Generated Transcript

[00:00:15] David Hornik
Hello. Oh, man. I hear, like, an air blower in the background. You think they can pick that up on this podcast?

[00:00:22] Howard Hartenbaum
Nah, not until he gets right behind your window.

[00:00:24] David Hornik
All right, yeah, you people out there, let us know when. When it gets so annoying. All right, where was I? Oh, yes. Hello and welcome to VentureCast. I am David Hornik of August Capital.

[00:00:35] Howard Hartenbaum
And this is Howard Hartenbaum, also of August Capital.

[00:00:39] David Hornik
And it’s what, basically right before Thanksgiving?

[00:00:42] Howard Hartenbaum
Yep.

[00:00:44] David Hornik
Good.

[00:00:44] Howard Hartenbaum
What, will we have this up before Thanksgiving? That’s a whole other question.

[00:00:47] David Hornik
Yeah, well, I don’t know what resources we can bring to bear on that issue.

[00:00:51] Howard Hartenbaum
Let’s make this feel more real time. Thanksgiving has just ended.

[00:00:54] David Hornik
How was your meal?

[00:00:55] Howard Hartenbaum
Oh, I’m still feeling full. I have to go on a diet now.

[00:00:58] David Hornik
I’m feeling stuffed. That was a great meal.

[00:01:00] Howard Hartenbaum
Yes.

[00:01:02] David Hornik
You know, I will say this one thing that is awesome about that. That think. Think back to, like, 10 years ago. Actually, it’s a little more than 10 years ago. If you wanted to make Thanksgiving dinner and like, all sudden your wife said to you, as I have recently heard, it would be great to have a beet salad with dinner. Then you’d have to go flip through a bunch of books or buy, you know, buy a new cookbook to find a beet salad. Now what do you do?

[00:01:25] Howard Hartenbaum
Go to Whole Foods. Not the answer you’re looking for.

[00:01:31] David Hornik
That is not right. That’s so lame.

[00:01:33] Howard Hartenbaum
I heard at Whole Foods that for, what is it, a hundred and forty dollars, you could buy Thanksgiving for ten. Like, everything that’s awesome. I’m sure.

[00:01:42] David Hornik
Bucks a person.

[00:01:43] Howard Hartenbaum
I’m sure it doesn’t taste that great, but.

[00:01:45] David Hornik
Because I can assure you that when all is said and done, I will spend more than that on, you know, dinner for six. And I will have. And I will spend all day cooking it.

[00:01:53] Howard Hartenbaum
Yes. So your answer was.

[00:01:55] David Hornik
What I meant to say is I spent more than $140 and spent all day cooking.

[00:02:00] Howard Hartenbaum
Yeah. And you go, so what you’re. The answer you were looking for, I’m sure, was you go online, type in beet salad, and have 72,540 recipes, ranked which ones to make.

[00:02:11] David Hornik
That’s unbelievable, right? Epicurious is just an awesome website. It’s real. I mean, it’s fabulous. You go out to Epicurious, and you put in beet salad, and there will be 40 beet salad recipes. They will be ranked by what people give them rankings. And then you can say what you want in them or don’t, and then it’ll Literally print up a shopping list for you. So you could say, print shopping list, and it tells you everything you need for it. It’s pretty awesome.

[00:02:39] Howard Hartenbaum
And they’re owned by Conde Nast, correct?

[00:02:41] David Hornik
Yeah, I think so.

[00:02:41] Howard Hartenbaum
Shout out to James Biofield.

[00:02:45] David Hornik
Well, there you go. So James, who you worked with back in Skype days, right?

[00:02:50] Howard Hartenbaum
Yep.

[00:02:51] David Hornik
Now runs Europe for Conde Nast.

[00:02:53] Howard Hartenbaum
Yep.

[00:02:54] David Hornik
And I bumped into him. I bumped in him at this dinner up in the top of the BT tower. Do you know that tower? It’s like this skinny little needle, like tower. And then on the top they have this. I don’t know what it usually is, but we. We had dinner up there. And then during dessert, it was rotating. So the whole top of the tower was rotating, which, by the way, makes you totally dizzy.

[00:03:15] Howard Hartenbaum
Yeah.

[00:03:16] David Hornik
And it’s rotating incredibly slowly. I think if they cranked it up, everyone would be throwing up.

[00:03:20] Howard Hartenbaum
But anyway, I’ve been to one of those. In Malaysia, you get the whole view of the city without getting up.

[00:03:25] David Hornik
Yeah.

[00:03:26] Howard Hartenbaum
And everybody fights for the chairs and the tables that are facing the windows, and nobody wants to be facing away from the windows.

[00:03:31] David Hornik
Back to the windows. Kind of a waste. So this dinner was part of this program I was just on called Silicon Valley in the UK or goes to the uk, and then it became Silicon Valley and goes to Cambridge. And we spent a bunch of time at Cambridge University, and then I flew home and a group continued on to Oxford where they did an Oxford piece. So. So there were a few of us. Well, maybe there weren’t a few of us. Anyway, I’m a Cambridge guy, got my degree in criminology from Cambridge University, so that served me very well, I have to say.

[00:04:03] Howard Hartenbaum
So every time you look at an entrepreneur, you’re scratching your head, is he a criminal or not? Is that what you’re thinking?

[00:04:08] David Hornik
I think, like, if you end up in prison, I know what will happen to you. I’ve studied that. It’s not pretty, actually. What I think is, if I end up in prison, what I said, it’s.

[00:04:20] Howard Hartenbaum
Really not going to be pretty.

[00:04:21] David Hornik
There were a group of us who spoke when we just got to Cambridge, and it was with the Vice Chancellor of the university and whatever. And I was introducing myself and I said, you know, I have this degree in criminology, which I am hopeful will never come in handy, because that would be. But. And then Reid Hoffman, who organizes this trip, is an Oxford grad. He was a Marshall Scholar and studied philosophy, which, if you spend any time chatting with Reed, you know, you could know that and then. And so he and a group are then going to continue on to Oxford. But I was sitting with. So at my table for dinner was James from Conde Nast. And then on my left, immediate left, Peter Gabriel. And I sat and chatted with Peter Gabriel. And if you’re listening to this podcast and you don’t know who Peter Gabriel is, seriously, people, you need to go on itunes and look up Peter Gabriel because he’s just, you know, games Without Frontiers. And, I mean, he’s just. He’s a hero. So that was incredibly cool.

[00:05:23] Howard Hartenbaum
Yeah.

[00:05:24] David Hornik
And actually he was there because he does all this. He’s working on a bunch of human rights stuff that he was trying to figure out. How do you gather the value of the social web to bring to make it better? You know, he has this thing called the Witness Project, where they have video cameras that go out and witness crimes, human rights crimes, and then post them. And so. And then he has this really cool project with what he calls the Elders, which are folks like Nelson Mandela and others who have huge moral authority, and how do you bring them together to, you know, to support human rights, etc. So he was trying to figure out what. How to build a set of tools that would make that simpler and more viral and all those things, which is a really interesting conversation. But then I did say, oh, by the way, I love your music. And he was very gracious about it, you know, like, okay, yeah, whatever.

[00:06:14] Howard Hartenbaum
Ask Kisser.

[00:06:15] David Hornik
Like, you know, I’m glad you like the music.

[00:06:17] Howard Hartenbaum
And he put his hand down. He said, you may kiss the ring down.

[00:06:19] David Hornik
Yeah, exactly. But it was cool. It was cool. It was an interesting, interesting event.

[00:06:23] Howard Hartenbaum
Does he still do, like, concerts and stuff?

[00:06:25] David Hornik
That’s. So he said to me, because I told him, oh, you know, that’s what I’m curious about. I said, I was a computer music major, and we talked about that for a while. So he said to me, do you still play? Do you still have a rack of synthesizers? Do you still play? And I said, I kind of live through my kids, whatever. And then I said to him, so do you. How about you? Do you still play? And he looked at me like, you idiot said. He said, yeah, you know, I still tour occasionally. I just put it. Just put out an album, which you should, of course, know about and buy Idiot.

[00:06:52] Howard Hartenbaum
And then you said, well, if you knew more about social media, maybe I would know about your album, you idiot. And it was just basically, you’re an idiot. You’re an idiot back and forth.

[00:07:00] David Hornik
Yeah, it ended very, very horribly. No, he apparently just played in la, which, you know, is not close enough for us to go see it. But, but so, so this whole, this whole event was about kind of, how do you promote entrepreneurship in, you know, overseas? And there were lots of questions about whether we would fund companies overseas. So I was very happy to point to your investment because I could say, yeah, Howard gets on a plane, although you just told me how to. Had a board call at what, 11 at night?

[00:07:30] Howard Hartenbaum
Yeah, yeah. The company is Swoopo. And the company is in Munich. And so for them right now, 11 at night, my time is 8am, their time. And one of the founders is currently in Sydney, so we had to pick a time that worked for like all three. And I got the short end of the stick because it was a couple hour telephone call last night. But usually it’s the guy in Sydney gets the short end of the stick and he’s got to get up at 6.

[00:07:55] David Hornik
Yeah, but, well, this is the problem with this kind of internationalization of businesses. Right?

[00:08:00] Howard Hartenbaum
Time zones. That’s the problem. Should fix that problem.

[00:08:02] David Hornik
Why don’t we just put everybody on the same time zone and some people will just have to work through the night.

[00:08:08] Howard Hartenbaum
Or at least. Or at least. Or when it’s daytime and you say it’s like, you know, it’s 3:00am you just get used to that after a while. Right? The middle of the afternoon, it’s 3:00am yeah, that’s right.

[00:08:18] David Hornik
That’s just how it is. But I heard this interesting study. It was talking about daylight and this shifting, that daylight savings actually isn’t shifting sufficiently and that by having more daylight hours during work, peak time, et cetera, that it increases productivity. It saves a ton of money. It saves money on electricity because if you have fewer hours when you’re awake that are during the night, then you use less electricity for lights, et cetera. And so they were talking about being more granular, about changing time zones, et cetera, and that it would save real money.

[00:08:52] Howard Hartenbaum
So instead of moving the clock back an hour, you move it back 30 seconds.

[00:08:56] David Hornik
Yeah, well, it would be, you know, you move it 37 minutes one time, and then, you know, then 42 days later, you move it another 22 minutes.

[00:09:03] Howard Hartenbaum
Why don’t we just have real time clock changing, like every day?

[00:09:06] David Hornik
Well, once you have synchronous watches and computers and everything else, that’d be great. You wake up and you go, what time is it? And as long as all the clocks shift at the same time, then the alarm clocks would all be fine.

[00:09:19] Howard Hartenbaum
I have One of those alarm clocks that shifts automatically. But since President Bush decided to change daylight savings time by like two weeks and somebody didn’t reprogram that shifting, like, my clock is always wrong two weeks of the year.

[00:09:30] David Hornik
Well, so this happened with Apple, the iPhone. There was some glitch and if you had a recurring. A recurring alarm this year at daylight savings, it messed it up. And a bunch of people were an hour late to stuff and there was talk.

[00:09:46] Howard Hartenbaum
But not you. You were always late to stuff.

[00:09:48] David Hornik
Yeah, no, but that would be an hour and 15 minutes late as opposed to just 15 minutes late. I was saying to someone that as I was heading off to Kagetsu. Yeah, I’m running a little bit late. But don’t worry because the people at the Kagetsu is the restaurant ate lunch at. Don’t worry because Kagetsu will tell them, oh, David runs 15 minutes late. So when I get there, 15 minutes late, I’m on time because they’ve had.

[00:10:09] Howard Hartenbaum
Fun and the person’s already been prepped and given something to have a snack while they wait for you.

[00:10:13] David Hornik
Yeah, they’ve had some water. They know what they want to order. I’m always amazed when I show up 15 minutes late and then they haven’t looked at the menu. What were you doing?

[00:10:20] Howard Hartenbaum
I think they have. They just think it’s. There’s like something wrong with looking at the menu early. And it’s a social process you have to do in front of the other.

[00:10:27] David Hornik
It’s like opening a present or something. Like, oh, no, I’m waiting for you. Let’s take a look.

[00:10:31] Howard Hartenbaum
I’m waiting for you.

[00:10:32] David Hornik
That is polite.

[00:10:33] Howard Hartenbaum
Yes.

[00:10:34] David Hornik
So here’s my conclusion about. So, you know, we had lots of conversation, met with a ton of entrepreneurs in England. There were. We had 22 events over the course of four days. And it was unbelievable. The schedule was like eight.

[00:10:46] Howard Hartenbaum
I just grimaced.

[00:10:47] David Hornik
It was 8am to 10pm it was the craziest schedule. And then of course, we, like, stayed up late hanging out. It was sort of ridiculous. In fact, I went to see Harry, the Harry Potter movie at midnight in Cambridge, England, because I thought that would be fun. And in fact, it was a bunch of students with their gowns on and their, you know, lightning bolt scars.

[00:11:07] Howard Hartenbaum
What did you wear?

[00:11:10] David Hornik
I just wore. No pants? No, I just wore whatever.

[00:11:13] Howard Hartenbaum
They didn’t ask you what you didn’t wear.

[00:11:16] David Hornik
It was a terrible movie, by the way.

[00:11:18] Howard Hartenbaum
Well, I heard that it’s just a hanger in the middle and you don’t want to pay that kind of money to be, like, stuck in the middle of a movie.

[00:11:23] David Hornik
It is, but, like, up until then, it’s just, you know, it’s not good. It’s not good.

[00:11:29] Howard Hartenbaum
It’ll still make a billion dollars.

[00:11:30] David Hornik
No, there isn’t any question. So it’s super, this really interesting set of meeting with entrepreneurs, etc. And here’s the conclusion I’ve come to. And I have every intention of writing blog posts about this. I should get on with it. I was gonna write a blog post about it on flying home from London, and then I started writing essays for my. My son is applying to boarding schools, and there are, like, all these parent essays. I spent 10 hours writing parent essays. 10 hours.

[00:11:58] Howard Hartenbaum
And you write fast.

[00:11:59] David Hornik
And I didn’t get the blog. It was unbelievable. Anyway, what I’m going to blog is this. The number one factor, the most important factor is angel investors. Someone who is willing to take a disproportionate amount of risk based on smart people with a good idea. Without that, they have no hope. Every single one of these super young, smart, interesting entrepreneurs who described for me what they were doing, it may be smarter, you know, whatever, and say, well, what you need to do is find that first angel investor and where do you get it? Whatever. And they. And they said, basically, well, you know, there’s some of that, but there’s really not that much around here. And so I think that, that of all the things that are disproportionately valuable here in the. In Silicon Valley and building companies, I think that one is a huge one.

[00:12:45] Howard Hartenbaum
They should go talk to Atomico.

[00:12:48] David Hornik
I saw. I saw one of the Atomico guys while I was there.

[00:12:51] Howard Hartenbaum
Matthias. Or do you remember which guy?

[00:12:54] David Hornik
Yeah, yeah, no, it wasn’t. It wasn’t.

[00:12:56] Howard Hartenbaum
It wasn’t Nicholas.

[00:12:57] David Hornik
It wasn’t Nicholas.

[00:12:57] Howard Hartenbaum
So it’s probably Matthias.

[00:12:58] David Hornik
No, it wasn’t Matthias. It was Jeffrey. Anyway. Oh, you’re killing me.

[00:13:03] Howard Hartenbaum
Sorry.

[00:13:04] David Hornik
You guys are definitely not listening to this.

[00:13:05] Howard Hartenbaum
Anyway, so the Atomico guys, if you, you know, they may take the place of a lot of these angels because they. They do that. So if you can’t find an angel there, go talk to those. You know. Have you looked at Singapore very much? Because the thing that Singapore does is they solve that angel problem by giving government grants.

[00:13:23] David Hornik
Yeah, no, you know who was with us was. Was Joey Ito.

[00:13:28] Howard Hartenbaum
Yeah.

[00:13:29] David Hornik
And Joey is the head of Creative Commons. And he is. But he also is one of those angels who’s been. So basically, Singapore picked a set of angels that they decided were the angels.

[00:13:41] Howard Hartenbaum
Yeah. And they made it worth their while.

[00:13:44] David Hornik
Yeah. And the way they did it is. I forget whether it’s 90% or. Or 80% of the. Of the investment is made by the government.

[00:13:51] Howard Hartenbaum
That’s a grant.

[00:13:52] David Hornik
And. Well, sir. So here. It’s sort of trickier than that. It’s. They put in the investment, right.

[00:13:58] Howard Hartenbaum
8.

[00:13:58] David Hornik
Let’s say it’s 80%. The investor puts in the 20%, then they have some bunch of years to decide whether the thing’s going well. And if it’s going well, they can buy out. The investor, can buy out the government at its cost. And if it’s not going well, then the government loses its money. And so basically.

[00:14:19] Howard Hartenbaum
And the taxpayer could buy out the government.

[00:14:20] David Hornik
Yeah, right, exactly. So that’s sort of stunning, right? I mean, it’s basically, the government is willing to leverage, give you leverage, eight or nine to one, and then in the event that it’s successful, they’re willing to give you all of the upside for the sake of you coming in and helping build an ecosystem. The other thing that Joey said that he thought was super important is that they’re being. They’re not just being relaxed about immigration, they’re being proactive. So if there’s an entrepreneur that Joey wants to get to Singapore and he tells the government, the government have what they call concierges who will fly to you and offer you a set of inducements to come to the country, and they will give you a passport, and they will make you a citizen to come build big business, to, you know, come build startups, which, if you’ve been to all.

[00:15:09] Howard Hartenbaum
You’ve been to all the markets down there, Singapore looks different than everybody else.

[00:15:13] David Hornik
Yeah. No, I think it’s incredible. I mean, obviously it’s small, and they’re being extremely proactive. And, you know, the British government, there were a lot. We met with lots of government officials, and they were. And they were sort of aghast. Oh, my God, this seems like a crazy thing. And. And the biggest thing that they said was, well, how are you supposed to pick these angel investors? Who you would. Who you would give this power, right? And Joey’s answer was, they have the money. He said, just ask entrepreneurs. Survey, you know, survey 500 of your best entrepreneurs, ask them who the top angel investors are, then take the top 10 that those folks name, and that’s that, like, who cares?

[00:15:51] Howard Hartenbaum
The Singapore model was very similar to what the SBA did in the 90s, which, when I used to work at Draper Richards, Bill Draper had an sbic small business investment company. Which is sort of similar to what you described in Singapore where Bill would put up a certain amount of the money and then the government would. It wasn’t, you know, 80% from the government, the leverage was anywhere between 1 and a half and 3x instead of up to 4 to 5x.

[00:16:21] David Hornik
Yep.

[00:16:22] Howard Hartenbaum
And you’d borrow, he would borrow money from, let’s say Bill would put up $20 million and the government would give him another 40, $40 million. And then he would invest that $60 million. And what he owed the government was the principal and interest on the loan. There was no equity upside for the government. And providing that he paid that money back, you know, if he had a hit, then he could keep all of the equity gains from it, which is really. Yeah, which was really quite, quite a good deal. If you’re a good investor and if you’re a bad investor, since it’s all pooled together, it’s not on a one off basis, it can crush you. What Singapore, I think is doing, I don’t know if it’s on a one off basis per deal or if it’s pooled together and it should be pulled together. The reason the SBA doesn’t do that anymore in the US is that there was a lot of bad players in the US who borrowed the money and then they invested the money and then they had some early exits and they took all their money out. And then when the economy collapsed in 2000 and 2001, they stuck the SBA with all this worthless stock and said, here, here’s some VA linux stock worth $700 million, but it was really, you know, only worth $3 million. And the government lost more than $5 billion on that deal.

[00:17:43] David Hornik
You know, it depends on what was built in the process.

[00:17:46] Howard Hartenbaum
And they probably made more money back in taxes from the companies that were backed and built by it. So it probably worked out. It’s just they actually closed that debt program down.

[00:17:55] David Hornik
But Bill’s the last man standing, right? Can’t he still use the SBA program for.

[00:17:59] Howard Hartenbaum
There’s still a handful of Richards or Draper International or there’s still a handful of people who have access to that. And they were simply the guys who were the only ones who paid back the sba. And all the other guys who lost the taxpayer billions and billions of dollars while they got rich on it were thrown out of the system. So if you’re honest and ethical and do what you promise to do and treat your investor, in this case the government, fairly, they’ll stand behind you in the future. But if you just use them and take it and then stick them with something that’s worthless, you kind of get what you deserve.

[00:18:31] David Hornik
So there you go.

[00:18:31] Howard Hartenbaum
So there you go.

[00:18:32] David Hornik
I think it’ll be an interesting experiment for Singapore and if it’s successful, then you can imagine small innovative countries could be.

[00:18:40] Howard Hartenbaum
But the UK should do a similar thing as well. They should, I mean, they should give lever to investors who are putting their money where their mouth is. And if the investors are right, they make more. And if the investors are wrong, they lose their money along with the government. But in the end you get more employment. It’s a good use of money.

[00:18:54] David Hornik
But here’s an interesting one, right? So one of the other topics that came up while we were in, while we were there running around was this idea that some companies, some US companies are using Ireland and other places to, with its tax treaties to minimize the amount of tax being paid, et cetera. And how this was, you know, whether this was good or bad social policy and it was funny. So Mike Volpe, who used to work with Cisco, big company was sitting there and he had this big, you know, he had clearly given this answer before because he had, well, you know, this is how big companies work kind of message. And that’s, you know, but it may be, but as he pointed out, he said, well, it may not ultimately be good for the companies because they can’t repatriate their money. And meanwhile, you know, just as we’re having this conversation and you have, I don’t think, I don’t think Google is, Google’s residence is in Ireland, but there are others. But now then we’ve just had this moment where the Irish government has had to go to the EU to get loans because the government is making insufficient money. And so you have to look at that and go, gee, is that tax treaty really working for them? Are they getting enough economic value from the people who are landing in Ireland?

[00:20:07] Howard Hartenbaum
And so I think these, the hotel chains are.

[00:20:10] David Hornik
Yeah, but these, you know, but is that enough? Right. These are such tricky, tricky economic problems.

[00:20:16] Howard Hartenbaum
Yeah. The Irish government, you know, steadfastly said, no, we’re not going to change that tax structure because if they do, all those companies will flee. So it is what it is.

[00:20:26] David Hornik
Yep. Was Matthias? Totally was Matthias.

[00:20:30] Howard Hartenbaum
Yeah, Matthias is very active and he goes to a lot of stuff.

[00:20:33] David Hornik
No, of course, of course it was Matthias.

[00:20:34] Howard Hartenbaum
So I’m on a board with Matthias. We’re investors together in a years of couple company called Memolane, another company that’s currently overseas. It’s in Copenhagen, but they’re going to be.

[00:20:41] David Hornik
Yeah, but they’re going to move to the U.S. right? I mean, we had this interesting conversation that. Does it make sense to move your company to Silicon Valley? Yeah, if, if you’re, if you want to get going. And I basically said, yeah, you know, there are plenty of instances where that might be a perfectly reasonable thing to do. It’s not a golden ticket. Right. You don’t land here and then you’re instantly funded or whatever else.

[00:21:02] Howard Hartenbaum
But.

[00:21:03] David Hornik
But you just never know. And this was interesting. I got an email this morning, I spoke with. We were doing these things that they called surgeries. I think that must mean something in England other than like getting your appendix out, where we would sit with a group of a few Silicon Valley folks, would sit with the company founders and discuss their business and give them some advice. And I spoke with this one smart young woman who was working on a particular business in the fashion industry. And we had this very interesting back and forth and she emailed me today saying I was talking with my co founder. We’ve spent all weekend talking about the things that you’ve talked about. Think it’s interesting. We’re trying to sort out our business and I’d love to meet with you for another hour and we’re willing to fly to you. We will fly from England to Silicon Valley if you’ll give us an hour, which is. That’s unbelievable right now. I’m sure it’s not just for me. They can make. Have a bunch of meetings, maybe they can raise some money, whatever, but.

[00:22:01] Howard Hartenbaum
But it made you feel good.

[00:22:02] David Hornik
Well, she clearly got the message, right? Like, okay, this is the.

[00:22:05] Howard Hartenbaum
Yeah.

[00:22:05] David Hornik
And I said, well, it’ll be interesting to see whether it was Silicon Valley or me because I emailed her and said, she said, could come out the 8th and 9th of December. I said, well, I got good news for you. I’ll be in Paris the 8th and 9th of December. So it’s a much shorter trip because I’ll be at the Le Web conference running the startup competition over there. Running. When I say running, I basically will be the MC and then help. Help pick the winner and stuff.

[00:22:28] Howard Hartenbaum
So if she shows up in Paris, you’ll know she, like, she wanted to talk and then she says, do you have any partners back at the office who will be in California then. Then you’ll know it was not.

[00:22:39] David Hornik
But she, you know, so yeah, so. And it’ll be interesting to meet with the rest of Europe. So I spent time with a bunch of British Startups and now I’m gonna spend time with, with folks who are sort of more broadly from Europe over that, over the course of the week after next. And it’s good to see what’s going on out there. Although I do think that it is hard and people are, you know, if you are a successful entrepreneur in Europe, you, you’re really working it like it is. That is a hard, that’s a hard business. You gotta build a real business and you gotta figure out how to build a team and you gotta figure out how to raise money and you have to.

[00:23:15] Howard Hartenbaum
It would be interesting to have this discussion with Loic Lemur who moved here from France to start a company and kind of was called seismic and get a sense from him what he learned in the process. And if you’re an entrepreneur in Europe and you want to move here, I mean he raised some money in Europe, he came over here, he set up, he started looking for a co founder or somebody to join him. And I guess he didn’t have the strong network when he first started, so actually hired a guy from France to come and join him over here to get going. And so if you’re thinking about coming here, he might be a good guy to talk with because he had that specific experience.

[00:23:51] David Hornik
Yeah, no question about it. What else do we have to talk about? Howard?

[00:23:59] Howard Hartenbaum
I noticed lately, I have a general investment thesis that every rule is meant to be broken, but one of the rules is that it’s very risky to be a derivative business, meaning you rely on somebody else. Like Zynga doesn’t do so much anymore. But they were fully reliant upon Facebook for quite a while and Facebook could have just shut them off at any time.

[00:24:24] David Hornik
Well, the only reason they’re not in that position, remember there was this two week period of time when it looked like Facebook might shut them off and it was going to be this big legal battle.

[00:24:32] Howard Hartenbaum
Right.

[00:24:33] David Hornik
And then they cut a deal. And I don’t know what the details of the deal are, but Facebook had leverage. It’s economic, right. Facebook got something out of it. Now they, then they cut a deal and now they’re, they’re launching on other things and they have time to kind of broaden their opportunity. But man, they were really, they were pretty wed to Facebook. They still are. The vast majority of their traffic is Facebook traffic.

[00:24:56] Howard Hartenbaum
Yeah. And so what I just noticed like in the past month or two is a couple of, you know, very significant series A financings for companies that are fully reliant on upon Facebook. Therefore, one is Branch out with Rick Moraney, who we know.

[00:25:13] David Hornik
Yeah, we backed Rick and Tickle, and now he’s at it again.

[00:25:16] Howard Hartenbaum
And the one I saw yesterday was, so what Branch out is, is they’re trying to be kind of LinkedIn on top of Facebook, so using the Facebook network to do networking for job reasons. And there’s a couple other companies that are out there as well, but that was one that was funded and another one that was in the press yesterday was Yard Seller, which is trying to be the ebay on Facebook. And I just think it’s interesting to see these types of deals happening. Maybe Facebook is beyond some tipping point where the investors believe or have some knowledge that the company won’t act like the typical company does when there’s derivative businesses that are making money on them. And the interesting one with Branch out and Yard Seller is that they’re both backed by xl, who is also an investor in Facebook. And it makes me kind of wonder, what do they know and what are they thinking about in this process? But historically, venture investors tend to stay away from derivative investments.

[00:26:13] David Hornik
Yeah, no, I mean, the interesting question is things that you want to bet on the platforms. You don’t want to bet on things that are derivative. On the other hand, every so often, there’s a platform that’s so ubiquitous that building on it is not like building on a platform. It’s like building on Compute. Right. So all these startups there are building on Amazon Web Services, you know, derivative businesses. Well, probably not, because it’s really just a platform to provide infrastructure. You know, if you build on Windows, Windows obviously was, you know, anything building on top of Windows was a derivative business for a while there. But, man, Windows Ubiquity then says, no, that’s not really the case anymore. But Facebook feels a little different. Right.

[00:26:53] Howard Hartenbaum
It may get there, or maybe Excel has some insight to how it will get there. But I look at it and think if Yard Seller is a big hit, then Facebook still has a lot of leverage and says, we’d like to buy you. Or we’re going to build something that’s very similar and launch it to all of our users and integrate it better.

[00:27:08] David Hornik
Yeah, well, look, that was the message with eBay and PayPal for a long time. Right. They tried it for a long time, but PayPal got big enough and important enough that it was sort of like, well, no.

[00:27:19] Howard Hartenbaum
And eBay bought them.

[00:27:20] David Hornik
Yeah. And then eBay tried over a bunch of times and then finally paid a billion and a half or whatever. But it is an interesting question, right? I mean, it is this. We have the same question with iPhone, right? You know, just on the one hand you say, you know, Kleiner started their iPhone fund or whatever and what and Facebook fund. And now they have their S fund or whatever, which is their Facebook fund and like the iPhone fund. And then they’re claiming success on the iPhone fund because of their Zynga investment, which that fund sort of. That doesn’t really follow for me. And by the way, it was just an investment. So these things are just sort of marketing at the end of the day. But the question is like, is the iPhone platform large enough and ubiquitous enough that you can build a venture scale business on top of it? You know, I don’t know, just the iPhone. I don’t think so. But if it’s iPhone and Android and iPad and you know, Windows Phone 7 and ultimately, you know, then maybe. And by the way, I mean, I’m, I’ve been one of these guys who has been openly skeptical about Nokia. But I was on this trip in England.

[00:28:29] Howard Hartenbaum
You drank the Nokia Kool aid.

[00:28:31] David Hornik
I was in England, I was in Europe.

[00:28:32] Howard Hartenbaum
Yeah. And you drank the Kool Aid and everybody had a Nokia phone there.

[00:28:36] David Hornik
Well, it just turns out that they sell, you know, millions of phones. Right. The scale of Nokia is massive.

[00:28:43] Howard Hartenbaum
It’s something like 500 million phones a year. Some ridiculous.

[00:28:46] David Hornik
More than that. I think it’s more than that. I wish I could remember.

[00:28:49] Howard Hartenbaum
It’s like 10 per second or something.

[00:28:51] David Hornik
So I was hanging out with Hans Peter Branmo and Hans Peter had this company that he sold to Nokia and he is now. Oh, the leaf blower is approaching. Hans Peter is now running social software, social media for Nokia. And it’s just sort of amazing to think that, you know, this is. The scale of this business is so big and that if they figure it out, if they start, if they sort it out and they can leverage, bring leverage to that platform, then it’s just an amazing, it’s amazing scale compared to the iPhone. The only thing is iPhone has gotten the platform right in ways that so far Nokia hasn’t. So it’ll be interesting to see. I’m now not ruling them out.

[00:29:40] Howard Hartenbaum
Yeah. And we’re in such a. In Silicon Valley where bubble. I’m sitting here looking at the table that we’re talking on and there’s an iPad and there’s one, two, three, there’s two of us in the room, there’s four iPhones, one iPad and one iPod. And there’s only two people here. And behind me on my left, I see a MacBook and you have a new computer, a new imac. I mean, there’s a lot of Apple stuff.

[00:30:07] David Hornik
I gave up on my Apple Tower because I had these terrible screens. I had these horrible, like, Dell screens that were so. I just couldn’t take it. And so I was deciding, do I get a big screen? And it turned out that it was just more. It was a better idea to just buy a new imac with a big widescreen than get a new screen for an old computer.

[00:30:26] Howard Hartenbaum
So I know that the Apple phenomenon, I mean, maybe it’s a national or a global phenomenon, but two summers ago, you know, I had a MacBook and I had an iPhone, and. And I was with my family in the summertime, and we went to Glacier national park, and we were on the Canada side. We went into a coffee shop, and they had free WI Fi. And I looked around, and there was 14 computers, and 13 of them were Windows devices, and one was an app device. And I kind of sat there and looked around and said, you know, we’re not in Silicon Valley. It would be the opposite ratio.

[00:31:00] David Hornik
As we got on the plane to fly back, I was there with John Lilly, who used to run Mozilla, and who else was next to me? But anyway, there are a group of us, and they were asking you. I’ve never had them ask this before. They said, what devices do you have that run on battery power? And so I said, what do you have with you that you’re taking on the plane? I said, I have a Mac laptop. I have an iPad. I have an iPhone. And she said, okay. And then she said to John Lilly, what do you have? And he said, yes, I have all of those, and I have a Kindle. And then the person after, what do you have? I have all of those, but I don’t have the Kindle.

[00:31:43] Howard Hartenbaum
Yeah. And then the next person says, I have a Windows machine. And they said, you need secondary screening.

[00:31:48] David Hornik
Yeah. Right.

[00:31:49] Howard Hartenbaum
Because there’s obviously something wrong with you. I mean, they don’t make you take your iPads out of your. Your backpack. I guess they’re too small to pack anything into.

[00:31:58] David Hornik
I don’t know what it. I don’t know what the distinction is, but unfortunately, because when you travel for more than, like, a day, you still end up bringing a laptop, too.

[00:32:06] Howard Hartenbaum
Yeah, I don’t know. I’ve been just doing iPads while you.

[00:32:08] David Hornik
Were gone for a day. Right. An iPad’s fine.

[00:32:10] Howard Hartenbaum
Yeah. I just had movies on it.

[00:32:12] David Hornik
Yeah. So my MacBook Air just died. The little screws on the bottom came out. So they. It turns out that it uses the tension from the bottom of those screws to keep the screen up. So once the screws came out, then the screen, then the back screen fell backwards and then cracked the entire hinge. So now I have to sit on my bed with my knees at propping.

[00:32:36] Howard Hartenbaum
It’s a design feature.

[00:32:37] David Hornik
Knees.

[00:32:37] Howard Hartenbaum
It’s a design feature.

[00:32:39] David Hornik
It’s a good thing they have a new beautiful air, because my air is dead.

[00:32:43] Howard Hartenbaum
Hey, I wanted to ask you what you think about all the Facebook shares that are trading hands right now. I mean, I just got an email from somebody yesterday saying, hey, I have a bunch of shares and second market has them at this price, 21 bucks or $21.54 or something. You want to just buy them directly from me? And I’m just like, no.

[00:33:08] David Hornik
Well, that’s astonishing. First of all, what’s astonishing to me is the small scale of this secondary market.

[00:33:13] Howard Hartenbaum
It’s a public company.

[00:33:14] David Hornik
I was asked by a venture capital journal my prediction for the future. So it was like, what do you think of this year? And then what do you predict for the future? And my prediction for the future was that the secondary market, that what goes up must come down, that the secondary market was going to crash. And it’s because both investors and buyer, buyers and sellers are playing with fire here. There’s a bunch of shares trading with the. No information. It’s all speculation. Nobody knows. You know what it could be that Facebook is going to make, is going to make $2 billion this year, or it could be that it’s going to make $200 million. Right. And buying those shares, we’re just guessing. And if someone tells you Excel is selling big time, I was going to.

[00:33:56] Howard Hartenbaum
Say other than Excel, they’re telling me something.

[00:33:58] David Hornik
Yeah. So Excel. So Excel, Right. They sold what, 1%, 2% of their.

[00:34:03] Howard Hartenbaum
I didn’t read the number. I just heard it was $500 million.

[00:34:07] David Hornik
Worth of shares they sold on the secondary market at a. At an allegedly 30. At an alleged 35 billion dollar valuation.

[00:34:15] Howard Hartenbaum
When $500 million of shares are trading hands. That sounds like a public market to me.

[00:34:19] David Hornik
And what’s amazing, one of the buyers was Andreessen Horowitz. So Mark Andreessen, who’s sitting on the board, so he has the information.

[00:34:27] Howard Hartenbaum
Wait, wait, they have two board members, one sign to another in the secondary market.

[00:34:31] David Hornik
That’s just weird. And then there were others, I think TCV or, I don’t know, someone else. There were others who bought. But so Andreessen Horowitz, what, they just raised a 600 million dollar fund?

[00:34:43] Howard Hartenbaum
Yeah, 650, I think.

[00:34:44] David Hornik
Okay. And one of their first investments is to buy shares in a company at a $35 billion valuation. That’s not a venture fund. That’s not a venture. That’s not a venture transaction. Right. That’s a public company transaction.

[00:34:58] Howard Hartenbaum
Yeah, but he gets.

[00:34:59] David Hornik
But the only one who has the information to make that a legitimate public company transaction is Marc Andreessen, who sits on the board. Meanwhile, all these other people are trading. So what do we do? Say, okay, well, Then I guess 35 billion is a fair price because Andreessen knows the information and he’s buying. And then the other guy goes, no, you’re kidding. 35 billion isn’t fair because the guy who put the first money in is selling.

[00:35:21] Howard Hartenbaum
Yeah. And here’s the other reason, because he’s getting management fees in carry. So I had a call from a friend of mine who’s another VC lately, and he said, howard, what does August do about buying shares in companies where you guys are investors or on the board of. And I said, that’s an interesting topic, because that topic flies around and there’s conservative guys who adventure funds and private equity funds who don’t buy any shares in technology companies at all, just so that nobody can ever say there was some conflict or you knew something. And then there’s other guys who are buying shares and selling shares and companies that they own and they sit on the boards of. And it on occasion becomes a big problem where people were pointing fingers and saying, what did, you know, what didn’t you know? And it becomes a big investigation. And my response to my buddy was just be conservative and just don’t do it. I mean, why.

[00:36:18] David Hornik
Yeah, that’s certainly our point of view. Right? Like, what’s the.

[00:36:21] Howard Hartenbaum
You know what?

[00:36:21] David Hornik
You can do fine.

[00:36:23] Howard Hartenbaum
Yeah, you can do fine. So, you know, it’s also. It’s not just the reality. It’s the perception. And there’s a lot of cases in some investments. In the Photo Bucket investment, there was another venture firm where all the partners bought shares directly, personally, and they didn’t put their fund into the deal. And they made a lot of money. And their LPs were like, wait a second, we’re paying you to invest money and you’re passing on a deal that made a lot of money, and yet you guys were all putting money into it? And their response was, so it wasn’t a good fit for the fund.

[00:36:53] David Hornik
Yeah, that happens. And you Know what? Maybe that’s the case. And whatever else, I don’t mean to. Look, who are we to question what other people do?

[00:37:01] Howard Hartenbaum
And what if you’re the LP and I’m an LP in some funds, and I would not be happy if I saw the partners using the deal flow from the firm to find investments and make them themselves and then. And the LP’s not making the money.

[00:37:14] David Hornik
Personally, I will say the good news on the Facebook front is the LPs are going to make a lot of money. Yeah, plenty to go around.

[00:37:22] Howard Hartenbaum
My guess is when reading that Excel sold was that they really didn’t need to, and they might not have even wanted to. They just felt it would be nice to give their investors back all of their money in the fund.

[00:37:34] David Hornik
The entire fund?

[00:37:35] Howard Hartenbaum
The entire fund. So that now they only have upside. So no matter what happens, there’s upside there. And I think there’s. You know, Bill Draper taught me, you don’t lose money taking a profit. And so for them, taking some money off the table, I think was totally a cool thing to do.

[00:37:49] David Hornik
Oh, I think at a $35 billion valuation, like, no matter what happens, I.

[00:37:54] Howard Hartenbaum
Call that win, win. It’s win, win. So if the price goes up, the fact that you made even more makes you happy. And if the price goes down, the fact that you got all your money back makes you happy. So it’s win, win.

[00:38:03] David Hornik
It is all good. Now, people, you know, there’s the half empty people who say, well, the company’s gonna be a 70 billion dollar company. And so you could have made.

[00:38:11] Howard Hartenbaum
Well, they got their money now. No, no, because it’s basically a public company. If there’s money, if the shares were distributed to you, you could go buy them yourself.

[00:38:18] David Hornik
So back to this secondary market is a public market. It’s completely illegal. I’ve been reluctant. People are reluctant to use those words. But I am here to tell you.

[00:38:29] Howard Hartenbaum
Illegal.

[00:38:29] David Hornik
It is illegal. This is not a legal market. I don’t. You know, it’s a good thing no one actually listens to venture cast.

[00:38:37] Howard Hartenbaum
Yeah, well, it’s hard to tell which of us is talking, but since both of us use the illegal word, it’s pretty easy to avoid. Figures.

[00:38:44] David Hornik
Whatever. I mean, it’ll be interesting. It’s always interesting, Howard.

[00:38:49] Howard Hartenbaum
That’s because you’re an interesting guy. So what about this bubble? This bubble that we’re in and we’re seeing, you know, series A companies that were funded at a fully valued valuation six or twelve months ago at $10 million or $15 million post money valuations for an early stage company which is very fully valued now, getting 30, 40, $50 million valuations when they frankly have not made demonstrable progress from their last financing. I say the bubble word. What is a bubble? I say it’s when people are making irrational high priced bets without data to support those investments simply because the other people are bidding up the prices or making similar investments.

[00:39:38] David Hornik
Yeah, I mean, I think it’s a totally fair thing to say that the market is heated and probably overheated. But on the other hand, the difference between like this quote unquote bubble and the bubble in the late 90s that burst and everybody said the Internet’s dead and they were, and everybody was angry about is that this bubble is all happening with private money. Right. It’s not happening. It’s not happening in the public markets. It’s all, it’s all us venture investors being dumb. Right. So to a certain extent it’s like, well, you know, if it turns out it doesn’t work, well, it’s going to be, it’s going to be a lot of egg on the face of the investors, broadly speaking. And I do think that’s going to happen. Like there are going to be a bunch of investments that don’t work. Lots of money will be put in and it will. And, and that will, and we will have to explain it. And when I say we, I mean we, the venture community, broadly. But it’s not like, you know, pension that grandma’s. Well, you know what it is, pension funds. Right. Those are RLP’s. I mean, so these things come in.

[00:40:41] Howard Hartenbaum
Cycles or who are making decisions on behalf of their pensioners.

[00:40:45] David Hornik
Yeah, exactly. So we’re.

[00:40:47] Howard Hartenbaum
Isn’t that the case with BP where, you know, like a third of the British, you know, cash flow for their pension comes out of BP or some ridiculous number and BP is now liable for so much damages from the oil spill in the Gulf that it’s impacting the average pensioner in the uk.

[00:41:05] David Hornik
Wow. Although I will say this. Good news, good news for the pensioners in the uk. I just heard a story on NPR that oysters are alive and well in the Gulf coast and ready for oyster stuffing for the holidays.

[00:41:18] Howard Hartenbaum
There’s oyster stuffing.

[00:41:19] David Hornik
Apparently they have that in Louisiana. It’s like stuffing with oysters for your turkey. But you know, there was a lot of fear that there’d be no. That all the entire shellfishing industry would be destroyed by this. And apparently that’s not true. So that’s good. It’s not just good news for bp. It’s obviously great news for us and the environment and the people and all of you environmentalists who are now going to say, don’t be an apologist for bp. Whatever. I don’t know anything about it. The only thing I know is that there are oysters available at slightly higher prices to the people for their. For their.

[00:41:51] Howard Hartenbaum
Shouldn’t they be lower prices?

[00:41:54] David Hornik
Why? Because they’re crap. There’s less demand for oysters. There’s huge demand. There’s just smaller supply because of concerns.

[00:42:02] Howard Hartenbaum
Oh, I thought maybe they the price would go down because there’s a lot of conservative people who might say, well, I’m not going to take the risk because the oysters were swimming around in the Gulf.

[00:42:10] David Hornik
See, this is the challenge. See, this is why economics are so tricky. It could go either way, but it turns out the prices have gone up.

[00:42:16] Howard Hartenbaum
I learned economists are always accurate in retrospect.

[00:42:22] David Hornik
All right, well, we have things to do, people. We have to recover from our Thanksgiving dinner.

[00:42:28] Howard Hartenbaum
Yes. I’m still feeling full and I have all that leftover turkey with it. Makes me sleepy. I think I’m gonna have some leftover turkey sandwich today. For lunch.

[00:42:36] David Hornik
For lunch? Yeah. When we bring in our bag lunches, that’s what we have. All right, well, this has been David Horick from August Capital and Howard Harkenbaum from August Capital, and thank you for listening.

[00:42:48] Howard Hartenbaum
Have a happy Christmas.

[00:42:49] David Hornik
Exactly. Bye. Bye.