Generated Transcript

[00:00:14] David Hornik
Hello and welcome to VentureCast. I’m David Hornik from August Capital and.

[00:00:20] Howard Hartenbaum
This is Howard Hartenbaum from August Capital.

[00:00:22] David Hornik
That’s right. And it’s just the two of us. Craig. The Craig did the one transition show and then he left us.

[00:00:29] Howard Hartenbaum
But he did leave us some equipment with bad batteries in it. Yes.

[00:00:32] David Hornik
So we started. We just had some genius material. Howard and I started recording venturecast. We had some really awesome thoughts about important stuff and then I looked down to make sure that the levels were appropriate and there were no lights on the levels. Why is that? Because the batteries had gone out.

[00:00:50] Howard Hartenbaum
So all that good stuff, we said, it’s all gone now.

[00:00:52] David Hornik
It’s gone.

[00:00:53] Howard Hartenbaum
So now you have to listen to the bad stuff.

[00:00:55] David Hornik
Yeah. Right. So you might as well turn it off now. But the thing is, Howard, you said to me, oh, should we get new batteries? Like we just. I’ll go get some new batteries. And what did I say to you?

[00:01:04] Howard Hartenbaum
You said, nah, these will be fine.

[00:01:06] David Hornik
These are fine.

[00:01:07] Howard Hartenbaum
So the batteries that used to be in there.

[00:01:10] David Hornik
Ikea. Yeah, there’s our. Therein lies the problem.

[00:01:15] Howard Hartenbaum
Therein lies like, you know, when I think batteries, I think like Duracell King, the copper top. Not Ikea.

[00:01:22] David Hornik
Ikea. Alkaline.

[00:01:24] Howard Hartenbaum
Made in the People’s Republic of China in 1862.

[00:01:27] David Hornik
Yeah, it’s hard. It’s hard for those precious metals.

[00:01:29] Howard Hartenbaum
They’re very nice looking though, actually, aren’t they? They look like rechargeable batteries.

[00:01:32] David Hornik
I thought they were, but they’re not. They’re just crappy IKEA batteries. Well, anyway, so sorry about that. Sorry that you missed out on all that good stuff Now. Now we just have to come up with, you know, mediocre stuff at best.

[00:01:44] Howard Hartenbaum
Now that we’ve run out of topics.

[00:01:46] David Hornik
That’s true. So we should start out. We’re going to start out that we have made a pledge. We have pledged because the last time, the last show, the Return Adventure cast, we felt that we had used the word a few too many times.

[00:01:57] Howard Hartenbaum
And now in this show, we’ve used it once. And that’s.

[00:01:59] David Hornik
That’s it, we’re done. We’re gonna hold ourselves to that. If we, if we say it again, we’re gonna abruptly end the show.

[00:02:06] Howard Hartenbaum
So if I want to end the show, that’s all I gotta do.

[00:02:09] David Hornik
Yeah, you have the pat. You have the secret word.

[00:02:11] Howard Hartenbaum
Like instead of saying, I’ve got to go to the bathroom, I just say that word.

[00:02:14] David Hornik
So you know what? Here’s. I was just having a conversation with some folks. I was in a meeting with a couple of executives from one of my companies, and we were discussing something important, and it was very exciting. We’re having this good conversation. And one of the execs said, excuse me, I really have to go to the bathroom. I’ll be right back. And went to the bathroom, peed. And this started this interesting conversation of people in the meeting, instances where they had had to go to the bathroom and whether they. Whether it was appropriate to interrupt a meeting or whatever. And so I was telling this story of the fact that relatively recently I was being pitched and I had drunk too much water over the course of the day. And like 20 minutes in, I really had to go to the bathroom. And so I pull. I did one of these. Pull out your phone and pretend it’s ringing and say, oh, I’m so sorry. You know, it’s a. It’s family issue. Excuse me, two seconds. And I went out and I went. And I went to pee. And when I came out from the bathroom, one of the entrepreneurs had come out of the conference room to take a phone call. He sees me coming out of the bathroom. So he totally. I was totally nailed that. I’ve been full of it.

[00:03:16] Howard Hartenbaum
Yeah, but you’re always full of it. I guess the bigger question.

[00:03:20] David Hornik
That’s your answer.

[00:03:21] Howard Hartenbaum
No, the bigger thing is, why is it ever wrong to say, hello, excuse me, have to pee? It’s like, it’s just. Why is that not socially acceptable?

[00:03:29] David Hornik
It should be accepted, don’t you think? It’s an indication of bad time management. Like, why hadn’t I peed before the meeting?

[00:03:36] Howard Hartenbaum
Because you didn’t have to go.

[00:03:37] David Hornik
Well, then is my body processing, you know, water that quickly? Then, boom, done.

[00:03:43] Howard Hartenbaum
I was sitting on a plane at the end of the Runway once, and we were sitting there and sitting there, and finally the captain said, will the gentleman who’s in the bathroom please get back in your seat? We can’t take off. And I was thinking to myself, God, when you’ve got to go, you’ve got to go.

[00:04:00] David Hornik
Actually, I don’t know. I was just. Wait. I don’t know how the Venture cast has become the show discussing peeing, but for those of you who watch the Amazing Race, one of my favorite TV shows, the way they edited the last show of this season, suggested that the team that lost the Amazing Race lost because the woman. No, I guess it was the second to last race because one of the women had to pee so badly because she had to eat all the. These weird foods out on the streets in China. And she drank so much water with it in the course of this that she had to stop and pee. And that was the difference between winning and losing. So, Howard, it can make. Make a break you. It can make and break your company.

[00:04:37] Howard Hartenbaum
I hereby rename this to Adventure Pee.

[00:04:40] David Hornik
No, no, we can’t. We can’t have it. Anyway, moving on, what’s our best? We need to. We need to redeem ourselves with, like, our most technical topic. What do we got, Howard? Anything. Anything good. Either venture. Venture capital ish or technical ish.

[00:04:53] Howard Hartenbaum
Well, this topic that keeps going around on the venture side, you know, when venture guys get together, like for a lunch, we’re basically wasting our time because what we’d rather do is spend the time with entrepreneurs.

[00:05:03] David Hornik
Yeah, we should, right?

[00:05:04] Howard Hartenbaum
We have a lunch where somehow we’ve had poor time management. Instead of meeting with entrepreneurs, we’re meeting with other VCs. Sometimes we get in this discussion, is it team, is it idea, or is it market, or is it company? And it’s kind of a interesting topic.

[00:05:21] David Hornik
Yeah, I’ve just had this. So Mike Jung, a buddy of ours from Panorama Capital. This is his.

[00:05:28] Howard Hartenbaum
He used to be on the same floor as I did up in the city.

[00:05:30] David Hornik
Oh, he did.

[00:05:31] Howard Hartenbaum
In 50 California.

[00:05:33] David Hornik
I don’t know what that was. I believe I better turn off the sound on my. On my computer. So that was when Panorama was called something else, right?

[00:05:41] Howard Hartenbaum
Yeah, they were up in the city. And he’s a good guy. And now that David’s turned off so his computer stops singing music to him. I thought it was like the building saying, we’re about to do a fire.

[00:05:54] David Hornik
Drill, please step out. That would end it. That’d be the end of venture cast. And only, you know, five minutes in or something.

[00:06:00] Howard Hartenbaum
No, the end of our second venture cast for the day.

[00:06:02] David Hornik
Ah, exactly.

[00:06:03] Howard Hartenbaum
Anyway, back to Mike Jung.

[00:06:05] David Hornik
Yeah. So anyway, yeah, I’ve just had this conversation where Mike Jung, on a couple of occasions, said to a group of, as you say, VCs, sitting around examining their navels. So what are you? Are you a people investor? Are you an idea investor? Or are you a business investor? So what is it, Howard? Which are you?

[00:06:22] Howard Hartenbaum
So I have this. Before I answer that question, I’ll answer the question that I want to ask.

[00:06:26] David Hornik
Okay, sorry, my bad.

[00:06:28] Howard Hartenbaum
Which is very related to this, which is I tried to make a list of what are the hundred or hundred top things you look for when you’re making an investment. And you write down teams and background and track record and experience and down growing market and you write down defensible technology and IP and know how. And you go down and down and down. You know, company already has customers, the technology works, the demo is good. You go further and further down the list. And then you take that list to any pitch that you have where you funded the company and you say to yourself, wow, I only answered eight.

[00:07:03] David Hornik
You may only got check marks. Yes to eight of these.

[00:07:06] Howard Hartenbaum
Yes to eight out of the hundred. And so that’s basically our job, is to try and make sure the company has at least eight. And usually, in my opinion, team is the most important part.

[00:07:17] David Hornik
So you’re a team investor.

[00:07:19] Howard Hartenbaum
I am. Because I think really great people can make gold out of shit and really bad people can make shit out of gold. And so I would go for the team.

[00:07:28] David Hornik
All right. I mean, curiously, we agree.

[00:07:32] Howard Hartenbaum
Imagine that.

[00:07:34] David Hornik
I totally agree. So my view is like, how often do you invest in a company and then it’s successful eight years down the road? And what they do eight years from now is what they pitched you on, here’s what we’re gonna do, and here’s our plan. And then they actually do those sets of things and it works and it makes a bunch of money.

[00:07:52] Howard Hartenbaum
With absolutely no change to the business plan. I would say the probability is less than 5%.

[00:07:57] David Hornik
Yeah, it’s like it approaches zero.

[00:08:00] Howard Hartenbaum
And so at eight years, companies usually don’t exist anymore.

[00:08:03] David Hornik
Well, that’s a whole other question. But these. I said successful.

[00:08:05] Howard Hartenbaum
Well, somebody’s fought them and then killed them.

[00:08:07] David Hornik
That’s possible.

[00:08:08] Howard Hartenbaum
It’s a whole other problem.

[00:08:09] David Hornik
So if that’s the case, if these companies change, you know, necessarily change, then betting on the. The idea or more importantly, the business, that’s sort of silly, right? It’s like I’m going to bet on something that I’m 95% sure will not exist by the time this company matters one way or the other. So I’m with you. So I agree. We should. It’s definitely now.

[00:08:31] Howard Hartenbaum
There are occasions where you see this really wonderful team and they come to you with an idea that just doesn’t make sense to you. And the question usually say back to them is, what other ideas do you have? Because you guys are great, but that idea seems odd to me. And sometimes they say, no, you just don’t get it. And they’re right. And sometimes they say, well, we have another idea and that’s actually a better idea, and they pursue that. So in the end, it is team, but the team has to make the decision which path to follow. And I’m A firm believer that sometimes some companies get into trouble because they misperceive that the investors have given them money because they love their idea and they pursue an idea which they’re a great team, but they pursue not the perfect idea, and they don’t deviate from it because they think that it’s been validated by investment. And we have to be careful with entrepreneurs that if they see other things, they shouldn’t hesitate to say, well, we want to turn the direction of the company. We want to try something different. Because if something’s not working, spending money on it and spending your time on it just because you raised the money for that would be a waste of time.

[00:09:34] David Hornik
No, it’s. I mean, the truth is that everything, everything we’re investing in gets better with iteration, right? So if you’re not iterating, if you’re not a b testing everything you’re doing, then you’re missing out on something. And you might, yeah, you may be a genius and you may have just. You may have nailed it in the first instance, but even in that instance, you don’t know it until you’ve tested a bunch of other things and go, yeah, I was right. So I’m with you. I mean, look at, we invested in videog when videog was this service to allow third parties to upload videos to things like social networks and dating sites and those sorts of things. Really great technology to allow you to do the upload and edit and that sort of thing. But over time, it became quite clear that the real value wasn’t in that upload process and management process. The real value was in figuring out how to monetize those experiences. And the team got a lot of great information about how to monetize in the context of their earlier business. But they shifted models to become this rich media ad network where they could then say, okay, we know how to use video as an enticement to look at an ad, and we know how to create these rich media experiences. But they don’t have to live in our own videos. They can live in someone else’s video, or they can live on a webpage, or they can live in an IM chat or whatever. And that’s proved to be a great turn. They’ve moved the business into what is a fantastic business and growing. And so if they continued down the path, YouTube would have won a bunch of video, the big companies would have had their own video upload, and we would have been relatively unprofitable and eventually dying company. So I’m glad that I Bet on smart people in that instance to figure out, hey, this isn’t the thing that’s the biggest value to us, and let’s go build that.

[00:11:22] Howard Hartenbaum
Oftentimes we meet entrepreneurs and they present some idea. And after they walk out, we talk about the team, we talk about the ideas. And there’s been many cases where we funded teams where we didn’t particularly. We weren’t convinced that the idea had all the legs it needed. But I can’t think of any case where we funded a team that we didn’t like the team. And it was the greatest idea we ever heard.

[00:11:46] David Hornik
Yeah, I can’t think of, except I’m.

[00:11:48] Howard Hartenbaum
Sure there’s some that have been very successful regardless. But luckily we didn’t.

[00:11:52] David Hornik
We didn’t. We didn’t hear right. We didn’t say no to them because.

[00:11:56] Howard Hartenbaum
We would have if we only had the chance.

[00:11:58] David Hornik
That would have been a shame. That would have been a shame. But. Well, I’m reminded of a conversation I had. So I. When I was an attorney back in my, you know, attorney days, I represented this great company called wen.com. it was the first online calendar company. And the company was built.

[00:12:14] Howard Hartenbaum
And if you’re shopping for a house, Joe Bennonotto, who is a co founder, his house is up for sale.

[00:12:19] David Hornik
Thank you.

[00:12:19] Howard Hartenbaum
It’s on Springer. It’s a beautiful house. So if you want a really nice house from somebody who founded wen.com youm can buy Joe’s house.

[00:12:25] David Hornik
You can have some part of that history. I didn’t know that we were gonna become like a real estate pimping real estate section.

[00:12:33] Howard Hartenbaum
I like Joe. And if he’s trying to sell his house, he just put on the market two weeks ago. Maybe somebody will take a look.

[00:12:38] David Hornik
All right, so 102 North Springer. And so Joe’s another MIT guy, right?

[00:12:43] Howard Hartenbaum
He was. He’s behind me at MIT.

[00:12:45] David Hornik
You are fellow MIT geeks. That’s very nice.

[00:12:50] Howard Hartenbaum
I have a good story about Joe.

[00:12:53] David Hornik
Okay, good.

[00:12:53] Howard Hartenbaum
Let’s see. I remember once Joe locked his keys in his car with the engine still running.

[00:12:59] David Hornik
But did he come up with some ingenious way to.

[00:13:01] Howard Hartenbaum
I don’t remember. That’s. That’s the only part I remember. I remember.

[00:13:03] David Hornik
That’s the story. This is a good story you have about Joe.

[00:13:06] Howard Hartenbaum
I just.

[00:13:07] David Hornik
Is that he locked his keys in the car with it still running.

[00:13:09] Howard Hartenbaum
How do you do that?

[00:13:12] David Hornik
That’s a good question. It must have been an old car because the old cars, you actually could lock it and then close it.

[00:13:16] Howard Hartenbaum
Didn’t have one of those key fobs. It was a long time ago. I’m sure that was embarrassing.

[00:13:21] David Hornik
We don’t mean to diminish Joe. Joe’s a great entrepreneur. He’s gone on to form a number of companies. Presto is the most recent, which is this sort of fax and email service that allows you to sort of message with your elderly family members, etc. But the guys who I was gonna talk about are some of his co founders, a guy named, you know someone.

[00:13:47] Howard Hartenbaum
Ted Barnett.

[00:13:48] David Hornik
That’s who I was gonna talk about. Tony Espinosa and Ted Barnett.

[00:13:51] Howard Hartenbaum
I’m an investor in their company.

[00:13:52] David Hornik
Oh. So this is what I want to get at. Ted and Tony were looking at coming up with some new interesting thing to do.

[00:13:58] Howard Hartenbaum
Super secret dot com.

[00:13:59] David Hornik
Wait, I’ll get there.

[00:14:01] Howard Hartenbaum
Howard, I gotta promote them.

[00:14:02] David Hornik
I’m gonna let you promote him. But wait a second.

[00:14:04] Howard Hartenbaum
This is the David Hornik show. I will now shut up.

[00:14:09] David Hornik
There’s a certain cadence to my story here, and you’re just messing with it. Are you done? I’ll let you do your thing.

[00:14:16] Howard Hartenbaum
No, no, please, go ahead.

[00:14:19] David Hornik
All right, so Tony. So Tony and Ted come in to pitch their business. And at the time, they were thinking a bunch of different ideas. And one of them was this thinking about something in the health information space. And they came in and they pitched us on this idea. And I was like, well, I don’t know about the idea, but I’m a big fan of the team. And I started talking, talked about how much I thought the world of these guys, but we never ended up investing any money. And they sort of rethought whether it was the right idea. Well, in the course of rethinking whether it was the right idea, they turned to us to an incredibly different idea, which is this idea of social network games for the preteens. And they created a company called Super Secret. The only problem is they didn’t come back and tell me about Super Secret so I could say, oh, I like that idea and I like the team. And let’s, you know, here, put some money in. Because apparently, Howard Yu put money in. So was it the seed round, or did they just do one round? What happened?

[00:15:11] Howard Hartenbaum
No, it was. They had some angels. And when I was at Draper Richards before, we participated in that financing. And the only problem with the company was it used to be called Jam Jam World. Jam Jam World. But then they came up with Super Secret. That’s a more interesting name.

[00:15:28] David Hornik
And it’s still Super Secret. So now they’re in, I think they.

[00:15:31] Howard Hartenbaum
Couldn’T get Jam Jam as a domain name so they had to change their name.

[00:15:34] David Hornik
That’s good.

[00:15:34] Howard Hartenbaum
But Super Secrets, a better name.

[00:15:36] David Hornik
I always thought Super Secret was like their stealth name and that when they came out of Stealth it was something else. People just liked it, which is good. It is a great name and you know, it’s basically spellable and it’s a little long. But you know, all the short names are gone. You can’t, you can’t have a short name to a company now without buying it, which is sort of ridiculous.

[00:15:58] Howard Hartenbaum
Sony. That’s a short name.

[00:16:00] David Hornik
Well, they own Sony.com. i’m just saying. But you can’t even make up. You can’t even make up a fictitious name like Schmlh, which would be hard to spell, but at least you could arguably buy it. But I think that every four letter combination is gone.

[00:16:14] Howard Hartenbaum
The last four letters of your name are. Nick.

[00:16:20] David Hornik
No, wait a second.

[00:16:21] Howard Hartenbaum
Yeah, well, you know how names sometimes people like to drop. People like to drop letters out of words. Once you just drop the first two. Two letters who don’t have any clue what the word actually is.

[00:16:30] David Hornik
Hornick. I think Hornik, before we got to Ellis island was probably something longer like Hornikovich or Hornicky or whatever. But so believe it or not, Hornick is the short version. I feel good. You know, James, James Horn, who is also in the venture business, he got the better, he got the better truncation. He just became Horn. We stayed. Hornic.

[00:16:52] Howard Hartenbaum
Could be worse.

[00:16:54] David Hornik
I don’t know. What is Hartenbaum? What do you think is worse? Hornick or Hartenbaum?

[00:16:58] Howard Hartenbaum
I know Hartenbaum’s a long name, but.

[00:17:02] David Hornik
At least it has something to do with a tree. What’s Harton?

[00:17:08] Howard Hartenbaum
It could be hard. Or Hart. I don’t really know.

[00:17:11] David Hornik
Hard Tree or Hartree.

[00:17:12] Howard Hartenbaum
Even though actually I go to Germany now quarterly for a board meeting and maybe I’ll ask some of those guys who actually speak German.

[00:17:19] David Hornik
Yeah, exactly. Now that you’re in Munich, what are you doing investing in a company in Munich?

[00:17:24] Howard Hartenbaum
I like beer.

[00:17:26] David Hornik
That’s the answer.

[00:17:27] Howard Hartenbaum
Oh, wait. Good team.

[00:17:29] David Hornik
Oh, yes, exactly. Well, hey now, this is an interesting thing, right? I mean, we love Swoopo, but it was incredibly interesting business.

[00:17:37] Howard Hartenbaum
But it was far away.

[00:17:38] David Hornik
But it was far away. And there’s no way we would have funded it if we didn’t like the team. So even though I think in this instance it sort of, you know, it was an. It was an interesting business until we had time to spend time with the team. And in fact, you flew out and spent time. You and one of our partners flew to Germany to spend time with the team. Not because there was a particular thing we needed to know, but just to get a sense of what the team was like and whether we liked them. And presumably you guys came back thinking that they were okay.

[00:18:08] Howard Hartenbaum
I would say better than okay.

[00:18:10] David Hornik
Oh, good. That’s a relief. I heard a funny story, by the way. Howard. So he’s looking at me like, what’s.

[00:18:19] Howard Hartenbaum
Gonna happen to me now?

[00:18:20] David Hornik
What is the story?

[00:18:20] Howard Hartenbaum
No, I didn’t mean to pick on Joe Benninato before. He’s really a great guy.

[00:18:24] David Hornik
Joe’s a great entrepreneur. No one was picking on him just because he locked his keys in his car.

[00:18:28] Howard Hartenbaum
Well, you know, with the engine running.

[00:18:29] David Hornik
Well, he’s kind of a dumbass. But. But in that one instance, you’re not. You weren’t saying. You weren’t saying. That implied that that was true of everything Joe does.

[00:18:38] Howard Hartenbaum
No, no, I’m just saying when I. When I. Every now and then, when I think of Joe, I just remember that happen. And I think it’s kind of an awkward situation to happen.

[00:18:47] David Hornik
So I gotta tell you, you know, we had a babysitter. We had a babysitter who. It was probably a good indication that she shouldn’t be our babysitter anymore. When she came with her own child to our house and locked her child and keys in the car, I was like, okay, this is not good. It was not a burning hot day. So did you hire her? No, she already was my baby. That’s what I’m saying. Like this, you know, things have gone poorly when this is the experience that.

[00:19:14] Howard Hartenbaum
Comes, you know, So I interrupted you. You had the story for me.

[00:19:16] David Hornik
Oh, I don’t remember. Oh, yes, yes. So I was at. Oh, I was at this great dinner. So Tim O’Reilly and John Battelle have this dinner, this kind of pre. Web 2.0 conference dinner. We gather a bunch of people and talk about what’s coming up for the conference in the fall. And then people have thoughts about other great speakers, et cetera, and they have an incredible lineup. So now I’ll pitch the Web 2.0 conference, which I’ve always enjoyed, but they have a great lineup of people who are either directly involved in the consumer web business, but also folks like imhlt and others who are clearly relevant to how we think about the web. Or maybe it’s not the web. Yeah, it’s this connected world business. Anyway, while I was there, I was Chatting about Swoopo. And I was chatting with someone and Mike Marquez was there, whatever. But I started talking with this guy, Sam Pullara. And Sam Pullara is the chief technologist at Yahoo. Great guy, smart guy. And we were talking about various things, and somehow we started talking about Swoopo. And Sam said, oh, I love Swoopo. I was obsessed with Swoopo for a period of time because you see so few businesses that have a new business model that’s different and interesting. So he said, for a while there, I was telling everybody about it. Oh, Swoopo this, Swoopo that. And I said, oh, that’s really interesting. And I said, well, you know, the way, the way that Howard heard about it was through a similar conversation with Mike Marquez. And Sam said, well, I told Marques about it. He said, I was the one who told Marquez, like, you got to check out this business. So now, you know, like, it’s, I owe breakfast, we owe sample, or at least a breakfast. And it would be, as you know, it would be more useful than us sitting around talking with other VCs. You could actually talk with someone who builds cool stuff. I thought that was.

[00:21:05] Howard Hartenbaum
I would like to meet him.

[00:21:06] David Hornik
Oh, you don’t know him?

[00:21:07] Howard Hartenbaum
No.

[00:21:07] David Hornik
All right, well, you should meet him. He’s a good, good guy.

[00:21:09] Howard Hartenbaum
Wow. Venturecast is useful.

[00:21:10] David Hornik
Exactly.

[00:21:11] Howard Hartenbaum
I can meet people.

[00:21:13] David Hornik
Well, I’ll be sure to make that intro for you, Howard.

[00:21:17] Howard Hartenbaum
So another thing we were talking about recently was syndication or co investing with other companies. And you just did stumbleupon.

[00:21:26] David Hornik
Yep.

[00:21:27] Howard Hartenbaum
And co invested alongside with Accel.

[00:21:30] David Hornik
Yep.

[00:21:30] Howard Hartenbaum
And you’re in the process of another investment right now where your Ojai was a co investment with somebody else.

[00:21:36] David Hornik
Yep. Rustic Canyon.

[00:21:37] Howard Hartenbaum
And you’re in, you’re in the process of another investment right now where you’re working with another venture firm. And I just thought it might. People might want to hear about syndication versus non syndication.

[00:21:46] David Hornik
Yeah, I mean, look, I think our view. And we’re often asked this by entrepreneurs, right. They come in and then they’re talking about the deal and they say, so how do you guys feel about syndicating? And. And usually that question is asked because they prefer it, right? Oh, I’d love to get a couple firms in, but there are some firms, there’s some notorious firms that have, as we say in the business, sharp elbows and they really, once they like a deal, you know, you could forget it. You’re not gonna. You’re not gonna share the deal. I mean, I had, I had two instances with one of these Notorious firms where I said, let’s just share. Let’s just share the financing. We’ll split it, and we’ll. Whatever. And in both instances, they said, no. And in one of those instances, the entrepreneur said, well, fine, then August should just do the whole thing. In another instance, they said, well, all right, fine. You guys can do the whole thing. But I do believe it’s suboptimal. Right. I mean, I just think that at the end of the day, if you can have more smart people with more resources and connections and big funds sitting behind them, that, as a general matter, is pretty useful to the company. And I’m sure you’ve seen this. I mean, I’m sure you’ve seen instances where it’s helpful, right. Where. Because you guys invested early when you were Draper Richards, and we always looked.

[00:22:57] Howard Hartenbaum
For syndication partners if we could find them. And the reality is, as optimistic as we all are with every new investment, not all of them go smoothly right from the start. And if things aren’t going completely smoothly, you’re better off to have more people helping out, bigger networks, more money. When it’s time for financing, everybody holds hands and works on it together. When there’s one guy and you just have one investor and the market is tough and things aren’t coming along, sometimes it’s a little bit harder to get them to keep moving you forward.

[00:23:27] David Hornik
Well, and we’re seeing when the economy gets tough and it’s tough to raise new money. And the companies. We saw a lot of inside rounds the past quarter. I think we’ll see a lot through this entire year.

[00:23:39] Howard Hartenbaum
And the more funds around the table you have, the easier it is to do an inside round, because each firm doesn’t have to put in nearly as much money. And if you have only one investor and you need to do an inside round, there’s a chance that investor might say, you know, it’s just too much money for us, or if you have to do it twice, then it’s too much money. So I’m a big proponent of doing syndication. And you do have to deal with two VCs.

[00:24:04] David Hornik
Yeah, right. Yeah, exactly. That is the downside. The downside is now you have two VCs. And, you know, frankly, the fact that I have to be in the room with you is daunting enough.

[00:24:14] Howard Hartenbaum
Yeah, likewise.

[00:24:15] David Hornik
Yeah. So, I mean, I don’t know. It’s all right. So it’s not without its. Without its challenges. But I agree. I mean, imagine that the case where a company needs to do an inside round and to get to Cash Flow Positive or whatever. It’ll take six or eight million dollars, which is not a huge amount of money. But if you’re the only firm sitting.

[00:24:30] Howard Hartenbaum
There and you already put 6 million.

[00:24:31] David Hornik
In, so you say, okay, I’m going to put eight more million dollars in, that’s pretty challenging. But imagine you’re raising $8 million, and there are three firms that have been invested so far, and so everybody’s putting in a little over two and a half million bucks to get the company to where it needs to go. That’s a much easier check to write. It’s a much. And you have the comfort of a bunch of other people going, yeah, let’s, you know, we believe in this business. Let’s drive it forward. It can, as they say, it can be awfully lonely when you’re writing the check alone because, you know, it’s a question.

[00:25:00] Howard Hartenbaum
Is that like, it’s lonely to go on a date all by yourself?

[00:25:03] David Hornik
Well, that’s very. I wouldn’t know. Howard. Do you. I mean, you went to mit. One is the loneliest number. See, I do have to sing every now and again.

[00:25:16] Howard Hartenbaum
You sang the Love Boat last year. I like that.

[00:25:20] David Hornik
And if you’re nice, I might sing it again. Just not this time, not today. The other thing about syndication that I saw, that I saw this in 2000, so let’s say 2000 to 2004, is that when it’s a tough time and people aren’t really interested in putting money to work, it’s hard to find syndication partners. Right. There are a relatively small number of investors who are actively investing right now. And so you have to find the right set of people. And there’s some deals where there’s lots of energy and excitement and things get done, but oftentimes in August, we see a deal that we love. We understand, you know, hey, this is an exciting deal. And we get it and introduce it to a bunch of our friends in the venture business. And they say, well, that might be interesting, but it’s hugely risky or whatever, and then we have to decide, all right, we’re going to go it alone or not. And in those instances where we are excited and we say, we’ll give you a term sheet and we’ll find a syndicate partner. If we don’t, then we’ll fund them, but it’s just an interesting time.

[00:26:11] Howard Hartenbaum
That’s an important point, which is, generally, if we like the business, we’re happy to do it without a syndicate partner. But we think it’s a benefit if we can Find the right partner, and the entrepreneurs like that partner as well. But if we don’t, and we like the business enough to do it with a syndicate partner, we generally like it to do it by ourselves. There are sometimes, some firms will say, we will only do it with a syndicate partner. And that may just be because the company needs $15 million and their fund isn’t large enough to do that whole deal themselves.

[00:26:42] David Hornik
That’s challenging, right? I mean, I don’t think, I think we do have to look at how much money it takes to build a company, but I think you have to be focused on, okay, is this an interesting opportunity? Is it an interesting team? Do we feel like there’s something. There’s something to be done here? And I think we’ve in it from 2000 to 2004, we invested in a bunch of interesting companies that I think will prove to be really successful in the long run. Where we had to. Where we, we were, you know, we were the lonely investors. Right. I remember funding my very first venture investment was in a company called PayCycle, this small business payroll company. And there was. They talked to lots of people. But, you know, I just believe that this was an interesting business and a great team. And we had to put in a bunch of money. I forget six or eight million dollars in the first instance because there wasn’t another, another partner out there. And yet now it’s a big business and there are lots of people doing payroll on the service. And, you know, so there are. Sometimes you just have to step up to ideas that you think are worth, worth funding.

[00:27:40] Howard Hartenbaum
Yes, you do.

[00:27:42] David Hornik
There you go. There you go.

[00:27:44] Howard Hartenbaum
Am I being agreeable enough for you today?

[00:27:46] David Hornik
You are. You’re very agreeable, Howard. All right, what else, what else have we got? What else we got?

[00:27:52] Howard Hartenbaum
So we saw on the news about the new Palm Pre coming out.

[00:27:55] David Hornik
Oh, yes. What do you carry? What’s your phone?

[00:27:59] Howard Hartenbaum
I carry a second generation iPhone 3G.

[00:28:03] David Hornik
You got the iPhone 3G. Did you wait until it was 3G? Or do you have the first generation?

[00:28:08] Howard Hartenbaum
I did. I waited. I am generally not an early adopter type of person. If a new car comes out, I wait till the second model year because I want them to work the bugs out of it.

[00:28:17] David Hornik
So you’re not, you’re not buying a Tesla. I mean, talk about the double whammy. It’s the first generation and it’s an electric car that has all sorts of other interesting challenges.

[00:28:25] Howard Hartenbaum
I saw one on the road yesterday, very quiet when it drove by me. Yeah, I’m walking My dog. All of a sudden.

[00:28:34] David Hornik
It’S dangerous. I mean, I actually think they have to start thinking about how I think that. I think you should have, like ringtones for your car where your car makes noise, that the noise of your choosing.

[00:28:43] Howard Hartenbaum
It has a little radar. And anytime you get near a person that’s moving, it makes a little singing sound or ticking sound or whatever.

[00:28:49] David Hornik
They’re cool. And they have the S. The sedan is now in the showroom on El Camino.

[00:28:55] Howard Hartenbaum
I drove by, but I assume it’s not. Is it just a clay model or is it.

[00:28:58] David Hornik
No, it’s a real car. Well, I don’t know. I haven’t been in. My son Noah is a car fanatic now, so he keeps wanting me to go in, but he said, oh, it’s too big. I can’t believe how big it is. No, it’s a sedan. What did you think it was gonna be? I think the problem is the perspective of it being surrounded by a bunch of little roadsters.

[00:29:16] Howard Hartenbaum
Well, now that Mercedes has given them some money, maybe I’ll give them my deposit on the sedan. I was thinking about $5,000.

[00:29:25] David Hornik
5,000 bucks.

[00:29:27] Howard Hartenbaum
But I really don’t want one of the first hundred cars.

[00:29:30] David Hornik
Well, you’re in luck because I think they have 500 deposits already.

[00:29:33] Howard Hartenbaum
I want to make sure you’ll get.

[00:29:34] David Hornik
Like a 500 second.

[00:29:36] Howard Hartenbaum
But anyway, back to the Palm Pre versus Apple. So not being an early adopter, but I like. I used to be an ergonomics engineer for Honda in the car business.

[00:29:45] David Hornik
Cool.

[00:29:46] Howard Hartenbaum
And I like.

[00:29:46] David Hornik
So what did you do? What does that involve exactly?

[00:29:49] Howard Hartenbaum
It was the greatest job on the planet Earth. I was.

[00:29:53] David Hornik
What are you doing here?

[00:29:54] Howard Hartenbaum
I was. This is the second greatest job. So this. I was like 23, 24 years old, and I wore a white jumpsuit that had no pockets. So you couldn’t stand around with your hands and in your pockets. And my job was.

[00:30:07] David Hornik
And was that the reason there were no pockets? Yep.

[00:30:09] Howard Hartenbaum
So you couldn’t stand around with your hands in your pockets so that you would work. They had back pockets. So it was funny. We had a meeting. Everybody would stand around with their hands in their back pockets. So I wore this white jumpsuit. And my job was to test drive prototype cars. So.

[00:30:27] David Hornik
You’re kidding me.

[00:30:27] Howard Hartenbaum
That was my job. And I lived in Japan for two years at Honda’s research and development facility. And I worked on the NSX team and on the Civic coupe team. And these are both cars that had not been seen on any streets. They were hand built, they were Prototype cars. And I was on the team where we had to do ride noise, we had to do seat comfort, we had to do wind noise, windshield wiper choppiness, getting in and out of the car. If the car is muddy, do you get any mud on your clothes, how do the windows seal, how do the switches interfere with your knees, all these types of stuff. And so my job was to basically take an NSX out on a test track where there were no police and drive it. And I drove that car 160 miles an hour. We went and we got all we rented or bought the competitive cars, Porsches and Ferraris, and we took them out on the test track and we drove around and we were young and it was fun. That was my job. So like my friends, that’s my job. They were like behind computers, like typing. And I got to go to Suzuka circuit for one week driving course on the racetrack. So the theory was if you had to have a lot of experience driving, so if you had a problem in one of the prototype cars, which cost a couple million dollars to build by hand, you don’t crash. Because if you crash a prototype car, you put the whole process back for about six months. And that was my job.

[00:31:51] David Hornik
That’s awesome. That’s better than my first job, which was of course being a litigator.

[00:31:58] Howard Hartenbaum
You were squishing bugs and I was squishing them on the windshield.

[00:32:01] David Hornik
Yeah, I would crush you like a bug if you paid me a lot of money for my sleepless nights.

[00:32:07] Howard Hartenbaum
So the Apple iPhone is to me is a Honda. It is a beautifully designed product. It is easy to use, it is intuitive, it is a generation forward. I just love it. And as much as I used to be a BlackBerry and Windows computer user, I now have an imac on my desk and I have an iPhone and I think there is zero chance I will buy a Palm.

[00:32:33] David Hornik
You just sounded like the biggest Apple fanboy ever.

[00:32:37] Howard Hartenbaum
Fanboy, I am. There’s not many things I like, you know.

[00:32:40] David Hornik
So you, you were able to get rid of a keyboard and not have a problem with that. How often do you email anyone from your phone?

[00:32:47] Howard Hartenbaum
So I found the Black Bear. I email every day probably 20, 30 times using my iPhone. I just make the email shorter because it isn’t as convenient to type. But I just make them 8 word emails or 12 word emails instead of. It used to be 50 word emails.

[00:33:02] David Hornik
So you view this as an efficiency device. It’s basically forced you to be more efficient.

[00:33:06] Howard Hartenbaum
It’s great.

[00:33:07] David Hornik
What about when you’re driving 90 miles an hour or whatever you’re driving.

[00:33:10] Howard Hartenbaum
I can type with my thumb.

[00:33:11] David Hornik
Can you type while you’re driving? With my thumb while looking at the road or do you have to look at your.

[00:33:16] Howard Hartenbaum
It’s actually easier on the iPhone because you can type with your thumb. And on the, on the BlackBerry I was used to using two thumbs.

[00:33:22] David Hornik
You can’t. So I have, in one pocket I have an iPhone. So I don’t mean to rip on the iPhone. I like the iPhone as a media device. But in my other pocket I have a trio which, you know, I view the trio, BlackBerry, whatever, you know, something with a keyboard. And so I do think it’s an interesting question.

[00:33:39] Howard Hartenbaum
Like I only want one device. It’s simpler.

[00:33:42] David Hornik
So do I. I would love to have just one device. It’s just that I, I can’t type on the iPhone. I think as I like as you.

[00:33:48] Howard Hartenbaum
See the shape of your thumb.

[00:33:51] David Hornik
Let me see your thumb. Your thumb’s just as. Your thumb’s bigger than my thumb.

[00:33:54] Howard Hartenbaum
Mine’s got a point on the end.

[00:33:55] David Hornik
Oh, well, there you go. You’ve got a built in pointer. I don’t, I mean, I’m looking forward to seeing the pre. I don’t see myself buying it necessarily, but it has the capacity to solve the problem by having a keyboard but being a good media device, which is not. But you know, on the other hand, the new iPhone comes out soon. I don’t think it’ll have a keyboard, but. Mr. I don’t like first generation. You’re gonna wait or are you gonna buy the new iPhone?

[00:34:19] Howard Hartenbaum
I’ll probably wait six months.

[00:34:21] David Hornik
Six months. You’re a patient man.

[00:34:23] Howard Hartenbaum
Yeah, but the one I have already works.

[00:34:25] David Hornik
I know, but it won’t be nearly as cool as the new one that I’m gonna stand online to get. And I could buy you one while I’m there.

[00:34:32] Howard Hartenbaum
If you pay for it, I’ll take it.

[00:34:34] David Hornik
No, you’ll pay for it. But I’m just saying, I mean, I.

[00:34:38] Howard Hartenbaum
Like seeing new stuff that’s coming out and there’s a lot of excitement around the palm pre coming out. I just being an Apple user and I have completely switched over. I’m dedicated.

[00:34:47] David Hornik
I don’t know if you can hear this, but we’ve got like, we’ve got Mr. We got Mr. Weed Whacker sitting outside the office. So now you got our droning on. Plus it’s pretty annoying, frankly. I hope you can’t hear it. Maybe only I can hear it. It’s unbelievable actually how much you have to Worry about the acoustics when you’re sitting. Like today, Howard and I are sitting next to each other on a couch, not uncomfortably close.

[00:35:15] Howard Hartenbaum
It’s not a love seat.

[00:35:16] David Hornik
No, it’s a couch, and we have a cushion between us. But last time, I was sitting in a chair across from Howard, and I bought this omnidirectional mic so we could sit wherever. The only problem was sitting that way is that I was facing these big panes of glass. And the acoustics were bad because what happened is the reflections of sound right off the glass were sort of monumentally bright. And so this time, we’ll see whether it works. It may be just that my voice is so freaking nasally and whiny that there’s nothing that we can’t help it. Howard’s got that. You have, like, the perfect radio voice. You should go into radio.

[00:35:50] Howard Hartenbaum
I should go into radio.

[00:35:51] David Hornik
See, listen to that. Oh, you got that deep voice. Yeah, but, you know, like, you’re like, who’s the. Who’s the singer? Oh, come on. You got the one who. Never mind. I’m not gonna get.

[00:36:04] Howard Hartenbaum
I don’t listen to the radio. I don’t watch tv.

[00:36:07] David Hornik
What do you do?

[00:36:08] Howard Hartenbaum
Play with my iPhone.

[00:36:10] David Hornik
That’s. That’s it.

[00:36:12] Howard Hartenbaum
I downloaded 1 billion applications already, so I.

[00:36:15] David Hornik
You. You. You had talked about how your daughter was a. A big fan of Pocket God. Yeah. So I. So I downloaded Pocket God. I don’t get it. Have you played Pocket Guy? What do you do?

[00:36:26] Howard Hartenbaum
I’ll show you later.

[00:36:27] David Hornik
I need to know, because I was like, I can. I can make them levitate.

[00:36:31] Howard Hartenbaum
I can make the name so K. Discovery. I think they, like, my daughter is 14, and she. You give her a game with no instructions, and it’s not even clear what the goal is. And she will figure things out, like, oh, I made it into a tornado, or I was able to throw guys into the volcano and interrupted. How do you come up with these ideas?

[00:36:53] David Hornik
So that’s how Pocket Goddess. Like, you can. Because I did discover you could throw them or they go in with the ships.

[00:36:57] Howard Hartenbaum
I’ll show you some of the tricks that the whole thing is. There’s always some other feature in there that you haven’t figured out. And the kids like to figure out what the next feature. So you spent money on it. So how do you think about spending money on.

[00:37:08] David Hornik
Was it. Did Pocket God cost me anything?

[00:37:10] Howard Hartenbaum
I think that one cost you $5.

[00:37:12] David Hornik
Seriously? Well, then they owe you a commission. Because the only reason I bought it was because you had said that Your daughter loved Pocketcard. And I was like, I gotta check it out. So I actually had this. So this is like classic Hornick child, you know, like me being ripped off. My son loses it to my 11 year old, loses one of his molars or something. Now the idea of the tooth fairy has been long ago debunked in the Hornick household, but they still like the idea that there’s a revenue opportunity with lost teeth. And so my son says to me, I lost a tooth. We can skip the tooth fairy masquerade, but can I get some apps for my iPhone? This is like a negotiation.

[00:37:52] Howard Hartenbaum
So there’s an opportunity. It would be a free app called. Or maybe it’s. It’s an iPhone gift card called the Tooth Fairy.

[00:38:00] David Hornik
Tooth Fairy. Tooth Fairy gift card. Seriously, My kids would be into it. So my son bought this fishing game. Have you seen the fishing game? It’s kind of cool. You cast and then you have to reel in the fish and the lights.

[00:38:11] Howard Hartenbaum
There was a physical device in Japan just for that. That was a huge.

[00:38:16] David Hornik
They used to sell it here as well. It was this. And it had a little teeny screen and then you’d pretend to fish.

[00:38:20] Howard Hartenbaum
It was cool. I lived in Japan and I would see guys like on the train and they’d be rolling and reeling in the reel. They snapping it. Like if you hit somebody in the head with that, it’s going to be a problem. But it was. They’re very fatty over there. Fatty.

[00:38:32] David Hornik
F A D D Y. Fatty, yes, with the D. Speaking of fatif F a T T Y. I’m. I don’t know if you’re a fan. You lived there for a while, but I’m a big sumo fan. My, my brother, also not fat.

[00:38:45] Howard Hartenbaum
It’s muscle.

[00:38:46] David Hornik
Well, so my, my brother was a, was a, was lived over there. He worked in an. In an artificial intelligence lab or whatever and he became a sumo fan. And of course then he infected me with this Sumerian. We’re in the midst of a sumo tournament right now. I think we’re probably about 10 matches in. And. And I was complaining to my brother that the sumo guys are not as fat as they used to be. They used to be huge and now they don’t seem to see. They seem to be much taller. Like you have these guys, particularly from Eastern Europe, who are really tall and kind of lanky. Not. And I just think that’s disappointing. But then the next week, the next match, after I left this comment, then Josh put up a video of one of the biggest wrestlers the Guy was just monstrous. So just to say there’s still plenty fatty, don’t get sad about the sport. It hasn’t gone to the skinny guys.

[00:39:34] Howard Hartenbaum
Yeah. Culturally, it’s interesting how in a country that’s an island that’s very isolated like Japan, where you can have a whole sport based on people who have grown up in that society, and there comes some tipping point where they start bringing people from other societies who have different physical, you know, different genes, different physical makeups, how it really changes the sport. And there’s a big, you know, discussion going on there. Is it still the same sport?

[00:39:57] David Hornik
I agree. I don’t like it. I don’t like it. I don’t like it.

[00:40:01] Howard Hartenbaum
I mean, remember, you just like fatty Japanese men.

[00:40:03] David Hornik
Well, I just. Sumo is a great sport, but it. And, and sometimes you have these little guys who are just awesome. They’re fast and they’re strong and they do well. But you remember this guy, this, this Hawaiian wrestler from, from, you know, Akebono. And he was just monstrous. He was just like a freak of nature. Monstrous. But he had no skills and he had no respect for the culture and no respect for the history of the thing. And he, you know.

[00:40:28] Howard Hartenbaum
You wouldn’t say that to his face.

[00:40:29] David Hornik
That was the beginning. No. Well, I would be looking at his penis. I wouldn’t be looking at his face. The guy’s huge. Maybe his stomach and I would be covered. That’s just, I mean, you know, that was a bad image, I’ll admit.

[00:40:41] Howard Hartenbaum
Yeah. Thank you very much.

[00:40:43] David Hornik
I don’t. So anyway, I don’t know how we got off Sumo. Sumo wrestling. But, but anyway, the Japanese culture and fatty versus fatty. But anyway, so I don’t know if I’ll get a palm free, but I am. I. I do know. So this is the thing, right? This is a problem for, For Palm to a certain extent. Right. They’ve come up with a revolutionary new phone that they’re going to introduce that. Lots of buzz, etc. And I have a trio sitting in my pocket. And I’m not certain that I will get the Palm pre, but I am certain that when the new iPhone comes out, that I’ll buy it. That’s pretty telling, right? That’s a.

[00:41:17] Howard Hartenbaum
That tells me to buy Apple stock.

[00:41:19] David Hornik
Well, we are not a stock recommendation site, are we, Howard?

[00:41:23] Howard Hartenbaum
I’m not recommending to anybody else. I just want to buy it myself.

[00:41:26] David Hornik
All right, well, you can do what you have. So now. Oh, that reminds me. I yell market IPOs, Howard. We have IPOs. Can you believe this, this is very exciting.

[00:41:37] Howard Hartenbaum
Without IPOs. It’s a sad world for us.

[00:41:39] David Hornik
Yeah. Venture business is in big trouble with, without IPOs. Why don’t you, if you will elucidate, you know, for those who don’t, who don’t appreciate that, why it is that we, that IPOs are somehow meaningful to our business. I think we’ve said it before, but just for the sake of it, there’s.

[00:41:57] Howard Hartenbaum
There’S different reasons for it. The reason that I like is that an IPO gives a company the chance to survive on its own and to set up its own destiny and be a long term free standing company like a Sony or a Google or an ebay. I mean there’s many companies that go public and become independent and grow and grow and they do change their model over time. When the company gets acquired, in many cases the acquisition is the beginning of the end for that company.

[00:42:27] David Hornik
Yep, that’s true.

[00:42:28] Howard Hartenbaum
And the company gets acquired and the management of the acquirer, you know, doesn’t care as much about the business. They don’t see the same vision. Sometimes the team members, founders and managers leave and the business cannot do so great over time. And eight years later they shut it down quietly. Which people make money. And that’s a. When.com they made money. They were acquired by AOL for hundreds of millions of dollars. And fears later, AOL just shut them off.

[00:43:03] David Hornik
Yeah, this is great. I mean, you know, I wasn’t thinking about this, but I think it’s totally an important point which is if great entrepreneurs want to build long term self sustaining businesses that can grow and become meaningful. And, and so I think that that’s a huge motivation and the fact that without the IPO market it’s incredibly hard to do that. It’s very hard to be a self sustaining private company over a long period of time. You know, we’re seeing this now with Facebook where they allegedly have raised $150 million to allow employees to cash out. And it’s because employees are getting impatient about when is this going to be a public company and we can make money. And you know, Zuckerberg just said to the press we’re a few years away from being a public company, so he’s sort of taking the Google. We’ll take our own sweet time, but we’ll figure out how to make sure that people can be liquid in the meantime. But you know, the reality is public companies have the capacity to be long term big businesses that grow, you know, they continue to grow. Value. Well after the quote unquote liquidity event. And you know, I’ve often talked about the fact that if you look at the, the companies in which August has invested, that the partners in August have invested, that if you had held every one of those stocks when they were distributed, you made a lot more money than if you had immediately sold. In the late 90s we had this problem where there were lots of companies getting public, but the first thing a venture investor did was sell, oh good, we’re liquid. Whereas if you look at Microsoft, Sun, Intuit, Symantec, Seagate, et cetera, if you sold right away, you lost a huge amount of the value because all of those companies got big, powerful, big market caps, et cetera.

[00:44:49] Howard Hartenbaum
To use Google as an example, there were many people along the way who tried to buy Google, who were interested in buying it. I’ve heard different stories and I don’t know which are true and which are not, but the one I’ll raise about is ebay trying to buy Google for 6 billion and Google saying no, 8 billion is the price. I don’t know if this is true or not. It’s some rumor.

[00:45:07] David Hornik
Somebody said we just have rumors here.

[00:45:08] Howard Hartenbaum
There is no argument that Google not selling was the greatest thing because they are a long term free standing business worth a hell of a lot more than six or eight billion dollars. And it was good for the founders, it was good for the shareholders, it’s good for the market, it’s good for everybody involved in the mix. When you sell your company to an acquirer, when your company is doing well, yes, you can make money, but yes, you just capped your upside.

[00:45:33] David Hornik
Look, there are plenty of instances where it makes perfect sense to sell a company. We’re not saying that they’re oftentimes good fit for the management, they’re good opportunities to sell and get liquid, etc. But I agree that if there’s no alternative, if there’s no capacity to be public, then you just, okay, wait for the right guys to buy you and move on. And so this week alone we have two tech IPOs, which I think is pretty exciting. We have OpenTable, which is supposed to sell today. I think they priced the ipo, they had an original range for the shares. They actually increased the price at which they intended to sell the shares because there was sufficient demand. And then there’s this company, SolarWinds, which is another great story of, you know, so OpenTable is your classic venture backed company, right? You guys did, you did Draper Richards seed fund OpenTable or what’s the.

[00:46:28] Howard Hartenbaum
Yeah, I think in the first round, Bill Draper, before I was there, Bill Draper put some money in and the company went through some tough times and had some recap rounds. And in the end the company goes public and he’ll still make money, but, but not nearly as much as he would have if he’d done all the recap rounds.

[00:46:42] David Hornik
Right.

[00:46:42] Howard Hartenbaum
Well, you know, luckily he had syndication partners who were able to put the money in.

[00:46:46] David Hornik
So Benchmark, you know, did invest and continued to believe in the company and pushed forward. And I don’t know what they own in the company.

[00:46:54] Howard Hartenbaum
25%, I think.

[00:46:56] David Hornik
So they own 25% of a company that now they’re talking about being 300, 350, 400. Let’s give them the highest range of the offering and say it’s a $400 million company. Well, then that’s their, their piece of that company is worth a hundred million bucks. So I don’t know what they paid for it, but not 100 million bucks. So that’s, you know, so, so that’s one where it was seed angel funded and then raised some venture rounds. It went through some ups and downs. It bought a company that was the hardware company that you see every time you, you go to a company, to a restaurant that you’ve made a reservation with the open table, etc. And in the end they’re going to get to be a public company and hopefully the venture investors and the founders and everybody makes some money and the company does well and then has the capacity to continue to grow and be a meaningfully large company. And then there’s this company, SolarWinds, which was founded somewhere in the middle of the country, Oklahoma, I think, Tulsa, Oklahoma or something, where it basically was profitable from the very beginning. It’s an enterprise software company. It does system management for medium sized businesses. Howard thinks it’s boring, but, you know.

[00:48:02] Howard Hartenbaum
It’S a great business, big business.

[00:48:03] David Hornik
It’s been around for a dozen years. Company was making a lot of money and a few years ago they finally sold some shares to investors. My good friends at Bain Capital, I think led that round as Austin Ventures put in some money, others put in a little bit of money, and the companies continue to perform. And this year I think they’re predicted to do $100 million in revenue or more to do. I think actually more, well, more than $100 million in revenue. Last year the company grew 50% to, I don’t know, $80 million. Obviously you shouldn’t buy the stock based on what I say because I don’t know any of the facts other than to say that SolarWinds is a very profitable software company. They’re making tens of millions in profit on north of $100 million in revenue this year. And it’s a, it’s a perfect, a perfect example of a company that should be public and six months ago couldn’t be public. And the fact that it’s going to get public now I think is really encouraging and I hope there are others. I hope that this is the beginning of companies that deserve to be public companies getting public and having the ability to then have public company currency to grow their businesses in meaningful way.

[00:49:12] Howard Hartenbaum
And you define deserve as they have strong growing revenue and good profit margins and a nice stable business.

[00:49:19] David Hornik
That’s right.

[00:49:19] Howard Hartenbaum
I mean, you know, sometimes companies go public and they’re just a hope and a prayer.

[00:49:24] David Hornik
Yeah. I just don’t think the public markets are intended for speculation about, you know, future revenue streams or whatever. So I think if you have a strong business, it’s a core business that’s working, you don’t have to necessarily be cash flow positive if there’s a clear path to cash flow positive, but you’re investing to grow your market, etc. But it has to be an OP. There has to be a working business there that you can understand and is predictable and meaningful. And if there isn’t, you know, that’s the problem we had in the late 90s, is that we had lots of great ideas and lots of promise, but, man, predictability was not our strong suit. So I do think that, you know, the good news about this economic downturn from a technology standpoint is that, we weren’t the ones causing it. We didn’t overextend ourselves on things that wouldn’t necessarily make sense. And so as a result, you know, we’re going to get to benefit from the companies that we’ve built that are real companies and strong companies that deserve to be on the public market. That’s what I think.

[00:50:20] Howard Hartenbaum
Howard, on the David Hornik show, I am very agreeable.

[00:50:26] David Hornik
All right, Next week we’ll make it. Or two weeks from now, we’ll make it the Howard Hardenbaum show. And I’ll have to just. I’m happy to be your yes man. That’s fine.

[00:50:34] Howard Hartenbaum
No, it’s fine the way it is.

[00:50:36] David Hornik
No, it’s not. You’re gonna torment me. I don’t think this is fine at all.

[00:50:40] Howard Hartenbaum
Okay. No, just that last week when we were talking about it or two weeks ago, and I said, well, why don’t we just change the name From Venture Cast to the David Hornig Show. And you smiled like that was a good idea.

[00:50:50] David Hornik
No, I didn’t. You’re right. Absolutely. It should be the David Hornik Show. It is my show. What are you doing here?

[00:50:58] Howard Hartenbaum
You asked me to be here. So another topic I’ve noticed a little bit of. You know, historically a lot of venture firms that do early stage investing are just betting on teams with ideas who are kind of maybe prototype or early prototype stage. But we’ve actually been taking a look at spin outs lately, and StumbleUpon is a good example of a company that you have invested in recently. I thought that might be interesting to just talk about spinouts.

[00:51:32] David Hornik
Yeah. If you have one that you want to spin out, you should email us. You have hornickust gap.com and what are you Heartenbaum?

[00:51:41] Howard Hartenbaum
What are you, Howard?

[00:51:41] David Hornik
How do I not know? I mean, it must just automatically come up. Howardgustcap.com Horn.

[00:51:49] Howard Hartenbaum
I think spin outs are an interesting thing because, you know, using StumbleUpon as an example, it’s a very interesting company that ebay purchased and then a few years later decided it wasn’t as core to their business as they thought it might be and decided to spin it back out. And in the meanwhile, the company had made some good progress and they needed some money for the spin out and brought in some investors to do it. And now we’re sort of like we would have been a couple years ago if we just invested, except a couple more years have passed.

[00:52:18] David Hornik
Yeah, good user growth and market maturation and all that.

[00:52:22] Howard Hartenbaum
And in the time that we’re in right now, in the economy, there’s a lot of companies that have acquired other companies or built kind of intrapreneurial companies within themselves. And due to some refocus and retrenching on their core business, it makes sense to look at spinning some of them out. And there are investors like ourselves who think that that’s an interesting thing to do as well, providing that good people come along in the process. I mean, if a company called us and said we want to spin this technology up, but you get no people with it, there’s nothing there.

[00:52:54] David Hornik
We’ve already said that’s great. Nothing there.

[00:52:58] Howard Hartenbaum
But sometimes people want to be entrepreneurs. You can start something from scratch, but there’s also an option to start something not from scratch because maybe there’s some useful piece of technology or company or business that you’re working with already.

[00:53:12] David Hornik
Well, and you and I look at, we look at stuff in the web space and if you look At Yahoo, iac, Fox, even Google, depending on the circumstances, they’ve acquired interesting companies that may or may not have proven valuable to their core businesses or to their broader strategy. And so I think there are plenty of opportunity to look at these things and say, oh, we see a business here, we can get back to focus on building it. Particularly, as you say, if the core team is interested in continuing to, to grow the business. So we did this in the semiconductor space. We have a company called Magnum Semiconductor, which we spun a division out of another semiconductor company. So we’re looking at it across a broad set of things and it’s great. One of the things is that it’s great for the team because not only do they get to move on to building the business, it’s easier for them to recruit talent. It’s hard to recruit into these companies, sometimes to run other run businesses that are captive. Everybody gets equity in the new thing. So you’re back to having a stake in the game in a way that’s more significant than if you were acquired by a bigger company, etc. So a lot of ways it’s a big win for everyone. Needless to say, that was the case with the Seagate deal where we were part of the group that took Seagate private and that was a spectacular success for everybody and good for the business and good for the market and created interesting new technology. So I’m certainly a believer. I just hope we hear about more of them because we think they’re real opportunities and, you know, we’re certainly game.

[00:54:49] Howard Hartenbaum
What about international?

[00:54:51] David Hornik
Well, apparently you’re going to be in Germany, so if you got something going on.

[00:54:55] Howard Hartenbaum
Are you going to do your international deal? Where is it going to be?

[00:54:57] David Hornik
My international deal? Well, I’m.

[00:55:00] Howard Hartenbaum
It’s good to be diversified a little bit.

[00:55:02] David Hornik
That’s true. I, through a set of circumstances apparently have to fly to Peru. So maybe, maybe, maybe there’s one.

[00:55:12] Howard Hartenbaum
What are those set of circumstances?

[00:55:14] David Hornik
Oh, okay. Yeah, it involves a child and illness and you know, being a, being a devoted father. That’s what it involves. Howard.

[00:55:24] Howard Hartenbaum
I’m actually, I lived in Japan for many years. I’m actually looking at going there with our other partner, John Johnston in a few weeks. Take a look and see what companies, what kind of technologies and mobile technologies and things are happening over there because it’s different than what’s happening here. And we thought it might be interesting to take a look at that.

[00:55:44] David Hornik
Yeah. So let us know if you’ve got interesting, if you have suggestions of interesting companies that we should check out, or they should check out while they’re out there. Or if you want us to catch up with you, feel free to email howardaugustgap.com send. That’s pretty awesome, but unfortunately, you’ll. Now my pocket’s ringing. You’ll miss the. You’ll miss the sumo tournament. It’ll be over by then.

[00:56:05] Howard Hartenbaum
You know, I lived there for a long time, and I never really gone down to the sumo tour.

[00:56:09] David Hornik
You never went?

[00:56:10] Howard Hartenbaum
No.

[00:56:10] David Hornik
Oh, my God.

[00:56:11] Howard Hartenbaum
I wasn’t sure they’d let me in.

[00:56:12] David Hornik
They’d let you. You just have to buy a ticket. Well, this has been a good show, and I just want to say to you, Howard, Twitter.