Entrepreneurship Through the Lens of Venture Capital: Bill Coleman and David Hornik


[MUSIC] Stanford University.>>I think you’re going to
find this class a lot of fun. You’re going to meet some
really interesting people. Present company,
except for him, accept it.>>[LAUGH]
>>[LAUGH] But David and I were asked today to explain how has the
Valley changed since we first got here, what are the changes and disruptive
innovations in venture capital, and how will these changes play
out the next ten to 15 years. So, I have this model I call
the cycles of innovation model, I thought I’d just present to you today. To give you a little feel about
Silicon Valley and where we’ve come from where we’ve been, and
then where, where I think the, at least my models forecast we’re going to go, and
it is about disruptive innovations. I think you’ll have a lot more fun with
David, because he has a way of making everything into kind of a fun little
parable comic a Greek tragedy.>>[LAUGH] But even, but this is important
because I, because it’s lost often. I’m always telling the truth. People think I’m making jokes and therefore I’m saying things that,
oh those are funny but not true. It’s always the truth, it’s always funny,
but it’s always the truth. So don’t be, don’t confuse the two. Cause there’ll be moments where
you’re like oh my God that’s so, that’s insane and funny but
not true, it’s true. So I will let you know
if I’m making it up.>>Alright, so let me get started. First I want to try to
emphasize how important what, what’s going on right now is. Cause I believe it’s by far the biggest, by far the biggest inflection
point in human history. And you can see what I think by
the three inflection points are. Sloane did a study about
productivity increases. Because everything about better qualities
of life and not living in caves anymore is about productivity, being able to
produce more goods and services with a, a with less resources the a up until all the way a for the dawn of mankind
until the first industrial revolution. There outcome was a 30% in improvement in
productivity so that gave us cities and religions and armies and stuff like that. The two industrial revolutions gave us a
hundred percent increase in productivity, so we finally got a middle class, right. Their prediction for the next hundred years is a thousand
percent increase in productivity. So they, it, it’s hard to even fathom
what that means to to mankind. And right now,
I think this particular decade, and that’s what I’ll show you as I go
through his model, is the biggest, is the inflection point
of that inflection point. And it’s based on, you know,
what I call the cloud in the web. And when I talk about the cloud,
I’m talking about, about what, what will become the utility
that provides all the services and reaches out to everything
including the internet of things. When I’m talking about the web it’s
the things that are on the end of the cloud interacting in every way. Like us and all the other things. but, that’ll become a little more clear. So first, I love Peter Drecker. You know, several things about the about
my talk comes from Peter Rucker. But this particular saying I sort of
think you’ll see my last bullet here from Mark Twain you know history doesn’t
repeat itself but it sometimes rhymes. And that’s why I you know I
think having a model of how you think things are developing gives
you something measured against, I actually developed this model in 2000. And I updated every couple of years. But the, the first thing is, disruptive innovation is the basis for,
for, for massive change. For, for really moving things forward. And a disruptive innovation, according
to Drucker, is something that pro, that number one, it’s,
it’s represented by an order of magnitude improvement in the value proposition
of those who better consuming it. That order of magnitude’s really
important because you, you can go, I learned this in IT a long time ago. You can go to an IT shop,
and tell them, and demonstrate to them,
I can cut their costs by 50%. And they’re not going to buy anything. Because they’re not measured on that. They’re measured on keeping things going. But, if it’s a disruptive innovation that
the board and the, and the CEO are looking at every day that says you know,
if I don’t do something about this. My competition is going to
take market share from me. That’s what,
that’s what really motivates change. Also the thing about it is,
if it is an order of magnitude. change, and
it’s happening rapidly the, if, if we look back in the dis,
over the last 48 years, everyone of those disruptive changes,
the winner was a start up. So the winner little, are little companies like Microsoft and
Oracle and Intel and Cisco. But in their disruption, and I’ll show
you where the, what the disruptions are. So the interesting thing
about cycles of innovation is is theyre actually 30 years long. And one starts every 10 years. And following the IT this
set of IT innovations I’ve forecast there will be a total of six and
we’re in four and five right now. So the, last 30 years because
the first ten years is invention. And then some gets big enough that
all of the sudden there’s a boom and it’s going to to change the world. And a big explosion in investment,
but we haven’t yet figured out how to actually monetize that. We haven’t figured out how to make
it useful so there’s usually a bust. The second ten years we figured that out. We, I call it build out and consolidation, and then the third,
third ten years is commoditization. So, the first cycle, I’ll just use
the first cycle as an example. It was a semiconductor cycle
that began late 50s early 60s. when, when the semiconductor and
integrated circuit were, were invented. But it took most of that decade to get
to the point that all of a sudden we could do something with this. So at the late 60s, there were dozens of semiconductors
companies founded in this valley. And they built their foundries
in this val, valley. The problem was by 1970 Intel was hand
assembling memory, memory chips, so we’re not going to get a very
efficient market that way. So the build out meant we had
to make it efficient, right? Then, what that meant is we had to invent. Some expect from manufacture equipment, we had to invent equipment to actually
apply these things CAD, CAM and what something its called
incircuit emulators of the time. In it we had to be able to go out and
train the column’s radio engineer how to throw waste tubes and use transistors so
that, an ordinary person can do it. That’s the first part of what
happens during the build out. The second part of what happens is the
industry consolidates, because they don’t, nobody needs dozens of startup
companies doing semiconductors. Especially, if you’re Collins Radio and
you’re going to bet your $500 million business on
a startup here that may not exist. So by the end of that decade, we’re down to three really good new start,
new companies in that business. There are a lot of others
doing specialty but there are three that were becoming,
you know, pretty darn big. National Semi Conductor, Intel,
and Texas Instruments that, the build out phase is important because
that’s where the value’s created. If we think back to the boom
period in the 90s, yes, the internet was being invented, but
the build out was going on for the cy, cycle before it,
which was networking itself. And that’s where all the money was made. And that’s what really
created the value then. It wasn’t until the decade of
2000 to 2010 That the internet reached its first build out phase,
which I’ll show you in a few minutes. And that’s because wasn’t, until 2002 we,
we didn’t, nobody, nobody’s deploying WiFi and nobody’s deploying 3G and
you remember that old movie. You know I forget what it was called
where it was all about AOL and all, which had list into the telephone coupler,
no body bought stuff online then. But when they built, when the wired, when the broadband when
out to build that out it went crazy. So the second one is really important. Commoditization is the easy one. So, between 70 and 80 we had build
out of semiconductors, 80 and 90 was commoditization
several things happened. One is,
chips were really being mass produced. And it used to be the rule, you made
all your money in the first six months. So you wanted to get there first. because you could sell your chip
at $100 the first six months. Then you dropped it to ten,
then you dropped it to one. And so
it was all about how fast you could move. It became mass production. And then we also invented foundries, so you didn’t even have to build your own,
your your own foundries anymore. Things just went crazy. So these things keep repeating themselves. [COUGH] There, I contend there are three, there are six cycles, I’ll show you
little more about them in a minute. well, I can talk about them right now. Semiconductor was the first one. In the next decade we began
to build computers on it, so that was the second one. And then invented the mini computers and
things like that. In the third cycle we began to build,
to build, to invent the network as we know it today. Not the proprietary ones like S&A and
all those that existed before that. Then we, then in 1990 we began to invent,
well not 90, 91-92 when the world wide web came about, the internet as we know it. the, now the internet is
actually composed of I, I contend three value propositions
that will constitute the three. The three cycles and innovation for it. The first one was Free Reach. That’s just what it sounds like. Anybody could reach anybody or any combination of anybody
from the edges for free. And that’s, you know the first time
that was actually able to happen. That’s what turned into
the social networking. And all the stuff you
see that’s really being, making big bucks today on the IPO market. Delayed several years because of the,
the downturn that happened. But right now, the mo, the monetization
of free reach is really happening. And we’re in the last decade of that,
of those thirty years. The the second one, though, is,
is the really interesting one. And that, and that, this is what is
really going to change the world. And that is what I call
straight through processing. But what it means is that
we’re now figuring out how to mash up things that are going on, and
how to get the big data analytics so that we can actually
change business models. We can change the,
we can monetize that social stuff. And ultimately, that’s going to change
the whole way commerce is done. Commerce historically has been
what we call the push model which is capitalism I spent
a huge amount of money, capital. To build factories and then to create
inventories, then to build products and the to push them out on a long
supply chain and then you get to buy any color you want as long as it’s
black as Ford, as Ford said, right? The, the model that, that this is going
to is everything is just the opposite. It’s a pull model. It’s, the better you can
serve the individual in a, in the situation they’re in right then,
with a unique product or service, the more business
you’re going to do. And that’s going to take decades to
get there, but we, we can’t, we. The ability to actually connect
those things in real time is what’s being built out now. Now, this valley, one of the major
changes that has happened, you know, my 40 years in this valley, every place in the world has said they’re
going to be the next Silicone Valley. And we finally have
the next Silicone Valley. It happens to be San Francisco. Yup. [LAUGH] I’m, well I’m not kidding, you know,
there have been more companies founded in this decade than in any previous
comparable period in this valley. Must’ve been more companies founded
in San Francisco than here. There’s a difference. This is mostly still the high tech
infrastructure, data, blah, blah, blah network, you know, hardware. That’s mostly, you know,
the Zynga, Airbedabe, Ubers, the, the stuff that’s
really leveraging the web. You know, and it’s the whole
next generation of things that are happening but
they’re synergistic and the, and the, this valley is now just extended,
it’s just a lot bigger. So that’s what we’re, that’s the phase
we’re in, on that right now. The final one is what I call transparency
and it’s way beyond big data. It’s, it’s how do you take all this
massive amount of data that’s going to increase dramatically and in real time
in context to what, what you’re doing. have, be able to,
be able to create an ontology. Have an ontology created for
you in context of what you are doing to understat the information that
can be make it actionable. It sound a little technical. But the issue is massive amounts of data, you want to be able to, to actively,
or interact on it in real time. And current database structures do not,
current database structures pre-suppose how you’re
going to query that information. So you need more of an associative model. And it’ll take,
we’re just inventing that kind of thing. The first phase is just going to be
big data analytics, which is going to make huge amounts of money, but it’s going
to go a lot farther than that, I contend. So, there, we’re basically,
right now, at this point. This decade is when the cloud
is being built out, and I, I include the internet of things as
part of the extension of the cloud. And this decade is more figuring out how
to really monetize all the things that are going on out there. So, lots of business models
are going to be created in, in this dec,
decade like we’ve never seen before. In the next decade it’s,
those are going to be commoditized and their rate of acceleration
changes going to really increase. So I talked about disrupted innovation,
I talked, I have actually talked about this slide so
I don’t want you to have to look at this. We’ll, we’ll put this up so
you can take it down. You don’t have to see everything
that’s on it but that, this is just a diagram layout
of how those cycles proceed. The good I’ve got seven minutes
left that’s about what I have left. So you can see how we’ve gone
all the way through here. Right now we’re sitting in this decade,
this decade. And the real key is what’s
happening right here. were, yes were inventing stuff for
transparency for the next decade. And you know we’re basically the, the market is going to begin to
solidify as far as free reach goes. I mean, the thing about free reach and
the social side. Is, they’re not a they’re not
a standard differentiate, differentiation, nordal,
normalized curve kind of marketplace. They’re power law distribution. So, the biggest player in a free reach,
when everybody can be reached in the world at the same cost, the
biggest player in these kind of markets. Has such a network effect that
the next biggest player is just trivial next to them. So that’s what’s happened to Facebook and
that’s what’s happened to Google and it will happen you know across those
spaces and then they’ll continue to morph. But the but those, those kind of inventions we’re going to
see fewer and fewer of em that are so horizontal that, they can create
big massive global markets. A lot of what’s going to happen out of
leveraging these things is going to me more in, in vertical markets,
Leveraging big data analytics to to change the buying
at the whole buying relationship. So, we’ll put this online,
you can have it. Matter of fact, I’ll, I’ll, there’s a 21
page paper that accompanies this that gives the, how the,
all the things that happened. But the interesting part here is, so, the first three cycles were
the invention of the data center, is really what it was, you know, the
semi-concurrent network and and computer. The cloud actually is the end of
the disruptive innovations for IT, ICT, that’s IT and communication. And now how can I possibly say that? Well, think of a world in which everything
is running on on on a utility internet. It’s all basically horizontal, IP,
base services that you are consuming. And you are consuming them just
based on an open mass market. the, there’s no differentiation
at the infrastructure as a service level between
who’s providing what. So what that evolves into after this
utility is really invented this built out this quarter. Next quarter in [UNKNOWN] every telephone
company in the world, every cable company in the world, every ISP company in the
world are selling the exact same thing. It’s just the same thing. Doesn’t work for a telephone caller, or a TV show or a nuclear bomb simulation or
running your ERP. It’s just a bunch of
services that you buy. So there’s going to be massive
consolidation across that. So what could possibly disrupt that? No matter what you do underneath that, all it’s going to do is make it better,
faster, cheaper. It’s not going to cause
you to throw it out. At least not in lifetimes that I,
that I can envision. So there’s no disruptive innovation for
in ITC after that. There’ll be lots of you know it’s,
there’ll be lots of changes, but will, we’re basically, even if. We invented, quantum computing and
made it cheap for everybody. All it would do would be make it faster,
and make it more efficient. It wouldn’t change the model. So what’s left is the destructive
innovation going forward, after the cloud is really all
having to do with the web. It’s about how we live and
what this does to our life. so, they ask what you know, what I think
the, the venture trends are, you know, going back a few years,
virtualization has gone crazy. Everything’s being vir, virtualized. Predictive analytics and
matching that with with big data. The modernization of social I
think is the biggest thing of all. I mean, that is the whole,
whole next big wave, software defined everything data
centers are infrastructure investment. This is just a slide I, we put together
for things that we’re doing in our fund. 3D printing, that’s going to change
the concept of manufacturing and just in time and it’s also going to make
this whole thing of the pull economy. I want it, I want it now, and
I want it the way I want it. They’re very, very feasible. Trusted networks, the biggest issue we’re
going to have going into the implement of things is identity because,
unless we can solve the identity problem, in which you can have an, you can have
an anonymous identity, but you can never, you can never pose to be someone else. Meaning, that you don’t have to pass your personal identifying
information but the authenticator. The authenticating service ends up
being something part of that’s part of the internet that can
authenticate you using, using known authorities, like okay,
I, I, you know, I want to know it’s Phil Coleman, I’ve got his driver’s,
we’ve got access to his driver’s license. I can’t look at it, but I can ask that
that fingerprint and picture be compared with the person trying to, in real time,
so I can get at least two things there. You can do dozens of those kind of things
in real time with almost no interaction. Once you, we’ve done that you eliminate
almost all possibility of fraud or cyber crime but
more than that you make it possible for us to actually live on this world. Think of the internet as things. If everything in this room was
on the internet of things, how would it know how to
authenticate you’re you? Are you going to register
yourself in an LDAT for every device you’re ever going
to run into in your life? Security can’t work that way. We have to solve the identity problem. And by the way, every,
people are on top of once, but once that happens,
things are going to really accelerate. And of course the [UNKNOWN] is things. So, my last slide is, by 2040,
I actually believe that firs that we will be directly inter, you know,
directly interfacing with the internet. So, that’s going to change a lot. I call that web presence
where your virtual lives and your physical lives meet. You guys are going to live through that. I believe pull economy will
be the basis of everything. You know, we’ll go from mass
marketing to micro marketing, mass production to micro production. It, it will make things dramatically more
capital efficient, therefore the velocity of capital can increase a lot, therefore
productivity will increase even faster. Identity will be solved. And I really think that this whole idea of
your identity is something you control. It also is something you,
you can assign, tasks to. And it can be a proxy for
you in this internet world. So we’re, we’re going to live in
a really really interesting time. And, I’m jealous, because, you guys
are going to get to all go get, and gals. I’m sorry, in the generics and
it’s how we’re going to get to invent it, and Stanford’s the best
place in the world to do it. So on my chart, there you’ll notice that as it ended
there were some blank spaces at the top. And I think that we’re starting
just very in a trivial, trivial way to think about that based
on 3D printing, but the reality is. You know, at the molecular level when
nano meets bio, there’s no difference. And when we can manipulate that,
at that level, that’s what’s, you know, I I think there’s going to be three to
six, or maybe eight sets of disruptive innovations that are going to change
our relationship with what we are, and who we do, and this planet,
and resources and. It’s going to be interesting time, so. Yes sir
>>I noticed on that slide you didn’t have like, wearables or like, pin point stuff,
just curious if you don’t think those the internet of things>>So you consider those
two things the same, right?>>Yeah, yeah, just things become
>>Right your day to day life. You know.>>Right. Now what about [UNKNOWN] currency’s.>>Yeah, I, you know I actually
think that that the crypto solution is not, not a bad thing solution. the, the problems with it relate to mostly relate to what happens in bad,
when bad things happen. What’s your fall back,
what’s your safety net. You know that’s what, you know we’ve spent
600 or some years since the Dutch building up a banking system where we figured out
how to have some degrees of protection in fallbacks in you know, federal banks and
things like that, but hm. But I think it’s going to, it’s I, I,
I, I don’t think Bit Coin is the answer. I think it’s I think it’s
leading us down a correct path. [NOISE] Yes sir.>>Well first, thank you for hosting us. My question is about is innovation cycles.>>Huh.
huh.>>You show us this table with. Always having the same name,
you know, ten years.>>It’s just a, it’s,
it’s just an approximate.>>Yeah, on average. But, what, what do you think like
the disruption that will enable us to actually shorten those cycles even more. Like I know, five, three, two years. Because during the last era,
I don’t know, like 30 years, and the way venture capital is, have been
running their businesses the same, so maybe you can actually
disrupt your own industry.>>well, so I have, I’ve been asked
that question a number of times. So I have two opposing answers, because
I haven’t gotten it straight in my mind. The first a, the first ans,
answer is you know, it would seem obvious that
at some point the, these, the timing could be cut right and, and
things would move faster and faster. But on the, but the other side of it,
I actually think there is something having to do with human nature and ability
to evolve and ability to adjust to. There’s also something that, you know,
30 years is about the length of a normal career, and,
I was asked to do a study with, for the CTO, to be part of a study for the CTO
of the Department of Defense after. The second Iraq war,
the hot part of it ended and to what, define what was the difference between
that Iraq, Iraq war one and Iraq war two. And we came out with
the number one difference was, the generals had grown up with computers. I mean they were willing to trust,
to have the planes and everything predone in the systems
in Florida acquire targets that were put into the Abrams tanks
to shoot down the, to shoot at the, you know, the armored vehicle
over the hill in real time. So, I don’t know, I, I, there is some
part of it that has to do with how long it takes to actually get technologies
moved forward and get them adopted and you know build the figure out
what the business models are and people accept the business models and. Alright, now, now,
now the prime time comes. [LAUGH]>>So, Is a bubble or
a crash kind of part of your cycle? And I, I wonder if you think that
we are closing to the bubble at this moment, right now. I’m just curious.>>I, I think that a,
a bubble is part of my model. and, some crashes are bigger,
and some are smaller. But I don’t think we’re anywhere near,
the bubble yet. I think the, the part of the market that’s
overheated is the monetization of the, of free reach with all, everybody
that’s coming to the stock market now. Right? And some of the monetization are cloud, but mostly it’s,
it’s the big social stocks and all. They meet,
they’re not driving the economy. They’re not their ha-, The the investment, the venture folks
have been investing in them for a long, long time. I personally believe, if we’re going to
have a bubble and a real bubble and a bust, it’s going to happen. In five to six or seven years. Because I think it’s going to be on the over-hyping of the this
whole move to a pull economy. We’re going to, well, I, I predict we’re
going to go back to something akin to everybody talking about bricks and
mortar and. You know, manufacturing,
that old style, that you know, and then of course, it won’t be true,
because it won’t have gone far enough to, to really have in, will have invented it,
will be building it out, but now applying it to the next generation. But okay, now you’re going to have fun.>>Well, you’ve set me up to suck. [LAUGH]
>>I, that’s, that. That’s all I’m saying. [SOUND] Plus my topic is so
extraordinarily exciting. The evolution of the venture
capital industry. Which is scintillating. And what, and
you want me to do this in ten? Who is, what, who is in charge here? It’s not me.
10, 20, whatever. 15?>>Once you’re done [CROSSTALK].>>Let’s see how, let’s see, let’s
see what it, let’s see what it takes. You guys can all you know, if you’re tired
of me just put your finger on your nose. [LAUGH] Eventually when there’s
a consensus, I’ll just stop. So I’m Dan Hornik. I’ve been now in the venture capital
industry for almost 15 years. I started out, I’ll give you the very short version
which is I grew up in New Hampshire. My dad was a computer,
early computer scientist. I came to Standford. I studied computer music. It qualified me to do nothing. [LAUGH] I went to I went and
got a masters degree in criminology. I’m not quite sure what that qualified
me to do, but I hope I never do it. I then went to law school, and
that and got a law degree, which qualified me to be an attorney. I did do that for a brief period of time. I was a litigator here in New York for
a period of time. And then came out to Silicon Valley
to start representing start-ups. I didn’t know what start-ups were at
the time but had the good fortune of having been in the same freshman dorm as
Jerry Yang and the founders of Yahoo! And they seem to be having a good time,
and and were on to something pretty exciting and so I came
out and started representing start ups. And, and within about 3 seconds of
starting to represent start ups i realized that start ups are about
the most exciting thing on the planet, That, that you know,
Silicon Valley is a place where you create these businesses that
are out of whole cloth. Based on the ideas and the, and
just the, the guts and, and determination of really
smart engaged people. And it’s hard to imagine a better, you
know, a better thing to, to be part of. Right? I mean, I thought I was going to be a, a, I thought I was going to
be an entertainment lawyer. I liked music. I liked movies. I thought I was going to be
an entertainment attorney and that I. Got I talked to people who were doing
that job and realized that it was, wow the end product was exciting, pretty
much everything leading up to it sucked. And while the venture business and the startup world there are many,
many, many minutes of sucking. Many minutes of, you know,
this isn’t going to work or how am I going to make it work or
I am going to run out of money or I, or someone just quit who I really
needed or I thought I was going to hire the right person and they were
refused to join us or, or worse yet you know, I thought I was going to fund an
exciting company and then they, and then I didn’t get to fund them and then they
became massive or why did I never see it? I mean, there are all sorts of reasons. Why the venture business is
extraordinarily hard and own, and only as a by-product of how hard
it is to start companies, right? I often say that venture capital is, the
venture capital is a derivative business. Right? We don’t do anything. We just, we back great entrepreneurs. We help them in lots of ways
if we do our job right. But in the end, entrepreneurs are the ones
who are building all the value and if we’re lucky we are assisting
the right set of, set of entrepreneurs. And if they’re successful, we are successful as,
as a byproduct of their success. Which is an amazing position to be in, but when you think about it,
it’s, it’s both good and bad, it means that there are lots of
people working really hard on your behalf. But there also is very little control,
right, I mean you people talk about this. Oh, you know, don’t, VCs are trying
to control your business and VCs create these, this stock that has
all these controls and management. It’s all baloney. Like, we do, yeah, I have preferred
stock and it has things like, you can’t sell your company unless I
vote to agree to sell your company. But when you think about it, if there’s
a team of people who built a company, and they would like to sell the business,
and I say no. Then what happens? I go run the business? Who does, like what, what is the alternative, to saying
yes to I want to sell the business? Or in the alternative,
you people should sell the business. No, we don’t want to. What? I’m going to go run around and find a buyer? It’s just so, so
it turns out as a general matter startups are driven by the entrepreneurs
who run them and own them and manage them. The venture investors, all right, are,
are supporting cast of characters. We are here to help you,
by giving you capital. To, to help grow and
expand and, and, and and come build a business at the speed and, and
with the agility that you hope to have. And in the end be helpful in lots of ways, but you’re going to build your business
and you’re going to determine its fate. When I was asked to join August Capital,
I had been an attorney, I’m with, and my partner said hey, David, we’d
like you to join us and be an investor. They said, you know what,
lawyers suck at this job and you will likely fail, which I thought
was a nice vote of confidence. [LAUGH] So welcome, you know? But I said oh, you know,
okay I’m excited about this business, I had seen it from the side of representing
companies and representing VCs. But hadn’t been a venture investor, I got
here and I, I called, up my mother and I said hey mom, you know,
guess what, I’m a VC now. You know, calling your Jewish mother and
telling her you’re, you’re leaving the law having just graduated from law school and
passed the bar. It’s like, you know,
are you going to be a doctor? [LAUGH] No mom, sorry, bad news. Not going to be a doctor,
I’m going to be a venture capitalist. She’s like yeah, well, and
what is that, you know, pray tell? [LAUGH]. And so I described for her what a VC is,
this, I do this, I do that, and and I remember my mother saying she
would, I’m sure she now would deny it. She’ll see this video because she
finds all videos that I’m in. She like, she must have a Google alert so
she’ll see, mom, you know, I swear you said this. She said to me, I can’t believe it, you talked your way into a job
that only involves talking. [LAUGH] And then she said like, oh,
that’s the perfect job for you. Which I think is fair. [LAUGH] anyway, so, so you know I
came into the venture business not really understanding
the structure of the business. Or what my job entails or
what was, you know, what was expected of me, all these things. It was, you know, my training when I got
here was, hey David, you’re here, great. Our partner meeting’s at noon. That was the full training for
the venture business that I received. I was like, okay. So I’m just going to give
you like two seconds on the structure of venture capital,
maybe you guys know it, maybe you don’t. And then that’ll set us up for
understanding, okay how do company, you know, how have companies
raised money traditionally and then what has shifted recently
in those sources of capital. And I’ll try and highlight as, as I go
along that we’re going to see people you know, hear from people who are in
each aspect of this business and how with and, and we may,
be able to poke at. You know, why is this different, and why have you chosen to be different, and
why do you think that’s a better path? You know, because what I, what I will say is August Capital is
a very traditional series a investor. There are six partners, we buy in large
invest in your classic series a companies. We invest and, you know, early and
we hope that the companies get bigger and we’ve had a, a lucky and
great history of that working. The partners at August were the earliest
investors in everything from Microsoft, Sun, Compact, Intuit, to more recently
things like Splunk and Zulily. So, you know, long history of touching
interesting businesses early, and then hoping that they get very big. But we watched these shifts in the
industry, and they definitely affect us. And then we have these strategy meetings,
where we sit around and we say, so, so-and-so’s doing this. Should we do that? And we have a long conversation,
and then we go, nah. [LAUGH] You know, and I mean oh,
so-and-so’s doing this? Maybe we should try that. And we go, no, we’re not going to do that. We, we’re going to do what we do. So I’m going to describe those things now. I’ve already wasted all of my ten minutes. [LAUGH] And then, you know,
as we go through this semester, you’ll get to see these things and you’ll
see it and let people explain to you. Like, why is David a dope? Like, why have you chosen to do this thing
while David has continued to be your, you know, to, to cling to the historical
model of the venture capital. So, so how does venture work, right? So venture capitalists are basically
are part of a partnership, we manage a pool of money, and
then we invest in companies, and we, and when they get bigger we hope to then sell
the capital we have and, and, and, or sell the equity we have and distribute it. So, it’s a, it’s a pretty simple model. We, we form a partnership and
we raise money from from what we call LPs, limited partners. So they’re,
it’s literally a partnership and the limited partner is, the limitation
they have is they give us money. [LAUGH] Then they, that’s more or
less what they get to do. And then we, the GPs, the general
partners then get to do everything else. And so what you’ll do is you’ll go out and say, I’m going to raise
a $500 million fund, right? And, and so we’ll go and basically you, you, you fund
raise the same way entrepreneurs do. In fact,
I have a blog called Venture Blog. And I wrote about this after
we raised our last fund. That I think that it’s an incredible,
incredibly valuable process for everybody to fundraise at some point. because you have to explain yourself. You have to say, how are we different,
why is this the right management team, why why does it make sense for
you to give us $500 million? So we go out, we talk to a bunch of limited partners,
and we say here’s what we’re going to do. And we’re going to take your $500 million,
we’re going to invest it in companies, and we’re going to turn it into
more than $500 million. Which we’re going to give back to you. And it’s that simple. Now it turns out they don’t
just send you $500 million. They, you say, okay, and we’re going to start by sending us
10% of what you said you’d give us. So if you, if you’re going to invest
50 million, we’ll say give us the five, we’ll call you later for the rest. And over the course of a ten year period,
you basically call the, the, the, the full $500 million,
which you invest in companies. So the, the, the typical limited
partners are folks like foundations or fund to funds, which are,
you know, individuals who, like me, are investing other people’s money, but
they’re investing in venture funds. So you’ll meet Chris Douvos, who is a fund
to funds manager in the, in the lp world. He has a blog called Super LP. [LAUGH] You can give him
a hard time about that. Like, ooh, who made you Super LP? [LAUGH] But I guess when you name your blog,
you get to name it anything you want. I was Venture Blog, and he was Super LP. So, I’m, I’m just saying,
Douvos [LAUGH] so. But he’s the only guy, actually, in the,
the LP community who was willing to talk about, write about
the limited partner world, right? So we have, you know,
raised money for folks like Yale and the Ford Foundation and the McArthur Foundation and and sometimes
wealthy individuals and sometimes and these funds of funds and and institutions
and so you go out you say well great. And if you’re lucky, and
there was a period of time from about 2008 until relatively recently where it
was near impossible to raise a fund. Because venture, if you look, there has
been a recent report that came out that says that the returns on venture capital
in the last ten years, now it’s probably shifted, so, but two years ago, the ten
year, the kind of 2000 to 2010, the return on a dollar in the venture industry as
a whole was negative so you made less than a dollar on that dollar invested so why
would you invest in the venture industry. It’s mystifying, on the other hand if you
look, the returns from the top lets say 10% of the venture funds basically made up
all of the good returns in the industry. The bought in 50% lost a huge amount
more than 10 cents on the dollar again raising the question like how could
those folks have ever raised a fund, but it was very difficult to raise funds. But if you have the good fortune and,
of being a, being in, in that top decile,
then you raise this $500 million fund. And and the way you get paid is two ways. One, you have this thing
called the management fee and the management fee is a percentage
of the dollars that you’re managing. So, typically 2%, so if you raised
a $500 million fund then you’d get $10 million as a management
fee to manage that money. Now, it turns out that’s annual. Shouldn’t be saying this on video,
but turns out that’s annual. So you get $10 million a year, to manage your $500 million fund
over a ten year period of time. Now, it may get smaller at the end or
whatever, but essentially it’s lots and lots of dollars to go manage,
manage those funds. And then you get this thing
called the carry, and the carry is either
the thing you never see. Because you never actually make any money,
and lots of funds never had any carry checks or the thing
that makes you phenomenally wealthy. If you were in the What’s App deal,
Sequoia was the only investor. They owned a huge amount of that
company then you get this thing called the carry which is somewhere
between 20 and 30% of the total gain. So, if you invest $10 million and it turns into a billion, a billion,
$10 million because it’s easier math. Then you get 20% of $1 billion, so $200 million goes to the partners of the
firm, $800 million goes to the investors. Now you would say, why would in the world would the investors
let the partners make so much money? It’s cause they made 800 million bucks,
so how mad could you be? Like, I can’t believe you made 200,
you go yeah but you made 800. Oh, okay, well, nevermind. Go do that again, and, and we’ll be happy. And so that’s the structure. As you know we, we buy equi,
we buy, equity in companies at a, at a given price. We hope the companies get bigger and
more interesting. At some point, we hope there’s liquidity. That’s, that’s either the sale
of the company or, or an IPO. Or recently, occasionally,
someone else buys the shares from you and a secondary transaction. Which is a very strange thing like that, you might get liquid, because someone
else is willing to take on the risk. Is it my job to take on the risk? Yes it is. Why would someone else,
why would I sell to someone else. If I’m selling, they’re idiots,
because I think that I’m ready to, you know, get out. And when they a ton of money,
I’m an idiot, because it’s like oh, how did they make a ton of money? Why’d you sell? You’re an idiot. So, it’s a complicated relationship. So, all right, so how many minutes
have I actually already gone on? I have another ten? Can I have ten more minutes? Anyone? Voting? All right, so. So, the venture industry is historically
has been a very simple thing. Which is,
that there have been angel investors, who have gotten companies started. Angel investors historically, have
literally been rich people who have said, oh, you need some capital to get started. Here’s $100,000. You know, go, go for it. The the Subway sandwiches is actually,
the company is called Doctors and Dentists Inc or something,
or Dentists and Doctors Inc. because that’s where the money came from. That was the old angel investing model,
is you get money from doctors and dentists who have extra money and
say all right I’ll try it. And then there were, and
there emerged an industry of traditional early stage investment firms,
here on Sand Hill Road. actually, the very first was in Boston
invested in Digital Equipment Corporation, where my dad would, my dad was a,
a, software engineer. But but they, it emerged here, and, and those early investments were amazing
because you could basically, for a very small number of dollars,
buy a very large percentage of companies. And we weren’t talking about companies
raising tens of millions of dollars. They were raising millions of
dollars to try and build businesses. And if they were lucky, those
businesses turned into lots of money. My partner, Dave Marcore was the only
private investor in Microsoft. By the time he funded Microsoft,
it was profitable. He put in a relatively small
number of millions of dollars, and then obviously it went public and
became Microsoft. So it was good times back then, there wasn’t a huge amount of competition,
it was a strange business. Nobody aspired to be a venture capitalist. If you ever had said to your mother like,
you know, when I grow up, I want to be a venture capitalist. First of all, would’ve been like,
what in the world is that, and then when you described it,
your mother would’ve said, no. What else, what else have you got? Dentist, doctor, try that. So that was the, that was the history and
there’s been an, very interesting evolution that we’ll see
in this class of that industry which is to say that the angel industry has shifted
dramatically, the series a world, the, you know, classic venture investors
have shifted dramatically, and the late stage world has
shifted dramatically. And each one, through the impetus
of particular individuals and funds that have happened over time. So so quickly, you know,
the angel investing as I said, started out as wealthy individuals,
that was then angel clubs. There are still angel organizations
like New York City Angels. Silicon Valley angels where
a bunch of wealthy people get together they hear a pitch, they decide
collectively to put money in and then they get, you know,
they help companies get launched. There’s a guy in New York, who runs
New York City Angels named David Rose. Who’s about to write or has written a book that’s about
to launch called Angel Investing. And David has been
Angel Investing forever. His family has been
Angel Investing forever. It is the traditional model. We have money. We’re going to invest in
a bunch of companies. We’re going to, and we hope, and we’ll
hope that they get to the point where they raise venture capital because
really that is the goal. The goal is get big enough that you
can ultimately raise venture capital. In some instances companies don’t need
more money but that is pretty rare. So that historically is what happened. But what happened in the Angel
business is in the late and sort of the first bubble, in the late
90s when the internet was emerging. Ron Conway started this stock
called Silicon Valley SV Angels. And SV Angels,
he had this realization that look, all these, that just getting into
the interesting deals matter. And so he created a fund where he
got money from all the people who were likely to see those
most interesting deals. Now you give me your money, tell me
about your good deals, I’ll invest it. It’s a win, win. We’ll all do great. And this, and this was the emergence to my knowledge of
sort of the first professional angel fund. Where you know you gather to collect up
a bunch of money, invest it in a set of, in a set of companies. And then and then see how it goes and
share the proceeds. that, that firm ended up having
a challenging time in the la, in the early 2000’s,
when the internet bubble burst. But it set the tone for what,
what emerged then in the 2000s with, with folks like Josh Kopelman
who started First Round Capital. So, you guys have First Round Capital. Josh Kopelman is a success, and by the way there’s a long history in angel investing
of angels coming from companies right? Where you start a company. You’re successful. You make a lot of money. You, you emerge from the company. You’re trying to figure
out what to do next. You have all this money. You’re not going to retire. Your, you work really hard and maybe
you don’t want to work that hard again. And say,
how can I stay involved in start ups. Well I’ll invest in them and
I’ll help you build your business but you’ll do the real work and I’ll,
you know, cause I’ve made all this money. And so there’s this long history of people
who have been successful in their own start ups. Then becoming the angel investors who help
the next, next round of of companies. And so,
Josh Kopelman was one of those guys. He had one successful business. He started a second called half.com. He sold it to eBay,
it made a lot of money. He was a very thoughtful and smart entrepreneur out in
Philadelphia of all places. And he started investing
in a bunch of companies and he realized quickly that he was going to
not have enough money, like that to do it. You know, he was an operator and to, to engage in the, the act of
investing at the scale he wanted to. He wasn’t going to have the sufficient
amount of money to do it. He also had people he wanted to work with, folks like Howard Morgan who, who had
been involved in the venture industry. And the, and the, and the, and
the angel industry for a long time. And so, he created First Round Capital, which was the first at the time
what was called super angel fund. Which was a bunch,
a bunch of money gathered front, like, just like a venture fund. From investors to then invest in as a,
as an angel investor. To do that first round of capital,
to put, put $500,000 in, or $250,000 dollars in and
help company’s get to that next level. Where they would then raise venture money. And so quickly following Josh, were a bunch of other folks
that that started firms. Things like Flood Gate Capital or like Maples [UNKNOWN] started, or Soft
Tech VC, which is Jeff Klavier’s fund. And so, you know, suddenly the angel
business isn’t just these individuals. It’s now a professionalized experience and
it’s grown even more so. Now, in fact it’s gotten to
the point where it’s sort of there are angel funds with a per,
with a very specific focus. So you know, you have Social+Capital,
which is Chamath’s Fund. He was the head of marketing at Facebook. He came out, he wanted to see how you
could use, you know, the social world, to impact his investments. And so,
he started a fund that was focus on that. We we will see Aspect partners. Which is a couple of very successful
women in the venture business who have, who have left their firms. Theresia Gouw is, who was at, what? Excel is now joining forces with Jennifer
Fonstad to do early stage investing. I don’t know if it’s focused
entirely on women in Tech. But, but again, with a focus,
and an understanding, that there’s an opportunity to get in
early, and do something interesting. So, so suddenly we have these
professional angels who are, who now are creating this
plethora of companies. I mean, one of the reasons there are so
many companies now, is two-fold. One, it’s way cheaper to start
businesses than it was before. It used to cost a lot of money to
get any technology business started. It still does if you want to
do some thing in hardware or whatever, but
it’s still even cheaper than that. You have contract manufacturing. You have a lots more resources. Now if you want to start a software
company you use AWS or you use Google. Or you, you know, or, or, or, or you know now Salesforce has
the infrastructure with Heroku. To build a business on top of this very
cheap commoditized infrastructure, and it costs you a small amount of money. So now it’s easy to start a company, and there’s a ton of angel
money that’s out there. So instead of hundreds of companies there’s thousands
of companies being started. And that’s been a very big shift. I’ll just say quickly, that there have
been these funds that sort of feel like they’re, they’re sort of
like the Angel funds. But also, like Series A funds. Folks like True Ventures,
and Unions Square Ventures. I suspect I would characterize Alsop Louie
in that category, is that a fair, fair place to put ’em. Which as, you know, sort of tensions
on both sides have enough capital to a sort of $6 million financing, but
often times competing with angels. So we’ll, you know we’ll,
we’ll hear from from Gillman. Louie. Is that who’s coming? Gillman will talk with us about
about that piece of the world. Crowdfunding. Crowdfunding has emerged and
become quite interesting. A guy named Naval Ravikant started
this thing called AngelList. And AngelList is basically, how do
you throw your information out there? Make it available and widely known. Reach out to a very broad range of people
who otherwise wouldn’t have access to to your to your ideas and raise money. And now they’ve created a thing
where you have syndicates. And syndicates are just
like mini venture funds. So there are people,
Gil Penchina, who, who I worked with at a company called Fastly has
a syndicate of over a million dollars. And what that means is that he can
invest the, the initial money, some, that’s like $50,000 or $100,000. And then promise another $900,000 or a million dollars along side
him to get a financing done. So suddenly, you know, Gil as an individual using AngelList,
has become a fund, right? You don’t have to go raise money
from six or ten different people. Just say, hey Gil, I want you to do it. He commits, everybody else follows. Boom, it’s done. And you have things like Kickstarter,
and you have things like Indieagogo. And soon you will have these equity
crowd-funding platforms courtesy of the Jobs Act. That just say, you can buy a $1,000
worth of shares, $500 worth of shares. I mean it’ll be a very interesting,
a very interesting evolution. I think it will end in tears and
heartbreak. It will be interesting. So it’s just a, it, it,
it’s amazing to think that, that this, that this early stage layer has gotten so
broad and intense. And and lots and lots of dollars. one, you know, one more aspect of that is, is the, what was, in the late 90s there
were these things called incubators. And incubators were things where
smart people came up with ideas and then they hired people to work on them. You know, it’s like the mad,
mad scientist. [UNKNOWN] create the Google Glass. Now build it and make me wealthy. That’s five, five minutes. And those things didn’t
work terribly well. Although you know,
Ideal Lab is still out there. Bill Gross is an incredibly smart guy and
he’s had some interesting ideas and he’s had some successes. But what those have turned
into are these accelerators. And accelerators are really, okay come and
we will give you a little bit of money. We’ll give you some attention. We’ll teach you some of the tricks
to how to build a big business. And then and then by, and increasingly
the real value of these things is will, will put you as part of
a community of entrepreneurs. And then will give you
access to investors. And that community of entrepreneurs and
access to investors is incredibly valuable to an entre,
to an entrepreneur as getting started. And so, you know, Y Combinator has been
very successful at driving lots and lots of people to apply. You know, they have many times
more applicants than they do people who they admit into their program. They are giving a relatively
small amount of money. Some, some attention and then access and those companies then hopefully
turn into big business. And in Y Combinator case. They were the, you know, they, they,
they were the beginnings of Dropbox and, and Airbnb and Heroku and and others. So and then there’s been this, and there
were a set of others that had emerged. Things like Accelerate in Chicago. There’s a new Disney Accelerator. But those seem to be merging now and
consolidating under the Techstars program, which was like
the competitor Y Combinator. So you have Y Combinator, and
then around the world, you have Techstars. And Techstars now has eaten
the Chicago program, and now there’s Techstars Chicago. They’ve just created what looks to be
a really cool accelerator down in LA with Disney. The Disney accelerator under Techstars,
and so you can get the resources of Disney. You know, you look at the people who are
advisors, other than me, although I am. But then they’re, you know, it’s like
the senior executives of Disney, and me. Who’re you calling? Hey Bob, that’s who I call. So, it’s been very interesting to see how,
how again getting, and, and then you have 500 start ups. You know, you have Dave McClure who
says I’m going to fund 500 start ups. So, well he’s well past 500 at this point,
I don’t know what number he’s at but I don’t know if he’s going
to have to change it. But the problem is he’s going to have to
keep buying new URLs when it you know, 1,000 start ups, 2,000 start ups. So so, so that’s the,
that’s the bottom, that’s the sort of. You know, the core ultimately of
the venture business is getting lots and lots of seed capital. In fact I’ve spent a bunch of
time talking with the folks in other countries about how do
you encourage an ecosystem? How do you encourage this, this economy to get going and
my answer is always three things. First and foremost, you need really good
angel capital to help seed these things. Secondly, you need
extremely good Internet. And third, you need good coffee. [LAUGH] Those three things. You also need very smart entrepreneurs,
but there are great entrepreneurs
all around the world. So if you have awesome seed capital,
good internet, and excellent coffee. You will be able to create the ecosystem,
it just takes a while, you know? All right let me just last,
last thing say that the, the so the traditional VC model has also shifted. And I won’t get into it but, and
Jason Harwood has re thought in many ways, they talk about being,
what’s their phrase? Operating.>>Agency model.
>>The agency? They’re basically building resources
that are going to help their start ups. They have 100 people who are involved
in like doing marketing and sales, and all these things. We have six people. They have 100 people. And they say like, we’re going
to help you build your business. They’ve raised now billions of dollars
another billion and a half dollars. And, and their, and their focus is
how do we create infrastructure that will help you build your business. And increasingly you’ll see up and down Sam Hill road people
feeling the pressure of that. And they’re starting to hire PR people to
help their companies and recruiters and all those things. In large part, I,
I genuinely believe in reaction to the behemoth that is [UNKNOWN] saying
like, here’s what we bring you.>>[LAUGH]
>>You know. I bring you this.>>[LAUGH]>>And then in the late stage world,
very quickly. There has also been a shift, and the shift came when historically,
there have been late stage venture funds. Folks like Meritech Capital or
you know, so Jules, who’s from IVP is another guy,
Jules Moltz, who’s going to talk to us. They have a lot of money, they invested in late stage deals,
the companies were already working. They helped give you the capital to
scale or get to the public or whatever. So there have been historically
these funds that that was their job. All of a sudden people like Yuri Milner
came in from nowhere and said, like, wait a second I see an opportunity here. I have a ton of money, and, and ver, and invested at what, what seemed to be
an obscene valuation in Facebook. And, made him more money than most
venture firms will ever make. And that, and opened people’s eyes. David Zee from Graylock had the very
smart realization in their, in their early 2000s. That he could invest in Facebook at
what again seemed a very high valuation. But get what’s called senior
preference which means that his money would come out first. So he said, look. If this doesn’t work my
money comes out first. So there’s not a lot of downside risk but
there’s a bunch of upside opportunity. And therefore I’m going to use
structure to protect myself and not worry about price. So we seeing a ton of investors
now who are saying like. We really almost don’t
care about the price. We’re going to,
we’re going to create structure that says. In fact, we even saw this when [SOUND] what’s the book selling
company [SOUND] that went public? Check. When Check went public, their last round
of investors had cut a deal that said, if you go public at a price
that’s lower than this price. You’ll give us the shares
to make up the difference. It was like, it was called a ratchet. So, it was like you know we
will never do worse than this. And so, when the company went public
they had to issue a bunch of new shares. So those investors got a guaranteed
return as long as Check didn’t go out of business. So those are interesting models and
we’re seeing lots and lots of pressure as these, as people are
investing larger dollars at higher prices. And Dresen’s doing this a lot and
Google Ventures. I mean, you know,
Google Ventures is its own, its own beast and they have this internal
source of capital that is near infinite. [LAUGH] The golden goose that is Google. They have a massive,
massive group of people. They are using both Google as
an infrastructure to figure out what they think is interesting,
plus data, plus a lot of people. And then, similarly being
relatively insensitive to price and note to evaluation and
those sorts of things. And putting a lot of money into things
and, and as long as we’re writing this. Up market that we’ve been seeing
which has been spectacular. Many of these people will do well. [LAUGH] What will be very interesting and
you guys will think back on this moment when the time comes and
the market starts falling. What happens to all of these models when
the market starts falling ’cause these models, all are, are working and
they’re working great. As we have this, as we have this
full market but man oh man when it turns around, suddenly it’s going to be
a different and more challenging thing. So those are the, those are the,
you know sort of shifting waters, shifting sands of the venture business. We’ll meet people who
play in each of them. I look forward to you all, you know, question each of them, like to see if
they can justify their, their existence. [LAUGH] And now I’m going to give you
two seconds to question my existence. And then we’ll, then we can move on for
the rest of the class.>>So what is usually the amount of, of
money you’re investing late stage venture?>>It’s,
it’s incredibly varied at this point. Right? It used to be much more consistent with some. Get $20 million or something that
you’d invest and drive business. And now you see it, you see oh, yeah,
some, you know, someone raises 100, I mean, the one that’s unbelievable. Intel just put $700
million into Cloud Air. $700 million, this is a software
business [LAUGH] What would you have done with $700 million when
you were building these businesses? Like.>>Party.>>[LAUGH]
>>Yeah so, you know. And then we consistently see
up from putting in 75, 100, 100 million dollars into these businesses. These are businesses, that in the end,
should be capital of, you know, what do venture investors want? We’d love an understanding of
your business model and, and, and capital efficiency ideally. Some of ’em are saying, well, look, we can understand the ROI
on a lot of dollars, right? If you can turn a dollar into three, even
though, even though it takes a long time, or it takes a bunch of expense up front,
here’s $100 million, turn it into $300 million. So, it’s, it’s, it’s pretty wild to watch. It will change. [INAUDIBLE].>>So, how’s, how’s your firm, for
example the share holder [INAUDIBLE].>>Well actually, what we have, you know, there are a set of firms I’d say that,
folks like August and BenchMark. And and others that have stayed small, and have not hired a bunch of external
people and all these things. Our view is that the venture business
is about being, being helpful and having real relationships and
helping you to build, build businesses. And more importantly helping you
to build your own business, right? That we’re not here to provide
you with the you know, a set of services when you should
be developing those, right? You know, I funded [UNKNOWN] when it was
three people and an interesting idea. What they needed was to figure
out if the software worked and if there was a market for it. When they came time to start selling, or whatever, then they needed to build and
inside sales [LAUGH] team. They needed to build a PR resource,
you know? Now they’re a thousand people and they,
and they have all of those things in house and they have the resources
they need to do it. And I think that those of us
that have stayed small and focused think that the the value of
business, of these businesses that they can, you know, that they can build
something spectacular on their own. And that we’re there, there to,
to help them in any way we can, but not to, you know, not to take away from
the business that they’re building.>>[INAUDIBLE] that’s a very traditional
[INAUDIBLE] primary [INAUDIBLE] so are you saying that these new models. But these new sort of, sort of
ideas that are just like noise and, eventually the one that will
win out is the traditional one?>>Well,
you know there is a history of it. There were a number of firms that were,
doing a set of the things that are now being done by Andreson and
others, in the late 90s. And>>and didn’t play out [LAUGH].>>It didn’t.
Look you know, at the end of the day. My job an an investor, is in to vent,
invest in great companies and have them be successful. Now, what they’re doing is
going to do one of two things, either it’s going to help their
companies be more successful, and I think that that’s, that,
that at best is a marginal value, right. I do not believe that, that the most
successful businesses are going to be that much more
successful by virtue of it. And more importantly, I don’t think that
unsuccessful businesses will suddenly be successful by virtue of it. The other thing that it might do
is help them get better deals. You know,
essentially it would be a good marketing. It’d be a good opportunity to
convince people to take your money. And I think that,
actually that has been quite successful. So, if that works,
that may be more than sufficient. But, yes,
we take a traditional view of it. Which is that all this stuff is not
changing the nature of the venture. Which is our business is
to help you be successful. To find entrepreneur,
to have real relationships,. And then do, do the sets of things that, that these seeds have traditionally done,
right? There’s no one in the organization at one
of these firms that isn’t the parter who is going to get on the phone with
a candidate to be the CTO of business, and convince them that the company is, that they should join this company,
other than the partner. Right? That’s what we do, right? As, wha, this is how,
how we think about the business. So in the end, there are a set of things
that will still be best handled by partners who have real relationships
with the companies and, and again, the other thing that you’ll see is as the
m, if the market were to turn around and start being challenging. Then it’s really you know, you need
the help and the relationships and the focus of, you, the, the partners in these venture firms to
say I’m willing to give you more money. I’m willing to focus on this business and bet on it exceed, you know,
getting out of this challenge in time.>>This is our last question. You mentioned a couple times
the possibility of I’m sorry. You mentioned a couple times the
possibility of a turn down in the market. I mean, as a venture capitalist, you in
some ways see the writing on the walls or do you think there’s a certain
timetable for these sorts of things or? I’m curious of your thoughts.>>Yeah, I mean. I took a, I was teaching at
Stanford’s Business School, I took a group of 40 students to China. This was two and a half years ago I think. And we were sitting down with the head
of the public markets in China, and he said something to the effect of,
you know we had a little bit of, the market had a little glitch and
was trending down a little bit before it trended back up, and
it created a whole bunch. Angst in the, in the Chinese communities because
they were like markets can go down? Like, you know, that’s we aren’t
betting on this market to go down, we are betting on the market to go up. Right? That’s crazy of course. And so
you can’t have a market that only goes up. Anyone who’s been in the industry for any reasonable period of time has
seen the market go up and down. And in fact, you know, one of the
challenges you have when you are new to, you know, lots of people who
are in the business now are new to the venture business and
didn’t see those cycles, right? My partners have been in the business for 30-some odd years, and
seen many of those cycles. I got here right at the front end
of the crash of the initial bubble, then saw it sort of working through 2008,
a real, really catastrophic trip of problems from 2009 to nine and then this
incredible run up, so it will happen. There isn’t any, you know, the market will not go up forever,
it’s, it’s just not going to happen. So do I think it’s going to happen now or
what, you know I’m, I’m no more I,
I can I can predict the future no more, no better than the rest of you maybe you
guys probably but, are better than I. Wisdom of the crowds. But but the time will come and so people
have to be thoughtful about here’s how you, you know, here’s how you think
about the business in an up market, and here’s how you think about
the business in a down market.>>For more,
please visit us at www.stanford.edu.

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