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Why Startups Should Raise Money at the Top End of Normal

Posted: 05 Jun 2011 06:22 AM PDT

Editor's Note: This is a guest post by Mark Suster (@msuster), a 2x entrepreneur, now VC at GRP Partners. Read more about Suster at his Startup BlogBothSidesoftheTable.

I have conversations with entrepreneurs and other VCs on a daily basis about fund raising, the prices of deals, how much companies should raise, etc. I’ve stopped talking about this as much publicly because it’s such a heated, emotional topic where the points-of-view are strictly subjective and for which the answers will only be revealed in the future.

I’ve decided to take all of my private points-of-view on the topic and make them public in a keynote speech at the Founder Showcase in San Francisco on June 15th.

I thought I’d post on one of the topics beforehand. It’s the one bit of advice I find myself giving to entrepreneurs most frequently these days, “raise money at the top end of normal.”


Here’s what I mean. There is an inherent value that any company has. On a public stock market that is the value that investors place on future free cash flows of the business discounted to today’s date to account for the time value of money. The more mature the company and industry, the easier it is to predict its future. When investors are feeling confident about the future they tend to bid up the value of public companies due to an increased perception that the future cash generated by the company will appreciate. The price of public stocks change instantly in reaction to news that is perceived to affect the future value of that company.

Every day shareholders vote on the value of the company by buying or selling shares. There is no price movement without one person agreeing to sell the stock and another agreeing to buy it. Stocks that have a lot of people trading are said to have a lot of liquidity, which basically means it’s really easy to get into (buy) or get out of (sell) the stock.

Private markets for stocks are the opposite. They are pretty illiquid. If you invested in the first angel round of a startup company it is usually very hard to sell your stock—usually for many years if ever at all. So how exactly are prices determined?

There is no great science to it. The earlier you invest the higher the chances the company won’t work out and thus you pay a lower price than later-stage investors. As an investor you’re trying to pay the appropriate price for your perceived risks of the company succeeding and protect yourself in the event that it isn’t quite as valuable as you had hoped. As the risks below get eliminated the higher the valuation investors are prepared to pay.

Over time some “norms” have emerged in pricing based on investors risk / return profile.  The obvious thing that investors think about is making a financial return on the investment they made in your company. Early-stage investors in technology startups are only looking for growth-oriented companies that can achieve an “exit” someday—either via selling your company to a larger company or via an IPO. The former is much more likely than the latter. So investors have to have some general sense of what companies that are similar to yours ultimately sell for in the private marketplace via an M&A transaction and they have to have some sense of valuations on public stock markets to be able to back into what their potential returns on your investment might be in the event of an IPO.

For example: If you were to invest $41 million into a company (and one could assume that you owned between 33-50%) then the company is worth $82-123 million at funding. As an early stage investor you’re often planning around 10x your investment at the time you write your first check so in this case you’d be going into your investment expecting an exit of $800 – $1.2 billion. Then you can do a little bit of research and find out that very few companies ever achieve this valuation in a trade sale so you’re clearly gunning for an IPO. You’re unlikely to want to make this sort of investment with the product or the market not yet validated. The risk wouldn’t be appropriate.

Ah, but you say that for a normal-sized angel check or A round check one shouldn’t worry about the ultimate exit because he or she is getting in really early and at a cheap enough price so who cares whether one pays $5 million pre-money or $15 million pre-money—you just have to make sure you back really big companies. Well, obviously if you knew that in advance it would be big, of course that would be true. But the reality is that you’re faced with two problems: 1) the earlier the stage the riskier and thus more write-offs so you need to have enough ownership percentage in your winners to make up for the losers and 2) the earlier stage your check the more likely the company will need many more funding rounds behind you and thus you face dilution.

So rounds tend to be “range bound” where prices at the top end of the valuation spectrum often being done in boom markets (i.e. 2007, 2011) and for the hottest of companies test the top end of the range, and in bad markets for fund raising (2003, 2008) test the bottom end of the range.

There is no such thing as a uniform price. It is highly dependent upon many factors: experience of the team, type of opportunity (a big biotech or semi-conductor A round is likely to look different from an Internet A round), geography, etc. So the ranges you would expect can be highly imprecise. But to help with the explanation I’d like to put down some markers of typical Internet pre-money valuations done in major US markets (San Fran, NY, LA, etc.) while acknowledging that San Fran deals are often higher valuations due to increased competition amongst investors.

There is no value judgment in my putting up these numbers nor am I negotiating with anybody. I’m just pointing out my gut feel for approximate ranges of deals that I’ve seen with Silicon Valley having the highest valuations, NY / LA / Boston / Boulder / Seattle having valuations in a slightly lower range but comparable and sometimes significantly lower prices in markets that don’t have a healthy venture market. These are not scientific, just anecdotal and just trying to provide some transparency for entrepreneurs on what I’ve seen in the market. And of course there are always outliers.

Prices have definitely gone up in 2011 as depicted in the anecdotal chart below. Again, prices are expressed as pre-money valuations.

For me I think that investors have got to accept the new reality in pricing if they want to remain competitive in markets like we’re seeing now. As ever, prices are still determined by: quality of team, quality of product / market and competitiveness of the deal.

So when I advise entrepreneurs on fund raising I often say that it’s OK to try and shoot for the “top end of normal” for the market conditions. So in 2011 as a startup company if you can generate lots of demand you can definitely raise an A round of capital (say $3 million) at a $7 or 8 million pre-money valuation or slightly higher whereas just two years ago you would have struggled. That’s fine. That’s the deal you get when you’re raising in a good market for startup financing.

What I caution entrepreneurs from doing is raising money at significantly ABOVE market valuations. I’m a VC so I have an obvious bias. But that’s not where this is coming from. I’ve been preaching the “don’t get ahead of your inherent valuation” message for nearly 10 years. I raised my A round at a $31.5 million post-money valuation with no revenue. It was early 2000. That was market. I saw this kind of pricing when I first entered the VC market in 2007. We had companies pitching us that had almost no revenue at all and they were raising $10-15 million in capital at a $40-50 million pre-money valuation. I should also point out that while they had built their products they had limited market traction.

We passed on all of these deals and often tried to discuss the possibility of more modest amounts of capital raised and at more realistic prices. It’s hard to stop a train. One company which was raising at $40 million pre-money wrote a comment about me in a public forum saying something along the lines of “Mark worked really hard to understand our business and was very detail-oriented. But he and his firm were just too cheap on valuation.” Fair enough. But he sold within 3 years for not a huge price after having raised more than $20 million. Another firm we saw tried to raise $15 million at a $60 million pre-money with similar metrics. They did an inside round, spent a bunch of money and then went through a fire sale of the business less than 2 years later.

Here’s the problem. If you haven’t figured out product / market fit and therefore still have a highly risky business you run great risks for getting too far ahead of yourself on valuation. If you raise at a $40 million pre-money on what would in normal times have been a $15 million valuation you’re fawked if the market corrects and you need another round. To any prospective investor you look like you’ve failed even before your first pitch. Even if you have an interesting story to tell, most investors won’t want to go through the brain damage of doing a “down round,” which creates tension between them and early investors.

Finally, even if they could bring themselves to offer you a major down round, the more sophisticated investors know it’s fool’s gold. They get a cheaper price, they wipe out much founder stock value and they reissue you new options. You’ll take the money—what choice do you have? But 6 months later you’re not working past 10pm. 1 year in you stop catching early morning flights. Within 2 years you’re evenings & weekends are spent planning your next business. And the CEO they would hire to come in and run the business when you go would always be a mercenary.

So my advice: go ahead and ask for a valuation that 2 years ago wouldn’t have been likely. Use competition to make sure you get a fair price. Raise a slightly higher round than you would have previously but keep some amount as a strategic reserve. Make sure that when you need to raise your next round of funding that you are able to show an uptick in valuation that is important for new investor confidence and to maintain great relations with your early investors.

Increase price. But unless you’re already a well-known technology heavyweight be careful about raising above the range of prices that are normal for a bull market. If you’re hot, don’t raise above normal. Raise at the top end of normal.

Other topics I’m going to cover at the Founder Showcase on June 15th:

  • Why I believe convertible debt with no cap is wrong for your investors
  • Why convertible debt WITH a cap is wrong for you
  • How much money should you raise?
  • When should you start talking with investors?
  • Why you shouldn’t stack too many brand names into a round
  • Are we in a bubble?
  • and more.

Hope to see you there.

A TechCrunch Disrupt Proposal

Posted: 04 Jun 2011 06:33 PM PDT

Ah, true love.

Everyone was surprised — even Michael Arrington was left speechless and said he was “discombobulated” — after Julia Hu was proposed to onstage during her special product announcement at TechCrunch Disrupt in New York City.

Hu, CEO and founder of LARK, was near the end of her presentation when someone called out that she had one more slide left to go over. As she clicked on the last slide, she screamed as her boyfriend came running up onstage to place a ring on her finger. It was the first ever TechCrunch Disrupt proposal and we caught the whole thing on camera.

It was sweet, touching, and hilarious. For those of you who haven’t had the chance to watch yet, the proposal and the backstage interview are below.

A huge congratulations to Julia and Jeff!

You going to have a seat?


So, you have been working with a company in China called PCH.

Oh, oh my god.

We're going to be OK.

Someone put the slide back up.

Oh my god.

ou .


What 's happening right now, just so the audience knows. Did you just get engaged to be married?

Yes Yeah.

You didn't actually ask her, you just put-

I asked her on the flight Yes .

Do you guys want to reverse that and redo it?

Let's try that again. All right.

Okay. So.

Julia, will you marry me?

Oh my God, yes. I've only been waiting for it.

I didn't know that was going to happen.

Me neither.

Now we get back to business.

How did we, how did that get screwed up. Is the slide, you guys all saw the slide. I was like forget that, let's move on, we got stuff to do in the middle of your, so That was 11 years, thank you.

Alright. I'm ready again.

You had no idea that was going to happen?

No, Did you see me?

Yeah, it took me a little while to figure out what was going on but Oh my God.

Did you know that was going to happen? Or you saw the slide.

Alright. He it just stole my thunder, didn't he?

You said yes, because you wanted to get married, right, it was just in front of everyone, I mean, that's a good thing, and everything?

Oh, yeah, yeah. My PR firm told me to do that, no, I was just kidding Did your P.R. firm actually set this up.

Congratulations. Jeff congratulations.

Thank you.

Hi, it's Matt Burns with Crunch Gear, I'm here with Julia Hu of Lark this fantastic little sleep aid but first before we get to this something fantastic happened on our stage.

Oh my god it was so shocking.

you broke an alarm clock but more than that right?

that's right.

you got engaged?


that's fantastic.

he totally sprung it on .

And everybody, nobody.

Not even Mike?

Not even Mike, and he loves surprises. So that's fantastic, well congratulations.

Hi, it's Matt Burns with CrunchGear. I'm here with Julia Hu of Lark, this fantastic little sleep aid.


But first before we get to this, something fantastic happened on our stage.

Oh my gosh, it was so shocking.

Well, you broke an alarm clock, but more than that, right?

That's right! So, you got engaged?

I got engaged. Yeah.

That's fantastic. And-

He totally sprung in on me.

And everybody- nobody knew.

Not even Mike.

Not even Mike and he loves surprises. So that's fantastic. Well congratulations.


So let's get back to the Lark. Can you tell me a little about it?

Yeah, actually I started it because of Jeff. He used to wake me up every morning, and go running and so, I had nothing to do, I wasn't gonna, you know, kick him out on the streets so I made this happened.

Well that's fantastic that you are engaged now. And I know. And now he gets to live a life with Lark.

Yes, exactly. So it goes on your wrist. and you launched this last year at TechCrunch, San Francisco, right?

Yeah, exactly, it was a concept that we had thought of through MIT, when I was a grad student there and we got together a bunch of engineers, won a couple of business plan competitions.


And then
built this up.

We went stealth after we raised a round after TechCrunch, and today the product's out!

That's fantastic. So the-the big news here is that you working with PC Edge International, right?

Yes, yes.

You are one of their first major clients, so could you tell me a little bit about that process about how from start to finish went Yeah. They work with much much larger companies, they chose us to partner, to become their first inaugural project for PC Edge Accelerator, which is sort of I thought that would be the Y Combinator, but for hardware start ups. So, you know they came to us. We had a lot of market data. We had prototypes but we had no idea how much it took to get from concept to product.


So they helped with all the product sourcing. They helped with initial conceptual designs. They helped with sourcing all the materials.

Yeah, because getting a gadget to market is hard.

Yeah, yeah.

And so they really took a lot the pain out of it.


Making a web app is relatively easy in comparison, right?

Well everything has its challenges, so, I think we're really good at technology innovation, at software development, all our online portal and sleep science. But they're really good at taking the headaches away from you know, what Velcro do we use.

What Velcro did you use?

We actually sourced an extremely soft, breathable Velcro that's actually like a fabric. And we went to stores all across the US trying to find this; nothing. They found it in two
weeks in China, so.

You know sleep aids have been out for a while and we've seen quite a few at CES, but this one's different in that it doesn't go on your head.

Yeah well we want you to sleep well, Right that's the thing, So this is hopefully very invisible that was our major major concern and we want it to be something that you could use everyday. At the fundamental core of it, lark is a way to wake up great and not wake anyone else up. So hopefully it's solving a pain. And then f you want to improve, like you improve with fitness, then we can personally coach you through all of our sleep science.

I have two kids, and I do not sleep very well.

Oh my god.

Is his is gonna help me?

Well, so we will help you to be much more efficient in your sleep, and also we will tell you a couple of tips of being able to shift your sleep pattern so that you can sleep and fall asleep earlier in the day perhaps. So, when you get woken up in the morning, it might not be as jarring for you, or you can put the lark on the kids.

Yeah, that's what they need.

And see if they can be trained to sleep better.

Man, they need something. Even Benadryl won't work.

Oh my god.

Well thanks so much, Julian and Jeff.

Thanks you so much.

Congratulations, so much.

Thank you. We're so excited.


When does it come out. I'm sorry.

Today. Today. So you can order today online or here at the booths. It's one twenty-nine for Lark and one eighty-nine for Lark Pro, which includes the seven day assessment and the personal sleep coach for a year.


When Facebook Captured Beluga, They May Have Harpooned It In The Head

Posted: 04 Jun 2011 05:50 PM PDT

When Facebook acquired Beluga this past March, it was an interesting deal for them. Interesting, because they previously had only done deals for talent. But this deal, they told us, was for both talent and assets. In other words, they were also interested in the technology behind Beluga. More importantly, the plan was to keep Beluga running. And they have. Sort of.

Over the past several weeks, users of Beluga have probably noticed some major reliability issues. These range from the mobile apps missing messages because they’re unable to connect to the service, to the service’s website being totally down. Last night, Beluga was totally down for a few hours. There was no indication why it was down, even after it came back. This has been happening more frequently. Not good.

It’s hard not to be reminded of FriendFeed. That service, which Facebook bought in 2009, also reminded live post-acquisition. While that was a talent deal, the core FriendFeed team said they were committed to keeping it up indefinitely. The reality has been that while it’s still up, performance issues and lack of continued development have driven away many of the core users (though, odddly, usage started spiking in Turkey after the deal). It’s a ghost town now. A shell of what it used to be.

And Beluga appears to be headed in the same direction. When Facebook acquired it, we were just heading into a full-on group messaging app showdown. To me, Beluga was the most promising of the new players. It had all the essentials I wanted/needed to replace SMS on my phone. And it was fast — really fast. My social circle started getting really into using it all the time.

We barely use it anymore. Again, it’s just too unreliable now.

I’ve reached out to the Beluga team to see what the deal is. I have yet to hear back, and I may not because Facebook tends to rule with an iron fist about such matters. Officially, the team was assigned to the groups and messaging teams within Facebook. While the new Facebook Messages is finally rolling out to all users, there hasn’t been any major new developments there in months either. There’s certainly no stand-alone Facebook Messages app that some of us had been hoping for — even though Google has quietly been working on one.

At the time of the acquisition, both Facebook and Beluga said that they would be providing details about Beluga’s ultimate future “in the coming weeks”. By my count, it has now been about 13 weeks. It’s time to let us know if Beluga will live, be officially harpooned, or if it will be left to drift at sea like FriendFeed.

I don’t have a good feeling about that answer. Too bad.

Hornik on VC’s Secondary Mania: “If It’s Just Money, We’re All Fungible” (TCTV)

Posted: 04 Jun 2011 04:18 PM PDT

August Capital was doing very late stage deals when most VCs refused to. And its early 2000 era buyout of Seagate was one of the better returns in the firm’s history. So why is it mostly sitting out this round of late-stage mega-deal mania?

In the final segment of our Ask a VC on the road with David Hornik, he explains why the answer to missing out on Facebook early isn’t dumping money in at a $75 billion price tag. The firm has done three $100 million-plus deals of late, but they’re all in companies you haven’t heard of, not the handful of names we talk about all the time.

It goes back to that belief that VCs aren’t just a checkbook; that they actually add value to the companies they back. A lot of cynical or burned entrepreneurs dispute that claim already, and Hornik argues if VCs act too much like hedge funds, they risk giving those cynics more ammo.

One of the last times we had you on camera it was about this whole super angel thing which like-

Yeah, I remember that, yeah.

Funny how that sort of fizzled and a lot of those guys haven't been able to raise the full funds that they anticipated. Since then, we've seen this opposite trend of this expansion of a lot of the same guys even doing secondary deals, and these big mega secondary deals. August was a firm that actually did late stage mega deals when no one else did so I mean Yeah.

has your job and the way you invest changed at all among this. Because it has to change somewhat because we are living in a reality of valuation and dearness of gain.

Yeah. Oh,yeah. Yeah. Well, it's tricky as you point out. Ten years ago, or a little over ten years ago, my firm was part of the buyout of Seagate. And we put 130 million dollars into this deal. And at the time if you had asked other venture investors they'd say, wow, you're insane like this is a crazy idea that turned out to make us, I don't know, a billion dollars or something over a short period of time.

And then it was like okay, that's great. Exactly. Except, apparently, not me! Because I've still haven't pay my law loans. May be I should get on that. But then, we created this later stage fund as part of our part of the money we raised to say, "Okay. If we see other interesting things, we'll do those."

And we're doing that but what we are doing and saying, "Okay. Here are the early stage deals that we didn't do but now, they're big and so let's invest in the secondary market at a later stage or whatever." In particular, because, the prices that are, the people are talking about now, if you do the mass, what is the return?

You know, like, look I honestly believe that Facebook is one of the most important companies to ever exist. So this is in no way meant to question the importance of Facebook. I Desperately wish that I had invested early in this company because I think it is monumentally important. Now, would I invest at 75 billion dollar evaluation?

Well, that doesn't feel like my job. Its not what I do, right?

And there's the difference then? I think people get this confused a lot even in the press, there's a difference in is Facebook worth 75 million? And is it worth it for a venture investor, managing pension fund and endowment money, to invest at a $75 billion evaluation.

Yes. Is that right? Now look, it turns out if there's an opportunity to invest at a particular price and then sell at a higher price, then I think that's probably our job, right? That's fine.


Um. But I think we need to look at these companies,and say, well, "what value do we bring to the company? How do we think about it? What is the risk adjusted-


-likely return, etc." And I just have a hard time squinting at those things and saying, look can I justify, investing a big chunk of money in these later stage deals, even if it turns out that a bunch of them make money because it's not, it just is not on a risk adjusted basis a good estimate of the sorts of thing the venture community should be doing.

I think.


So, it'll be interesting to see what happens. So we do. We have this later stage fund that actually, we even funded three deals in the last six months to the tune of about a hundred million dollars and they, one was a chip company spin-out, one is a 4G late stage software investment, and one is temp workers. I mean businesses that make sense where we can bring in real value, where we understand how the economics and how we can be helpful, right I still think that's the venture business.

I still would like to think that, you know, if it's just money, then we're all fungible right? And then, you know, take someone else's money and who cares?


But I don't think that. You've met a lot of VCs. People can be helpful or destructive. You know, they can bring some value or not and I would like to think that my job is still to be helpful to you as a business, and figure out how not only can the capital I bring give you some leverage but also my participation will help you build a bigger business.

And that's the stuff I think we should be doing.

Or at least people get to go your conference.

Well that's just a bonus. That is a bonus.

And that's the biggest reason that you get end deals, right?

Well if it is, then I'll keep doing it.

Well, you and I should get back to either hallway gossip, or the conference. Thank you for joining us David.

Alright, thanks.

Why The Groupon IPO Feels Like A Swindle

Posted: 04 Jun 2011 03:57 PM PDT

Erick Schonfeld
The reason the Groupon IPO feels like a swindle is because profits are nowhere in sight and founders are saying trust us while they pocket $

OMG/JK: iCloud, gWallet, and tPhotos

Posted: 04 Jun 2011 03:22 PM PDT

In this week’s episode of OMG/JK, Jason and I start off with a preview of what may be coming at Apple’s WWDC event next week in San Francisco. Then we get into what Google unveiled at their NFC event in New York City last week. And finally, we talk about Twitter’s move into the photo space.

All three topics have a bit of controversy surrounding them. First of all, WWDC will not feature a new iPhone for the first time in several years. Second, it took PayPal a matter of hours to sue Google after Google Wallet was announced. And third, the Twitter developer ecosystem is up in arms again after Twitter has moved to fill another hole. Well, at least TwitPic is, for sure.

Below, find some of the links relevant to the discussions this week.

Subscribe to us on iTunes!

Hornik on Blippy: “Apparently I Was More Interested in Sharing Credit Card Purchases than the Average Person” (TCTV)

Posted: 04 Jun 2011 12:34 PM PDT

Let’s be honest: One of the reasons David Hornik actually agreed to be on camera at All Things D is that he didn’t have a startup about to file to go public any second. So we talked about some of his more high profile investments that haven’t always lived up to the hype.

Hornik explains why reports of Blippy’s death have been greatly exaggerated, and why he says the investment still wasn’t a mistake. What’s more he dishes (sort of) of the nine-figure annual revenues of another portfolio company Say Media– the love child of VideoEgg and SixApart. And he tells us about an enterprise software company that’s a budding sleeper hit.

More broadly, he argues the immediate-hit-or-it’s-a-failure misses the point of venture investing. (A philosophy Reid Hoffman might agree with after a decade-long slog at LinkedIn.)

Let's talk about you as a venture capitalist. I'm just kind of thinking off the top of my head, deals that I associate you with.


Video X is expired, they're now one.

Same media.

Blippy, now it's gone.

No, no. Not at all.

Well, it pivoted?

Not at all. Here's the thing. The thing that people associate with Blippy may not be the billion dollar idea. But Blippy, this group of incredibly smart entrepreneurs, is anything but gone. Actually it turns out that... So Chris and Ashvin, who were the founders of Blippy, are some of the greatest... If you're talking about entrepreneurial athletes, like these guys are unbelievable and you would back them.

And it's sort of like saying that it's too bad that they didn't win that particular world series, but we'll see you next year."

So they're working on some really interesting stuff. They have a great team that no one is leaving. They're really excited to be working these guys. And they have enough money for the next 10 years or something. So, this idea that... Gee, it either works or when it doesn't work, then it's a failure whatever.

Kind of misunderstand the history of startups, right? And it's a lot... And I going to see this a lot and I can't... You have to bet on the ones that are the winners and the losers are the losers.


Look, there will be some that are big winners and it's exciting and if you're an early investor that's amazing and congratulations. But it turns out that there will be companies that are built over a period of time by really smart, hardworking entrepreneurs that build important stuff that people value.

So look, I will admit that our apparently I was more interested in sharing my credit card purchases than the average person. I'm still sort of shocked by that, to tell you the truth because I thought it was super fun.

Yeah.but it's maybe a good example of "don't invest in the things that you love", because what you need to do is find out the things that are compelling more broadly. That's fine. The good news is that I really...

But I think someone needed to test that assumption.


We wouldn't have known.

No, it was great.

Like I actually... I mean Alexia wrote a story about TechCrunch about. Oh, we were too pro-Blippy, I don't think we were. I mean looking back at coverage... Again really, really smart entrepreneurs, trying something that is completely crazy just because of the outcome?


That doesn't make any sense.

Yeah, thank you.

That's exactly right. Because there have been lots of Twitter-like things that people tried and didn't work. And so what?

I mean, how many times did social networks not work.

Yeah, exactly. Look at Mark Pincus, he had one of those. So clearly he's not a failure by virtue of the fact that didn't succeed and social networking wasn't a bad idea because Friendster didn't end up succeeding.


And that; so the good news is that, as a general matter, you know, at August Capital, our focus has been on people we really like who are gonna, you know, who are gonna build great stuff and then hopefully they do, right?


And in a disproportionate amount of time, they actually end up building pretty interesting stuff. And so that's, I mean, that's a VC that's all you can do. So you like, you mentioned Six Apart and Video Egg; they're now together. Well, you know, it's a huge company. Same media is a many tens of millions of dollars of business.

I heard how big their revenues are. Would you like to share that with our readers? It's like fifty million.

No, it's well more than that.

Like a hundred million?

It is well more that that.

It is my conservative estimate that this company is worth. hundreds of millions of dollars.

Yes, there isn't any question. It is, it is orders of magnitude larger than the things that think they're competing with say media, right?


So, people are focused on other things and if they want to under value that or whatever, that's fine. But the reality is, these were teams of people who are focused on very clear things. So, Video Egg was about bringing real value to brand advertisers?


How do you create a better brand experience across the social media infrastructure? And then Six Apart was about how do you build the best possible engagement experience for bloggers, for, and ultimately for passion based media across-


-160 million uniques or whatever. And when you put those things together, you have a very big interesting business that ends up being, I think, the paradigm for the next generation of digital media companies. So you know, eventually people will look and go "Holy cow!, how did that get to be such a big business?"

So, are they your most exciting company now? Who gets you out of bed in the morning?

I don't know. I mean they're great. They're a fabulous company and I love the people involved. You know, I have this enterprise software company called Splunk that I funded. That where three really smart engineers who said, "you should take log files and figure out how to correlate them and manage systems."

And it's, again, I don't know, is it a hundred-and-something million dollar business this year?


I guess we'll see. It is a big business. Companies are getting a ton of value and the people building it are worried about creating value for their companies and doing a better job of system debugging. And all these things you go, "well, what is that?" Who cares about that stuff? Well, you know, they're just doing a good job.

So, I love all of my children the same, but you know, the ones that are gonna make more than a hundred million.

He will become your favorite?

Did I? My kid? Yeah, that was my daughter. Yes, of course she's still my favorite. But I'll tell you what, if my son, Julian wins a Tony, he gets to be my favorite for that week.

It's just up to the Tony jury.

Yeah exactly! When Noah starts the next Facebook, he can be my favorite for a week.

So, only for a week though?


David Hornik: Why Real Entrepreneurs Aren’t in it for the Money (TCTV)

Posted: 04 Jun 2011 11:46 AM PDT

We haven’t done Ask a VC for a while thanks to my hectic travel schedule, so I pulled David Hornik out of the hallway at D to catch up on his thoughts on his portfolio and the industry.

But first, we chat about the highlights from the All Things Digital conference. Or we started with that and then talked about how the motivation for starting companies is changing in Silicon Valley, given the soaring valuations and ease of raising money.

And Hornik explains why he’s not a fan of Peter Thiel’s 20 Under 20 Program, although he admits he still hasn’t paid off his own law school education.

Hi, this is Sarah Lacey with TechCrunch TV down here at sunny Southern California at All Things D with David Hornik.


Hello, David is bailing me out because I've been doing too many hallway conversations, that are off the record, with people who won't be dragged on camera, and you are always willing to be dragged on camera.

I enjoy, I enjoy talking with you Sarah, on camera, off camera.

Not at the lobby this year, unfortunately.

Well that's, I was going to say, that has nothing to do with me. There are two things that interrupt people from coming to the lobby: weddings, babies.

Yeah, that's about it. So, hopefully I'll have neither of those next year.

Good. Next year.

So, you know, we 've met at the lobby which is sort of an homage to the fact the you are always in the lobbies of conferences gossiping and rarely in the session.

It's never gossiping, it's about industry conversation, doing business.

So, I want to ask you, a little bit, about the step that you've seen on stage so far, but then also about you know all this super secret conversation you are having. You have been in the sessions more than usual.

I have. You I find myself sitting and listening to what's being said. It's exciting.

So tell me, what you thought about, I mean I know there was Eric Smith last night, Dick Costello spoke today Jack Dorsey, what were some of the things that jumped out at you about these guys?

I'll tell you, as an investor, right, you spend all your time meeting with the entrepreneurs and the interesting thing is right, you think that entrepreneurship is about, people who want you to think that the entrepreneurship is about getting rich.

Oh yeah.

Entrepreneurship if successful then everybody gets rich, and its turn out that is true. That's a beautiful byproduct of entrepreneurship but the people that you wanna work with that's it is not, they are not motivated, that is not their motivation, right?


So, if you listen to Jack Dorsey just now or Dick Costello or Reed Hastings all today. Talking about their businesses and how they're thinking about them. What they're building whatever. Its about I mean Jack was explicit. It was like, I'm trying to make people's lives better here. Now Kara Swisher called him on it and said, "Is this a movement or is it business?" But I don't think that's a dichotomy, I think that ultimately.

Well and she had to ask him that three of four times and it was clear that the question wasn't even translating with him I mean. There are certain people who sound phony when they talk about that, and there are certain people who just sound really genuine and I think actually Andrew Mason was the same way.

One thing that jumped out at me about both Andrew Mason and Jack Dorsey is, you know, we are in this point of the cycle in Silicon Valley where it's so easy to start a company that most people would say there's a lot of people starting companies who probably shouldn't be entrepreneurs. And seeing both of them on stage talking about building their business, to me, it is so emblematic of that is that thing you see in an entrepreneur when you know they are the guy who should be starting.

Yeah, I mean, its interesting, we saw this in the late 90's, when it looked like there is a lot of money at the end of rainbow. And people, you know, oh I have to got stop doing whatever I am doing. You know even with this business with Peter Teo and trying to convince students to stop going to college.

No, I think it's insanity.. I think its terrible advice.

You think he is like an awful person for doing it then or some people are.

No, I don't think he is evil, I just think it's dumb! Like if I were the mother of one of these students, I'd say, "Real like, really this is it?"

It's two years.

So fun you know,what, spend, make a hundred thousand dollars, quitting school for two years or I mean, here's a thing. This is what, but it can this is a bit like we're like talking about with start ups.


If you think that going to college is about increasing your earning potential? Then, you know, then fine. Go stop doing it 'cause maybe it's not increasing your earning potential. But when I talk to my children, I don't say, "Hey, can't wait for you to go to college so you can increase your earning potential".

Right? My oldest son intends to be an art history major . I am fairly certain that no number of years as in our history major will repay his college education. So that can be it, right? So On the other hand, I would not have them do anything else. Like why would you?

Your children are also not going into half a million dollars personal debt Ok. Maybe. That is the crucial difference.

But to be fair like I'm still paying off law school debt.

Are you?

Yeah I am, maybe I should pay it off.

You're a venture capitalist.

I should probably pay it off. I should probably pay it off. Yeah every month it subtracts. I look at my bank account statement, it has you know Sallie Mae or whatever.

And how's that law firm going?

Yeah well yeah, I have been a VC now for eleven years, so. But I am still, you know, I am still an inactive member of the bar, because you just never know. I might need to represent you.


So, when that day comes, I will reengage. So, anyway. Okay fine. I think that's fair, but it's not about, you know, so what, it's not about earning potential. It's about the people that you engage with, and meet, and the conversations you have and the opportunities and all that. So anyway if you look at company building today, I think people should be building companies because they cannot think of anything else they want to do.

like what, you know, that's when you should start a company.

And I think a lot of people are starting companies because, why wouldn't they? Because it's so cheap and easy to get capital. Capitalization is so low. I mean it's different things driving it than in '99. You know I am not a big fan of saying, this is just like '99, because it's not at all.

Yeah, it's not, it's not at all.

But you are seeing this phenomenon, where there is a set of circumstances, where if you're a kid who has a halfway decent idea and you're coming out of school, there's not a downside to starting a company. I mean, I think it's more that has just been taken away than it is...

Yeah, no, I think it's right! I mean the reality is that's also true, if you don't mind, if you can afford to live, right?


The thing that I don't get is this, so like, hurry up you gotta get out because time is of the essence.


Well, look, by the time our kids get old, they'll be living to a hundred or something. So, if they miss two years, it's two percent. It's two percent of their lives! It's fine.

Well, if you listened to the data that Ron Conway talked about at Disrupt, those are their best two years.

Yeah, come on!

Do you buy that? That to be an entrepreneur...


No, I mean I buy that there are great entrepreneurs but what.

You know them by the athlete thing?

Well, they don't need as much sleep. I feel I need more sleep. Then I used to not sleep at all, now I actually occasionally I have to sleep, so I do, I recognize that, but I don't know you know, work smart. The reality is that there have been very interesting important businesses built by very young people.

And they have been very interesting you know its like Henry Betmason is not nineteen. Ev Williams and Jack Dorsey and Mark Pincus. They are not nineteen. He is an old man. Like he is the Shaquille O'neal of you know. Although Shaq did just today announce on twitter that he is retiring. I find news on twitter. See look at that.

Poor the real Shaq

he has a giant superman bed. You can't really feel that sorry for him.

He has a pool area is called Shaq Poco.

Why wouldn't it be?

Do you have one of those?

Yes Hornik a Poco. Oh, go.

I think something that's a dormant account.

In Palo Alto, Hornik a Poco is like a deck, the size of the postage stamp. But please, enjoy yourselves.

Once again, you're a venture capitalist, you shouldn't be throwing- you should be paying off law bills, you should be-

Look, you know what, I don't wanna be frivolous.

Gillmor Gang 6.04.11 (TCTV)

Posted: 04 Jun 2011 10:00 AM PDT

The Gillmor Gang — Robert Scoble, John Taschek, Kevin Marks, and Steve Gillmor — shuddered with expectant glee at Apple’s presumed iCloud announcement at next week’s WWDC event. It’s clear from all the leaks, most interestingly from Apple itself, that the record companies are finally healthy enough to move into the new streaming era. With Lady Gaga selling five times as many records as the next entry on the album charts, the numbers have strongly tipped from retail to downloads.

Amazon helped by subsidizing over a million copies at $1 a sale (8 bucks to Lady Gaga), but by next time, the market will have moved almost completely online. This gives Apple the leverage to get the TV/cable networks and the movie studios on board, with Netflix playing the Amazon role in stoking demand for streaming. Live events are last, probably following the heavyweight boxing matches of Ali and Tyson via pay-per-view but direct to Apple TV and its competitors, of which there are none. iCloud is the moment when the bits stay where they are, and the checksum becomes the value point. See you Monday for a special Gillmor Gang extra.


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