Super angel investor Michael Mark tells fascinating stories that take us from the precocious founding of his first startup to his being a highly-prized investor in hundreds of startups today. The narratives are interwoven with entertaining observations of subjects ranging from comedians to co-founders. Some of the most interesting pivots (radical changes of business plan) are elucidated. Michael’s dry wit and unassuming manner make his deep wisdom accessible to all of us.
Click here to read the episode transcript.
Topics we touched on:
The best pivots ever!
Need for focus
When to pivot
How frequently business plans work out
Hiring a CEO
Qualities of the founders
Role of luck in startups
What a board of directors can do for the startup
How Michael got started in entrepreneurship
Pixability
Exos
Loop Pay
Bettina Hein
Beth Marcus
Will Graylin
Progress Software
Interleaf
Netegrity
Underware
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Transcript of: Michael Mark "The Best Pivots Ever?"
Guest: Super Angel & Founder Michael Mark
Super angel Michael Mark is my mentor in angel investing. He started his first tech company at age 21 together with his MIT professor who at that time was 25 years old. Decades later he had founded several more successful tech companies and invested in hundreds. One of these was Netegrity, which went on to become one of the top performing NASDAQ companies for five years. I remember my brother in law being really excited about investing in Netegrity.
Anyway, in this interview Michael tells us what he looks for in a startup, and gives advice about focus, boards, hiring CEOs, co-founders, pivots and many other topics. The interview was launched originally in January of 2017 but everything he says is still true today. I’m relaunching it now because I find it to be such a dense source of wisdom for founders and investors that it needs to be widely available. I hope you will enjoy it as much as I do.
By the way, Michael is reticent about giving interviews. This is a rare opportunity to hear his unique voice. I hope you enjoy it.
Sal Daher: Welcome to Angel Invest Boston, conversations with Boston's most interesting angel investors and founders. I'm Sal Daher and my goal for this podcast is to learn more about building successful new companies. The best way I can think of doing this is by talking to people who have done it, people such as my guest today, super angel Michael Mark. Michael, welcome. I'm so grateful you could join us today.
Michael Mark: Thanks, glad to be here Sal.
Sal Daher: In the ideal, angels provide more than money. They provide advice, connections and encouragement. Our guest today epitomizes the ideal of the angel investor. Michael Mark is known for his wise and generous advice to founders, his willingness to go out of his way to help startups get needed resources, and for his contagious energy and good humor. Michael Mark founded or co-founded three technology companies and is a director of Progress Software, a company listed on the NASDAQ. The number of startups in which Michael has invested runs into the hundreds. He is also a founding member of Walnut Venture Associates an angel group. It is not an exaggeration to call Michael Mark a super angel. Fortunate is the startup that has Michael Mark among its angel investors.
Michael, I'd like to explore three aspects of your career: your life as a student, your life as a founder and executive, and lastly your life as an angel. I always enjoy hearing about people's academic history and how it leads in unexpected directions. I understand you were a math major at MIT. My dad was a mathematician. I grew up among mathematicians; they're the most impractical people in the world. I can't think of one of them starting a company. How did you go from math major to startup founder?
Age 21 Is A Good Time to Found A Company – Founders Have Many More Resources Now
Michael Mark: Well I never wanted to be a mathematician I don't think. I found myself in math because it was easy for me and I had fun doing it. I knew that to be a mathematician I would have to go and get advanced degrees and I just never really thought about that as a career path. Really to be frank, I really did not have much idea at all in college as to what my career path would be. It's just not even something I remember thinking much about. Then after four years I graduate, no idea what I'm going to do and a professor of mine says, "Let's start a company." He and I and another student started a company. He was 25, youngest professor at MIT, I was 21. We had no idea what a small company entailed. There was not the infrastructure in Boston for starting companies as there is today. I had taken one course at the Sloan School, a marketing course that was probably more mathematically oriented than my math courses.
Sal Daher: That's typical at Sloan School.
Michael Mark: Totally inappropriate for the real world.
Sal Daher: Yeah.
Michael Mark: We started the company anyway and we called it Intercomp because our competition was going to be IBM and Intercomp, International Computation, just sounded like the kind of name you needed back then. There was little local VC infrastructure. We mostly raised money in New York. We did get one company in Boston invested and just by chance, this morning I was reading some financing notes and a company had just gotten financed by Schooner Capital and Schooner Capital happens to be the company that invested in us about 50 years ago. I probably hadn't heard their name in a dozen years and I just ran into it this morning.
Sal Daher: Schooner Capital, it has some connection in my mind maybe to like, are those the guys that made an investment in Iron Mountain and made an investment-
Michael Mark: They started it.
Sal Daher: They started Iron Mountain.
Michael Mark: They started Iron Mountain. They did more than make an investment, they actually got their hands dirty, the very person who ran Schooner Capital 50 years ago and came onto our board at Intercomp, Vin Ryan.
Sal Daher: Oh, Vin Ryan, okay. That's the connection, okay.
Michael Mark: Is still involved today, still runs Schooner Capital today. That's pretty amazing actually.
Sal Daher: Oh, he made his money on Comcast, that's what it was. Then he created, yeah, awesome, that's ...
Importance of Focus
Michael Mark: If you're interested in knowing what we did ...
Sal Daher: Yeah, very interested.
Michael Mark: We actually had two businesses, which I would tell any startup today, don't do two businesses.
Sal Daher: I've heard you tell of them, yeah.
Michael Mark: I ran one of them. One was systems for tying together medical laboratory equipment. The other was a hardware group, which I ran. The computer we worked with was called an IBM 1130 computer. The IBM 1130 computer had these removable discs that looked like pizza boxes.
Sal Daher: Yeah, I remember. I used them.
Michael Mark: They stored a megabyte, they cost about $10,000.
Sal Daher: Yeah, in those days, which is a lot of money.
Michael Mark: In those days, which was a lot of money. A megabyte now is a millionth of what you get on a disc drive. We took a larger disc drive, it was the size of a washing machine, and it held six megabytes. We sold that for $30,000 and we made it look like six of these IBM discs.
Sal Daher: Mm-hmm (affirmative)
Michael Was Totally Hooked on Startups After Selling First Company at Age 25
Michael Mark: One of the things I've always thought about is we emulated those IBM discs so that you could just plug it in and it would look like ... At the time, we had never heard of emulating another device. No one that I had talked to heard about it. It would have been a great patent because now all hardware emulates some other piece of hardware. We didn't even think in terms of patents back then. In any event, that was the surviving piece of Intercomp. We sold that company after about five years to LogiCon and then by that time I was completely hooked on startups and I knew that was how I was going to spend the rest of my life.
Sal Daher: My goodness, so about that time you were what, like 29?
Michael Mark: Oh no, 25.
Sal Daher: 25, wow.
Michael Mark: 25.
Sal Daher: Wow.
Michael Mark: For some reason, I can't really tell you why, I thought it would be really good to go to Europe and see how Europe functions. Because I was from the Midwest, I'd spent now a few years in Boston, let's see some other place. I joined a startup in Europe, a small computer company in Germany actually and spent the next three years there.
More on the Importance of Focus
Sal Daher: Awesome. I'd like to come back to these narratives of startups which are really interesting, but I want to go back a little bit to what you said about not trying to run two businesses because I've heard you many times ask questions in this direction when we're doing diligence in startups and saying, "Which business are you guys in? Are you in this business or that business." Can you expand a little bit on this, on this importance of focus on that? I mean how did you feel when you were juggling two businesses?
Michael Mark: Well, we like all the other startups that I run into, we had rationales for why we had to do two businesses. In our case it was we had to build the clinical laboratory systems around the IBM 1130 because IBM was going to sell it for us but the IBM 1130 was the wrong computer to use. It didn't have the resources we needed so we had to add equipment to the IBM 1130 at the same time we were automating clinical laboratories. We had a rationale. The problem is that it's very hard to be successful in a company and it's doubly hard to be successful at two companies. When you have two companies that are interdependent on one another, they both have to be successful for you to be successful. You're truly asking for trouble, so find a way at the very beginning to avoid that situation.
Sal Daher: Okay, so I guess that's advice for the people, the board of Twitter.
Michael Mark: They need more advice than that.
Corporate Culture in the German Startup
Sal Daher: No doubt. What happened with the German startup that you joined?
Michael Mark: Two young guys, one was a professor of computer science over in Munich. I enjoyed it tremendously.
Sal Daher: What were they doing?
Michael Mark: Initially they were doing projects but they wanted to design some specialized computers. I spent most of my time there designing an array processor for them. I have to say I liked the people a lot. It was a small company, it was about 30 people.
Sal Daher: Mm-hmm (affirmative)
Michael Mark: I had the feeling that I was an outsider in Germany and that my future lay in the U.S. For instance, they really didn't have the concept back then of stock options. I brought it up many times, they said, "We just don't do that in Germany." I totally felt like an employee and I wanted to be in an environment where I didn't feel like an employee.
Sal Daher: Jeez, I mean having started a company already and sold a company, you were ...
Michael Mark: I don't regret for a second ... I spent three years in Germany. I had two daughters born in Germany but it was time to come back.
Sal Daher: Interesting. Very interesting. You came back to the U.S. and so what was your next venture?
Cadmus Computer Systems & the Wrong Co-founder
Michael Mark: I came back to the U.S. and there was a few interludes but not long after, I decided there was an opportunity to take pieces of hardware that this German company had developed and were continuing to develop and to compete in the workstation market against Sun Microsystems, which was a ... We're talking now in the early '80s and I thought that was a huge opportunity. I talked the German company into letting me license their various products for the U.S., which I would turn into a workstation.
I didn't think I had sufficient expertise to run a company like Sun Microsystems so I put an advertisement in a computer paper, found someone who had already started a previous micro computer company, and he became my co-founder. We started a company called Cadmus Computer Systems to ... At the early stage of personal computers to be a high-end alternative to PCs, IBM] PCs, for engineers doing graphic works and such.
Sal Daher: Awesome, awesome. Cadmus, the connection with graphics, supposedly the first person to write, according to the Greeks. Tremendous. What transpired with Cadmus?
Michael Mark: Well it turns out that even though I thought this co-founder was a perfect co-founder, he came with some baggage that we hadn't really recognized and so he got fired.
Sal Daher: Mm-hmm (affirmative)
Cadmus & the Wrong President –Why Big Company Executives Don’t Fit In at Startups
Michael Mark: What happened after that was, now we didn't have a president. We were in this big mill building in Lowell and had a big manufacturing facility and it was a decent sized operation by that time. One of the VCs, the primary VC, a great guy by the name of Paul Ferry, asked me if I wanted to run the company. Again, I didn't think I was the right person although today I know I should have said yes. We hired a person who was the vice president who ran mainframe computers at Digital Computer. This was a huge company that was a big section of the company. It was, for anybody who knows Digital Computers, it was PDP-10s and PDP-20s.
Sal Daher: Oh yeah, oh yeah.
Michael Mark: He was totally in charge of that division so we hired him, we brought him in. I learned that just because you're good at execution in a big company doesn't necessarily mean you're appropriate for a startup. He was good at captaining a big cruise ship and turning one degree to the right or one degree to the left.
Sal Daher: Right, right.
Michael Mark: Whereas we had to make 90 degree turns and it was just not appropriate. The company floundered. We had a very nice user interface. We ultimately sold it because of the software only to Apple Computer.
Sal Daher: Oh wow.
Michael Mark: This was back in the days of John Sculley, so we sold the operation to John Sculley and I moved on.
Sal Daher: What did you do next?
Michael Mark: By this time, I'd already started doing some angel investing. One of the companies I'd invested in had the first really commercially successful WYSIWYG, What You See Is What You Get publishing software. It's a company called Interleaf.
What You See Is What You Get - Interleaf
Sal Daher: Oh yes, I've heard of them.
Michael Mark: I was at Cadmus Computer, we talked Interleaf into putting their software on our machine and our customers went wild for this software, they loved this software. They didn't care if it was running on our machine or some other machine but they couldn't get the software on other machines so we sold a lot of equipment just because of the software. I also was a friend of the two founders of this company so I went to work for them and started an integration company for them. That was a ... We went from a ... When I got there they were around a million, two million dollars in that ... When I left five years later it was a hundred million dollars.
Sal Daher: Wow.
Michael Mark: It was a very interesting experience.
Sal Daher: Awesome, awesome. Let's go back a little bit to your mindset. You started a company, you started, you were involved in kind of setting up another company in the U.S. and so forth. Tell me about your first angel investment. What went through your mind in putting money into this venture that you didn't control yourself? Wasn't your idea, was someone else's idea and so forth.
First Two Angel Investments Led to Two IPOs – Batting 1000
Michael Mark: Well, my first angel investments were with friends. I think that's often how you get started. If you're in the business, you know other people starting companies, you say, "I'd like to participate." I had two friends who started businesses almost simultaneously. This was the early '80s. One was a fraternity brother and he worked for me for a while at Intercomp, my first company. The other was, I had mentioned to you that Intercomp was started by a professor and two students.
Sal Daher: Right.
Michael Mark: The other student also decided to start his own company so I said to both of them, I'll write a check for you.
Sal Daher: Okay, mm-hmm (affirmative)
Michael Mark: Low and behold, five or so years later, both had gone public. I thought it was really easy.
Sal Daher: Batting a thousand, yeah.
Michael Mark: Turns out it's not quite that easy but through chance it was a good way to get started.
Sal Daher: Hot dog.
Comedian Flip Wilson & WYSIWYG
Michael Mark: Interleaf was one of the companies.
Sal Daher: Mm-hmm (affirmative)
Michael Mark: Very successful. We had at the first show of our system at an industry conference; we hired this comedian, which you might remember, called Flip Wilson.
Sal Daher: Oh sure.
Michael Mark: Flip Wilson had a character called Geraldine.
Sal Daher: Oh yeah.
Michael Mark: Yeah, he dressed up in Geraldine's clothing and Geraldine's tag line was, "What you see is what you get."
Sal Daher: Oh, is that where WYSIWYG came from?
Michael Mark: Well, that's ... I can't tell you if that's where it came from but we had him at our show dressed up as Geraldine telling people, "What you see is what you get."
Sal Daher: Amazing.
Michael Mark: The other company was a company called Progress Software.
Sal Daher: Right.
Michael Mark: Which, I invested in when it got started, it was I think early '80s and I'm still on the board of directors there.
Sal Daher: That Flip Wilson brings up some memories.
Michael Mark: After that I did start running out of friends and family that were starting companies so you had to look a little harder to find new companies and that's what I've really been doing now for 25 years.
Doing Angel Investing Alone Is Crazy – Walnut Venture Associate Is Founded
Sal Daher: Basically, angel investing is sort of a friendly business, it's a business that you do with people who you enjoy working with. Nobody invests alone in angel investing, I think that's one of the observations that I've seen.
Michael Mark: I did that for a while and I decided, this is crazy because I came to the realization that whatever company I invested in, I or a friend should be involved with the company so we could help them, so we could know what was going on. Once I realized that, I realized that I should have a group of investors that I looked at companies with and participated with so that one of us could serve that function. That's when I joined Walnut.
Sal Daher: Oh, okay, okay. That was sort of a way to connect with other people who might be investing in companies with you at the same time. Awesome.
Michael Mark: To connect with somebody ... Since I could only be spread so thin, someone else who was tied into our network who could work with these companies.
Sal Daher: At that time, Ralph Wagner, who else was there?
Michael Mark: Walnut was started in I would say, I can't tell you exactly when but around '96, something like that. Ralph Wagner had a group of friends who had made money in the first wave of the computer businesses. A lot of them came from Digital Equipment, some from Stratus. Boston used to be the hub of the universe for computer companies.
Sal Daher: Yeah.
Michael Mark: They wanted to invest in a collegial way so they started Walnut. Ralph's office at the time was on Walnut Street in Wellesley, so that's where the name came from. I joined probably a year later. Ralph I think is the only remaining member in Walnut from the very first group of friends, about the same time I joined Ed Belove also joined so we're now the two and three in terms of duration at Walnut.
What Does It Take to Be a Walnut Member?
Sal Daher: What does it take to be a Walnut member these days?
Michael Mark: Well first and foremost you have to be interested in investing in startups. You don't have to necessarily know a lot about investing in startups because we have a lot of members who have a lot of knowledge on how to invest in startups. How to hire people and how to set terms for investing and how to do this and how to do this. You have to want to invest, to write checks ultimately. You also have to have a willingness to invest some of your own time.
Walnut more than any of the other venture groups is very participatory. We don't have full time mangers or staff. What we do is pass the baton around and various members take charge of putting together agendas for us in helping to do due diligence for companies. As a consequence, we see companies that directly mirror the interest of our members but as another consequence it takes a commitment of time to do this.
Sal Daher: Oh yes, it's a delightful activity to engage in. I can tell you from my personal experience in the last three years that I've been in Walnut that it's been an unbelievable experience. I look forward to the monthly meetings the way that mountain men used to look forward to the annual Rendezvous, the Rocky Mountain Rendezvous. Are you familiar with that, like in the 1830s, 1840s?
Michael Mark: No.
Sal Daher: The companies that bought fur would assign a place in the foothills of the Rocky Mountains where in the springtime they would be there with supplies and money to buy pelts. The mountain men that were up in the mountains, among them Kit Carson. I learned about this from the biography of Kit Carson. These people would be up in the mountains trapping and hunting and foraging and surviving over the wintertime. Then they'd come down in spring with all of the stuff that they had to sell and then they would get equipment and so forth for the rest of the year. It was like their major chance to have contact with large numbers of people, a chance to get to make some money, a chance to meet a wife. That's where Kit Carson met his wife. They engaged in duels and things like that.
Because I spend a lot of my time with real estate and so one meeting a month I have the time to dedicate completely. Kind of like a mountain man coming out of the mountains and spending time with like-minded people discussing amazing things and setting up for future meetings during the month, following up on pitches.
Michael Mark: Who knew? Who knew?
Sal Daher: One of the things that I think is interesting that I see in Walnut is the fact that we have rotating chairs, which we just sort of mentioned here, and it lends that special character. Every month's meeting reflects the likes and dislikes of the particular person or particular group of people who are chairing because people frequently co-chair meetings, they share that responsibility. It is always, I could say I've never been in a boring meeting. Then the conversations afterwards or during the meeting and so forth, it's a lot of fun.
I'd like to take a moment here just to put in a little word for our podcast. Coming up next, I'm going to ask Michael Mark what he, as one of Boston's leading angel investors, looks for in a startup. First however, I wish to invite you dear listener to review our podcast in iTunes to help get the word out about Angel Invest Boston. As an incentive for you to go through the hassle of writing a review, I will quote from the best reviews in future podcasts. Not from necessarily every review but the interesting ones, I will quote from them.
Let's get back here to our conversation. With all this experience Michael, what do you look for in a startup?
What Does Michael Mark Look for In a Startup?
Michael Mark: Well, I look for an interesting market. People have to be operating in a market where it's possible to build a significant size company and I look for a great team. To me, the founders are more important than any other aspect. I mean I've invested in companies that had marvelous sounding business plans and it didn't work out because it wasn't a first class team, they didn't execute well. I've invested in multiple companies that didn't have that great a business plan but had unbelievable managers and became successful. An airtight business plan is not on my list. I'd go further and say there are almost no successful companies I've invested in where the money that was made was made on the business plan that was shown to me on day one.
Sal Daher: When they show you a business plan, you expect to make money from something else they're going to come up with, so you better have a team that can come up with something that really can work.
Michael Mark: Absolutely.
Sal Daher: Not the thing that's in front of you.
Michael Mark: Absolutely.
What Does Michael Mark Look for In a Founding Team?
Sal Daher: Awesome. What is it that you look for in a founding team?
Michael Mark: They have to be intelligent.
Sal Daher: Mm-hmm (affirmative)
Michael Mark: Because nobody's going to set out a set of rules for them and you follow these rules. They're going to have to take a tremendous amount of information in and figure out what the rules are. They have to be passionate. They have to be tenacious. I mean there are hundreds of times an entrepreneur's going to say, "Yeah, what a horrible day. I've got too many doors slammed on me." There are too many chances, opportunities you have to quit. You can't be somebody who quits.
Sal Daher: Right.
Tenacity, Openness & Affability
Michael Mark: I can point to all of the successful entrepreneurs I've invested in and none of them quit under circumstances that would have made almost any normal person want to quit. They need to be open because they should be dialoguing with their directors or with their investors and using the accumulated knowledge that those people have gotten over the years. That dialog won't work unless they're open and they talk about their problems as well as their successes. I have to like them, I have to like them. I'm going to be spending a lot of time over the next five or six years with this person and if I don't like them today, I'm going to like them less tomorrow.
Only One Startup in More Than 200 Went According to Plan
Sal Daher: In the future, yeah. I've often seen you say, "Yeah, I like them." Shrug your shoulders and say, "I like them." It's amazing, this phenomenon, the plan ... You cannot think of one situation where you actually made money from the plan that was put in front of you initially?
Michael Mark: I might say Progress did that but it's rare, it's rare, it's very rare.
Pivots
Sal Daher: For those not familiar, a pivot is when a startup realizes its original plan is not working and comes up with a new one. It happens so much they gave it a name. Michael, I like to hear about pivots so much that if they had like a pivot channel, I would binge watch like some people binge watch "Game of Thrones" or "Breaking Bad" or something. Go ahead, indulge my fancy about pivots.
Michael Mark: Yes, I'm a fan of pivots although I do wish there was a different word for them, however, my all-time favorite pivot ... I still look back on it with amazement I have to say ... Goes back more than 25 years. I had got involved with some kids out of Brown and a company called Underware. They had a product called Brief that was a pretty well regarded developer's editor and they wanted to license it to a company that sold the software to developers via catalogs. It was a company called Software Developers Corporation, local, on the south side of town. They were looking to help finance that, where Software Developers would actually buy out the software.
Sal Daher: Right.
Michael Mark: It was the only asset of the company, so I helped to finance that and because of that I got involved with Software Developers Corporation. Software Developers Corporation needed a CEO at the time and I happened to make a link to bring in the right CEO and I went on the board of Software Developers Corporation. After a year or two it became obvious to all of us, particularly to the CEO, that this was a really lousy business because margins were very low. If you had a big customer, Microsoft would sell directly to that big customer.
Sal Daher: Right.
Michael Mark: In the early days if you wanted for instance, a C compiler, there might be a half dozen companies that could sell you a C compiler, but the way the market was evolving you only used Microsoft C compiler. It was narrowing down to just a few choices and the margins were ridiculous so we came to the realization that we had to be a manufacturer, we had to provide our own product, and we had to get out of the catalog business. We sold ... There was one other software developer's catalog company in the country. We sold the catalog business to that company.
Sal Daher: Right.
Michael Mark: We refused to give the proceeds back to the venture capitalists and that created a bit of a fight.
Sal Daher: Mm-hmm (affirmative)
Michael Mark: We set up a committee, CEO, myself and another director, to go look at areas that we should, we could consider getting involved in. Decided the right area, after studying a few, was security. Bought some assets from a two-man company in Boston and turned it into an authorization company, a pioneering authorization so that we would control access rights for anybody in your enterprise. What are you allowed to use? What authenticates your right to use these particular assets in a computer system?
Sal Daher: Right.
Michael Mark: We changed the name of the company from Software Developers Corp., which was already a public company, to Netegrity.
Sal Daher: Ah, the punchline.
Michael Mark: Five years later, Netegrity was the top performing stock on the NASDAQ for the previous five years. We had gone down to one primary person, the CEO, plus some admin staff. You couldn't think of a pivot that was a bigger pivot than that.
Sal Daher: Yeah, that is astonishing.
Michael Mark: That was a very good experience.
Sal Daher: Yeah, I remember my brother-in-law Martin raving about Netegrity because I think he was an investor in Netegrity on the public markets.
Michael Mark: Right, right.
Sal Daher: Yeah. Amazing. Some of the other pivots that you and I are familiar with, have been involved with, come to mind. Is there any other pivot that you want to bring up?
Pixability, Another Set of Remarkable Pivots
Michael Mark: A company that I like a lot, I served on the board, I'm still an observer there, is Pixability. I met the founder of Pixability, a woman by the name of Bettina Hein. I can't remember, it was at least six years ago, I'm not exactly sure when. She was starting a company to edit home videos. The assumption was your camera's now take video pictures. You take these pictures, you throw then in a drawer. We'll take that asset, we'll edit it for you with a group we have in the Philippines and for 7 or $800 you'll have a movie for the rest of your life of some of that. A wedding, a Bar Mitzvah, whatever it is. I didn't really like the idea I have to say and didn't invest. She was very tenacious, kept after me. Had a bunch of meetings and six months later, I still didn't like the idea but I said, "This person is going to be successful" and I wrote a check.
Sal Daher: That would have been some time in 2011?
Michael Mark: I think so, I think so.
Sal Daher: Yeah, okay.
Michael Mark: Not long after that, she came to the realization, she had to pivot.
Sal Daher: Right.
Michael Mark: She decided to focus on editing videos in the corporate space for advertising material.
Sal Daher: Mm-hmm (affirmative)
Michael Mark: As a further step, once they had a video, to help promote it. To make sure it was positioned correctly and help promote it. Then not long after that, she came to the realization that a lot of businesses already had nice videos. That the videos existed but they were not very good at promoting them and it was getting more complex to do that than easier, right?
Sal Daher: Right.
Michael Mark: 25, 30 years ago you had a video, you'd put it on one of the local TV channels, maybe after midnight, if whatever. Today there are millions of places where you might think about promoting it. She decided that that was really where the opportunity was and it wasn't with small businesses, it was with the big businesses, the brands. How to promote their videos on Facebook, on YouTube. Where to place them out of the millions and millions of opportunities. She really became a big data company in helping to analyze all this data. She's right now one of the fastest growing companies in New England.
Sal Daher: Absolutely, yeah. I think I invested in the company in 2014 and you brought me into it, you were on the board. I think she had, Bettina had just started on this path of telling the brands where to go and so forth and maybe had been doing that for nine months or something like that at the time. I remember that at one meeting she handed out the "Idiot's Guide to Making a Video" because she had written that and gotten it published when she was in the previous iteration of her business, which is a testament to her tremendous energy and ability to execute. Just an impressive, a very impressive entrepreneur.
Focus & Tenacity
Michael Mark: You asked what skills an entrepreneur should have. Two of the things I mentioned were focus and tenacity.
Sal Daher: Yeah.
Michael Mark: She has those in spades. Someone might say to me, "Well, it looks like a lack of focus" because we tried three or four different things. In fact there were some sub-pivots here, probably adds up to six. My argument against that would be at any given time, when the businesses was editing home movies she was totally focused on that.
Sal Daher: Right.
Michael Mark: She was always evaluating in the back of her mind, "Can I really build the company I want to build with this?" Once she made the decision she couldn't and she should go in this other direction, she then became totally focused on that new direction, so at any given time, she was totally focused.
Sal Daher: Focus but at the same time openness. The tenacity and openness, balance between those two is extremely important. Someone who's tenacious but at the same time is realistic enough to realize if something isn't working despite all your best efforts and so forth, that's not going to work. Then you think about something else and when you do that, you give it your all in that new mode. She is someone who exemplifies that ability to do that and is being rewarded by a very, very successful performance for her company. I know that you and I were, I didn't know you then, but because my brother-in-law Martin is an investor in EXOS, do you want to talk about that pivot?
Exos Pivot
Michael Mark: Well that was a pretty amazing pivot also. EXOS was a company I invested in probably 25 years ago. The founder was a woman who came out of MIT and had studied biomechanics at MIT.
Sal Daher: Completed a PhD there. [Correction: she, Beth Marcus, did her PhD at Imperial College, London, she did her undergrad at MIT]
Michael Mark: I believe so.
Sal Daher: Yeah.
Michael Mark: She impressed me a lot. They had a product for hand surgeons to make the measurements hand surgeons had to take faster and more accurate.
Sal Daher: Right.
Michael Mark: While she was successful at selling to hand surgeons and probably sold 30 or 40 units directly to hand surgeons, what I hadn't realized as an investor, probably because I'd never invested in a company in the medical space, was you could really only be successful if the insurance companies accept the product and as a consequence, doctors make more revenue by giving you the test that this product allows you to make.
Sal Daher: Reimbursements, yeah.
Michael Mark: We never got to that point. Incremental revenue was really what greased the wheel, what would allow this product to be sold to every hand surgeon in the country. We never got to that point and it wasn't for lack of trying. I would say this went on for three years. At the end of the three years ...
Sal Daher: It basically would have been too expensive from what ... Too expensive to go through all the necessary work that had to be done to get the insurance companies to reimburse-
Michael Mark: It wasn't a matter of expense. It was a matter of the insurance companies ... The insurance companies will start out arguing, "We don't want something, a new test to reimburse."
Sal Daher: Right.
Michael Mark: Then you have to prove that you're generating new information ... We weren't necessarily generating new information. We were doing tests the hand surgeons already did but faster, so we were saving the hand surgeon’s time.
Sal Daher: Okay.
Michael Mark: That wasn't something that the insurance company was interested in reimbursing for.
Sal Daher: Interesting.
Michael Mark: If we could make the case to the hand surgeon that we could save you enough time, we could sell to the hand surgeon directly and he'd pay for it out of his pocket but that was a very hard case to make and we made it 30 or 40 times but it was going to be a struggle to grow the company. I had come to the realization that that wasn't going to work and she tried everything. I couldn't think of anything more to try. If she had said, "I'm willing to shut the doors" I would have been, "Hey, you gave it a great try. Thanks, and maybe I'll see you at some other startup someday." She was too tenacious for that. She came to the board meeting and said-
Sal Daher: She being Beth Marcus.
Michael Mark: She being Beth Marcus, founder of this company, saying, "I think I could take some of the technology that went into this device and turn it into a force feedback joy stick." I'm stunned. Not the least reason of which is I never heard of a force feedback joy stick because this really didn't exist back in that day. My first question was, "How much more is this going to cost us?" She gave the right answer, "Nothing." We saw we have enough money left in the bank to do this project. I said, "Be my guest." A year later, she sold the company just because of the technology for the force feedback joy stick to Microsoft, which they then productized and have turned it into a very successful product for Microsoft. It was almost amazing that she was able to recover that money for us.
Sal Daher: Yeah, Beth is another example of incredible tenacity. Any other of these pivots that come to mine?
The Right Kind of CEO For a Startup
Michael Mark: As I said, there are pivots in most companies. This goes to having the right kind of CEO for the company because a CEO who's too focused on execution doesn't pivot. I had a company I was involved with selling into the coupon space. I think it became pretty clear early on that this idea wasn't going to work but the CEO was very focused on execution, on building a bigger sales force, on making sure we called more customers per day and on the things you do to execute in a big company.
Sal Daher: Right, right, right.
Michael Mark: It never worked, right? To me, the moral of that particular situation was it was clear there should have been a pivot and we didn't have a team that thought that way.
Sal Daher: Maybe this is what you referred to earlier. Someone, an executive from a large company, coming to a startup doesn't have that mindset. They just want to refine what's being done already, scale it up and so forth, but they cannot think of a paradigm shift so to speak.
Michael Mark: I've seen that frequently. VCs come in often. They say, "Well, you were a great person to get this company off the ground but now we need a more experienced CEO." Multiple times I've seen that CEO who had great execution skills but the company wasn't yet at the point where they had a business model that could mint money. If there was a major pivot still called for, there were minor changes and it wasn't the right person.
Sal Daher: Right.
Michael Mark: Sometimes, stick with the founder for a lot longer than you thought you could stick with the founder because the initial money in my experience, doesn't go toward getting a company to a multi-million-dollar level. It goes much more to creating that repeatable business model. Once you have that, the company's financeable.
Loop Pay / Samsung Pay & Luck in Entrepreneurship
Sal Daher: Very interesting. I'm curious for example, LoopPay, which became Samsung Pay, did they go through pivots?
Michael Mark: They didn't go through pivots; they just had a miracle happen. This was a company that was in the electronic pay space that had a novel invention, which allowed you to activate a credit card reader without physically coming in contact with a credit card reader. Even if a retailer said, well he didn't take electronic payments, you could activate their card reader with your phone and on his cash register it would say, "Payment accepted."
Sal Daher: The existing card readers could be used for doing electronic payments?
Michael Mark: That's right.
Sal Daher: Instead of with Apple Pay for example, you have to have a dedicated device that's set up for Apple Pay.
Michael Mark: Yes, but in some sense the timing was not perfect for LoopPay because Apple Pay came along and there was a big movement toward Apple Pay. At the same time, the credit card companies said, "Here are chip enabled credit cards. If you don't get the equipment to read chip enabled credit cards, you're going to have to pay more per each transaction."
Sal Daher: Right.
Michael Mark: It looked like the window of opportunity for LoopPay was getting smaller and smaller.
Sal Daher: Right.
Michael Mark: It also looked like there was only one out for LoopPay and that was that Samsung needed an alternative to compete with Apple. They were able to make that deal and so it was a good opportunity.
Sal Daher: Samsung got a technologically superior solution that could use existing equipment. LoopPay investors, a nice exit.
Michael Mark: We got a nice exit and it was ... I think I was only in it for 15 months so it was ... If that exit hadn't have happened, I don't know where they would be today. I think they would be in a lot of trouble because the market is changing so rapidly and the players are the biggest players.
Sal Daher: How did you connect with Will Graylin on that?
Michael Mark: Well, I had invested in a previous company that Will Graylin was in. Will Graylin was introduced to me by a member of Walnut, Frank Ferguson, who had invested in an even previous company that Will had founded. All of these companies had been in the payment space. I thought he was the perfect entrepreneur because he has all the assets I talked about earlier plus he'd had multiple successful companies in the payment space, so he knew this industry inside out. They had this pretty clever idea about how to get into the electronic payment business without requiring a retailer to do anything.
Sal Daher: The lesson there is stellar founder, awesome technology, saved by the skin of its teeth because of an accident in the market. Otherwise it would have been a failure.
“Luck Probably Plays a Role in Every Successful Company. The Entrepreneur Likes to Think It Doesn’t But…”
Michael Mark: Luck probably plays a role in every successful company. The entrepreneur likes to think it doesn't but ...
What Types of Startups Set Boston Apart?
Sal Daher: I know, it's an amazing thing. The Boston area has long been known for startups in biotech, nanotech, as well of course computer hardware and software, the area in which you worked. More recently it has become known as a hub in advertising technology, the Internet of things, education technology, ed tech and even in HR tech, hiring tech. In your mind, what types of startups set Boston apart from Silicon Valley or New York City or Austin or other areas in sort of the startup world?
Michael Mark: I'm surprised you didn't mention pharma. I think pharma ... We are the world capital for pharma startups. I didn't grow up in the biotech market so for the most part, I stick to high tech not Pharm. In high tech, Boston's expertise has primarily been in enterprise software not consumer software. I think it's only natural because as I mentioned earlier, we used to be a hub for computer companies, Digital Equipment, Data General, Prime, Stratus, some very significant computer companies here.
The world is changing and the distinction between consumer products and enterprise products is narrowing and narrowing. I think if companies like Dropbox and Slack, who sell just as well to corporate America as to consumers, exactly the same products. Boston's adopting rapidly I would say to that new world. Many of the companies I see these days are as focused on the consumer side as any company in Silicon Valley.
The Importance of Working Boards
Sal Daher: George Orwell said, "Sometimes the first duty of intelligent men is the restatement of the obvious." The importance of having a functioning board of directors is one of those obvious things that need restating. With the benefit of your vast observation of boards kindly, kindly restate that obvious proposition.
Michael Mark: One of my big concerns these days is that there is often no board. Ten or fifteen years ago, I never saw that. The problem is that in the startup investment space, there's been a big movement from the initial investment being an equity investment to being either convertible notes or safe agreements. I think in that process a lot has been lost because the equity agreement mandates a lot of things. One of the things that the equity agreement mandates is a board. I know that entrepreneurs think a board is just going to be a hassle.
Sal Daher: Very true.
Michael Mark: They need a board for a lot of reasons. They need a board because they're going to run down alleys that we've already been down.
Sal Daher: Right.
Michael Mark: We could help them avoid that. They need a board because we come from the investor space and although they don't think they're going to need more money, they're going to need more money.
Sal Daher: Right.
Michael Mark: We can help to oil the path to get new money. We can tell them what's feasible, what's not feasible. We can make introductions. To me, it almost makes no sense that they wouldn't want a board but I do see this time and time again. My advice to entrepreneurs is if there's someone who has a lot of experience from the investment community who wants to help you by being on a board, create a board and have them on your board because you will not regret it.
Sal Daher: Yeah, yeah. I see that point you've made about you've been there and you've seen these things and they're mundane things that can trip up entrepreneurs that an experienced board member can just tell them, "This is what's going to happen." The entrepreneurs say, "Jeez, yeah, I really hadn't thought of that." It's really excellent.
Michael Mark: We have networks. I'm getting resumes in all the time and I know who likes to invest in this kind of a situation versus that kind of a situation and it's free.
Sal Daher: Michael Mark. I thank you profusely for participating and helping make this great inaugural podcast. I'd like to invite our listeners who enjoyed this podcast to review it on iTunes. I'm Sal Daher; this is Angel Invest Boston, conversations with Boston's most interesting angels and founders.
Michael Mark: Thank you Sal for having me today.
Sal Daher: Michael, it's a delight. Really a delight.