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VC Andy Weissman on the DNA of Union Square Ventures

andy_5By Semil Shah

For the last four or so years, Andy Weissman has been a partner at New York-based Union Square Ventures. But like his colleagues, including Fred Wilson and Brad Burnham, Weissman has been investing since the dot.com boom and bust of the late ’90s. He first joined Soundview Ventures/Dawntreader Ventures in 1999, spending more than six years with the firm before cofounding Betaworks with John Borthwick in 2007. In 2011, when Betaworks began to focus less on creating an investing portfolio (which Weissman had managed) and more on becoming an operating company, he hopped over to Union Square Ventures.

We talked last week about his work, and what USV is doing to maintain its status as one of the most successful venture firms in the game today.

How has USV’s thesis around “engaged networks of users” factored into investing in mobile-first companies? It’s obviously hard to find apps on mobile, and distribution can feel gated.

Well, at some level our thesis is not monolithic but instead is by design flexible, debatable, and evolving. When we wrote this post [about our pursuit of large networks of engaged users, differentiated through user experience, and defensible through network effects], we tried to explain how each of those words in the thesis matter, and how they each are subject to conversation over time.

So, at another level, the thesis applies to mobile-first companies the same way it applies to any companies or sectors, from mobile to blockchain to marketplaces. That being said, when you have a device that is available in everyone’s pocket, is location aware, and so forth, all the other attributes of a mobile device and mobile apps, there are real questions about the strength of the network effects. Are they the same? Or stronger? Or even weaker? That’s a conversation we’ve been having.

Speaking of which, tell us more about Figure1 and the story of how you came to invest in the company.

Kind of funny. I read something somewhere about the company. And I searched on Twitter and found the names of some of the founders. So I reached out to them on Twitter. A year later, we participated in their Series A financing. One of the best things was that as we got to know them, we realized Figure1 was precisely the kind of company in a medical or healthcare related field that was consistent with our thesis. I just didn’t know that until afterwards.

USV often travels as a team to the Bay Area and other regions to meet companies. This seems different than the lone-wolf culture of other firms.

USV operates in particular way. It’s not necessarily the only way to operate, nor is it necessarily the best way, but it is our way. We are a small firm by design and structure (meaning team size and capital size). And our framework for decision-making is a a particular point of view about the Internet – the thesis. So at least two times a year, we all go to San Francisco and get to spend a little more intimate and collective time with the companies we’ve invested in and others that we want to get to know us better. It works well. That small collaborative nature is part of the DNA. So we move in packs sometimes.

On mobile, besides Twitter, where do you find yourself having the most conversations? What apps are you most social on and why?

Twitter, Tumblr, Groupme, Reddit — the usual suspects. I lurk a lot in Figure1 and K-Pop Amino [a social network for Korean pop songs, photos, news and Korean music videos], then some other, very niche communities. As my friend Brad Dickason wrote to me the other day, “Put any self-branded introvert in a room with someone else who shares their passion and an intense dialogue ensues.”

USV has been doing more seed rounds of late. Naming rounds these days seems more complicated than it’s worth. How has USV adjusted its strategy to meet today’s environment?

I think we view our DNA as early stage investors foremost, without regard necessarily for whether something would classically be called Seed or A or whatever. I don’t think we’ve really adjusted the strategy. There are periods when we seem engaged in companies that at the earliest stages require less capital, and periods when the don’t. Lately, there have been more of the former than the latter, but we’ve also done a few of what you’d consider classic “Series A.”

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Erin Glenn, Alphaworks’s New CEO, on Waiting for the SEC

Erin-GlennAny new CEO has a lot to contend with, like getting to know employees and clarifying the business’s strategy. Erin Glenn, who recently joined the New York-based crowdfunding platform Alphaworks, has to worry about something else, too: the SEC.

Launched by Betaworks in February of this year, Alphaworks is a white label platform that obtains stakes in companies via seven venture “sponsors” that leave open between $100,000 and $250,000 of certain startups’ rounds. The companies then sell the equity directly to their own “communities,” in turn making those customers even more loyal.

Glenn — who spent the previous four years as CFO of the gaming company Kixeye — sees a day when the model is used across numerous industries, though Alphaworks’s clients so far have been consumer-facing Internet companies with impassioned members.

Gimlet Media, a New York-based podcasting company, is a prime example. Earlier this fall, when the company was looking to top off roughly $1 million in venture funding, it agreed to crowdsource some of the round to its listeners. Alphaworks’s nine employees sprang into action, posting a deal page for Gimlet, reformatting its pitch deck, helping gather audio testimonials and, not last, helping coordinate media coverage to drive interest in the campaign.

The plan worked. Gimlet’s $200,000 crowdfunding campaign was fully subscribed within three hours. (In fact, the company wound up accepting $275,000.) Alphaworks is now represented on Gimlet’s cap table as a special purpose vehicle whose investors have delegated their voting, follow-on, and information rights to Alphaworks.

Still, not everyone who wanted to back Gimlet could — not even close, says Glenn, who estimates that just 25 percent of those who began the registration process were able to complete it. The others didn’t qualify as accredited investors. And until the SEC finalizes a key rule in the now two-year-old JOBS Act that was designed to let small businesses raise money from virtually anyone over the Internet, the non-accredited will remain locked out of the process. (As recently as last week, the agency’s chair, Mary Jo White, suggested it’s in no rush to make binding decisions about the rule, called Title III.)

“It’s frustrating,” says Glenn of the continued delays. “There’s a concern about ‘frothiness’ in the market right now. But in a hot market or a down market, the timing is always going to be difficult.”

Alphaworks has a uniquely challenging mandate, too. While other crowdfunding platforms cater to wealthy investors in search of investment opportunities, Alphaworks’s focus on turning a company’s fans into owners means it’s catering to very different end users. Not only do many of them lack the financial muscle required currently by the SEC, but some need to be educated on startup investing. (Indeed, Alphaworks, which is backed by $1.5 million from Betaworks, SV Angel, and Lerer Hippeau Ventures, has organized just four campaigns to date.)

Glenn — who says that Alphaworks is sticking to its original mission — isn’t discouraged. As far as she’s concerned, its patience today will pay big dividends later.

She notes that Gimlet saw nearly triple the demand for what it raised, taking into account the roughly 75 percent of registrants who were forced to abandon the process along the way. “That kind of demand is a strong signal for Gimlet to talk about,” says Glenn. “But it should also be a signal to the SEC. People want to participate in the growth of their favorite companies. They also want to be responsible for their own financial destiny.”

And Alphaworks, she suggests, will be waiting to help them.

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Betaworks Closes a New $20 Million Round

betaworks logoBetaworks, the six-year-old, New York City-based holding company that has collectively created and invested in more than a dozen startups focused on the “real time Web,” has raised $20 million in new funding, says cofounder John Borthwick, who tweeted in the wee hours of Friday morning: “Excited to bring a few new investors into betaworks. Approx. 20m total capital. The first time in 3 yrs+ that we have have done a raise.”

A new SEC filing shows a partial list of the firms to participate in Betaworks’s newest round, including Lerer Ventures, RRE Ventures and White Star Capital in the U.K., all of which are existing investors.

Also listed on the Form D are John Drzik, president and CEO of the management consulting company Oliver Wyman; Michael Buckley, a longtime managing director at Intel Capital who is now the head of finance and strategy at Nike Digital; and Paul Cappuccio, the chief legal officer at Time Warner.

 

RRE Ventures, Lerer Ventures and White Star Capital were among the first firms to provide Betaworks with its first, $7.5 million round, announced in early 2008.

Two years later, in 2010, Betaworks closed on a $20 million Series B round that was led by RRE Ventures and then-new investor Intel Capital, and which included DFJ Growth, AOL Ventures, The New York Times, Softbank Japan and Softbank NY, and Founder Collective.

Betaworks both invests in, acquires, and helps create real-time media startups. One of its first big wins was with Summize, a search engine that Twitter acquired in a mostly stock deal in 2008. Betaworks is also the company behind the link-tracking analytics company bit.ly, the Web site monitoring service Chartbeat, and numerous other products.

Recently, the company has made a big push into social reading, including acquiring Digg, which it nabbed at a fire-sale price last year, and  purchasing the bookmarking tool Instapaper for an undisclosed amount in April. Betaworks has since relaunched both products.

Reached for comment on Saturday, Borthwick (nicely) declined to comment further, saying only that money was raised “recently.”

Earlier this month, Betaworks hired former Huffington Post Media Group publisher Janet Balis as its very first chief revenue officer, a sign that it’s looking for more ways to earn money off its portfolio. As Borthwick told AllThingsD of Balis’s appointment: “Phase one of Betaworks was building great companies. ” Phase two is “really building Betaworks as an operating media company.”

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