December 23, 2015
8VC is a venture firm dedicated to playing our part to help fix the world.
We believe the technologists and entrepreneurs of our generation are in a position to have a more widespread, positive impact on the world than any group in any previous generation — and that we have an ethical duty to recognize and act on our power. We believe in the power of technology and business to enable greater prosperity. We believe in progress, and in markets, and in creating opportunity for all.
We believe in contributing to our ecosystem here in Silicon Valley in a positive sum way and encouraging others to do the same. We believe in standing strongly for the benefits of human freedom, innovation, open platforms, and transparency – and in holding people and institutions accountable to our society’s values. We believe in the power of thoughtful and ethical investing to do good in the world.
The partners at 8VC are lucky to have had a lot of success building great companies and working with our friends and institutions around the world to solve important global problems. And the more we have learned about how to confront big industries and overcome challenges, the more we’ve realized just how much there is to do.
The industries that help run our society – healthcare, education, government, finance, and energy, to name a few – are operating in very unfortunate, often ridiculous ways compared to what’s possible. This can be frustrating, but it’s also an exciting reality, because there is so much we can do over the next decade to raise global prosperity by fixing these industries and making them vastly more efficient.
The amount of waste and inefficiency throughout the healthcare system is overwhelming, not to mention that every year in the US alone tens of thousands of patients die from errors because of broken processes and technology that doesn’t fit doctor’s workflows and isn’t smart. We learn more every year, but unnecessarily negative health outcomes are common because the system didn’t encourage people to take available tests and preventative action that would have detected their cancer or heart disease or anticipated other conditions years earlier and helped treat them better, sooner. Healthcare systems are still often closed and captured by crony company-govt complexes, and our society isn’t doing enough to learn how to cure disease – but there is a lot of positive progress and innovation and reason for confidence.
Many of us have realized our education system isn’t cut out for what our modern economy demands, but great entrepreneurs are creating extraordinary solutions to personalize the educational experience and to measure and deliver what actually works – and our generation is beginning to demand that we open up the education system and allow innovation. Great teachers are able to reach many more students, the cost of textbooks and materials is plummeting, and new best practices are starting to spread faster as the space is slowly dragged into the future by determined innovators against a wide variety of special interests and complex politics.
The government is perhaps the most behind other industries in applying new technology to do its job better, but even here we are seeing the beginnings of progress with stubborn, visionary entrepreneurs and rare government leaders eager to cause trouble and make a difference. Similarly, the financial world has been dominated by closed systems and giant institutions who operate without the benefits of what open platforms can deliver – the resulting lack of transparency is beneficial only for certain old boys’ clubs or fraudsters — or those entrenched services groups that profit from the expensive and often manual processes whose costs tax the rest of society and act as a sort of gunk in the machine of this global industry. Energy, meanwhile, has many areas that are embarrassingly bad, even if we avoid the clean energy discussion – grids throughout the US waste huge amounts of power and are often insecure, for one — there is still so much low hanging fruit.
The IT platforms that will enable innovation to spread throughout global industries are still in their infancy; what we refer to as smart enterprise. It is our duty as investors in the technology ecosystem to help inspire, nurture, and scale these businesses. We are already starting to see what consumer platforms like the smartphone iOS and Android ecosystems can do for the world. We are in the early innings of the latest industrial revolution – and only technology businesses will be able to create the IT platforms that will help new innovations spread – representing best practices and new ideas that save lives, prepare our youth for the modern economy, save energy, and otherwise enable greater prosperity.
The Jewish idea of “Tikkun Olam”, to repair the world, has many meanings and has often come to connote social action or social justice. One need not be Jewish to be inspired by the core idea – that we all have a duty to do what we can in our work to make the world a better place, one with more peace and harmony and less suffering and evil.
At 8VC, we’re lucky to be in a position to help so many entrepreneurs, and to be able to choose and pick what missions to back within a dual financial and ethical framework to achieve the best results for our LPs and our community. We’re inspired to strive towards the idea of being positive sum actors, helping everyone around us to succeed in missions aligned with our community’s values.
And we’re grateful for the support of so many extraordinary leaders, investors, and advisors who share our values and are working with us at this exciting time in history to fix the world together. The world can be a very scary and discouraging place in the news these days, but the secular trends are on our side – it’s becoming less violent, more connected, and more prosperous – and if we lead together we have a really bright 21st century ahead of us.
There will be challenges ahead, even as our companies succeed. Not every new industry platform immediately creates more jobs than it disrupts, but if we didn’t allow that type of disruption, we’d all still be farming by hand full-time and living in the backwards world of several thousand years ago. And not every profit incentive of a monopoly platform is a good idea for our society – we need to apply judgement to what’s fair and hold each other accountable. Similar to the late 19th century, we might have some serious near-term structural unemployment to deal with as the world changes more quickly than people expect – not to mention the populist politicians and often misguided proposals likely to accompany this change. It’s a promising but complicated time ahead, and our community has responsibility to help figure out how to create opportunity, safety, and honest hope for all parts of our society as we take the lead in this coming transformation.
Allocating capital is one of the highest forms of business when done well, when incentives are aligned to positive sum dynamics and the investors work with a community to create value. Finance can also be one of the lowest forms of work when done poorly, when a group becomes more of a rent-seeker or trickster and loses its sense of acting as a steward of capital for an ecosystem, or other guiding values and goals. This is not an idle challenge, but one that constantly confronts us as investors, who must serve both our LPs and our role in our community. It will behoove all of us to continually be thoughtful about our business as a fund and the businesses we’re creating, and to help each other act as role models, staying true to mission and values.
In addition, we must remember that not every issue in the world can be fixed with greater prosperity or with for-profit businesses, without a philanthropic component. We are excited to be building philanthropy into our founding mission and putting in place matching grants for our employees’ and advisors’ carry. We have been amazed to see what the minds in our space can achieve when exposed to the needs in these non-profit communities, whether in combating human trafficking, coordinating large-scale disaster relief, or removing forced-labor from supply chains, to name some of what our organizations have accomplished – and know there is still so much more to do.
We each have far greater power to change human lives for the better than we realize. Thank you for being part of our technology ecosystem and for joining us in our shared mission. The world is broken. Let’s fix it!
Q & A
Q: Aren’t you just trying to make a lot of money and then claiming you are doing good? Is this serious? You even invest in financial companies… this seems like a bunch of self-serving nonsense.
A: It is likely that some people will think this; ultimately it may come down to your intuition and politics and personal views, and it will be hard to change many people’s minds. We don’t see anything wrong with making money, and that in many cases we believe it is aligned with doing great work.
When our team looks at the world and what we believe enables progress — what enables the biggest positive impact and improvement of the global human condition for the future — making these critical global industries work in smarter and more efficient ways is at the top of our list.
Education and healthcare are obvious to everyone, and they are critical, but perhaps it sounds abstract to make finance work better. Some people not familiar with this industry might not realize that there are for instance a couple million people employed doing various forms of data entry and that processes that should involve algorithms are often poorly designed and use people as middleware instead, or to reconcile the bugs. They might also not be aware that information doesn’t always flow cleanly between tens of thousands of financial organizations, so you end up with a lack of transparency that enables huge amounts of fraud — or that stops innovations that would leverage data to streamline finance instead of letting ‘rent’ be captured by entrenched interests. What this means in practice in our view is that parts of the financial industry absorb tens or even hundreds of billions dollars a year unnecessarily.
Imagine what we could accomplish for our society if those people’s time and that wealth unnecessarily “taxed” by the financial system at many levels was better directed to causes and goals each of us cared about? In art, in education, in health, in improving inner cities or curing diseases, or whatever else that wealth and human effort could be doing instead is huge. We only get there if we fix the systems.
The same is true of most big industries today. The ways that we could be running most of the global businesses has changed thanks to the mobile ecosystem and advances in big data and machine learning and the Internet, but these processes have not yet been applied, because doing so is very hard and institutions have a lot of inertia against change. It takes truly great entrepreneurs with a lot of help from an awesome community to overcome these challenges. We’ve written about this a lot in other places – applying these new processes is going to be really important for the world, and every year counts. The investors and mentors in our community are excited to be helping ambitious entrepreneurs to achieve these sorts of missions, and we believe they are both profitable and critical for the world.
From my point of view, I already have more wealth than I would spend on myself or my family. I don’t think anybody needs to wait to do what they feel is important, but as you become more successful, it becomes even easier to fully prioritize your values and beliefs – to me, I would argue one is not really wealthy if she can’t spend her day doing something she feels is important. Fixing these industries is very important for humanity.
Q: You talk about philanthropy here. How are you building it into the fund? And where do those examples come from?
A: The examples towards the end of the essay come from a lot of Palantir’s philanthropy work, some of which was done with the Clinton Global Initiative (at https://www.palantir.com/philanthropy-engineering/); as well as an anti-child exploitation group we help with called Thorn run by Ashton Kutcher and a great team (at https://www.wearethorn.org/), and a few other missions including groups like Bayes Impact (www.bayesimpact.org) and others.
Not every philanthropy we believe in needs to employ technology like the ones above, but we engage in those because that’s where we feel our unique skillset allows us to have the biggest impact.
Philanthropy is built into the fund in a couple ways — each of our advisors gets a good amount of upside, but when they earn the upside from carry they can choose to donate it to philanthropy and I will match them 1:1. Our employees also have this option with part of their upside, and we’re planning to start a series of events around this later to discuss and debate how we’re using our philanthropic dollars and what missions we think are most important. We’re also advised by the ONE HOPE WINE Foundation, a group I work with that combines business success and philanthropy – and we’re still exploring what else we can do with our companies to weave philanthropy further into our community. We’d love your input.
Q: You talk a lot about values but don’t give many examples. How can a VC investor be bad, and what does it mean to strive to operate with “good values for the ecosystem”?
A: This is controversial as many people see it differently, but we have a handful of principles.
* First of all in VC we should only be getting involved where we truly believe we or our community might add value – we are an entrepreneurial group and are here to help, we’re not here to be low-end bankers who just find places for money. Our money is part of our help but if it’s nearly all of our help, this isn’t where we should be investing – firms like this end up in a negative sum game simply competing for access and deals and giving nothing back in return.
* There are many times when an action that might benefit a firm in the short term is bad for your company and the general function of the ecosystem. For example, a firm might have a right to approve the next round. A perfectly good investor might be leading the round, and the firm with approval is allowed their pro rata – but they might be angry they couldn’t lead the round themselves and insist on holding it up. Maybe they notice that the money in the company’s bank is low, so that if they hold it up and don’t approve by going slow for a few weeks, then they have a lot of leverage to get to put more in the round. Even worse, the firm could put out a negative rumor that the new investor hears to try to get them to back off so that they can lead themselves. These are all examples of actions that we have seen firms do, but that we should not ever engage in – and we try not to work with firms who act like this.
* In another example we saw this year, a firm (let’s call them “C”) had a partner that fought to lead a round in a hot company, and sent several engineers over noting that he could help recruit. Then when the round took a little longer and we were negotiating how much each of us could put into the company, he had the engineers call up the CEO and say that they would only do the next round of interviews if they were able to give C their full desired position in the round. The CEO and us both thought this sort of strong-arm tactic was completely out of line and had no place along with recruiting in our ecosystem, and decided not only not to give C the extra amount but not to work with C at all.
* Another firm, let’s call them “Q”, has a reputation for being extremely aggressive in kicking out other investors and getting their share. One of our friends was helping a great company that is important in cancer-detection and the CEO told him he could invest into the Series A, but then Q insisted he get 0 allocation so that they could get their full amount. It’s important for our LPs that we get a large ownership stake when we lead rounds, but in this same situation, for an investor who is adding value, for the sake of the company and working with great people in our ecosystem we’d be willing to be a little flexible and take for example 18 or 19% ownership instead of 20% ownership in order to encourage others to keep helping and to be friends for next time.
* We’ve been really impressed with how a few firms such as a16z treat entrepreneurs with great respect in a variety of detailed ways, and get back promptly to entrepreneurs rather than leaving them hanging, and do our best to do the same. It’s theoretically sometimes in a firm’s interest to have more optionality and take awhile even if you probably aren’t going to do a deal, in case you learn something new or because you aren’t sure, but the right way to handle it is to decide as soon as you can, and let them know immediately, and not waste a ton of their time. Some firms will be disorganized and do huge numbers of meetings with a company and waste tons of time and then cancel last minute on firms or only turn them down after months of dilly dallying and wavering, which is a bad way to do things. In general, respecting entrepreneurs as much as possible and treating them in a high-status way is key.
* There are so many other practices that are good vs inappropriate in our ecosystem that it’s hard to keep track, but we are constantly learning and discussing what we stand for as partners. Speaking badly about others to kill a deal or to try to win in almost any case is wrong unless you’d say it to their face. And meeting with a competitor of one of your portfolio companies without telling them about the conflict in order to learn more is also wrong. We can’t always know a company is going to be competitive to something we are doing, but in meetings when I realize something is going into territory that may be competitive, I will stop them and inform them and let them decide if they want to keep going. At 8VC, we have a rule that angel deals we are in don’t always preclude us from the space, but any sizable investment we are in does preclude us from investing into a competitor, because we are working closely with all of our main investments and can’t be honestly and fully coaching opposing teams at the same time.
The high-level answer is that there is a lot to do to help companies and to make money in the right way as an investor, and it’s important to do so and to encourage others to do so by rewarding good behavior and avoiding firms that violate these norms whenever possible.
Q: I / my cousin Rupert / my aunt Olga / my client has a great startup. How should I contact you?
A: If we know you from our work together in the technology community, please send it over! If we haven’t already worked with you, ideally there is somebody in our network who believes in what you’re doing. We don’t usually respond to cold inbound notes because we have to triage, and it is a good first screen to see if somebody can figure out how to get a warm introduction. When you’re doing BD for your startup later on you’ll often need to figure out how to get at least a couple positive references to speak to a client for you before they are ready to chat, so this is an important skill.