Fresh off Fastly’s big IPO, August Capital targets 2020 fundraising

David Hornik wants to set the record straight about August Capital, where he has been a general partner since 2000. The firm is doing just fine, buoyed by a recent sizable exit, and is on track to begin raising its eighth fund next year, he said.

There has been a lot of confusion, and some wild rumors, since the start of the year. That’s when Hornik told Axios that the 24-year-old firm had suspended fundraising and returned commitments for Fund VIII. “The story just gave this fallacious sense that we had shut down the firm unceremoniously,” he told Venture Capital Journal in an exclusive interview.

With the departure of four team members in the past six months, the rumor mill kicked into overdrive. At one point, a fellow VC called to console Hornik about his “troubles” and ended the call with an offer: “If you decide you have to fire any of your assistants, I need a really good assistant.” As good-natured as Hornik is, he couldn’t bring himself to laugh.

It is true that the San Francisco-based firm suspended fundraising in December. But context is important. At that time, the firm had held a first close on $100 million and was about to close on another $100 million. It was targeting $250 million to $300 million, considerably less than the $450 million it had raised for Fund VII in 2015.

August could have forged ahead, but Hornik didn’t feel right about it. “We had closed on a number of existing investors, but we also had a number that wanted us to focus on our portfolio [to produce more exits],” he said.

August does not disclose the names of its limited partners. However, research by affiliate publication Private Equity International shows that The William Penn Foundation is an LP in Fund VI and VII, while mega fund-of-funds HarbourVest Partners is an investor in Fund VI.

LPs in August’s Fund V include foundation Carnegie Corporation of New York and the Gordon & Betty Moore Foundation, according to PEI.

Hornik took investor concerns to heart, telling Fund VIII LPs he was returning their commitments and putting off fundraising for a year. “I wanted to make sure that my existing LPs were enthusiastic about supporting August, and I felt like there was an opportunity to create more momentum for the fund,” he said.

Momentum has indeed picked up. The big news came in May with the IPO of Fastly, a provider of cloud computing services. Hornik led the investment and August is the company’s largest shareholder, with ownership of just over 20 percent. Its holds about 16.1 million shares, which were valued at more than $540 million on Sept. 5.

To be specific, August Capital VI holds 8.7 million shares valued at nearly $296 million, while August Capital VI Special Opportunities holds 7.3 million shares valued at about $248 million. In other words, Fastly returned nearly all of Fund VI, a $300 million fund raised in 2012, and nearly all of the Fund VI Special Opportunities, a $250 million vehicle raised in 2012.

If the public markets cooperate, Hornik predicts August will see another two portfolio companies go public in 2019 or 2020: GitLab, a software development platform, which August backed with Fund VII, and a portfolio company from Fund V that he declined to name. “Each one will be a multibillion-dollar company, returning hundreds of millions of dollars to our LPs,” he said.

Iltchev

Even as exits have multiplied, four August team members have chosen to leave since March: Partner Villi Iltchev, Principals Abie Katz and Lisa Marrone, and Chief Administrative Officer Jeffrey Bloom.

The most significant departure was Iltchev, who left in March and joined Two Sigma Ventures five months later. Iltchev had been with August for about three years, and he was the lead investor and board member for GitLab, as well as FactoryFour, which makes software for manufacturers, and SendBird, a chat platform for mobile apps. He was slated to be one of four general partners in Fund VIII, according to a regulatory filing.

VCJ was unable to reach Iltchev for comment.

“I have nothing but good things to say about Villi,” Hornik said. “I look forward to working with him [at Two Sigma].”

As to rumors that August’s economics might be misaligned, Hornik said the firm has had a “flat partnership” since it raised its sixth fund seven years ago. That means general partners share carried interest equally. The flat structure remained with Fund VII and VIII.

Iltchev “would have been an equal partner in August VIII,” Hornik said. “He chose to go look elsewhere.”

As for Marrone, she left in March to for an entrepreneurial venture. She co-founded Revel Gatherings, which aims to bring together women over the age of 50. August is an investor in the San Francisco startup along with Y Combinator, Hornik said.

Former principal Katz, who left August in June, said via email that he is mulling his next move. “For now, I am mainly doing advisory work,” he wrote.

VCJ was unable to reach Bloom, August’s former chief administrative officer, who left in June.

Notably, all four of August’s general partners remain on board: Hornik, Eric Carlborg, Howard Hartenbaum and Tripp Jones.

Hornik said he plans to stick around for a long time. “I just turned 51,” he said. “I easily have a couple more funds of 10 years in me. I love this business.”

FIRM PROFILE

AUGUST CAPITAL

Website: www.augustcap.com

Location: 893A Folsom Street, San Francisco, California 94107

Fundraising: Expects to be in market with Fund VIII in 2020.

LP contact: GP David Hornik, hornik@augustcap.com

Current fund: August Capital VII

Fund size: $450 mln

Vintage: 2015

General partners: Eric Carlborg, Howard Hartenbaum, David Hornik, Tripp Jones

LPs: Does not disclose, but PEI reports The William Penn Foundation is an investor.

Notable investment: GitLab, a software development platform, is expected to go public in 2020. GitLab is backed by Fund VII.

Notable exit: Fastly went public on the NYSE on May 17. August is the largest shareholder of the cloud-computing-services company, with ownership of just over 20 percent. It holds about 16.1 million shares, which were valued at more than $540 million on Sept. 5.

Focus: Early stage software companies serving the enterprise and consumers. Subsectors include software-as-a-service, e-commerce, data communications, internet of things and blockchain.

What sets the firm apart: Makes fewer investments than peers, with emphasis on helping founders build companies.


Correction: This story has been corrected. The dollar amount for August Capital VI was wrong in the original version. Fund VI is $300 million.