American Fall

This is a sequel. Read American Spring first.

“We conclude that the concentration of wealth is natural and inevitable, and is periodically alleviated by violent or peaceable partial redistribution. In this view all economic history is the slow heartbeat of the social organism, a vast systole and diastole of concentrating wealth and compulsive recirculation.”

– Will and Ariel Durant

In 2016, the American Republic birthed a second political party.

This came as a shock to the prosperous, college-educated Elites. The four horsemen of technology, trade, immigration, and bailouts had let them manufacture products, labor, voters, and money at will.

The people ruled the things, the politicians ruled the people, and the bankers ruled them all.

Elite America clustered on the temperate coasts, connected by airplanes and fiber optics. Its vision of open markets and open borders was supposed to eventually integrate the commoners in the interior.

But the Internet had turned media into a choose-your-own-reality adventure. Crowd funding and crowd media let the masses self assemble. Masses who had lost their livelihoods to trade, immigrants, and mechanization, and lost their culture to the march of progress.

The idealists, led by Bernie, were the first to storm the gates. It took the full might of the Media, the Party, and the Financiers to throw them from the walls. On the other front, Populists led by Trump broke through and seized the Republican banner.

The new Populists shared little with the old Republicans. They didn’t want to roll back entitlements and saw the culture wars as a distraction. They no longer wanted to send their children to fight wars declared by the Elites. They were tired of subsidizing naked gambling on Wall Street. They were out of sympathy for the wretched masses huddled at the border.

The great fake war is over, and the Republicans lost.

Now, the Populists are rallied behind Trump – a reality TV star who built a brand out of building brands. With slowing growth, they want to put America and Americans first. Never mind that high walls and high tariffs won’t stop the robots from taking all of the jobs in the end.

With the Bush dynasty failed, the Elites have consolidated behind a second Clinton. “L’État, c’est moi,” they say.

If the New Democrats remind you of the old Republicans, consider that they both always had war, immigration, bailouts, and trade in common. The poorest now unexpectedly find themselves sheltering with the neocons, the Chamber of Commerce, Wall Street, lobbyists, and every nervous foreign regime dependent on American financial and military largesse. Mirroring an unstable Middle Eastern state, an uneasy alliance of elites and minorities rules over the angry masses, even as the blue-collar workers and trade unions slip out the back door.

The Libertarians, the Greens, and the Socialists find themselves homeless once again, now joined by a moral minority.

This is the first battle, the beginning of a long war. Just as the rifle and the printing press once did, the technologies of crowd media and crowd funding have redistributed power between the Populists and the Elites.

Minorities, Elites, and white males have already picked sides. The remaining battles will be fought over white women and their issues. Just as the British Empire, and not Britain, fought most of its wars, the shock troops for the Elites are the most threatened and vulnerable minorities in the populace. The Elites set the strategy, the press issues the orders, and the poor take to the streets.

The Elites have money, media, colleges, institutions, and numbers. Through histrionics they will defeat Trump, through demographics, the mob. As for the displaced, let them eat quinoa!

Any victory in November will be short lived – the Populists, on left and right, are here to stay. A future leader somewhere between Trump and Bernie could unite them to victory at the ballot box. If not, and if the Populists are convinced that the system cannot be redeemed, a true American Spring may be upon us.

History’s classic solution is either politics distributing prosperity or revolution distributing poverty. Thankfully, the last real insurrection was settled 150 years ago. All that remains of that dispute is the re-enactment called Sunday night football.

Disturbingly, the gun owners, the police, and the military are in the wrong demographic. Who, the Elites wonder, is sitting on the hundreds of millions of guns and over a trillion bullets out there? How, exactly, are the unarmed Americans going to disarm the armed Americans? Even for the blissful turkey, Thanksgiving eventually arrives.

Technology-created prosperity may be a third way out, but technology displaces one generation as it prepares the next. The abundance that it creates is hardly a substitute for the self-determination and meaning that people crave.

Ultimately, it may be the Elites that sue for secession. Just like Syria and Iraq, perhaps America is two countries now – the coasts and the center, the city and the country, the Elites and the Populists. Social media and identity politics reinforce tribalism, and expose the absurdity of ruling sea to shining sea from a single iron throne.

If a new Berlin wall were to go up, we’d have to put it somewhere in Austin.

Perhaps a stable solution exists. In the meantime, it’s war in November, the most polarized election in memory. Trump’s demand is simple – “America first!” So is Clinton’s warning – “Après moi, le déluge.”

American Spring

A one party system ran the United States, and the United States ran the world.

The US had checks and balances – governing required consensus, and the people were freed from kings. To protect speech, the framers left out a rule against conspiracies to monopolize the vote.

Political parties formed to monopolize the vote. The losing parties kept ganging up until only two parties remained. Resembling vast and immortal corporations, they consolidated all political power.

The parties need mass media to win elections. Media literally intermediates reality and programs voters by framing the acceptable parameters of any debate. Mass media costs mass money.

The elites, a plutocracy of the top few percent, bought the parties. So cheaply in fact, that they bought both.

The elites are merely people that went to the right schools, grew up in the right neighborhoods, and came from the right money and the right families. It’s not a formal conspiracy – rather an intricate and distributed system, organized by the invisible hand of the market, voting with dollars and newspaper ink, and controlling the country all the same.

Within some parameters, the elites argue – bombs from the air or boots on the ground? How much should we tax income?

Mostly the elites agree to keep power with elite institutions, controlling the masses who cannot be trusted. Yes to wars, yes to mass surveillance, yes to bailouts, yes to war on drugs, yes to war on terror, yes to endless copyrights, yes to monopolies and oligopolies, no to term limits, no to wealth taxes… On these and others, pick R or D, there are no choices.

The Elite Party runs the system and it basically works. The elite stay elite. Income may be taxed, but wealth compounds. The most belligerent and implacable of the masses are sent to fight in mercifully distant wars. Crime happens in other people’s neighborhoods. The prisons are full and everyone is being watched. The pie expands, slowly and un-evenly, and all is well.

One weakness – the presidency is a single office of great visibility and power, directly and democratically elected. One person, one vote. Regardless of education, ethic, breeding, knowledge, achievement. Is everyone actually, really, equally qualified to vote, the elites wonder?

The elites lock the crown behind two massive gates – it costs a billion dollars to run for president. And incalculable, favorable mass media exposure.

This works well – so well that the elites get lazy, handing off presidential power within dynasties – between fathers and sons, husbands and wives.

Statistically speaking, what are the odds that the two most qualified candidates to be president out of 300 million people are siblings? Or married?

Barack Obama interrupts an in-process coronation. Using hope, change, and emerging alternative online media, he organizes and brings new voters to the polls. But back then, it still takes television, money, newspapers, and the party apparatus. He can’t and doesn’t do it alone, and eventually joins the elite.

Today, it’s a different world. YouTube, Twitter, and Facebook let one human broadcast to billions, without permission, without censors, without delay. Social media makes mass organization and resistance possible.

The Arab Spring is just one consequence. The American Spring of 2016 is another.

Social and alternative media dominates and disintermediates mass media. Every column brings a hundred rebuttals. The New York Times and the Wall Street Journal are stood like commoners next to bloggers, begging for tweets, likes, and votes. We are all journalists and editors now.

Bernie can play this game. The MoveOn crowd organizes effortlessly using the new media.

Trump can play this game. The reality show vet generates outrage and impressions, tweeting as he goes.

Meanwhile, the Internet kills the political ad. Everyone is online – skipping, blocking, or just mis-clicking.

Bernie spends a bit on ads. Trump doesn’t bother.

It’s not just publishing – the Internet lets anyone donate little bits online. Bernie taps the crowd – over a million dollars a day from small donors! Again, Trump doesn’t bother. He just self-finances.

The mass media barrier is down. The money barrier is down.

A mob is pushing Bernie. Trump is pulling one behind him.

The elites are livid. They sneer at the masses – Uneducated. Socialist. Racist. Luddite.

Throughout history, elites and plutocrats have feared direct democracy. One-person, one-vote logically leads towards mob rule. Socialism. Tribalism. The masses are always “crazier” than the elites. The elites like the status quo, so they pull policy towards the center. It’s the masses that want real change.

YouTube killed TV and Twitter ate the news. Donald’s tweeting from his jet and Bernie’s kickstarter went viral. Software is eating politics and the elites have lost control.

Now we see “of the people, by the people, and for the people.” The neatly labeled bundles of “Democrat” and “Republican” are going to get re-assembled by the voters, one vote at a time instead of one dollar at a time.

Sanders’ voters think the rich stole their money. Trump’s voters think the illegals stole their jobs.

There is no more establishment. Like all things Internet, social media and crowd financing are unstoppable. Every large future election will have outsiders out-organizing, out-raising, and out-raging the establishment.

America is going from a republic of elites to a direct democracy. Look to your left, and look to your right. Wake up – the people are here.

The Fifth Protocol

“Wait a minute… Make up your mind. This Snow Crash thing—is it a virus, a drug, or a religion?”

Juanita shrugs. “What’s the difference?”

– Snow Crash

Cryptocurrencies will create a fifth protocol layer powering the next generation of the Internet.

Humans don’t *need* math-based cryptocurrencies when dealing with other humans. We walk slowly, talk slowly, and buy big things. Credit cards, cash, wires, checks – the world seems fine.

Machines, on the other hand, are far chattier and quicker to exchange information. The Four Layers of the Internet Protocol Suite are constantly communicating. The Link Layer puts packets on a wire. The Internet Layer routes them across networks. The Transport Layer persists communication across a given conversation. And the Application Layer delivers entire documents and applications.

This chatty, anonymous network treats resources as “too cheap to meter.” It’s a giant grid that transfers data but doesn’t transfer value. DDoS attacks, email spam, and flooded VPNs result. Names and identities are controlled by overlords – ICANN, DNS Servers, Facebook, Twitter, and Certificate “Authorities.”

Where’s the protocol layer for exchanging value, not just data? Where’s the distributed, anonymous, permission-less system for chatty machines to allocate their scarce resources? Where is the “virtual money” to create this “virtual economy?”

Cryptocurrencies like Bitcoin are already trustless – any machine can accept it from any other, securely. They are (nearly) free. They are global – no central bank required, and any machine can speak the language. And they’re one to two steps from being quick, anonymous, and capable of authentication.

Suppose we had a QuickCoin, which cleared transactions nearly instantly, anonymously, and for infinitesimal mining fees. It could use the Bitcoin blockchain for security or for easy trading in and out. SMTP would demand QuickCoin to weed out spam. Routers would exchange QuickCoin to shut down DDoS attacks. Tor Gateways would demand Quickcoin to anonymously route traffic. Machines would bypass centralized DNS and OAuth servers, using Coins to establish ownership.

Why stop at one Coin? Let’s posit a dozen new Appcoins. Using application-specific coins rewards the open-source developers with a pre-mined quantity. A TorCoin can be paid to its developers and gateways and by Tor users, achieving consensus via proof-of-bandwidth. We can allocate any scarce network resource this way – i.e., BoxCoin for Storage, CacheCoin for Caching, etc.

Lets move on to other networks. Can a completely distributed grid of small generators trade power with each other, using a decentralized and trustless cryptocurrency? Can a traffic jam of self-driving cars clear itself as the computerized vehicles bid for right of way? Can a mass of people crossing a street take priority over a single car waiting at the traffic light, as their phones vote, trustlessly and reliably, for their presence? Can we efficiently route networks of assets like water and power, and liabilities like pollutants and sewage, across a distributed grid? Can we trade stocks and financial assets with no brokers, custodians, or agents?

Cryptocurrencies are electronic cash, and as such, will be used by electronic agents to exchange value, verify contracts, and track identity and reputation. All of a sudden, the computing resources spent by the Bitcoin miners doesn’t seem wasted – it seems efficient, given that it can be used for congestion control and routing of other network resources.

Cryptocurrencies are an emergent property of the Internet – almost a fifth protocol in the Internet suite. If Satoshi Nakomoto did not exist, it would still be necessary to invent them. Someday, they will be used by the machines in our network, on our desk, in our garage, and in our pocket to exchange value and achieve consensus at blinding speeds, anonymously, and at minimal cost.

When that day arrives, large distributed networks that we rely upon will change. Starting with the Internet, they will become de-centralized market economies, far more intelligent than they are today. Just as human brains co-evolved with our ability to trade and exchange goods with people who weren’t related to us, so the network will become more intelligent as it learns to trade currency and contracts with unrelated nodes.

Eventually, there will be no functioning Internet or Internet of Things at the protocol layer without deep cryptocurrency integration. Turning off this fifth protocol will be impossible. Cryptocurrencies also remain mediums of exchange and stores of value. Nation states that are used to imposing capital controls will face a quandary – ban cryptocurrencies, and live in the technology dustbin. Enable them, and this virus, this religion, this protocol – will enable the free flow of money and language, along with packets, around the globe.

The Bitcoin Model for Crowdfunding

Bitcoin is not just a protocol or money, it’s a new business model for Open Source Software. Prior to Bitcoin, you had to raise money, write software, distribute your product, build a business model, and work towards liquidity. Angels, VCs, salespeople and bankers guided you the entire way, through a maze of tolls and controls.

The Bitcoin model for crowdfunding dispenses with everything except the software:

  • Write software to power a completely distributed network in which any node can participate anonymously.
  • Allocate scarce resources in the network using a scarce token – an “Appcoin”. Users need this Appcoin to use the network. Owners of scarce resources get paid in Appcoins.
  • Pre-mine or early-mine Appcoins and keep some non-threatening amount. These are shares of your company, equity that will appreciate in value if the network is adopted.
  • Give network operators the ability to collect new Appcoins in proportion to their contribution. Route a small fraction of each transaction output to the developer foundation (Mastercoin does this). These revenues are used to pay for operations, and bounties for ongoing development.
  • As network usage increases, so does equity value and revenue. 
  • Anyone can buy Appcoins, anywhere, anytime, anonymously. Ship your code, ring the IPO bell.

This is true crowdfunding – get funded by your users in proportion to their usage. Reward early adopters, network operators, and developers with upside.

In economics, the artificially scarce token used to allocate scarce resources is called “money.” So Bitcoin is crowdfunded OSS to run an Economic network. Now, a new generation of Appcoins can be created as open source software, crowdfunded into existence, and go public on day one. They can run networks where Bitcoin may not work, or where separate funding and compensation is needed.

The Tor network is slow because it relies on volunteers to relay traffic. Anytime we see a line, the product in question is underpriced. Let’s crowdfund a Torcoin – users of relays will pay in Torcoins and operators of relays will get paid in TorCoins. Founding developers collect equity when TorCoins are first mined and sold. Non-founding developers and network operators are paid revenues from newly mined coins and transaction fees.

Can we just use Bitcoin instead of Torcoin? Isn’t money supposed to be fungible to all use cases? Perhaps not – Bitcoin’s transaction speed is too slow for a dynamic network allocating bandwidth – 10 to 60 minutes is far too long to negotiate with a relay. And payments have to be anonymous. So a fast-clearing (Fastcoin can clear a block in 12 seconds), fully anonymous (likeZerocoin) variant is needed.

What else can we allocate in a network? NameCoin is already working on Distributed DNS. Can we build a striped, encrypted, high-availability data store using Boxcoin which pays for disk availability? Can we build a caching infrastructure using Cachecoin which pays edge nodes with un-used resources to cache large, static content? A DDoScoin used by web servers to throttle incoming browser requests? A PKIcoin that provides a global, un-assailable encrypted and anonymous messaging network? Are there more applications, like Bitcoin, that map to the real world and bypass network resources altogether? 

In a world of numerous Appcoins, easy to create, integrate, and crowdfund, what’s the role of Bitcoin? 

Bitcoin itself will be used as the currency of choice in many cases, when its slow transaction clearing and pseudonymity are not issues. And most of the world’s resources are not networked software which can benefit from its own Appcoin.

Some Appcoins may just be a protocol layer on top of Bitcoin to explicitly reward the creators, operators, and early adopters of the Appcoin’s network. PKIcoin may only be a financial incentive,  security outsourced to the Bitcoin mining pool, with entry / egress to PKIcoin through Bitcoin. In the cases that the Bitcoin blockchain is insufficient, such as Torcoin, Bitcoin will still be a reserve currency of sorts for moving into and out of Torcoin. 

Bitcoin is more than money, and more than a protocol. It’s a model and platform for true crowdfunding – open, distributed, and liquid all the way.

Thanks to Balaji Srinivasan for helping think through many of the ideas in this post. It’s really at least half his work. If you don’t follow him on twitter @balajis , you really should).

Bitcoin – The Internet of Money

This post is old – I wrote it for Wired, which just published an excerpt in “The Wired World in 2014” issue, but the article was written in July. Apologies for the obsolescence.

Bitcoin will eventually be recognized as a platform for building new financial services.

Most people are only familiar with (b)itcoin the electronic currency, but more important is (B)itcoin, with a capital B, the underlying protocol, which encapsulates and distributes the functions of contract law.

Bitcoin encapsulates four fundamental technologies:

  • Digital Signatures – these can’t be forged and allow one party to securely verify a transaction with another.
  • Peer-to-Peer networks, like BitTorrent or TCP/IP – difficult to take down and no central trust
  • Proof-of-Work prevents users from spending the same money twice, without needing a central authority to distinguish valid from invalid transactions. Bitcoin creates an incentive for miners, who run powerful computers in the network, to validate transactions and to secure them from future tampering. The miners are paid by “discovering” new coins, and anyone with computational resources can anonymously and democratically become a miner.
  • Distributed Ledger – Bitcoin puts a history of each and every transaction into every wallet. This “block chain” means that anyone can validate that a given transaction was performed.

Thanks to these technical underpinnings, bitcoins are scarce (Central Banks can’t inflate them away), durable (they don’t degrade), portable (can be carried and transmitted electronically or as numbers in your head), divisible (into trillionths), verifiable (through everyone’s block chain), easy to store (paper or electronic), fungible (each bitcoin is equal), difficult to counterfeit (cryptographically impossible), and can achieve widespread use – many of the technologists that brought us advances on the Internet are now working overtime to improve Bitcoin.

Proponents of the role of government argue that a currency with fixed supply will fail. They posit that inflation is required to keep people spending and that prices and wages are still as sticky as they were decades ago. They overlook that the world functioned on fixed money supplies until 40 years ago (the gold standard), and that bitcoin can gather many uses and value long before it has to become the main currency in which all prices are denominated. Another fear is that a central actor could take over the Bitcoin computing network – but the combined Bitcoin distributed supercomputer runs at the equivalent of 2,250 PetaFLOPS, 90x the rate of the fastest supercomputer (note – in Nov, it’s now 48,000 PetaFLOPS!), and consumes an infinitesimal fraction of the resources used by a bloated banking system. Many label it as a speculative pyramid scheme – without realizing that all government-printed money is such. To the extent anyone holds cash over other assets, they are speculating that other assets will decline in relative value. Concerns abound over the security of the encryption scheme, the speed of transactions, the size of the block chain, the irreversibility of the transactions, and the potential for hacking and theft. All are fixable through third-party services and protocol upgrades. It’s better to think about Bitcoin the protocol as Bitcoin 1.0, destined to evolve just as HTTP 1.0 evolved beyond of simple text and image-only web-browsers.

So why not just use Pounds or Dollars? One can use bitcoins as high-powered money with distinct advantages. Bitcoins, like cash, are irrevocable. Merchants don’t have to worry about shipping a good, only to have a customer void the credit card transaction and charge-back the sale. Bitcoins are easy to send – instead of filling forms with your address, credit card number, and verification information, you just send money to a destination address. Each such address is uniquely generated for that single transaction, and therefore easily verifiable. Bitcoins can be stored as a compact number, traded by mere voice, printed on paper, or sent electronically. They can be stored as a passphrase that exists only in your head! There is no threat of money printing by a bankrupt government to dilute your savings. Transactions are pseudonymous – the wallets do not, by default have names attached to them, although transaction chains are easy to trace. It has near-zero transaction costs – you can use it for micropayments, and it costs the same to send 0.1 bitcoins or 10,000 bitcoins. Finally, it is global – so a Nigerian citizen can use it to safely transact with a US company, no credit or trust required.

Even more importantly, Bitcoin the protocol will enable financial services transactions that are not possible today or require expensive and powerful third-parties.

Bitcoin has a scripting language which enables more than a “send money from X to Y” transaction. A Bitcoin transaction can require M of N parties to approve a transaction. Imagine Wills that automatically unlock when most of the heirs agree that their parent has passed, no lawyer required. Or business accounts that require two of any three trusted signatures to approve an expenditure. Or wire escrows that go through when any arbiter agrees that the supplier sent the goods to the buyer. Or wallets that are socially secured by your friends and family. Or an allowance account accessible by the child and either of two parents. Or a crowdfunding of a Kickstarter project that pays out on milestones, based on the majority of the backers approving the next payment. The escrow in each case can be locked so that the arbiters can’t take the money themselves – only approve or deny the transaction.

The scripting language can also unlock transactions based on other parameters. Unlocking them over time can enable automatic mortgage, trust, and allowance payouts. Unlocking them on guessable numbers creates a lottery auditable by third parties. One can even design smart property – for example, a car’s electronic key so that when and only when a payment is made by the car buyer to the seller, the seller’s car key stops working and the buyer’s car key (or mobile phone) starts the car. Imagine your self-driving car negotiating traffic, paying fractional bitcoin to neighboring cars in exchange for priority.

Everyone has a copy of the Bitcoin block chain, so anyone can verify your transactions. You can write software that will crawl the block chain and generate automatic accounting histories for tax and verification purposes. You can engaged in “Trusted Timestamping” – take a cryptographic signature of any document, timestamp it, and put it into the block chain. Anyone can verify that the document existed at a given time. If you sign the document with your private key and another party signs it with theirs, it becomes an undeniable mutually-signed contract. This entirely eliminates notaries and websites like are showing the concept. The Namecoin project is building a distributed Domain Name System that allocates and resolve Domain Names without needing ICANN or Verisign, by using the block chain to establish proof-of-ownership. Similarly, look for entrepreneurs to apply this authoritative proof-of-ownership to built P2P Stock and Bond Exchanges – at least one Bitcoin site, “Satoshi Dice,” has sold shares and issues dividends without using a stock exchange. The ownership and dividends are easily verifiable by anyone who wants to look inside the block chain. is combining the transaction scripting and the verifiability to create a prediction market in which you cannot be cheated and third-party arbiters can allocate the winnings.

Bitcoin’s “send-only” and irreversible nature makes it much less vulnerable to theft. Today, anyone with your Credit Card or E-Checque (ACH) information can pull money from your account. This creates chargebacks, expensive dispute resolution and merchants double-checking your identity. Bitcoin is send only. Anyone who has received bitcoins from you can’t request or pull more money from your account.

Most importantly, Bitcoin offers an open API to create secure, scriptable e-cash transactions. Just as the web democratized publishing and development, Bitcoin can democratize building new financial services. Contracts can be entered into, verified, and enforced completely electronically, using any third-party that you care to trust, or by the code itself. For free, within minutes, without possibility of forgery or revocation. Any competent programmer has an API to cash, payments, escrow, wills, notaries, lotteries, dividends, micropayments, subscriptions, crowdfunding, and more. While the traditional banks and credit card companies lock down access to their payments infrastructure to a handful of trusted parties, Bitcoin is open to all.

Silicon Valley knows a platform when it sees it, and is aflame with Bitcoin. Teams of brilliant young programmers, entranced by the opportunity, are working on Exchanges (Payward, Buttercoin, Vaurum), Futures Markets (ICBIT), Hardware Wallets (BitCoinCard, Trezor, etc), Payment Processors (, Banks, Escrow companies, Vaults, Mobile Wallets, Remittance Networks (, Local Trading networks (, and more.

Looming over them is how governments view Bitcoin and the entrenched financial powers it threatens. The last few decades have seen a move towards a cashless society, where every transaction is tracked, reported, and controlled. Bitcoin takes powers from the central actors and returns it to merchants and consumers, savers and borrowers. Bitcoin brings back some pseudonymity in the transactions, and can be irrevocably traded like cash. And finally, it points a way towards a single currency – it is a bug, not a feature, that we have multiple global currencies with exchangers and transaction fees in between.

Governments have been cracking down on the bitcoin exchanges, making it harder to obtain and slowing its development. Strict and expensive Money Transmitter regulations, designed to slow terrorist and child porn financing, threaten the next great technological revolution – never mind that terrorists can use cash just fine, the means of terror are cheap, and that they account for an infinitesimal fraction of global commerce. The development and innovation in Bitcoin has already begun the move to friendlier jurisdictions, where its innovation can continue un-impeded. Regulators in the US and UK would be wise to proceed with a light touch, lest they push the development of Bitcoin and its entrepreneurs to places like Canada, Finland, and the Sino-sphere. The United States has benefited enormously from being home to the majority of global companies driving the Internet revolution. The country that is the home to the Internet of Money could one day end up as the guardian of the new Reserve Currency and the Global Money Supply.

Thanks to Shawn O’Connor, Lucas Ryan, Paul Bohm (@enkido), and Oleg Andreev (@oleganza) for feedback. Follow me at @naval

A Venture SLA

There is an opportunity for a new VC Firm to brand itself. Recent brands in Venture Capital arose from transparency and founder-friendliness. YCombinator gives new, young, technical talent an entry into Silicon Valley. 500 Startups does it globally. Fred Wilson blogs the business. Marc Andreessen and Ben Horowitz back Founders to be Public Company CEOs. Ron Conway tirelessly connects his investments to his huge personal network. AngelList gives away investor and talent introductions for free. Founders Fund explicitly cashes out Founders. First Round Capital builds and operates an internal platform. Brad Feld, Mark Suster, Floodgate, Felicis, Freestyle, Softech, Harrison Metal, Baseline all have transparent, founder-friendly philosophies.

That’s not how most VCs work. Imagine if a young entrepreneur were to walk into a VC firm and say:

"We help our customers but don’t tell them exactly how. Our core product is a commodity, yet we don’t disclose pricing. Even when we do, there are substantial hidden costs. It has to be bought in bulk, more than they want. We can take months to onboard a customer. We reject most of them but don’t actually give them a straight answer. They don’t get dedicated support. They don’t get to choose or replace their representative. We don’t commit to serve them in the future. We have hundreds of competitors with the same strategy. Now where’s my check?"

Not even the DMV could get away with this. It’s only possible when the supplier has power over the buyer. As companies get cheaper to build, that power is eroding. Most great VC firms know this, and have built reputations to counter much of the above. That’s what "smart money" means.

But there’s the opening. No one quantifies it or promises it. A few are beginning to – Passion Capital has a Termsheet in Plain English. The accelerators of course do this.

But where’s the venture capital with a strict, quantified promise? A Service Level Agreement?

Imagine this pitch:

"Hello, we’re Founder Friendly Capital. We

• Give you a quick and clear answer. 3 meetings, 2 weeks, yes or no.
• Sign up to a plain-English, Founder-Friendly Termsheet. We pay our own legal costs.
• 1x Liquidation Preference, no veto on Arms Length transactions. Four weeks to decide. No one-way NDAs.
• We’ll always do our pro-rata in the future or sell you back our stake.
• Will never bring in an outside CEO without at least 50% Founder consent.
• You’ll get access to the following resources. X hours of our recruiter time. Access to Y network. Office hours with your Partner.
• Board Seat above $X, Board Observer below that, no Board Control
• No Option Pool Shuffle – the Pre-Money is the true Pre-Money
• Minimum investment amount is $__; Minimum ownership percentage is __%
• Choose your Partner – don’t be embarrassed to ask
• 10% of the Round can be used for Founder Liquidity

Change the numbers. Change the terms. It’s the transparency that matters. Instead of leaving every option open and wiggle room on everything, make hard choices up front. A Venture Capital Firm that voluntarily constrains itself will be viewed as Founder Friendly, Smart Money, and will never be short of opportunity.

Build a Team that Ships

I started my first company 15 years go, and I still can’t manage. I suspect that very few people can. With AngelList, we want a team of self-managing people who ship code.

Here’s what we do:

  • Keep the team small. All doers, no talkers. Absolutely no middle managers. All BD via APIs.
  • Outsource everything that isn’t core. Resist the urge to pick up that last dollar. Founders do Customer Service.
  • People choose what to work on. Better they ship what they want than not ship what you want.
  • No tasks longer than one week. You have to ship something into live production every week – worst case, two weeks. If you just joined, ship something.
  • Peer-management. Promise what you’ll do in the coming week on internal Yammer. Deliver – or publicly break your promise – next week.
  • One person per project. Get help from others, but you and you alone are accountable.

If they can’t ship, release them. Our environment is wrong for them. They should go find someplace where they can thrive. There’s someplace for everyone.

It’s not perfect. We ship too many features, many half-baked. The product is complex, with many blind alleys. It’s hard to integrate non-engineers – they aren’t valued.

But, we ship.