Musings of a VC in NYC

Immigration Reform

For those who watched the talk I did with Paul Smalera, some of this will be redundant. Paul asked me why we haven't gotten all of these "no brainer" immigration reform proposals like the startup visa (funded entrepreneurs get to stay in the US and build their companies here), or the STEM visa (graduate degrees in STEM come stapled with a visa), or an end to kicking undergrads out after they graduate.

The answer is that there has been a long standing debate in the US about "comprehensive immigration reform" which involves putting many of the immigrants who are already here on some sort of path to citizenship in return for a committment to strengthening our borders so we get less illegal immigration.

And all of these really great ideas about piecemeal immigration reform that both sides support have been hostage to the big idea of comprehensive reform. If the elected officials give industry the things they want like more H1B visas, STEM visas, startup visas, etc, then they lose our collective pressure on the immigration issue. And they need our collective pressure (and money) to get this done.

Last week, the "gang of eight" introduced a comprehensive immigration reform bill. It is now making its way through hearings and such and will eventually face a vote in Congress. This bill includes all of these piecemeal proposals we have been advocating for in the startup and tech community for years:

• startup visa
• STEM Green Card
• undergrads are allowed to intend to stay in the US after graduation
• one line for green card applications
• merit-based, points-system green card
• merit-based green card will clear out backlogs
• more H-1Bs

So if you want to see all of these good and important changes to the immigration laws in the US, you have to get behind comprehensive immigration reform. That's the way the deck is stacked in this debate. It took me a long time to understand that and although it is illogical, it is the way it is.

There are many opponents to the comprehensive immigration reform bill out there. And they will use anything, including things like what happened in Boston last week, to kill it. We need everyone in the tech industry and the world of startups to get behind this bill. Not only because it addresses pretty much every request we have made on immigration but also because the US is a land of opportunity and diversity and it is our greatest strength that we allow good people to come here and build a life, a career, a family, and a company.

I hope all of you will support comprehensive immigration refrom loudly and vigorously. We will need it. If you want to do something right now, go here or here and get involved.

Video Of The Week: The Tech Tonic Discussion

Background Checks

We had a very lively and healthy debate here at AVC a while back about gun safety. I am very much in the camp that we need to put a lot more restrictions on what guns should be on the market and how. But regardless of where you are on gun safety, the vast majority of Americas (between 70% and 90% depending on how and who you count) believe that background checks should be run on everyone who wants to buy a gun.

But getting background check legislation passed by the Senate is proving challenging. How is it that 70-90% of Americas support this idea and we can't get the Senate to pass the legislation? Well that is gun safety politics in America.

Tomorrow the Senate will bring the bill to the floor for a vote. It looks the Republican threat to fillibuster has passed. Smart move by the GOP. Fillibustering a bill that 70-90% of Americans support seems like a bad idea. But there is still the question of how the vote will go.

Over the past decade, my wife and I have been generous givers to Democrats running for Senate. I imagine that of the fifty-five Democrats in the Senate, we have donated to at least half of them. The data is online somewhere but I don't have the time to find the data and link to it.

In the coming days, we will get another data set. That being the list of Senators who voted against background checks. And I hope that data gets put online permanently like our giving history. Because that will be a list of Senators who are hostage to the NRA and do not need or deserve our support. We will get to see who they are in the coming days. I will be watching carefully. So should you.

Why We Spend So Much Time On Policy Stuff

Last month I wrote a post mentioning that we have an activist in residence at USV. And I write a lot here at AVC about the policy stuff we have been working on. It might seem to some that we are more like policy think tank or adovacy organization than a venture capital firm. I think that is somewhat true. We make a lot of early stage investments and we work hard with those companies to help them succeed. But if you hung out at USV, you would see that we spend a lot of time on policy stuff. And that begs the question "why do you do that?".

The short answer is that Brad, who I founded USV with a decade ago, has felt from day one that policy and governance will be as important as technology in shaping what the market looks like in the coming years. And that, of course, will shape how impactful our portfolio companies are, and that will ultimately shape our returns. And we are in the returns business.

The longer answer has to do with the power of networks, which are central to our investment thesis, to be an economic force in society. These networks will reshape markets, lower costs, bring efficiencies, and disrupt the ways that things are done. And those who are incumbents in today's model will fight these networks tooth and nail, because they threaten their incumbency. And that will lead to policy fights. We want to get out ahead of all that as much as we can.

I have not seen much written about this coming change. So I was pleased to see a post by Om Malik yesterday that laid all of this out clearly and succinctly. Om says:

the challenges of the connected future are less technical and more legislative, political and philsophical. The shift from a generation that started out un-connected to one that is growing up connected will result in conflicts, disruption and eventually the redrawing of our societal expectations.

This redrawing of societal expectations is likely to be the political battle of our time. Om goes on to talk about this in the context of the labor issues that Uber is having in San Francisco. That is a good example of what happens when networks and the data they produce reshape a market that has been operating in a traditional framework.

We are at the start of this battle between incumbents, be they black car drivers or cable companies or government itself, and the network driven upstarts. And we have many of those upstarts in our portfolio. So our policy work is ultimately an investment in the success of our portfolio companies. And that is why we spend so much time on policy stuff.

Getting To Simpson Bowles

The President's Commission on Fiscal Reform, known as Simpson Bowles because it was led by Alan Simpson and Erskine Bowles, recommended that we find $6 trillion in spending cuts and new revenues to get the Federal Budget to a healthy place. 

I stopped by the Wharton Economic Summit last week to hear Austan Goolsbee, formerly Obama's Chairman of the Council of Economic Advisors, give a keynote. In a wide ranging talk that touched on most of the key economic issues facing the US, Goolsbee pointed out that by hook and crook, we have already accomplished half of Simpson Bowles. We might not like the political nonsense around things like the "fiscal cliff" and the "sequester", but they have allowed the folks in DC to implement $3 trillion of spending cuts and new revenue.

But of course, if we have accomplished half of Simpson Bowles, that means we need to get to the second half. And that will be a lot harder because it requires our country to come to terms with entitlements. When asked why it is so hard for the politicians to tackle entitlements, Goolsbee pointed out that the general public believes two important things; we have a spending problem in Washington and we should not touch medicare, medicaid, and social security. Sadly, those entitlements are a big part of our spending problem and left alone, will be the entire spending problem in time.

I read with interest on Peggy Noonan's blog yesterday that the President had dinner last week with much of the Republican leadership and they had a frank and honest conversation about how to get to the second half of the $6 trillion. It's worth reading that post because it suggests that our political leaders actually do have the will to get to Simpson Bowles. It sounds like they all know it must be done.

Of course, there is a big difference between it must be done and it will be done. 

When it comes to the economy here in the US, I believe a few things. First, our country might be a mess but it is in better shape than most of the rest of the world. Second, that it is entirely in our power to fix the problems we face. Third, we must take in as much as we spend over the long haul or we will go bankrupt. Fourth, if we take our fiscal medicine and do that responsibly over time we will not go back into a recession. Fifth, our economy is expanding with some vigor now and we have a moment, both economically and politically, that we must not miss.

So I am hoping our leaders find the will to get this done. It is essential, not just for our generation, but most importantly for our future generations.

We Heart WiFi

One of the biggest problems at SXSW is lack of a good mobile data connection. The carrier networks are overloaded by the sheer density of people using their phones. And the SXSW WiFi is similarly overloaded. This year, there will be a third option. Look for a free wireless service on your phone called We Heart WiFi:

We <3 WiFi "Heartspots" @ SXSW 2013
We will be at SXSW demonstrating the potential of "Super WiFi" on March 8-10.
Each Heartspot is powered by 100% open wireless technologies -- connected to a single gigabit fiber backbone via Super WiFi backhaul links.
No cables, just wireless. All using open spectrum.
The Heartspots there to give people fast wifi, and to demonstrate what's possible with open wireless technologies.

One of my favorite things about these heartspots is they are mobile. Since the backhaul from the WiFi access point to the Internet backbone is "Super WiFi", these heartspots can be taken to the places where there is most need for good WiFi.

"Super WiFi" is the unofficial name for the next generation of wireless sharing technologies like WiFi. Unlike your cell phone, WiFi uses open (or 'unlicensed') spectrum available to anyone with a device approved by the Federal Communications Commission (FCC) for any use. Some years ago, the FCC opened unused television channels (called "TV whitespaces") for the next generation of "Super WiFi" technology on a limited basis. Last week, the FCC finally approved this new technology for nationwide use -- making massively improved WiFi possible. However, the spectrum needed to realize this vision is at risk.

Go to this page and learn all about Super WiFi, the challenges facing spectrum reform, and the opportunities that come from more open WiFi. It also explains how you can find We Heart WiFi heartspots while you are in Austin for SXSW.

I am extremely proud that USV is one of the creators of this project and has supported it financially.

Related articles

The US Needs A New Spectrum Policy

Government Wants to Create Free Public 'Super Wi-Fi'

What is "Super Wi-Fi?"

New FCC 'Super Wi-Fi' Initative Not Really New - White Space Broadband Still Running Political Gauntlet

Can the FCC Create Public "Super WiFi Networks"?

FCC calls for free nationwide WiFi

The SHIELD Act

And now a return to a favorite topic here at AVC - patents, patent trolls, and the urgent need for patent reform here in the US.

One of my favorite ideas for sensible patent reform is "loser pays" for the legal costs of the other side.

The reality is that patent trolling is a low cost form of shakedown and that there isn't much economic cost on the troll to deter this behavior. If challenged in court, patent trolls win less than 25% of the time. And yet so few of these shakedowns ever go to court because the cases get settled for economic reasons (settlement cost are less than expected defense costs). And these settlements fund the trolls to keep shaking companies down. If the target company can recover their legal costs by defending themselves and winning, then the math over the settlement changes and more cases will be litigated, thus increasing the costs for the trolls.

This is where the SHIELD act comes in. There are so many things to like about this bill. It is only five pages long. It only does 1 1/2 things. The one thing is amend patent law to provide for loser pays. The 1/2 thing is it allows the court to require the troll to post a bond early on in the case to be sure they can and will pay the legal costs if they lose.

This is a bi-partisan piece of legislation being introduced by a representative from Oregon (Peter DeFazio - D) and a representative from Utah (Jason Chaffetz - R). In their press conference introducing the bill (embedded below), they say that the leadership is going to get moving on this bill quickly.

I think we should all help them by letting our representatives know we support this legislation. I just did that and it only took 15 seconds.

Related articles

Peeved politicians want "loser pays" rule for patent trolls

Help EFF Fight Patent Trolls, Support the SHIELD Act

Patent Trolls: The Innovation Hijackers

Law Would Force Patent Trolls To Pay For Failed Lawsuits Against Innovators

US proposes 'loser pays' system to deal with patent trolls

SHEILD Act: a bill to stop patent trolls

The Sequester

This won't be a long post because I'm still not feeling 100%. But I thought I'd share some quick thoughts on the sequester:

1) it is not the most elegant way to make cuts and does feel a bit like taking a sledgehammer to government instead of a knife

2) but cut we must and i'd rather see any cuts than no cuts

3) the defense budget in this country is way too large and full of pork. it is about time we started to cut defense spending. let's hope the pentagon does it intelligently. i think they will.

4) the cuts don't touch entitlements which are our biggest problem. until we tackle them, we won't get anywhere near a balanced budget.

5) i really like the GOP's standing tough here. it earns them a lot of points with me.

6) Obama is acting like chicken little running around the country claiming the sky is falling. he doesn't need to earn points with me or anyone anymore. he's done running for office. it is time to start leading instead of stirring up fear.

In summary, I very much like that we are raising revenues and cutting spending. We have to. Sure it will impact the economy. It's going to at some point. Might as well start taking our medicine now.

The US Needs A New Spectrum Policy

I have written before about open spectrum and the need for a new spectrum policy in the US. Spectrum policy is back in the news because the federal government is soon going to make a bunch of decisions about spectrum that is coming back from the broadcast TV operators.

Our policy for the past thirty years has been to sell the spectrum to the highest bidder and let the goverment pocket the money. This is short term thinking of the worst kind. The incumbent duopolist carriers are always the ones who can afford to pay the most money for the spectrum and they have no incentive to innovate on what they do with the spectrum. So it goes mostly underutilized while the demand for wireless broadband increases exponentially.

All you have to do is look at the massive innovation and performance curves in the rare unlicensed bands (wifi and bluetooth) to see that an open spectrum approach with captialist style competition will create the fastest performance improvements over time.

The President appointed an advisory committee to study our spectrum policy and make some recommendations. That committee reported last year that making more spectrum unlicensed would be the best policy.

The report's authors cited a European study:

freeing 400 megahertz of radio spectrum to be shared using new technologies would be equivalent to an economic financial stimulus of 800 billion euros

This points out the most pernicious aspect of our current spectrum policy. And that is that the spectrum being auctioned off is being priced based on its current value not its potential value that can only be unlocked by the kind of permissionless innovation we see in the unlicensed spectrum. So we not only are we giving the incumbent duopolist carriers more control over our spectrum but we are also selling it at a fraction of what it could be and should be worth.

We need a new spectrum policy in this country and we need it now.

Related articles

FCC will crack open unlicensed spectrum to speed up wireless Internet

Hey FCC: Time to Expand Unlicensed Spectrum!

It's Not Super WiFi, but It's Still Important: The Debate Over 'Unlicensed Spectrum'

Can the FCC Create Public "Super WiFi Networks"?

FCC to Free New Chunk of Unlicensed Wi-Fi Spectrum - Largest Block Made Available Since 2003

FCC plans to free up spectrum, boost Wi-Fi speeds

Peer Progress and Regulation 2.0

As some of you know, we have had an activist in residence at USV for the past year. His name is Nick Grossman and he has helped us to understand the public policy implications of the rise of networks that we are so actively investing in. The idea of a VC firm having an activist in residence has also produced outrage among those who dismiss the power of peer networks in our society.

Another sign of the coming Apocalypse? Venture capital firms now have "activists in residence"? This bio suggests so civic.mit.edu/users/nickgros…

— Evgeny Morozov (@evgenymorozov) February 7, 2013

One of the topics we have been thinking about and working on with Nick is the idea of regulation 2.0, a lighter weight regulatory paradigm than what we currently have. On thursday, Nick went down to Princeton and gave a talk about Regulation 2.0. His blog post with a video of his talk is here.

I think the slides will give you a good sense of what we are thinking about under the Regulation 2.0 framework.

I am excited about the possibilites of a more transparent world with less permission seeking and more innovation.