Hello everybody and welcome to yet another episode of In the Trenches presented by FOMO. This is episode number 52 and we are very pleased to be joined by none other than Mr. Fred Wilson of Union Square Ventures today. Fred, it is an honor and a pleasure to welcome you to the show. Thank you so much for being with us.
Oh, it's my pleasure. I'm looking forward to talking all things FOMO.
Let's go. So let's start there. Your firm USV just participated in FOMO's Series B after nearly four decades of being early to some of the most important companies and trends all over the world. What's your thesis on FOMO?
Well, what we see in FOMO is maybe the very best mobile app experience for consumers who want to trade all sorts of things, not just crypto, but everything. It's social, meaning you can see what other people are doing and follow people. The onboarding is as easy as it gets. The different asset types they support keep growing by the week, and it just feels like the future of trading is being built right there in front of our eyes. We're really excited about that.
I recently heard some lore that you stayed pretty late at a FOMO holiday party getting to know the team. How long did it take you to see the vision, and more broadly, how deep of an understanding of a team do you need before you invest?
So just to be clear, we had already concluded that the FOMO team was best in class. The reason I stayed late at the holiday party wasn't to figure out whether they were best in class — it was to convince them to take our money. We'd already decided we wanted to be an investor.
Let's go. Lovely. So talk about the process of deciding you want to be an investor. What does that look like for you?
A lot of people in my business start with the people — back the best people and you'll have the best outcomes. I have a slightly different take: I want to back the best people working on problems that really excite me and that I think have big upside. If it's the best people working on something uninteresting, count me out. I start with what sectors and ideas are most exciting, then find the best teams working in them. A theme we've had at USV for a long time is something we call DeFi is AllFi — we think all financial assets are going to be traded on crypto rails over time. They're just better than the traditional financial system. If you believe that, you also believe we need new interfaces to trade those assets as they come on chain. Robinhood is a great company, but they're hitched to traditional finance. I think there's going to be a Robinhood-sized company or bigger that builds a similar experience with all assets natively on chain. We think that's FOMO.
In 2008, you backed Covester, which was one of the first social trading products. Since then, we've seen StockTwits, Farcaster, FriendTech, and others merge social and trading. What did those earlier products get wrong, and why is now the right time for FOMO?
Before I answer, I want to tell you a crazy coincidence. The founder of Covester, Ricky Tan, is the person who introduced me to Bitcoin. We invested in Covester around 2008. He didn't tell me about Bitcoin until 2011, after he'd left the company. I bumped into him and asked what he was working on, and he said 'a Bitcoin exchange.' I said 'A what coin exchange?' He said 'You don't know what Bitcoin is?' That's how I got into it. The thing Covester and many social finance projects had in common was they had to build on traditional financial rails. Covester had to build on top of a crappy online brokerage. They were layering social features on a creaky, brittle financial system, and everyone who's tried has hit the same problem. With StockTwits and Twitter, you saw people piecing it together. Crypto Twitter is a great social community of traders, but it's divorced from their trading. With blockchains and DeFi infrastructure, you suddenly can do all this in one architecture. Anything on a blockchain is observable, so putting a social layer on on-chain trades isn't that hard. I don't think the substrate was available to do this right until very recently.
You've said the hardest part of your job is picking the right team at the right time. Something can be inevitable but not necessarily inevitable now. Which matters more — team or timing? And what's the most valuable timing lesson you've learned?
I would rather have team than timing, because unless you get the timing wrong by a decade, in which case you're screwed. But let's say you're two or three years too early — because it was a good team, they were able to figure out how to make it work, and when the market took off, they were there. Coinbase is a perfect example. They started in 2011, it didn't really happen until 2017, but they persevered and hung in there. When the market took off, they reaped the benefits. Team over timing, but you can't be off by a decade.
A friend of mine asked me to poke you about how at some point you stepped in to save Coinbase. Is this correct?
I don't know if that's true. Coinbase had a couple of existential moments, and I was there for all of them. I don't believe I single-handedly saved the company, but I was there in company-saving moments along with other people like Mickey Malka. I have great memories of those moments, but I wouldn't want to take credit for any of that single-handedly.
I want to ask you some trader crossover questions since many viewers are in the trenches trading. I'm curious about allocation and sizing — two components lots of traders struggle with. When you find a company to back, how much do you allocate relative to your total book? Do you cap it? What are the sweet spots?
Venture is probably different than trading liquid assets, so what I do may not be a perfect analogy. In a venture fund, we want between 20 and 25 names. For a $250 million fund, think 25 $10 million positions. But it doesn't work that way — we can only invest what the company allows. I couldn't tell Paul 'I need to put $10 million into FOMO.' It works the other way: they tell us how much we get, and we say thank you. So allocation is trickier in venture. If you're buying a listed asset and want $10 million, just go buy it. We like enough diversification to get three to five massive winners. Once we buy, we're stuck — we can't trade out. Things go to zero. About a third of what we do goes to zero, another third isn't worth much, and a third produces all the returns. Within that third, three to five names make up most of it — the power law. Though if you held Tesla or Nvidia for 20 years, you'd get similar returns in public markets.
Writing a thesis is basically a micro form of blogging, which you've been doing for decades. What's the biggest insight daily writing gives you? And for traders who want to start a daily writing practice, what should they focus on?
There are a couple things about sharing your thesis publicly. First, once your audience is the general public, there's a level of quality you need. You have to explain it so people understand, which forces you to rearticulate it until it's comprehensible to many. That's excellent work for an investor. Second, you're taking a stand — publicly putting your reputation on the line. It's additional skin in the game beyond capital. It's also a way for people to evaluate you. Some people don't have much money but are really good. If someone was right on seven out of ten thesis, that's a very high hit rate — that person's really good, give them some money.
Yeah, for sure. It's not uncommon— Oh, go ahead. Sorry, go ahead.
No, sorry, I just want to touch on one point. You write, and one of the things we love is reading your content. We were sharing your prediction agents article internally that you posted very recently.
Yeah, it was today. I put it out today.
One line sticks with me — the last line: 'Hacking around on this stuff is a ton of fun and a great way to figure out what to invest in, and it has always worked best for me.' I don't know if you recall, but the first conversation we ever had was in our office where we spoke about prediction markets. We thought prediction markets would onboard a lot of people because they let you realize you're trading odds — you can extrapolate from gambler to trader to investor. I was impressed because it was our first meeting and Fred had real product experience. He actually understands what's going on, which I think is rare for a venture capitalist. A lot of people understand at a high level, but nobody gets into the details, uses the products, or really understands how to improve things. Have you always been that way, and how did you become that type of investor?
I think it comes from a weakness I've turned into a strength. I've worked with people in venture who can understand things conceptually without getting their hands dirty. It's really hard for me. The minute I was in a self-driving car, I got it — but all the theoretical talk didn't work. I need to be in the thing. Prediction markets — once I started using them, I realized these are markets, not bets. All the things you can do in markets — hedge, layer in or out, DeFi lending — that's all available in prediction markets, none of it in a traditional sports book. It's an immense surface area for innovation on top of a form of speculation that's been part of humankind forever. Taking sports books and putting them into true markets is a profound idea. That wouldn't have been clear to me until I could trade prediction markets and feel it in my gut. Same with AI — until it became available as a consumer, it was hard to get excited. Once I got my hands on it, I got way more excited because I could feel where it was going. Some people can do this theoretically, but I can't. I need to feel it with my fingers and in my gut.
It's not uncommon for traders to have sectors they thrive in and others they struggle with. What sectors do you thrive in, and is there a type of business you've consistently tried to invest in but has always eluded you?
I've been much better at products and services that consumers and developers use, and pretty bad at enterprise products. I think that's because I like bottom-up go-to-market and adoption. The sales-heavy top-down approach has built huge companies — nothing wrong with that — but I've not been good at investing in those. It doesn't reveal itself to me the same way consumer and developer tools do. It's really important to understand which markets you have an innate feel for and be careful in the ones you don't. It's more important to know where you're really good and make hay there.
Is there a best practice for finding your niche as a trader or investor, particularly for someone just getting started?
A simple thing: can you explain what the company does to your grandmother? I wouldn't have my entire net worth in something I couldn't explain to my grandmother.
That makes me want to ask about Airbnb, which you famously missed. The thing about that investment was you said you wouldn't want to sleep in somebody else's bed — you wouldn't have felt comfortable.
That's what the company was doing at the time — air bed and breakfast, renting air mattresses. I thought that's not a business. What I didn't realize was that was just their market entry, and they were going to move up market to where they are today. That was a miss because we knew Brian was a really good entrepreneur — it was obvious when he walked in. We should have figured he'd get where he needed to go. That's why I kicked myself — not because we missed the investment, but because we knew he was good and talked ourselves out of it because where he was at that moment wasn't the right place. You could say the same about Snapchat — 'it's a sexting app.' Or FOMO — 'it's a meme coin app.' Sure, that's where they started, but it's not where they'll end. Everyone's got to start somewhere you can own and be better than anyone else. Just because FOMO starts in meme coins doesn't mean they can't eventually do for every asset what they've done for meme coins. That took me time to figure out, and I'm annoyed I kept making that same mistake.
How do you separate Fred the consumer from Fred the investor? Do you have a mental process for that?
It's really hard. I don't try to do that. I just try to figure out how to get my hands on the product.
Fair enough. What do you believe about investing—
I'm not a good investor in that sense. If Paul and Say had bumped into me before building the product and said 'we're building this thing,' I'd say 'I don't know what that means.' The minute I get my hands on the product, I'm like 'Oh, I see what you're doing.' Like I said, I think it's a weakness. There are people in venture who don't need to see a product to understand what founders are going to build. I'm not that person.
What do you believe about investing today that most younger investors you speak to disagree with?
I think it's important to leave money on the table. Optimize for a career, not a trade. In venture, I could have told Paul and Say, 'If I can't own 10% of the company, I don't want to be an investor.' That might have meant I wasn't an investor. Leave money on the table, figure out how to say yes, get involved with the best companies and teams, and keep doing that. After 40 years, your track record is phenomenal and you've had a great career. What younger people have a hard time with is thinking long term. They want to optimize the trade, get the best deal and price. 'I won't buy above $50, and it's at $55.' Then it goes to 65, 75, 100, 200, and they missed it. You've got to figure out how to live with not getting the price or allocation you want. If you believe in the thing, just do it anyway.
There are investors and firms you do frequent deals with over the years. Is it that you're looking at the same deals and reaching the same conclusions? Do you like working with specific partners or funds? Can you explain to the audience how venture funds invest alongside others in deals?
