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Albert Wenger

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Wednesday, July 8, 2020 - 6:41pm

My Twitter feed these days is full with back and forth on “cancel culture.” Much of it quickly reduces to bickering with each side assuming the worst possible interpretation of what the other meant or what their motives are. The latest exhibit here is the Harper’s Open Letter and the reactions to it. This is more than a bit annoying as there are some genuinely interesting issues here that are worthy of a more robust debate.

Central to this discussion ought to be an analysis of the power of speech to suppress speech. I think most people would agree that calls for physical violence against someone for speaking are a clear suppression of speech. Now that would be an example of incitement, which is notably one of the exceptions to free speech, i.e. it is not protected speech.

But what about calling for someone to be fired from their job? Consider the following two scenarios:  “<<name of CEO>> tweeted <<xyz>> and should be fired” versus “<<name of low level employee>> tweeted <<xyz>> and should be fired.” We intuitively feel that there is a difference between the two but where does it come from? The obvious answer would seem to be power, but it is worth making that more precise.

CEOs tend to be highly compensated (not necessarily true of the founder of a startup) and so CEOs are assumed not to be immediately destitute if they lose their job. But the real reason there is a power differential is that the decision to fire a CEO belongs to a board of directors. And generally we would assume a board would deliberate on the question what the right consequence should be, depending on what <<xyz>> is which might simply be a reprimand or potentially nothing at all (note: there are and have been exceptions to this also, which I will get to shortly).

This is in stark contrast to a low level employee who is both likely to actually get into financial trouble quickly and is often seen as entirely dispensable. If there are enough people calling for them to be fired, a company might conclude that it is simply bad for business to keep this employee around and summarily let them go. It is easy to remark, “well they shouldn’t have tweeted <<xyz>>” but that clearly implies a curtailment of speech, which is what this debate should be about.

There are effectively two things that are new and have come together that require we examine more deeply what is going. The first is the ability for speech of the “fire them” type to be massively and rapidly amplified in a way never before possible. This is reasonably well understood although the remedies being proposed for information cascades are largely rooted in an outdated Industrial Age regulatory mindset.

The second is the weakness of institutions in defending their constituents. This needs much more attention than it is getting right now. Why, for example, are universities so quick to give in to pressure? Because their model is super fragile today. They have taken up their price to ridiculous levels while at the same time facing competition from emerging online alternatives. Sounds familiar? Yes, because the same has been true for publishers for quite some time. Many companies find themselves in a similar position.

So where does all of this leave us? For starters nothing is helped by trying to dismiss these changes as irrelevant when they are so clearly evident all around us. Then we need to be willing to explore new and more fundamental solutions rather than trying to patch the existing systems. I have long proposed making systems such as Twitter and Facebook programmable as one digitally native way of reducing their power including defanging the risk of information cascades. It is the basis of what in my book World After Capital, I refer to as informational freedom. By itself it won’t be enough though, which is why I am also a strong proponent of economic freedom (some form of universal basic income) and psychological freedom (through having a mindfulness practice).

If we want to restore our ability as a society to have productive critical discourse, then patching our Industrial Age systems won’t do. Instead we need to fundamentally reinvent how we do things in the digital age (which I hope can turn into the knowledge age).

Tuesday, July 7, 2020 - 5:39pm

ICE announced yesterday that foreign students at schools that only instruct online this fall (which includes my alma mater Harvard) must leave the US. I was a foreign student on an F1 visa and would have been distressed by this. More importantly there are quite a few foreign students for whom there is not enough time, or not enough money, or even worse a threat to their lives in their home countries. This is yet another one of those recent US policies where the only plausible assessment is that “the cruelty is the point.”

The ability to attract foreign students to our universities has been wonderful for the United States and the world. A great many international friendships that have lasted a lifetime are formed among students. The presence of foreign students helps expand the cultural context for American students and vice versa. Many talented foreign students wind up staying here and starting companies or contributing to existing companies. And so on.

I hope this nonsense gets challenged in court right away and if anyone is aware of such a challenge I will happily contribute to it. In the meantime, I have signed (well tried to sign, subject to email verification which seems to be down) this White House petition.

Friday, July 3, 2020 - 9:33am

In my book World After Capital, I propose a theory of history in which technology changes the binding constraint for humanity. After hundreds of thousands of years of the Forager Age, constrained by the availability of food in the natural environment, humanity invented agriculture. With that set of technologies (planting, irrigation, domestication of animals, etc.), invented roughly 10,000 years ago, the constraint shifted from food to land in what became the Agrarian Age. Then only a couple hundred years ago a series of new technologies (steam, electricity, chemistry, mining, etc.) shifted the constraint again, away from land to capital. By capital I mean the physical capital of the Industrial Age, such as factories, buildings, and roads. More recently with the advent of digital technology (computers, packet-switched networks) the constraint has shifted yet again, away from capital to attention.

In the book I note that each of the two prior transitions came with dramatic changes to how humanity lives. In the transition from the Forager Age to the Agrarian Age we went from being nomadic to sedentary, from flat tribal societies to extremely hierarchical feudal societies, from promiscuity to monogamy, from animistic religions to theistic ones. In the transition from the Agrarian Age to the Industrial Age we went from living in the country to living in the city, from large extended families to nuclear families or no family at all, from commons to private property (including private intellectual property) and from great-chain-of-being theologies to the Protestant work ethic. I then go on to make the argument that we need a similarly dramatic set of changes to get from the Industrial Age to the Knowledge Age, which explains why the incrementalist changes pursued in most developed societies have fallen far short. I then propose three increases to freedom — economic, informational and psychological — to help us with the adjustment that’s needed.

I have been happy with this characterization of the role of technology in human affairs. Big technological shifts change the binding constraint on humanity, which results in large scale reorganization of how humans live. What I have been struggling with is to what degree we can understand the features of those reorganizations. While they make a lot of sense ex-post, we are now finding ourselves in the midst of one and would therefore ideally learn from history. This is particularly important for two reasons. First, in the past transitions we often wandered in the dark for long periods before finding a successful model (those periods were often marked by extreme violence through revolutions, wars as well as mass death from disease and starvation). Second, in the current transition we don’t have a lot of time as we are faced with the ever accelerating climate crisis.

This is where I now feel I have had another breakthrough in thinking, which resulted in a “Duh” forehead slap. The first part of the answer is of course “incentives.” That much I had thought all along but the missing piece was considering why incentives had to change and that’s where measurement comes in. So here we go.

In the Forager Age, when the constraint was food, the measurement problem was almost trivial: everyone in a tribe sees how much food the hunters and gatherers bring back! It is either enough to feed everyone or not. In so-called immediate return societies (which had no storage) that’s literally all there is to it. With a bit of storage the story gets slightly more complicated but really not by much. I believe this explains many of the features of successful foraging tribal societies including the flat hierarchy and the equality of sharing.

In the Agrarian Age, when the constraint was land, the measurement problem got significantly harder: you can really only tell at harvest time (thus only once per year in many regions of the world) how well off a society will be. Again, I believe that this explains many of the features of successful agrarian societies, in particular the need for a lot of structure and strict rule following. It is crucial to keep in mind that these societies were essentially pre-scientific. So they had to find what works by trial and error. When they found a rule that seemed to work they wanted to stick with it and hard code it (much of this happened via the theistic religions).

In the Industrial Age, when the constraint was capital, the measurement problem got even harder. How do you know where a factory should be built and what it should produce? It might take years of process and product innovation to put physical capital together that is actually truly productive. I believe this explains much of the success of the market-based model, especially when contrasted with planned economies. Effectively the solution to the incentive problem moved from static rules to a dynamic process which allows for many experiments to take place and only a few of those to succeed.

So far we have seen how the prior shifts from food to land and then from land to capital corresponded to massive increases in the difficulty of the measurement problem. We went from nearly immediate measurement (Forager Age) to yearly (Agrarian Age) to multi-year (Industrial Age). This brings us to the current transition from capital to attention as the binding constraint.

While I don’t claim to know what the features of successful Knowledge Age societies will be, it is clear now that the measurement problem for attention exists on a decadal or potentially even hundred year scale. Take the current coronavirus pandemic. The last prior pandemic of similar scale, including economic impact, was the Spanish Flu about one hundred years ago. So as a society you may only find out if you have paid enough attention to pandemic preparedness every hundred years. It gets even worse when you think about a big asteroid strike on earth. Those happen roughly every million of years.

This is also true from the perspective of the individual. If you commit your attention to some artistic endeavor or research program. When will you know if your attention was well spent? Often not within your own lifetime. Some art that we today recognize as magnificent as well as science which we regard as transformative was dismissed, considered fringe or even actively fought for decades. And conversely, much of what was popular in the moment has not withstood the test of time.

The allocation of attention cannot and therefore should not take place on the basis of near term measurement. Markets are good for the multi-year measurement problem of capital but terrible for the much longer timescale one of attention. Much of World After Capital is about how to free humans up to allocate their attention as they see fit outside of any near term measurement system. Free to allocate their attention to what they believe will stand the test of time. One super important question that flows immediately from this, which World After Capital does not (yet) answer, is how that can result in enough attention on topics such as pandemic disease or the climate crisis.

PS History and society have tons of detailed events and features that are not explained by any of this – my concern is strictly with what I perceive as a very large scale pattern.

Wednesday, June 10, 2020 - 5:40pm

Today Algorand and Blockstack are announcing that they are collaborating on the Clarity smart contract language. Clarity is a decidable (i.e. non-Turing complete) language inspired by lisp. I am extremely excited about this development and have spent a few hours this week writing a smart contract in Clarity.

I have long argued that Turing complete smart contract languages are problematic because the only way to really understand the system as a whole is to run it and see what happens. Still this is the route most projects have chosen and even more odd to me has been the embrace of WASM as an execution environment which optimizes for speed over safety and analyzability. Given that the key point of decentralized systems is censorship resistance that has long struck me as the wrong order of priorities. After all, there is no-one you can call to just unwind a mistake (modulo the DAO hack reset, I suppose).

Clarity instead is all about safety. Avoiding costly mistakes long before they can cause millions of dollars in damage. Decidability is one key aspect of that. To give just one example of the power of decidability: with Clarity you can know the precise gas fee of a contract in advance. Another key aspect is making actions such as issuing non-fungible tokens, which are a critical component of many applications, completely straightforward. There are many more aspects of Clarity that are a delight, such as the simple and clear type system. And being inspired by Lisp, Clarity naturally lends itself to building up code out of short functions (if you have never seen Lisp before, the language may strike you as odd at first – but I promise that learning it will make you a better programmer).

Now some people may think that you lose a lot by giving up Turing completeness, so I wanted to write a non-trivial example. One came to mind easily: an all-or-none funding mechanism. There are many possible use cases for such a contract, including a system such as Kickstarter, or my personal favorite, the second coming of Kitchensurfing (I hope). For readers who may not remember Kitchensurfing, it was a wonderful service where a chef would come to a home and cook there. The key missing feature though was the ability to get everyone to split the payment upfront, so that meant the host had to put up the entire bill and then collect from guests which is more than a bit awkward.

I won’t post the (nearly) complete contract here, you can find it on github. There is a bit more argument checking I need to add in one of the functions and I also have been remiss in writing a test harness (yes, I know I should have written that first, but I was too damn excited).

Here are some key things I would like to call out. How do you define a non-fungible token in Clarity?

(define-non-fungible-token event-pass uint)

That’s all there’s to it. Later, when you want to issue an event-pass to someone who has paid, all you need to do is

(unwrap! (nft-mint? event-pass event-pass-id tx-sender) (err "unable to issue event pass"))

Again, that’s it. Three lines of code and that includes the error handling!

Let’s look at a different part of the code to show another elegant feature of Clarity. With asserts! I can easily check if a condition is met and if it is not met issue an error. Doing so will abort execution and leave all blockchain state untouched

(asserts! (< (get expires-at event) block-height) (err "event still funding"))

There is a lot more to discover and I encourage everyone who is interested to check out Clarity. The tooling is still growing but there is already a Clarity LSP for VS Code (which helped me find a number of mistakes). A full blown REPL running against a chain instance is in the works and will be a great way to interact with Clarity contracts during design.

Over time Clarity will become an independent project. It would be wonderful to see other chains support Clarity as a development language (possibly even the only one). In the meantime there are many amazing opportunities to contribute, from just writing contracts in Clarity (and providing feedback) to working on the virtual machine or on development tooling.

Sunday, June 7, 2020 - 5:37pm

“If you can’t measure it, you can’t manage it” goes an adage that is often recited as if it were some kind of profound truth (misattributed to Deming). And of course there is some logic here. Let’s say you own a website and you want to grow it. Measuring traffic to the site will help you figure out whether you are succeeding with that. But even this seemingly trivial example helps us understand a crucial point which could be summarized as “You manage to what you measure.” 

Suppose that page view is your traffic measurement, now you can immediately see that there are many different ways of growing that which will have widely different implications. You could buy random traffic. You could split up articles into multiple sections each requiring a click and hence a separate page view. You could publish salacious nonsense to increase social sharing. And so on.

We of course recognize many of these as the very aberrations that plague so much of the web. This is just one example for a general problem: quantity is easy to measure, quality is difficult to measure. Pretty much all the other metrics that people have introduced in the web world (visits, visitors, time, etc.) are all attempts to capture some aspect of quality.

There are situations in which quality is so difficult to measure and simultaneously so important that any measurement of quantity becomes dangerous. Fundamental research is one example. In a misguided application of the adage from above, funding for fundamental research has been increasingly allocated based on quantity metrics, such as number of publications and citations. The results from this approach have been horrendous. For example in theoretical physics an area such as string theory has received massive funding (based on these metrics), while disruptive new approaches such as constructor theory struggle to attract resources.

Venture capital is a lot closer to fundamental research than it is to web traffic. Assessing the deep quality of a startup is hard. As with research often a great deal of time has to elapse (years, possibly a decade) before you can tell which companies are truly important. It is therefore at best a distraction to try and build a successful portfolio by keeping track of such statistics as how many startups we met with last quarter. At worst over time all the resource allocation of the firm will go towards those metrics and none of it towards thinking, which is crucial for actually figuring out new things.

At USV we spend a lot of our time thinking and none of our time tracking quantity or other superficial aspects of deal flow. Of course we do track the outcome of our process over time, but knowing that a lot of time needs to expire for those outcomes to mean something. As we have written recently we will add diversity of the founders we back to that.

Now you might say but how will you ever improve racial diversity of founders in your portfolio if you don’t measure it in your process? The answer is by changing the process. So much of the venture capital process revolves around networks. As a result you can have a big impact on outcomes by changing which networks you are connected to. We did this successfully a few years back when we recognized that we had not backed enough female founders. We will be doing this now.

Finally, measurement also relates to the question whether USV is doing enough about the climate crisis. As I have stated on several occasions, including in this interview with Jason Jacobs, I believe that the climate crisis cannot be solved without getting out of the industrial age. I have written a whole book about how we might accomplish getting to the knowledge age, see World After Capital.  It is a mistake to believe that there is some easy measurement that can be applied to USV’s portfolio that would – quarter by quarter – tell us whether or not we are helping with that transition. Only time will tell.

Friday, June 5, 2020 - 6:38pm

I watched a livestream organized by BLCK VC yesterday. It was incredibly powerful and should be widely seen.

Tuesday, June 2, 2020 - 5:36pm

Watching what is happening in the United States, my adopted home country, is incredibly painful. I have seen the last few days coming for years based on the ever more untenable income and wealth distribution combined with militarization of the police and their ongoing unchecked brutality, especially against black people. You can browse back through Continuations and find many posts speaking to these topics, such as this one from 2014.

I have a lot more thoughts about this moment in history and where it might go, but here are some unequivocal statements I want to make right now.

1. George Floyd was murdered by police officers who need to be prosecuted accordingly.

2. Black Americans continue to suffer from systemic racism that has its roots in slavery.

3. Americans of all races are living increasingly precarious lives, while a small group has accumulated vast wealth.

4. Police forces all around the country are overly militarized, structurally corrupt and unaccountable.

5. Demonstrations against #1 - 4 above are entirely justified and must continue

6. Police violence and escalation have injured and arrested citizens who were engaged in peaceful protest in #5 in violation of their 1st amendment rights

7. Looting and burning businesses is wrong and counterproductive (while yet also being entirely understandable)

8. Some of #7 is caused by groups intent on escalating violence

9. Trump has been inciting violence from the beginning of his candidacy and is reveling in the use of force

10. We must do everything we can to remain peaceful even in the face of state and agitator violence (peaceful does include civil disobedience, such as sitting and blocking an intersection).

Saturday, May 30, 2020 - 11:40am

“Two out of three ain’t bad” is the title of a Meat Loaf song but is also the idea behind triangles: situations in which you can achieve only two of three objectives. The classic example is the idea that in manufacturing you can have any two, but not all three from fast, cheap, good. (*)

Much of the current debate about social media and how to regulate it is people shouting loudly past each other because they are pursuing different objectives in what I believe is a social media triangle:

Freedom: there isn’t a central authority that can exert power over individual expression or appropriate rents generated by contributors to the system.

Openness: anyone can join a globally connected network and express themselves without being trolled or harassed.

Criticism: there is a mechanism by which people get exposed to opposing viewpoints and relevant facts and by which information cascades (especially spread of misinformation) are curtailed.

All the existing big systems such as Twitter, Facebook and YouTube fail on the first objective, as they are controlled by for-profit corporations, which are further subject to regulation and intervention by governments.

This of course has many people, myself included, arguing for decentralized alternatives. I think we have to be clear though that this will make accomplishing objective #2 harder (although to date the bar set here by the centralized players is extremely low). More importantly though accomplishing #3 will not be possible in a decentralized system.

At the current trajectory though there is a good chance that we will wind up with the worst of all outcomes, at least for a while: a regulatory environment in which massive players are perversely protected from new entrants but simultaneously hidebound because their conduct is subject to behavioral rules (which require consulting an army of lawyers for every product change). That is what stagnation looks like and we know it all too well from many other industries as well as some prior moments in information technology. In tech those moments were kept thankfully short by massive platform shifts (e.g., mainframe to PC) but there isn’t an obvious one of those on the horizon (except for blockchain but more on that in a moment).

There is a clear alternative to this which helps us accomplish objectives 1 and 2, while at the same time incentivizing competition. Give a Section 230 like protection to companies in return for providing a complete set of enduser APIs. In other words, require Twitter, Facebook, YouTube etc. to be fully programmable in order to have their liability limited.

How does this accomplish objective 1? By reducing the network effect lock in of the incumbents. In a fully programmable world new interfaces can be created that let me interact with multiple systems transparently, so I don’t need to keep track for example of which social network my friends are on. Some of these alternatives may be new centralized systems but others may be decentralized ones.

What about objective 2? In a fully programmable world, users can control what they see and what they don’t. So while that will not prevent trolls from getting on a system it allows endusers and coalitions of endusers to filter what they see.

Of course this immediately shows that objective #3 will be challenging. Again centralized players have done a horrendously bad job at this to date, largely because they are optimizing for total attention gathered. To get a glimpse of how hard that will be one need to look no further than information cascades on WhatsApp.

Why do I still think this is better? Because the misinformation problem is much larger than any one social media system and reaches all the way back to such fundamentals as how people learn and what value systems they internalize. In other words, it has been and will continue to be one of the central problems of human progress. For more thoughts on that I have an entire book which you can find at World After Capital.

(*) It turns out that you can achieve all three if you start with quality but only if you build a culture of quality. Similarly here I believe you can eventually accomplish all three if you build a culture of criticism.

Wednesday, May 20, 2020 - 11:38am

I have been getting a large number of requests for help with internships. Many students either never got one for this summer or had theirs canceled. My advice to them is: create your own. Figure out what it is you want to learn, start learning it, write about it online and find others to join your effort. 

These days there are amazing resources online on almost any topic plus you can social networks to find like minded DIYers. I propose that everyone who pursues this path use the same hashtag #DIYInternship so that folks can more easily find each other.

I realize that not everything can be done that way for example if you need access to machinery or to a lab. And yes initially you will start by yourself and you have to build your own contacts. Also, of course internships are part of the path towards finding employment. But here it is quite clear that a #DIYInternship will show more initiative than simply doing nothing this summer.

Finally, if this takes off, I am pretty sure there will be people with experience who will jump in and answer questions or provide advice. So stop waiting for someone to give you an internship and starting creating your own.

Friday, May 15, 2020 - 5:36pm

Towards the end of 2019, which feels a decade ago, I wrote a post on growth. It was an attempt to get away from the blanket term “growth” and its counterpart “degrowth,” which have become stand-ins for entire philosophies and move the discussion to specific categories such as knowledge (need more) and consumption (can do with less).

The COVID19 crisis, while causing immense pain, also provides a unique opportunity to reflect on what we need in our lives and what we can do without. And that examination should guide how we rebuild our economy and society.

The lockdown has resulted in the highest unemployment levels since the Great Depression. In one shocking statistic, it appears that almost 40% of people earning under $40K have lost their job. This is a massive disruption to what in my book World After Capital I call the job-loop: the vast majority of people spend most of their waking hours in a job and much of the rest on consumption of goods and services, which in turn are produced by other people having jobs.

Now lots of people are asking how will we bring these jobs back? But the more fundamental question to ask is: what can people spend their time and attention on if they don’t need to have that specific job? Or possibly any paid job? Or if they are empowered to start their own business? So far the government stimulus amounts to $3 trillion, which could easily pay for more than 1 year of Universal Basic Income (UBI).

What about the other side of the job loop, consumption? We are seeing more clearly than ever right now that health and freedom of movement are deep human needs. Having dozens of pairs of sneakers, by contrast, is not. It may be cool, hip or even constitute a valuable collection, but is clearly a want. If you are sick from COVID19 or locked up in a tiny apartment, this distinction between needs and wants will be crystal clear.

Way too many of our productive resources are aimed at making and selling stuff to people that they do not need. And we are seeing how hard it is and long it takes to retool those resources to instead produce masks and tests and everything else we truly need. The crucial reason for this is that we have become overly reliant on the market for allocation, especially the allocation of human attention. This is deeply problematic because prices do not and cannot exist for crucial needs, such as pandemic preparedness and finding purpose in life.

So here too our question shouldn’t be, how can we bail out all the businesses and keep making more stuff, but rather what is it that we need and won’t get from the market? We know some of these areas already and the crucial one of course is solving the climate crisis. But there is a lot more, such as the opioid crisis, which in turn is just part of the larger crisis of individual purpose. There is no shortage of issues and people deserving more of our attention than we are giving.

Susan and I have been incredibly fortunate (so far) to be healthy and have our loved ones be healthy. We are financially secure and can do our work remotely. And on top of that we are in a place with good internet connectivity where we can just walk outside whenever we want to and be in the woods.  But we know many others who are not nearly this lucky and much of our time has been focused on helping where we can. Being able to do so has been fulfilling and has made us shift our priorities towards doing more of that faster.

If ever there was a time to reset personal and collective priorities, this is it.

Sunday, May 3, 2020 - 9:38am

One key lesson from COVID19 is that we need a lot more decentralization. This is especially true when the center is as inept at managing the crisis as the US federal government has proven to be. For example, the power of agencies such as the CDC and the FDA has turned out to be problematic, e.g. in giving guidance on mask wearing or trying to increase the availability of testing (both central to the road back). This is not just a critique of current leadership but rather of the accretion of excessive federal power more generally.

The size of the economy of New York State is roughy $1.7 trillion as measured by the equivalent of GDP (an admittedly bad measure). That is about 150 times the GDP of the entire United States in 1800 (assuming I did my math right on that).  Or if New York were a country, it would rank 11th in the world, ahead of over 150 other countries. California is even bigger coming in 4th in the world (and ~275 times the size of the United States in 1800). It is completely unclear why outside a few crucial topics — that can only be regulated at the federal level — states of this size should not be making independent policy decisions. For example, why shouldn’t New York and California approve their own at home tests?

COVID19 may, however, turn out to be a catalyst for the ultimate decentralization, that of money. The dollar’s role as a global reserve currency has for many years put the US in a position of strength. But dollar dominance has proven to be a massive problem in this crisis — everyone who has dollar denominated debt, which includes not just US corporations and states, but also foreign sovereigns and corporates was relying on economic activity, including international trade, to produce the dollar necessary for debt service. With the COVID19 lockdowns that source of dollars has suddenly dried up which has forced the Federal Reserve to step in, producing an extraordinary 2.35 trillion dollars in the space of 6 weeks. For a super clear explanation of this see Jill Carlson’s great post.

The Fed is effectively making a last ditch attempt to prevent a massive global debt collapse. Even if we can stave that off in the near term, the crisis will make many entities around the world accelerate their search for an alternative to the dollar. This isn’t just idle thinking as the extraordinary speech by then Bank of England governor Mark Carney shows and is further illustrated by the massive freakout that central banks had over Libra’s plan for a stable coin based on a currency basket (the search for an alternative clearly does not include one that was feared could be controlled by Facebook).

One of the most interesting ways the decentralization of money could really pick up steam is with community currencies. US States cannot print money but will find themselves with massive budget holes from a combination of increased crisis response spending with a massive loss in tax revenues (footnote: there may be a way for states around this, but it is likely complicated and might result in an ugly fight). But there is a long history of community currencies in the US. And of course there is the famous “Miracle of Wörgl” in which a town helped lift itself out of economic depression by creating its own currency.

This is also an opportunity for crypto technology to really come into its own. For example we have been spending time upstate New York in Columbia County. It would be fantastic to have a local digital currency that is created on and settles via a blockchain. The county, or even a single city like Hudson, could issue it. Or better yet, citizens could create it for themselves. If anyone is aware of such experiments, I would love to learn more about them.

H/T to Tamar and Pete for getting my thinking on this going earlier today with an email exchange starting with this post by the Schumacher Center.

Saturday, April 18, 2020 - 5:38pm

Since I wrote my post on “The Road Back from COVID19″ we have made lots of progress on two out of the three pillars: masks and tracing. Masks went from a discussion of their merits to being mandatory to wear in public in several states, including New York. Tracing went from a hodgepodge of approaches to an API supported by both Google and Apple. On the third pillar of testing, however, we are massively behind.

It is by now well understood that the virus is transmissable for several days before the appearance of symptoms. To be able to reopen without immediately heading back into a steep infection curve that would once again overwhelm ICU capacity, we must ramp up testing dramatically with a target of many millions of *daily* tests. Ideally people could test themselves at home and/or at work several times a week with results in minutes.

Is that just crazy or can we get there? Yes because the required technology already exists, we just need to approve it and manufacture it at scale. Here are just two examples of machines, the MicrosensDx and the Accula. There are many more startups and established companies that have tests and there are fascinating proposals for super high throughput cheap testing.

We need to take three steps right now: (1) approve lots of these test immediately and (2) manufacture at scale and (3) monitor ongoing results. Here is how to accomplish this

Step 1: Approval

The regular FDA approval process needs to be completely sidestepped. Instead we either go a decentralized route, allowing states to approve their own tests, or we put together an approval task force recruited from the leading test scientists. The goals for that group should be to greenlight dozens of tests within the span of days and to then define follow-up reporting requirements to enable ongoing monitoring (step 3 below).

Step 2; Manufacture

There are lots of components to these tests and they are not easy to manufacture. But there is definitely manufacturing capacity that could be repurposed. To do so quickly I believe we will have to invoke the Defense Production Act as well as be willing to spend a lot of money. Every dollar spend on testing will unlock a multiple in economic activity so this is among the best money we can spend, even if some of the tests we buy don’t work well (or maybe not even at all). Having more different tests approved in Step 1 means we can lean into manufacturing much harder with a portfolio approach.

Step 3: Monitor

Finally we need to set up a reporting and stats infrastructure to monitor the performance of the tests as they are deployed so that we can hone in on the ones with the best sensitivity and specificity. With the right reporting protocols we will rapidly learn what works well.

Essentially this amounts to reversing the normal approval process which takes a long time with the goal of having only high quality tests in market. Here we want to optimize for speed and massively over allow, then pull back later. Because this is so essentially a 180 from the FDA’s normal operations we need a special one-time panel on this.

Governors should be exerting public pressure right now calling for this and if it has not been put in place by end of next week they should proceed on their own.

Sunday, April 12, 2020 - 5:37pm

2020 marks the 50th anniversary of Earth Day, an annual event supporting environmental protection and increasingly dedicated to fighting the climate crisis. Much had been planned, but due to COVID19 those plans had to be scrapped. Instead there will now be a global live stream at Earth Day Live 2020 and you can help promote it by adding some code to your site as I have done here on Continuations.

While it may be hard to muster the energy to think about anything other than COVID19, the climate crisis hasn’t gone away but is continuing to unfold. There are many parallels between the two crises: the both show the limitations of capitalism and market based solutions. There was no price mechanism for maintaining adequate emergency supplies of PPE and ventilators. That would have required government action (which we failed to take). Similarly, there is no price mechanism for greenhouse gases unless we create one through collective action (e.g. a carbon tax for polluters, payment for drawdown).

Scientists have long predicted a major global pandemic and we had two big warning signs specifically about coronaviruses with SARS and MERS. Yet we ignored the science. Similarly we understand the science of greenhouse gases and we have ample warning signs all around us, including rising temperatures and increases in extreme weather events. Both of these are global problems impacting all of humanity. We cannot solve either through individual action – they require policy changes. And policies are made by governments. Therefore a major thrust of Earth Day Live will be voter registration.

So please take a few minutes today or in the coming week and help promote Earth Day Live

Friday, April 10, 2020 - 6:38pm

The lockdown measures put in place have started to flatten the curve, but they are hugely disruptive and even if we were better about freezing the economy than we are, we cannot possibly maintain them until we have a vaccine (which is many months off at a minimum). So how do we get back from here? There are three essential ingredients that need to be in place: masks, tests and tracing for all.

How do we get these at the time of a dysfunctional federal government? Well here are some possibilities.

Masks for All: This is the easiest one as it turns out that reasonably effective masks can be homemade. Kudos to the team behind #Masks4All for popularizing this straightforward solution. You can also find tons of masks on Etsy.

Tests for All: Masks will not prevent all infections, so we need massive testing. Thankfully there are a lot of new ways to test for the SARS-CoV-2 virus at scale. For instance there is a new assay to use existing sequencing capacity to ramp to 1 million tests per day and another proposal for using “barcoding” to pool samples which can get us to the 10s of millions of tests per day. The cost here is low enough that these can all be privately or state level funded.

Tracing for All: Then of course once someone tests positive we need to notify everyone they may have infected. That requires tracing. The solution for that are mobile apps because our phones are always with us and know where we have been. There are several credible teams working on centralized approaches such as Coronatrace, as well as the emerging TCN coalition for a decentralized system. Both Apple and Google should put their considerable resources behind these efforts immediately. Update: Apple and Google have announced a tracing approach.

I believe we can have all three of these firmly in place some time in May at which point many of our regular activities can resume. To be clear, people will still get infected and some people will die from those infections. But with hospitals not overwhelmed treatment will be significantly better and mortality rates lower (also new treatment options are emerging).

What can we do as individuals? To the extent you can based on your skills and where you work, please contribute to one of these initiatives. If you can’t, make sure to put pressure on your local or state government to embrace this approach.

Monday, April 6, 2020 - 12:36pm

Something that consistently surprises me is how many people have a fundamentally static worldview. Their motto appears to be: Things are as they are and nothing will change. Never mind that history is full of massive change. And even more surprising: once a huge change has occurred the new situation becomes the new accepted normal.

The COVID19 crisis is case in point. The force of change, in the form of a virus that can be spread asymptomatically, was already clearly visible in January. The majority of people, however, were going after their lives as if nothing was happening and as if no change would be coming well into March. It was a small minority who were screaming about the need to prepare and to take drastic measures. This bit of recent history is reasonably well understood.

Now that we are in the depth of the crisis, however, the lockdown and fear are rapidly becoming the new normal. Now I hear from friends how they are “settling in for the long run.” I see forecasts that this crisis will prevent students from going to college in the fall. Very few people now seem to believe that this could actually be over faster.

And yes, to be clear, there are definitely scenarios where the crisis drags on and certainly where the economic downturn is extended, especially here in the US due to lots of personal and small business bankruptcies. Still, it is worth considering the factors that could contribute to a faster recovery. There is now tons of work on possible treatments. There are massive efforts underway to create a vaccine. Testing will be available widely and contact tracing will be facilitated by mobile phone location (and/or bluetooth handshake). There will be masks for everyone.

We have made some wild technological progress in the last decade that might come into play here. We can now write DNA (not just read it), which lets us create precise synthetic viruses. While that has potentially scary applications, it also means we can crank out vaccine candidates in totally new ways. There are also breakthroughs in growing and reproducing antibodies, where we can leverage antibodies from people who have developed resistance.

The tendency to see the current state of the world as the normal that will not change is sometimes called “normalcy bias.” This is fundamentally about the difference between a static and a dynamic conception of the world. Entrepreneurs and startups investors have that dynamic conception that change is possible and even more that they can bring about that change. That’s why they were among the ones who pointed out we were headed for crisis and that’s why they are now the most optimistic that we will get out of it.

Sunday, April 5, 2020 - 10:36am

There has been a lot of discussion of whether or not startups qualify for forgivable loans under the Paycheck Protection Program administered by the SBA (part of the CARES Act). I don’t want to rehash the arcana of affiliation rules here but make a totally different point instead: there is a money grab going on right now by some venture backed startups that this program absolutely should exclude.

Let me start by writing about the kind of business that I believe this is spot on for: the local construction company that has to stop all projects or the barber shop that has zero business right now. These businesses tend to be low margin and operate on very little cash (2-4 week maybe). Their revenues have gone to zero. They don’t have equity investors and are largely shut out from the credit markets. Their only alternative is bankruptcy.

By contrast many venture backed companies have many months or maybe even more than a year of burn sitting in their bank accounts. Their investors are often deep pocketed funds who should be well reserved for follow on investments. They can get sophisticated financial advice and can access the venture debt market (admittedly not right now but probably again in a couple of months). Many of these businesses operate in the digital realm and have seen limited impact on revenues – some have even seen their revenues explode.

Just to be clear. I think that some venture backed companies have a legitimate claim that they should be part of PPP. For example, we have some companies in our portfolio for which revenues have collapsed. But I fear that many more will apply and with a program that’s first-come first-served that will squeeze out small businesses for which this is the only lifeline.

I have been an entrepreneur myself and I understand the worry that maybe things look OK now, but what if my company falls off a cliff and I haven’t taken this money. All of these are legitimate considerations, but so is the realization that millions of small businesses already have fallen off a cliff and they need those funds. In this context it might be useful to keep in mind that there will be a public record of every company that avails itself of PPP.

So: I urge everyone who is running a venture backed company with a lot of money in the bank and limited COVID19 impact to think twice about applying for PPP. In the end this is obviously a difficult decision but we are in a crisis where true leadership means thinking beyond one’s own concerns.

Sunday, March 29, 2020 - 5:38pm

Private property has become so prevalent in the world that we rarely think about the commons. Most people consider the subway as a public good, it is part of “public transport” after all. But they are unlikely to recognize the space on the subway as a common, the way a community would previously have thought about a shared pasture. The COVID19 crisis is a stark reminder that commons are all around us: A single infected subway rider not wearing a mask could infect dozens of people.

How is that insight useful? Because it means we can look at Elinor Ostrom’s work on how to manage commons as a guide. Here are her 8 principles:

  1. Define clear group boundaries.
  2. Match rules governing use of common goods to local needs and conditions.
  3. Ensure that those affected by the rules can participate in modifying the rules.
  4. Make sure the rule-making rights of community members are respected by outside authorities.
  5. Develop a system, carried out by community members, for monitoring members’ behavior.
  6. Use graduated sanctions for rule violators.
  7. Provide accessible, low-cost means for dispute resolution.
  8. Build responsibility for governing the common resource in nested tiers from the lowest level up to the entire interconnected system.

All of these are important in their own way. I am particularly interested though in their relation to ideas of privacy and power.

It is immediately clear from #5 that these principles cannot be enforced unless the community can observe members’ behavior, which in many situations will be at direct odds with privacy. For example, how do you get everyone on the subway to wear a mask without some degree of observation? Yes you could try to deputize citizens or spread a lot of observers around but you could also use face recognition technology.

What’s crucial though is the interaction with power. Many of the other principles are about limiting power. For example, according to #3 community members need to be able to participate in modifying the rules. Or according to #8 decisions should be made as local as possible. So for example, New Yorker should have a say in how mask compliance is observed and enforced on the New York subway and this should not be handled by the federal government. And New Yorkers might choose to have the city use facial recognition to observe and fine those not wearing masks.

So what’s the upshot? Communities in order to manage the commons have a right that goes above individual privacy but we need to be careful to pick the lowest possible level of government and adhere to democratic processes in order to avoid excess central power. 

Saturday, March 21, 2020 - 5:37pm

Now that we are finally going on lockdown here in the US in order to flatten the curve of the COVID19 crisis, we also need to take drastic measures to put the economy on suspended animation. In particular, I propose the following for the duration of the lockdown:

  1. Suspend all interest, mortgage, rent and similar payments

  2. Permit companies in non-essential industries to suspend wage payments.

  3. Pay everyone a Universal Basic Income of $600/month

  4. Federally back all health insurers and in return force them to pick up all testing and treatment expenses

The goal of these measures would be to avoid personal and business bankruptcies across the economy. At present course these would decimate small businesses and further exacerbate the income and wealth inequality.

For individuals the biggest expenses by far tend to be rent, food and healthcare. Each of these is covered by one of the points above. Rent or mortgage payments are suspended as per #1. Food can be purchased from the UBI paid under #3. And healthcare is covered under #4.

For small businesses, the bulk of fixed costs are rent, interest payments and wages. Rents and interest payment would be suspended under #1, wages could be stopped under #2.

What would happen to real estate companies and lenders under this scenario? The biggest expense for real estate companies themselves turns out to be interest payments. They would stop receiving rents but would no longer need to pay interest. Should be survivable. For lenders this would be a great situation also. Right now they are facing the loss of principal on a lot of loans but under this scenario while interest payments are suspended, there is a much higher likelihood of the recovery of principal.

Sidenote: why am I proposing less than $1,000 for the UBI? Because the other measures eliminate key expenses for many people.

Is this realistic? Well in the absence of a crisis that could result in millions of deaths in the US alone not. But under present circumstances feels doable and other nations are already headed in this direction, with France suspending rent payments.

Addendum: Some clarification based on Twitter responses. By “suspend” payments I really mean suspend without a later catch up. Instead the elapsed time should be added to contracts. So for instance if you have 36 months of interest payments in total you will still have 36 months, just with a 2-3 months break in there.

Saturday, March 21, 2020 - 11:37am

I have written a few general posts about the COVID19 crisis already. Today I want to address all of those running a company or making management decisions with a simple message: avoid generic business advice! By generic advice I mean anything of the form “do x,” such as “cut 20% of cost now.” Why? Because it may or may not apply to your specific situation.

Across the USV portfolio, the COVID19 crisis has had wildly different impact on companies. Some companies are experiencing dramatic acceleration in growth, whereas others are seeing massive slow downs. If you are providing services such as distance education, subscription food delivery or services for remote teams demand for your service has just grown dramatically. Conversely if you are relying on advertising you are probably experiencing a significant contraction.

So what then is an alternative to generic advice? First principles. These can form the basis for figuring out what to do and also for evaluating advice. A crucial first principle in business is that you cannot run out of money. Bankruptcy is an absorbing state. It means that everything ends and nothing else matters. But you have to do the work to figure out whether COVID19 means you will run out of money faster or slower than before (or not at all for that matter).

And that’s not as easy as just looking at what is happening to your demand. Why? Another first principle of business is that financing needs are determined by cash flow patterns of the operating business. A corollary to this first principle is that growth can generate or consume cash depending on your working capital situation. If you have positive working capital and grow faster you consume cash. Conversely, if you have negative working capital then faster growth will produce cash.

And even that is not as straightforward as it may seem. Why? Because in a crisis a negative working capital business can flip into a positive one (which despite the terms would be a bad thing). All of your suppliers may suddenly insist on getting paid early because they are experiencing cash flow issues of their own. Conversely depending on the position you are in you may have the opportunity to go from a positive working capital business to a negative one (for example if you are providing an essential service that customers may want to prepay to assure its availability).

So as you are analyzing the impact of COVID19 on your business approach everything from a first principles perspective. One crucial aspect of first principles is that they let you evaluate risk even when you don’t have data yet. For example, you can see that flipping from negative to positive working capital may be a risk for your business even before you have suppliers asking for different payment terms.

Nothing I have argued here is really specific to the COVID19 crisis. A first principles based approach is always superior to the indiscriminate application of generic advice. It is just that in a crisis everyone is shouting generic advice even louder than normally.

Monday, March 16, 2020 - 6:38pm

I wrote a post about flattening the curve last week. I believe this week we will see some kind of government enforced lockdown in the US similar to the one in place in Italy, Spain and France. It is really the only way left at this point to have even a chance of not completely overwhelming the healthcare system (and even that’s questionable).

So what’s next after that? The key of course as always will be innovation.

The single most urgent piece here is testing. Ideally we can get this to the point where people can test themselves, but short of that we need to broadly deploy the kind of drive-through testing that’s become common in several Asian countries.

In terms of pharmaceutical innovation, the two crucial pieces we need to race for are better treatments and ultimately a vaccine. On the treatment side there are some signs that remdesivir may help. There is also experimentation with the HIV drugs lopinavir/ritonavir, as well as reports of positive effects from the malaria drug chloroquine. On the vaccine side lots of potential vaccines are being developed but testing them will take time and finding an effective one won’t be easy.

In terms of other healthcare innovation, we will need to figure out how to rapidly build a lot more ventilators as it appears that 10% of all those infected may need it. There is at least one open source initiative underway to tackle that.

But medical innovation isn’t the only kind of innovation required. There is also innovation in many other fields.

Take education as an example. We need to figure out how people can learn from home using the many tools and services that have been developed for that over the last few years. There are several great efforts underway here, such as this website with resources for parents. Our portfolio company Outschool is actively recruiting more teachers to its platform to address the surging demand. Susan and I homeschooled our kids and we believe that’s an important innovation that can be much more widely adopted.

And then there is social innovation. It appears a crucial moment in time to trial a basic income at the Federal level. Many people cannot support themselves for even a week without income and lots of jobs, especially freelance jobs, will contract dramatically. There is already a bill developed by the Economic Security project to dramatically expand the Earned Income Tax Credit. But ideally we would go even further and just let people open accounts at the Fed that can be credited with a basic income (the same way the Fed creates money for banks).

We are extremely fortunate to have a whole new set of capabilities at our disposal for confronting this crisis. Let’s use them to be as innovative as we possibly can to help save as many lives as possible but also transform the way we live. While terrifying and coming at a huge cost, the COVID19 pandemic is also an opportunity to progress towards a World After Capital.

Albert Wenger is a partner at Union Square Ventures (USV), a New York-based early stage VC firm focused on investing in disruptive networks. USV portfolio companies include: Twitter, Tumblr, Foursquare, Etsy, Kickstarter and Shapeways. Before joining USV, Albert was the president of through the company’s sale to Yahoo. He previously founded or co-founded five companies, including a management consulting firm (in Germany), a hosted data analytics company, a technology subsidiary for Telebanc (now E*Tradebank), an early stage investment firm, and most recently (with his wife), DailyLit, a service for reading books by email or RSS.