Generated Transcript

[00:00:14] Craig Syverson
Welcome to venture cast number 11. He’s David Hornik of August Capital.

[00:00:19] David Hornik
He’s Craig Syverson. And we’re here the day before Thanksgiving.

[00:00:24] Craig Syverson
Yes, our Thanksgiving edition.

[00:00:26] David Hornik
Exactly. So we’re. This is Pre Food Coma.

[00:00:31] Craig Syverson
Yes, Thought it would be wise to do the Pre Food Coma show rather than the. Hey man, how’s it going?

[00:00:40] David Hornik
Tryptophan. Tryptophan.

[00:00:42] Craig Syverson
More tryptophan. So what happened this week? What’s in the news?

[00:00:48] David Hornik
You know, what’s between the Web 2.0 conference and now the. There’s been a lot of turnover in the big media companies. Big online media companies. Got a new head of aol, we’ve got a new head of Fox Interactive Media. Got folks along with Ross and Miller leaving, we’ve got Jason Calcanis now leaving aol. I guess he’s going off to create a podcast empire since he says it’s new. No, I don’t know.

[00:01:20] Craig Syverson
That’s right. Mere speculation based on our conversation with them at web 2.0. Yeah.

[00:01:27] David Hornik
We’Ve got, they’re reporting now this, this, this letter that Brad Garlinghouse wrote to the executives at Yahoo.

[00:01:35] Craig Syverson
Is that the peanut butter manifesto?

[00:01:37] David Hornik
Peanut butter. Yes, exactly. The peanut butter letter saying, you know, time to get our house in order.

[00:01:42] Craig Syverson
Yeah.

[00:01:43] David Hornik
So, you know, a lot of. Quite a bit of shake up in the, in the online world.

[00:01:47] Craig Syverson
Yeah.

[00:01:47] David Hornik
Since last we spoke. Yeah.

[00:01:50] Craig Syverson
We’ve also been in another show I’m in called this Week in Media. We’ve been noticing too, just a real churn in the past few days. Not surprising to us who’ve been happily prognosticating such a thing and even trying to encourage it, but still it’s happening significantly, not just in a we’re going to release a few shows thing, but actually at the structural level. The higher ups, I think they’re smartly reorganizing themselves to trying to fit into a new media sphere, as it were.

[00:02:18] David Hornik
On the other hand, I mean, you look at, you know, look at what happened at aol, you look at what’s happening at Fox, what did happen.

[00:02:24] Craig Syverson
I’m not, I’m not up on those.

[00:02:25] David Hornik
Well, essentially they’re the guys who have re architected these companies and, and I think done a pretty admirable job of, of driving a lot of value to. Both companies are leaving the companies and I don’t know the circumstances. You, you and I are not in these companies. So as we will do, we will speculate.

[00:02:42] Craig Syverson
Yes.

[00:02:43] David Hornik
You know, they have big stuff. They’ve either chosen to leave or have had decided to leave or have been asked to leave and they’re being replaced by old media executives. And so it’s kind of an interesting thing. I mean, I understand the power of having someone who has a bunch of media experience. On the other hand, these are the guys who, you know, a, in the AOL case drove AOL to a much closer to the current thinking on, on web building web businesses. And I think made a lot of traction in that regard. And then hard to deny that the MySpace deal and the stuff that’s been going on at Fox have been pretty meaningful. And you know what? Three years ago we wouldn’t have been sitting around talking about Fox at all. We would be talking about Yahoo and Amazon and ebay. We’d be maybe talking about. I’m sure we would already be talking about Google and what they were doing, but we wouldn’t be talking about Vivendi, we wouldn’t be talking about Fox. And yet here, Shake up in Vivendi. Shake up in Fox. Despite them making pretty interesting strides. So it’s just, it’s an interesting time. There’s no question that these companies are recognizing there’s massive value. There’s a big company that’s growing bigger. In fact, Bega, that’s an interesting pronunciation of bigger. That’s how much bigger it is gigantically. Beagher.

[00:04:00] Craig Syverson
That’s an interesting domain name. Beeg.

[00:04:03] David Hornik
Yeah, that’s right. I’m sure someone has bought it. Some domain squatter has bought. Oh my God. I need to go. I need turkey right away. Turkey, quick. So Google exceeded $500 a share this week.

[00:04:18] Craig Syverson
Oh, holy Moses.

[00:04:19] David Hornik
That’s just unbelievable. Like over $500 a share. And so I think it’s interesting in the same way that people used to talk about Microsoft and avoiding Microsoft and what’s on the Microsoft roadmap and this behemoth that is Microsoft. Now Google is really that thing, that gigantic train that’s moving down the tracks and gee, if you could just stay off the tracks, that’d be a good idea because there’s no stopping it.

[00:04:43] Craig Syverson
But I mean, that 500 dol because they haven’t split the stock. Is that why?

[00:04:47] David Hornik
Well, sure. On the other hand, I mean it’s now one of the second largest tech stock, I believe. Have they exceeded IBM? That’s the one. I don’t know for sure. But if they’ve exceeded the aggregate value of IBM, then they’re second only to Microsoft in size in market cap, which is just stunning.

[00:05:06] Craig Syverson
Market cap is the calculation of the shares of stock times the stock price.

[00:05:11] David Hornik
Exactly. So the aggregate value of the company. Nicely done.

[00:05:14] Craig Syverson
Market capitalization. Thank you very much.

[00:05:16] David Hornik
That’s right here. This is when, if this were a video podcast, we’d put up the formula, yes, number of years time and bore.

[00:05:22] Craig Syverson
You all to death. Assuming you’re still awake now.

[00:05:25] David Hornik
So if you go. Yeah, so if you go to. It’s actually sort of the relevant figure. When you look at these companies, if you go on to Yahoo Finance or Google Finance or whatever it is you use to track your stock, they’ll sort of show the aggregate number of shares that are outstanding, they’ll tell you what the shares are trading at, they’ll tell you the market cap of the company, they’ll tell you the volume, how many shares people trade on a daily basis, which is pretty interesting. It tells you that either the stock is liquid or not. The more that is traded, the more likely when you decide to sell, you actually could sell it.

[00:05:56] Craig Syverson
I see.

[00:05:57] David Hornik
Okay. There are only a few shares that are traded, then it’s hard to actually find a market, you know, no market for the shares.

[00:06:02] Craig Syverson
So when you say aggregate number of stock, that’s including the non voting shares or anything that represents equity.

[00:06:09] David Hornik
Absolutely. So will not include unissued shares, but will include all issued shares. Obviously in Google there’s an interesting voting structure where the founders retain extra special rights to their shares to control the voting of the company. I at the time speculated, gee, this is insanity. What public market would possibly accept this idea that they’re buying these second class shares and that the founders get to continue to control the company, et cetera. Well, guess what? I’m so wrong. So wrong. The public market seems to care not one iota that Larry and Sergey and I guess Eric get to control everything that happens in the company and all they get to do is hop on for the ride. Because guess what, so far, great ride.

[00:06:55] Craig Syverson
Good fun ride, nice speed, great acceleration.

[00:06:59] David Hornik
So far so good.

[00:07:00] Craig Syverson
So in a venture deal, is that common or is every deal different in terms of the shares that the founders get have a greater voting power than the non founders?

[00:07:10] David Hornik
Yeah, actually, I mean it’s the opposite way. In most instances when it comes to a private company. Right. When I come and I invest in a company, there are usually the company starts out with just common stock. That’s the stock that founders get for founding the company. And so you know, just to give you the quick progression of how companies evolve, some number of founders start a company and they get all the stock.

[00:07:31] Craig Syverson
Yeah, because they made it up.

[00:07:33] David Hornik
If there are Two of them. Then you know, okay, if there are a million shares, I get 500,000, you get 500,000. Okay. What we get is common stock. It’s the very simplest stock. The beauty of it is that you can charge virtually nothing for it at the outset of a company. It’s really not worth anything because there is no company. And so for a tenth of a penny a share, you buy your common stock equity in the company. Then investors like myself come in and we pay a lot more than a tenth of a penny. And the way that that is justified and explained is that instead of buying common stock, we buy what’s known as preferred stock. And preferred stock has a preference, which there are a set that make it slightly better than common stock in the sense that the preference is you get your money out first.

[00:08:17] Craig Syverson
So if I invest in the case of liquidation.

[00:08:19] David Hornik
Exactly. So if I invest $10 million in your company and I have a single 1x preference, as it’s called, which means I get my $10 million out first and then the common stock gets its money out. And so if the company’s acquired for $12 million, I get my $10 million and then the $2 million is divided among the outstanding common shareholders, prorated against the based on how much they hold. So, so, and interestingly, preferred stock also usually has some characteristics of control things like what special votes the preferred stockholders get with respect to selling the company or buying other companies or issuing more stock or whatever. So you know, there are varying degrees of those things. Some, some investors ask for incredibly stringent rights and rules and particular value around their stock and others treat it more as I’m joining alongside you and we’re going to, there will be a preference, but it’ll be a very simple 1x pre and not a lot of these other rights. But in any event, it is the investors who usually have more rights than the founders. So that’s very different from what’s ultimately happened in the Google world.

[00:09:26] Craig Syverson
And when you say that the Google guys have this stock that no one can tell them what to do, this is in terms of decisions that are made at the board level. This is where voting shares matter.

[00:09:37] David Hornik
Exactly.

[00:09:37] Craig Syverson
At board level decisions.

[00:09:38] David Hornik
Exactly. So it essentially is with regard. And again, I’m no expert on the specific characteristics of the stock that the founders of Google hold, but as I understand it, it’s with regard to things like the company being acquired. Right. Oftentimes what people are concerned about when they take a pump, a pump, any public company, public, is that that someone might come in and against their will, acquire the company or buy out enough of the stock to change the course of the company or to create, put in new management, those sorts of things.

[00:10:09] Craig Syverson
Like a proxy fight or something.

[00:10:10] David Hornik
Exactly. So what the. So what they have is extra special shares that give them, you know, more than a single vote. You know, it’s no one man, one vote at Google.

[00:10:19] Craig Syverson
Yeah. Right.

[00:10:20] David Hornik
Despite. Despite years of history, they have not moved on.

[00:10:23] Craig Syverson
So let’s say in a hypothetical situation that it doesn’t have to be Google, but a company that’s set up with a similar structure. Could those two founders with such voting power be fired?

[00:10:33] David Hornik
Well, that’s an interesting question.

[00:10:35] Craig Syverson
It depends on their title, I guess.

[00:10:37] David Hornik
No, I don’t think. I think that there’s a different question about what happens to the company as a whole and how voting shares affect that versus what happens to management. Right, right. So to the extent that management’s role is determined by a board vote and they have a greater than average board vote, then they can control their ability to not be fired. Not be fired. However, you know, to the extent that their roles are at the goodwill of the CEO and they have. The only thing they then have the capacity to do is impact who is that CEO. Now, that’s obviously a pretty big. Hey, if you fire us before you get around to it, we may have to remove you and replace you. So truthfully, anytime you get into these politics, if ever there is a circumstance where the voting, the voting of those shares matters in a, In a we’re going to count the votes kind of way, then you’re. You’re in big trouble. I mean, those things don’t happen often, and when they happen, they don’t happen in happy circumstances.

[00:11:34] Craig Syverson
Right.

[00:11:34] David Hornik
I mean, I view that same with all of my private companies. Boy, when I, When I get all these rights and talk about voting, who’s on the board and what are the votes that we need to do? X, Y and Z. I think, gee, if that ever matters, then this company’s in big, big trouble. We haven’t moved the ball forward because usually everybody’s busy grabbing an oar, trying to drive the boat forward as fast as possible.

[00:11:58] Craig Syverson
And so, yeah, I have somewhat of a skewed experience that in the days when I actually did go to school for finance back in the day.

[00:12:06] David Hornik
Wow.

[00:12:06] Craig Syverson
I worked for the Carter Organization, which was a proxy firm on Wall Street. And so I was making phone calls saying, you should vote for our board. So, you know, I had this. I have.

[00:12:16] David Hornik
Holy cow. Yeah.

[00:12:17] Craig Syverson
You were a corporate raider I was a. Yes.

[00:12:21] David Hornik
Yeah.

[00:12:21] Craig Syverson
What’s his name? Oh, gosh. Boesky was one of our clients.

[00:12:26] David Hornik
Is that right? You’re the, the tool of Ivan Boesky.

[00:12:28] Craig Syverson
We.

[00:12:29] David Hornik
So to speak.

[00:12:29] Craig Syverson
Yes, yes. Happily, I avoided jail time.

[00:12:34] David Hornik
So how do you go from finance to design?

[00:12:37] Craig Syverson
By way of fine art. Yeah.

[00:12:40] David Hornik
So you were actually, you were getting, you were doing. Doing the finance thing.

[00:12:43] Craig Syverson
I was doing the. Yeah. I went to Pace University in Manhattan and took finance for about a year. Then I got this job at the Carter Organization. So I was on the 26th floor of Wall street, had my own office. I was just a punk kid.

[00:12:55] David Hornik
Nice.

[00:12:56] Craig Syverson
But I really enjoyed it because I had to learn very, very quickly about certain things that were going on. Like tender offers, primarily. But you’d come on the desk, like, you know, slap it on the desk. Okay, here’s a tender offer. We’re making calls in two hours. Learn it, go. And then we’d get on the phones and talk with Mrs. McGillicuddy in Dayton, Ohio, saying, you know, calling on behalf of XYZ Company. No, I’m not selling you anything. I’m just letting you know that this is what’s happening.

[00:13:21] David Hornik
You’ll be getting a ballot, you’ll be getting a.

[00:13:23] Craig Syverson
Here’s a letter of transmittal. And you gotta do that. So it was sort of that one to one with the shareholders was one part of what we did. Then there was kind of the daytime gig which was working with stock brokers and getting the materials out to the shares that were held in street name.

[00:13:37] David Hornik
Right? Yep.

[00:13:38] Craig Syverson
But you know, that was the day where when I first really learned about public information and not public information. And I sat next to the Dow Jones Teletype. So, you know, that was our source of information. Because kids, there weren’t really computers back then.

[00:13:53] David Hornik
That’s right. I actually had to wait until it was printed out on.

[00:13:55] Craig Syverson
Printed out.

[00:13:56] David Hornik
Your purpose built printer.

[00:13:58] Craig Syverson
Right. And this the second, I mean, we would, we would hover over it for certain things because the second that sentence finished for the. Whatever company we’re dealing with, you know, we could talk about it. But up until then we couldn’t.

[00:14:09] David Hornik
Well, at least it wasn’t, you know.

[00:14:11] Craig Syverson
Beep, beep, boop, boop, beep. It wasn’t quite that one small aside then. I’ll never talk about this, this gig again. But this was back in the days before faxes. There were quip machines. So there were. Yeah, yeah. So you were even too young for that. So this was like it was the precursor to the facts.

[00:14:27] David Hornik
Very this is after punch cards, wasn’t it?

[00:14:30] Craig Syverson
Yes, it was. It was. It did have a weep, weep, weep. And it was like some sort of thermal paper. It was a fax machine, effectively. And just for laughs, one night, it was late night and we had suspected some monkey business in this particular stock because there was a. There was about to be a tender offer made for the stock. It wasn’t public yet, but we were seeing some weird activity in the market. So we made up a tender offer for a public company. But we made up this wacky tender offer. We faked it out in this legal form to send to our lawyers uptown. And sure enough, like within minutes of our equipping it to our lawyers, that particular stock started because people were doing after hours trading.

[00:15:12] David Hornik
Some were figuring out, so we’re trying.

[00:15:13] Craig Syverson
To weed out the mole. Someone was thinking, oh well this is going to, you know, this is going to be worth $30 a share next week. So.

[00:15:19] David Hornik
Huh.

[00:15:19] Craig Syverson
We nailed him. It was fun. We don’t know who it was, but yeah, nailed them.

[00:15:23] David Hornik
Nail them. We know we can’t never send a fax again.

[00:15:27] Craig Syverson
Exactly.

[00:15:27] David Hornik
We can’t use this machine from now on. We will have to send it uptown using a car service.

[00:15:32] Craig Syverson
Exactly.

[00:15:33] David Hornik
It’s New York. They. There’s nothing more festive than the car service in New York.

[00:15:37] Craig Syverson
Yes.

[00:15:39] David Hornik
I have no where I do. Where we were. Oh, well, we were just. You were gonna know. So you’d spent a year in finance at Pace and then.

[00:15:44] Craig Syverson
Yeah.

[00:15:45] David Hornik
And then you started looking and then you started doing fine art stuff.

[00:15:48] Craig Syverson
Well, well then I came back to California and.

[00:15:50] David Hornik
Ah, there you go.

[00:15:51] Craig Syverson
There’s a lot long gap in there with other things like Buckminster Fuller.

[00:15:55] David Hornik
And you were wearing like a cone hat. Foil.

[00:15:58] Craig Syverson
Yes. This is the pre foil days.

[00:16:01] David Hornik
It was a.

[00:16:02] Craig Syverson
It was a Rhombek dodecahedron too that I was wearing.

[00:16:05] David Hornik
Yeah. That must have been. Well, it must have been a good look for you.

[00:16:07] Craig Syverson
It was. Thank you.

[00:16:09] David Hornik
Wouldn’t look so good on me. I’m shorter.

[00:16:11] Craig Syverson
Yeah.

[00:16:12] David Hornik
You know, so.

[00:16:12] Craig Syverson
Yeah, so I hear there’s a lot of. There’s also a lot of churn this week in private equity. Have you heard like some big deals are going on?

[00:16:21] David Hornik
Well, yeah. So what? You know, a little bit. A little bit. And again, you know, it’s like now we get. Now we get to pontificate about things we hear on the podcasts and read on the blogs. But actually this is an interesting one and has obviously been in the big papers. But the federal government is looking into whether private equity Firms are colluding in an anti competitive way around taking companies private, taking private. It’s a very interesting question. I mean, this idea that competitive private equity firms are colluding merely by the fact that they work with each other on one deal, but then they work with someone else on another deal. I mean, it strikes me as extremely unlikely that they will be able to demonstrate this idea of collusion since there’s price competition. I mean, if you’re the company that’s trying to go public and there are competitors in the private equity world trying to take the company private, then obviously it’s in your interest as a company to try and get. Get the best price. Sure. And since these private equity firms are hugely capitalized, I mean, in the billions of dollars, the things they need to do or get interesting deals done. And so these deals have become extremely competitive. And if anything, I mean, I think that what we’re seeing is a really incredibly hot private equity market where it’s getting harder to take a company private at a reasonable price, given the competition. So I’m a little skeptical that the government will come to some interesting conclusion about the ways in which these private equity firms have misbehaved. On the other hand, you don’t ever want to be on the other end of a federal investigation of this sort because you have to provide them with the information that they request. Yeah, it’s, it’s interesting. In a, in a past life, in my past lawyer life, since this is the past life show.

[00:18:10] Craig Syverson
Yes.

[00:18:11] David Hornik
In our past lives, Craig and I did many horrible things which we now don’t do anymore. Actually, this was kind of fun. So I, coming right out of law school, I ended up on the team representing Ticketmaster and its big fight with the antitrust division and Pearl Jam.

[00:18:26] Craig Syverson
And I remember that.

[00:18:27] David Hornik
And it was a great experience, really interesting because I was the guy who got to look at every document ever created in the history of Ticketmaster. That was my job. Hey, you go read every document ever created in the history of Ticketmaster and check back with us.

[00:18:40] Craig Syverson
Give us a two minute summary when you’re done.

[00:18:42] David Hornik
Right. Exactly. If you could find, if there are any smoking guns in there and, or incredibly helpful things, please bring them to our attention. Okay. You know, and meanwhile, Ticketmaster was paying, I don’t know what, paying Cravath a lot of money for me to do that.

[00:18:57] Craig Syverson
Yeah.

[00:18:57] David Hornik
On the other hand, it was interesting because I remember having a conversation with, with my boss at the time, this incredibly great, smart attorney named Frank Barron, who’s one of the Great litigators, partners over at Crevath and actually was very lucky because it was just Frank and I working on this case. So I got to do all sorts of interesting stuff that I wouldn’t have otherwise done. And at one point I was chatting with Frank about Ticketmaster and competition, whatever, and I mentioned that I had a list of 130 at the time competitors. And he said, well, really, tell me more about that. Where’s the list from? And I said, well, I’ve just, I’ve been the guy reading all of these documents where they’ve been competing for business over the last however long. And so every time another one, another agency or entity or whatever comes up that, that they’re competing with for a ticketing of a stadium or ticket, whatever, I’ll write it down. And so so far I’ve got 128 or 132 or whatever the number was. And, you know, Frank almost jumped over and kissed me because it was like, well, here you go. This is exactly what we, this is exactly why we’re reading through these documents so we can show that historically, despite the fact that Ticketmaster ultimately did have these long term contracts with big venues, that it hadn’t acted monopolistically to get those. It had competed with other businesses for them. And, you know, see, now this is, this is when I start defending Ticketmaster and people decide I’m evil. But it was interesting, I mean, just to actually take a deep look. It turns out that it is not illegal to use power that you’ve gained through a contract. That is a negotiated outcome. What the concern was that the Ticketmaster was misbehaving, using its monopoly power, which, you know, frankly, there was no evidence, and ultimately the, the antitrust division simply let the thing go. I mean, it turns out when you’re, when you are no longer under investigation by the antitrust division, they don’t put out a big press release saying, and on today we have determined that we were mistaken and we will no longer pursue you.

[00:20:53] Craig Syverson
All they stain remains.

[00:20:55] David Hornik
But yeah, exactly. Instead they just sort of quietly go back to their office and go, well, those private equity guys, they look like, how about those guys? Maybe they’re misbehaving. So anyway. But it was, it was very interesting to have gone through that whole process and see not only how this business that had become a significant business had grown from, you know, relatively humble beginnings, but also how by creating these interesting contractual relationships, they had a lot of economic power, but that was very different from improper and illegal economic power. Under the Antitrust laws.

[00:21:28] Craig Syverson
Right, right.

[00:21:29] David Hornik
Anyway, very boring. I’ll move. We’ll move on. We should move on to exciting technology.

[00:21:34] Craig Syverson
Exciting technology. Well, let’s see. In the web2o world. Let me just check my email here.

[00:21:46] David Hornik
I have to sing at least once. A podcast that’s just.

[00:21:49] Craig Syverson
No, wait. Speaking of singing, did you see the bank of America One song.

[00:21:55] David Hornik
Oh my God, you know what? This. I’ve heard about it a bunch and I haven’t yet seen it. I need to.

[00:22:00] Craig Syverson
I don’t rubberneck for crashes. I don’t enjoy watching train wrecks in slow motion and embarrassing things. But this is just. It’s a classic. It’s a jaw dropping. I can’t believe. For me it was. I can’t believe he’s taking it seriously. I was waiting for the punchline. I was waiting for the Is, you know, aren’t we silly? And it never happened.

[00:22:21] David Hornik
It never came. Well, you know, I’m on a board with a, with an exec from B of A. And it was referenced at a board meeting. And you know, and everybody said, oh, it was so well intentioned. But he just sort of said, oh, yeah. So he really didn’t have a. No, no official comment on behalf of the bank of America?

[00:22:43] Craig Syverson
No, no, it was just. But it made me think, how does that work from a copyright or a performance. Right. Point of view, they probably didn’t pay for the rights to the song because this was just some business meeting. Who’s going to do that? But now it’s out on YouTube. What are the implications of that now that it’s been mechanically reproduced a hundred thousand times?

[00:23:06] David Hornik
Exactly. Who’s responsible?

[00:23:07] Craig Syverson
I’m sure there are laws there that make it not an issue.

[00:23:11] David Hornik
Well, not necessarily. And you know, I just have been reading a bunch of exam questions on this. I mean, I teach this, this business school class and, and my midterm this year was on YouTube. I just created a playlist of things for, you know, some Weird Al videos, some parodies of Apple stuff, this ridiculous video I made of myself and then asked the quite exactly this question. Who has the. Who has violated what rights? Who is responsible?

[00:23:39] Craig Syverson
In essence with the dmca, doesn’t the publisher? In theory, it’s you too, the band. Don’t they. If they say pull it down, they’ll. They’ll have to pull it down. And that’s. And that’s where responsibility would end for YouTube. But does it end for Mr. Sonora’s bank of America guy?

[00:23:59] David Hornik
Yeah. So in theory, under the DMCA, if you’re a service provider then. And YouTube falls under that category in all likelihood, then there is this take. You just say, look, I was not specifically aware of it. And when you make me specifically aware of it, I’ll be happy to remove it. And that’s how periodically you’re on YouTube and you go and you look for something and it says, been removed. Or what’s their little nomenclature? But anyway, it’s because someone has said, hey, I wrote that television show. Would you please take it down now. It doesn’t change the liability of someone who has misappropriated the music. So it’s. So there are two rights. Well, there’s the performance. Right. And not a problem because he performed it. So he has those rights. Which on the good side means he can go to YouTube and say, I own the rights of that performance or take it down.

[00:24:48] Craig Syverson
Right.

[00:24:48] David Hornik
Okay, so that’s good news. Right, but. But for the composition rights, that’s a U2 question. And they obviously have Harry Fox with.

[00:24:57] Craig Syverson
Their black helicopters descending now.

[00:24:59] David Hornik
That’s right. Exactly. Those guys. So, you know, we’re going to have some, we’re going to have a lot more of this stuff going on as we.

[00:25:04] Craig Syverson
Yeah.

[00:25:04] David Hornik
As we start looking at, well, you.

[00:25:07] Craig Syverson
Know, just also the peanut butter manifestos, you know, years ago that never would have gone out. And now there’s almost this assumption that everything you do could be public or at least it’s much more saturated into our lives, this notion of the potential of being public, especially with cameras on cell phones and, you know, our highly mediated world.

[00:25:26] David Hornik
But we’ve all, you know, who has not at some point responded to an email with something that was intended for one person and went. Everyone or intended for a particular person went to someone else and, and it’s always this wake up call, like, holy crap, I gotta really not say things like that, an email or whatever. And yet then we go back and we do it, you know, time and time again. So it’s, it’s very interesting. And you know, with respect to this peanut butter manifesto, as I say, I mean, there’s some speculation as to whether it was intended to get out or not, etc. Etc. And I have no, I’m a, I’m a friend of, and big fan of Brad Garlinghouse. And so I think that it’s unlikely that he created it and leaked it for the purpose of, you know, I think that he genuinely is looking to try and help Yahoo move forward. It’s a company that I’ve, you know, so Jerry Yang, who started Yahoo. Was a buddy of mine at Stanford and a bunch of those guys, and I’ve been a big fan of Yahoo. I think they’ve done a lot of things incredibly well and incredibly right over time. So I think everybody’s sort of looking around going, okay, this is just an interesting shift. And there is the sense that Yahoo is falling behind despite continuing to have the most traffic and the most registered users and the most this and the most that. So what can be done to make sure that the company continues to thrive? And so I took it in that light and I think it’s a good read. I think that Brad makes some great points and it sounds at least from the rumor mill out there that Yahoo’s taking it seriously and there’s a committee now to try and figure out what’s the right next steps to keep driving the company forward. So, so that would be great. That would be a great outcome. And I think, you know, because the alternative is that people that it gets out there and the company reacts in a negative way and you know, the result is someone like Brad is asked to leave a company that he’s really genuinely likes and is trying to help move forward. Right, that, that would be a bad outcome.

[00:27:21] Craig Syverson
Well, yeah, I mean it wasn’t like he was, you know, flaming his own company or anything. He was genuinely cared about it, clearly. But you just wonder. You don’t see those things from Apple very much. So there’s, well, I mean, look at.

[00:27:32] David Hornik
You know, look at that culture. True. The Apple culture is clamped down and you know, I mean the whole, all these lawsuits over bloggers and.

[00:27:40] Craig Syverson
Right.

[00:27:40] David Hornik
You know, there was a great post by Mike Arrington on his Crunch Notes blog when he got a takedown notice from Apple about something he’d written that was so clearly not a violation of anything. Right. I mean it was just the Apple lawyers coming in and thumping their chests and you know, lots of people would have taken it down. The fact that Arrington is a former attorney himself and basically was not interested in being intimidated, he didn’t react. But lots of this stuff goes on. You know, look, this whole HP business was just as a result of the other version, which is to overreact in a big way to what’s going on with information getting out of the company.

[00:28:22] Craig Syverson
Mm. Yeah. So there’s news that some companies have had some high priced rounds this week. Jingles, right? Spot runner.

[00:28:31] David Hornik
Yeah. You know, so Jingle networks, you know those guys, they’re the, the free 41 1. So if you instead of dialing 411 on your cell phone you dial 1-800-free-411, or I guess from any phone, and you get an ad supported.

[00:28:45] Craig Syverson
That’s right. I heard about these guys.

[00:28:47] David Hornik
Right.

[00:28:47] Craig Syverson
I heard about them when they were just starting up a long time ago.

[00:28:49] David Hornik
Yep, yep. And it’s actually surprisingly not. Not. Not a. Not too long ago. I mean, this is a pretty young company.

[00:28:55] Craig Syverson
Yeah. Less than a year.

[00:28:56] David Hornik
But they, when, when they were getting started and I, and I spent time with them, it was, okay, this is the plan. And we’re gonna be able to get a bunch of traffic. And why wouldn’t you use free411 instead of paying? And even though we think this will contract the market, and this is Josh Koppelman, who funded them, he has, he’s written about this and he believes this, this idea that you come in and attack markets, and instead of expanding markets, what you do is contract the markets, make the overall size of the market smaller, except that you get a disproportionate piece of it. Right. And that technology allows you to do this. And this is a classic example. Right now there are, you know, all the cell phone carriers have their relationships with 411 providers, and they charge you 75 cents or a buck 50 or 2 bucks for your 411 call. And they’re making a lot of money.

[00:29:41] Craig Syverson
The carriers are.

[00:29:42] David Hornik
Yeah, the carriers make a pile of money. It’s a high. You know, this as, as margins go, this one’s high.

[00:29:47] Craig Syverson
I see.

[00:29:47] David Hornik
In the meantime, Jingle comes in and says, well, you know, there’s no reason that you should have to pay for this. And if we just give you an ad, we’ll give it to you for free. And so, you know, while we’re looking up your number, we’ll say, and this call brought to you by, you know, Domino’s Pizza, press 2 and buy a Domino’s Pizza. And then they give you the number. And the result is that the market is going to get smaller. That the aggregate value of this market, if you support it with all ads, is going to be a smaller market than if you. If everything was two bucks a call. On the other hand, what’s been amazing is to watch jingle go from 0% of the 411 traffic in the US to approaching 5% of the aggregate traffic, which is unbelievable.

[00:30:26] Craig Syverson
It is.

[00:30:27] David Hornik
And so that’s meaningful penetration. And then Spot Runner is another one that’s interesting. Spot Runner is this company that allows you to create individualized commercials and buy spots on cable television.

[00:30:39] Craig Syverson
Downtime in cable.

[00:30:40] David Hornik
Exactly. So they’re all this open there’s all this open advertising space that sells for a really small amount. You just have, you don’t realize how cheap it is to get local advertising placed in cable networks until you find out that they’re little bits and pieces of unsold inventory that these guys are aggregating up and allowing you to go buy and helping you create your spot, create your ad. And so, and they, both of these companies have recently raised big rounds, a bunch of money at a high price price from interested parties in the media itself. And so I see, you know, makes perfect sense to me. I mean, I’ve seen this over and over again in technology where you create a technology that in some way disintermediates an existing party and they can either fight really hard and hide and, or hide or they can try and participate in the new media and the smart guys try and participate. So I think that this is going to happen. This is happening in video. It’s why their license is being cut on these online video things. It’s going to happen in podcasting as radio companies try and figure out how to maintain an interest in podcasting as radio goes from this terrestrial thing to a downloadable experience. So, you know, great for these companies. And these are exactly the kinds of companies that we want to fund, that all investors want to fund you. But as we at August sit around looking at deals, it’s, oh, what is going to have a monumental shift in the way that, the way things are working today that will impact, have a big impact and meaningfully change that landscape. And these businesses are doing that. I love to see that because I think it means that there will be future businesses to come that are as exciting.

[00:32:15] Craig Syverson
That notion is really interesting, this contraction of the market, but taking a disproportionate percentage of it, when it’s a good market or it’s a good idea, all the better. I’m thinking of another deal and I can’t remember the name of the company. And you might know it out of Redwood City that got a truckload of Money recently about TiVo users not forcing them to watch the ads. Do you know this?

[00:32:37] David Hornik
Yeah, I don’t know the company.

[00:32:38] Craig Syverson
But, you know, now to me, I personally think that’s not such a great idea. I think it’s the opposite of what these other, what, you know, Jingle and Spot Runner are doing from a structural point of view. It’s like it’s trying to force an old media thing upon a broad audience. And I just, I don’t know, they got 14 something million.

[00:32:54] David Hornik
But yeah, you Know, I’ve seen lots of technologies like that over time and one of my favorites was a company that was essentially bombarding these P2P networks with fake versions of the new hot song so as to make it really inefficient and impossible to find the new number one hit on the Napster and its successors. And so it was big farms full of MP3 clips being thrown on, but when you listen to it, it was the first 2 seconds of the song or the first 10 seconds song and then, or whatever, you know, it was basically just trying to bombard these things to make it impossible. And while I understand how those things may be technically possible, I just don’t find those businesses interesting because they’re not. Again, I’m not defending what the stealing that’s going on on a Napster or excuse me, not a Napster anymore on, you know, on these P2P networks. On the other hand, if your technology is designed to combat these sorts of occurrences, it just doesn’t strike me as that productive and broad and potentially interesting in the long term.

[00:34:01] Craig Syverson
Yeah, I agree. One last comment before we close. You mentioned the business of podcasting. Of course I always have to bring up something about that because it’s of keen interest to me. But this week I noticed that there was an affiliate television station in, I believe it’s Toledo or Dayton that’s putting their local news on a podcast. And not only they’re not putting the entire program, they’re putting each story as a separate podcast. And then, you know, Meet the Press went on to video this week and A.B. nBC, whoever. I don’t watch television, whatever.

[00:34:34] David Hornik
Brian Williams is some network.

[00:34:37] Craig Syverson
His nightly news show is also now video podcast. But when that affiliate put up their local news, it just, it was a moment for me this week where I just felt this sense of that broadcast is really changing. I mean, because the affiliate stations, it’s kind of like what do they do? They bring in the stuff from the network, they make a local news show and they make the Saturday morning puppet show, but that’s it, you know, in terms of their own baby. And now they’re thinking ahead and they’re putting out on a podcast. Just to me it was a very, is a keen flipping moment for broadcast versus podcast. I think, I think it’s significant. We’ll see.

[00:35:11] David Hornik
Yeah, it’ll be interesting. I mean, I do think we’re talking with local affiliates of big, you know, big companies about video podcasting and podcasting and blogging and each one of them user generated content. How do you gather the camera video, the camera phone videos, et cetera, of events that are occurring in real time so that you can create better news or different news. So there’s no question this stuff is changing. It’s why it’s so interesting. But, but, but the question is, does that help the affiliate stay alive or does it, you know, exactly. Quicken their. Their demise? So that part will. We’ll have to just wait and see, but I don’t think we’ll have to wait too long.

[00:35:50] Craig Syverson
Yeah, it’s the way things are going. Indeed. Well, I think that wraps up our show. We want to send out a thanks again to Cash Fly for providing bandwidth for us. Everyone have a wonderful holiday and we’ll see you next time.

[00:36:02] David Hornik
Happy Thanksgiving. Each minute, the institutional investor has an average of $12,000 of new money to invest. $12,000aminute. There are a good many ways that institutional investors are taking best advantage of this versatile market created by broad public participation.