My path to angel investing began with a piece of unsolicited advice from my favorite professor while I was in graduate school at Boston University. Harold G. Buchbinder, or “Bucky,” as he invited his students to call him, created the science communications program at Boston University.
I was just a kid from Brooklyn. I’m still not entirely sure why Bucky took an interest in me. I know he was intrigued by my organizing a dance marathon to raise money for muscular dystrophy and by how I was getting the university’s administration to support it. I certainly didn’t know the meaning of the word mentoring. But one day, Bucky asked me to stop by his office after class. “I think I need to share with you something that will make you more successful,” Bucky said.
I was certainly intrigued. No one had ever spoken to me like that.
When I sat down in his office, he gazed at me intently and said, “Never, ever work for anybody. It’s the closest thing to slavery.”
I didn’t understand what he was talking about. Everyone I knew in Brooklyn worked for someone else. I didn’t even realize he was mentoring me. But his words must have settled somewhere deep within me, because when I graduated, all I wanted to do was start a company. Most of my friends went to work for media companies or educational institutions, and many of them have done very well. But for me, my path led to the very special version of freedom that entrepreneurialism makes possible. I thank Bucky every day.
To honor his memory, I established the Harold G. Buchbinder Entrepreneurial Business Competition, which gave BU College of Communication graduate students the opportunity to create, research, and develop a business plan supporting innovative products and services in media and communications. A $10,000 award went to the student judged to have the most innovative and compelling business plan. I call it inspiration money. Bucky’s belief in me inspired me to go forward. My hope is that this gesture keeps alive the mentoring that Bucky so thoughtfully provided me, as well as many other students over the years. Want to know what the first winners did with their winnings and how their startup fared? See Chapter 6.
This book starts with a basic premise: startups are good for society, and they need angel investors to help them get started and build a strong foundation. This book is a guide to bring entrepreneurs and angels investors together for their mutual benefit and for the benefit of the community.
I can’t claim to be representative of any investor but myself. Every angel brings his or her own priorities, desires, and attitudes to the practice. I think there’s room for almost every kind of mix, but I do ask that investors have the confidence to be up front about why they are investing and what values they represent. In that spirit, let me tell you why I am an angel investor and what perspective I represent.
I’ve asked hundreds of angels why they invest. Many invest for the financial return. Some do it for fun or to keep themselves engaged. Some are angels because they sincerely want to help entrepreneurs, although they are not necessarily good at it.
I’ve started a number of companies over the years. Some have been more successful than others, but all have shaped me as an entrepreneur, and I’ve learned valuable lessons from each. One of the most valuable benefits of starting companies is that I surrounded myself with lots of smart people. I hired perhaps a thousand of them over the years and developed a real kinship and camaraderie with many.
The entrepreneur identity became more central to my professional career and personal life and even shaped the way I parented my own children. Maybe I took it too far. I’ll let you be the judge. As my children were growing up, I talked to them as if they were little entrepreneurs. As they got older, I actually said these words: “I expect each of you, before the age of 26, to start your own business.” My children didn’t have an immediate reaction. Maybe they never heard me. But their ears sure perked up after my next statement: “I’m not going to leave you any money, but I will invest in you.”
I’ve told that story many times over the years, and I’ve noticed something funny. When some parents hear that statement—“I don’t believe in leaving money to you, but I do believe in investing in you”—most of them stop short, their gaze settles at a point beyond the horizon, and they knowingly shake their heads as if I had articulated something important and true.
Other parents were not convinced. “Why are you putting your children under this pressure?” asked a friend with two preschoolers. “How do you know they want or even can be entrepreneurs?” I told him that the skills they would learn on the road to being an entrepreneur would make them more valuable to any employer.
In fact, sometimes I felt a little guilt-ridden because I might have been putting my children under too much pressure. The truth is, 26 was an arbitrary age that seemed impossibly remote when I first started talking to them about being entrepreneurs.
Much later, I began to formulate the answer to the question that earlier eluded me. Why was I so set on my children having an entrepreneurial identity? Here’s the short answer: Entrepreneurial skills are always desirable. Even if you never run the company you start, even if you fail, I believe that everyone regards entrepreneurial leadership skills and experience as intrinsically desirable. People with entrepreneurial experience are simply more employable. So if my children want to work for Google or General Electric, I say that they will be in a far better position for having had an entrepreneurial experience. Employers value those people who have demonstrated a certain approach to leadership and getting things accomplished.
For years, I took a lot of grief from friends and family over my challenge to my children. But then something funny happened. The rest of the world caught up with me. Today, almost everyone wants to be an entrepreneur. High schools and universities are hotbeds for startups. Summer camps for ambitious children foster a rising spirit of entrepreneurialism. In disciplines, such as computer science and engineering, a majority of the best students are now working to start their own companies rather than pursuing traditional career paths at established organizations. Incubators and accelerators are popping up all over the world to nourish and cultivate the hunger of people to start their own companies.
Today, few people I meet are taken aback when they hear about my challenge to my children to start companies before they are 26. Incredibly, today, some people say, “Why wait so long?” The appeal of startups is so pervasive that my challenge now has become conventional wisdom, expected and unremarkable.
Three or four times a year, I get together for an informal dinner with a group of business executives. I look forward to the meetings because my thinking is always challenged, and I always learn something new. Recently, I suggested that all the executives invite their children. So the next meeting included not only the participants, but about 10 young adults all in their early-to-mid 20s.
It was fascinating to listen to these young people talk about what they were doing and thinking about doing. Most of them had good jobs at name-brand companies. I had invited my son, Trace, who had cofounded his first company, BrandYourself, while he was a sophomore at Syracuse University. He sold much of his interest in the company and is now my partner in a startup called Launch.it, which is based on the idea that all new products should be easy to find, discover, and share. I describe what became of BrandYourself in Chapter 3.
When it was Trace’s turn to talk about himself, I felt a change of pressure in the room. The quality of attention from the group was different—more intense. After Trace finished, I turned to the other sons and daughters and took a chance. “Okay, guys, you just got to let me know something,” I said. “I have a theory that none of you really want to stay in the jobs you have and that you’d rather be starting a company.”
It was as if I had uncapped a bottle. As the conversation progressed, a key theme emerged. Almost without exception, the young adults expressed a real hunger, bordering on desperation, to launch a business. Many of them were already experimenting with ideas, taking baby steps on the road to entrepreneurialism. One was working on a lacrosse sporting site. Others said they were waiting for a “big idea” before they felt safe enough to leave the security of the corporate fold, even though they all admitted that security was an illusion. Many agreed that if by age 30 they still had not launched their own businesses, then on some level they would consider themselves failures.
It turns out that all the young adults really wanted to start their own companies. A few had practical ideas about the businesses they wanted to launch. Others were more tentative in their visions, but that didn’t keep them from being highly enthusiastic about the outcome of a startup they would launch to success. Some of them didn’t seem to care what businesses they launched; they just wanted to launch a business. On one level it was nutty, but on another level it made perfect sense. As they talked about their dreams, it because obvious to me that they were talking less about launching businesses and more about taking control of their lives.
This yearning to do a startup sometimes comes off as a spiritual quest, doesn’t it? It’s no accident the term to describe this yearning is entrepreneurial “spirit.” On one level, it can be a bit much. Sometimes even my eyes glaze over from the earnestness of the pitches I hear. Yes, at the end of the day, a startup company, like angel investing itself, is just business. And yet, I’m here to tell you that there’s something more to this entrepreneurial business than just business.
Every entrepreneur and most angels will agree that the entrepreneurial spirit isn’t just about money. It’s about creating relationships that serve as a force multiplier for the best that human intelligence can create. Entrepreneurial spirit builds wealth through resources that only the best relationships inspire. When it’s done right, entrepreneurial spirit is about connecting dots that aren’t yet visible. It’s about having the intuition—the faith, if you will—to overcome every obstacle to cultivate innovation and initiative. The best entrepreneurs—think Steve Jobs—have this spirit in spades.
In 2005, Jobs gave the commencement speech at Stanford University. He was already aware of the diagnosis that would end his life just six years later. He told the graduates, “You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something—your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.”
A number of the kids at the dinner were confused by the passion thing. You know what I mean. According to the passion principle, all you have to do is to identify what you really like to do, what really gives you energy, and build a business around that.
It’s a huge stumbling block. The ideal of developing a business concept through a passion-driven mentality is a false ideal.
To kids who have no clue what their passion is, the passion thing is confusing and adds unnecessary pressure. There’s enough pressure associated with launching a startup; why add more? When I lecture at colleges and universities, I see students beating themselves up because they have not identified their passions. The quest often hurts a lot of kids because they feel stuck. Now not only do they feel the pressure of wanting to launch a startup, but they have to somehow identify their passion before they can launch it.
Launching a startup does not require it be built around your passion. If you determine what your passion is, great! More power to you. There is one more variable to consider. But whether or not you find your passion, it may not necessarily point you to the best business to launch. Passion is an excellent guide for choosing hobbies but less so for choosing a business. Launching a business is about applying good business principles, finding what problems there are for disruption in the marketplace, applying innovative solutions, and—this may be the critical step—executing flawlessly. The quest for passion hurts students when it stops them from taking action simply because they are unsure of their passion. Some more pertinent questions are: Is there a need in the marketplace? Can I actually meet that need? What do I need to learn to implement those ideas into action?
Howard Morgan, a New York Angels investor and cofounder of First Round Capital, absolutely requires that the entrepreneurs he backs demonstrate both passion and the ability to communicate the Big Idea of the business. But passion alone is not enough. “I need to see that passion tempered by indisputable facts that the business is, in fact, a real business,” Morgan says. “Show me how passionate you are about making the endeavor a profitable business.”
Passion is surely a part of the equation. It’s passion that will inspire your colleagues to work 20 hours a day to make the business successful, Morgan says: “Money comes from building something you love.” But Morgan also wants the entrepreneur to articulate why the world not only wants the proposed product or service, but why the world needs it.
At this point, you may be wondering how my “start a business before you turn 26” challenge worked out for my children. I’d say pretty well so far. I already described how my son, Trace, founded a company while he was still an undergraduate, after having interned at another startup while he was in high school. That’s what I mean by investing in my children.
My coauthor, John Kador, shares my commitment to independence. He started his career as a newspaper journalist and then became a technical writer for a software company. His last staff job was as a copywriter for a high-tech advertising and public relations agency in Washington, D.C. But, eventually John concluded that he would rather have independence than security. In 1984, the year his son, Dan, was born, he started Kador Communications, a company that offered a variety of editorial services, and was immediately successful. And it turns out he didn’t give up much in the way of security. The companies that formerly employed him were all out of business before Dan was 10 years old.
I know Dan Kador, and his career trajectory seems to me typical of what more and more highly gifted young people want for themselves. Dan graduated in 2006 from the University of Illinois School of Engineering with a degree in computer science. He was recruited by some of the best companies in the country: IBM, Google, Lockheed Martin. He elected to take an offer from Salesforce.com, the smallest, youngest, and most entrepreneurial of the companies he was considering. In 2006, cloud-based computing was still in its infancy. Salesforce.com was known mainly for its customer relationship management (CRM) tools. Dan was attracted by the opportunity to have an impact on a growing company, which is really what entrepreneurs want most.
If Dan had graduated in 2012 instead of six years earlier, I’m convinced he would have been attracted to a startup immediately upon graduation. But at Salesforce.com, he was given an enormous amount of freedom. In 2011, Dan resigned from a very lucrative job, leaving option money on the table, to start his own business. With two buddies he has known since high school, Dan started Keen IO. Their business plan was accepted by TechStars, one of the premier high-tech accelerators. Today, the company has been fully funded. (Full disclosure: I am not an investor.) Three new employees now work side-by-side with the founders, and the first revenue customers have come on board.
The title of the book—What Every Angel Investor Wants You to Know—is a bit misleading. A more accurate title would be, What One Angel Investor Wants You to Know. That angel investor, of course, is me. While I quote a number of angel investors, many of whom want you to know different things, and some of whom disagree with me, this book is really about my own perspectives on how entrepreneurs can get the most out their relationship with seed-round angel investors.
For that reason, the book is written in the first person. My coauthor, John Kador, agrees that the first person offers a level of intimacy and immediacy that the plural voice (“we” and “us”) lacks. But the authors of this book do speak with one voice, so when you read “I” or “me” or “mine,” think “we” and “us” and “ours.”
A word about some of the descriptive terms angel investors use: I don’t, for example, refer to entrepreneurs as “deals,” as in, “Did I tell you about the incredible deal that walked into my office this morning?” Yes, I do deals, but I invest in people with names, and I like to keep the distinction clear. No founder wants to be thought of as a “deal.”
When founders put their heads and hearts together for the sake of their startup, they are focused on one of the most important activities of their lives. Most think what they are doing is important and maybe even world-changing. Sometimes they’re right. Founders would be offended to have me think of them as just deals—instruments for me to make a few bucks—and I wouldn’t blame them.
Some entrepreneurs also talk about raising “smart money” and “dumb money.” These are not terms that appeal to me. In Chapter 7 (“Investor Raising vs. Money Raising”), I present some alternate terms that I’d like to see replace the old phraseology.
The book is organized into 15 chapters. Each chapter concludes with a list of key takeaways as well as lists, exercises, quizzes, and other features designed to underscore the lessons of the chapter.
While the book is designed to be read from beginning to end, every chapter stands alone. You can start anywhere in the book and find value. It’s probably just as useful if the chapters are read in reverse order. But in whatever order you engage with the ideas herein, I encourage you to remember that angel investing is a high-touch, personality-driven activity. For entrepreneurs pursuing seed money for a startup, the main lesson is to just be yourself.
The chapters are short enough to be read in one sitting, which means that in a week or so, you can be well on your way to being the kind of entrepreneur who accomplishes big things with angel funding. If you’re willing to put in the time to prepare and show up as yourself, I believe this could be one of the most powerful and action-oriented books you’ve ever read. Good luck. I hope you succeed.