Musings of a VC in NYC

Copyright and The Internet

Google has announced they have made a change to their algorithms to include valid DMCA takedown requests as a negative signal in their search results. I believe this is a step in the right direction and I am pleased to see Google do this.

It's hard to argue that the Internet can regulate itself when content owners point to Google search results that show blatant copyright violators on the first page and fully licensed services buried four pages down. So Google is addressing that. That's a good thing.

But I think we can do more. In the world of spam and malware, there are third party services that provide whitelists and blacklists that are used by various services and platforms to help them keep their services clean. I would like to see this approach extended to copyright.

It would be best if a competitive marketplace developed for copyright whitelists and blacklists. The list providers would use signals like number of valid takedown notices and a host of other data points, ideally provided by the marketplace of services and platforms, to produce real time lists of what services are fully compliant (whitelist), what services are blatantly violating copyright (blacklist), and everyone else (greylist).

Being on the greylist would not hamper a new service from entering the market. All new services built by three engineers in a loft would start out on the greylists. But over time they could get onto the whitelists by properly respecting copyright in their service. Whitelisted content services would benefit in the same way that whitelisted services benefit in the word of email.

Google effectively runs their own whitelists and blacklists in their email business and in their search business. But if there were truly independent and competitive providers of whitelists and blacklists for copyright, the entire market could do this sort of thing. And ideally Google would participate by providing data to these third parties and using the third party lists in their algorithms.

When I think about solving thorny problems like copyright, I like to look at how the Internet has solved similar problems and think about how these approaches can be extended to solve new problems. Whitelists and blacklists have been very effective in areas like spam and malware and I think they would be a great approach to address the copyright issues as long as they are built and managed by independent competitive third parties.

The Cybersecurity Act of 2012

The US Senate plans to vote on their version of a cybersecurity bill this coming week. This is the Senate's response to the CISPA bill in the House.

I have yet to hear a compelling reason why we need Cybersecurity legislation and am of the opinion that the perfect answer here is no legislation. However, I am also of the opinion that perfect is often the enemy of the good. And there may be a decent piece of legislation coming out of the Senate this week if, and this is a big if, the Franken and Wyden Amendments are added to the Senate's bill.

The Franken Amendment strikes section 701 from the Senate's bill. Section 701 provides companies with the explicit right to monitor private user communications and engage in countermeasures.

The Wyden Amendment require law enforcement officials to procure a warrant before obtaining location data from a person's cell phone, laptop or other gadgets.

This all may be much ado over nothing as I've been told that the House is not going to pass the Senate's bill and the Senate is not going to pass CISPA. So we may end up with nothing anyway. Which would be fine with me.

But, like PIPA/SOPA, my fear is we are ultimately going to get some legislation on this issue. And so figuring out how to get decent legislation instead of awful legislation seems to be a good idea. Adding the Franken and Wyden Amendments to the Cybersecurity Act of 2012 is one way to achieve that.

There will be a bunch of places you can go to let your elected officials know how you feel about these bills. But most of them will launch tomorrow. As of today, this is the best place online to let yourself be heard on the cybersecurity bill. I will update this post tomorrow as more online advocacy unfolds.

The Problem Of Money In Politics

We have finally gotten videos up on the web from our Hacking Society event that happened in late April. A number of participants are going to blog this week about some of the specific topics and my contribution will be about our conversation about money and politics.

This 14min video clip starts with Larry Lessig outlining the issues around money and politics and then goes into some potential solutions. I advocated for a hack of the campaign finance system that starts with the internet industry contributing something like 5% of its combined ad inventory to a pool that is available to politicans who agree to certain conditions.

There was a debate about what those conditions should be. One group thought the candidates need to sign onto the Internet Freedom Pledge. Others thought that the candidates should renounce traditional campaign finance. Others thought candidates should do both.

Of course, this idea requires the Internet industry (Google, Facebook, Twitter, etc, etc, etc) to allocate 5% of its inventory to this kind of a pool. I have had a few conversations with the industry leaders about this idea but honestly it hasn't gone anywhere. It would be great if our industry could rally around this idea and make it happen. Hopefully this post and other actions we are taking this week might get this idea rolling.

Here's the video:

By the way, interested folks should check out the Hacking Society web page. In addition to videos, we now have a transcript of the event as well as audio recordings, photos, and lots of quotes. There's a lot there and its interesting and engaging stuff.

Partners Forever (or close to it)

Mitt Romney is taking some flack for continuing to have ongoing involvement in Bain Capital well after he supposedly left the firm for good in 1999. I am not supporting Romney for President as I can't get comfortable with his party's views on social issues that matter a lot to me. But I have a fair bit of empathy for him on this specific issue.

I am still technically a partner in a venture capital firm (Euclid Partners) that I left in early 1996. I still get K1s from them as there remain a few illiquid investments in the last fund I was a partner in.

We stopped investing at Flatiron Partners in the summer of 2000, twelve years ago. I still sit on several boards from that portfolio. One of my partners sits on another board. We have three funds that remain active. We send out annual reports and K1s on all of them. I sign things all the time for Flatiron. And I haven't been "active" in that business for a decade.

Venture Capital and Private Equity are "long latency" businesses. You can leave a firm, you can start a new career, a new business, or go into politics. But you aren't going to be completely done with the investments you made and the partnerships you set up or were partners in for a long time.

I suppose there are ways to have a clean break, but they would not be simple to accomplish. You would need to be bought out and who is going to establish fair value for highly illiquid investments? Who is going to put up the money to buy you out? And getting all the investors to sign off on these changes is another hurdle. And allocating your equity to others is another challenge. That's why I am still a partner in two businesses that I have not been active in for a long time. It's a lot easier to just let things run off and have a departed partner be a "silent partner" with no operating role or responsibility. But even if you are a silent partner, you still need to sign stuff from time to time.

I think the Obama team is beating up Romney for something that makes great headlines and might look bad to an unsophisticated voter. But to me this looks petty and cheap. I don't like petty and cheap. I wish the Obama team would talk about important stuff instead of beating up a guy over nonsense.

Albert's Talk At Velocity

My partner Albert delivered a really excellent 20min talk at the Velocity conference last week. His talk was about the threats to the open internet, why they exist, and what we can do about them. Regular readers of this blog will be familiar with all of the themes in Albert's talk, but his framing of the issues is really well done.

If you have 20 minutes this weekend, I strongly suggest you watch it.

The Far Center Party

My friend and occasional AVC community member Steve Kane calls himself a member of the Far Center Party. As I watch the two parties and their defacto nominees gear up for another presidential election, I find myself wanting to tune out the whole thing.

I am socially liberal. I was thrilled when Obama recognized a gay couple's right to marriage.

I am fiscally conservative. Obamacare scares me.

I am not really comfortable in any political party. The social views of the Republican party are more frightening to me than the economic views of the Democratic party. So I hold my nose and vote Democratic most of the time. But that is less and less satisfying every day.

Living in NYC for the past ten years has been a joy. We have a mayor who is not hostage to any orthodoxy. A mayor who simply makes the most pragmatic and practical decision at the time given his various options. We have a mayor who epitomizes the values of the Far Center Party.

I believe Bloomberg would run for President if he thought he could win. And I believe he has done the math and the analysis and has concluded that he cannot. That has everything to do with how our two political parties control congress and the electoral college.

I was hopeful that something like Americans Elect would work. It did not.

Our country is hostage to the two political parties who control our electoral process. Those of us in the Far Center Party should figure out how to change that.

Same Sex Marriage

So our President finally had the political courage to say publicly what I am sure he has privately believed for a long time. Kudos to him. I am not sure about the political wisdom of that disclosure. But it takes courage to come out and say it, particularly in an election year in an country where 30 states have explicity banned it.

We talked about the same sex issue on this blog last weekend in connection with North Carolina's Amendment One, which passed this week with 60% of the vote.

I'm with the President on this one. I believe that same sex couples should be allowed to marry. And I am glad that I live in a state that recognizes that right. For me it is about basic human decency.

But more than that, I applaud the President for taking an important step to say that gay people are normal and accepted in our country. Frank Bruni put it this way:

I find myself thinking about all the teenagers and young adults out there who cower in silence because they worry about being ostracized if they speak the truth about their sexual orientation. I think about the ones who are bullied, even the ones who contemplate taking their own lives.

And I think about what it will mean to them to hear the president say what he did today, not because they’re focused on marriage but because they’re buoyed by any and every reassurance that there’s nothing wrong with them, nothing inferior about them. Today their president gave them that reassurance.

That's what this is all about. Normalcy. Being accepted. And I am with the President 100% on this issue and commend him for doing what he did. A proud day in my book.

Hacking Society Highlight Reel

Hacking Society is a discussion about how networks are transforming our economy and society, and what this means for the future of innovation, regulation, advocacy and politics.

Two weeks ago, a small group of activists, thinkers, investors and entrepreneurs gathered at Union Square Ventures in NYC to discuss this topic, joined by online listeners & tweeters from around the world.

We are still working on the full transcript, audio recording, and video clips from the event. If you would like to be notified when they are avaialble, click here and leave us your email address. We plan to keep the Hacking Society website live and there is a disqus comment stream there if you'd like to engage in the discussion with us.

In the meantime, here is a Storify "highlight reel" from Hacking Society. It gives a good sense of what was said, who said it, and where this discussion is headed.

Tolerance and Prosperity

Yesterday, my partners and I invited Paul Romer over to USV for lunch. For those that don't know, Paul is a leading thinker in the world of economics and currently a Professor at NYU. It was a fascinating conversation. My favorite part of it was Paul's "lecture" on William Penn, early Pennsylvania, and the reaction to the growth of Pennsylvania from neighboring states.

William Penn was a Quaker and when King Charles II gave him a large piece of his land holdings in America, Penn created the colony of Pennsylvania and grounded it in the notions of tolerance and religious freedom. Instead of limiting Pennsylvania to Quakers, they welcomed all comers. And the result was that Philadelphia became the fastest growing city in America with a vibrant economy and lifestyle.

The neighboring colonies, which were initially centered around a single religion, reacted to Pennsylvania's and Philadelphia's economic success by opening up their cultural norms and becoming more tolerant as well.

Paul told us this story as a lesson in why cultural norms, even more than laws, are a determinant of prosperity and economic development. And tolerance is one of the more important cultural norms in this regard.

As Paul was giving us this lecture, I thought of my friend Bob Young's blog post about North Carolina's Amendment One, which seeks to ban same sex marriages. North Carolina is the only southern state that does not have such a law on its books. North Carolinans will be voting on Amendment One next tuesday, May 8th.

Bob's argument is as much an economic one as a social one. Bob says:

This proposed amendment to our state constitution is specifically telling them we don’t want their friends and fellow Americans to come here.   We need these talented, intelligent young Americans to come to North Carolina to help our technology industries succeed, but they have choices.   They can go to states with mottos like “Live Free or Die” instead of states that attempt to tell them how to live their lives, such as this Amendment One does.  And trust me, these bright young Americans can and will chose to join my competitors in Seattle, or San Jose, or New York. 

North Carolina has enjoyed a vibrant tech/startup economy and Bob's Red Hat and Lulu.com are two of its best known successes. Bob asserts that changing the cultural norms (and laws) of his home state are not going to be good for the local startup scene. Bob is right and his concerns are consistent with the lesson that Paul Romer gave us yesterday.

Tolerance and Prosperity go hand in hand. History tells us this. I hope the good citizens of North Carolina listen to Bob because I agree with him strongly on this one.

The Rise Of Consumer Centric Healthcare

Nearly three years ago, we talked about Consumer Centric Healthcare here at AVC. I keep coming back to this central idea:

a guiding principle of any reform should be to put the consumer, not the insurer or the government, at the center of the system.

So when I read this morning in the NY Times that medical costs have been leveling off over the past few years, it got my attention.

I particularly like this part of the Times article:

Many experts — and the Medicare and Medicaid center itself — point to the explosion of high-deductible plans, in which consumers have lower premiums but pay more out of pocket, as one main factor. The share of employees enrolled in high-deductible plans surged to 13 percent in 2011 from 3 percent in 2006, according to Mercer Consulting.

I'm a huge fan of high deductible plans and think that they, along with some sort of health savings account that rolls over unused account balances, is a big step in the right direction to put consumers in control of their own medical expenses and decision making.

There are other things that would be part of a comprehensive consumer centric approach, including wellness incentives (ideally driven by self monitoring/reporting technology), accountable care, and efforts around education and transparency so consumers can make their own decisions. Clearly the Internet can make big contributions in all of these efforts.

It is ironic that consumers are starting to take control of their own medical spending at a time when our country and our courts are debating the wisdom of a large expansion of our government's role in our medical care. It reminds me of the adoption of the open source model in software at the same time as the government's case against Microsoft. Guess which one had the bigger impact?

None of this should suggest that I am against providing for those who cannot afford their own care. We can and should do that. But there is a difference between the funding mechanism and the decision mechanism in health care. The latter should be in the hands of the consumer as much as possible in order to restrain health care costs and maintain/improve the quality of care in this country.