, funds that grow in size don’t perform as well because the skills to invest a $100 million fund are very different than those required to manage a $1 billion fund.

Notable Partners

Fred Wilson is a Union Square Ventures co-founder and managing partner. Wilson sits on the board of directors for companies including  Kik , Work Market , Return Path , Coinbase , and Soundcloud .

Brad Burnham  is a managing partner at Union Square Ventures and co-founded the firm with Fred Wilson in 2003. He had previous co-founded advertising network company Tacoda in 2001, which was acquired by  AOL . Burnham is on the board for companies such as  Meetup ,  Stack Exchange , and  Yieldmo .

Albert Wenger  is a partner at Union Square Ventures and was president of  del.icio.us , a USV-backed bookmarking service, during its acquisition by Yahoo in 2005. As an entrepreneur, Wenger sits on the boards of companies such as  MongoDB ,  Twilio , and Clarifai.

Andy Weissman is a partner at Union Square Ventures and started his career at AOL then in venture capital with Dawntreader Ventures. Weissman co-founded New York-based startup studio Betaworks in 2007. Weissman sits on the board of companies including Figure 1 , Splice , and VHX Corporation .

Industry Focus and Strategy – Increased Interest in ‘greenfield’ areas and new protocols

Nick Grossman of USV’s investment team recently penned a blog post on some of the areas that USV is currently looking at, including collaborative platforms in greenfield sectors (i.e., industries that are “still operating under inefficient bureaucratic hierarchical models”), worker-support services, “thin platforms” (platforms that “do less, take  less, and exert less control”), and new tech protocols inspired by Bitcoin and blockchain.

An analysis of USV’s new investments shows that USV is not just looking in these areas but also betting on them.

Within greenfield sectors, for example, USV has made recent investments in Figure 1, a mobile network model for doctors to exchange notes on medical imagery, and Casetext, a free legal research website for crowdsourced legal annotations.

Within new protocols, USV has invested in several firms on the blockchain and/or in bitcoin technologies including OneName , an open-source identity protocol provider; OpenBazaar , a decentralized marketplace using bitcoin; and Coinbase, a bitcoin wallet and exchange.

The chart below highlights USV’s new deals in 2015 YTD (Note: follow-on deals during the period not shown on the chart below).

Geographic Strategy – Searching Far and Wide

Despite being based in New York City, Union Square Ventures has continued to look well beyond the Big Apple for deals — especially in Europe. Since the start of 2012, USV has invested in one French startup, three German startups, and two UK startups. Figure1 — the mobile medical imaging app — marked USV’s second investment in Canada.

USV has also made a number of bets outside of Silicon Valley and New York as can be seen in their investments in  Dwolla  in Iowa,  C2FO  in Kansas,  Covestor  in Boston, OpenBazaar in Virginia, and  Duolingo  in Pittsburgh, among others.

More data on  USV’s shift away from NY .

Stage Strategy

With their Opportunity Fund structure, USV can invest at the Series A stage and is able to continue investing in their winners. Over the last 8 quarters, just under 29% of USV’s deals came at the Series B stage, followed by 20% at the Series C stage, as USV pursued follow-on investments to firms ranging from Coinbase and Kik to Skillshare .

Early-stage deals (Seed/Series A) took a combined 29% of USV’s deals over the period. All of USV’s first investments in a company since the start of last year came at the Seed or Series A stages.

Below is a table of details on Union Square Ventures’ investments in various stages for the last two years. The size of the bubble represents the number of deals, while the darkness of the blue represents the total amount of funding.

New vs. Follow-On Investment Balance

With the exception of Q1’14 and Q2’09, Union Square Ventures has generally kept a well-balanced portfolio in terms of new investments and follow-on investments. In Q2’15, USV ties its highest quarterly proportion of new deals to follow-ons with first-time investments to Dronebase , OpenBazaar, Clarifai, and La Ruche Qui Dit Oui.

The chart below, taken from  Investor Analytics  on CB Insights, illustrates the ratio of Union Square Ventures’ new investments to follow-on investments.

Deal Size – Recent Increase in Median

Behind follow-on participation in large deals including Coinbase, Duolingo, and C2FO, Union Square Ventures’ median deal size has risen to $20M in each of the first two quarters of this year.

The graph below from Investor Analytics on CB Insights shows both the average and median deal size each quarter for the last five years. In more recent quarters, USV’s median deal sizes have trended between $7M and $20M.

Investment Syndicate

Union Square Ventures often invests with Spark Capital, and especially in early funding rounds. The two firms have seen success in their early investments together, which include companies like  Twitter ,  Tumblr , Foursquare, and Sift Science. SV Angel is both one of Union Square Ventures’ top feeders and top co-investors. Both firms got in early on companies such as Twitter and  Foursquare , while Union Square Ventures followed SV Angel on startups like  Kitchensurfing , Casetext, and Skillshare.

Andreessen Horowitz comes in second, co-investing with USV in 16 rounds across 10 companies. Index Ventures is also among USV’s prominent syndicate partners, having co-invested in Etsy, Soundcloud, and Shapeways among others.

More about  USV’s investment syndicate  using the  Business Social Graph .

• 100% of the visualizations in this Teardown are from  Investor Analytics . No MS Excel necessary.
• The visualizations on CB Insights are all interactive so you can click and see underlying transaction details.
• Visit the Union Square Ventures profile on CB Insights to view these visualizations on your own
• Need an account? Sign up  here  or below.

BTS with Union Square Venture's rising star analyst

What It Takes to Make It as an Analyst at a Top VC Firm

Invested features uncensored takes from within the inner workings of America's prestigious venture capital firms. Edition #02 spotlights Dani Grant of Union Square Ventures.

Welcome to Invested , Supermaker’s series featuring uncensored takes from within the inner workings of America's prestigious venture capital firms. Invested is led by Leah Fessler , journalist, investor, and Head of Editorial at Chief, and Alex Marshall , a venture capitalist focusing on special projects at First Round Capital, and co-founder of HealthIQ.

Invested #02 features Dani Grant of Union Square Ventures .

Among the most influential and successful venture funds, Union Square Ventures holds a unique presence. While Sequoia, a16z, and many of the largest VC funds were founded and remain in and around Silicon Valley, USV has always proudly ran its operations, and many of its investments, out of New York City.

Founded in 2003 by Fred Wilson and Brad Burnham, who have since become two of the most prolific thought leaders in tech, USV sets itself apart as a thesis-driven fund, honing in on both hot market trends and the partnership’s personal interests. This strategy has paid off in spades, earning USV investments in various big-name successes, including Twitter, Tumblr, Etsy, Carta, and Coinbase. In 2019, USV secured $429 million across two new funds .

Since its founding, USV has made a strategic and concerted effort to hire cognitively and demographically diverse investors. In 2017, the fund brought on Rebecca Kaden , a brilliant VC previously at Maveron (where she worked her way up from associate to partner in a matter of years) as USV’s first female partner.

Today, USV’s tight-knit team counts many women among its core contributors, including rising star Dani Grant . After graduating from New York University’s Gallatin School of Individualized Study in 2015, Grant worked in product strategy at Buzzfeed and Cloudfare prior to joining USV as an analyst in 2018. In addition to self-publishing more than a dozen whimsical and useful tools, games, and widgets , Dani is also an Analyst at USV.

Supermaker interviewed Grant about her perspective on USV’s thesis-driven investment strategy, how she pivoted from product to VC, and where she sees her career expanding in the future.

Name: Dani Grant

Job Title: Analyst

Years at present job: 1.5

Education: The Gallatin School of Individualized Study at NYU, 2015, major in Human Computer Interaction

Previous job: Product Manager at Cloudflare

Fessler: A lot of people outside VC aren’t familiar how funds are structured, and why. What is your job title, and what does this mean , within the context of USV?

As an analyst, some of the job is: go learn about something not many people at the firm know too much about, and then come back and share what you’ve learned ( Terri Burns at GV likens this to writing a book report, it is a perfect analogy). Along the way, the goal is to try to find some companies for the firm to potentially look into backing.

A lot of the job is also meeting with companies who are raising and trying out their products, talking to their customers, and doing some research to try to figure out if there is a fit with the types of businesses we are looking to back.

Once in a while there is also a research project to do for a company in the portfolio. This is always very fun.

And there is also a more back-of-the-office component where, once in a while, we will do some work on valuations or reserves analysis .

USV is one of the most famous VC firms, not only because of its outstanding investments, but also because of its thought leadership as a thesis-driven fund. What drew you to thesis-driven investing?

I think a thesis can give you the gift of focus. Most of the categories we are interested in—like education, crypto, healthcare and energy—are very broad, and it’s useful to try to find a thesis for where it makes the most sense for us to spend our time looking for investments. For example, last year we decided an important priority for us in crypto was to back projects that would help get crypto wallets in the hands of a million users, and that made it a clearer decision to consider joining the Libra Association .

When you were in school, did you aspire to get into VC?

Once when I was in school I met Brian Watson who was, at the time, an analyst at USV. He was so impressive, so I had this idea that USV must be an exciting place to work, filled with Brian Watsons.

The other VCs I met while at school were Peter Boyce from General Catalyst and Sam Smith from First Round, who are both so imaginative, thoughtful, and broad thinking. That made me think that being on a VC team must be so collaborative and interesting.

A lot of people aspire to work in VC but have no clue how to get there. Being as specific as possible, what steps did you take to land this role at USV? What did the interview process look like, and what do you think made you stand out as a candidate?

Often people ask what background you need to have to get into VC. One of the interesting things is that it’s not always about your individual background — it’s often actually about balancing out a team. For example, it is extremely helpful to have someone with a finance background in a VC firm, but not everyone needs to have that background, one person is generally enough. Or, it is extremely helpful for there to be a moderately technical person on the team, but not everyone has to have that technical perspective.

"Often people ask what background you need to have to get into VC. One of the interesting things is that it’s not always about your individual background — it’s often actually about balancing out a team."

The other piece of advice I have for getting into VC is to architect yourself into a situation where you are already in the mix of the VC community. One person who has done a great job at this is Harry Stebbings with the 20 Minute VC podcast . Another is Tony Sheng who writes a fantastic blog on the crypto ecosystem that many crypto VCs read, and recently joined Multicoin Capital .

The USV team

What’s your personal strategy for sourcing deals and sustaining a high-potential top of funnel for your dealflow? What are your top tips for effectively communicating the potential of a deal to higher-ups in VC?

The thesis really helps here. We often outreach to founders who are building things that we think align with the types of businesses we are looking for.

Another tool we often do use is to blog about the types of businesses we are interested in backing to get the word out to founders who are looking for aligned VCs.

As a non-partner VC, working as an analyst, what does your dynamic look like with your other colleagues?

USV has a great, collaborative team dynamic. A group of us have a weekly meeting where the format is everyone brings a question to discuss. This meeting has the very formal name weekly top of funnel brain jam .

To share ideas, we also have an all-team, three-hour discussion once every other month. Usually there is an agenda of questions or themes we’d like to discuss and often someone will send around some pre-reading.

Why venture as opposed to operating at this age and stage of your life?

A really valuable lesson I learned from Dane Knecht , my manager at Cloudflare, is that a great way to get up to speed on something is to try to build it. At the time, I was working on an IoT authentication product . He sat with me for an afternoon and helped me build the first (very basic) prototype.

I think that’s very applicable in venture where the job requires getting up to speed quickly. As I’ve been working at USV I’ve also been tinkering on lots of small side projects that have helped me better understand the spaces I look at.

What do you hope for your professional future, in or beyond VC?

I really don’t know yet. I do hope that in the future I am lucky enough to continue to work with people I respect, enjoy, and find endlessly interesting. I have been lucky to get to do that at Cloudflare and at USV.

It’s no surprise that women and people of color are underrepresented in venture. As a woman, when have you felt most empowered and encouraged? When have you felt most discouraged or frustrated? What are the top 1-3 things men and non-straight white cis people in VC can do, in your experience, to bolster diversity and inclusion within the industry?

I am wildly lucky to work with a team of people who see me at face value. I realize that is not something every person gets to have at their place of work.

My colleague Rebecca recently wrote a fantastic piece for HBR about actionable things we can all do to advance gender equality. I recommend everyone go read it, it’s clear, insightful and actionable. Here’s a sample:

“Social media has made elevating other women easier than ever. We all have the ability to be each other’s promoters and advocates. Sing the praises of your coworker who won the deal or built the product. Find reasons to share with your community the accomplishments of women you admire. Doing this encourages others to follow suit — and perhaps to do more than they thought they could. When I was four months pregnant with my son, Max, I watched Katrina Lake of Stitch Fix ring the Nasdaq opening bell with her toddler in one arm, and I felt the importance of the moment. Her personal balancing act was a reminder that I could attempt the same. So much more seems possible when you see it with your own eyes: If she can do it, I can, too.”

Which other non-partner VCs are you’re most inspired by, and why?

Shoutout to the other two analysts at USV: Naomi and Zach . They are thoughtful, genuine, curious, humble, collaborative, accepting and creative––they rock.

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Article Info

Published on October 23, 2019

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Thesis-driven early-stage Investing

Julius Bachmann

HackerNoon.com

This is not written from years of experience. It is a collection of notes from discussions and thoughts over the past months and part of my effort to make sense of the topic. I would like to thank @justvideesha, @drosskamp, @simonschmincke and @benediktherles for the discussions, and especially @alexruppervc for their feedback.

This article specifically looks at early stage investing . As you go later stage in venture investing and towards the realms of private equity and public equity investing, historical data grows in importance as the basis for analysis. The number of late stage private equity or public equity investors writing about their investment thesis rises — see for example the classic “ Intelligent Investor ” by Ben Graham.

There is some confusion as to what a “thesis-driven approach” even describes in venture investing. While Wikipedia helps us in defining the term as “a concept or idea that can be falsified by various (scientific) methods“, the application of this process may take two forms in venture. The produced position paper about a sector or deal will also shape the terms the investor is ready to propose or accept in deal negotiations later on.

Thesis-driven Definition of Investment Focus

“Thesis driven investing involves drawing a picture of where your particular area of focus is going”, says Fred Wilson of Union Square Ventures. As David Rosskamp puts it: “Deductive thesis investing starts with a vision of the future. The investor will formulate a narrative of a target industry’s development and map out the individual elements that will be needed to spur that narrative.”

The process normally starts with intense learning about the sector, from own experience, industry experts, science, and potentially drawing parallels from similar fields. This method can then be applied to different “dimensions” of a thesis.

• Vertical: How will an industry develop in terms of economics, impact by various technological and regulatory trends, etc.?
• Model: An opinion about the outlook of an operating/business model, f.e. the 1041 economy driven by the Uber-model or the various sharing economy models
• Use Case: e. g. “What will happen to concierge services? What interfaces will Amy, GoButler, Alfred, etc. use? Who will use them?”
• Technology: How will R&D break throughs user adoption and regulatory changes rive the (non-)financial success of a specific tech?
• Geography: What regions are the most under-rated in terms of timing (pricing, potential, regulations, adoption)

The outcome of theses can look like this:

• Hardware Investment Thesis ( Rodrigo at Point Nine Capital )
• 16 Mobile Theses ( Ben Evans of A16Z )
• Earlybird Investment Strategy

An alternative approach I have seen in other funds is what I would call “competence-based” investing. Implicitly, most investors do this: There is only a limited number of markets or business models any given VC understands based on own experience. Investments are made either in the combination of promising markets vs. known business models (Point Nine Capital) or known market vs. promising business models (Berliner Volksbank Ventures). Some investors add a third dimension around “value-add”: They only invest in companies where they know they can either be a customer (Santander InnoVentures), help with public relations or marketing (DvH, Project A) or can support operationally with experienced investors from their investment team (SpeedInvest). This has a lot to do with the branding of venture capital firms (see Florian Heinemann’s / Joel Kaczmarek’s Podcast for an exercise of the German VC landscape) and is sometimes used as an argument in competitive deals.

Thesis-driven Company Analysis

A lot of former strategy consultants and equity analysts are joining the ranks of private equity and venture capital every year, bringing with them a strictly regimented methodology of hypothesis-led analysis. While researching a business, initial theses about the market, team, KPIs and/or business model will be rejected or validated — informed by the data produced from fundamental analysis or supplied by the venture to the investor.

We use this approach ourselves as it not only helps structure the analysis but also tracks the train of thoughts and uncovers biases in the initial deal assessment.

Voices from the Industry

While I am still structuring my thoughts, other venture investors have spoken or written about the process of building an investment thesis.

Scott Belsky of Benchmark : Scott is summarizing his method as “invest your energy and money in the overlap of what excites you (the opportunity), and who you respect (the team).”

Brian Laung Aoaeh of KEC Ventures : Bryan describes the process of investment analysis in the early stage ventures as a debate between art and science.

Taylor Davidson, formerly of kbs+ Ventures : Taylor “traditionally thinks about startup and investment opportunities through broad frames, sectors and trends.” He then goes on defining his thesis in eleven statements and provides reasoning for every statement.

Union Square Ventures in 2012 : USV defines their thesis as “a macro level view about the world — the Internet world — that we then (attempt) to structure investment activities around.”

Thinking Around The Next Corner — A Reality Check

Diversification and conflicts of interest: Venture returns follow a power law, the chances are slim that one bet on a thesis will result in a home run. The venture industry has not shown to be very good at picking winners. In order to diversify risk, this would mean building a balanced portfolio of companies based on a thesis. (It is kind of funny and speaks volumes about the intricacies of venture investing when you need to use the terms “power law” and “balanced portfolio” in one paragraph.)

Investing multiple times in companies that fulfill all the checkmarks of a more specific/narrow investment thesis will create a conflict of interest for the investor: If portfolio companies consider expanding into adjacent offerings, they may start competing with other portfolio companies. How can we address this problem?

• Widening the focus on an entire industry avoids this problem: The investor builds a thesis on a value chain or follows a stack approach as described by Roger McNamee and Mike Maples, Jr..
• Building a thesis portfolio: An investor may really believe in a narrow subset of the market. Still, he/she is not sure which of the companies will be category winner. Is it possible to build a portfolio of companies around a narrow thesis? A way around the conflict of interest may be limiting information and control rights. It would be like investing in a narrow index of an early stage market; selling individual titles would not be possible. This could be facilitated through the kind of funds David Siegel has proposed in 2015.

The reality of investing shows: Very few companies in any given market niche are both great businesses (team, traction, product, market) as well as a great investments (pricing, cap table, deal structure). It takes intensive networking and deep research to identify the investment opportunities we are looking for at Redstone.

I will start publishing our thesis on some of the (sub-)sectors where are looking at over the next couple of months. Looking forward to the debate!

Hacker Noon is how hackers start their afternoons. We’re a part of the @AMI family. We are now accepting submissions and happy to discuss advertising &sponsorship opportunities. To learn more, read our about page , like/message us on Facebook , or simply, tweet/DM @HackerNoon. If you enjoyed this story, we recommend reading our latest tech stories and trending tech stories . Until next time, don’t take the realities of the world for granted!

Written by Julius Bachmann

Founder Coach | Author & Musician | Entrepreneur // check out my solopreneurship course!

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What is the Sweater Cashmere Fund Investment Thesis?

We receive hundreds of pitches from incredible founders every month but unfortunately, we can’t possibly invest in every company. Instead, we carefully select startups based on their existing merits and future potential. How exactly do we decide? We leverage our investment thesis . Read on to learn more about our process.

Not sure what the Cashmere Fund is? This short video will give you a quick overview of Sweater's flagship VC fund.

What’s an investment thesis?

An investment thesis dictates a fund’s investment strategy and is often backed up by research and analysis. It could be a concrete list of rules, a worldview that the fund seeks to uphold, or some combination thereof. Here are a few real examples:

• "The USV Climate Fund invests in companies and projects that provide mitigation for or adaptation to the climate crisis.” ‍
• Maveron , a consumer-focused VC firm, says, “Our companies marry disruptive tech with soulful, beloved brands into an unstoppable and unforgettable consumer experience. Because middlemen are so 20th century." ‍
• Village Global , a VC fund and network of successful founders, “back[s] entrepreneurs, at the earliest possible stage, who are using software & IT to transform global industries.”

The role of an investment thesis is to create focus within an investment team. When a company pitches us, we first refer to our thesis to decide whether it’s worth digging in further. Recognizing the value of a founder’s time, we let them know ASAP if their startup is off-thesis.

A strong investment thesis also helps a fund’s backers (known as limited partners, or LPs) rally around it. As venture capitalists, our priority is to maximize returns. But we’re also looking to shape society by supporting companies that we believe should exist. An investment thesis isn’t just a money-making strategy, it also reflects how an investment team sees the world.

Sweater's Investment Thesis

In most cases, a venture capital fund can only accept up to 99 LPs. We believe this drastically limits the impact that a fund can have on its companies, and that’s why we’ve constructed our fund to accept capital from thousands of members. This centers our investment thesis on the power of our community:

The Cashmere Fund invests in companies that are network affectable, scalably impactful, and broadly understandable.

Network Affectable

The Cashmere Fund comes with a built-in support network for startups: the Sweater community. Our portfolio companies can tap our members for help with anything that would benefit from a broad network of professionals: talent acquisition, product research, or industry expertise, to name a few examples . Given our unique access to this community, we look for network affectable companies that would benefit most from our members.

This doesn’t necessarily mean we only invest in consumer-facing companies. Members of Sweater are also members of the workforce, with enterprise-level influence and purchasing power. We’re interested in companies selling products or services that our members could promote, purchase, or champion within their respective workplaces or personal lives . This could look like directly purchasing a product or service, sharing the product with your social network, or suggesting the product to colleagues with purchasing power.

Scalably Impactful

Venture funds rely on outliers—one company’s success could mean success for the entire fund. As venture capitalists, we have to bet on companies with big potential. There are small businesses doing great things for the world that we’d love to support, but the return profile doesn’t match the ROI (return on investment) expectations of a venture capital fund. We look for companies that will affect a significant portion of the population with the potential to scale into massive businesses. Most VCs look for scalability, but it’s especially important for us because the more scalable the business, the more likely it is to resonate with a significant portion of Sweater members.

Broadly Understandable

Part of what makes Sweater special is our belief in storytelling. We have designed our mobile app with narrative in mind, sharing videos and blog posts to tell each company’s story . While many quantum computing startups provide exciting potential for disruption, their stories can be difficult to understand or relate to. While we fully support these categories, they aren’t a fit for immediate investment at Sweater.

The Sweater community is made up of tens of thousands of investors of all different backgrounds and experiences. What unites us all is an interest in shaping the world . Whether you’re a thirty-year-old tech CEO living in Silicon Valley or a seventy-five-year-old retiree looking to expand your understanding of investing, we believe you can contribute meaningfully to the Sweater community. We believe that if Sweater members find our companies relatable, they’ll be more invested in the success of the portfolio. That’s why we invest in companies that are broadly understandable .

Invest with us

Our investment thesis hinges on the power of our community. Interested in joining? Download the Sweater app today to get started.

Want to dive further into our investment strategy?

Check out this recorded Deep Dive discussion with the Sweater Investment Team talking about the Sweater Cashmere Fund Investment Thesis . You'll get to hear more about our thought process behind it and questions we answered for attendees.

Read more about the metrics we use to evaluate prospective portfolio companies in this helpful guide , or watch the video below for a quick overview of what we look for in companies before we make an investment.

Published on

Investing at the Edge of Large Markets Under Transformative Pressure

Union Square Ventures turns 20 this year.  Brad and Fred began to deploy the first USV fund in 2004. The dot com bubble had recently popped, modern smartphones hadn’t been invented, “social media” wasn’t a thing, and the first bitcoin transaction wouldn’t be recorded for another 5 years.

Since then, we have raised and invested a total of 14 funds (8 “Core” early stage funds, 2 early stage Climate Funds, and 4 Opportunity Funds), and have made more than 230 investments across many categories & technologies: social media, marketplaces, developer tools, learning, health, fintech, web3 & decentralized systems, energy & climate and more.   

Throughout our history, we’ve developed investment theses around moments where major technological or societal changes were likely to enable new approaches:

In 2003/4, the opportunity was to build at the application layer of the internet, leveraging the core infrastructure investments of the dot-com bubble era.  

By the mid 2000s, it became clear that it would be possible to build new networks (social networks, marketplaces, etc) as a specific, and very powerful type of internet application.  

Then, as broad-based networks began to solidify in the early 2010s, we began to look for narrower vertical networks (for example, in learning and health), new layers of enabling infrastructure (developer tools, fintech), and decentralized computing systems (blockchains and cryptocurrencies).  

As internet applications became even more central to the global economy in the late 2010s, we looked to leverage them to broaden access to key resources (such as knowledge, capital, and wellbeing), and also looked for opportunities to increase our trust in these key systems.  

Approaching 2020, with the rapid acceleration of the climate crisis becoming clear, we sought to identify transformational startup opportunities to mitigate its impacts, accelerate the energy transition, and adapt to a changing world.  

Today, we’re seeing LLMs and AI exponentially increase the ubiquity and usefulness of software everywhere, while also underscoring the need to invent new forms of digital trust .

Looking back at this 20-year history of investing across distinct moments in time and many diverse sectors, we recently asked ourselves: what is the through line in how we approach investing?  

Here’s how we describe it: 

USV invests at the edge of large markets being transformed by technological and societal pressures

Across time, sectors, and technologies, we have consistently looked for, and will continue to look for, a common set of attributes that we believe lead to novel products and experiences:

The “edge” of large markets is often the best place to introduce new ideas and approaches. Startups at the edge often start out looking weird , yet have the potential to take on incumbents in surprising new ways.  

For example, early social media didn’t look like it was competing with traditional media; early cryptocurrencies didn’t look like they were competing with the financial system; many consumer learning products don’t look like they are competing head-on with the legacy education system.

New technologies enable behaviors that weren’t previously possible.  In hindsight, these new behaviors are obvious, but they require experimentation to explore as they emerge. Rapid experimentation is the fastest path to progress – but change is hard. Institutions and incumbents resist it. 

“Edge” approaches – such as consumer-first, prosumer, developer-first, and open source models – have the potential to avoid market gatekeepers and enable freer experimentation.  We love them for this reason.

Technological and societal pressures can upset existing market structures, creating openings for new companies and networks to meet the market in new ways.  

Technological pressures can include new technologies and platforms, such as new operating systems, crypto assets, and the AI stack.  The most profound technological pressures introduce new business models, often ones that incumbents are structurally unable to pursue. 

Societal pressures can include planetary forces like the climate crisis, loss of faith in civic institutions, or changing social norms and attitudes.  These pressures can rapidly produce changes in behavior that would otherwise have been unimaginable or at least improbable.

Together, these pressures can cause otherwise static market structures to become dynamic. Startups have the opportunity to position themselves in alignment with these pressures, allowing themselves to work “ downhill ” against legacy incumbents.  We continually seek out these pressures and look for opportunities for startups to draft behind them.

Looking Ahead

Looking ahead at the next 20 years of investing at USV: as global change accelerates, and as new technologies emerge and mature, we will continue to develop and publish specific theses about where we see opportunity.  As we do so, we expect to stay consistent with this overarching framework of seeking out opportunities at the edge of large markets, propelled by the tailwinds of transformative pressure.

We are excited to partner with founders who are aligned with our thesis and we look forward to exploring the edge together.

Exploring An Investment Thesis

I remember back in the 2005/2006/2007 time frame when blogging and social media was coming of age, I used this blog as a petri dish to explore ideas like influencer marketing, social advertising, and virality that have become critical parts of a growth marketer’s playbook a decade later.

That “hacking around in social media” taught me so much that I could not have learned reading or talking to people. Of course, I did those things too, but getting my hands dirty with the technology and ideas helped me understand them and see the power of them and invest in them before others did.

So it is always great to see when other investors are doing the same thing.

Dani , one of our awesome analysts at USV, has been exploring the area of “free learning.” She has been writing about it . And she has been hacking around in it too.

Yesterday she launched a free learning game you play via text message.

I built a game this weekend that you can play over sms. If you text +1 (575) 223-1415 it will enter you into the game and send you some number puzzles. Enjoy and good luck. pic.twitter.com/oX6SVprfCQ — Dani Grant (@thedanigrant) May 13, 2019

She built it on “twilio/node/express/firebase.” I know she also built a version on the Kin Testnet to see how cryptocurrency rewards could impact how students stick with a game like this.

I just played a couple rounds of Numberline on my phone and thankfully I got the first two correct. I am quitting while I am ahead. If there was some Kin involved though…….

Comments (Archived):

Here’s a fiddle i don’t like. Can you think of a crypto token that when you multiply its price by 2 it equals the same thing as when you multiply it by 6?

Why can’t we use the Kinit version? I have Kinit on my Android .

Cool tool!Between this blog, reddit, gardening blogs, self-hacking forums and the crypto-universe I also formed my own investment thesis. I invest in anything that increases the diversity and complexity of the given system. For example, I’ve invested in psilocybin for treatment resistant depression, because of it’s ability to increase diversity and complexity of neural activity. I’ve in invested in FMT (human microbiome transplants) for their ability to boost diversity and complexity of biome and remediate disease. I’ve supported reforestation efforts and agroforestry. I really really want to invest in regenerative ag biz of some sort – preferrably tech driven and soil diversity boosting and adaptive learning in schools for it’s ability to boost progress through diversity and complexity of ideas to explore.I’ve also codified my investment thesis in a book called “Dear Machine”. As I am still in the early phases of pushing it out there I am happy to share it here in PDF for anybody that wants to dig -in: https://www.supersystemic.l …Thanks to all who discourse on this blog and the internet in general. You make us all smarter!

What gardening blogs do you follow?

Thanks for the Q!By gardening I meant: reddit/r/gardening, /r/permaculture and a bunch of FB groups about Regenerative Agriculture, permaculture, agroforestry, mushroom picking, etc. I can dig those up if you are interested.

Please do, I am interested. I have some very early background in organic gardening as a teenager, and am interested in the stuff you mentioned (old and new).Do you know about Imprinting? I read about it a while ago, and it seems like a really good idea. Proven. http://www.imprinting.org/Here is the founder’s bio: http://www.imprinting.org/b … https://en.wikipedia.org/wi …

Thanks! Sorry for the delay.I had not heard of imprinting but am very interested in that sort of thing – especially restoration of desert lands. The notable initiative I like to follow are Ecosystem Restoration Camps, of which I am a “founding member” ( https://www.ecosystemrestor …) and the work of Ernst Gotsch in Brazil ( https://www.youtube.com/wat ….As for other blogs/forums I like: https://www.reddit.com/r/pe … https://www.facebook.com/gr … https://www.facebook.com/gr …Are you thinking about getting involved in ecosystem restoration somehow? If so, how about joining ecosystem restoration camps? Really exciting stuff happening… based on how they are doing I think they will scale up well.:)Greg

NP. Thanks for all that info.Just checked out the Green Gold video by John D Liu – amazing issues and great initiatives.I had not previously thought of getting involved, since did not know of such efforts happening on a large scale, though know of smaller ones (in area). one of which I may be getting involved with in the near future, as part of some of my plans.Will share the links.

Excellent! Great to discuss this stuff with you! John D. Liu is also the person who started the Ecosystem Restoration Camps. Pretty incredible that, through these efforts, you can bring streams and waterfalls back to life and change the climate of an area.

>Excellent! Great to discuss this stuff with you!Likewise. Thanks again for all the info you shared.>John D. Liu is also the person who started the Ecosystem Restoration Camps. Pretty incredible that, through these efforts, you can bring streams and waterfalls back to life and change the climate of an area.Very true. That video was really impressive.The links you shared reminded me of a very good book that I had read as a child/teenager, being interested in ecology, organic farming, nature, etc. – a book titled The Forest and the Sea, by Marston Bates. I think it gives a very good idea and overview to laymen about the importance of ecology, ecological systems, how they naturally stay in balance, etc., which are all things that are important not just for the preservation of wild species but also for the preservation of the human race on the planet.Links about the book and him: https://www.google.com/sear … https://www.goodreads.com/b … https://en.wikipedia.org/wi … https://www.nytimes.com/197 …Edit: Also just saw this video via the reddit /r/organicfarming :”The Farmers” TV series now available with English subtitiles: https://youtu.be/XQMH0Jnl6F …It seems to be about an experimental farm in Quebec, Canada, with the goal of teaching people to start their own (organic) farms.Just started watching it, looks good.

Watched more of it. Check out the part about toads, slugs and beneficial insects – at around 24:00 or so. It’s like some of the stuff in the John D. Liu video you shared, about how ecosystems restore themselves if man lets them.

Very cool. I’ll watch it and see if I can get that book – sounds very interesting.Also, there is new movie called “The Biggest Little Farm” that I really want to see. Here is the trailer: https://www.youtube.com/wat …Thanks again!Greg

Will check that trailer out. Thanks to you too!Vasudev

Good day for a numbers game, though of a diff variety. Knicks have a 14% chance at Zion w/ this evening’s NBA lottery madness. Pretty low odds. Sadly for Knicks the odds for team w/ the worst record in league dropped this year from 25% to 14% due to a rule change. Anything short of landing the 1st pick in the draft will be viewed as a disappointment, which is what happens when unrealistic expectations are set by the media. The Knicks’ investment thesis for decades has been an abject failure.

>I remember back in the 2005/2006/2007 time frame when blogging and social media was coming of agea.k.a. Web 2.0 (Web 2). Good days (some). I was around at the time. Had started blogging at the start of that time frame – on my first blog – Jugad’s Journal – http://jugad.livejournal.com . Later moved in 2008 to https://jugad2.blogspot.com – my current one.Was working with various startups. A lot of them had big fonts and primary colors (maybe a la Google) on their web sites. A little “chi-chi”, some of them. though (not necessarily due to the fonts / colors). I had only learned the meaning of the word a couple of years earlier(2003), by hearing it said by a senior architect – US colleague at the US-Indian enterprise software corp. where I worked then.We were out in a group in Boston, after work, walking for dinner to a restaurant near the office downtown, when he used the word in some context. (referring to some people or place that was mentioned). Interestingly, I somehow instantly guessed what the word meant, and it was confirmed by asking him 🙂 Was also introduced on the same walk to the guy (working in the same corp.) who had earlier created the Brief editor, a popular programmer’s editor much earlier. [1]https://en.wikipedia.org/wi…Great city, Boston. Lots of ethnic cuisine restaurants, and much more.

This post is just a Trojan Horse built to show off your riddling chops.I saw Numberline on The Twitter but did not engage. Must be losing my curiosity.

Have Dani write a program so the Bulls sneak into the #1 pick in the NBA draft. My wife forgot her coat at the Hilton today. Forgot how huge those guys were.

https://twitter.com/wilship … Tweet of the night for Knicks fans.

https://twitter.com/kateove … Of course, if you are a Bulls fan like me….tank three seasons in a row to get the #7 pick every time.

I saw that cartoon situation off and on for years: Now I see that at times I suffered from essentially just that situation, where she promised, I responded, and after I had responded, at the last minute she tricked me.

Free learning is my favorite thing on the internet. It totally justifies its existence in my judgment. My kids and I have benefited from it in more ways than I can count.Dani’s tweet whizzed by in my timeline, and I didn’t put it together in my head that it was USV Dani, ha! But I did notice it. It stood out from the other stuff.

If anything you are significantly underestimating the importance of the Web and its content. A challenge, then, is finding content. Work currently on hold for move to new digs.

This is the modern flash card

Hey, it’s my investment thesis rounded down for the benefit of the “free learning” sms generation (the old people who should know better).

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VC Investment Thesis

The investment logic for investing in startups by venture capital fund General Partners. Learn what GPs shared with Limited Partners to close their fund.

• Genuine documents
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• Filter to your need

1839 Venture Funds

1839 say they have a thematic focus but they invest in pretty much anything.

500 Startups

MoneyBall for Startups: Invest BEFORE Product/Market Fit, Double-Down AFTER.

500 Startups Israel

Sub-brand fund for Israel, they have a typically generalized region/stage focus approach to investing.

a16z have sort of an investment thesis, but you have to read it all to try guess what it is.

Allied Venture Partners

Allied Venture have 6 factors they look for but are unsurprisining “tech” focused

Alternative Protein Fund

APF are focused on agriculture and food technology companies.

Alven invest in a relatively broad category of startups, but have 3 categories they are focused on.

Bowery Capital

Bowery is focused on “internet native”. They don’t really have a thesis.

Building Ventures – Construction

Building Ventures are focused on building stuff, what they call “Constructuring”.

Building Ventures – Space

Building Ventures are focused on space as a service

Calm Fund are focused on “funding for bootstrappers”. They invest through a Shared Earnings Agreement.

Cento invest in Southeast Asia startups looking for a Series A investor writing a $1-2m check in industries needing digital tranformation.

Daphni explain what they do and how they execute in Europe rather than being more thematic in focus.

Deep Space Ventures

Deep Space Ventures invests in seed and series-A stage startups primarily in the Esports and B2B spaces.

Draper Cygnus

Draper Cygnus are focused on LATAM, US, and Israel through Pre Seed to Series A that do deep tech and decentralization.

Early Game Ventures

Early Game are focused on Eastern Europe startups with the need for infrastructure innovation.

Earlybird have a European focus and have targeted 9 categories of startups

Escala are focused on the under-capitalisation of LATAM. It’s based on middle-class is getting larger so let’s do stuff.

ExSight invest in startups that focus in eyes.

Thematic investment thesis from Homebrew. It is centered on the concept of the “Bottom Up Economy.”

Iceland Venture Studio

Iceland Vantures are focused on personal data, privacy, sustainability and security startups in Iceland.

InnoCells invest in companies that operate in areas related to Sabadell Group’s core business

Kima Ventures

Kima invest in a lot of startups and very early. Follow on isn’t a focus. This is their approach to investing.

Mammoth Scientific

Mammoth Scientific is focused on life science and bio tech companies.

Maven Ventures

Maven invest in startups with network effects

NextView have a thematic focus on Home, Food, Work & Money, Entertainment and Apparel.

Notation Capital

Notation capital invest small dollar amounts in extremely early technical founders or founding teams in New York

OpenOcean are focused on “investments in Delicious data-intensive software.”

Placeholder

Placeholder are East Coast focused on decentralized information networks

Point Nine Capital

Point Nine have a focus on SaaS, but also cover marketplaces and will be opportunistic. They’re trying to get to no faster.

Frequently Asked Questions

A VC investment thesis is a strategic framework that venture capital firms use to guide their investment decisions. It includes the firm’s investment philosophy, targeted sectors, key criteria for evaluating startups, and expected outcomes. This helps in aligning investments with the firm’s long-term goals and ensuring a systematic approach to venture capital funding.

Creating a VC investment thesis involves defining your investment objectives, conducting thorough market and industry analysis, identifying target sectors, establishing specific investment criteria, and outlining a clear exit strategy. Data-driven insights and market trends play a critical role in shaping a robust thesis.

A VC investment thesis is crucial because it provides a structured approach to identifying and evaluating investment opportunities, reduces investment risks, and aligns the firm’s investments with its strategic vision. It also enhances transparency with limited partners and aids in attracting potential investors by clearly articulating the firm’s investment strategy.

Key components of an investment thesis include market analysis, identification of target sectors, investment criteria, competitive landscape assessment, growth potential analysis, and exit strategy planning. These components help in systematically evaluating investment opportunities and making informed decisions.

A VC investment thesis should be reviewed and updated at least annually or whenever significant changes occur in the market or industry landscape. Regular updates ensure the thesis remains relevant and effective in guiding investment decisions.

Common mistakes include a lack of focus, inadequate market research, unrealistic growth assumptions, failure to adapt to changing market conditions, and overlooking potential risks. To avoid these, ensure thorough research, realistic assumptions, and regular updates to the thesis.

A VC investment thesis focuses on a venture capital firm’s strategy for selecting and investing in startups, while a business plan details a startup’s strategy for growth and operations. Both documents are essential but serve different purposes in the investment ecosystem.

Yes, a well-structured VC investment thesis can significantly influence startup success by guiding VCs to invest in high-potential startups and providing them with the necessary resources, strategic guidance, and support. This alignment enhances the likelihood of successful outcomes for both the investors and the startups.

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4 Ways to Create Your Startup Investment Thesis

Investing in startups without an investment thesis is like going on a trip without a GPS; you can do it, but you’ll have no direction.

An investment thesis is a framework that outlines your investment strategy and objectives. It helps you think more clearly by giving you the ability to narrow down what makes a company interesting.

In this blog post, we will discuss how to create an investment thesis so you can start investing with direction.

Table of Contents

Conducting Market Analysis and Identifying Investment Themes

To create a successful investment thesis, you need to conduct market analysis and identify investment themes. This involves the following steps:

Analyze the Market

You should analyze the market to identify trends and opportunities. This may involve conducting interviews with industry experts, attending industry conferences, and analyzing market reports.

Identify Investment Themes

Based on your market analysis, you should identify investment themes. Investment themes are broad areas of focus that guide your investment decisions. For example, you may choose to focus on startups that are developing innovative technology solutions for the healthcare industry.

Establishing Criteria for Investment Selection and Portfolio Construction

Once you have identified investment themes, you need to establish criteria for investment selection and portfolio construction. This involves the following steps:

Investment Selection Criteria

Your investment selection criteria should be based on your investment goals and criteria. This may include factors such as the startup’s market potential, management team, and financial performance.

Portfolio Construction

Your portfolio should be diversified to minimize risk. You should consider factors such as the stage of development, industry, and revenue potential of each startup in your portfolio.

Read more: USV Investment Thesis , Notation Investment Thesis , NewView Investment Thesis

Creating an investment thesis is step one before investing in startups.

Your investment thesis should define your investment goals and criteria, assess your personal investment philosophy and objectives, and identify investment themes. Your thesis should improve your clarity and make it easier to narrow down your investment decisions.

If you’re looking for more examples of investment theses from some of the top funds in the world, check out the Ultimate VC Resource Library to get access to that plus 350+ other venture resources.

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VC Investment Thesis

VC investment theses

• USV’s evolving investment thesis
• A connected car investment thesis from James Harris
• Circa 2010, Dave McClure’s (500 Startups) investment thesis (bound to be the most entertaining link, even if a bit dated, and assuming you don’t mind a few f-bombs)
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How to create a VC investment thesis

• Slides from Quotidien Ventures about how and why to develop an investment thesis

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USV Climate Fund

Albert Wenger – Jan 8, 2021

At USV we describe ourselves as a “thesis-driven venture capital firm.” For our core fund, we have been investing against Thesis 3.0 for some time. Over the last couple of years, we have been developing a separate Climate Thesis , including making investments in companies such as Leap and Wren .  We are excited to announce that we now have a $162 million Climate Fund specifically for that. Like our Opportunity Fund, this new Climate Fund will be managed by all the existing USV partners.

At the highest level, the Climate Thesis can be summarized as follows: The USV Climate Fund invests in companies and projects that provide mitigation for or adaptation to the climate crisis.

Mitigation is working on the causes of the climate crisis through either emissions reduction or drawdown of existing greenhouse gases from the atmosphere. Adaptation is working on the consequences of the climate crisis, such as increased risk of crop failure. Adaptation is part of the thesis in recognition that the climate crisis is not some distant future event but rather playing out in the here and now.

We will be breaking down this high-level thesis into specific ideas, much as we have done for Thesis 3.0. We will be publishing these as a series of blog posts going forward. The first such idea is using satellite imaging to enable high powered incentives for maintaining and improving forests (and eventually starting new ones). This idea has already resulted in an investment in SilviaTerra , which we are also announcing today .

The USV Climate Fund is a straight-up venture fund. We believe that decarbonizing the economy and dealing with past emissions (and their consequences), offers many opportunities for building important new companies that can produce venture type returns. The transformation of all aspects of the physical world over the coming decades will be on par with the changes brought about by digital technology. Unlike other USV funds which have focused primarily on bits, the Climate Fund will invest in both bits and atoms. Like our core funds, we will be targeting primarily Series A opportunities, which for us means something has been built that we can kick the tires on. That something can be as little as an early prototype and companies can definitely be pre-revenue.

We thank the limited partners who are trusting us with capital for this new thesis. And we are looking forward to backing entrepreneurs and teams working to help address the climate crisis.

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