August Capital General Partner
Stanford University AB, Computer Music
Current Time 0:00
/
Duration Time -:-
Progress: NaN%

How did you get to where you are today? What is your story? What incidents and experiences shaped your career path?

Summarized By: Jeff Musk on Tue Mar 24 2020
First and foremost, ultimately it was just two things, one intellectual curiosity, just this capacity to see things that were unendingly interesting across a range of things and then to say, Oh, well, maybe I should pursue that. So for example, I got to college, I thought that I was going to be a lawyer and pursue criminal law yet I had been a musician for a lot of years, and Stanford had this program called CCARMA the Center for Computer Research and Music and Acoustics and it was the world's leading center for computer music. I was fascinated and spent a huge amount of time up there and ultimately I ended up creating my own major in computer music because it was the thing that was capturing my attention. I ended up going and studying in England because I hadn't gotten the opportunity to study abroad so end up doing a Masters's degree but in this instance in criminology because I was still quite curious about the criminal system, etcetera. Then I found myself in law school thinking I would be a public defender but after spending some time as a public defender, deciding that wasn't a good fit for me. I ended up clerking for a judge because it seemed like, when else will you get an opportunity to see the federal system this way? So I clerked for this judge in New York on the Second Circuit, which was an amazing opportunity to kind of see the judicial system in all its glory and that was interesting but made clear to me that I was not likely going to be an academic, I wasn't likely going to pursue that path and that landed me in litigations. I became a litigator in New York City, working for a big litigation firm representing amazing companies, big, interesting and important companies where they had hired this firm because they needed to win and we brought all the resources to bear that one could and that was sort of an amazing experience to be able to pursue a case with that much rigor and with that many resources and it had the predictable outcome which we want a lot. We went in with teams of people and brought a bunch of resources to bear and we had incredible success and yet it turned out that wasn't a great fit for me either. I found my way out to Silicon Valley back towards where I had started in college because friends of mine from my freshman dorm had started Yahoo and I had grown up in a house that believed in tech and technology, and my dad had been an early computer scientist and suddenly there was the startup world where people were building amazing stuff. I started out as a lawyer helping these little companies get started and I realized how amazing that was like, O my God, a few people and a great idea and you can turn it into something big and interesting and I became completely addicted to this idea, How to help people create great companies from nothing. I did that as an attorney for a period of time until kind of amazing venture capitalist named Dave Marquart said to me after a board meeting once, "Have you ever thought about the venture business?" And of course, by then I had thought about the venture business because it seemed to me what an opportunity to try and give resources to these little companies to help them be successful. Dave Marquart had been the only private investor at Microsoft and funded the first investor in Sun and Sea Gate, and he had been very successful at this and he said, "Yeah, we like you, maybe you'll be good at this." So they interviewed me for a bunch of months, four months of grilling me and finally, they decided they couldn't come up with a good reason not to hire me on. They offered to have me join the firm, and so that was actually 20 years ago, I joined August Capital start investing technology startups knowing nothing about technology startups other than having been a lawyer who would help them get financed, etcetera. Then it was the perfect job, completely intoxicating and I said it was two things I first said intellectual curiosity, the second thing is the people. I always have been driven by relationships and people and how do you help the people you think are great humans and how do you help them to be successful? And in turn, everybody does really well and so there was a job that was all about the people and intellectual curiosity so I feel incredibly lucky that I just landed by happenstance on a job that was the perfect job for me 20 years ago and I've been now at August capital for 20 years, and I've been an investor in some amazing companies, little company that at the time was called transaction engines, which was three people and an idea which changed its name to Splunk and is now a many billion-dollar public company, it's just its sort of an amazing thing to watch that happen. So that's the shortish version of the characteristics and the luck that have resulted in me sitting where I sit today.

What is your investment philosophy? What type of founding team, industry domains, business models and stages do you invest in?

Based on experience at: General Partner, August Capital
Summarized By: Jeff Musk on Tue Mar 24 2020
That's a good lead in my descriptor how I got here, is a good lead into then what happened once I became a VC? Because I got to the venture business and the answer was, I didn't know anything and my partner was like, well, it's not like you're an expert in networking or microprocessor network expert whatever so you should just look at things that you find compelling and we'll assess them accordingly so I got very lucky in that regard and I'm an early-stage investor, I'm a typical kind of Series A investor. So I'm putting that first in $1,000,000, $10 million into a company, once they find product-market fit to help drive to getting bigger and more established. At the beginning of my venture career just turned out that my first 4 investments were a consumer marketplace, a fintech company, the very first online payroll company, an enterprise application company, and an enterprise infrastructure company and that resulted in me being able to say, Hey, I look at all of these things and I invest across all of them and so over the last 20 years, I have invested in the infrastructure space, I've invested in Splunk and then I invested in this company, Fastly, that recently went public, which is a kind of next-gen content distribution system. I invested in this company PayCycle, in the Fintech space, I invested in WePay, bill.com, which is doing SMB payments, which also recently went public and then in the consumer world, I met the people at August because I was the lawyer to Evite and they had invested ended up on the board of Evite and then we funded Ebates, which is this marketplace for shopping, where you get money back and investor and company like Shop Runner so I just got very lucky, and I have had the opportunity to fund great people doing all of these things. If you look at what the two characteristics of these companies are, one, it's amazing people who are just absolutely driven to build great and exciting businesses and two, they're chasing big, interesting markets. I used to say that my investment thesis was people, people, people, it is now people, people, markets people, it's still about the people, but they have to be pursuing something big and exciting.

What information, statistics, or slide deck do you like to see in a founders' first email?

Based on experience at: General Partner, August Capital
Summarized By: Jeff Musk on Tue Mar 24 2020
I mean, the first Email, you have to think about the fundraising process a little bit like dating. I like to joke that people think, Oh, I'm going to have this big meeting. I'm going to convince you to fund my company and when I went on the first date with my wife the objective was not to get her to be engaged to me at the end of that first date, it was to get her to have a second date, that was all. It's like this first day is amazing, I hope you'll go out with me again. In many ways, that's the venture process, so this email is really all about getting people excited enough to spend time with you so ultimately, it's great to have an executive summary, maybe it's a short PowerPoint Deck, but mostly I just want to understand what it is your business does, and I want to understand what you'll do with the money that you're raising and who you are? If you can get those things across in the text of an email, great if that's a very quick and executive summary, fantastic. I just want to look through and go, "Oh, that's super interesting, let's have a meeting and let me learn more about this thing" Every time the question is, let me learn more and as long as you've got me wanting to learn more, you're pushing me down the path and soon enough you may get a term sheet.

Can you walk us through the due-diligence process and timeline from a founder's first email to cutting out a check for any of your funded startups?

Based on experience at: General Partner, August Capital
Summarized By: Jeff Musk on Tue Mar 24 2020
It's incredibly variable, I mean, ultimately some businesses require a lot of diligence, other businesses are a couple of founders and an interesting idea and you go like that's it. So at its simplest, I knew a founder who had been a very thoughtful executive. I had worked with him before, he described me with a phone call an interesting idea, I said, "Well, that's super interesting" It was a seed-stage company and he came in and presented to my partnership. Everybody has to eventually present to the full partnership and we said, "Oh, that's great. Thank you so much." and he went to get a lift back to the city and while he was waiting for his lift, my partners and I came to the conclusion that we would love to fund him, and I went and grabbed him on the sidewalk and said, "Hey, we'd like to fund you and will give you 1,000,000 and a half dollars for blah" and that's the shortest version I've ever seen. It was a person we already knew well, so I didn't need to dig into that, and it was at seen stage idea, so there was nothing, you didn't have to spend a lot of time, that's not the norm. The norm is that someone has been seed-funded by a seed fund or angel-funded by smart folks and they have built out the core of their technology and they have demonstrated some product-market fit and I get that first email and say, "Oh, that's interesting. By the way, if at all possible, that email is sent to me by someone I trust and someone who trusts you so that we get those early connections." They say, Great, Hey, David, I love to introduce you to so and so, I've been their mentor. You say, "Oh, that's amazing." I look at the email, I say, "That's a market I'm excited about, that's an interesting idea" so that's a weak one. I say, "I'd love to hear the story. Why don't you come in and present to me? We'll spend an hour together, usually, that happens in week two, get to sit down with them for an hour, get excited about it. If it's an interesting idea, I get excited, I do some digging, I spend some time and probably have followed up questions and emails. I almost always introduce that company to someone in my network who is better suited to assess the opportunity than I because there's always someone better-suited so I'll connect them with someone who's a FinTech expert or commerce expert and will say, "Hey, what do you think?" And they'll dig in and I'll get their feedback and that process can take a week, it could take a few days, some number of weeks if it's a deeply technical solution to try and get a clear understanding and in the process, I'm telling my partners we have Monday partner meetings and I am telling my partners, "Hey, I saw this company. It's pretty interesting, I got introduced it, it was a kind of exciting business and whatever" and then I said, "Hey, you know what? I think it's interesting enough we should have them come in and pitch to everyone. So they come in on a Monday, they'll pitch to the full partnership and describe the business and that could be week three. It could be that I got the email a week later, in week two, I have this first call, I called a meeting and enjoyed and then get them to come in the following week, that's the condensed version. Then my partner says, "We like it or we don't or what about this? Have you asked about this? Have you talked to so and so? I know someone at Home Depot" and then we do whatever follow up diligence makes sense. We could do that week and get to a term sheet that week or maybe it takes longer, and we get around to the next week when we discuss it again and then whoever's pursuing that opportunity says, "I think this is interesting. I'd like to pursue it and hear the terms" and everybody sort of agrees we don't have voting, we just have a consensus. Everybody kind of goes, "Yeah, I think so or no, you're crazy." And then we write a term sheet, so it could be a couple or three weeks, it could be longer than that. It really depends on the business and what people are pursuing and how much we need to engage and all of those things.

What are the common mistakes that you see founders making before and after funding?

Based on experience at: General Partner, August Capital
Summarized By: Jeff Musk on Tue Mar 24 2020
Before that you have to understand, back to sort of dating analogy, the fundraising process is a process, you want to engage with someone, you want to get them excited about your business, you want to get them excited about working with you, so the first problem is you can't shorten that. There's no capacity to say, like, "Here's a process by which I shorten this relationship-building piece of the process" because it results in you not having a genuine connection or not building a real relationship. Now that can happen over a short period of time but if you're trying to say like, "Oh, here's the deal, I'm going to come in, I'm going to take bids and then the valuation is X" but it's just not going to go well, now they're occasionally companies that are just so hot that that works fine, everybody's claiming to do it, and so fine you tell me the price or you tell me the timeline will do it but what you're trying to do is to create a relationship and convincing an investor to be excited about you and excited about your vision. The very first company I funded was a company PayCycle, which was this online payroll business and Rene Lacerte was its founder and when I built this relationship and I got to know him and took a number of weeks and I ultimately gave him a term sheet and joined his board and I was on his board, we sold that company to Intuit, then he started bill.com, I've been on that board. I'm now on the board of Bill as it's a public company. So, almost 20 years of relationship with Rene started with that first process. The interesting thing is, I gave Rene a term sheet because I thought he was an amazing person, I was excited about what he was doing. It turns out I was almost his 49th pitch so he had been told no by dozens of people before he and I had this connection and relationship that I wanted to bet on him. So don't make any presumptions, just go through the process and build a rapport and answer the questions and if that works, then you'll build a really great relationship as Rene and I have for 20 years of company building together. After you take the money, there are infinite opportunities to make mistakes, but the reality is startups are impossible, you're making choices constantly based on the information you have so theoretically, you could say I made a big mistake because I ramped up my burn to a gazillion dollars but by I think the company building process is a collaborative process, it's an interactive process and the mistake is not to pay attention, the mistake is not to listen and gather feedback and look at the data and constantly integrate. The biggest mistake you can make is to assume you're right in the face of a lot of feedback. So be thoughtful, take feedback, surround yourself with amazing people and I think ultimately even if it doesn't work, you won't think to yourself that you have made some huge mistakes along the way.

How do you set goals and track the progress of startups? How much do you get involved in the day-to-day operations? When do you intervene?

Based on experience at: General Partner, August Capital
Summarized By: Jeff Musk on Tue Mar 24 2020
The best way to measure startup is by their own measurement of themselves. So my question ultimately sitting up these board meetings is what are you measuring? How are you measuring your business? If it's X, Y, and Z, let's look at those metrics and understand what they are, now every so often you'll say to yourself, "I wonder why we're not measuring this. Why aren't we not looking at net revenue retention?" so in those instances in the board, I'll say, "Hey, have we thought about net revenue retention? How do you think about that? And then the CEO will say, "Yes, we've thought about it and here's why we don't think it's one of our key metrics or we have thought about it, it's interesting maybe more relevant to our business today, and so we'll track it etcetera." But my view is the best way to measure business is by the way it measures itself and forcing metrics and measurements upon a business is a terrible idea. As I've joked to the CEOs with whom I work like "look, ultimately, I'm going to leave it to you to decide how you're going to measure your own business and if you think that you shouldn't be measuring your business in a particular way, great, I'm willing to support that until such time when it is perfectly clear that you're not doing the job you should be doing and then it's a bigger problem then it's not a measurement problem, it's a management problem". My role with each company is kind of different and it's based on my relationship with different founders. I have founders who call me a lot on the phone, I have a founder who I only text with. I have founders who check in with me midway between board meetings just to give a check-up and then we have board meetings. So, the reality is I think that the very best answer is how can I be helpful? How can I be most helpful to you as a founder? That's what I want to do. Oftentimes, in the early days, I'm involved a lot where people are calling and asking lots of questions, I'm interviewing people, I'm giving feedback, I'm making introductions all those things as companies grow more mature than its around things like governance so, How should we think about this? or How do we prepare to be a public company? and all those things So the nice thing about having been in the venture business for 20 years and in the start-up the world for 25 years that I've seen a lot over time, and so I have a lot of perspectives I can share. I don't think it's my job to run the company. I don't think it's my job to tell founders what to do, I think it's my job to be a resource, a sounding board and I and I hope that all of the founders, all the CEOs that I work with think of me that way so that I get that first call, whether it's great news, "Hey, we did this amazing thing" or it's bad news like, "Oh my goodness, we have a big problem." You should be calling me if I could be helpful.

What qualities and accomplishments does your team look for while hiring associates or interns? What is the interview process and what type of questions are asked?

Based on experience at: General Partner, August Capital
Summarized By: Jeff Musk on Tue Mar 24 2020
We've had very few interns over time, had a couple, we've had an occasional associate, it's a small organization, very tight-knit group. I think that in the end, what we're looking for again are all the things that I've described that made this such an appealing job to me and we're looking for people who are intellectually curious. We're looking for people who care about people, people who want to dig in and understand the nature of business and the data. In the end, it isn't the case that we think we're going to find this person who can see the future, it's not that we're looking for someone who's like, "Here, I'm going to introduce you to the next Airbnb" On the other hand, if people do, that's amazing. If you happen to know great founders, if you have a deep set of relationships, that's a great thing but we're looking for people who understand that the venture business is about people, it's about relationships, it's about having a broad range of skill sets and understanding. Venture investors are generalists, it's very hard to be really deep in a thing, but not have any knowledge and a bunch of other things and be successful. So we're looking for people who are self-starters and engaging and all of those things, great venture capitalists ultimately are good salespeople, which is not something you think about it but selling isn't like a hard sell and you have to buy this house that's selling, it's deeper than that and its relationship selling and all those things. So they're 1,000,000 things that could make you a good venture investor and we're just trying to find people who embody as many of those things as possible with an understanding that it's nearly impossible to imagine that someone is all of those things at the same time.

What is a typical hiring process for a job like yours? What are the titles of people who interview? What questions usually get asked and how to handle them?

Based on experience at: General Partner, August Capital
Summarized By: Jeff Musk on Tue Mar 24 2020
Different firms are different and because we don't have a consistent program and there are folks who can only hire associates or hire other people, and so they have a preference. So you submit a resume and you go through a process and you interview a set of people. In the instances where we've ended up with people, either we had relationships with them already, one of the partners knew a founder and the founder was between things and we said, "Why don't you come and spend some time at the office or think about what's next?" Or we met a student through a process. I teach a lot, and I advise a lot so, we had this amazing associate who now is a founder, went on to do Y Combinator and is the founder of our great company. I met her because I am a venture associate to the Rock Center at Harvard Business School, and I was chatting with actually, not with her with a friend of hers about venture business and I tried to convince her to engage, and she introduced me to a bunch of really smart, interesting folks who I then caught up with overtime and one of them was this woman, Lisa Moroni, who was just an about as good and thoughtful as you could imagine. So we ended up offering to have her join us. Our process is very ad hoc, whereas others have a lot of specificities. Our partnership is very small so the process is that you have to meet everyone. You just have to spend time with everyone maybe just coming over and having lunch with us, but it may be something else.

What are different entry-level jobs and subsequent job pathways that can lead students to a position such as yours?

Based on experience at: General Partner, August Capital
Summarized By: Jeff Musk on Tue Mar 24 2020
I like to say that the people who want to be venture capitalists need to understand that venture capital isn't really a profession in the sense like, "Oh, I pursue a set of things and that leads me to be in this profession" There's no actual job path to be a venture capitalist trying, which is very frustrating for young people are like, "This is what I want to do. What's the path?" When I was an attorney, it's like, Oh, do you want to be a partner at a law firm, it's very easy. You go to law school, you clerk for a judge and become an associate, you do a great job. Whereas the venture business isn't that, the venture business is like from my experience, a little bit of happenstance, etcetera. I like to say the best thing you can do is go get a job you love and don't think that it's about venture capital. If there's an opportunity in a venture firm to be an associate or an analyst and it looks like a fun job then great do that, pursue it. Most associates adventure analysts don't become partners at venture capital firms, so it doesn't mean there's no obvious path, like in a law firm where you become associate then senior assessing then partner. So the better thing to do is to find a job you love that is related to the venture business in some tangential way, you need to have a big network, you need to meet a bunch of smart people and engage with them and demonstrate that you're good relationship builder but there are lots of ways to do that. You could be in business development or it could be that you run a big engineering organization. I mean, right now, there are folks like Mike Schroepfer who's been running engineering at Facebook forever, while he's not by his nature, engaged in relationship building has the most amazing relationships imaginable. But would you say, like, "Oh, go be the head of engineering of a company that hopefully becomes Facebook" No that wouldn't make sense but if you're a great engineer who likes running engineering, go do that and maybe eventually find your way into the venture business. This is a very frustrating answer for people who want to be venture capitalists because the answer is you can't really find your path to venture capital directly. So go do venture capital adjacent things that build your skills, making you a talented person who has a bunch of friends in the industry, who has some expertise in somethings, demonstrates intellectual curiosity, demonstrates the capacity to be critical and thoughtful. All of those things will come in handy when someone says, "Hey, have you thought about the venture business?"

How would new industry developments affect the job market? What skills, majors, and upcoming job roles would you encourage students to consider?

Based on experience at: General Partner, August Capital
Summarized By: Jeff Musk on Tue Mar 24 2020
I'm sure it's true that they will if you look at when I entered the venture business, and today the amount of data is very different and how you can use it to get to good answers is very different, the industries are very different. When I entered the venture business, being a microprocessor expert was a pretty interesting and valuable thing and today, that's a very tough world to try and build startups. When I joined the venture business, there were these huge networking businesses worth billions of dollars, and then that whole industry became relatively uninteresting but, on the other hand, there are always opportunities. We ended up funding these great professor scientists founders in a company called The Theorists that turned out to create WiFi, they created the WiFi chips that are now in everything. They invented an industry. I keep saying if someone could do the same thing for wireless power, it will transform an industry so there are things that will happen, but the best you can do is stay flexible and build generalize skill sets. In the venture industry, if you're in Tech, you need to be technical enough to understand the underpinnings of these technologies but you don't need to be the founder. In financial technologies, you need to understand the regulatory system, but you don't need to be the regulator. Now maybe you could come in as a regulator, and there's an opportunity, maybe you could come in as a technologist, and there's an opportunity but the skills you need are understanding of technology and in particular around the things that are of interest to you and an understanding of business because those two things and I would argue understanding psychology because humans really influence how any of these things succeed or fail and that's a hard set of things and three very different degrees

How did the school prepare you for your career? Think about faculty, resources, alumni, exposure & networking. What were the best parts?

Based on experience at: AB, Computer Music, Stanford University
Summarized By: Jeff Musk on Tue Mar 24 2020
I think there are two aspects of my education that are relevant. The first is broad education and I could say I ended up doing computer music and political science and then got a criminology degree and a law degree while I was studying law, I was doing regulations and corporations and criminal law and a bunch of different things then I went on to be a lawyer and do a bunch of different things as well. I would say that the most important thing that I learned in both undergraduate and graduate school and then in law school and in particular law school, is two things one logic, logics are extremely helpful and being thoughtful about it and secondly, how to be articulate? How to be well written and how to speak effectively about the things that are important to you? But those are unbelievably important skills. You need to be able to assess anything, you need to understand the core drivers of a particular thing and what affect those drivers and how important those drivers are and outcomes and I talk with people about this a lot where they'll say, like, "Oh, David, why are you asking me to present financials for a company where I'm just starting where the financials are all made up" and there's a very clear answer to that and the answer is because I want to know what assumptions you're making. I want to know what you think happens that you need 20 engineers and two salespeople or do you need two engineers and 20 salespeople? How are you thinking about this business? And how are you thinking about marketing and how are you thinking about margin and all of these things? I didn't study business, so you can say, like, How can I even have an opinion on these things? But I did study logic, I did study rationality, and the reality is that every business has certain underpinning characteristics that determine whether it's a good business or not and one of those is margin, and one of those is how engineering-focus versus sales focus. So when I ask entrepreneurs to present their view of their company, it's to understand the choices they're making, and we'll be able to determine if those are good choices. Well, I didn't take a class on, Are you making good choices in your business model? Although I kind of teach one now at Stanford Business School but I did have a bunch of education that suggested that here's how logic works and here's how rationality is and when you get it, here's how you describe it, here's how you recognize that and all of those things. So again, there are two things, the first thing is just understanding the underpinnings of logic and rationality and the capacity to we can write well about those things. The second is people, it's all about meeting amazing people and engaging with people and finding the people who you find compelling and staying in touch with them. I mean, I just have communities of people from everything I've done from my high school in New Hampshire to my undergraduate to my graduate school to law school to my nonprofits, I'm on the board of Glad, this amazing LGBTQ organization and so how does that intersect with my life and on the Stanford Alumni Association Board and How does that intersect with my life. So for all of you who are going through college, going through graduate school, the classroom experience is lovely but that broader experience of spending time with professors and building relationships, spending time with your classmates and building relationships, finding others who have a shared excitement about whatever you do that is invaluable and to my mind, that is the more important of all of these things.

Would you like to share something that is not on your resume? This may include your passions, facing setbacks or adversities, a unique experience, or an unexpected help.

Summarized By: Jeff Musk on Tue Mar 24 2020
One thing that I will share is that despite all of this schooling, I'm actually dyslexic, and that shaped who I am and also shaped how I do things and it turns out that much of what I've just described involves a whole lot of reading, and yet that's a really painful experience for me. But I love the capacity to garner information from humans because they can distill down that information, it's like you do the reading and you tell me what you learn, and then I don't have to do their reading. So it isn't on my resume that I'm dyslexic, I have over the years talked more and more about it and the fact that dyslexics make great entrepreneurs and I think they make great venture capitalists and they make great salespeople because they understand there are aspects of the business that aren't about book learning, there about empathy and relationships. Anyway, lots of people have lots of different underlying challenges that are also superpowers in some regards and I guess that's mine.

Do you have any parting advice for students hoping to get to a position such as yours? What 3 dos and 3 don'ts would you suggest?

Based on experience at: General Partner, August Capital
Summarized By: Jeff Musk on Tue Mar 24 2020
Find people you like, find people with whom you resonate, build a relationship, people always say that find great mentors, but you can't really find a mentor. Mentorship is incredibly important, but it's organic, and when you try and force it, it doesn't work but if you meet someone who you think is interesting and compelling and you have a great conversation with send them an email and say, "Hey, is there ever a time you have time for breakfast" and go and have breakfast with them and then when you've had a good breakfast, then if you have a big question that you would love some feedback on just say, "Hey, if you have a second, I'm wrestling with this question, what do you think" And if they have this mutual appreciation for that relationship, they'll give you great answers. It will make them more invested in how you succeed, you'll get more out of them and those relationships are sort of invaluable. I guess what my advice is, find those people, nurture those relationships and remember, it's a two-way street like see how you could be helpful to them. and how you could be helpful to others and I think that it will work out in the long run. Don't fear that you're doing things for others and you're not getting paid for it, everything will come back around over time and it's a very long arc. So don't be impatient, find amazing people who you want to work with and be helpful and it will work out great.