1Mby1M Virtual Accelerator Investor Forum: With Dave Hornik of August Capital (Part 3)

Sramana Mitra: Is domain knowledge a big part of your process?

Dave Hornik: It’s a part. There are two founders in a company called WePay. I wrote a blog post on Venture Blog about this. It talked about getting credibility if you have none. If you are a 20-year-old who’s building a business in a very challenging marketplace, you’re not coming out of that universe. René had amazing domain experience and that’s great.

Bill Clerico and Richard Aberman, who’s started WePay, didn’t come out of the financial services world in any meaningful way, but they were incredibly smart entrepreneurs. The conversation with them about what they were building was extremely important. The thing that was interesting is, when you ask them questions about how they were thinking about their business, they had very smart answers.

They were very thoughtful. They understood the whole landscape. They had put what they were building in the context of that landscape. They were thinking about it and changing how they were thinking based on the inputs they were receiving from the market everyday. Even though these guys did not go into this business with extreme domain expertise, I was excited about funding them because they were great entrepreneurs and they had taken the time to make themselves experts.

You don’t need to be an expert going in but by the time you get to me, you better be an expert. You better know your industry as well as anyone I ever talked to. You better have a point of view. You better know what you don’t know. There’s not a worse thing to tell me than an answer that you don’t know. It is never smart to make something up when you don’t know the answer.

Great entrepreneurs say, “I don’t know the answer to that, but here’s what I do know and here’s what I think it will do.” By doing that, you can say, “This person is thoughtful. They understand all of the inputs around them and they’re going to make good choices as they go and build this business.”

Sramana Mitra: Sometimes it’s actually good to a have people from outside of the domain because they bring in fresh perspective. People deep in a domain may not be able to think of new ways of doing things.

Dave Hornik: Yes.

Sramana Mitra: We’ve talked a little about cloud in the context of payroll. We’ve had several discussions on cloud here. Some of the people we’ve talked to believe that there is still a lot of opportunity especially in the segment that PayCycle went after, which is a very small business world. That seems to be a world that still has a lot of services that can be brought to it.

My own thesis also is we’re going through this evolution of modular businesses. We’re outsourcing everything right now. It has become possible to outsource everything. You not only buy cloud services, but you could also buy cloud services that come with resources.

That allows you to modularly piece together a business and you only focus on the core. Those companies are coming together at a fantastic pace right now. Anything that aligns with that general thesis, I believe, is going to create interesting scalable business opportunities.

I know you invest not only in cloud. If you look at cusp of cloud and mobile, especially with this whole app economy with the geo-targeting capabilities, that seems to be a very huge area of interest. However, I’m not impressed with Uber of massage and Uber of laundry. It just seems like we’ve been there, done that.

Dave Hornik: First of all, the tricky part of the app economy is that there are very few apps that have become big meaningful businesses. It depends on what you’re trying to build. In my world, we need entrepreneurs who are going to build multi-billion dollar businesses.

They need to be excited about building a business that could be a public company and worth billions of dollars because we’re investing lots of money. We’re trying to create big returns for endowments. There are plenty of good little businesses one can create with apps where you can build it on your own, sell it for a dollar, and make good money.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Dave Hornik of August Capital
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