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 Hartenbaum, also with August Capital. And we have a guest today.

[00:00:24] David Hornik
We have our almost only ever guest, our perennial favorite, Jeff Clavier.

[00:00:29] Jeff Clavier
Hey, everyone, this is Jeff clavier from SofTech VC. Thank you for having me back.

[00:00:34] David Hornik
I know. Well, people love that accent, so they keep asking, get that guy with the accent back.

[00:00:39] Jeff Clavier
Yeah. We had this great coverage of my new partner, Andy McLaughlin, sort of joining the firm. And one of the two funny sort of quotes from journalists. One was I’ll Rene because he’s half Irish, half Scottish. And someone asked whether we were renaming the firm heavy accents or thick accents. No, he’s okay. You know, he’s British, so a bit of an accent.

[00:01:05] Howard Hartenbaum
And we should run Jeff to auto tune for this.

[00:01:09] Jeff Clavier
And then someone. And then someone sort of said, the inimitable Jeff Clavier because you can’t fake that accent.

[00:01:16] David Hornik
That’s true. That is true. So tell me about this guy. I. Congratulations. We know because we are trying to find a junior partner to join us. How hard it is to find someone who is both great and qualified. And you like.

[00:01:32] Howard Hartenbaum
Yes, but we got ab. We can talk about ab.

[00:01:35] David Hornik
Yeah, we have the awesome AB cats.

[00:01:37] Howard Hartenbaum
Answer the question.

[00:01:38] David Hornik
Sure.

[00:01:39] Jeff Clavier
So for the past couple of years, Charles Hudson, my partner, and I have been sort of maintaining that list of great people from the industry. So we had. We do a lot of SaaS B2B investments. And so we’ve always wanted to have someone with a SaaS founding background, someone who’s gone through the scale of a SaaS business. And Andy has been sort of on that list. But we wanted also someone who was a great angel investor because the worst thing to do for a small fund is to have to spend the time and money to. To actually teach someone to become an Android investor or become a vc. So Andy was the co founder of a company called Huddle in the collaboration space. It’s eight years old, started in London, moved to Sequent Value a few years ago. And he basically told us a few months ago that he was thinking of moving on. And so we spent a lot of time with him with his company, trying to understand his values, whether we’re compatible because obviously he needs to sort of join the firm as a platform and sort of be in tune with the value.

[00:02:55] David Hornik
How’d you do that? You guys go to a lot of dinners? You go to dinner dinners, spend time.

[00:03:00] Jeff Clavier
I’ll take the fifth on drinking, mud wrestling.

[00:03:04] David Hornik
Does he like wine?

[00:03:05] Jeff Clavier
Yes.

[00:03:06] David Hornik
Okay, That’s a qualification. That’s a requirement.

[00:03:08] Jeff Clavier
He likes good food, he likes wine. He has a good sense of British humor. I understand his jokes. Even though we have different accents, we understand each other. It’s funny because I haven’t heard all those sort of British sort of phrases and sentences and expressions for a long time. So it was funny to hear, like, the words gutted or tosser or whatever.

[00:03:32] Howard Hartenbaum
He’s always asking where the loo is.

[00:03:34] David Hornik
He’s always wanting to queue up.

[00:03:36] Howard Hartenbaum
Oh, my God, I can’t even spell that word.

[00:03:39] David Hornik
That’s why there’s so many U E’s.

[00:03:42] Jeff Clavier
And then I actually spent a lot of time. Sorry.

[00:03:45] David Hornik
He’s like, when you two are done, I’ll go back to discussing my new partner.

[00:03:49] Howard Hartenbaum
You could only go if you could spell Q. Q?

[00:03:52] Jeff Clavier
Don’t know how to spell Q.

[00:03:54] Howard Hartenbaum
It’s a hard word.

[00:03:55] David Hornik
I’m just. I can’t spell anything.

[00:03:57] Jeff Clavier
And to answer David’s question, I spent a lot of time actually interviewing his founders. And what I liked a lot was that they described the way Solvendi was working with them with the same objectives they would use for us. And so after basically about four months of discussions, we made him an offer. And he’s joining us on April 6, and we’re super excited.

[00:04:23] David Hornik
Very nice. Well, like I say, we know it is a path, it is a process. And I am constantly mystified that I was allowed to join the firm. That someone went through this process and was like, yeah, we should totally have David Hornik join August Capital. That would be an awesome idea.

[00:04:41] Jeff Clavier
Well, because they saw the potential in you. They might have been the only ones, but they saw the potential.

[00:04:47] Howard Hartenbaum
They saw the potential that you didn’t see in yourself.

[00:04:50] David Hornik
That’s right. That’s why they’re good venture capitalists.

[00:04:53] Jeff Clavier
Welcome aboard.

[00:04:54] David Hornik
Yes. Well, that’s awesome. Congrats.

[00:04:56] Jeff Clavier
But it’s true. It’s very challenging because figuring out whether someone is going to be really good at what we do is impossible. So you look at the angel track record as a proxy, and he has invested in great companies, and we’ll see whether he can actually go through this phase of looking at opportunities as he was as an angel, and then putting a higher bar in terms of saying, well, this is a great angel opportunity, but it’s not a good one for VCs.

[00:05:23] David Hornik
So Howard mentioned that we have this guy, A.B. katz, and A.B. used to work over at Crunch Fund, and this great guy, people love him. He’s very deeply embedded in the kind of core angel community you you know him?

[00:05:36] Howard Hartenbaum
Yep.

[00:05:38] David Hornik
But I’ve been having these same questions with him where he’s looking and saying, like, oh, what about this and this and this? And we’re saying, okay, now, we are not angel investors. We’re not seed investors. We’re series A investors. So now you have to think about it differently. And each one of those is different. Right. Even when we discuss later stage opportunities, like, oh, okay, we have to think differently about it.

[00:05:58] Howard Hartenbaum
That guy, he has his own point of view on every company. You gotta love it. Most guys at 23, 24 years old, they’re trying to figure out what everybody else likes. And he’ll make a list of 30 companies and go, pass. We should dig into this one. This one’s interesting because of that. And I’m looking at that going, what an awesome guy. He may be wrong, he may be right. I hope he’s right, but he has a point of view.

[00:06:20] David Hornik
Pretty awesome.

[00:06:20] Howard Hartenbaum
A lot of people don’t have a point of view.

[00:06:22] David Hornik
No, exactly. This is, you know, having been an attorney where, you know, your job as the attorney. I wonder how many years after I’ve been an attorney, can I still say, haven’t been an attorney? It’s been 15 years at 20 years out. Can I no longer say that? Like, David, you don’t even remember what it was like.

[00:06:38] Howard Hartenbaum
What did you say? Having been single?

[00:06:41] David Hornik
I don’t say that because I have no recollection.

[00:06:43] Jeff Clavier
Do you do your own legal markups or not?

[00:06:46] David Hornik
I could if. If not a good idea. I have been yelled at by. By our council when I have back in my days.

[00:06:53] Howard Hartenbaum
That’s like me saying, having been an engineer.

[00:06:56] David Hornik
Yeah.

[00:06:56] Jeff Clavier
Oh, yeah, that’s. That’s a good one. Having been a cto, not.

[00:06:59] David Hornik
Right. So anyway, back in the day, you know, lawyers, it’s here’s the law and you make a decision. Right. And so he could easily say. Here is a description of all the things that just came up. You know what? It was just Y Combinator Demo day. Two days. Demo days. Were you there? Did you.

[00:07:17] Jeff Clavier
So my team was there. I wasn’t. I had bold meetings. But yeah, 120 companies over two days. 60 companies per day to two and a half minutes each.

[00:07:26] David Hornik
Is it even possible? Like, is it even possible to consume that much information and get to.

[00:07:32] Jeff Clavier
So we highlighted a few. We’re basically going through the YC Demo day exhaust. There’s a couple of companies that are sort of really different from what we do that. Because there was a lot of deep science type companies this year. So we’re actually talking to a couple of those. The more are you going to pay.

[00:07:48] Howard Hartenbaum
The 40 million pre money?

[00:07:50] David Hornik
No, it was 4040 yesterday. It’s 42 million going out. Yeah.

[00:07:53] Jeff Clavier
Because it was. Yeah, it’s announced and the companies will be more valuable.

[00:07:57] Howard Hartenbaum
So it’s like the first that gets done and the valuation gets set. It only goes up from there. So 40 do there any company that you saw in there that you think is worth a $40 million valuation?

[00:08:08] Jeff Clavier
I haven’t seen the magic pitch. I don’t think. I mean is that even possible? Like in the real world, 40 million is what people sort of pay for like super strong Series A companies that have a ton of revenues.

[00:08:21] Howard Hartenbaum
No prices got higher.

[00:08:23] David Hornik
Yeah, I mean, yeah, it’s gotten really ugly.

[00:08:28] Jeff Clavier
But I think if you guys won’t compete for that, for that series sit.

[00:08:33] Howard Hartenbaum
Round Series A. I can’t imagine paying 40 million for a one month old company that has that. Just can’t imagine, can you?

[00:08:43] David Hornik
No, it just doesn’t make. I mean, look, in the end here’s the problem. This is the problem we all face. So we’re gonna. I’m gonna acknowledge it right here because.

[00:08:52] Jeff Clavier
I’m gonna point to David saying something that he told me when Facebook got 100 million post valuation by Jim Breyer a long time ago. And we had breakfast and he said, have you seen what Breyer sort of just did? It gave 100 million posts to Facebook is nuts.

[00:09:07] David Hornik
No, that’s what I was gonna say is that.

[00:09:09] Howard Hartenbaum
But he got sane really fast in the end.

[00:09:12] David Hornik
And then David Z was literally in. I remember this in the lobby conference. This is maybe the first lobby. So this is nine years ago or something eight and a half years ago. And at the lobby they announced the Microsoft investment which was a $10 billion valuation. And David had come in at a $500 million valuation almost immediately after. Briar was like, well, that’s insane. And then they announced this $10 billion valuation. I said to David like, wow, that’s incredible. And there was a lot of smiling and happiness. And yet that was a 10x at the IPO. So. So what I was going to say, like the dirty little secret is it’s not really a secret, but it’s what’s fueling this, which is if it works, those companies that are successful, it doesn’t matter. It doesn’t matter. The only problem is that if you have a portfolio, it does matter because they aren’t going to work. Right. Because you can’t just pick the winner.

[00:10:11] Howard Hartenbaum
So I’ll Disagree. I’ll say if you happen to pick the winner and it’s the 50 or $100 billion company, nothing else matters. But if you are betting like you’re gonna get the winner and you don’t, you’ll lose money.

[00:10:25] David Hornik
Exactly. That’s my whole point.

[00:10:26] Howard Hartenbaum
You can make money, a little money.

[00:10:28] David Hornik
You’ll lose a lot of money because you’ll have lost four times as much money as you had intended to lose because you were wrong. You know, that’s the challenge.

[00:10:37] Howard Hartenbaum
There are firms that their strategy is to make sure do the best they can to be in the next $200 billion company. And that’s a strategy. And there’s other.

[00:10:46] Jeff Clavier
At any valuation, at any evaluation, doesn’t.

[00:10:48] Howard Hartenbaum
Matter because they think they’ll be in it.

[00:10:50] David Hornik
Speaking of that, Slack’s next funding round, they are now.

[00:10:54] Howard Hartenbaum
So two and a half billion.

[00:10:56] David Hornik
They just raised money at a billion and that seemed insane. And here it is. They’re raising another $160 million at a 2.8 billion dollar valuation. Supposedly. But even if it’s notionally correct, I.

[00:11:11] Howard Hartenbaum
Mean it’s going to make money.

[00:11:15] David Hornik
I mean, look, Stuart, good for you.

[00:11:18] Howard Hartenbaum
He’s raising money for Nuclear Wind.

[00:11:20] David Hornik
Stewart himself said when he ra at a billion. Why are you raising a billion? Because I can raise at a billion. Now he’s raising at a two and a half billion. Because he can raise it two and a half billion or whatever. It’s crazy.

[00:11:30] Howard Hartenbaum
If I were him I would.

[00:11:31] David Hornik
It might work.

[00:11:33] Jeff Clavier
Yeah, well, no, step back. Slack is working. Slack is getting a lot of usage traction and you know, apparently he’s going to.

[00:11:40] Howard Hartenbaum
But if it were public today, it wouldn’t get anywhere near that valuation.

[00:11:43] Jeff Clavier
No, because you know, last time I checked they were at the $6 million sort of run rate.

[00:11:48] Howard Hartenbaum
But the point being like the private market.

[00:11:50] David Hornik
No, wait, wait, wait, wait. Can we just stop a second? Six million dollar run rate. Let’s say it’s even 16.

[00:11:56] Howard Hartenbaum
It’s like 20 now.

[00:11:57] David Hornik
20. Which it isn’t. I mean maybe it is, maybe it is. I don’t know, I’m not involved in the company.

[00:12:02] Jeff Clavier
But yeah, the disconnect between, you know, sort of the whole like looking at the trajectory and what it takes in the public market to. Because $3 billion public market. Six times. Six, eight. Eight times sort of revenue.

[00:12:16] Howard Hartenbaum
So it depends on growth, but still whatever.

[00:12:19] Jeff Clavier
So it’s hundreds of millions.

[00:12:21] David Hornik
Yeah, it should equate to hundreds of millions of revenue.

[00:12:25] Howard Hartenbaum
But it used to be that the private market would be somewhat relevant to the public market. And now it’s the ability to get in a hot deal and pay two or three years in advance like it’s the public market five years out. And that’s the bet. But if they could go public today, they wouldn’t get anywhere near the valuation.

[00:12:43] David Hornik
It would be worth less than a billion dollars based on any rational multiple.

[00:12:47] Jeff Clavier
What? They wouldn’t, they wouldn’t even go public because, you know, today to go public in sort of in a good spot and sort of maintain your trajectory, you need, you know, 50, 60, $80 million in revenue. HawthornWorks was sort of lower than that.

[00:13:00] Howard Hartenbaum
I gotta say, everybody’s talking about, like every company I talk, oh, we use Slack, we pay for Slack. I just keep hearing that from companies and I don’t know if it’s a Silicon Valley bubble thing or something else, but they got the buzz.

[00:13:11] David Hornik
It is not in any way. My commentary is not to suggest that it isn’t a great product that has lots of excitement. Totally is. It’s just this disregard of anything fundamental.

[00:13:27] Howard Hartenbaum
But we were just saying, Mike, that Facebook looks stupid at 10 or 15 billion than Microsoft.

[00:13:31] David Hornik
But you can’t make choices based on the best deal ever, right? You can’t.

[00:13:36] Howard Hartenbaum
That’s so. I disagree. People are making choices on what. And that’s the bet.

[00:13:42] David Hornik
I know. Okay. You can’t make good the strategy. You can’t make good choices based on the best deal ever. Right. That’s a, that, that is a, that is a failed plan over multiple companies.

[00:13:53] Howard Hartenbaum
So I think it may work on a fund, but it’s not going to work overtime. Like you can have a fund that makes money on a strategy like that. The market changes if you get it right. Yeah.

[00:14:03] David Hornik
Like it turns out that you could easily miss all of them and have spent a lot of money and you.

[00:14:07] Jeff Clavier
Have to have the multiple it takes for our business to actually succeed.

[00:14:11] David Hornik
Right.

[00:14:12] Jeff Clavier
Because if you get into Facebook at 40 billion. Yeah. You know, you’ll get a multiple to the hundred billion dollar run up, but it will still be a 2 1/2 x and you’ll make Forbes.

[00:14:24] David Hornik
Yeah, yeah, yeah. No, it’s, it’s, it is nutty.

[00:14:28] Howard Hartenbaum
But there’s so many cases, you know, Bill Maris at Google Ventures going, I just put X hundred million dollars into Uber at a billion or 2 billion. And everybody’s like, what? And a year later it’s like, that was a good bet.

[00:14:41] David Hornik
There will be moments. I mean, this is the problem with the venture business is that in retrospect it is easy and people are geniuses.

[00:14:49] Howard Hartenbaum
Chris Sacca is a genius.

[00:14:50] David Hornik
Yeah. Like, look at it. And he bet big and he had the confidence of a set of convictions and more power to him. But.

[00:15:00] Jeff Clavier
And he will have created the most successful fund in history and will never be matched because doing 100x fund is impossible.

[00:15:07] Howard Hartenbaum
No, he’s way over 100. Bill Draper did 120 in his first fund.

[00:15:11] Jeff Clavier
Okay.

[00:15:12] Howard Hartenbaum
This is way higher than that. Saka’s fund is way over a hundred. It’s a few hundred.

[00:15:16] Jeff Clavier
It’s a few hundred.

[00:15:17] David Hornik
Yeah, yeah, yeah. Let’s see. We have. So we are. We just raised a 450 million dollar fund.

[00:15:23] Howard Hartenbaum
If we do 100x.

[00:15:26] David Hornik
How much value would we have to return to our investors?

[00:15:29] Howard Hartenbaum
200 million?

[00:15:30] David Hornik
4 billion.

[00:15:31] Howard Hartenbaum
So 600x is 3 quarters of a trillion.

[00:15:34] David Hornik
40 billion returned to our investors.

[00:15:37] Jeff Clavier
Call it 100 billion.

[00:15:40] David Hornik
I just don’t see that happening. No offense to my investors.

[00:15:43] Jeff Clavier
What’s, what’s interesting is that, you know, in this business, doing a 10x is already pretty good.

[00:15:48] David Hornik
It’s really hard.

[00:15:49] Jeff Clavier
It’s like, you know, they’re almost done 10x.

[00:15:52] David Hornik
No one does 10x on a big number. So some of it is just a law of large numbers problems. Right. Which is some do.

[00:15:57] Howard Hartenbaum
I think that Sequoia Kleiner’s Google fund was over 10x and I think the eBay fund was over 10x.

[00:16:03] David Hornik
And it was because it was before people were raising big funds. Right. So those were hundred or 150 million dollar funds. Our first August fund was 100 or 150 million.

[00:16:13] Howard Hartenbaum
And Bill Draper’s 120X was a $6 million fund.

[00:16:16] David Hornik
Yeah, that’s. I mean, you know, it’s easy, but.

[00:16:18] Howard Hartenbaum
That’S like Saka’s right. It was a small fund and it’s going to be worth eight. Good for him.

[00:16:22] David Hornik
So it just gets, it gets harder.

[00:16:24] Howard Hartenbaum
I heard he just bought Truckee.

[00:16:29] Jeff Clavier
Goodbye Tahoe. Given that, you know.

[00:16:31] David Hornik
Yeah, exactly. Right now he should buy up Tahoe. He could own Tahoe because they’re hurting without. Without any snow. He could ship in ice from the Norwegian ice. So do we want to talk about bubbly bubbles?

[00:16:46] Howard Hartenbaum
I think we just did.

[00:16:47] David Hornik
That was it.

[00:16:47] Jeff Clavier
I mean, well, we sort of talked about some signs of bubble. But, you know, the question is, what’s, how do we define bubble? And you know, I think that there are different types of bubbles at different stages, so. There is.

[00:16:59] Howard Hartenbaum
All right, let’s do it. You do your definition of bubble and we’ll go around in the circle.

[00:17:04] David Hornik
All right.

[00:17:05] Howard Hartenbaum
Unless you don’t want to do that.

[00:17:06] David Hornik
No, I’m happy to do that.

[00:17:07] Howard Hartenbaum
All right, Mr. Clavier.

[00:17:09] Jeff Clavier
So that’s the sort of seed bubble which is now you have, as of this morning, 223 micro VC funds. So these are funds, these are funds which have raised or are raising from limited partners that are a mix of institutional and private investors.

[00:17:28] David Hornik
So you were maybe the second, were you the second one. I know Josh was.

[00:17:33] Jeff Clavier
I was in the first five. So depending as to when you actually, whether it’s when you started or when you actually closed your first fund, around the same time, obviously, first round, you had Maples, you had MD Michael Dearing, Steve Anderson. So all that sort of cohort.

[00:17:52] David Hornik
So I had a lot of conversations during that time where limited partners. So those of you who are listening and don’t know the structure, limited partners are the investors in venture firms. They tend to be institutions like a university or a foundation or a pension fund. And I was getting calls from our investors saying, I’m talking to these people, I’m talking to Jeff Clavier, I’m talking to Josh Koppelman, and what do you think? And I would say these are great people. What you need to figure out is is there the capacity to make sufficient money as an institution in these early seed funds? Now, it has been well established now that the answer is, fuck yeah, yeah, yeah. From.

[00:18:36] Howard Hartenbaum
Especially if the funds grow, right? Especially if they grow over time and those LPs are able to put more in the next fund and the next fund.

[00:18:43] David Hornik
So, so, so the, you know, some number of them will be successful in the same sense that the venture business, Even though from 2000 to 2010 was net negative, there were a handful of venture funds that made lots of money for their LPs. So back to you, 200 and some odd angel funds.

[00:19:04] Howard Hartenbaum
223.

[00:19:05] Jeff Clavier
223 micro VC funds. And the question is, with that $4.5 billion sort of coffers, what can allegedly be funded, be successful? And is there sort of an overfunding at the seed stage, given that everything that has half a brain gets funded? And it will take time because those are sort of 10 year, any backlash will actually take a long time to actually kick in. And what we see is two things. Top quality sort of opportunities get closed very, very quickly and get overbid. So that creates a tension on valuation. And I’m not complaining. It is what it is. Thank God we sort of raised one of the largest funds, 85 million, which is kind of large for a seed fund. That gives us an opportunity to write a million 5 check for 10% of the company if we really like it. The problem is that at some point a, it creates a talent shortage, which is really sort of challenging. And then that creates expectations for the next rounds with people like you that are very hard to sort of fulfill. So there is definitely a seed bubble in terms of funding and we’ll see what it means when the market to raise series and series VS becomes more challenging.

[00:20:24] David Hornik
Yeah, and by the way, the reality is that this echoes its way up the top. So there are more seed investors or more micro VCs. The demand gets higher, the supply stays more or less the same, prices go up, then it’s a higher bar for us. But those things that are successful, then we pay a higher price or have to pay a higher price. We just had a deal that went from zero term sheets to six in a week, you know, and then. And the price went from 35 pre money valuation, 35 million to 55 million.

[00:21:01] Howard Hartenbaum
And the founder was surprised.

[00:21:03] David Hornik
He was like, wow, look at that. This is nifty.

[00:21:07] Jeff Clavier
So you guys get the deal? Do you guys sort of pass on the deal?

[00:21:11] David Hornik
In this instance, there were other constraints. So this is an interesting. I mean, the other constraint was an ownership question, which is how much do you want to own of a company for it to be worth the amount of time that it will take to participate? And you know, each of us, you have the good fortune of you’re not going to sit on every board of every company. So you could, you could pick and choose, have an influence, but you could do 30 deals and be on five boards. Our model is do 30 deals, you’re probably on 25 boards, which means that you can’t be on 25 boards simultaneously. So every choice is a challenge. And so in this instance, the ownership expectations how much the company would have preferred to sell versus what we thought was necessary for us to be excited about spending the next decade with. The company wasn’t in check and they took someone else’s money who was very happy to just say, here’s a bunch of money, go be successful. It may well be successful. We loved the company, loved the founders, it may well still be successful, but it just didn’t fit our set of criteria.

[00:22:14] Jeff Clavier
Which, you know, what’s important to understand is that the reason why series A firms really want, you know, 20, 25% ownership is because of the work involved in helping build the company and the fact that you’re going to sit on the board, you’re going to spend a lot of Time with the founder. All companies have problems and all companies have problems. And our job as investors is to find the best series investor to sort of take over the support, the main role in supporting the company. And so that’s what justifies that ownership. If someone says, well, just take 10% ownership, but I won’t sit on the board and that just doesn’t work. The founder is making a mistake because that support, the quality of the network and the experience that you have is required to help build the next level of the company.

[00:22:56] Howard Hartenbaum
I’ll take a different stab at what is a bubble in terms of when there’s so much exuberance and enthusiasm. Price is just an indication, but it’s really the number of companies and the over optimism for companies being funded. If you look at a time period at the 200 companies funded by the 20 branded venture firms and then you look at five years later, how many of those companies are actually viable businesses. If you’re in a bubble, very few of them are viable businesses. And if you’re not in a bubble, a lot more of them are viable businesses. So I think it’s a different way of looking at it. And people will say 2000 was a bubble and had all these great IPOs and a lot of the companies had no revenue or they weren’t profitable and three years later the stock, they may have even distributed to LPs and everybody was happy. But those companies all died and nobody actually really made any money. It just was a big fleecing out in the market. When we look at companies now, I’d say for us, the biggest question it’s still the discussion is is this a real business? Is it going to be able to defend itself over time? Does it have advantages and strategies? And in a bubble you see some companies getting funded that you’re just like, is just a bet on something exciting.

[00:24:11] David Hornik
Meerkat, totally. We’ll come back, we’ll come back to meerkat. But that’s exactly right. And there are plenty of investors in this kind of environment who will make money on momentum. There is a ton of momentum, there’s a lot of excitement. And there are public markets that can create successful value at the end. And, and so, you know, I do think that there will be what I describe as a correction and maybe that. So does that indicate there’s a bubble? Well, it’s question whether you think a bubble has to pop or whether it can deflate a little bit. Right. You know, but when there is a.

[00:24:48] Howard Hartenbaum
Public market, I think the bubble has to pop all Right.

[00:24:51] David Hornik
So then I, So then it may not be a bubble because I think what’s going to happen is that the public markets are going to say, we’re not so enthusiastic and let’s take some earnings. Right. This is ultimately what happens is there’s this sort of downward pressure because people go, eh, it’s not going to continue on this upward path. Some people start taking their profits and then people go, oh geez, if they take too many profits, I don’t have any profits. Then they take their profits and next thing you know, the market drops 1,000 points. Right. If the market drops 1,000 points, then those momentum valuations that people have invested in are going to feel a little rich and they’re going to start getting pretty nervous and people are going to stop doing that. In which case then the Series B prices are going to go down. The Series A prices are going to go down. Series, you know, seed prices are going to go down. All this stuff is. So if we have this contraction, I think it will dramatically affect that. And then the problem for a lot of people who’ve raised money at these incredible prices is that they are now in a position where they will never raise another penny. They can’t. Their existing investors are in a position where they’re underwater. They are not making, they’re not in the foreseeable future making money. And it just puts a very big str on these companies. And so many of them will then die. They’ll die, they’ll fall out of favor.

[00:26:04] Howard Hartenbaum
Unless they’re the few who are huge war chest and they make them into real businesses. And it takes time. And there was companies in 2000 that raised a lot of money and they were careful guys and they made the money work. And it may have taken six years to get profitable, but then they became companies.

[00:26:20] Jeff Clavier
I think the scenario that you’re describing as sort of buy and don’t buy in the sense that. So a thousand points down on the Dow is nothing. A thousand points on Nasdaq. Yes, absolutely. 20% down, but he was talking Nasdaq. Okay, so the drop of 20% of.

[00:26:37] Howard Hartenbaum
The wait till interest rates go up.

[00:26:38] Jeff Clavier
Right. The point is, you know, the VC industry has raised $35 billion in the last year. It’s the single largest race since 2000, which means that there’s a lot, there’s a lot of capital raised.

[00:26:51] David Hornik
Such a small piece of it.

[00:26:52] Jeff Clavier
There’s. Well, you know, NEA is about to close their $2.57 billion sort of fund, the largest VC fund ever. The point is there is so much money available from VCs to fund those companies that any sort of backlash would take a long time, I think, to actually adjust valuations. There’s just too much enthusiasm in companies that are now growing fast. And the one thing which is different, as I said many times, the velocity of revenue sort of growth that we see now haven’t seen in the past.

[00:27:22] David Hornik
Yeah, it is better.

[00:27:24] Jeff Clavier
The question is how big are the companies? How big are those opportunities? Can they become sustainable, multi hundred million dollar revenue companies with profits?

[00:27:35] David Hornik
Right, right. I mean this thing back to Slack, like look, they’re growing really quickly and there are real revenues associated with people buying their product. And I foresee that continuous. It’s not like I don’t think it’s a good product that’s getting paid for, which is very different from a lot of stuff we saw where it was like, oh, it’s a great experience, but nobody’s paying for it. Right. Snapchat is not a business yet. It’s worth, allegedly worth billions of dollars.

[00:27:59] Jeff Clavier
2020.

[00:28:01] David Hornik
Okay, so someone is a genius for having invested in Snapchat at some lower price because it’s worth billions of dollars, but it’s making tens of dollars. Right. It, it is not yet a real business. Slack is a SaaS software product that’s making real money. So those things are very different. Now it may be that Snapchat ends up being the thing that gets liquid at a huge amount of money. But I think that the thing that people are totally confused about is this idea of liquid value and illiquid value. Right. There’s this woman that I’ve seen talked about who she created something biotech Theranos. She’s the one that they’re talking about as a, as the blood testing.

[00:28:42] Howard Hartenbaum
Yeah, yeah, yeah. That’s on page mail.

[00:28:44] David Hornik
Is it, is it, is it realized gain or is this unreal?

[00:28:48] Howard Hartenbaum
She is a billionaire in paper.

[00:28:50] David Hornik
Right? She’s a paper billionaire. The idea that you talk about someone as a billionaire in something that is not liquid is moronic. She is not a billionaire. Let me just say this. She may be amazing and she may ultimately be a billionaire, but when you have a private company and you can’t sell that stock and you’re not profitable, then you are not a billionaire. That’s bullshit. I call fucking bullshit on paper billionaires. That’s not a thing. That’s my rant of the day.

[00:29:18] Howard Hartenbaum
Well, thank God it’s over.

[00:29:20] David Hornik
Yeah, thank God we got done with that. Now we can move on with this.

[00:29:24] Jeff Clavier
So the Midas List. So the Midas list, which just got published a couple of days ago, which basically ranks some form of success of our peers in the VC industry, and none of us is on the list so we can bitch about it, is based on partially realized returns on companies like Facebook and Twitter, which, you know.

[00:29:45] David Hornik
More power to them.

[00:29:46] Jeff Clavier
More power to them. Real returns. However, the question is, okay, if you invested that in Twitter at 20 billion or 10 billion and got out at 20 billion, okay, you got in Twitter, but what does that mean from an absolute return perspective?

[00:29:59] David Hornik
Yeah, absolutely, I think that. And, and someone did a list like this where they said, okay, who were the series A investors? Who were the seed investors? Right. In these things that end up being huge because. For two reasons.

[00:30:10] Howard Hartenbaum
One was that, was that Aileen Lee did that with the, with the unicorn article where she said, like somebody did. It was a great article, you know, kudos to Sequoia and these other guys who are betting on all these logos at high prices.

[00:30:25] David Hornik
They don’t even shouldn’t consider, doesn’t count now.

[00:30:29] Howard Hartenbaum
It’s, it was like Series A or series B below 100 million valuation.

[00:30:33] David Hornik
You know, see like those, those things, if you end up being in a, in a company that turns out to be a big giant company, more power to you. But seeing that it has value, you know, that has momentum and putting the money in at a multi billion dollar valuation may be good investing. Well, you may make money, but it’s not what venture capital is about. That’s not, that’s not risk invest.

[00:30:55] Howard Hartenbaum
Sure, I can find somebody who take the opposite side.

[00:30:57] David Hornik
I’m sure you could. Whoever’s listening, feel free to come join.

[00:31:00] Howard Hartenbaum
All right.

[00:31:01] David Hornik
In.

[00:31:01] Howard Hartenbaum
Yeah, call. See, the phone’s not ringing. There’s nobody.

[00:31:03] David Hornik
I was gonna meerkat us in this, in this program or what’s the other. What, what’s Twitter now have?

[00:31:11] Jeff Clavier
Periscope.

[00:31:12] David Hornik
Periscope. Periscope or Periscope.

[00:31:13] Howard Hartenbaum
So there was that article on meerkat the other day and Jordan somebody or other from TechCrunch wrote it and I wrote her back a note and I said, have you ever heard of Hang with? Like you just wrote an article about meerkat, has invented a whole category and Hang with is down in LA. We are not investors in it. They’re 20 times the size of Meerkat on five platforms. How can you write an article about how meerkat’s like invented a whole category without even looking at this? There’s another one called YouNow. Like Meerkat is really exciting in the last two weeks. But there are companies that are ahead of them that are bigger than them. I just don’t understand the press.

[00:31:47] Jeff Clavier
The point of the whole south by sort of darling, you know, whatever, whatever. The company sort of solved by Elex as the prom queen or prom king is exciting for a few weeks. And that’s sort of the challenge and why we have actually not done much in pure B2C plays.

[00:32:05] Howard Hartenbaum
I’m interested in the meerkat thing because they did a great job at growing very quickly totally on Twitter as a derivative business and maybe they’re big enough now, even though Twitter tweaked them to keep going and get over that. And if anybody can pull that off, like if they actually pull this off, that would be really brilliant.

[00:32:22] Jeff Clavier
Or you hack your way into your early growth and then, you know, once you have the basis of Facebook. Yeah, that’s what you get it. But look at where they are now.

[00:32:30] David Hornik
That’s a problem. Right. They’re gonna have to find more platforms. They’re gonna have to. And then the other question that I don’t know the answer to. Right. Obviously Twitch did a great job of figuring out to drive, you know, video, you know, making real time video into a thing and, and became a big business.

[00:32:46] Jeff Clavier
On gaming.

[00:32:47] Howard Hartenbaum
On gaming.

[00:32:48] David Hornik
Gaming. Right. And so, but there’s a big difference. The idea that there’s going to be broadcast video, it’s going to be personal, personality driven and it’s going to be consumed in scale and all that stuff. I think it’s different from Twitter, I think it’s different from messaging. I think it’s going to be a harder thing.

[00:33:04] Howard Hartenbaum
I’m not saying, but I think somebody’s going to do it.

[00:33:07] David Hornik
But is it going to be. Yeah, it’ll exist. And obviously Twitter believes that they bought a pre launch company for over $100 million because they wanted to have their own platform. But it’s just, it’ll be interesting to see whether this is the next great thing or if it’s another thing. Right.

[00:33:27] Jeff Clavier
Having been an investor in Ustream since 2009, I mean it’s growing those audiences is very, very challenging because one issue is discovery is how do you get the good stuff to emerge and the bad to just.

[00:33:43] Howard Hartenbaum
I think it’s just a user experience issue and when somebody hits it on the head, we’ll just go.

[00:33:49] David Hornik
So I, you know, so Josh Elman is doing, is making the investment, the series a investment in that.

[00:33:57] Howard Hartenbaum
Good for him.

[00:33:58] David Hornik
His partner John Lilly was at the TED conference with me last week and he was walking along and he was meerkatting. And I sort of, like, took. I hijacked it and was, like, talking to whoever was watching. I have no idea who’s watching. I think, like, who’s watching this? Who is watching?

[00:34:16] Howard Hartenbaum
But you didn’t care. You did it anyway.

[00:34:17] David Hornik
Of course. But I’m happy for an audience of two. I mean, in fact, that’s what we have here today. The two of you are listening to Venture cast in real time. It’s not clear whether anyone else is.

[00:34:26] Jeff Clavier
It’s not even clear.

[00:34:27] Howard Hartenbaum
You pushed the record button.

[00:34:29] David Hornik
I guess we’ll find.

[00:34:30] Jeff Clavier
There was some weird noise at the.

[00:34:31] David Hornik
Beginning where the power ran out, the batteries ran out. Yeah, by the way. So Ted was super fun. And I had. I had the good fortune of being named the tech curator for this year’s TED Conference. So I was the guy who they like, hey, tell me about tech stuff. And I got to choose what things went on stage, which, I have to tell you, is an incredible amount of pressure, because that TED audience is very critical. There are a lot of people that are pretty sure they’re smarter than everybody else on the planet sitting in that audience, waiting for something to go up and go, that is the stupidest thing. Who’s the idiot who put that on stage? And I now have the good fortune again to do it for next year. And so I’m appealing to anyone listening who knows of completely amazing stuff that isn’t out there on the planet yet, that they should let me know. Hornickustcap.com I’m looking for great things to put on the TED stage next year. And I’m pretty sure the only way I can see successfully do this is to crowdsource it. Right.

[00:35:34] Jeff Clavier
I mean, it’s a great idea. I have one for you.

[00:35:37] David Hornik
Sweet. We got one. I need six or seven more by next year. And they all have to be groundbreaking.

[00:35:46] Jeff Clavier
Okay. I’m not sure whether it’s groundbreaking.

[00:35:47] Howard Hartenbaum
It’s too early now. Anything. Anything that comes in now, it’s going to be like, you have to sort.

[00:35:52] Jeff Clavier
Of do that in the last three months of the year.

[00:35:53] David Hornik
Oh, damn it. I’m going to have that again. Because we. I had that. Howard knows. I was like, I flew to Florida, I flew to Seattle, I flew to LA in those last weeks.

[00:36:02] Howard Hartenbaum
You know what you should do is next year, ping everybody, like, three months ahead. Who went to all the lobby conferences? Somebody will send you enough stuff.

[00:36:10] David Hornik
Yeah, I think I’ll have to. And it’s basically January 1st. It’s like, who’s ready to launch something.

[00:36:15] Jeff Clavier
Amazing, it has to launch at ted.

[00:36:18] David Hornik
No, no, it could be anything. Like there’s this amazing professor at Stanford, Fei, Fei Li, who is a machine learning expert and she recently demonstrated some really cool stuff where her, the combination of big data, taking a massive amount of photos to train her system plus neural networks had gotten to the point where she and her graduate students could take a photo and have the computer describe it. So, man, sitting on a couch next to a pillow with a five on it, really, I mean, really cool. Now, it wasn’t perfect, but it’s amazing. So she, you know, she described her research that was amazing. In fact, the thing I really want to have someone talk about next year is data centers. I’m completely fascinated by data centers. There must be some researcher who knows how much power data centers are consuming and how big they’re getting and how much.

[00:37:12] Howard Hartenbaum
Yeah, they consume more than the US military and everything.

[00:37:16] David Hornik
I was thinking maybe 10% of the, of the world’s power is being consumed by data center. Now that’s. I just made that up.

[00:37:22] Howard Hartenbaum
Global warming is caused by data centers.

[00:37:24] Jeff Clavier
And bitcoins, bits of miners.

[00:37:28] Howard Hartenbaum
You know what, you never hear about bitcoin anymore.

[00:37:31] Jeff Clavier
Yeah. But you know, it’s because bitcoin was just, you know, the tip of the iceberg. And then there is like the blockchain and it’s coming. Have you done, have you guys done anything in bitcoin?

[00:37:42] David Hornik
We have not. We have at least one partner who believes that bitcoin is complete sophistry. There are others of us who are still who understand and appreciate the power of the protocol, but feel it’s early in the cycle. And obviously it’s all about timing because if, if it turns out to be a wildly powerful protocol and you bet at the right time, you’re going to make an infinite amount of money.

[00:38:06] Howard Hartenbaum
Yep.

[00:38:06] David Hornik
If you bet early, you’ll make nothing. And if you bet late, you’ll make a little bit. And so we run the risk of being late, but we are not, we’re not going to be early in this market.

[00:38:17] Howard Hartenbaum
Yeah.

[00:38:18] David Hornik
How about you?

[00:38:18] Jeff Clavier
No. We saw Coinbase very early on, which is sort of the largest wallet, whatever sort of consumer play in bitcoin today. I think we just passed on everything. I’m just not a big believer in the currency. And we’re looking at blockchain based. So when there is a topic which I’m interested in, I basically take the meetings to sort of figure out what entrepreneurs are doing and then try and form an opinion. So I’m Taking a bunch of blockchain based, sort of, you know, trading systems or you know, things that basically leverage the blockchain and the general ledger. I haven’t found anything that wasn’t sort of either science fiction or really sort of practically applicable.

[00:39:03] David Hornik
Yeah.

[00:39:03] Jeff Clavier
At this point.

[00:39:04] David Hornik
Well, you know, smart, smart people smarter than I have bet on it and believe that it’s now, not later and.

[00:39:12] Howard Hartenbaum
And smarter people than you bought bitcoin at a thousand and now it’s 200 and something.

[00:39:19] Jeff Clavier
That was my worst trade of last year.

[00:39:22] Howard Hartenbaum
I shorted heavy at 900. I’m happy.

[00:39:24] David Hornik
You shorted what? Yep, you shorted bitcoin. You’re not shorting bitcoin. I’m sure you could.

[00:39:29] Jeff Clavier
My two worst trade last year were buying bitcoin at, you know, 800 or 900 and then Twitter at 70. But Twitter will go back to 70, Bitcoin will go back to a thousand.

[00:39:43] David Hornik
I’m just not a shorter, but you know, I am short, but I am not a shorter. I am, I think that I’m too much of an optimist that I just think that’s like, it runs counter to my entire worldview. So it’s just mean spirited. I think that shorting is mean spirited. I’m going to put it out there.

[00:39:59] Howard Hartenbaum
If you think about like population is increasing and there’s all this energy, like everything is pushing towards going up, not towards going down. I totally agree with you. And as a unprotected bet, like shorting makes no sense. It’s limited upside, unlimited downside.

[00:40:15] David Hornik
So that’s a. Yeah, like I want.

[00:40:17] Howard Hartenbaum
The other thing, which is limited downside. You lose your money. Unlimited upside.

[00:40:21] David Hornik
I prefer that.

[00:40:21] Jeff Clavier
I was talking with a hedge fund manager friend of mine about his shorting strategy and I agree with you, we’re optimists. We take risk every day by making those crazy investments.

[00:40:34] Howard Hartenbaum
He says those are crazy investments. I’m going to short them.

[00:40:36] Jeff Clavier
Yeah. And basically listening to him and how he selects the stocks he’s going to be shorting and how he sort of loses his shirt every time.

[00:40:45] David Hornik
Well, they had a story on NPR about it and some NPR reporter went to the leading shorters, like the leading short funds to talk with them and said, I want, we, we’ve gathered up our money at NPR and we want to short. And each of these three, three portfolio managers said, yeah, don’t do that. That’s terrible. That’s a terrible idea. And the other thing is they were, they sounded to me, I’m going to get myself in trouble with the Shorters.

[00:41:12] Jeff Clavier
But they sounded like, they don’t listen to this podcast.

[00:41:15] David Hornik
They sounded like such used car salesmen. It was like, well, you know, we look for the things that are gonna suck, but don’t do it. Don’t do it, whatever you do.

[00:41:24] Jeff Clavier
So what is exciting to you guys these days? What are the things that you look for?

[00:41:28] David Hornik
Or. I don’t know, you tell us. We’re waiting for your most exciting companies. We’re ready.

[00:41:34] Jeff Clavier
Well, I’ve actually just introduced one to Howard, which I think is a good one. It’s not for everyone, but I think it’s a really good one.

[00:41:39] David Hornik
Well, if it’s not for everyone, it’s probably for Howard. That’s how we invest.

[00:41:42] Jeff Clavier
That’s exactly what Vivek said. That is exactly what Vivek said. Vivek said the same.

[00:41:48] David Hornik
Why are you showing me?

[00:41:49] Jeff Clavier
We love you, Howard, by the way.

[00:41:50] Howard Hartenbaum
This is just a theory that I would rather be in something that’s different that not everybody else is in than being in number 32 in a crowded market.

[00:41:58] David Hornik
No, I, look, I get that I’m.

[00:42:00] Howard Hartenbaum
Not smart enough to pick a winner amongst five and all five teams are smart and hard working. Like, it’s really hard to pick a winner.

[00:42:06] Jeff Clavier
But you can pick, you can pick.

[00:42:07] Howard Hartenbaum
Something that’s by itself and if it wins, at least it’s by itself.

[00:42:10] David Hornik
But here was. So, you know, Howard, Howard and I have this conversation. We agree with this. And, and the other thing that’s weird is so you say, oh, what are we excited about? I’ve spent a year kind of doing other, you know, looking at things, trying to find good deals, and then got excited about two companies in the course of three weeks or something hugely different. One kind of in a, in a tech supported media space, the other in a SaaS company. We wouldn’t have chosen these particular business if you’d say, oh, go find these businesses. We wouldn’t have chosen them both. Super interesting businesses. So I think the beauty of the venture business is that you have no idea. Like, you have no idea. And then when you see it, you’re like, holy crap. Right? This company that, that, that we’re looking at right now after Howard said, huh, that’s the most interesting thing I’ve seen in six months. But if I’d asked him of gold.

[00:42:59] Howard Hartenbaum
I have no idea if there’s a market for them to make a lot of money. But I think it’s interesting that they’re.

[00:43:04] David Hornik
Doing and I think it’s worth the bet. And I think there’s an opportunity for it to be a multibillion dollar company.

[00:43:09] Howard Hartenbaum
Generally, if the market is totally clear, it’s too late anyway.

[00:43:12] David Hornik
Yeah.

[00:43:13] Howard Hartenbaum
So the argument is, you know, what’s your downside is you lose the money and your upside is infinite.

[00:43:18] David Hornik
There you go. That’s what you’re looking for.

[00:43:20] Jeff Clavier
That’s a great sort of ending thought.

[00:43:22] David Hornik
Yeah.

[00:43:22] Howard Hartenbaum
Ending thought because you’ve got a meeting to go to.

[00:43:24] David Hornik
That’s it. That’s a good ending thought. Thank you so much, Mr. Jeff Clavier of Softech VC premier guest of Accent VC.

[00:43:33] Jeff Clavier
We appreciate thick accent.

[00:43:35] David Hornik
Thick Accent VC. I am David Hornik from August capital.

[00:43:40] Howard Hartenbaum
And Howard Hartbaum from August capital.

[00:43:42] Jeff Clavier
And there was Jeff Clavier always being sort of joked around because of his accent.

[00:43:48] David Hornik
We’re gonna auto tune loved, loved, adored because of his accent. And this has been Venture cast.

[00:44:02] Jeff Clavier
The inimitable Jeff Ladigan. The inimitable Jeff Flanagan. The inimitable Jeff Ladigan always being so joked around because of his accent.

[00:44:12] David Hornik
Sam.