Generated Transcript

[00:00:14] David Hornik
Hello and welcome to Venture Cast. I am David Hornik of August Capital.

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

[00:00:24] David Hornik
I was singing to Howard the other day that we. The Venture Cast theme song. I don’t know how many years back it goes, but welcome to Venture Cast, to which he was like, enough.

[00:00:37] Howard Hartenbaum
Is that your jingle?

[00:00:38] David Hornik
That’s the jingle. That’s the Venture Cast jingle. This is where my son gets it. That’s the deal.

[00:00:44] Howard Hartenbaum
So his genius. His genius, you’re trying to take credit for.

[00:00:48] David Hornik
Exactly. Just like every good vc, take credit for that which you control, not. Oh, my God. You know, we were. Howard and I talked about discussing a set of things, but before we get into that, did you see this video about the guy who got his head, like, got beaten up, dragged off of the United airplane?

[00:01:09] Howard Hartenbaum
No, that sounds.

[00:01:11] David Hornik
I shouldn’t be laughing. I shouldn’t be laughing. Did he deserve it that United oversold the plane and they asked him to get off the plane and he refused to get off the plane?

[00:01:23] Howard Hartenbaum
I think that they can’t. Once you’re sitting, they can’t throw you off the plane. I. Yeah. Anyway, what happened.

[00:01:29] David Hornik
I don’t know who I, you know, I don’t know who physically removed him from the plane, but he was ultimately bloodied in the process of getting off the plane. And the assertion is that United was using. Wanted to use the seats for a deadhead for pilots or for flight attendants or something. I don’t know what.

[00:01:48] Howard Hartenbaum
I smell a lawsuit.

[00:01:50] David Hornik
Holy cow, that one’s. I mean, so now people are talking about a boycott or what, you know, and then, remember, there was already this stink because they had these two young girls who were trying to get on the plane and they were wearing leggings and they were not allowed on the plane because they weren’t allowed to wear wet leggings.

[00:02:08] Howard Hartenbaum
They were employees.

[00:02:09] David Hornik
They were kids of employees or something. I. I have far less sympathy for the objection to that. Look, if you ultimately have rules about how your free tickets can be used.

[00:02:18] Howard Hartenbaum
I think if you. If you got on the plane, they took your boarding pass and you sat down, that was an exchange of value. You now own that seat for them to come and take you off. That seems.

[00:02:29] David Hornik
Yeah. Except if you look at these things, they are licenses. You do not own anything. You have a license. If you literally.

[00:02:35] Howard Hartenbaum
But the license was paid for and it was accepted.

[00:02:38] David Hornik
Yeah. The question is, what are the terms of the license? And one of the terms is fucking lawyers. It is true. Well, Howard, I just got back from teaching my, My Law class. So I’m very, you know.

[00:02:52] Howard Hartenbaum
So if you were that if they pull. Try and pull you off the plane and you simply, you know, fall to the ground and say you’re having a heart attack, that would be an interesting. And bloody your head in the process.

[00:03:06] David Hornik
On the plane or whatever. Anyway, I think it is. I think that United has many, many faults. I’m not, I am by no means an apologist for United. I fly many hours on United’s airplanes. There are some lovely people there, some problems. This one seems like a make of their own making. The legging one was, I think people blowing it out of proportion. But holy macanoly that this is not good PR for.

[00:03:35] Howard Hartenbaum
So you’re proposing we pause this so I can go watch this video? Bloody dead right?

[00:03:38] David Hornik
So you can come back and.

[00:03:41] Howard Hartenbaum
So what brought this up all of.

[00:03:42] David Hornik
A sudden with me?

[00:03:43] Howard Hartenbaum
Yeah, all of a sudden, just like we were gonna talk about something, it.

[00:03:46] David Hornik
Just struck me because I just was picturing all these tweets about how horrible it is and I realized, I said, okay, boycott United. But I have like 13 plane tickets booked on United in the coming six months or whatever. So for me, how can I boycott United? When am I supposed to like cancel them all? You could just do thousands of dollars.

[00:04:07] Howard Hartenbaum
In canceling tickets, but you could punish them just by the next time you book a ticket, an expensive to Europe ticket. Fly in Virgin, say no. Yeah, that’s how you do it.

[00:04:16] David Hornik
I book it. What I do is I book it fully refundable and then right before I get on the plane with Virgin, I cancel it. But then they would have room for their flight attendants to deadhead to wherever they were going. I think wouldn’t have to kick some dude off.

[00:04:32] Howard Hartenbaum
I think it would have to be like 10,000 people would have to do something like that to really hurt them. Like start picking planes, buying up all the seats, like a mob thing, and then canceling them all the day before and leaving planes empty, which cost them a lot of money. That would be an effective protest.

[00:04:50] David Hornik
That’d be, that’d be ugly. Then, then they’d have to change their rules. It’s. Well, it’s a little like the delete Uber thing, right? Delete Uber was only meaningful because 10,000 or 20,000 people then deleted their accounts. And it was like, well, wait a second. That actually starts having an impact. That, that, that delete Uber thing started with an employee of one of our companies. Are you aware of this fact? One of our companies and the CEO and someone said like, oh, to the CEO, are you aware that this is happening and we’ve got to make it stop? And the CEO said, no, we’re not going to make it stop. If that’s what the. This individual feels on his individual Twitter account, I’m not going to stop them from this process. So.

[00:05:35] Howard Hartenbaum
My understanding of the biggest challenge for Uber consumers right now are you ask for a flight. This happened to me in Los Angeles. You ask for a car, and a guy calls me up a minute later, goes, hey, I just want to know where am I taking you to? And if you don’t tell him something that he wants to hear, he will cancel on you. I said I was going to visit my dad, and it was a $30 ride, which was enough for the guy, and he wanted to go in that direction. And then I was talking to him in the car, and I’m like, well, what would it have taken for you to say no? And he said, well, I don’t want to go downtown.

[00:06:12] David Hornik
No, no. My wife oftentimes when she calls a car to drive her to the city at the wrong time of day or for me to get one from the city to the Peninsula, they say, but.

[00:06:24] Howard Hartenbaum
That’S fascinating, because isn’t it taxi law? Like, they can’t turn you down where.

[00:06:29] David Hornik
You want to go?

[00:06:29] Howard Hartenbaum
And this is one more example where they’re.

[00:06:31] David Hornik
They can’t. I did have one guy who I had some sympathy for. He was picking me up, and he said. And I said, oh, he saw that he was going to the city. He said, oh, my goodness, I have a doctor’s appointment and I’ll miss it. I could cancel it now, but I was like, forget it. I’ll call another one. But if you’re running late, it’s a real problem. If it takes 10 minutes for someone to get to you, and then you’re already. Because the way I get to the airport, one of the reasons why I can’t really boycott United is because. Because I’m global services, and so I can skip the line so I can get in through. Through security so quickly that I can cut it completely irrationally close. So if I boycott United, I’m going to have to actually get there in a reasonable hour. But that’s exactly why they do that, isn’t it? It’s very clever.

[00:07:20] Howard Hartenbaum
I’ll watch the video later. All right, so I want to bring up a great pitch that we had this morning, because you were part of the pitch, and the CEO of this company, you had seen a year or so, more than a year and a Half ago. And you had liked him and liked his business, but ultimately we didn’t make an investment. And into this morning’s pitch, you describe what he did.

[00:07:46] David Hornik
Yeah, this was a first, and I have to say, it was astonishingly effective, don’t you think? Like, it was impressive as we went through the business, got through the business and got to a slide. And the CEO said, so at such and such a day, and, you know, 2015 or whatever, you decided not to fund the company. And here’s what you said. And then he pulled up a slide with a quote, quoting my email back to him, which said, hey, and. And so the good news is that.

[00:08:20] Howard Hartenbaum
It was a nice email.

[00:08:21] David Hornik
It was a good. It was a nice. Because we like them. So the email was, gee, we really like you and you’re. You’ve done a fantastic job. And here are the things we’re concerned about. We’re concerned about market. We’re concerned about how crowded it is, and we’re concerned about. So we listed a set of things, said, we’d love to stay in touch. Wish you the best of luck. Sorry we can’t work together. That was basically the email. And then to his credit, then he said, all right, so here are the things you objected to.

[00:08:48] Howard Hartenbaum
Three things, right?

[00:08:49] David Hornik
And here. And here’s how we’ve done. Right. Here’s how we’ve addressed those things. And I think everybody in the room was like, good for him. Like, that was a. It was a great. It wasn’t just a great strategy. It was like he was. He was. He was right. He had addressed a bunch of these things.

[00:09:06] Howard Hartenbaum
He. Detail oriented. He. He listened. He understood what you were saying. He realized that they were important things to focus on, amongst other things.

[00:09:14] David Hornik
Yeah.

[00:09:15] Howard Hartenbaum
And he basically said, here’s the three things you said, and I. And I have solved those problems.

[00:09:19] David Hornik
And he saved the. He still had the email. He still, like. And he reached back out to me when it was time to raise this new round and said, hey, I really enjoyed our communications last time. Let’s have, you know, if you want to hear the update. And to which I immediately said, great. He said, I’ve made a bunch of progress. I’m like, oh, I want to hear about progress. Right? There’s no better way to win over a venture capitalist than to make progress. Than to say, like, okay, here’s what we’re gonna do. And then you go and do it, or better yet, outperform. And he’s busy beating his plan right now. He was, he had, he had addressed in many regards the challenges that we saw. So, you know, we’re deeply engaged now in this conversation with him about whether. Whether it’s time to fund the company. Now. The bad news is it’s more expensive now, Way more expensive. And we’ve had this a couple times. We had another one recently where we ended up, like, really loving the business and very impressed with what the founder did. And as I was walking out of the pitch, my partner Tripp said, yeah, we should have funded that last round. Like, hey, Tripp, that’s not helpful.

[00:10:24] Howard Hartenbaum
So the thing today made me think about. I was reading some article. Brian Chesky had kept the emails from people who had passed on Airbnb when it was $100,000 buys, 10% of the company and email. He didn’t say who the people were, which was nice of him. But we really like you, but we don’t think people are going to stay at other people’s houses. It’s a crowded market and regulation and all these types of things. And all I’m focused on is $100,000 for 10% of Airbnb.

[00:10:56] David Hornik
Fred Wilson, who was one of those guys, I don’t know if it was in that round or the next round, but Fred. So Paul Graham from Y Combinator said, fred, you really should fund this. And there was a bunch of back and forth. And Fred, in a blog post on AVC, I think it’s AVC.com, which is Fred’s blog, laid out the back and forth with where he said to Paul, here’s what my concerns are with Airbnb and why it may or may not work. Which I thought was a great blog post because it was a great reminder of what that looks like, right? Why? What are the consider. So, you know, so we have our guy today who says, here’s what you said and here’s what I’ve done. We have this Airbnb post where it’s like Paul saying, I think this could be big. And Fred saying, yeah, but here are my concerns. And a bunch of back and forth. And then the one I just had last week. So I teach this class, this was my 8th year teaching a class at Harvard Law School called Entrepreneurship and Company Creation. And so in the first week of the class, I talk about pitching businesses and what’s an executive summary and all that stuff, right? And then the last class of that session of that week, I have some entrepreneur come in and pitch the whole class, like, come in and do a legit. As if we are the VCs. And so this year a very thoughtful entrepreneur. Actually, three of them came in. They were pitching an interesting business in the payments space, and they came and pitched. The whole class, gave the whole pitch. We, I asked questions to my, to my great pleasure. The class started asking good questions and, and at the end of the pitch, I said, well, that was great. Thank you guys so much. Now we’re going to talk about it. And ordinarily what would happen is these guys would then leave the room and then we’d have a conversation. Sort of like our partner meeting. Right. We never have these partner meetings with the, with the folks there. But in this instance, they were like, oh, can we stay? Which is a little interesting.

[00:12:59] Howard Hartenbaum
The real question is, do they really want to hear the feedback? And will the people then be honest and open with the feedback?

[00:13:06] David Hornik
That was exactly. I was wondering if my students would tell the truth. Right. And I said, yes, you’re welcome to stay. And I’m going to be brutally honest. And wasn’t brutal, but I mean, honest about what I’m concerned about and I hope the class will. And I said to them, please talk about the things you genuinely like and genuinely don’t like, because just because they’re here, it’s actually super helpful for them. And I think it was. I think it was a really good conversation. It was. And so here is. This was an interesting thing. These guys were serving a particular market, their technology was serving a particular market, that it was somewhat controversial, but the technology could have been used for these other things that were less controversial. And so my students were all like, I wasn’t sure about that controversial thing, but I was super excited about the less controversial thing. And what, you know, let’s talk about that. Let’s talk about that. And they all kept fixating back on this less controversial thing. And it sort of reminded me of each one of our partners when they joined the firm, fall a little victim to this, which is, you start talking about a business and you say, if they did this, it’d be better. Right. I think by the time you came to August, you weren’t. You had been an investor long enough to not do that.

[00:14:24] Howard Hartenbaum
Yeah, Right.

[00:14:25] David Hornik
But entrepreneurs in particular, I always say, best, best VCs are entrepreneurs. Like Vivek, for sure did it for a bunch of years. He still has a great temptation because he’s such a good entrepreneur that he’s like, what if they did this? Wouldn’t that be a great business? Like, oh, we did it.

[00:14:39] Howard Hartenbaum
No, no, we. This happened today. It was sort of half joking. We’re listening to A pitch on a SMB CRM solution. And I said to you, kind of under my breath, you know, what the world really needs is a consumer CRM for managing dating cross platform. And you sort of scratch your. Yeah, right, exactly.

[00:14:59] David Hornik
So if anyone’s listening and they want to create the dating CRM, I think.

[00:15:04] Howard Hartenbaum
I heard a rumor that George Zachary and CRV used to use like Salesforce to manage his dating life.

[00:15:11] David Hornik
Was he single?

[00:15:12] Howard Hartenbaum
I hope he was single at the time. This is years and years ago and it may not be true. So, George, if you want to let us know if it was true or not. But you know, that’s kind of interesting.

[00:15:21] David Hornik
But it is when you think about it, right? No. So, yeah, Howard leans over, he’s like, well, what you actually said to me was, I’m a consumer investor. I want to invest in personal CRM, consumer CRM. And then you’re like, what is that? Meanwhile, we’re discussing as a partnership, the enterprise CRM. And then you go, wait a second, what if you could take okcupid and match.com?

[00:15:45] Howard Hartenbaum
Well, I know somebody who is heavily into the dating scene right now, using multiple platforms and dating multiple people at the same time. And I’m wondering how this person is managing it.

[00:15:58] David Hornik
I know I watched this person while we were recently at an event and you know, getting responses and oh, what I think about this person. And oh, here’s the response I get.

[00:16:08] Howard Hartenbaum
Like I said, CRM.

[00:16:10] David Hornik
But you’re right. If you had a good CRM solution, then you could take your match.com and OkCupid and what’s the Jewish one?

[00:16:17] Howard Hartenbaum
JDate.

[00:16:17] David Hornik
JDate and whatever else. You could pull them all in. You could have a calendar so you could know what you. Right.

[00:16:23] Howard Hartenbaum
You could carefully make it so you could have two dates on the same evening, one getting drinks, the other dinner, but far enough apart so that they won’t collide, but close enough so that you can walk.

[00:16:34] David Hornik
But more importantly, you could also write, this is Relate iq. Remember when we were looking at Relate IQ and then others, a company, Amy Chang’s business, which are trying to help you keep track of people. Right? Because in business it’s important to know how you met them and what’s the relationship and what they care about. All these things. You totally need that.

[00:16:55] Howard Hartenbaum
If you’re messaging. Messaging templates. I had a great time last night. I hope we can meet again or it was nice meeting you, but unfortunately I don’t think it was a perfect fit, like automated.

[00:17:07] David Hornik
But then maybe they could like keep that and then they’d come back to you later and go, okay, you said I was too sure I was too overweight. And you said that I didn’t like shellfish. But now I’ve worked out and I’m a fan of shellfish.

[00:17:19] Howard Hartenbaum
It could just be like, you know, thumbs up or thumbs down and then everything is automated afterwards.

[00:17:25] David Hornik
This all sounds very complicated. You and I. I guess you certainly as well, right? We dated in a time when there was no online dating.

[00:17:32] Howard Hartenbaum
There was no online.

[00:17:33] David Hornik
There was no online. And we just had to, you know, meet people. People.

[00:17:37] Howard Hartenbaum
How did we do that?

[00:17:39] David Hornik
Well, no, the bigger question is how did we end up actually having anyone date us? I can understand the process. I just look at the two of us and go like, huh, that is shocking.

[00:17:49] Howard Hartenbaum
Speak for yourself.

[00:17:54] David Hornik
You, oh, you, you cheated because you went to Japan.

[00:17:57] Howard Hartenbaum
I didn’t cheat.

[00:17:58] David Hornik
That was, no, I never cheated. Take it back on anyone. But you were like, look at me. I am, I am an American man who speaks Japanese. Isn’t that good?

[00:18:09] Howard Hartenbaum
Look what Eric got me.

[00:18:10] David Hornik
I couldn’t speak. I couldn’t speak another language. I had to only speak, you know.

[00:18:16] Howard Hartenbaum
So anyway, back to your last, back to your, your last comment. You, you made this guy sit through the feedback.

[00:18:22] David Hornik
Yeah, yeah, yeah.

[00:18:23] Howard Hartenbaum
And I’m curious, like, what he heard. You know, they were saying if he did this or if, you know, we like this. He’s like, what happened there?

[00:18:29] David Hornik
Oh, yeah, yeah, yeah. So anyway, as I was saying, there was like the controversial thing and the non controversial, they all kept on going back to the non contro thing and, and in the end it was like, okay, they’d all said their piece. It’s a law class, so I get to kind of control the conversation. What do you think of that and how do you think about that and what do you all. Did people agree with that? What do you, you know, they’re, oh, it’s a good team. It’s a market. What about regulation? All these things. And then, and then I finally said, look at, and then I looked at the, this person who’s there legitimately pitching our, his business to us, right? This was an august capital pitch introduced to us by very good people. And I said, I said, look at, I said, first of all, for the sake of the class, they all want you to think about this non controversial thing, but best I can tell, that is not your business. Your business is this controversial thing. Do you anticipate getting to that non controversial thing ever? And everybody’s like, no. I said, no, you’re never going to do that you’re going to do this thing. So if we want to do it, it’s got to be the controversial thing. We got to be we willing to do it. And I basically said, look at, you know, there’s a bunch of challenges. And here are the challenges. I laid them out. It was like that email, but it was in real time, face to face, which is actually astonishingly valuable. Right. I was not mean spirited about it. I was just honest and honestly, if he could sort through some of these things because he was raising a seed round, a couple million bucks, if he could sort through them for the series A, then we’d love to hear the story.

[00:20:01] Howard Hartenbaum
I think he’s just pitching to the wrong people. I know what the company you’re talking about. He should go directly to the consumers of that service, the companies that he’s going to be helping out.

[00:20:10] David Hornik
Yeah. Because they have a bunch of money available and whatever else. But anyway, so Howard, then in reaction to that, you said, maybe we should do that. Right. For companies. Maybe we should.

[00:20:24] Howard Hartenbaum
Here, as an example. As an example, we saw a company recently and very, very impressive pitch. And we talked about the company afterwards and talked about the due diligence and the reference calls we were doing. And if that person had listened to us, they would have learned something from it. They would understand where we were questioning. But then a week later, we’re now talking about the company and decided not to move forward because as a result of due diligence, we found that the person wasn’t answering everything straightforward. And I think the challenge with having the team come and listen to you is when it’s related to team issues, you have to bite your tongue. You can say things like, I don’t think that the numbers are credible or I don’t believe that they’re being realistic. But if you, you know, sometimes people tell us stuff that’s just an untruth.

[00:21:17] David Hornik
In this instance, actually, this particular founder would have greatly benefited from that feedback. Right. Because there is a temptation to try and make everything seem great. Right. Oh, I’m gonna tell, I’m gonna tell you what you wanna hear. I’m gonna gloss over whatever. And honestly, if this particular founder had said, here’s what’s hard about this, here’s how we’re thinking about it, whatever, then I think, I think we would have been much more inclined to say, okay, let’s bet on this person. Right. What was most interesting about this one is that in a one hour prescription, you know, scripted conversation, this entrepreneur was great, really compelling, super compelling. But Then as you think about it and you dig in a little bit, you go, well, wait a sec, like, wait a second, what about this thing? Or what about that thing? And the second you start having those, you’re it’s.

[00:22:07] Howard Hartenbaum
And you’re getting evasive answers or they’re conflicting with prior comments that were made. I think in, in this case, it would be very useful to share that with, with the entrepreneur, particularly because we heard concerns about that from prior investors as well, which is a whole nother topic in itself. If you’re an entrepreneur and you have investors and you have some issues that have come up as a result, many of your angels are going to tell those issues to VCs, because we have.

[00:22:38] David Hornik
Relationships with those people.

[00:22:40] Howard Hartenbaum
And they will say, oh, you’re interested in this company, but before you consider investing, you should be aware of X, Y and Z. And we listen to those things and sometimes we still invest and we ask questions about it, and sometimes we don’t invest. But we usually know all of the issues that have happened in the past between an entrepreneur and angel or seed funds or prior investors.

[00:23:06] David Hornik
What’s so interesting is the contrast with the entrepreneur this morning who the. One of the reasons we liked the pitch so much was very forthcoming and astonishingly detail focused. Right. You asked a question, it was like, oh, that’s 19%. Oh, here’s the distinction, here’s whatever. Right. Not trying to sell us, but the.

[00:23:29] Howard Hartenbaum
Pitch we had prior to that, I asked percentage questions and the answer was a lot or a little, or I’m not really sure, or you’re allowed to.

[00:23:40] David Hornik
Say, I’m not sure as long as the previous nine times you gave us an answer. But if you are vague, vague, vague and not sure, it’s not very credibility building, which is a challenge.

[00:23:54] Howard Hartenbaum
Yeah. I mean, we’ve had the experience that very analytical CEOs who understand everything in their business on the tip of their tongue usually do better than most.

[00:24:06] David Hornik
So this is interesting. So for whatever reason, I went down this rabbit hole. I don’t know if you’ve done this, but, you know, our companies are all covered by, are all sort of reviewed. Yeah, Rabbit hole. Howard’s pointing to my many, many copies of Alice in Wonderland that are sitting on the shelves. So the rabbit hole is that I started looking on Glassdoor. Right. And Glassdoor is a site that reviews the management of companies, what it’s like to work in companies. And so I started looking up my. The companies in which I’d invested to try and get a sense of it. Right. And. And it was and it was very interesting. Now obviously the companies have been around a longer period of time, have more reviews, they’re various things. But I ended up, I decided that I would email my CEOs with what I’d seen. Hey, just, I was on Glassdoor. I saw X, Y and Z strike. This one strikes me as uncompelling. This one is concern, right? One of them, one of the reviews suggested that one of my companies was doing something illegal. So I forwarded it to the CEO and said hey listen, this is, you know, I’m, I am assuming that this is not true, but we need to discuss this and if it is in fact untrue, we need to address it. And if it is true, we need to address it. Right here are these things. I had another one where it was, you know, there were a set of, of commentaries that suggested that there was politics at the mid level management. So again off to the CEO to say hey, you know how you, I saw these things. Do you think there’s any merit to whatever. And what was great is that to a person, the CEOs and COOs and others who I emailed had, you know, had all seen it. They all go to Glassdoor and they all, and some of them had been addressed directly. Oh, is why I don’t think it’s fair or correct or whatever. Here’s what I think the cause is. But it gave me great confidence in, you know, in these particular individuals because they were so detail focused and they had such clear answers and whatever else. And you know, look, we will take very seriously anyone who suggests things like something illegal or sexual harassment or whatever, things that are whatever, but the fact that the companies are on it I thought was super valuable.

[00:26:30] Howard Hartenbaum
One thing I noticed about Glassdoor is I had a company a few years ago where the company started struggling and the founders started flailing about a bit. They just did not know what to do. And their Glassdoor ratings had been going up for the past the prior two years. And from that point it started going down to the point where the company finally failed. And it was just fascinating that that was the point. It was like to the day you could see the thing going up to going down where there was self confidence and progress and then self doubt and concern and kind of took and you could see like management started leaving and they had more trouble recruiting people. And so Glassdoor is kind of interesting.

[00:27:16] David Hornik
I had one that was super interesting because there were, you know, it wasn’t a perfect review. It wasn’t like what is it a Five point scale or whatever. It wasn’t like it was five stars, but the CEO had a hundred percent, which is really interesting. I mean that suggests a very good CEO who can face.

[00:27:34] Howard Hartenbaum
Or he’s managing to that.

[00:27:36] David Hornik
Yeah, right, exactly. Managing. That’s a hard thing to do. Right.

[00:27:40] Howard Hartenbaum
I will only hire you if you’ll let me into your Glassdoor account and I can write myself.

[00:27:46] David Hornik
Yeah, and I’ll write some vaguely critical things so as to give credibility to my 100% for the CEO.

[00:27:53] Howard Hartenbaum
Hey, what was. You had mentioned that you were tweeting something in the past few days about length of time on boards. What was that?

[00:28:01] David Hornik
This was over the weekend. I was, I went online just to sort of go, hey, what’s going. You know, like what’s the latest on Twitter? And let me see if I can find it. Because someone basically called out VCs for. For not being reliable. Basically. I’m searching through now because there’s been a bunch of commentary since. But basically the idea was that there was a conversation I was in where the discussion was that the distinction between venture capital and seed funding or those sorts of organizations that VCs are with you for the long haul and that the other folks invest but then they move on, they get venture funding and then they move on. And someone basically just said that’s just garbage. I said, that’s not true. In fact, VCs all the time, when things aren’t going well, abandoned their companies. Right. Which.

[00:29:02] Howard Hartenbaum
Which is a broad claim with no data.

[00:29:04] David Hornik
Yeah, I mean it’s, you know, here it is. Should be well understood by anyone taking venture capital massive to massively believe otherwise. And then, whoops, where’s the thing? Oh, oh, Twitter, you’re failing me. That VCs abandoned their. Abandon their companies. If things start going poorly, they abandon their companies. So I tweeted I’ve been on the splunk board for 14 years. The Nomus board for 11 was with Ebates for 14. We take commitment seriously at August Capital. That was my. That was my response. Yeah, here’s the. It was Parker Conrad who said VCs making 10 year commitment to companies and founders is among the most enduring of Silicon Valley lies. Companies that lose their luster are quickly.

[00:29:53] Howard Hartenbaum
Abandoned and Parker Conrad knows this because of why.

[00:29:59] David Hornik
Again, you know, you don’t get that context in Twitter, but that was Parker’s takeaway was this is an enduring live Silicon Valley. Well, you and I have been on.

[00:30:14] Howard Hartenbaum
Boards for co founder and CEO of Rippling, co founder and CEO of Zenefits.

[00:30:19] David Hornik
So One of the co founders of.

[00:30:20] Howard Hartenbaum
Zenefits, co CEO of Wiki Vest Wikinvest.

[00:30:23] David Hornik
So maybe, you know, so maybe his, his experience in those places, whatever.

[00:30:27] Howard Hartenbaum
But if that’s the same Parker Conrad.

[00:30:30] David Hornik
Yeah, that is, that is the Parker Conrad.

[00:30:31] Howard Hartenbaum
Oh, interesting. So that he must had a bad experience.

[00:30:34] David Hornik
Yeah, must have had VCs who weren’t, you know, and maybe that’s what happened with, with the company when it started getting tough or whatever. But I can say this for sure. Well, one of the things that’s true is when companies are not doing as well, they fail more quickly. So you’re less likely to be on those boards for a long period of time. And so because someone said, oh yeah, of course the shine, you know, you stay with companies that are doing well for a long period of time because you can like our partner Dave, who was on the Microsoft board for 33 years. Like why would you not be on the Microsoft Word for 33 years? Other than public company boards, how long.

[00:31:08] Howard Hartenbaum
Have you been on the splunk board?

[00:31:09] David Hornik
14. Wow. A lot of years. Right. So it’s a lot of years. But I think that our commitment. Let me see if you think this is true. My belief is that when I invest in a founder and his or her company, that it is my commitment to them that I will continue to support them for as long as they continue to believe it is worth their time to work on that company.

[00:31:36] Howard Hartenbaum
Define support.

[00:31:38] David Hornik
Well, if I go on a board and it makes sense to stay on the board, I’ll stay on the board. If they want me to continue to be on the board and supporting the business, it doesn’t mean I’ll give you money forever.

[00:31:49] Howard Hartenbaum
I think that’s the point that some people believe that if you take money from somebody, no matter what happens in the future, they’re obligated to give you more money. And I think that support might be construed in that perspective. And There are some VCs who will keep putting money in forever whether or not it’s going to work out or not work out. But I think the definition of support are you going to stay on the board? Are you going to switch yourself out and put some junior person in your place? Or does it mean I’ve had some companies where gave them some money, they set some goals and they maybe raised some more money. And then a few years later it wasn’t really working out and the business was failing. They said, well, we could raise more money or we could try and sell the company. Do you want to put More money in and we have a nice conversation, say, well, the business isn’t working and it’s not really a great use of your time. If you can find a new outside money, I’ll participate and give you some more money. But if you can’t raise outside money, maybe it’s time to sell the business. I would consider that very supportive. Yeah, look, but some might not.

[00:32:52] David Hornik
No, I think ultimately our obligation is to be, is to be truthful, to be predictable. Right. You can’t tell a company I’m going to support you and then pull the rug out from under them. Right.

[00:33:06] Howard Hartenbaum
But you can say some guys do.

[00:33:08] David Hornik
Do that and they totally do. That’s why I think there’s stuff about, I think they’re there. It’s not like this never happens. It’s just that that’s not our mode. At August Capital, our view is we make a commitment to entrepreneurs. We’re trying to help them build a business. As long as they’re making forward progress, we will continue to do everything we can to support them. That oftentimes is money. But look at, I mean, Ebates is a great example of this. Where Ebates, when we funded it, was doing great and growing quickly. And then things got challenging in the market and in the business and it sort of didn’t flatline, but it was growing slowly for many years and there were many opportunities to say, hey, should we just sell the company? Or whatever. And the founders were of the view that there was value to be built. And so we stuck around and we helped them try different things, ultimately helped to recruit a fantastic entrepreneur who then became the CEO. And things started changing and the business did well and ultimately sold for a billion dollars.

[00:34:09] Howard Hartenbaum
And in the meanwhile, we did support them with more money too.

[00:34:12] David Hornik
Yeah, we invested more money, which was great for us. It was great for them, you know, so we’ve had plenty of instances where there, where the business is, you know, making some progress, but it’s slow progress, etc. And my view is that we made a commitment to those folks to try and help them be successful. And as long as they’re still engaged in it, in the business and their time with their time, that’s what we should do. Right. And there are plenty of times when you kind of say, hey, this is, do you want to bring in new investors or you want to sell the company or whatever. But we are definitely not of the ilk that when it looks like it’s not going to be the billion dollar outcome, we say bye, bye. Or here have have some junior person and you know, call us if you need us or whatever.

[00:34:57] Howard Hartenbaum
That’s just, I mean, I don’t disagree with Parker. I do know a few VCs who, if a company is not so exciting anymore, suddenly at a board meeting, a junior guy shows up and he’s the new board member resembling representing that firm. I’ve had that experience before. It’s rare, but I’ve seen it.

[00:35:14] David Hornik
Yeah, no, it’s a. What I find in Twitter land and on Facebook. And the thing that I’m. I am, I just can’t leave alone, even though I should, are these incredible VC generalizations like, oh, the dirty little secret is VCs suck. Because they’re sucky suck.

[00:35:37] Howard Hartenbaum
All of them.

[00:35:37] David Hornik
And I would say, like, okay, wait a second, like we do. There are some sucky VCs. I’m not defending the entirety of my, my profession, but like, don’t be confusing all of us for doing the same thing. I had. I did this on Facebook, you know. Oh my God, your used VCs are all the same because you blah. And I always. And then I always regret it, like, oh, I should have just left it.

[00:36:03] Howard Hartenbaum
Sometimes it’s best to say nothing.

[00:36:05] David Hornik
I had to ultimately unfriend someone I had known for almost 30 years in one of these because she just disflamed me for. No, like just decided that because I was defending, you know, the, the business that she was just going to trash me, call me a horrible sexist, like anti woman investor. I was like, what are you talk. Like. It just was painful. I gotta stop that.

[00:36:32] Howard Hartenbaum
Who’s this? No.

[00:36:35] David Hornik
It was a shame. It was a shame, Howard.

[00:36:38] Howard Hartenbaum
Yeah. Oh, well, hey, I have a case right now where I have a company that there is a buyer who is interested in the company and the buyer is actively trying to drive a wedge between the founders and the share and the investors in the company in order to pay less to get the company by effectively bribing the founders and saying, ah, you don’t need to worry about your shareholders. We’ll give you more money. You come over here, don’t worry about them. Have you had that experience? And what do you think about that?

[00:37:13] David Hornik
It’s awful. I mean, it happens all the time, right? I had a company that I was selling, the founders wanted to sell to Google and Google offered basically half of the dollar value in the acquisition to the founders, despite the fact that it ignored the.

[00:37:32] Howard Hartenbaum
That the founders only owned 30% of the business. Yeah, exactly.

[00:37:35] David Hornik
That they didn’t own them, that they didn’t own that much of the company and it resulted in the investors getting less than they deserved. If it had just been, hey, here’s, you know, here’s all the money, split it up according to the equity in the company. And when I spoke with the head of corporate development for, for Google, his answer was, well, look at Larry. No, I think with Sergey, Sergey has a rule where he wants people who are required to have X amount of stock going forward, etc. And I said, I, I understand the rule, but that doesn’t mean that you can then punish the investors by giving disproportionate amount of the equity to the founders when they still have a bunch of vesting going forward. It wasn’t, this was not a case where they were fully vested and they.

[00:38:25] Howard Hartenbaum
Were half vested in this case.

[00:38:26] David Hornik
Yeah, they had half of their vesting still going forward, which meant they had millions of dollars on the hook if they could, if they just did the deal. And, and so I said, you know, look at, ultimately to this corp dev person, if you want to own the company, then you should treat us fairly because ultimately one of the things that venture capitalists largely get when they’re buying shares in the company is the ability to say no to an acquisition. And this is exactly the circumstance where that is not only useful but fair thing to have. Which is to say I didn’t want to sell the company in the first place, but I totally understood why the founders did and I was happy to let them do it, but not at my expense. And to the credit of, of the founders, they, they held tough and the, and Google ultimately came back with an offer that was slightly more money and more fairly distributed and, and we sold the company. Right. So, but if they’re truly insistent on this, it is a bad, it’s just a bad sign. It’s a bad sign that the acquirer will try to do things as you’re getting closer to the outcome. Right, because they know as you get more and more bought into the system, they have more leverage, you have less capital. I mean, if you want to play games in that context, you really can.

[00:39:45] Howard Hartenbaum
I had one company years ago called Jot and Nuance ended up buying them. And in the process, I think, I don’t remember if it was Nuance or it was another buyer tried to play these games and the founders were like, no, we have a cap table, we have an agreement. It’s not only a handshake, it’s written on paper. That’s the deal I have with my investors that back me if that doesn’t work for you, then we’re not going to. And the buyers were like, well then we won’t buy you. And they said, great, don’t buy us. And then they said, well, maybe we could talk about that a little bit differently. Maybe it’s just a greed issue, but it’s pretty frustrating.

[00:40:27] David Hornik
It’s a different thing. I think that because I’ve known some great entrepreneurs who have exactly that attitude. In fact, I’m funding a company right now that should have been acquired. But the acquirer did exactly what you’re describing and said, we’re going to give you the lion’s share of the value here. And the founder said, but my investors made a set of choices. They were good people, you know, like, why would you do that? That’s not like, that doesn’t strike us as terribly fair. And they said, yeah, but that’s how much we’re willing to pay and most of it should go to you and whatever. And the founders ultimately, like, forget it. We’re not interested in doing that. We’re interested in creating value for our investors and for ourselves. Right now. I have another interesting one right now where through a set of circumstances, there’s a, you know, if the company were to be acquired at, call it a couple hundred million dollars, the investor, some investors would get their money back, right? You’d get back the money, you wouldn’t make any money. But at a couple hundred million dollars, the, the founders, the, you know, the employees actually make quite a bit of money. And so every acquisition has its own dynamic. But even in that instance where you say, like, wait a second, why are you getting rich and we’re getting our money back, the real answer is totally fair. They’re not playing games.

[00:41:43] Howard Hartenbaum
And that was the deal we agreed to.

[00:41:44] David Hornik
The cap table’s the cap table. No one’s rejiggering it.

[00:41:47] Howard Hartenbaum
Yeah.

[00:41:47] David Hornik
If that happens, more power to them. I’m not, I’m not about redistributing wealth to investors. I’m about not redistributing wealth away from investors. I mean, if that makes me a terrible capitalist, then I’m guilty.

[00:42:02] Howard Hartenbaum
I guess I ask that question because I get to go and have a nice telephone call with this company right now where I say to them, there’s obviously some conflicts of interest going on here. Standby power failure. All contact with plane lost. The switch is turned on. The standby emergency generator, dependent on battery power, springs into instant action. The life saving signal is resumed.

[00:42:29] David Hornik
Hey, this is David Hornik from August Capital.

[00:42:31] Howard Hartenbaum
This is Howard Harttenbaum, also from August.

[00:42:33] David Hornik
Capital, and we were recording Adventurecast and apparently we ran out of batteries and so I think we need to buy new equipment. But in any event, I hope you enjoyed whatever we actually recorded because we don’t know where it ended and haven’t a great day. Thanks for listening.