USV, a giant in the investment world, talks about investment philosophy

Original title: Investing at the Edge of Large Markets Under Transformative Pressure

Author: Nick Grossman

Since Brad and Fred deployed the first USV fund in 2004, USV has celebrated its 20th anniversary. At that time, the dot-com bubble had just burst, smartphones had not yet been invented, the concept of "social media" had not yet existed, and the first Bitcoin transaction was not made until five years later - Union Square Ventures

Since 2004, we have raised and invested in a total of 14 funds (8 early-stage “Core” Funds, 2 early-stage Climate Funds, and 4 Opportunity Funds) and have invested in multiple More than 230 investments were made across categories and technologies, including: social media, marketplaces, developer tools, learning, health, fintech, web3 and decentralized systems, energy and climate, and more.

Throughout our development history, we have gradually built our investment themes around each technological or socially transformative moment that can lead to new paradigms:

• The opportunity in 2003-2004 was the construction of the Internet application layer, and those during the Internet bubble This is where core infrastructure investment can play an important role.

• By the middle of the 21st century, it was clearly understood that building new networks (social networks, markets, etc.) More targeted types of Internet applications with huge potential are possible and promising.

• Then, as the underlying ubiquitous networks began to consolidate in the early 2010s, we began to look for narrower vertical networks (such as learning and health), new infrastructure layers (developer tools, fintech) and decentralized computing systems (blockchain and crypto markets).

• As Internet applications became increasingly central to the global economy in the late 2010s, we began to seek to use them to expand our Reach out to key resources (such as knowledge, capital and welfare) and look for opportunities to enhance our trust in these critical systems.

• As we approach 2020, and as it becomes increasingly clear how quickly the climate crisis is intensifying, we’re looking to startups trying to make the transition Opportunities exist not only to mitigate their impacts, but more importantly to accelerate the energy transition and adapt to a changing world.

• Today, we see the exponential growth of large language models (LLMs) and artificial intelligence, which makes related software ubiquitous and utility are improving, while the need for new forms of digital trust is becoming clearer.

Looking back on the 20 years of investment history across different periods and fields, we have recently begun to ask ourselves: What is the key to our investment approach? What are the consistent elements throughout? Here’s how we describe it:

USV invests on the edges of large, transformative markets that are driven by technological and social pressures.

Across time, industries, and technologies, we have and will continue to look for a set of common attributes that we believe will guide innovative products and experiences ：

Edge

The "edge" of large markets is often The perfect place to introduce new ideas and approaches. Startups on the fringe often seem strange at first but have the potential to challenge 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. Competition; Many consumer learning products do not look like they are competing head-on with the traditional education system.

New technologies make the previously impossible possible. In hindsight, these new behaviors may seem like nothing more than that, but they were not so at the time of their emergence and required experimental exploration. Rapid experimentation is the fastest way to make progress, but changing an industry is difficult because institutions and those already in the arena tend to be dismissive or even resistant.

"Fringe" approaches, such as consumer-first, prosumer, developer-first, and open source models, have the potential to circumvent market gatekeepers and enable experimentation More free. Therefore we love them.

Pressure

Technological and social pressures may break Existing market structures create windows of opportunity for new companies and networks to meet market needs in new ways.

Technological pressure may include new technologies and platforms, such as new operating systems, cryptoassets, and artificial intelligence stacks. The highest intensity of technological pressure has given rise to new business models, and these models are often structural changes that existing companies cannot catch up with.

Social pressures may include global forces such as the climate crisis, loss of trust in civic institutions, or changes in social norms and attitudes. These pressures can quickly produce changes in behavior that would otherwise be unimaginable, or at least thought unlikely.

The convergence of these pressures may cause the originally static market structure to become dynamic. Start-up companies have the opportunity to adjust their position according to these pressures, so that they can still compete with traditional enterprises in a disadvantaged position. , don’t go against the hill on your back”). We are constantly looking for these pressures and looking for draft opportunities behind these pressures for startups.

Looking ahead

Looking ahead to USV investment in the next 20 years : As global change accelerates, and as new technologies emerge and mature, we will continue to write and publish relevant papers to illustrate our new findings, but we hope that these new findings will always be consistent with this overarching framework, that is, in Driven by pressure for change, look for opportunities on the fringes of large markets.

We are excited to work with founders who are aligned with our philosophy and look forward to continuing to explore at the edge with you.