Hornik, also an investor and board member at several publicly listed software companies, joined August Capital in 2000 at the cusp of the internet revolution. The firm was an early investor in a number of technology companies and has since launched five more funds, the last of which was 7 August with $450m. In all, the firm has about $2bn deployed in early-stage investments.
Hornik’s big wins include Splunk, Fastly, GitLab, WePay and Bill.com. He invested at an early stage in most of these companies, multiplying the money invested several-fold. The job of a venture capitalist is challenging, Hornik said.
While ideally any investment should be made ahead of the wave of uptake, “if you invest too far ahead of the wave, then the wave crashes on you”. Landing in a fast-growing market could be the key. That certainly helped investments in Splunk and Fastly and “every one of our portfolio companies that had a lot of success. It's because they land in a market that is growing faster than they are.”
Despite the heavy hitters Hornik caught, there have been some misses as well. Facebook is a case in point. Fearing a valuation that was too rich, Hornik turned down an early-stage funding meeting for the social media platform. In hindsight, perhaps if the meeting had gone ahead Hornik would have invested anyway. The lesson for Hornik — and for all budding venture capitalists — was to listen to entrepreneurs without preconceived notions.
A year ago, Hornik and the August team raised a new fund under the umbrella of a conference platform the company had created called Lobby. As Hornik explains, the platform doesn’t have panels or speakers, but instead provides an opportunity for entrepreneurs and investors to connect on a more personal level. He is busy investing Lobby Capital’s freshly raised fund targeted at Series A placements.
“The venture business is a weird business, because I have two customers: investors in my fund, and I need to be a great steward of their money, and entrepreneurs [who] have lots of choices about where they'll raise capital.”
“The venture business is a weird business, because I have two customers: investors in my fund, and I need to be a great steward of their money, and entrepreneurs [who] have lots of choices about where they'll raise capital” - David Hornik
Hornik’s speciality lies in technology, which is to be expected from a Bay Area-based investor. “We believe software can solve every problem.”
However, he does not categorise investment by themes. “I invest in entrepreneurs who are solving problems that I didn't think of,” Hornik told Opto. “I don't have a specific focus that I'm chasing, because I think entrepreneurs are smarter than I am,” and he allows them to lead the investment narrative for the firm.
That said, the future of artificial intelligence looks particularly attractive because of the appetite in the enterprise market. “I think we'll see giant steps forward in artificial intelligence and the capacity for software to do more of the thinking and that could change every existing vertical.”
Investing in early-stage companies requires an astute measure of reasons for failure. In Hornik’s experience, key reasons that startups fail include high competition from deep-pocketed players, the inability to market solutions or simply a small addressable market. “The most important thing is to never run out of money because you can survive all sorts of other challenges. But if you run out of money, you're out of business.”
Still, the biggest mistake an investor can make would be “backing the wrong people,” said Hornik.
To hear more insights on what worked while in Splunk, Fastly and GitLab from Hornik, listen to the full episode on Opto Sessions.
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Listen to the full interview and explore our past episodes on Opto Sessions. You can also check out all our episodes via our YouTube Channel.
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