TSP005 | Andrew Ackerman – Transcription
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John Livesay:
Hi, welcome to the Successful Pitch. Today’s guest is Andrew Ackerman who works at DreamIt Ventures. They have one of their companies that you might have heard of called Meerkat, which has taken incredibly with Twitter. He said that Meerkat is an overnight sensation two years in the making. So, be sure to listen to this episode to find out about Meerkat. Andrew himself has an incredible background as an entrepreneur where he was part of a team that started a website for parents who wanted to keep track of their children in summer camp. Back in the late 90’s they literally were getting customers through trade shows and having a five second pitch as somebody walked by a booth.
Today he has many more detail insights as to how to pitch him as well as any other investors, which includes tell me the one thing that makes you special, whether it’s you have the youngest employee ever on your team from Apple or you have 70,000 users already, so you have a lot of traction that no body else has. Don’t make him dig around your pitch deck to find that one thing to make you special to get him engaged. He also gives incredible insights on virality. There’s such a thing as negative virality or weak virality or something that’s inherently viral or, ideally, something that’s necessarily viral such as Evite. He talks about the differences between LinkedIn and Facebook and so much more. You’re going to have a great time listening to Andrew Ackerman, thanks.
Welcome back to the Successful Pitch. Today’s guest is Andrew Ackerman who is the managing director of DreamIt in New York. He has an incredible background. They describe him as a recovering consultant turned serial entrepreneur. He has a fascinating story about how he lend Bunk1.com from scratch to the lending provider to web services and DreamIt Ventures has an incredible array of startups. They have helped over 178 companies that now have over $500 million dollars in value, so we’re are very happy and excited to hear Andrew’s insights on what it takes to be a successful startup and how to get funded. Andrew, welcome to the show.
Andrew Ackerman:
I’m happy to be here.
John:
Andrew, I would love to have you tell our listeners a little bit about your background before we hear what you’re doing now starting with Bunk1.com. How did you come up with that great idea and tell us a little bit about what that was and that journey if you will.
Andrew:
So, I love to take full credit for it, but I can’t.
John:
That’s okay.
Andrew:
I could probably get away with it, I’ll tell you why. The founding team were three people. One of them, his name was Ari Ackerman, we’re not related. So, everyone would come up to us and say, oh it’s really great two brothers starting a company together and the irony is we haven’t even met until – we met through the third founder, David Gomberg, who I went to business school with his brother and had known him for many years. So, ironically the other guy with the same last name as me, I hadn’t met until we got together.
So, I was chief operating offices and the head of product. I was the third person that Dave and Ari had the idea. Eric was actually, Eric is David’s brother, Eric and I used to go out to dinner every couple of weeks and we would talk about all the really, really dumb dot com ideas that were coming across our plate. You have to understand that this was 1999 and selling ice on the internet seemed vaguely reasonable for people back then. We would play games and he would tell me about one ideas and I would turn around and bust him for him and vice verse. So, he started telling me about the idea SAAS, software as a service, startup for the summer camp industry. It’s a suite of services aimed at the camp director, everything from photo gallery, which think back in 1999, this was revolutionary one-way window into the summer camp experience. That was our marketing verb-age.
John:
Right, I love that. It’s like pre-Instagram.
Andrew:
We’re talking pre-smartphone here. There were these things that we called camera that people used. So, there was that and we had communication tools that would let you communicate with your camper while they were at camp without them being anywhere near a computer. It’s printed out and handed to them and we even had a fax back service with bar codes on the top of the stationary. Pretty revolutionary stuff for the time.
John:
How did you find out there was a problem that parents needed to have that window into their children. I find that – because parents obviously miss their kids and the kids miss their parents and get homesick. Was that the driving problem you were trying to solve or was it more a spy..
Andrew:
It’s actually very interesting. It was – no, no it wasn’t spy. This was a time where everything was being re-imagined. I mean, now we think everything is being re-imagined. Now we already have a little bit of a guideline, somethings work, somethings don’t, back then it was totally like selling ice on the internet might have been reasonable back then, right, so everything was being tried. The things that attracted us to the summer camp market were, it was one of those kind of sleepy little niches that are much bigger than you think. They are relatively easy to get in touch of the decision makers. This is what I call B to B to C play.
John:
B to B to C. I love that.
Andrew:
So, we pitched to the camp directors by enlarge, we explained the value of the idea, which pain points it met for them, and then if we solved these problems for them, they were thrilled and we could then, you know, help service their parents and market to them relevant services only.
So, for instance, the biggest thing the camp directors were getting in the 1999-2000 eras was, “Why can’t I see what’s going on at camp?” Parents actually missed their kids, until then, it was just something they sucked up and lived with because that’s the way it was, but both the a-trends people were expecting to be able to see these things, because the internet was showing them they could and on the flip side, you know, parents were just more nervous than they used to be. They want to be reassured that their kids having fun all the time. So, yeah, it’s a little sick.
So, what we did at – sorry the other pain point was for the directors, they were painfully afraid of anything bad that might happen if they put a photo up. Some pervert somewhere would get a hand off and I don’t know, do something with it. So, the security element was something that was very important to them, they knew they couldn’t do on their own and they were just extremely concerned about the overall load, because back then even uploading a photo, anywhere, was a little technically challenging. So that was the initial pain point.
In fact, it took us a while to get the pitch right on that to the customers. We would go to trade shows, which were a fairly effective way to get customers in a B to B to C environment and we would start talking about, you know, does your company have a website, and they’ll go, “We got that already.” You can imagine what it looked like in 1999. It’s like three pages with a telephone number at the bottom. That was about it. They would keep walking.
So, we needed to come up with literally a five second sentence that would get them to stop in their tracks and turnaround. That’s, you know, as an entrepreneur when you’re pitching customers in this kind of time starved environment, being able to hook them with something quickly is critical. So, ultimately what we ended up coming up with is, you know, they’d say, “But do you have a password-protected photo gallery?” and immediately that stopped them in their tracks, because none of them had photo galleries to begin with. They certainty didn’t have password-protection. So, that immediately cut through with both a need and address their chief objection to it.
John:
Got it. That’s so helpful for the listeners. Let me just recap that for everybody. That five second pitch to people walking by your booth at a trade show is such a great example of the kind of urgency that you have to have when you’re pitching someone like you know that’s an investor, wouldn’t you agree?
Andrew;
Yeah, so the flip side when you’re talking to an investor, you need your elevator pitch obviously for that phrase before, you want to give them something, you have maybe a little more than five seconds. You got 30 seconds or so, but the key and it’s brutally hard for some people is come across in those 30 seconds giving some idea what you do and enough of a reason for them to say, damn, I want to spend another two minutes and learn more. I want to ask a question.
The mistake people make is they think they need to say everything. You don’t need to say everything. You need to say just enough so the guy you’re talking to leans forward and goes, “Oh, that’s interesting, but how do you X?” And the moment they ask how you do something or are you worried about something, are you in competition with so and so, you’ve bought yourself another minute.
John:
I think that could be a really tweetable moment right there. Don’t pitch everything, just enough to get them to lean forward.
Andrew:
Works for me.
John:
And want to know more. Yeah, great. Thank you. Really helpful. Alright so back to your story where you’re at the trade show, you’ve got some people who understand the pain points, you addressed both the need and the objection they had to not using and you start to get some traction with consumers, actual parents in the camps, how do you then raise money for that?
Andrew:
So, quite interesting, we actually didn’t. We were bootstrap. We gotten some interest. It’s a little bit of a tragic story, so no, no, not just for us, tragedy was not on our end. We had some, you know, good angel money to come in, friends and family money, and then we went to the rounds. We took it in front of (#10:06?) prior fund, he passed on us. Nice guy but he passed on us. We had talked to a couple of different VCs and we actually had a term sheet from one of them. A VC called Great Auk, which was actually the venture arm of Cantor Fitzgerald and we had that in our hand in the summer of 2001, so you probably know where this story is going. Cantor Fitzgerald’s offices were on one of the high floors in the twin towers.
John:
Wow.
Andrew:
So, we had decided that we wanted to wait until the end of the summer, because at the end of the summer we had metrics. It’s a very seasonal business obviously. So, we wanted to wait until the end of the summer and maybe revisit the terms and then obviously tragedy strikes, right. No other way to put it. The people we were talking to were still around, but clearly they had more important things to do than to talk about investing in a startup at that point.
So, we ultimately didn’t raise and a bunch of us went without money for a long time, without salary for the better part of the year plus and then we turned it around and we were crash flow positive within year two. Very, very narrow cash flow positive, but we were in the black and then by year three we were able to start taking a little bit of salary and we kept growing from there. So, that was great in terms of our own shares in the company.
The downside that only became obvious in retrospect is that having a professional investor there I think would have focused us a little better, would have pushed us a little harder. They were some things that we did that we didn’t do fast enough. They were other things that we did that maybe we shouldn’t have wasted time on and having somebody on the outside who has kind of seen people make these mistakes before could have sat us down and say, why are you doing this, right? What really does this do for you?
John:
Well, clearly this experience was invaluable to you getting to where you are today at DreamIt Ventures where you really know what it takes and the dedication and the willingness to overcome tragedies on a large scale, persevere through no salary, breaking even and then making profitable. So, how did you, what was your big next step from that startup to getting into the other side of the table as it were?
Andrew:
So, that was, just to give you kind of the timeline there, so we started DreamIt in 2000, 1999-2000, it’s still going strong. I had gotten bought out in 2008, so pretty much the very end of 2008, I got my last payment, shake hands with Ari, he’s still in charge of the company. It’s still alive and kicking.
At that point, an opportunity fell in my lap to manage a family office. So, for the, you know your viewers who are not quite familiar with that term, a family office is basically the in-house investment arm for a high net worth individual. We’re a family of high net worth individuals. In my case, it was just one man, an older European gentlemen.
So, it was kind of a mixed bag. I did everything from really boring hedge funds and private equity funds all the way to really interesting direct angel investments. We were one of the first investors in Artsy, for instance, which is a great art tech startup. They just raised,I think the b around this past month. We also bought shares in the secondary market. So, we bought shares of Facebook in early 2009, which was before all these trading platforms like SharesPost were doing anything like that and did a number of investments like that and that was far more interesting to me. I had been approached for that position, because the idea was I got to do all that stuff and incubate a couple of startups that he wanted to build on his own. Unfortunately that second piece, so first of all, what else happened in 2008-2009? The financial world basically collapsed.
John:
Well, there’s that, yes.
Andrew:
That little thing. So, I spent the better part of the first year and a half fixing up the portfolio, you know, we were gated a lot of redemptions when it comes to hedge funds, which basically means they freeze your money, you can’t have it, that was fun. The private equity funds we were like, great, everything is selling for 0.37 cents on the dollar, so that mean they were calling money, which meant we had to write checks we couldn’t free up other money. So, it was a little bit, there was a good reason we weren’t doing a lot of incubation for the first year or two, but ultimately though we started turning towards it, but that part of job never really turned out to be what it was going to be.
So, while it was very, very interesting on the investment side, what really attracted to me was the other half, the ability to be a mini incubator or a mini accelerator. So, when that didn’t pan out, I took another shot of the startup world. A company called LayerCake, which I was bought out of as well, but that one isn’t around anymore. So, I can’t put in a good world for them the same way I can for Bunk1 and then I was ready to start a third startup. There was a third startup I almost did and I decided not to pull the trigger on for a variety of reasons and it was probably one of the harder decisions I ever made, because I gotten very emotionally invested in it, but when I took a cold hard look at it, the odds were stacked against it.
John:
Let’s take a moment and talk about that, because that’s so important for the listeners to really understand that you can emotionally fall in love with an idea and a potential startup, but you need to be that passionate, obviously, to make it work, but you also you need to step back from what I call the right-brain world, the emotional is to the left brain and most tech people tend to be more left brain oriented and I’m trying to get them to right brain story telling, but in this particular case, it’s all about you are passionate and committed to something and emotionally invested, as you described it, but you also have to make some rational business decisions, so it’s a constant back and forth between the left brain/right brain, analytical story telling, emotional engagement, it’s so important for people to realize that just because you’re in love with something doesn’t necessarily mean it’s the right thing to pursue.
Andrew:
So, I had an advantage, right. I made a boat load of mistakes at Bunk1. None of them were fatal, but we did make a lot of mistakes. It helps a lot to help done it wrong, once, and survived, so when I started looking at other companies, you know, I had a little bit of distance from them and I was able to step back and also my potential co-founder on that one also, you know, he had been in a couple of startups also so we’re able to dispassionately. So, the key thing is to be able to see it through the eyes of a potential customer and a potential investors. If there’s one skill that’s absolutely critical for an entrepreneur, believe it or not, it’s empathy.
John:
I love that. One skill critical for an entrepreneur it’s empathy. Being able to put yourself in the investor’s shoes and the customer’s shoes, right?
Andrew:
Exactly. So, sympathy is like I feel bad for you, empathy is I feel what you feel. So, your ability to put on the persona of your customer or customers and see what you’re building through their eyes and ditto for an investors, that’s critical. It’s tough because you have to forget a lot of things that you know. So, for instance and I’ll make this concrete, the startup that we were looking at was in the book discovery space, which a couple of years ago was quite hot. We were looking at still a novel idea that I don’t think anyone has ever done, but it had three issues with it.
So, number one, the space was getting crowded. So, difficult to stand out. Number two, it was a little complicated to explain, which is not horrible if it’s not a crowded space, but it’s a lot harder in a crowded space. There was no five second, stop, turn around, come back to your booth type pitch for it, and the last piece of it is it didn’t have an inherent virality to it.
So, there’s certain businesses where, I kind of think of a scale of virality. On the one extreme there’s negatively viral companies. I mean, they could be good companies, like take Ashley Madison, right, there are some very happy customers there, but they’re not going to tweet about it because they just cheated on their wife or husband. So, you get no virality out of that, you have to find a different way to make that a good business. You’ve got stuff like Microsoft Word, which is, you know, no one tweets about Word, it’s not like that.
John:
I got it. It’s really helpful. So, negative virality, I love that. That’s a great definition.
Andrew:
Word is neutrally viral and then you’ve got stuff that are weekly viral, which could be like a game. Oh, it’s a really great game, I’m going to tell my friends, but okay, maybe I won’t, maybe I forget. If I’m the only person on earth playing this game, it’s good to me. Where it starts to get interesting is when you start to get into companies that are inherently viral or necessarily viral. So, inherently viral are the ones where my experience gets better if you use it, like Facebook, network effects. If I’m the only one on Facebook, it’s pretty bloody useless, but if a couple of my friend’s are on it, it starts getting interesting and if lots of people are on it, it gets more interesting. LinkedIn especially, it gets more interesting the more people I don’t know who end up using it.
John:
That’s great. It gets more interesting the more people I don’t know. That’s fascinating.
Andrew:
Because it’s discovery. If everyone I know is using it, you know, okay, on LinkedIn there’s no value, because I already know them. Facebook is the other way around, they are actually people I want to keep track, but too bloody lazy or busy to actually call them.
John:
That’s a fascinating distinction between Facebook and LinkedIn and I think it’s worth taking a second to use that, because it’s such a valuable example of what you just described as something inherently viral, but different. So, Facebook is inherently viral because you’re keeping in touch with people you know and want to stay in touch with or have lost touch with where as LinkedIn, it’s inherently viral, but for the people you don’t know as oppose to Facebook for the people you do know. I really like that. That’s so valuable, Andrew, thank you for that incredible insight.
Andrew:
My pleasure. Now, there are other examples as well and there are ones where it’s not so immediately obvious, but let’s take Netflix for instance, right, so Netflix we don’t think of as social network, but the value of Netflix increases and Amazon as well, because the more people use it because the recommendations get better. So, there’s kind of a data scope issue that makes it better, but there’s even a better, more viral element, which is when it’s necessarily viral. So, if you remember the original evite or the more modern incarnations like Paperless Post.
John:
Yes.
Andrew:
I can’t use that service without telling someone. I can use it to like invite people in my party, but if I don’t put their email addresses in and hit send, it’s useless. I haven’t used it. So, there are certain tools which by their very nature you have to tell people.
John:
Would you say that’s one of they key areas that you’re looking at now at DreamIt and the other people on your team there is looking for things to invest in that are either inherently or necessarily viral?
Andrew:
So, yes, but not exclusively. So, you know, I’m going to broaden it a little bit. This is a typical consultant answer. I’m going to answer the question I want to answer, not the one you asked. So, what we’re looking for actually are companies that have the potential to be big scalable businesses and we can help them gt there. So, that includes B to B and B to C companies. B to B companies very rarely have the same kind of viral loops.
So, the kind of more general thing we look for there is with companies that kind of cracked the sale cycle or close to cracking the sale cycle. They understand how their user is, not just, oh, we’re going to sell to more mid-size businesses, not just we’re going to sell to, you know, accounting firms, but the purchasing manager in an accounting firm has the budgetary authority to buy our product and can make a decision within two weeks.
John:
Really specific, really narrow.
Andrew:
Really understand exactly who’s going to write them a check and understand, you know, what’s the lean forward phrase that gets their attention, it keeps them on the phone, and how they’re going to reach them.
John:
That lean forward phrase goes all the way back to that five second pitch when you’re at the trade show. I love it. The lean forward phrase of who is going to write the check and we know how long it takes them to make the decision to write the check at the purchase order level. That’s brilliant. Let’s talk a little about, since we’re getting close, this has gone by so fast, your experience at DreamIt. Can you expand upon, you know, one of the big companies now that are on your company’s website is Meerkat that everyone is so excited about. Can you tell us about, you gave me a phrase earlier that I’d love you to use about overnight hit. Tell us a little bit about Meerkat.
Andrew:
Sure. So, I think the phrase you’re referring to is they were an overnight sensation, it was two years in the making.
John:
Yes, exactly. We’re going to tweet that out for sure.
Andrew:
So, first thing, they went through DreamIt Austin, so let me just roll it back. We have accelerator cycles in multiple cities. We started in Philly in 2008, which makes officially now the second oldest accelerator in the world. We used to be mumber three, but now Y Combinator is not an accelerator anymore. They’ve actually just admitted it. So, Techstars is now the oldest followed by DreamIt. So, since 2008, we’ve run programs in Philadelphia, in New York, in Austin, we also have programs in Baltimore, which is specifically for DreamIt Health, health tech focused companies.
Net we’ve done 178 companies so far and Meerkat has been very much in the news, so the background on Meerkat, which I promised you, they went through DreamIt Austin in 2013, they’re an Israeli company, the core part of the team came over, they spent three months in Austin and at the time they were working on a company that was Yevvo and it was a social network for sharing videos. Still live video, but it was a closed social network. They re-branded as Live On Air and they were doing reasonably well, ironically with the Latin American teen set.
That was where they got some initial traction, they raised an a round and they were doing okay to very good. Somewhere in that range and then the founder as a side project decides to work on, you know, I wonder if I open it up and I integrate it with Twitter, that’ll be kind of cool, and then it just takes off. So, okay, Air is on hold, everything is Meerkat now.
John:
Wow.
Andrew:
There’s even a funnier story. So, because it’s our job to be on top of these things, we were familiar with Meerkat, but at first we didn’t know that back story, so there was a period of time where Meerkat was starting to trend and we didn’t know it was one of ours.
John:
Oh funny.
Andrew:
Until a VC named Charlie O’Donnell in the New York area, he tweeted out, very nice tweet, he said, hey startups, you know, Y Combinator is not the only game in town, Meerkat is an DreamIt alumni. So then it took us like a couple of hours to figure out the back story and confirm that they actually were. That’s good, right.
John:
What I love about that story is the ability to have the right team in place who has the savvy to try something and possibly pivot and that’s really where you get the scalability. So, you gave us some great insights as to what you and your team are looking for at DreamIt. It’s the big idea that can scale, really cracking the sales cycle, digging deep as to who the customer is on such a grandeur level..
Andrew:
Or if you’re B to C, say, if you’re a B to C the equivalent to cracking the sales cycle is really understanding the viral loops.
John:
The viral loops, yes, got it.
Andrew:
Either way, we want to know that you’ll have customer/user acquisition, you got a good plan for that. Sorry, I didn’t mean to cut you off.
John:
No, I’m glad. So, that’s just summarizing some key takeaways for the listeners. If someone wants to be considered for DreamIt, those are some key areas they need to have. A couple of quick questions for you towards the end. If you had one bit of advance for a startup pitching DreamIt, what would it be?
Andrew:
It’s hard to pick just one. I’m going to back to, if I had to pick the number one, it goes back to the comment I made about empathy, understand where we’re coming from. So, number one, we love working with early stages startups. We love meeting with you even if you’re too early, we love meeting with you. We probably spend too much time doing that from a purely, you know, blood and numbers perspective, but we enjoy it, that’s why we’re in the business. We’re all exit entrepreneurs. On the flip side, we see a lot of companies, so you need to really help us by getting very quickly to what makes you special.
So, we don’t need to know every feature or what the UX is for your company. We want to understand what’s that one thing that you do that other people can’t do and it can be different. There’s one company that came to me with a, it was a fashion text article, it was a shop-the-look site, I’ve seen literally dozen of shop-the-look sites.
I was looking at their deck as a favor, I was really like, I’ll be honest, half checked out by page one and then I get to page eight and they’re like, oh, we have 70,000 active users. I was like there’s something I haven’t seen everyday for a company like this. I said, well, how many of these are monthly active and they go, we don’t know, we know that 30,000 come in every two weeks. So, probably about 40,000 a month and I said, that has to be page one.
John:
Yes, don’t bury the lead as they say in journalism, right.
Andrew:
Exactly. For a company like that where they were trying something that a lot of people have tried and not yet succeeded at the thing that made me lean forward and say, oh, that’s special, is like they’re the first company to have any real traction at it.
John:
Got it, that’s really key.
Andrew:
A different company it might be the team. Like one of them, one of the youngest employees ever hired by Apple, right, and worked on their maps program and now he’s working on, at the time, he was working on a location based startup. So, it all kind of really made a lot of sense. So, you might lead with the team if that’s what makes sense. You might lead with what the product is that no one else does and why they haven’t been able to do it, but do me the favor and they don’t bury the lead.
John:
Great, thank you. So valuable whether it’s your team or your traction, figure out what that one thing is that makes you special and don’t make Andrew have to hunt through a deck to find it.
Andrew:
Don’t make me think, bad things happen when you make an investor think.
John:
If you had a book to suggest or a book that you really found useful, would you have anything off the top of your head that you could suggest to people?
Andrew:
Yeah, there’s one, this is for people who want to understand the mind of a VC.
John:
Oh my god, especially since empathy is key, that’s a key title, yep.
Andrew:
So, these guys are by enlarge they’re one or two stages ahead, further down the path, than DreamIt is, so it’s not exactly the same thing that we think of, but understanding the VC game is critical. So, it’s actually called Mastering the VC Game, it’s written by Jeff Bussgang. It’s really great because it tells you the right way to reach out to a VC, what they’re thinking, it tells you good questions for you to ask, I mean, you’re suppose to be diligencing them as much as they’re diligencing you. Things like, you know, pay attention to when they raise their last fund, because they raise their last fund over five years ago, they might not have any dry powder to invest in your company, so don’t, I mean, be nice about it, but don’t waste too much on them because they’re not writing a check. Things like that were extremely insightful and unlike so many business books, which are basically a 20 page power point, I have no patience for those. The signal to noise ratio on Jeff’s book is really high. It’s a good read and the quantity of information there is well worth the read.
John:
That’s great. The signal to noise ratio, I love that phrase. You really get a lot out of it, basically, and that’s what your pitch deck should do is have a really good signal to noise ratio. Well, thank you so much, Andrew. If our listeners want to connect with you, reach out to you, what’s the best way for people to follow you, your tweets, whatever, if somebody really wants to know more about you.
Andrew:
Very simple. Best way to reach out to me is just email me at [email protected]. Short emails are better than long emails. Long emails kind of go to, I will get to you later, which is unfortunately. Clear subject lines, I really like clear subject lines. Hello is not a clear subject line. Something like heard you on the Successful Pitch, want to talk to you about my company, right, or something like that. Don’t reach out to me blindly on LinkedIn, because I only, I don’t want to sound like a snob here, I only link people who I know well enough to either recommend or be recommended by, like how I use LinkedIn. So, if I have people I don’t know, it’s just not effective for me.
John:
Fair enough. Well, you were certainty generous to give us a great tip on how to email you with a great subject line, I heard you on the Successful Pitch. Any kind of warm introduction like that where just showing you’ve done some homework about who you are. That’s so valuable.
Andrew:
Absolutely. Warm intros are the best. I should have said that first.
John:
Yes, got it. Andrew, it’s been a pleasure having you on the show. Thank you so much.
Andrew:
Entirely my pleasure, thank you for having me.