David Hornik, founding partner at Lobby Capital, shares insights from his 25-year journey in the industry. David discusses the evolution of venture capital, the growing importance of relationships over transactions, and his structured yet practical approach to investing. He highlights how liquidity challenges impact founders and early investors. David also shares his take on what makes a startup truly investable and why understanding a problem deeply is more valuable than chasing market trends.
David Hornik, founding partner at Lobby Capital, shares insights from his 25-year journey in the industry. David discusses the evolution of venture capital, the growing importance of relationships over transactions, and his structured yet practical approach to investing. He highlights how liquidity challenges impact founders and early investors. David also shares his take on what makes a startup truly investable and why understanding a problem deeply is more valuable than chasing market trends.
In this episode, you’ll learn:
[06:14] How venture capital has evolved from a simple early- vs. late-stage VC model to today's fragmented landscape with seed, pre-seed, and late-stage funds
[09:57] Entrepreneurship was for misfits in the 90’s; it’s now a top career choice.
[19:06] Networking is a key driver for startup connections and investment in venture capital.
[26:23] How David evaluates startups
[32:21] Common reasons for saying no to a startups
[35:07] Why even great VCs miss billion-dollar opportunities
The non-profit organization that David is passionate about: Institute of Contemporary Art in San Francisco
About David Hornik
David Hornik is the founding partner of Lobby Capital, a Silicon Valley-based venture firm focused on Series A investments. With nearly 25 years in venture capital, he previously spent two decades at August Capital. A seasoned investor, he has backed companies like Fastly, Splunk, and MaintainX. David also created Lobby, a renowned invite-only conference fostering deep founder-investor relationships. In addition to investing, he teaches entrepreneurship at Stanford and Harvard. Known for his relationship-driven approach, he emphasizes market potential, customer validation, and founder expertise when evaluating startups. He and his wife support the Institute of Contemporary Art in San Francisco.
About Lobby Capital
Lobby Capital is a Silicon Valley-based venture firm founded on decades of experience and a powerful network of entrepreneurs, investors, and industry leaders. Emerging from the renowned Lobby Conference community, the firm takes a people-first, hands-on approach to Series A investing. By providing deep expertise, strategic connections, and dedicated support, Lobby Capital helps founders scale and build transformative companies. With a strong belief that great businesses are built by great people, the firm leverages relationships to drive venture success and long-term impact. Its portfolio companies include Vantage Discovery, Kolena, Apera AI, Ownify, Procyon.ai, Faros AI, The Easy Company, Sprout Labs, Better Trucks, ForeVR Games among others.
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You really have to be an expert in the problem you're trying to solve. There are lots of shortcuts, but as an entrepreneur, you cannot take them. And I don't mean that you have to like, Oh, I've lived in this industry for 40 years and I'm the expert or whatever. I funded this amazing entrepreneur named Bill Clarico when he was 21.
[00:00:22] And he and his co founder, Rich Abelman came together to solve a problem in the financial technology space and they weren't FinTech experts, but they had done the homework to try and understand how to solve this problem in industry.
[00:00:47] Gopi Rangan: You are listening to The Sure Shot Entrepreneur - a podcast for founders with ambitious ideas. Venture capital investors, and other early believers tell you relatable, insightful, and authentic stories to help you realize your vision. Welcome to The Sure Shot Entrepreneur. My guest today is David Hornik. David Hornik is the founding partner at Lobby Capital.
[00:01:18] Lobby Capital is based in Silicon Valley. David is one of the most seasoned investors in venture capital in Silicon Valley. He has many years of experience investing in startups at early stages, worked at previous firms as well. In addition to investing, he also teaches. He teaches at Stanford and at Harvard entrepreneurship courses.
[00:01:41] We're going to talk to David about his investment career. Why is he excited about venture capital? We're going to talk to him about Lobby Capital. What kind of companies does he focus on when he invests at Lobby Capital? What are certain themes that he's excited about? We'll also ask him about why he says no to some investment opportunities. David, welcome to The Sure Shot Entrepreneur.
[00:02:02] David Hornik: Yeah, thanks. Excited to talk about all those things.
[00:02:05] Gopi Rangan: Tell us about yourself. Now, you're not from Silicon Valley originally, right? But you moved here and you kind of made a home here. Tell us about your journey from the beginning.
[00:02:14] David Hornik: Yeah, I've been in the Bay Area now for lots of years. So I grew up in New England. My dad was an early computer scientist, and I grew up with computers in my house, even though there weren't a lot of computers out there. And I came out to California to start attending school at Stanford, and fell in love with a bunch of things, but ended up majoring in computer music, which was this combination of music, music technologies and music history and music performance.
[00:02:46] It was really the early days of synthesis. So I got to see how synthesizers were being created. And the computer music lab at Stanford, which is called CCRMA , the Center for Computer Research and Music and Acoustics was the home of many of the folks who really reinvented DSP, digital signal processing, which is the stuff that powers all of the Apple products, right?
[00:03:10] They went and they were part of the next team that then became part of the Apple team and then became part of the iPhone and every other device that Apple has made. So I landed in Silicon Valley. I started working on technology and other things, but I really had every intention of going to law school, which is what I ultimately did.
[00:03:31] I went to England. I studied there briefly. I went to law school. I thought I was going to be a public defender. I didn't end up doing that. I was a litigator in New York City, and that was interesting, but not ultimately wasn't the thing that was going to capture my attention. In 1997, as the Internet was sort of in full force, the emergence of the Internet, I returned to Silicon Valley to start representing startups.
[00:03:56] And at the time, I didn't realize that startups were amazing. I thought that if I joined a law firm that was representing startups, I could eventually go in house as an in house lawyer, and I could have a good life. I could have this nice balance of working on interesting stuff, but going home at five. And, um, first of all, I'm not sure that exists in Silicon Valley, but it certainly didn't exist for me because the second I met a startup, I realized, "Oh, this is amazing."
[00:04:24] Right. Bunch of smart people. They're trying to solve some problem. They apply some technology, and if they're successful, they change the planet. So next thing you know I'm working harder than I ever did as a litigator in New York, representing these amazing folks from 97 to 2000, who are building interesting stuff.
[00:04:43] And over the course of that I met a lot of venture capitalists, and I was going to board meetings, representing companies. And I just sort of said what I thought at these board meetings. It wasn't my job. My job was not to say, "Hey, this is what you should do with the business." My job was to say, "Hey, here are the legal challenges you should consider."
[00:05:00] But I didn't do that. I said what I thought. And in one instance, I got fired for disagreeing with a VC. But in another instance, a fantastic venture capitalist named Dave Marquardt was in one of those board meetings and Dave had been the only private investor in Microsoft. He sat on that board for 33 years. He was the first investor in Sun and Seagate and Symantec, amazing companies. And after one of the board meetings that he and I attended together, he said, "Hey, David, have you ever thought about the venture business?" And I thought, "yes. That's so great." And after a bunch of months of interviewing, they, they said they couldn't come up with a good reason not to hire me and so I joined August Capital in June of 2000. So I'm coming up on 25 years in the venture business, and it's been awesome.
[00:05:49] Gopi Rangan: You spent many years at August Capital. 25 years ago when you started, the landscape was very different. The kind of companies that were created were different, and the type of VCs that were in the market were very different.
[00:06:01] The ecosystem was largely Silicon Valley focused, and now it's become a lot more global. How do you compare today's ecosystem compared to what it was when you started in venture?
[00:06:14] David Hornik: Well, when I started in venture, there were two types of VCs. There were early stage and there were late stage. And that was it.
[00:06:20] There were no seed investors. There were no pre-seed investors. There was none of this kind of PE money and late stage money and all of those things. I mean, there was some PE happening, but not in tech.
[00:06:32] Gopi Rangan: There were no unicorns. There was no such thing
[00:06:35] David Hornik: as a unicorn. Nobody thought that a company could be worth a trillion dollars.
[00:06:39] No one thought a company would go public and be worth a hundred billion dollars. It was a very, very different world. But there were a lot of amazing people who are trying to help people get started in the tech world. And so there were angel investors. There were lots of individuals who had made money before. The perfect example is a guy named Andy Bechtolsheim who had been one of the founders of Sun Microsystems, and he, he was just known as a guy, if you were working on something interesting to go to, and he gave the first money to Google that made him more money. So there were these angel investors that were really the seed investors. Then there were folks like me who were Series A investors and Series B investors who were trying to help those companies get going. But those were $5 million deals. They were $ 6 million deals. They weren't $20 million deals.
[00:07:24] And they were at, you know, $30 million valuations. They weren't at $100 million valuations. And then if your company did well, there were a very small number of late stage investors, right? Meritech Capital was like the go to. I still think they're the go to, but they were the go to for late stage financing.
[00:07:41] Oh, you have a company that's working? Take it to Meritech, see if Meritech wants to fund it. But there were no billion dollar funds. There were certainly no 6 billion funds. There was just not the scale of, the business. That's obviously dramatically different.
[00:07:56] Gopi Rangan: What is good? What has changed that you like about venture?
[00:07:59] And then we'll get to what, what do you not like as well?
[00:08:03] David Hornik: I do think that there was real value in the sort of creation of the seed fund. So my friend, Josh Koppelman was really the innovator and inventor of the seed fund. He was an angel investor and he was funding companies, but he had more companies he wanted to fund than was rational for his own checkbook.
[00:08:22] He was working with some friends. And so he said, "well, why wouldn't you make a seed fund? Like the economics seem like they should be able to work." And, uh, so he was the first guy I said, like, "I'll go raise an institutional fund to be a seed investor." And obviously that has worked extraordinarily well for first round for Josh and his team. They've since invested in a lot of really interesting stuff, but it also created a lot more interesting opportunities for the folks like me, the series A venture investors, because they were just funding more stuff. It was more systematic. Seed investors started showing up around the world.
[00:08:59] So I've been going to the UK for lots of years in this program called 'Silicon Valley Comes to the UK'. It's got a new name now, but it essentially was bring a bunch of Silicon Valley people and talk about entrepreneurship and the tech ecosystem, etc. And so 20 years ago, when we would go out to London, there was really no great way to get seed funded.
[00:09:20] And the early funders were all bankers and they had a very different view of how to build companies. Well, that's not true anymore. Now there are a bunch of seed funds that are funding companies all throughout Europe. They're funding companies in every city in America. And I think all of that is really good.
[00:09:38] Gopi Rangan: Series A was Series A because it was the first round of funding. And prior to Series A, there was possibly some angel funding. But now Series A has become the fourth or fifth round of funding. There's a lot more granularity at the earlier stages and later stages as well. Things have dragged on longer and longer.
[00:09:57] It took like six, seven years for a good company to go IPO. But now good companies stay private for 10 plus years, 12, 15 years. Things have changed a lot. One of the good things is it's also invited a lot of entrepreneurs into the ecosystem. The type of entrepreneurs in the nineties were largely outcasts, people who couldn't get a job, or they were outlandish. They had outlandish ideas. And now it's, you know, if you walk into a university like Stanford, entrepreneurship is the preferred career choice for a lot of students. So it's become a well accepted, socially accepted career choice in the mainstream.
[00:10:32] David Hornik: So I teach, I'll let you continue, but I just wanted to share that I teach a number of undergrad classes at Stanford. I just taught a product class with Mark Pincus, the founder of Zynga and a friend of mine named Ernestine Fu. And then Ernestine and I teach a class in the spring called 'Entrepreneurship Through the Lens of Venture Capital'. Class size is 35 people, and we get 150, 160 applicants, and they all have made amazing companies already.
[00:11:03] There's no like, "Oh, I just think this is interesting." It's like, "well, I built this thing in high school, and I'm building this other thing, and I want to learn from your amazing speakers." It's unbelievable. Yeah,
[00:11:13] Gopi Rangan: The demand for entrepreneurship courses and the interest in starting new companies is at the peak right now, and it'll probably get even higher in the future.
[00:11:24] A lot of good things. But some things are not also good as a result of all the changes that have happened in venture. Are there things that you feel like this is not the right direction?
[00:11:35] David Hornik: Well, there are these very, very big funds and they're getting bigger on the one hand. That's great news. I have a fantastic company called MaintainX that I was the seed investor and then I led their series A. It's your classic enterprise software business where they're building a great business and they got traction. And the second they got traction, there were a bunch of these big funds that wanted to fund them. And so it creates real value in the sense that there's a lot of capital trying to get into these bigger companies, and they were able to raise money at a great price, but I do wonder how how hard it is to create returns on a 6 billion dollar fund. I mean, it's not my problem. My fund is 250 million dollars. So, but it is an interesting thing that these businesses are getting funded at big numbers are getting funded with a lot of dollars a lot sooner with less validation and some of them will do fine, but it's not clear that that is the best path to hardening and testing great companies on their path to being big outsized winners.
[00:12:44] Gopi Rangan: When companies like MaintainX and possibly a few thousand other companies, many of the unicorns, they stay private longer and longer. The seed investors like you and the founders are illiquid for a longer period of time. And that hurts the ecosystem. Liquidity in the market is not as high as it used to be when IPOs and acquisitions happen much faster.
[00:13:10] These billion dollar companies stay private and that kind of limits the liquidity for LPs and it would be good to have better liquidity.
[00:13:18] David Hornik: I do think that's true for the venture investors and therefore the LPs. Although I think there are a lot of structures now that allow entrepreneurs and members of their teams to, to get some liquidity prior to a sale of a company or an IPO, right?
[00:13:34] I was an early investor in GitLab. I sat on that board for a number of years. And every time they raised money, they would include a shelf, an opportunity for the employees and shareholders to sell into that financing. And so there was prior to the company going public, a lot of people had done very well, made a lot of money.
[00:13:56] You know, of course, the big question is would you rather hold, you know, do you want to? We did the same thing. I was the earliest investor in a company called Splunk. And as we were approaching an IPO, we had an offering. There was a company that wanted to affirm that wanted to buy shares in Splunk and we put out an offering that said, Hey, would anyone like to sell into this offering? And more employees asked if they could buy at that price than more willing to sell, which was amazing. They were right, absolutely right that they should not have sold at that price, but you never know. There are lots of reasons why one sells. One wants to create some liquidity and buy a house or just have a broader set of opportunities than a single company, et cetera. So I agree with you, it takes longer to get to that kind of big outcome, but I do think that there are lots of opportunities these days with these later stage investors to sell shares before the company even goes public.
[00:14:51] Gopi Rangan: I hope the secondary market flourishes and creates more opportunities for liquidity for early investors and founders.
[00:14:58] I want to talk about Lobby. While you were at August, you had this side project of creating a community, a conference where people could come together and that became wildly successful, very popular and over the years many hundreds of thousands of people have benefited from those conferences.
[00:15:18] Connections were made and a lot of professional relationships started that way. A lot of companies got funded. Some acquisitions happened. I've heard so many great things about Lobby. Can you talk a little bit about Lobby and then we'll come to Lobby Capital.
[00:15:32] David Hornik: Yeah, you know, I, when I became a venture capitalist, I had been an attorney and suddenly they said, "Hey, David, welcome. Now you're a VC." And my training to be a venture capitalist involved them saying, "hey, welcome to being a VC", you know, now it's a, it's a mentorship business. We had partner meetings where we'd discuss all the companies. I would go to board meetings with other others of my partners. I would sit in on their meeting. So I learned a lot. But what I really learned was: oh! The venture business is about seeing great deals. Like, how can you see amazing deals? And the way you see amazing deals is to know amazing people. Now, these days things have changed. There are lots of ways people use artificial intelligence to find companies.
[00:16:16] They have a hundred, you know, young people calling people on the phone, et cetera. I still don't do that. I still do exactly what I've done for 25 years, which is I say to folks like you, "Hey, Gopi. When you have an amazing company that's looking to raise a series A I would love to hear about it." But the question is, how do you meet all those people?
[00:16:35] How do you get to know them? So I was going to all these conferences and instead of going into the conference room, I would spend all my time in the lobby. Because that's where people were hanging out and I would talk to them in the lobby and then they'd say, "I'm going to go in and hear the speaker." I'd say, "great!"
[00:16:50] And then someone else would come out and I'd talk to them. And eventually it struck me, why wouldn't you just have a conference? That was about the Lobby, right? Why wouldn't you create a conference? I was about those conversations, not about speakers or panels. And so, uh, 20 years ago, I started the Lobby conference, but the idea that I would, it would be this invite only thing.
[00:17:09] I'd invite a bunch of people and I'd say, "why don't you come to Hawaii and we're going to sit around and we're going to talk about the stuff that's interesting to you. And there'll be no speakers. There'll be no panels. It'll all be off the record and you'll meet a bunch of smart, interesting people."
[00:17:23] And so the first Lobby conference, 150 people showed up. There were lots of excitement because it was back, whatever, 2004 or five. And the people who showed up were Josh Koppelman as he had started First Round Capital. It was Chris Saka before he started his. But as he was getting to know the Twitter people, it was Ev Williams, as he was thinking about Twitter.
[00:17:44] You know, it was just a bunch of amazing people. And the only purpose was to meet smart and interesting people, have conversations with them. And it turns out that was a great experience. People loved it. They came back year in and year out. After about a decade of doing it people said, "this is really a kind of consumer focused thing.
[00:18:03] Why don't we have an enterprise version? And so then I launched Lobby Enterprise. And so now we have this March, we have the 10th year of Lobby Enterprise. And then I launched these events called Lobby Elevate. You know, I was talking to my venture partner, salina Tabakawala and Salina was the founder of Evite and had been the president and CTO of SurveyMonkey and she'd started a number of companies and female founders would ask her for help and she said, "David, let's do something to help female founders be more successful?"
[00:18:33] And then we launched the founders of color summit to help founders of color be more successful. So we've had these events. They're all invite only, you bring together smart, interesting people. You, get to know them and you say, "how can I help you?" And it turns out people have loved it.
[00:18:49] They've all sorts of great and interesting stuff have come out of those things. And it's really fueled my excitement about the venture business. It's fueled my excitement about entrepreneurship, and it also has fueled my venture firm. I've actually done tons of great deals, with people who are involved.
[00:19:06] Gopi Rangan: And this has been an important part of your career as a venture capital investor, meeting interesting people. And that has become the core of what is now Lobby Capital.
[00:19:18] David Hornik: Yeah, for sure. I mean, we sort of looked at it and said, I was at August capital for 20 years. I joined August in 2000 when we were investing the third August fund, and I was there for August 3, 4, 5, 6, and 7.
[00:19:32] By the time we got to 7, all of the partners who were there when I joined were no longer at the firm. And my partner, Eric Karlborg, and I had been working together at the firm for about a decade. And we'd seen amazing stuff. We'd had a great time building this August platform, but when we finished with August 7, we said, "Alright, if we could build a venture firm from the ground up, what would it look like?"
[00:19:58] What would we invest in? Who would we invest with? What stage? How much money? All of those things. things. And from that, we decided to launch a new platform, which we called Lobby Capital, which would really embrace this broader Lobby community. We decided that we would focus entirely on series A, late seed and series A deals.
[00:20:18] We had been doing some later stage stuff. We said, if you're going to invest, you really should own a big chunk of the business and get really involved. So we sit on your board and we really work with you from beginning to end. And we said, "it doesn't make sense to have a billion dollar fund because these investments are 10 million, right? How do you get to a billion dollar fund in a 10 million investment?"
[00:20:39] So our first fund was, you know, about $250 million. We're out raising a new fund. That's about 300 million, very focused so that if a company is successful, that it will return the entirety of the fund. Right? If I make an initial investment at a Lobby cap, I buy 20 percent of your business.
[00:21:00] By the time it gets to liquidity, we still own 15 percent of the business and I call it 250 million fund. If you get to a 2 billion outcome, I've returned more than the fund. And that's the objective. The objective is two great deals will be a 4X the fund.
[00:21:22] Gopi Rangan: What a great story. How you started in venture and now where you are with your new firm, Lobby Capital.
[00:21:29] Let's talk more about startups, but let's start with what stage do you invest? You invest in Series A startups, but it's a fuzzy word like what Series A means. Can you describe what is a sweet spot for you? What kind of company is a best fit for Lobby Capital?
[00:21:43] David Hornik: I like to describe Series A as you have some product market fit, right?
[00:21:49] You know, seed and pre-seed often is great people or a team have a great idea, but you haven't really demonstrated. You haven't either built the product or you haven't found your first set of customers, et cetera. We, in general, like to invest when you have demonstrated some product.
[00:22:07] So I recently funded an amazing company. They had a couple of small customers, but they were talking to a very big customer who was quite enthusiastic and when I spoke with that big customer, I said, okay, this is a big, interesting bit because they had the core team. They had a real obvious big market, and they had some early customers who are saying this technology is amazing.
[00:22:28] And I think that's a good proxy for when we get involved.
[00:22:32] Gopi Rangan: You prefer to invest at that stage when product market fit can be clearly seen, and you'd like to invest with, uh, an expectation of 20 percent ownership in the company, roughly. What is your typical check size?
[00:22:47] David Hornik: Well, in our first fund, we have on average invested $7.9 million and we have on average bought 19 percent of the company. So if you do that math, it basically means that it's a $40 million post and we've acquired 20 percent of the business. And that's about right. We kind of say we want to take it seriously. We want to make sure you have the capital you need.
[00:23:13] Now, I will tell you, we've done 3 million deals and the biggest deal we've done is $15 million.
[00:23:19] Gopi Rangan: What areas do you focus on? Are there sectors or themes that you're excited about?
[00:23:25] David Hornik: Well, the first thing I'd tell you is that we firmly believe that entrepreneurs know more than we do, right? We don't think that we are prescient and are going to be able to tell you what the next big opportunity is. We think that great entrepreneurs will. Having said that, by and large, our focus is on software. Very broadly speaking, there are many things you can do with software but enterprise software, SaaS software, software for financial services, software for deep tech that allows for robotics or radar. But in, at its core, we believe that software has the capacity to solve big, interesting problems with a contained number of humans that has great margins.
[00:24:10] And if it works and creates real value, you know, we'll build a very big business. I'm sitting here in the offices of Fastly, a company that I funded, and Fastly in many ways has the most hardware of any business that I've funded. It has these data centers that deliver content, but at its core, it's a software business.
[00:24:31] Gopi Rangan: Can we take an example of a company you invested? What happened in that meeting? The first meeting, the second meeting, what questions did you ask the founder? What were you looking for?
[00:24:42] David Hornik: It's funny. So the reason I'm here sitting at Fastly is that it was their big year launch. So Fastly is a public company. We have hundreds of employees. We had this big launch. And in the course of this launch, I was in a conversation with the CEO and I described how I had invested in the company and the founder, Archer Bergman is here and he and I started chatting and here's, here's what he said.
[00:25:06] He said, "you know, David. I was talking to Kostla and Sequoia, Accel. One of them did this deep dive on the tech, you know, like show me the tech. Is it really differentiated? One of them did this crazy deep dive on the sales funnel and all of that." He said, "your process was very simple. We talked about product, talked about what's the problem we're solving. And then you spoke to a few of my customers and then you gave me a term sheet." And that really does sum it up. I am looking for amazing people who I think are inspiring and engaging, who are solving hard problems. And I'm not focused on what is your sales process or what's your revenue or any of those things.
[00:25:53] I'm focused on: what is your product? Is it really differentiated? Are your buyers excited? Are there buyers who will buy this thing in the future?
[00:26:03] Gopi Rangan: How do you assess that? You're interested in trying to find an answer to the question, what problem are you solving? And what does your product really do? It's hard to ask the direct question, what problem are you solving? And you might get an answer, but that might not be the exact way to form conviction. How does the process work with the founder?
[00:26:23] David Hornik: Yeah, the very best answer to that is for you and for the entrepreneur is to introduce them to potential customers. And luckily now, 25 years into the venture business, another five as an attorney in this broad ecosystem, I know people in all sorts of businesses and all sorts of industries.
[00:26:42] So if you're solving a problem, I probably can introduce you to a handful of people who can assess whether that's an interesting solution. And so that's what I do. I say, "Hey, I'd love to introduce you to so and so and get their take." For the entrepreneur, it's the opportunity to get a customer. For me, it's the opportunity to get unadulterated feedback from an expert in a company that I'm close to. So the two answers are, I do that. I send you over to people who might be your customers. And then I talked to your customers if you have any. And the combination of those things results in me finding out precisely whether this is compelling, how much people are willing to pay for it, whether they'd put it in place, all of those things that are really important as you think about is this a big business?
[00:27:30] Gopi Rangan: You have a very practical approach, not like some other VCs who do a theoretical analysis on market sizing and things like that, which are difficult to do sometimes when the market's not even there. What's your advice to founders before they come to meet you? How can they prepare to be effective in that meeting with you?
[00:27:49] David Hornik: Well, there are a couple of things. First of all, you really have to be an expert in the problem you're trying to solve. Right? I think there are lots of shortcuts, but as an entrepreneur, you cannot take them. And I don't mean that you have to like, Oh, I lived in this industry for 40 years and I'm the expert or whatever.
[00:28:06] Right? I funded this amazing entrepreneur named Bill Clerico when he was 21 and he and his co founder, Rich Abelman came together to solve a problem in the financial technology space. And they weren't FinTech experts, but they had done the homework to try and understand how to solve this problem in an interesting way.
[00:28:30] And when I asked them questions, they had good answers. They could say, "well, here's what I know." They also would say, "here's what I don't know. I don't know the answer to that. Here's how we're thinking about it. Yeah, that's a regulatory problem. Maybe it applies to us. If it does, then this is what we'll do. If it doesn't apply to us, that would be better."
[00:28:48] So I think entrepreneurs need to do the work to be the experts in the thing they're trying to solve. And then they really have to be solving a problem. I just don't understand pitches that don't start with "here's why we are well positioned to solve it. Here's our solution and here's what we're going to go do to sell it." It's kind of the whole pitch. And I don't care what you're doing: new chip, a new sandwich shop. It doesn't matter, right? If people don't want to buy your sandwiches, then you're not going to sell sandwiches.
[00:29:21] Gopi Rangan: How long does it take for you to make a decision from the time you meet the founder for the first time to the time you say, well, I'm ready to make an investment. And who else is involved at the firm? Now you have four partners at the firm. How do you make decisions together?
[00:29:36] David Hornik: We can be very, very fast, but we insist on being thorough. There was a period of time when startups would get funded with a meeting, right? You'd have a meeting. Some would say that's interesting.
[00:29:46] Great. And that's that. And it turned out to be a terrible idea. People funded things. Without knowing what the founder was like without having really spent time. I think that you need to know who the team is. You have to have a very clear sense of it. So our process is you get an introduction. Maybe it's through an introduction from you or in the email.
[00:30:06] You say, Oh, that's interesting. Hey, let's have an hour long conversation. You have the hour long conversation and think, oh, that's pretty interesting. You discuss it with the partners. We have partner meetings on Mondays. People say, Oh, that's interesting. You either spend some more time with them trying to understand the business, or you introduce them to more members of your partnership.
[00:30:25] Over time, everyone in the partnership has to meet with the founder to hear it. So there are four partners. We also have five venture partners who will spend time with them. And then you have to say, what questions do we still have to answer? And so we introduce them to people who can help us answer those questions.
[00:30:41] And then we absolutely, if we're excited, do a lot of work to try and understand who you are, if we don't already know you, we talked to lots of people who've worked with you and your team to understand what the team is like. And once you're done with that, I will say that I really want to spend more time with the founder to make sure or founders depending. Literally tonight, I'm having dinner with a founder to discuss a term sheet, but I want to have dinner and spend time with him and understand.
[00:31:11] I was thinking about it and my expectation is by the end of that dinner, we'll be discussing a term sheet. My last deal, I had dinner with two founders. One was living in Dallas. I said, I said, I'll fly to Dallas to have dinner with you. He said, well, I'm going to come up. We had dinner. And by the end of the dinner was like, no brainer.
[00:31:28] You two are great. We've had an amazing conversation. You know, it can't just be one dinner. You have to have spent a bunch of time with them. So I just think you should take the time to get to know people, understand who they are and what motivates them and how compelling they are and how they, how excited they are.
[00:31:45] And, you know, cause entrepreneurship is so hard. It's unbelievable that anyone succeeds.
[00:31:50] Gopi Rangan: Now, over the years, you've invested in tens of successful companies, if not hundreds. Sometimes you say no, or perhaps quite often you say no. After the first meeting, if you say no, or if after you receive the pitch and you never take the meeting, you say no, let's get past that.
[00:32:06] You meet the founder, you get excited about some things. And then after the second meeting or third meeting, you lose conviction or you decide to say no. What's the most common reason for you to say no after initially getting excited?
[00:32:21] David Hornik: Yeah, it's usually market. To tell you the truth, it's, you know, my partner, Buddy Arnheim brought in these really compelling young entrepreneurs.
[00:32:30] And he was super excited. He's like, I think they're solving a big problem. They were solving a problem in the travel industry, like a tech problem in the airport world. And they had done a great job and they actually had the biggest airline in the busiest airport in the world was their customer.
[00:32:48] Oh my God. That's amazing. So it was exciting, but then when you dig in and say, okay, so if this is your biggest customer in the most busy airport in the world, what does it take for you to build a gigantic business? Right? And so every investor is different, but for us, if you look at it in order for us to be successful, we need some number of these companies to have the opportunity to be public companies.
[00:33:15] We, in fact, will not invest in any company that we don't think has the capacity to be a standalone business and go public. Now, very few of them do, but going in, we want to make sure you have that capacity. And what does it take to go public? Right? You need to get to $100, 000, 000 in revenue and say to yourself, if you get to $100, 000, 000 in revenue, I can see a circumstance in which it's relatively easy for you to go to $150, 000, 000 the next year.
[00:33:47] And if you are addressing a market space where the market opportunity is $400, 000, 000. That's not going to be the case, right? If you have six buyers and you already have two of them and your total revenue is $40 million, like what's the chance, even if you were to knock down the next that you get to a hundred million and you're, and you're heading towards a billion and yet, you know, my most successful businesses, companies that have gone public.
[00:34:14] They went public with hundreds of millions in revenue and with a path to billions in revenue. There's just almost no company on the planet that can do that. So it's that conversation that far more often than any is a result of you saying. Yeah, I love what you're doing, but it just is not a fit for us.
[00:34:35] It could be that you build a great business, you could make a lot of money, but it is not a fit for my fund.
[00:34:42] Gopi Rangan: It's sometimes hard to predict how the market be will behave. Today the market might have six customers willing to pay a few million dollars to get to the a hundred million in revenue, but tomorrow there could be demand for hundreds of customers to buy the same product, and it's maybe hard to project when that will happen and how many customers will be there next year, the following year. How do you deal with it?
[00:35:07] David Hornik: Yeah, I mean, look it, I turned down the Series A of Uber, Travis's last company, I had backed Garrett's last company, you know, they got seed funded at the Lobby. You know, I just knew them so well and Travis came in to share the series A and they only had Uber black. They had no Uber X and we discussed it as a partnership and we just didn't think that Uber black was a big business and we missed it. We didn't have the foresight to say, "there'll be this thing, Uber X, that replaces taxis, and when they're successful and replace taxis, they'll actually replace everything."
[00:35:39] And it turns out, actually, that the business wasn't even that. The business was, and once they have a bunch of people driving around, then they can deliver food, and they can deliver this, and they can do all these things, right? So, you're 100 percent right. And the most successful businesses by far are the ones that go where the future isn't. They're not just executing on the thing you know today. They have to reinvent the future and do something that was unpredictable.
[00:36:04] So yeah, you're right. I mean, it's hard and I've gotten it wrong at least as often as I've gotten it right. But luckily I've gotten it right. You know, a few times, and so they keep letting me be a VC.
[00:36:15] Gopi Rangan: You have your share of anti portfolio companies, and like every VC does, sometimes when you say no, those companies could become successful and you may have missed the opportunity.
[00:36:25] That happens for every VC. As you're starting Lobby Capital, and you have successfully deployed the first fund and you're building the firm for the future, You've also been in venture capital for 20 plus years. If I were to ask you one, thing you would like to change about the venture capital world, what would you do to change it to make this ecosystem better?
[00:36:49] David Hornik: I think the venture business is very mercenary and I think it's very ego driven, you know. I find that unappealing, but it's been fine. I'm not those things I hope. And as a by product, I find great entrepreneurs who want to work with someone who's not mercenary and isn't ego driven and is trying to be helpful.
[00:37:09] And so I don't think the rest of the. Venture business needs to behave the way I do in order for it to be successful. But I think if you're a venture investor, if you want to start being a venture investor, there are really two ways to be a VC. People have been successful in both without a doubt. But one is that you are transactional.
[00:37:29] You think that the venture business is about engaging with people and transacting the purchase of shares and the sale of shares. It's a transaction business. I don't believe that. I believe that the business is a relationship business. I think it's about knowing great people and helping them be successful irrespective of whether I fund them. I often help and engage with people who I've said no to. I'm close to and engage with others in the ecosystem. So I think this is a business that's driven by relationships. And I think anything I can do that will help build the broader ecosystem and my set of relationships with amazing people is valuable, even if I haven't funded them, even if it's not resulting in me immediately or directly making money.
[00:38:16] Gopi Rangan: I think the venture ecosystem would be better if we had more investors who are more thoughtful about relationships and not as many transactional focused investors. We're coming towards the end of our conversation and I want to ask you about your community involvement. Is there a non profit organization you are passionate about?
[00:38:35] Which one?
[00:38:36] David Hornik: My wife, Pamela, and I helped to get started the Institute of Contemporary Art in San Francisco, the ICASF. And it's this great institution. It's always free. So anyone can come in. You can bring a student group in. You can go on a date on a Friday night and hang out and see amazing art.
[00:38:56] And it's been really fun. It's been lovely to see great artists get represented in an important environment and allow the San Francisco Bay Area to really engage with art in a new and exciting way.
[00:39:09] Gopi Rangan: David, it's a pleasure to talk to you. I think we could spend easily another couple of hours, but we've come to the end of our conversation today.
[00:39:17] Thank you so much for sharing nuggets of wisdom. Thank you for sharing specific examples from your illustrious, three decade long career, many examples of how you invest in companies, how you engage with founders. This is a treasure trove of wisdom. I look forward to sharing your nuggets of wisdom with the world.
[00:39:35] David Hornik: Thank you so much. Really fun.
[00:39:39] Gopi Rangan: Thank you for listening to The Sure Shot Entrepreneur. I hope you enjoyed listening to real-life stories about early believers supporting ambitious entrepreneurs. Please subscribe to the podcast and post a review. Your comments will help other entrepreneurs find this podcast. I look forward to catching you at the next episode.