Goran Duskic: Let’s start this interview with a short introduction. Who were you when you were 20 or 30 years old? I would really like to hear what was the start that led you to become a serial entrepreneur and now the serial investor that you are.
David S. Rose: My name is David S. Rose I am a serial entrepreneur and a serial investor.
As William Shakespeare said about greatness: “some people are born great; some achieve greatness, and some have greatness thrust upon them.” In terms of entrepreneurship, I think it’s probably safe to say that I was born one.
I’m a third-generation entrepreneur. I have been interested in starting things from a very young age. I founded my first company when I was 10 or 12 years old: a multimedia production company doing headshots and handbills for my brother, a magician who performed at children’s parties.
I then started an afterschool film program in high school and sold battery additives for cars. In college, I sold firewood and ran a print shop. In graduate school, I formed one of the first computer training companies with one of my business school professors.
So I’m one of those people who was just naturally entrepreneurial. Added to that I have had some amazing mentors in my life as an entrepreneur. Back in the ancient history of the dot-com boom, I was a finalist for the Ernst and Young Entrepreneur of the Year award in New York. My father, Daniel Rose, actually won that award in 2003. He’s now 85 and still very active; in fact, my father, my daughter, and I are partners in a real estate technology accelerator program here in New York called AREA.
After graduating from college with a degree in Urban Planning, I went to work in government, for the United States Senator Daniel Patrick Moynihan—an amazing person—and got a couple of years of experience in the public sector. While I was having an enormous amount of fun, I ultimately decided that I wanted to be in the private sector; where I could create something myself.
So I left the Senator’s office and went back to business school. I received an MBA in Finance from Columbia University, and then joined my family’s firm, which was in real estate. I spent ten years there doing entrepreneurial real estate development, while at the same time starting up a number of small companies on the side. One of these was in the software space and eventually got venture capital funding. It had an exciting up and down ride in the 1990s, but eventually got wiped out in the dot-com crash, after which I started angel investing.
Angel investor David S. Rose – photo from davidsrose.com
I made my first serious angel investment in the early 2000s, and have continued investing in startup companies since then, along the way founding New York Angels, which is one of the largest and most active business angel groups in the world. Eventually, I returned to entrepreneurship and started another company, called Gust, which is building the infrastructure platform for the early-stage financial world.
Goran Duskic: It’s a really amazing story. So back in the 1980s, you founded one of the first personal computer training companies? What sort of experience did that give you?
David S. Rose: It was very interesting. It was called The Computer Classroom and I founded it in 1983 with my then- Columbia Business School math professor, J. Peter Garrity. He was a training expert, I was a techie and entrepreneur, and we set up a company that did primarily corporate training on PCs; things like spreadsheets and word processing.
This was back in the day when nobody even knew what a spreadsheet was. So we taught Visicalc and Lotus 123 and Microsoft Word and so on. That gave me some very interesting experience: both working with partners and doing the mundane business things, like getting incorporated, getting a logo made, scheduling classes, and handling cash.
Then there was a period where we were looking at getting financing and (not knowing any better) we briefly considered the idea of going public on the penny stock market. Needless to say, that was a very interesting experience. We ultimately decided not to do it and I think that was a good idea in retrospect.
We were both working for the company on a part-time basis, but eventually, I had to make the decision as to whether I was going to move to it full-time or not. I was still involved in other areas, however, including real estate. So my partner took over running the company on a full-time basis and for many years ran it quite successfully
Goran Duskic: That sounds interesting. I watched your TEDtalk, in which you introduced yourself as someone who both raised and supervised investments of tens of millions of dollars. I was wondering if there was something that stuck out as an obvious commonality among all the deals that you have done.
David S. Rose: If there is a commonality among the various companies in which I’ve invested—aside from the founder having impeccable integrity, which for me is the number one criterion—I think it is a sense of entrepreneurial optimism, passion, and vision combined with a sense of reality.
Every entrepreneur is a first-timer at the beginning. Without having gone through the process before, it is very difficult to figure out what makes sense and where you stand relevant to the rest of the world.
Entrepreneurs, by definition, see things other people don’t see. It would be great if you have a vision that others don’t, and it works and you can get it done. But if you’re
- hallucinatory, delusional,
- have no idea of where your product stands relative to the rest of the world,
- don’t have a clear understanding of the difficulty of the particular problem you are trying to solve
it can be really challenging. I would say that most experienced investors can probably talk to someone for 60 seconds, and then rule out probably half the people who come to them as just not being within the zone of things that might be possible.
Goran Duskic: So something like reaching for the stars but with both of your feet on the ground?
David S. Rose: Exactly. Reaching for the stars is fine, but you have to understand that you need a rocket to get there. You can’t just reach up and touch a star!
Goran Duskic: When you’re listening to a pitch and thinking about investing in a certain startup, have you noticed any dramatic improvement—or at least changes—in the way startups are pitched now compared to 20 years ago? Do you think there will be any changes in the future?
David S. Rose: There has absolutely been a change over the past five years or so. Ten years ago, when BusinessWeek published an article about me titled “The Pitch Coach,” it was amazing to them because back then most presentations from entrepreneurs were simple PowerPoint bullet presentations … and they were really awful. The fact that we were training them on how to do an effective, structured, graphics-based, emotional pitch was unusual.
The biggest change since then has been the rise of venture accelerator programs, starting with Ycombinator in 2005. They began training young teams with a strong emphasis on presentation skills, culminating in a Demo Day at the end of the program. The result has been an explosion of spectacular, almost Hollywood production-level pitches. That raised the bar for all entrepreneurial presentations, as people saw the pitches from YC, TechStars, and other programs.
As more and more accelerators came online, they increasingly began to focus—for better or worse—on helping founders make killer presentations. That has combined with the popularity of TEDtalks (which are improving the level of all presentations), plus [I might add modestly] my own video on How to Pitch a VC, which has been viewed nearly a million times.
Finally, a new crop of books, including Presentation Zen by Garr Reynolds, Slide:ology by Nancy Duarte, and Presenting to Win by Jerry Weissman, have added the other factors in completely changing the way entrepreneurs and investors think about presentations.
Goran Duskic: I can attest to that, having been through 500 Global program, and doing a demo day in Mountain View, San Francisco and New York in front as many as 300 investors. If I may, I would add a book to your list that helped me a lot! Presentation Secrets of Steve Jobs, by Carmine Gallo. Speaking of changes, has anything change in the way that investments are being made? For example, there are now online investment syndicates, “lightweight” public offerings, and the laws are changing in the US so that practically everybody can invest, even if they are not accredited investors. This is also now happening around the rest of the world following the example of the US (or even in some cases leading it). Why do you see this happening now?
David S. Rose: All of this is changing because of advances in technology, which are increasing. I don’t know if you’re familiar with the work of Ray Kurzweil, particularly his book The Singularity is Near, or Singularity University, of which I was an Associate Founder.
Goran Duskic: Yes, I’ve heard of it.
David S. Rose: My first startup company took about $20 million in venture capital funding to get to the launch of our first Internet-based product. My second one only took $2 million to get to the same point. When I began angel investing, the first company I backed needed only $200,000 to ship their Internet-based product. And then seven years ago, a startup called Pond5 came to New York Angels with a company that was already in production and generating revenue … and the total amount the founders had invested was only $20,000. We put in $500,000 as their first and only round of funding, they turned profitable in a year, and seven years later raised a Series A round valuing the company at over $130 million.
So the cost of starting a company is dropping drastically: $20 million, to $2 million, to $200,000 to $20,000. That’s three orders of magnitude! As this is happening it is becoming easier for more and more people to get involved as investors.
On the Gust platform today we have over 300,000 companies— fully 30% of whom are based outside the United States—that are starting up and looking for funding, and over 50,000 accredited investors who are looking for innovative, high-growth startups in which they can invest.
Goran Duskic: Speaking of Gust, my next question was to ask if you could explain what Gust is, how it helps startups, and how it can help investors?
David S. Rose: Sure! When we founded Gust our goal was to build the infrastructure platform for the world of early-stage entrepreneurial finance. We provide the underlying tools, platform connectivity, profiles, and back-end services for startups, early-stage investors, angel investors, and the like, as well as supporting organized angel groups and national investor federations, seed funds, venture funds, accelerators, incubators, and the leading entrepreneurial ecosystems.
David S. Rose Founder of Gust – photo from davidsrose.com
Today GUST is the world’s largest community and collaboration platform for startup companies and the investors who fund them. We are used by over a thousand investment organizations, including 80% of all the angel groups in the United States and probably 70% of all angel groups in the world. We’re the official platform for the national business angel investor federations not only in the United States, but also Canada, Australia, New Zealand, Ireland, Scotland, Norway, Finland, Spain, France, Portugal, Turkey, Russia, Belarus, Kazakhstan, Ukraine, Estonia, Italy, Brazil, and Africa.
So it’s really a global platform that—with everyone connecting on it— becomes a powerful collaboration environment. We neither provide funding ourselves nor do we guarantee funding. What we do is provide a set of tools that make it easy and helpful for an entrepreneur to connect with investors and share information. At the same time, we make it easier for investors to find entrepreneurs, look at all the information about the company, manage their portfolio, and the like.
The third leg is for organizations, including groups of angel investors, venture funds, and accelerators to manage their whole application and collaboration process, whether it’s judging competitions or mentoring and working with companies.
So as a back-end platform, Gust can provide a great deal of utility to all of the various existing players, as well as many new ones. In fact, we are just beginning to unveil the kinds of things that can be built on top of our infrastructure.
For example, the Mayor of New York City—the world’s fastest-growing technology ecosystem—announced last October a major new initiative called Digital.NYC. This is the world’s first online hub for an entire regional startup ecosystem. The goal for the site is to include every single startup company, investor, job, class, event, blog, workspace, accelerator, video, tweet, news story, resource, and more. Every single thing about the entire tech and startup community, with everything connected, searchable, and integrated. That entire site is actually built on top of Gust, and is the result of a remarkable three-way partnership between Gust, IBM, and New York City.
After New York, the next hub was launched by Vice President Biden at the Global Entrepreneurship Summit in Morocco last November. The US Department of State launched GIST Network, connecting technology startups and mentors around the world through their Global Innovation through Science and Technology program. That too is built on top of Gust, as is Tech.London, announced by London Mayor Boris Johnson in June, which is the center of the entire London technology ecosystem. You will soon see other innovation regions around the world: cities, states, countries, transnational organizations, all developing ecosystem hubs like this. That’s what happens when you have an underlying infrastructure platform like Gust.
Goran Duskic: How did you get the idea for starting Gust, and why did you do it? Obviously, you are doing it right, because I’ve read that back in 2012 Gust received an award for being the world’s most innovative financial technology company.
David S. Rose: That’s correct. The award was from SWIFT, the international banking consortium with over 10,000 financial institutions.
They’re sort of the trade association for the world of finance. And they named us the world’s most innovative financial technology company.
The year before that, EBAN, which is the European Union’s continent-wide business angel consortium, gave us their award for the breakthrough product for business angel networks.
And then the United States Software Information Industry Association, SIIA, each year announces the CODiE Awards, which are the software industry’s equivalent to the Oscars. In 2012 we won the award for Best Collaboration Solution. And we won it again in 2013. And again in 2014, when they also awarded our Ecosystem Hub platform the Best Business Director of the Year. Which we won again this year. Along the way, the UK ran a competition called the GREAT Tech Awards, launched by Prime Minister David Cameron and Prince Harry, that named us the top US financial technology company that the British wanted to move to the UK … which is why our European headquarters is now in London!
As to where the idea for Gust came from, you need to look at my background as a serial entrepreneur who had started multiple companies; who had raised funds from investors; who then turned around and became an angel investor and was investing funds into companies; and then founded an angel group in which he dealt with all kinds of angels and startups, throughout the whole the process of connecting and financing them.
Finally, the last piece of the puzzle was my work at Singularity University, the postgraduate program in Silicon Valley dealing with exponential technology. In addition to being an Associate Founder, I served for several years as the Founding Track Chair for Finance, Entrepreneurship, and Economics. Through my work, at SU I’ve been doing a lot of studying and teaching and writing about the future of business, the future of economics, and entrepreneurship, and where that is all going.
So you put all that together—starting companies, raising funds, investing funds, managing an angel group, studying the future of where all this is going and that was sort of the Perfect Storm: the right conditions to create a company to change the world of early-stage finance.
Goran Duskic: It all makes sense when you tell the story like that. It’s amazing! With a track record such as yours, there’s no doubt you’re successful in your field with a great skill set and real-world experience. What do you think are the major attributes that helped you, and how did you acquire them; not just with Gust, but with everything?
David S. Rose: Much of that comes down to the same things I look for in an entrepreneur. If you’ve seen my video online or you’ve read some of the stuff that I’ve written you’ll know that first of all I try to vet the person, even before the company. It’s called “betting on the jockey, not the horse.” That’s a colloquialism in the United States.
First and foremost I look for the entrepreneur. I believe that the entrepreneur is the single most important person in the entire startup. And that, to me, trumps technology; it trumps sales; it trumps everything else. To me, it all boils down to the one person who is the entrepreneur and who is going to drive the company forward. It all rides on his or her shoulders. So what are the characteristics that I seek? They’re the same ones I try to exemplify in my own career:
The first one is integrity—if I don’t trust the entrepreneur, I don’t care how good the deal is; I just won’t do it. So integrity is first.
And then I want to see passion because if you don’t have passion you shouldn’t be an entrepreneur. Bad things will happen because they happen to every business. And you need to have passion as the engine whose motor power drives you through it.
So integrity and passion are the sine qua non, “that without which” I simply won’t invest. But those qualities by themselves won’t get you anywhere. Unfortunately, I see all too many people who are decent and passionate, but who are not effective in getting a company going.
So next comes experience. Is there any kind of track record that I can look at to help me make a decision? There are really three kinds of experience that we look at here. One of which is “have you ever started a company before?” Because starting a company is really tough. No matter how many books you read or how many classes you take or how many MBAs you’ve received, you just cannot learn by books; you have to learn by doing. And if you’re going to learn by doing you might as well learn on somebody else’s nickel the first time. So, if you have done any startup before, statistics have shown that if it’s been successful you’re more likely to have success again.
But if you have founded a startup before and it failed, you’re not more likely to fail the next time. So founding experience—for better or worse—is a good thing because you hopefully will have learned how to manage a large part of creating a startup.
The second kind of experience is domain expertise. Very often—I would say at least 20-30% of the time—people come pitching us a brilliant idea … but it’s a business they don’t know anything about. And there are obvious reasons—clear reasons—why people who do know about the business are not doing something like it. That’s not to say that nobody can ever have a good idea unless you’re an expert in the area. But in my experience, before you can think out of the box, you have to know that there IS a box.
The last kind of experience is the collection of skills necessary for a company to function: product management, coding, sales and marketing, finance, and so forth. Because these are all critical for a startup, we look for someone who has the whole package. But since virtually no one has everything, we then look at the team you have built around you. This brings us to the question of whether you have the leadership ability it takes to pull a team together to fill in the holes you don’t have.
Other things that are important include whether I believe you have the commitment to stick around. Once you’ve taken my money you can’t run away. You got to be there until the end game. So then we need to look at what’s driving you. Do you have a vision? You must have a vision that’s bigger than just making a dollar right now, or selling just this one product. I am looking at the near term, but also need to see where you’re going. This brings us to realism. That is really critical because while visionaries are often great bets, dreamers are not. Finally, the last thing we look for is flexibility: are you prepared to pivot as required? Are you willing to be coached and listen to me?
Goran Duskic: This is very useful! The next question relates to startup founders that are currently seeking investment. What would you say to them? How do influential investors decide to invest in a certain founder of a certain startup? I think you’ve practically answered that question earlier on, but let’s double down because this is something that needs to be crystal clear for my readers.
David S. Rose: As noted, we look first at the entrepreneur, along the lines I just described. And if the entrepreneur is strong, that’s one piece that fits into the bigger picture of the company. Here are some other things we look for:
Is this company in a market that is growing? If you’re in a shrinking market, why am I going to invest?
Assuming the market is growing, do you have a business model that makes sense? I’m an angel investor, not a big VC, so you need to show me that with a little bit of money you can actually get some traction going, and then grow the business rapidly.
Do you have some unique advantage that will let you withstand the competition—or at least play up at their level?
Things like these all taken together are what we look for in a business. The business area; the actual product itself; the competitive advantages; do the finances make sense? What’s the history? How did you get there? And does the business model make sense?
Goran Duskic: Okay; that is a lot to take in! Could you try to sum it up? What would be the top three most important factors to you?
David S. Rose: A market that makes sense. The base market of the business needs to be big enough and growing, so you can get to be very, very big. A business model that makes sense, in which the risk/reward is appropriate and that can scale and get large; a scalable business model. And finally, traction, from a viable product or service that works and people want to pay for. Those to me are the three most important factors, on top of the actual team itself, which is THE most important.
Goran Duskic: So where do you think the future of technology is going and where would you like to invest? What would you like to see happen in the foreseeable future?
David S. Rose: Technology is advancing exponentially. It’s literally doubling every 18 months at this point across every possible spectrum. And so if you read the works of Ray Kurzweil, such as his seminal book, The Singularity is Near, he projects that the next paradigm shift is going to be when humans and computers merge.
Ray thinks that is going to happen in 2045—which of course sounds crazy because that’s only 35 years from now. But when that happens, all bets are off. Everything is going to change. And we’re heading there very, very rapidly.
At this point no technological development surprises me, so what we as investors look at is how this new technology gets applied to existing markets. These are things like Uber for taxis, or eBay for auctions, or Open Table for restaurant reservations. We are seeing all kinds of new businesses arise that are applying new technology to large existing challenges, and that’s going to continue.
Goran Duskic: Basically what you’re talking about is the Internet of Things, right?
David S. Rose: That’s certainly one part of it.
Goran Duskic: Do you have any final words of wisdom?
David S. Rose, author of angel investing – photo from davidsrose.com
David S. Rose: Although it is certainly a case of “enlightened self-interest,” I would recommend the book I recently wrote, Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups. It’s a New York Times bestseller and has become the standard instruction book on how to be an angel investor. This means that it is actually a very good book for helping entrepreneurs understand how angels on the other side are thinking. I go through all the topics we just talked about: What the angels are looking for? How do they review a company? What do they look for in an entrepreneur? And so forth. I’d also suggest watching my TEDtalk video about how to structure and deliver a funding presentation.
But most importantly, I would encourage entrepreneurs to develop and leverage their passion. You must have passion because that’s what keeps going. You can’t cut and run … but at the same time, you have to listen to what other people are saying. And that’s a very, very fine line to walk.
There are many stories of entrepreneurs who have been told “no” a thousand times and then pulled out a big win. But the reality is that in 90% of those cases, “no” was the right answer.
It’s therefore a question of figuring out when to go charging ahead despite everybody else’s admonitions, and when to listen to what mentors and the market are saying, even if the answer is disappointing; and that’s really tricky. Good luck to entrepreneurs everywhere!
Goran Duskic: Thank you. Mr. Rose. Thank you very much and I wish you a very pleasant day today.
David S. Rose: My pleasure I look forward to seeing the book when it comes out.
This interview was originally published in 2015 in Goran’s ebook “26 Fundraising Questions for Startups”. It is reprinted here with the author’s permission.
