On this special segment of the Full Ratchet, the following
investors are featured:
David S. Rose
Each investor describes an outstanding entrepreneur that
they’ve worked with and what key traits and behaviors
make for the best startup leaders.
Morris: Yeah, you’re asking me to choose who my favorite child is!
Nick: They all say that!
Morris: The answer is yes, I’ve worked with many exceptional founders. I’ve worked with Kyle Wild at Keen IO in San Francisco—is an exceptional founder. [Daniel Morrow from Madamar] is an exceptional founder that I’m an investor in. there are a lot of exceptional founders and they tend to have many of the same qualities. And that it they understand their markets in a very deep manner that can only come from spending time in that market, and spending time in that domain before starting their company. They are smart enough to know that if they are the smartest person in the room, they’ve brought the wrong people to the room. And they are egoless enough to listen to advice from a number of different people without taking offense, but leaders enough to understand that they can’t just run down a rat hole because somebody says so. They gotta gather the information from all the people giving them advice and make their own decision on what the right move to make is going to be.
Nick: Is there a way that you try and asses the characteristic early on when you’re making an investment decision?
Morris: Absolutely. The domain one is easy, that’s an objective thing. The other pieces are not quite as easy for everybody. They tend to be easier for me because I have no filter….and I can pretty easily see what kind of reaction people have to that. My general feeling is is that if somebody can’t deal with the unfiltered truth, without being defensive about it, it’s not going to be a good company for me to invest in because I’m not going to be able to add the value that I need to add. So, that doesn’t necessarily answer the question of are they smart enough to understand that they shouldn’t be the smartest person in the room, but it’s an indicator for me.
Nick: On today’s special segment, we have Rob Day of Black Coral Capital. Rob, have you have the pleasure of working with or investing in an exceptional founder? And if so, can you talk about what made that entrepreneur so great and unique?
Rob: Well, you might imagine since we put so much emphasis on finding great management teams, I’ve actually worked with a whole bunch of ones that I like.
Nick: It’s hard to pick one, right?
Rob: Yeah! Well, it really is though, because whether we’re fooling ourselves or whether we’re doing a good job at that evaluative process, we end up with entrepreneurs that we really like. And so, yeah, I mean I’ve gotten to work with, for instance, these founders at Digital Lumens who are just incredibly smart. It’s a company that does smart lighting controls that saves ninety percent of the lighting bill and provides a whole lot of intelligence just in terms of what’s going on in the building. Because they turn every single light into a computer, basically. These guys came out of robotics as their background. So some of the smartest individuals I’ve ever gotten to meet, too.
I’ve gotten to work with guys who have built Clean Energy Collective. The team that has built was has quietly become a huge company with projects across, I think, well over a dozen states now. And so people who understand how to take something that has not been identified by the rest of the community as a big opportunity and get out there first and just blow it out.
But of course, if I had to pick one—talk about one, I guess Scott Harmon would illustrate what I’m talking about with our approach. Harmon is the CEO and founder at Noesis Energy—N-O-E-S-I-S—Energy. Scott is a serial IT man. He had made investors come good returns in the past. He also had definitely earned some battle scars in the past. He had got a good relationship through all of that with Austin Ventures, who said “Look, Scott, we’re willing to back whatever you come up with next.”
And he looked at a bunch of different things, medical stuff, education related stuff, but hit upon the buildings industry as an area that was really ripe for innovation. And what we really like is that Scoot really knows how to be a great entrepreneur. Great strategist, but also just really know show to be a great entrepreneur. Great on execution, great on acquiring addition smart talent, advice, [inaudible]. Very willing to make the hard decisions when necessary, and very good steward of investor capital.
And so, when we backed him, it was really a business model still in flux, but we backed him because we knew Scott and we knew the team that he’d been able to attract around him, and we said “Look, these guys are gonna figure out a good solution here” and we liked that they were approaching the buildings industry from outside, because frankly there’s a lot of stuff that happens in the buildings industry that is fairly antiquated and there’s new approach to solving the great—they originally were going to be a SaaS based solution to marketplace.
What they found over time is that there is a big opportunity to deploy financing into that world. A lot of that financing goes into energy efficiency projects. Certainly not all. They describe themselves as a thintech plate. They are working closely with a bunch of people who just come at it from the lending industry and see this as being an attractive vertical. And Scott what able to identify that over time, shift the teams focus, even shifting the business model over time, in ways that we didn’t anticipate. So that’s become a real success sort in making, and it is predominantly because we found a really high execution management team that was going at the right basic problem, even if they hadn’t sorted out exactly the right solution to it yet.
David: Sure. I mean the first thing about finding what you’re looking at in a founder is integrity. That’s why I teach in business school classes, I teach 11:56(unclear) the book. I mean that’s the number one thing. That’s the Sinéquanone. We look for integrity of above all because that’s the only one thing we can guarantee. You can’t guarantee market, you can’t guarantee technology, you can’t guarantee execution. The only can you can guarantee is, “Do I trust this person on who I’m betting my money?” Right? So that’s the most important thing we look for and I’ve invested in your with over one hundred and whatever hundred ten at this point probably investments, I invested in a lot of entrepreneurs. All of whom by definition I thought were already exceptional, I invested in them. So it’s like you’re picking your favourite child which I could never do because I love all my children That being said, let me give you a representative example of an exceptional found out.
David: And that would be a guy named #Ryan Jenson. So Ryan first crossed my radar screen over a decade ago. At #New York Angels when he was pitching a company at New York Angels called Tag and scan. The idea was, you would effectively use G.P.S. and a smartphones in the early days of smartphones to tag a location and it would leave notes to you, coded notes this location so other people could come in and see what was happening here or when you walk by the would say, “Hey, I’m the spot..” you know “X. Y. or Z. Look up there and see this or here’s a great deal or whatever.” He was very impressive as an entrepreneur, he had a background in product management and a bunch of other things but at that point you know, I didn’t quite see the business model work and it was really early on and so I decided to pass and because that point I was just their leading mobile guy at New York angels. Nobody else wanted to, possibly nobody else wanted to do it so we didn’t invest but I told them you know, I thought he was a very impressive guy. Look, we helped 13:33 (unclear). He went off, he said “Thanks but I’m going to do 13:36 (unclear) because I believe in it.” So I said, “Great” and I introduced him to a few people and he went off but just six months later, heard from again he said, “Okay, I did Tag and Scan. We set up operations in London…” which was the smart thing because they had more smart phones or whatever out there. “… Got some interesting traction but it didn’t quite work. So I guess you were right, so now I’m back at looker for a job again” So I said, “Okay. Well this is a very impressive guy” and that was just about when I was starting what’s now #Gust and I said, “Okay. Well, tell you what, if you’re looking for a job, I’ve got us a start up here. The next best thing to being up an entrepreneur yourself is to help another entrepreneur get started. So, why don’t you come join me as the sort of head product guy and you know, C.O.O. of this new company which then was called #Angel Soft. So he joined me at Angel Soft and he was in charge of the first version on this product and help doing the initial you know conception and stuff and built the entire team…
David: … which was really great and after about four years, he came to me said, “Okay. This is really cool. We’re doing really, really great and I know that this is going to change the world. It’s going and so forth but I’m an entrepreneur and you know. Got to start a company.” I said, “Okay. You know, God bless you. I certainly know how that feels.” So he said, “Okay. I’m going to go out and start a company.” so he left. He sent me note about a month later or so saying, “Okay, here’s the four ideas I got for a company. Which do you like?” So he sat around a bunch of people, we just sort of voted on them and eventually decided to do a company called #Sep-Jam which was to be a T.V. guide for the Internet. So, if you think about it there’s no one place that has all the… I mean you can search on YouTube for videos and stuff but there with between stuff that was on streaming systems and you have Netflix and Amazon everything else back then there, there wasn’t any kind of coordinated guide. So, he decided to do an online super guide of that and he presented to the screening committee at New York Angels and we thought it was okay to bring him. So we brought him into the whole group and they have known him from when he was working on Gust that from his previous thing with Tag and scan will take a scan. So he gave the pitch, a really passionate pitch. He’s a smart guy and around the table everybody said, “Yeah. You know what? Hey, let’s do it right now!” and so literally everybody said, “Well you know, it’s one thing aren’t making a twenty-five thousand, fifty-five thousand dollar decision here but how about if we just all put in five thousand bucks a piece?” So everybody said, “Okay, let’s try that” and so he did his first round, first and only round any Angel ever did as a sort of party round around the table. Everybody putting in you know, five, ten, fifteen thousand bucks and we funded his… this is now his second company. He then went off and raised a bunch of money from West Coast Angels hampered down, got it, built a great team. He’s really good about building teams and he got Sep-Jam going and he ran this for about three years I think and the market was changing, you have all the streaming services coming online, there is more discovery and the original vision wasn’t really working. They developed some really cool technology and great team but it was clearly not going to be the home run that everybody had hoped so they came to us and said, “Okay. Listen I think it’s time you know to fold this hand but I believe that we have such good stuff that we went and found a new home for it. So I’m going to run a process to sell the company.” and he then embarked upon the most extraordinary campaign I’ve ever seen but one of my portfolio companies do, to find a buyer for the company. They did 16:42 (unclear) figured out everybody in the industry who might be interested. He did an amazing book showing on this you know, the strategy and the synergy and why this would be you know great for them. He ran an entire process in the space of under three to six months as I recall executing spectacularly. He had multiple bidders and he ended up selling to Motorola the same day that they quire by Google.
David: So this gets to be… We count this as our Google acquisition and since then it has been… he went over and you know as part of the deal, spent a years or two working at Google planning other projects that they were doing and everybody on that deal, we all got cash and that was an example of an entrepreneur by force of just pure will and force of traction and force of execution calling out what would in any other hands unquestionably would have been an unhappy outcome and on the basis of that every one of his angels, remember we had a whole bunch of people in there from the group saying, “The next time you do a company, I’m in, side on the seat. I mean it wasn’t a homerun but it was a solid exist.” So, he goes off, takes a vacation comes back, he then says, “Okay. Ha-ha, I’ve got another company. This one is collectively. The idea is for anonymous communications in the enterprise” and so the enterprise and so the idea being sort of like a secret kind of thing but for communications about companies, if you have a suggestion box or you have a company wiki, not everybody you know is willing to attach their name to things and you can often get better things. If it’s a site like you know, glass door or whatever where people can do anonymous reviews. So he built an enterprise platform around anonymous communications. Now this isn’t exactly my area and I’m not sure I completely think that’s the logical way to do this but this is a case where now having had experience through multiple companies and multiple startups with the guy under the heading of “Bet the jockey, not the horse” I and everybody else who have been in all the previous deals said “Hey, we’re in. Whether we like the idea, hate the idea, you know. Think it makes sense, it doesn’t make sense, would prefer to do something else, we’re betting on you because you have shown that this is they way how you treat your investors” and so we all reap, everybody reap and collectively it did. 18:51 (unclear) a couple of time from what it’s doing and released it’s latest product just a few weeks ago called Memo which is this anonymous feedback and posted situates.That went gorgeous design and it’s making head rolls now into the enterprise so it’s early days. So, it’s too early to tell how and when this hand will play out but this is a guy who if you “bet the jockey, not the horse”, this is a guy you would bet, I would bet and whether or not this is a home run or a wipe out I would bet on Ryan Jensen again.
Nick: Was it the combination of hustle and team building?
David: It’s hustle. It’s just the absolute, first so all it’s total integrity, right? That’s the most important thing, number one and the it’s hustle and it’s not just… anybody can hustle in the good times in early days when you have yourself an idea and you can take over the world but hustling in the bad days when things really hit the fan, the way he, with Sep-Jam he had a tough road and he would not let his investors down and the entire point of this was to pull it after his investors and just watching what he did and how he did it, all of his investors he’s got for like now, whatever he does.