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.
Yeah.
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-
Right.
-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.
Right.
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?
Right.
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.
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