The 7 Questions Interview Series: Data and Venture Capital
The 7 Questions Interview Series: Data and Venture Capital “The 7 Questions Series” is an investigative content series where we seek out key leaders in a specific industry and/or subject matter expertise area and ask them 7 key questions that inquiring minds want to know in terms of how they view data as part of their investment process. However, there is a twist to these questions: we provide the interviewee with a hypothesis for each question to help frame and set context for their answer.
Data and Venture Capital Series Objectives
The objective of this series is to establish direct connections with venture capital organizations, angel investors and M&A specialists across the globe and ask them the same set of 7 questions regarding their orientation when looking to invest or investing in companies. We want to derive insights from their direct experiences and expertise that will help companies, both B2B and B2C, at all stages of their evolution. We are also curious to see if their answers are similar or different. These interviews will be featured on their website as part of an ongoing series.
Interview with David Hornik, Partner at August Capital
For the last 15 years, David Hornik has been a partner at August Capital investing in amazing entrepreneurs changing the world. Prior to that, he was an attorney.
Robin Smith: Tell us a bit about you and your firm.
David Hornik: August Capital is an early stage venture fund that has been investing in amazing companies for over two decades, and it reaches back another decade through its predecessor firm, TVI (Technology Venture Investors). The partners at August were the earliest investors in some of the most transformative businesses over the last thirty years: Microsoft, Intuit, Skype, Splunk, and more. As a firm, we believe that venture capital is a boutique business. There are five partners at August. Our sole focus is on making the entrepreneurs we back successful. If they are successful, we are successful. It is that simple.
Robin: What types of companies, industries and areas are you investing in today? In the near future?
David: We have never been thematic investors. We consider ourselves systematically opportunistic, in large part because you never know what will come next. We funded a company called Atheros to transmit data through the air before there was such a thing as Wifi. Atheros went on to help create the Wifi standard and became the Wifi chip in every device you can imagine. Long before anyone was talking about Big Data, we funded a company called Splunk to allow system administrators to more easily search log files. Splunk is now a wildly powerful software platform that unlocks massive value from Big Data. The list goes on and on. Rather than attempting to predict the future, we focus on backing amazing entrepreneurs who are inventing the future.
Robin: How valuable is data collection to today’s venture capitalist?
David: Data is simultaneously invaluable and irrelevant in the venture business. It would be foolish to enter into an investment without fully appreciating all of the related businesses that have come before it. And it would be foolish to enter into an investment without fully exploring all of the data surrounding that business (e.g., growth, marketing, vitality, scale, efficiency, size of opportunity, etc. etc.). That said, the most transformative businesses are truly new. They are not an extension of anything. One can not merely extrapolate from existing data. Startups are always morphing, shifting, changing course. So I do not believe that one can overvalue data when it comes to making great venture investments. Startups are, at their core, a collection of amazing people inventing the future and no amount of data will help you predict that future.
“Data is simultaneously invaluable and irrelevant in the venture business […] it would be foolish to enter into an investment without fully exploring all of the data surrounding that business.”
Robin: Does a company’s technology matter when choosing to invest?
David: Great technologists build great technology. But they also recognize that some technology is strategic and other technology isn’t. I am not looking for a company to reinvent the wheel on everything. Smart entrepreneurs leverage the best available tools to build an efficient business. But the best entrepreneurs quickly determine what technology helps them build a moat around their business. Great technology has always been transformative and we are looking to back the folks who are going to change the world with great technology.
Robin: What industries are leveraging technology and data in order to innovate, grow and disrupt? Are there any industries that aren’t leveraging data that should?
David: All industry leaders are using technology and data to beat the competition. The second a market leader gets behind, they will be leapfrogged. For example, the car rental industry has done great work to stay competitive using technology. The process of renting a car these days is amazingly more efficient than 10 years ago. That said, we have invested in a company called RelayRides that takes that technical differentiation one step further. Not only does RelayRides use best of breed technology to optimize the rental process but they also use technology to optimize the vehicle acquisition process. Rather than purchasing a fleet of cars, RelayRides allows individuals to rent their own cars on the platform. As a result, there is a cottage industry emerging of individuals buying cars and renting them on RelayRides. By making the most of RelayRides data, individuals can determine the best possible vehicle to put on the system to make the greatest profit. As a results, consumers have more choice of vehicles and RelayRides’ car fleet truly serves the consumer rather than the old vested interests served by traditional rental companies.
Robin: Why are some SMBs late in adopting technology? Does this hinder your investment decision?
David: There is no doubt that companies need to stay current to maximize their performance. So we will not likely invest in technology laggards. That said, one can go too far. It is not necessarily in a company’s interest to be at the bleeding edge of technology at all times. This can result in wasted cycles. We look for thoughtful technologists who make the most of emerging technology (including open source technology and cloud services) without taking on too much risk by adopting unproven solutions.
“We look for thoughtful technologists who make the most of emerging technology.”
Robin: Are you seeing more data centric startups? Might there be more in the future?
David: The best technology companies have always been data driven. The biggest shift is in the amount of available data. These days there is an immense amount of data being captured by all companies. Data is now the platform upon which all great businesses are built. Data now informs all marketing decisions, all sales decisions, all operational matters, finance, HR, everything. When I am looking at a business, I ask the entrepreneur to share the data by which she measures her own business. I find it extremely informative not only what the data has to say about the business, but what the choice of data has to say about the entrepreneur herself.
About August Capital:
For the past twenty years, August Capital has invested in transformative businesses, led by exceptional executives. The partners at August were the earliest investors in Sun, Seagate, Skype, Splunk and some non-S companies too (Microsoft, Intuit, Atheros, etc. etc.).