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All right.

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This is going to be the meet the VC panel.

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FYI, there are two mics there.

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If you have any questions when it's Q&A, by direction here, please go to one of the mics.

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Cool.

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Give me a big hand.

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Cool.

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So my name is John Herring.

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I work at a company called Lookout.

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You know, the company Lookout, for those who don't know, does mobile security.

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We started here at DEF CON.

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After a number of years of doing research and spending time in the community, we were able to build a business and ended up raising venture capital.

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So I thought it might be interesting to share some of our stories and spend some time getting to know some of the top venture capitalists who work in the security industry as well.

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So maybe we can introduce ourselves, starting with you, JJ.

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Hello.

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My name is John Jack.

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I go by JJ.

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Clever.

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I was the CEO of a security company called Fortify Software, which was security at the application level.

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We were one of the pioneers in that space, at least in terms of commercializing a lot of work that had been done prior to us starting the company.

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We grew that company fairly well, became the standard in financial institutions, governments, telcos, and actually the standard in commercial software providers.

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People like Oracle and SAP and EMC all used this product in order to root out vulnerabilities in the software that they delivered to their customers.

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That company was acquired by Hewlett Packard in 2010.

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Previous to that, I was CEO of a couple of other companies, one we sold to VMware, one we sold to a company called Corporate Data.

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And now I work part time with a VC firm called Andreessen Horowitz.

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We have a number of investments in security.

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And I also part time do some consulting and serve as an independent director on other venture‑backed companies.

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Thank you.

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Hi.

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My name is Matt Ocko.

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I very unglamorously go by Matt.

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I'm the co‑founder and co‑managing partner of a firm called Data Collective.

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We like doing deep, dark, difficult stuff that most of our venture colleagues, ironically, except for the guys on this panel, disdain or don't understand.

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It's where we've made most of our money.

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It seems to be a reasonable thesis across 220 companies over nearly 25 years.

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We've had fewer than 20 losses and we've made our entrepreneurs about $30 billion net of boom, bust, IRS, you name it.

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I think some of the distinguishing characteristics of our firm that may be a little unusual is that three out of the four partners still read and write code.

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Still understand chip design.

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If you show me a 10 million gate design and you're lying to me about the clock tree, I will know.

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And we've really enjoyed doing really fundamental stuff.

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We're the seed investors in Zen Source.

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We're very early on in VeriSign.

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A number of our companies in the security space are important parts of Google and VMware and Facebook and some other demanding customers around the world.

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And we love this stuff.

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And I'm very happy to be here today.

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Good afternoon.

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My name is Ping Lee.

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I'm a partner at Excel.

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I've been doing venture investing for close to ten years now.

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Excel is an early stage venture capital firm.

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We've backed companies from the seed stage to the growth stage, offices here in the U.S., Silicon Valley, in London, China, and India.

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And our goal is to always find exciting entrepreneurs that are trying to build category‑defining companies and have been investing in security for quite some time and look out.

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It's just one of many companies we work with.

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Hi, I'm Deepak Jeevan Kumar from General Catalyst Partners.

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We are an early stage and late stage venture capital firm with $2.5 billion under management.

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And we have backed companies across multiple industries, including cyber security.

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Some of our investments that you know of are Kayak, Airbnb, Stripe, Snapchat, more recently.

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And we also have not shied away from hard technology investments.

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So actually, Excel and us used to share an investment called BBN Technologies, where the early Internet research was done.

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And one of our companies called Reveal Imaging did like a hardware for bomb scanners, and they had only one customer called the TSA.

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So personally, I started writing code when I was about seven or eight years old.

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I don't remember now.

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And the first one was Logo.

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I don't know if you guys ever used Logo before.

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And I have hacked quite a bit, and I think I was lucky to be involved in two of the largest supercomputing projects.

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I was an architect on those projects in human history.

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So happy to share and happy to ‑‑ I hope we can convince more of you to become entrepreneurs in cyber security.

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So it's interesting.

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So this is my 11th year at DEF CON, and I can tell you when I first started coming, it's not something I would have expected to see venture capitalists at DEF CON.

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And it's definitely changed a lot as time has gone on.

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Just the interest from a mainstream capacity in cyber security in general has changed a lot as this technology has touched the fabric of society and people's everyday lives.

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I'm curious, what are you guys looking for?

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I'm sure a lot of people in the audience are curious, you know, as they're building projects and whatnot, what is it going to take to get funded by a venture capitalist?

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What are the types of things you look for when you're looking for a security investment, looking for people at a conference like this?

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Okay.

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We're still going in reverse order.

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Because it says number four here.

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So I would not ‑‑ I won't address the technical side of it, because my background, I think you can tell from the introduction, I'm not a super ‑‑ I'm not a hacker, despite the shirt that I proudly wear.

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I can tell you that I would say two things in terms of what do we look for in a security investment.

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I mean, the first is obviously we look for something that has a wide applicability so that the market opportunity is big.

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And if you take ‑‑ if you think about how you can leverage a large market opportunity, one of the key things is are you leveraging something beyond just a security solution?

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So a lot of security solutions are, frankly, point solutions to address a tough problem in security.

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And you can make some nice companies out of that.

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But if you're also leveraging another major trend, so, for example, enterprises moving to the cloud and cloud‑based applications.

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So one of the investments we made at Andreessen Horowitz in which I'm on the board is called Cypher Cloud.

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And what Cypher Cloud does is essentially allow people who use Salesforce and Office 365 and Gmail and Box and other cloud‑based applications, it allows them to secure the data that's in the cloud such that if a government organization cites the Patriot Act and says to Salesforce,

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give us all the data for XYZ company, the data is encrypted.

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It won't be meaningful.

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So it's therefore protected.

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And when you're in a heavy regulated industry, that's something you need to address.

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So there's a company that not only has solved a security issue, but is also leveraging a broader trend in technology , which is people moving workloads from on‑premise into the cloud in one form or another.

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So that's an example of looking at an opportunity that might be bigger than just a purpose‑built specific solution to a security problem.

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And the other thing I would say is that we look for really smart entrepreneurs that are super motivated, that really have a lot of drive, a lot of ambition and really want to be successful.

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And so when you put those two together, you have kind of a winning formula.

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So I think John makes an excellent point.

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Big markets are important.

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But in a number of the investments that we've done, some of which actually ended up being co‑investments with Ping's team at XL or John's team at Andreessen, as they went through the end of their seed stage or into later stages, are distinguished by not addressing a big market today.

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So, you know, half the Fortune 500 runs ‑‑ or more than half.

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90% of the Fortune 500, 95% runs these Potemkin Village antivirus systems.

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That's a big market.

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You can say, hey, 10 bucks on every aging desktop PC for the U.S.

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and other G7 countries is a big market.

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We have no interest in that.

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We're interested in the stuff that's going to cause a CIO or a CSO to ‑‑ in a late stage adopter company, three years from now, to panic and say, I must have this at all costs.

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Because one of the dark but unspoken truisms in venture capital is anything worth doing actually takes a long time.

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And all of these sort of huge fantasy outcomes that are celebrated as overnight successes or inevitable successes like a Google, actually took seven or eight years of really hard work.

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Things like CIRA, congratulations to Andreessen for having the foresight to invest in that, are kind of random events.

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So when you're building a product, if it's doing something meaningful, by the time you've got it polished and by the time somebody is going to pay you actually gives a crap, it's been a couple years.

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Maybe more.

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So if you're looking at stuff that will motivate a customer today, you've already put yourself out of the running.

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So to do that, to John's point, takes incredible intestinal fortitude.

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It takes people who can solve difficult multidimensional problems about how to run their company and keep their team happy and keep their customers happy all at the same time on limited amounts of money.

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And because you're going for the gusto for something in the future, it takes incredible tech jobs.

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So, I mean, everybody on this panel is motivated not to invest in me too tech, even if it's looking three years out or something undifferentiated.

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We want to see stuff that has sustainable competitive advantage.

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And so two interesting examples.

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We're in a company called Sentinel that we did with Ping's crew at Excel.

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Those guys are standing a lot of existing security assumptions on his head.

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They're doing something very, very interesting that actually produces deterministic results for important stuff and runs only in user space.

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They don't hook the kernel at all.

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I was astonished.

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I didn't believe it.

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It took me a long time to understand it.

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But it's light years ahead of anything else out there.

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That was worth doing.

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We're in a company with John and his team at A16Z called Illumio that's doing things that people said was impossible to enforce security for fungible workloads in the cloud.

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And by the way, John, I think it's fair to say that when those guys started doing that, most people were disdainful that real corporate compute workloads would move to the cloud.

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So anyway, I hope that's useful.

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The one point I would echo that Matt just said is some of these security markets have become really large are not obvious at first.

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And China, the great entrepreneurs are the ones I kind of see around the corner.

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I remember when we first invested in John's company, John Herring's company years ago around mobile security, the Android phone didn't exist.

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The iPhone was just shipping.

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It wasn't obvious there was going to be any security problems on the mobile phone at the time.

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And having that foresight to be that far ahead of the market and understanding where the hackers are going to be I think is a real set of instincts that we look for.

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Security is particularly hard to invest in because it's an arms race.

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Every time someone comes to our office with a great idea, there's ten hackers out there with a better idea that's going to get around his great idea.

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So you really have to find entrepreneurs that we found that really have been coming to DEVCON for the last X number of years.

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They have to be in the cutting edge of whatever the hacker community is thinking about and pushing the envelope on.

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And that's really hard to find.

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Folks that actually understand the problem but also understand the opportunity to build a company around, that intersection is really rare.

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That's what we look for in security.

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I totally agree with most of those points.

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One thing I would like to add is that we are at the intersection of three major trends at the same time in the history of computer science and technology.

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Mobile, cloud computing and big data.

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A lot of people have written about this.

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But what that means is that we are going to see multidimensional security problems that we have never seen before.

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So it is an amazingly good time to be thinking about innovations in cyber security.

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I actually wrote an article yesterday on the Forbes on cyber security for the app economy.

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But the point I make is that we have to make tools that are faster and more better than things that we have seen before because of this multidimensional problem that exists today.

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And in terms of the entrepreneurs that we look for specifically, number one, you need to be great evangelists of your product without overselling it.

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Then number two is you should have the ability to look around market changes because markets do change.

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Human behavior changes very rapidly than what we think it does.

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And to Ping's point, you need to be best of breed in what you do and you need to stand the test of your peer groups who are almost as good as you or even better than you.

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I guess broadly speaking, everybody in this audience is kind of in the cat bird seat for building a company.

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Because as much as fluffy consumer companies get love and attention and big valuations, that's actually not where the real money is.

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And everybody in this room is probably aware of somewhere between a mini to a full-scale security holocaust that's in process.

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I mean, I'm pretty convinced that RSA up to 512 bits is irretrievably broken, which means every bank and web server and DNS cert out there is effectively vulnerable right now.

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I'd say that's a pretty large problem.

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And the only alternative, I mean, there are alternatives.

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The only practical one is stuck rotting away inside of RIM.

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So there's a giant $10 billion company right there that I don't see anybody doing right now.

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People are fantasizing about the so‑called Internet of Things.

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I can't even leave my Bluetooth on here because I'd really prefer not to pay for your guy's next vacation.

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And so everything from my future pacemaker to the electric meter on my house to the thing that orders food for my kids in my refrigerator circa 2020 is going to be produced by the same ass clowns that can't even have effective security on my phone.

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So, I mean, John asked a really good question.

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What are we looking for?

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Well, the answer is we're looking for you guys to step up much as John did when everybody was pretty smug about the state of mobile security, shock the hell out of us and produce a giant solution to a giant problem that nobody was thinking about.

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And also I'd really like to not pay for your next vacation in the process.

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I turned off my Bluetooth.

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Yeah, well, I remembered to turn off mine about an hour ago.

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So let me ask the opposite question.

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So, you know, you meet lots of people working on super interesting projects, many of which, you know, can be intellectually interesting but many times won't end up being a business of the scale that we've talked about, billions of dollars.

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That doesn't mean it's not interesting.

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When does it make sense not to raise venture capital from someone like yourselves?

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How do you think about the difference between the types of things you would want to actually fund and the types of things that someone might want to go turn into a business?

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But it doesn't make sense to talk to people like you guys.

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Are we pushing or popping the stack, John?

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We're pushing the stack, it's you.

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I'll try to be as brief as I can.

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There's a concept in finance called net present value.

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How many of you guys are familiar with that?

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Awesome.

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That's a disturbingly well educated hacker crowd.

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So the dirty secret or the other dirty secret of venture capital is that your NPV utility curve and the VC's NPV utility curve can diverge pretty rapidly.

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So thanks to a feature of preferred stock investment, most VCs get the right to keep investing in your company every time you take money.

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Which means as long as we have deep enough pockets, our stake doesn't go down and it may in fact go up a little bit.

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Your slice of the pie as more new dollars pour in is in effect reduced over time as you continue to build a company.

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So if you build a really giant company and you and your founding team own 10% and you sell it for a billion dollars after 10 years, that's 100 million bucks.

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That seems like a pretty good outcome.

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But if you own 80% of your company and you sell it for $100 million two years into it, that's $80 million.

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So you would have had a better NPV selling earlier than later for a supposedly more impressive number.

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And when you factor in risk, building billion dollar outcomes is really freaking hard.

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You're definitely better off selling for 80 million bucks in two years.

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Now, that's also, that magic outcome is hard to do.

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And I'm picking deliberately simplistic examples.

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But when you are pretty sure that you have a point solution, I think as John referred to, that solves a really difficult problem that's a quote unquote awesome family business.

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Makes $10 or $15 million a year with great cash flow for you and your friends.

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That's probably not a business that you want to take venture capital for.

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There's no reason for you guys to dilute yourselves.

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If you need money, take angel money.

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Keep 80% of your equity.

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And, you know, when one of the big bruisers panics and realizes they need this point solution and pays you a hundred million bucks, laugh all the way to the bank.

203
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If you are doing one of these global platforms that John and Ping alluded to, the kind of thing I alluded to, like replacing all of RSA, then you probably need venture capital.

204
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You probably need people who have been through it before, whether they're CEOs like John or other former operating guys like Ping to help you build that gigantic business.

205
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So that's kind of how I see the world.

206
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I'll give two examples to kind of put a finer point to what Matt's saying.

207
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The answer isn't always venture capital.

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We are currently investors in a company called Tenable, which is the guys that created Nessus.

209
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And that company was bootstrapped by the founders for I think five, six years before we even put any money into the company.

210
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And it was profitable, growing very rapidly.

211
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Nessus is a very popular vulnerability scanning tool.

212
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And they didn't need the money because the business could fund itself.

213
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And they didn't need someone like myself because they knew they didn't need those resources in the network to grow their business.

214
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It was growing very fine.

215
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And in the last year or so, they decided they saw a larger opportunity around going global, about attacking, extending the product line where they needed additional capital.

216
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More importantly, they needed a partner that knew and had experience in expanding the business in ways they haven't expanded before.

217
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So the decision to make and take venture capital was less about the money, since the business is profitable, but more about the expertise and value add a partner can bring.

218
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In the case of John Herring Lookout, it was very different, right?

219
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Obviously from the very beginning, they were going after an exploding market in the mobile security space where speed to market, time to market and getting out ahead of the mobile platform, which is getting innovated by Google and Apple, was a precondition they just had to deal with from day one.

220
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Venture capital was needed to accelerate the business and also helping scale a team and do a lot of other things around company building was needed day one.

221
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So I think it all really depends.

222
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And I don't believe for the majority of the businesses out there that you require venture capital.

223
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I think it's something that you should look at deeply before you take money.

224
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Because as Matt says, once you take money from another partner, it's a partnership.

225
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And it's not a sole proprietorship anymore.

226
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That's a very big transition.

227
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So I think it really depends on the opportunity and what you want to do.

228
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If I could jump in, I think Ping makes a great point that sometimes there's a perception that what venture capital is, is you get money and then the VC comes to your board meeting hoping you're doing well.

229
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And that's... We do that though.

230
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You really do, in the early stages, if you do decide to accept venture funding, you really do need to look for a partner.

231
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You really do need to look for a firm that has people and services that will add value to what you're trying to do.

232
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I mean, these firms you see up here are all firms that have done a lot in security.

233
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So obviously we all have resources that help you be successful.

234
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At Andreessen Horowitz we have a thing called the Executive Briefing Center that John knows about that we bring in chief security officers and government officials and all sorts of people on a weekly basis and bring in our portfolio companies and they get to present to people even before they've released the product to test the market for their idea.

235
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And as they mature, like John's company has, they get to talk to real buyers of the solution.

236
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And that's a real big service that, for example, Andreessen Horowitz we bring for our entrepreneurs.

237
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So to Ping's point, you really do want to pick a partner that's often both the firm and the individual partner at the firm that's going to be your chief liaison and help you grow the company.

238
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And actually I want to chime in and amplify John's point.

239
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It's not just the firm.

240
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It's not brand.

241
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There's a company that John and I actually have in common that's desired right now by a lot of people in the venture capital community.

242
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And they met with one of the very senior guys at one of the top ten firms in the world.

243
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Every Fortune, Forbes article, you know, New York Times, Wall Street Journal, TechCrunch, I mean, however you want to view kind of external validation, this firm had it.

244
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And to some extent this guy had it as well.

245
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And he was such an arrogant dickhead in the meeting that the entrepreneur said, not only will this guy not be helpful, right, I mean, however giant a check he wants to write, but he'll be actively harmful.

246
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And by contrast, and in credit to JJ, the entrepreneur said, look, what I want is somebody like JJ, who's an operating guy, who's done real stuff, who's been through good times and bad times, it can help me move a little further down the road.

247
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He basically said, I want another partner because I'm stuck in the boat with this person for ten years.

248
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And, you know, Ping and his team are successful in this because they act like partners.

249
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And the entrepreneurs that we fund early on like both of these firms because they're happy with them.

250
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We're still waiting for Deepak to start writing checks, so it's a gentle nudge.

251
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We've got a few for you, buddy.

252
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So let me frame this problem, right.

253
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The problem is this.

254
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As an entrepreneur, the odds of failure are far higher than the odds of success.

255
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That's history, that's data, you can read anywhere.

256
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So every step you take, every meeting you go to, everyone you talk to should be able to increase the odds of success.

257
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That's a fundamental underpinning here.

258
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So all the top venture firms I can say, largely speaking, are there to help you to increase the odds of success.

259
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Helping to find the right mentors for you.

260
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Finding a mentor is really, really important.

261
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I never underrate that.

262
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So I think most of the top VC firms can help you do that.

263
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The other thing is, you know, when do you not take venture capital money to your question?

264
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If the business is low risk, for example, one small check that we do is, okay, can a bank lend to this company for expanding their business?

265
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Definitely not.

266
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And it's not a VC investment.

267
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We look for really high risk investments that need to grow really fast.

268
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Banks look for low risk investments that don't grow that fast.

269
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So typically, venture capital money is going to help you go from zero to 10 million to 100 million in like three to four years.

270
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In that situation, venture capital money is a good fit.

271
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So maybe I can share a quick story for those who might be interested and are thinking about starting companies.

272
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On the flip side of all of this, too, is you can hear an infinite amount of no's, but you only need to hear yes once.

273
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And it's really important to keep that in mind.

274
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I remember vividly when we were first getting off the ground, we were doing obscure wireless research and a lot of mobile stuff, and there was not a lot of interest in what we were doing at first.

275
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Ping wrote us a check and a few of our early angels did.

276
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But most of our investors that we pitched did not understand what we were doing at all.

277
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And it's really easy to get depressed when you're running around trying to raise money and everyone is telling you you're basically an idiot.

278
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But having the fortitude to continue on I think is one of the greatest lessons I've ever learned in raising venture capital.

279
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And it never gets easier.

280
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You just get better.

281
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And hopefully the market is on your side.

282
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But I vividly remember, I don't know if you ‑‑ sometimes it takes, you know, the irrational ‑‑ reasonable people will work on reasonable problems, but consensus, accurate predictions never yield outsized results.

283
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Really important thing to understand.

284
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The outliers come from things that are not obvious.

285
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And unreasonable people will work on unreasonable problems, thus you probably need to be pretty unreasonable to do something amazing.

286
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And this guy, Vinod Khosla, for those who don't know who he is, can be an unreasonable dude and he's very, very brilliant.

287
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Found us in microsystems and I'll never forget we were pitching him and everyone had been telling us no.

288
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And halfway through the meeting he's like, all right, I've heard enough.

289
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I'm like, shit, he's going to throw us out.

290
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This is horrible.

291
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And he's like, I'm in.

292
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What's the valuation?

293
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And he literally wrote us a $5 million check that afternoon and I've never experienced anything like that after hearing no's for just like 50 no's and then something like that happens.

294
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And then not long after that, Excel got involved and the company really started to take off and there's definitely a world where this company never would have even existed if we wouldn't have kept going, not because we were there to make money and not because we were there to build a business,

295
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because we love what we do.

296
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I mean, there's 140 people at DEF CON from Lookout.

297
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We're a much bigger company now and it's who we are.

298
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Nothing's changed, even when we're a lot bigger.

299
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That's really exciting to me.

300
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So I think it's something really important to think about as everyone here starts businesses is the foundations of passion and it's a lot about having the fortitude to keep going.

301
00:30:13,210 --> 00:30:19,770
So my question for this group is how do you think about spotting the nonobvious investments?

302
00:30:19,770 --> 00:30:31,870
Like when you see deals that you're willing to make a nonobvious investment in, I'm curious, Ping, I know you've done a bunch of these, what are the things that you look for in an entrepreneur when you're willing to make a bet that seems really out there?

303
00:30:31,870 --> 00:30:40,590
Yeah, I think the ‑‑ at least the way we think about it, the venture guys don't come up with the ideas.

304
00:30:40,810 --> 00:30:43,190
We never confuse ourselves with the entrepreneurs.

305
00:30:43,250 --> 00:30:48,290
So what we look for is for the entrepreneurs to provide that inspiration.

306
00:30:48,670 --> 00:30:52,950
And it really is from going out and talking to as many entrepreneurs as you can.

307
00:30:52,950 --> 00:30:58,790
The reason I'm at DEF CON isn't because I'm going to win, you know, any hack competition or anything like that.

308
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It's because I can spend time with what I think are really smart people that are thinking about things 10, 15 steps ahead of what I'm thinking about.

309
00:31:06,950 --> 00:31:12,830
And our job as venture guys is just to identify those people that have those insights.

310
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So it's really in some ways I always say, like, the best entrepreneurs are the ones that convince me that doing the impossible is actually possible.

311
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Because we sit there every day and we see hundreds of ideas.

312
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And there's thousands of things wrong with every idea.

313
00:31:27,130 --> 00:31:37,970
But there's always that one entrepreneur that comes through the door and for some reason every question you ask of him or her, the answer comes back in such a way that you're like, wow, this guy may actually pull this off.

314
00:31:38,070 --> 00:31:41,310
And I'm like, that is really actually possible what he just said.

315
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And no matter how you poke and prod at them, they've thought through every single angle of the problem.

316
00:31:46,510 --> 00:31:52,190
I can't tell you how thoughtful the entrepreneur are that we back in whatever space they're in.

317
00:31:52,190 --> 00:31:54,730
It could be big data, cloud, security, mobile.

318
00:31:54,770 --> 00:31:58,570
They've literally thought through every single possible permutation of the problem.

319
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From the customer's angle, from the business model, to every single angle.

320
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And it's really that that kind of gives us conviction.

321
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Not to say they have all the answers, but they've thought through all the problems in the questions.

322
00:32:09,550 --> 00:32:18,550
So that's kind of how we end up finding ourselves backing entrepreneurs, oftentimes in spaces that we did not have any idea or know anything about before we worked with that entrepreneur.

323
00:32:19,290 --> 00:32:23,090
I would actually echo that.

324
00:32:23,090 --> 00:32:32,690
I joked earlier in the kids' presentation where we're trying to drive our investment limit down to 9-year-olds.

325
00:32:32,930 --> 00:32:34,450
We're working hard on this.

326
00:32:34,510 --> 00:32:35,710
There's no law against that.

327
00:32:35,710 --> 00:32:36,610
Yeah, there isn't.

328
00:32:36,610 --> 00:32:41,170
It's not child labor as long as the LLC is in the dad or mom's name.

329
00:32:46,770 --> 00:32:55,890
So kidding aside, what I said there is I want entrepreneurs who will make me feel like a moron.

330
00:32:55,990 --> 00:32:59,990
And my wife would say that's actually not very hard.

331
00:33:00,110 --> 00:33:16,790
But what I would say is, to Ping's point, you can be in a meeting with an entrepreneur, and I've watched this process both at Excel and Andreessen Horowitz and in my own career and deals we have in common.

332
00:33:17,390 --> 00:33:19,530
You think you're being very clever.

333
00:33:20,150 --> 00:33:30,670
The entrepreneur, I'll pick a fairly abstruse example, the entrepreneur is doing something that for some reason involves zero knowledge proofs.

334
00:33:31,170 --> 00:33:32,330
Maybe it's a hobby of yours.

335
00:33:32,330 --> 00:33:44,750
You read a couple of the Scientific American articles about it or IEEE spectrum or ACM proceedings, thingamajiggy, and you think you've actually caught this person out.

336
00:33:44,750 --> 00:33:46,870
And they're nine steps ahead of you.

337
00:33:46,870 --> 00:34:01,850
And by the way, everything else that you ask, you have the sense as the big baller VC that you're a child that this person is patiently explaining how the world really works.

338
00:34:02,010 --> 00:34:19,210
And that's when, as empirical as we try to make VC, that's when you get the gut feeling, especially if the person is passionate and engaged and driven about what they're doing, that this is a human being that you can back.

339
00:34:19,330 --> 00:34:27,830
That they have this combination of, as Ping said, all the answers, but the fire in the belly to go through with it.

340
00:34:28,050 --> 00:34:41,770
And, you know, John, you come across as a fairly quiet guy, but clearly you had the fire in the belly as well as all the answers when Vinod stopped you halfway through.

341
00:34:42,790 --> 00:34:47,270
One more thing is, we're wrong all the freaking time.

342
00:34:47,270 --> 00:35:03,730
So to John's earlier point, or his earlier story, you can't look at a VC saying no as a valid condemnation of your dream or objective or goals.

343
00:35:03,730 --> 00:35:14,390
You have to look at it as a fallible human being or group of human beings with incomplete data making the best literal guess that they can.

344
00:35:14,710 --> 00:35:16,850
And by the way, no's are good.

345
00:35:16,850 --> 00:35:27,330
I mean, one of the things that we brought ourselves on is, no matter how crazy the idea, we will write a couple of paragraphs that explain in detail our decision making for the no.

346
00:35:27,630 --> 00:35:30,690
We never send an email saying, yeah, it's just not a fit.

347
00:35:30,690 --> 00:35:31,310
All right.

348
00:35:31,310 --> 00:35:32,430
Check you later.

349
00:35:33,230 --> 00:35:44,130
We say, hey, look, you know, you had this product flaw and we talked to the four customers you asked us to and they were lukewarm and, you know, you have 17 competitors and you only listed four.

350
00:35:44,130 --> 00:35:46,530
The market may be more crowded than you think.

351
00:35:46,970 --> 00:35:55,850
And a lot of the time we get a thank you instead of an FU even when we say no because it's actually useful for the entrepreneur.

352
00:35:58,230 --> 00:36:01,150
I've always wanted to do that.

353
00:36:01,150 --> 00:36:02,650
I do a lot of panels.

354
00:36:02,650 --> 00:36:05,090
First time I could say fuck.

355
00:36:05,850 --> 00:36:07,770
I just wanted to get that out.

356
00:36:11,970 --> 00:36:23,370
I guess being luckier because I've had entrepreneurs on occasion invent entirely new mathematical symbologies to tell me how bad they wanted me to fuck myself.

357
00:36:26,650 --> 00:36:28,330
But John's absolutely right.

358
00:36:28,330 --> 00:36:30,610
You can take a no as definitive.

359
00:36:31,710 --> 00:36:43,710
And I think when you do get a no, the one piece of feedback that I have for everybody in this room is demand the reasoning behind it and use it to go strengthen your pitch.

360
00:36:44,450 --> 00:36:45,730
And go see Vinod.

361
00:36:45,730 --> 00:36:48,590
Apparently he writes $5 million checks in less than 30 minutes.

362
00:36:48,590 --> 00:36:51,270
So I think we've got about ten minutes left.

363
00:36:51,270 --> 00:36:52,710
I want to make sure we have time for Q&A.

364
00:36:52,710 --> 00:36:56,510
So there's two microphones right there for those who want to ask questions.

365
00:36:56,510 --> 00:36:57,650
We'll start over there.

366
00:36:59,450 --> 00:37:02,290
Let's talk about the logistical process of how you get started.

367
00:37:02,330 --> 00:37:04,510
You've talked about it from a hypothetical.

368
00:37:04,750 --> 00:37:08,030
At what point are people interacting with you?

369
00:37:08,030 --> 00:37:10,570
Is it when they have a full‑fledged product like a prototype?

370
00:37:10,570 --> 00:37:12,610
Obviously it's going to be different from hardware software.

371
00:37:12,610 --> 00:37:15,550
Hardware is going to have a lot more capital expenditure to begin with.

372
00:37:15,550 --> 00:37:20,310
Let's talk about some of the logistics of how they would interact with you to contact you guys.

373
00:37:20,930 --> 00:37:34,490
Well, the ‑‑ so from my personal experience, not as a VC, but as someone who started a company, I don't ‑‑ I don't think you ‑‑ I don't think you need to wait at all.

374
00:37:34,490 --> 00:37:47,470
I think you can start building relationships with VCs by, you know, you get introduced or you introduce yourself and you simply say I have a concept I'd like to talk to you about.

375
00:37:47,610 --> 00:37:54,250
Most VCs to ‑‑ I think Ping said it earlier, want to talk to as many entrepreneurs as possible.

376
00:37:54,610 --> 00:38:02,470
And you can come in and say I'm not ready to raise money yet, but I just want to test the waters with you with this kind of concept.

377
00:38:02,990 --> 00:38:27,690
And good VCs will not only, you know, test the waters with you, but they'll give you advice about, you know, you're thinking about this right, but have you thought about what your cofounders would look like or, you know, one thing that I tend to tell a lot of people is you can't just invent a product without thinking about how you're going to get that product into customer's hands early on.

378
00:38:27,690 --> 00:38:36,730
Like you don't want to build this huge monolithic thing, I'll give you an example, that requires an appliance and an agent on every end point.

379
00:38:36,830 --> 00:38:39,750
You know, it's just not going to get sold.

380
00:38:39,810 --> 00:38:47,610
It may solve a problem, but it's no one buys technology now that requires something implemented on every end point.

381
00:38:47,770 --> 00:38:49,870
So, yeah, you don't need to wait.

382
00:38:49,870 --> 00:38:58,950
You can start the process right away and don't be afraid that, oh, shit, I didn't have a great... this is the place you can swear, right?

383
00:38:59,890 --> 00:39:05,390
I didn't have a great meeting, so now I screwed my relationship with that particular VC.

384
00:39:05,390 --> 00:39:09,830
If you did, then that VC is not the right VC anyway.

385
00:39:10,070 --> 00:39:11,270
On the left.

386
00:39:13,430 --> 00:39:14,270
Hello?

387
00:39:14,350 --> 00:39:14,610
Okay.

388
00:39:14,610 --> 00:39:15,450
So here it is.

389
00:39:15,450 --> 00:39:16,910
Talk about the impossibility.

390
00:39:17,370 --> 00:39:18,250
So I'm from New Jersey.

391
00:39:18,250 --> 00:39:20,250
You've ever heard the expression waste management?

392
00:39:20,690 --> 00:39:22,810
Guys from New Jersey and New York, what business are you in?

393
00:39:22,810 --> 00:39:23,710
Waste management?

394
00:39:24,030 --> 00:39:29,930
So I'm in the business of eliminating and killing and crushing foreign adversaries for child pornography.

395
00:39:30,470 --> 00:39:40,110
Now, that's an impossible attempt to go against foreign adversaries, organized crime figures, people who actually don't want to actually step up to the plate.

396
00:39:40,110 --> 00:39:42,090
So I'm in the waste removal business.

397
00:39:42,670 --> 00:39:44,790
Something that nobody can say no to.

398
00:39:45,090 --> 00:39:47,570
Because if you say no, you're saying no to helping kids.

399
00:39:47,790 --> 00:39:50,070
I challenge the panel right here, right now.

400
00:39:50,250 --> 00:39:51,290
I got the technology.

401
00:39:51,290 --> 00:39:52,490
I got streaming data.

402
00:39:52,490 --> 00:39:53,770
I got security.

403
00:39:53,770 --> 00:39:57,330
I got everything you can possibly imagine to get these people off the streets.

404
00:39:57,370 --> 00:40:01,150
Russians are making $8 billion a year just in child pornography alone.

405
00:40:01,150 --> 00:40:05,410
And they're selling it through cyber security and other areas under the radar.

406
00:40:06,530 --> 00:40:14,270
So what do you guys think about addressing an issue that actually collectively helps save the youth of the nation that people say it's impossible to do?

407
00:40:14,870 --> 00:40:16,810
Who says it's impossible?

408
00:40:17,110 --> 00:40:24,370
Everybody says it's impossible to address because nobody wants to address the issue because of the ugliness of the intellectual property and the issue that goes along with it.

409
00:40:24,370 --> 00:40:27,950
Nobody wants to stare at 80 million kids being raped.

410
00:40:28,510 --> 00:40:42,150
In video alone, nobody wants to go through the process, filter it, decipher it and put it in the right position and remove it and try to figure out how to get it out of the hands of people who then would actually not want to have it or have it creep up on social media.

411
00:40:42,830 --> 00:40:44,210
So two comments.

412
00:40:44,210 --> 00:40:47,990
One, it is sunnier in California.

413
00:40:47,990 --> 00:40:52,010
I think we got a better attitude about the impossible than maybe in Secaucus.

414
00:40:52,130 --> 00:40:53,590
So come visit.

415
00:40:54,070 --> 00:40:57,630
The second thing I can't speak to my fellow panelists.

416
00:40:57,630 --> 00:40:59,630
I know some of them had tight schedules.

417
00:41:00,610 --> 00:41:07,170
But I will come find you and I will listen for ten minutes to your impossible idea and I will give you the best advice that I can.

418
00:41:07,610 --> 00:41:09,590
Any other opinion on the panel?

419
00:41:10,330 --> 00:41:12,750
I'll be outside right afterwards.

420
00:41:13,350 --> 00:41:15,230
Is it just you or nobody else has any comments?

421
00:41:15,230 --> 00:41:17,090
I have no idea what my colleagues can do.

422
00:41:17,090 --> 00:41:18,490
But I will step up.

423
00:41:18,490 --> 00:41:18,990
Great.

424
00:41:18,990 --> 00:41:19,970
Over here on the right.

425
00:41:20,250 --> 00:41:21,090
Yes.

426
00:41:21,170 --> 00:41:22,210
Hello.

427
00:41:22,790 --> 00:41:26,590
I'm an internet veteran from decades back.

428
00:41:26,590 --> 00:41:31,350
And my question is, when are ideas too big for you guys to be interested in?

429
00:41:31,350 --> 00:41:34,990
I heard earlier on you talked about Cypher Cloud, something like that.

430
00:41:34,990 --> 00:41:49,110
Well, I come from maybe a slightly different alternate universe from this crowd, from the standards field and there's this, gone through this multiple times in the past, but currently there's something called DNSSEC, could be a platform for a whole bunch of security,

431
00:41:49,110 --> 00:41:52,810
solving a lot of problems, maybe eating some security vendors' lunch as well.

432
00:41:53,050 --> 00:42:06,110
And I've heard when I'm looking for interest from investors, not to make money myself, but to make this stuff happen, I get, well, you know, Rick, that's a big play.

433
00:42:06,110 --> 00:42:06,970
That's too big.

434
00:42:06,970 --> 00:42:07,790
That's too rich.

435
00:42:07,790 --> 00:42:14,210
And so you were talking about looking for the, I understand maybe it's one out of ten, then you're doing really good if you're successful.

436
00:42:14,210 --> 00:42:24,750
So I understand risk is not something you're afraid of, but I'd like to get maybe one sentence, short little response about when is something not appealing at all to you guys?

437
00:42:25,290 --> 00:42:26,270
That's just too big.

438
00:42:26,270 --> 00:42:26,950
Thanks.

439
00:42:27,990 --> 00:42:36,390
Well, I couldn't hear everything, but just your question about when is something too big, there really isn't anything too big.

440
00:42:36,390 --> 00:42:41,590
And when you're in the venture capital business, we're about finding big opportunities.

441
00:42:41,590 --> 00:42:48,870
I think the thing that I would think about with your particular opportunity is to actually break the problem down into smaller pieces.

442
00:42:48,870 --> 00:42:52,890
Don't try to solve the end state right from the beginning.

443
00:42:52,890 --> 00:43:02,470
I think a lot of entrepreneurs see the end state, but the market or the industry may not be as far along as where you want it to be.

444
00:43:02,470 --> 00:43:12,730
So one of the failure modes we've seen in a lot of companies is being too early to a market and just making sure that you line yourselves up with market realities.

445
00:43:12,730 --> 00:43:14,030
It will play out over time.

446
00:43:14,030 --> 00:43:17,090
Sometimes things take longer or they take a path that's slightly different.

447
00:43:17,230 --> 00:43:22,830
So the end state is usually bigger than what anyone imagines, but how you get there sometimes is very different.

448
00:43:22,830 --> 00:43:27,010
I think a lot of people try to do the big thing first.

449
00:43:27,590 --> 00:43:29,330
So be patient, I guess.

450
00:43:29,770 --> 00:43:30,810
Great, thanks.

451
00:43:30,810 --> 00:43:31,450
Okay.

452
00:43:32,410 --> 00:43:36,130
So I'm one of these people that has an idea.

453
00:43:36,310 --> 00:43:38,470
I'm not ready to come to venture capital yet.

454
00:43:38,470 --> 00:43:50,450
And because what I'm working on is two-factor authentication, behavior and bio in one fell swoop, I'm going to need to put an end point on every ‑‑ an appliance on every end point.

455
00:43:50,450 --> 00:43:52,650
Unfortunately that's just the nature of the beast.

456
00:43:52,650 --> 00:43:56,230
How do I ‑‑ it requires software and hardware.

457
00:43:56,230 --> 00:43:58,630
The hardware has been invented but not in the right size.

458
00:43:58,630 --> 00:44:02,450
And the software, somebody could program it, that's not me.

459
00:44:02,530 --> 00:44:11,130
How do I get it to a point where I can bring it to somebody to get some money so I can hire someone to build the hardware the size I need it and do the programming?

460
00:44:11,130 --> 00:44:12,690
Because I don't have the money.

461
00:44:12,790 --> 00:44:15,070
How do I get it to a point where I can get some help?

462
00:44:15,110 --> 00:44:17,610
You can come today and then we can talk about it.

463
00:44:17,610 --> 00:44:32,330
And I'm sure the ‑‑ to an earlier point here, it's okay to go to VCs before you are ready, before the product is in the market, so we can give you advice on what we have seen on how to bring this product to market.

464
00:44:32,370 --> 00:44:34,410
I'm assuming I need to have you sign an NDA?

465
00:44:34,950 --> 00:44:36,230
VCs don't do that.

466
00:44:36,230 --> 00:44:38,010
Yeah, we normally do not sign NDAs.

467
00:44:38,670 --> 00:44:40,990
Maybe I can chime in here.

468
00:44:40,990 --> 00:44:41,530
Okay.

469
00:44:42,650 --> 00:44:43,610
A couple things.

470
00:44:43,610 --> 00:45:04,670
One, the only purpose of an NDA that you can argue for is actually in the first to file patent regime which would be to protect you from future claims by somebody that you'd exposed your information in public and therefore you couldn't patent it.

471
00:45:04,670 --> 00:45:13,070
As it turns out, if you're talking to somebody about financing your company, there's an exemption in the law for that that applies internationally.

472
00:45:13,070 --> 00:45:18,490
So you're not jeopardizing your patents by talking to a VC under first to file.

473
00:45:18,490 --> 00:45:38,050
And VCs can't sign NDAs because all it takes is a small handful of surly people filing nuisance lawsuits and not our money but our time is then so consumed in that kind of litigious regime that VCs would just stop investing in promising young companies.

474
00:45:38,050 --> 00:45:47,350
So literally to protect, to achieve herd immunity, not signing NDAs is a form of vaccination.

475
00:45:47,350 --> 00:45:55,170
As far as what you want to do, even if it's not the right thing for a VC, there's Kickstarter and a whole bunch of other crowdfunding stuff.

476
00:45:55,230 --> 00:45:56,910
There is Angel List.

477
00:45:56,910 --> 00:45:58,210
We know the guy as well there.

478
00:45:58,210 --> 00:46:00,750
We're actually investors in that platform.

479
00:46:01,510 --> 00:46:05,990
That's an awesome way of getting like‑minded people to back you.

480
00:46:06,470 --> 00:46:07,190
And you know what?

481
00:46:07,190 --> 00:46:27,290
I don't know exactly what you're doing, but if you showed up and said, you know, hey, I've got something that plugs into a USB port or works over low power Bluetooth, next generation laptops, and I can provide bulletproof, authenticatable security locked to an individual human being,

482
00:46:27,290 --> 00:46:32,890
you know, maybe that's my sign‑in for, you know, my true crypt.

483
00:46:33,290 --> 00:46:35,790
I can unlock true crypt with your gizmo.

484
00:46:35,790 --> 00:46:36,510
You're right with me.

485
00:46:36,510 --> 00:46:37,330
Keep going.

486
00:46:38,250 --> 00:46:46,850
There's half a million dollars of human beings interested in that on Angel List or Kickstarter without a huge amount of effort.

487
00:46:46,850 --> 00:46:48,270
So I say go for it.

488
00:46:48,710 --> 00:46:51,070
Matt's going to write you a $5 million check.

489
00:46:52,710 --> 00:46:55,570
You need another 30 minutes before I raise you the $5 million.

490
00:46:55,750 --> 00:46:57,230
I'll make the time.

491
00:46:57,810 --> 00:47:01,810
Unfortunately we're out of time, but I know the panelists will probably be up here after for questions.

492
00:47:01,810 --> 00:47:04,630
So anyone who does have questions, just come on up and grab the panelists after.

493
00:47:04,630 --> 00:47:05,490
Let's thank everybody.

494
00:47:05,490 --> 00:47:06,290
Appreciate it.