What got you into angel investing?
I came out of AT&T Bell Labs, doing bleeding edge technology for 10 years, and then marketing and business management of large telecommunications projects sold overseas. So when I left, this was a natural extension of what I was doing AT&T. I made money in the stock market and apply the same discipline to angel investing: sell the losers and double down on the winners. Getting out of an investment is very difficult for most angels when the company is no longer viable as opposed to putting more money into it. I also play poker and most angels and entrepreneurs are good poker players.
What was your first angel investment? How did it turn out?
It’s either Xlibris or TuckerToys, I can’t remember. Xlibris, the first self publisher on the internet, sold about three years ago at a very nice profit. TuckerToys makes the Phlatball – over 15M sold, mostly overseas. TuckerToys produced a couple of great years of dividends and is still in existence.
What investment do you most want to brag about & why?
The two companies I am most famous for are Diapers.com and Bikini.com. People used to make fun of me for investing in Diapers.com because we were selling diapers on the internet… until Amazon bought it for $545M. And the really neat part was that I contributed absolutely zero to it, other than money and encouragement. It was like watching a really good movie. Marc and Vinit were super operational people and did not need any advice.
I like to mention Bikini.com because that humanizes me as an angel investor as opposed to those money hungry number crunching VCs. I need to have some fun too!
Notable train wrecks and lessons learned?
I’m proud of some of my train wrecks because I learned things from them. For example, MakeUsAnOffer was doing exceptionally well and then we got into some legal patent issues. We were probably in the right but couldn’t survive the lawsuit. Some things can’t be anticipated or planned for and you just don’t have the resources to handle.
Tell me about the startups that got away?
Never had one that got away. The closest I came to this was a company I wanted where a big VC did not want any other outside investors to get in. Ultimately, I got in indirectly through a VC fund where I am a limited partner. In most cases, the startups are just starving for cash; it’s almost always never the issue that it is so oversubscribed that you cannot get in.
Most humbling experience (relating to angel investing)?
Coming from Bell Labs, I assumed I could make anybody a good manager. But you can’t. At best you can influence them four or five degrees. You simply can’t make someone a good manager. That was my first humbling experience.
What impresses you about an entrepreneur?
I like someone who is clear, concise, compelling and elegant. I like to see an executive summary that fits on a single page with a lot of white space. And I love an idea that I have never seen before. Most ideas are retreads or rehashes.
Hotlist especially made an impression. They had amassed a massive database on events that people had gone to, were going to, or would be going to and there is a lot of location based services one can offer having that information. I had researched this area by doing due diligence on a few companies. Hotlist just had everything buttoned down and I made my decision in 28 minutes.
What turns you off to an entrepreneur?
Whenever people use the word “conservative” or “next generation.” I have a secret dictionary of these words which earn demerits and can disqualify the entrepreneur. This is how I “gamify” my investment process.
What makes you different from the average angel?
I like to invest in only industries that I know nothing about and I generally “let the dogs run.” I offer light overall guidance and try to introduce them to people who can help them. I am not an invasive investor.
Also, I mentor a lot. I have mentored companies which I did not invest in because they didn’t need the capital. I do it pro bono, because most entrepreneurs are nice people and in return I learn from the experience. I currently mentor 10 to 15 companies like this. They call me every four to six months for some advice or guidance and it’s usually a 15 to 20 minute session so it’s not a real time burner.
Recently, I’ve begun to mentor a number of international companies through Springboard and the Worldwide Investor Network. I also mentor women entrepreneurs through Astia & Springboard as well as women angel investors within Pipeline Fellowship, Topstone Angels, and 37angels. I have funded 11 female-founded companies, five of women were foreign born.
What financial returns do you target for an angel investment?
I aim for 10x returns. I say I want it within 3-5 years… although that’s never been achieved.
You have been angel investing for 17 years. How has it changed since you first started?
There has been a dramatic change over the past two or three years.
- The costs of starting a company are close to zero.
- The cost of proving the market with landing pages – sign up for the beta, sign up for a newsletter, answer a survey, stuff like that – is also close to zero. You can prove that there is a market without having a product.
- AngelList. I used to do 1 to 2 deals a year, very painfully. Finding a company was a big problem. Now AngelList has close to 19,000 startups on it so finding startups is not an issue. So is finding investors. In the past I used to syndicate deals. In my first 10 years, I knew everyone who invested with me intimately. Now, I tell my founders to list the company on AngelList with me as an investor and they assemble the rest of the syndicate. The majority of the other investors in my current deals are people I have never met.
- Accelerators like ERA, DreamIt and TechStars are producing large numbers of high quality, fundable companies.
- Super angels and micro VCs like John Frankel’s ff Ventures have a lot of cash for angel level companies, assisting in the fundraising process in a very positive way.
- Deal size. The average round until about a few years ago was $250K-$275K. It is now close to $650K. Many of these companies will skip their A round.
- International. The biggest response to my website comes from overseas asking me how they can invest in my companies and be angels in general. I received four investments into my companies. I have also received interest from foreign government organizations and universities on how to foster startup and angel ecosystems. We are also seeing a large number of foreign companies seeking funding.
Pretend that it’s 2019 and complete this sentence, “[Technology X] is less than 5 years old and now I can’t imagine life without it.”
Brainwave chips. There are several startups that let you control your computers with brainwaves and they are starting to get a little bit of traction. They have various devices that go over your head and with this one can control a device that provides input to a computer. As this industry matures miniaturization will occur that will lead to a brain chip.
Will they really implant these chips in their heads?
Why not? I have a defibrillator. I don’t want to carry one around so I had it implanted. They could put it on sunglasses, but fashion will win out and they will ultimately be implants.
What’s the best way for entrepreneurs to reach out to you?
If you are an active NY-area angel (or know someone who is) and would like to be profiled for AlleyWatch, please contact me here.