20VC USV's Albert Wenger on Automation Replacing Humans, The Universal Basic Income and The Instalment & The Deployment Phase

Host Harry Stebbings interviews Albert Wenger, a partner at Union Square Ventures (USV), on the "20 minutes VC" podcast. Wenger discusses his journey from operator to investor, detailing his prior roles and investments, including his time at Delicious and angel investments in companies like Etsy and Tumblr. He explains Carlota Perez's framework of technological adoption phases—installation and deployment—and USV's focus on investing during the deployment phase, where infrastructure enables new innovations. Wenger also advocates for a basic income guarantee to support societal transitions amid increasing automation and emphasizes the importance of contestable markets with low switching costs, facilitated by APIs. He highlights the significance of personal bots for individual agency in computation and shares his latest investment in Clue, a women's health app. Throughout the conversation, Wenger reflects on the social implications of network effects and the challenges of embracing new economic models.

• USV is one of the most successful venture funds of the last decade with investments in Twitter, Twilio, Zynga, Lending Club, Soundcloud, CircleUp, etc.
• Albert Wenger is a partner at USV, was president of Delicious, an angel investor in Etsy and Tumblr, and co-founded several companies.
• Albert has a blog and has done a TEDx talk, both recommended by the host Harry Stebbings.

"And joining me today from USV, I'm thrilled to welcome Albert Wenger, who's a partner at USV and prior to USV, Albert was the president of delicious through the company's sale to Yahoo and an angel investor at Etsy and Tumblr."

This quote introduces Albert Wenger, highlighting his role at USV and his previous experiences, setting the stage for his expertise in venture capital.

• Albert enjoys startups but realized he was not a strong operator.
• He started a company in the Internet healthcare field in the late '90s, which was ahead of its time.
• After several attempts and false starts in the venture capital industry, he values his current role greatly.

"I like to say because I love startups, but I'm a bad operator and I think that sort of captures the truth."

Albert explains his affinity for startups while acknowledging his weaknesses in daily operational roles, which led him to venture capital.

• Albert knew Brad from his incubator board and tried to raise a fund with him.
• He became involved with USV after recommending Delicious to Brad and Fred, which led to becoming the president of Delicious.
• Post-Yahoo acquisition of Delicious, Albert made angel investments and brought deals to USV, eventually becoming a venture partner and then a general partner.

"And so when Brad and Fred had started Union Square Ventures, they started in 2003 to fundraise and they launched the fund in 2004."

This quote gives a brief history of USV's inception and Albert's early connection with the founders, which led to his eventual partnership.

• Carlota Perez, an economics professor, identified patterns in how technologies enter the market.
• The installation phase involves hype, investment, and often a financial bubble, which finances the infrastructure setup.
• The deployment phase begins once the infrastructure is in place, focusing on leveraging the new technology for various applications.

"Carlota is a professor of economics and economic history, and she's really studied the history of how technologies enter a market."

Albert introduces Carlota Perez's work, which is a framework that USV uses to understand technology market entry and informs their investment strategy.### Investment Phases: Installation vs. Deployment

• Investment in new technologies occurs in two main phases: installation and deployment.
• Installation phase involves setting up the infrastructure for new technology.
• Deployment phase is when the technology is broadly available and applications can be built upon it.
• The firm prefers investing during the deployment phase due to more opportunities and less timing uncertainty.
• Investing in the installation phase can be lucrative but is riskier and requires precise timing.
• Examples include VR/AR and self-driving cars, where early investments in Oculus and Cruise yielded high returns.
• The installation phase can be characterized by "frothy times" with a lot of capital influx and early winners.
• The deployment phase offers a longer-term investment perspective and the chance to build sustainable businesses.
• An example of a deployment phase investment is Shapeways in 3D printing, which grew slowly but consistently.

"And so I would say the bulk of our investing tends to be in the deployment phase, which is the phase of all the things that become possible once you have the infrastructure of the new technology installed."

This quote explains the firm's preference for investing during the deployment phase, where the infrastructure is already in place, allowing for a broader range of investment opportunities and applications.

• Frothy markets occur when there is a rapid allocation of capital to a new sector.
• While frothy markets can be beneficial socially, they pose risks for individual investors.
• Timing is crucial in frothy markets to achieve good returns; otherwise, there is a high risk of loss.
• The firm aims for investments with a longer-term outlook rather than short-term speculative gains.
• The example of 3D printing demonstrates the volatility of frothy markets and the risks of timing.
• Sustainable, long-term businesses are preferred, even if they offer slower initial growth.

"We as a firm, like to invest more in situations where we think that there is sort of a longer term perspective."

This quote highlights the firm's strategy to focus on investments that offer a longer-term perspective rather than short-term speculative opportunities, aiming for sustainability and steady growth.

• Network effects occur when a service becomes more valuable as more customers use it.
• Companies with network effects can become significantly larger than competitors.
• While network effects can be beneficial, dominant networks can extract excessive value and stifle innovation.
• Monopolists or near-monopolists without competition may not behave well, harming innovation.
• The firm has invested in companies with network effects but is mindful of their potential negative impacts.
• Innovation is less likely in markets dominated by large players with strong network effects.

"We know very well that monopolists are near, monopolists tend to not behave particularly well because they are not checked by competition."

This quote reflects the concern that monopolistic companies may not act in the best interest of innovation or consumers due to a lack of competitive checks, which can be a downside of strong network effects.

• Contestable markets are those where new entrants can credibly threaten incumbents.
• Reducing switching costs makes a market more contestable.
• APIs can lower switching costs by allowing customers to easily move to competitors.
• A contestable market encourages innovation and prevents dominant players from controlling the market.

"Yeah, so one of the key importance in making a market more contestable is to reduce switching cost."

This quote emphasizes the importance of reducing switching costs to create a contestable market, which can foster innovation and prevent market dominance by a few large players.## Contestable Markets and APIs

• Contestable markets are characterized by a few participants, low barriers to entry, and low switching costs.
• APIs are crucial for maintaining contestability in such markets.
• The Oracle vs. Google lawsuit clarified that APIs are not as protectable as Oracle claimed, benefiting market contestability.
• Google re-implementing Java API created a contest in the Java domain.
• Contestability should be encouraged in markets like ride-sharing and social networks.
• There are two approaches to foster market contestability: legally require companies to have proper APIs or empower end users to construct their own.
• Current laws discourage the creation of personal APIs by end users, making markets less contestable.

"market that has a few number of participants, but has low barriers to entry at low switching costs is a contestable market, meaning there is a limit that the potential new interests are putting on the behavior of the incumbent."

This quote defines a contestable market and highlights the competitive pressure new entrants can exert on existing players due to low entry and exit barriers.

"And APIs would seem to be very critical to that."

APIs are identified as key to maintaining contestability in markets, allowing new entrants to integrate and compete more effectively.

"we've actually made markets less contestable rather than more contestable."

This statement criticizes current laws for hindering the development of personal APIs, which would otherwise promote market contestability.

• Basic income ensures everyone receives sufficient money to cover basic needs, which is essential for freedom in the labor market.
• It is crucial for innovation and embracing the potential of automation in various sectors.
• Automation has historically benefited society, such as in agriculture, leading to more time for industrial production and other activities.
• Basic income allows people to engage in knowledge production, arts, and care without economic precarity.
• It provides a floor for everyone to stand on and participate actively in the labor market without precluding the possibility of earning more.
• The price for less desirable jobs would increase, incentivizing automation and innovation in those areas.
• The main challenge to implementing basic income is the intellectual and cultural shift required to move away from long-standing economic perceptions and social welfare systems.

"I believe is what's necessary to make people free economic actors in the labor market."

The quote emphasizes the role of basic income in providing individuals the freedom to operate within the labor market without the constraints of basic survival needs.

"It doesn't at all rule out people earning more money."

This clarifies that basic income is not a ceiling but a foundation, allowing people the opportunity to earn additional income.

"the biggest challenge to getting to a basic income is purely an intellectual and cultural challenge."

The statement acknowledges the significant societal shift required to embrace basic income, requiring a reevaluation and unlearning of entrenched economic beliefs.

• John Maynard Keynes predicted a significant reduction in work hours due to automation, which has not materialized.
• There is a distinction between pursuing activities vigorously and getting paid for them.
• Many activities that were once paid work have become hobbies that people pay to engage in, such as horseback riding and sailing.
• The challenge is not finding things to do or pursuing passions but the ability to earn a living from these activities.
• The mental separation between work and passion is crucial for understanding the impact of automation on employment and income.

"Maynard Keynes in 1930, though, said we'd work 15 hours a week."

This quote references Keynes's prediction about reduced work hours due to technological advances, which has not come to pass.

"We will never run out of things to do. We'll never run out of things that we will pursue passionately."

The speaker distinguishes between the inexhaustible nature of human pursuits and the economic reality of earning a living from those pursuits.

"one just has to really clearly mentally separate those two things."

This statement underscores the importance of differentiating between personal passions and economically viable work in the context of automation.

• The right for individuals to be represented by personal bots was emphasized.
• Personal bots could play a role in how individuals interact with various services and entities.

(Note: The transcript provided does not contain the complete thoughts or statements about personal bots and representation, therefore, no quotes or detailed explanations can be provided for this theme.)## Importance of Individual Control in Computation

• The foundation of all modern systems is based on computation, raising questions about control over computing power.
• Large companies control significant computational resources, influencing the power dynamics between corporations and individuals.
• On the web, individuals have control through web browsers and protocols like HTTP, enabling actions such as ad blocking.
• Mobile ecosystems are less clear in terms of individual control due to the dominance of company-controlled apps and operating systems.
• There's a need to rebalance power by providing individuals with computing resources they can control.
• The speaker prefers a non-Apple phone to avoid a single company's gatekeeping over software installation, advocating for more user empowerment.

"The question is, what do we as individuals control that really acts on our behalf?"

This quote emphasizes the concern over individual agency and control in the digital space, particularly regarding computational resources and personal devices.

"I think in order to shift the balance of power back towards, or some of it anyhow, back to the edge, we need to figure out how to give each and every one of us compute that we control."

The speaker is advocating for a shift in the power balance towards individual users by giving them control over their computational resources, enhancing personal agency and power.

• The concept of contestability relates to the ability to challenge and compete within a market or system.
• The speaker agrees that contestability is an essential element in the context of computational control and power dynamics.

"It goes back to the element of contestability."

This quote ties the earlier discussion on individual control over computation to the broader principle of contestability in systems and markets.

• The speaker's favorite book is "Of Infinity" by David Deutsch, which challenges conventional understanding of science and the scientific method.
• The book asks profound questions about physical reality and its origins, influencing the speaker's thinking.

"Because it challenges everything you think you know about science and the scientific process and method."

This quote explains the speaker's fascination with the book, highlighting its impact on challenging and expanding the reader's understanding of science.

• The book "World After Capital" is still in draft mode and aims to contribute to the transition from the agrarian age to the industrial age.
• The speaker wants to help make this transition smoother than previous historical shifts.

"The view behind it is that I believe we're at the beginning of a transition that's as important as when we went from the agrarian age to the industrial age."

This quote summarizes the central thesis of the speaker's book, positioning the current technological and societal shift as a pivotal historical transition.

• The best board member helps a team realize its full potential.
• A crucial aspect is assisting founders and CEOs in recognizing their weaknesses for personal improvement or team compensation.
• The speaker acknowledges the difficulty of this task and the importance of such contributions to a company's long-term success.

"I think the best board member is somebody who can help the team be the best team that it can be."

This quote outlines the speaker's belief in the primary role of a board member, which is to enhance the overall effectiveness of the company's leadership and team.

• The speaker is a current fan of Azeem's Exponential View newsletter.
• The content focuses on machine learning and artificial intelligence, providing thought-provoking insights on current trends and future directions.

"I'm a big fan right now of Azeem's exponential View newsletter, which is sort of collecting the latest and greatest on all things kind of machine learning and artificial intelligence."

This quote reveals the speaker's interest in staying updated with the latest developments in AI and machine learning through a specific newsletter that they find particularly informative.

• The speaker has learned extensively about investing and investment strategies from their partners at Union Square Ventures.
• The guidance from these partners has been instrumental in the speaker's professional growth.

"I have learned a ton from my partners here at Union Square Ventures about how to be an investor."

This quote acknowledges the speaker's mentors and their significant influence on the speaker's development as an investor.

• The speaker recently invested in Clue, a Berlin-based app for women to track health and fertility.
• The investment was motivated by the app's potential for empowering women globally through education and access to health tracking on smartphones.

"In a company called Clue based in Berlin, an app that lets women track their health and their fertility, and said yes because there are more women in the world who will have smartphones than have access to traditional birth control."

This quote explains the speaker's decision to invest in Clue, highlighting the app's potential to provide accessible health education and services to women worldwide.

• The host expresses gratitude to the guest for participating in the show and encourages the audience to check out the guest's blog and book.
• The host promotes their own social media and newsletter for the audience to stay connected with the show.
• The host also endorses DesignCrowd, an online marketplace for custom design services, and offers a promo code for the audience.

"It really was so fantastic for me to have him on and you must check out his blog@continuations.com likewise the link for his book world after Capital."

This quote from the host serves as an endorsement for the guest's blog and book, inviting the audience to engage with the guest's work.

"So check them out on designcrowd.com vc and enter the promo code vc 100 for an incredible $100 off."

The host provides a specific call to action for the audience to use DesignCrowd's services with a promotional discount, highlighting the host's partnership with the company.