Interview, Fireside Chat, Conference Presentation
USV’s New $900M Fund: Fred Wilson, Rebecca Kaden & Mike Mignano
Sourcery with Molly O'SheaFred Wilson, Rebecca Kaden, Mike Mignano, Michael Mignano, Nick Grossman, Brad Burnham, Molly O'Shea
- Union Square Ventures (USV) closed its newest fund cycle with $900 million in commitments, a significant increase over previous raises but intentionally below a $1 billion target to align with specific ownership and check-size strategies.
- The fund will target investing in approximately 30 to 40 companies, with a strategic shift toward seed and Series A rounds, increasing the ratio of seed investments compared to historical norms.
- USV plans to write $10 million to $30 million checks for Series A rounds to maintain target ownership percentages in a market where round sizes have inflated due to higher capital demands for growth and marketing.
- The firm identified four primary investment theses for this cycle: AI applications, AI infrastructure, physical AI (robotics and sensors), and energy (specifically programmable, cheaper, and faster power).
- USV is actively incubating companies internally or via "proprietary seeds" where the partnership provides the first two checks and capital control, a strategy they expect to comprise 30% to 50% of their total seed investments.
- The firm launched Supertake, an incubated product allowing users to invest in specific worldviews or ideas directly via brokerages like Robinhood and Coinbase, managed autonomously by an AI agent to democratize portfolio management.
- Mike Mignano, Rebecca Caden, and Fred Wilson emphasized a "Rebel Alliance" strategy supporting open-source AI models and stacks to avoid vendor lock-in and allow developers control over their technology, citing Coinbase's shift from Anthropic's Claude to open-source alternatives.
- The partnership highlighted the "Obliterate, Don't Automate" thesis, aiming to restructure markets by removing gatekeepers entirely (e.g., AI lawyers, AI doctors) rather than merely optimizing existing human-led processes.
- USV believes energy will serve as a critical horizontal undercurrent for AI growth, viewing it as a leveraged bet on the future of compute infrastructure, with a portfolio company (Radiant) representing a six-year thesis on nuclear energy.
- The firm is increasingly focusing on user retention and product innovation over ARR or trial metrics, noting that high trial behavior in the current market often masks low long-term engagement due to subscription friction.
- Fred Wilson noted that while $50 billion to $100 billion exits have occurred historically, USV aims to generate healthy returns with winners in the single-digit billions, relying on their small fund size and high ownership stakes.
- The partners cited The Bridge (healthcare AI) as a key example of a company that evolved from a single-product focus to a multi-product "three-legged stool" to stabilize revenue, contrasting with the "straight line" narrative often applied to new startups.
- USV is betting on markets that do not yet exist or are negligible today, such as nuclear energy (Radiant) and robotics, arguing that early investment requires underwriting future market size rather than current spending.
- The firm expects compute costs to remain a significant capital requirement for startups subsidizing inference to achieve adoption, similar to how Twitter and Facebook subsidized user acquisition in the early 2000s.
- USV partners observe that incumbents struggle to innovate due to the need to protect existing revenue streams, creating opportunities for new entrants to "burn their own boats" and restructure value chains (e.g., AI legal services).
- The investment strategy now places higher emphasis on a founder's ability to galvanize talent and narrative in a highly competitive hiring market, noting that great teams are harder to build and retain than in previous eras.
- Rebecca Caden noted that cybersecurity and trust are becoming critical consumer layers as AI agents gain access to sensitive data, creating a need for new security models like local, on-device models and sandboxed environments.
- USV maintains a long-term investment horizon, with partners still working with portfolio companies from over a decade ago (e.g., Twitter, Etsy, Coinbase), emphasizing that successful exits are rarely straight lines and often require pivots.
- The firm anticipates that network effects will remain vital for longevity, particularly in consumer AI, but will likely manifest through multiplayer behaviors and agent interoperability rather than simple user accumulation.
- USV views the current market as having larger "swings" and more concentrated value aggregation to top players compared to previous cycles, reducing interest in "long tail" investments that previously generated returns.