Generated Transcript

[00:00:15] David Hornik
Hello and welcome to VentureCast. I am David Hornik from August Capital.

[00:00:20] Howard Hartenbaum
And this is Howard Hartenbaum, also from August Capital.

[00:00:23] David Hornik
And we’re back. Who was I talking to? Oh, you know what, I was at this, this event for pri, Public Radio International, and I was talking with this, this gentleman who’s now a professor at, at the Harvard Kennedy School, and we were chatting about venture capital. He kept asking me these questions, what about this? What about that? You know, I was giving him these answers and he, and then he turned to Alyssa Miller, who’s the CEO of pri, and said, you need. This is what we should have a show. This should be a show, whatever. And she said, and she said, it’s a great podcast. He said, it’s too specific. In fact, according to, according to her, these vertical specific shows about a particular topic area are no longer interesting to public radio broadly because they don’t have a big enough, A wide enough audience. So we’re not.

[00:01:12] Howard Hartenbaum
Wait, what if we proposed, like, to at least do four different topics in each show? So we got the whole like, okay, we’ll do the tech topic and we’ll do the business topic and we’ll do the human interest topic.

[00:01:25] David Hornik
Well, I want to be on pri. That would be, that’d be awesome, right? Have PRI distribution. Well, I was saying to her, actually, anyone who’s listened to venturecast knows that it actually has very little to do with technology. We don’t get to that very often.

[00:01:38] Howard Hartenbaum
So let’s plan the next show to be a demo tape for PRI and we’ll talk about it, and then we’ll send it off to them and see what happens.

[00:01:46] David Hornik
All right, I like it.

[00:01:46] Howard Hartenbaum
We need distribution because all you 42 people listening to this.

[00:01:50] David Hornik
Yeah, we appreciate all of you, but, you know, all right, I like it. We’ll have our entertainment segment. We’ll have. So next Venture cast, you’ll be like, what? This has gotten even more random than it was before. To be a variety show. Random is good, but, you know, so actually, I don’t know if you listen. Do you listen to a Car Talk with Click and Clack thing every Sunday, so. Because they’re brothers in arms, right? They’re MIT grads who run it, who run a garage.

[00:02:12] Howard Hartenbaum
Really old. Because that show has been on for a long time.

[00:02:16] David Hornik
Yeah, exactly. So I said, well, what about, what about Car Talk? Because that’s kind of specific, right? She said, no, that’s a, that’s an entertainment show. Like, it’s a comedy show. It has nothing to do with cars, which is Sort of true, right? I mean, half the time they’re talking about, where are you from? You’re from Peel your Vermont. Like, what? You know, how. How do you even pronounce that? Whatever. So I think actually we’re more in that mold, don’t you think that we’re comedians? Yeah, exactly.

[00:02:41] Howard Hartenbaum
We’re comedian. And I’m just the backup guy.

[00:02:43] David Hornik
You’re my straight man.

[00:02:44] Howard Hartenbaum
I’m the. I’m the mirror that it bounces off of.

[00:02:48] David Hornik
So you’re like, what? You’re like the wall I’m talking to.

[00:02:51] Howard Hartenbaum
What is it, Howard Stern and who’s robbing Robin?

[00:02:54] David Hornik
Yeah, well, you’re Robin. You want to be Robin, because Robin’s is useless. You’re way more useful than Robin. So. So anyway, so she said that.

[00:03:03] Howard Hartenbaum
Can you imagine the salary differential between Howard Stern and Robin?

[00:03:06] David Hornik
Yeah, like. Yeah. Well, it’s probably, though, you know, this. We are the 99%. Right. You know, it’s like, what the statistics they’re talking about. Is it 40x or 400x that they’re talking about between the CEO and the average work and the worker? 400x difference between the lowest paid worker and the CEO in a corporation, which I actually happen. I mean, I didn’t intend to get political. It’s not. But, you know, that is sort of astonishing, don’t you think?

[00:03:36] Howard Hartenbaum
Yeah, I, you know, we can get into a very political conversation, but I’m actually an advocate for increasing taxes pretty significantly on people who make a lot of money.

[00:03:45] David Hornik
Yeah, right.

[00:03:46] Howard Hartenbaum
I just have a problem with all the bastards who cheat on their taxes and just leave it to the people who are honest to pick up the mess for them. So I’m an advocate of raising everybody’s taxes and getting really punitive on people who cheat on their taxes. Like people who harbor money in an account overseas, take all the money away.

[00:04:01] David Hornik
So this is really interesting. I would never have guessed that. So Howard and I have had lots of conversations, and Howard, you’re a fan of making money. Like, you believe, like, okay, it’s focused on making money, whatever. And. And so I wouldn’t have guessed that you would hold this position. Like, I’m a socialist. So, you know. But I agree with you completely. But it’s interesting.

[00:04:22] Howard Hartenbaum
So I cannot stand the word of the use fair in this discussion, because life isn’t fair. Nothing is fair. We define this whole argument. I mean, we can take this whole show about the other nine.

[00:04:34] David Hornik
Oh, God, here we go.

[00:04:35] Howard Hartenbaum
But, you know, why do we make it something about national borders? I mean, if if the discussion is about fair, why isn’t it the whole world? Why aren’t we donating money to homeless people in India?

[00:04:46] David Hornik
Well, you know, so it’s interesting, right? I talk about this a lot in my startups, which is, you know, when you talk about salary or you talk about equity, and when my startups say, hey, David, it’s, you know, this person doesn’t have enough equity because X, Y and Z, it should be fair, I say, look, there is no such thing as fair. There’s only what is necessary to motivate people to behave the way you want them to behave when building a big company where everybody’s going to make a ton of money, right? So if it works great, then everybody does great. But there isn’t a fair like, oh, so and so has, you know, 1% of the company. So this person needs to have 1%, because when you do that, it just means that everybody has to have 1% or whatever. Right? You never so fare isn’t a useful conversation to me. What what is useful is how do you motivate the behavior you want, right? So people will say, oh, well, look, it’s capitalism and you, if you over tax the CEOs, no one’s going to want to be a CEO. Well, you know what, there’s gotta be somewhere between, you know, making a million dollars and making $26 million where you’re still motivated. I don’t know what that is, but, you know, I have to assume there is. Right.

[00:05:54] Howard Hartenbaum
Well, I just look at it from, so I lived overseas for 10 years and have traveled all over the world, and we have it really good here. And if you let that separation get more and more and more over time, eventually the fabric of society will fall apart.

[00:06:10] David Hornik
Well, and that’s sort of where we.

[00:06:11] Howard Hartenbaum
Are and it’s getting there. And so I see no reason with the people making a decision and the people are the government to take more money from people who can frankly afford to pay more money as long as it’s not wasted frivolously building bridges to nowhere that it benefits the entire society so that we have a safe, stable society for all the people who choose to live here. And if they don’t want to live here, they can leave and go someplace else. Unfortunately, they don’t want to leave.

[00:06:39] David Hornik
Yeah, right. Well, this is a great place now. So the interesting thing is, and I struggle with this, I was talking with my mother who was annoyed at me for not being more supportive of the Occupy movement. And I was saying, well, my problem with the Occupy movement isn’t the movement. My problem is that there’s no clear message and there’s nothing they want. You know, there’s no here are the things we want to achieve. And in fact, my son was, is, was doing a school project, and so we went to the Occupy encampment in Boston so he could videotape a bunch of people for a documentary. And so I was spending time there. And it’s an incredibly disjointed set of, you know, this is unfair, this is unfair, this is unfair. And they need, they need a clear message, which is, these are the things we want to achieve.

[00:07:22] Howard Hartenbaum
But like health, universal health care, or.

[00:07:26] David Hornik
Like, yeah, pick a thing. So if it’s, if it’s economic, if it’s, it’s the dish, the inappropriateness of the disproportionate money that a CEO is making, great, let’s make that the message that this just, you know, the average worker to CEO salary gap needs to be fixed, and here’s how we’re gonna do it. So, and so then I’ve been thinking a lot like, oh, how do you solve that? Now, obviously the easy thing is we tax the wealthy more or whatever, but.

[00:07:51] Howard Hartenbaum
It, but then you have Obama’s solution, redistribution.

[00:07:55] David Hornik
It’s not even, you know, so maybe that’s income redistribution, whatever, but, but it puts this middleman, which is the government in between, et cetera. Whereas if we could create some regulations, some rules that would encourage the, the flattening of that curve, then that would be more valuable, right? Get corporations to do it themselves. Instead of CEOs making $26 million, they’re making $5 million.

[00:08:19] Howard Hartenbaum
And instead of policy like increasing taxes on the companies for paying out disproportionately.

[00:08:25] David Hornik
And then every time I think about that, I think, well, every time we hear about the US May change corporate tax structure, then we know a bunch of companies that then go set up offshore in Ireland or whatever else and think, well, that’s certainly not helpful either. You know, it’s just, it is a little bit of a whack a mole problem where you solve one thing and it, and it pops up. But what I would love is for someone like a Robert Reich or someone else to say, all right, I’m going to take it upon myself to be the mouthpiece for sound fiscal policy that makes sense for this movement so that then, you know, smart people can say, okay, yeah, I get it and I appreciate it, and I believe in the movement and there’s a message and whatever else, but that’s Been my, that’s been my challenge so far. So now here’s a really no back to venture cast, right? The other thing that I’ve been thinking about is obviously it’s all this, you know, Occupy Wall street and Wall street sucks and they’re extracting too much value and they’re getting overpaid. And then I think about us, right here we are, and when it works, we get paid a lot of money, right? You know, if, if we fund a company that works, we get paid a ton of money. On the other hand, you look at it, you know, this year I have a handful of companies that have somewhere between three and 500 employees, right? And when we funded them, they had three employees. And isn’t that exactly the behavior that we want to encourage? Isn’t that exactly the sort of thing that’s going to get that, get this country back on its feet, et cetera, as to, is to fund and create companies that start hiring a ton of people, high paying jobs, real value, whatever. And so while I’m with them, that, you know, this kind of Wall street money moving around thing doesn’t strike me as hugely productive. I still am a patsy for the venture business. I still think that what we do.

[00:10:07] Howard Hartenbaum
Is part of it comes from just human nature. So, you know, 100 copies crazy terrorists can change the world for everybody else. And perfectly innocent people can be stereotyped and say, oh, you wear a headscarf, you must be a terrorist. Which is just wrong. There’s a hundred crazy people and they cause all these other behavioral changes, but it’s just like the other 1% or the other, you know, the statistics in the Journal were like, you know, there’s more doctors that are the other 1% than there are finance guys and there’s more lawyers who are the other 1% than there are finance guys. But that’s neither, you know, oh, you’re a finance guy, you must make a lot of money. And that’s really not true. And if you look at the venture industry, for example, 75, 80% of general partners of venture capital firms have never in their lives received a performance based carry check based on their companies being successful, because a lot of venture firms are not successful. So just because a guy’s in the venture business doesn’t mean he makes a lot of money.

[00:11:11] David Hornik
Yeah, necessarily. I mean the structure, certainly the structure is designed to do so.

[00:11:15] Howard Hartenbaum
But that doesn’t mean you get it.

[00:11:17] David Hornik
No, I mean, actually might as well play the lottery to a certain extent. You know, again, it is a meritocracy because the really big money in the venture business is building companies that are hugely successful. Now, you could say sometimes that, you know, is lottery like or whatever, but the reality is, if you look at our partner Dave, Dave Marcourt, who was the first money in Microsoft, Sun, Seagate, Compaq, Symantec, Xilinx, like, that wasn’t a fluke. Right. So the fact that he made a bunch of money, I’m assuming. I know nothing of his finances. He may have given it all away. Right. But the fact that he made a ton of money, he created, you know, hundreds of thousands of jobs. Helped create hundreds of thousands of jobs, all that. And so I don’t feel badly at all about him making a lot of money. So it’s this trick. I do think it’s a. It’s a tricky, you know, it’s a tricky question.

[00:12:09] Howard Hartenbaum
Yeah.

[00:12:10] David Hornik
So as if that already, I’m sure we’ve infuriated plenty of people. So I think we should move on to race in Silicon Valley, since that seems to be, like, the next thing that people are talking about.

[00:12:22] Howard Hartenbaum
No, no. When you said something about, you know, it being fair and giving equity out to employees and what’s fair and not fair? What about these companies? Companies that take away equity?

[00:12:32] David Hornik
Oh, yeah. So that’s.

[00:12:34] Howard Hartenbaum
That’s where I thought you were going with that, actually.

[00:12:37] David Hornik
That is a good point, Howard. Meanwhile, Howard’s just skirting the question of race because, you know, Howard and I were chatting before going, starting to record, and he said, oh, that’s the third rail. Stay away from that.

[00:12:51] Howard Hartenbaum
We’ll get on the third rail after we touch on this topic.

[00:12:53] David Hornik
Yeah. So I’m sure you’ve been reading that there was a Wall Street Journal report yesterday that basically said Mark Pincus is a bad guy, that Zynga is a bad company. And Mark Pincus is a bad guy because he had a list of people who he had granted shares to in the early days of Zynga, and he has decided that they are not worth the value of those shares today because the company may be worth billions of dollars. And he has told them that, hey, look, either you give back some of those shares or we fire you right now. It’s not, I think, knowing what I know of stock, it’s not give back the shares that have vested. It’s create a new vesting schedule or whatever so that instead of you getting 200,000 shares, you get a hundred thousand shares. And if you don’t want to do that, you’re fired. Right. Or you can leave Right, Yeah. Well, whatever. You can leave. You can leave peacefully or you’re fired.

[00:13:50] Howard Hartenbaum
Right.

[00:13:51] David Hornik
So that’s the pernicious, like one. And then what was interesting was then Dan Primack writes an article where he basically says, look, this is. This is actually great. This is. This is. I mean, he didn’t say it was great, but he said this is totally appropriate behavior. It’s actually consistent with the Zynga that Mark Pincus is trying to build, which is to say that Mark says, look, this is a meritocracy. You have to perform to a level. And if you don’t perform to that level, then I’ll put you in a different job. But I’m. But you should have different stock associated with it. And so instead of just firing people, in fact he’s giving them the opportunity to have different jobs that have different compensation. He’s just in compensation appropriately. But instead of being draconian and just firing them, he’s giving them a different role. What do you think? Which one. Which do you think rings more true? Mark Pincus is fucking people or Mark Pincus and is creating the true meritocracy of Silicon Valley? And maybe I shouldn’t make it so personal.

[00:14:46] Howard Hartenbaum
So, because it’s being done in a new and different way. It’s a very polarizing thing that’s going on. And I think you do describe it at the completely polarized edges to it, but take it from the people with the stock. So let’s look at it from two different viewpoints. One is, I’m the employee who just got that email From Mark Pincus vs I’m somebody outside the company viewing this. So if I’m the employee, I think that the bash over the head for a forced emotion in the company is such a terrible thing. You probably lose the motivation of that employee to really love their job and perform and be a good player in the process anymore, because you took a lot of risk. You picked a company that was a total, total risky business. You sweated in that place. You sweat. I mean, these guys are working six, seven days a week, I’m sure for a few years. And now that it’s worth a lot of money, and you’re like, this was the one. I made it work. And now they’re saying, we’re taking some of that away from you and you are already counting on it. And wait, the stock goes at this price and how much am I going to get? So this is not only a demotion, this is taking away a huge potential upside in net wealth that you personally were planning on, and this was it. And so from that perspective, I think it’s a big mistake to do it. And I think that if he wants to move people to another job and say, hey, you know what? We can find somebody better for this job, and if you don’t want that job, you can leave. He could adjust cash down if he so chooses to do so. But to take away equity that that person had been working towards and their decision in taking the job early and taking risk to join the company and maybe leaving something better on the table because of the offer, this is something new. Taking away stock in the process, I think it’s just flat out wrong.

[00:16:42] David Hornik
So that’s super interesting. I hadn’t really thought about. So I have to admit, now you.

[00:16:46] Howard Hartenbaum
Have employees who hate their job, and they feel like you just. I just want to get my money and get the hell out because you screwed me.

[00:16:52] David Hornik
Yeah. No, so it’s funny. I mean, my initial reaction was that, like, holy cow, I can’t believe that these guys are, you know, that. That you would do this, right? That there is a little bit of a pact that says, we’re gonna build this and you get what you get, and we’re gonna go forward and build a company and whatever. Right? And then I read Dan. Dan Primack’s article. I was like, huh, okay. Well, that’s sort of an interesting way to think about it, because I. I have to admit, like, I haven’t. I can think of at least one instance where I said to a CEO who was considering whether or not to find Fire a particular person, look, they’re just in the wrong job, and if they were to do this other thing, they’d do a great job at it. It’s just they’re being compensated disproportionately. And so why don’t you just give them the choice of. We’d love to have you stick around, but this is a more reasonable thing. Right? So. Which is really what we’re talking about here. And so the question. So, all right, so then I swung back. Okay, maybe it’s not as pernicious as I thought it was. And then now you raise a whole new thing, which is this, like. But maybe they joined, they turned away other things, and because of a particular choice they made about equity. And now that’s being reset. And that’s. And so, yeah, and you’ve got it.

[00:18:03] Howard Hartenbaum
And this is kind of like blaming it all on the worker. So if the. The business manager puts you in the wrong job, hires the wrong person, doesn’t train you properly. Why isn’t he getting any of the punishment for this? So why. For every share that Mark Pincus rescinds from his employer, he should, they should be rescinded from him as well for managing the business poorly.

[00:18:24] David Hornik
Someone, someone referenced that and you know.

[00:18:26] Howard Hartenbaum
Oh, it was in the article as well.

[00:18:27] David Hornik
Does someone put I forget where I.

[00:18:28] Howard Hartenbaum
Read a job and they made bad decisions?

[00:18:30] David Hornik
Yeah, they said so. Fine, right. Yeah, you take away some. So here are the two things that I think if, if in fact it’s happening are the things that make it a bad precedent for Silicon Valley and something, you know, and an example of, you know, behavior predator. What I feel like it feels a little predatory is one. It sounds like it’s system. It doesn’t sound like this is a one off thing. It is. Here’s a list. One of the things said that Mark kept an underperformers list, right? So it’s here’s a list and let’s go and systematically claw back a set of equity which we think will be better spent elsewhere. That strikes me as crazy, right? If there’s a set of circumstances where you feel that things you have to sort out, fine. But it feels to me a little bit like, man, this stuff is really valuable and we made choices that we don’t feel great about in retrospect and we’re just going to yank back some of these shares. And now I would feel better about it if it was like, okay, and here are a bunch of people we’re going to hire that we’re going to give these shares to, whatever. But it feels to me like here’s an opportunity to increase your ownership by extract, by pulling out ownership from other people.

[00:19:39] Howard Hartenbaum
If he wants to demote people into different jobs and change their cash compensation, I don’t have an issue with that. But I think when it comes to equity, if like I said, hiring mistake, lack of training mistake, poor management mistake, then increase the option pool, dilute everyone, including the management and use that stock to hire new people into the company and dilute those employees as well. But to simply say we’re taking some stock away from you, I’m just flat out wrong.

[00:20:05] David Hornik
Well, I mean, it reminds me of the Skype thing, right? I mean the Skype, Skype thing was even more blatant, right? That one was despicable. In fact, everybody involved in that Skype, you know, in the ownership of that, of Skype at that point should be, you know, should. People should be really pissed off about this.

[00:20:23] Howard Hartenbaum
So what happened there was, if you Go back and read the press. A few months ago, after Microsoft agreed to buy Skype, but before the deal closed, some higher level employees were let go and some lower level employees and then some of them felt, found that stock that they thought had vested was being repurchased by the company and there was nothing they could do about it. And the way this was done was there was a stock plan referred to another agreement that was how the stock was issued out of this European company. Skype was a European company that had something called a bad lever clause. And a bad lever includes somebody who leaves voluntarily and doesn’t stick around. And so even though you may have thought you were vested, you worked for one. You know, you worked for 364 days and you’re like, I’m just going to go one more day. So I hit my one year cliff and you do. And you think you hit your cliff and you go, you know what, I’m out of here. It’s not a good fit, but at least I got my year stuck. The management could say, oh, he’s a bad lever and they buy back your stock from you and there’s nothing you.

[00:21:26] David Hornik
Can do about it, but at a low price, at your purchase price, at your purchase price.

[00:21:29] Howard Hartenbaum
As I posted and after the Microsoft deal had already been announced and you knew what your stock was worth and so it was really a very uncomfortable.

[00:21:36] David Hornik
So again, I wasn’t, neither you nor I were involved in the management of the company. So we don’t know precisely what happened. But here’s what, from everything we know, here’s what it feels like. It feels like there were, there was an owner group and that they were maximizing the total value of dollars coming to them at the expense of other people.

[00:21:54] Howard Hartenbaum
Right, so you mean the other 1%.

[00:21:56] David Hornik
That’s right. This one is classic, right? This one is exactly.

[00:21:59] Howard Hartenbaum
We’re reaching into the pockets of the other 90% and just taking the money out.

[00:22:02] David Hornik
Now, some of those may not have been the 99, some of those might have actually been the other 1%, it turns out. But whatever. The point is like there were a set of people, there was a, there was a pie that had been divided in advance of selling the company. They sold it and it was worth a bunch of money. And then they said, great, now who can we, you know, I mean that’s really what it felt like. Who can we re, who can we fire and take back their shares? Who can we, who can we.

[00:22:26] Howard Hartenbaum
And I think probably there’ll be settlements because there’s, there was Vesting language and cliff language and then referring to another document which negated that, which was. It depends. Lawyers will make money on the deal. There’ll probably be some settlements. But in the end, the guys who made all the extra money probably don’t care.

[00:22:45] David Hornik
But here’s the thing. And they should, right? And this is again, why I think, ultimately what I like about venture capital, what I like about Silicon Valley in general, why I think these things reflect badly on Silicon Valley and they create the wrong precedent, is our goal is to fund smart people doing interesting things that we hope get bigger. And as they get bigger, everybody’s value increases. And at some point you have an outcome that results in lots of people making lots of money. Right. And everything we do should be about increasing the piece of not decreasing the number of shareholders. It should be about increasing the total dollar value. Right.

[00:23:27] Howard Hartenbaum
No matter what you do, it’s always going to be an issue because a guy who worked at Zynga for eight months and only made $100,000, only $100,000 and is sitting next to a guy who worked there for three years sitting right next to him who made only $14 million, and they’re sitting next to each other. And no matter what you do, the guy who made 14 thinks he didn’t make enough. And the guy making 100, of course, feels.

[00:23:55] David Hornik
Yeah, of course. I. Yeah.

[00:23:57] Howard Hartenbaum
But no matter the inequalities, I think.

[00:24:00] David Hornik
Well, it is a tricky thing, right? Because if you were lucky enough to be. So one of the articles on the Zynga thing said, you know, one thing that they’re trying to avoid is the Google chef making $20 million. Right. But on the other hand, I don’t know why you would try and avoid that. Like, that’s a great outcome. Like if a guy can join and provide value and be the chef and make everybody happy and then turns out that the stock he was given is worth $20 million. Isn’t that the whole point? Like, isn’t it? I think at the end of the day, we’re trying to create monumentally important, valuable companies that change people’s lives and in the process are worth a ton. And that everybody who touches it can make a bunch of money, Right?

[00:24:38] Howard Hartenbaum
And bringing it back to the hiring date. Maybe the Google, Google chef was offered a position at Zynga.

[00:24:44] David Hornik
Yeah, right.

[00:24:44] Howard Hartenbaum
Some other company. And he balanced out the offers and never occurred to him they were going to screw him later and take the shares away and made his choice, and later they’d get taken away. And had he gone to the other company, which didn’t do as well. He would have made more money. I just called it.

[00:24:57] David Hornik
And ironically, I mean, you know, so they use this as an example. But I bet you if you asked all the Google people, do you. So that, that chef is Charlie Ayers. And if you asked him like, do you feel like Charlie got an unfair deal or whatever, they’d be like, we love Charlie. Like, you know, Charlie’s opened a restaurant in Palo, Palo Alto that, that, that, that all the Google folks go to and I’m having a wife or. No, no, no, not. It’s in, it’s in. It’s in town and country. Oh, my wife is going to kill me because she’s always there and Charlie’s going to kill me. No, something fell.

[00:25:33] Howard Hartenbaum
Calafia.

[00:25:33] David Hornik
Califia. Thank you, California Califia. Sorry.

[00:25:35] Howard Hartenbaum
That place is awesome. I go there all the time.

[00:25:37] David Hornik
All right, so yeah, so Charlie open in the morning. But. So Charlie opened Calia. And all the Googlers go and they, you know, and nobody is saying like, oh, I can’t believe that he had the money to open his own restaurant or whatever. They, no, they say, man, we were well fed. He created a culture that was the right culture. And it. And because everybody made a ton of money, so did he. And good for him, right? What, what is the bad part of that?

[00:26:01] Howard Hartenbaum
So this comes down to the, the schadenfreude versus Maduta argument. Schadenfreude is you take pleasure in other people’s misfortunes. You know, you kick a guy who’s down or. Yeah, and meduta is you take pleasure when other people do well. And Meduta is the minority.

[00:26:17] David Hornik
Yeah, well, I’m all for Maduta and.

[00:26:19] Howard Hartenbaum
I think the VCs have to be that way. But every now and then there’s some business guy and you think businessmen should have to be that way as well. But every now and then there’s a pincus or somebody who’s just like, hey, it is what it is.

[00:26:31] David Hornik
And yeah, here’s our opportunity. And yeah. And again, like, look, you kick him.

[00:26:36] Howard Hartenbaum
In, I’ll take the money out of his way.

[00:26:37] David Hornik
Mark and I have known each other a long time. This is not intended to be the Mark Pinkus, you know, bashing hour. And you and I are not involved in the day to day. And so whatever I’m gonna be in, I’m gonna be in London next week with Reid Hoffman, a bunch of people in this thing called Silicon Valley in the uk. So I’ll chat with Reid and I’ll get the scoop, and then I can assure you I won’t be allowed to report it.

[00:26:57] Howard Hartenbaum
But if Mark hasn’t thought about it from the perspective of he may be causing his employees great mental stress, dissatisfaction with their jobs. You know, having stock rescinded might cause an employee to intentionally do a bad job, be unhappy or whatever, and just stick it out and kind of just fill a chair and, And I think that’s not what he wants. He wants them to be happy. And those people have institutional knowledge and experience, and you’re much better off to keep those guys happy than to bring in some stranger into the company.

[00:27:26] David Hornik
Yeah, no, all I’m saying is we don’t, you know, it may not be systematic. It may have been two people. It may not be true. Yeah, it may be below. No, Mark sent a memo around to the, to his, to his employees, and, you know, send an email to his employees, you know, basically saying, look, you know, we’re just trying to build a, build a meritocracy or whatever, you know, so some things happen. But all I’m saying is, like, a lot of what we have in Silicon Valley land is a bunch of hearsay. And it goes around and everybody argues about these things, and it turns out if you knew what actually was going on, you go, oh, well, that makes sense. So that’s possible. But which doesn’t mean this isn’t an interesting conversation because as you’re thinking about your business and as you’re thinking about how to create the right culture and motivation, whatever else, then, you know, build a big pot, you know, bigger pie. That’s, you know, that I’m, I didn’t know the term meduta, but, you know, I, But I’m with you. Like, I’m thrilled that everybody is going to do, do really well. I always have been. You know, I used to be the attorney, right? And I would go home in the late 90s every other week we were selling some company for hundreds of millions of dollars. And some, you know, someone would make tens of millions of dollars and I’d go home and my, and my wife would say, like, doesn’t it kill you that you stay up all night and then they go home with tens of millions of dollars? And no, like, they’re so happy. It’s great. It’s a great outcome when things go well, don’t worry, honey, 5% is going.

[00:28:45] Howard Hartenbaum
Off to the Swiss bank account nobody’s ever heard of.

[00:28:48] David Hornik
Yeah, not to me. I was the lowly associate. I think I got a bonus at the end of the year or something. Yeah, well, what else. What else is that?

[00:29:02] Howard Hartenbaum
Did you want to touch that third rail or not touch the third rail?

[00:29:05] David Hornik
Do we want to talk about media? Shoot. It’s been a controversial enough show. What the hell? So I’ll tell you something. I was gonna. I actually, I was. I was gonna write about this for Venture Blog. This is probably a better forum for it. But here’s what. I’ve often talked to people a lot about the venture process. And one of the things that I say, you know, kind of tongue in cheek, is that VC’s kind of fund people who are like them, right? Because we’re all such a bunch of egotists that when you see someone who reflect who you think is like you, you go, oh, yeah, that’s someone I want to fund. Right? And you gotta admit, if you look around at the companies we fund and the different partners in the firm, they kind of reflect the people who we are and etc. And so.

[00:29:48] Howard Hartenbaum
So you’re saying I’m a woman.

[00:29:50] David Hornik
That’s true. You have funded, what, your last two women like you. Right. So, I mean, actually, that’s an. It’s an interesting outlier question, but. So I was talking with a group of San Jose State business students, and I was kind of talking about the process, and as I said, this thing where I, you know, my kind of, hey, I think people kind of. We kind of fund the people who are like us. I turned to my left to this African American student as I said it, and I thought in my head, huh, if he’s hearing this, he’s gotta be pissed. You know, like that. And. And it was this moment in time, as this race conversation was coming up, that I thought, you know, maybe there’s something to that. Right. Like, I do think Silicon Valley is a meritocracy and all, but at the end of the day, this isn’t about. I don’t think this is about explicit bias. It’s not about, we’re not going to fund someone who’s X or Y or Z race. It’s about what are the small factors that lead us to ultimately invest in someone.

[00:30:56] Howard Hartenbaum
And, you know, personality traits.

[00:30:59] David Hornik
Yeah. So it’s a set of things, right. But if it’s these subtle things, like, are you. Do you remind me of me or did you go to my institution or whatever. All of those things have the possibility of making it less likely that you fund someone who is African American, who is a woman or whatever. And it doesn’t mean we’re not doing it in Fact, as you know, as we will now point out. So you don’t think we’re sexist or racist? You know, my last company I funded hadn’t has an African American founder. The last two companies you funded are women founders and CEOs. You know, but that doesn’t mean anything like, that’s great. Okay.

[00:31:36] Howard Hartenbaum
A few months ago, a woman came in and started off her pitch by saying, I know you won’t fund me because I’m a woman.

[00:31:45] David Hornik
Now you’ve guaranteed it.

[00:31:47] Howard Hartenbaum
I was just like, you got to be kidding. Why is that?

[00:31:50] David Hornik
Why do you think that is?

[00:31:51] Howard Hartenbaum
It went on for a while and a while and a while, and then I just couldn’t help myself and said, but you realize the last two companies I funded, the CEOs were women. And that was kind of the end of the meeting. She turned bright red, she got uncomfortable and started shifting in her seat, and she applied, apologized, we chatted for a few more minutes, and then she left.

[00:32:07] David Hornik
And it’s so. I mean, that is just stupid. Right? That’s, you know, again, I’m not saying that. I’m not trying to be an apologist for us and say, look. Look at what good guys we are. We f. We, you know, we fund.

[00:32:18] Howard Hartenbaum
We don’t care.

[00:32:19] David Hornik
Whatever. What I’m saying is that I do think that even though I think it’s. That Silicon Valley is a. Is as clear a meritocracy as exists in the US that we are still clearly affected by these. By these little clues, these little things. Right. Because what do you think? We see about a thousand deals a person a year, and we fund a couple of them. And so there. All these things, everything has to align. And what are those sets of things? And so I think if there are things where. If someone is more likely to know the people, you know, is more likely to have worked at the company or whatever, that they all make it harder to succeed if you’re someone who is an outlier, whatever that thing may be. And so I think it’s unrealistic to say that this is such a great meritocracy and we don’t have any of these biases. I think that they exist.

[00:33:11] Howard Hartenbaum
I think it’s human nature that there’s always biases that are involved, but they’re just a small piece of it. And you may have those biases, but it’s overweighted by other things in the process.

[00:33:22] David Hornik
Yeah, ultimately, no. I mean, again, we’ve funded people who have these. Who have these challenges based on society and all those things so obviously you can overcome it. But, you know, but I, but I don’t want to then say, well, okay, let’s ignore it. I think that it’s, I think that, you know, that moment in time talking to those San Jose State students when I said, gee, we fund people who are like us, looking at a guy who, you know, at least didn’t look like me and had the right to sort of say, hey, fuck you, you.

[00:33:51] Howard Hartenbaum
Know, did he say anything?

[00:33:52] David Hornik
No, he didn’t. Because I then, feeling uncomfortable, said to, you know, to the group, you know, people who live in Silicon Valley and are enthusiast, you know, gave all these characteristics that were like all of them, because it’s true, right? It’s not just about what you look like, it’s not just about. But on the other hand, it felt uncomfortable enough that it was a wake up call, like, hey, guess what, you know, that’s not necessarily a good thing. Like, let’s fund people who are doing great things, who have the characteristics of being great leaders and all of those things. Those are the things we should focus on. So anyway, I don’t have any big conclusions from the debate other than I think we should be focused on at least being aware of it and making sure everybody gets a fair shot. And don’t be foolish enough to think that, hey, look, we don’t have to worry about this total meritocracy.

[00:34:34] Howard Hartenbaum
So don’t come in like that woman with a chip on your shoulder thinking it’s stupid.

[00:34:38] David Hornik
How does that convince anyone to do anything?

[00:34:40] Howard Hartenbaum
She wasted her time and wasted my time.

[00:34:42] David Hornik
Yeah, no, absolutely.

[00:34:43] Howard Hartenbaum
And turned out to be quite a nice person. But with an attitude like that, I think it’s going to be hard to build a great business. If you think that, and frankly, wasn’t that interesting an idea, maybe that was the reason why she couldn’t raise money.

[00:34:57] David Hornik
Well, yeah. Guess what, entrepreneurs, no matter what your color, race, no, it doesn’t matter how.

[00:35:02] Howard Hartenbaum
Much you look exactly like David Hornik. If you’ve got an idea that’s not that interesting, you’re not going to get funded.

[00:35:08] David Hornik
Yeah. And let’s be clear, I’m not delusional. Like, you know, speaking of that, right. Like, if you do look just like me, you’re actually at a disadvantage. It turns out that the average CEO in America is six feet tall or six foot one. Right. Being a CEO is about being this big, commanding presence and being five foot four like me is not the way to be the model CEO who’s going to go, you know, take a company public that’s just the case, right? I was talking to a guy.

[00:35:35] Howard Hartenbaum
Because if you’re at the lectern at NASDAQ and you’re banging on the gavel and nobody can see ahead.

[00:35:39] David Hornik
Yeah, right, exactly. I’m gonna ring the. I’m gonna ring the bell. Hello, people. Who did that? Where’s my.

[00:35:45] Howard Hartenbaum
I see the gavel.

[00:35:47] David Hornik
I was talking to a guy just yesterday, and he was talking with the CEO who he said was £400, and he was talking about funding him. The guy was gonna build a big company. And he literally said to the guy, hey, you know, you want to build this big Fortune 500 company? Tell me, any other Fortune 500 company run by a guy who’s £400.

[00:36:10] Howard Hartenbaum
My feeling towards that is that people, I think everybody makes a big deal about they’re overweight and they should lose weight. I think there’s a lot of people that there’s just nothing they can do about it. Their body is what their body is. But when somebody is £400, you worry about the person’s health.

[00:36:28] David Hornik
Yeah, it’s chat. Well, so again, this is all about bias, right? Like, short guys are not seen as powerful.

[00:36:34] Howard Hartenbaum
They work hard.

[00:36:36] David Hornik
We’re hard workers. It’s because our metabolism, we have less body mass to worry about. You know, overweight people are perceived as weak in some instances or whatever. And the challenge, or unhealthy or whatever, I mean, all these things, right? We had one CEO who was a daredevil, you know, motorcycle rider, mountain climber, whatever, who, as I recall, when we, before we funded this particular company, he said he agreed not to do these things. It was a unique circumstance.

[00:37:04] Howard Hartenbaum
But I mean, life insurance, do you parachute? No.

[00:37:07] David Hornik
Yeah. No, Right. Huh. Why did you die parachuting? Key man life insurance is an unbelievably stupid thing as far as I’m concerned, Right? You know, I understand this idea, like, okay, the company makes 2 million bucks if you die, but if you’re an amazing CEO and you die, $2 million doesn’t do anything like, that’s not gonna, you know, when Steve Jobs passed away, no amount. What key man life insurance do you think would make up the difference for Apple? A trillion dollars in key man life insurance?

[00:37:37] Howard Hartenbaum
I think a better question is, if somebody went and did the research for every venture backed company in the past 20 years, how many CEOs died before the company was stable? Founder CEOs before the company was stable enough to hire somebody new? I mean, I can only think of one case where the guy died, which was the CEO of Prosper, and he had liver cancer. He was in his early 40s and literally from recognizing it to dying was like six weeks. Whether or not he had key insurance, I really don’t know. The company is thriving to do regardless.

[00:38:11] David Hornik
Well, you know, so. So our partner, Vivek Mehra’s company, founded by some guys and one of his co founders got in an accident, as I recall, and died.

[00:38:20] Howard Hartenbaum
Died between the term sheet and the final closing.

[00:38:23] David Hornik
Yeah. So trap a tragic death guy who could have been a huge. Had a huge impact on building the business. But obviously they built a big business.

[00:38:31] Howard Hartenbaum
And the investors came to the founders said, you guys want to move forward? And they’re like, yep. And they just took another founder, Mark Orr, and said, you’re the CEO now. And they went on to become a billion dollar company.

[00:38:40] David Hornik
Two.

[00:38:41] Howard Hartenbaum
You know what? Well, multi billion.

[00:38:43] David Hornik
Multi billion. Yeah.

[00:38:44] Howard Hartenbaum
So the point being, maybe if that guy had been around, it wouldn’t have been.

[00:38:48] David Hornik
Yeah. I mean, this is always the tricky thing, like, what are the things? What are the things? Right. You know, Mark Pincus. Who. Mark. Excuse me, Mark Pinkus on frame. Mark Zuckerberg, who recently reported, said on stage, if I know what I know now and I could do it again, I think I would have stayed in Boston, which I think is so monumentally stupid. Not because I don’t think he could build you or can build a big business in Boston or whatever, but because a million things happened in Silicon Valley because he was in Silicon Valley. Not the least of which is that Sheryl Sandberg joined the company and that the two in combination are a very powerful, you know, force for good or whatever. I mean, you know, it’s hard to.

[00:39:29] Howard Hartenbaum
Imagine it had he stayed in Boston being much bigger than it is.

[00:39:32] David Hornik
Yeah. How could it get. How could it better?

[00:39:35] Howard Hartenbaum
And so I would say, all in all, it worked out.

[00:39:37] David Hornik
Yeah, it worked out fine. Like, you know, I think, to tell you the truth, he said it because he was going on a big recruiting run to. He was going. He went. He went back to Harvard. He and Mike Schrepfer, who’s the VP of engineering, went to Harvard. They went to mit. They were out trying to recruit the best and brightest. And so it was one of those, you know, one of those statements I’d felt little bit like marketing, but, you know, you look at it and go, look, if anything works, the last thing you want to do in retrospect is change anything. Like, holy cow, what? You know, don’t change anything. It all worked out great, you know.

[00:40:08] Howard Hartenbaum
Well, well, Mary hasn’t knocked today.

[00:40:11] David Hornik
I know. Yeah, we kind of like that. You know where Mary brought us to a close, but. But instead, I guess I was going to get to Tony Fidel’s new company, the. The Nest. Nest. He was. He’s made thermostats sexy. This is the guy who invented the ipod. And you know, there. And now he’s building a smart thermostat. I went to order one today and it turns out they’re sold out and they just took my name.

[00:40:41] Howard Hartenbaum
So I’m gonna try it just because I’m curious, but frankly, I have a cheap $50 thermostats in my house. And they work perfectly. They’re just set on a timer. It turns off and on at the right time and changes.

[00:40:51] David Hornik
Yeah, see, but you think they work perfectly. But what you don’t know is I.

[00:40:55] Howard Hartenbaum
Would like Internet connectivity. So like if it got. I could go and shut it off or turn it on or something like that.

[00:41:00] David Hornik
So these have Internet connectivity. They have sensors. They know when you’re in the house, not in the house. So if you’re gone for some period of time, they turn themselves down. They learn motion sensors built in. Yeah, motion sensors. They learn from your behavior. So if you, you know, in my house, Pamela’s constantly. I’m cold and turns it up. I’m, you know, whatever turns it down. And she’s cold. Turned it up. Right. See, Howard, it’s Kirsten this time at the door, not Mary.

[00:41:30] Howard Hartenbaum
Kirsten says we’ve got a meeting.

[00:41:32] David Hornik
So anyway, it’s like a thinking. It’s this thinking device. It’ll be interesting to see how many people put them in. But I’m gonna get one and I’m gonna get one for my parents apartment. I think that’d be an. You know, talk about the ultimate shape is different.

[00:41:44] Howard Hartenbaum
So you take the old one off. You’ll have to do some painting because the old ones are bigger and more.

[00:41:49] David Hornik
Yeah, this is like. This is the same shape as the original Honeywell. Like, you know, the thing that. But actually that’s in. The vast majority of. That’s just in Silicon Valley. That doesn’t exist.

[00:41:58] Howard Hartenbaum
I need a blank that will fit on the wall behind it so that I don’t have. Because I’m sure the hole on the wall to fit mine is. It’s gonna.

[00:42:05] David Hornik
Well, so you can pay it. You can pay 250 bucks or something for the thing and then you pay another 250 bucks for them to install it. So maybe they’ll fix that for you.

[00:42:12] Howard Hartenbaum
All right.

[00:42:13] David Hornik
I don’t know. Anyway, Tony’s an awesome guy. I can’t wait to get one installed. Can’t wait to see him again and hear more about it. That’s what Silicon Valley is about, reinventing awesomeness. And I’m sure whoever has shares in that company, they’re gonna.

[00:42:26] Howard Hartenbaum
Don’t worry. He’s not gonna take.

[00:42:28] David Hornik
He’s not gonna take them away. And it’s gonna be worth it to. Ton of money. And everybody will do great. That’s the stats. And then we’ll build. We’ll have more people making more money that can be taxed at a higher rate. Courtesy of Howard Harden. This has been venturecast. I’m David Hornik and Howard Harden. Bob and thanks for listening.