After reporting from the startup hubs of Asia's emerging markets for more than a decade, it's refreshing to see innovation clusters forming closer to home.
I've been spending some time interviewing angel investors and entrepreneurs in New York City, hanging out in neighborhood cafes in the Flatiron district and the former meat-packing area around Hudson Street.
Brian Cohen, chairman of the New York Angels group and a lead investor in Pinterest, perhaps best exemplifies this new undercurrent of entrepreneurial energy that's resurfaced in the Big Apple. I recently interviewed Cohen to get his thoughts on the startup scene in NYC and to hear more about his soon-to-launch book from publisher McGraw-Hill, "What Every Angel Investor Wants You To Know: An Insider Reveals How To Get Smart Funding For Your Billion-Dollar Idea."
The title just about says it all. But Cohen has a lot more anecdotes and insights to share about how angel investing has developed from what used to be "stupid money." We did a Q&A at his office in a cool co-working space - a sign above the kitchen sink with dirty glasses reads "100% of all entrepreneurs who do their own dishes have successful companies."
What follows is a few excerpts from my chat with Cohen, who's on our digital media innovator and investor panel here March 21.
Q. How do you source your deals to invest in? A. My life is the startup community. I live to help and support, encourage and advise startups, and I've leaned deeply into the community. I've turned no one down for discussion. My interest is to know how well the entrepreneur knows their own customer, belly to belly. For instance, an entrepreneur came to me with an idea for a spice box. When I asked him what are the top 10 spices in the world, he couldn't name them.
Q. What was it about Pinterest that attracted you as an initial investor? A. I troll everywhere looking for new business ideas to invest in. In late 2008, I attended a NY venture fair and the founder Ben Silbermann was showing off a woman's catalog on an iPhone, and it was the way he presented the idea in just 30 seconds as a solution to a problem that got me.
Q. Were you surprised by the uptake in Pinterest? A. It actually wasn't the first business idea. But when Ben noticed that customers weren't buying as much as they were sharing on the site, we pivoted the model to become a scrapbook. After the pivot, the business grew very little for a long time but now it is the fastest-growing website in history. Nobody dreamed it would be as successful as it became.
Q. What helps you as an angel investor in identifying good deals such as Pinterest (which recently completed a $200 million funding at a $2.5 billion valuation after a $100 million investment a year earlier from Japanese e-commerce site Rakuten)? A. Most companies don't know what business they are in. For instance, a transformative moment came for Black & Decker when the management realized that it is not in the drill business, it's in the home renovation business.
Q. Angel investing has taken off. Are there too many angel investors now? A. There's a lot of "wanna-preneuers" out there that are getting funded by too many angels who have done very little "do diligence." There is a lot of money, but I don't see a bubble forming.
Q. Is angel investing becoming the new venture capital? A. Yes, angels are replacing VCs. There were 50,000 companies started by seed capital last year and only 600 by VCs. Many VCs have been burned very badly with Series A deals. There are very few big exits out there now.
Q. What needs to change in startup investing? A. We need to get past the point of feeling that entrepreneurship is nice and not telling founders what we really think about their new business soon enough. There needs to be more rigor.
Q. What's the biggest lesson you've learned as an angel investor? A. Don't invest in a startup where the owners are boyfriend and girlfriend.
Q. Tell me a horror story from your angel investing experience. A. The worst horror story was investing in a pet insurance company. We funded the startup with $75,000 and I never thought to ask the right questions. A few days after the investment, the founders came back to us and asked for more money. They had spent all the money on ads over the weekend. This was back in 2005. The company went under two weeks later.
