Generated Transcript

[00:00:14] Craig Syverson
Once you get clipped.

[00:00:16] David Hornik
Yeah, do that. Do that voice for the debate.

[00:00:20] Craig Syverson
We are rolling. We should probably start the program.

[00:00:24] David Hornik
Now. The debate. Web 2.0 is a bubble.

[00:00:28] Craig Syverson
This is your bubble. All right. Are we. We’re 14?

[00:00:35] David Hornik
Yeah, maybe.

[00:00:37] Craig Syverson
Welcome to VentureCast 14. I’m Craig Syverson of Grunt Media and.

[00:00:41] David Hornik
I am David Hornik and I am still of August Capital.

[00:00:44] Craig Syverson
We are in the August offices of August Capital. I wanted to wait until August to say that joke, but I couldn’t.

[00:00:50] David Hornik
You couldn’t wait?

[00:00:51] Craig Syverson
I couldn’t wait. It’s a new year. I can figure. I can make.

[00:00:53] David Hornik
You can use it twice.

[00:00:54] Craig Syverson
Really bad. Yeah, I’ll use it again. Just so you all know, I also meant to tell you or bring up an idea that I actually have a little website for venturecast. I have a little web page for.

[00:01:06] David Hornik
Venturecast other than the feedburner page.

[00:01:08] Craig Syverson
Yeah. On my side. I didn’t even tell you about it.

[00:01:12] David Hornik
Cool.

[00:01:12] Craig Syverson
So there’s this little micro page that has the latest program up there, so you can listen to it on the webpage if you like. So you can go to grunt media.com. that’s grunt media.com and I have a little link to it on the front page. And we should put up a little piece of artwork on your blog that people can click on so they know that’d be good. So we’ll do that. We promise that’ll be happening maybe even by the time this show is up.

[00:01:36] David Hornik
I know, I just linked to it. I just wrote a post saying how much I enjoy myself.

[00:01:41] Craig Syverson
Yeah, exactly. The two of us are having a great time. I don’t know about you people and David’s mother also.

[00:01:47] David Hornik
Exactly.

[00:01:48] Craig Syverson
I don’t know if she’s enjoying it or.

[00:01:51] David Hornik
I think she’s on the edge of her seat hoping that when we reference her, it’s only in very positive ways.

[00:01:57] Craig Syverson
Yes, of course. As it should be.

[00:01:59] David Hornik
And, you know, so I had talked about how my mom had sent me this email. VOX was launched, and I was using Vox, and I invited her into Vox and then she started using Vox and seeing all these pictures of my kids and of my sister’s daughter and. And how. And so she sent me an email that said, oh, you know, I’m so happy with vox. I should send Mina, what should I get Mina for Christmas? Or, you know, something. Something to that effect, which I’ve now referenced many times. So when my parents flew in from Boston to. To visit the family, she came with chocolates for Mina. She said, well, I feel like you’ve said so many times that I should come bring something for Mina. So, you know, so my mom is now giving my portfolio companies to.

[00:02:39] Craig Syverson
That’s. That’s as it should be.

[00:02:40] David Hornik
Full service, the whole family.

[00:02:43] Craig Syverson
Amazing. And I got my Swedish fish. Thank you very much. Yeah, I look forward to indulging in their red gooeyness. A little. Little frightening.

[00:02:52] David Hornik
No, no, no. The Swedish fish is truly delicious. In fact, speaking of Vox, there was one of the questions they have that little.

[00:02:59] Craig Syverson
Oh, yes, yes.

[00:03:02] David Hornik
They have the, like, question of the day in Vox. And one of the questions today was, what was your favorite candy growing up as a kid? And, you know, and Swedish fish, my favorite. Love this.

[00:03:12] Craig Syverson
So it’s in print. It’s in print.

[00:03:14] David Hornik
It must be true if it’s in print.

[00:03:17] Craig Syverson
So what are we going to do in the new year? What are you going to do? What if I. It’s not resolutions, but. Okay, it’s resolutions.

[00:03:25] David Hornik
I have resolved, yes. To invest in really fantastic companies and to watch my existing portfolio companies do fantastically well.

[00:03:35] Craig Syverson
And replace that chair.

[00:03:37] David Hornik
And replace this bad chair. We’re gonna have to do a video cast at some point just so you all can see this chair.

[00:03:44] Craig Syverson
It’s really not as bad as David, let’s. I mean, it matches the. Somewhat of the rest of the. The building, doesn’t it? Or maybe not.

[00:03:51] David Hornik
Yeah, it does. I mean, yeah, but that’s, you know, that wasn’t my choice.

[00:03:54] Craig Syverson
Well, yeah, but still, I mean, we could do a chair burning video. Be kind of cool.

[00:03:59] David Hornik
Ornick’s chair on fire.

[00:04:03] Craig Syverson
Well, I’m gonna lose some weight and. What?

[00:04:07] David Hornik
Are you joking?

[00:04:08] Craig Syverson
I’m not joking.

[00:04:09] David Hornik
I’m a little. That’s insane. Probably. You’re what, a foot taller than me and two pounds lighter? Well, that is.

[00:04:17] Craig Syverson
I’m a little more than I should be.

[00:04:19] David Hornik
All right, whatever.

[00:04:20] Craig Syverson
But, you know, I’m trying to be a media personality here, so.

[00:04:23] David Hornik
All right. Exactly. The microphone adds.

[00:04:27] Craig Syverson
The microphone adds so much more weight.

[00:04:29] David Hornik
That’s right. I forgot that you’re a video guy. Not your day job is the video grunt.

[00:04:35] Craig Syverson
Not this silly podcast, silly audio stuff, which is actually a lot of fun because it’s easy. I do other audio shows, too. I do this week in media every week.

[00:04:46] David Hornik
Where do we find that?

[00:04:48] Craig Syverson
Find it at TWiT TV, Lilaport’s network.

[00:04:51] David Hornik
All right, cool.

[00:04:52] Craig Syverson
And four of us get together and ramble on about new media changes, gear, all kinds of related items. It was my favorite podcast to listen to. Now I’m on it. I thought that was very cool. Nice Little bit of karma.

[00:05:06] David Hornik
Right. I thought you were about to say. And now it’s just.

[00:05:09] Craig Syverson
Now it’s gone to the birds. God’s terrible. Well, I can’t listen to anymore because I already heard it.

[00:05:13] David Hornik
You know, I was just, I was so close to swearing right there and I’ve done, I think I’ve done a very good job of not swearing on this podcast to date.

[00:05:21] Craig Syverson
I think you have. I, I don’t think I have. I think a few got through, but we weren’t really. We haven’t tagged it clean, so. All right.

[00:05:29] David Hornik
I’m just saying, I. Ordinarily, I’m afraid.

[00:05:32] Craig Syverson
You’Re a potty mouth.

[00:05:33] David Hornik
I do, I swear a fair bit.

[00:05:34] Craig Syverson
You’re doing very well. So what should we talk about in venture capital?

[00:05:38] David Hornik
What is happening? You know? Well, so there’s a venture cycle in the year. Venture capitalists are more and less active based on the time of year. Now, no one will tell you this, but it’s, but it’s true.

[00:05:49] Craig Syverson
Like bears in hibernation.

[00:05:51] David Hornik
So VCs, this is a traditional venture capital cycle is that the VCs go away, they have their holidays, they, they eat well, perhaps some skiing, they come back from the, for the new year, then they go to the Consumer Electronics Show. That’s always at the very beginning of the year. And then they come back from the Consumer Electronics show excited about what they’ve seen, excited about the new year and, and rearing to invest.

[00:06:15] Craig Syverson
Yeah.

[00:06:16] David Hornik
So for the next quarter, we should see a heightened investment activity from the venture capital community.

[00:06:22] Craig Syverson
Feeding frenzy.

[00:06:23] David Hornik
I’m not saying frenzy. No, you know, this, you know, we.

[00:06:26] Craig Syverson
Can’T use those words.

[00:06:28] David Hornik
I’m just saying that, you know, because people are focused and looking, looking for interesting stuff. So, so that should be, that’s good. And I, and I, I’m, I’m no exception. Looking for, talking with a bunch of interesting companies right now. And so happy to, happy to say that actually there are lots of, lots of great ideas circulating right now.

[00:06:46] Craig Syverson
Yeah. Seems like it seemed like this week, this year sort of launched. Things were really quiet over the holiday. I mean, they normally are, but for some reason this year it seemed different. Like on the second boom. A lot of stuff happened. A lot of, of course, I guess a lot of companies had announcements. They waited until the new year or things like that. But.

[00:07:04] David Hornik
Right. No, in fact, I sent an email off to a friend of mine, Scott Weiss, who just sold his company, Ironport.

[00:07:12] Craig Syverson
Oh. To Cisco. Right.

[00:07:15] David Hornik
I read that $830 million, which is a great outcome and you know, super interesting company. And they did it. They did a really good job of building a big company. When you receive about a billion dollars for your company, it’s usually a pretty interestingly large company. It’s either a YouTube that has a massively large audience or in this instance an appliance and software company that had lots of big customers, lots of excitement around it and it turned out over 400 employees, which I hadn’t realized. So obviously quite large in scope.

[00:07:49] Craig Syverson
Was it a security related company?

[00:07:51] David Hornik
Right. Dealing with email security and spam and that sort of stuff. So Cisco’s going to, I imagine incorporate it right into its sort of perimeter stuff. So it makes a pile of sense. That was good.

[00:08:03] Craig Syverson
Yeah, that’s excellent news. And also a mutual friend of ours, Sharon Weinbar, she’s been with BAA Venture Partners for a good long time and they’ve reorganized and are now called Scale and they have actually reorganized somewhat outside of the purview of bank of America. Is that your understanding?

[00:08:21] David Hornik
Yeah, absolutely. So, yeah, I mean, I think these guys started as in fact a venture fund associated directly with the bank. And over time that association grew more tenuous. Not in the sense of, you know, well, we’re done with you people, but more in the sense of they went to other investors and that sort of thing. So now changed the name to reflect that they’re an independent venture and I’ve called them Scale. Is it Scale Investments?

[00:08:46] Craig Syverson
Venture Partners?

[00:08:47] David Hornik
Venture Capital Venture Partners, yes. So that’s a, you know, in the world of naming, that’s a great name.

[00:08:52] Craig Syverson
It is. I really like it.

[00:08:53] David Hornik
Scale Venture Partners.

[00:08:54] Craig Syverson
Right.

[00:08:55] David Hornik
Nicely done.

[00:08:56] Craig Syverson
$400 million fund. So then you were talking about before how venture capitalists get money from institutional investors to create their funds. So in the case of BA Venture Partners, before this, bank of America was the only institutional partner, or maybe at the very beginning they were. Is that what you’re.

[00:09:11] David Hornik
Well, first, I think this is where we have to play our, our theme music. Now the technical portion of our program, I don’t actually know that. I can’t say for certain what the answer is that oftentimes they’re these venture firms that are contained within an organization like Granite started out, at least a number of the people in Granite Capital were at Adobe and then they spun out of Adobe and became Granite and now are an independent, independent firm. BA Ventures, which is now Scale, was had an association. What I don’t know is were they wholly supported by BA or, or not?

[00:09:45] Craig Syverson
Do banks normally get into the business of throwing money at venture capital firms like would be a throw money at Kleiner Perkins or something.

[00:09:52] David Hornik
It just depends. They have different vehicles. So Silicon Valley bank has a fund of funds that invests in. Has. Because they have such great relationships with venture firms, including my own, they then invest in and alongside venture firms like mine. And so there are other institutions like that.

[00:10:12] Craig Syverson
Are there regulations to banks in terms of risk? Can banks not be too risky with the money? Or is there any.

[00:10:19] David Hornik
That’s a fine, fine question.

[00:10:21] Craig Syverson
Thank you. I was kind of proud of that.

[00:10:23] David Hornik
All right. We’ve exceeded the limits. We’ve reached the limits of my knowledge banking. Banking regulation. All right, the answer, I’m sure the answer is yes with respect to deposits, but I have no, but these are, these are, but these are separate instruments. Right. So they basically raise funds of funds and, and then put those to work. So. So, yeah, so. So just to give a little, a little more of the technical piece, I mean, it says $400 million fund, which essentially means that they have a set of limited partners. The, the, the investors in their fund, the who in the aggregate together have con. Have committed to invest up to $400 million in the companies to which they commit to invest. So it’s not like they collected up 400 million bucks. Okay, on Tuesday, send us $400 million.

[00:11:11] Craig Syverson
Right.

[00:11:12] David Hornik
Well, that would be cool. I mean, you know, hey, let’s check out the bank account. Whoa, 400 million bucks. It’s, it’s really that they’re a set of, set of investors and they’ve committed to the $400 million. And then every time you, you don’t do it on a per investment basis, you say, okay, you know, the bank account’s getting low and we see some need for future investment or whatever, we’ll do a capital call. And the thing, the capital call is the thing where you call out for capital. Hey, investor, you know, hey, hey, Silicon Valley bank fund of funds, could you Please send us 10% of the aggregate that you said you would, you would invest? So then we collect 10 more million dollars and we put that to work or whatever.

[00:11:51] Craig Syverson
And does all that come in evenly from the commitments? In other words, if Silicon Valley bank said we’ll do 10% and someone else said 10%, then does everyone have to put in the money at the same time in an equal.

[00:12:01] David Hornik
Yeah.

[00:12:02] Craig Syverson
So the risk is evenly as distributed as it was originally set up.

[00:12:06] David Hornik
Exactly. So you, you know, of the 400 million, let’s say for simplicity’s sake, there are four ventures, four investors, and each has committed to $100 million.

[00:12:14] Craig Syverson
Yeah.

[00:12:14] David Hornik
Every time you invest, they each put in 25. Every time you do a capital call, they each put in 25% of the capital call. So hey, we need 50 more million. Bu. Okay, each of you gives us 12 and a half million and we get. And we’re good.

[00:12:28] Craig Syverson
Good. Well, congratulations. To scale and everyone there involved. We look forward to new deals from them. What else we got do you want to do? Should we do our bubble thing?

[00:12:38] David Hornik
Yeah, sure, absolutely. I’ll tell you about this.

[00:12:43] Craig Syverson
We talked about the last show, you mentioned it.

[00:12:44] David Hornik
Oh, did I? That I was going to do this?

[00:12:46] Craig Syverson
That you were on it. Yes.

[00:12:47] David Hornik
Well, so this is what happened actually. I had traded emails with a gentleman at the Wall Street Journal who said, do you want to do this debate on whether it’s another bubble? And I said web 2.0 is another bubble. Right, exactly. Is this web 2.0 thing another bubble? And I said sure, I’ll do that, but I’m the no, I don’t think it’s another bubble and I’ll do the no. And so he said, well, I think I got a guy, let me check. And they found this investor, Todd Degrasse, who I have to admit I don’t know Todd. And he and I traded emails, obviously, but I’ve never met him. So may maybe it’s Degress or maybe de.

[00:13:24] Craig Syverson
And we apologize.

[00:13:25] David Hornik
Exactly. So Todd, my apologies for that. But. But Todd is a well known investor on the east coast out of Boston. And so we traded emails about oh, we’re going to do this. And this was going to be over vacation. Hey David, are you available on such and such a day from 9am to noon? And it said, in all fairness it said Eastern time. Okay, but my brain didn’t compute 9am Eastern time because that would be 6am Western time. And that’s insane.

[00:13:53] Craig Syverson
That’s hardly computable.

[00:13:54] David Hornik
Right. That’s ridiculous. So I translate it the other way. Oh, it starts at noon. Right. Which is of course completely wrong.

[00:14:00] Craig Syverson
So you’re six hours off.

[00:14:02] David Hornik
So I get a call at home at 7 in the morning, the phone rings, I’m sleeping, you know, phone rings, we ignore it. And then the phone rings the second time my wife picks it up and hands it to me. There’s a guy from the Wall Street Journal, he says you’re supposed to be doing something. What? Oh, you know, get on the phone with him. Sure enough, he was right. I was supposed to be doing this at 6:00am But 6:00am?

[00:14:21] Craig Syverson
Yeah. What kind of debate is that going to be right exactly once I. Blah, blah, blah.

[00:14:27] David Hornik
So anyway, so I woke up quickly and got on with the debate and so, so we did. We had this conversation about whether or not this web 2.0 is another bubble.

[00:14:37] Craig Syverson
And you wanted to do a dramatic reading of.

[00:14:41] David Hornik
Craig. You sound so enthusiastic. I just thought it would be so good because, you know, look, this was a, this was an email debate. So he wrote. The first thing was an email to me and then I read it and then I responded an email and then he responded my email, etc until we were done. Which you know, is sort of a debate, but it kind of misses the, it misses the whole flavor of it. So. So I think we should, I think we should do a dramatic reading. And you have, you, you have to be the, the villain.

[00:15:07] Craig Syverson
So Todd, Todd degrasse, we are. You know, this is nothing personal.

[00:15:13] David Hornik
No, but you will have you on the show anytime you’d like.

[00:15:16] Craig Syverson
You’re welcome to come anytime you like.

[00:15:18] David Hornik
But of course, since you were on the other side of the debate.

[00:15:20] Craig Syverson
He’s the bad guy.

[00:15:21] David Hornik
He’s the bad guy and you have to play him. And then I’ll play me because I think I’m better suited to play me.

[00:15:27] Craig Syverson
Yeah, probably.

[00:15:28] David Hornik
And then. And we’ll see how it goes. And you know what, look, if it doesn’t work, we’ll cut it. Yes, it’s the power of the podcast. But so, so you, you, you and go.

[00:15:38] Craig Syverson
And which character would you like for the first entry of what?

[00:15:43] David Hornik
Oh, what? I’m me.

[00:15:44] Craig Syverson
I know, as a villain. What villain?

[00:15:46] David Hornik
Oh, what Fate. No. Yeah, you could pick anything. Snidely. Who is the guy in, in Rocky and Bullwinkle? Who is the. Oh, Boris.

[00:15:56] Craig Syverson
Boris.

[00:15:57] David Hornik
Yeah.

[00:15:57] Craig Syverson
Web 2.0, it’s a bubble for three reasons. I don’t. That’s not very good.

[00:16:02] David Hornik
No, I would just. Anything. You. I leave it to you.

[00:16:04] Craig Syverson
I’m gonna go straight.

[00:16:05] David Hornik
Go straight.

[00:16:06] Craig Syverson
I’ll be dramatically straight.

[00:16:07] David Hornik
Alright, very nice.

[00:16:08] Craig Syverson
I know. We’ll do William Shatner. I think I can’t do it. Web 2.0 is a bubble for three reasons. One, there is far too much money chasing Web 2.0 deals. Too much money means too many companies getting funded at higher valuations. Two, there are virtually no barriers to entry in Web 2.0 and therefore the ability to develop a unique solution and sustain a competitive advantage is virtually nil. Therefore, it’s Difficult for Web 2.0 companies to build long term value. There, he said it. Number three, there is very little liquidity in the market. For Web 2.0 companies, the Dow was recently at a high and still no liquidity. Without liquidity, Web 2.0 companies must rely on acquisitions to achieve liquidity. And this will put a lid on the potential exit options and ultimate valuations of these companies. My God. In short, short, they’ll be playing a musical chairs game in which there are far too many players and far too few chairs. There are some similarities between the current quote, bubble, quote, end quote, and the last one that burst in 2000. Lots of incomplete and under experienced teams, business models based more on eyeballs and cash flow and a rash of incremental and me too deals.

[00:17:27] David Hornik
Mr. Hornick, so you know there’s a problem with it. See, if you. Yes, if I had been doing a debate like every other sentence, I’d be like, that’s crazy. No, you. Oh please, next paragraph.

[00:17:38] Craig Syverson
You do that.

[00:17:38] David Hornik
All right, okay, fine. So then. So this is my part where I come in the response with the. With the worldly response. I do not believe that the existence of too much venture capital money chasing too few interesting ideas constitutes a bubble. The web 1.0 bubble inflated because the public markets were willing to bet on unproven ideas. Public markets are ill suited to evaluate evaluating such risk. Evaluating such risks. On the other hand, the venture capital community exists precisely to take on that risk. While many Web 2.0 companies will fail, they will not likely fail in significantly greater proportions than has been the case with other venture investments historically. So it’s hard to imagine how this is a. So this so called bubble will overinflate. Venture capitalists will rationally stop investing in ideas that don’t bear fruit. Those that do bear fruit will gain traction and either be acquired or go public. Those are the traits of a rational market in my mind.

[00:18:35] Craig Syverson
Not really, David, you ignorant me. Private markets are far less efficient than public markets. Private companies don’t publish results, trade on exchanges, or comply with a number of SEC rules that protect the individual investor. They are inherently illiquid and risky. Of course, when there’s more risk, there is often more reward. I can see irrational pricing occurring right now in the venture market with private companies receiving venture money at valuations over 200 million million like spot runner or LinkedIn and 500 million like Facebook. And I’ve seen private web 2.0 companies with negative cash flow and little revenue valued above public companies with stronger operating results. There’s a reason why the average American doesn’t have access to venture capital, and it’s not because it’s more rational.

[00:19:25] David Hornik
Okay? Now, look, do you want me to. I should just do my part.

[00:19:29] Craig Syverson
Just do your part.

[00:19:30] David Hornik
All right.

[00:19:31] Craig Syverson
Okay.

[00:19:31] David Hornik
I was not suggesting that private markets are necessarily more efficient or more rational than public.

[00:19:36] Craig Syverson
I thought you were.

[00:19:37] David Hornik
Merely that private market investors are trained to assess the risks involved with. With speculative and illiquid investments. While I’m not on the boards of spot runner, LinkedIn, and Facebook, my understanding is that each is cash flow positive and making real money. They’re each excellent examples of real businesses that are being built in this Web 2.0 era. Whether 200 million or 500 million is the appropriate price tag for those investments isn’t important. What’s important is that each of those businesses appears to be on track to be strong, standalone entities that will likely go public or be acquired. Those sound like good investments to me. It isn’t surprising that we aren’t seeing a whole lot of Web 2.0 companies going public yet. Public markets have appropriately adjusted to the rationality of the web 2.1 web 1.0 ascendancy. All right. That. I got to say that over again because it’s so eloquent. Oh, have you noticed how eloquent I am?

[00:20:29] Craig Syverson
Yes, I just did.

[00:20:31] David Hornik
Exactly.

[00:20:31] Craig Syverson
The eloquence.

[00:20:32] David Hornik
The public markets have appropriately adjusted to the irrationality of the Web 1.0 Ascendancy and are looking for companies that have appropriate. That have operating histories with quarters of profitability, large TARP line revenue, and predictability going forward.

[00:20:48] Craig Syverson
I like TARP line revenue.

[00:20:49] David Hornik
TAR blind revenue. That takes time. But I have no doubt in my mind that there are interesting businesses being built that will meet those criteria in the coming years.

[00:20:59] Craig Syverson
I don’t know. We’re gonna get. Are we gonna get an award for this? All right, but wait. But wait a minute. Wait a minute.

[00:21:05] David Hornik
Are you people bored yet? You’re. You. I agree. Is that. You’re agreeing with me now?

[00:21:11] Craig Syverson
Oh, so. No, I’m not.

[00:21:12] David Hornik
What?

[00:21:13] Craig Syverson
No, I want to ask some questions here.

[00:21:14] David Hornik
Oh, all right.

[00:21:15] Craig Syverson
Because why are you. You’re saying that you. You don’t care about the valuations. You just care that they’re good businesses. But don’t valuations like. Isn’t that the value of.

[00:21:25] David Hornik
All right, we interrupt this program.

[00:21:28] Craig Syverson
Yeah.

[00:21:30] David Hornik
Sidebar. Sidebar. Sidebar. I didn’t say it. I didn’t say I didn’t care about the valuations. I said what I say. Whether 200 million or 500 million is the appropriate price tag for those investment isn’t important. All I’m saying is I’m not in a position to Judge whether they were, whether it was a $200 million, whether the company was worth 200 or 500. Right. That’s a debate that we just don’t have the data for. But the point is these are real businesses, so you know, 180 million, I’m not saying they’re 20 million dollar businesses that are being valued at 200 or 30 million being valued at 500. Obviously each one of these business is worth a lot of money. So it’s up to each investor to determine how much they think is an appropriate amount valuation for that investment. But the point is, you know, just like a YouTube which easily, easily could have raised money at a high valuation, it was worth a lot of money. Now you know, what’s the long term value to be determined. But, and, or, or, you know, we invested in a company called the Theros in the wireless space doing wi fi chips. It had built something meaningful. It was a valuable company. At later stage, financings made it valued the company at a pretty high price. On the other hand, the company went public because it was built, was making real money and producing a real product and continues to do well. So venture backed companies are about taking nascent ideas, building real businesses around them and the successful ones that have revenue attached to them. And real business, long term businesses have the opportunity to continue on and go public. That’s all I’m saying.

[00:22:57] Craig Syverson
Okay, I agree.

[00:23:02] David Hornik
You’re going to continue with the debate.

[00:23:03] Craig Syverson
That there’d be interesting companies coming out of the web 2.0 wave. Every wave has its winners and its losers. The notion of a bubble, however, is that a particular market gets overdone, that is overhyped, overinvested, and ultimately experiences a high mortality rate. I think the web 2.0 space will have a higher mortality rate than other segments of the overall media and technology industries. There are far too many in my space. Oh, excuse me, didn’t mean any of the, the Texan accent. There are far too many MySpace and YouTube. Genetically challenged clones. Yes, eloquent. Genetically.

[00:23:41] David Hornik
That’s him, not me. I’m the eloquent. Oh, I know.

[00:23:43] Craig Syverson
But hey, I get to play.

[00:23:44] David Hornik
All right, fine.

[00:23:45] Craig Syverson
All but a few will fail. The winners are generally the ones who get in early and out before the first bubble bursts. There are rare examples of bubble companies making it through the bust and going on to become successful and valuable companies. By the way, the combined cash flow of spot runner, LinkedIn and Facebook is less than that of one Costco stinking store.

[00:24:10] David Hornik
Well, see, he put it to me there. Yeah, take that this is. When I use some jargon.

[00:24:16] Craig Syverson
Here comes the jargon.

[00:24:17] David Hornik
I would reckon, I reckon that the margins of Facebook, LinkedIn and Spot Runner are a whole lot better than that at a Costco store, which they are, by the way, way better.

[00:24:26] Craig Syverson
So you said margins. He said cash flow, right? Just cash flow, right.

[00:24:30] David Hornik
He’s talking about, oh, top line. I’m talking about what’s, you know, what is the margin? Anyway, even assuming that the vast majority of Web 2.0 companies fail, the amount of capital that’s going into all of them combined is a pittance compared to the web point to Web 1.0 bubble. In fact, it’s even a relatively small portion of the overall capital being invested by the VC community on an annualized basis. You hear what I’m saying?

[00:24:53] Craig Syverson
I’m getting you.

[00:24:54] David Hornik
How many Web 2.0 companies do you think you can build for the same amount of capital it takes to build a single medical device company? And unlike a medical device company, the power of the Web 2.0 model is that investors get very quick feedback about how well the company’s doing. So the likelihood that investor ports tens of millions of dollars into Web 2.0 companies that will never be self sustaining is very low. VCs may lose the capital invested in early in web startups, but the amount of capital sunk into failed businesses will never snowball the way it did in the late 90s.

[00:25:25] Craig Syverson
You dreamer. I’ll take cash flow over gross margins anytime. I can eat cash flow. I think there’s going to be billions lost in Web 2.0 companies when all is said and done. The real money hasn’t even gone in yet. The hedge fund, corporate and family offices are coming in as we speak. The good news is you can Generally only lose 1.0 times your money. I agree. Medical devices and drug companies consume much more capital than a Web 2.0 company. But they can build advantages based on patents and substantial R and D, which limits the competitive threat. R and D In a web 2.0 company equals rummage and duplicate. Duplicate, duplicate, duplicate.

[00:26:06] David Hornik
Look at that. That’s pretty good R and D. Rummage and duplicate. That’s his. He’s deriding the web 2.0.

[00:26:12] Craig Syverson
That’s it.

[00:26:12] David Hornik
Oh, sorry, you have to finish.

[00:26:14] Craig Syverson
Go. I have to say, the life sciences venture environment has its own issues.

[00:26:19] David Hornik
And with that you dismiss it? Yes. And this is when I come in for the Korea bump. I think that you aren’t giving the Web 2.0 entrepreneurs enough credit. See, that’s it.

[00:26:32] Craig Syverson
You’re Rooting for the little guy there.

[00:26:34] David Hornik
I’m done. Gosh, game over. Sure, there are some me too sites out there, there always are. But the amount of rapid innovation and online services has been staggering. From Skype to dig to 6 apart to YouTube to Flickr to Facebook, the list goes on.

[00:26:48] Craig Syverson
And Capital fund. Six Apart.

[00:26:50] David Hornik
Yeah, that’s right. Yeah. Disclaimer. Six Apart is an investment of August Capital. They aren’t microprocessor companies with years of patent protected intellectual property. On the other hand, they are innovating around things that matter to consumers today. And I believe they’re being appropriately valued not just by potential acquirers, but by the consumers themselves. You say that billions are being are going to be lost. I think that overstates the potential problem. Certainly billions haven’t been invested to date. It takes a whole lot of companies to get to billions when investing a few million dollars at a time. On the other hand, if a few billion dollars are lost in the face of exits like Skype and YouTube and others that I’m. That I see making hundreds of millions in the future, then the market’s doing well and investors and entrepreneurs alike will emerge decidedly net positive. That doesn’t sound like a bubble to me. That sounds like a vibrant market for innovation.

[00:27:40] Craig Syverson
Oh, gosh, the eloquence.

[00:27:42] David Hornik
Do you hear me?

[00:27:43] Craig Syverson
I hear you.

[00:27:44] David Hornik
What do you have to say to that, Mr. DeGrasse?

[00:27:46] Craig Syverson
I say aha. We agree. Aha.

[00:27:50] David Hornik
I’m done.

[00:27:51] Craig Syverson
On what may be the most important point. Great entrepreneurs are the key to building valuable companies.

[00:27:57] David Hornik
He’s just stealing my point.

[00:27:59] Craig Syverson
He’s got to deal with entrepreneurs too.

[00:28:01] David Hornik
I’m just saying. And that’s business. That’s cheating. I say I like entrepreneurs, he says he likes entrepreneurs.

[00:28:06] Craig Syverson
Come on, you shark. Give him a break. Lawyer.

[00:28:10] David Hornik
God.

[00:28:11] Craig Syverson
We’re not in court here. This is just a debate. Online friendly, great entrepreneurs. I said that if you invest in great people, you have a good chance of making money. Now didn’t you say that? You said that in the podcast.

[00:28:22] David Hornik
I’m not disagreeing with those things.

[00:28:23] Craig Syverson
I think you copied him.

[00:28:24] David Hornik
He’s stealing my shtick, that’s all.

[00:28:26] Craig Syverson
No, you stole his stick.

[00:28:27] David Hornik
No.

[00:28:27] Craig Syverson
That’s what I’m saying.

[00:28:28] David Hornik
No.

[00:28:29] Craig Syverson
If the current market there are gifted entrepreneurs that will benefit and thrive. These people will start disruptive companies that will look for what will be hot rather than what is hot. What will be hot rather than what is hot.

[00:28:40] David Hornik
Exactly.

[00:28:40] Craig Syverson
This is what happens when you don’t rehearse. They won’t be lumped into the Web 2.0 category. They will define their own categories. This is what will separate the few winners from the many losers. So in closing, I’m Leary of Web 2.0, but I’m always going to invest in great people pursuing big ideas.

[00:28:58] David Hornik
So I win. He says I win.

[00:29:00] Craig Syverson
Come on.

[00:29:01] David Hornik
I win.

[00:29:01] Craig Syverson
It’s not so black and white.

[00:29:02] David Hornik
All right, I’ll do so. All right.

[00:29:04] Craig Syverson
He made some.

[00:29:05] David Hornik
And I get to conclude. I conclude.

[00:29:07] Craig Syverson
Yes.

[00:29:08] David Hornik
I was recently asked by an entrepreneur what I thought would be the next great technology in the. This in the coming year. I told him that I thought it would be the Internet.

[00:29:15] Craig Syverson
Internet.

[00:29:16] David Hornik
Have you heard of that thing? I thought it would be the Internet. We’ve just started to scratch the surface. Surface of the enabling power of the Internet. Whether it’s called Web 2.0 or New Media or Enterprise 2.0, Internet services are going to drive the world’s economies for the foreseeable future. To me, that doesn’t spell bubble. That spells opportunity.

[00:29:36] Craig Syverson
Oh, gosh.

[00:29:37] David Hornik
And close. Thank you, thank you, thank you. There you go, the Web 2.0.

[00:29:45] Craig Syverson
Great bubble debate.

[00:29:46] David Hornik
Great double bubble debate. That was just fantastic. Thank you, Craig. Oh, well, you know, I feel, you know, what is very interesting about that was to you. To you and me and no one else. Well, no, right, exactly.

[00:29:58] Craig Syverson
I thought the debate was interesting. I mean, I learned something.

[00:30:00] David Hornik
What I. What I think is interesting, just about this pod about reading it now, is how differently you would write for a play than you would write.

[00:30:08] Craig Syverson
All right.

[00:30:09] David Hornik
For a debate. Oh, my Lord, those were. Those were terrible lines. I wouldn’t give myself those lines.

[00:30:14] Craig Syverson
It’s a big difference writing a script. I mean, you know, I write the script and then before I do anything else, I read it back to myself and listen to it and go, holy cow, that line’s a dog.

[00:30:25] David Hornik
Yeah.

[00:30:25] Craig Syverson
And then.

[00:30:25] David Hornik
Right.

[00:30:26] Craig Syverson
You know, go back and make it, because you could trip yourself up with onomatopoeias or, you know.

[00:30:31] David Hornik
Exactly. Awkward and.

[00:30:34] Craig Syverson
Yeah, so it’s all about the phrasing and the timing and.

[00:30:37] David Hornik
Right. Where we’re far more eloquent when we just. When we just sit here speaking. That’s. That’s what our listeners are thinking. They’re thinking, thank goodness they don’t have a script because, boy, with the script, very, very awkward.

[00:30:50] Craig Syverson
Very awkward.

[00:30:51] David Hornik
Without the script. They’re poetic.

[00:30:53] Craig Syverson
Here’s the script. So, David, how was your week in the venture capital world?

[00:31:01] David Hornik
Fine, Craig. I saw many interesting companies, of which several were very interesting.

[00:31:12] Craig Syverson
Yeah.

[00:31:14] David Hornik
So what’s up? So you’re going to Macworld right?

[00:31:17] Craig Syverson
Oh, yes.

[00:31:18] David Hornik
It’s coming up now. This year. It’s screwed up. It’s screwed up. Right. Historically, this is how it has worked. Historically, we’ve had CES and then the week after we’ve had macworld.

[00:31:29] Craig Syverson
They’ve collided in the past, sort of.

[00:31:32] David Hornik
Have they? I think it’s usually been pretty. It’s been pretty good separation. I’ve always assumed that this was just Jobs being smart and saying, I don’t want to be stuck in, lumped in with those guys. I want to have my own light. And yet this year, they’re at the same time, in fact, same time. When’s his. When’s his big keynote?

[00:31:47] Craig Syverson
Tuesday morning.

[00:31:47] David Hornik
Tuesday. Well, that’s terrible timing.

[00:31:49] Craig Syverson
Yeah. Bill’s doing his thing. When?

[00:31:52] David Hornik
I don’t know. But that, you know, But I mean, I would ordinarily sit and watch it. That’s how pathetic I am. If I wasn’t there, they often. They’d live broadcast, Right. They’d stream it.

[00:32:03] Craig Syverson
Apple does a delayed one.

[00:32:05] David Hornik
Yeah. So I would watch it.

[00:32:06] Craig Syverson
Yeah.

[00:32:06] David Hornik
Because it’s exciting.

[00:32:07] Craig Syverson
Yeah.

[00:32:08] David Hornik
But now I’m gonna be at CES and I won’t, you know, I won’t have that opportunity. But will you be there now? Are you gonna be at the. Are you gonna be at the keynote?

[00:32:15] Craig Syverson
Oh, yes, I will be there. So I can, you know, who do you think’s gonna.

[00:32:19] David Hornik
Usually has a good musician or something like Yo Yo Ma or, you know, not at the. Not at the Third Eye Blind.

[00:32:24] Craig Syverson
No, no, he hasn’t had that. He’s had that. Those little micro announcements, but he’s not. Hasn’t had music at the.

[00:32:30] David Hornik
Really? I thought they had what’s His Face.

[00:32:33] Craig Syverson
He had Wynton Marsalis at some. But that was the ones at Apple where they did a little micro.

[00:32:38] David Hornik
All right.

[00:32:38] Craig Syverson
Not Mac. Mac World generally doesn’t have talent. They might bring up, you know, Todd Rundgren or something and talk about. He comes a lot.

[00:32:47] David Hornik
He’s not talent. He doesn’t play?

[00:32:49] Craig Syverson
No, he doesn’t play. He comes up and talks.

[00:32:51] David Hornik
Here’s my prediction. There’s going to be a musician of some nature who is going to play at this point, at this keynote.

[00:32:58] Craig Syverson
It’s gonna play, perform.

[00:32:59] David Hornik
Perform. Mark my words.

[00:33:01] Craig Syverson
Okay, well, how much.

[00:33:02] David Hornik
How much are they duly marked?

[00:33:03] Craig Syverson
How much? Well, let’s mark it with money. 10 bucks.

[00:33:07] David Hornik
Fine.

[00:33:08] Craig Syverson
Okay. Done. All right. Yeah. So what are you gonna do at CES besides wander aimlessly in the loud noise?

[00:33:15] David Hornik
That’s it. I’m gonna particularly. I’m looking forward to going to the car audio section.

[00:33:21] Craig Syverson
Oh, yeah.

[00:33:22] David Hornik
For personal reasons, there’s just nothing more entertaining. You go to the massive. You know, they’re all in big sections. And so the car audio section has these incredibly souped up cars with seven to 400 speakers. And then in fact, they had. They had a van that they had retrofit with these speakers and it was producing the greatest number of decibels. And like, literally my partner Andy was leaning in to look at it.

[00:33:51] Craig Syverson
Yeah.

[00:33:52] David Hornik
And the guy who. And the guy turned it on just to like shock any. And it pushed him out. Literally the airwave pushed him out. It was so loud. Which then the guy laughed. You know, it’s sort of like the. The dollar pulling along the ground and you go to grab it and he pulls it out from. He like pushes him out. So. No. So, I mean, it’s entertaining. But I am going. I’m just meeting with a bunch of people. The nice thing about CES is that because everybody sort of goes then. There are now lots of gatherings and parties and dinners and I’m going to Scale is having a dinner. I look forward to going to the Scale dinner. Thank you. Thank you, guys. And Red Swoosh, which is a portfolio company of mine built by this really smart entrepreneur named Travis Galnick, is having. Having a gathering of folks involved in Red Swoosh distribution partners and clients and those sorts of things. And I’m just going to see a bunch of people.

[00:34:42] Craig Syverson
Yep.

[00:34:43] David Hornik
And I’m looking forward to seeing. I was talking while I was at Le Web, I was talking with the Nokia people and they were giving me a preview of their new phone.

[00:34:50] Craig Syverson
This sort of something or.

[00:34:51] David Hornik
Yeah, I wish I knew what it. But anyway, it’s. It’s basically a consumer media phone and it has a great screen and a lot of storage.

[00:35:00] Craig Syverson
I know you guys have shown it. I’ve seen it too, man.

[00:35:03] David Hornik
It’s nice. It’s got five megapixel camera. So they’re gonna launch that and they’re. I think they’re launching with Six Apart. Six Apart as a piece in. Okay, no more six. I’m not gonna say six Apart again.

[00:35:12] Craig Syverson
No, it’s okay.

[00:35:13] David Hornik
Let’s do what? Let’s talk about some other portfolio company of mine.

[00:35:16] Craig Syverson
Okay.

[00:35:17] David Hornik
That’ll be entertaining. Thank you for the David Hornik Venture cast about his portfolio companies. What else am I doing?

[00:35:25] Craig Syverson
Demo is later in the month.

[00:35:27] David Hornik
Yeah, demo is the very end of the month and it’s been moved again. The first demo I think I went to was in Palm Springs. And then it made its way to Arizona, and then it made its way to San Diego and has returned to Palm Springs. I’ve only been to Palm Springs to go to conferences. I’m pretty sure that’s all it’s for.

[00:35:46] Craig Syverson
Yeah. And that’s probably all you’d want to go there, unless you have a penchant for white shoes.

[00:35:50] David Hornik
Yeah, it’s not. But. So I’ve actually started meeting with companies that are now going to be. Going to be there.

[00:35:57] Craig Syverson
Yeah.

[00:35:58] David Hornik
You know, so they. I think that Chris and Demo has. Have allowed these companies to announce earlier. Maybe not. Maybe they’re just breaking the rules and telling me so. Chris. I’m sorry. Never mind. They never told me they’re going to be at Demo.

[00:36:09] Craig Syverson
No.

[00:36:11] David Hornik
But I’ve been meeting with some interesting companies and I love Demo. I mean, Demo is a great conference because it’s a great format. Right. If you have something that you can show off in a compelling way in six minutes, then it’s probably compelling, whatever you’ve built. And it mixes it up a lot. You got the costumes, people write songs, they do various entertaining things. And then there’s lots of breaks where you go out and you can ask them deeper questions about the things that you’ve just seen for six minutes.

[00:36:40] Craig Syverson
I see.

[00:36:41] David Hornik
Awesome format. I would. I think that it’s one of the highlights of the conference year.

[00:36:46] Craig Syverson
Yeah. Should we do a show there?

[00:36:49] David Hornik
You bet. Can you come? Yeah. Well, you can come by, you know. Yeah, fine.

[00:36:53] Craig Syverson
Most of the stuff we do is in the lobby.

[00:36:54] David Hornik
We can be in the lobby.

[00:36:55] Craig Syverson
Yeah.

[00:36:56] David Hornik
I mean, that’s no problem if you come to Palm Springs. Done. That’ll be awesome.

[00:37:01] Craig Syverson
Yeah.

[00:37:02] David Hornik
So we’ll be broadcasting from Demo, apparently.

[00:37:05] Craig Syverson
We’ll be. We’ll be recording and then, you know.

[00:37:07] David Hornik
Oh, yeah.

[00:37:08] Craig Syverson
We won’t be broadcasting media.

[00:37:11] David Hornik
Oh, my God, I’m so. I’m so 1983.

[00:37:14] Craig Syverson
So in case we completely edit out the dramatic reading. No, since we’re at four. 39 minutes already.

[00:37:21] David Hornik
How many?

[00:37:21] Craig Syverson
39. We just started.

[00:37:23] David Hornik
Yeah. That’s just the beginning.

[00:37:24] Craig Syverson
All right.

[00:37:25] David Hornik
What else is there?

[00:37:26] Craig Syverson
I want to talk about Ask. If you ask the vc.

[00:37:29] David Hornik
Yes, the vc.

[00:37:30] Craig Syverson
It’s because we were. Don’t we own that we said it first. No, I thought it’s a nice. It’s a new website. Where. Let’s see. It’s Brad Feld and Jason Mendelsohn. They are with Mobius. Oh, we’ll see. Do you know everybody?

[00:37:44] David Hornik
And I was under the impression that they were gonna form their own firm. I’m sorry, guys, if I miss, if.

[00:37:50] Craig Syverson
I miss Mobius adventure. With Mobius that Brad co founded. Yes, they write it. They write it together. They started writing together on Brad’s Feld Thoughts blog.

[00:38:00] David Hornik
Yes.

[00:38:00] Craig Syverson
With their term sheet series. You know, I didn’t know about this actually.

[00:38:03] David Hornik
So if you’re interested. So if you want to find out information about term sheets, then the nice thing about the blog world is that it’s created a whole bunch more information than you could have had.

[00:38:14] Craig Syverson
Yeah.

[00:38:14] David Hornik
So I’ve been, I’ve been blogging now, believe it or not, for almost four years. We started about four years ago, this time with Venture Blog. And when we started Venture Blog, there was nothing, nothing about the terms of a term sheet or whatever else. Since that time, not only, you know, you can go to Venture Blog and search for stuff related to term sheets, but these guys, Brad and Jason, meticulously went through each term and wrote long posts on Feld Thoughts, Brad’s blog. And I would highly recommend that you read it because it gives you just a pile of information. So if you’re going through the process for the first time or even the second or third time, it’s just good reminder. And then the last thing I would say is. The last thing, Craig. And then I’m out. No, the last thing I would say about this is the Venture Capital association, the nvca, the National Venture Capital association, got all of their legal people together and they created a set of model venture financing documents. Interesting. So you can actually go and go to the NVCA site, which is probably nvca.org but I don’t know for certain, and look it up and they have model documents which show you what they think are appropriate for financings. And what’s interesting is that they show you the options. So it’ll say here is the part on liquidation preference, and you can have a 1x liquidation preference, you can have a multiple preference, or you can have a participating preference. And in each instance, they’ll show you what they think is the best language to reflect that particular term.

[00:39:38] Craig Syverson
Okay.

[00:39:39] David Hornik
So in combination those things are great. But anyway, so Brad and Jason wrote great stuff before, and so now they have the Ask a VC site.

[00:39:46] Craig Syverson
Ask the vc. Yeah, and I looked it over before I came. I, I like it. I’m going to. So I’ll learn a lot, then I, I won’t have as many dumb questions to ask you, which maybe I shouldn’t look at it.

[00:39:55] David Hornik
Yeah, don’t look at that.

[00:39:55] Craig Syverson
No, I’ll look at.

[00:39:56] David Hornik
I, I Get to like questions. If you ask me the hard questions, I’m out.

[00:40:00] Craig Syverson
Like regulations for banks.

[00:40:02] David Hornik
Yeah.

[00:40:04] Craig Syverson
All right.

[00:40:05] David Hornik
Now I know I have to study up before for this podcast.

[00:40:09] Craig Syverson
Yeah. See, did you read Jack Biddle’s thing about his VC predictions for 2007?

[00:40:15] David Hornik
No. What is he predicting? Do tell.

[00:40:18] Craig Syverson
The Web 2.0 advertising model collapses when people realize that Google is every bit as smart as they are cracked up to be and don’t have a nickel of excess margin left for their partners.

[00:40:28] David Hornik
Wrong.

[00:40:29] Craig Syverson
Wrong.

[00:40:30] David Hornik
That’s craziness. No. So look, I mean, I think, I think that they’re right.

[00:40:34] Craig Syverson
How do you really feel about it?

[00:40:36] David Hornik
I think it’s crazy. Madness. Is it the case that Google, that the Google machine is figuring out how to price ads on Google to, you know, to appropriately increase with more bidders, etc. More effective clicks, get higher prices, etc. Yes. And I agree with his prediction that the margin that’s allowed for bidders is going to decrease because there’s going to be increased competition for the keywords and people be willing to pay higher prices and get smaller margin. That’s fine. But at the point where it tips over and people who are bidding for words at higher prices than they can make back in the clicks, right, there will be a period of time where that’s sustainable while people lose money and then it will no longer be sustainable, at which point the prices have to adjust. I think that they will probably adjust before that happens. But if it does ever get to the point that people are paying more for a click than it is worth, then there’s a very clear way that that resolves itself. When suddenly those businesses go out of business because they can’t manage that, that that’s bad business, they will lose. But then my second answer to that is, what does that have to do with the ad supported model? That’s just Google. There are, you know, tens of thousands of sites that are supported by advertising revenue based on other kinds of ads, video ads and other kinds of ads. So anyway, no and no. I believe that the, that the ad market in 2007 is going to increase pretty dramatically.

[00:41:59] Craig Syverson
Google collapses when Advertising Inc. Realizes bots are counting for most of the page views and bots don’t buy stuff.

[00:42:09] David Hornik
Well, that doesn’t make any sense to me either, you know, because people don’t pay for impressions on Google. It’s not you don’t pay when your search term appears. You pay when your search term is clicked upon.

[00:42:23] Craig Syverson
Could a bot not click upon it?

[00:42:25] David Hornik
And so the question is so is he talking about click fraud or is he talking about views? And if he’s talking about click fraud, I agree that there is a big debate about click fraud.

[00:42:33] Craig Syverson
He says accounting for most of the page views.

[00:42:35] David Hornik
Page views.

[00:42:36] Craig Syverson
Bots are accounting for most of the page views.

[00:42:38] David Hornik
Yeah. I just don’t know what he’s. I don’t know what he’s getting at there because, you know, but anyway, you know, I do think that there’s going to be a big debate about Click Fraud in 2007 and to what extent these clicks are legitimate or not. And I think there’ll be companies that come out of that. And. But on the other hand, I think that given that people price their clicks based on the degree to which they get response from those clicks, I think that the prices are adjusting for fraud, naturally. Right. It’s a. This is the power of the market.

[00:43:08] Craig Syverson
Power of the market. This is what we’re talking about.

[00:43:10] David Hornik
Yeah. You know what? You know what? That invisible hand, we call that the invisible hand.

[00:43:16] Craig Syverson
The invisible hand of the Institutional investors realize that participating in an important space is not the same thing as actually making money. And they don’t like losing money, which they are now doing in spades. Are institutional investors losing money in spades right now?

[00:43:32] David Hornik
Is he talking about VCs or what’s he talking about?

[00:43:34] Craig Syverson
Institutional investors?

[00:43:36] David Hornik
I don’t know. It sounds like he’s talking about vc. You know, I’m not.

[00:43:42] Craig Syverson
And you are participating in an important space.

[00:43:44] David Hornik
You know, I don’t know. I’m not trying to participate in any space.

[00:43:47] Craig Syverson
Oh, no, this is.

[00:43:48] David Hornik
I’m trying to fund smart companies and then hope that they work. That’s what I’m doing.

[00:43:52] Craig Syverson
He did mean institutional investors. Because point number four, shortly after VCs have the same cathartic revelation between their grasping for air as they repeat the phrases long term patience, long term patients, while LPs repeat the phrase T bills are positive. T bills are positive.

[00:44:11] David Hornik
Wow, that’s. That’s kind of sarcastic. Listen to him. Anyway, you know what long term patience is, right? That is the mantra here at August Capital. Long term patience. You vest in companies that are valuable in the long term. Because those are the really valuable questions.

[00:44:30] Craig Syverson
Companies.

[00:44:31] David Hornik
Now, you know, some companies don’t work. Turns out sometimes through no fault of the entrepreneurs and sometimes even through no fault of the VCs. You know, but. But long term patience, I’m going to keep that mantra.

[00:44:45] Craig Syverson
Yes.

[00:44:45] David Hornik
Damn this list. Well, this is madness. This entire list. What else have you got?

[00:44:49] Craig Syverson
That’s it. That’s all.

[00:44:50] David Hornik
That’s it.

[00:44:51] Craig Syverson
Okay, Fred Wilson.

[00:44:52] David Hornik
Those are all the predictions.

[00:44:53] Craig Syverson
Fred Wilson has some predictions.

[00:44:54] David Hornik
Oh, man. Okay, Fred, bring it on.

[00:44:56] Craig Syverson
But I don’t have it in detail because I don’t have a detail because they were long and interesting. But here are his five. Here is five. He made five posts, which I encourage everyone to check out. Then his main topics that he is looking at is social search, broadband Internet, video.

[00:45:14] David Hornik
Yay.

[00:45:16] Craig Syverson
The end of the page view. I don’t know what that is.

[00:45:20] David Hornik
The end of the page view. He means, you know, look, so much of it is web services being served inside of other things, other experiences. And so Fred’s a big believer in attention as over page views. Well, what are you. What are you focusing your attention on?

[00:45:33] Craig Syverson
I see.

[00:45:33] David Hornik
So I believe that’s what he meant.

[00:45:35] Craig Syverson
Okay. I love just guessing what he’s talking. This is good.

[00:45:38] David Hornik
Yeah, right.

[00:45:38] Craig Syverson
Let’s just get the implicit web.

[00:45:41] David Hornik
The implicit web. But you know what I hate?

[00:45:43] Craig Syverson
What do you explicit.

[00:45:44] David Hornik
Well, you know, I really want to guess. I want to. That explicit web, like when I’m shopping. How much is that thing?

[00:45:52] Craig Syverson
That’s no fun.

[00:45:52] David Hornik
You know, it’s far more fun. Would it be better if it was like it’s less than $20, but it’s more than 13?

[00:45:58] Craig Syverson
And depending on when you click, depending on how it shows up in your Visa bill, we won’t tell you ahead of time.

[00:46:02] David Hornik
I prefer I hate that explicit web. $17.

[00:46:07] Craig Syverson
And the last one is User generated Devices. That looks interesting. I wish I was cool. Anyway, check it out.

[00:46:14] David Hornik
Maybe we’ll see some of that at ces.

[00:46:16] Craig Syverson
Yes, this was. I got this list through Ask the VC as a matter of.

[00:46:20] David Hornik
All right, very nice.

[00:46:21] Craig Syverson
Okay, that’s all I got.

[00:46:23] David Hornik
That’s all. And that’s where we’re out.

[00:46:24] Craig Syverson
We’re done. We’re long on the tooth on this show.

[00:46:27] David Hornik
And it’s worth it, though, if you’re listening, don’t you think it’s been worth it?

[00:46:32] Craig Syverson
I don’t hear anything.

[00:46:33] David Hornik
Yeah, right.

[00:46:34] Craig Syverson
But that’s why we have chapter marks. You know, I’m putting chapter marks in these shows so that.

[00:46:40] David Hornik
So you can skip our whole shtick about the bit debate.

[00:46:43] Craig Syverson
And we’re telling them now, right?

[00:46:44] David Hornik
Yeah, exactly. Maybe. You know, let’s record that piece here. Craig, maybe you should put this in. By the way, we’re about to do this debate, this long winded debate, should you decide to skip it. Not that it’s not incredibly entertaining. We have chapters.

[00:47:00] Craig Syverson
We have chapter marks. So, yes, you can skip ahead and we won’t be offended, nor will we even know.

[00:47:05] David Hornik
We won’t know. Which is sort of a problem with podcasts. Exactly. Right. Shouldn’t we have a way to measure who’s listening?

[00:47:14] Craig Syverson
Drm, man, you don’t want that.

[00:47:15] David Hornik
What do we got? We don’t, you know.

[00:47:17] Craig Syverson
Yeah. You know, they always, advertisers always say, yeah, we don’t know how much they’re watching. It’s like, okay, how when they look at your magazine ad, how do you know they’re looking at your magazine ad, buddy?

[00:47:26] David Hornik
Right, exactly. In fact, I, you know, not to get me off on a huge tangent, but I think that this was exactly the lesson that has been unlearned in from, you know, from Web 1.0, which is, hey, everybody came and touted this advertising medium as completely measurable. It’s great you can figure out, right? And then people measured it and said, oh wow, we measured it and guess what? We’re not getting good response and we’re not getting enough people thinking of caring about, etc. And so the. Suddenly they, oh, well, this is a terrible medium for advertising. Wasn’t a terrible medium for advertising. What it was is a wake up call to advertisers that, guess what, people don’t respond.

[00:48:04] Craig Syverson
Yeah.

[00:48:05] David Hornik
You know, in the same way that they had necessarily thought to advertise. And now what we’ve discovered in this next generation of web business is that if you focus on the things that matter or you focus, or just understand the medium and focus on the ways in which people want to receive information in the medium, then you will have interesting response rates. So, you know, for example, if we had incredibly interesting topical advertisers that we could put in like a product placement for right now. What was that?

[00:48:32] Craig Syverson
BMW.

[00:48:33] David Hornik
You’re right. Exactly. But back to our favorite sponsor, BMW, you, which is no longer the ultimate the driving machine, as we discovered. Oh, I forget, I forget what it is. But anyway, so now, you know, we’ve, now there is. There are good response rates and, and advertisers are feeling better about the online medium. Not necessarily because it’s changed, but now because they, they understand it better. We’ve had a decade of evolution, etc, so anyway, but it would be nice to measure, you know, I can see, I can go to a feedburner and say, how many RSS subscribers do we.

[00:49:03] Craig Syverson
Have the podcast that we know?

[00:49:05] David Hornik
Which is nice. But anyway, I mean, I’m happy to do it if three people are seeing. I’m not saying I’m going to stop doing it. Just because people are skipping over like this part. But I’m just saying, don’t you think it would be interesting data?

[00:49:19] Craig Syverson
Yeah, I think so. And feedburner has some updates or they had some new things I need to check out.

[00:49:23] David Hornik
Yeah, they do. Very cool. It’s their equivalent of measure map.

[00:49:28] Craig Syverson
Okay.

[00:49:29] David Hornik
It is data about your pod. Excuse me? Not podcast. Your blogging audience. So.

[00:49:34] Craig Syverson
For your feed. Because I use them in my stuff too.

[00:49:36] David Hornik
So is it going to work on the feed stuff as well? That’ll be an interesting question.

[00:49:41] Craig Syverson
So.

[00:49:42] David Hornik
And perhaps someday we can get Dick Costello in here to join us in this podcast. That would be great. I enjoy any opportunity to make fun of Dick Costello.

[00:49:50] Craig Syverson
Oh, good. Well, it’s an open invitation. Anyone who wants to make fun of you can join us here.

[00:49:55] David Hornik
Yeah, that’s right.

[00:49:55] Craig Syverson
We’re opening it up. They’re opening up.

[00:49:57] David Hornik
You name it, we’ll make fun of you.

[00:49:59] Craig Syverson
Thanks to feedburner for. For keeping track of our feed.

[00:50:02] David Hornik
Yes.

[00:50:02] Craig Syverson
Thanks to Cash Fly for being generously provisional. Provisional. No. Provisatory of our bandwidth.

[00:50:09] David Hornik
Pervasive.

[00:50:09] Craig Syverson
Pervasive, you pervisive minx.

[00:50:12] David Hornik
Yeah. Now I will leave you.

[00:50:15] Craig Syverson
We’ll be. We’ll be back. Post conferences with all sorts of new deals and gear, hopefully.

[00:50:20] David Hornik
That’ll be great. Yes.

[00:50:21] Craig Syverson
All right, so long.

[00:50:22] David Hornik
Catch you later.

[00:50:25] Craig Syverson
To understand business and its main phases of production, distribution and service is to understand much of what goes on about us every day. For the world we live in is a world of business.