Generated Transcript

[00:00:14] Craig Syverson
Welcome to venture cast 20. My name is Craig Syverson of Grunt.

[00:00:18] David Hornik
Media and I am still David Hornik from August Capital.

[00:00:22] Craig Syverson
Still.

[00:00:22] David Hornik
That’s right. I was thinking of changing my name.

[00:00:25] Craig Syverson
Yeah.

[00:00:26] David Hornik
To Don Horn. Would that sound more investorly?

[00:00:32] Craig Syverson
I thought, well, maybe for your singing career. Don Horn, ladies and gentlemen.

[00:00:35] David Hornik
Yeah. Well, I had to be me. There it is.

[00:00:38] Craig Syverson
We got out of the way. So it’s Monday, first time. We usually do it on Friday.

[00:00:43] David Hornik
That’s true.

[00:00:43] Craig Syverson
So August Capital was not in their casual Friday dress. And imagine my shock when I came in and there were no bikini clad women and the crazy dance music as I normally come to expect on a Friday. No martinis. I’m drinking water.

[00:00:56] David Hornik
That is true. That is true. But that’s, you know, it’s Passover. We can’t be having these, you know, bikini clad dancing girls on Passover.

[00:01:04] Craig Syverson
First day of Passover, is it? So I’m told. So you’re told. You didn’t hear that, Mrs. Hornick.

[00:01:11] David Hornik
Yes. You know, or as my son Noah likes to think of it. Is that that holiday with the matzo ball soup? Yeah.

[00:01:18] Craig Syverson
The food.

[00:01:19] David Hornik
All about the food.

[00:01:19] Craig Syverson
It’s all about the food. So we are here to talk about what we know.

[00:01:25] David Hornik
What do you know?

[00:01:26] Craig Syverson
I don’t know a lot. You know, you’re the. You’re the industry expert.

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

[00:01:31] Craig Syverson
This is the show.

[00:01:32] David Hornik
Who told you that?

[00:01:33] Craig Syverson
You know, some people said we should have an intro to the show. So people who are new, but I haven’t thought of it yet. This is the show. It’s a random conversation about things in the venture capital world and the new media world and whatever we feel like talking about. That, Phil, won’t alienate our core audience.

[00:01:48] David Hornik
Yeah. You know, when Andrew Anker and I started Venture Blog, Andrew came up with the Venture Blog tagline, which was a random walk down Sandhill Road, which was so great because it basically meant that we were completely unconstrained in any way.

[00:02:02] Craig Syverson
You gave yourself license to be randomized.

[00:02:04] David Hornik
Oh, and you didn’t you come up with a random talk down.

[00:02:07] Craig Syverson
Yeah. Wasn’t that clever?

[00:02:08] David Hornik
Wasn’t that random talk down sound?

[00:02:10] Craig Syverson
That’s true. That is our official tagline or byline.

[00:02:13] David Hornik
But you know, what do we talk about? We talk about some things. We talk about the venture capital stuff.

[00:02:17] Craig Syverson
Yeah.

[00:02:18] David Hornik
We talk about what happened since the last time we met in tech.

[00:02:23] Craig Syverson
Yeah.

[00:02:23] David Hornik
Talk about conferences, largely tech conferences, tech, new media. And we talk occasionally about finance and.

[00:02:33] Craig Syverson
Some of the bigger, more educational points.

[00:02:37] David Hornik
Exactly. Some of the ins and outs of venture Finance and private equity and legal matters and those sorts of things. Do we cover anything? We discuss my children and mother a fair bit.

[00:02:48] Craig Syverson
We do. We don’t get into cooking.

[00:02:50] David Hornik
Not recently.

[00:02:50] Craig Syverson
Or car repair.

[00:02:52] David Hornik
No, but we could.

[00:02:53] Craig Syverson
We could. But that. Maybe that’s another show. Yeah. When we build a network.

[00:02:56] David Hornik
Aren’t you thinking about doing this wine show? Right?

[00:02:59] Craig Syverson
I am thinking about doing a wine show, yes.

[00:03:01] David Hornik
It’s.

[00:03:01] Craig Syverson
It’s in development, as they say.

[00:03:03] David Hornik
That’s great. I mean, the only kind of wine show I’m qualified for is, oh, I don’t want to do that show. That’s ridiculous. But. But seriously, Venture cast listeners, we really will get to something of substance any second now.

[00:03:18] Craig Syverson
So where were you in the past couple weeks? What’d you.

[00:03:21] David Hornik
Where was I? I was down at the O’Reilly E. Tech conference.

[00:03:25] Craig Syverson
Oh, yeah, you did that. Do you do your thing, Your fake company thing?

[00:03:28] David Hornik
Yes, exactly.

[00:03:29] Craig Syverson
How was it?

[00:03:29] David Hornik
Just incredibly fun. So it was great. It was totally fun because it’s all about the people who present. So this fake thing of which you speak is called Half Baked 2.0, and it was conceived by Dave McClure, who was first done at foo camp last summer. Dave came up to me. Oh, I have this idea. It’s basically improvisational theater where people will kind of get names of companies and they have to pitch them. They have like three seconds they have to pitch them. And then he cleverly kind of figured out some more structure to it. So it’s basically collect up a whole bunch of random words.

[00:04:02] Craig Syverson
Do you get the Web 2.0 name generator?

[00:04:05] David Hornik
That would be a reasonable way to do it. In this instance. We just sort of called on the audience to give us. Give us words. So sometimes they’re web 2.0 words like disintermediated or, you know, distributed or whatever.

[00:04:19] Craig Syverson
Right.

[00:04:19] David Hornik
And then sometimes they’re just good words. Penis is always in there just for good measure, generally, although rarely chosen.

[00:04:26] Craig Syverson
That’s odd.

[00:04:27] David Hornik
I contributed Pterodactyl in hopes that someone would give a pterodactyl pitch. But Corpse was chosen by more than one company. Corpse.

[00:04:36] Craig Syverson
I like that.

[00:04:36] David Hornik
I think we had Twitter. Corpse was one of the company names. And so you pick all these words, and then teams get to then pick the two words out of that list that make up the title of their company. And then they have 15 minutes, and then they have to p the business based on it. So, you know, Twitter Corpse had to come up and pitch their business on how to communicate with your loved ones after they’ve passed into the afterlife, which is good. So. But it was, it was you.

[00:05:07] Craig Syverson
Now which, which level of hell are.

[00:05:09] David Hornik
You in right now exactly?

[00:05:10] Craig Syverson
Well, I’m entering the fourth ring.

[00:05:12] David Hornik
Keep getting back these messages. I’m dead.

[00:05:17] Craig Syverson
Auto response.

[00:05:18] David Hornik
Oh, what’s happening? What’s happening with my loved one who passed away still dead? Really? That’s it? That’s all you got?

[00:05:25] Craig Syverson
Yeah. That reminds me of the guy who created the website where you can go up and sign up for it and all it is is about maintaining your account.

[00:05:32] David Hornik
Just about having an account on that website.

[00:05:34] Craig Syverson
Yeah, it doesn’t do anything but allow you to have a sign up.

[00:05:37] David Hornik
You could change your password. Request your password. Yes, I like it. Yeah, I like it. Well, there was one, there was one of these sites that was about serving subliminal advertisements for the dead. And because it was subliminal advertisement, it was an infinite inventory. You couldn’t just. Oh, right, you know, you’d never run out.

[00:05:53] Craig Syverson
Yeah. Boy, these are really sure fire winners.

[00:05:57] David Hornik
I actually, I missed a board off site for the first day because I had to run this session. And I was at, I flew back that night and got, went to the second day of the board off site and I was sitting with an executive from the company and she said, so what, you know, how’d your session go? And I said, oh, you know, it’s good. And I. Tell me about it. And I described the session and she said, well, was that, was there an educational piece of that or was it just for fun or. And I had to admit it was. Well, no, I think it was just. Yeah, edutainment. Exactly. It was total edutainment. And she said, and you missed our board off site for that? I had to be, I was all apologetic legitimately. I mean, I had committed to do it and they scheduled at that time and I couldn’t back out. And you know. But on the other hand, she was right. It was sort of like.

[00:06:37] Craig Syverson
No, she wasn’t. She doesn’t get it.

[00:06:38] David Hornik
Okay, sorry, that was crazy talk. I felt badly for missing the first day of the off site, though. Well, okay, but it was a wacky day. I mean, I was, I was in San Diego, then I flew to a meeting in la and then I flew back to San Diego and then I did this talk and then I flew back up to the Bay Area and then I drove out to the coast.

[00:06:54] Craig Syverson
And drove out to the coast.

[00:06:55] David Hornik
Drove my Chevy to the levee. The levy was dry.

[00:06:58] Craig Syverson
Did you go to the petting zoo? What’d you go to the coast for.

[00:07:01] David Hornik
This is where the off site was in San Gregorio.

[00:07:05] Craig Syverson
Okay.

[00:07:06] David Hornik
That was one of the petting zoo. Yeah, I was buying something.

[00:07:07] Craig Syverson
There’s a petting zoo out there, though.

[00:07:09] David Hornik
Yeah. They have the ponies.

[00:07:10] Craig Syverson
Well, there’s another one. I’ve never been, but I’ve heard about it on the coast. Whatever. So what’d you go to LA for?

[00:07:16] David Hornik
Just looking at a deal.

[00:07:19] Craig Syverson
Looking at it.

[00:07:20] David Hornik
I was looking at it.

[00:07:21] Craig Syverson
Business.

[00:07:21] David Hornik
Exactly.

[00:07:22] Craig Syverson
You know, business now.

[00:07:23] David Hornik
So, incidentally, this is my job. This venture capital job.

[00:07:26] Craig Syverson
Right.

[00:07:26] David Hornik
Periodically involves looking at deals.

[00:07:29] Craig Syverson
Wow.

[00:07:30] David Hornik
You know what I’m saying?

[00:07:31] Craig Syverson
Where you actually fly to a place and look at it and check it.

[00:07:33] David Hornik
So I met with these guys.

[00:07:34] Craig Syverson
Everyone came to you like they do.

[00:07:36] David Hornik
So they did. They come. I don’t know about bearing gifts, but they come to me, they present, they tell me about their business.

[00:07:40] Craig Syverson
Yeah.

[00:07:41] David Hornik
I said, wow, that’s an interesting business. I like that business. I talk with them some more, and I think, gee, perhaps I should come visit you in your office.

[00:07:48] Craig Syverson
Due diligence.

[00:07:49] David Hornik
Oh, okay.

[00:07:50] Craig Syverson
To make sure they have an office.

[00:07:51] David Hornik
That’d be fine. Yeah. Largely to make sure that there’s the existence proof of an office and therefore company.

[00:07:56] Craig Syverson
Yeah.

[00:07:57] David Hornik
So I went to their office. They actually had allegedly had an office. I mean, there was a guy sitting in an office, and he was the same guy I had met here, but the office didn’t actually have his company name on it. And, you know, so I don’t know that I really got that piece of information. Mm. But that is due diligence right there at his purest and finest. I went up and you know what? I chatted with him.

[00:08:18] Craig Syverson
About what?

[00:08:18] David Hornik
His numbers.

[00:08:20] Craig Syverson
Numbers?

[00:08:21] David Hornik
Yes.

[00:08:21] Craig Syverson
Tell me your numbers.

[00:08:22] David Hornik
I said, so, you know, how’s it going? He said, that’s going, right? I said, yeah. Can you be a little more specific about that? So we looked at the numbers, we looked at the growth of the company. We looked at really. So how many uniques? How many registered users? How many of them are active? How active are they? How many page views per session?

[00:08:43] Craig Syverson
You are. You’re hard.

[00:08:44] David Hornik
How many page views? I’m just digging in, taking notes.

[00:08:49] Craig Syverson
So I learned a new word today for your business. Syndication.

[00:08:53] David Hornik
Yes.

[00:08:54] Craig Syverson
I didn’t know you guys called it that.

[00:08:55] David Hornik
Oh, you didn’t?

[00:08:56] Craig Syverson
No. Syndication is where a group of you invest. And if I’ve noticed things correctly, it seems like there’s more syndication now. In fact, well, wait a minute. I cheat because the Wall Street Journal said so.

[00:09:08] David Hornik
If I’ve noticed correctly, in the venture hidden in The Wall Street Journal.

[00:09:11] Craig Syverson
Well, okay, after falling for two years in a row, the percentage of venture deals with five or more investors rose in 2006 as firms scrambled to back companies poised to go public or be acquired from the Wall Street Journal.

[00:09:23] David Hornik
Okay, so now I got to say this. All right, so I respect the Wall Street Journal and all, but let’s do some very simple math. I think they completely missed causation there in a big way. Nothing got funded in 2000. Right? We had the big crash. There were all these quote unquote syndication deals because there’d been lots of activity in late 1990s and companies got funded. And so August Capital and Benchmark and Sequoia and Kleiner, they all come together and they fund a single company.

[00:09:52] Craig Syverson
Great.

[00:09:53] David Hornik
2000 rolls around the market, bottom falls out of the market. Nobody’s funding anything. So now say, well, there’s no syndication. The reason there was no syndication in 2000, 2001, 2002, was it was really hard to find someone else who would do a deal with you, right? So I ended up doing deals on my own just because I liked the deals and there weren’t people that interested in investing. Okay, now let’s continue forward now. 2003, 2004, starts opening up some interesting technologies. Start. The market gets better. Now companies are getting formed. And now, okay, now there’s the beginnings of syndication where people say, yeah, I guess I have, I have an interest in funding that. And so people start funding deals together a couple of firms at a time. What happened in 2005, ish. Certainly happened in 2006, is that a lot of firms actually said, gee, you know, I’d really rather. I think this is going to be exciting and interesting and I just want to do it by myself. Because if I split it with you, then Instead of owning 30% of the company, I only own 15% of the company. If it’s really successful, I’ll only make half.

[00:10:54] Craig Syverson
Yeah.

[00:10:54] David Hornik
And so, you know, folks like August continued to say, gee, why don’t we continue to split this deal and work together on it? More smart people around the table, all that which I totally believe. In fact, I’ve syndicated well more of the deals that I’ve done than not. But meanwhile, some people were saying, now we don’t want to syndicate or whatever, but that’s just in the initial investment. Then you go and you raise more money, right? So you do these follow on financings, you bring in new investors, those new investors come in, and then if you do another follow on financing, you bring in new investors.

[00:11:23] Craig Syverson
Okay, wait. Well, I think I know your point. They say much of the syndication is occurring in the third or later financing rounds.

[00:11:30] David Hornik
Exactly. Well, there were none in early 2000s, third financing rounds that were happening. Certainly not robust financings where people were saying, oh, we’re all clamoring to get in, and so we’ll pay a high price and we’ll all put a bunch of money in. So I think all this reflects is that companies that started in 2000s and are now robust, big companies that are starting to have revenues and these late stage financings, they’re people clamoring to get into. And so you can have two and three and four new firms coming in on top of the existing investors. And so I don’t think it indicates any more syndication. I think it just indicates that we have more interesting late stage deals that are attracting attention.

[00:12:10] Craig Syverson
Got it.

[00:12:11] David Hornik
That’s my beef with the Wall Street Journal claim.

[00:12:14] Craig Syverson
Come on, who wrote that? No, come on, you didn’t read the whole article. I read you the first thing and you went off. You just went off.

[00:12:21] David Hornik
What do you think? That’s my apologies, Wall Street Journal, but.

[00:12:25] Craig Syverson
I learned something and that’s good to know. But syndication is more about spreading risk than it is about actually needing to get money. I’m assuming that certainly in your part of the business, the amount of money needed is less. Right. This is what everyone’s saying in the web 2.0. They don’t need so much money. So why do you need a vc? Okay. I assume they need a vc. Your motive to syndicate would be more to. You said have more smart people around the table, but is it also to distribute risk?

[00:12:49] David Hornik
Absolutely. No. No question. I mean, and it depends on the circumstance, but it is absolutely the case. Right. If you are the sole investor in a company.

[00:12:57] Craig Syverson
Yeah.

[00:12:57] David Hornik
And the company runs out of money and it can’t raise additional funds from another firm, then everybody looks around the table and says, so, David, you going to give us more money or not give us more money? Right, right. As they say, that’s a lonely, you know, it’s a lonely, lonely place to be. Like, how many, how many millions?

[00:13:14] Craig Syverson
Yeah.

[00:13:15] David Hornik
Now imagine you did the first financing with another firm, you know, so you’re sitting there with the gang from seven Rosen, and you’re sitting at the table and run out of money. And you look across the table and say, so, you know, what do you.

[00:13:27] Craig Syverson
Think we should do?

[00:13:27] David Hornik
Instead of August putting in $4 million, now it’s August puts into seven, Rosen puts in two. Does that feel Like a good use of money, does it feel like it’s a good thing? Is, are the company’s prospects looking good going forward? And it’s just a less daunting thing to continue pushing the company forward despite the fact that it wasn’t able to independently raise external money. Right. So some of it’s that right now.

[00:13:49] Craig Syverson
Does it necessarily mean, I’m sure every deal is different? I think the answer is going to be every deal is different, but you’re.

[00:13:56] David Hornik
Going to ask it anyway.

[00:13:57] Craig Syverson
In terms of the board, how does that work? When you have multiple, it’s not necessarily automatic that a VC gets on the board, Is that correct?

[00:14:04] David Hornik
Well, Craig, every deal is different. It depends on the firm. Truthfully. I mean, we like to be active investors and that means that we get seats on the boards of the companies in which we invest in most instances.

[00:14:21] Craig Syverson
Even when it’s syndicated.

[00:14:22] David Hornik
Absolutely. So that’s also a tricky question, right? Because if you’re raising money from two venture firms and both wants to be active, then now you have two venture investors sitting on your board. And let’s say then you go and raise money from two more venture firms that are also interested in being active, suddenly you have four venture investors on your board. You know, two venture investors on your board is troubling. Four is like, you know, disturbing. Forget about it. You’ll never get anything done. We’ll all be talking, I’ll be making jokes.

[00:14:49] Craig Syverson
Yeah.

[00:14:50] David Hornik
So I think that is a challenge. So early stage investors tend to take board seats and be pretty actively involved. Later stage investors, it depends. Some take board seats, are equally involved in the management of the company. Others say, I’m interested in investing behind folks that I think can do a good job of managing the company. And so here’s $10 million in the company, but we don’t need a board seat. So it really depends on the stage.

[00:15:14] Craig Syverson
Yeah. Deep silences. I think I had a question. Is it easy to add directors to a board? Your company say, oh, I’ll add three more seats.

[00:15:27] David Hornik
So there’s a technical answer and then there’s the not technical answer. The technical answer is that the articles of incorporation of a company establish the size of the board of directors and it also establishes the, the ways in which those members of the board of directors are elected. And so if you have created a large board in anticipation of adding people and a process by which it’s easy to add additional people, it could be quite simple. Like the existing board votes and a majority determined that you should join. And suddenly you went from Four members to five. Now you can imagine that’s not actually the typical circumstances, that when you’re out raising money and investors are getting involved, that there’s a lot of discussion about what is the specific size of the board of directors and how will members of that board of directors be elected, et cetera. And so typically you have a startup and you have a few founders and you bring in some venture investors. And so if you’re bringing in one investor, then you have a couple of founders and you’re not interested in having a big huge board, then maybe you have a couple of founders and an investor and there you go, you have three members of the board bringing in a couple of investors, you got a couple of founders, and typically you say, okay, well we’re going to make a five person board, we’re going to have you two founders, we’re going to have these two venture investors, and then we’re going to find an independent, quote unquote, independent director, and that person will be sort of the tiebreaker. And you know, usually what you do is search for someone who has a great understanding of the particular area that that company works in, IP telephony, or maybe it’s, you know, security or whatever. Find someone that has had a successful career somewhere else and convince them to join the board and they become board member. So there is a lot of this. And the other thing that happens is oftentimes when investors put money into a company, they say, hey, look, one of the things that we get as a protective provision is that we get to vote on the addition of any board members. And protective provision is basically says the majority of a particular class of stock, or maybe you specify 2/3 of a particular class of stock. So a group of investors gets to decide on a particular thing. And this is something that happens in all venture investments. So say I’m investing in the series A preferred stock and I’m one of the investors and they’re a group of us. You say, well, you can’t add any board members without the majority of the series A preferred stockholders voting on it. You can’t sell the company without a majority of the preferred stockholders. You can’t increase the size of the stock option pool. Those sorts of things are typical protective provisions that give the investors more control than they would naturally have under the corporate law, but is part of the bargain when you buy your shares at a particular price.

[00:18:02] Craig Syverson
Any protective measures are assigned to a class of stock or the protective measures are a part of the articles of incorporation.

[00:18:08] David Hornik
Well, it’s assigned to a particular class of stock and then how it’s incorporated into either the articles of incorporation or a set of side agreements among the investors and the stockholders through a set of voting rights that doesn’t really matter. You establish with the company which things you get control of and then you set up some contractual rights that allow you to have control over that particular vote.

[00:18:30] Craig Syverson
Okay.

[00:18:31] David Hornik
Man, was that technical?

[00:18:32] Craig Syverson
It can get complicated, man. You got voting rights, you got preferred stock, you got, hey, no wonder they have lawyers and stuff.

[00:18:39] David Hornik
You know, I want to say one other thing though. This is, you know, I talk with lots of people about how do you establish the board of directors and who’s going to be on the board and how are we going to break the tie and what if we have six people and you can’t break a tie, etc. If and when you get to the point where a company has to go to a vote, it’s trouble. Trouble.

[00:18:57] Craig Syverson
So the reality is that in a well run company, most things aren’t going down to a.

[00:19:02] David Hornik
You’re not voting on things, you’re having conversations and you’re coming to some kind of agreement about what’s the appropriate course that the company will take and maybe have a healthy debate. But ultimately you make a decision and then people agree. So it.

[00:19:13] Craig Syverson
Doesn’t a formal vote have to be taken?

[00:19:15] David Hornik
Yeah. At board meetings you’ll say, you know, I’ll oppose, all in favor and you get a vote. But it’s not about, but it’s never about that vote where you go, oh, no, will it, how will it come down like in Survivor? Who’s going, Is it Rocky? Oh, darn. Rocky has to leave the island or.

[00:19:30] Craig Syverson
You get into a proxy fight.

[00:19:31] David Hornik
Which, by the way, I was so pleased to see Rocky go. That guy was so annoying.

[00:19:35] Craig Syverson
Was he around a lot?

[00:19:36] David Hornik
So annoying. You don’t know the Rocky. You gotta watch Survivor. You know, watch the Survivor. It’s Survivor.

[00:19:41] Craig Syverson
Fiji. What is it?

[00:19:43] David Hornik
Forget it. Forget it. You’re. Do you watch Amazing Race at least? No.

[00:19:48] Craig Syverson
What are you talking, are you talking about television shows? I know, I’m a media, I’m a media pundit, but I don’t have. I’m not involved in television.

[00:19:55] David Hornik
Go watch some television.

[00:19:56] Craig Syverson
I don’t have one.

[00:19:57] David Hornik
Come back. What do you mean you don’t have a television?

[00:19:59] Craig Syverson
I got a screen. I got itunes.

[00:20:02] David Hornik
That’s blasphemous.

[00:20:02] Craig Syverson
What more do you need?

[00:20:03] David Hornik
I’m done with you.

[00:20:04] Craig Syverson
We had a cable TiVo thing for a while. Did use it.

[00:20:09] David Hornik
Can I just Tell you something.

[00:20:10] Craig Syverson
Tell me something.

[00:20:11] David Hornik
I love television. Love it.

[00:20:12] Craig Syverson
I will.

[00:20:13] David Hornik
I live for the television. And you’re here not even knowing what Survivor is. Well, how could I even speak with you?

[00:20:19] Craig Syverson
Well, Survivor Fiji. I thought maybe it was some sort of a new drink or something.

[00:20:23] David Hornik
Forget it. Forget it. Let’s talk about venture capital, since you completely are. You’re culturally illiterate.

[00:20:28] Craig Syverson
Oh, dear, oh, dear.

[00:20:30] David Hornik
Have you noticed, by the way, on Passover, I’m really a lot more Jewish? Have you noticed? I think it’s good. It’s unbelievable. My mother’s laughing because she’s like, he’s the least Jewish person I’ve ever met.

[00:20:40] Craig Syverson
Well, around Samuel Beckett’s birthday, I’m a lot more atheistic. So really, There you go.

[00:20:45] David Hornik
Do you know my son is Beckett?

[00:20:46] Craig Syverson
Yes.

[00:20:47] David Hornik
There you go.

[00:20:49] Craig Syverson
Stock turmoil can’t stop IPOs.

[00:20:52] David Hornik
That’s good.

[00:20:53] Craig Syverson
In the first three months, 48 initial public offerings were priced in the US markets compared to 43 priced during the first quarter 2006. The value of these deals slightly exceeded last year, totaling $9.8 billion versus $9.7 billion.

[00:21:09] David Hornik
So I saw the first indicator that we have a bubble, like the last bubble. Oh, right. So I’ve been saying all along, no, this isn’t a bubble. It’s not a bubble because there’s no public company bubble. Right, right. Because you can’t get a company public if you’re not profitable. And, you know, so I’m reading the paper this weekend, and I see this discussion of profitable versus unprofitable company IPOs and which companies are doing better. And guess what?

[00:21:34] Craig Syverson
The unprofitable ones are doing better on that.

[00:21:36] David Hornik
The unprofitable ones are doing better on a percentage gain in stock price basis.

[00:21:40] Craig Syverson
After the first day or two or something.

[00:21:42] David Hornik
Over time. Over time over from IPO to the time at which they wrote this article, they were measuring these things, and they showed those things that were unprofitable but had a lot of promise. Does that sound familiar? Versus profitable but predictable. Not necessarily slow growth, but predictable growth. And unbelievably, the stock prices that are going up are the ones that are unprofitable but have a lot of promise.

[00:22:05] Craig Syverson
What’s an example? Do you remember.

[00:22:07] David Hornik
Holy cow. I don’t know that I saw specifics. I was just looking at the aggregated data. But that’s amazing.

[00:22:14] Craig Syverson
I’d be curious to see how long those stocks had been public. I know they would be all different in this particular survey, but one week versus six months would make a difference, right?

[00:22:23] David Hornik
Right.

[00:22:24] Craig Syverson
But still, stock price as, you know, no indicator.

[00:22:27] David Hornik
It’s just interesting. So I was sort of stunned actually, because it was the first time where I had to step back and go, ho, publish. Don’t get me wrong. I mean, there may be great companies that have a lot of promise, and even though they’re not profitable, there’s a path by which they get incredibly profitable and incredibly high growth. And therefore that’s really great.

[00:22:45] Craig Syverson
Yeah, that’s like. That sounds like what you said when you had that online debate in the Wall Street Journal. You were decrying the other gentleman’s thing about profit.

[00:22:53] David Hornik
I was.

[00:22:53] Craig Syverson
You were like, oh, that’s so bottom line.

[00:22:56] David Hornik
Oh, no, no, no, no. I was talking about. Those were the profits of. What was he talking about Home Depot or.

[00:23:04] Craig Syverson
He was saying the profits of one. Walmart. Walmart are better than, you know, a lot of these companies combined.

[00:23:10] David Hornik
I know, and I’m not questioning the fact that it’s better to have high growth and therefore it’s not about, you know, like pure. No, he was talking about revenue. I don’t even think he was talking about profit. He was talking about revenue. Massive revenue. But anyway, I digress. My point is that it is smelling a little bubbly when the public markets are willing to accept companies that do not have a clear path to profitability or have a clear path to profitability. Making a whole bunch of assumptions along the way. And I was under the impression that actually the markets were not receptive to public offerings and companies that weren’t cash flow positive and had interesting prospects along those lines. And I’m obviously mistaken.

[00:23:48] Craig Syverson
Wow.

[00:23:49] David Hornik
So I. I’m gonna take all my companies public immediately.

[00:23:51] Craig Syverson
Are you good? This window’s opening up.

[00:23:55] David Hornik
In fact, this LA thing works out. Yep, those numbers look good.

[00:23:58] Craig Syverson
Series A.

[00:23:59] David Hornik
And then I think they’re making like six or seven dollars, I think, you know, but high growth, because like last month they made $1. This month, 6.

[00:24:06] Craig Syverson
That’s 6x6x growth.

[00:24:09] David Hornik
How do you go ahead and in one month, multiply that. Wait a minute, multiply that.

[00:24:15] Craig Syverson
That’s more than 10%.

[00:24:16] David Hornik
That’s what I’m saying. And if you multiply it out, if you compound that over, you know, the foreseeable future, you’ve got one big company right there. That’s what I’m saying.

[00:24:26] Craig Syverson
You know what Einstein thought was one of the most amazing things in the universe?

[00:24:30] David Hornik
The pomegranate.

[00:24:32] Craig Syverson
Close. Compound interest. This is one of the most powerful things in the universe is compound interest.

[00:24:39] David Hornik
You hear? You listening, Pamela? The Compound interest. Not compound shoes.

[00:24:45] Craig Syverson
Not compound shoes.

[00:24:46] David Hornik
No compound interest. Yes, yes. I’m trying to teach that to my children. The power of the compound interest.

[00:24:53] Craig Syverson
Yeah.

[00:24:54] David Hornik
Save a dollar today versus a dollar next week versus. It’s not going so well. It’s hard because you know what? Candy’s delicious.

[00:25:02] Craig Syverson
Yeah.

[00:25:03] David Hornik
So you buy it now and you say, I’ll have another buck tomorrow.

[00:25:07] Craig Syverson
Venture funding in San Jose is up 27%.

[00:25:10] David Hornik
What are you reading?

[00:25:11] Craig Syverson
I’m getting all kinds of. I thought it was. We’re in the Valley. Come on. In San Jose, it’s up what, somehow up 27%.

[00:25:17] David Hornik
You know, Cupertino down 12%. It’s kind of a patchy market.

[00:25:24] Craig Syverson
All right, all right.

[00:25:28] David Hornik
The spot market in San Jose financings. Poor Greg. He does all this work. He’s actually got information.

[00:25:36] Craig Syverson
No, I’m just.

[00:25:37] David Hornik
I just sit here and, you know, smack.

[00:25:41] Craig Syverson
I thought this was interesting. From a good friend at Union Square. Fred.

[00:25:46] David Hornik
Yes. What does. What does Mr. Wilson have to say.

[00:25:48] Craig Syverson
Saying that he invested in Feedburner, not necessarily because they needed his money, just because he thought the connections and the whole. He just thought it was a cool, cool company. I mean, I’m.

[00:25:58] David Hornik
Obviously you’re paraphrasing.

[00:25:59] Craig Syverson
I’m paraphrasing radically. But it was. It was interesting that they first sort of passed on it. Then he thought, this is really great. Dick’s really great. And he asked if he could invest in him. There you go.

[00:26:09] David Hornik
I received an email from Dick. He’s gonna be on show saying something to the effect. I don’t even know if he had. If he even had the. The courage to tell me that Fred had invested in his company or if I had simply read it. But I, you know, I sent him an email. I go, what am I, chopped liver?

[00:26:29] Craig Syverson
Yeah.

[00:26:30] David Hornik
Because you know what? I agree with Fred. I love. I love Dick. I love the team. I love the company. But you can’t cry over spilt milk, Craig. Got to move on with your life. You know what I’m saying?

[00:26:41] Craig Syverson
I’m sorry if I brought up.

[00:26:42] David Hornik
I gotta move on.

[00:26:43] Craig Syverson
I’m sorry if I brought up something that was difficult.

[00:26:45] David Hornik
Hey, so here’s what’s great. This is why I like. Well, first of all, two things are great about this about Feedburner. One, not so great.

[00:26:53] Craig Syverson
Chicago, right?

[00:26:55] David Hornik
Totally believe investing in teams. Great teams of people. Because the truth is that the business changes constantly and you make. Have to turn the boat and all that stuff. You’ve heard me say it like, what, every show, right? So the Feedburner team, the core team. Four guys had worked together before. They worked, you know, and they’re just smart. They can turn the ship and so really great team. So, by the way, that should have been it. I should have invested. Secondly, they’re doing this RSS stuff at a time when RSS was emerging, and it was pretty clear that RSS was going to be a meaningful mover of data and have an impact on the market and have an impact on the ways in which information is shared, etc. It wasn’t clear how, but it was pretty clear that RSS was going to be meaningful and these guys were going to be at the core, at the heart of this RSS and the RSS generation and management, etc. Reason number two, should have been that should have been enough. But there were, like, all these questions. You guys gonna make money? How are you gonna do that stuff like that, you know, money stuff. Although, like, how you gonna make money stuff? And so, you know, I didn’t, I didn’t fund them. They got funded, you know, by some smart forward thinking investors. And the round closed and it was like, oh, darn it, I should have funded you. But I, you know, Dick, whatever. I’ll buy a coffee, come out here. We’ll have. We’ll have a. We’ll have a lunch.

[00:28:14] Craig Syverson
Yeah.

[00:28:15] David Hornik
Then the next thing you know, Fred says, you know what? Yeah, I should have funded them. I didn’t. Darn it, you know, Brad Feld did and he was smart and I should have gotten in there. Hey, Dick, how about you let me fund you anyway? And, you know, he, like, buys them dinner and, and, and sends them flowers. You don’t think they. He sent them flowers.

[00:28:37] Craig Syverson
I don’t about flowers.

[00:28:38] David Hornik
Maybe he bought them dinner.

[00:28:39] Craig Syverson
This is close to graft you’re.

[00:28:41] David Hornik
You’re making. No, no, I’m just saying this is about the wooing.

[00:28:44] Craig Syverson
The wooing.

[00:28:45] David Hornik
This is about the wooing of an entrepreneur.

[00:28:46] Craig Syverson
Is that what you did down in la?

[00:28:47] David Hornik
I was wooing. Wooed. I did. I brought him a croissant. So Fred wooed him, said, I love you. He wrote, you know, nice blog posts about how much he loved you. Got a blog. I’m praising Fred for doing it right.

[00:29:03] Craig Syverson
Okay.

[00:29:04] David Hornik
I know he did the right stuff. And then. And Dick said, okay, I love you too. I’ll take your money.

[00:29:11] Craig Syverson
Mm.

[00:29:11] David Hornik
And it was a mat. The match was made in heaven.

[00:29:14] Craig Syverson
Well, we’ll have Dick on the show. The whole show will be nothing but stroking his ego.

[00:29:19] David Hornik
Too late.

[00:29:19] Craig Syverson
And then we’ll hit him up for you to give him money. Wow. It’s a weird business.

[00:29:26] David Hornik
It’s really not so much about giving the money because, you know, I should get something in exchange.

[00:29:31] Craig Syverson
That’s that deal thing.

[00:29:32] David Hornik
It’s investing. I remember when I, when I had just joined August and I made some comment about, you know, spending. Oh, I spent. I can’t believe. We are. We just spent $10 million, whatever. And the administrative partner here said to me, david, we invest. We don’t. Please, we don’t spend. If you ever say that again, I will have to smack you.

[00:29:49] Craig Syverson
Yes.

[00:29:49] David Hornik
And I at that moment, stuck with me.

[00:29:53] Craig Syverson
Was I reading? I lost the.

[00:29:56] David Hornik
So I just invested in a great company.

[00:29:58] Craig Syverson
You did.

[00:29:58] David Hornik
Can I tell you all about it? Shamelessly.

[00:30:00] Craig Syverson
I would love to hear about it. You haven’t told us this before for.

[00:30:03] David Hornik
It’s true. I just invest in a company called LiveOps.

[00:30:06] Craig Syverson
Okay?

[00:30:07] David Hornik
Live Ops. So all of you out there listening have, you know, have a need for agents to answer phones on your behalf. Say you’re selling the Ginsu knives or some such thing and you’ve been reading my blogs again. I gotta make. Gotta make a living.

[00:30:20] Craig Syverson
I know. I got this Ginzu thing going on.

[00:30:22] David Hornik
Okay, so these guys have created this incredibly great software supported service where they have call center agents all over the country and they sit at their homes with their computers and their phones. And the software for LiveOps manages the process whereby a call comes in from someone who wants to buy the Ginsu knife and boom, it phone someone in Kansas. They pick up the phone and they’re on their computer as the script and they go through the process of, hi, you know, I’m sue and I understand you want to buy a Ginsu knife. That’s really great because they’re really sharp and can you give me your credit card number? And, you know, they close the deal and. And that’s it. And the data gets entered into the system and they answer the phone. Okay, so here’s what I think is so awesome about what these guys have built. It chooses who gets to pick up the phone call based on who’s the person who’s most likely to do a great job of answering that phone call. So I like to think of it as kind of adwords for people, right? You know, about their. The people, you know, what they know, you know, what languages they speak, you know, if they’re a golfer and you’re selling a golf thing, etc. And so it can push it out and say, hey, you great phone agent. You can answer the right sets of questions about this particular product. And so you’ll do a better job of fielding the call, making it happen quickly, selling more stuff, et cetera. And so that’s the business. It’s this great. It’s both the software that allows you to have a distributed call center for your own, your own business or to be the call center for other people’s businesses. So for example, when the hurricane Katrina came crushing through and created this havoc, the Red Cross wanted to create a call center to allow for massive donations on behalf of the victims. And no other call center could do it because no one could create a call center big enough in that kind of time frame. But LiveOps could because they had these thousands of people who they, who could sign up and instantly answer phones. And so they became the back end for this telethon that raised, you know, millions, billions. I don’t even remember how much they raised, but it’s not the point, right? So anyway, I’ve been again big fan of the company. It’s run by a new CEO, a guy named Maynard Webb who was the guy who went to ebay to fix Remember when ebay was having some, a little bit of problems staying up kind of sketchy, which little problematic, right. When you’re a big network trying to sell stuff and suddenly it’s down, that’s not going to go so well. Maynard came in and he was the guy who fixed it. He was given credit for stabilizing the system, scalable Systems became the COO of eBay. It’s just an incredibly solid guy who when you entrust him with an important infrastructure problem, get stuff done. And so anyway that’s my, that’s my advertisement for live groups.

[00:32:55] Craig Syverson
But so do they also sounds like they also have the people as well. They have the software but they also have a network of people.

[00:33:00] David Hornik
They have a network of these people and lots, lots more agents who are interested in or lots more people stay at home moms and people who can’t get out of the house. Those sorts of folks who would love to be agents, they’re signed up and they’re given tests and they have to describe their backgrounds, etc. So you know, your typical call center agent has what, a high school degree maybe? And the LiveOps typical LiveOps agents have a couple of years of college, right? And they stay as agents for years, not weeks. Yoff’s been around a while so yes, absolutely. The company’s been around for a number of years. It’s a, it was a late stage investment which you know, it’s Uncharacteristic for me, but I’ve been in love with this company for a long time and so I’m. I must say I’m very excited.

[00:33:41] Craig Syverson
That’s cool.

[00:33:41] David Hornik
That’s excitement.

[00:33:42] Craig Syverson
Was it syndicated late stage investment?

[00:33:46] David Hornik
See, exactly. See, this is the thing. Everybody’s got to get in. Right. You know, it was, it was a great outcome. They just raised money in the most recent financing from my friend Bill Gurley upstairs at Benchmark. And so Menlo are also investors in the company. So it’s. So let’s. There you go. Syndication.

[00:34:04] Craig Syverson
Great. What series?

[00:34:05] David Hornik
I see. Maybe. I don’t know. This is not. How relevant is that.

[00:34:11] Craig Syverson
I’m worried. I just, I’m just learning. So there was a press release on this, I imagine.

[00:34:19] David Hornik
I don’t know. I’m not in charge of press releases. I’m just in charge of being excited.

[00:34:23] Craig Syverson
Well, you’re good at that. But I’m wondering. I’m figuring out the whole mechanics of how this whole thing works because before we talked at one point where this information isn’t necessarily public because it’s not a publicly traded company. So it doesn’t have to be announced. Right.

[00:34:36] David Hornik
Does not. I think there was a discussion of the benchmark financing. I do not believe that there’ll be any particular discussion of my investment. Just totally fine by me. I’m just happy to be an investor.

[00:34:48] Craig Syverson
Cool. Late stager. There’s a. Yeah.

[00:34:52] David Hornik
How do you like them apples?

[00:34:53] Craig Syverson
There’s another interesting site and I’m trying to find the name of it that I found.

[00:34:57] David Hornik
Well, was it. Oh, it turns out this is what it was. Venture financings in the southern corner of the East Bay, down 12%.

[00:35:05] Craig Syverson
Oh yeah, yeah. Smartass.

[00:35:11] David Hornik
You know, there are a bunch of these resources. So you have ask a VC and then Mark Fletcher has launched this thing called startupping, which I don’t know if.

[00:35:18] Craig Syverson
You’Ve seen it yet.

[00:35:20] David Hornik
So startupping. So Fletcher has been a really successful entrepreneur. He was the founder of onelist which ultimately merged with Egroups and then was bought by Yahoo for hundreds of millions of dollars and became Yahoo Groups. And then he then created Blog Lines which he essentially single handedly created Blog Lines with a set of outsourced developers, et cetera, and sold it to Ask Jeeves. And I’m still a happy Bloglines user and really great company. And Mark’s, you know, he’s a thoughtful entrepreneur and he worries about the things that make ventures more successful or less successful. And so he started this thing called start upping Startup Ing and It’s. And it’s got some message boards and it’s got a bunch of resources. It’s got stories where. Where entrepreneurs can talk about the things they did right and the mistakes they made. Yeah, it’s really. It’s great. It’s a great site. And so it’s. I guess it’s Mark’s public service having. Having done quite well as an entrepreneur, he’s now trying to help other folks do it, so. And then you have Dick Costello, actually, I don’t know if you’ve seen his blog, but he’s got his personal blog called Ask the Wizard.

[00:36:26] Craig Syverson
Yes.

[00:36:27] David Hornik
Guess that makes Dick the wizard.

[00:36:28] Craig Syverson
I guess so.

[00:36:29] David Hornik
And we should ask him.

[00:36:30] Craig Syverson
Another venture site is American Venture Television. It’s a new group that’s getting started doing a video podcast every other day.

[00:36:38] David Hornik
American Venture Television.

[00:36:40] Craig Syverson
Yeah. They’re doing stuff about deals and such. They’re calling the video site Beta. They have a very nice website with a flash interface that, that I’m very impressed with, and I think they’re off to a really good start, and I wish them well, and I check them out regularly.

[00:36:52] David Hornik
Cool. Well, see, now, you see, this is one of the nice things about what’s happening here. Depending on which way you are interested in consuming your media, there are now resources for all of them. Right. So we’ve had some conversations about whether VentureCast should be a video podcast.

[00:37:08] Craig Syverson
Very brief.

[00:37:09] David Hornik
Right. You. You rejected it summarily rejected it largely because you viewed me as grotesque to look at.

[00:37:15] Craig Syverson
Grotesque is a strong word.

[00:37:16] David Hornik
Okay. But I, you know, I think that was the general message I was getting. So we’ve gone all audio all the time because, you know, my voice is so sonorous and beautiful.

[00:37:24] Craig Syverson
Well, yes. So I want people to be distracted by your appearance.

[00:37:30] David Hornik
Listen, you know, the Hunchback of Notre Dame was a hero. That’s all I’m saying. Okay, so. But that, But I digress. So if you want to be jogging or you want to. You’re driving your commute or whatever, you can listen to Venture Cast. If you want to get really quick snippets of information and be able to sift through it really quickly, you can’t use venturecast, you can’t use a video podcast, but you can use blogs, which give you an opportunity to read a whole bunch of stuff quickly, etc. And then there are folks who really, really want to be completely engaged. And those are the folks who are looking for these video podcasts. And so I think it’s great, actually, that there continue to be this expanding set of media options and particularly around the startup world. Because, you know, back when we started Venture Blog, it was. There was nothing. I mean, it was like you could. There were two bad books that you could buy on Amazon.

[00:38:21] Craig Syverson
Yeah.

[00:38:21] David Hornik
And. And now there’s a whole bunch of information that can be consumed a bunch of different ways. So that’s. I think that’s awesome.

[00:38:26] Craig Syverson
And we’ll be back for more consumptive messages next time. I think we’re good.

[00:38:32] David Hornik
Is that like consumption? Like, you know, the illness? Now I have consumption. When your skin turns yellow. All right. By all means, don’t edit that out.

[00:38:44] Craig Syverson
Yeah. Right. Yeah. I also want to thank. I was at the. The Gear Media Tech conference last week. Gave a presentation for three days.

[00:38:50] David Hornik
Cool.

[00:38:51] Craig Syverson
Talking to people about podcasting. Had a number of Venture cast listeners come up to me and say hello. So thanks for that, guys. Appreciate it. Nice percentage of a small crowd, actually listen to us.

[00:39:02] David Hornik
That’s awesome.

[00:39:04] Craig Syverson
And we’ll be back in a couple weeks. I’ll be at nab, so we’re going to have to probably do another Monday thing.

[00:39:09] David Hornik
Oh, are we?

[00:39:10] Craig Syverson
Yeah.

[00:39:10] David Hornik
Well, Monday’s better than our Saturday night.

[00:39:13] Craig Syverson
Yeah.

[00:39:14] David Hornik
That’s just sad.

[00:39:15] Craig Syverson
That is sad.

[00:39:16] David Hornik
I enjoyed it, though. I did. I mean, you know what? I’ll come sit with you and do a podcast on a Saturday night anytime.

[00:39:21] Craig Syverson
You should come to nab. As if you need to go to another convention.

[00:39:25] David Hornik
I know, exactly. I need to. I need to be home for a week.

[00:39:29] Craig Syverson
Just a week. Just a week. During the spring.

[00:39:31] David Hornik
Yeah.

[00:39:32] Craig Syverson
And thanks to Cash Fly for providing the bandwidth for our show. And we’ll be back next time with more fascinating coverage of Cupertino.

[00:39:41] David Hornik
I was gonna say of the venture business in Marin. Up 12%.

[00:39:48] Craig Syverson
Thank you very much.

[00:39:50] David Hornik
See ya. Now, we can’t speak of the equivalence of time and space. They’re not exactly equal, but we can.

[00:40:00] Craig Syverson
Say that they are relative, for they are all bound up together. Just obtuse theory, you say.

[00:40:08] David Hornik
Well, maybe so, but every day there is new concrete evidence to prove it true.

[00:40:13] Craig Syverson
It.