Jack Baum was one of my favorite investors and board members at the first company I founded. He was outspoken, introduced us to key customers and other key investors, and was a real supporter of us founders. He isn’t afraid to say what was on his mind even if it was not politically correct. He also took time to listen to our perspectives and since he is an entrepreneur himself, he could relate to us.
I interviewed Jack (pdf) for The University of Texas at Austin’s alumni magazine, The Alcalde, for an article that was published in the November/December 2005 issue. My writing partner, Pam Losefksy, and I pulled these articles together a while back and you can see them on the Success Profiles page of this blog. You can see the full article on Jack by clicking HERE (pdf).
Jack is the President/CEO of Food, Friends & Company, which owns Cozymel’s Mexican Grill and is now creating an upscale seafood restaurant called Red Sails, as well as a Pan-Latin concept called Tango. He founded Canyon Café, Sam’s Café, and Newport’s in Texas as well as Sagebrook Technology Partners, an investment firm that provides capital to early-stage technology companies. (Sagebrook subsequently merged with 2M Capital.) Has competed in five Ironman triathlons and finished in the top tier in the amateur division.
The main point he wanted to share was:
When I look at the traits of successful people, I think of a triangle or a stool with three legs. First, successful people have meaningful relationships with their family and friends. Second, they take the selfishness and the ego out of making money and elevate
what they do to make money to a point where it’s good for society. And third, successful people know how to recharge their batteries.
He also shared the following advice:
When I talk to young people, I often use the metaphor of training for a marathon, which is something I know a lot about, to illustrate how to be successful. I know I can increase my training by 5 percent a week without injuring myself. If my goal is to run a marathon, and the longest run I’m capable of today is three miles, I then calculate how long it’s going to take me to be ready and I can enter a marathon after that date.
I think the same thing happens in life. A lot of young people coming out of college are rushing to get their careers started, but I think they need to look at it more as a marathon than as a sprint. I believe they need to say to themselves, “Here are the tools that I need to put in my toolbox to be successful. I’ve got plenty of time to do it. I don’t have to do everything today.” If they can have that perspective, they are more likely to stay balanced and to keep each leg of the stool on the ground.
I have a lot of respect for Jack. He seems to have found ways to keep his three legged stool balanced for the most part from what I’ve seen. He flew in to speak to my entrepreneurship class a couple of times and was always a great hit with the students.
The marathon analogy works well for start-ups and life. There are many times in an entrepreneurial endeavor you feel like just giving up because it’s just too hard and all your muscles ache and your brain is fried. But you get up and keep going until you make it over the hump or you hit the wall. Some companies make it across the finish line, some make it but fall apart afterwards, some make it in record time and are the darlings of the race, and some people’s mind/body just have to call it quits because that’s just how it has to be at that point. They pick themselves up and try again later with another company. And such is life.
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Several readers who saw my Fundraising Toolkit post have asked me about my experience raising funds from angels and VCs for my first entrepreneurial endeavor. We raised about $15 million of which $3.5 million was from angels or what I would call boutique VC firms (i.e. a group of angels under one investment roof). Keep in mind that was all before the bubble burst back in 2001. Here are some of my observations based on my experience and from stories I’ve heard from other entrepreneurs.
They tend to invest their own money and reputation in earlier stage companies that can benefit not only from dollars but also their advice and contacts.
The really good ones (yes, there are fallen bad ones) have built their own businesses from the ground up. They have a great appreciation of what it takes to build a business and are creative with solutions to the inevitable unexpected issues that arise.
They tend to get their ‘hands dirty.’ Our lead angel investor for my first company was Marc Seriff, founding CTO of America Online. You may recall that in 1999/2000 talent was scarce and the Internet bubble was close to its biggest. Marc actually manned a career fair booth that we had at The University of Texas at Austin. He also participated in the interview process of finding great developers! Needless to say we found some good people. Since Marc was our lead for our first round, he even assured our vendors that he would make sure (i.e. personally guarantee) they got paid if for some reason we couldn’t close the round!
They tend to bring their friends along for the ride. Marc and another of our angel investors, Jack Baum, brought in their friends and contacts making the fundraising process a little bit easier. Jack also introduced us to the owners of our very first big paying customer who ended up doing a nationwide rollout with us. I remember framing the check! He and his partner Steve Winter brought in two of our three venture investors. The two good ones! Steve even served as our interim-CEO between the time we parted ways with the first CEO we hired to replace me until we found the next one.
They don’t necessarily have to invest money to be an angel. Richard Benkendorf was one of our advisors who introduced us to our first key customer in the Coca-Cola bottling system that helped us achieve our first $1 million in revenue! We framed that check too!
When the dollars needed get big for future financing rounds, angel investors usually voluntarily step back or can’t provide the needed growth capital.
Some of them may not have sat on a Board or been involved in building their own businesses making some board meetings interesting to say the least. In other words, an angel who made his/her money from their own business versus someone who came in later at Google, Microsoft, or Dell have different perspectives and experiences.
They tend to invest in later stage companies with some revenue, product completed, and market traction. They seem to like to come in after an initial angel round of investment (if the deal structure is not too messed up).
The really good ones (yes there are bad VCs – in case you haven’t heard) have had repeated success with other portfolio companies, have built their own businesses, and come with a big rolodex of contacts and partners to help you cross some of the early hurdles. One of our venture investors, SAP Ventures, led by Jeff Nolan who blogs at Venture Chronicles (the only former investor I found who blogs publicly) introduced us to departments within SAP who were targeting the same customers that we were. He also gave me a copy of The Monk and The Riddle by Randy Komisar (see below for book link) that was a great read at a time when I think he sensed I was no longer enjoying the journey.
They tend to be more bankers/financiers than operating (i.e., built their own business) people. They tend to look at a business with a black/white eye on numbers and how fast they can get their money plus a nice return on their money out.
The good ones will often bring along investment partners in what is called a syndicate. A few VC firms who have worked together before will join forces to fund a deal which makes life easier for the founders because they can go back to building the business versus fundraising sooner.
They seem to use and apply a formula that they have achieved financial success with before which often means replacing the founding CEO or other key founders with people they have worked with many times before. If more often than not something has worked for them with a portfolio company in the past, they’ll apply the same logic to future deals companies.
They are investing other people’s money (i.e. their limited partner’s money – insurance companies, wealthy individuals, other corporations) and if they perform well those people will give them more money to invest. In other words they are risking more than just their finances and reputations, they are risking other people’s finances and reputations as well.
Who To Choose?
Personally, I think it all comes down to the investor fit and the stage of the start-up game you are in. It’s definitely better to have people who have built businesses on your side. It’s also good to have people who have backed high-growth businesses if you plan to IPO or sell to an established business in the near future.
Most technology start-ups don’t make it big. It’s a unique combination of talent, dedication, luck, timing, and great people that make the difference between the companies who become household names and those who shut down on the wayside or find another comfortable existence. We often forget that it is more than OK to start a good profitable business that provides value to your local community. If you want to play with venture capitalists, then you need to aim for the ‘household name’ category like Google or Yahoo! even if chances are high you won’t make it to an IPO.
My biggest learning was how important it was to be able to communicate with your investors openly and honestly. Trust your gut and if they respect and trust you as a person and you respect and trust them, it will be much easier to weather the inevitable storms. It’s easy to take money for money’s sake but in the end it can end up being more costly than what it was worth.
As Ben Yoskovitz says in his Startup CEO School of Hard Knocks post, you must have fun! When you are no longer enjoying the journey, take a break and look around to make sure you are doing what you should be doing. Make sure you are in the right place at the right time for yourself and don’t be afraid to make changes.
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, richard benkendorf
, steve wintor
, the monk and the riddle
, venture capitalists
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