I’d Like To Mentor Startups

alleywatch-logoNote: A version of this post appeared in my semi-regular column on AlleyWatch.

I both love and fear that phrase.

I love it because a deep network of qualified mentors is a major asset to an accelerator program. It is one of the big differentiators between a top 10 accelerator and the other 1000+ unproven* ones.

(Although you sometimes have to dig a bit to tell the difference between a page of impressive faces who are rarely actually engaged and bona fide mentors… but that’s a topic for a different piece.)

I fear it because so many of the offers I get come from people who aren’t really qualified to mentor startups and I struggle with finding a polite way respond to these offers. After all, their hearts are in the right place and it is hard to say no without sounding like an asshole.

The following is a response I wrote to a friend who said that a “big time lawyer” ** he knew had expressed an interest in mentoring startups. I tried really, really hard to be tactful.

TO: <My Friend>

Your friend needs to think very carefully about what specific expertise he can offer to startups. If I were to tell him “I’d like to give legal advice to large corporations”, he would recognize that for the ridiculous statement that it is. I have zero qualifications and any advice I gave would be as (or more!) likely to damage the recipient, as it would be to help. They would be fools to even listen to me.

But somehow when you change “give legal advice” to “mentoring” and “large corporations” to “startups”, it suddenly sounds plausible.

In my case, I *might* be able to give large corporations advice on a few very narrow topics like what terms are typical in early stage investments and how to approach contracts with startups (viz., keep it loose, don’t over lawyer it – their incentives to please a large corporate pilot customer mean that they will overdeliver but they don’t have time or money to waste on drafting minutely detailed contracts). But that’s it.

Most “big time lawyers” have never run a business, much less a startup, so the value of any strategic business advice they might give is questionable at best. Their tolerance for risk and ambiguity and their need for speed are both *way* lower than an entrepreneur’s is (or should be) so their tactical advice will likely also be off base.

If your friend has deep expertise in a heavily regulated industry, that advice would be relevant to startups in that space. If he has deep and varied connections with large corporations who he would be willing to introduce startups to so they can get those critical first big name clients, that would also be hugely valuable. Similarly, if he wants to try to get his own firm to pilot with startups (e.g., legal tech startups, relevant enterprise software), that would be helpful.

If he’s willing to give free legal advice/work in areas that are relevant to startups and has expertise in those spaces (e.g., real estate lawyers have no business drafting seed round docs and vice versa) in exchange for just seeing what cool stuff is out there (and possibly investing), that is ok too.

In all of these examples, the key is sticking religiously to what he knows well and that is also applicable to startups and not straying into areas that are fun and sexy but where he has no business giving advice. In all but the last example, it also means focusing narrowly on the right industry where he has value to contribute.

If he has given this some thought and has specific areas where he thinks he can contribute, I would be happy to have a conversation with him and help get him more involved.

I hope this is helpful and that you can phrase this response in a way that does not make me sound like a dick.


* How is that for diplomatic?

** I’m not picking on lawyers here. Some of my best – well, reasonably good – friends are lawyers. Feel free to substitute “accountant” or “banker” here if you’d like.

My Friend Wants To Go Into VC…

alleywatch-logoNote: A version of this post appeared in my semi-regular column on AlleyWatch.

My friend is at a private equity fund and is now actively looking to move into venture capital…

I get that a lot. Sometimes the friend is at a hedge fund instead and occasionally, I’m approached directly instead of through a friend but the overall picture is the same: they are bored with large, public/established, old-school companies and think VC is cooler.

I get it. Before running Dreamit’s NY accelerator program, I managed a family office and we had investments in many asset classes. I can testify from personal experience that PE & hedge funds are (with notable exceptions) mindnumbingly boring. What would you rather talk about: a rollup of mom & pop industrial gas distributors or shiny new potential unicorns?

And since Dreamit is also a venture fund in addition to being an accelerator, I get why they come to me. VC & PE funds both hold portfolios of generally illiquid investments. They are structured similarly. The exits are even the same: IPO or strategic sale  It’s just with younger companies, right?

Actually, it’s fundamentally different.

You see, I work with pretty much the earliest stage startups that are anything more than a cocktail napkin and a dream. To grossly oversimplify, in these situations the key question is  “will this (the idea, the team, etc.) work?” In PE, the key question is “what is the right price?”

These questions take very different skills to answer and in general the skills aren’t that transferable. They are analyzing the historical data, adjusting forecasts, looking at comparables. I have no historical data nor any comparables. I look at the team, the idea, the overall market size. When I look at a financial model at all, I have zero expectation that it will be even remotely correct; I use it to figure out what the make or break assumptions are… and to confirm that the founding team knows what those are as well and are doing everything possible to prove those assumptions out quickly & cheaply. Heck, a lot of the time PE funds go into the deal with a new team ready on the wings to replace senior management. I’d *never* go into a deal with a team that needed replacing.

Also, the key marketing challenge for seed stage investing is wading through the masses of under the radar startups and finding the gems before anyone else does. The startup is going to take the money and it is a rare deal when a startup turns down your money for someone else’s (although it really stings when it does happen).

In PE, they typically have more information to find and screen initial prospects (especially if they take public companies private). The real challenge is either to get the prospect to do the deal at all (e.g., an unsolicited purchase offer) or to choose that specific fund to work with.

Lastly, seed deals are ridiculously simple to structure. The outlines of the deal are largely standard; we typically just need to fill in the amounts. (Only a slight exaggeration.) The reason for this is simple. Startups typically come to the table with a blank slate and their outcomes are binary: win big or bust. There’s no need to get fancy. When it comes to terms, “don’t make me think” is solid advice.

PE deals have to account for a much wider range of possible outcomes and protect the fund from anything in the company’s past that might pop out of the closet. There are elaborate payout formulae, reps & warrantees sections the size of epic novels, and fees up the wazoo.

(Did you know that PE funds get paid if the deal doesn’t go through? Really. They are called “Broken Deal” fees. That’s chutzpah….)

So what’s a poor PE analyst to do?

I suggest looking at later stage VCs. At that point, the idea/team/market is largely derisked and the question is more about whether the growth potential supports the valuation so spreadsheets start to matter more in the traditional way. Also, the prospects for C- or later-stage investments should already be on the fund’s radar. The challenge is to convince the especially hot ones to take your money instead of some other fund’s. And as an added bonus, you get to have fun with liquidation preferences and other terms to come up with a deal that both the fund and the founders like.

Got it?

Good. Because I need you in those later stage VCs. I’ve got a lot of startups getting ready to raise follow on rounds…

8 Types of Fund Investors (The Slideshow version)

In preparation for AccelFest in Montreal in 2 weeks, I have retooled my “8 Types of Fund Investors” as a Slidebean presentation:

Link to presentation: https://slidebean.com/p/CASr7YHPRx/The-8-Types-of-Fund-Investors

More Love From Warsaw: Bitspiration Festival, pt2

Bitspiration FestivalSo the presentation that I was about to give when I wrote this post went over so well that they asked me to keep talking for another 20 minutes.  Good thing I had another presentation ready to go… or almost ready to go to be precise. I was planning to give this presentation to the current DreamIt NY startups on Wednesday but hadn’t quite finished it yet so the version that went onscreen in front of 100+ startups in Warsaw had a slide saying “More Stuff Here” in lieu of slides 19-22!

DreamIt, PitchIt, FundIt: Prospecting for Investors and the Art of the Elevator Pitch

Here’s a link to the (now complete) presentation:

(No, I don’t have mad presentation skills. I simply use Slidebean)

From Warsaw With Love: Bitspiration Festival

Bitspiration FestivalLanded in Warsaw a few hours ago, shaved, showered, grabbed a coffee, and headed over to the Palace of Culture and Technology where I’m scheduled to speak in less than 30 minutes.  Good thing I’ve finished my presentation!

DreamIt, BuildIt, CrushIt: What accelerators do, do you need one, and how to chose the right one

Here’s a link to presentation: https://slidebean.com/p/D4qGyACtGs/DreamIt-BuildIt-CrushIt

I’m only in town for a day(!) but I’ll try to follow up with some thoughts about my trip in a few days.

UPDATE: This one went over so well, they asked me to keep talking

(No, I don’t have mad presentation skills. I simply use Slidebean)

The I Need Before Syndrome

Note: A version of this post appeared in my semi-regular column on AlleyWatch.

I was judging a speed pitch competition the other night to recruit startups for DreamIt NY’s summer accelerator program when it happened.

After a series of crisp (and not so crisp) one minute pitches, I opened the floor to walk-ins. The last guy to raise his hand stepped up. He began with, “This is just an idea I have.” I smiled a little more broadly and mentally wrote off the next minute of my life.

As it turned out, he had strong domain expertise in a large market with a real problem that was still horribly backward and the problem was amenable to automation. While we do not fund cocktail napkins, it was something that I thought worth his exploring, and was actually looking forward to him coming up to me afterwards for feedback.

When he approached me for advice, he launched into an all too familiar litany that I call, “I need before.”

Him: I need funding before I can build my solution.

Me: Investors generally won’t pay you to build your alpha, but you can start by getting your ideas onto paper by wireframing how you think your solution will work. It will be all wrong, but it will be enough for you to take to potential tech cofounders to begin the discussion.

Him: I need funding to pay a programmer,

At this point, one of the other attendees who had stuck around piped up, “I’d build that for you.” This developer had pitched a different, equally half-baked concept, but he liked the other guy’s idea better. And he had experience in the same industry. Problem solved.

Him: I need funding to pay a lawyer to work through all the regulatory issues.

Me: No, you don’t. Lawyers are trained to say no. They are paid to avoid risk. They are never rewarded for getting a deal done faster or simpler. If you ask, ‘Can I do X?’ they will tell you all the reasons why you can’t. You need to use lawyers correctly. You need to ask instead, ‘I need to do X. How can I do it legally?’ They will tell you all sorts of hoops you need to jump through, but at least you are past the Reflexive No. Now you have to push back on each one of their requirements, starting with the most onerous, and ask, ‘If I do Y instead, what’s my exposure?’ I suppose you could say that you’re looking for the minimally legal product. It is a rare and treasured lawyer who will get you to this point on his own. Most lawyers need to be led to it.

But you may not even need to do that. Are you actually causing users to assume any incremental liability? In this case, your potential customers are already doing this process, albeit manually and poorly. They are already exposed. You are not increasing their exposure and, if anything, you are actually decreasing it. Legal could turn out to be the least of your issues.

Him: I need a working product before I can approach potential customers.

Me: Why? You have connections in the industry. You can show them what you are working on and ask for their input. People love to give advice, and odds are that a lot of what they tell you will be things you intend to build anyway. Then, you can later go back to them and say, ‘I built what you suggested. Now how about being a pilot customer?’ It’s hard for them to claim that your service does not meet their needs when you built exactly what they asked for.

By this time, I sensed that this could go on for a while, so I preempted his next question by saying, “If I can be blunt, your biggest obstacle right now is your mindset. Instead of thinking about all the things you need before you can get to the next step, you need to flip it. You need to think about all the steps that you can take, without any additional resources. You will be surprised to see how far you can go, once you start thinking about it that way. After all, you walked into this room with just an idea, and now you’re standing next to a developer interested in, at least potentially, building it for you. That’s a lot of progress for one night.”

He nodded thoughtfully and slowly smiled. At that point, I knew that he had taken his first, small step to becoming a true entrepreneur.

Angel Profile: Toan Huynh

alleywatch-logoNote: Angel Profiles is my semi-regular column appearing on AlleyWatch.  

Angel At A Glance-Toan Huynh2

Why do you angel invest?

I started out as an entrepreneur—just like you—and learned the hard way that sometimes, VC money is not all that it appears to be. It can make you feel like you gave your shirt, your house, your car, and your shoes away. I know what it takes to be an entrepreneur and put everything you have: your blood, sweat, tears, ALL your time and sleepless nights, into a startup. So to have an angel come in and support us would have been a godsend. This perspective probably makes me more sympathetic towards entrepreneurs than it does non-entrepreneur investors. VC money is good for some ventures, but just be very clear about what you are getting into, especially if you are post revenue and can get better funding elsewhere.

I’ve done three startups and they’ve grown. Angel investing, if done correctly, can be a wealth generation tool, but it is not an exact science. A lot of it is your gut. A lot of it is your experience and your belief in the product, the person, the team, or the market.

What was your first angel investment? How did it turn out?

Wow, this was a while ago – let me think. I started in my late 20’s. I invested in a Mexican “white glove service” bank that catered to well-heeled Mexicans in the US. These guys are very well off, they travel to the US all the time and when they do, they expect the same level of service that they get in their home country. and there was a gap: there was nobody doing it. There was a pay out a last year so, yeah, I’d say that this investment went pretty well.

What investment do you most want to brag about?

Yes! How did you know? The one that I really want to brag about is actually a company I invested in called New York Distilling Company. It is an artisanal gin and whiskey distillery right here in Brooklyn and was co-founded by folks from the Brooklyn Brewery. I just love the idea of supporting local jobs and food and it has been great to watch them grow. Another is Hayward, one of the first American lifestyle luxury brands – they make stunning bags and accessories and is getting ready to open their first retail experience location in NYC!

Can I tell you about another company I invested in? The other one is a Vietnamese-style sauce company The Saucey Sauce Company. They produce all natural, artisanal Vietnamese inspired sauces and ketchups – they are awesome and makes everyone look like a rock star home chef!! I use it daily when I cook. I am proud of that one because I’ve seen it really seed and grow as a family endeavor.

Any notable or amusing train wrecks? Any lessons learned?

It’s still too soon to say if there are any train wrecks yet. That said, there are some that are struggling and pivoting. An example is a curated personal healthcare “birch box” concept – we thought it would be snapped up quickly by the big box pharma chains but that hasn’t happened.

I have found that a good way to manage your angel investments is at the beginning of the year you say to yourself, “Here is my bucket of money for angel investments this year” and it makes up a certain % of your overall investment portfolio And you tend to be generous at the beginning of the year – as the year progresses, angels may start to think, “Wait, I invested here, I invested there, my portfolio’s filling up. I don’t have room for more investments.” So you have to be more picky and do more due diligence.

Any startups you backed that should have hit but didn’t? Any idea why not?

Yeah, there was a social media site, like a digital “Dear Abby” for the young women of today. Say you get a text from a boy and you don’t know what it means. You post it and all the lady friends you know log on and comment. You also have male ambassadors commenting as well. Essentially, it allows you to crowd-source advice about dating based on texts guys send you. They had a movie deal with major networks, they had a series deal, like they had all this stuff kind of going on. Those projects probably are still in the works and will probably grow in the next several years as consumer trends change .I’m still waiting for the up, though. [laughs]..but I am patient!

Most humbling experience (related to angel investing)?

Humbling? Well, I am turned off when an entrepreneur is obnoxious enough to say that you cannot invest unless you write a huge check. Entrepreneurs like that sometimes miss the point of angel investing. It is not just the money. It is the entire network that that person could bring to bear – if they care about you and buy into your vision, the angels can bring a lot to the table. But humbling? Gosh, I don’t know.

What’s the smartest thing someone pitching you said or did?

Once I asked an entrepreneur, “Tell me what I would miss if I don’t invest.” He said, “Look, if you didn’t invest – and I get why you are not investing – but just picture this: 5-10 years from now, I’m going to be here…. I’ve put it all on myself. I’ve put in all my life savings.” He understood that in order for me to buy in, I had to understand my return pretty explicitly and that he was willing to be in that ride with me.

One of the first red flags for me when evaluating an investment is to understand how much money the founder has put in himself. This is actually pretty key, because you want them to have skin in the game, right? You have to make sure you understand the motivation behind a business and that you agree with it.

What financial returns do you target for an angel investment?

I don’t have lofty dreams for angel investment, to be honest. If I or anyone else gets a 10x or 100x return, it’s a rarity. You look for a 10x plus return, knowing that you are lucky to get a 2x plus return. And I’m pretty realistic on time frame – between 3–7 years. I know the funds are locked up and I’m not going to see that money any time soon.

What makes you better than the average angel?

Hmmm, I don’t know if I am better than the average angels. but I manage the angel investment like a portfolio. It’s an investment vehicle; it’s not emotional. My husband and I agree this is what we have and that’s it. If later anyone finds something really interesting, we’ll say, “Look, we can’t do it this round, but maybe next year.” We run it like a little PE shop.

Sometimes, when you get excited about an idea or a team, you do make emotional investments. When it is emotional, I cap it.

I do have specific expertise in cloud technologies, food tech, fintech and a personal interest in education and women’s and children’s health – so I have view points on these that might be helpful.

Pretend that it’s 2019 and complete this sentence, “[Technology X] is less than 5 years old and now I can’t imagine life without it.”

I think that five years from now I’m going to have a home device or office device that can actually know my habits: know what I want, know what I need, know what I do in what order, and help me manage my personal and professional life in a meaningful way. A life assistant – you know what I mean? I would love to see a product like that.

What’s the best way for entrepreneurs to reach out to you?

Check me out on LinkedIn.

If you are an active NY-area angel (or know someone who is) and would like to be profiled for AlleyWatch, please contact me here.


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