About Making Money

Back in December, we spotted an SEC filing indicating that Union Square Ventures was raising between $135 million and $200 million for a new “Opportunity Fund.” The offering wasn’t complete and the firm could not discuss it, but today partner Fred Wilson explains in a post what the new fund (which ended up being a $165 million fund) is all about.

The fund is not about going after different opportunities than Union Square has been focussed on since the outset. It is that the size of the opportunity Union Square is focussed on—which Wilson describes “Internet services that create large networks”—is larger than ever. And the new fund will provide more dry powder to invest in network startups, whether they need $25,000 or $25 million. Wilson explains:

Since 2004, the opportunity to invest in networks has evolved. In 2004 the entire market capitalization of the social media sector was probably less than $100M. Today a single company in that sector is valued at over $50B. The amount of venture capital focused on the sector has exploded. Networks that did not exist in 2004 now consume a huge chunk of users’ time and attention, making the launch of new networks more challenging. The opportunity to invest in networks has changed, and once again we are changing with it.

Union Square is an investor in Twitter, Zynga, Tumblr, Foursquare, and Disqus—all of which fit under the network thesis. As these companies grow and command higher valuations in private rounds (Union Square sat out Twitter’s latest $200 million round), the Opportunity Fund will allow Union Square to keep participating. It will also be tapped to invest in companies in later rounds (something Union Square has shied away from so far, they like to be first) and other special situations such as spin-offs. Interestingly, Union Square is not committing to invest all the money raised. Maybe they should have called it the Dry Powder Fund instead.

A report to be released from Goldman Sachs today will not only disclose some details about how the secretive firm operates and plans to change their operations in the future — as required by the Business Standards Committee established by CEO Lloyd Blankfein in response to the SEC lawsuit against the them — it "will disclose more about how it makes money," according to Bloomberg News. Of course, it will likely contain only a little bit of information to this effect, seeing as it is only 63 pages, most of which will likely be self-justifying defenses of their existing business model, and because Goldman doesn't give anything away that easily, especially not to "mollify their critics," per the Journal. If you really want to find out how Goldman makes money, you're going to have to look closely.

First, you're going to have to identify and decipher the secret code hidden within the paper, which will lead you to a map located underneath the floorboards of an out-of-the-way cabin, which will lead you to a musty castle in the basement of which sits a nervous owl with a capsule on its foot. The capsule, if you are lucky enough to soothe the owl long enough to remove it, will contain a password to a trap door, which, will lead you to an old but powerful woman who will ask you a series of questions, such as: "If you were shrunk to the size of a pencil and put in a blender, how would you get out?" After that, you must pass through an area of extreme heat, an area of extreme cold, and swim 40 lengths through a pool full of Mischievously Tickling Goldfish. Only then you will find the secret, which will be some variation of the fact that the company buys stuff cheap and sells it for more money.

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