1Mby1M Virtual Accelerator Investor Forum: With Dave Hornik of August Capital (Part 2)

Sramana Mitra: Let me turn the question around. If somebody came to you with an idea, give us some insight into your process of how you analyze and frame the idea. We can do this for some of your investments that have turned out really well but when they came to you, that was not at all obvious. What was the thinking hat that you put on to analyze and assess those?

Dave Hornik: The first piece of that is always, “Is this a person with whom I’d like to work? Is this a group of people who I think are thinking differently and deeply and are truly engaged in what they’re building?” There’s a range of opportunities. I’ve now been working with an entrepreneur for 14 years by the name of René Lacerte. He’s a great guy. I met him when he was funding his first business. He’d just left Intuit.

He was building an online payroll business before anyone had thought of bringing any of these financial services businesses online. He had pitched dozens of venture investors. We always joke about it that you’re looking for expertise and a certain amount of understanding of a market when you’re going to fund someone. René had more understanding of the payroll market than anyone else.

His parents ran a payroll company. His uncle had sold a payroll business to Intuit. He had run payroll at Intuit. This guy was Mr. Payroll. Now you have the market. This guy really understood payroll. Is he going to build a big, interesting business? The way you find that out is really by just engaging in conversation. René and I had a lot of great conversations about how he was thinking about payroll and how his parents had built their business and why Intuit wasn’t doing this.

Through all of this, I came to the conclusion that René was incredibly smart. He was very thoughtful. He knew the market and understood what he was trying to build – that there was a window of opportunity that nobody was taking including Intuit. I spoke with all sorts of people who knew him, so I knew that he was an extraordinarily honest and decent human being.

Through that process, I’m 90% of the way there. The last 10% is, “Is there an opportunity?” If the classic payroll providers do something to compete, is there a business still? We ultimately decided that there was a big opportunity. We were excited about it. We invested in the company. It was actually my very first investment and we ultimately sold it to Intuit for a couple of hundred million dollars. It has been a very successful business for Intuit. They tried to compete, but they couldn’t.

Then René said, “I’m going to start another business. It’s called Bill.com.” I said, “Great. Here’s money.” That’s just a microcosm of my process. You sit down with people. You determine whether you feel like they have a real understanding of what they’re building. You figure out whether they’re motivated by the right sets of things. For me, the motivation isn’t getting rich. Maybe the byproduct is that.

To my mind, great entrepreneurs do not start businesses because they searched around for the thing that will make them rich. Great entrepreneurs care about solving problems and they have come to a problem that they want to fix for whatever reason. When you find those people who are engaged and excited, then you want to spend the next 10 years with them. I’m excited about two decades of René Lacerte.

Sramana Mitra: We have profiled both his companies in the Entrepreneur Journeys series. At least, one of them is in one of the Entrepreneurs Journeys book. The interview is with Jim Heeger who went on to run PayCycle eventually.

Dave Hornik: I love Jim Heeger.

Sramana Mitra: Jim took a scaled PayCycle and sold it to Intuit. By that point, René had already started Bill.com. It’s not in the books but it’s in the case study portfolio.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Dave Hornik of August Capital
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