Generated Transcript

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

[00:00:19] Howard Hartenbaum
And I am Howard Hartenbaum. Both of us from August Capital.

[00:00:22] David Hornik
Oh, yeah, I didn’t say that this time. Oh my goodness.

[00:00:24] Howard Hartenbaum
Waiting for you.

[00:00:25] David Hornik
No wonder you gave me a look like David, where are we from? We are from August Capital. Here we are. This is a Friday afternoon, what, the first week of August. And I would say that Sandhill Road, like if you wanted to steal stuff from people’s offices.

[00:00:44] Howard Hartenbaum
I sent a bunch of emails today to VCs for various reasons, and 100% of them came back. I’m traveling until August 11th.

[00:00:54] David Hornik
What is, what are we doing wrong here? We. This is obviously our problem, not the rest of the venture business problem.

[00:01:01] Howard Hartenbaum
Unless you actually think we’re working right now.

[00:01:03] David Hornik
Well, this is working, isn’t it?

[00:01:05] Howard Hartenbaum
You don’t think so let’s do Venture Cast.

[00:01:06] Howard Hartenbaum
You were working and I came in. And said we had done Venture Cast. And your answer was, hey, now I. Don’T have to work.

[00:01:11] David Hornik
You know, I’ve been surprised people, I’ve talked to an increasingly large number of people who say, hey, I listen to Venture Cast and I appreciate it and you know, do more Venture Cast. So no, we are gonna call this work.

[00:01:25] Howard Hartenbaum
So we need to do some kind of compensation marketing program where like, if you get 100 people to listen to VentureCast, we give you free best fruit basket. Fruit basket.

[00:01:37] David Hornik
What would we do? We’d have to give you a term sheet or something. You know what I got? So I got an email.

[00:01:41] Howard Hartenbaum
We’ll give you a lesson on term sheets.

[00:01:43] David Hornik
Totally.

[00:01:44] Howard Hartenbaum
We will help you negotiate your next term sheet with a VC on the other side.

[00:01:48] David Hornik
You just can’t mention that we’re like the ghost negotiators because that would be very bad. Although actually, I’ll tell you, when I think about these term sheets, I actually, I think that we would be good sounding boards because at the end of the day, we give these super clean term sheets because we don’t think that all these dumb terms are actually that beneficial in an early stage term sheet.

[00:02:11] David Hornik
Right? So we could give them all the arguments and then be, oh no, people are going to use it against you. No, we give these term sheets, Right. We don’t, you know, series a deal with multiple preference or whatever is just stupid because then when you raise a hundred million dollars at that 100 million gets it as well or whatever.

[00:02:27] Howard Hartenbaum
The most common term, maybe half the VCs do, are these exploding term sheets where the entrepreneur gets it and it says, we would like to invest in your company, this much money at this much valuation, you have 24 hours to decide. And my reaction to that is a gun to the head model doesn’t work too good. And if they really want to invest in you, you can take all the time you want.

[00:02:49] David Hornik
So I agree with that 100%. And it’s like, we’ve talked a lot about this dating marriage thing, but it’s. Hi, Pamela, I have this ring, and I’d like you to marry me. Answer now. Hurry up. Now. It turns out, actually, usually by the time you’re.

[00:03:06] Howard Hartenbaum
Because I’m gonna give this ring to somebody else if you don’t.

[00:03:08] David Hornik
Yeah, I’m gonna take it back, and I’ll keep the ring. You know, it’s just a weird dynamic. And I agree with you completely that when a VC gives you a term sheet, then they’ll wait. I mean, maybe. Maybe. I guess it doesn’t matter to us. It’s not because we don’t give exploding term sheets. So the reality is, when someone says, we want to invest, they have just spent the whole year trying to find some company they like enough to give a term sheet, and you are the one. And then they say, you better decide in 24 hours. If you say, you know what? I need 48, they’ll go, okay. If you say, I need seven more days, they’ll say, okay. If you say, I need a month and a half, then they’ll say, well, really, why would you need a month and a half? So I think you have a fair amount of flexibility there.

[00:03:52] Howard Hartenbaum
I got a good Ben Narrison story.

[00:03:55] David Hornik
Oh, yeah.

[00:03:56] Howard Hartenbaum
This is a shout out to Ben Harrison today at Triple Point. Ben is a funny guy, and I.

[00:04:02] Howard Hartenbaum
Consider Ben a friend. And we get together for lunch now and then and hang out. And last time, I met up with.

[00:04:09] Howard Hartenbaum
Him at Madera, and he was telling.

[00:04:11] Howard Hartenbaum
Me about his new fund he’s raising.

[00:04:12] Howard Hartenbaum
And how exciting it is. And he said, you know, Howard, would you like to invest in the fund?

[00:04:16] Howard Hartenbaum
And I said, ben, you want to send me some deals? And he said, oh, yeah.

[00:04:20] Howard Hartenbaum
You know, whenever a new deal comes in, you’re like, top of my list.

[00:04:22] Howard Hartenbaum
And I break it down, like, yeah, okay, great.

[00:04:26] Howard Hartenbaum
And so the other day, I had a. I’m a mentor for one of the StartX companies, and I’ll leave the name out. And it’s a wonderful company. And the deal with StartX that I have as a mentor is if they raise money during the time I’m mentoring, which is like, six weeks that August doesn’t Become the one that’s trying to win the deal. So it’s not a. During that time period.

[00:04:49] David Hornik
So you’re supposed to not do it. You’re supposed to say, I’m actually just here to help you. I’m not gonna troll you to, hey, take my money. Take my money. Here’s some advice.

[00:04:58] Howard Hartenbaum
I don’t like you.

[00:04:59] Howard Hartenbaum
Get out of here. So the goal is really to mentor.

[00:05:01] David Hornik
That’s awesome.

[00:05:02] Howard Hartenbaum
The company comes in and they say, yeah, you know, we had a meeting with this guy, Ben Narrison. And in the middle of the meeting, Ben jumped up and said, I’ve been looking for this company for six years. I want to fund you. Get in the back of my car. I’m driving you over to nea.

[00:05:17] David Hornik
What?

[00:05:17] Howard Hartenbaum
And I’m thinking, why isn’t he driving him over to me?

[00:05:20] David Hornik
But I’m also like, what is that? Like, I want to fund you. Come meet some other people.

[00:05:25] Howard Hartenbaum
Well, they need more money than he can offer.

[00:05:28] Howard Hartenbaum
He said, they put me in the.

[00:05:29] Howard Hartenbaum
Back of the car.

[00:05:29] Howard Hartenbaum
They drive me over. He calls Scott Sandel on the phone, and he’s talking, Scott, they could put your partners together on bringing you a deal. And literally, does that work. And he did. He put together. They pitched him. At the end of the pitch, Scott was like, yeah, I want to fund you.

[00:05:42] David Hornik
Wow.

[00:05:43] Howard Hartenbaum
And so then their question comes to.

[00:05:45] Howard Hartenbaum
Me, like, well, what do you think about Scott? Scott’s an awesome guy.

[00:05:49] Howard Hartenbaum
He’s well respected. He’s a professional guy. He’s no bullshit. So I’m like, the vc.

[00:05:54] Howard Hartenbaum
Their company is pretty interesting. I’ll tell you what it is later.

[00:05:56] David Hornik
Yeah, but this. So this is.

[00:05:57] Howard Hartenbaum
But it was funny.

[00:05:59] Howard Hartenbaum
Let me. Then I just don’t mess with Ben. I sent Ben this email, said, hey, Ben, I hear you met with this company, xyz. And then I get back this email from Ben. Did you say nice things about me?

[00:06:15] David Hornik
I think you’re missing the point. My email is not really about you. It was about me.

[00:06:20] Howard Hartenbaum
It was about me. So now Ben knows. And I said, I’m a mentor to this company. I’m helping them decide how to do their financing. I’m advising them. And Ben’s like, you know, you’re my favorite, and I want to send you deals thinking, I know you drove them over to NDA.

[00:06:34] Howard Hartenbaum
It was kind of funny.

[00:06:35] David Hornik
Yeah. Scott’s a lovely man. But, you know, but what about you, Howard? You’re, you know, you’re. You’re a lovely man as well.

[00:06:42] Howard Hartenbaum
I. I mean, I’m a man of my word. And the deal with startx is I wouldn’t.

[00:06:46] David Hornik
But. So this is the one instance where that’s tricky, right? Which is, okay, great.

[00:06:50] Howard Hartenbaum
I wouldn’t have met them if it wasn’t for Startex in this case.

[00:06:53] David Hornik
I agree that in the end, you don’t want the mentors saying, hey, take my money. Hey, take my money. But it seems to me that if someone else says, hey, let me fund you, that the mentor should have the opportunity to say, you know what? I would like to fund you as well, right? So it’s not. You propose, you know, you’re. You’re not sitting there constantly pressuring them, but if you’re giving a good advice and being helpful or whatever, and then someone says, I want to give you money, why should you be in a position where you say, oh, yeah, I.

[00:07:21] Howard Hartenbaum
Can’T, because maybe I can’t fund you?

[00:07:23] David Hornik
We. Yeah, I mean, you would be better, right? I mean, there isn’t any question if we were excited about the deal and these guys don’t know you. Whatever else, it seems to me like they should have the opportunity to say, hey, here’s this thing, but are you interested?

[00:07:37] David Hornik
Right?

[00:07:37] David Hornik
I mean, this isn’t anything new. Both of us have gotten these calls where we’ve helped people, whatever. You’ve had one quite recently where you had been very helpful to a set of people, to this particular company over time, not because you had anything in it, but just because you liked the team and you were trying to be helpful. And then they hit on something that was sufficiently interesting that people started saying, hey, are you interested in funding us? And that guy came to us and came to you and said, do you want to fund the company given that there’s this interest, Right. That seems to me like how it should work, right? So creating this impediment to it, I get the purpose of it, but again, this is like, you know, this is the lawyer in me. At the end of the day, laws have purpose. And so there are, you know, you can be a technocrat and apply it that way, or you can understand the reason for the law, and then accordingly, I think you should have a right to do the deal.

[00:08:30] Howard Hartenbaum
Well, I think in this case, considering, you know, they. In a matter of a day or two, and then they met somebody else and had two term sheets, and I was there asking, like, what should I do? And I’ll tell you what they do later. It’s somewhat interesting.

[00:08:42] David Hornik
Hey, all you listening? He’s not telling you what they do, Mark. Mark his words. It’s interesting.

[00:08:50] Howard Hartenbaum
My Feeling is two, if I’m helpful to them, they’ll come back next time or they’ll tell their buddies like, hey, he was fair.

[00:08:56] Howard Hartenbaum
He didn’t tell anybody.

[00:08:58] Howard Hartenbaum
He was helpful. He helped me pick the right guy to invest. And Ben just wants to make sure it’s him.

[00:09:05] David Hornik
But I think this is. Honestly, you’ve just described our philosophy and there are others in the venture business often who get a bad rap, probably earned, because that’s not their view. They get very sharp elbows. As these things become proprietary and it’s harder to find great deals or whatever, then people sort of like, me, me, me, step aside, this is my opportunity. I, I heard an instance of this with a very well known investor who got introduced to a deal by someone and then he proceeded to elbow them out of the deal. And that’s just unbelievable. Now in this instance, I give credit to the, to the entrepreneurs because when the investor said like, hey, okay, we really need to do this and we don’t have room. The, the founder said, well, wait, no time out. You know, we, we started with this guy, we really like him, and so let’s figure out how to make it work. And then this sharp elbowed investor didn’t really have a choice. Right. But there are some who think that, you know, that, that our view, which is very long, long term, and it’ll all be fine, is being short sighted. I just think they’re wrong. Yeah. But I also think that you and I intend to be in the venture business for 30 years. Right. And so I hope to be alive. 30 years. How old are you, Howard?

[00:10:24] Howard Hartenbaum
48.

[00:10:26] David Hornik
You’ll be alive. You don’t think you’ll be alive at 78?

[00:10:29] Howard Hartenbaum
Medical science is getting better and better.

[00:10:30] David Hornik
78. You don’t even need a bunch of medical science to get to 78.

[00:10:34] Howard Hartenbaum
Do you have any idea how many beers I’ve drank and how many donuts I’ve eaten?

[00:10:38] David Hornik
I actually don’t. But you did live in Japan.

[00:10:40] Howard Hartenbaum
I may look this good on the outside, but I worry about what.

[00:10:43] David Hornik
You’re very broken on the inside. No, that’s true. So do you think, how many years do you think useful life was cut off of your liver from your time as a business person in Japan?

[00:10:56] Howard Hartenbaum
I think of it’s like exercise. The more you do it, the longer you live. It’s hard to know. I worry less about my life. I worry more about the brain cells that I killed.

[00:11:06] David Hornik
That’s my not sleeping is like, you know, I keep hearing this, oh, you should sleep more. And I think oh, who cares? But then I think, although apparently it kills a bunch of brain cells and so is. So is the whole Japanese business culture thing a myth? Is it exaggerated? Or did you experience this? The go out after work with a group of people, drink heavily, and then, you know, go home, sleep a few hours, take a shower, come back, repeat. Yes, that was your experience.

[00:11:31] Howard Hartenbaum
I think it depends on, like, what type of business that you’re in, if you’re in the city or if you’re in a manufacturing job. But yes, for businessmen, pretty much. And I think it’s more rooted in something that’s not cultural. It’s basically a result of bad tax law that the gut taxes are very high. But companies can spend a lot of money on entertainment of their employees that’s non taxable. So going out to drink with all your work buddies can be paid by the company. Non taxable, and you get a lower salary. So if you want to go out and have a nice dinner and drink, the company pays for it, you might as well go because you don’t get that enough money to have that entertainment otherwise. So I think it’s actually tax law drives it.

[00:12:14] David Hornik
One of those things that’s pretty crazy. And tax law was what drove you out of Japan, Right. In the end, you had been there long enough that they were going to start taxing you as a Japanese citizen while you’re being taxed as an American citizen. And you said, then I’ll be making negative dollars.

[00:12:31] Howard Hartenbaum
I have my job. Can I pay to keep it?

[00:12:33] David Hornik
Now, I did at one point say to my wife, I’d been at August for a little bit, and I said to Pamela, like, you know, I would pay to do this job. This is such an interesting job. I would pay to do this job. And this is why Pamela is a very good influence in my life. She said, never tell anyone that. That’s not helpful. Be quiet. I’m glad you enjoy your job. Would I pay to do this job? I meant, would I pay opportunity costs? I probably wouldn’t pay to do this.

[00:12:58] Howard Hartenbaum
Job, but I would donate your time, I guess.

[00:13:03] David Hornik
You.

[00:13:03] Howard Hartenbaum
I would do it just for the upside. You don’t need the fees, because if the upside works, it dwarfs everything else, so it doesn’t matter. But would I do it as a, like, volunteer thing where I got no financial upside from it? No.

[00:13:20] David Hornik
You’re more financially driven than I am, I think.

[00:13:23] David Hornik
Right?

[00:13:23] Howard Hartenbaum
Yeah.

[00:13:23] David Hornik
Now, on the other hand, I do think that there are great things that one can do with money, and so that’s fine. But I You know, I. I guess it depends on how much money I have and whether I could afford to do it at all. Right. You know, I have a bunch of kids who are gonna go to college and all that stuff, so I’m. I’m not. I can’t, like, not have a job, but if I. If I didn’t need the money, I think this is a pretty compelling job.

[00:13:48] David Hornik
Right.

[00:13:49] David Hornik
I think you meet really smart people, whatever. But there. But I will say that on those rare instance, you know, maybe they’re not rare instances. In those instances where we’re sitting there struggling, we have a company that goes to raise money and it doesn’t manage to raise money, and then you’re trying to decide whether you fund it internally or not. And, you know, I think to myself, this is not that much fun. I should be paid for this part of the job, because this is not fun.

[00:14:15] Howard Hartenbaum
Surprisingly, that happens. You know, companies that you have, that you love and you give them money and they’re working hard and they’re making some progress. Not all the progress you had hoped, rarely all the progress you had hoped. Very often the companies are unable to raise their next round of financing from a new investor. Setting the price on the company.

[00:14:39] David Hornik
Yeah.

[00:14:40] Howard Hartenbaum
What percentage of time is that?

[00:14:44] David Hornik
How many of the companies.

[00:14:45] Howard Hartenbaum
Yeah.

[00:14:45] David Hornik
Get there? I don’t know. I wonder. It would be incredibly interesting to know not only what our percentage is, and it could well be a third of them versus Other venture firms are, you know, is our number higher or lower? Are there firms that, you know, there are. Look, Sequoia Capital has a reputation which I don’t know if it’s earned or not, of that they would just say, oh, well, this didn’t work and we’re done and we’re moving on.

[00:15:11] David Hornik
Right.

[00:15:11] David Hornik
That their model is much more about, you know, either this is the right person. Yes. You say the drowning of the puppies, you know, which obviously in many instances, that’s worked fine, but maybe you lose, you know, maybe you end up with a company that I. I always reach out, reach back to this company, Ebates, that were investors in. And I’ve been going to board meetings there for 14 years. And you say, oh, my God, 14 years. That’s a long time. It was doing great in the beginning, and then they had to conserve cash or whatever, and it was not growing as quickly. And then some number of years ago, a new CEO came in, made a bunch of changes, and the company’s been doing great ever since. And I can see lots of circumstances in which that kind of company you would have just cut off.

[00:15:58] David Hornik
Right.

[00:15:58] David Hornik
It wouldn’t have made it. You would have said, oh, well, sorry, there’s no more money for you. And you know, companies doing Ebates was 4% of Black Friday last year.

[00:16:09] David Hornik
Right.

[00:16:10] David Hornik
I mean, that according to comscore. So that’s, obviously, it’s scaled now, but we would have never, we would, we would have drowned the puppy before it grew up to be a lovely dog, you know.

[00:16:20] David Hornik
Right.

[00:16:20] Howard Hartenbaum
I heard that Dick Kramlick, who’s old school at nea, always funds his companies up forever and if it’s not working, he gives them more money and brings in new management and he just keeps doing that until it works or sells or whatever. But he doesn’t shut companies down ever.

[00:16:38] David Hornik
Ever. Well, I mean, that’s certainly one end.

[00:16:40] David Hornik
Of the spectrum, right?

[00:16:42] David Hornik
I think we’re, truthfully, I think we are closer to that end of the spectrum than the alternative. Right. I mean, we are loathe to say to our entrepreneurs, even when they don’t manage to con, it’s a very important piece of the process to go out and spend time talking to investors and sharing your vision for the company, etc, because it’s a clear measure of, okay, is this a compelling business in the eyes of people who are not, you know, who aren’t in the family? And so it’s always a great relief when my, when the companies go out and they come back with a term sheet because you say, oh, good, it validates not just the company, but that there, that this opportunity makes sense and we’re approaching in a reasonable way all that thing. So in the two thirds of the time when that’s the case, you say, oh, great, we’re marching forward and things are good. In that instance, that one third of the instances where that’s not the case, then we have to sit there and say, the rest of the world, right? I have one company that’s just been through this, met with, I don’t know, 30, 30 different firms, right? All of whom, there were a couple that came quite close, all of whom in the end said no. And then you say, okay, well, why’d they say no? Are we being, are we being foolish for thinking that what you’re doing is still interesting and there’s still some opportunity, whatever. And, and smart investors should understand that there, that you should never worry about sunk costs, right? That if you’ve invested 4 million or 5 million or 10 million or whatever, you. It is what it is.

[00:18:11] Howard Hartenbaum
It’s gone.

[00:18:11] David Hornik
That’s gone. Do that next 3 million bucks you put in, is that going to create value or not?

[00:18:19] David Hornik
Right.

[00:18:20] Howard Hartenbaum
And.

[00:18:20] David Hornik
And in general, when we go through that process or whatever, we are reminded of why we loved them in the first instance and why we think they’re making good choices or whatever. And we put in that next amount of money despite the fact that in many instances we just lose an extra $3 million.

[00:18:35] David Hornik
Right.

[00:18:36] David Hornik
So are we being dumb about it or.

[00:18:39] Howard Hartenbaum
So I was just thinking, since it does happen on regular occasion, what are the instances where we do put more money in and what are the instances? No, no. Like, how are we making that decision to do it? And in those rare cases where we decide not to do it, and I would say in the cases that we do it, we still believe the market potential is there, and we think the founders are smart and careful with money and trying to do things and not banging their head against the wall. And in the cases where we don’t do it, which are rare, but I can think of a couple. The founders had proven there was no market there when we invested. They thought there was a market, we thought there was a market. They tried really hard. They built stuff. Nobody would buy it. So there is now. We had data just showing that there was no market there. And in some cases, it’s the founders, despite showing there’s no market there, or maybe there’s some market there, they aren’t flexible enough to try other things and make adjustments. And like, if things aren’t working, it doesn’t always mean just keep doing the same thing.

[00:19:52] David Hornik
No, that’s totally right. I mean, in fact, I think that you’ve nailed it in the instances where we say, hey, it was a good effort. I think it’s mostly because the team has demonstrated that the, that their current model is not going to be interesting. And they have probably waited too long. Either they have. They are not interested or don’t have the flexibility or focus whatever to change what they’re doing, or they just got to it too late. And you look at it and go, well, I don’t have enough data to determine whether that is going to be interesting or not. I do know that the last thing we tried didn’t work and we waited too long to get to the next thing.

[00:20:29] David Hornik
Right.

[00:20:31] David Hornik
So, but I. But.

[00:20:34] Howard Hartenbaum
So another big contributor is Burn Rate. And I can think of the conversations we’ve had when we have a company that’s burning a million bucks a month and there’s a lot left to be proven, it’s a lot harder to put more money in because you Know, you, you put in $5 million and it’s gone in three months. Then you have to shut the company down. It’s like, what are you really buying in companies where their burn rate is 100, 200, 300K and you put in a few million dollars with co investors and you buy a year or you buy a year and a half and at least you feel there’s enough time for something to be proven.

[00:21:06] David Hornik
Yeah, no, it makes a huge difference. Right. I was in Las Vegas last night at. Tony Hsieh has this whole downtown Vegas project that he’s working on. And so there are a bunch of entrepreneurs who are moving there. And one of the things that’s moved there is this tech cocktail, which is a very interesting program that’s giving lots of information to entrepreneurs, et cetera. And so they had a talk with three folks who talked about entrepreneurship. And I was one of them. And I kind of did my shtick of this is hard and. But afterwards I was introduced by Tony to this entrepreneur who he’s been working with and he backed. And her business is actually a very interesting business. And they have some really good information, but the model is shifting. And so the question is, okay, what do we do? Do we raise money now? Do we do this, do we do that? And I had exactly this conversation where Tony said to her, so what are you, they have real revenue now. And what I said, well, what’s the cost? Like what are you burning? And it turns out that they’re burning 75k a month.

[00:22:17] David Hornik
Right.

[00:22:18] David Hornik
And that to kind of shift her model, maybe it increases the burn to 100k a month. I said, wow. So you know, if you do a million dollar bridge, you basically have the better part of a year of information about your new model or whatever. That’s amazing. As opposed to put in a million dollars and have a quarter of information, Like a quarter of new information would be nothing, it would be insignificant and would not be sufficient to get you to the information you need. So I do think that’s tricky. On the other hand, I have a company right now that’s burning me, you know, a lot of money that I’m excited about, but will run out. And you kind of look at and go, but if you didn’t burn all this money, would it be, you know, would you be pursuing the opportunity in appropriate way? But that’s much higher stakes poker CEO in that company.

[00:23:07] Howard Hartenbaum
I know who you’re talking about, but.

[00:23:09] Howard Hartenbaum
The burn rate scares me too.

[00:23:10] David Hornik
Oh, it scares me. But he’s so good. So that helps. I don’t know. Anyway, what else. What else do we want to talk about on this fine suburb?

[00:23:21] Howard Hartenbaum
Well, you made a quick comment about, you know, you couldn’t work for no income because you got an infinite number of children that need to go to college. And on Monday, I was in Boston with my younger daughter, and we went on tours of MIT and of Tufts.

[00:23:39] David Hornik
Cool.

[00:23:40] Howard Hartenbaum
And she liked mit. She’s into programming. I went there. I’m not so sure I’m excited about her going there.

[00:23:48] Howard Hartenbaum
It’s kind of a good choice.

[00:23:50] Howard Hartenbaum
But the Tufts tour was really interesting because it was maybe 15, 10 people on our little tour group going around the campus, and the kids going in the front, and the parents are kind of in the back. And there was some grumpy guy who was one of the parents, and he starts grumbling to me. He goes, can you believe these college stores? They telling the kids. It’s the kids that need to make the decisions. Well, God damn it, I’m the one paying for it. They should be selling to me. I’ve got four kids. That’s 250 kids. Plus I gotta pay taxes on. I gotta earn a million eight hundred thousand dollars to send my kids to college. I don’t think they should have a say in it. It should be my decision. Why aren’t they selling to me? And I just turned around and walked away.

[00:24:30] David Hornik
Yeah, probably. You know, it’s funny. So you were. So you’re down. You’re on the East Coast. I was the last two days down in Southern California touring USC and UCLA with my son. And you know what’s interesting to me, actually, it’s sort of amazing. It’s a very clear message about where our economy is. Those campuses, like every campus that we are looked at now, are building giant engineering buildings. There is not a campus in America right now that isn’t currently. That has any resources, that isn’t currently building some giant engineering building.

[00:25:04] David Hornik
Right.

[00:25:04] David Hornik
And you go to Stanford right here next door. They started early, and they built four giant engine. They built a giant engineering quad. And each of those buildings is named after some amazing entrepreneur. There’s the Jerry Yang building. There’s a Whatever. And, you know, it’s tough to be a liberal arts student these days. You know, you get there and it’s sort of like, well, why are all these big buildings for programming? I would like to study philosophy.

[00:25:32] Howard Hartenbaum
There’s some schools, mit, you get admitted, and then you can take any major you want, including economics or philosophy, which are very few. Yeah, or any engineering Major. But many schools you apply, and UCLA is this way, and Berkeley’s this way, and Tufts is this way. You apply to the engineering school, you apply to the arts and sciences school, and you can move from engineering to arts and sciences, but not the other way.

[00:25:59] David Hornik
Yeah, that’s weird.

[00:26:01] Howard Hartenbaum
Engineering, you have to. Higher bar.

[00:26:02] David Hornik
Yeah, Yeah, I think that’s wrong. I think, like, you know, so. But this is what. So this is my philosophy. I was just having this conversation with. With my. With my son Noah, as we were down at. Down in Southern California and this whatever. And he. And he literally said to me, like, okay, maybe I shouldn’t do any of this. Maybe I should just do a startup. And then he also said, or maybe I’ll be here, but I’ll focus all my attention on building a startup while I’m in school. And I said to him, you’re totally missing the point of college. Like, to my mind, college is entirely about the people that you meet at college. And so if you do either of those things, you’re completely missing out on this amazing moment in time when you can spend four years with these incredibly engaged, dynamic people your own age who you will know for the rest of your life.

[00:26:52] David Hornik
Right.

[00:26:53] Howard Hartenbaum
So what would you do if your son, who’s in college came to you and said, dad, I’m dropping out to start a company. How would you react to that?

[00:27:01] David Hornik
I would be very, very skeptical.

[00:27:06] David Hornik
I.

[00:27:06] David Hornik
Have to say, despite the fact that we have funded people who have left school. And, And. And I’m perfectly fine with people thinking that’s. That that’s a reasonable choice for them to make. If it was my own kid, I would say, what is the rush? Now, maybe he comes to me and he says, okay, or she. I have one daughter, three boys, one, One daughter. And she comes to me and she says, here’s this idea I have, and I find it so compelling, whatever. And they’re bad. The unfortunate thing for them is, like, I’m a vc, so I get to listen to the idea and go, are you kidding me? Like, that’s not a good idea.

[00:27:43] Howard Hartenbaum
Go back to school and you know the odds.

[00:27:45] David Hornik
But yeah, so we know it’s unlikely.

[00:27:47] Howard Hartenbaum
Great idea. The odds are still against, but.

[00:27:49] David Hornik
So I suppose there’s some possibility that it’s that idea, that Skype idea or whatever, where you go, Snapchat. Wow, that’s like, unbelievable. Snapchat. You go, okay, that’s unbelievable. Now, of course, you and I would have had no idea that Snapchat was a brilliant idea, but 99% of the time, I think in my own head, I will say, you are going to have a hundred years to live and you’re going to have 50 years to work in some capacity to do things that you’re excited about or whatever. Go be a student. There is no rush. All these people who thought it was a big rush, like, oh, the Internet bubble was a rush, and then now there’s a rush, whatever. Guess what? There will always be more economic engagement. There’ll be another time when there’s lots of opportunity and excitement and, and money to be made. But there will not be another chance to go meet this incredible group of students and, and find your best friends and find the people that you’re, you know, and, and yeah, you can replicate that in other contexts. But I would say stay in school. What about you?

[00:28:53] Howard Hartenbaum
I would feel the same way.

[00:28:56] David Hornik
We’re such old men.

[00:28:57] Howard Hartenbaum
Unless they had launched a product that already had hyper growth on it, I’d be like, take a leave of absence.

[00:29:02] David Hornik
I suppose if that’s the thing you do while you’re in school and then it’s working.

[00:29:06] Howard Hartenbaum
Yeah.

[00:29:06] David Hornik
Then you kind of go, oh, look.

[00:29:08] Howard Hartenbaum
At the guys who dropped out and succeeded. They all had something working before they did.

[00:29:14] David Hornik
Yeah, this idea that, oh, you just drop out and build something that was not Bill Gates. Gates sort of says like, oh, my God, I can’t believe you refer to me as a dropout when I’d finished three years of school and I’d basically finished all the requirements I needed at Harvard. Same thing with Zuckerberg. He spent some time. It’s not like he didn’t spend any time. He did drop out, but he had started a product within the context and it was working. And then he’s like, okay, I better, you know, go do this.

[00:29:40] Howard Hartenbaum
We had Sean Parker or G come along too.

[00:29:42] David Hornik
Yeah, he had some help. Well, and then, you know, we’ve, and we’ve backed companies with, with professors. Right. I mean, that’s an. So then, so you’ve got the student thing and sure, I’m sure you can start a good company. There’s, you know, the teal fellows and all that. And, but, but in general, it sounds like we’re aligned, that life’s long. You are going to meet people and frankly, you’re going to meet people who will be really helpful to you in building great businesses.

[00:30:06] David Hornik
Right.

[00:30:06] David Hornik
Peter Thiel himself met, you know, Keith Ro Bois and, and Reed Hoffman and all these guys at Stanford. He’s busy trying to convince you not to go to Stanford. Meanwhile, he met all of His. His, like, closest compatriots while he was in school.

[00:30:20] David Hornik
Right.

[00:30:21] David Hornik
So why discourage people from doing that? But anyway, now you’re a professor and you’ve got some. And your research yields some thing that you think is interesting.

[00:30:32] David Hornik
Right.

[00:30:33] David Hornik
Teresa Ming, who started Atheros, she had been working on rf and she kind of came and said, you know what? I think actually we can create a chip that’ll move data through the air. What do you do that?

[00:30:46] Howard Hartenbaum
WI fi?

[00:30:47] David Hornik
Yeah, it’s true. They now call it WI Fi, but guess what? At the time, there was no word for it because it was just like, oh, we could move data through the air. So then she. She has to take a leave of absence. Do you quit? Do you. Like, that’s a tricky question. If you’re a tenured professor.

[00:31:02] David Hornik
Right.

[00:31:02] David Hornik
That’s a. That’s the Holy Grail.

[00:31:05] Howard Hartenbaum
Yet tenure, a guaranteed life of dealing with students. Like, it removes the risk factor.

[00:31:16] David Hornik
Yeah. And you have to say, I don’t know, most schools, I think, allow you to take a leave of absence. Right. So.

[00:31:21] Howard Hartenbaum
But I think it’s a mindset. I think that the amount of effort and it takes to become tenured and the drive towards doing it leads to a certain personality type that believes, like, that’s the goal. And once you get there, then you’re unencumbered by the pressures of the world because, you know, you can do your research without worrying about your job next year. And I think it filters on a certain personality type that may then have trouble with the concept of, I want to start a company. But wait a second. Am I going to leave my tenured position? Yeah, you never really hear of people leaving. They take a leave of absence, but they never, like, go all in and do something new.

[00:32:02] David Hornik
No. And I think maybe it’s about the risk. Maybe it’s. You know, I’m having lunch today with a buddy of mine who was a technologist. He had. But we. I’d been his attorney. He had stopped out of his pro. His PhD program to do it, but it turns out his PhD program was in philosophy. And then the Internet bubble crash, and he went back to Stanford and got his PhD in philosophy. And he’s. And he’s. A philosophy professor, and I hope actually your daughter will take his class, because he’s awesome. But I’ve talked with him about this. Like, you know, you have this big push and you do a bunch of stuff to get tenure. Well, think about it, right? Once you get tenure, then you’re done. Like, what’s the incentive?

[00:32:38] David Hornik
Right.

[00:32:38] Howard Hartenbaum
What’s the, it’s like being President when you’re 40, whatever. How old is Obama?

[00:32:42] David Hornik
Yeah, right. What do you do next? You wander around and go, oh, does.

[00:32:46] Howard Hartenbaum
He want to like go be a congressman?

[00:32:47] David Hornik
No. Yeah, he can’t, right? Exactly. No. And you know, it’s almost a short. LAUGHTER yeah, he’s not going to be the CEO of a company. Although that would be super interesting. Like can you imagine? Maybe the former president starts a company.

[00:33:00] Howard Hartenbaum
No, I mean it’s 1 million for 20%.

[00:33:04] David Hornik
Do you think the president could demand more than a 3 million pre? Because that’s a 4 million pre. Good, bad, good math, you know, 4 million pre.

[00:33:13] Howard Hartenbaum
Guns are the idea.

[00:33:15] David Hornik
Yeah. Anyway, I mean it’s just a tricky thing because I think that often professors are risk averse and so you go, you get this, this exciting idea, they get started, you fund them and then some of them say, I’m going back. You know, I’m going back.

[00:33:28] David Hornik
Right.

[00:33:28] Howard Hartenbaum
And it always gets hard.

[00:33:29] David Hornik
And it always gets hard. Oh my God, it always gets hard. It doesn’t matter. It’s interesting. I think it’s, I think it’s a tricky.

[00:33:36] Howard Hartenbaum
I don’t have data on companies that have come out with professors running them. I know when I was in college I had a professor who had left and come back and built a 6000 piece of software that told he was really into sailing and he built a piece of software that told based on the sail design, where to put the battens or the stiffeners and the sails. And every racing company, every racing company building sails and boats and whatever licensed from him and he was rich.

[00:34:07] David Hornik
That was it.

[00:34:08] Howard Hartenbaum
And he went back to school, he’s.

[00:34:09] Howard Hartenbaum
Like, yeah, I built a piece of software.

[00:34:10] Howard Hartenbaum
It optimizes where to put the things in the sails. And our rich and he’s back in college and he’s teaching classes and he wore really nice clothes and had a fancy Jaguar.

[00:34:20] David Hornik
Yeah, I mean I had a professor my in my computer music degree. The guy who started the program invented FM synthesis which doesn’t mean anything to anybody listening to this. But it turns out that FM synthesis was the basis of all of 80s pop. It turns out that Yamaha licensed this process, created the dx7 which was the, the synthesizer that kind of changed the sound of pop music. So what I don’t know. I do know that Stanford made a ton of money from that Stan. It was for, for a period of time, the second most valuable patent ever at Stanford. And I don’t know if the Google patents ended up being more Valuable or less. But anyway. But I don’t think he made. I don’t think that he got wealthy in that process. I think that it was just a Stanford thing because in the end, they just licensed directly from the university. Because he didn’t start a company, right? He didn’t say, okay, I’m going to start a synthesizer company and. And build it myself. So to a certain degree, you have to be entrepreneurial. You have to go out and say, I’m going to create something. And then you have to negotiate with your university and say, look, if you want me to build this into value, you have to give me value.

[00:35:27] David Hornik
Right?

[00:35:27] Howard Hartenbaum
You should do this as a video because you talk with your hands all the time.

[00:35:31] David Hornik
You could just describe me.

[00:35:32] Howard Hartenbaum
Get you like way.

[00:35:36] David Hornik
I think it’s Tripp who just told me. My partner Trip. Our partner Trip, who told me that I banged the table. Or were you telling me that it must have been Tripp? Yeah, Tripp is like, oh, you know, David, you’ve been. Or you’ve been banging the table. No, it’s Vivek. Because Vivek notices these things. I’m like, what do you mean? He’s like, you’ll be making a point and you’ll, you know, that’s what he’s like. You should be aware of that. I’m like, which means. Yeah, stop it. It’s sort of like when you’re playing with your pension and you don’t hear it. And it’s like, howard. Yeah.

[00:36:06] Howard Hartenbaum
I have this habit of a little pen. I was even doing it today in this meeting, and I was on Screw, because I’m like, Mechanical Jobs. I’m screwing it. Oh, that feels nice. And then I screw it back in and I.

[00:36:14] David Hornik
But this one isn’t squeaky. You have this. There’s that one pen that has, like, the piece that. That’s. Yeah. So anyway, this is a problem with being partners, right? Is like, you spend so many time. So much time in the. In a. In a meetings with each other. It’s like, david, sit still. Stop banging the table. You know, you shower more often. Well, that’s just, you know. Oh, we were gonna. We’ve had this thing where we’ve done a shout out. We. We were gonna do it earlier in this conversation, but never got to it. So we’ll maybe, in closing, we should have a shout out to our friend DJ Patil, who.

[00:36:52] Howard Hartenbaum
First I gotta tell a DJ story. So I went down and got some cool coffee in Los Altos the other day, and I just been stung by A bee. And my hand looked like somebody had swollen like a grapefruit. My wife was nagging me, go to.

[00:37:03] Howard Hartenbaum
The hospital, go to the hospital. You’re gonna die. A DJ comes in, he goes to.

[00:37:06] Howard Hartenbaum
Shake my hand, he goes, whoa, dude, like, what happened?

[00:37:09] Howard Hartenbaum
I said, I got a bee sting.

[00:37:10] Howard Hartenbaum
And he goes, oh, you know, you better go to a doctor, because, like, that causes pressure on the nerves and you’re like, gonna lose the nerves in your hand. You won’t be able to use your hand. And my wife’s like jumping up, see.

[00:37:18] Howard Hartenbaum
I told you, go to the hospital.

[00:37:21] Howard Hartenbaum
Now I have to go to the hospital. And I go there and I tell him.

[00:37:23] Howard Hartenbaum
And they say, I don’t know who.

[00:37:24] Howard Hartenbaum
This DJ is, but he sure ain’t no doctor.

[00:37:28] David Hornik
All right, so fair enough. DJ may not be a doctor, but.

[00:37:31] Howard Hartenbaum
He’S a good guy.

[00:37:34] David Hornik
He was caring. He’s a caring guy. I will say that he is that.

[00:37:37] David Hornik
Right?

[00:37:37] David Hornik
Like, there are a bunch of people, until there are lots of people who claim to be helpful in Silicon Valley. And then there are those who are, right. There are a few people who have reputation, kind of universal reputations as great people who are happy to help out. Right? And DJ is totally one of those guys. So, you know, we first met DJ back when he was, I think, the chief data scientist at ebay and someone had recommended him to. To me to come to our very first lobby conference. This is now, you know, we invited him, what, nine years ago or something, and he came to that conference season and he’s just a wonderful guy, extremely positive, incredibly smart, all this stuff. So he did that ebay thing, then he went to LinkedIn. He was, you know, played a big important role at LinkedIn and most recently was the. I guess had a product at Relate iq, which was really interesting company. Lots of excitement around it, and it just got bought by Salesforce, which I think is very impressive of Salesforce. It’s pretty forward looking. They paid a big price for a company that has a small revenue line. Maybe no revenue line, but it’s a great, you know, but. But man, if I was Salesforce and I got to have dj, I’d be pretty psyched about it. So anyway, so shout out to dj, who may be a crappy doctor, but he’s an awesome entrepreneur and he’s a total giver and. And a mentioned. We appreciate every. You. We appreciate you taking our calls and.

[00:39:03] Howard Hartenbaum
Thank you for caring.

[00:39:04] David Hornik
Thank you for caring for Howard’s hand. Even if you’re completely wrong. He totally could have just left it a giant baseball, grapefruit sized hand. It was no problem. Anyway, there you have it.

[00:39:17] Howard Hartenbaum
There you have it.

[00:39:17] David Hornik
Another fry, another use. Great Friday spent chatting. Thanks for listening. This is David Hornik from August Capital.

[00:39:26] Howard Hartenbaum
And Howard Hart from August Capital. Until next time.

[00:39:29] David Hornik
Talk to you later.