NY-based Union Square Ventures has helped made some prescient bets on some of consumer tech's biggest wins. We dig into what, where and with who USV is investing.

Twitter, Tumblr, and Zynga all count NY-based Union Square Ventures as an early investor. The NY-based firm has recorded some of venture’s biggest wins in recent years. Given its fund size, it is probably the best pound-for-pound venture capital fund out there having shown a prescient ability (much like larger peer Sequoia Capital) of getting into big exits early.

Led by a team of five partners including prominent VC investor and blogger Fred Wilson, Union Square Ventures (USV) raised over $330M for a pair of new funds in January. We dive into the firm as part of our teardown of Union Square Ventures

Notes:

  1. Where’s the data & viz from? 100% of the visualizations and data you see in this teardown are directly from the CB Insights platform’s Investor Analytics tool.
  2. What’s a Teardown?  A product teardown is the act of disassembling a product to understand its parts, functionality, etc. An investor teardown is analogous. We’re trying to understand a firm and what makes it tick by analyzing data around their financing strategy, investment thesis, key people, exit history, investment syndicates and more.

Specifically, we’ll discuss USV’s recent strategies and activity that have helped shape the firm including:

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Financing Activity

Union Square Ventures’ deal activity has fluctuated in recent times, as seen by the graph below, but the firm saw 50% YoY deal growth Q2 2013 – Q1 2014 versus Q2 2012 – Q1 2013. Here are a few of USV’s recent notable deals:

  • USV contributed to Wattpad‘s $46 million Series C funding in April. USV previously helped finance the social storytelling platform’s Series A round in September 2011 and Series B round in June 2012.
  • Union Square Ventures led charity crowdfunding website CrowdRise‘s $23 million Series A round in April. Spark Capital, Index Ventures, and UTA Ventures were among its co-investors.
  • USV participated in SoundCloud‘s $60 million Series D round in January alongside other investors such as Kleiner Perkins and GGV Capital. The firm also contributed to the audio platform’s $10 million Series B round in October 2010. SoundCloud was last valued at $700 million and was briefly rumored to be in the cross-hairs of Twitter, also a USV investment.

Below is a graph of Union Square Ventures’ monthly investment activity (deals & funding) over time from their profile on CB Insights.

usv

Recent Exit Activity – Investing through the company lifecycle

Not only has USV invested early in many of its big wins, but it also continued to fund them for many rounds (often four or five) leading up to the companies’ exits. Fred Wilson expands on the power of the pro-rata here.

The fruits of their labor, or rather their sustained commitment to their early investments, are as follows:

  • Twitter had its high-profile IPO in November of last year. USV was a longtime investor of the company and participated in five funding rounds, ranging from its $5 million Series A round in July 2007 through to its Series E round in January 2010.
  • Microblogging service Tumblr was acquired by Yahoo in June 2013 at a valuation of $1.1 billion. Union Square Ventures participated in all five of the company’s rounds, starting with its $750K Series A round in October 2007.
  • Job-seeking search engine Indeed was acquired by Recruit Co. in September 2012. Union Square Ventures participated in Indeed’s only round of funding before exiting for between $750M and $1.4B.

USV exits

Fund History

Union Square Ventures’ last raised fund occurred in January of this year, when the firm raised $350 million. The funds are split evenly between the firm’s fourth early-stage fund and its second “opportunities” fund, which allows the firm to back companies as they mature. Fred Wilson backs more mature companies.

USV’s fund size consistency is notable esp as the GPs could probably quite easily raise larger funds if they so desired. However, this consistency is a good thing based on research. Academicians have found that fund consistency is a driver of fund performance. Simply stated, funds that grow in size don’t perform as well because the skills to invest a $100 million fund are very different than those required to manage a $1 billion fund. We also use this as a measure of discipline in our own Investor Mosaic models.

usv2

Notable Partners

Fred Wilson is a Union Square Ventures co-founder and managing partner. Wilson sits on the Board of Directors for Return Path, Coinbase, and Etsy.

Wilson’s blog (www.avc.com) has made him somewhat of a celebrity in the tech world. This can be seen in the sheer volume of his press mentions, which is illustrated by the chart below from Wilson’s profile on CB Insights.

press wilson

Brad Burnham is a managing partner at Union Square Ventures and co-founded the firm with Fred Wilson in 2003. He had previous co-founded advertising network company Tacoda in 2001, which was acquired by AOL. Burnham is a member of the Board of Directors for companies such as Meetup, Stack Exchange, and Tumblr.

Albert Wenger is a partner at Union Square Ventures and was president of del.icio.us, a USV-backed bookmarking service, during its acquisition by Yahoo in 2005. As an entrepreneur, Wenger sits on the boards of companies such as MongoDB, Twilio, and Covestor.

Here are a few other partners from other firms with whom Wenger shares boards:

boards wenger

Industry Focus and Strategy – Increased Interest in eCommerce

While USV’s involvement in the Internet Software & Services subindustry has remained strong over the last few years, the firm’s interest in the eCommerce subindustry has increased in the past two years. In 2012-2013, USV participated in 12 deals in eCommerce, a good uptick from their 5 eCommerce deals in 2010-2011. Within eCommerce, the firm’s top investments category is Marketplace followed by Peer-to-Peer Lending. This makes sense given the firm’s very tight thematic focus on companies with “large networks of engaged users”. A few of Union Square Ventures’ recent eCommerce investments include crowdfunding platform CircleUp, 3D printing marketplace Shapeways, and peer-to-peer lending startups like Funding Circle and Auxmoney.

The breakdown below of Union Square Ventures’ deals in the Internet industry illustrates the increased activity in the eCommerce sector, with 2010-2011 on the left and 2012-2013 on the right. The size of the box represents the number of deals and the darkness of the blue represents total funding.

USV industry

Geographic Strategy – Shifting Away from New York

Despite being based in NYC, Union Square Ventures has recently shifted their focus away from New York. In 2012-2013, USV participated in 22 deals totaling $286 million in New York, compared to 41 deals totaling $553 million in 2010-2011.  Their shift to other parts of the country can be seen in their investments in Dwolla in Iowa, C2FO in Kansas, Covestor in Boston, and Duolingo in Pittsburgh.

More data on USV’s shift away from NY.

USV geo

Stage Strategy

Union Square Ventures’ investment strategy in terms of stage tends toward the early to mid-stage, with few deals occurring at the seed stage or at later stages. In the last two years, about 40% of USV’s deals were in Series B rounds, followed by about 23% in both Series A and Series C rounds.  With their Opportunity Fund structure, the firm can invest at the Series A stage and is able to continue invest in their winners.

Below is a table of details on Union Square Ventures’ investments in various stages for the last two years. The size of the bubble represents the number of deals, while the darkness of the blue represents the total amount of funding.

USV stage table

USV stage bubble

New vs. Follow-On Investment Balance

While the least recent and most recent quarters are anomalies, Union Square Ventures has generally kept a well-balanced portfolio in terms of new investments and follow-on investments. Over the last five years, the firm has averaged approximately 44% new investments and 56% follow-on investments in any quarter.

The chart below, taken from Investor Analytics on CB Insights, illustrates the ratio of Union Square Ventures’ new investments to follow-on investments.

USV new vs follow on

Deal Size – Recent Increase in Median

With the exception of a few spikes, Union Square Ventures’ median deal size has remained relatively stable over the last five years. The spike in Q4 2012 was due to participation in Cloudflare’s $50M Series C.

The graph below from Investor Analytics on CB Insights shows both the average and median deal size each quarter for the last five years. In more recent quarters, USV’s median deal sizes have trended between $5M and $15M.

usv3

Investment Syndicate

Union Square Ventures often invests with Spark Capital, and especially in early funding rounds. The two firms have seen success in their early investments together, which include companies like Twitter, Tumblr, Foursquare, and Sift Science. Andreessen Horowitz comes in second, sharing 9 companies across 12 rounds.

SV Angel is both one of Union Square Ventures’ top feeders and top co-investors. Both firms got in early on companies such as Twitter and Foursquare, while Union Square Ventures followed SV Angel on startups like Kitchensurfing and Firebase. Index Ventures is also among USV’s prominent syndicate partners, having co-invested in Etsy, Soundcloud and Shapeways among others.

More about USV’s investment syndicate using the Business Social Graph.

USV coinvestors

 

Notes:

  1. 100% of the visualizations in this Teardown are from Investor Analytics. No MS Excel necessary.
  2. The visualizations on CB Insights are all interactive so you can click and see underlying transaction details.
  3. Visit the Union Square Ventures profile on CB Insights to view these visualizations on your own
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  • http://www.4044walnut.com Anand Sanwal

    Thanks for reading and for the kind words Fred. We’ve updated the post to reflect your comments.

  • http://avc.com fredwilson

    that’s great. thanks for doing that.

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