20 VC 004 David Hornik on the Magic of Stanford and Startups

Summary Notes


In the fourth episode of 20 minutes VC, host Harry Stebbings interviews seasoned venture capitalist David Hornik of August Capital. With a background in law and a pioneering role in venture blogging, Hornik shares insights from his two-decade tenure in the startup ecosystem. He discusses his unconventional journey to VC, the influence of Stanford's entrepreneurial environment, and the transition from attorney to investor. Hornik emphasizes the importance of big market opportunities for significant VC returns and the value of a "giving" mindset in business, as highlighted in Adam Grant's book "Give and Take." He also expresses skepticism about Peter Thiel's "20 under 20" program and predicts that tech giants like Google, Facebook, and Amazon are contenders for becoming trillion-dollar businesses, with Google currently in the best position.

Summary Notes

Introduction to David Hornik

  • David Hornik has an extensive career in the technology industry, spanning over 20 years.
  • Initially started in the legal profession before moving to August Capital in 2000.
  • Holds board affiliations with companies such as Blippi, Gravity, Stumbleupon, Splunk, and Rocket Lawyer.
  • Created the first venture capital blog, VentureBlog.
  • Teaches entrepreneurship and venture capital at Harvard Law School.

"Now, it's hard to find an introduction that fully justifies David's incredible career in the technology industry, but he's been in startup industry for 20 years, starting his career in the legal profession, and in 2000 he moved to August Capital."

The quote highlights David Hornik's impressive career trajectory from law to venture capital and his significant tenure in the startup industry.

David Hornik's Unconventional Path to Venture Capital

  • David grew up in a household with early exposure to computers, thanks to his father's career as a computer scientist.
  • Pursued interests in music and law, obtaining degrees in computer music and criminology before attending law school.
  • Worked as a litigator before moving back to Silicon Valley during the late '90s.
  • Became involved with startups, notably representing Yahoo and Evite in legal capacities.
  • Transitioned to venture capital after being recognized for his active participation in board meetings.

"Yeah, it was not exactly a straight path. [...] I was a litigator for a while, but eventually in the late ninety s, I ended up back in Silicon Valley where I had gone to college at Stanford, and in particular I was out here because some of my classmates had started Yahoo."

This quote describes the serendipitous connection between David's legal career and his eventual move into the venture capital space, facilitated by his return to Silicon Valley and his relationship with Yahoo's founders.

Stanford's Ecosystem and Entrepreneurial Success

  • Stanford University has a long history of alumni founding successful companies, such as HP, Yahoo, and Google.
  • The proximity to Silicon Valley and the presence of successful tech companies provide positive role models for students.
  • Despite the challenges and improbability of startup success, the environment fosters an entrepreneurial spirit.

"And since then there have been a string of companies that have been started by Stanford people, Yahoo and Google and others. And so when students are sitting in Stanford, it's a model that they look at and say, this is something one could reasonably do."

The quote emphasizes the influential nature of Stanford's environment and alumni success stories on current students, encouraging them to pursue entrepreneurial ventures.

  • David Hornik suggests that his legal background provided a unique perspective in venture capital.
  • His active voice in board meetings as an attorney was a precursor to his VC career.

"And once I started working with startups, I realized that this was the most exciting thing I could imagine [...] And after a while they sort of said, hey, have you ever thought about the venture business? I think in large part because I was such a loudmouth in board meetings."

This quote demonstrates how David's legal expertise and assertive participation in board meetings caught the attention of his future partners in venture capital, leading to his career shift.

  • Legal training often instills a conservative mindset focused on identifying problems rather than opportunities.
  • Lawyers are traditionally agents who execute tasks for others, lacking decision-making authority.
  • Transitioning from a lawyer to a venture capitalist requires a significant shift from executing instructions to making decisions autonomously.

"But largely, lawyers are trained to be very conservative, right? The training is to find all of the problems that one might run into and to try and worry about those things and not say to yourself, what are the possibilities? What are the opportunities?"

This quote highlights the conservative nature of legal training, emphasizing risk aversion over opportunity seeking, which can be counterproductive in the venture capital industry.

"There are really two kinds of people out there. There are agents, and there are principals, and agents are the folks like the lawyers, who are doing what other people tell them to do."

David Hornik differentiates between agents, who follow instructions, and principals, who make decisions, emphasizing the different roles and mindsets required in each position.

Mindset Shift for Founders

  • Potential founders need to adopt a mindset that transitions from following instructions to providing direction and making decisions.
  • Even within structured roles, individuals can exercise judgment and autonomy.
  • Good managers allow for autonomy and risk-taking within a framework that benefits the company.

"I think it's a mindset. To tell you the truth, one of the reasons why I wasn't terribly worried about that difference when I joined August capital is that I sort of always did it anyway, even when I was in a position where it wasn't my job to, a make decisions or b act autonomously."

David Hornik suggests that adopting a proactive and autonomous mindset is key, even in roles that traditionally do not require it, which helped him transition from law to venture capital.

The Venture Capitalist's Approach to Investment

  • Venture capitalists look for patterns among successful businesses and entrepreneurs to guide investment decisions.
  • Experience in the industry aids pattern recognition but does not guarantee success with novel business models.
  • Successful startup founders are characterized by their willingness to take risks, work hard, and push through challenges.

"Well, hopefully, because otherwise this job is really tough. And actually, the reality is that this job is really tough. There are some indicators."

David Hornik acknowledges the difficulty in predicting successful investments, suggesting that while there are indicators, venture capital remains a challenging field.

"The venture job is one of pattern matching, that it's understanding a bunch of business patterns and a bunch of patterns of the kinds of entrepreneurs who are likely successful."

David Hornik explains that venture capital involves recognizing patterns that have historically led to success, which can inform investment decisions.

Evaluating Startup Potential

  • Patience is a key virtue in venture capital, as demonstrated by the long-term investment in ebates.
  • Predicting a successful investment involves assessing the startup's team, their drive, and the potential to scale the business.
  • A large market opportunity is a significant factor in evaluating a startup's potential for success.

"You really have to spend a whole lot of time smashing through walls. So first and foremost, you have to find people who you think are well suited for that or excited about that, will want to build giant businesses."

David Hornik emphasizes the importance of a founder's determination and ability to overcome obstacles as critical attributes for a startup's success.

Market Size and Investment Strategy

  • David Hornik emphasizes the importance of big market opportunities for substantial investment funds.
  • Investments require large outcomes to be meaningful within the scale of a fund that invests hundreds of millions.
  • Success in niche markets is challenging due to limited available opportunities for generating high returns.
  • A venture capitalist's goal is to return the initial investment to their investors and then generate additional profit.
  • Significant returns are necessary to justify the large sums invested and to ensure investor satisfaction.

"And so in order for an investment in that size fund to be successful and meaningful, it has to actually have quite a big outcome, right?"

This quote highlights the necessity for large outcomes in venture capital investments due to the substantial amounts of money involved.

"You really need to have markets that span billion dollars of available opportunity, because in all likelihood, you're going to get small fractions of those markets."

David Hornik points out the need for targeting billion-dollar markets to ensure even a small market share can result in substantial revenue and company value.

Mindset in Venture Capital

  • David Hornik discusses the importance of perspective in the venture business, distinguishing between spending and investing.
  • The venture business is about making informed choices and supporting companies, not merely spending money.
  • The mindset shift from spending to investing is crucial for success in venture capital.
  • This mindset extends to content creation, such as blogging and podcasting, which should also serve a purpose and target audience.

"You're not spending it, you're investing it. And you have to understand the about you are not out shopping, right?"

This quote captures the essence of the venture capital mindset, which focuses on the strategic allocation of funds rather than indiscriminate spending.

"If it's not helpful to entrepreneurs, don't write it, don't say it in venturecast."

David Hornik underlines the importance of creating content with a specific audience in mind, ensuring it provides value to entrepreneurs.

The Role of Content in Venture Capital

  • David Hornik was a pioneer in venture capital blogging, creating the first blog of its kind.
  • The venture business was once considered a "black box," and the blog aimed to demystify it for entrepreneurs.
  • Identifying the target audience for content is crucial, and for David, that audience is entrepreneurs.
  • Content should be useful and provide value, whether it's educational or simply entertaining.

"When we started it, first of all, venture blog was the very first venture capital blog, right?"

David Hornik notes the innovative nature of his venture blog, being the first in the venture capital space.

"You need to always have some sort of target audience, whatever you're doing."

This quote stresses the importance of having a clear purpose and audience when creating content, ensuring it resonates and provides value.

Inspiration and Influence

  • David Hornik recommends the book "Give and Take" by Adam Grant, which discusses the characteristics of successful business people.
  • He acknowledges the book's mention of him in the first chapter, which discusses his investment in PayNearMe and entrepreneur Danny Shader.
  • The book's theme resonates with David's approach to business and venture capital.

"The book is called give and take. And it's by a professor named Adam Grant."

David Hornik suggests "Give and Take" as an inspirational read, reflecting on the traits of successful individuals in business.

"It's a little more complicated than, you know. One of the reasons I think Adam includes this particular story, and it's the story of my investment in a company called pay near me, and an investment in an amazing entrepreneur named Danny Shader."

This quote introduces the context for why David Hornik's story is featured in the book, highlighting his successful investment and collaboration with an entrepreneur, which aligns with the book's theme.

The Power of Being a "Nice Guy" in Business

  • David Hornik describes the initial part of his story as an attempt to be supportive and helpful to Danny, who was raising financing.
  • Despite being helpful, Danny initially chose to take someone else's investment.
  • The moral seems to be that being the nice guy is unwise, but the reality is more complex.
  • Danny reevaluates his decision and includes David in the investment, recognizing the value David could bring.
  • David and Danny have since worked together to build a successful business.
  • David's experience challenges the notion that being nice is incompatible with success in business.
  • The book David mentions, presumably by Adam Grant, argues that being a nice person and contributing to the ecosystem can be beneficial for business.
  • The message is that giving people the benefit of the doubt is not foolish.

"The presumed moral of the story is being the nice guy is stupid, right? That you're to allow all of this opportunity for a potential partner to then work with other people. But the reality is, and that it's more complicated."

This quote highlights the misconception that being nice in business can lead to missed opportunities, but David's experience shows that the situation is more nuanced.

"Danny himself, after making this decision, sort of thought maybe this isn't the best choice, and maybe I'm missing out on some value that David could provide, et cetera, and ultimately decided to figure out a way to make it possible for me to invest as well."

Danny's reconsideration exemplifies the realization that the value provided by a supportive partner like David can be significant, leading to a better outcome for both parties.

"This book is about sort of debunking the myth that you can't be a successful person just because you're a nice person, and that being helpful and trying to be part of this ecosystem and pay it forward is actually good for business."

David refers to the book's message, which advocates for kindness and helpfulness as strengths in business, rather than weaknesses.

The Success of a Bestselling Business Book

  • David Hornik confirms that the book mentioned earlier has been a bestseller.
  • The success of the book is significant because it spreads an important message about the positive role of being nice in business.

"For Adam is it has been a bestseller. It's been an amazing success in the business books. And that, I think, has been good news because I think the message is so important."

David acknowledges the book's success and its importance in changing perceptions about kindness in the business world.

Quick Fire Round Responses

On "Teals 20 under 20"

  • David Hornik expresses a strong negative opinion about the concept of "Teals 20 under 20."
  • He does not believe in skipping college, emphasizing the value of the college experience in meeting like-minded individuals.

"I think it's bullshit."

David's blunt response indicates his strong disagreement with the idea of young people skipping college for entrepreneurial pursuits.

"I am not a believer in skipping college. I think that it's one of the great places to meet amazing people and having an opportunity to find kindred spirits and amazing people in concentration is important."

David elaborates on his belief in the importance of the college experience for personal and professional development.

On the First Trillion Dollar Business

  • David suggests that tech giants like Amazon, Google, Facebook, and Apple are converging into similar businesses.
  • He believes Google is well-positioned, Facebook is aggressive and thoughtful, and Amazon excels at capturing consumers' spending.
  • David notes that Apple, despite being the largest, needs to broaden its worldview.

"You will see if there ever is one? But my sense is that there are a set of companies that are all basically creating the same business."

David is uncertain if there will be a trillion-dollar business but observes that major tech companies are evolving in similar directions.

"I think that Google is in the best position to do it today. I think that Facebook is the one that's being the most aggressive and thoughtful about how to continue to capture the minds of people."

David assesses the positions of Google and Facebook in the race to become a trillion-dollar business.

"I think that Amazon has done an amazing job of capturing the wallets of very. And what's interesting is I left out Apple, which is currently the biggest of the bunch."

David acknowledges Amazon's success in consumer spending and notes Apple's current standing, suggesting it needs to adapt its approach.

Conclusion of the Interview

  • David Hornik apologizes for swearing during the interview.
  • Harry Stebbings thanks David for participating and mentions how listeners can find resources related to the episode.
  • Harry encourages listeners to subscribe and leave a review for the podcast.

"I've enjoyed it and I apologize for swearing."

David apologizes for his language, indicating his awareness of the podcast's clean content standards.

"Now, for all the products and resources mentioned in today's episode by David, head on over to the twentyminutevc.com where you can find them all under episode four with David Hornig."

Harry directs listeners to the podcast's website for additional resources and mentions the episode number for reference.

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