The Exchanges

Q Is that a big thing for you? Is a big market a big green light for you? Does it have to be a big market opportunity, or do you ever go for a niche market?

A It really, in, in, in my fund, uh, it's really important, because we are investing, in any given fund, we're investing three or four hundred million dollars, and so, in order for an investment in that size fund to, to be, uh, successful and, and, and, uh, and meaningful, it has to actually have quite a big outcome, right? The most important and most Valuable investments that, that we have made in, you know, the Ebates or Zulily or Splunk were all multi-billion dollar outcomes. Um, you know, the, the companies ended up worth, worth, worth billions, and when that's the case, then own, if you still own 15 or 20 or 25% of the company, then your, your, your returns are in the hundreds of millions of dollars, which, as I say, is, is important because, You're investing hundreds of millions of dollars. So in order for my investors to, uh, to make money, they give me three hundred million dollars. The first thing I have to do is return three hundred million dollars to them, and then I have to actually make some more. And, uh, and it's very hard to do on a niche market. Uh, you really need to have markets that, uh, that, that span billion dollars of, of available opportunity, because, uh, In all likelihood, you're going to get small fractions of those markets, and it's incumbent upon you to then, uh, you know, eek, eek out your, your hundreds of millions of dollars in revenue to build bi…

AI assessment note: “it's really important, because we are investing, in any given fund”

Q Well, I actually have two questions for you from that, and that is, As a Stanford alumni, um, what is it about the ecosystem that Stanford generates that seems to continuously produce such amazing entrepreneurs building such revolutionary companies? Is there something about the DNA?

A Yeah, it's interesting. I mean, at this point, I think that it is, that there's, there are lots of examples, right? I mean, and that has been true for a long time. Obviously, Hewlett and Packard, uh, were in and around Stanford when they started HP, um, and since then, there have been a string of companies that have been started by Stanford people, uh, Yahoo and Google and, uh, and others, uh, And so, when, when students are sitting in Stanford, it's a model that they look at and say, this, this is something one could reasonably do. Now, the reality is that, of course, it's completely unreasonable to start a startup. They're extraordinarily hard. It's extraordinarily unlikely they succeed. There are all sorts of reasons why one would never leave college with a bunch of dead and having worked really hard, and then join a little company, or worse yet, start a little company. Um, But because we're surrounded here in the, in Silicon Valley by, you know, the Googles and Yahoos, eBay and, and, uh, and Twitter and Facebook, and they're all, you know, they're all within 30 miles of the campus, then I think there's lots of, there are lots of positive role models, and so people get excited about, uh, about the possibilities.

AI assessment note: “there are lots of positive role models, and so people get excited”

Q Is that a big thing for you? Is a big market a big green light for you? Does it have to be a big market opportunity, or do you ever go for a niche market?

A It really, in, in, in my fund, uh, it's really important, because we are investing, in any given fund, we're investing three or four hundred million dollars, and so, in order for an investment in that size fund to, to be, uh, successful and, and, and, uh, and meaningful, it has to actually have quite a big outcome, right? The most important and most Valuable investments that, that we have made in, you know, the Ebates or Zulily or Splunk were all multi-billion dollar outcomes. Um, you know, the, the companies ended up worth, worth, worth billions, and when that's the case, then own, if you still own 15 or 20 or 25% of the company, then your, your, your returns are in the hundreds of millions of dollars, which, as I say, is, is important because, You're investing hundreds of millions of dollars. So in order for my investors to, uh, to make money, they give me three hundred million dollars. The first thing I have to do is return three hundred million dollars to them, and then I have to actually make some more. And, uh, and it's very hard to do on a niche market. Uh, you really need to have markets that, uh, that, that span billion dollars of, of available opportunity, because, uh, In all likelihood, you're going to get small fractions of those markets, and it's incumbent upon you to then, uh, you know, eek, eek out your, your hundreds of millions of dollars in revenue to build bi…

AI assessment note: “it's very hard to do on a niche market”

Q Now, can you tell our listeners a little bit about your background and how you ended up becoming a VC?

A Yeah, it was, uh, it was not exactly a straight path. Uh, the closest I can say for my, you know, for the precursor to venture capital is that I grew up in a house, uh, that always had computers very early on. My father was one of, one of the early computer scientists in the Boston area. But I was kind of a musician, and, uh, you know, ultimately a lawyer. I got a degree in computer music, a degree in criminology, and ended up in law school. I was a litigator for a while, but eventually in the late nineties, I ended up back in Silicon Valley, um, where I had gone to college at Stanford, and, um, and in particular, I was out here because some of my classmates had started, uh, Yahoo!,

AI assessment note: “it was not exactly a straight path”

Q So do you think a potential founder can, can do anything to shift from being the instructed to the instructor? Do you think?

A I think it's a mindset, to tell you the truth. One of the reasons why I didn't, I wasn't terribly worried about that difference when I joined August Capital is that I sort of always did it anyway. Um, even when I was in a position where it wasn't my job to, A, make decisions, or B, act autonomously, you know, a young attorney is a, is not supposed to be an autonomous, uh, actor, uh, Pretty much in any capacity. You're supposed to work for some other partner. You're supposed to work for your clients. You're supposed to do a set of things, and yet, in my, in my practice of law, I had clients who relied upon me and appreciated my opinion, and I gave it. I had other clients who appreciated that I had good judgment and would, would allow me to go negotiate contracts on behalf of my clients, independent of their express, uh, Um, oversight as to business deals, etc. So You know, that certainly helped me go from being an attorney to being a, to being a venture capitalist. I think the same is true, ultimately, of, ah, of young business people who have to understand that, you know, no, they shouldn't be rogue and crazy and, and make decisions independent of the company and the management. On the other hand, you know, great, ah, great individuals in any given job exercise their own judgment. They behave in a way with, you know, with some, Autonomy. And good managers will give you, as they…

AI assessment note: “I think it's a mindset, to tell you the truth.”

Q on your blog, Venture Blog, um, your, you did a post, and your grandmother said, patience is a virtue. Um, and you first invested in Ebates 15 years ago, which leads me to question, how do you evaluate and predict whether a company is going to be a good investment or not going to be? Is there certain attributes that a good startup has that others don't that suggest so?

A Well, hopefully, because otherwise this job is really tough. Um, and actually the reality is that this job is really tough. There are some indicators. Um, when I, when I joined the venture business, my, my partner Dave Marquardt said that this is, that 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 Uh, likely successful, and then when you see the next business saying, oh, this one is like this entrepreneur or this business opportunity, and, um, and to a certain degree, that's true, and it also, and which makes it, um, easier in some respects when you've been in the business for 15 years, but on the other hand, it doesn't really help when some new business model comes along, when suddenly, you know, the The founders of Airbnb come in and say, we're going to let you rent out your couch and, or your spare room, and, um, and, uh, and, and you have to say, well, actually, it doesn't, doesn't reach any of those patterns, but it still may be transformative in some interesting way, etc. So, um, I think that you learn to have a good sense of people, and the sorts of people who are likely to be, um, You know, to, to drive, uh, companies forward, and take the sorts of risks, and, and work hard, and do those things that are required of, um, you know, of startups. And really, bein…

AI assessment note: “first and foremost, you have to find people who you think are, are well-suited”

Q Well, I actually have two questions for you from that, and that is, As a Stanford alumni, um, what is it about the ecosystem that Stanford generates that seems to continuously produce such amazing entrepreneurs building such revolutionary companies? Is there something about the DNA?

A Yeah, it's interesting. I mean, at this point, I think that it is, that there's, there are lots of examples, right? I mean, and that has been true for a long time. Obviously, Hewlett and Packard, uh, were in and around Stanford when they started HP, um, and since then, there have been a string of companies that have been started by Stanford people, uh, Yahoo and Google and, uh, and others, uh, And so, when, when students are sitting in Stanford, it's a model that they look at and say, this, this is something one could reasonably do. Now, the reality is that, of course, it's completely unreasonable to start a startup. They're extraordinarily hard. It's extraordinarily unlikely they succeed. There are all sorts of reasons why one would never leave college with a bunch of dead and having worked really hard, and then join a little company, or worse yet, start a little company. Um, But because we're surrounded here in the, in Silicon Valley by, you know, the Googles and Yahoos, eBay and, and, uh, and Twitter and Facebook, and they're all, you know, they're all within 30 miles of the campus, then I think there's lots of, there are lots of positive role models, and so people get excited about, uh, about the possibilities.

AI assessment note: “there are lots of positive role models, and so people get excited”

Q So do you think a potential founder can, can do anything to shift from being the instructed to the instructor? Do you think?

A I think it's a mindset, to tell you the truth. One of the reasons why I didn't, I wasn't terribly worried about that difference when I joined August Capital is that I sort of always did it anyway. Um, even when I was in a position where it wasn't my job to, A, make decisions, or B, act autonomously, you know, a young attorney is a, is not supposed to be an autonomous, uh, actor, uh, Pretty much in any capacity. You're supposed to work for some other partner. You're supposed to work for your clients. You're supposed to do a set of things, and yet, in my, in my practice of law, I had clients who relied upon me and appreciated my opinion, and I gave it. I had other clients who appreciated that I had good judgment and would, would allow me to go negotiate contracts on behalf of my clients, independent of their express, uh, Um, oversight as to business deals, etc. So You know, that certainly helped me go from being an attorney to being a, to being a venture capitalist. I think the same is true, ultimately, of, ah, of young business people who have to understand that, you know, no, they shouldn't be rogue and crazy and, and make decisions independent of the company and the management. On the other hand, you know, great, ah, great individuals in any given job exercise their own judgment. They behave in a way with, you know, with some, Autonomy. And good managers will give you, as they…

AI assessment note: “I think it's a mindset, to tell you the truth.”

Q Absolutely. And, and what would you say is the best piece of advice that someone's ever given you relating to business? Is there one that particularly resonates? Hmm.

A It's, you know, it's, in the business world, there's a whole lot of incremental, there's lots and lots of advice one gets over time. Um, I, I, I was early on, and, um, In the venture business, and I was talking to, uh, to our then CFO of the firm, and I made some, I made some comment. I said something like spending, you know, well, we'll spend four million dollars or whatever, and he said, David, you know what, you're not, you're not spending it, you're investing it, and you have to understand the difference. It's, this is not about, you are not out shopping. Right? The venture business is not about shopping. The venture business is about, is about making, um, you know, good, good choices, investing in, in people and in opportunities, and then trying to work alongside them to build value. And I, you know, it, oftentimes it's a mindset. It's a frame of reference that's so important. You know, when I started my blog and shortly after, uh, uh, as you mentioned, venture blog, and then this podcast I do, uh, With my partner Howard called VentureCast.

AI assessment note: “you're not spending it, you're investing it, and you have to understand the difference.”

Q on your blog, Venture Blog, um, your, you did a post, and your grandmother said, patience is a virtue. Um, and you first invested in Ebates 15 years ago, which leads me to question, how do you evaluate and predict whether a company is going to be a good investment or not going to be? Is there certain attributes that a good startup has that others don't that suggest so?

A Well, hopefully, because otherwise this job is really tough. Um, and actually the reality is that this job is really tough. There are some indicators. Um, when I, when I joined the venture business, my, my partner Dave Marquardt said that this is, that 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 Uh, likely successful, and then when you see the next business saying, oh, this one is like this entrepreneur or this business opportunity, and, um, and to a certain degree, that's true, and it also, and which makes it, um, easier in some respects when you've been in the business for 15 years, but on the other hand, it doesn't really help when some new business model comes along, when suddenly, you know, the The founders of Airbnb come in and say, we're going to let you rent out your couch and, or your spare room, and, um, and, uh, and, and you have to say, well, actually, it doesn't, doesn't reach any of those patterns, but it still may be transformative in some interesting way, etc. So, um, I think that you learn to have a good sense of people, and the sorts of people who are likely to be, um, You know, to, to drive, uh, companies forward, and take the sorts of risks, and, and work hard, and do those things that are required of, um, you know, of startups. And really, bein…

AI assessment note: “the venture job is one of pattern matching, that it's understanding a bunch of business patterns”