Editor’s Note: Here’s a story from our archives we feel is relevant even today and deserves your attention.
“Propose an idea that can be a global household name in less than 10 years,” is Howard Hartenbaum‘s main advice to startups.
August Capital is a top player in the venture capital (VC) industry. The company has backed the likes of Seagate, Stumbled Upon, Microsoft and Skype.
According to the company, its partners represent an aggregate market capitalisation of well over US$250 billion, generate in excess of US$75 billion in annual revenue and employ a quarter of a million people around the world.
My objective of the interview was simply to understand the very candid Hartenbaum’s investment methodology — how he invests, why he invests and what his preferences are in regards to startups.
I started off by getting a meta picture, asking him his overall strategy — what he looks for in a company for him to commit a portion of his and August Capital’s substantial resources.
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Without a moment’s hesitation he said that a company can become profitable with a little investment capital. “But it has to become transformational and must learn to defend itself,” he added.
Defend itself? This choice of word intrigued me.
He explained that especially in the tech sphere, it is all about unique technologies. You have to make sure that even if someone tries to copy or rehash your technology, no one can do it better than you. He used Google’s search engine as an example: There are hundreds, maybe thousands of search engines out there, but “Googling” has become a pseudonym for doing an internet search and that’s because it has defended itself with its unique technological prowess.
“Most startups are filling a niche,” he held the view and added that they need to show the potential for expanding past that niche.
On whether it is the product or the team that attracts him more to invest in a startup, he said, “For me, while product and team are important, understanding the market is most important.” He used Uber as an example to support this. There was a massive market in ridesharing, but no one realised it existed. The company, therefore, had no competition and skyrocketed to become a darling of the startup world. “We can improve a product, we can hire people, but we can’t create a market if there’s none,” added Hartenbaum.
The topic then inevitably moved to the startup environment in Southeast Asia, which, according to him, has always had the attention of investors and VCs.
“Startups in this region,” he said, “do not fully understand venture capitalism”. “You see, there are different types of monies, different types of investors,” he added. As for what country in the region is most attractive for investment, Indonesia is his natural choice, for its sheer population.
As the topics meandered deeper into startup team dynamics, I asked Hartenbaum what he thought of startups that do not have CTOs and outsourced a lot of their software and hardware development. “I would not invest in a tech company without a CTO,” pat came his reply. The strength of a tech company is its technology and if that is not managed and developed in-house, then “someone else can go ahead and get the same team to do the same thing a second time, and it will be a lot cheaper the second time,” he added.
We then spoke about the startups that had come to the event, in particular smartphone app developers. I asked him if there was any room in the saturated smartphone app market for more apps or would tech startups do better by moving to fields like healthcare or transport. “There are still a lot of opportunities in mobile, especially in using geo location,” he said.
Wearables was another topic I wanted Hartenbaum’s opinion on. This year, wearables have become a rage with Apple, Sony, Asus and most of the other big tech companies getting in this new market. Being a fan of wearables, such a reaction from him was unexpected. According to him, wearables is not a technology that has proven itself as being worthy of investment at this current point in time. “The problems wearables solve can be solved with software on your phone, you don’t need another piece of hardware. After all, the hardware market is a low margin race to the bottom.”
My time with Hartenbaum was up and I still had a lot to ask him. But being a fan of lists and their brilliance in creating succinct statements, I asked him to give me his likes and peeves when it came to startups.
Here it goes:
1. Startups that choose to do business in a saturated and crowded market
2. Founders that haven’t fully thought out all elements of their business and therefore have a long history of pivots
3. Startups in which the founders aren’t leaders
1. Startups that know their target market inside and out
2. Startups that do not need too much capital injection to achieve their potential
3. Integrity of the founders is very important.