More secrets for founders raising money. Angel investor Sal Daher has suggestions to make your raise less painful.
Click here for episode transcript
Highlights include:
Sal’s Intro – New Fundraising Secret at the End
Sal Daher’s Opening Statement on Funding for Startups
Angels vs. VCs
Walnut Ventures & MIT Angels
Angel Groups in Boston
Super Angel Joe Caruso and His Pet Peeve about Pitch Decks
“…if you got it flaunt it.”
“What I look for, my goal is a platform technology. Technology that's widely applicable and can be developed for peanuts.”
The Most Compelling Pitch Sal Daher Ever Heard
“…there's a danger that if you're raising, you're not building your company…”
“Get a co-founder. The most robust result in the study of entrepreneurship is that more co-founders, better.”
“The biggest reason why startups fail, people give up.”
“With a VC, it's if you happen to fit the template, they need you. They need you so bad…”
“People are wired to listen to narratives. They're not wired to listen to strategic presentations, unless you're born to McKinsey consultants.”
“Do not have busy graphics.”
The Importance of Commitment
“An extremely important quality is to be a coachable person, to be a person who learns, okay?”
Stephen Hawking vs. Wily Loman
“Perish the thought of having co-CEOs, all right?”
“The way to get into Techstars is not to apply on the website.”
“Let me get on my tirade against cold calling. Don't cold call, okay? It is just a waste of time for everybody…”
“Do you think you're going to send a mass email and get friends? You're going to have a very sad social life if that's your approach.”
“This is a really important point. Other founders could be a tremendous resource, because you can cry on their shoulders, okay?”
One Last Fundraising Secret
Transcript of More Secrets of Fundraising with Sal Daher
Sal’s Intro – New Fundraising Secret at the End
SAL DAHER: Hi, welcome to Angel Invest Boston. I'm Sal Daher, an angel investor who delights in the technology startups that are so prevalent here, because of this amazing concentration of universities. No other place in the world quite like it. Something that I do on this podcast is that I'm a very curious kind of guy. I like to pick peoples' brains, so I get to talk to some amazing founders, some really highly experienced investors. People who have built companies, people who've invested in companies over decades and I learn tons from them, and it's your chance to learn a lot about them. And the reason that I do that is because I actually invest in these companies and I help build them.
My focus right now is life science companies and I'm involved with a few that are really, really promising, but anyway, let me just give you an idea of the kind of companies that I've invested in early on. SQZ Biotech, S-Q-Z Biotech. You can do some homework. You can look them up. Fine Tune Learning, Squadle, Akili Interactive. This is a cool one. Video games that treat ADHD, that has an interim approval from the FDA. Vedanta Biosciences. Look them up. Gelesis, Inc., for chubsters like me. A very, very promising treatment that's approved by the FDA for obesity.
Well, these are not investable right now, but there are other companies that I'm involved with right now, that people on my syndicate list get to invest in, so I invite you, go to angelinvestboston.com and add your name to my syndicate list, and one of these extremely promising companies I'll contact you. I'm not going to barrage you with all sorts of stuff like some people do. It's when something that I really believe in, something that I'm putting my money into significantly, I'll let you know.
Anyway, about today's podcast, the guest is actually me. I was interviewed by a gentleman named Jason Kraus of Prepare 4VC, a company here in Boston, at an event called Startup Grind Boston. Put together by Jason Kraus and Yev Ioffe, and this is an event that was held when we still met face to face back in February of 2020, at a place called Idea Space on Boylston Street. Anyway, I hope you enjoy this really wonderful interview. It's called More Secrets of Fundraising. By the way, if you stick around at the end, I'm going to tell you another secret about fundraising that I have not divulged in any, any of my podcasts. See you around at the end of this episode.
Jason Kraus Introduces Startup Grind
JASON KRAUS: Thanks everyone, for coming out to our Startup Grind event here tonight. We have a gracious host at Idea Space, the space you guys are in right now. It's a coworking space here in Back Bay, Boston and they let us use the space for the event, so definitely talk to them if you're looking for new office space. And our partners at Khross are taking photos and videos of the event here tonight, so we'll have some footage afterwards that we can look back on.
To give a quick overview of Startup Grind, it's the networking group and community for startups around the world, entrepreneurs in various cities. It started out in Silicon Valley 10 years ago. We just had our global conference last week, so I went out there. There were 8,000 attendees and 300 startups represented out there. Now, there's 500 of these chapters around the world that do meetups and networking events like this, and bring in different speakers that give insights into local startup communities, founders, investors, other people that work in the startup space and share their perspective.
Glad all of you guys could come out here tonight and really excited to have Sal Daher share his insights into the secrets of fundraising tonight, so if you could give a quick introduction, and we're going to keep it pretty conversational. Fireside chat, and then open up to questions from the audience.
Sal Daher’s Opening Statement on Funding for Startups
SAL DAHER: I'd like to talk about a few topics, and as I address the topics feel free to interrupt and ask questions about that, if it causes something to go off in your head. I wrote my first check for a startup back in 1992, and by unbelievable luck, was a very successful exit to Microsoft about four years later, and I started getting the idea that investing in startups was a pretty easy thing to do.
I was working full-time at that time and I didn't get very involved, and I invested in a few more startups, until around 2010. Somebody told me, a brother-in-law of mine, who's actually the guy who got me that first great investment, "There's a group here in Boston. There are these angel groups," and I had no idea there were angel groups. I had no idea that people got together and spent all their time evaluating interesting investments, and it was like, "Dawn over at Marblehead," a journalist from Marblehead. I was like, "Duh!"
I'm doing this alone. There are people who do this full-time. You can share the burden of finding out about companies, screening them, and once you're invested they can help you support the companies. Angel investing is a little bit of money and a lot of help, so that's the important thing.
Angels vs. VCs
JASON KRAUS: Sounds good. Just to set the stage here, what is angel investing and how does it differ from venture capital?
SAL DAHER: An angel investor and a venture capitalist are very different beasts. Very different. A venture capitalist is typically an employee or maybe a partner of a firm that has raised money from very rich people or from very deep pocketed enterprises like universities and so forth, institutional investors, and those are the limited partners, so the general partners in the firm are responsible to make money for the limited partners and the limited partners tell them, "This is what I want you to invest in."
They have a mandate. They have a template of the kind of company they're looking for, so VCs are not like freewheeling, crazy angel investors. VCs are very buttoned down. They may talk a big game, they're doing early this, early that. Take that with a grain of salt. VCs are institutional. It's an institution. They're using other peoples' money. They're responsible to other people. They cannot let their hair down and do crazy things, because it's not their money.
Another thing that's important is they have full-time staff, and the full-time staff, their job is to talk to you. They will talk you to death before telling you that you're not a fit for them, because it helps them understand your industry more. It helps them know the trends and all that stuff. When you're talking to VCs you've got to be very purposeful about why you're talking to them and how you deal with them. Very different beasts.
Now, angel investors, totally different. Angel investors is an extremely heterogeneous group compared to VCs. All kinds of people become angel investors. Guys who had a pizzeria or a restaurant. I know a guy who's got a great restaurant in Waltham. Charcoal Guido's, the owner's an angel investor. He's also a technology guy, or maybe it's a founder who sold a company, or somebody who, I had success in the bond market and I have money to invest, and so those people who are investing their own money and they're responsible to themselves, their family. That's it, so very different.
VCs, if you fit their profile, they have to invest in you. If you don't fit their profile forget about it. They'll never in a month of Sundays invest in you. Now, angel, it may not be the area they invest in. If they happen to like you they'll write you a check and they'll help you, so angel investors it's all about a relationship. Establishing a relationship with the angel. VCs, not at all like that. I don't know if I'm going on too long, but-
JASON KRAUS: No, that's great.
SAL DAHER: This is something I'm very passionate about, the distinction between those two.
JASON KRAUS: That was great, so you're involved in both Walnut Ventures and the MIT Angels.
Walnut Ventures & MIT Angels
SAL DAHER: Walnut Ventures is an angel group-
JASON KRAUS: Right, yes, it's an angel-
SAL DAHER: And MIT Angels is also, and I'm involved with VCs, because there's always the hope that one of my companies will get funded by VCs, so I've talked to VCs a lot. As a matter of fact, I've had at least one, a couple of VCs on the podcast. I'm about to interview Russ Wilcox of Pillar VC, who's really a very, very thoughtful VC.
JASON KRAUS: How'd the angel groups come together? How did these individual investors come together?
SAL DAHER: I can tell you the story of Walnut Venture Associates. There's a guy named Ralph Wagner and he was an early representative of Apple. He had an Apple store, he sold Apple computers to businesses, and he had a company that he invested in and he sold, and so forth. And he was a little bit retired, and he had an office on Walnut Street in Wellesley. And he got together with some of his buddies, and they would meet in their conference room and look at companies that they might invest in.
In the early era of technology, so Walnut Street became Walnut Ventures, and eventually they migrated over to Babson College and they meet Babson. And Ralph is still around. He's in his 90s, but he's still ... I wouldn't be surprised if he writes a check, if he likes you. It's just a fun thing, and we have new members. The average age is probably 67, but we have a lot of members who are significantly younger that. Do you know Erik Bullen?
JASON KRAUS: Yeah, I do.
SAL DAHER: Okay. Erik's a member. A bunch of people like Phillip Lachman. He's a young guy, still I think in his 30s.
JASON KRAUS: Right, so you have this group of individual investors come together for meetings, review different startups. Is there a selection group?
SAL DAHER: Walnut is one of several excellent angel groups in Boston and they're all a little different. MIT Angels, on the other hand, is very associated with MIT companies and so forth. Let's talk about Walnut, the process of Walnut, and this is important. You should figure out the process. If you want to get angel investors, you should figure out the process at that particular group.
At Walnut, the way it works is every month ... We have 10 meetings a year. We don't have a meeting in August and we don't usually have either a December or January meeting. We just get together for a big dinner. The rest of the time we have 10 meetings and there's a chair for every month, or two chairs, and those are the people who are in charge of meeting with the companies that are being screened to present at the upcoming meeting.
And usually there are four companies that pitch, and so if there are four companies that are interesting they'll arrange for them to pitch. And so it's you're screened first. Then you go and you do a pitch. You have half an hour. 10 minutes to do your pitch and 20 minutes for Q&A, and then after that you either might get a follow-up meeting for doing due diligence or not. Now, how to get in front of the screening, this is where networking comes in.
JASON KRAUS: Right, so when you're in all these groups and just on your own, being on the podcast and just investing in all these companies, you must have seen a lot of pitches come through, a lot of pitch decks, a lot of-
SAL DAHER: Yeah, I see thousands of pitch decks every year.
JASON KRAUS: Right, so I guess when you're reviewing all the pitch decks-
Angel Groups in Boston
SAL DAHER: Let me just ask a question. Who in this audience is doing a startup that involves building software? Okay. Who in the startup is doing a startup that involves some kind of biotechnology or life science? Okay. Very different worlds. The software people have it way easier. There are a lot of software people here in Boston. Walnut is full of people who do software, so it's a good place to go if you want to do a software startup. They've funded a lot of marketing technology software. They've funded ezCater, for example, but there are many groups in Boston. You should look them up.
Another excellent group is LaunchPad. LaunchPad invest later, but they're very serious, very professional. Boston Harbor, TiE Angels Boston and so forth, so if you're raising, if you're doing something in the life sciences, look at Mass Medical Angels. Do a market study and understand who are the possible angels that you could address.
Now, most of these angel groups, once you have that due diligence meeting, you're on your own. You have to herd the cats, if you heard of that expression, right? You have to call up each person, a few groups like Keiretsu and so forth. They have a vehicle that invests together and so forth, but most groups don't do that. You get pitch, you get the follow-up meeting. Then you've got to chase the cats. Herd the cats, until they write your checks.
JASON KRAUS: And then I guess when you're hearing these pitches some of them stand out and excite you more than others. What do you think it is about one company?
Super Angel Joe Caruso and His Pet Peeve about Pitch Decks
SAL DAHER: The reason I have a podcast, I was telling this just over here. The reason I have a podcast is that I learn so damn much from talking to these people who are so smart and the things they say stick with me, and there's a guy named Joe Caruso. He's one of the best angel investors in Boston. If you were talking to Joe Caruso, pay a lot of attention and see if you can get him on your side. He's this awesome angel investor who has unbelievable experience. He'll go to bat for you like crazy, okay?
Great guy, and Joe Caruso, one of the things he says is that the biggest problem that people have with their pitch is that they pitch at an angel group, right? You've got 10 minutes to pitch, and then you've got 20 minutes for questions or maybe 15 minutes for questions, and then five minutes leave the room and the people in the room decide if they're going to do a follow-up with you. And the last thing in the world you want is one guy says, "Oh, this is what they do," and then this woman on the other side goes, "No, they do this."
Should not have an argument about what you do. What you do should be glaringly obvious. You have to frame the business you're in, explain in simple terms. Remember, these are intelligent people, but they're intelligent people who might be in their 60s. They might not be familiar with the latest jargon in your field, so KISS, keep it simple stupid. 12 pages, three points per slide, and make sure that you frame what you're saying in a way that it's impossible for them to have that conversation. They all know what it's about. The conversation is I know somebody who's working on this technology and it's difficult.
That's the kind of conversation you want to have, because that's where you have a chance of getting your foot in the door, all right? The most important thing about the pitch decks, and the other thing about pitch decks I'll say, practice, practice, practice, practice, okay? Not just in front of a mirror, or your mom, or your dog, or whatever, okay? Practice in front of angel groups.
There are groups who have pitch competitions. Babson. If you're associated with the universities around here, Northeastern. All these places, they have pitch competitions. Get in the pitch competitions and these kindhearted souls… the Capital Network has workshops, lots of free resources, very cheap resources, and they have kind people who sit there and ask you questions about your pitch deck and so on. And believe me, you get better, okay? You get better at it.
JASON KRAUS: Yeah, so obviously not practicing and not having a clear pitch of what you're actually doing definitely sets a bad tone, but what else should people avoid in their presentation when they're pitching to an investor?
“…if you got it flaunt it.”
SAL DAHER: One thing that frequently happens, you've got somebody who's the world's expert. Lincoln Lab on this particular technology and they only put that in the end of the pitch deck, so if you got it flaunt it. If you don't got it don't flaunt it, but if you got it, and my old business partner used to say, "Fake it before you make it kiddo," but no. Candor is really important. If you're a PhD in a field, if you've gotten some medal or something, some prize, put that in front, who you are, particularly in the sciences.
You've got to tell people what lab you're from. If you're from the Langer Lab or you're from the gazillion labs here that are very famous, you put that in front. Founders are so and so for this lab, that lab. Brigham and Women's Harvard Medical School upfront. People leave that at the back. Sometimes you don't even see it. If you don't strut your stuff nobody else will, because they don't know. If you had a claque in the back, they're saying, "Go professor, go." You don't have to do that. You don't.
JASON KRAUS: Right, so do you think the same things excite you in each pitch? You're always looking for the perfect product or team, or other combinations, or it's just-
“What I look for, my goal is a platform technology. Technology that's widely applicable and can be developed for peanuts.”
SAL DAHER: What I look for, my goal is a platform technology. Technology that's widely applicable and can be developed for peanuts. That's my dream, and then somebody will see it and say this is incredibly valuable. I want to license the technology, because the technology is defensible, has patents behind it. That's why I prefer to do biotech, and it can be developed with peanuts, okay?
I happen to have peanuts in my pockets, because I don't invest much more than peanuts. The biggest check I've ever written is $50,000. I will not write more than a $50,000 check at a time to an early stage ... This is very early, because I'm not crazy. I know people who write bigger checks than that, but they need to have their heads examined, or their wives don't know about it, or their husbands don't know about it. That's what I look for, but frequently you don't get that. It's usually a gray area.
The Most Compelling Pitch Sal Daher Ever Heard
You've got to make a judgment, but I can tell you the most compelling pitch that I ever saw was a cardiologist from Beth Israel, who it was like a story, was almost like a mystery. What if I told you that I have a platform that has the kind of engagement that Facebook gets? This is a time when Facebook didn't have a monetization strategy. Little did we know, right?
I have a way to monetize this thing, okay? And it's you're listening to this, you're salivating. It's like the holy grail, and then the physician tells you, he's a cardiologist, he's a smart guy. It's not an idiot telling you, so it was basically crowdsourcing support for people in their healthy behaviors. Taking pictures, and people got freebies for evaluating peoples' dish of quinoa salad or whatever. That kind of stuff.
The sad thing though, is it left us with this taste in our mouth, and then the guy wasn't investable. He just funded the whole thing himself, because he had enough money to do it and it was just taking off. Some of the best companies never get funded from outside, because they managed to get off the ground. Your job is to make your company grow so fast that you don't even need outside money, because then you're going to own the whole thing and you're going to be so rich, and then you're going to give it to charity and you're going to be an angel investor.
JASON KRAUS: When does it make sense for a startup to seek angel investment?
SAL DAHER: When that money is really going to make a difference. When you're like, "Gosh, if we had this money, we could really get this thing off the ground," okay? In the biotech space, means you need a lab. Okay, so you need that. You need that money. Now, you can get your lab space. There’re little baby steps being taken in that direction. I'm making life easier for biotech startups.
JASON KRAUS: Yeah, it's different, I guess different industries too. It's one thing if you're some tech platforms, you can bootstrap a little bit further than a medical device-
“…there's a danger that if you're raising, you're not building your company…”
SAL DAHER: Bootstrap as much as you can, because there's an important thing to think about with fundraising, okay? It's not just why you're raising, but there's a danger that if you're raising you're not building your company, and if you're not building your company you're sliding, and the best dollars you can get is from sales. If you can figure out a way to get people to pay for your product it's so much better. It doesn't work for biotech. Biotech is a totally different game, so reasons for raising is you have to really ask yourself can I just bootstrap it and develop this thing? Iterate, iterate, iterate, and then when I raise money it's just to, even develop one vertical with bootstrapping.
It's a vertical that you really understand, and then you go to angels and say, "Look, this is the economics. It cost me so much to acquire a customer. The lifetime value is 15 times the original cost of acquisition. The cost of acquisition is going down, because we're figuring out ways to get," and then people are going to be chasing you, but if you're somebody who doesn't, you've got an idea. You've got a pig in a poke and you're trying to get after investors, you're going to waste a lot of time. Someone else will eat your lunch.
JASON KRAUS: Makes sense.
Audience: Is it safe to say that getting an investor or getting funding is not the holy grail? You still have to run-
SAL DAHER: It's a tool.
Audience: Product.
SAL DAHER: It's a tool.
Audience: I work with people, there are many brilliant people and a lot of them are in this room. Some of them don't have, have not run a business.
“Get a co-founder. The most robust result in the study of entrepreneurship is that more co-founders, better.”
SAL DAHER: Get a co-founder. The most robust result in the study of entrepreneurship is that more co-founders, better. This I've heard from Ed Roberts. I've interviewed him on the podcast, and then I interviewed the guy who did a PhD under him, who's the entrepreneurship professor at Stanford, Chuck Eesley, and they both agree. This is the most robust result. You want a co-founder who complements your skills. You're a technical person, get a businessperson. You're a businessperson, get the technical person.
Make sure you can work with that person. You've got common values, you've got common goals and you can live with that person, because if you can't get along with your founder, as my old business partner used to say, the day you get a partner is the night you don't sleep. He says, "Not with you Sal. Not with you," but it's true. You get the wrong business partner it's like hell. It's like in a marriage. You get the wrong spouse it's hell, but you get the right spouse it's heaven. Please.
Audience: I'm vetting a co-founder right now. Is there a certain amount of time that you think is a good amount of vetting time? Working full-time with them, is there-
SAL DAHER: That is so subjective. It depends on your feel, it depends on how well you read people, but I can tell you, I can give you an example. My podcast, my interviews, I refer to my interviews like case studies, but I interviewed a founder named Nell Meosky Luo, and she has a startup called Folia Health.
What they do is they capture information from people who have chronic diseases, really terrible and the patients have to be going to the doctor all the time, so they allow them to capture events that happen in the lives of the patients and the doctors never see, and then they could report it to the doctors. And her co-founder was somebody who had a child that had problems like that.
Had the same, and the reason she's doing the startup is that one of her siblings has one of these diseases, that it has to be managed overtime and a lot of doctors’ visits, and so forth, and she found someone else that has something in common with her, but brings a different set of skills. Dan Toffling is the co-founder that she found.
Another example of somebody that I've interviewed who had a co-founder is Ed Goluch, who is a professor at Northeastern, in the biotech space, and he brought in another PhD person to help develop his business, and just from ads, and they hit it off tremendously. So it can happen, but get people to help you.
Crowdsource the vetting. Talk to people who know the person. Have people who know them talk to your friends, and see what kind of person, and friends often can tell you a lot more about who you get along with than you might guess.
Audience: Two questions. First, would you only investigate people that work in a startup full-time?
“The biggest reason why startups fail, people give up.”
SAL DAHER: Well, it all depends. If people like you so much they might decide, "We love this kid. Let's get them full-time on a startup." That can happen. It's like romance. It can happen, but don't count on that, okay? Because if you're not full-time, if there's at least one person who's full-time, there's a risk. The biggest reason why startups fail, people give up. It's that simple, because there's always a way you can bootstrap things, there's always a pivot you can do. You can do it at night and so forth. Do it part-time.
You're not going to get funding, but then you can bootstrap if you're working, and you bootstrap it until you build it. You get it really off the ground, but the thing is commitment, because it is the most miserable thing. It is completely counterintuitive. I regard entrepreneurs as absolute heroes. That they do an unbelievably hard thing, because I don't do it. I'm an investor. I hedge my risk. I've got 55 companies on portfolio. I'm not taking single company risk.
Audience: The second question, at what investment size does it become appropriate to pay yourself a minimum salary, founding salary?
SAL DAHER: Well, I would say disclose it to your investors and see if they're okay with it, okay? If it's just very early, friends and family around, that's one thing. You might not want to do that. If you manage to raise a little bit more money than that you can pay yourself for some time, but invariably what happens is that you end up stop paying yourself, because you've run out of money, because you always need more money than you think, so people do pay themselves and I think it's a good discipline. They should not be paying themselves exorbitant salaries. They should be paying themselves significantly less than what they'd be earning in the real world, but you've got to pay your rent, so forth.
Audience: Pitching is a sales process.
SAL DAHER: Right.
Audience: Sales process, always want to know what the customer is interested in finding out, and when entrepreneurs are coached to pitch they're always taught state what the problem is, how big the problem is, your solution, your team, et cetera, but I don't think that's what investors want to hear, so could you give from the investor point of view what you'd like to see and in what order?
SAL DAHER: Do you have a theory as to what investors want to hear? If you don't think it is-
Audience: My theory is that investors have only three questions. How much money do you need now, how long do you need it, and how much do I get back?
SAL DAHER: Let's talk about investors of different types. There are horses for courses. VCs, they have a template, okay? And they're going to look at you. Reality check. What percentage of angel-funded companies get VC funding? How many percent? 10% I hear.
Audience: 10.
SAL DAHER: Who else can? Five? 8%. Okay. Biotech, 4% to 5%, okay? So that tells you something. Odds of getting VC funding not very high, and this is after you've gotten angel funding. And it may be the case that if you get angel funding you have to stay in the angel track, or you have to become cashflow positive and get off the ground without VC money, because VCs, I told you, it's darn hard to get VC money. You don't fit that template they don't want to know you. VCs are very buttoned down.
Angels are easygoing. People with worn shoes and sometimes no socks, but they have money and they're easygoing, but VCs are not. They have staff, and the worst thing in the world, they have to report to other people. It's other peoples' money. When I write a check it's like yeah, so I don't buy a car. I don't do this. Not that I have a fancy car, but it's that's a kind of trade off that's going on in my mind.
“With a VC, it's if you happen to fit the template, they need you. They need you so bad…”
With a VC, it's if you happen to fit the template, they need you. They need you so bad, because if they don't get you the next guy's going to get you and they're going to get ... They're not going to fit their mandate and they're not going to get the return. It's if you happen to fit that profile you're golden, but if you don't SOL. You're SOL, so getting back to your question.
Now, angels, they want to create romance. You have to tell a story. You have a startup hoping to help women. I would say the best way for you to pitch is to go through your experience that caused you to think there's a pain point there, and to explain that, and to explain to them why you're so passionate about the mission that you're on, okay? And that gets people interested.
These cold things, I work in this industry, there's a percent ... Romance. You've got to do romance, okay? You're not talking to VCs. Angels are not VCs. They're people who have had success in life and they're people who they make calculations. They want to know, they want to make money, but they also want to help. They're mostly very nice. There are a few angels that are jerks, but the great majority of them are really helpful people that'll go out of their way to give you their umbrella when it's raining.
Really, I've met some really wonderful people who are angel visitors, and like Joe Caruso. You get Joe Caruso on your team. You're lucky, so tell a story and save all this fancy stuff for the VCs. Please?
Audience: What's more important for the angel investor, the story or the making money part?
“People are wired to listen to narratives. They're not wired to listen to strategic presentations, unless you're born to McKinsey consultants.”
SAL DAHER: Well, it has to be a story that has a golden pot at the end. It can't be just a story, there are lots of unicorns and there's marshmallows. It's got to make sense. You've got to say your mission is this, and guess what? This pain point is very strongly felt by a lot of women, and I have a lot of experience in my work and I think I know that a lot of women will subscribe to this service, or there will be someone else who'll pay for this. You have to make the story have an economic punchline, an economic climax of the story, but it has to start with a story. It's a narrative. People are wired to listen to narratives. They're not wired to listen to strategic presentations, unless you're born to McKinsey consultants.
JASON KRAUS: All right. Becomes part of the story, somewhere in the middle you get investment from the investor and the company grows to the next level.
SAL DAHER: Yeah. Like this cardiologist. His thing, he's telling you a story here. He's asking you, it's a mystery. What is this mystery company that this guy has, that can do these magical things? And this is not some fool in the street talking. This is a serious guy and he's telling you these things, so you pay attention, so tell people a story. We're wired to listen stories. We're not wired to look at exhibits.
“Do not have busy graphics.”
Really minimize exhibits. Do not have busy graphics. This arrow going here, and then I'm going to do this, I'm going to do that. Simplify, even oversimplify your pitch deck, because, otherwise, you're going to be in the Joe Caruso trap. When everybody, you leave the room and they're all like, "So what do they do? I don't know. What do they do?"
JASON KRAUS: How important ... Obviously the founder story and their connection to the business is important. How important is your relationship to the story? Some companies you might have the same pain point that they're solving, or have been part of the industry. Other ones you might not.
SAL DAHER: A guy that I interviewed; he runs a co-working space here in Boston. His name is Christian Magel. He's a very successful entrepreneur. He's had several major, major exits. He's a very wealthy man, and he does this because he loves it. His first IPO was just a beginner rodeo. It was a disaster. It was a company called Let's Buy. It was a Swedish company and they did an IPO in the German market, in the German small stock market.
The Importance of Commitment
It was a disaster, because the company was built with the idea that they were going to do an IPO and they're going to make a lot of money, and they didn't really have a motivation for doing it. It's not like I'm building this company, because I've got this ... I can't help it, but I've got to get this thing out. I'm an investor in a company called Savran Technologies.
It's an amazing system for capturing extremely rare cells. I've interviewed the founder in an interview called One Cell in a Billion, because it is 100 times better at capturing extremely rare cells than anything out there, and this guy lives, breathes. He's a professor at Purdue. That's all he thinks about. Neglecting his delightful family. He's obsessed with getting this technology off the ground, okay?
JASON KRAUS: Right.
SAL DAHER: It's not money. It's just he developed this thing and he sees what it can do. It could do something in cancer diagnostics, it could make it unbelievably easier for women to just check on the health of a fetus with just a blood draw. You don't have to do amniocentesis because most of the genetic tests that are easy, just a blood drop, they'll tell you a lot. There are a lot of problems that they don't pick up and there's a gazillion applications this thing can do, so this guy is super motivated. And this is not a founder who's going to give up and say, "Too bad. I'm going to make money, do something else."
If you want to make money go work for Google, go work for Microsoft, Apple. If you're a physician go build your practice. Become a plastic surgeon or something. You can make a lot of money doing that. Go to Florida, became a plastic surgeon down in Florida. I know some, but if you want to build something, if the reason you're doing this is you're sacrificing, because you've got to do this.
I see, I was talking to Yev before. He's Russian, and Semyon Dukach is also Russian. Semyon says, I've interviewed Semyon on the podcast and he says, "People come and ask me, 'Should I start the company?'" He says, "Look, if you're really an entrepreneur you can't help but start the company. You're going to do it. It doesn't matter. It's like a disease."
JASON KRAUS: Right. That's great advice. There are certain characteristics we went over. You need to see somebody that's really passionate about it. Somebody that's not going to quit the company, and also can lead the business through that story.
“An extremely important quality is to be a coachable person, to be a person who learns, okay?”
SAL DAHER: It's technically capable. An extremely important quality is to be a coachable person, to be a person who learns, okay?
JASON KRAUS: Right.
Stephen Hawking vs. Wily Loman
SAL DAHER: And your angels and your advisors can help you with conventional stuff, because if you're a founder at a startup you are doing something totally new and nobody can tell you what business you should be doing, but angels and advisors, they can keep you from tripping on your shoelaces. Obvious stuff, and they can also get you thinking a little longer term. Tell you, you should be thinking about a board, you should be thinking about this and that, and help you connect with the right people and that sort of thing. I just wanted to come back here, this gentleman mentioned fundraising and that you have to have, it's a sales process. Who here knows Stephen Hawking? Okay, right? Brilliant physicist. Passed away last year. I'm sorry?
Audience: Don't know him-
SAL DAHER: No, who he is. I don't know him personally either, but know who he is. Stephen Hawking, right? Who here knows who Willy Loman was? Okay. Bill knows.
Audience: Also, Willy.
SAL DAHER: Willy Loman, Death of a Salesman. He was a mediocre salesman at the end of the line. He just couldn't make it, and in the end he killed himself for insurance, spoiler alert. Killed himself for insurance policy, help out his family. He was a mediocre salesperson. Stephen Hawking is the most brilliant physicist. Now, if Stephen Hawking or Willy Loman was raising money, who do you think I'd put money on?
JASON KRAUS: If Stephen Hawking was alive.
Sal Daher: Yes, if Stephen Hawking was alive, okay? And Willy Loman were alive. They're both gone, okay?
JASON KRAUS: Brad.
SAL DAHER: Who would you put money on?
JASON KRAUS: Stephen.
SAL DAHER: Stephen Hawking? I would put it on Willy Loman, because he's not brilliant. The guy is far from brilliant. He's not even the top of his profession. Stephen Hawking was at the top of his profession, but he had a tick sheet. A tick sheet is a list of the people he's got to go see and he ticked it off. Very basic stuff in sales.
If you have that and you're just a mediocre salesman, you'll run rings around the brilliant guy who can't remember who he talked to, who's doing it on a spreadsheet. Get a CRM, build a sales process, and this is for biotech founders goes double, okay? You have to have a process, and that process is not just because it produces more results. It's because it insulates you from rejection, because if you're biotech, you're a scientific founder, you are used to the approbation of your peers in publishing papers, okay?
And then you're going to get a lot of investors who don't have half your IQ telling you that your thing's not going to work, and it's going to be very, very upsetting. So having a sales process allows you to just say, "No problem." I have that person, is not on right now. That person said no for now. No is always for now, okay? With angels a no is just for now.
VCs, forget about it, unless they tell you come back in two years. VCs say no forget about it, but an angel is no for now, because maybe the kid needs braces or something. The next month they might write you some check. That process, that sales process. Knowing that you had that pick sheet. Somebody slams the door, Willy Loman's going to go on to the next one. Stephen Hawking would have a meltdown.
"What? I'm the most brilliant physicist in the world. How dare you? You fool. You don't know what I'm talking about." What you're talking about, so that's why I would bet on Willy Loman, and so learn from the humble salesman. The brilliant scientific genius has to learn sales from the humble salesman, because a little bit of salesmanship will go a long way.
JASON KRAUS: If you have two co-founders, one's really great at the technical side, one's sales, business, who do you want to pitch you in the presentation?
“Perish the thought of having co-CEOs, all right?”
SAL DAHER: Have the person who pitches best, could explain the business, and never, okay? Perish the thought of having co-CEOs, all right? It's like two part-time co CEOs. You need a third one for a trifecta of how not to get, raise money. You've got to decide who's the CEO. You've got to make that decision. A CEO is a person who's responsible for everything, for keeping ... Primary obligation of a CEO is to keep the company funded, so that's a person on whom that responsibility rests.
JASON KRAUS: Yeah, so you touch on some of the stories from your podcast.
SAL DAHER: Angel Invest Boston. Just google that. It doesn't matter if it's an old episode. Like the first episode is a tremendous episode. My mentor in angel investing, this guy's invested in 300 companies. He's founded a bunch of companies. He put together a management team of one of the hottest companies in the NASDAQ, in the '90s. Anyway, so ...
JASON KRAUS: Yeah, so any ones you think early stage founders should really make sure they listen to, some of the podcasts or connect with certain people you've interviewed and learn from them?
SAL DAHER: Yeah. We're about to revamp our website, because right now the website is a long list of podcasts and we're going to redo it when we get to the 100th episode on topics, so if you want to go there and look, raising money, look at focus, how do I get focus? A gazillion things. It's going to be the podcast for that, okay? If you're an angel investor and you're starting out, I refer you to episode number three, Ben Littauer, because it's very useful for that.
JASON KRAUS: A few more questions.
SAL DAHER: Yes, please. You had your hand up first, and you've asked ... Go ahead, please.
Audience: What questions should founders be asking of investors, whether angels or VCs, to help them efficiently narrow the people they talk to? Examples I think of what sized check do you write? Do you invest in B2C or just B2B? Do you invest in [inaudible 00:41:01]?
SAL DAHER: You have to do that homework first, and there are tools for that, okay? Pick a company that's similar to you. Go google search and see who funded them. People on your space, okay? And then look at the VCs, if you want to go that route, and then look at the portfolios, because they all have a listing of the companies, portfolio companies, so if you go through all the different VCs you can just get a listing of the companies that are similar to you.
Angel groups are a little bit more complicated, but they also list the companies they've invested in, and I can tell you like Walnut is very much software, okay? Mass Medical Angels is much more medical stuff, so you do a little bit of homework on the website and look at the kind of companies they've invested in, and then try to find somebody ... Let me tell you, give you a hint.
“The way to get into Techstars is not to apply on the website.”
The best way, and this goes, if you're a startup trying to get into Techstars. We haven't talked about accelerators, so trying to get into Techstars, okay? The way to get into Techstars is not to apply on the website. I have this from lots of people who have been there, from the people who are running Techstars. You have to get a personal connection. People are like, "I don't know anybody." No, that's what LinkedIn is for.
LinkedIn is an excellent tool for you to figure out who you know who knows somebody, who knows somebody who's been in Techstars, who can introduce you to Clem Cazalot here, okay? Put a personal word and say this person is super hardworking. I worked with them at this place, they're tremendous and I think they'd really benefit from Techstars, because if a Techstars alumnus refers you that means that person really knows that you can benefit, because they understand what value you get.
Let me tell you, Techstars is a thing to apply for, if it's a fit for them, because that is one heck of a ... It catapults you into a different situation. So many ... I've never heard a company say any, a startup say anything about Techstars, so does that answer your question? Sir?
Audience: [inaudible 00:43:14] when we want to scale, which is the best option to go for, angel investors or VC?
SAL DAHER: Well, are you in a field where the VC is fit? You're in the VC's template. Remember the template of the VCs? The VCs have a template in their desk, okay? You should go to the websites of the VCs and look, and see if there's anybody who'd invest in your space. If you happen to be in an area that's really, really hot for the VCs, okay? Chances are you're not, because remember this. It's like 8%. If you're in a life sciences it's 4%, 5%. That means angels. Angels are ... Aim for a variety of angels. You might find angels who are in your space, who have sympathy for the particular ailment that you're addressing or something like that. Family offices, if you happen to be ... There are so many possibilities that are not professional investors. VCs are very, they're buttoned down, over the template. Anyway.
JASON KRAUS: Yeah, so then people that have done their homework on you come out to the event, listen to your podcast, looked up Walnut and the MIT Group and still think they're a good fit. What's the best way to either get in touch with you or get through the Walnut Venture Group?
“Let me get on my tirade against cold calling. Don't cold call, okay? It is just a waste of time for everybody…”
SAL DAHER: Let me get on my tirade against cold calling. Don't cold call, okay? It is just a waste of time for everybody, because you think, "I'm going to scale. I'm going to do this, scale technology works in my favor." Doesn't work that way, especially with angel investors, because it's like you're new to town. Let's assume you're new to a city. You go out and you send blast emails to a bunch of people that you happen to get on a list. I want to be your friend. What do you think is the likely response from that?
“Do you think you're going to send a mass email and get friends? You're going to have a very sad social life if that's your approach.”
Well, angel investors, that's what you're doing. You're getting to be a friend. There are people who are going to be sitting down and helping you over the next six, seven, 10 years. Do you think you're going to send a mass email and get friends? You're going to have a very sad social life if that's your approach. How is it that you find, that you make friends when you come to a new city? You get invited to parties. You meet friends of friends and so forth, right?
You don't email, mass emails of people, so do the same thing. Go to events, meet people, talk to people, and then you meet somebody who's an angel investor, right? And then you go and look at that person's LinkedIn profile, okay? Sorry to say, but a majority of angel investors I've met, there are some tremendous angel investors and they are saturated with women chasing after them to give them advice.
The reality is if you're a woman founder you're going to have to get male angels to help you, because a majority of angels are males, and the good news is that they're very willing and very open to female founders, so go on LinkedIn and look, and see who are the ... The person that you know, and there might be some people that you know in common. There are ways that you can figure out who you know in common, the people you have in common with that person that you met, and then go to that person and have that person call this angel investor, and tell that person about me.
If you have a good enough connection with that, and so there are a gazillion ways to do that. And so a warm connection, that's the way to really connect with an angel, and also your social life. I encourage you to go to friend's parties and not use mass emails.
JASON KRAUS: Right.
Audience: Do most members of Walnut's syndicate have that in their LinkedIn profile?
SAL DAHER: Yes. As a matter of fact, the word syndicate, syndicate is a group of people get together to invest in one company. Walnut hasn't really done a syndicate. I'm a syndicate lead for my own companies, that happen to be companies that Walnut has invested in, and Walnut has been ... They're thinking about maybe doing something on angel lists. There's one really exciting company we're looking at right now, but I don't know if they're going to do it. At Walnut, it's chasing cats. Everybody writes an individual check. There is no special purpose vehicle that's going to invest in you and so forth. Does that answer your question?
Audience: Yeah, but you were mentioning LinkedIn, the importance of getting warm introductions-
SAL DAHER: If you go to the website, if you go to the Walnut Ventures website, the biography is the LinkedIn page. If you click on the biography it goes to the LinkedIn page, so I don't know the other groups. You can do a google search and then here's a good moment to talk about using LinkedIn. LinkedIn is the most valuable networking tool there is. If it's used properly. It's not to be used for spamming people and cold calling them. In mail doesn't work. In mails don't work.
Do an inbound strategy on LinkedIn. Once a week, twice a week you read an article in your field. Post the article, okay? Read up a little bit about different ways you can post articles on LinkedIn. If it's an article, if it's a post. Every podcast that I do, I take a 45 second video. My sound guy holds this iPhone and he takes a video of me talking to my guest, and the guest's just telling what the company does, okay? It's I'm looking at the guest, the guest is looking at me and the place with the sound off on LinkedIn.
They have thousands of views, because people are curious. Two intelligent looking people talking to each other, and I'm like this, stroking my beard ... It draws people in, so you can get a lot of free publicity, so build your brand as a founder on LinkedIn. Do not spend more than 35 minutes, 40 minutes a week doing that, but if you're reading articles in your field post them, because that creates your brand as an expert in the field.
And then you're going to discover that people follow you. You're going to discover all kinds of things happen, and some of these people are, might be angel investors that you might be able to see. LinkedIn. Spend some time building your LinkedIn presence. I don't have any stake in LinkedIn at all. I just find it to be the most valuable channel for publicizing my podcast entirely free.
Audience: You talk about the importance of the network. What if you're not from here, you're not even from this continent? Would you recommend someone like that to first study here or work here, or-
SAL DAHER: Are you living here in Boston now?
Audience: I've been living here for a month.
SAL DAHER: For a month. Are you planning to stay here, live here?
Audience: Yes.
SAL DAHER: I know at least one founder who is from Iceland, and he's getting money here. You have to have your company here, okay? If you're really good at what you do people pay attention to you. Americans are very open. This is not the old Boston of 200 years ago. We don't know those people, that kind of stuff. This is a totally different world. If you know what you're talking about and you're a serious person, honest person, doesn't matter.
Knowing people, it's not like you have to, it has to be someone has known you for 25 years. Grew up in the same hometown, and then that person ... No. It's somebody who worked with you for three months at some place. They just want to know you're not a nut. You're not a dishonest person. You're not a nasty backstabber. That's all people want to know, integrity, and that you work hard. That kind of stuff. People can't hide that very long.
JASON KRAUS: Yeah, you're already coming out to meetups and connect with the people you meet here, and you never know who can help each other out.
“This is a really important point. Other founders could be a tremendous resource, because you can cry on their shoulders, okay?”
SAL DAHER: This is a really important point. Other founders could be a tremendous resource, because you can cry on their shoulders, okay? People are going through the same things you're going, and this is one of the things that Techstars does for people. It gives them, they have a cohort and those guys get really close to each other in a cohort. They're very tight. One of my favorite, there's a video called the Google Problem that I did with the Wistia guys. It's great. If you look it up, I don't know if you can find it easily. Just go to ...
It's basically the big fear that founders have, that somebody's going to copy their idea, okay? Forget about it. You have an idea. You talk to everybody about that idea, and the last person who's going to copy is Google, because in order for Google to pay attention to your business it has to be like $100 million business, and maybe they'll pay attention to you. So talk to everyone you can, because you crowdsource, more eyes on the problem. People help you, people connect you with people who might be a co-founder and so forth, so talk peoples' ears off. Become unbearable about your business to everybody, but don't cold call people.
I remember a [TCN 00:52:36] event I'm telling people don't cold call people. Don't send cold emails. What do I do? There's this guy, I looked, I said do not cold call people, okay? Sends me a cold approach. I said, "I don't know you and I told you specifically don't cold call." It's like, doesn't skip. Believe me, what networking does is it helps you match investor with startup and so forth, and so you've got a friend who knows this angel investor and the friend's going to say, "No, he doesn't do that, but I do know this other guy who does that," okay?
And who's closer, and you go and you sit down with that person and so forth, so networking is not I know somebody. It's about finding people, because we all operate with 8K operating memory. It's like we have, and we can't know everything, so human beings have this way of interacting with each other, that helps figure out where to go.
JASON KRAUS: Jerry, do you still have a question?
Jerry: What is your opinion about things like angel lists and Gust?
SAL DAHER: Well, in its early versions, Gust, I tried it. I found it just to be really kludgy. I know a lot of groups use it. Seraf, another platform that the people at Launchpad have put together that I think does the same thing. Angel list can be very useful, but you have to understand that. I'm not an angel list. My syndicate is not an angel list. I'm not really very knowledgeable. I have a presence. I have a profile on angel list, but I don't do my syndicates there. Maybe I should. I don't know. I just haven't gotten around to it, because I've been extremely busy and I've done my syndicates outside of that and all my investing outside of it, so I don't have much of a presence there, but I hear good things. I think you should read up on it, someone who's more knowledgeable about it.
JASON KRAUS: Sure. Last question here. Yeah?
Audience: Just a quick question. How important is it to have a lawyer draft the cooperation details?
SAL DAHER: Lawyers are important, but you can't spend too much on it, because basically lawyers, there's a formula. Stuff that you don't have anything fancy. Have a plain, vanilla company, okay? If you're going to have a co-founder it really is important for you to have a decent lawyer look at your contract with your co-founder, the people that you're hiring and so on, because you want to be able to have a proper vesting schedule. Things can get really out of hand.
Lawyers can help you, even tell you what's reasonable in terms of what percentage of your company you give up for a co-founder, what percentage you give up for an advisor, what percentage you give up for other kinds of people, board people. I'm very much in favor of a company thinking about getting a board of outsiders as soon as they can. People who understand your business and who are willing to be on your board. Be judicious about spending on lawyers, but it really is important particularly when you're talking about situations where you might have to undo things later on. Vesting schedules and all that stuff.
JASON KRAUS: Great job. Let's give Sal a round of applause.
One Last Fundraising Secret
SAL DAHER: Thank you. Hey, I'm glad you stuck around. Here's the secrets to fundraising that I have not revealed in any of my previous podcasts, and that secret is fundraising is not about convincing. It's about finding. This is an insight about sales that the guy who wrote How to Make Friends and Influence People, Dale Carnegie, knew about. It's a very primary bit of knowledge about sales, that you can't convince somebody to do something they don't want to do.
You can only find the people who are ready to buy what you've got to sell, so if you're raising money it's a search function. It's a function of finding the people who will invest in the kind of startup that you have, so you need to have a sales process. I've said this before, but with the goal of searching for the right match. Not convincing. You're never going to convince somebody who's not at the right time to invest in you, that they should come invest. It's when you talk to somebody who's looking for somebody just like you to invest in, bingo! It happens. You have to be ready for it. Anyway, so that's another secret of fundraising. I hope you find this valuable. I'm Sal Daher.
I'm glad you were able to join us. Our engineer is Raul Rosa. Our theme is composed by John McKusick. Our graphic design is by Katharine Woodward-Maynard. Our host is coached by Grace Daher.