The Trust Equation

This week was the annual USV CEO Summit, one of my favorite moments of every year (remarkably, this was my 8th summit, and they seem to get better and better).  The theme of this year's summit was "Trust", which, for those paying close attention, is the anchor of USV's investment thesis 3.0.

We have been spending a lot of time thinking about the concept of trust, what we mean by it, and how we think it can become an actionable part of a startup strategy.  More on that to come.  

As part of the summit yesterday, we asked a handful of CEO's to talk about what trust means in the context of their product and/or company.  As you can imagine, there are many different ways to look at it and think about it.  Here, I'd like to point out the framework that CircleUp's Ryan Caldbeck presented, which is:

https://twitter.com/ryan_caldbeck/status/1013626221601738754

(click through to read the entire thread with Ryan's commentary)

I found this to be surprisingly simple and profoundly useful.  I hope it's useful for you too.

#strategery#trust

What decentralization is good for (part 3): growth

Picking back up the series on what decentralization is good for (part 1, part 2), today I want to focus on one of the most exciting aspects of decentralization: growth.  

In this case, when I say "decentralized", what I really mean is "open and non-proprietary".  The two often go hand-in-hand.

Ok, so why are open, decentralized systems especially good for growth?  When a technology is open (anyone can use, extend, modify, build on) and decentralized (no one party or company is in full control), it has the potential to spread like wildfire, for exactly those reasons.  Since it is free to use without restriction, permissionless innovation is possible -- meaning anyone who feels like it can pick it up and run.  And because open, decentralized systems reduce platform risk, developers can feel comfortable building on them with less of a risk of getting the carpet pulled out from under them.

When this works, it works really well. Many of the technologies we use every day -- like HTTP, SMTP, WiFi, USB and Bluetooth -- have become ubiquitous precisely because they are open, nonproprietary and decentralized in nature (in addition to being useful!). 

Everyone knows that it's safe to build to the Bluetooth standard without platform risk.  And what that means is that anyone, no matter what company they are with, or what country they live in, has the potential to grow the platform.  This kind of omni-directional growth is really only possible with open, un-owned, decentralized technologies.  

Often times, however, a single company drives the development of these open, un-owned, decentralized technologies.  For example, the General Transit Feed Specification is on open data format that powers most of the public transit industry. As I have written about before, this standard came to market in large part because of Google's initial efforts, and was then adopted and grown by a large community of others (including our work at OpenPlans back in 2009-2012). Or, to go farther back, we can look at the role that Mozilla/Firefox played in bringing modern web standards (includuing Cascading Style Sheets) to market.  Or to today, and Apple's and Google's role in bringing USB-C to market (of course, Apple does not have the best track record on this topic).  The point is, it can be difficult for open, nonproprietary, decentralized technologies to take off -- they need some sort of catapult.  Historically that has come from companies with some self-interest -- this has been a good thing (generally speaking).

Today, in addition to companies driving open technologies, we have the potential to use cryptocurrencies to drive initial adoption.  We seen this work to great effect with Bitcoin, Ethereum and other platforms, and while the specific mechanics are still being explored and experimented with, the basic concept is clear: we can use cryptocurrencies and tokens to bootstrap new open, non-proprietary, decentralized technology platforms.  It doesn't work every time -- and we will no doubt continue to see a parade of flameouts -- but when it does work, it has the potential to work in a massive, exceedingly rapid, and global way.

#crypto-decentralization#growth#strategery

What decentralization is good for (part 2): Platform Risk

Continuing on the theme of what decentralization is good for, this week I would like to focus on one of the most powerful drivers in the near-term: Platform Risk.

Platform Risk is is the risk that the tech platform that you build your product/app/business/life on will become a critical dependency, will become unreliable, and/or worse, will screw you in the end. 

Here is a post from a few years back that details many different flavors of platform risk, many of which are benign, and some of which are malicious. And here are some examples, to make it more concrete:

This is not to say that any of these acts are necessarily illegal, or even immoral.  But if you are investing serious time and money -- especially dropping everything to build a business on a platform -- these kinds of risks are of grave concern.

So, what does decentralization have to do with platform risk?  When the platform is a protocol (i.e, decentralized) rather than a company (i.e., centralized), the rules of engagement are known up front and can't change on a whim or because of a business decision.

If we think about the original internet protocols (TCP/IP, HTTP, SMTP, FTP, SSL, etc), they are a set of networking, communications and data exchange protocols that ultimate form the platform we know of as the web. While there are certain forms of platform risk on the web (e.g., stability, speed, security), the web on the whole has become a very stable and reliable platform, generally absent of the flavors of risks detailed above.  

Cryptonetworks (i.e., public blockchains and cryptocurrencies) combine the architecture of the original internet protocols with the functionality of today's corporate applications platforms (data management & transactions).  While there are still major issues to solve before these systems collectively become a mainstream platform, they are gaining major adoption from developers in large part because developers are so keenly aware of platform risk, and see cryptonetworks as a type of platform they can trust.  

As an illustrative example, let's compare downloads of the Truffle framework (a popular dev tool for Ethereum):

source: Truffle Dashboard

... with the price of ETH over the same time period:

source: Messari

Developers are the canary in the coal mine when it comes to platforms.  And at the moment, they are pointing to the desire for platforms with less inherent risk, more reliability and more trust.

#crypto-decentralization#strategery

Layers

A central concept on the internet is Layering.  Each of the protocols in the internet stack talks to the layer directly above and below it -- new protocols can be added as long as they speak the language of their layer.  Protocols at one layer can be upgraded so long as they don't break compatibility with the layer above or below it.  This architecture maximizes interoperability and allows for a great deal of flexibility.  The shape of the layers has been described as an hourglass, like this:

(credit: University of Calgary)

Beyond layering at the protocol level, we have gone on to build layers at the infrastructure and application levels.  Infrastructure like AWS and Cloudflare, software libraries like Node, Rails, and jQuery, services like Twilio and Stripe.  To build an application today, you do not need to go build a data center (or many of them), think about how to manually process HTTP requests, or write bare-metal adapters to the payments or telecom systems. In the crypto/blockchain space, we are just at the very beginning of establishing layers. I think it's safe to say that today's blockchain landscape looks more like the early days of AOL, Prodigy and Compuserve (standalone, disconnected networks) than like the open, interconnected internet.  A major reason for this is the introduction of cryptocurrencies and tokens, which provide a strong incentive -- for now at least -- for starting new networks and maximizing value of existing networks.   But, as teams continue to build, and continue to build the same things over and over again, layering seems both inevitable and needed. Within blockchains, layers delineate networking (libp2p as a leading tool), consensus (tendermint, hashcash and others), applications/smart contracts, and perhaps indexing/search (something everyone is doing on their own right now, but that thegraph is looking to solve as a layer). Perhaps the most interesting question is how different blockchain systems may layer together.  Cosmos and Polkadot are building systems for interoperable blockchains via a hub-and-spoke model, with shadow assets pegged to outside chains for interoperability.  Interledger is attempting to be a more universal cross-ledger (ledger, meaning blockchains and otherwise) protocol, akin to TCP/IP in the core internet stack. How these systems interconnect, and layer atop one another, seems like a fundamental question as we move from the speculative phase to the functional phase.  We are just now beginning to get glimpses of it.

#crypto-decentralization#strategery

The path to decentralization: self-destructing companies

In June, the SEC gave some of its most concrete guidance to date that cryptoassets can start out as centralized projects, possibly initially sold under securities laws, and eventually become "decentralized" and thus no longer sponsor-controlled, and no longer sold or transferred under securities laws. It makes sense that a decentralized protocol does not fit the definition of a security.  There's not a clear single issue or promoter (for purposes of reporting, etc); tokens are often generated on an ongoing basis (which would constitute a "continuous offering" and related registration requirements); tokens are generated on a fully peer-to-peer basis in the protocol (potentially implicating independent nodes as transfer agents or broker dealers, or requiring those as middlemen); not to mention how all of the above are complicated by new issues like forking. Of course, all of this leaves some open questions on what exactly constitutes decentralization, but I am confident we will work through those to come to a usable definition.  For example, "is the network forkable" is one simple (but incomplete) heuristic.  Another is: "would the network continue operating if the initial sponsor went out of business". This second one is perhaps the most concrete, and I believe the the net effect of the SEC guidance is that we will begin to see protocol development companies (the initial "sponsors" of cryptonetworks) set a course to intentionally self-destruct. How this is done, exactly, will remain to be seen. Already we have seen a company / foundation split as one way of setting the protocol in the hands of a long-term custodian that is not the initial sponsor.  Some projects may bake self-destruction into their initial charter (and any associated coin offerings or distributions); others may make self-destruction part of the protocol software development roadmap. But regardless of mechanism, I believe many projects will begin to contemplate their "path to decentralization" -- that is the takeaway from the SEC guidance, and a self-destructing company (leaving behind only an autonomous, decentralized protocol) is the logical result. This is going to be a messy process. For example, the recent launch of the EOS network demonstrated some of the challenges of handing off a protocol and network to the community.  But luckily we will get to see many more real-world experiments as projects move out of the fundraising phase and into the build->ship->decentralize phase.

#crypto-decentralization#strategery

just_work = true

One of my former colleagues, Rob Marianski, and I used to have a running joke -- we would be building and debugging something, and he'd finally say, "Oh, so you just want me to set just_work = true?".  That was over 10 years ago, but it still gets me every time for some reason.  (as an aside, I have always thought justworkequalstrue.com would make a great blog name, and actually bought the domain for Rob a few years back -- still waiting for that first post, Rob...). But the idea of things "just working", automatically, and without friction, is magical and exciting. I mention it because of where we are today in the crypto/blockchain space.  99% of the attention recently has been on ICO hype and the financial use cases of crypto (fundraising, trading, payments, tokenized assets, etc) -- but I believe we are about to turn the corner and get a taste of what kinds of new online user experiences will become possible because of this technology.  This is where it's going to get fun. just_work = true will be the foundational element of this experience.  Here is what I mean, by way of a few examples: 1) Browsers with identity and money built-in:  the browsing experience will be directly tied to identity and payments, and any app will be able to natively, frictionlessly, tap into both.  Users of Toshi, or Brave, or Metamask, or Blockstack are already getting a taste of it.  Because all cryptonetworks are built around public key cryptography, and the private key is both your identity and your wallet, when you have a public/private keypair built into the browser, you can do lots of things -- be "logged in" everywhere, control & provision your own data, make seamless and flexible payments and payment arrangements (e.g., subscriptions).  Imagine the entire web working as seamlessly as Amazon and Apple do today.  As you surf the web, there will be less logging in, fewer passwords to remember, fewer forms to fill out -- it will just work. 2) Portable digital assets: I wrote about this previously, but the interoperability of blockchain-based digital assets is going to be a big thing.  Because assets on blockchains are public, open and available, they can exist across many websites and applications.  The suit of armor you build in world of warcraft could be used as collateral for getting a blockchain-based mortgage -- maybe that's a ridiculous example, but the idea is that these assets are open, interoperable, and natively portable -- which means things will "just work", across the web, in ways that aren't possible today. 3) Automatic dev / deploy environments: my colleague Albert described a story recently where his son participated in a Solidity hackathon -- the time from setup to deploy was vanishingly short, since all of the deployment infrastructure is part of the open Ethereum network.   No need to set up accounts at amazon, heroku, stripe, etc to get started -- just write a contract, buy some ether for gas, and publish it, and you're online.  We've never had a development / deployment environment this drop dead simple, and as blockchain dev tools mature further, it will get even easier. I mention all of the above just as a thought exercise.  It is easy for folks in this space to focus on issues like privacy and "freedom" -- and while these things do matter to some users (especially technically-minded power users), I don't believe this technology will unlock mainstream opportunity until we begin to surface the magical capabilities that make everyday users feel like "wow, it just works".    

#crypto-decentralization#strategery

Finding your discomfort zone

I have been down in DC the last few weeks, among other things, talking to lawmakers and regulators about cryptonetworks and cryptocurrencies.  As part of that, I've been spending a lot of time with attorneys -- specifically securities attorneys -- getting into depth on issues like the definition of an "investment contract" and case law like Howey, Reves and Forman. Separately, I've spent a bunch of time over the past 9 months helping USV portfolio companies getting ready for the EU's new privacy regulations, the GDPR.  As part of that I have spent a bunch of time with tech teams, attorneys and others unpacking not only what the regulations require in different cases and what it will take for companies to comply, but trying to think about ways to make data security and privacy compliance easier for small startups, assuming that new regulations in the US are looming. This is not a post about cryptocurrencies and whether all ICOs are securities, or about how we should be thinking about solving privacy and security problems online.  It's about getting comfortable in that sweet (& sour) spot where you know a little (or a lot) less than everyone else in the room about whatever problem you are trying to solve. I am not an attorney, am not a PhD computer scientist, am not an economist or monetary policy expert, and am not an MBA and don't have a background in finance. Yet every day I find myself in the middle of some set of issues drawing on all of these specialties, typically with people who are seasoned experts in one area or another.   It can be intimidating, but it's also incredibly stimulating and exhilarating. There have been many times during my career where I have stood at that crossroads and had an opportunity to either stay in the comfort zone or wade into the discomfort zone (starting at USV 6 years ago was one of those moments).  I'd like to say that I've always headed straight to the discomfort zone, but I can't say that that's true. It has taken time for me to get comfortable being uncomfortable. One of the great things about working in the discomfort zone is the ability to be honest about your limitations -- in a room full of lawyers, leading with "i'm not a lawyer and you guys are the experts, so..." can be really freeing.  Once you can do that, you can open yourself up to lots of interesting and important situations. A while back, I tried using this heuristic for prioritizing my time: what's the hardest thing I can be working on right now?  That has helped me guide myself to the discomfort zone more and more, which I will keep doing as much as I can.  

#personal#strategery

A bigger container

An idea I like from Zen Buddhism is becoming a Bigger Container.  My understanding of the idea is this: There are a lot of difficult/bad/sad/scary things going on in the world, ranging from serious global issues, war, famine, terrorism, etc; to things in your city like homelessness or joblessnes; to things in your family, like difficult relationships or substance abuse; to tiny things in your life like a daunting project at work, or your inbox, or going through bills or cleaning your desk. It's hard to open yourself up to all of these things, because the are overwhelming and scary.  So the easy thing to do is turn away - to avoid. Becoming a bigger container means making space within yourself to face an increasing number of these things, with compassion and without fear.  Being able to hold them and look them in the eye without any one of them grabbing control of you, carrying you away or breaking you. From the reading linked above:

"What is created, what grows, is the amount of life I can hold without it upsetting me, dominating me. At first this space is quite restricted, then it’s a bit bigger, and then it’s bigger still. It need never cease to grow. And the enlightened state is that enormous and compassionate space. But as long as we live we find there is a limit to our container’s size and it is at that point that we must practice. And how do we know where this cut-off point is? We are at that point when we feel any degree of upset, of anger. It’s no mystery at all. And the strength of our practice is how big that container gets."

When am most proud of myself, I am able to make space within myself to deal with hard things.  To look them in the eye, be with them, and not look away.  When I'm frustrated with myself, it's often because I'm avoiding doing this. The visualization that works for me is that when you become a bigger container -- when you can generate some perspective -- each of these individual things becomes smaller by comparison; less dominant. It can be hard to do sometimes but I find it to be a really useful construct.

#personal#strategery

From a labor mindset to a capital mindset

I've been quiet on the blog lately -- writing is one of those things that's hard to build a habit for, but always pays big dividends when you do it.  Every time I've gotten into a good blogging rhythm I am undoubtedly surprised by the feedback I get (good and bad!), but more importantly, by the ripple effects.  Writing is capital -- you work to make it, and then it works for you. As someone who likes to work with his hands (both in the analog and digital worlds), I feel pretty deeply connected to both labor and to capital.  The process of making something (a table, an app, a blog post) can be deeply satisfying, and then the follow-on effects from that thing existing can (in the best cases) be very high leverage. I would say my hands-on nature is both a blessing and a curse when it comes to this.  Because I like "making stuff" I'm often drawn into projects where I might be better off hiring (or inspiring) someone else to do it, or delegating it somehow.  When it comes to producing capital, sometimes actually the less you "do", the more you can accomplish.  I think of this as learning to develop a Capital mindset, over a Labor mindset. Of course this relates to money as well. For the longest time -- I think this was just my foundational mental model -- I intuitively understood the idea that you work, and you get paid.  Labor.  Paid for your time.  Despite the fact that I have worked for a  long time in the software economy (and of course now, in venture capital), I had to overcome this idea of labor being the thing.  For instance, I spent a lot of time in my early twenties as a freelance developer, building apps (capital) for others, but just getting paid for my time. Maybe this is intuitively obvious to other people, but it has taken me some time to turn the corner and understand the value of, and the power of, capital.  **Especially** capital you can build through your own efforts, like writing, or coding, or making music, art, etc. I feel like it's an overall very powerful frame, and is especially helpful when it comes to prioritizing your own time & activities -- whether you are the CEO of a company, or a guy/gal sitting in your living room. With that in mind, here is my first blog post of 2018.  Here's to a great year, everyone.

#personal#strategery

Service

The week before last, we lost a dear friend to cancer.  Deb was an incredibly sweet, caring and giving person.  The memorial service last weekend was held at the elementary school where she taught first grade for the past 15 years.  The room was decorated -- to the hilt -- with hearts, butterflies, and ribbons, all in her favorite color purple, and was covered in notes of love and appreciation from students, parents and colleagues. During and after the service, I was overwhelmed by two feelings: first, the incredible compassion and caring that Deb exuded, in particular towards her family and students.  It was palpable, and hung in the air long after the service was concluded.  And second: the weight of the impact she had on all of the people she touched during her life.  A friend of ours was remarking, after the ceremony, how lucky Deb was to be in a position to connect with, support, and serve so many people during her time here. All of this has gotten me to thinking more about how much most of us get caught up in our own day-to-day anxieties and challenges, and how hard it can be, sometimes, to see over your own dashboard, so to speak.  Myself included.  It's so easy to get hung up in our own personal challenges, desires, frustrations, anxieties and disappointments. The great irony in this, is that one of the best ways to get out of your own shit, is to put yourself in the back seat and focus on serving others. I know Deb dealt with shyness and anxiety herself, and I suspect that this only added to her empathy when it came to supporting her family, friends and students. Every time I have managed to do this in my life, the result has not only been to provide some sort of useful help (I hope), but also to quell the internal drama. In other words, perhaps the best way to escape from our own suffering is to help other people escape theirs. There are lots of ways to do this, many of which come naturally through the course of your day and are just a matter of reframing your own mindset, as opposed to finding something brand new (though that's important too). After Deb passed, we couldn't help but notice her in the wind, and the sun, and the evening mist.  Her energy may have left her body, but it certainly hasn't left the world.  And what I am trying to do is remember the power of her energy, and the importance of using whatever energy we all have, today and tomorrow, in the service of others.

#personal#strategery