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When I first started talking to my now-partners about joining August Capital, I was stunned at the slow pace of the conversation. I couldn't imagine how it could take months to make a decision about whether or not to invite me to join the partnership. Admittedly, I wasn't coming from the most conventional background to enter the venture industry. But over the course of months, the August partners had more than enough time to talk with pretty much everyone I'd ever met in my professional life (plus a few choice grade school teachers while they were at it). In the end, after four months of grilling, I was invited to join August Capital.

At the time, I remember thinking to myself "how could it possibly take four months to decide?" It seemed like an absurdly long process. Yet, having now been in the venture business for some time, and having been on the other side of that process, it is amazing to me that it didn't take longer. Why is that? Two things in particular strike me.

The first is that partnerships are small, delicate creatures. At August, there were only four partners when I joined. That's not very many people. And partners spend a lot of time together. We make collective decisions about nearly all things in the partnership -- from investment decisions, to personnel decisions, to culinary decisions. And we each serve as a reality check for the rest of our partners. So keeping a partnership functional, let alone collegial, is tricky business. Rest assured, adding a new partner can throw off that balance really easily.

The second challenge is that adding a partner is a much bigger economic decision than making an investment in a company. I don't mean it is an economic decision in the sense of sharing the economics of the partnership. But rather, it is an economic decision because each new partner will be responsible for making a set of investments out of the partnership. If you make the right decision, your new partner will make investment choices that accrete large returns back to the partnership. But if you make the wrong decision, your new partner could easily invest tens of millions of dollars in companies that ultimately fail, hamstringing the overall fund returns. So adding a partner is a bit like making an indirect bet on a bunch of companies -- getting it wrong will have a widespread impact on your fund performance.

Given all that, the decks are stacked against anyone joining a venture capital partnership. It is just too easy to find reasons to say "no." Which is why it absolutely thrills me to welcome Howard Hartenbaum to the August Capital partnership. Howard has successfully run the gauntlet and come out the other side, and we are already enjoying the benefits of Howard's perspective and approach. Howard is simply a fantastic guy, and we are lucky to have him join us.

For those of you who don't know Howard, here are a few quick thoughts on why he's such a great fit for us at August.

First and foremost, Howard is a geek. After graduating from MIT, Howard didn't join an investment bank; he joined Honda Motor Company where he served as an ergonomics engineer. He got to build awesome products like the NSX. If there is one thing we like to do at partners meetings while eating lunch, it is talk about cars. Cars and email. Cars, email and digital photography. Cars, email, digital photography and high speed wireless. Cars, email, digital photography, high speed wireless and smart phones. Cars, email, digital photography . . . you get the point. Howard is a welcomed addition to the conversation.

Second, Howard firmly believes that the most important thing in a start-up are the founders. Howard has a great track record of working with entrepreneurs to help them bring their vision to fruition. As a result, entrepreneurs love Howard because he is helpful without being overbearing. What's more, Howard was an entrepreneur before becoming an investor. So he's been on both sides of the table and can bring that perspective not only to his portfolio companies, but also to our investment decisions.

And third, Howard is a great investor. Prior to joining us at August Capital, Howard was a General Partner with Draper Richards. He has invested in dozens of interesting technology companies. Notably, Howard was the very first investor in Skype and got involved in the business on the company building side (Howard was active in Skype's global business development efforts and served as the GM of Skype's US business). Howard was also an investor in Photobucket and Bebo, among many others. Howard's track record is impressive and it hasn't gone unnoticed -- he was named to the Forbes Midas List in 2007.

Given all that, it only took us a few months to invite Howard to join us at August. After all, we had to find time to talk with Howard's EE professors and his chess team coach :) We consider ourselves very lucky to have Howard as part of August Capital. He is a fantastic investor, a geek at heart, and a great guy to hang out with. What more could one ask for?

I was having breakfast this morning with Salil Deshpande from Bay Partners. Salil and I were talking about assessing company progress and how best to measure that progress. Salil invests in super early-stage deals and has his companies report to him on their progress on a frequent basis. He said that he had one CEO who would report on his progress in such florid language that eventually Salil had to forbid his use of adjectives in his progress reports. Salil said that he didn't want to hear that things were going great. He wanted to hear precisely how things were going.

I nearly jumped out of my seat. Salil had articulated one of my biggest pet peeves when it comes to company pitches (and board meetings for that matter). I hate adjectives. I don't want to hear that one of the company founders is a "fantastic sales exec." I want to hear that she was Presidents Club the last twelve years running. I don't want to hear that the product is "revolutionary and paradigm-shifting." I want to hear about the specific features of the product that are differentiated and how. I don't want to hear that the company has "massive market traction." I want to see a graph of progressive quarterly sales and a giant sales pipeline.

Adjectives are not convincing. Facts are convincing. I may not agree with the conclusions a company draws from those facts. But I will at least be in a position to appropriately assess those conclusions. Whereas adjectives are all about conclusions without the underlying facts. As an entrepreneur, you are far better off having me determine that your market is "massive," your founders are "brilliant," and your product is "elegant," than to tell me that your company has "an elegant solution serving a massive market designed by brilliant founders." So reread your pitch and remove all of the adjectives. It will go massively, monumentally, gargantuanly. colossally better that way.

Driving home from the city yesterday I was listening to a very interesting interview of Madeline Albright on NPR. Albright made a range of insightful observations about diplomacy, world affairs and the Presidency. During the course of the interview, one statement in particular jumped out at me. Albright said that she would rather have a President who was confident than a President who was certain. She noted that a confident President could take principled positions and stand for things that mattered, but would still have the good sense to listen to those around him and take counsel from a range of brilliant advisors. In contrast, a certain President would have no need for advisors because the appropriate course would be "clear" to him.

Madeline Albright's comments reminded me of a talk I heard Paul Graham give at Foo Camp a couple summers ago. Paul was discussing the attributes of successful enterpreneurs, and he argued that the best entrepreneurs were open minded and had good judgment. He contrasted that with failed entrepreneurs who were stubborn and had bad judgment. Paul stated that while having bad judgment could be a handicap for an entrepreneur, if you had both bad judgment and were stubborn, you would necessarily fail. I suppose in Graham's parlance, the President that Madeline Albright is looking for would be confident but open minded.

I am in complete agreement with Madeline Albright and Paul Graham. Startup success requires confidence but not certainty. I have worked with startup CEOs in the past who spent more time at board meetings defending their positions than listening to the board's feedback. Sure, some of the time those CEOs were right and some of the time the Board was wrong. But board meetings shouldn't be about certainty. The should be about confidence. The confidence to hear what other smart people have to say. The confidence to listen. The confidence to stand firm on things you believe are critical to the success of your company. And the confidence to change your position when clearer minds prevail. Like great Presidents, the best CEOs will have the character and the confidence to lead while listening. It isn't easy. But it can mean the difference between success and failure.

I was recently reading some old posts on Venture Blog and couldn't believe how short they were. One might call them pithy. Or one might also call them lazy. Either way, they were short. I should really try that again.

I have been teaching a class at Harvard Law School this winter semester called Venture Capital and the Technology Start-up with John Palfrey, the Executive Director of the Berkman Center. It is really fun to be back at the law school and working with John. I have been blown away by the energy that the law students are bringing to the topic of Entrepreneurship and Venture Capital. Sadly, I never had a VC or Entrepreneurship class in law school. Lets see, I had torts, contracts, criminal law, federal courts, administrative law, property, intellectual property, corporations, securities regulation, constitutional law . . . but no entrepreneurship. Then again, I don't know that I would have had the sense to actually take a VC or Entrepreneurship class back then. So its presence would have been wasted on me.

Today my students had to actually pitch business ideas to real live VCs from the Boston area. And they did a great job. As I was discussing with them how to think about company building and pitching, it struck me that much like the law, building great companies is all about applying precedent. Only, instead of the applicable precedent being case law in this instance, the applicable precedent is a business case. Pitching your business is all about finding the right business analogs and describing how they apply to the company you're building (e.g., "we're the Amazon.com of funeral supplies."). That isn't so different from finding the right case analogs and describing how they apply to the lawsuit you're defending. So there may be hope that we lawyers are able to figure out this entrepreneurship stuff yet.

I am a bit of a broken record when it comes to my "its all about the team" mantra. But I really believe it. Yes, it is important to have a good idea. Yes, it is important to be chasing a big market. But as important as both of those things are, they pale in comparison to the need for great entrepreneurs.

I've also written a fair bit about what it means to be a great entrepreneur. Some founders are incredibly good entrepreneurs by virtue of their sheer fanaticism and determination -- they thrive on the challenge of building a businesses out of whole cloth and hate to lose. Some founders are "serial entrepreneurs" and get the benefit of the doubt because they have done it before -- they have managed to run the startup gauntlet and make their investors a bunch of money. And other founders are incredible domain experts -- if anyone is going to figure out how to build an interesting business in their particular field, it will be them. If an entrepreneur falls into any one of these categories, you will do well to back them.

A few years ago I was approached about backing a company called Nomis Solutions. The idea behind Nomis was to apply modern price optimization techniques to the financial services sector. While banks and insurance companies do a great job of measuring and optimizing risk, they have historically done less well at measuring and optimizing pricing. As a result, the industry as a whole has left a lot of money on the table. The founders of Nomis intended to build a software solution to help financial institutions engage in profit-based pricing -- pricing that would create the greatest profitability on a product by product basis (auto finance, mortgage, home equity, personal lending, etc.).

Was it a good idea? You bet. Any time a piece of software can increase your profitability by 10 to 20%, it is a good idea. Was it a big market? Monstrous. Financial institutions are historically very difficult to sell software into, nonetheless, they are monumentally large accounts if you can find your way in. So my investment decision came down to the question of how was the team. While there were four fantastic entrepreneurs when I funded Nomis, and I do not in any way want to slight Nomis's other spectacular founders, I want to take a closer look at Nomis founder Dr. Robert Phillips.

Bob Phillips personifies the best characteristics of a great entrepreneur. He thrives on company creation and refuses to lose (when I made diligence calls on Bob, I was assured that he was a killer entrepreneur and that I would do well to back him but that I should never ever play him at Trivial Pursuit). Bob is also a serial entrepreneurs who has made a bunch of money for his investors in the past. As the founder and CEO of Talus Solution, Bob created the worlds largest price optimization company in its day, which he sold to Manugistics for hundreds of millions of dollars. And Bob is the guru of price optimization -- there is no bigger domain expert. If you have been annoyed by the fact that the guy sitting next to you on a plane paid significantly less for his ticket than you did, you have Bob Phillips to blame for that. He introduced revenue optimization to the airline industry many years ago. He literally wrote the price optimization text book and teaches it at Stanford and Columbia Business Schools.

It would be hard to find a better example of a fundable entrepreneur than Bob Phillips. So it will come as no surprise to you that Bob and his co-founders have managed to build an incredible company at Nomis. Their customers are literally a who's who of the banking industry, from Ford Motor Credit to HBoS to GE Consumer Finance to Washington Mutual. And their results have been nothing short of spectacular -- by installing Nomis's software, a bank can increase the profitability of its business by between ten and twenty percent. On a multi-billion dollar loan portfolio, that adds up to real money quickly. As a result, Nomis has been able to make great inroads into a really tough market.

I don't want to ignore the excellent work of Bob Phillips' co-founders. Nor do I want to understate the degree to which great hiring has helped make the company a market leader. But Bob Phillips remains the world's expert in revenue optimization and I would sooner bet with Bob than against him when it comes to price optimization. It truly is all about the team.

This year was the 5th addition of Walt Mossberg's and Kara Swisher's "All Things Digital" conference. I'm sure that it will come as no surprise to you that I have attended all five and intend to attend the next five as well. They say that first year conferences are a huge crap shoot because of the chicken and egg problem of attracting fantastic speakers and a fantastic audience -- you need one to get the other but can't get one without the other. By force of personality and reputation, Walt and Kara blew that away the first year by simply getting the most amazing speakers ever. The fabuloous audience quickly followed. But they created a problem for themselves.

The speakers at their first "D" were just too good: Gates, Jobs, Diller, Larry and Sergey, Meg Whitman, Terry Semel, Mark Cuban. I mean, give me a break. Year two: Gates, Jobs, Ellison, Carly Fiorina, Masa, Henning Kagermann. Year 3: Gates, Jobs, Mel Karmazin, McNealy, Zander, Diller, Jerry Yang and Dave Filo. Year 4: Gates, Al Gore, Howard Stringer, Terry Semel, Vinod Khosla, Bob Iger (Jobs couldn't make it and was sorely missed). So what were Walt and Kara going to do to make their 5th anniversary "D" a special one? They touted the answer on their homepage -- "Bill Gates and Steve Jobs to Make Historic Joint Appearance at D5."

Now I have to admit that, as much as I looked forward to seeing Gates and Jobs spar on stage, I thought that perhaps Walt and Kara had gone a bit too far calling the Gates/Jobs smackdown a "historic joint appearance." The cardinal rule of showmanship is to under-promise and over-deliver. It is hard to imagine that calling a chat "historic" could be viewed as under-promising, and harder still to imagine that after advertising a talk as "historic," one could possibly over-deliver. But I was wrong.

The "historic" joint appearance of Bill Gates and Steve Jobs wasn't just historic, it was, in fact, awe inspiring. I envisioned a half-hearted quarrel, punctuated by clever but cynical jabs at one another. What I got was a history lesson taught by the principal protagonists of the story. As I sat and listened to Gates and Jobs recount their 30 year journey to bring the best possible personal computers to the world, it struck me that no two living humans have had a bigger impact on my quality of life than they (case in point, I am typing this blog post on my MacBook on Microsoft Word).

It would be hard to replicate the energy and mood of the room with simple words. It may even be hard to replicate with video. Nonetheless, I strongly urge you to watch the videos of the conversation over at Kara and Walt's great new "news and opinion site" called AllThingsD.com. In the videos you will see a pair of mature, thoughtful moguls. Bill Gates was erudite, statesmanly, and utterly charming. Steve Jobs remained the consummate performer, yet managed a bit more humility than is his norm. They traded fours like an old married couple. And their recounting of the history of the personal computer industry had the cadence of an on-again off-again romance. In the end, Jobs had the turn of phrase that brought us to our feet -- a snipped right out of a love letter -- "There's that one line in the Beatles song, 'You and I have memories longer than the road that stretches out ahead,' and that's definitely true here."

Great conferences are all about great theater. And I have never seen better theater than Jobs and Gates on stage together, modestly recounting how they changed all of our lives, in incalculable ways, forever. Hats off to Walt and Kara for orchestrating this once in a lifetime event. When can I register for D6?

In his first post on a new blog called "Ask The Wizard," Dick Costolo rightfully notes that there a whole bunch of VC blogs discussing the entrepreneurial process from the investor perspective. But there aren't that many blogs discussing company building from the entrepreneur's standpoint. Dick intends to fix that. Ok, he doesn't intend to single-handedly fix the lack entrepreneur blogs. But he has decided to start writing about entrepreneurship. That is great news for entrepreneurs.

Dick is the co-founder and CEO of FeedBurner. Before that he was the co-founder and CEO of a company called SpyOnIt, which he and his co-founders (the same gang building FeedBurner) sold to 724 Solutions. He is not only the prototypical "serial entrepreneur," he is really smart, really funny and can really write. In a few short weeks of blogging about company building, Dick has already written about fund raising, pitching your business, outside board members, non-founder equity, types of investors, resources for entrepreneurs, the hard work, strategic advantages, company culture, and attacking markets. That's a whole lot of great information since February. I look forward to reading more from Dick in the weeks and months to come.

For those of you out there looking for some practical advice on Internet company building, I'm speaking at an event this week called "From Garage to IPO: How to build a successful consumer Internet company." The event is a day long tutorial being put on by the TiE Internet SiG, of which I'm an Advisory Board Member. There are a lot of great folks involved in the event, including Iggy Fanlo from AdBrite (formerly from Shoping.com), James Currier from Ooga Labs (formerly from Tickle), Reid Hoffman from LinkedIn (formerly from PayPal), Caterina Fake from Yahoo/Flickr, Heather Harde from Fox Interactive, Manish Chandra from Kaboodle, Munjal Shah from Riya, and a bunch of other great people. We'll cover topics ranging from getting started to partnerships to customer acquisition to monetization -- it should be a great discussion for new and seasoned entrepreneurs alike.

Here are the details on the event:

Wednesady, October 18, 2006
7:30 am - 7:30 pm
TiE SV
2903 Bunker Hill Lane
Suite No. 108
Santa Clara, CA 95054

To sign up, click here. I look forward to the conversation and hope to see lots of you there.

VCs like to think that they are marketing geniuses. We really do. We meddle more in the marketing of our portfolio companies than any other area. If you have a chance to sit in on a startup board meeting, you can see this in action. The CFO gives a finance update and a few cursory questions are asked. The VP of Engineering talks about development and board members sit around the table nodding appreciatively. Then the VP of Marketing gets up and suddenly everyone around the table has a point of view. Poor VPs of Marketing. Their role at board meetings is to be diplomats and pretend that we investors are marketing geniuses. Frankly, the reason investors have so many opinions about marketing is that we can fake it far more convincingly than in other areas of the operations -- faking it when it comes to scalability issues, or which technical standard to endorse, or revenue recognition for term licenses, etc. is a lot harder. But show us a proposed product name, web page layout or advertising slogan and we are full of suggestions.

That being said, I have been thinking a lot about marketing recently. I recognize that I have undermined my own credibility on the subject already. But that's never stopped me before. I recently gave a talk at FOO Camp that was entitled "Building a Better Virus: Viral Marketing and Epidemiology," or as Christine Herron renamed it in her write-up of the talk, "David Hornik Learns About Marketing from Syphilis." Christine does a great job of capturing the major themes of the talk. I've spent almost the last decade watching great marketers figure out how to leverage the Internet to generate buzz, traffic and sales. And from what I've seen, the term "viral marketing" was aptly named. The lessons from online marketing are the same as those we learn from influenza, herpes, ebola, AIDS, etc. -- great ideas stay with you, spread like wildfire, become a part of your daily routine, are fun, and are tough to shed. In short, great ideas are "infectious."

The best marketing often springs out of the characteristics of the product or service being promoted. In some instances, those viral characteristics have been designed into the product itself. For example, the viral nature of Evite or Tickle or LinkedIn were carefully calculated to maximize their infectiousness. Other times, however, a product or service becomes viral by virtue of how it is used or talked about. Such serendipitous marketing can take the form of really great word of mouth (the power of Walt Mossberg, Slashdot, Boing Boing, TechCrunch, Digg, Reddit). Or it may take the form of some unexpected use of a product or service that does a particularly good job of highlighting its usefulness (YouTube got great early exposure -- and still does -- as a result of the wildly viral content made available on the platform).

I recently experienced a great example of fortuitous marketing springing from the strength of a product itself. I'm an investor in a company called Splunk that has created a search engine for the data center -- it takes log files from throughout your enterprise (app server, web server, router, database, etc.), correlates those logs and allows you to search across them. In an effort to make it as simple as possible for end users to try out their software, Splunk created a service that hosts the Splunk software in the cloud -- you can import your own data set into the Splunk server and give the software a try. Various data sets had been imported (voip, email, etc.) into the Splunk service without much fanfare, but when someone imported the leaked AOL Search Data into the service it got a pile of attention. Suddenly it was possible to navigate the AOL data by search term, by user ID, by time sequence, etc. What was otherwise pretty impenetrable data became searchable and navigable and, as a result, the Splunk service got the company a whole lot of marketing bang for the buck. While the Splunk team appreciated the marketing value of making the service available for a test drive, they did not think to use the AOL Data as a sample data set. But once a user had imported the AOL data, it did a great job of getting attention and highlighting the power of the software. Now that's great marketing. (Herein ends the infomercial.)

What has become clear to me over the years is that great marketing is not purely about science. It is not purely about art. It is not purely about intuition. It is a powerful combination of art, science and a little bit of luck (perhaps driven by intuition). I have incredible respect for marketers who can combine both disciplines with a little bit of intuition to deliver results. Despite my natural VC tendencies to meddle in marketing's affairs, I will do my best to stay out of the way of the professional marketers. They are the geniuses, not I.

I've noticed Paul Graham's name popping up a lot recently in the blogs I read. I wonder if it is just the new car phenomenon. Have you ever noticed that when you buy a new car, you see a lot more of them on the road? Suddenly it feels like everyone is driving a Prius (actually, in the Bay Area, everyone is driving a Prius). Well Paul Graham is my new car (sorry, Paul, I realize this is a pretty dubious analogy). I had long heard great things about Paul Graham but had not had the opportunity to meet him until a couple weekends ago at FOO Camp. After having the pleasure of hearing Paul speak, "presenting" with Paul and just plain old chatting with him, I am now a card carrying member of the Paul Graham fan club. But now, everywhere I turn, people are singing Paul's praises. Paul is today's Prius.

Paul gave a fabulous talk at FOO Camp about entrepreneurship entitled "What We Learned So Far From Y Combinator About Startups." Paul and his partners run a program called Y Combinator which is part incubator, part angel investment fund, part startup boot camp, part summer camp. Since starting the program, Y Combinator has funded 27 embryonic companies (usually at least two people strong because, as Paul points out, what does it say about you as an entrepreneur if you can't even convince at least one other person to work with you). While applicants for the Y Combinator program are technically applying for funding, as Paul rightfully points out, the most valuable thing that they are getting out of the program is advice. Paul and his partners aren't so much VCs and VAs -- Venture Advisors. And through 27 companies worth of advice, Paul has distilled a thing or two about what makes a successful startup.

As an initial matter, in his FOO talk, Paul pointed out that startup success is really just the absence of startup failure -- in Paul's own words, "to a large extent you can succeed in a startup by simply not failing." Easier said than done, right? You bet. The vast majority of startups fail. But Paul points to the biggest weapon entrepreneurs have against failing, and that is focus and determination. Paul has seen astoundingly smart people fail because they lacked the maniacal focus required to help a startup succeed against the odds. In fact, Paul goes so far as to say that smart isn't that important. There are lots of smart people. To him, smart pales in comparison to focus.

The second key to successful company building, according to Paul, is to start with the right product. The Y Combinator t-shirts read "Make Something People Want." Again, easier said than done. But, as Paul notes, the easiest way to make something that people want is to make something that you want. Yahoo! started out as a directory of Jerry and Dave's favorite links. Movable Type was born out of Mena's need for a better way to talk about herself. Jonathan started Friendster to find a girlfriend. Zuckerberg started FaceBook to find a girlfriend. Joe and Alon started JDate to find Jewish girlfriends. Ted started Dogster to find his dog a date. If you build something you want, chances are pretty good that someone else will want it as well. That has proven true time and time again -- from Apple to Google to Noah's Bagels.

The corollary to "build something you want" is to build something you know others will want. This is harder. It is a unique but powerful skill to have what I'd call "product empathy." It requires a lot of listening and a lot of luck. Happening upon the right product idea for other people is even harder than happening upon the right product idea for yourself. I think one of the biggest problems in the late 90's was that McKinsey people decided to quit consulting and went out looking for problems to solve. They either knew too little to actually solve the problems or didn't actually find a real problem to solve. Truly successful startups solving other people's problems are often started by domain experts who see big problems with the status quo and leave their industries to go solve those problems. That might work. But it is still really hard. It's a lot easier to really understand your own problems than someone else's.

A third characteristic of successful startups according to Paul is the ability to listen and react. Even companies building something that the founders themselves want need to listen to feedback on their product in order to morph their idea to appeal to the largest (or most valuable) constituency possible. As Paul points out, it is OK to be stubborn and have good judgment but it is better still to not be stubborn, even if you have bad judgment (obviously it is best to not be stubborn and have good judgment, and to complete the 2 by 2 matrix -- are you picturing it? -- it is death to be stubborn and have bad judgment). I can't think of a single startup in which I've invested or advised that ultimately built the exact product that the founders had originally envisioned. Startups are necessarily fluid and agile. It is what gives them a chance of succeeding despite the long odds and giant competitors.

Paul had some other great thoughts on what makes successful startup founders. I will have to save that for another day. In his FOO talk, Paul laughingly noted, "you can get surprisingly far by being selfish." It seems to me that Paul has chosen to be anything but. Rather than build an Eco-Yacht or sit by the pool, Paul has chosen to share what he has learned building his own successful venture with a new generation of entrepreneurs. That's lucky for the entrepreneurs and VCs alike. I look forward to spending more time with Paul in the near future and continuing to learn more from his experiences. Maybe I should apply to Y Combinator.