Generated Transcript

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

[00:00:19] Howard Hartenbaum
This is Howard Hartenbaum also from August Capital. And today we have a special guest for a few minutes we which is.

[00:00:27] Eric Carlborg
Eric Carlborg from August Capital.

[00:00:29] David Hornik
We don’t have a whole lot of variety. It’s a bunch of white guys from August Capital. We got to work on that.

[00:00:35] Howard Hartenbaum
David and Howard and Eric.

[00:00:38] David Hornik
This is exciting having Eric here. I have to say that Eric just wandered over to chat with us about nothing in particular and suddenly he’s stuck on venturecast and he’s looking rather uncomfortable here I am. But this is by the way, this is how the magic happens in venture capital. We had our partner meeting. We chatted about various asundry businesses, discussed what was looking interesting and what we were looking at and then it broke up. And then we’ve just been sitting around chatting about various things. Eric came over to check on a particular company. This is, you know, it’s an organic process. It’s not a very complicated one.

[00:01:16] Howard Hartenbaum
No, he thought he would just say hi and pop in and pop out. And we decided since Eric has been an investment banker in the past and the CFO of a couple public companies, we would to ask him his opinion on the current IPO market.

[00:01:31] David Hornik
Now that’s totally fair. I mean I, I do find it a little horrifying that we have a former banker at August Capital.

[00:01:38] Howard Hartenbaum
Well, we have a former lawyer.

[00:01:39] David Hornik
That’s a fair point.

[00:01:40] Howard Hartenbaum
Former banker and the candlestick maker.

[00:01:46] David Hornik
So what you’ve seen, what have you seen? You’ve seen good, good and bad markets, Eric, both as. Were you a CFO in good markets or bad markets?

[00:01:54] Eric Carlborg
Some of both. Some of both. And I think this market, I think the public market is paying a lot.

[00:02:00] David Hornik
For.

[00:02:03] Eric Carlborg
Five year growth. I think if the public market sees a company with top line growth over the next five years can see their way to 20 or 30%. Those are the companies that are getting a premium.

[00:02:13] David Hornik
And you think it’s the, they’re trying to predict the future five years. They’re not saying hey, what’s happened over the past five years? Or are they just using that as an indicator?

[00:02:22] Eric Carlborg
I think the past is the best indicator of the future. But they’re definitely looking forward. Public markets always looks forward.

[00:02:28] David Hornik
And it’s all about growth, right? I mean it doesn’t matter. It doesn’t matter what your top line is. You could have a billion dollar top line but if you’re 2% growth, then the market goes eh, who cares? We’ll value at 600 million or whatever.

[00:02:38] Eric Carlborg
That’s right. And I’d say profitable growth gets a premium to unprofitable growth.

[00:02:46] David Hornik
So here’s the question, which is better? Is it better to be unprofitable but growing at 50% or profitable and growing at 30%?

[00:02:55] Eric Carlborg
I think the market has to understand that you can be profitable if you want to. In other words, the market will tolerate spending on R and D or spending on sales or marketing if it thinks that you’re spending that money for growth. But should you decide to become profitable, you could in, in very short order.

[00:03:14] David Hornik
So you kind of have to look at the numbers and say the reason you’re unprofitable is because you’re spending a bunch of money on acquisition or whatever. But if you were to stop that and just look at what’s the follow on value of those existing customers and it’s still growth and value, then you say, great, keep growing like crazy. We’re all good with that.

[00:03:31] Eric Carlborg
That’s right. That’s exactly right.

[00:03:33] Howard Hartenbaum
So if you are growing fast and profitable and you don’t need the money, why bother dealing with the market?

[00:03:40] Eric Carlborg
Yeah, I think people access the market for liquidity for existing shareholders and then also to establish a currency if they want to consolidate the marketplace.

[00:03:51] David Hornik
Yeah, it’s funny, I mean, it was interesting to me that Facebook did as good a job as it did of being able to acquire companies with a private company stock. I think that there are some companies now that they get a big enough reputation and a sort of understood absurd valuation that they can get away with being acquirers with private stock that people are willing to value. So I’m sure by the end Facebook was out there having these conversations saying we’re a hundred billion dollar value company. In fact, they did this right. Then this, the Instagram deal is like, oh, it’s worth a billion dollars. Because they assume they valued Facebook at a billion billion at a hundred billion. And then the deal got done and when it was finally calculated, I think they said it was an 800 million dollar deal instead of a billion dollar deal. Wah. You know, it’s still a good deal. But the other one that’s doing this now is Twitter. Apparently Twitter’s acquiring a bunch of companies similarly saying, hey, we’ve got, you know, we’ve got a good private currency, so you can count on it being worth X, Y or Z, right?

[00:04:50] Eric Carlborg
Yeah, I think that’s right. I mean, who knows what the exact valuation is? But I, my guess is they can show a lot of data points and a lot of comparables to zero in on what they think their public market value is.

[00:05:03] David Hornik
Sort of crazy, really.

[00:05:05] Howard Hartenbaum
So if the market is so great now, what is it that turns it around and suddenly makes it not so great anymore? What’s the trigger?

[00:05:14] Eric Carlborg
It’s always hard to, you know, you can never see a top looking forward. You can only see a top in your rearview mirror. So it’s hard to say what, you know, what changes the market. I think right now, public market investors are willing to look forward and are optimistic about growth in general. I think there are other environments where the sentiment changes and they’re more skeptical.

[00:05:39] David Hornik
Well, I think one of the things. Right. You know, one of the things we saw, I mean, it was prevalent in the late 90s, was this idea that we don’t care about profitability, we only care about growth. And so. Or if that we just, you know, it’s like we’re going to spend a bunch of money, we’re going to acquire customers, and we’re not going to worry about how valuable they are. There’s this great story of, of a company back in the day talking about, you know, someone asked them, how much does it cost you to acquire a customer? And they, and they said it was some huge amount of money. They said, well, isn’t that unprofitable? And they said, no, because the market gives me 2x that for every customer I acquire. Well, that’s not the right answer. Yeah, the market does, but you’re losing money on each of those customers. And when that, when that dance stops and they’ve pulled one of those chairs, you know, you’re suddenly left without. Without a chair. So it. So I think that. What I think that the biggest problem is that I’m starting to hear about companies that are unprofitable. There is not a clear. It’s not clear that they’re going to be a profitable business or have this path. And, and if we see a bunch of those that aren’t particularly at scale or haven’t don’t have a history of good results or whatever, that it could really foul the whole market. For those of us that have company that have been waiting with companies that have real businesses that are growing, that are valuable, that’s my fear.

[00:07:02] Eric Carlborg
Yeah.

[00:07:02] Howard Hartenbaum
I think.

[00:07:05] Eric Carlborg
Again, for companies that have real clear business model and have a really compelling story about the next five years, there’s always access to the markets. But I agree on the margin, the window is open wider or open. Open pretty wide right now.

[00:07:25] David Hornik
So, Eric, you’ve sold bagels, flowers and financial services and diamonds. And diamonds. Which is the best. Which is the best one? What’s that? I mean, you know, I guess diamonds probably have the. Well, maybe not. You were at authorized net. Yeah, that’s sort of a software business, basically. So that’s about as good margins as you’re going to get. Flowers.

[00:07:49] Eric Carlborg
That’s a great business.

[00:07:50] David Hornik
Was it? Is that a great business? Selling a bunch pro flowers. You sold a bunch of flowers?

[00:07:55] Eric Carlborg
Yeah, it’s a. It’s a great business. Great, great unit level economics, you know, great team, great, great operating business.

[00:08:04] David Hornik
So it’s just the cost of flowers is dirt cheap and then they sold for a ton of money. Is that how. That’s that why it’s a good business.

[00:08:09] Eric Carlborg
I always thought of it. A dozen of anything cost between eight and twelve dollars. So if you can sell it for more than that, you’re doing pretty well.

[00:08:15] David Hornik
That’s kind of the deal. It’s tulips or it’s roses or it’s whatever. Yeah, don’t care.

[00:08:19] Eric Carlborg
I’m sure that’s an oversimplification, but that’s how.

[00:08:21] David Hornik
I thought you were the cfo, were you not?

[00:08:23] Eric Carlborg
A long time ago.

[00:08:25] David Hornik
That’s your assessment? This is great. I’m sure that you. I’m sure you’re excellent on audit committees.

[00:08:31] Howard Hartenbaum
Yeah, yeah, exactly.

[00:08:32] David Hornik
Paying attention to the detail, how is the bagel business? That seems like it’s a good. Low cost of goods, but, you know, you had to build demand.

[00:08:40] Eric Carlborg
Hardest thing about that business is the capital equipment in the stores and how much it costs to open a store and then how hard it is to operate.

[00:08:48] David Hornik
So this is Noah’s Einstein. Which were you. Did you come to the Einstein side?

[00:08:54] Eric Carlborg
I came to the Einstein side.

[00:08:55] Howard Hartenbaum
Is that like Albert Einstein? Einstein?

[00:08:57] Eric Carlborg
No, clearly not. We didn’t have that trademark.

[00:09:00] Howard Hartenbaum
Some guy named Einstein.

[00:09:01] David Hornik
Yeah, yeah, exactly. So it’s just that you have to build every store needed to bake its own bagels.

[00:09:07] Eric Carlborg
Every store needed to bake its own bagels. And you know, you got to pay rent, you got to pay all those. All those fixed costs.

[00:09:14] David Hornik
God, I love software. I don’t know why anyone. I don’t know why anyone sells anything other than software. Every time we’re selling something other than software, I go, really? Because you know, that costs something. Software free.

[00:09:26] Eric Carlborg
That’s right.

[00:09:27] Howard Hartenbaum
So my favorite app lately is called Moves, which I put on my iPhone. And speaking of loving software, it’s. I like the idea of the Internet of Things and measuring yourself and all the fuel bands and Fitbits and Omron. Pedometers and all that stuff. But I’m not willing to spend that money because I’m cheap. And I don’t want to wear another device because I don’t want to deal with it and charge it and forget it and lose it. And I already have my phone, and I downloaded Moves a few weeks ago, and it’s basically just like a Fitbit. It measures where you’re driving, it measures where you walk in. It measures how much exercise you’re getting, how many calories you burn. And all I have to give it for that is about 10% of my battery per day. And since I have enough battery on my phone to make it the whole day, I think it’s not a trade off at all. And I get something for nothing. And it’s wonderful. And you say you love software. I’m not sure how Moves is going to make money, but I did email the CEO and I. I said, I love your software. Can I pay you some money?

[00:10:36] David Hornik
Just so. Because we’d like you to thrive.

[00:10:40] Howard Hartenbaum
I’d send in five bucks. I’d happily send the guy five bucks. But I think we all have hardware in our pocket already, and it’s this device that we use for everything, and now it can do tracking, and I love that stuff.

[00:10:53] David Hornik
Well, you and I just had this conversation where I said, you know, that I wondered how accurate this is to give you a sense of Howard. I said, I wonder how accurate these devices are, because who knows? Like, who knows how accurate how many steps you actually took? And Howard said, I know. And I said, what do you mean you know? He said, because I counted. He went and walked the dog one day with one of these devices and counted every step, and he said it was off by 10%.

[00:11:17] Howard Hartenbaum
Yeah, but that was when I first got it. It’s down to only 2% off.

[00:11:22] David Hornik
It’s gotten more accurate.

[00:11:23] Howard Hartenbaum
It’s getting better over time.

[00:11:25] David Hornik
Is this Moves or is this something else?

[00:11:26] Howard Hartenbaum
It moves.

[00:11:26] David Hornik
Oh, so Moves was the one.

[00:11:28] Howard Hartenbaum
It’s getting better as it’s looking at maps and it’s looking at the paths you’re taking, and it’s just getting closer.

[00:11:35] David Hornik
So not only did Howard test it once, but he tested it multiple times. Like, this is a guy who really needs something to do. I know. You’re walking the dog.

[00:11:45] Howard Hartenbaum
1, 2, 3, stop.

[00:11:49] David Hornik
Pick up the poop. 4, 4, 5. Sick. This is why I don’t have a dog. It’s an ongoing debate with my wife. I genuinely, I do think that in the end, all of these devices, whatever they are, right Pacemaker. We should have a oxygen level pulse. All these things should all be just little things that you stick on your skin or whatever and then Bluetooth or something into your phone. The phone has all of. We’ve just, we’ve learned this over and over again. Go to the thing that has the cheapest processing power. It may even be that it doesn’t even go to the phone. The phone just then relays it on to Amazon’s cloud and then it calculates and comes back and says, you’re dead.

[00:12:32] Howard Hartenbaum
You.

[00:12:33] David Hornik
You, my friend, are gonna have a heart attack in three, two, one.

[00:12:39] Howard Hartenbaum
Wait, I have to get my 500th step.

[00:12:43] Eric Carlborg
Looking so fit.

[00:12:44] Howard Hartenbaum
Yeah, so batteries I think are the, you know, the batteries in the phones that we have are getting better and better and you know, batteries, remote control planes. If you ever go down to the foothill park and you see the guys flying their nice quiet battery powered planes. When I was a kid, they were gas powered and they were noisy and you couldn’t even fly them near a residential area. I saw a company a few weeks ago called Titan Aerospace which makes battery powered planes with solar cells on them. They’re drones.

[00:13:12] David Hornik
Okay.

[00:13:13] Howard Hartenbaum
And they fly for five years. Yeah, they have good batteries. The planes are about 200 grand and they’re about 30 foot wingspan. But they launch them, they go up to about 60,000ft and they fly.

[00:13:26] David Hornik
They’re just constantly replenishing the batteries.

[00:13:27] Howard Hartenbaum
They can fly all day, all night.

[00:13:30] David Hornik
And they fly in the direction of the sun, whatever pattern.

[00:13:33] Howard Hartenbaum
You don’t need to fly in the direction of the sun. They can just do circles.

[00:13:36] David Hornik
I wonder if, do you think, you know Google’s, oh, Eric’s leaving us now we can talk about him. He didn’t want to talk about this random stuff. He just wanted to talk about the markets. Holy crap.

[00:13:47] Eric Carlborg
Onward network.

[00:13:48] David Hornik
Goodbye, Eric. That was Eric Carlborg from vin, from August Capital, from Venture Capital. Do you think these Google balloons are using something similar?

[00:13:59] Howard Hartenbaum
So I haven’t read. I think that’s Mike Cassidy’s project he’s working on and I saw, I haven’t read too much about his balloons, but I think that the Titan Aerospace planes make a lot of sense. They can carry a 70 pound payload. 70 pounds. They can be a. And they can generate enough power from the, from the solar panels that they can be like a cell phone tower in the sky. They can do imaging, they can do crop tracking, they can do all sorts of stuff. My question is, who needs satellites anymore?

[00:14:31] David Hornik
Yeah, right. These are low flying satellites. They’re way More valuable.

[00:14:34] Howard Hartenbaum
And you can have them come back if there’s a problem, fix up the equipment and send them back out again. Yeah, and they cost $200,000 or so.

[00:14:42] David Hornik
It’s pretty awesome. We’ve seen a few things like this. We saw those satellite, those mini satellites they were gonna launch that were way cheaper than the big ones. And now we have this thing, we got the Google balloons and there are all sorts of ways that you could use those things. And, and you know, maybe now they have ways and they could use them for mapping and all that stuff. It’s kind of astonishing. I was talking to someone recently about the, you know, they were, they were saying, oh, we hear that the venture market is kind of, kind of dead. You know, that it’s like that all of the really interesting innovation has been used up. And I’ve talked about this before, it’s just so absurd to me.

[00:15:17] Howard Hartenbaum
I would argue, I would argue it’s the opposite. It’s sort of things are accelerating just like development is accelerating. And we see more interesting things per unit time in the venture business. That doesn’t mean they’re all venture scale potential companies. But you know, where maybe we saw two years ago two or 300 really interesting things, now we see three or 400.

[00:15:40] David Hornik
Yeah, I think it’ll be interesting to see how many. But there’s interesting from a technology standpoint than there’s interesting from a company standpoint. Right. And to a certain degree there are a whole host of these early consumer things and then some, and then a relatively small number of them break out. And so from an investment standpoint, it may not make sense to invest across a thousand of these things. But if you sit and wait and pick, there will be some larger number of them that break out than had broken out before, just by virtue of law. Large numbers. Right. And so there is this ongoing opportunity to find things that are going to be big and meaningful, interesting consumer businesses. And you know, they are because they’re working, right. Whether it’s an Uber or a Lyft or a Pinterest or, you know, whatever, whatever the next thing is, Juanilo, etc. And that’s, that’s pretty exciting. But it turns out also they’re getting more efficient, they’re getting more expensive, all these things. So.

[00:16:36] Howard Hartenbaum
Well, there used to be, what, one really significant billion dollar plus consumer exit per year and now it’s 1.1.

[00:16:45] David Hornik
Yeah, right, exactly. That’s. I was gonna say that it’s not much better than that. Right. I mean, you know, there aren’t that many billion dollar exits in any given year over, and particularly not over an extended period of time, it’s sort of astonishing. It’s, it’s a, it’s hard to build.

[00:17:00] Howard Hartenbaum
A billion dollar business except when the markets are good. Like there’s going to be a few.

[00:17:06] David Hornik
Makes it easier. We, you know, and we’re ready. We’re ready to go, Howard.

[00:17:10] Howard Hartenbaum
Yeah.

[00:17:10] David Hornik
We got our exciting companies that have sustainable business models that are predictable and are making money and are growing quickly ready to be public companies.

[00:17:20] Howard Hartenbaum
Predictable. That’s the key word.

[00:17:22] David Hornik
Man, oh man. You know, there is nothing that’ll kill you than being out in the public markets and then blowing it.

[00:17:30] Howard Hartenbaum
Yeah, we have, we see companies all the time where everything is going great and the companies are like, let’s go public. And we think we can see two or three quarters out. We’re like, that’s scary.

[00:17:41] David Hornik
Yikes.

[00:17:43] Howard Hartenbaum
Then you get three quarters out and you miss a quarter and you become worth 12 cents at best.

[00:17:48] David Hornik
A lot less. A lot less. For sure.

[00:17:50] Howard Hartenbaum
Yeah. And did you read that news about bitcoin regulation in Germany?

[00:17:57] David Hornik
Of course I did, Howard.

[00:17:58] Howard Hartenbaum
No, you know, it’s big news.

[00:18:00] David Hornik
It is big. So I was just talking to someone and they said, do you think this whole hoopla over bitcoin is, is, is, you know, losing momentum? Because for a while there, everybody was excited and all the VCs were like, oh, this might be the next movement.

[00:18:14] Howard Hartenbaum
And we, there was bitcoin funds.

[00:18:16] David Hornik
It was bitcoin funds and bitcoin that. And by the way, I just saw that there’s a bitcoin ATM that someone has built and they’re going to put out these Bitcoin ATMs. So, so this is inevitable, right? That, that someone would say, you know, hang on, Bitcoin, it’s not the wild West.

[00:18:35] Howard Hartenbaum
Yeah. What the news said was that the German government decided that they were going to regulate bitcoins and tax capital gains, which makes perfect sense because if you’re investing in bitcoins and the value going up and you sell, they want to make sure they get their money, which comes down to tracking. And, you know, I’m sure that these electronic currencies, bitcoins and others, many of them don’t think that tracking is important, just like cash isn’t trackable. But in the end, the laws say if you make money, the government wants their peace. And here is one more clear statement by, in this case, the German government. If you made money on bitcoins, you got to pay the German government. I wonder if you have to pay them in bitcoins.

[00:19:18] David Hornik
Yeah, that’s right. Well, the tax authority accept bitcoin for your, for your tax bill, although you may have sold it all, in which case it’s all right.

[00:19:28] Howard Hartenbaum
My guess is no, because when you have, your house goes up in value and you sell it and you can buy a bigger property with the exchange, you still pay in cash.

[00:19:37] David Hornik
You don’t pay in like part of your yard, thank goodness. But it’s, but this is a little bit like, you know, in the US when you make money, when you have gains on gambling, you’re supposed to pay taxes on that. Right. And in some instances it’s self declared. But I think in Las Vegas, if you are a gambler and you make a big, and you have some big gain that they’re, they, they track like you win, the slot machine spits out a million dollars or whatever. They track it and they report it to the government.

[00:20:07] Howard Hartenbaum
They don’t only do that, they actually withhold from you.

[00:20:10] David Hornik
Oh, is that right?

[00:20:11] Howard Hartenbaum
They withhold. In that instance, so many people who were making money at kind of professional gambling and got good at it, they give up after a while when they realize that the, they get over a certain threshold and they start getting withholdings from their gambling earnings, not winnings earnings.

[00:20:27] David Hornik
Yeah, right. Which is bad news for. Well, my, you know, my brother was on the MIT blackjack team and, and you know, he would just, he, he had a friend who did it full time. This was his job. And then he would go on weekends when they need an extra guide, account cards or whatever. And the friend, as I understand it, reported, you know, reported his earnings and paid taxes on it because he was like, it’s one thing to make a living betting on, you know, playing cards. It’s another thing to get nailed for, for tax evasion.

[00:20:59] Howard Hartenbaum
So it’s more complicated in the sense that if they’re going to tax you on your winnings and you have a right to offset with your losing and it’s not so easy to claim I lost $80,000 at the blackjack table and then I made $80,000. So I’m even. Because all the gambling house knows is he made 80,000 and they want to tax that. So it’s fairly complicated for the, well.

[00:21:23] David Hornik
It’S gotten easier because if you notice that in Las Vegas now they have all these players clubs and so you actually have a card and you give it to them and they know who you are right now. And then they do track, they can track winnings and Losings and they have a sense of this is this guy’s won a bunch or lost a bunch, etc. When the bringing down the house guys were out betting, first of all they didn’t have the systems in place and secondly, they wouldn’t do it. You know, they didn’t need to be tracked. That was not in their interest or whatever. But it’s, you know, it’s interesting. There’s an unbelievable amount of technology in those, in those casinos. Right?

[00:22:01] Howard Hartenbaum
Especially surveillance technology.

[00:22:02] David Hornik
Massive surveillance technology, massive facial recognition, massive big data, huge amount of infrastructure cost around these elect, you know, electronic gambling machines and making them pay out at the right rates and being regulated so they’re not scamming anyone. And all this stuff. It’s just, it’s sort of. And then a whole bunch of optimization stuff right around players club and getting the right people to the, you know, to the casinos. It’s, it’s sort of astonishing really.

[00:22:31] Howard Hartenbaum
We see very few gambling related venture deals.

[00:22:37] David Hornik
We see.

[00:22:37] Howard Hartenbaum
Every now and then we’ll see something, but it’s pretty unusual.

[00:22:41] David Hornik
Yeah, no, I mean, I think as a general matter, we don’t see pornography related businesses. We don’t see gambling related businesses. We may see things that are related, but not pornography.

[00:22:52] Howard Hartenbaum
We see pornography, but not pornography. Investments.

[00:22:54] David Hornik
Yeah, yeah, that’s different, Howard. I’m talking about during the day. Come on. We don’t see, you know, alcohol. We don’t see, you know, like wine.com. and those wine investments were the closest we got to, to, you know, what do they call these, you know, the vice investments. Right. And yet there’s so much money that moves. In fact, a friend of mine, seed, funded a smokeless tobacco company and was all excited about it. Oh, look at. This is great technology. It’s taking out, you know, you’re not burning anything and people aren’t getting cancer. You can smoke it in on the plane, you can, whatever, but, ugh, you know, like, I’m glad you’re getting excited about it, but it kind of makes me sick. Like, you know, I don’t want it.

[00:23:37] Howard Hartenbaum
Basically a legalized drug delivery.

[00:23:39] David Hornik
Yeah, right. It’s like on the other hand, what do we, what do you know, you get on the plane and they ask, what do you want? I say, I’ll have a Diet Coke. Right, well. Or I’ll have a cup of coffee or I’ll have whatever. It’s not like these things all have some interesting drug built into it. You mean, even if it’s just, even if it’s Sprite zero, which has no caffeine and no calories. It still has a shitload of salt in it. Right. So pick your favorite, you know, thing that’s giving you your, your tongue a high or your, or your heart or whatever. I heard a really interesting thing on the, on the radio talking about, they were talking about steroids and drugs that are being used to enhance performance enhancing drugs and all this stuff. And apparently there’s a drug that they’ve discovered. So basically the way that muscle growth works is that there is an inhibitor to muscle growth. Right. And that it is present and it keeps you from constantly creating additional amounts of muscle. And, and then people, and then too much of it then inhibits muscle growth and people have things like muscular dystrophy and too little of it and you grow bigger muscles. And so that it’s how your body regulates muscle growth. And there’s some research being done where there’s a drug that will help control this. And the point of the drug is to allow people with muscular dystrophy or other challenges or an atrophying muscle because it’s in a cast or whatever to catch back up.

[00:25:05] Howard Hartenbaum
But that’s not the market opportunity.

[00:25:07] David Hornik
No. And it turns out that there’s no, you know, there’s no refractory period on the amount, on the discovery of it’s in your system. Right. So if you withhold this, this, you know, enzyme or whatever it is, I don’t. Then you start growing muscle more quickly and then if you stop taking the drug instantly your body goes back to normal production. Right. So unlike EPO and these other things that have months of, of being traceable and they were saying it’s going to be an incredibly massive drug, it’s incredibly important. But it’s, but it’s going to destroy, you know, it’s going to, it’s going to create all sorts of problems for professional athletes because they mean they naturally want this stuff.

[00:25:50] Howard Hartenbaum
I think what they’ll have to do in that model is if you’re a professional athlete, like at the beginning of the season there will be a one month period where nobody’s allowed to exercise. Like, and then they take a picture, they take a picture of you and then you can come back a few months later and if you’re like more than 10% larger than out you go.

[00:26:10] David Hornik
Well, but it turns out that it’s not that it just happens independent of exercise. Right? I mean, they.

[00:26:15] Howard Hartenbaum
What, what do you still have to exercise?

[00:26:17] David Hornik
Well, I think you have to, yeah.

[00:26:19] Howard Hartenbaum
I mean, maybe that’s a terrible you.

[00:26:20] David Hornik
Know, Anyway, all right, I digress. That’s a massive digression. Particularly since we don’t do medical investment or biotech investment or whatever. So we actually know nothing about what we’re talking about here. What else is new? But it’s funny, I get all sorts of emails, truthfully, and you probably do as well, from people saying, hey, I’ve got this great medical technology. Do you want to invest?

[00:26:42] Howard Hartenbaum
My answer is, usually, I would if I was investing in that space, but unfortunately I’m not.

[00:26:47] David Hornik
But it’s a, it’s something of an indicator that they probably don’t know who we are.

[00:26:51] Howard Hartenbaum
They haven’t even been to your website. They just go, ah, another vc. What’s the email address? Send it off. And usually it’s not. If it was coming through a reference, they would know not to introduce you. So it’s usually some cold contact. Do you get, like unsolicited emails from people?

[00:27:05] David Hornik
It is astonishing to me that they still come, right. That you still get this like, oh, hey, David, I, you know, I thought you might find this interesting. Blah. Right. When we’ve, we’ve talked about this before. I’ve written about this before, everybody, you know, like, it is well established that if you want to get to a venture investor, you have to find someone that they know and trust. You have to get them to understand and trust and, and appreciate your business and you as an entrepreneur, and then have them make that introduction.

[00:27:38] Howard Hartenbaum
Seems easy enough.

[00:27:40] David Hornik
Yeah, right. And people say, well, how do I meet these people? Whatever. Well, that’s your job. Like you’re gonna, you have to go sell some crazy idea that no one should do anyway. So of course you’ve got to be able to be. To sell your way into this. You have to find advisors, etc. And meet the right people and get connected. That’s just the deal. Right. Have you ever funded a company that came to you in an unsolicited email?

[00:28:06] Howard Hartenbaum
Never. And once I funded a company that one of these brokers brought me and I regretted that investment.

[00:28:15] David Hornik
Yeah, brokers are tough because I don’t think. And because again, no, no, it was worse.

[00:28:21] Howard Hartenbaum
I found it and contacted them and later found out they had a broker. Oh, and then he wanted someone.

[00:28:27] David Hornik
He took a piece.

[00:28:28] Howard Hartenbaum
It was horrible.

[00:28:29] David Hornik
Yeah, No, I honestly. So, you know, we’ve been in the venture business at more or less the same time. When did you start angel investing?

[00:28:36] Howard Hartenbaum
2002.

[00:28:37] David Hornik
Okay. So pretty close. I’ve been doing it since 2000, so. So basically a decade. So in a decade, we’ve probably seen a thousand plans a year. Ish times 10 years. So 10,000 emails about companies and probably.

[00:28:57] Howard Hartenbaum
20% of them are unsolicited. Maybe 15.

[00:29:01] David Hornik
Yeah, so let’s say 1500 times two. So 3000 emails, 4000 emails, and we’ve funded none of them. And I don’t say that to say that we’re being jerks. I still read them like I re. I. You’d think at some point you’d say, well, there’s no point in reading them. But I still do read the beginning. If you send me an executive summary, I read the beginning of your executive summary. It’s not like I dismiss you out of hand, although it sounds to me like for the sake of my time, I should.

[00:29:35] Howard Hartenbaum
Well, if you think the total that you funded in that entire time frame was 20 anyway, or 15 and they came from the remainder of the companies that you saw, that’s because they’re better targeted. They were introduced to you, there was some other connection that was made there. You just pay more attention to them and frankly, they show better drive by the entrepreneurs because they’ve gone through the trouble.

[00:30:02] David Hornik
Yeah, that’s exactly right. I mean, that’s the, you know, so I was talking to a guy actually who I knew, and he, and he, we were chatting about. He had, he had emailed me about his business. Then turns out he had a mutual friend, was a close mutual friend and etc. And he said, oh, I should have, you know, I could have had that guy email you directly, but I knew you. He said, what do you think? Which would have been better? Should I have emailed you directly or should I have sent it through this other person? Right? And I said, huh, that’s an interesting idea. It’s an interesting question. I said, well, here’s an idea. I think there’s a formula, right? And you should think about this also about LinkedIn, right? When LinkedIn has this, you introduce it to someone who introduces someone who introduces it to you. I think that the question is, you take the strength of your relationship with me. Say, okay, I have a, let’s say on a scale of 1 to 10, I have a relationship that is a 6. Say, okay, if you go direct to me, directly to me, you score a six. But if you knew someone and you had a seven relationship with that person and they knew me and they had a seven relationship with me, you take those two relationships, you divide them by two and you get to seven, it’s a seven out of 10, not a six out of 10. That feels to me, like a better bet. Right. I have a better relationship if, you know, to you. And I’m going to trust you by virtue of your relationship with that entrepreneur.

[00:31:22] Howard Hartenbaum
I think it’s simpler than that. Not to criticize your.

[00:31:25] David Hornik
It’s my formula. I’m just saying, like, what if it was three? What if it was A goes to. B goes to, C goes to.

[00:31:29] Howard Hartenbaum
I think it’s just the fundamental, you know, social engineering. People are nervous about people they don’t know. And when there’s an introduction made through somebody else, there’s some level of peace of mind and trust that transfers. And I think it’s way. I think it’s. You got to multiply that 7 divided by 2 times 3 plus 5. It’s like going from centigrade to Fahrenheit.

[00:31:55] David Hornik
Well, but there’s no question that, you know, no relationship versus relationship. I’m just trying to figure out like that quality of relationship question. Right. But I agree. I agree with you completely. Like.

[00:32:07] Howard Hartenbaum
But I think it’s ingrained in our. Up. In our culture.

[00:32:11] David Hornik
I also think that what, you know, when you think about the venture business, one of our challenges is that you could scam us. Right. I mean, the reality is that this is an information business. We fund people who are working on things that we think make sense, etc. It is conceivable that someone could come up with an idea that. That’s just baloney. Right. They said they have built this thing, it turns out to not even exist or whatever. And you give them a bunch of money and then they disappear and there’d be so much egg on your face. And so someone who’s coming out of the blue and you have no relationship, no way to qualify them is. That’s a legitimate concern. Right. As opposed to someone who has come through, someone, you know, who says, I’ve known this person for a decade, I went to school with them, whatever.

[00:32:57] Howard Hartenbaum
I met them in prison.

[00:32:59] David Hornik
Yeah, exactly. Then they’re a known quantity. Like, this guy was the best dealer in prison. Well, at least they’re entrepreneurial. You know, they show some initiative.

[00:33:10] Howard Hartenbaum
We digress.

[00:33:11] David Hornik
How has this happened, Howard?

[00:33:13] Howard Hartenbaum
It always does. So I guess one last thing is, you know, you’ve been running this fantastic lobby conference now for how many years?

[00:33:22] David Hornik
I guess here is the seventh year of the lobby conference.

[00:33:25] Howard Hartenbaum
And for those of you who haven’t heard of the lobby, we call it the David Hornig Show. This is the David Hornik show, where David gets together with a couple hundred of his closest friends to talk about have sort of an UN conference and talk about the topics of the day and technology. And the main focus has been digital media and consumer tech. And now David has decided to do the same thing for enterprise business. So he is preparing for the Lobby Enterprise.

[00:33:55] David Hornik
Well, in all fairness, I mean this is a, you know, August Capital is the lead sponsor. You, you and I and Vivek and, and, and others in the firm have all taken this upon ourselves. Right, to like it’s a good idea, the conversation is valuable, et cetera.

[00:34:12] Howard Hartenbaum
Yeah, but you’re, you really are the guy who did it.

[00:34:14] David Hornik
Okay, I’ll just, I get to be like the, the, the face of it because I love myself. I enjoy the opportunity, you know, all of the incredible chance to self aggrandize. But anyway, but we’ve done. But you’re right, it’s been social media, it’s been like gaming and, and advertising and social and social media, etc. And so there’s all this excitement and, and rightfully so around enterprise businesses. You know, certainly we had this incredibly great opportunity with Splunk that has done really well, but we have plenty of companies that are doing interesting stuff. Tagile and others and Xerus and you know, networking and, and, and, and storage and all these things. And we decided that it would make sense to have a lobby conference for that group of people. So we, we’re busy preparing for Lobby Enterprise edition which is going to be in March also in Hawaii, because Hawaii is awesome and it gives me twice as much opportunity to go to Hawaii. And so I think what you’re saying.

[00:35:17] Howard Hartenbaum
Here is that if the Lobby Enterprise lobbyist sounds interesting to you, you should find somebody that knows David or myself and get the right introduction to us to see if we can squeeze you in.

[00:35:28] David Hornik
Oh, totally true. It’s going to be invite only and it’s going to be, it’s going to be a great crowd of people doing interesting stuff. So we’re looking forward to it. So stay tuned because we’re forming, making a list and we’re checking it twice.

[00:35:42] Howard Hartenbaum
That was the commercial on this show.

[00:35:44] David Hornik
We’ve never done that before, Howard.

[00:35:46] Howard Hartenbaum
Usually we used to shout out to people.

[00:35:48] David Hornik
Yeah, that’s true. We had like the shout out at the end. You have anyone? What do you got?

[00:35:53] Howard Hartenbaum
I don’t have a shout out today.

[00:35:55] David Hornik
No shout out. We, we will, we’ll hold off on the shout outs. No, I’m going to shout out. I just invested in this new company fastly. It’s this content distribution network. So it’s basically going after Akamai with better software and better hardware. And so it’s much more appropriate for modern architecture where you’re using little bits of things, your things are updating rapidly, websites are updated rapidly, etc. And so it’s just a great business. And we had the board meeting last week and it’s fun to be involved in some new technology that’s really providing a ton of value and making everybody’s websites faster and more effective.

[00:36:39] Howard Hartenbaum
So if you’re paying for a CDN, you drop them and go to Fastly.

[00:36:44] David Hornik
Go to fastly.com it’s even, you know, you can go. And it’s self serve. Just go right on it. But if you. If you’re looking for some help, just email us and we’ll get you up on fastly. It’s awesome. Two commercials in one venture cast both for David Hornik. That’s right.

[00:36:59] Howard Hartenbaum
Awesome. Well, that’s it for today. This has been.

[00:37:04] David Hornik
You’re done with us, Ari.

[00:37:06] Howard Hartenbaum
I have decided that it’s over now because I know you have to go somewhere.

[00:37:09] David Hornik
I do have to go. Walk the dish with an entrepreneur.

[00:37:11] Howard Hartenbaum
Yes. And take your muscle building medicine beforehand.

[00:37:15] David Hornik
That’s right.

[00:37:16] Howard Hartenbaum
So this has been Howard Hartenbaum with.

[00:37:18] David Hornik
August Capital and David Hornik from August Capital. And we thank you for wasting another lovely 40ish minutes of your life.

[00:37:27] Howard Hartenbaum
37 minutes and 14 seconds.

[00:37:30] David Hornik
Bye. Bye.