David Fogel, CPA, is an angel investor who teaches entrepreneurship at Northeastern University. His company, Swifton CFOs, offers fractional chief financial officers to startups. We discussed strategies to help angel investors.
Highlights:
Sal Daher Introduces David Fogel
"Don't spend your time sweating the legal details"
“...I've been involved in angel investing for maybe 10 or 12 years now between Mass Medical and TiE…”
Inspiration for Success
The Process of Angel Investing
"Have a champion, have more than one champion, don't go into the room cold"
Balancing the Budget
"Tell me the truth. Don't candy-coat it"
"To me, it's all about, do you have a great idea? Can you implement it?"
Advice for the Audience
ANGEL INVEST BOSTON IS SPONSORED BY:
Transcript of “Angel CPA”
Guest: David Fogel, CPA
Sal Daher: I'm really proud to say that the Angel Invest Boston podcast is sponsored by Purdue University Entrepreneurship and Peter Fasse, patent attorney at Fish & Richardson. Purdue is exceptional in its support of its faculty, faculty of its top five engineering school, in helping them get their technology from the lab out to the market, out to industry, out to the clinic. Peter Fasse is also a great support to entrepreneurs.
He is a patent attorney specializing in microfluidics and has been tremendously helpful to some of the startups in which I'm involved, including a startup came out of Purdue, Savran Technologies. I'm proud to have these two sponsors for my podcast. Welcome to Angel Invest Boston conversations with Boston's most interesting angels and founders. I am Sal Daher, an angel investor who delights in trying to figure out how we can best build early-stage technology company startups.
Today, we are all privileged to have with us, David Fogel, CPA. Welcome, David.
Sal Daher Introduces David Fogel
David Fogel: Thank you, Sal.
Sal Daher: Before everybody starts saying, oh, CPA, it's going to be boring. David, a cat has nine lives. David has six fewer, he's got three lives. In one of his lives, he's a CPA at Swifton CFOs, a partial CFO firm. They help out startups with the CFO function because most startups aren't big enough to have their own CFO. David is also an angel investor, and he also teaches in the master's and engineering program at Northeastern University, the MBA program, and teaches entrepreneurship.
He has these three different perspectives. Welcome, David. I've been trying to have you on for a long time because I think we've had conversations many times, and I think you have very interesting things to say about building startups about angel investing, and so forth. I'm really glad you made the time.
David Fogel: Thank you. I'm glad to be here, too.
Sal Daher: By the way, this is a face-to-face interview. We are sitting in Raul's Studio, looking at each other, and having a real live post-COVID interview. I love it. Do you like it?
David Fogel: Oh, it's much better than sitting in front of a screen any day.
Sal Daher: It was by request.
David Fogel: I've been teaching that way for so long now. It's been crazy.
Sal Daher: That's right. How can you keep them down on the farm once they've been outdoors, but they've seen Paree, as they used to say. Anyway, let's give listeners a sample of the startups that you're involved with that you're invested in, and tell us what you find interesting about them?
David Fogel: Actually, let's dial all the way back to a few years, even the mid '90s. I think is a good way to start because it tells you all about where's my psyche? What am I thinking about in terms of angel investing? I was sitting in an office, an entrepreneur named Natan Parsons. The name itself may not mean something. There's a fair number of people know who he is around town, but it wouldn't mean anything necessarily.
It was never in the news or things like that, but you would know his product. Why? Because every time you go into an airport bathroom-- We had to bring in something scatological somehow. All right. You go into an airport bathroom and at a toilet and you see that black cup behind the toilets, it says in white letters, Sloan, make Sloan Valve. The infrared sensor that goes into that cup, the auto flushing is Natan Parsons'.
Sal Daher: Ah, wow.
David Fogel: They're ubiquitous. You see them everywhere.
Sal Daher: Talk about dominant.
David Fogel: Exactly. Unfortunately, he died about what five or six, maybe seven years ago, or something, of cancer, but he was a water specialist. A genius guy. He was also a former Israeli tank commander.
Sal Daher: Oh, Israeli tank commanders.
"Don't spend your time sweating the legal details"
David Fogel: I learned quite a bit from him in those few years I worked with him. I had to throw that all in but one of the experiences that I had there, my first experience with an Angel Investor. I wish I could remember the guy's name, but he walked in the office one day, wrote out a check for $25,000, put it on the table, and walked out the door.
Now, I couldn't ever do that because I'm a finance guy. I got to have documentation. Give me the paperwork. Let me sign this. Give me something for my $25,000 for God's sake, but I wanted to be that guy.
I wanted to be able to be that guy, that could just literally write a check for $25,000 and just walk out the door and not even think about it and trust the entrepreneur that they know the right thing to do with that money.
Sal Daher: Which is in effect what angel investors do, because you're investing in a highly illiquid asset, which is really just basically the ideas of that entrepreneur. If the entrepreneur doesn't make good on that, your money is gone.
David Fogel: It's true. We could document to the hilt with convertible notes or equity documents, and you have the whole, nice, big package of documents you get from the lawyers, but the reality is there's a huge amount of trust that we have with the entrepreneurs.
Sal Daher: Don't spend your time sweating the legal details. You have to have some kind of document. Spend your time getting to know the founder. That's what pays off. Find out all you know about the founder.
David Fogel: Or the founding team.
Sal Daher: Especially the founding team, which is more powerful to me, more founders, greater chance of success, well established. Do you want to get into specific startups that you had a stake in? You've written $25,000 or whatever checks you write?
“...I've been involved in angel investing for maybe 10 or 12 years now between Mass Medical and TiE…”
David Fogel: Yes. There's been a few. I have to say, even though I've been involved in angel investing for maybe 10 or 12 years now between Mass Medical and TiE and places like that. Remember, I'm a finance guy. I'm not someone that just runs out and starts throwing checks around town, right?
Sal Daher: Yes.
David Fogel: I actually spent my first five, six years doing nothing just watching and learning and analyzing. I'm an analyst. It's my trade. I didn't start really investing until maybe about five or so years ago, so my investments are just now starting to pay off. I had one last year pay off pretty well, but most of them are still just coming along.
Sal Daher: It doesn't have to be a successful investment, just an investment that you think is illustrative of a valuable lesson for listeners. This is a lesson about angel investing. Ben Littauer talks about this all the time. Start small, start slow, and don't invest alone. Those are the three trues for angel investing. Anyway, do you want to mention that particular startup?
David Fogel: Yes. One, Navigation Sciences. It's a startup. Alan Lucas is the CEO. It's technology that has come out of the Brigham. What it is, is it's all about reducing the amount of lung that you're cutting out while doing any kind of cancer surgery. It's a subset of a number of different things you would do in that process.
It's been interesting because I've been involved with Alan since the very beginning since we basically had to put together all the financial projections and all the structure around the company and things like that. It's been fun just being there with Alan from the very beginning and really going through the whole process. I was an early investor with him and a number of other people on it too.
It's coming along. We're doing a larger raise now.
Inspiration for Success
Sal Daher: What is it that the technology does to help minimize the amount of lung tissue that's taken out when surgery is done? Is it imaging?
David Fogel: Right, it's an imaging process. Right. Remember, I'm not the science guy, so I'm not going to be able to give you too much details of it.
Sal Daher: This is an illustrative point also about the life sciences. Are they doing a machine vision to look at pathology samples of the lung to figure out what can be taken out, what can't, or they're visualizing it in real--
David Fogel: Sorry, visualizing in real-time.
Sal Daher: Real-time?
David Fogel: Right. The problem with working with the lung is that usually, you're really cutting out too much of the lung.
Sal Daher: Right, you're always going to cut out too much, so it's a little bit less too much.
David Fogel: Right, that's the punch line, really. It's been interesting right there. I think it's going to be a really great success for the Brigham, for Alan, and all the investors. The other companies that I've been with, for example, there's a company called NanoDx I'm involved with now, and an investor in. They have a technology. It's a diagnostics. It's identifying TBI, football players in a game and potentially a concussion. They have a saliva test that you can immediately know whether or not the player has a concussion or not.
Sal Daher: Oh, wow.
David Fogel: The hope was and we're still hopefully coming with this very soon within the next few months is, it's TBI but it's also COVID. Having a two-minute saliva test for COVID.
Sal Daher: Oh, so it's testing for COVID at the same time it's testing--
David Fogel: The original premise was around TBI, but given COVID, it was basically, let's figure out a way to address the current issues. That's a product that's coming out within the next few months, too. There's a number of different things that have been like that. They've been fun topics, a lot of investors in that. I enjoy doing or getting involved in a fair number of medical-related companies.
I enjoy seeing what's coming. It's not really about what's out there right now, but to me, it's seeing the future or getting involved in the companies that are going to have something 8 to 10 years or hopefully less, sometimes 8 to 10 years out. That's what's fun for me.
Sal Daher: There's so much exciting stuff happening in the life sciences. You're describing here, the diagnostics space, the medical equipment space for surgery. There's so many little niches in the life sciences. It is vast, and the opportunities are exploding. The phenomenon, like with the Northeastern, you have a faculty member has a nice exit from a startup.
Faculty member down the hall sees her driving around in the Tesla or something, and says, whoo.
She went to the I-Corps program or whatever comparable program is and then started a company and took her technology out to the market. I can do that, too. There's a cascade effect there triggering people doing this and then more people do it. Right now, I am seeing an overwhelming number of early-stage life science companies, and the investors are not there.
They're not sufficient investors to handle the volume because there's a lot of them. Also, the fact that particularly if you're talking about really deep science things, like a lot of biotech companies I get involved with more wet lab stuff or even digital health companies. There's just not a lot of investors writing checks. The big venture capitalists used to be-- Like the Flagship Pioneering people used to take pitches from companies like this.
They don't do that anymore. They create their own. They all want to have the next Madura. Then the smaller scale VCs - there are some really excellent ones in Boston, - they're swamped.
David, I had a guy who pinged me from North Carolina says, "Boston. You must have a lot of VCs in the life science" "Yeah, I got tons of them." Try to get time in front of one of them. They don't have the time of day, because they've got so much going on. For an angel investor, I think this is a time of great opportunity if you have the discipline to sit down and do the due diligence on the technical side of things. This is the biggest obstacle because most people say, oh, what do I know?
David Fogel: With Mass Medical, I was involved in actually doing the due diligence on a startup that was in the dermatology space. We've brought in dermatologists to look at these things in that specific case, at least. Mass Medical really does have quite a great connection with the medical community. There's a lot of pretty smart people in that group anyway, but what's fun about the group is we do pull in people from the Brigham, or from Mass General that have the expertise.
Sal Daher: That is what's necessary. I think there is room for a lot more venture capitalists to be involved with this, of different types of venture capitalists. Venture capitalists that works with angels because a lot of venture capitalists, they don't want to see the angels, some want to take the angels out of the cap table, but I think there's room for that. Anyway, is there another startup that you want to talk about that is very dear to you or you think illustrates an important lesson?
David Fogel: Actually, let's talk about-- There's a company called ChromaTan. It's originally out of the Boston area. It's down in Philadelphia, now. It's into chromatography. I love the company, and I invest in the company, and it's probably about within next year or so of just blossoming and--
Sal Daher: What is chromatography? Would you unpack that, please, for our listeners, who are not scientists?
David Fogel: I'll try to do that in a way that a good finance guy can do it, but basically, what it is, is it's really studying and separating complex mixtures. You've got gene and cell therapy processes, and what it does is it really purifies the transfer of functional genes in a patient's cells. As far as I can go, as far as science. Again, certainly not my thing.
Sal Daher: We don't want to snow the audience either. Basically, it's sort of looking for the active genes in serum or in the sample.
David Fogel: What the company is doing is making, I guess, a much more efficient process by eliminating the columns that are in the process, and making it a continuous flow through.
Sal Daher: Instead of making a batch process because they put the sample through these columns to separate the-- I guess the name chromatography is because they used to have bands of different colors, initially back in the '30s. They put it through a medium like a gel or something like that separates the different types of materials.
This process allows for it to be done in a continuous process instead of a batch, which is an enormous advantage for production.
David Fogel: Right. More cost-effective because in this case, they're using less resin. Resin is part of the process. It's the liquid, that's the cleaning process. I've worked with Oleg for a number of years with this. He's essentially lived off of grant revenue. Certainly, now he's got a lot more corporate interest, a number of different companies that are interested in ChromaTan.
What he's been able to do is have between NIH, between some of the grants he's gotten in the Philadelphia area, with different facilities. He's basically lived to find another day. He's one of those guys that-- He is just doggedly entrepreneurial and he is going to make it happen. I firmly believe he will. I literally just invested recently with him. He's been at it for a number of years. He was actually one of the earlier MassChallenge companies.
That's where I met him. Like I said, what he was able to do was just use the grant money, which a lot of companies shy away from because of the concerns of, is it going to defocus what we're doing?
Sal Daher: Grants, they can take you in the direction that you don't necessarily want to go in. I'm an investor in one company. I'm not going to go into the name of the company, but they were initially going and getting NIH grants. There are a lot of NIH grants for this particular field, but they're pushing to go in a direction that is not strategic for the company. The company says, yes, in 10 years, that's where everything is going to be.
They're trying to get us to build out capacity for stuff that's 10 years into the future when there's a lot of low-hanging fruit we can make money from now. We can generate revenue from right now without all this stuff that's pie in the sky that some consultants said, this is where things are going. A practical entrepreneur wants to do that. However, I can tell you that there are companies that have done very well with grants.
One of them is Leuko, which I'm an investor in. Carlos Castro-Gonzalez has been on this podcast because what they're doing is they're basically using machine vision, create a device that can look at your cuticles and find out if you are immunocompromised by counting how many white blood cells are flowing through the capillaries in your cuticles, important for someone who's undergoing chemotherapy or therapy for certain types of Alzheimer's disease therapies, treatments can cause people to be immunocompromised.
This is an instant test for that. The NIH is like, wow. This is really important because it could save thousands of lives every year. Not just people not getting sick, but also allowing people to have chemotherapy up to the limit. I've seen both cases where grant funding can be very useful, very powerful. I've also seen cases where it can take an entrepreneur in the wrong direction.
David Fogel: Actually that's a good example; Leuko is a good example of--
Sal Daher: Do you know them?
David Fogel: Yes. I met Carlos a long time ago. Foolishly didn't invest. Sorry.
Sal Daher: I was like, "Wow. This is amazing."
David Fogel: I know. I've made a few of those with some good, some bad; but what I was going to suggest is that's a great example of a company that angel investors should be investing in as opposed to, there's a lot of, "me too", just a little bit off the norm types of potential companies. What I try to do is get involved with companies that are pretty much out there, more on the edge, than just the "this is a little bit better than what we have right now, going on".
Sal Daher: Like shoot for the stars rather than just, oh, we're doing a 20% better or we're doing a little cheaper than the existing market, and so forth.
David Fogel: It's emblematic of, and remember, I'm a numbers guy, so I have to bring the numbers in. It's when someone comes in and presents to a Beacon Angels or a Mass Medical, and I'm looking at their numbers because that's what I do. Four or five years out, they're showing $5 million in revenue. That's the kind of thing that just bothers me, because I'm thinking and looking and going, "Why are you here? Why are you wasting your time? Why are you wasting our time?"
Sal Daher: If you can do that in five years, you're going to be at $5 million revenue. It's just not enough.
David Fogel: I'm not suggesting there's anything wrong with the business. It's great that they can be a $5 million business.
Sal Daher: All the ones that I see, they are $50 million in five years. They try to justify that there's a real business there.
David Fogel: As Ben Littauer has preached for a long time, it's all about the assumptions. If they've done their work, it's all about the homework. If you've done your work, you understand the market well enough, and there really is potentially a $50 million business, five years out, that's great. As long as it's justifiable and you can come up with the reasoning behind it. Not just numbers. Like I said, that's where I draw the line is where you come in with nothing.
The Process of Angel Investing
Sal Daher: Have you looked at revenue-based finance? My particular interest is in situations where there aren't numbers. It's not that I don't want to see numbers. I'm a CFA charterholder, I should say. I've done my fair amount of analysis of financial statements in my time, but companies that I'm interested investing and are companies that are doing something that is completely groundbreaking, and there are no numbers. You can extrapolate, but there's nothing.
It really is a supposition. In two spaces, one of them is in the wet lab, the biotech stuff and the other one is in the digital area, in the life sciences, particularly in electronic health records and that kind of thing. I've invested in a bunch of companies in that space, where the theory is that if you have the right combination of information, all of a sudden you can create massive values for players in the space, by just combining existing resources that are out there and just cannot be -- because they're siloed.
I've seen this in real-time, operating with Healthjump in which I've been invested since back in 2013. My brother-in-law Martin was the founder, has been on this podcast several times, also as a cohost. They were able to basically create ways to have information come out of electronic health records under different standards. They have, I think it was 80 million, electronic health records in their data lake, which means it's a live data.
Anonymized. They can provide information from. They're creating real value and they're expanding very fast. They're having very, very impressive growth. I've invested recently in another company called Connective Health, which is attempting to bring together various types of patient data so that when a primary care physician sees a patient, she can treat that patient more effectively and therefore reduce costs.
This is a population that's very high cost and so forth. For me, I'm saying there's no evidence that things can work today. I have to believe that these really smart people who have left important positions in the industry can make this happen.
David Fogel: There's still always a way to get-- I'm a real numbers guy.
Sal Daher: You can do it back of you and see is it really that big and analyzing the scale that it could get to, but it's not like cash flow projections that I used to do when I was in my Citibank days, so you know if there's somebody who can pay off a loan and that kind of stuff. It's not like that. It has to do with market dynamics.
David Fogel: No, no, no. Don't get me wrong. I'm not suggesting in any way that it is the be-all and end-all, that all decisions come down to the financial projections. No. Of course not. That would be pretty silly. It's an element of the picture. What is there? You take a normal presentation, you break it down, there's eight or ten major facets of the whole thing. You've talked about this ad nauseum with other people, but let's face it. It's one of those 10 in my mind.
Sal Daher: I have seen companies stumble for things as simple as not having a CFO on board who would tell the CEO, you actually have liabilities. You can't just look at your checking account and see how much money you have there and that's the money you have in your company. The CEO is a technical person perhaps has never balanced a checking account. I don't know if people don't balance their checking accounts anymore.
When I was just out of college, I had to balance my checkbooks. My dad made me balance my checkbook, but people don't do that anymore. You don't know that you have liabilities, that there are checks going out and checks coming in. It's not just the current balance in the account. Anyway, you want to talk a little bit about the angel investing process?
David Fogel: Yes. We talked about this before that, I think it's important for an entrepreneur to understand what happens in the angel process. When I'm saying angel process, I'm talking about an angel meeting itself. Most don't really approach it correctly. I'd say easily 80%, 85% of the time.
Sal Daher: Interesting.
David Fogel: If they had a better idea of what they're getting themselves into would be much more successful.
Sal Daher: Are you saying bone up on the process on the workflow?
David Fogel: Understand the process. Alright, let's start from the beginning. If you walk in to a meeting without doing the things that I'm suggesting, and I'm not suggesting anything that nobody's ever brought up before, just maybe packaging it together. For example, gaining a champion prior to the event itself.
Sal Daher: That has been said on this podcast many times and it is absolutely true. You do not go into an angel group cold, you have to find a person who is going to champion you, to explain you because the people in the angel, they won't understand what you do.
David Fogel: You're doing it in 10 minutes or 15 minutes and not everybody's picking up on what's going on through the whole process for whatever reason.
Sal Daher: Remember angel investors are all cognitively impaired to a certain extent. Don't assume they're all 25-year-olds. [laughs]
David Fogel: This is true.
Sal Daher: You're talking about people who start being angel investors in their 50s and so forth.
David Fogel: Here's the rub. The rub is you got to have more than one champion. Now I'm not suggesting you have to have five or six because-- Can't tell you how many times I've seen this too. Where you walk into the event, the champion isn't there. They were sick. They were traveling. They were, oh I forgot, whatever. When I say champion-- There's one champion really, but you have to have talked with at least two other people.
"Have a champion, have more than one champion, don't go into the room cold"
Sal Daher: If the champion isn't there, there might be someone there who would say--
David Fogel: I talked to him, I met with him or her.
Sal Daher: It's Ben Littauer or it's Diane Stokes or one of these people was meant to be there, but she's iron woman. She's running and she had an accident and she can't be here.
David Fogel: Let's face it. You get one shot at this. Beacon were a little bit more forgiving if you come in and it's like, it looks interesting but you're not ready yet. Beacon's pretty early, so if you're not ready for Beacon--
Sal Daher: Walnut is early too.
David Fogel: Really early.
Sal Daher: Compared to Launchpad, which is usually late although they try to get earlier. How about Mass Medical Angels? Where are they in that spectrum?
David Fogel: I would say Beacon's early. It's really early money. I think as small as $25,000 up to $200,000, $250,000 something like that. Really early, first money type of thing. Mass Medical tends to be a little bit later, but still relatively early though. A lot of companies will come there and it'll be their first money would be Mass Medical or Syndicate involving Mass Medical. TiE Angels, I'm involved with as well is about the same.
I would say there'll be individuals within TiE that have already invested when they pitched to TiE. I don't want to believe they're processed too much, but I guess I've just seen this, where, you had a champion, they didn't show up, but it's good to have multiple people at least maybe two or three other people, especially make sure you sell the-- It's like going to a board meeting.
You don't go to a board meeting without pre-selling all of the board members to make sure you have the votes for the decision you want to make.
Sal Daher: Exactly.
David Fogel: Same thing. The more people you can get to, especially the leaders of the group. If you're going to Mass Medical, you haven't talked to Richard Andrews, for example, it's a terrible mistake. He needs to know what you're up to. You don't need to spend hours and hours with him, but it's good to-- With Bill Swigert at Beacon Angels, an incredibly bright guy. Not that Richard isn't, they both are.
Bill's incredibly intelligent and he can just spatter out knowledge of all the different companies that Beacon Angels invested in, but talking to him before coming in. It helps with screening, just even screening the process. We meet once a month like Beacon and same thing with Mass Medical basically and you screen through a number of different companies. If none of us have ever met with anybody there, they're not going to get the time of day.
Now, it's interesting, Beacon tends to take on companies, we'll actually look at companies that nobody refers us into. Much different than any other Angel Groups. Most of the Angel Groups you have to have some referenceable person coming in with the group. We'll look at things that are not necessarily-- They're coming in with a reference. Exactly.
Sal Daher: They're coming in cold. This is a really, really valuable bit of advice. Have a champion, have more than one champion, don't go into the room cold. Make sure that people already have an understanding of what you do and framing. Joe Caruso makes the point that in pitch decks, very often founders are so into the weeds in their business that they forget that people don't understand what it is that's going on.
They really, really need to step back and explain it to their mom or someone like that, explain it to an intelligent lay person, a lay person who's coming at it naive to the problem, and see if he or she can get the point across to that person.
David Fogel: In fact, it's funny. I had a pitch this morning from a company coming out of Johns Hopkins and at the end of it, I said, "who are you selling to?" [laughs] I understood what they were doing. It was like, this is the product, this how great it is. I don't want to mention any names, I'll get in trouble, but it was at the end of the day, I was like, "it sounds great, but who's buying it?" It's got great traction by the way, but it was like, I didn't--
Sal Daher: It wasn't described. It wasn't explained. Now, David, I've seen enough pitches to see that founders get better on their pitches when they're starting the raise they have a pitch that may be a little bit wooly, a little bit hairy, not completely airtight, and so forth. Three months later, I see them, towards when they're 80% to their goal and the whole thing is much, much tighter. It makes much more sense.
David Fogel: It depends on who the advisors are and whether or not they've done a good job of coaching and are they coachable and all the other old usuals.
Sal Daher: Perfect.
Balancing the Budget
David Fogel: Once an entrepreneur presents at an angel group and go through the initial Q&A, they'll leave the room, and then we'll go talk about them behind their back type of thing. To me, it's always the first person that speaks after the entrepreneur leaves the room sets the tone for the discussion. Who does it have to be? It has to be the champion or they're not around or they're shy or whatever, which is usually not the case. It's one of the other people that have been essentially pre-sold.
Sal Daher: Ideally the champion is someone who has either written a check or is going to write a check to the company, so it's a person who's on board.
David Fogel: Right. They're the one that's going to end up leading diligence.
Sal Daher: Exactly. You want somebody who's got some skin in the game.
David Fogel: Usually the person that puts in the first $25,000 or $50,000 or something like that. Of course--
Sal Daher: By the way, just for benefit of angel investors, potential angel investors, not every investment is $25K. There are angels who invest $5,000, angels who invest $15,000, angels who invest $50,000, others invest $100,000. I would say maybe like the average of maybe $15,000. My check size is $25K. David's is $25K but-
David Fogel: More or less [laughs]
Sal Daher: -more or less, but I've written checks that are smaller, I've written checks that are bigger. I've written $50K checks depending on the circumstances, depending on various things. Then there are the angel investing platforms where you can invest smaller amounts. You can invest $2,500, $5,000. I don't write checks of less than $5K, but I have yet to have a founder turn away a check because it wasn't big enough.
They take the check away so fast and sometimes I'm afraid I'll get a cut or something from the nail cut or something or paper cut. [laughter]
David Fogel: Case in point, I can't remember if it was 10 or 15, but I did your favorite Chrissy at Imago Rehab.
Sal Daher: Oh, Chrissy, Chrissy Glover. Imago Rehab.
David Fogel: I invested through Beacon recently on that. It was less than $25K.
Sal Daher: Listeners should listen to my interview with her. It's called Robots in Rehab. It gives the idea of drug addict robots. It's not that, it's robotic hands helping stroke patients do rehabilitation. She is just a amazingly tremendous founder. Overall you like this, the fact that I've worked with you all these years helped me appreciate her better because she comes from the creative side and I've seen how you work your attention to detail. We're recording this in Raul's Studio so Raul is listening to this. Anyway, so your attention to detail and your focus, so explain to me, how a creative person can be a strong entrepreneur because they sweat the details.
Chrissy's the kind of person who sweats. Let me tell you, she's taking notes and she goes back to her notes afterwards and she looks them over because I'm the kind of per-- I never look at my notes. She takes notes and she knows what's in there and she can reference them and they're very-- Oh, she's a tremendous founder. She brought together a team, she knows what she doesn't know.
David Fogel: Very coachable. She's great. No. Love her. Here's what's fun. What's fun is, for me at least, this is a podcast. There's no video. I mentioned Chrissy, all of a sudden, Sal's face just brightens up.
Sal Daher: Oh, she's great. She's a tremendous founder. I'm 66 years old. The biggest joy in my life is hanging out with my grandkids, but the other big joy in my life is working with these 20-something, 30-somethings and seeing their energy and discovering things that are really, really valuable and going to change the world for a better way. It's just a beautiful thing. To be able to help them in some small way, it's so gratifying. That's why I'm so excited about it. It's the most fun thing I've ever done in business.
David Fogel: Definitely, all I do is work with entrepreneur. Between the angel groups and teaching at Northeastern, it keeps you young. It makes it so that you want to wake up in the morning and just move and do things and meet people.
Sal Daher: There's so much going on. I'm like, ah.
David Fogel: Kid in the candy store. That's the way it is, and that's why I enjoy doing what I do and having the flexibility to be able to run a consulting firm and do the angel investing and teach because I just have all that energy because it keeps you going. Learning technology, working with entrepreneurs, it's fun. It livens you up, it really, pretty much every day.
Sal Daher: It does.
David Fogel: Let me bring home, we go off little tangents, but we're moving along the process here. One of the things that I did want to bring up. My belief is, when you're first coming out, pitching to groups, my philosophy is you go hard for 30 days. Hard as in you're going off of your references, you're really trying to get into every single-- Meet with any angel, Joe Caruso, the Ben Littauers, depending on what they're investing in.
Sal Daher: Joe Caruso, the father confessor of founders. He's a great guy.
David Fogel: There's certain people that will meet with you and then give you advice and maybe may or may not invest, but at least you're getting great advice from them.
Sal Daher: You're going to get very astute advice from Joe Caruso.
David Fogel: Of course. I guess my feeling is you go hard for 30 days and you go and you try to get invites to everywhere, to pitch anywhere, and you go hard for 30 days. After 30 days, if things aren't resonating, you stop what you're doing, and you reassess everything that you're doing and figure out, if you're not successful after 30 days, and it doesn't seem like is resonating, the challenge is there's a lot of people like Ben and me and others that are in multiple groups. If you go into a beacon or mathematical or whatever, and you present, and it doesn't resonate, it's going to be very difficult for you to get--
Sal Daher: People compare notes.
David Fogel: Right. I'm going to say, "Oh yes, we saw this guy at this event and it wasn't ready yet." Word travels very fast anyway, but basically, a lot of us are in a number of groups and so you don't want to just be clunking, hitting a wall every single time, and you really do need to reassess what you're doing.
Sal Daher: You get it 30 days, if you're not going gangbusters, let's get more fine-grain on what you do. Maybe one of those things would be to mature your company.
David Fogel: You're too early.
Sal Daher: You try to get some evidence of the need, prototype, or something. Maybe you need to get more conversations with advisors.
David Fogel: It's a number of different things. It could be that you really haven't set very good milestones. Let's face it, you need to have those milestones set up well in advance and be able to prove them out. It's like whenever someone asks me, "What's the right time to talk to an investor?"
Sal Daher: Not August. Probably not December either.
David Fogel: No, I agree. Seasonal is absolutely something to think about. I'm thinking about the fact that most entrepreneurs think, "oh, if I'm not looking for money, I shouldn't talk to an investor."
Sal Daher: No.
"Tell me the truth. Don't candy-coat it"
David Fogel: Which is of course the wrong attitude. You should be talking to them early, telling them about the milestones, telling them how you're going to be successful through those milestones, and then meeting with them six months later and telling them how successful you've been with those milestones that you told them about six months earlier.
Sal Daher: Following up is really important. When you get turned down by an investor, I think it makes sense for a founder to say, "Look, I understand you're not investing, I want you to be completely candid with me exactly what it is that stopped you from investing in my company because I need to know."
Don't pull any punches. Don't say, "Oh, I don't want to destroy the ego of this young person," and say, "Oh, they don't have a chance. Forget about it. Blah, blah, blah. Presented really badly. You've got bad breath," or whatever. Tell me the truth. Don't candy-coat it. I need to know the truth, because I want to get this thing off the ground and if there's anything I can change about it, I need to know.
Make it really, really clear because I am guilty of candy coating my response to founders. I would advise founders to disarm that in the angel and say, "Listen, tell me exactly why it is that this doesn't make sense for you." After four or five people, they start telling you the same thing, "Hello? Dawn over Marblehead. You've got to work on this on this area." Angels don't want to blow up your belief in yourself. They will snow you. Advice to founders, disarm the angel. Tell them you can take the tough response. You agree with that, David?
David Fogel: [laughs] I'm laughing because I've softened my approach--
Sal Daher: You are a heartless accountant? [laughs]
David Fogel: I used to be a lot harsher, not harsh, that's a little bit much. When they would come and present things that I didn't think were exactly up to par, I would tell them.
Sal Daher: Are you a heartless accountant? Excuse me. The two accountants in my life that I work with every day are the most kind people that you'd want to know. David and Rich and Les, guys, you're just tremendous people. I don't mean to say that accountants are heartless.
David Fogel: You got to realize too that I--
Sal Daher: I don't mean this David [chuckles]. David Ames.
David Fogel: Understood. I actually started out as marketing guy. I have a father who was a promoter. He was a marketing guy, an advertising guy, and my mother was an accountant. I started out in merchandising thinking that that was my calling in life because a lot of my family had been in retail and merchandising. I thought that was my calling, found out after a couple years in department store retail that, that wasn't my calling for various reasons. I morphed myself into a finance guy and then the CPA came about halfway through my career. I think of myself as a business person, more so than a heartless accountant. [laughs]
Sal Daher: The hardheaded. Hardheaded.
David Fogel: Is that what it is? Hardheaded.
Sal Daher: Hardheaded. Yes.
David Fogel: Which helps when you're trying to go off and spread the gospel of financial projections and entrepreneurs, entrepreneurial finance.
Sal Daher: I think those are two very, very good bits of advice. Get a champion, reassess after 30 days, unless you're having tremendous success. Any other thoughts?
David Fogel: I don't want to rehash a lot of things that I know have been said before. Just basic things like--
Sal Daher: You'll say it differently. It'll connect with different people.
David Fogel: A lot of entrepreneurs tend to be uncoachable that I've seen. It really runs the gamut. It's not just sit there and paint a picture and say, "Oh, well, all entrepreneurs are a certain thing."
Sal Daher: It's a hard thing. How to take advice, how to listen to advice. There's a whole range, can be somebody who just listens to every bit of advice and tries to implement everything and goes crazy. You can be somebody who's in the middle. I mean, getting back to Chrissy Glover, I think she listens. She evaluates, she certainly notes it down, and then she talks to people and tries to see if that's advice that's turning up again and again, I suspect.
Being coachable doesn't mean to mean exactly what your advisor says, being coach means listening, really listening, examining, seeing if the advice makes sense for you or not.
David Fogel: No, I agree with that. In fact, the conversation I had with my buddy from Johns Hopkins this morning was, I went through his presentation. I told him everything that I thought about it.
At the end he went, "I'm going to make all these changes and I'll send it to you." I said, "Wait a minute. I know I am right, of course but just because--" What I said was, "There are certain things that I was very adamant about, and those you should really think about in my mind", but there's a lot of things in there that I talked about that you shouldn't just necessarily jump at and say, "okay, boom, I'm going to change it." Because if you did that and you talked to 10 people your head would spin, right?
Sal Daher: Yes.
David Fogel: I said to him, "It has to be your presentation. You have to be comfortable with how you're presenting it, what you're presenting it, but take the feedback. It's your baby, it has to be what you believe in, not what anybody else believes in." Which is why I would rather have someone that's adamant that they're right and try to pull them down than someone that's like meek and saying, "Okay, tell me what I should do."
Sal Daher: Giving pushback is also a sign that you've listened. You say, "No. Are you kidding me?" At least you're incorporating the advice and you're debating it. That is really important. The thing that I always try to keep in mind is that founders are discovering uncharted territory. The only thing that we as advisors can contribute to them is knowledge about the known world. The uncharted world, we cannot help them with. Okay? We have to understand that we can't be drifting into advice about the uncharted, okay? That's the founder's job. She's got to figure that out and nobody can help her.
[laughs] That's where the rubber hits the road. Michael Mark likes to say Brownian motion, random motion because of energy, and young people are capable of that. Older people less so. They stumble accidentally onto the discovery that's going to make a huge difference for their company. The market that works for them. The technology that's going to work and so forth. A lot of that happens by happenstance. You have to leave room for that. You can certainly help them about things that glaringly don't make sense. How their presentation is coming across, it's not telling the story that they think that it's telling. Things like that.
David Fogel: Oh, I absolutely agree. Absolutely agree. If we don't know what's coming--
Sal Daher: We have no clue. We are advisors about the chartered world, and you founders are people who are discovering the uncharted. We are just trying to help you about the chartered world to make sure you don't run aground in a reef that we all know about.
David Fogel: The funny part is in my mind to be successful as an angel investment, you really are going after the uncharted world.
Sal Daher: Oh, that's the point.
David Fogel: Right?
Sal Daher: That's exactly what I'm saying. When I wrote a check to Ryan Hess at Connective Health, there's no evidence. Now, they have some evidence that their intervention with data actually improves the economics of the practice. They're getting data of that type but when I invested, they didn't have it. This is a guy who's been in the industry a long time. He's done parallel things in well-known companies in the prescription management space and all that stuff.
If this person who's very knowledgeable in this space, very successful is willing to take a bet that he or she can extend that knowledge into this unknown space. I'll take a bet on that person even though there's no way to know a priori.
David Fogel: Which is why it takes 10 investors-
Sal Daher: That's what angels do. Exactly.
David Fogel: -or more.
Sal Daher: You need I would say at least 20.
David Fogel: Now it's changed. It's definitely changed. It used to be 10, but now there's so many more opportunities. I think things have gotten watered down which is why we're seeing the-- I keep mentioning the guy that walked in with the $5 million fifth-year revenue plan that kind of made me nauseous. I think it's watered down which is why it does take more, 15 to 20.
Sal Daher: In the life science space, I'm not seeing that because there's so much technology that is just astonishing. I had interviewed recently Sean Kevlahan PhD. He was a founder of Quad Technologies, was a very successful company. I almost invested. I was stopped from investing by someone who's very, very knowledgeable about the space, blah, blah, blah, "You can only sell this company for X." Well, darn it, they sold the company for X and the investors did pretty darn well.
[laughs] I wish I'd written the check. I had him on the podcast and he pointed out that his company, his technology happened to have been catch a wave, where they was just beginning of the crest. In 2012 something really ground-shaking happened. The first cell therapy was applied to a girl named Emily Whitehead. It's now 10 years later, and she is still free of this childhood leukemia that's absolutely deadly.
Sean's company, the technology that he had, he thought it was about magnetic tags that could release easily and so forth, but it turned out that it was just figuring out a way to cause these engineered cells called CAR T cells, these are immune cells, T cells that have a receptor plugged on to the outside of them. The big question is how do you cause these to expand, to multiply so you have lots and lots of them to the point where you can create a therapy?
It happened that the technology he had, was very good at causing these engineered cells to multiply and in vitro, and this is the business that he ended up doing. This is just one stream that's going on like the CAR T cells. There are now a whole number of really exciting cell therapies that are coming on stream. I was just reading yesterday about a team in California, that took this adjuvant from a vaccine, for the Nova Vax vaccine, and tacked it on to this immune therapy because the immune therapy had this terrible systemic effect.
They couldn't put it in the blood because it would affect the person systemically, they would inject directly in the tumor, but they didn't get the immune response that they needed inside the tumor. They took this adjuvant, which is something that's in the vaccine to cause the vaccine to amp up the effect of the vaccine, of stimulating the immune system to produce antibodies, so they inject the tumor with this thing. Lo and behold, the tumor starts sending out signals that allow the body to recognize via these B cells in the area around it, recognize that it's a tumor, it's like a tumor turns on the beacon.
It goes inside the tumor turns on the beacon, and it starts killing cells far away, a distant in the body, from where the tumor site is, and this is still very, very early on research, and so forth, there's a lot happening on this 10th anniversary of CAR T cells being tried. There's just like a gazillion. They're using T cells engineered in different ways in the CAR T cells. They're using natural killer cells, which are other leukocyte immune cells that are slightly different. There's just so much that is happening.
I think it is a target rich environment, what I see. It's also rich in the sense, not just the technology but also in terms of these academic founders who want to be founders. Academics who want to be founders, how do we support them? That's a question for you, David. I'm sure you've run across a few academic founders, how can we better support academic founders?
David Fogel: Well, I think they need to know whether or not they have the ability to be a successful entrepreneur first because I think a lot of scientists or academics.
Sal Daher: You go back to "gnothi seauton", know thyself, really, really up to this.
David Fogel: Yes because let's face it, I'm of the school-- I'm going to get myself in trouble when I say this, but I'm of the school that entrepreneurs are born, not raised because I think there's a certain being in yourself whether or not you're going to be an entrepreneur or not.
Sal Daher: I don't know necessarily born, but perhaps bred.
David Fogel: All right, possibly.
Sal Daher: Because of their upbringing so and forth. If you talk to Ed Roberts, or someone like that, or Bill Aulet at MIT, they will disagree with you vehemently, "Entrepreneurship can be taught, it can be taught."
David Fogel: Remember, I'm the guy teaching entrepreneurial finance at Northeastern. Now, granted, I'll take a side on that because what I was going to suggest at some point was talk quickly about challenge and teaching entrepreneurial finance and things like that to anybody. Why is it fantastic? Because even if you end up with your maths challenge or whatever, even if you end up in corporate life, or at a medium-sized company, the fact that you've gone through some of that and you understand the conceptual of everything that has to go into a business is invaluable, go into a corporate or middle market--
Sal Daher: It will expand your mind.
David Fogel: Right. I think all of that is great but whether or not you can be a successful entrepreneur, there's that I think just spirit within you whether or not you're going to be successful in just doggedly just going after it. I think you're born with it, but whatever.
Sal Daher: I don't know if you're born with it, or you're trained into it. I think there's a certain level of the balance between persistence, grit, and also openness to new ideas and openness to new experiences and so forth, the balance between those two is what I look for in entrepreneur. At the end of the day, they say the reason most startups fail is because they run out money. No, they run out of steam, is because the founder gives up. She says "enough, I'm a highly capable, highly educated person, I'm going to go make a salary somewhere instead of banging my head against a wall".
David Fogel: "I can make 400 some thousand dollars doing something else. Why am I doing this?" I guess going back to your question, I'm trying not to dog your question here. Anybody in teaching or a scientist or whatever, wherever you're coming from. I don't think it matters. It matters the attitude, the aptitude, the willingness to do the research. I think those are the things that go into it. I don't think it matters where you're coming from, whether you're a marketing person, or a scientist, or academic, or whatever it is. I don't think that, I don't know. I'm sure there's studies being done–
"To me, it's all about, do you have a great idea? Can you implement it?"
Sal Daher: In the life sciences, if you're a technical founder, the plus is that most of the work you're going to be doing is technical, is scientific, so it helps that you come from that background. On the downside, usually, you are trying to bring to market a technology, a specific technology that you've developed. You're tied to the technology and you have to be really really good at figuring out if there's a use for it, because then you have a hammer and everything looks like a nail.
Are there really nails for you to hammer on? That's the big question that you have to ask the entrepreneur and that's a brainer question where some startups I'm in the question's still open. I don't know, because it's really hard to know, but on the other hand, another downside for academic founders is that they're always the smartest kid in the class. They're always getting approbation.
Yes, in the science their experiments fail and so forth, but they have a really hard time dealing with rejection and being told no. These are the people who top of their class all the time and they didn't get to be faculty members by being second raters. When they're doing a raise, being told no by somebody who's probably not as smart as he or she is, is devastating. This is one of the things they have to understand, they have to take it in stride. It helps to have a method. It helps to have a process for raising money, so that relieves that.
I've seen brilliant academics. Cagri Savran of Savran Technologies, no experience in business at all, and he's managed to do all kinds of things. His first raise was really easy but subsequent raises. He has jumped through unbelievable hoops despite a lot of challenges and so forth, in the middle of COVID and everything else, and he's managed to get his company funded, get the samples they needed, get the resources necessary, that kind of grit.
David Fogel: You have to be scrappy, let's face it, well, especially now, right now. Now, where everybody--
Sal Daher: He hates that word by the way, scrappy.
David Fogel: Scrappy?
Sal Daher: Yes, he doesn't because he thinks it has to do with scrap metal.
David Fogel: Oh.
Sal Daher: No.
David Fogel: Which is another business I used to be in but--
Sal Daher: Yes, not scrap metal.
David Fogel: That's another story.
Sal Daher: Scrapyard dog. No, but--
David Fogel: Don't think there's anything wrong with that.
Sal Daher: It's just funny. No, personally, he doesn't like the word but you have to be somebody who has that pluck, that e lan, the French would say, determination, resourcefulness, and also to be high functioning enough, be somebody who can block and tackle and do those things. Not every academic is like that because some academics are impractical. It helps they came from engineering. Those are more practical types.
David Fogel: They tend to be more theoretical which has its advantages it did but--
Sal Daher: Well, engineers are less theoretical than-
David Fogel: Well, no understood
Sal Daher: -the research scientists.
David Fogel: It's understood.
Sal Daher: I do know research scientists who are also capable of doing that because they're so incredibly clever. Now, I must say I have seen an unusual number of chemical engineers because Armon Sharei is a chemical engineer. He's got all these properties we're talking about plus, he is really really good at explaining things and communicating things.
David Fogel: Which is not necessarily someone that comes from a science background, may or may not.
Sal Daher: But if you're a professor, you've explained things, that helps.
David Fogel: True.
Sal Daher: I was saying Armon Sharei, Sean Kevlahan is also a chemical engineer.
David Fogel: I guess I should done that as--
Sal Daher: Doug Godfrin. Do you know Doug?
David Fogel: Down in Mansfield, sure.
Sal Daher: Yes, but then you get from totally out of left field and at least in my experience, someone like Chrissy Glover who's a design person and who's a super founder.
David Fogel: No, no, no. I agree with you. There's no set profile here. To me, it's all about, do you have a great idea? Can you implement it? It's all the basic stuff, and have you done your homework? Do you know everything about the topic, more so than anybody else knows about exactly what you're doing? That's what it's all about.
Sal Daher: Good. David, let's think about wrapping up this conversation. Why don't you take a moment and think of what you would like to impart to this audience that skews male, but it's still about a third female? It actually skews rather young like the bulk of the audience because it's podcasting and not a lot of oldsters listen to podcasts.
David Fogel: What's a podcast?
Sal Daher: [laughs] Who are founders, people who work at startups and are maybe thinking of starting a company, and also the angels. What would you like to communicate to them that we haven't covered?
Advice for the Audience
David Fogel: All right. If we're going to bring it home, as they say, remember I am a finance guy by trade. I have to at least throw that into the fray before I run off and that is that when I work with companies on their projections, I'm amazed how the focus is only on the profit and loss statement. It's like, where's the revenue? Where are the cost? Okay, I'm going to make money. Most of the time, I'd say 75% of the time, and I'm going through-- Fortunately or unfortunately, I'm the guy in a lot of these groups that's doing the financial review and I'm seeing that time and time again, it's all about revenue and cost. I'm looking going, "Where's the cash line? Tell me when you're going to run out of cash?"
Sal Daher: It's all flow variables, no stock variables.
David Fogel: Yes, which is why on the financial projection model I have my base model, what's at the top? A balance sheet, then the cash flow, then the income statement, just because I want people to think about is more to life than revenue and cost. You can think about how am I financing this? What's the working capital that I need? There are not that many heavy industries anymore, that need fixed assets but there are CapEx. It's mainly about working capital, and the timing of cash, and not really thinking about all those things. Like I said, 75%, 80% of time, I'm looking at these models and going, "What?"
Sal Daher: Where's the balance sheet?
David Fogel: "-where's the beef."
Sal Daher: Usually, they have the cash at the end of the year or something like that, what their cash burn is.
David Fogel: No. Should they have that? Of course, they should have that. They'll futz around with something, but it won't be real.
Sal Daher: Fully developed, yes.
David Fogel: You're asking the question, where are the hiccups? Along with that, what I don't see very often either is really the concept of what's, not that I expect them to actually go through a full cap table projection, but you need to think about it at least in the general sense of saying, "Okay, what's my valuation now?" Which is sometimes a guess, but that's a whole another topic. What's the valuation now? What are we raising now? What are we going to be raising 18 months later when I'm running out of money? What do I think the valuation is going to be then? Being able to approach an investor and say, "Here's what we're thinking--"
We know it's all pie in the sky, but at least we're taking a shot at it. We're saying, "Hey, this is what we think we can do and in exit five years or so, this is what the value is going to be, and look, this is what your multiple is going to be at the exit based on what we're showing right now, based on these few rounds." I might just successfully throw in this stuff together.
Sal Daher: No, this is extremely important because the angels are going to be looking at this and saying, "All right, if I invest in this company right now. Instead of a $5 million cap, it's at a $16 million cap. I know that there are not a lot of acquisitions, more than, let's say, $50 million in this space." Then the angel is saying, "How am I going to make my money here? Because two-thirds of my investments are going to go to zero, and I need to be able to make it up on the ones that succeed."
You have to do the calculation, and so you have to make sure that your valuations are compelling enough to tell an angel, "You have a chance to make money in this company." I agree with you. I agree entirely.
David Fogel: It's not an easy process, and it's painful. It's bloody painful to do that, but you have to do it.
Sal Daher: You don't want to look like a deer in a headlight when they ask you about, "What are the comps in your industry? What's your comp table going to lead to? What kind of multiples do you think it's going to lead to if there's an exit?"
David Fogel: Actually on that one, they either have it or they don't have it. Usually, if they have it, they've thought through that pretty well, I've found. Plenty don't have, like this morning my presentation had no comps, no financials. I loved it.
Sal Daher: Very good. That's for the founders. Any thoughts for the angels?
David Fogel: The best thing I can think of is, when you're an angel investor, then this is really hard because no one has time to do anything. To me, once you get involved in a group, you really have to dive and get involved. Get involved in screening, get involved in due diligence. You can't possibly be involved in due diligence in more than one company at the same time but there's plenty of people that just sit back and say, "I'll just sit back and watch everybody else do the work and things like that." I'm not suggesting that that's actually the mindset, it's more like I'm just so busy. I'm interested--
Sal Daher: There's no shortage of opportunities to lead due diligence. To lead due diligence, you don't have to be the most experienced people, because there will be people around who you can call and say, "Hey," like I do with Michael Mark, or Ben or you pull them in and ask them, "What do you think? They're saying this. What should I do?" Even if they're interested in a company, they'll take your call, and they'll talk you through it. That's where you learn. I agree entirely, take the plunge, roll up your sleeve and do get involved in the due diligence.
David Fogel: Even the screening, the screening could be a lot of fun too.
Sal Daher: I'm about to start screening for the July meeting, at Walnut. Tremendous. David Fogel at Swifton CFOs, also angel investor, not just CPA, angel investor, and a teacher of entrepreneurship. Thanks for being on the Angel Invest Boston podcast.
David Fogel: Thank you for having me. I enjoyed it.
Sal Daher: I'm Sal Daher. Thanks for listening.
[music]
I'm glad you were able to join us. Our engineer is Raul Rosa. Our theme was composed by John McKusick. Our graphic design is by Katharine Woodman Maynard. Our host is coached by Grace Daher.