Generated Transcript

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

[00:00:19] Howard Hartenbaum
And this is Howard Hartbaum, also from August Capital.

[00:00:22] Jeff Clavier
And this is Jeff Clavier from August Capital.

[00:00:25] David Hornik
Jeff Clavier, our favorite and almost only guest.

[00:00:29] Jeff Clavier
Yeah, well I was the only guest until you sort of brought those two entrepreneurs just to say that you had had two other guests besides me.

[00:00:36] David Hornik
We also had Andrew Anker once. Just okay.

[00:00:38] Howard Hartenbaum
But he’s sort of August so it’s okay.

[00:00:40] David Hornik
That’s right.

[00:00:41] Jeff Clavier
But you had made a lot of jokes and innuendos about my French accent.

[00:00:44] Howard Hartenbaum
We like it.

[00:00:46] Jeff Clavier
Which regardless of the fact that I’m not US citizen. Duh.

[00:00:49] David Hornik
Oh, very nice, very nice. Congratulations. How was that test?

[00:00:53] Jeff Clavier
That was actually frightening because the hundred questions is full of things that you know and things that you don’t know because they’re not part of your day to day culture. Like who was the president during the first World War? Who was it Woodrow Wilson?

[00:01:08] Howard Hartenbaum
I wouldn’t be.

[00:01:10] David Hornik
We would totally fail.

[00:01:11] Howard Hartenbaum
That’s awesome. Okay, give me another one.

[00:01:16] Jeff Clavier
There were the four names of the guys who wrote the Declaration of Independence.

[00:01:21] Howard Hartenbaum
Pass.

[00:01:25] David Hornik
Will send Howard to France.

[00:01:28] Jeff Clavier
We won.

[00:01:29] David Hornik
Congratulations. Well, congratulations. We just give you crap about your accent in large part because our wives like it.

[00:01:36] Jeff Clavier
I know.

[00:01:37] David Hornik
And that’s not. And that’s just seems unfair just because you have freaking accent. I mean admittedly I’m kind of whiny and have that is the raspy thing going. Well, so Jeff I think rightfully pointed out that this is the first Venture cast of the new year. We’re getting it right in under the wire in January. So that’s good news.

[00:01:57] Howard Hartenbaum
We would like to do them every month. It’s just sometime months go by without us noticing.

[00:02:01] David Hornik
It’s really cooking by. I was so I was at this event over this week and I forget what the conversation was, but sort of a topic about. About family. And I said that I didn’t really think about it until my first child went off to college. And then you realize like time passes unbelievably quickly. Right. Or you know, I just. I’ve now been on the splunk board for 10 years. Right. I mean that’s. That’s a lot of time to be on a single board. Ebates, I’ve been working with for 14 years. What’s are you doing? What’s your longest. 14 years? 14 years. Ebates.

[00:02:36] Howard Hartenbaum
I don’t know about you guys, but I woke up to a 50 year old woman the other day.

[00:02:40] David Hornik
Happy birthday, Junko. 50 years.

[00:02:43] Howard Hartenbaum
Don’t say it. She’ll get mad at me. She’s what, 30?

[00:02:46] David Hornik
Yeah, right. She doesn’t listen.

[00:02:47] Jeff Clavier
She just said it to the two people who listen.

[00:02:49] Howard Hartenbaum
She doesn’t listen to this. It’s okay. Nobody listens to this anyway.

[00:02:52] David Hornik
Yeah, right, exactly. Just let’s hope my parents don’t talk to her because my parents would tell her happy birthday.

[00:02:56] Howard Hartenbaum
Great.

[00:02:57] Jeff Clavier
So the, the oldest portfolio company I have must be, I want to say Brightwall, which I invested in 2005. But in terms of board it’s curse. I’ve been on that board since December 2008.

[00:03:15] David Hornik
So 2005 and that bright roll has been an interesting run. Right. Because it’s shift that business has changed over time and it’s one of these that had as I, as I understand it, I’m not involved. Some challenges early on then found a business model that seems to be just crushing it.

[00:03:30] Jeff Clavier
It’s now the largest video network and most successful.

[00:03:33] Howard Hartenbaum
So my oldest is 2005. It’s flurry that I have. So similar timeframe.

[00:03:39] David Hornik
Yep.

[00:03:40] Howard Hartenbaum
I mean not compared to Ebates.

[00:03:42] David Hornik
Yeah, no Ebates. I mean look, on The 1 hand 14 years is a long time and particularly for a private company. On the other hand, the Ebates business has been doing great. You know, it had a period of time where it was really challenging but now it’s, it provides a ton of value for both the consumers and the, and the, you know, stores that it supports. So sometimes you just have to. It takes a while for these things to mature. But the, but the amazing thing is like 14 years, that’s unbelievable. I can’t, I certainly don’t have any sense that that time has passed that quickly.

[00:04:15] Jeff Clavier
Crazy. So is it supposed to show that we’re mature or that we’re all farts.

[00:04:20] David Hornik
Or just time passes?

[00:04:22] Jeff Clavier
I think what’s interesting is, you know, that shows that the business we’re in is really a long term business. And even though for us at seed stage we typically stay on the board for a couple of years and then once we bring great firms like August, then we basically give you the keys and then we leave. In some cases we’ll actually stay involved if we can bring something very specific. But for us with our larger portfolios, it’s actually a challenge because it’s all about the value add that we deliver. But we have 10x the load in terms of number of companies per investment professional. So it’s always sort of a challenging math.

[00:05:02] David Hornik
Well, it’s hard for all of us. Howard and I have the Same thing. Howard and I. I think the two of us have the most portfolio companies in August.

[00:05:09] Howard Hartenbaum
You have more than me. I think I have eight or nine.

[00:05:12] David Hornik
So that’s, you know, at some point you say, okay, I can follow this set of companies. But then, you know, companies go public or they get sold. I just had a company get bought by aol, a company called Gravity. And.

[00:05:27] Howard Hartenbaum
Congratulations to the founders.

[00:05:28] David Hornik
Way to go, Gravity. And we funded, you know, we were the. Along with Jeff Yang at Redpoint. I funded that company when it was three guys and an idea.

[00:05:40] Jeff Clavier
Literally three guys out of MySpace and an idea.

[00:05:42] Howard Hartenbaum
Yeah, if you’ve heard of MySpace. It was his company down in Los.

[00:05:45] David Hornik
Angeles, this old company that used to compete with Facebook, but this great team. I was actually just talking with a young venture capitalist today about this idea. He said, oh, do you actually still invest in ideas? And I said, look, there are plenty of times when the teams are so good that you say, this is interesting. And as a team, that’s going to drive value. And that was Gravity. And we worked for five years, I think, and they built really great technology. Now AOL has bought the company to bring this kind of personalization technology to bear, and it’s a great outcome for these guys. It’s a shame to see them go because I really enjoy them.

[00:06:26] Howard Hartenbaum
But now you have another board slot.

[00:06:28] David Hornik
But now I can do another. Invest in another company. I’ve signed a term sheet. How quickly they.

[00:06:34] Jeff Clavier
I was about to say, wait, I have one for you. Oh, I’ll still send it to you.

[00:06:38] David Hornik
I always have room for you, Mr. Clavier. There’s always room.

[00:06:44] Jeff Clavier
So I think that’s an interesting segue to what we were discussing, which is when should entrepreneurs consider that money is a commodity and forget about the value add and the time, the availability and the experience versus when does that matter? In the context of the angelist syndicates we were discussing, where you have now, thanks to Angelist, a lot of leverage for some of the lead angels to get $25 or 50k in a deal and then a million bucks follows them.

[00:07:18] David Hornik
So let’s. I’ll just describe it for you. So Angels List is this website, the social network for investors. Is that what they’re calling. Oh, no, we have. I’m just, you know, you never know who’s listening to this. I want to go ahead, make sure that people have context. And so AngelList collects up both investors and entrepreneurs looking for angel funding, and they launch this thing called syndicates, where a given individual can say, I will invest in a particular deal and then a bunch of others will say, I will allow you to invest on my behalf. And so it’s basically I will pledge when you invest that I invest as well. And then those people who are leading the syndicates get a carry. They actually get some percentage of the gain on the deal.

[00:08:02] Howard Hartenbaum
So for example, if the deal was a million dollars of additional money, then the lead might get another 150,000 to $200,000 worth of value in the upside on that deal.

[00:08:16] David Hornik
Yeah, so carry is 10 to 20%. So on a million dollars would be 100 to $200,000 in additional value that.

[00:08:23] Jeff Clavier
They get besides the return that they.

[00:08:25] David Hornik
Generated independent of how much they invest. So you could invest 100,000 on your own or 50,000 or 25,000. As long as you lead the syndicate and you have amassed this group of investors, you get that 10 to 20%. So but it is this interesting question because suddenly now there’s an individual who could put in $25,000 but deliver a million dollar investment. It means that the entrepreneur gets a million dollars, only has to convince a single individual. And that individual invests $25,000, but could have as much as $225,000 worth of the value of that, of that gain if the deal does well. And that sure changes the dynamic. But as Jeff says, you know, are those people who are actively engaged in the companies in the way that we are as professional investors, or is this something that they do as a side project to what other things they do, et cetera. But what’s your sense, Jeff? I mean this in theory is going after the same kinds of companies that you’re funding. So are you seeing pressure from angellist syndicates to, you know, to get deals done?

[00:09:31] Jeff Clavier
No, I think that so far, and you know, syndicates are now six months old. So I think, think we’ll see over time how this situation sort of evolves. And just to be clear, we’ve been very supportive of Angel List from the get go. The challenge is what you described, which is when as an entrepreneur you’re going to raise a million, a million, five, two million, which is typically the range in most seed deals that we get involved into. And you’re going to say I’m going to allocate my dollars based on the value and the, the involvement they expect from the firm or the angels. And what happens is that you’re going to get two or three micro VC firms, which are funds like Softex, Softech, invest out of an 85 million dollar fund. Most of our Peers will be slightly smaller. And you basically say, I’m going to get the bulk of the value and the involvement from those professional investors and then I’m going to get a few angels who have connections, expertise, experience and I’m going to create the syndicate which will support me. If you overweight on the Angels and you don’t get the full time support help attention, then there’s a potential deficit. If you’re an experienced entrepreneur who cares, money is a commodity, you choose your people and you’re up to the races. If you’re a first time entrepreneur actually not doing a good job at building this foundation, your syndicate will potentially be a real issue. That’s what we’ve seen. And so for us, Angelist has been very useful in a few cases as a backfill. So we’ve used it in a few deals where it was an easy 2,300k arrays of additional capital. That’s the way we have used it. All have seen it used in our syndicates. But we’ve heard of entrepreneurs who raised multimillion dollar rounds on Angel List and we’ll see how they fare.

[00:11:30] Howard Hartenbaum
Are those mostly convertible debt? Are they cap debt or what’s the normal structure on Angellist?

[00:11:36] Jeff Clavier
I think they try and push for equity rounds as much as possible, but you have the holdups which typically come from the Y Combinator where it’s very hard to convince Y Combinator entrepreneurs to do nothing but the Y Combinator convertible note otherwise. Naval has been a proponent of the Series C documents and is actually trying to automate the series seed as much as possible. So at some point I wouldn’t be surprised if angel is allowed you to actually contractually commit to a deal by clicking a button and signing electronically. It’s kind of almost like that already, which is great because it makes it sort of easy. The question is where is the boundary of professional investors needing to be involved versus not? And we’ll see.

[00:12:32] David Hornik
So the series seed are the ones that Ted over at Fenwick, so Ted.

[00:12:36] Jeff Clavier
Wang Siri.com and those are great documents. We use either those documents or things which are inspired of those documents when we do our own round. So that my legal cost now more than $12,000.

[00:12:52] Howard Hartenbaum
So I had a company recently which six years or so ago at Draper Richards we invested in a seed round. It was the only, only capped convertible note that we did in the entire fund and it became a very interesting situation recently because the company didn’t need to raise money until six years later, which is now, and they hadn’t realized the impact of the interest on the convertible debt over six years. And when they did all the math, they realized that they’re kind of the percentage that they had to sell off with the conversion roughly dropped the valuation of the company in half from what they thought it would be, almost in half had they simply sold equity at the beginning instead of a convertible note with a cap and interest. And it was a big rude awakening for them where suddenly it wasn’t what they thought it was.

[00:13:49] Jeff Clavier
That’s the issue of that instrument that you’re not supposed to use more than one once for a small amount and therefore the impact of the cap or the interest is minimal. Six years ago, I assume you didn’t have 1 or 2% interest like the ones we had now was 8%. So when you compound 8% over six years. Yeah, it’s actually quite a bit of money.

[00:14:13] David Hornik
That’s a lot of money.

[00:14:14] Jeff Clavier
And yeah, I mean, so is the case.

[00:14:16] Howard Hartenbaum
And the lawyer said, oh, and here’s how the conversion looks like. And they’re like, where’s my company going? And. And the lawyer was like, well, remember when we said you should sell equity?

[00:14:26] David Hornik
Yeah. It is a tricky thing. I mean, at the end of it. But this is exactly why I’ve written about this Inventor blog. I wrote this big diatribe about sell equity at a price you think fair to investors who want to be engaged and involved. And then all of you will get busy trying to build value in the company. And if you do extraordinarily well at that, everybody will be rewarded as opposed to a set of structures that create this kind of an incentive or a lot or make investors less excited about a big up round because they’re being, because they, you know, because they’re being converted without a cap and they’re going to end up owning 0.2% of the company when all said.

[00:15:00] Jeff Clavier
Or they’re being converted. But because it’s debt, there’s no pro rata participation. And then you look at the deal and you can’t, you know, maintain your ownership.

[00:15:10] David Hornik
Have you ever been, I’m sure you have actually have documents that don’t allow this either you’re not doing convertible debt or whatever. But the other thing is, because it.

[00:15:18] Jeff Clavier
Is, sometimes we do, sometimes we don’t have a choice.

[00:15:20] David Hornik
People can buy you out. Right. I mean, it’s not. Have you ever had anyone try and say, fine, I’ll give you the money back? Because that’s a, that is a brutal.

[00:15:28] Jeff Clavier
We’ve seen structures where the docs. And that’s sort of the challenge as well. People sort of sign those docs without reading them. And very often we’ve seen that there was little to no legal due diligence on the company itself when you use convert debt because there’s no lead and so no one is there doing the cleanup. And that’s, that’s one of my fears is that, you know, no one has paid attention. You’re sort of coming around, you go like, what is this big stinky pile of shit which is in this corner? And people go, what?

[00:16:00] David Hornik
To put it gently where.

[00:16:02] Jeff Clavier
And that’s why we, we try and we’ll. I don’t know how many convertible notes we’ve signed in the last fund, but it’s less than 10% of the deals or they’re always sort of short term or whatever.

[00:16:20] David Hornik
Yep.

[00:16:22] Howard Hartenbaum
Yes. My father always told me, don’t go into debt. Well, remember, it’s so simple.

[00:16:28] David Hornik
There was a time when debt was the worst. Like, oh, the worst thing you could imagine. Remember the housing crisis, all this. And everybody said, oh, debt’s a terrible thing.

[00:16:35] Jeff Clavier
Thing.

[00:16:36] David Hornik
Debt’s just the thing. Right? I mean, yeah, I think there are lots of reasons not to be in debt. I’m. I’m excited to not owe money on like for my college anymore or whatever. But. But on the other hand, there are instances where debt’s pretty good leverage to.

[00:16:51] Jeff Clavier
Finance inventory, working capital.

[00:16:53] David Hornik
I don’t know. Howard’s sort of like, eh, no, we.

[00:16:56] Howard Hartenbaum
Could discuss this for an hour. But for.

[00:16:58] David Hornik
Well, it’s boring. But it’s boring.

[00:17:00] Jeff Clavier
So August and SofTech are in, in a company together and I’ve been trying to stuff deck to, to put debt in that company forever. And Howard, clearly, he won’t allow it over his dead body.

[00:17:11] David Hornik
So speaking of August, speaking of August.

[00:17:13] Howard Hartenbaum
And we just raised money in that company and a lot of money in equity and everything is great. We don’t need that.

[00:17:17] David Hornik
All right, I just want to. I’d like to speak with Mr. Clavier a brief moment about August because for years I tried to buy August.com. i could not find who owned August.com. i could not buy August.com and suddenly out of nowhere appears a. On a digital lock company that calls themselves August and they have august.com.

[00:17:41] Howard Hartenbaum
And you funded them?

[00:17:42] Jeff Clavier
Yes.

[00:17:43] Howard Hartenbaum
Get out of here.

[00:17:44] Jeff Clavier
I was.

[00:17:44] David Hornik
No, no, we would like, we would like your commitment when, when, when they, if they sell or something happens and they no longer keep the name August, may we please have the URL? I would like your assistance in that.

[00:17:59] Jeff Clavier
Well, you could Always lead the series B. That would get you closer.

[00:18:02] David Hornik
That’s actually. The CEO actually told me that he would. He said, why don’t you fund us and we’ll give you an option on the name if it should ever come available.

[00:18:11] Jeff Clavier
What’s funny is that when I invested, it was called Keys K E A S E, which I actually liked as a name, but they were like trademark issues or whatever and then boom.

[00:18:24] David Hornik
So tell us about August, because August is kind of interesting, right? It’s one of these new sets of kind of home automationy things that.

[00:18:32] Jeff Clavier
So we actually liked the. We actually like the connected device market. We’ve done three investments, Fitbit, five years ago, which was really sort of a precursor, and it was crazy, and it was insane to actually do that deal, but it worked. Then we. We committed to Jason Johnson and Yves baal, who’s a design genius. And so August is this connected lock. So it’s a lock you replace.

[00:18:58] David Hornik
How did those two get connected? Because Eve is really, I mean, is truly like one of the great design geniuses of time. So how does he end up in a startup around locks?

[00:19:10] Jeff Clavier
Because he actually.

[00:19:12] Howard Hartenbaum
He got locked out of his house.

[00:19:15] Jeff Clavier
No. Eve has this company called the Fuse Project that works with very large companies and foundations. And we were talking with Bill Gates, he works with the BFS foundation as well. And he’s also sort of working on a super selective basis with startups where he becomes sort of the design co founder. And we were lucky to have Jason, who’s an awesome CEO, managed to convince Eve to work with him and take over the design and the positioning and the marketing and the branding of the company. And so it’s a lock which replaces your deadlock, and you can then configure your iPhone to either open the door to you, unlock the door for you, or if I know that you come home, then I can invite you through your cell phone to unlock my door and so forth. For the collaborative consumption market, whether it’s Airbnb or homejoy, that’s a win. Because the number one issue for those companies is how do I get the keys, how do I return the keys.

[00:20:21] David Hornik
And how do I make sure you don’t copy the keys in the process.

[00:20:24] Jeff Clavier
Exactly.

[00:20:25] Howard Hartenbaum
Take a picture of them.

[00:20:28] Jeff Clavier
Take a picture of the. What.

[00:20:32] Howard Hartenbaum
Interesting app that I use. And I like the company, it’s called.

[00:20:35] Jeff Clavier
Kimi, where you take a picture of. We saw those. They send you the keys.

[00:20:39] Howard Hartenbaum
They send you the key.

[00:20:40] David Hornik
And it’s awesome. I have to say I have copies of my keys and it Works great.

[00:20:44] Jeff Clavier
Yep. So.

[00:20:47] David Hornik
So August is all digital. It connects up and it’s connected to your WI Fi.

[00:20:51] Jeff Clavier
How does it, how is it the issue. So you can’t connect your luck to, you know, sustainable power, so you have to put batteries in there. The problem with WI fi chips is that they’re super energy, you know, inefficient. And so if ever you connect your lock to WI Fi, you basically replace your batteries, you know, way too often. And remember, it’s a luck. So the luck running out of battery is really, really bad. So it’s actually Bluetooth low energy.

[00:21:21] David Hornik
And there’s a WiFi to Bluetooth device.

[00:21:24] Jeff Clavier
Then you have the WI Fi to Bluetooth device which is plugged in the corner if you want to, but you actually don’t need the WI fi connectivity per se.

[00:21:33] David Hornik
So what’s it then? Bluetooth low energy to what? Just. Oh, just to your phone. So it doesn’t matter. So as long as you have a cell phone, you come in, it hooks up to your cell phone, it know it then does the handoff, handshake and says right, exactly.

[00:21:47] Jeff Clavier
And it can be sort of hacked and so on, so forth.

[00:21:50] David Hornik
So is August the next Nest? Would you be willing to take, what was it, $3.3 billion from Google for August?

[00:21:56] Jeff Clavier
$3.2 billion. And I don’t think any one of us knows the size of the earn.

[00:22:02] David Hornik
Out because you think there’s an earn out on top of that?

[00:22:05] Jeff Clavier
Dude, I don’t know. I don’t know. I have no knowledge of the deal. But I know the Wildfire structure because Wildfire was acquired for $350 million in cash by Google Plus. Yeah, big in earn out. So you can’t see because it’s your podcast, but I’m showing the size over the earnout, like 3 inches. I’ve never signed two ETG sort of paper like what allows founders to avoid paying taxes on their products.

[00:22:37] David Hornik
Yeah, it’s the golden parachute.

[00:22:39] Jeff Clavier
Yeah, the golden parachute. I’ve never signed a bigger golden parachute that big. So I’m sure the gold parachute must be really.

[00:22:44] David Hornik
Well, so there’s some speculation. Right, so Nest, which is this connected thermostat device that is both a thinking device and it’s. And speaking of, you know, beautiful design. And I mean, so Tony Fadell, who’s a genius, A genius and the creator of the ipod, created this company and he then brought together a lot of what we think of as the same kind of, you know, the nature of Apple, which is amazing design, amazing technology brought together with really simple software experience.

[00:23:19] Jeff Clavier
And hardware, I mean, hardware installation. They designed their own screws. I mean, it was.

[00:23:25] David Hornik
It came with a cute little screwdriver. Did you install your own, Howard? We all have them.

[00:23:30] Jeff Clavier
Yeah.

[00:23:30] David Hornik
So we are. Some of you have four of them. I have one, you have. Howard has three.

[00:23:35] Howard Hartenbaum
Two in my house and one in my mom’s house.

[00:23:37] David Hornik
I wonder if I gave my father one or if he bought his own. But anyway, he has one.

[00:23:42] Howard Hartenbaum
My father refuses to get one because he doesn’t trust the Internet.

[00:23:45] Jeff Clavier
Yeah, he doesn’t want his heat connected.

[00:23:49] Howard Hartenbaum
To the Internet because it will get hacked. And.

[00:23:52] Jeff Clavier
Well. Well, hang on. So, okay, nest bashing for 2 minutes. Just before they actually sold for 3.9.

[00:23:58] Howard Hartenbaum
I had the bug.

[00:23:59] Jeff Clavier
I had the bug.

[00:24:00] Howard Hartenbaum
And do you know about this?

[00:24:01] Jeff Clavier
So what happened is that they. They uploaded a new version of their firmware. Version 4.0, version 4.0, which was buggy as hell, which depleted the battery, which means that the nest run into sort of a reboot loop, which means that it shut off your heat in the winter time, in the wintertime, and you could no longer access anything. So at best it was telling you it was disconnected. At worst, your heat was.

[00:24:29] David Hornik
Well, this is the concern about Tesla, right? I mean, this is the concern about a car that’s basically a software program. And in fact that’s connected. That’s connected well. So I mean, I had this conversation with Reid Hoffman because he was supposed to be meet. We were going on this trip and he didn’t have. He was dropped off in a car or something. Well, what happened? It turns out that his Tesla wasn’t starting and he had a bunch of conversations. They’re like, you’re gonna have to reboot your car. Okay, well how long does that take? And I forget how long it takes about 25 minutes or something to reboot your car. And he didn’t have the time to get to the airport. So this is delete your car to like get started. So, so here’s nest, where you have no power. And then how’d they fix it?

[00:25:08] Jeff Clavier
I mean, right?

[00:25:09] Howard Hartenbaum
So I called Nest and it was a good 30 on hold or 40 minutes on hold. And I finally got them. And this was before they had figured out what the problem was. And the end solution was to detach the unit from the wall to plug it into a USB charging port using the same plug as you use for your camera, uploads to your computer, letting it recharge, plugging it back in the wall. And then every six or eight hours, when it dies. To unplug it from the wall and recharge back up the battery, that was the solution.

[00:25:36] David Hornik
But you’d have heat. The only problem is you couldn’t sleep for eight hours because you had to recharge.

[00:25:41] Howard Hartenbaum
Every six hours, I get a big blankie.

[00:25:43] David Hornik
So $3.2 billion, my friend.

[00:25:46] Jeff Clavier
I yelled at them. And the beginning was your fault. And it was your WI fi, was it? Right?

[00:25:50] Howard Hartenbaum
Oh, yeah, I heard that. It’s your WI fi.

[00:25:52] Jeff Clavier
And then they downgraded back to the old version of the firmware, which sort of didn’t solve the issue, but made it sort of less acute. But a bunch of people reported that they were literally freezing in their house because the freaking Nest was California.

[00:26:09] Howard Hartenbaum
Wasn’t bad, but if you’re in Minneapolis and you’re freezing to death. And the downgrade on software was even funnier because it was incompatible with the new units they had shipped.

[00:26:17] Jeff Clavier
True.

[00:26:17] Howard Hartenbaum
So those that were working with the new installed software that were new, they stopped working.

[00:26:25] Jeff Clavier
So that’s the issue with connected devices. And so to your point, is August the next Nest? Obviously, I wish I was the investor in the seed round and your friends at Maveron, your co investors in Zulily did the Series A.

[00:26:39] David Hornik
So, you know, I didn’t know that. Is that true? Who did it?

[00:26:44] Howard Hartenbaum
Maveron invested in August.

[00:26:46] David Hornik
Yeah, exactly. Nice.

[00:26:51] Jeff Clavier
But I think there is definitely a few devices like the thermostat, like the protometer and the scale, like a few others that we’re looking at, that will offer a lot of value when they get connected. And you will see devices in, you know, 5 million, 10 million households in the U.S. and those companies will be really big and interesting as to whether you will get to 3.2 billion. You know, it’s. It’s a steep multiple on the revenues, but it was, I mean, let’s be clear. It was a real company. It wasn’t like, you know, everybody in.

[00:27:28] Howard Hartenbaum
This room has paid for their products.

[00:27:30] Jeff Clavier
I gave. What.

[00:27:30] Howard Hartenbaum
How much were they?

[00:27:31] Jeff Clavier
250 each. A thousand bucks. A million?

[00:27:33] Howard Hartenbaum
Yeah, I bought three. 750 bucks. I gave them. And happily, I like it. Except for when I’m cold.

[00:27:39] Jeff Clavier
Yeah, I was really happy with my Nest until it started to, you know, rewindle me.

[00:27:45] David Hornik
So we got connected devices. What else we got? I’ve heard a lot about people investing in drones in the drone world. So now not only. We thought you guys saw the Jeff Bezos. The future of delivery is drone delivery for whatever. Amazon Prime Air, Amazon Air, which frankly, I’m in. I’m ready for. I’m ready for it.

[00:28:07] Howard Hartenbaum
So the two companies that I saw in the drone space that interested me the most, one the name pops to mind is called Matternet. I don’t know if you guys saw that.

[00:28:17] David Hornik
Matternet.

[00:28:17] Howard Hartenbaum
And they’re not making the drones, they’re just building the control software beneath it. And the thing that caught my attention was that they were claiming they believe that delivery within a city energy for charging the drone for delivery and depreciation on use of the drone is roughly 7 cents to deliver 2 kilograms or less within a city. Now that’s pretty interesting, 7 cents, which.

[00:28:46] David Hornik
Makes it totally economic compared to these idiotic.

[00:28:49] Howard Hartenbaum
The Google delivery, the UPS truck that comes down your street, that’s 7 cents.

[00:28:54] David Hornik
But at least it’s full, right?

[00:28:56] Jeff Clavier
The.

[00:28:57] David Hornik
The what’s Google’s delivery thing.

[00:28:59] Howard Hartenbaum
Delivery at Google Express.

[00:29:00] David Hornik
Google Express. Google Express has a bunch of of Priuses.

[00:29:03] Howard Hartenbaum
I use that all the time.

[00:29:04] David Hornik
Guys running to. To target and picking up your crap and Costco.

[00:29:09] Jeff Clavier
It’s ridiculous. And they don’t. And it’s funny because it’s clear the first time they show up at Costco. So they have their Android device showing what they have to pick up and they’re trying to find it is hilarious.

[00:29:19] David Hornik
It’s ridiculous. Think about it. Then you order like, okay, I’m gonna get tons of toilet paper that can’t fit in the Prius. I have to go multiple trips for your to charge you six bucks or whatever. We should do that for a price. Let’s do that.

[00:29:29] Howard Hartenbaum
800 rolls of toilet paper a ton.

[00:29:31] David Hornik
A truck and then see how many pre I we get coming. By the way, I was just looking at Maverick because I didn’t realize Mavron was an investor. It turns out that their venture partner, a guy named David Wu, was the investor who apparently works with August. According to this, he’s an investor in your August company. So I hope it goes as well for you and for Mavro.

[00:29:53] Howard Hartenbaum
And David was at Homestead before.

[00:29:55] David Hornik
Is that where he was?

[00:29:55] Jeff Clavier
Yeah.

[00:29:56] Howard Hartenbaum
He’s a good guy.

[00:29:57] Jeff Clavier
And you can always prim the series B.

[00:30:00] Howard Hartenbaum
So here’s the most interesting comment about Google Express that I heard was the rationale behind it is that more and more and more people are just going direct to Amazon, bypassing searches on Google so Google won’t have a chance to monetize your searches. So they want to be the place where you go to do stuff so at least they can monetize your searches. I don’t know if it’s true or not. But I thought it was an interesting explanation, though I don’t imagine Google monetizing.

[00:30:25] David Hornik
Toilet paper for Google Express. Yeah, I don’t know.

[00:30:29] Howard Hartenbaum
I think that they’re just like in logistics.

[00:30:31] Jeff Clavier
So going back to drones. So we’ve actually made a stealth investment. Well, investment in a company which is still stealth in the drone space. It’s also in the software layer. So we don’t actually build no hardware. We fly them, which is awesome.

[00:30:47] David Hornik
This is what you do in the board meetings.

[00:30:49] Jeff Clavier
We went to test the software on the Berkeley Marina to basically fly a drone and then get the other drone that was piloted automatically by the control software with the GoPro camera that was sort of following the other drone. And it was awesome.

[00:31:05] Howard Hartenbaum
Is this Drone wars?

[00:31:08] David Hornik
So what do you think the business is here? Like, is the business ultimately about?

[00:31:12] Jeff Clavier
It’s actually. This one is a SaaS play. Yeah, but what send grade.

[00:31:17] David Hornik
Yeah, but what’s the end use? Like what? Right. If a software platform. You need applications for that insurance.

[00:31:24] Jeff Clavier
So it’s actually what. At some point. Point the FDA is going to. Sorry, not the fda.

[00:31:30] David Hornik
The Federal Drug faa. Federal Aviation Administration. That was apparently not on your citizenship test.

[00:31:38] Jeff Clavier
He’s going crazy.

[00:31:40] Howard Hartenbaum
Woodrow Wilson. What?

[00:31:41] Jeff Clavier
Dude, World War I. I’m doing.

[00:31:43] David Hornik
Who was the president of World War II?

[00:31:45] Jeff Clavier
Consumer Healthcare Investments. And I’m worried about the FDA and I’m doing drones and I’m worrying about the FAA.

[00:31:51] Howard Hartenbaum
So the other company, the drone company I saw. I can’t remember the name was exactly a vertical application of drones and their propos that 30% of all prescription pharmaceuticals are disposed of because they expire while they’re sitting on the shelves at Walgreens or CVS or whatever your local pharmacy is. And that each city for each big chain will have one distribution center and little shops like they have now. And instead of having any inventory, your doctor will say, you need to go and pick up doxycycline. And a drone will fly it from the distribution center for 7 cents. Drop it off at the Walgreens near your house. You’ll go pick it up. There’s no. And it’s just in time. Inventory on pharmaceuticals.

[00:32:31] David Hornik
Which is way better than what we have now. Yeah. Because what you have now is either it’s expired because nobody gets it, or for the rarer stuff that you show up. And then they say, oh, I’m. You know, here are three. We only can give you three of them today because we need a few on the shelf and then come back tomorrow, which is super annoying.

[00:32:49] Howard Hartenbaum
And think about for the drugs that are all around, the inventory costs to have those drugs everywhere. Where they have like the popular whatever, doxycycline, ciprozithromex at every Walgreens in the city when they only need a small amount in one distribution center. And they fly it out. I like that proposal.

[00:33:03] Jeff Clavier
So I think the challenge is with anything related to actual. Okay, we’re gonna get something somewhere and drop it somewhere else. So delivery the drones today just don’t have the technology to have a payload.

[00:33:19] Howard Hartenbaum
Yeah, two kilograms, two kilo. I mean, drugs are very light. It’s a very good proposition for pharmaceuticals.

[00:33:24] Jeff Clavier
And then the issue is we don’t have the routes, we don’t have the software, we don’t have the control, we don’t have the FAA regulation. And the point is that that company, which I mentioned, will implement those so that.

[00:33:33] David Hornik
So they’re going to become the equivalent of. So we invested in an A Theros, which became the WI fi chip and everything. But they had to create the WI fi standard. So you. So your company, your stealthy company is going to say, here’s the software, but also here are the policies. Here’s how these things work, will interact with each other.

[00:33:51] Jeff Clavier
Insurance.

[00:33:52] David Hornik
So how you will insure against if you’re using this software, it’s basically making.

[00:33:56] Jeff Clavier
Sure that you can today, if you want to fly a drone commercially, which is extremely limited in terms of what you can do, what you can’t do, and so on and so forth, the paperwork that you have to produce is several inches sort of thick. And we could instrument all that sort of insurance. But I mean, it’s super early days. Right.

[00:34:19] Howard Hartenbaum
I wonder if somebody’s going to invest in a little company that makes umbrellas for drones so when they fly in the rain, they don’t get wet. That’s a neat technique.

[00:34:29] David Hornik
Wow.

[00:34:29] Jeff Clavier
Howard Parrot, which is of a.

[00:34:33] David Hornik
You went to mit. This is what you come up with. Mit.

[00:34:37] Jeff Clavier
But, you know, Chris Anderson, who. Who we all know has sort of the most interesting drone company, 3D Robotics, who are friends at True and at Foundry, are investors. And from what I heard, they’re doing really well. But it’s very, very early days. And the question we had for ourselves, investing in this company, in this technology, which we’re super excited about, is are we too early? Too early or so Way too early that, you know, it will take forever for this thing to.

[00:35:06] David Hornik
Where will you land on this wave, the wave of drones, which is appropriate since apparently today is the day that they’re doing the Mavericks big Mavericks, surf competition. But Howard. So this is a total aside, but I was just down in Mexico and I went. I’ve never gone into one of these Mexican pharmacies before. Have you been to a Mexican pharmacy where they sell over the counter every drug that you can’t? I mean, it’s like, of course their big sellers are Viagra. They have big signs.

[00:35:34] Howard Hartenbaum
Viagra and Cialis, all the antibiotics and everything.

[00:35:37] David Hornik
You can buy amoxicillin, you can buy Zithromax. Europe is the same way you can buy antidepressants.

[00:35:44] Howard Hartenbaum
Europe is not as unregulated, but stuff like Zithromax and all that they sell. And basically it’s only Americans that abuse drugs. Like Americans in Europe. When your kid gets sick, they say, well, let’s wait a week and see if you get better. And then if you don’t, then give you some Zithromax America. The kid coughs once and the mother’s feeding them Zithromax with his orange juice.

[00:36:03] David Hornik
Well, I thought it was madness, but that’s why. But I did buy a fair amount of Cialis. No, I didn’t.

[00:36:10] Jeff Clavier
Good for you.

[00:36:11] David Hornik
Nice for you. Nice for you. Cialis, the one that has the commercial with the two bathtubs side by side. And they always show the husband and wife or the boyfriend, girl, whatever, in their side by side bathtubs. It’s very odd.

[00:36:23] Howard Hartenbaum
I don’t watch tv.

[00:36:25] Jeff Clavier
I don’t pay attention to Sierra’s coming from.

[00:36:27] Howard Hartenbaum
Actually, never mind.

[00:36:32] David Hornik
All right, well, we’re running out of time. Are there any other, like, pressing issues we should be discussing? I don’t want to. I don’t want to miss out on anything.

[00:36:41] Jeff Clavier
So you guys had a tremendous year last year with the exit. Are you guys sort of gonna come up with the same sort of exits? Are you super excited about 2014?

[00:36:53] David Hornik
Yeah. We have one company that’ filed confidentially. That’s kind of interesting and exciting. Although the market’s having a tough day, last couple of days, but.

[00:37:04] Jeff Clavier
Well, just wait.

[00:37:05] David Hornik
Yeah, I think the market will do fine. And the reality is we have some. We have some companies that I’m super excited about that are. And they’re in such disparate things. Right. You have Howard’s Eat Club, which is delivering an unbelievable number of meals to companies and is replacing in cafeterias and in super efficient way. You have. We have a company like Fastly that is competing with Akamai and creating a much better CDN company. You know, so it’s. The venture business is awesome because you have this opportunity to invest in Fitbit and it’s some. And it turns into a big multi, multi million dollar kind of sales when it’s. When you funded it. Did they even have a Fitbit like did they have.

[00:37:53] Jeff Clavier
This would be cool piece of plastic.

[00:37:57] David Hornik
Yeah. Now it’s this elegant little thing or it goes way around your wrist or whatever. So I think actually this will be a pretty good year for August. Hopefully a good year for SofTech.

[00:38:08] Jeff Clavier
Yeah, well, so far the first few weeks of the year have been really good. I mean the key issue for us seed investors is can we get our companies to a good series A and then a great series B and then hopefully see them scale because that’s where we’re going to lose most of the companies so hard. And the winter break was super busy where we’ve had 6, 7, 8 now 9 term sheets for series and series Bs. And as I was saying, David, I wired 2.4 million yesterday and, and today for three photo ons for companies which are doing so well that I’m actually using my reserves way faster than I thought.

[00:38:47] Howard Hartenbaum
And these were all three companies you showed us?

[00:38:50] Jeff Clavier
No, because they all got preempted.

[00:38:54] David Hornik
Preempted.

[00:38:55] Howard Hartenbaum
That’s okay. You can still come and we can take a look. We don’t mind.

[00:38:57] Jeff Clavier
But I have one for you.

[00:38:59] David Hornik
All right, Jeff, if you want to be the next VentureCast, we would like to discuss the August and Softech deal that gotten done.

[00:39:08] Howard Hartenbaum
We have one which is Gigwalk.

[00:39:10] David Hornik
Yeah. Which is great. I’m glad. And it took us, it took us a while, but I mean, this is the thing. I remember having this conversation with someone who was saying, they were saying like, oh man, we’ve shown you a bunch of things. And August never does our deals, but there are six of us doing deals. We do 10 deals a year. Right. So the likelihood that we do any given deal is actually extremely low compared to an organization like a Sequoia or whatever where they have a ton of people, they do a ton of deals. But, but we do look forward.

[00:39:36] Jeff Clavier
But we should do a deal this year. Yeah, let’s, let’s make that.

[00:39:39] David Hornik
That’s a plan.

[00:39:40] Jeff Clavier
Let’s try.

[00:39:40] David Hornik
All right, well, that is the plan here on venturecast. This has been David Hornik from August.

[00:39:46] Howard Hartenbaum
Capital and Howard Hardenbaum, also from August Capital. And thanks to our guest Jeff Clavier from SofTech.

[00:39:52] Jeff Clavier
That’s always a pleasure. Good to see you guys.

[00:39:54] David Hornik
All right, Happy New Year.