David Tisch’s entrepreneurial journey started like many children’s–buying and selling baseball cards. Setting up a table at trade shows turned into selling cards online in the late 90s. Although the bulk of his baseball card collection no longer exists due to a busted pipe in his parents’ basement, David and BoxGroup co-founder Adam Rothenberg are collecting something else–investments in startups. In just three and a half years, BoxGroup has invested in 100 companies. Their past investments include Vine (acquired by Twitter), Boxee (acquired by Samsung) and MileWise (acquired by Yahoo!). One hundred investments in fewer than four years may seem like an aggressive investment strategy, but the group analyzes between 100-200 investment opportunities for every company they choose to work with.
David co-founded startup accelerator TechStars NYC and served as the Managing Director before stepping aside to work full-time as Managing Partner of BoxGroup. He’s an admitted internet nerd and has always been interested in the online space. “Since I can remember back, I’ve been playing with things that have launched on the Internet…I just didn’t know how to translate that into a business.” David was practicing law when he decided to stop in 2006. After working on his own startup, Tisch went on to focus on developing the startup scene in New York City by bringing TechStars to the Big Apple.
Startups and Investments
Investors around the world have some similarities in what they look for in potential investments, but they don’t always value a startup’s strengths and weaknesses the same way. While considering applicants for TechStars, David stated that the key factors they were looking for were: team, market, product & idea, in that exact order. As an investor, what he looks for in a potential investment hasn’t drastically shifted, but there are a couple of added key factors that are considered. Here are the six key factors that Tisch and BoxGroup look for in a potential investment:
“Team is everything,” said Tisch. With the vast amount of competitors in the tech industry and startups in general, the team is often the best differentiator. A couple of key factors to identify a good team include: a true leader who can recruit people to join their cause, having no major overlaps in responsibilities and having an expertise in the company’s core focus. “If the biggest risk is design, you better have a world-class designer; if the biggest risk is marketing, you better have a world-class marketer.” A strong team can overcome weaknesses, but Tisch is skeptical of a weak team becoming successful in this environment. “I think at some point if you don’t add an unbelievable team in every area, you’re going to lose because some other team is going to beat you.”
The size of the market is the second most important factor when analyzing a potential investment. “A great idea and a great product in a really small market just aren’t going to be big business.” There are instances where a company focusing on a small market can still turn into a big business through capturing their entire market. The chances of overcoming a weak market are much greater than being able to succeed with a poor team.
There are a lot of great products in the marketplace, which is why products can no longer sell themselves. Many fantastic products fail to get traction because of the crowded and noisy market. Customer acquisition plays an extremely important part in ensuring a product’s success and is why customer acquisition has also been added to the list. Great, beautiful products, which stood out even a few years ago, are no longer going to “win the game.”
The idea is what drives the creation of a new business, but in the eyes of an investor, the idea is just one small part of the full package. “The idea is not the differentiator. There are very few times when the idea is the ‘oh my god’ thing.”
The ‘why’ has been added to the list of key factors, and Tisch stated that it could even be moved up to #1. The why is: “Why are you building this company (motivation behind company and team) & why are you the best team to build this company?” “There are 10 (companies) that each company knows about and probably another 100 that you don’t know about that are all going after the same idea or the same space.” Is your ‘why’ strong enough to overcome all of the other competitors going after the same space?
6. Customer Acquisition
David emphasizes having a plan of how you’re going to acquire customers and having a deep understanding of customer acquisition. Having a detailed plan for customer acquisition and proving that you will be able to execute it is a necessity.
Q: What is your best piece of advice for a young entrepreneur working on a startup?
A: “Don’t underestimate the time and difficulty it’s going to take to build a great team and don’t cut corners here.”
The team is everything, but what makes a strong team? In addition to having a strong leader, Tisch said, “The ability to attract other people to your mission is the sign of a strong team. If you can convince somebody to stop doing whatever they are doing in their life to join you and your company, that is a really interesting data point that says you are able to motivate somebody else to do something and is a good early sign.”
The days of having a great idea or a sexy product propelling a startup to success are over. The crowded marketplace is weeding out companies with weaknesses in any of the six focus areas that Tisch mentioned above. Using their selection process and finding the best teams with great products and ideas, BoxGroup has successfully identified companies on the move to invest in, which has paid big dividends.
– Specifics on BoxGroup’s investments, including the number of companies they have invested in, amount invested in each, types of companies, geographic location breakdown and more.
– How a team can make themselves attractive to investors.
– A discussion about location and advantages of being in bigger cities and how a team can overcome being in a rural location. Hint: It’s about having a strong team!
– Weaknesses on a founding team: “Overlap of responsibilities.” “If there is a lot of overlap on a founding team, our assumption is that the founding team won’t last as is and will sort itself out at some point and somebody will leave.”
Quick Fire Questions
If you were banned from New York, what city would you move to? The Caribbean. Chicago or Los Angeles are the American cities that I would choose, but I do think if I was forced to leave New York, I would move to an island somewhere.
Favorite thing to do to relax? Watch reality television. I have never missed an episode of Survivor.
Best Investment you’ve ever made? Buying a Mario Lemieux rookie card for $15.
Worst Investment you’ve ever made? Investing in restaurants.
Favorite alcoholic beverage? Gimlet, but these days he prefers a Diet Coke.
Favorite musician? Grateful Dead & Phish.
If you could have one entrepreneur or investor join your team at the BoxGroup, who would it be and why? Michael Jordan or Wayne Gretzky. They just win.