Welcome Villi

The venture business is a strange profession. It doesn’t require a single skill or discipline. It requires a range of expertise. Great venture capitalists have extensive networks built on top of meaningful relationships. They have a broad understanding of technology and a good sense of what’s coming next. They are thoughtful operators who can help advise executives. They have a strong deal sense and are able to get stuff done. And they understand people and can motivate those around them. Finding one individual who can meet all these criteria is a huge challenge for any venture firm looking to add to their team. Given these challenging criteria, it is not terribly surprising that we have spent nearly two years at August Capital looking for just the right person. So It is with great excitement that I introduce the newest member of our team — Villi Iltchev. Villi has spent the Continue reading "Welcome Villi"

Breaking The Mold With David Hornik

There’s an old adage that if you want to get something done, find the busiest person you know to take on the task. David Hornik is the embodiment of that manta. I first met David a year and a half ago as part of my journey with the Kauffman Fellows. He was so insightful that our […]

Announcing August VII

I am extremely excited to announce that my partners at August Capital and I have raised a new fund. This fund is the seventh in August Capital’s twenty year history. And while the venture capital industry has seen a fair amount of change over the last twenty years, our approach to the venture business has remained quite consistent. We believe that the venture capital business is, by its nature, a boutique business. And we believe that venture capitalists are in the business of helping to make entrepreneurs successful, and not vice versa. August VII will follow in that tradition. We look forward to supporting amazing entrepreneurs building game changing businesses.

The raising of August VII also marks my 15th year in the venture business. I have seen stunning ups and downs in the economy over the last fifteen years. And I have seen stunning ups and downs in the venture capital industry. The VC business was left for dead in the early 2000’s. In fact, the first decade of the 21st century was marked by net negative returns across the vast majority of the venture industry. Yet venture capital came roaring back with the economy.

The first half of this decade has been marked by ever bigger financings and ever bigger venture capital firms. Yet, as we approached the raising of August VII, we sat down as a partnership and asked ourselves what we wanted our new fund to look like. Did we want to raise a billion dollar fund and jump on the “ever bigger” band wagon? Or did we want to stick to our knitting and focus on what we do best — supporting a manageable number of great entrepreneurs as they navigate the challenges of building game changing businesses? The answer to us was clear.

In December we approached our existing investors with a blue print for August VII. Rather than raise two separate funds, as we had done before (an early stage fund and a special opportunities fund), we decided to raise a single fund that would focus on spectacular entrepreneurs independent of stage. We also decided that we would raise a cozy $400 million dollars, which would give each of our 5 General Partners about $80 million dollars to invest over the coming years. August’s seven funds have ebbed and flowed over the years, but have always been about $80 to $100 million per investing partner. It may not be everyone’s sweet spot, but it certainly is ours. And it has been a winning formula that has delivered meaningful returns to our investors over our lifetime.

Despite the fact that we started the fundraising process right before the holidays, we were thrilled to see that Continue reading "Announcing August VII"

Patience is a Virtue!

My grandmother used to tell me, my brother and sister that “patience is a virtue.” Of course, she used to say it while we were playing gin rummy and she was taking too long to drop a card. But her point was not lost on the Hornik siblings. My grandmother was not willing to rush something for the sake of moving on. She believed in being thoughtful and deliberate and making the best possible choices no matter how long it took. Thanks for the lesson, grandma! Duly noted.
 
Today we announced that Rakuten has entered into an agreement to purchase Ebates for a billion dollars. I have been extolling the virtues of Ebates for the last 14 years, since August first invested in the company and I began attending board meetings. Ebates is an amazing company built by amazing people and I could not be happier to have been along for this decade and a half long ride. It was worth every minute.
 
Ebates is a platform for retailers to acquire customers through cash rebates and for consumers to save money on purchases from some of their favorite online stores. Ebates is a win win. And, as a result, it has been growing steadily for the last 16 years. We first invested in Ebates in March of 2000 (along side Canaan Partners). By that time, Ebates’ two founders had already been hard at work building the company for a couple of years (Ebates was initially incubated at Foundation Capital). Ebates’ founders, Paul Wasserman and Alessandro Isolani, were attorneys who decided to leave the wonderful world of criminal law to start a dot com. There was a lot of that going on at the time. The only difference between most of those companies and Ebates is that when the bubble burst, Paul and Sandro had the good sense to hunker down and focus on not running out of money. Which is precisely what they did. They built a cash-positive business that continued to grow and provide real value to their customers.
 
Over the better part of the 2000’s, Ebates continued to grow its footprint. An increasingly large number of consumers were collecting cash back from an ever-larger range of online stores. What’s more, not only did Ebates hang onto the consumers it signed up in the early 2000’s, those consumers were spending more than ever before. With double digit millions in the bank and a decade of growth behind them, the founders decided to hand over the reigns of the company to an expert marketer.
 
We had the amazing good fortune to attract Kevin Johnson to the company in 2008. Having spent time as an executive Continue reading "Patience is a Virtue!"

Want to get funded? Get an introduction!

The other day when I was giving a talk I was asked the simplest of simple questions -- "how do you get funded by a VC?"  I thought about it and could only come up with one, for sure, piece of advice.  Get introduced!  I told the audience that in my 13 years in the venture business I had never once funded a company that hadn't been introduced to me by someone I knew and trusted. 

I suspect that in my 13 years years or so in the venture business I have received somewhere on the order of 5,000 executive summaries directly from founders.  And, as I told the audience, I didn't reject the businesses out of hand.  I read all 5,000 executive summaries.  I met with some of those entrepreneurs too.  Yet, I didn't fund a single one of them. 

A member of the audience asked if perhaps I was biased against entrepreneurs I didn't know, or who didn't know someone I knew.  It was certainly a reasonable question.  I thought about it and responded that I thought the reason I hadn't invested in those companies was that the founders were not resourceful enough to find a connection to me. 

But it got me thinking.  Maybe I was biased.  Maybe I was missing out on some great businesses because I wasn't giving them a fair shot.  I decided to see if I was the only one.  I started asking my fellow VCs if they had funded any companies that had come to them un-introduced.  And it turned out that the answer was "no."  No one I asked had funded a company without some sort of introduction.  While they all agreed that it wasn't out of the question, and most of them still read unsolicited executive summaries (as do I), not one VC had funded an un-introduced business.  Not one of them.

So how do you get funded?  Step one -- get an introduction.  Find someone you know who can introduce you to the person you want to pitch.  The closer your relationship with the person making the introduction, the better.  And the closer that person's relationship with the VC the better.  I've written about this before and described it as "borrowed credibility."  If you are being introduced by someone who has credibility with the VC, and you have credibility with the person making the introduction, you will have credibility with the VC. 

I learned about this in elementary school math class -- it is called the transitive property:

        if

    Continue reading "Want to get funded? Get an introduction!"

Success Breeds Success

Last week I received a fantastic email.  The email was from the CEO of one of my portfolio companies announcing the promotion of his administrative assistant.  After three years of doing great work for the CEO, this assistant was promoted into a role in the marketing department.  As much as the CEO regretted losing such a fantastic assistant, he was truly thrilled to see her progress in her career. 

The email reminded me of yet another reason I think that startups are so special.  Startups can provide amazing opportunities for career advancement.  In more established businesses, it is often hard to find room to take on additional responsibilities; and harder still to find space in the organization to progress with one's career.  Startups, on the other hand, often grow at such a pace that not only are employees able to take on additional responsibilities, they are required to.  As a result, smart, hard working individuals -- like the administrative assistant above -- will have doors open in front of them.  No need to break down doors in the land of the fast-growing startup.  Just walk on through.

True, this upward mobility in startups is also a bit of a double edged sword.  Startups are brutal meritocracies and employees who fail to meet the expectations of the organization can rather find themselves heading out the door.  But those who outperform are given ever more responsibility and the opportunity to march up the corporate ladder.

Often times in successful startups, the lions share of the glory goes to the founders and CEO.  And they certainly are deserving of praise.  But the most successful businesses are an amalgamation of wonderful people at all levels of the organization.  And as those businesses thrive, they provide opportunities for growth across the organization, which further energizes the company, spurring on more growth.  The end result is a culture of advancement and success that can not be beaten. 

As I got the note from my portfolio company CEO, It was just another reminder of what success looks like.  Success is about opportunity.  And success breeds success.  I could not be happier for the company.  But, most importantly, I could not be happier for such a wonderful member of the team.  Congratulations Jamie!

Ten Years of VC Blogging

Yesterday marked the 10th anniversary of Venture Capital blogging. How do I know? Because my first post on VentureBlog was on March 5, 2003 (a pithy little post entitled "I'm a VC. Who the hell are you?" -- no, it wasn't a precursors to my post on Narcissistic Personality Disorder, it was a post about starting your VC presentation with team bios) and before VentureBlog VCs pretty much kept mum. A lot has changed since 2003. Now there is barely a venture capital firm out there that doesn't have at least one blog or blogger. At a minimum, every VC firm has at least one nano-blogger who shares his or her wisdom in 140 characters or fewer.

It is hard to imagine that blogging was an innovation for the venture capital industry ten years ago. But it was. When I entered the venture business, no one would have thought of blogging. After all, how could you give away all your best VC secrets? The venture industry was a black box and the VCs liked it that way. But that's not how we saw it.

Truth be told, VentureBlog was the brain child of Andrew Anker. Andrew and I worked together at August Capital in the early 2000's, along with Naval Ravikant. We were all deeply ensconced in the emergence of social media. Andrew approached Naval and me and suggested that we start a VC blog. We discussed the fact that VCs rarely talk about what they do or how they do it. But we could not come up with a good reason why that was.  As far as we could tell, there weren't any real secrets to be had. So we decided to do the unthinkable and actually write about Venture Capital.

The beauty of being the first bloggers in an industry is that you have a ton to write about. The world was our oyster. We could talk about how best to pitch a VC. We could talk about those technologies that excited us. We could talk about the many conferences we attended. No matter what we wrote about, we were the first VCs to discuss it. And entrepreneurs were clamoring for information about venture capital. Not surprisingly, the value of this conversation we were having with entrepreneurs was not lost on others in the venture industry. And soon VC blogs started popping up everywhere we turned.

There is little question that this marketplace of ideas was incredibly valuable to entrepreneurs. What was once a black box became a glass box. Venture investors started writing about everything -- how they analyzed businesses, how they assessed teams, how they derived valuations. What's more, VCs started writing Continue reading "Ten Years of VC Blogging"

In Memory of Jody Sherman

I flew down to Santa Monica today to attend a memorial service in celebration of the life of Jody Sherman.  Along with a hundred and fifty of his closest friends, we shared stories of the Jody we remembered.  We celebrated his incredible spirit.  More than a few tears were shed, including a ton of my own.  And while many of us wondered aloud how such a positive force in all of our lives could possibly have taken his own, our speculation wasn't vulgar rumor mongering.  It was genuine astonishment.  The Jody we knew seemed like an unadulterated optimist.  The Jody we knew spent his every day bringing others joy.  The Jody we knew was a force for good.  But apparently the Jody we knew wasn't the whole Jody.  If only we had known.

Story after story today made clear why Jody was so special.  Jody was unendingly giving of himself to others.  And Jody was honest and direct, to a fault.  In combination these traits made him an amazing mentor.  Jody was the confidant of innumerable entrepreneurs.  They turned to him for help and could count on his un-judgmental but critical advice.  Jody didn't believe in complacency.  He was one of the hardest working guys you'd ever meet.  But there was no such thing as work for work's sake.  Jody lived his life with a purpose and taught entrepreneurs that same single-minded resolve.  Today's memorial service was full of recipients of Jody's tough love.  But no one focused on the toughness.  Everyone focused on the love.  That's what shined through. 

I will greatly miss Jody.  He was a wonderful friend to so many of us.  And all we could think today was "too soon. too soon."

Secondary Market Stupidity

I have heard of short term memory, but this borders on amnesia.  Were the buyers in this latest secondary transaction (Twitter at $10B) asleep during the Facebook IPO?  Did they miss the part where lots of well intentioned "investors" bought Facebook shares at $80B, $90B, $100B, only to see the shares trade down to a fraction of that value?  Did they somehow overlook the catastrophic secondary transactions that preceded the Groupon and Zynga IPOs?

Don't get me wrong.  This is not a commentary on Twitter as a company.  I'm a fan of Twitter.  I'm a big believer in Dick Costolo.  And I have seen the massive value of Twitter as a service.  But the buying behavior we have seen in the secondary markets makes no sense.  What do these buyers of secondary shares actually know about the business of Twitter?  Do they have any idea what the revenues are?  Do they have any idea what the cost structure is?  Do they know how much preferrence sits in front of the common stock they're buying?  Do they know how much debt the company has on its books?

Several yeas ago an investor called me to discuss Splunk.  He had the opportunity to buy a number of Splunk shares on the secondary market.  He asked me how the company was doing.  I shared some vague platitudes about what a fan of Splunk I was.  He then asked me what Splunks revenues were.  I told him that I would not reveal that information.  He asked me if Splunk intended to go public or sell to a strategic.  I assured him that either was possible and that I had no intention of sharing anything more about the company's strategy. He was undaunted.  He continued to ask me probing questions about the inner workings of the company.  I grew increasingly curt with him.

After asking me several more  questions about Splunk's business, I snapped at him.  I told him that the information he was seeking was confidential and therefor I would not share it.  I then told him that one of two things was going to happen.  Either he was going to acquire that information inappropriately, or he was going to make an uninformed investment decision.  In other words, if he bought the shares on the secondary market, he was either a jerk or a dope.*

Now I suppose there's a possibility that these latest secondary buyers had full access to Twitter's financials.  But I doubt it.  I suspect that they, like many of Continue reading "Secondary Market Stupidity"

Pick Your Angel Investors Wisely

A great deal has been written about angel investing in recent years. Angel investing has become the sport of choice for many successful entrepreneurs in Silicon Valley (e.g., Dave Morin, Chris Michel, Ariel Poler, etc.). What's more, it has spawned a whole new class of venture funds -- once called Super Angels, now called Micro VCs (e.g., First Round Capital, True Ventures, SoftTech VC, etc.). And now traditional venture investors (e.g., Greylock Capital, Andreessen Horowitz, CRV, etc.) have created programs to invest small amounts of money in large numbers of startups. Unfortunately, as seed investing moves from a boutique practice to more mass market, its value is diminished dramatically.

As a general matter, I think that more seed funding is a great thing. It is certainly beneficial -- often times essential -- for small companies Continue reading "Pick Your Angel Investors Wisely"

Pick Your Angel Investors Wisely

A great deal has been written about angel investing in recent years. Angel investing has become the sport of choice for many successful entrepreneurs in Silicon Valley (e.g., Dave Morin, Chris Michel, Ariel Poler, etc.). What's more, it has spawned a whole new class of venture funds -- once called Super Angels, now called Micro VCs (e.g., First Round Capital, True Ventures, SoftTech VC, etc.). And now traditional venture investors (e.g., Greylock Capital, Andreessen Horowitz, CRV, etc.) have created programs to invest small amounts of money in large numbers of startups. Unfortunately, as seed investing moves from a boutique practice to more mass market, its value is diminished dramatically.

As a general matter, I think that more seed funding is a great thing. It is certainly beneficial -- often times essential -- for small companies to raise a little bit of money to help validate an idea or market. But historically one of the most valuable things about angel investment was that it was accompanied by an angel. That angel wouldn't just invest in the company, he or she would serve as an indispensable advisor to the company as well. Not only did you get money to propel your business forward, you also got the help of someone who had run the startup gauntlet before you.

Regrettably, what once was a boutique business has in many instances become mass market. While there are some angels and Micro VCs can provide meaningful time and attention to their entrepreneurs, there are a number of folks out there who think that angel investing is a volume business. Needless to say, as the number of companies financed by any given investor grows, the amount of help that investor can give to each company diminishes proportionally. These investments become more about the placing of bets than they do about helping entrepreneurs succeed.

Sure, some of these stock pickers will make some good bets and even make some money. But it won't be any thanks to them. As a general matter, early stage entrepreneurs don't just need money, they need help and advice. And if help is no longer part of what you get from your seed investors, I believe the likely success of those investments will diminish.

Worse yet, taking seed investment from traditional venture investors can be counter-productive. It is impossible to imagine how a VC firm that is investing in dozens of early stage startups can find the time to be helpful while also working with their more traditional portfolio. You may get a little of their money and a little of their reputation, but you will get Continue reading "Pick Your Angel Investors Wisely"

The Value of Fundraising

In 2012 my partners and I raised our sixth fund, aptly named August VI.  August VI is a $550 Million fund, with $300 Million focused on early stage opportunities and $250 Million designated for what we call "Special Opportunities" (spinouts, take private transactions, later stage opportunities, etc.).  As we have done since 1995, we will continue to pursue companies in the information technology space broadly (software, hardware, communications, Web, etc.).  The fundraising behind us, we can now focus on finding great new companies in which to invest.  But as we start the new year, I want to take a minute to reflect on the fundraising process.

VCs don't like to talk about our own fundraising.  We like to pretend that the money magically appears in our bank accounts.  But that's not quite true.  Venture Capitalists are investors, and the vast majority of the money we invest is not our own.  Where does the money come from?  We go out and raise it -- from foundations and endowments and fund of funds (who raise it from other investors).

Our fundraising process is not so different from that of the entrepreneurs who pitch us.  We approach investors who can write big checks and we convince them that tens of millions of dollars invested today might turn into hundreds of millions of dollars tomorrow.  We convince them to invest in our funds despite the long odds.  We convince them to invest in our funds despite the innumerable alternatives they have.  We convince them to invest in us despite the countless other investors who are promising outsized returns on a daily basis.  And if we are successful in convincing these financiers to invest in our funds, we'll spend the next decade or more working hard to produce great returns.

I have always felt that the fundraising process is an important part of company building -- not just as a necessary evil, but as an intrinsically valuable exercise.  Having just raised my own "round of funding," I am more convinced than ever.  The fundraising process acts as a catalyst in a number of valuable ways that are worth exploring:

  • The fundraising process forces you to better define and defend your business strategy.  While an executive summary may allow you to speak in generalities, face to face fundraising requires specificity.  A defensible strategy is not something you can fake.  Potential investors will dig into your assumptions in ways that you may or may not have considered.  No matter what the outcome, the conversation is a valuable one.