Interview of Dan Martell, An Angel Investor
Dan Martell is a serial entrepreneur and an angel investor with a portfolio of about 15 tech startups. This week, I interviewed Dan about his investment philosophy and his advices for entrepreneurs in raising money.
Giang: Hi there, it’s Giang Biscan from TheStartupAngel.com, I have with me today Dan Martell, an angel investor. Actually, Dan has many hats but today he’s just going to wear the angel investor hat. We won’t be talking about his other amazing projects. So hi, Dan.
Dan: (smiling while showing off his T-shirt for his latest project Clarity.fm) Hey, how are you going? Thanks for having me.
Giang: Let’s just start with the portfolio companies that you have. You have some interesting ones, some of them I have interviewed. So what are some portfolio companies that you have?
Dan: I don’t want to take a stab at naming them all because if I forget anybody, they will probably get upset but recently I’ve done a company called Donna which isn’t public yet which I probably shouldn’t have said it but that’s OK. So GetAround, YouToMe, FoodSpotting, Plancast is one that recently got a lot of press because they got shutdown, OneForty got acquired by HubSpot, Unbound which is known by a lot of startups, and then quite a few up in Canada. Manpacks, Limbick,… I think I’ve got about 15 investments so far.
Giang: Fantastic. So basically the segment that you are interested in, other than the broad term of technology, is there anything particular about those companies?
Dan: I would say it’s always the founders. So one thing I don’t do when people email me and say “hey, I’m fundraising and I’d love to meet”, I would always take the meeting but honestly if I don’t know somebody before hand, it’s a quick “No”. And I respect the founders’ time in raising money so the quick “No” is better than “Maybe”. So I definitely would like to know the founder for a while to watch them execute a bit, be an user of the product, that’s always a big way to get me excited, and I don’t really have a theme. The other thing I really like is I like to go big. I don’t want the $20M-$30M exits to Google. I want the people that really want to change the world, go public or having some other major liquidity events.
Giang: So you said you want to know people for a while, how long? Is there a particular length of time? I am thinking of the early staged startup entrepreneurs that want to reach out to you, how long should they build that relationship with you?
Dan: I would say at least a couple of months. At least two months. But it really all depends. If we meet today and you show me what you’re working on and then 4 weeks you show me a lot of progress, and then in 6 weeks you get a lot of traction for some reason, and then you’re ready to raise money then I think that’s enough. I just want to see, I want to work with people because I know as an investor I like to be involved. That’s why I don’t do a lot of deals, and because I want to be involved, I want to make sure that I invest in people that I get along with, that I feel open to advices, open to having great conversations, open to throw out all their assumptions if they learned from the market that they are wrong. So that’s really the kind of relationship that I really need and can’t do that over a 15min call.
Giang: How long have you been investing in startups?
Dan: My first investment, which I didn’t even call it angel investment, in Canada which is where I am from, a small town. I just gave people my money because I like them. I just do one investment at a time as a way to supplement my curiosity, so I think the first was about 2006.
Giang: Is there a particular stage? Early only?
Dan: Usually I’m the first money in. For half of those companies if not more I was the first check ever written. Recently the last few companies I got in, in a series C kind of investment, I don’t normally do that, it’s just an opportunity where I felt the valuation was fair, the founder wanted me to be involved from the marketing expertise, and I can really see what I can bring to the company.
Giang: You said you want to work with people, so how involved are you with an angel investor?
Dan: Obviously I want the entrepreneurss to want me to be involved as much as they need. At the same time I think I am really good at certain things. So lately I’ve been helping a lot of companies with what I call “growth hacking”, which is when the product is kind of let’s say on its way, there’s a linear progression toward product-market fit, and I think that there is a good chance that marketing is the thing they want to do then I come in and work with what I call the growth hacking, really figuring out which are the channels we should hack, what are the different way we should hack them, what are different messaging and to figure out how do we reach scale through repeatable user acquisition. The unique part of my background is the company I did before the last company is an enterprise company so I actually learned how to do biz dev and fail so I can really help startup with everything from cold calling to strategic partnership to paid market acquisition from Facebook to Google, content marketing and social. So I have a pretty unique wide background around growth hacking.
Giang: You like to get along with the founders, that you would like to invest in the founders instead of the idea, so what particularly are you looking for in a founder?
Dan: Now that’s a great question. I like founders that are… there is one company called Visibily. And they started off as… adsertise… ad…something, I forgot, anyway, I like startup that can’t die. They move successfully, whether I am involved or not, and if anything I can help them be more successful faster, but I just think that’s the characteristic that I’m looking for. You know regardless if they close a funding round or not, they are going to do “that” thing, and they are going to be successful in their own right, that’s huge. Another thing that I am looking for is definitely a good mix of technical and user interaction, a lot of people call it the design, but I just call it a clear product interaction. It doesn’t have to look beautiful but it has to be functional. I’ve seen a lot of really technical people they never actually get the user to that point, where the technology is awesome. So I look for that in the founding team. And resourcefulness. People that don’t ever say “Oh I can’t do it”, they just say that “there is a way that I can”.
Giang: Is there anything particular that may make you walk away from a deal?
Dan: Right of the bat if I feel that there is a… I always look for entrepreneurs that are looking for a win-win. Today’s market is pretty hot and heavy, and first time entrepreneurs are confused. They may get early interests from seed investors and then some VC comes in and wants to do a whole round. I really look for founders that look for the long term and don’t want to just take maybe a short-term gain in some kind of valuation and then screw themselves up and having a really hard time raising money after series A. It actually never happens to me but I have seen it happen to other investors. Anytime I feel that someone is being dishonest, even if it’s not intentional, I see it as integrity… It’s kinda crazy if you think of fund raising, investors actually give our money to a person, for the most part we know to be OK, it goes into their bank account, you have to trust that they are going to be a good steward of that money.
Giang: What do you recommend entrepreneurs to do in term of doing due diligence of investors?
Dan: You know the crazy part is that most entrepreneurs are just looking for any investor to give them money. There are so many different ways to do it. The way that I’ve always done due diligence is to just talk to entrepreneurs. And I wouldn’t even ask for a referral, I would just go and ask them. Most investors list the companies that they invested in. They should just go and talk to those founders: So they said this investor is helpful; how helpful were they? Did things ever get bad, how did it work out? How did they respond? How fast did they respond? I mean the biggest thing for entrepreneurs is to get signature docs done, getting a response from those people. I think those are the things that are important for entrepreneurs, be able to move fast, get good information. This person says they add value, did they add a lot of value? I wouldn’t even ask for referrals because most people will just recommend those people they know will just say nice things about them.
Giang: How should entrepreneurs reach out to investors? You for example are very open, anyone can tweet at you for example, but not all investors are that way.
Dan: The best way to get to an investor is to get an introduction from a founder of a company that the investor recently invested in. So Crunchbase or Angel List. But do the recently one because they know what the investor is looking for and because they also feel that they have to give back to that investor. Investors get deal flow from their portfolio of entrepreneurs. I’d say I only get 5% of introduction from people who I have invested in, but when that happens, that introduction gets right to the top.
Giang: You mentioned the market is really hot right now, a lot of companies are getting funded. What are the trends right now?
Dan: It’s definitely just the market. This a lot of capital. And it is the distribution. For mobile, the app store, the ipad, and iphone sale just increaseingmobile distribution. Another trend increase collaborative consumption, like Uber, TaskRabbit, are definitely setting a new genre of startups and type of investments.
And still social is huge so things like Highlight for present and awareness is huge, and still around location. To me, I think there is just a lot of capital and a lot of interesting companies. If anything it’s harder for entrepreneurs that are not in the Valley to get to that level of traction to raise money at a reasonable round. Because you know when you have Y Combinators, 500Startups and TechStars that are putting out really great companies at 3 month cycles, people that are not in that type of programs have to step up and deliver in the same kind of proof point in that timeframe to be interesting.
Giang: What do you think about many accelerators that are copying Y Combinators or TechStars that are recently springing up everywhere?
Dan: I think anything that help foster and support entrepreneurship is awesome. We need more, I don’t think we are saturated by any means. We need more entrepreneurs, and with entrepreneurs comes more ideas. There are still thousands of problems that still need to be solved in the world, so I don’t think we have too many. The thing that I am seeing though is that accelerators they are really incubators. I am a big fan of accelerators. So incubators are companies that usually incubate their own ideas. That’s hard because without the entrepreneurs… I mean it all comes down to the entrepreneurs. The idea is definitely important but the guy that will plow through when they get kicked down is the one that will succeed so… You can’t incubate an idea into a person that doesn’t have that so…. I think we definitely need more accelerators. Y Combinator is now setting the gold standard for how the program should work, how many companies, the initial funding… It seems the initial funding has gone 5x, used to be 35k-50k, now it’s a couple of hundreds so it’s a pretty interesting time to be an entrepreneurs.
Giang: There are some people out there that are pretending to be investors but either don’t have the money to invest or not interested enough yet still waste entrepreneurs time and drag them along. Do you have any advice on how entrepreneurs can avoid those?
Dan: Ask them when the last time they wrote a check. That’s like the fastest way.
Giang: I see, so it has to be hot.
Dan: Yeah. Who did you invest in last and if it was a company a year and half ago, then ask them are you writing check? Are you actively investing? Most entrepreneurs don’t feel like they have the right to do that but it’s not a rude thing to ask. It’s no difference to the investors asking what’s your traction, how many users do you have sign up. It’s exactly the same question just for different context.
Giang: Thank you so much for your time.
Dan: No problems. Thanks for having me. Cheers.
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