The Generalist - Union Square Ventures: The Thinkers

Hey friends,

The hardest thing for a VC to do is deliver consistently excellent returns.

That’s why I was so excited to dig into the story of Union Square Ventures (USV). The New York-based firm may be the most reliably exceptional franchise of the past two decades. Its investments include Twitter, Coinbase, Etsy, Zynga, MongoDB, and Twilio. USV was also one of the first venture firms to recognize the opportunity in crypto.

To discover how USV studies the future, stays disciplined, and finds winners, jump in.

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USV: THE THINKERS

Actionable insights

If you only have a couple of minutes to spare, here's what investors, operators, and founders should know about Union Square Ventures (USV).

• Masters of consistency. USV may be the most consistent venture capital firm of the past two decades. All of the firm’s vintages are reportedly performing in the top quartile, with several doing much better.
• Thesis-driven thinkers. Founders Brad Burnham and Fred Wilson are exceptional systems thinkers. USV’s partners have used this ability to form theses that guide their investment practice.
• Disciplined deployers. Given its performance, USV has no shortage of suitors. Despite what must be rabid LP interest, the firm has kept fund sizes conservative. This approach differs from prevailing market trends.
• Building networks. For a venture firm obsessed with networks, it is fitting that USV has created its own. The firm offers a private community and a series of events for portfolio companies and their founders.

***

Lefty Gomez once said he’d “rather be lucky than good.” Many venture capitalists might make the same trade-off as the eccentric Yankees pitcher. In the grand-slam business of startup investing, a big hit can make up for a slew of strikeouts. Participating in early rounds for Google, Facebook, Stripe, or Coinbase erases a season of shanks, whiffs, and bunts. Since picking a generational business from a sea of pitches is no simple thing, it’s tempting to leave selection in the lap of the gods. Why not just shut your eyes and swing?

Some do. So many, in fact, that this “hope as a strategy” has a name: spray and pray. In small bursts, spraying and praying can work well. Anyone lucky enough to have splashed some capital on the names mentioned above may have looked, for a time, like a guru. Never mind the litany of failures; in venture capital, it is your successes for which you’re remembered.

This dynamic can make it difficult to distinguish between practitioners. If it takes just one hit to do so well, how do you know which investor is lucky and which is good? How do you distinguish the gleeful chancer from the skilled technician?

The only certain solution is to wait. Either an investor keeps hitting, or their luck runs out. Over a long enough time horizon, finesse and good fortune diverge.

Union Square Ventures may be the most reliable slugger in startup investing. Since it opened its doors in 2003, few other funds have maintained such elevated performance for so long. USV has consistently performed in the top quartile across its vehicles. It has also logged some of the top-performing vintages of all time. Much of this success stems from the firm’s gift for thinking deeply about the future and devising a thesis that distills an investment opportunity. It is the venture capital equivalent of pointing toward center field before the pitch comes in, calling one’s shot.

Like every successful investor, USV has been lucky. But more importantly, it has been very, very good. Today’s piece will explore the firm’s history, evolution, and playbook. Read on to learn about:

• Flatiron Partners. Before starting USV, Fred Wilson co-founded Flatiron Partners with Jerry Colonna. The firm invested in buzzy startups like Geocities and The Industry Standard. Much of its portfolio collapsed during the dot-com crash.
• A difficult raise. Despite their pedigree, Wilson and Brad Burnham took the better part of eighteen months to raise USV’s first fund. The University of Texas played a pivotal role in catalyzing institutional interest.
• Two vintages. USV’s first fund was an extraordinary hit, returning ~14x of invested capital. The firm’s 2012 vintage has done even better.
• The sleeper hit. USV is well-known for investments in Twitter, Zynga, Coinbase, Tumblr, and Etsy. One under-the-radar smash was recruiting platform Indeed.
• Staying disciplined. Despite its success, USV has kept its funds small. Its latest early-stage vehicle is $275 million, a modest sum for a franchise of its stature. This discipline has helped USV maximize returns.

Let’s jump in.

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IN A MEME
​​​​​For the pictorially inclined, here's the whole piece — all 5,000 words of it — in a single meme.

PUZZLER
​​​All guesses are welcome and clues are given to anyone that would like one. Just respond to this email for a hint.

“Too easy!” one friend exclaimed in response to last week’s riddle. Hopefully, this week’s entry will be a more suitable challenge.

Greg K was first to respond, joined by Austin V, Attison B, NMT, Thomas K, Samuel R, Krishna N, Michael T, Nate M, John F, David P, Ankit J, Ian B, Laura F, Sara G, Robert H, Jeffery S, Timothy G, Kunal G, Yakin H, Steven V, Edgar W, Tamar L, Sheridan J, SM, Kriti K, Ohad S, Vatsan R, Tully H, John G, A, Chris S, Logan J, and Drew M.

The answer? The dentist. May your next visit be rather less dramatic. Well played to all, and wherever you are in the world, have a lovely rest of your day.
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​Until next time,
Mario