You can no longer sell on just promise. The seed rounds are promise. The most important thing you can do is prove that the thing you thought was true is true.
We're excited to welcome David Hornick, founding partner at Lobby Capital, Forb's Midas List venture capitalist, and Deoit's venture capitalist of the year. With over 20 years investing in gamechanging companies like Splunk, Farsley, GitLab, Bill.com, and Ebates, David has shaped the future of enterprise software, fintech, and consumer tech. A pioneer in the VC world. He created the first venture capital blog and podcast, teaches at Stanford and Harvard, and has created talks for TED and TEDex Stanford. In this episode, we dive into David's journey, his approach to supporting visionary founders, and the lessons he's learned building transformative businesses. In your opinion, what are the biggest value that a VC gives to a founder? And besides the money,
We are your cheerleader chief. When you're trying to hire astonishing people, one of the great things to do is say, 'Hey, meet David Hornick. David meets a thousand companies in a year and he funds one.' So why would he do that? You should ask him,
David, what's the biggest misconception people have about venture capital today?
I mean, there are a lot of different ways people think about venture. The people who think that this is a transaction business, that the job of venture is about finding and doing deals are wrong. This turns out to be a relationship business. This is about meeting amazing people and figuring out how you can help them to meet and hire amazing people and build a product that gets sold to amazing people that you know like it's a people business. And so I think that there is particularly as AI is kicking in and it's all about oh tech tech that they think oh this is a transaction business it's a tech business it's not this is a people business and there's no great business on the planet that bad people haven't ruined. There are a lot of pretty mediocre businesses that great people have built into giant opportunities.
That's a great answer. I mean from your perspective you founded Lobby Capital for a reason. What was the reason behind it?
I've now been in the venture business for 25 years. You know, 25 years ago I was an attorney. I was representing startups. I thought that startups were magic. Like here I was as the lawyer who was trying to help you build your business. I was drafting your contracts. I was helping you raise money. But I was a service provider, right? I was this guy on the side and you'd call me up and say, 'Hey, get me a contract.' And I'd get you a contract. And I wanted to be in the game. I wanted to be part of the team. And so as a lawyer, I spent a lot of time saying, 'How can I be helpful to you?' I went to my client's offices. I stayed up all night. I got work done just so they would think of me as a resource, you know, more broadly than just a service provider. And that worked. It turns out that my clients then would rely on me for all sorts of interesting stuff. And that was great. And as a result, I got to opine on things that were bigger than just the law. And 25 years ago, an extraordinary venture capitalist named Dave Marquort said to me, 'Have you ever thought about the venture business?' And I was like, 'Yes, of course I have.' And he said, 'Great.' And after a bunch of months of talking to me, he said, 'You know, lawyers suck at this, but we think you might be good at it. And so, if you're willing to give it a try, we're willing to let you try. So, why don't you join us and be a VC?' I said, 'Oh, that sounds great.' And then I had to figure out like, what does that even mean? You know, what does it mean to be a VC? And over the last 25 years, I've learned what it means. You know, to work with extraordinary people to try and find extraordinary entrepreneurs and hand them money that empowers their businesses to do things that they couldn't have done without the money and then sit on their boards and try and engage with them in ways that help them to be more successful. And so lobby capital is an extension of that. It is then great. How do I engage with the very best set of humans as my partners? How do I extend that network to be valuable to the entrepreneurs that I'm backing? And so I've got this conference and a set of gatherings I run called The Lobby that brings together hundreds of amazing people and creates this community. And so by creating the firm that I would have wanted if I was an entrepreneur, I think I've been able to create a lot of opportunity and value for great entrepreneurs, those I backed, but also those I haven't backed. And I think that's been amazing. That's been the goal.
David, what does what does lobby symbolize in the whole ethos of the company?
The lobby is a reference to this gathering. And what happened was I was going to all these conferences to meet great people. Most of what you did at your typical conference was sit in a dark room while someone was on stage talking. Worst case it was a panel of people and each person would opine on some topic for three minutes. And all I wanted to do was meet the person to the right of me and the person to the left of me. And so I literally stopped going in. I spent all my time in the lobby because in the lobby you could have a real conversation. You'd bump into someone you'd say like, 'Oh, what are you working on and whatever. How can I be helpful?' And you'd have this conversation for 15 or 20 minutes, which was way more interesting than the stuff that was taking place on stage. And so I launched this gathering 20 years ago called The Lobby where there are no speakers, there are no panels, it's 250 amazing people come together in Hawaii on the beach, on the lawn and talk about the stuff that's important to us. And some of that's business and some of that's about our lives, the government, the economy, the very big picture. How can we work together to help the collective group at The Lobby be successful? And I think that that gestalt, that idea that we can create a collective of extraordinary humans who will work together to make everybody successful, is reflected in The Lobby in Lobby VC and is reflected in The Lobby gathering and then is reflected in this community of people that's now, you know, 2500 people have come to some Lobby or another.
Tell us about a story, a breakout story, a moment where you met a founder and you invested in them and it's an incredible company today.
There are all sorts of amazing people I've met through The Lobby. I'd say that the vast majority of the companies that we fund are companies that have some connection or other to The Lobby, right? I literally closed a deal at The Lobby. There was a smart founder who I really liked and thought was building something interesting and he had a lot of interest in his company. I said, 'You should come to this Lobby gathering, meet a bunch of smart people.' It's a bit of a double-edged sword because I invite a lot of amazing investors to The Lobby. So, suddenly here are these investors meeting this extraordinary entrepreneur. The last day of the conference, I said, 'Hey, you want to catch up and let's take a walk on the beach and chat about what you're doing?' And by the end of that hour-long hike, we shook hands on the deal and said, 'Great, let's go build a company together.' Like I say, it is a double-edged sword. I had seed funded this really fantastic entrepreneur named Chris Turlica, who's the founder of Maintain X. And I said, 'Oh, Chris, you have to come to The Lobby and meet smart people, see how they can help you build your business.' And then he met a bunch of investors. And those investors all were like, 'Oh my god, this is a really interesting business.' He comes back from The Lobby and said, 'I have this person, this person want to fund my series A.' And I said, 'Yeah, no, you can't do that. I'll fund your series A. What are you looking for? How much money? Whatever. I'll fund your series A. I want you to go focus on the business.' So, I think that The Lobby is great because I think Chris has met a lot of extraordinary people there that have helped him build Maintain X, but it also is the sort of forcing function for me to lead the series A at a time when others were excited. It plays lots of interesting roles in how I think about the business.
David, as far as venture capital's concerned, what are the biggest value that a VC gives to a founder and besides the money, besides the actual financial funding?
I mean there are just a ton of things that a good venture investor does over time. We are your cheerleader chief and that means a lot of things. But when you're trying to hire astonishing people who have lots of choices, one of the great things to do is say, 'Hey, meet David Hornick. David meets a thousand companies in a year and he funds one and we were the one.' So why would he do that? You should ask him like why did he fund Maintain X instead of the other 999 he saw that year. And I think being in a position to be able to share that information to say like here are all the reasons why I think this particular entrepreneur and this particular opportunity are extraordinary is valuable. So we do a lot of selling. We help you raise money. We help you hire great people. We introduce you to lots of clients and all that stuff. But the other thing that I think is important is we are a good investor in your team in ways that are really valuable because being a CEO is hard, right? There are not a lot of people that you can lean on. You're running a company that's growing increasingly large if all goes well and those people all report to you. And so when you have concerns, it's very hard to share those with your team. It's hard to share like you need someone who you can share, oh these are my concerns and this is hard and I'm having a tough time, right? This is challenging and I think that a good investor is that person. It can be that support system. I think of myself as a psychologist as much as I am a finance guy. I spend a lot of time with the entrepreneurs I back trying to help them give them perspective on how to make sure that this doesn't eat them away, you know, and I think that's super valuable and I think it's important. And then the other thing I'd say is, look, I've been at this 25 years. I was a lawyer representing a bunch of really smart and big companies before that. I've seen four amazing companies go from a handful of people to public companies worth more than 10 billion dollars, thousands of employees. So, wherever you are on that spectrum, I've seen some version of it in ways that I think is valuable. And every journey is different, but I think it's valuable to be able to say, 'Here's some ways that can go really terribly, so you should probably not do that.' And here's some ways it goes really great. And so think about those.
So David, you said you said obviously being a cheerleader in chief, the network being that sounding board, but the one that I'm really keen to double click on because it is quite unique in venture capital is your background. You come from this legal background, right? What value does that background that you have offer to your portfolio companies and the founders?
Well, I mean the legal piece is actually a teeny tiny fraction of it, right? There have been times I have profoundly saved the asses of my companies. Now, that is more a reflection of the bad attorneys representing the companies than the fact that I'm a good attorney. But I will tell you, in a very recent instance, the company attorneys got it really wrong. I called them. We spent time on the question. They ultimately acknowledged I was correct in my assessment of the problem and it saved the company in a very important way. So, that's great. But that's like a teeny tiny fraction. It turns out that good lawyers have been very well trained in the broad logic of the universe, right? Like the law is about here are a set of rules, here a set of ways to think about it and here are risks and related opportunities. And so, I have this weird combination of things that have been super valuable to me. I have the legal training that says, 'Hey, how do you apply logic to these interesting and challenging problems?' And I'm dyslexic. So, how does that help me? Well, and by the way, being a dyslexic attorney is a really terrible idea. But here's how it's been astonishing. Dyslexics are really good at being able to take a limited amount of information and extrapolate out to good decisions. Right? Because we have a limited amount of information as just a matter of course. And so the combination of apply extraordinary logic in a rational way and understand risks and rewards and be able to take a limited amount of information and extrapolate out opportunities and risks is disproportionately valuable when you're thinking about companies where they never know everything, right? It's always a teeny fraction of the information that you need to determine whether this thing's going to work or not.
As a lawyer, you've got all this information, all these documents you have to review. As an investor, it's the detail, right? It's what's between the lines. It's the things that you might miss out on, the simple things that changes the game. Is that what you're referring to?
You know, it's this weird thing. It's like detail and big picture, right? There are details that matter and lawyers are detail people. They understand what matters. And then there's the bigger picture question which is bad lawyers say hey here's the law so you need to comply with it and good lawyers say hey here's the law and here are the implications if you fail to comply with it. When someone has a contract, the contract sets up a construct that says you need to do these sets of things and if you do not do these things it's a breach of the contract. That doesn't mean you can't do those things. It just means you have to understand what are the repercussions from not doing those things, right? And so I think good lawyers understand that distinction, right?
David, going back to a different point, right? So what would you say is broken or perhaps misunderstood in the dynamic between a founder and a VC today?
Every company is different because humans are humans, right? So there are lots of people who are looking for different things and I think that in the end this is a human engagement. We're not a set of computers interacting. To be really helpful and successful and create real value, you have to understand who the person is you're working with. You know, what drives them, what inspires them. If you can't understand that, you're really not going to be that helpful. I was recently struck by this because I was trying to invest in a company and it was a guy I knew super well. I looked at the deal and what he was trying to do and what he was trying to raise. And there were just a very small range of opportunity there. And so I went back and gave him a term sheet that said, I'll invest X number of dollars at Y valuation. I said, just fill in X and Y, whatever it is. I'm perfectly comfortable. You're not going to do something crazy here. And so you fill it in and you tell me what the answer is. And the founder was just flummoxed and unhappy with me. And I talked to one of his closest mutual friends and that friend said to me, "David, that was you. You blew it. That was a terrible answer." And I said, "Why do you say that?" He said, "Well, you know, this particular founder loves negotiating. Like he finds that fun. He wants to engage in this back and forth to demonstrate that he can create value, etc. And you just said, "No, I don't want to do that. Just give me the number and we're done." He said, "And that just ruined his day." And I said, "Yeah, but that's so stupid because I'm saying I'll do whatever you want." And he said, "David, that's not what he wanted. What he wanted was a conversation about what was fair and what was appropriate and make progress and whatever else." And I said, "Oh my god, you're so right." So by misunderstanding this entrepreneur, I had what I thought was a fantastic term sheet and it was terrible. And by the way, what that entrepreneur then did was go out and say, you know, now I have to go out to a bunch of other people and figure out what the market is, etc. And I said, "Yeah, I know." And he went out and talked to a bunch of people and comes back and he said, "Look at the market is blah, you know, X million dollar valuation. So if you'll do it at X plus one dollar, then I'll do it with you." And I said, "Yeah, of course. I told you I'd do it whenever, you know." So I think you have to understand what are the dynamics that drive humans. There is no fixed answer to any of these things. It's what is the answer for this person that's going to help them be happy and successful and drive the business forward.
That's interesting you say that. So, going back to your first point, you said venture capital is about relationships. And what's broken or perhaps might be misconceived is this idea of needing to build that relationship. And to build that relationship, it's understanding the individual. And in that situation, it's perhaps in a way playing the game, right? This is what they like. This is what's going to make them happy.
No, that's what it was. You know, I hate that whole back and forth these days. When I give you a term sheet, I just say, 'Look at here's a term sheet. Here's the stuff you don't like. Here's the stuff I'm not going to like.' Entrepreneurs are like, 'Okay, but you're just trying to game me.' And I'm like, 'No, I'm not. I just don't want to have that. Can we just skip the three conversations before we get to the two things you care about and the two things I care about?' And what happens is entrepreneurs, because they weren't the lawyers and they haven't done it a bunch of times, they then go to their lawyers and say to the lawyers, 'All right, here's what Hornick said. He's clearly gaming me in some way or the other. So, what is the game?' And the lawyers say, 'No, no, those are the things, you know.' And then they come back and go, 'All right, our lawyer said those are the things.' I'm like, 'I know. I told you.'
I completely see it. I mean, the relationships is fundamental in these engagements. And I guess in many ways, that dynamic of the founder having to pitch to the investor switches once you want to put out the term sheets. There's an element of now you've got to pitch to the founder. You got to get them excited about taking your term sheets.
How many of them are going to struggle in convincing all the engineers out there to join them, as well as how many of them are going to be able to convince customers? So, I think the question for you is: do you see there being a challenge for those founders who are much earlier on in their career starting a company? They're very smart, they've got an incredible product, they get term sheets, but the challenge becomes that consistent product-market fit, because that product-market fit never ends. So how do you sustain product-market fit?
Well, I think it's a bigger picture problem than that. Entrepreneurship is very different from being an engineer. Being a great entrepreneur is a multifaceted challenge, and it changes all the time. And some people have done an astonishing job over time of growing with their business. I teach a class at Stanford on venture entrepreneurship and venture capital, and Dylan Field came in to talk to the class about building Figma. He had this near-death experience along the way when he was a great engineer—an extraordinary engineer—but was an inexperienced manager who had pissed off his engineers early on in the process by being too much of a micromanager. And then he figured it out, and he retained a bunch of those engineers, and he figured out how to grow the business. And now he's taking a company public that's hundreds of millions of dollars in ARR. It's a product company first that's a big sales and marketing business. And so the Dylan who was in his 20s building this great product is very different from the Dylan in his 30s who needs to be a public company CEO. That's very hard and very rare. And what you're describing is even more acute at the front end: we have these extremely great engineers who have a product vision, but they don't have a clear sense of the market, of the customer. And sometimes that's fine—sometimes someone truly innovative can invent something that creates a market. But most of the time, that's not it. Most of the time, the winner is the great salesperson, not the great product. I'm a former intellectual property attorney, so people say, 'Oh, we have all these patents.' And my answer is I don't care at all. Patents are profoundly uninteresting compared to your ability to solve a real problem for your customers that they're excited about.
Moving on to another topic. When it comes to investing, you look at thousands of pitch decks, and as you said, you write one term sheet, maybe a few a year. How do you choose between the different founders that you meet?
