TSP011 | Randy Rayess – Transcription

Posted by John Livesay in Uncategorized | 0 comments

John Livesay:
Hi and welcome back to The Successful Pitch. Today’s guest is Randy Rayess, the co-founder of Venture Pact, which finds software developers for companies that need them. He is also an angel investor and ironically both what he does at Venture Pact and being an angel investor requires screening good talent to be on your team.

He said you need a cultural fit, good communication, and figuring out the combination of passion and the ability to motivate others. Are you a self starter or not? When you come up with your problem to solve for the market place, if you’re working on a tough problem, you need to realize it requires both patience and persistence.

Randy has some great insights as to exactly how to look at life and how to make your business successful. In fact, he was a finalist in the Innovative Awards for 2014 and he’s got all kinds of innovative ideas that he shares with us in this interview. Enjoy.

Hi and welcome to The Successful Pitch podcast. Today’s guest is Randy Rayesss who is the co-founder of Venture Pact as well as being an angel investor. So, Randy has incredible insights into investing and figuring out what the market needs as far as what the problem is to solve so much so that he was a finalist and innovative of the year for 2014, so he’s got lots to share with us. Welcome to the show, Randy.

Randy Rayess:
Thanks for having me.

John:
Randy, I gave, as you heard, a brief, brief introduction as to who you are, but I would love for you to take our listeners back to how did you get the entrepreneur bug? Was it while you were in college or even earlier?

Randy:
I think it was more a fortunate kind of stream of events where a few of my friends had recommended I check out a few companies and one of them was in LA and one of them was in San Francisco, so I kind of worked for summer in LA and then I worked in San Francisco for a bit. It was kind of working in that environment that got me into, so kind of, I stumbled upon some entrepreneurial companies and they kind of got me into that mindset. So, it was a random stream of events.

John:
Is Venture Pact your first co-founding startup or was there another company you were involved with before Venture Pact?

Randy:
Formally co-founding Venture Pact was the one where, like, the one I spend the most time on and the one we’re still working on and has been most excited. I have worked on a lot of other startups informally or formally in different types of roles. Some are more general, some are analysis roles, some are developer roles, but I think I’ve got, you know, I’m able to work different types of startups to get a sense of, you know, what are the challenges of working at small companies and what are the kind of opportunities that exist and how that varies obviously from larger companies where you have, it’s a very different working environment.

John:
Well, that’s a great segue into your experience lend you to see a problem that a lot of startups have, which is a shortage of quality software developers, correct?

Randy:
Yes.

John:
Obviously investors are very interested in who’s on your team and the synergy that you have and do you have developers that have a good track recorded of working for other startups that have been successful so you and your partner decided let’s figure out away to match developers with the right companies and that’s the dawning of Venture Pact, is that accurate?

Randy:
Yeah.

John:
How long ago did you start and how did you decide that you could come up with something that caused you to be a finalist and to be so innovative?

Randy:
Yeah, sure. I think the key for us was we had worked – so after I worked at a few startups and I got into the investing space and my business partner, Pratham, who I had known from college also had worked at a few startups, had some experience in investing. So, we both kind of recognized that when we worked with companies that there was a bottleneck when it came to executing on software building, web apps, mobile apps, and the question we thought about was this is a pretty big problem. It’s kind of consistent across the board for technology companies, it’s like, how do we get better talent, how do we get more talent, and so that’s kind of got us excited about the problem was that it was pretty, kind of, ubiquitous.

The way we thought about solving it was we knew this was tough to solve, right, a lot of companies have a problem and their solution, there’s no really good solution. It means it’s not an easy problem to solve, so we said, okay, that’s exciting, you know, we’re working on that problem. We knew it was not something you can work on overnight, that you can solve in one night, so we looked at kind of the key problems and one of the main things was just the supply/demand imbalance, which is the key issue. When you constrain yourself to a local, smaller base around your office.

So, what we got more excited about was the thought of remote work and if we could help companies figure out how to hire remote talent and help companies engage with remote talent, then you could be sitting down in New York and you can hire someone in Wisconsin. You could be sitting in San Francisco and you could hire someone from Denver. You could be sitting in Florida and hire someone in Tennessee. So, you can start doing these things that are initially were not available and suddenly the pool of talent available increases quickly.

John:
I love what you said there earlier about when you guys realized that you were working on a tough problem. If it was an easy problem, it would have already been solved by some other startup, but it’s so important for the listeners to realize that if you’re solving a problem in the market place with your product or offering or SAAS, whatever it is, if it’s a tough problem, it’s not going to get solved overnight. That’s such an important point and to realize not only are you guys helping people think outside of the box, but literally think their geographic area.

Randy:
Yeah, exactly, exactly. I think it’s one of the things with startups, it does require a lot of patience and extreme persistence, because if you’re solving a problem that’s not easy to solve, which most startups are unless you’re trying to do something and focus more on the fashion, the marketing side. If you’re more of a tech startup, usually you’re working on something that’s difficult, the product is difficult. In fashion it’s more of the marketing that’s difficult, but in any case, I think the key is that you just need to have a lot of patience. It doesn’t happen quickly.

There are very few companies that – you know, some companies will grow very quickly and able address a problem and grow bright from the first few months. Most companies to really find what, you know, what you call product market fit and then a scalable, repeatable process, post-product market fit that does take time, so you have to have the patience and the persistence to get through that.

John:
I love the iteration. So, that’s going to be one of the Tweets from this podcast. Patience and persistence from Randy Rayess. The double R meets the double P, right?

Randy:
I like it. I like it.

John:
So, tell us about being an angel investor and how being an entrepreneur helped you when you’re doing your own analysis to decide who you’re going to invest in.

Randy:
I think, everyone always says it’s the people that matter most with companies and the reason is that at the end of the day, the company, what a technology company is doing today is going to be different from what a technology – that same technology is going to be doing in three years and that’s pretty much across the board. So, the technology companies are in the business of innovation. So, when you’re in the business of innovation, what differentiates companies is talent and so talent is like the number one most important thing. That’s the key. So, the question is how do you screen talent? It’s interesting because that’s what we do. At Venture Pact, we screen development talent.

John:
I love that. Let’s just take a minute and really focus on how much insight you have into screening talent that’s going to be the right fit for a company to hire and then as an Angel investor, you had to screen the talent of the team to see if that’s the right team to invest in for you.

Randy:
Yeah, exactly, exactly. So, it’s interesting, there’s some similarities and some differences. So, with tech talent, you look at the – there’s the coding skill set, which is pretty clear, like you have to access them for coding. You’re the code, but there’s a lot of other things that need to be assessed for which is called (#8:16) and communication and then there’s remote specific things that we have to screen for, because when you hire someone who’s remote, it’s different than hiring someone who is sitting across the table from you.

So, there is remote specific things we have to do for screening, but you know, obviously communication and cultural fit and just the concept in the assessment of someone actually being a self-starter and self-motivated to be able to manage this remote environment. So, that’s the key. Vetting people for founding companies, the key difference is you’re also looking for people who you think can motivate other people to join them, can motivate other people to handle, you know, if you think of a startup. So, think about it like you have this kind of crazy marathon run with a bunch of obstacles on the run.

John:
I love that.

Randy:
And so, you want to think about which person is going to be able to get over all those obstacles and convince his team to jump with him over these obstacles. Sometimes it might take you awhile to figure it out. So, you’re going to be frustrated when you’re stuck behind one bottleneck, but you need someone who is passionate about a problem, someone who understands it, and someone who has that ability to lead and motivate teams and convince people to join even when they come across all these challenges.

John;
That is so insightful. So, when someone’s pitching an angel investor, you or anyone else, they need to come across as someone who not only is passionate and understands their market, but the key element that you really honed in on there is can you motivate other people A) to join your team and B) stay motivated to run that marathon with you. You know, that’s a lot of skills for one person to have and the need to have all that come across in a pitch is really key. Can you talk to us about some of the best pitches you’ve heard and what made you say wow, that’s someone I want to be in?

Randy:
Sure. I think one of the key things I want to qualify is that it’s a team of people that you’re vetting. It’s not one person. So, when you’re founding the startup, you’re running a team, which is different from one person or when we vet a team of developers, it’s also different from vetting a founding team that’s going to run a company, so that’s one thing I wanted – when you’re looking at vetting a team to start a company, you also want to understand the market that they’re in and what their problem is.

So, if you’re going after a food company, food tech, right, then you want to see like, what’s their experience in food and like the basic things around their understanding of that industry, but then what are the key characteristics of someone who is going to implement this, so you’re going to need someone who really understands ops and supply chain, right, operations and supply chain, and then they are going to need someone who is going to think about distribution and how to get their products wherever they need to go, which is like sales, and then you’re going to go by the technology, which is the technology product that they’re using to manage whatever they’re trying to do, so any food tech.

So, ideally you’re going to have three people, one who is a master of supply chain, one who is a master of distribution and sales, and one is who’s really good at tech, then you have a good team mix. If they’re all really talented at what they do and they have and so that’s kind of the first layer. Do they have the right combination of skills. Secondly is how excited and passionate are they about this concept, okay. So, someone who’s like been in the space and understands it and has been in it for awhile, they recognize a problem, usually the problem is well informed, right.

So, you’ve been in – you understand the space, so you have a reasonably good understanding of the problem. So, can you define the problem you’re going after very well and do you understand it and then the next thing is can you talk through or know something about problems and do you feel like they live and breathe, like this question of how to solve it – are they living and breathing and thinking about it all the time and as you discuss it with them, you can see. If you ask them a question and they don’t know the answer to it, then you’re asking them a question or – they can’t answer it intelligently and they’re like, oh, I’ve never heard of that question. Usually that’s pretty bad, because you only spent 10 minutes hearing this and you already come up with questions that they’ve never even –

John:
They haven’t even thought of.

Randy:
Yeah. Now, sometimes if it’s a younger company, you know, it might happen, but ideally, we’re like we’ve thought about that, that’s a great question and they have a bunch of things these are possibly solutions. We can’t guarantee these are right. We’re going to test them or this is why this is a bad question, that means they’re thinking about this all the time. It’s in the back of their head. So, there’s a couple of things there, but really, it’s an imperfect science to judge people. It’s an imperfect science.

John:
It’s like hiring, yes. So, when you heard a pitch besides the combination of the right people and being able to find and understand what the problem is and they live and breathe it, is there any one pitch story that stands out to you that’s like not only did they have all that come across, but they told me a story that made it interesting and memorable that made me want to invest. Is anything pop into your head for that or something you would describe Venture Pact if you were to come up with a story? Do you have a specific story of somebody not being able to find somebody and how you solve that problem and then all the great things that happened once they had the right match?

Randy:
Yeah, so I’ll take the second point, the story for Venture Pact. Yeah, I think we have a lot of stories like that and what’s interesting is – I can give you one example. So, we’re going to the company, they have a really cool, really cool product and they’re trying to say like, alright, what we’re trying to do is we’re trying to change the way companies cobrowse, so a lot of customers service people, when they’re trying to speak to their customers, you know, they’re speaking over the phone and it’s hard to really communicate the problem you have.

So, if you can actually browse the same, you know, cobrowse, and be on the same page at the same time, then it’ll be very profitable for all these customer service people and there’s obviously thousands of customer service people and all these big companies have this problem. So, they were like, okay, this is actually not an easy technology problem to solve because you have so many different browsers and different types of browsers, etc, etc,

So, they needed to scale their tech team and so they came to us and like, alright, we need to scale our tech team, you know, they’re very talented developers, but again, you can only do so much as a few developers, so they wanted to scale out their team and they were looking for people with specific language experience and specific experience with browsers, so we connected them with a team that fit criteria that they wanted which is their budget, their location preference, and the technology skills that they wanted and they were able to build that out and they built a very powerful cobrowsing platform and then they were able to sell the company for a very nice return and it was basically they had a great idea, they built a solid solution, they just needed to scale it out and they just needed tech talent.

John:
I love that story because there’s a problem, you provided the solution, scaling it, and the result was they were able to sell the company that would never have happened had they not used Venture Pact. That’s the kind of quick, easy to understand problem solution result formula that I love to work with my clients on getting that everybody can easily grasp and understand.

Can you speak a little bit, Randy, about the cultural fit. Not so much with what you’re placing people into the company, but it’s the same kind of thing when you’re wearing your angel investor hat, what do you look for in a company culturally. A) Do they have a culture defined, I guess, to see whether it’s a culture fit for you personally to invest in.

Randy:
Can you repeat the question?

John:
Sure, what do you look for in a company as an angel investor, what kind of culture do you look for to decide whether that fits you and the kind of culture you like to work in. Obviously, you’re an innovative person, so I’m guessing you like to work with companies that have that as their culture, but are there other things that you look for in a culture?

Randy:
Sure. One thing I like obviously, we like to look for companies that we work with is if we’re going to mentor that company, it’s obviously better if we have the experience relevant to what they’re looking for, so if it’s a company that’s innovating a woman’s purse company, like it’s a new woman’s purse, I don’t know that market that well, I don’t have that much experience in buying women’s purses. I just don’t know the industry.

So, I’m not able to give a lot of guidance. I can give some guidance into the tech marketing and some guidance in the tech product, but I’m not going to be the best investor for them. Like, they need someone who understands fashion and understands their customer whereas someone who is doing a market place product, right, they’re building a marketplace or they’re building something relevant to remote work or they’re building something relevant to procurement or B to B services or B to B buying or payments or things like we’ve spent a lot of time on or international transactions, international that’s where we specialize in.

So, that’s where I can add a lot more value, because we had o deal with a lot of those challenges as we built our Venture Pact, so Pratham and I can add a lot more value and my business partner and I just have a better understanding of these things. So, I think, you know, the key is like how much value can you add and how good of an understanding of a space, of the space do we have.

John:
So, you’re not just interested in giving money, you’re interested in becoming a partner with them and using your expertise to make the company grow, so you’re investing your money and your skill set it sounds like, is that accurate?

Randy:
Ya, and I think one of the ways that’s – that is accurate. I would add another point to it where that would be, you’re going to invest much better in companies that you understand. So, if I’m investing in a fashion company and it’s going to be much harder for me to really know if they’re doing something really powerful and different or not. So, that would be a main point. If I’m investing in something that I don’ understand..

John:
It’s like buying a stock that you don’t know what it does.

Randy:
Exactly, exactly.

John:
What range do you like to invest in? When someone needs a certain amount of money and you’re like, oh that’s too low for me or that’s too high for me, what is your sweet spot as an angel investor?

Randy:
I think, well, we don’t, there’s no like specific thing, even at Venture Pact, like we’re already with the companies. We’ve worked with startups that are actually building their first product and we help them build their product or we work with companies, like the one I mentioned, where they, you know, they already have a team, they already have a product. They’re just scaling it out and so, there’s I would say, we don’t usually specify that, like this is a company that we like and that we think we can help.

John:
Got it, so if somebody said, I need $250,000 and wanted to approach you as an angel investor or I need $500,000, if the fit was there, that kind of price range is something that you typically look at as an angel investor?

Randy:
Well, so, I mean, if they are looking to raise, – it depends on the round. The structure of the round and who else is investing and so our network of our investors, so obviously I have a network of people that we, that I pass deals to and we kind of think about together on deals, so it depend on the network and how much each person in the network is willing to contribute. So, we are always open to looking at deals and passing them around and it might be that I am not a good fit, but someone else I know is a good fit, so you know, there’s a lot of passing around of deals, that would depend. It’s something that would depend on the situation.

John:
Right and for someone to even become aware of you as a potential investor and your network of investors, there’s a warm connection ideally the way you like to meet people.

Randy:
Yeah, so warm connection is good, definitely. It helps validate the person. Sometimes there’s just great people who reach out directly you don’t know. It’s hard because you just don’t, like from an email, there’s a few sentences you’re reading and you’re kind of scanning, you get so many emails, it’s just hard to make a good assessment, so sometimes you’ll miss out on people that you just don’t have time to respond to. So, warm connections are good, because then you have someone else that you know that can vouch for specific things about the person.

John:
Right.

Randy:
But yeah, it’s one of those things where it’s like, ideally you just reach out to the person and you know, we can respond, but in today’s world, email has become a challenge, so warm introductions are preferred, yeah.

John:
Right, and then when someone pitches you, you prefer the pitch being live versus you looking at the pitch first before you met them.

Randy:
The key is to make sure this is (#20:00) company so, you know, a lot of times companies want to jump on a call straight away and that’s going to be tough. Usually it’s best just to kind of make sure it’s a good fit first so what you’re talking about, what’s your industry, what’s the experience, what are you trying to solve. That validation part, it’s just to make sure you’re not, because if it’s a company that I don’t have experience in, then there’s no reason for us to take your call, because I’m not going to be able to help you on it and if I can help you, it’s me introducing you to another investor, so first let me see that other investor. And see if he’s interested. So, you don’t really need to jump on a call with me. I can just see that, assess that on my own.

John:
Do you look at an actual deck or do you just a couple of lines, like a 90 second pitch.

Randy:
Yeah, sometimes (#20:44). Well, I guess the, you know, the long deck, you can’t spend that long, so you really skimming them. I would recommend shorting the decks, because if you shorten the deck, you’re choosing what I’m spending my time on, other wise, if you have a long deck, I’m choosing what I’m spending my time on and so you might have something important that I missed on.

John:
The shorter decks actually get more focused than a longer deck. That’s a great takeaway. What if someone is trying to invent some new kind of game for people to play and it’s not technically solving a problem, do you have any advice for those kinds of developers?

Randy:
Yeah, I think, there’s the standard advice, which is like, if you’re trying to build a game, you know, the way games go if you look at history and how games goes, it’s pretty kind of organize and kind of crazy somehow the way some companies go. We’ve seen some gaming companies just sky rocket in countries where there was zero marketing and overtime it takes over the small countries and then it starts to grow into other countries, so it might, I would say, the first version of your game, gaming development is not cheap.

Obviously it’s expensive, it’s time consuming, so I would try to create whatever that sticky component, what’s the stickiness of the game. I would try to build a very small game that includes that stickiness component and try it out and just try it out, you know, going through gaming forums and things like to see if it works.

Once you’ve done that, then I would start to think more about the next, it’s like, is this, because gaming is all about, it’s entertainment, so when you’re looking at entertainment companies, it’s like how sticky is it, is it entertaining or do people enjoy it, how many times are using coming back to it.

So, you want to understand your metrics and see likes which type of gamers like your product, so are they gamers who use, call it x, if you like product x, you probably like product y. So, let’s see what affiliations. There’s many things you can do to get cross market and things like that. The main thing I would say for gaming is don’t spend too long building your first product. You want to assess the stickiness.

John:
I love what you said about it if you like this game, you probably like that game. People love those kind of references, especially since it is entertainment and that’s how movies are pitched.

Randy:
Exactly.

John:
As we’re wrapping up our podcast, it went very fast, you gave so much great information. Is there any one particular book or books that you like to recommend to startups either about investing or just life in general?

Randy:
That’s a very tough question, because there’s a lot of books that I like.

John:
It’s not Sophie’s Choice, you can pick more than one.

Randy:
Okay, good. There’s, I really like the book Drive by Daniel Pink. He talks about how to motivate people, which is very important and there’s a lot of things in that book that help you, when you think about how to manage employees and work with employees, so that’s a good book.

I like the book by Grove on Only the Paranoid Survive. It’s an interesting title. About the book is he talks about the challenges of managing and leading companies and so one of the things he talks about in the book is that if you’re not paranoid and then you’re less likely to successful, because the world changes so quickly and you can quickly become comfortable in something that you once worked and no longer does or will no longer work and so what I liked about his take, as a leader, you’re a great leader is if you can act in the times of struggle.

When there’s terrible things happening in the company. If you can act without having the emotional baggage of what once was in the company, if you can act as a newcomer. So, he asks this question, like if I’m a new owner, if I came in – if they fired me and I came in as a new CEO, what would I do to revive this company and basically what that means is if I was to take out the emotional attachment that I have with our existing business, what decision would I make? And that’s how – he talks about a personal story how he moved Intel from the memory business to the microprocessor business and the reason he made that big shift was because he realize that another CEO came in, they would do that specific thing and he just had this emotional attachment to the product.

So, that was a great book and then, you know, there’s a few other solid books if you want to look at personal challenges of entrepreneurs, there is a book by Eckart Tolle (#24:41) called The Power of Now. If you want to look at the – if you’re interested in just the process, like Lean Startup, obviously, there’s Eric Ries, Lean Startup and there’s Reid Hoffman’s book on networks and how the new age of employees and he has good books there.

John:
That’s great. I really like this concept of Only the Paranoid Survive and really taking a look non-emotionally, very left-brain, like renewing your wedding vows almost.

Randy:
Yeah, yeah.

John:
And taking a whole new look of recommitting yourself to where you are. Randy, thank you so much, if our listeners want to follow you on Twitter and LinkedIn and follow what’s going on with Venture Pact, what’s the best way for them to stay in touch with someone with your insights and see what other awards you’re going to win and follow your career.

Randy:
I would say Twitter is great. My Twitter handle is @RandyRayess. LinkedIn is pretty similar just LinkedIn.com/in/RandyRayess. So, those are two ways to reach me. Of course, if you’re interested in Venture Pact, then it’s just [email protected]. So, those would be the three main ways.

John:
Fantastic. Well, Randy, I’m so excited to watch Venture Pact continue to soar and I know you’re going to do a lot of more innovative things in the marketplace and we’re thrilled to have had you on the show. Thank you again.

Randy:
Sure, thank you for having me.

TSP010 | Danny Cohen – Transcription

Posted by John Livesay in Uncategorized | 0 comments

John Livesay:
Hi and welcome back to The Successful Pitch. Today’s guest is Danny Cohen who is based in Israel, but fortunately was in San Francisco, so we were in the same time zone since I am in LA. He works for Carmel Ventures. They get about 500 pitches a year and do seven deals, so that 1% of every pitch they hear getting funding is true and you said you really need a warm connection to even get in the door. He talks about the movie Moneyball as a great example of using statistics and team work in sports and the comparisons of how that’s relevant in getting your startup funded.

He has a lot of great information and huge success stories about companies that he’s been involved with. It got bought by Blackberry and tells the importance of story telling and what makes someone tell a story in a way that makes it memorable. It has to do with passion. You’re going to enjoy Danny as much as I enjoyed talked to him. Enjoy the show.

Hi and welcome to The Successful Pitch. Today’s guest is Danny Cohen from Carmel Ventures based in Israel and lucky for us he is in San Francisco today and able to be in the same time zone as I am and we’re thrilled to have him on the show to talk about his expertise in investing. He’s had the career already. He had another company invested in Watch Doc, which recently was bought by Blackberry and iView, which received 35 million dollars in five different rounds. So, he has a lot of insights to share with all of us today. Danny, welcome to the show.

Danny Cohen:
Thank you so much.

John:
Danny, I, as you know, gave a brief, brief introduction as to your career, but can you take us back to when did you decide that you wanted to have a career in investing. What made you interested in startups in the first place?

Danny:
Great, thanks for the question. Again, thanks for the opportunity. I’ve actually been in the venture capital business since 2001. So, I started in August 2001, probably one of the worst times to go into investing and I’ve been investing basically ever since, it’s almost as close to 15 years now. I kind of before that, I had a career in both startups and technology companies in Israel. I did, I had technology background and some business experience and I really thought that the most interesting thing for me is to worth with many companies and be at the forefront of technology and opportunity and I thought that venture capital would be the right way. To be completely honest, when I went into it, I thought I’ll do it for two-three years and then move on and here I am 15 years later.

John:
Clearly you like it and it likes you if you’ve been doing it that long.

Danny:
Yeah. I hope so.

John:
You obviously had to pitch when you were on the tech side and now that you’re on the other side of the desk for 15 years, what would you say is one of the key things that you look for when you’re hearing a pitch to decide whether or not you wanna have another meeting or possibly investing?

Danny:
I think through the years it’s always a combination of understanding your numbers and telling a great story, right, or maybe I should say it the other way around. First of all, telling a great story and then also understanding really what the numbers are all about. To be fair, we’re all in the pitching business. Entrepreneurs pitch to us, we pitch LPs, LPs pitch to endowment – everybody’s pitching and I think overall what makes best outcome is when you have a very clear understandable story that everyone can understand, right, and then that you’re on top of your game, right, you’re on top of your numbers, you understand exactly the numbers of the industry, the numbers of your specific business, what’s really happening, to tell the story backed by real data. I think the combination of those is the best way to go.

John:
What I hear you saying is, the consistency of a good story with good numbers gives the impression of confidence and that you’re investing in a person that knows what they’re talking about and can explain it easily and get you inspired, right? And excited hopefully with the numbers and the story.

Danny:
Absolutely. One thing to say about the story when I was very early on in my career when I didn’t understand what entrepreneurs were talking about. I always thought it was because they were so smart and I was not as smart, right, which may be true, but I’ve come to understand that it doesn’t matter, right. You gotta tell a story that everybody can understand.

John:
So, speaking of stories, do you want to tell us a little bit about the stories of either iView, the internet online advertising is my background, so that’s particularly interesting to me what you guys did there and how you got so much funding in those years.

Danny:
For many years I was with a different fund called Gemini in Israel and I did both Watch Doc and iView with them and I also did when I was there a great company called OutBrain and that company, Carmel investors in that as well, that’s how I met the Carmel folks and over time gave me the opportunity to kind of move on and join Carmel as a partner.

So, that’s kind of my personal story in how my investments in the past kind of got to join Carmel, specifically maybe just to say a word about Watch Docs, it sold, it was announced earlier this week that it got sold to Blackberry, which I think is a great story because this is a company that innovated document sharing and secure message collaboration market and that’s what Blackberry was all about back before the iPhone existed.

Blackberry now is at the point where I think they need to a little bit reinvent themselves and here they are leveraging a great technology company out of Israel to build kind of their next generation solutions and market that, it’s changing fast for them.

John:
Well, with this recent scandal of emails being leaked from Sony, you can see now more than ever the importance of protecting files and documents, right?

Danny:
In Israel right now, we are seeing a whole bunch of cyber security companies and that whole security market is really booming and the threats are real more than ever. So, in general it’s a great time to be investing in security companies and in Israel technology in general.

John:
Talk to us about the difference, because you have such a great prospective on, you’ve obviously come to the US frequently, but what is the big difference between what’s trending in Israel versus what’s trending in the US? Is it cyber protection or is there other things going on?

Danny:
I would say that, in general, and we’re pretty proud of this, Israel is becoming almost like a little Silicon Valley and I say that is that now we’re really, you can find almost every category, you will find a company in Israel, maybe not the best company, but you’ll definitely find a company.

So, if Newark is all about digital media and maybe LA is about entertainment. Israel you see a little bit of everything. Pretty much I think what you see like in Silicon Valley. Saying that, is really entrepreneurs tend to be very tech focused, so usually there’s some sort of a core technology is Israeli entrepreneurs do. That, of course, happens in Silicon Valley as well, but sometimes you see here companies that are more market orientated and build maybe a service less technology orientated sometimes. So, I would say in Israel it’s very much technology orientated.

John:
And obviously relationship orientated. If you tell that story of how you went from the previous company with OutBrain and that’s what gave you that link to get into Carmel Ventures, relationships are so important no matter where you live, because that’s really what you’re investing in, isn’t it? The team, the people, and having warm connections and warm introductions?

Danny:
Absolutely and I always tell entrepreneurs, you know, many VCs put on your website kind of an email saying if you want to call us, use this email info at you know, venture.com or something like that. I always say it’s a trap. The reality is if you really want to get the attention of a VC, you gotta get a warm introduction, never cold call a venture capitalist. Always get someone that he knows to make an introduction, that’s a much, much better way to start on the right foot. The pitching process.

John:
Right and within that warm introduction, make sure the time is right, right. Don’t get introduced before you have all your numbers ready, right. What is it that you’re looking for? Is there like a check list of what they must have? Do they have to be revenue for you to consider them or are you interested in pre-revenue.

Danny:
Pre-revenue will a lot of times, look, especially these days when the market is so hot, right, and valuations go up very fast, we want to go in early, because it’s an opportunity for us to get sometimes better deal terms. So, when I say you need to be on top of your numbers, it doesn’t mean that you need to have revenues, but you need to understand the underlining numbers of your industry, that’s what basically we are looking for. So, it can be definitely like pre-revenue, even pre-launch, as long as you have a good grasp of kind of the dynamics of the market you’re going after.

John:
Do you, as Carmel Ventures only invest in entrepreneurs that are based in Israel?

Danny:
A lot of times they start in Israel, but sometimes we can find them in Silicon Valley. We can find them in London, we can find them in Berlin. We can find them in a lot of places, but we invest in entrepreneurs that have a strong Israeli connection.

John:
Since you brought up OutBrain, I’d love to hear more about that. What’s the story with OutBrain and how did that come to your attention?

Danny:
I invested way back in 2007, it was a seed round, actually, with an entrepreneur that has built already an online advertising business, quite successful, called Quigo that AOL acquired, so it was a great entrepreneur that really wanted to make a change or do something in the content distribution or content recommendation. He didn’t know exactly what he was trying to do, but he had this idea to try and get more personalize content in front of people and move forward, you know, almost eight or nine years. Now, OutBrain is the leading provider of content recommendation on almost every publisher in the United States.

So, if you go to CNN.com, at the bottom of every article it would say, you know, people that read this may also be interested in this. This is basically now an area that OutBrain invented and is by far the leader in that space, right. So, I would say it was a great entrepreneur with a big vision to change something fundamental in the industry. Did he know exactly what he was going to do and that it’s going to end on that specific real estate on the bottom of the article, probably not, but that doesn’t matter, right? In general, it was a good story with a great entrepreneur.

John:
Well, let’s talk about that a little bit. That concept, you know, I’ve heard in the past from other investors that sometimes it takes people three times to pivot before they really land on something, but you’re still interested in investing, because you’re investing in them. Can you speak to that a little bit?

Danny:
Yeah, so first of all, I think in general it’s very important as an investor to like the general the idea and not always the specifics of the idea, right. I’ll give another example of another company I was involved with a company called Adap.TV. They were also into video advertising space and AOL acquired them for $450 million dollars a couple of years back and from the day they started till the day they were sold, they were always in video advertising, but when you double click on it, they were in different.

Their offering in video advertising changed dramatically from the day they started to where it actually ended, right. The bet was, again, on a really good team, on a defective video advertising, because it can be huge, not specifically on their initial solution where they pivoted from over time.

So, my point is we want to like the general market you’re going after, right. So, for example, let’s say now we’re looking at 3D. We will be looking and saying, we like the 3D printing market, we feel like you’re a good entrepreneur, you seem to have a good head start in a direction, that’s great. Will we think that it’s going to end exactly where you started, probably not, but that doesn’t matter.

John:
That’s such an important distinction. Thank you for that. Can you speak a little bit more about what you look for in a good team, in a good leader? I mean, there’s so many qualities that are sort of unspoken. Obviously integrity and honesty and compatibility, likeability, you gotta wanna really connect with these people before you invest, right? It’s almost like a marriage.

Danny:
It’s definitely like a marriage. I always tell that to entrepreneur is well, it’s a marriage. One to me that’s important it’s a half catholic marriage in the sense that they can – you can never fire your investor, that’s why entrepreneurs need to choose their investors very, very carefully, right. I think all that you said is all relevant, right. They need to be smart and likeable and, you know, with great capabilities, and maybe great technology or business background. There’s one idea which I always look for which for me personally is always important.

Also try to answer the question why. Why are they doing this? What is the motivation of what they’re trying to do. Hopefully it’s not money, hopefully it’s something beyond that and if you really, if I think I understand that and I subscribe to that motivation, I think that’s a big, big way in kind of getting at least my attention.

John:
Well, what you just said Danny is so valuable to the story telling aspect of the pitch, which is really where my sweet spot is helping people get a story that’s compelling, memorable, and interesting and it all goes back to that why that you just talked about. Why are you doing this not – because there’s so many different ways to make money, so there has to be some kind of personal decision of I am so passionate about this, I love this category, let’s say 3D printing, I’m fascinate by the ability to make a lung for someone that couldn’t have a lung and save a life. If you start telling those kinds of whys, then people, they sit up, right. Would you – is that what you’re talking about?

Danny:
Absolutely. So, it could be a passion about the industry, it could be, you wanna prove to someone or something hat you can do this, maybe you were an entrepreneur before, but not an CEO, now you want to become the CEO, but there’s a lot of things, but you got to tell in a good way why exactly you’re going after that and, by the way, you talk about story telling, what you said now is so relevant, right, tell your story with a lot of passion, right, make – that’s true in life by the way in general, right.

You know, when you sit in a room or you have coffee with someone, you have a beer with someone, you hear a story, you know, if there’s passion, if there’s, make it interesting, people want to hear more about it and same thing goes when you’re pitching an investor.

John:
When you think of your top favorite two or three pitches, stories, that you heard over the 15 years you’ve been doing this, any one or two stand out that you want to share with us?

Danny:
Yeah, you know, actually one of my favorite companies was a company I invested 10 years ago. It didn’t work out at all, so our fund lost a lot of money with that, but it was an entrepreneur, friend of mine now, that wanted to make something different in the tech support space and I thought then and I still think today the technology, as it gets more and more advanced and more people use it, a lot of people need help and, you know, using technology in the correct way and I thought there was room to make a big company in that and he told a beautiful, beautiful story about how the world needs service for tech support and I totally bought into it, put in a lot of money, and it didn’t work out, but it’s still one of my favorite pitches, you know. I was blown away.

John:
Wow. Well, not every pitch that gets funded works out, but that’s the beauty of it. You obviously have some huge success stories of those that have worked out. What is your thoughts on scalability, is that one of your key criterias that you wanna look at something that gives you like a ten time return investment or the scalability key.

Danny:
As a fund and we specifically at Carmel, we are very focused on what we call home runs, so we wanna look for companies that will make it really big, right, that’s the core of our model. So, if we see a company that’s great, it’s interesting, great entrepreneur, good story, we think it’s going to be, generate two-three x for us, we pass on it. We need to see the big, big story.

So, I think scalability is a big part of telling or understanding that big outcome, right, and we say scalability, that means in technology, so we understand that your solution can scale, but also your business model can scale, right, that it’s a business model that is not built on hiring 1,000 sales people, right, that’s something that has network effect to it. So, scalability needs to be in a whole set of parameters not only just in the technology.

John:
That’s so key. Can you expand a little bit on what you just talked about when you decide to invest in a company, where do you want that money, you know, obviously they have to have a business plan at – let’s say you’re giving somebody a million dollars, how long is it going to last, should they be spending – what percentage of that money do you like to be spent on marketing, sales, product development. Is there any kind of formula or is it unique in every situation?

Danny:
Totally unique in every situation. I would say when we fund, we usually don’t like to fund just development, because in most cases, especially in internet and software, the development is – it’s not that it’s not hard, but usually people, especially in Israel I think succeed in that. I think it’s the product market fit that we want to see.

So, I would say that we try to fund, given enough money that we can get initial product market fit. That would be a general kind of what we’re looking after. You know, when does that happen? It depends from company to company. Another rule of thumb as we try to get money that will last at least 15 months, okay, so why? Because we need at least 12-18 months before you are, before you get something going and you’re ready for the next round of financing. If the raise is going to last for 69 months, it’s not enough.

John:
When you’re looking at this product market fit, is there something that you’ve heard recently that you say, ah, that person really knows what solution their product is solving and they understand this fit that really makes me want to invest?

Danny:
I would say it goes back to really understanding the market dynamics. So, when I hear an entrepreneur say, look, I went out to the market, you know, I wont name him, but there’s a guy, a friend of mine, I actually didn’t back him yet, hopefully I will someday, but he’s a great entrepreneur in Israel and when he started in his business, he didn’t start his company before he talked to 25 relevant customers and really heard their story was able to kind of integrate that into something and say, okay, I really understand now the problem, I think my technology is going to work at this, now I’m going to start my company and I think that’s a great move and not all entrepreneurs do that. They don’t always have that degradation of really good market feed back of what they’re trying to do.

John:
Well, really goes back to the cart before the horse example, right, with the example you just gave, he made sure that there was a need for something before he went and made it by talking to at least 25 people and getting an in depth understanding of why they would need that and use it as oppose to like, oh, let’s make this and hope somebody wants it, right?

Danny:
Absolutely.

John:
How many pitches do you think you hear in a week or a month?

Danny:
I would say, I mean, it depends, right, but I would say on average probably five to ten a week. So, almost like one a day.

John:
So, we’re looking at..Let’s just calculate conservatively five a day, so 20 a month. How many of those in a month do you typically fund? As Carmel Ventures say we look for those home runs.

Danny:
At the end we are five partners and each of us will do one to two deals a year, so I would say we probably do at the end probably around seven deals now, just to be correct in what I said before. I personally see about one pitch a day. Carmel in general, we see that that goes across about five partners, right, so we would see, I would say, almost 500 or 400 a year or something like that and out of that we would fund, as I said, probably four to eight.

John:
Right, so that 1% number that everybody keeps hearing is accurate for you and it’s certainly seems to mirror that if my math is correct.

Danny:
Absolutely, absolutely.

John:
With my numbers, so it really just shows the importance of nailing it and how much competition there is and how much preparation is required. When you get to pitch someone like you in my mind, that’s the super bowl of meetings. Don’t waste it. Be as prepared as possible, have your numbers in place, don’t waste your time, because do you typically say to somebody, I’m not interested now, but come back next month or – how many – you’re so busy hearing pitches you have to really move on to the next pitch, right?

Danny:
A lot of times we say at the end of the meeting, we’ll say thank you, it was great. You know, here’s some feedback, but it’s not for us, right. We try to be very quick in that. Sometimes, you know, few a week kind of get our interests going and then we maybe invite for another meeting or have another partner see it and hear it, but you’re right.

When I tell entrepreneurs when they’re starting the process of fund raising I say, don’t, don’t make all your meetings in one week. Why? Go to three or four, tell your story, get the feedback, go home, and kind of listen to what you heard, and things are working great, that’s awesome. But if it’s not working, change it, then go to three-four more investors, you know, re-do it, get the feedback again, because if you kind of, you use all your bullets in one week and then you understand your pitch was wrong, you know, what are you going to do now? That sucks.

John:
Danny, that is such valuable advice. I can’t thank you enjoy for that, because so many people think, you know, I’m going to dedicate this week, I’m going to go see as many people as I can and do it over and over again and what you just pointed out is the odds of you nailing that are pretty slim, so get the feedback, take some time, readjust, work with whoever you’re working with to help you make that pitch as good as it can be, and maybe change the order of the slides, maybe answer a question that’s not getting answered in the deck.

What’s the kind of question that you typically ask an investor after they pitch that you wish they had an answer for that you don’t hear? For example, one of the investors told me that they ask people pitching them, you know, what’s the cost to acquire a customer and they said you’d be amazed how many people don’t have a number.

So, is there a question that you typically don’t get answered in the pitch that you ask and you go, oh, they don’t have an answer and that’s an automatic no. Is there something like that that you would love to get people advice on make sure you have an answer on this question or these kinds of questions?

Danny:
First of all, there’s no automatic no, even if they don’t have the answers to the question, it can still be a yes. Why? Because it’s such a great story, right. It’s kind of like, wow, I really, all the rest doesn’t matter. So, there’s never an automatic no. You know, sometimes the cost, for example, the cost of acquire a customer, a lot of times people don’t know that because it’s too early. They are still not in the market yet to really know that.

What I want people to understand is, let’s do a math of the market size, right. I’ll give you one thing that people do, which for me is always kind of annoying, right. They would say, it’s a billion dollar market and you say, okay, that’s right, overall of this and this category can be worth a billion dollars, but is what you’re selling worth a billion dollars and let’s do the math for a second or if you think that what you’re selling is a billion dollars today, who is getting those billion dollars today? You’d be surprised how many people scratch their heads and say, oh, I don’t know where that billion dollar market is going, right, so before you throw a number out there, again, come up with some sort of understanding or underlining backup to why you’re seeing those number and understand those numbers.

John:
That’s great, that’s great. Danny, time goes so fast with somebody like you. Thank you so much for sharing all these insights. Before I let you go, I just want to ask you a couple more questions, one is do you have a book that you particularly have found useful information, inspiring, that you would recommend or doesn’t have to be even about investing, but just running a business or just about life in general.

Danny:
I think in general my favorite business books are all about sports.

John:
Great, yes, yes, let’s use sports analogies. It’s all about the team, yeah?

Danny:
Yeah, there you go and home runs. Moneyball is, of course, a great example for that and I think it’s been a great movie and I think that one is really kind of has a lot to say about, you know, looking at data in a different way and that kind of helps you perform differently and I think that’s very relevant for business. There’s a good book called, it’s a little bit older now, I don’t know; ten years I think, that came out after the first streak of super bowls won by the Patriots called Patriot [#24:34?] and that has some pretty interesting insights about how you tell a very sophisticated story as a coach to all the players out there and kind of get your employees or your players to really understand the kind of overall picture even though they have a very, very small part in the overall kind of lay out of the team.

John:
That’s so valuable because not only does your own team internally have to see the big picture, but the investors, if they’re going to be part of your team, need to see the big picture as well and that’s a great, great ending.

So, the best way for someone to follow you is it LinkedIn, do you post on Twitter, how, if someone has a connection that they feel they do have a warm introduction, what would you recommend if somebody wanted to follow you, pitch Carmel Ventures?

Danny:
So, just in general for LinkedIn is always great. Carmel we have a blog that we are proud of that we’re investing a lot of time in. It’s called the Viola Notes. So, check that out. Viola-notes.com. I also have a personal blog called Ilvc3. So IsraelVC3.com and those are all good ways to kind of hear what we think about life in general and none of this works and email always works.

John:
Okay, great. Those blogs are really valuable information everybody, because when you read someone’s blog, you really get inside their head and then you can speak to things that are relevant to you, so if you’re going to have the opportunity to ever talk to Danny, be sure to bring up Moneyball as a reference point and anything he mentions in his blog. Danny, thanks again. You’ve been a great guest.

Danny:
Thank you. I really enjoyed it. I enjoyed the conversation and looking forward to hearing it online.

John:
Great.

TSP009 | Paul Grossinger – Transcription

Posted by John Livesay in Uncategorized | 0 comments

John Livesay:

Welcome to The Successful Pitch podcast. Today’s guest is Paul Grossinger who at a very young age has been winning pitches left and right. He shares the secrets of winning pitches, unfortunately it’s what people don’t like to do and that’s practice, practice, just like the joke about how to get to Carnegie Hall, but he said no matter how successful you are, that is one of the key criterias to making your pitch flow in a way that tells people who you are, what problem you’re solving and why they should invest with you. He also goes into great detail about how important it is to get to know the investors before asking them for money. Timing is everything. Enjoy the interview.

Welcome back to The Successful Pitch podcast. Today’s guest is Paul Grossinger.

Paul Grossinger:

Hi.

John:

Welcome to the show, Paul. Paul, you have an incredible background, which is from journalism to being an investor and I’d love to have you tell our listeners.

Paul:

You skipped the entrepreneur part in the middle.

John:

Yes, so tell us. You majored in journalism and then you became an entrepreneur and then you became an investor. So, I know there’s many steps from journalism to investor and we’d love to hear how you made that journey.

Paul:

Well, you know, I actually started as an entrepreneur first in college. So, when I was at Hopkins we did a network of sports websites and we built that out for a little to be a essentially a mid size sports network and that was how I got into content and really enjoying content as a medium and that was what convinced me to go study journalism at Columbia.

That’s what brought me to New York and so in the process of that term, I really enjoyed journalism and I still do quite a bit of writing for TechCo and occasionally for VentureBeat and other sites, but I didn’t want to do it for professionally for my entire career and we managed to finish with all the media successfully with my first startup and started pervasively through my second startup and so that was how I got to be an entrepreneur in New York and stay an entrepreneur in New York.

I really like the circuit and as the result of the first one, I started investing in companies, first dabbling in it and joined a few angel groups. I particularly like Golden Seeds and then evenutally now in the last year or two, I’ve really morphed into creating my own syndicates and leading my own deals. The largest, which of course is Gaingels. We invest in founders of at least one LGBT founder.

John:

Great. Tell me a little bit about your first step from being an entrepreneur to becoming an angel investor. Was it helpful that you had already been an entrepreneur just when you became an investor to see – you knew the path that some of the startups were going on?

Paul:

Yeah, it was. I think when you’re an entrepreneur to be able to see in the path the beginning and to take the company from being absolutely nothing to being a success at one ilk or the other, whether it’s a small business all the way up to Facebook as something as important and certainty I have a ton left to learn. I am not by any means have accomplished everything there is to accomplish in a career. I’m learning a lot everyday, but I think in the boarder terms of being an active entrepreneur who is sort of in the trenches the same way as the companies that I was investing in.

I really enjoy investing, because it broadens the mind. I think it exercises a whole other part of the brain that really helps you to learn how to engage with companies that are going through a lot of the same challenges yours are, just in different markets, different mediums, and different types of clients and companies and I really enjoy that and I also enjoy what it does for building my network and for me the great – the thing I really like both entrepreneurship and investing is making impact, really. Creating value and creating things that matter so entrepreneurship and investing do that in both the same and very different ways at exactly the same time.

John:

I’m really fascinated by the whole concept of what you said about how investing is a different part of your brain than being an entrepreneur, because I am all about left brain being analytical, numbers oriented and trying to get startups when they do a pitch to get to the right brain story telling, emotional connection so people can fill their passion and be inspired. Can you speak a little bit about what you look for when you hear a pitch around the brain stuff?

Paul:

I think it’s both. I mean, for me the difference between being an entrepreneur and being an investor in different part of the brain is one is operative and one is more analytical and advice oriented. You know, as an entrepreneur, you’re really operating. You need to grow the company, you have one focus and you focus only on that goal. As an investor, you really see things more from the outside. You are able to tell entrepreneurs things that they don’t really see about their own company when they’re in the trenches and you are also able to give them outside opinions about, for example, what does the company look like to another investor.

What are the actual weakness to address. What is the company look like to a potential client, one of the things to address. Does the product adequately address their concerns, is their product market thin. I mean, those are things that entrepreneur can analyze for themselves, but I think sometimes have trouble seeing that and frankly, as an entrepreneur myself I have trouble seeing that in my own companies. We all need our own advisor, it’s why therapists need therapists for themselves.

John:

Yes.

Paul:

So, in terms for what I specifically for in a pitch, you know, I care a lot about understanding the story and understanding the team and why they are the right people for that particularly company and trying to get a deeper sense of understanding of why it’s them that’s going to be able to scale that particular idea and also I like to get a sense of what the numbers are behind the market. Why is their product market there, why is this important, why is it unique, different, why is this something that’s going to actually engage me mentally and make an impact in this market.

For me, impact is not necessarily about whether or not you’re saving Nepal, although that’ll be very important, it has a much broader base and so you can make an impact by creating say, a new home security company. You can make an impact by doing a new type of health care that does home care more properly. I mean, those are both companies that I’ve invested in the last couple of years. So, you know, for me, I scare away from stuff that I think is that A) I don’t really understand and B) it doesn’t necessarily make as much of an impact on people, which I guess for me is often direct consumer related technologies around certain types of ecommerce. Sometimes I invest in that stuff, but less so.

John:

Can you tell us one or two that come to mind that you thought, wow, this is a really great pitch and how fast did you know that you probably wanna invest in that time.

Paul:

So, when PuzzleSocial pitch to us at JumpStart last year Jeb was just sensational. He had a really clear, the founder of Jeb Social’s name is Jeb Ballise and Jeb had a really amazing, crystal clear understanding exactly who his client was, exactly who his market was for the digital cross word puzzle that he built and exactly how he’d acquire new customers. He knew exactly what his metrics were per acquisition, how long the customers stayed around and how fast he paid back the customer. He broke it down for us for beta. I think he had 15 members investing, a good quarter of a million after a 45 minute conversation. Wouldn’t want to bet my life on those numbers, but clearly it was very well received and I think entrepreneur have a very direct, crystal clear understanding of what their business is and why [cuts out], where they add value, who their end user is and why their end user will pay for it, do very well.

Another one that comes to mind is ThinkCERCA. Eileen, the founder, was the former head of the curriculum for Chicago public schools and she did a pitch to a group of YPO, Young Presidents Organization investors last year and she – what ThinkCERCA does is they created a new system for managing the common core education scanner and she just, she knew everything there was to know about education (#7:59?). You could just tell that she knew that and she also knew a lot about managing a team and clearly had built a product that fit exactly what she saw the need as in the Chicago public school system from being inside it and you just knew that she was going to succeed and then PuzzleSocial are both doing very well right now. So, I would say those were two pitches that just hit the nail on the head for me.

John:

That’s great and what I really hear is the common theme with those two examples is in depth understanding of the market and an in depth understanding of the customer and that’s where I feel a lot of people try to pitch maybe a little too early. They haven’t done their home work if they haven’t lived and breathed that particular market so well, they don’t really what’s going to motivate a customer, they just think they have a good idea and they want money to flush it out.

Paul:

That’s true. The most successful entrepreneurs we see are ones that have a deep understanding of their market. Another good example of a company that has come to me and that I am in through a vehicle or two is Canary. I mean, when Adam pitched canary particularly from Charlie from Brooklyn Bridge Ventures who eventually lead his seed round and those of us who were LPs in Brooklyn Bridge Ventures were also present and part of that.

Adam had come from a partial military background, the Israeli military also had a background in security and along with his developer who was a real ace machine specialist, you could just tell that they deeply understood how to create a new [cuts out] security and they could really – you knew Adam and his colleague could really revolutionize the home security market in that regard even tho they were basically pitching us on a device cam with wires and then of course Canary has developed into a very, very successful company that’s in now deployed a bunch of different retail stores and a really huge [cuts out].

So, that’s definitely true. People who have a domain expertise in what their doing, people who really understand the market or taken the time to really get to know, that’s really important. Ace entrepreneurs who also just understand how to lead people and have charisma and drive really work, but I would say that’s true, I would say that I scare away from people who just seem to have thought, hey, you know, I discovered this problem and I can build an app to maybe try and solve it. That’s not something I really invest in or dig deep on. I scare away from companies like that.

My model which comes partly from being an entrepreneur is to really get to know companies for a while, to do my homework for several months. The only exception is when a VC that I trust is leading round, I do my homework and I meet the people and I really like them then maybe if I have two meetings with them and I know the VC leading and I really trust them, I’ll invest in a side part with them, but generally for my own syndicates and for deals where we lead it out right, you really, really got to get to know them for a while and the two deals that I’m leading right now which I can’t speak the details of them, but I can say that myself and also at least five or six other members of our syndicate new each of the founders for several years. So, it was not a situation where we just like, you know, founded on angel list and invested like an hour. I don’t do a lot of that.

John:

Do you think it’s valuable for startups to put their pitch deck on angel list or are they better off..

Paul:

Angel lists are incredibly valuable, but it’s all in how you use it. I think that angel lists, ou know, if you’re investing with a regular investor that you trust who is the lead on a syndicate deal and you know that investor has known the entrepreneur for a long time, then that’s great. If you know the entrepreneur yourself and you’re backing their deal, which is what I did with say, Datch, that also makes sense. I think it’s where you don’t know anything about the company or the investor that you’re facing problem. I really don’t know a lot of people who do that. I know there are many, but I think that generally you want to get to know the person your syndicate is backing.

John:

What’s the average amount of money that, like, they are all over the map where some say..

Paul:

Investors are all over the map. There’s no answer to that.

John:

Because a lot of startups will say, oh, I need $250,000 or somebody says, oh I need a million, and they don’t even have proof of concept yet. The odds of them getting that are pretty slim, wouldn’t you agree that they need to get some..

Paul:

I don’t invest in concepts.

John:

Got it.

Paul:

I mean, I know that’s sort of a crude answer to the answer. I just don’t. I watch a concept and I’ll watch people and I’ll help them and I’ll be a little bit of an adviser and I’ll make some intros. It’s all about relationship building, but my money will not go in until the company has developed something and proofed it out a little bit at least with beta users. Even then, you know it’s still very early and I’m stuff helping the company grow a lot, but to me, there’s no value whatsoever in the concept level. You don’t really see a premium on value and there’s just, you’re taking a massive amount of risk that’s just unnecessary.

John:

Can you tell us one of the ways that you think companies should get good traction with a potential customers? Should they – with the beta tests that you..

Paul:

Are you talking about B to B or a B to C company?

John:

B to C.

Paul:

B to C company I think that you create a beta network of a 100-200 people. So, really, that’s the alpha. Test it out first, make some changes, then use your investors combined with your personal network combined with potentially some customer partners to come up with a beta network of a few thousand then you release it. On a B to B front, I think you use your network of investors and your personal network to find 5-20 really good clients that are willing to work with you on a daily/weekly basis in beta testing.

John:

Right. I think one of the things you’re really talking about Paul is how important relationships are not only with the investors that you already trust, but also knowing these startups for quite awhile or knowing someone in your network who knows them. The odds of someone finding you that’s a stranger and having an idea and not really having any warm contacts and pitch you once and walking away with x amount of money is just – no body really does that, right? They need to know you and have several meetings. Just trying to get people a sense of expectations of how long it takes to get funding and the steps are needed besides the initial pitch meeting.

Paul:

I would turn that on its head and I would say you want investors who know you well and taken the time – were able to assist you in the round. You don’t necessarily want investors who are not valuable in that round or if you do have them in the round, you want them following on to other value-added investors. So, one thing that my best companies have done, they do what essentially is a proto seed round where they get the advisers that they want in the company with real capital. You definitely – it’s always a good idea to do that early round week and then what they also do is they then add a few important investors to that round as well and then they can add friends and family and some less valuable investors if they wish behind those and then they get that company going and then they raise the real round.

I think it takes, good investors tend to take not a lot, but a decent little bit of time to get to know the company and/or they tend to go through someone that they trust implicitly. There’s nothing wrong with what we call ‘dumb money’ in a round, but it should be following very clearly smart money. I would add further that ever single successful company I have in my portfolio has smart investors adding value and I don’t know a single company in my portfolio that only raised money from unsophisticated investors and has succeeded. Frankly, I’m not even sure I know any that survive, even those that looked like they might have, you still know for a fact they have three or five value-added bides, so put capital in your helped on the (#15:25?) as far as raising funds for your goal then maybe, you know, in those cases it might be borderline, but they still have some value on people.

John:

When someone pitches you, because you, I saw you judge people pitching and you’ve obviously won several awards. Can you talk to us about, I saw on your LinkedIn profile you won a lot of awards for best mobile app and give us an experience..

Paul:

Yeah, we won a few. We were lucky to win a few awards for Pervasive.

John:

Yes, lucky. Tell us about what’s that like and how to win something like that, because obviously that gives you so much credibility and what does it take to win when you’re pitching like that.

Paul:

You have to have confidence in your delivery. You have to practice your delivery at least 50-100 times.

John:

50-100 times everybody! I don’t think people realize that. I love that. Thank you, Paul.

Paul:

Or more. I mean, I used to, I remember when we won the New Jersey Tech Venture, New Jersey Venture Tech competition, which was a train for me from upper west side to Pen station then Pen station to Princeton, I think it was. I just practiced the pitch back and forth, back and forth the whole way and it turned out actually, it was a an hour and a half trip, but it was a three or four minute speech, so I probably practiced it 80 times just there, so by that point,because it was like right before I knew it pretty much word for word.

I think though that what you know is you want to be crisp and clean, but you don’t want to try to memorize it, because what happens then is if you stumble on a word, you’ve lost your whole setup whereas the intelligent thing is to memorize basically each sector of what you want to do. Each point you want to make and then be able to re-phrase it or permute it whichever way you need to in that situation.

That’s what I always try to do. I basically have a sense of what were the eight things I want to get across for the audience. What was the order in which I wanted to get across some of it, how much time that I have, and I’d make sure I hit all eight and I sounded crisp and clean and delivered with what you call a loud-bear tone voice and you go from there. I think generally if you pull those things together you’re going to do pretty well.

One other thing I would add and I’m sort of ad libbing on some, but don’t.. it’s never a good idea to just sort of number off the sections that you’re doing in the speech. You want to flow seemingly from point to point and you want to emphasize your strengths first. So, generally that means you emphasize the strengths of the team and why their fit for what you’re building and why this product is a good fit and then you go into other sort of minutia like, you know, what else you’re doing, basically go into team, fit, clients first.

John:

Team, fit, clients, and before the team do you talk about the problem you’re solving so people have a clear understanding of what it is?

Paul:

I always basically go with a 20 second version of what problem we’re solving and what it is in. Problems 1-2 sentences and then I go into other stuff first and then I come back to, because the reality is until people understand who you are, why you are valuable and why there’s a fit for what you’re doing, they are not going to listen huge depth about you. They want the problem is statistically, but what your solution is. So, I don’t want to say you should bury the problem or bury the solution, you definitely put it at a top, but I generally split it between putting one sentence on each that will know what you’re talking about at the top and then delve much deeper into after you’ve gone into team and the why.

John:

That’s great. That’s so helpful. I love it.

Paul:

I’ll give you an example. So, one of the companies we are investing in is, we haven’t closed the deal, so I can’t say the company’s name, but it’s a company for revolutionizing home care, right, on the health care side. Everybody knows health care is a big problem, right, so you have to say that and you have to say what the solution is in the first 20 seconds of the pitch, but going into two minutes on why home care is a deep problem before you say anything why your team is great and why you have created value-added for the problem and why you’re the product market that solve it is the wrong way to go about it, because the audience knows that there’s a problem with the employment of health care, particularly home care and its inefficiencies.

So, state that’s the problem, state that you’re in the solution and then go into the depth of why you’re unique and then you can port back actually giving the statistics on why it’s a huge problem. Does that make any sense?

John:

Yeah, it makes compete sense.

Paul:

I’m curious whether the audience would appreciate that point or whether I kind of convoluted it, because..

John:

No, I think it..well, I’ll just try to recap it the best I can is, don’t spend too much time on defining a problem that people are generally aware of. You have to initially hit it is what you’re saying in the first 20 seconds, but people need to know who you are and what your expertise in that before they’re going to be really interested and what the market fit is before they really wanna have you go into depth about how you’re solving that problem.

Paul:

That’s exactly right.

John:

The other thing I love that you said, because when I saw you judging the pitches is really, you can almost see when someone isn’t comfortable that they’ve got, okay, step one, step two, now I’m going to talk about the third step is to practice so that it’s conversational and has a flow and that’s really when you know your stuff.

Paul:

That’s exactly right.

John:

Yeah and that comes across and that’s what gives you confidence. So, it’s a catch 22. You know, the key to confidence is preparation and I love that you said you practice something 80 times just on the train ride to get to the pitch.

Paul:

Yeah, I mean, no body is perfect. So, if you don’t practice, you will not do well. I mean, anyone who thinks they can just wing a speech. I’ve given hundreds, thousands in my career and I still practice. There is no exception.

John:

Right, there is no exception to practicing. That’s going to be one of our Tweetables moments, because people think that they get to a certain level, they don’t have to practice anymore or I’ve heard people say, oh, I don’t want to over think it and I’m like, when you have a chance to pitch somebody, that’s your Superbowl of meetings, you know, athletes, since you come from a sports background with a sports network, incredible athletes at the Superbowl, they do an amazing amount of preparation and you have to think of yourself in that same vein, I believe.

Paul:

Yeah, everything that one becomes an expert in I think is a matter of practice and is a matter of running through. You know, entrepreneurship is a matter of practice. My first company I made a tremendous number of mistakes, and I think I mentioned that at the start out, on a daily basis and that’s part of growing as an entrepreneur is that you’re continually learning from your mistakes. At Pervasive we’ve made an equal amount of mistakes, you know, the funny thing is both of them are working out nicely or either have worked out or working nicely so that’s great. I mean, they’re not the next phase book, but we’re very happy with them and now working on my third company.

I mean, I am now making what I would call second mistakes, so the basic ones we’ve taken care of, but now you make second level mistakes and that’s okay. I mean, it’s part of growing and it’s part of learning and frankly, you know, part of why we do this is to learn a topic. The reality is that if you knew everything and you wouldn’t make any mistakes and there weren’t any learning moments, then it would just be boring. I mean, why would you go to work everyday?

John:

Exactly.

Paul:

If you already know everything, then wouldn’t you just lay at home and just read about history. Some thing about the past. I mean, seriously, the whole experience of what I think makes work, what makes what we do exciting is learning and creating things that haven’t been therefore, making a dent and impact in areas where there wasn’t impact before and the ability to do that is what’s so exciting and what actually makes me get up every morning in the day and set an alarm. In fact, if I knew everything that was going to happen and what’s not going to happen and wouldn’t make any mistakes in my startups, it would just be dead boring.

John:

Right. Well, that’s what, that curiosity factor that is so key to being an entrepreneur and a startup is what makes people excited about investing as well and when you can convey that passion for how you came up with the idea and how you got this team together and why you feel this is going to make an impact..

Paul:

It’s a journey.

John:

Yes, can you share with us sort of when you’re hearing someone pitch and you go, oh, that’s a very common mistake that a lot of startups made, I made it myself. Is there any one mistake that is a common mistake across all industry that you see people tend to make that maybe they could be aware of so they wouldn’t make it as much?

Paul:

There’s a lot of common mistakes that people make that I’ve made myself. I mean, one of them for example from a fund raising perspective is to start the fund raising round and incredibly early thinking that the earlier you start it, the earlier you’re going to end it. The reality is you start the fund raising round when the company is prepared to fund raise and you’re able to give the investors what they need to commit, because investors just wait until you’re ready. So, that’s one big mistake hat we make.

Another one is people tend to try to push the investors too hard before they’ve really shown value and shown why they should participate and they just assume that they meet the investor and they tell them how great they are, the investor is going to immediately invest and that’s not the case. So of my absolute favorite companies have took me awhile to really warm up to and get involved in, but once I did I really understood the value.

The other thing too is that, I tend to be a very analytical in terms of getting to know companies. You know, I take my time and I’m willing to put the time in to give companies advice on things like running through their deck. You know, just pro bono, just like to help them out or to sit down with them over coffee and give them strategic ideas or to make intros for them. You know, that’s not the kind of thing that I wanna charge for.

I mean, I know that there are people who advise and charge for that, you know, cash. I don’t do that. I do of course take advisory equity in the companies where I invest in order to have a little additional upside, but you know, the reality is that I believe in sort of providing that sort of informal help to companies, because it’s part of the value added. It’s fun for me and also builds a relationship and so as a result of doing that, I can really take my time on getting to know a company and sometimes I even invest outside of what is typical.

So, for me, companies have to be willing to allow the best investors to get to know them, but then eventually they have to present a value product and a time frame that makes sense for the investor to jump in. I don’t know if I should break that down further. Basically, it has to do with finding the right balance between, you don’t want to push to hard, but at the same time you wanna make sure that people have an ability to come in when they need to.

John:

Well, yes. What you’ve said, don’t come in too early, because if you don’t have anything that an investor needs, they are not going to say yes and even when you do have what they need, don’t push too hard.

Paul:

The other thing and I can only speak for myself, because every investor is different, but I tend to be both the hardest money and the easiest money in the sense that like, a good example is there’s a company I was getting to know for about seven months and they weren’t ready, they weren’t ready. They haven’t even been raising a round.

We just were building their stuff up, helping with their IP, helping with growth, and then all of a sudden, they – we had begun discussions about what their fund raising was and he ask me, so how do you feel about, you know, both a formal adviser and investing and it had been enough time and I said, look, I really like you guys, I really like the team, so you know what, why don’t you put me down as an investor and I don’t know the exact amount is yet, but I will invest and I’ll sign your sheet and I’ll be an adviser.

You can use me as a co-lead for the terms and it was literally a three minute discussion, but it had come because we got to know each other over such a long period of time and I really appreciated what they were doing and it was the right time. You know, if he had pitched me on investing within a month and a half when they really weren’t ready at all. They had no file IP, they had no full product employed, they had no users outside of alpha, I would have been like, look guys, you need to wait, but they came at the right time and we were close enough and I really believed in what they were doing and so literally, it was a three minute discussion. I said yes and then great and let’s move on.

John:

It’s like dating almost, right? Timing is everything. You don’t ask somebody to marry you if you’ve only known them a short time, basically.

Paul:

But, when you do ask somebody to marry you, if it’s at the right time, they tend to say yes.

John:

Exactly, because you know it’s a sympatico..

Paul:

Except when you’re at a Toronto Raptor’s game, I think it was. Like that horrible Youtube clip. I felt so bad.

John:

Yes, nothing more humiliating than that. What books do you recommend startups to read especially as it relates to pitching and getting funded.

Paul:

You know, it’s fascinating, I’m not a huge proponent of going by the book. I tend to think that every entrepreneurial experience and everyone’s companies [cuts out]. For example, I have heard certain venture capitals go out there an say everyone needs to quit their job from day one and commit to a startup and that’s just BS in my opinion. I think people have different needs. People have different families and it’s not great when someone who has a 100 million dollars plus some money they need to quit to pursue their dreams before they’re ready. So, you know, for me, it’s like, when you reach a point where you put together a team, you have a product already fit, you have people going to pay and actually create a company. Well, maybe you quit your job, you know, especially if you have kids. This is one example. I do think that Lean Startup is a good book. I think that Drive by Dan Pink.

John:

Drive? Okay.

Paul:

Purpose Economy by Aaron Hurst is a really good one to read about what drives people to succeed. What their dreams [cuts out]. Those are three zero to one [cuts out] is one we do think is a good read. Generally I think those are some good books, but I think people have to carve their own path and I think that it’s not good to say, you know, I want to be the next PTO or I wanna be the next Mark Zuckerberg. You wanna be yourself and succeed as yourself and carve your own story in the mail as it were.

I mean, we are all different. I look at myself. I haven’t created anything specular. I haven’t even created a company that would be compared as a global brand, but I’ve been lucky enough to create two good companies that are succeeding and invest in other really good companies, some of which are global brands and I’m 25. So, we’ll continue to grow out from there. I mean, we’ll check in ten years from now.

John:

Yes, my goodness I can’t wait. You’ve done a lot at 25, that’s for sure.

Paul:

A lot, a little. I think that’s great, but I think for me is just thinking about the fact that we each carve our own path and it’s different and I really have no desire to be the next anything. I like being me and I think that everyone else, you know, is in the same guard to b themselves and end up where they end up and that’s the path.

John:

That’s great. Carve your own path. That’s a great place to finish the interview. I thank you so much, Paul. Great insights and great inspiration.

Paul:

Thank you very much. It was really fun.