David S. Rose: ...how to pitch to potential investors

[Music] Welcome to Nobody Told Me. I'm Jan Black. Hang on. I'm Laura Owens. Joining us in the studio is serial entrepreneur and angel investor David S. Rose, who has founded or funded over 100 pioneering companies. David is the founder and CEO of Gust, the world's largest online platform for entrepreneurs and early-stage investors. Gust is used by over 650,000 entrepreneurs in nearly 200 countries to connect with tens of thousands of early-stage investors. He is the New York Times bestselling author of both *Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups* and *The Startup Checklist: 25 Steps to a Scalable, High-Growth Business*. David, thank you so much for joining us.

It's my pleasure to be here.

Tell us about how you came to be a serial entrepreneur and an angel investor. You've done so many things, we couldn't even begin to scratch the surface of all you've done, but, but give us kind of a thumbnail sketch.

Sure. Well, first of all, those are two very different things. Being an angel investor and being an entrepreneur. One funds the other. I happen to be both. And in fact, a lot of angel investors are actually reformed, or semi-reformed, or unreformed entrepreneurs. And, you know, entrepreneurs are people who create new businesses, typically something that doesn't exist. They take risks and they devote their lives, their fortunes, and their sacred honor, as they said in the Declaration of Independence, to creating something new. And they are a very interesting breed. Because if you think about people who are natural-born entrepreneurs, in my experience, which is pretty extensive in this space, I would tell you that it's only 1% of the population. Literally, one out of a hundred people are natural-born entrepreneurs.

Interesting.

Now, that said, a lot of other people start businesses, right? And so, probably, but not everybody, maybe you think. But what down the street, most people are not starting businesses. Remember, those who do start businesses, I think you'd find that roughly 25% of them are these natural-born entrepreneurs, and the other 75% are what I call self-made entrepreneurs. Those are people who weren't born with a weird psychiatric gene defect or something, but they have, they have experience in a particular field, they have domain expertise, they have spent time and understand that there's a market, and then they rationally decide that they have the skillset and the experience to be able to fix it. And so that's the counselor, probably three-quarters of people who start companies, with one quarter being these natural-born entrepreneurs. And so I happen to be one of that 1%. I'm actually a fifth-generation entrepreneur. So it's genetically going back all the way along.

Online, back during the dot-com era, back in 1997, I was a finalist for the Young Entrepreneur of the Year award. My father won it in 2002. 90 years old and going strong. So we're a very long-lived family of entrepreneurs. Always sort of in that sense, I was born into it. That's how you got to be an entrepreneur. Some people get there on their own after understanding for years how to do something, and other people, like me, are born into it. So I started my first company when I was about ten years old. I started companies in high school, in college, in business school, after business school, boom, combust. And so I started a company in the early, late 1980s that ended up getting pretty big, and then fell backwards into venture capital and got outside funding and got really big, and then hit the dot-com crash and got really small. And if you are familiar with the way early-stage startup companies work, you know there's a hierarchy. There are managers and directors and vice presidents and presidents, and there's the CEO, and there's the board of directors, and then there's something called the spousal authority, which is the highest level. So following the dot-com crash, the spousal authority revoked my entrepreneurship cards. So I was no longer allowed to start companies. So I had to go over to the dark side, become an entrepreneur. So I'm gonna become an angel investor. So that's when I was reluctantly retired from the field of starting companies after my company got very, very teeny-weeny, itsy-bitsy, vanishingly small. And became an angel investor. And I had known a lot of people in this space. And I had one of my friends was the guy who actually had invented social networking. And I bet you didn't know that somebody invented social networking.

I did not.

Patented social networking. So he got a patent on the idea of connecting through a network of people who know people. And the first site was called 6 Degrees, way back in the early, early days of the web. And he sold it at the height of the dot-com boom for a whole lot of money, over a million dollars. Unfortunately, the next day was the end of the universe as we knew it in terms of the dot-com crash. And within three months after the acquisition, the company that acquired had shut the site down and then went out of business, which was very depressing. So my friend Andrew One Rich, who was the guy who invented social networking, was back on the street, but not a company either, and had an idea for another new company and asked me to come work on it with him. And I said, I'm not a lot of command. So all I could do was, you know, provide some cash and help write the business plan and raise some funding. That's how I became an angel investor. And then I found I'm a joiner. So you join every group that'll have me as a member. And so there was a local group back then, and that was the early days of the tech world in New York City. And there was a group called the New York New Media Association, which I had helped to form back in 1995. And they had an angel investor program where people who were pundits or investors or who had made it in the first round would hear pitches from early-stage companies and major in write checks. And so I joined that group since I was now an angel investor. And then that was still in the nuclear winter, we called it, after the dot-com crash. And so then, in short order, the New York Media Association went under as well. But the angel group, which was the angel part of it, which was functioning, they had enough legs to sort of survive. So I took that over, kicked out everybody who wasn't writing checks, and founded New York Angels. So New York Angels is one of the largest, most active groups of angel investors in the world. So I founded that back in 2004. So that's, what, 15, 16 years ago now. And looking and doing a lot of early-stage investing. And so I've got, I bet, about 120 companies in my portfolio at this point, over time. At my height, I was doing probably 10 or 15 companies a year that I was investing in. And we had all kinds of interesting companies. So, for example, you're probably out here in San Francisco, familiar with Jump Bikes, the, the Uber? Yes. I was the first investor in Jump Bikes. I was chairman of the board of Jump for six years until we sold it to Uber. I don't know if you're a comic book fan, but Amazon's comic book operations called ComiXology, which has, they publish comic books from DC and Marvel digitally. And so on. I was the first investor in that and chairman of the board of that. So I have a whole lot of interesting companies along the way. And, and back in, you know, having started this early-stage and angel investing group, I realized that for a couple of years that it was a very discombobulated, non-technologically intermediated universe, and very disorganized. Most people randomly showing up at events or somebody you met in the street who were your friends' friend has a deal. And I figured that using technology, there had to be a better way to organize this. Huh. And so I figured, okay, well, if you use computers and you can, hmm. So I went back to the spousal authority, got my hands back, and I started a company that today is called Gust. And the numbers you were reading around those are actually a date. Gust is now supporting over 850,000 companies. That's a lot of companies. The platform that's that's used by a majority of the world's angel investor networks, over 750 of them, by majority of the world's accelerator programs, over 2,000 of them, to manage all their their deal flow and coordination of people applying for funding and the investors. And, you know, the other side, we have over 85,000 early-stage investors who belong to these groups and judges for accelerator competitions and so on, who use our platform to look at and do diligence on these companies. So the result of that is, because we have over 3,000 organizations that use Gust to manage their deal flow, and all these entrepreneurs who come in and create profiles, which they can then share with individual angel investors or these groups, we also have the world's biggest deal flow. So we, between 10,000 and 15,000 companies every month, come onto Gust and create new profiles, which they can then share with potential investors and funders. And then we found something really interesting along the way, which is of those 10 to 15,000 companies every month who are looking for funding, you would think, oh, they're all late-stage companies, they're like Uber or Apple. Well, no, it turned out that actually half of them, when they when they applied, when they came onto Gust sort of for funding, we're not even incorporated yet.

Oh, wow.

Aspirational entrepreneurs. Yeah. So as I said, on first, I'm not always exactly rational people. They have wonderful plans and stuff. And so here they were, seeking funding, and I hadn't even started the company. Hmm. So along the way, I'd written these two New York Times bestsellers. You mentioned the first one was the definitive textbook on how to be an angel investor. It's called *Angel Investing: Gust Guide to Making Money and Having Fun Investing in Startups*. And then it turned out that it was a bestseller. My publisher, it came back to me, letters of wait a minute, there aren't enough angel investors in the world to make a book a New York Times bestseller. Entrepreneurs were reading to see what the playbook was of the guys at the other side of the table. Yeah. Right. So they said, well, you can't cut out the middleman and write a book for entrepreneurs about how to do this. So I said, oh, yeah, sure. And so I wrote the second book, which is *The Startup Checklist: 25 Steps to a Scalable, High-Growth Business*. And so that has become the sort of definitive textbook on how to start a high-growth business. And that has not been adopted by over 500 universities in the country as the textbook for their entrepreneurship programs. And so here I've written this whole book about how to actually start a company, the nuts and bolts, how to incorporate, and what do you do with your lawyer, and how do you issue stock options, and what kind of company should you be, and all that kind of stuff. And here we had all these entrepreneurs coming in looking for money without having started a company. Together. And then we created a platform. Gust plus offers a service platform called Gust Launch, which today, if you are starting a high-growth company, we can discuss that in a second, then you would have to be sort of brain-dead to not come onto Gust Launch and press a button. Because, whoof, we spin up the entire company, lock, stock, and barrel. So literally, just launch, you come in, you say, okay, I want to start a company, you press the button, and we incorporate you as a Delaware C-corporation. When we call you with the EIN, your tax ID, we farm qualify you in your home state, and we set up, do all your post-corporation legal setup, we do all your bylaws, set up your cap table, issues, stock options, can ready to be elections, vesting schedules. And then as you proceed up the other levels, and that's started at $300. So it's like, there's no reason not to do it. And then the next level up, we all, we open your bank account for you automatically online. We connect you with a lawyer, and they give you how much of free legal services. We handle, you know, all of the various things that takes behind the scenes, including all the fundraising documents, so you can raise money from angel investors and, and, you know, friends and family rounds and so and so forth. And then when you get bigger and bigger, and now you have employees, we set up your option plan for you and handle all the option plan administration and the valuations that are needed for option plan giving and all that kind of stuff. So that's called Gust Launch. And that has incorporated thousands of companies. And that's really the logical way to create a high-growth company. Uh-huh. I don't, nobody told me interview continues in just a moment. But first, we want to tell you about one of our sponsors, StoryWorth. You know, our favorite part about the holidays is reconnecting with family, swapping stories, and reliving moments together. But keeping these memories alive can be hard. 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As an entrepreneur, I'm wondering how people can decide whether they need to go for angel investor backing, and venture capital firm backing, or bank backing.

Sure. Let's take, let's deconstruct those. Or there's a third. There are actually two other things in addition to the three you just mentioned. So you mentioned angels, VCs, and banks. So the fourth would be friends and family. Yes. And a fifth would be your personal pocketbook. And we actually did that in reverse order, right? Oh, yeah. Very first cash into a company, every company, everywhere, at all times, is your own personal cash. Because if you are not willing to put your personal cash behind your business, ain't nobody else gonna do it. So you're the first cash in. Okay? And then you now have an idea, you have something, you put your cash in, you've started to do something, started to code something, you started to whatever, right? Then the next cash is gonna be from friends and family, realistically. Any place you can beg, borrow, or steal it, because you don't have anything of size or scale or promise or or solidity or traction or anything to get a professional investor coming in. And so then the question, you say, well, great, um, I need money. So let's go where money is. That's banks. From Young Willie Sutton, rob banks, that's where the money was. You know, you go to a bank, you say, can I have some money for my startup? And the bank looks at you like you have three heads and said, no. Because banks are not in the business of investing in companies. Banks take no risk. Banks are not in the risk business. Banks are in the renting money business. So a bank will say, okay, we'll give you $100, but the cost $100 has come back next year and give me $110 on the one-year anniversary. That's the interest. Over there, pay me my money back plus the interest. And so, you know, what if you take that $100 and make a billion-dollar company out of it? Congratulations, you can buy me dinner, you know, but all I want back is the $100. On the other hand, if $100 and your hope is this fails, you lose $100. I'm sorry, maybe I'll buy a hot dog, but I got to get that $100 back, right? Regardless of what happens. So banks are not interested in taking risk. Which means that no way do banks lend money, ever, under any circumstances, to startups. They might lend it to you personally, if you put up your house, your car, your dog, your mother, or whatever is your collateral for. But they're not going to lend the company money. So forget banks. Okay? First cash in, you. The second is from friends and family who love you because they love you. Yeah. When they want to support you. Thanks. Out of the picture. So then you're now got something that seems to have promise with the cash that you put in, the cash you've raised from your family. And maybe that's thousands, maybe that's tens of thousands of dollars. Most people, that doesn't get to hundreds of thousands. But for some people, it can. So you've, so typically at this point, it's sort of in the tens of thousands of range. And so frankly, if you're an entrepreneur, if you're serious about starting a business, and you can't figure out some way, somehow, to get the tens of thousands of bucks sort of on your own, just by brute force, right? It's either your own credit cards, or your family, or you get in three jobs and the gig economy, or you've saved up stuff, but you've paid for 15 years, or you find somebody you know, whatever, who's in the business that you're in, who will sponsor you, something, somehow. That's just hardscrabble doing it, right? That's sort of table stakes. But then if you think you really have promise in this thing, it could be a very big thing. Now you're looking for outside capital, outside people who don't know you. It's not that they love you or have faith in you. They are looking for a return, a big return. You're late. Yes. Then to put up money early on, take a big risk on your unproven, non-existent business. And why are they could do it? Because they think they can make a boatload of money. And it turns out that for angel investors, who were individual people like me, who write checks in these businesses, we see 40 possible companies for every one in which we invest. Wow. The odds are one out of 40 for you to do it. Mm-hmm. And so it's really, really tough getting an angel investment. Because if you think about it, there are 39 other people just like you, 39 driven, early-stage entrepreneurs who have a great idea that's gonna change the world, and they have done all the stuff. And so you're competing with, right? That means the stakes are pretty high as to what it takes to get that done. You know, it used to be in the old days, did you know, you couldn't do much of anything without an idea. So you had to get money ahead of time to go build your idea. But today, with all the tools that are available online, you know, all of the free and open source and, you know, platforms out there, pretty much anything you want to get started, you should be able to do regardless of money, right? You know, I'll talk on it. Yeah. And so therefore, if the other 39 people who are looking for an angel investment are doing that, that means you better do it too, or you have no chance at all, right? And so the reason that we said angel, our next, not VCs, is that there are many, many fewer VCs than there are angels. And VCs, the difference between a VC and an angel investor is that an angel investor is an individual person who is writing a check out of his or her own pocket, and for idiosyncratic reasons for you, because they've, they think the what you're doing is make a lot of sense for them. Mm-hmm. VC is a professional money manager. A VC raises a big pool of money from other people called limited partners, typically institutions that have a lot of cash, pension funds, insurance companies, university endowments, really, really super-rich people, so on and so forth. So they will raise a big pot of money, hundreds of millions, often, and then they will invest that into early-stage companies. Because these ones are relatively small, they have, you know, not a lot of it, they have to, you know, host their resources and put things money into relatively big chunks, millions of dollars or more. So they're looking for companies, they're typically at a later stage than the kind of things that angel investors might do. So a typical angel investment per person per deal can be about $25,000, you know, right today in the US, whereas for VCs, you're looking at millions of dollars over there. And with VCs, if angels are one out of 40, VCs is one out of 400. Oh, really? So if you watch Silicon Valley and you need all this, you know, you read all this up there and you see Shark Tank and it looks like everybody has an idea, the next thing you know, people throw money at you. It doesn't work that way. It's really, really tough. Four hundred to one against VCs, 40 to one against angels.

So what do you have to say to make your case to get money if you are starting an opera business?

And the next interesting misconception. It's not a question of what you have to say, it's a question of what you have to be. Okay? What are you? All right? So it's not a sales job here. It's who you are as a person. Well, that's partly it, but it's partly what the business is. Remember, angels are not doing it because they like you, because they're they're suckers who can get, you know, behind story. They are in it to make money. Mm-hmm. And they've seen, if they're seeing 40 deals, or when they invest, and they've seen hundreds or thousands of deals, and they, and they've seen what works, what doesn't work. And, and, and so they have some general ideas about the kinds of things it takes to do it. And so what they are looking for typically at the the angel stage is it is an investment that can return 30 times their original investment within, you know, six or seven years. Huh. A 30x return. Now, if you think about what that means, right? So for example, if we say, if you're looking to raise a million dollars and you say, okay, I'm gonna give you 10% of my company. You're the Shark Tank works with this. Yeah. I'm strange math. Where yeah, cheaper for a million dollars, tips at my company. That's not the way the first. Well, the math is wrong. And second, well, that's not the way the real world works. Because and so they, Shark Tank, I said, and then say, well, you're thinking your company's worth a million dollars and ten million dollars because you're here. But the answer is, well, no, because you're putting in a million dollars, right? So therefore, if you get a mil, you get 10% of my company for putting the million dollars, right? That means the whole company is worth $10 million after you invest. I'm not getting credit for your million dollars. So you got to back out your million dollars. I think my company's worth $9 million today, unless your million dollars makes a 10, and that's what you're getting in 10 percent. No, but the problem with that is, if you invest, the company is raised, wait for 10%, and it's worth $10 million right after your investment. And you're looking for a 30x return. That means within five or six years, that company has to be sold for $300 million. Thirty times the ten. All right. Oh my gosh. Yeah. Yeah. The number of my companies, the promises, they're my companies that were actually sold in six years for $3 million would be 120. That would be zero. So sure, you could hit Uber, that would be really great. Yeah. And it so happens that one of the very first deals in New York Angel numbers invested in was Pinterest, which was, oh, wow. Yeah. And some bikes got acquired by Uber. So a piece of that. But the answer is, 300x, don't have, you know, 30x don't happen that frequently. So therefore, or the $300 million doesn't happen that frequently. So therefore, back at dance, and no, you're probably not worth $9 million for your first angel investment, right? You know, so typically, what our exist, what do they look like? $30, $50 million, $70 million, $100 million. And so if I have to do a 30x, right, if I think that you could actually sell the company in, you know, five or six years for, you know, a $50 million valuation, right? And that ends up when you might, but I mean, you back enough for me to get, for me to get, let's take $60, because it's easier, right? The $60 million, me get 30x on my money, that means I have to invest at a $2 million valuation, right? And you take no other money in after me, which would dilute my thing. Rarely happens, right? Huh. And so if you needed a million dollars, I was putting a million dollars, and the company's worth $2 million, you know, it ends up. So that, so therefore, don't believe what you see on TV. Getting angel investments is very difficult. Get my PCs is next to impossible for the average person. Of course, it happens. The odds are very much against you. And the valuations you see are the outliers. They're the ones that have been for various reasons down the road. And we know Uber started the first round for Uber was at about $2.5 million, $3 million. Billion-dollar. Nobody Told Me conversation continues in just a moment. You know, much like our extraordinary guests on Nobody Told Me, many AirMedCare Network members have their own inspiring stories to share. They never thought the unthinkable would actually happen to them, but when it did, they were relieved to have their AirMedCare Network AMC N membership. If a medical emergency arises, AirMedCare Network provides members with world-class air transport services to the nearest appropriate hospital with no out-of-pocket expenses. More and more insurance fails to cover the full cost of a medical emergency. 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What criteria do you look at? You mentioned you have a really diverse portfolio, so you're not just sticking in one thing.

Well, it's diverse, but it's not scattershot, right? So there are a bunch of areas that I don't do. Right? I am not, what I, some people are what they call impact investors. They're looking to do a social good, social venture investing. I know, I'm a real capitalist. I'm going to make money doing this. Yeah. That being said, I'm a good guy. And I don't do things. Yeah. I don't invest in taking, you know, can't even babies. But I mean, I, I don't have most in cannabis. I don't invest alcohol. It doesn't, I don't invest entertainment deals. Some sort of my investing is in things like financial technology, software as a service, platform, marketplace platforms, you know, business-to-business things like that. So it's not totally broad-based. It's a, it's a really narrow area. But when investors look at a company, they are trying to see, is this the kind of company it can be this scalable, high-growth business? There's a rocket ship, right? And, and those are the companies. So if there's one takeaway from this entire episode that you and your listeners should get out of this is that not every business is ending up being Facebook or Apple. That's okay, and that's perfectly fine. Because unfortunately, but with all this press and all these blogs and all these TV shows and everything else, the general assumption is every company starts at point zero and the end of the platform is Apple Computer, the world's richest company. Yeah. Yeah. Right. A single straight line. And the only question is where you fall off that line. Yeah. Off that line at Apple's world's first company. Do you fall with that line after your only worth, you know, a hundred billion? You go come on after IPO, you fall over that line. That line before an IPO, but with a private acquisition, you fall off that line, you know, after your Series A round, after your angel round, it's at reject its. And that's not the case. That's one particular type of business, that's this scalable high-growth startup. And that type of business, maybe maybe accounts for, you know, 10% of the businesses that get started every year. The every year there are 2.8 to 3 million new business tax returns filed over a year. And those three to two, that 2.8 to 3 million businesses that are filed, most of them are not looking to be the next Pinterest or Facebook or Uber. Most of them are an accountant working out of her house, a dog walker, somebody who's sitting about yoga studio, a coffee shop, a, you know, a gig economy designer, whatever, right? So, and, and though that's the backbone of American business, that is the small independent business. And that's the vast majority of all people starting up businesses. That's what they are. That's what they should be. And that's what they want to be. Most people who are starting a business now do not go out and thinking, I'm Steve Jobs, but just know younger. They are thinking, I've got an idea for a business, whether it's dog wolf, and whether it's a harvest, or I'm gonna sell hand crafts, or I'm gonna do X, Y, or Z. And that's fine. And if you put them on the same this whole path, yeah, you start out the wrong way. Your expectation is the wrong one. You do the wrong things. And so the most important thing early on is to figure out what type of business are you? Are you a small independent American business, which is, which can be derisively called a lifestyle business, but there's nothing wrong with that at all. Or the goal is to occupy yourself, do something fulfilling, make money for yourself, support your family, create some value, create some economics. And that's the vast bulk of American business. And that's great, right? Yeah. Or are you going long and deep and, you know, and it's a, you know, everything and nothing, where you're, you know, you're gonna be, you know, Apple Computer or bust, right? Which is much higher risk. Most of those companies fail. You know, the majority of those high-growth companies fail, never again return any return for anybody. They lose all their money. There's no salvage value over there, right? And, but some people do that. That's what some people like to die like that. Yeah. Well, worth doing that if you have the mindset, the temperament, and the skillset to do that. But for most people who are who are creating a small independent business, if you followed the playbook for this high-growth company, you're gonna screw it up. It's gonna be a disaster, right? And, and so if you, if you think, say, okay, I'm starting a local hardware store, and I need to find a venture capitalist. Well, a VC will never invest in a local hardware store. All right? Not what they do. It just doesn't work. And so if you now spend the next four years reading books about how to pitch to a VC and how to do, you know, so on and so forth, you know, it's, it's the more between suicidal and useless, right? Yeah. I'm not gonna get anywhere. So understand what you are and what path you're on. Um, and so I would, I'll give you two books. So that, so for those two types of businesses, the best book for the small independent business is called *Small Time Operator*. Um, and it's a great book about it, you know, how to get your business started. I think it's something like, you know, how to, how to create your business, pay your taxes, to stay out of jail, or some such thing. It's, it's a, you can get the put in show notes, the exact title. Yeah. But that's a really great book designed for that person. And that's not a bad venture capital and being an IPO and blah, blah, blah, but how to start a small business. And that's great. And the other one, if you happen to be that, you know, 10 or 20% of the people who are trying to go big or go home, right? Now, or nothing, you're willing to take that risk and, you know, live this crazy life, stone, stone, and so forth, then that's where you get my book. So the other one is that's *The Startup Checklist: 25 Steps to a Scalable, High-Growth Business*. You know, then that will take you to teach you how to be the big thing, knowing that there's a very good likelihood, if not an overwhelming likelihood, that you will not make it to the end. But that's the nature of the business.

What are the red flags that you look for if someone is coming to you for money for a new business?

So let's, so now let's, we're talking here, if you're looking for money, that means you've already decided you're not a small independent business, you are this scalable, high-growth this. All right? So what do we look for? We look for, for first of all, a market that you're in that is big and growing. If you come up with a grand, amazing new business for buggy whips, right? Okay. I mean, you guys do horses, but, you know, the market for buggy whips is not exactly a big growing market that can support the kind of 30x return that I need. Look for more couldn't where there people are actually spending money and there's money there and I'm marking itself as growing because a rising tide lifts all boats, all right? Number one. Number two, what is it? Is there something special about what you're doing? Do you have a secret sauce, a better product, a much better product, a 10x better product? Do you have a distribution channel? Do you have a way of doing something, mean you will beat your competition over there, right? Um, do you have a business model that makes sense? Let me show me how, you know, what are you doing and who ultimately benefits from the value from it and how do you get paid? And is that business model scalable so it gets better over time, right? These things we look for. And then the most important thing is the people. Is the you? Who is it, right? Is it you and is a team around you? And that gets into this question of who is the entrepreneur. So the first thing I look for is, are you the entrepreneur, capital T, capital E, right? The entrepreneur, that crazy person who we just discussed before, who is betting everything and this is, you know, you've got enough ability to take risk and enough energy to put bull through it and enough passion to drive you and so and so forth, right? And so there are a list of sort of 10 characteristics that we look for in those people. And I did a YouTube video that you mentioned you've seen on how to pitch a VC, that's had over a million downloads at this point, sort of become the standard for how to do a pitch. And coming to that and the show notes as well, yeah. And so in in looking at an entrepreneur who's pitching us, I am every time they she says anything at all, I'm looking to run her against this rubric of say, 10 things. Right? The first one is integrity. Really important. If I don't trust you, I will never invest in you. Just period, hands down, flat out. Cynic one on that. That's the number one thing. Because ultimately, if you're creating a new business, then you are making decisions every minute of the day about everything, because business doesn't exist. You're creating something out of whole cloth. And, and if I can't trust absolutely 100% you to be making those decisions for the good of the company, which I'm an investor, as opposed to you personally, I will be second-guessing every decision you ever make. And life's too short. I can't do that, right? I got to trust you. Integrity is number one. Number two, you got to be driven. And that's passion, right? You can tell just my speech patterns, I'm a, I'm right about everything, including, you know, teaching, and including, including business. And I look for passion. Not necessarily the kind of exuberant passion that sort of like, simplify at one end. Mean James Earl Jones can be passionate as well, right? But that's, that's the kind of passion I want to see. I want to see passion in some form, because that's what's good. The inner thing that's gonna drive you out there, right? Then we look for experience. Because no matter how good your intentions are, you don't have experience, you use your to have a really long road home, right? And so there are sort of three kinds of experience, right? One of them is startup experience. You've never started a company before. A number of studies have shown that people who have had experience in had successfully started a company before tend to do better the second time. So that's great. The people who failed in their first time don't necessarily fail in the second time. So it's so-so having experience is either a neutral or positive. It's not a bad thing, no matter what happened the first time. And so therefore, there's no saying, I'd like to know before you, you shave my beard, I'd like to have you learned to shave on somebody else's before you spend my money on is, I'd like you to have learned how to do it on somebody else's money. So we look for experience. As a serial on, that's why serial entrepreneurs tend to get to get funded. But if not, because most portion about all first-time entrepreneurs, definitionally, are first-time entrepreneurs, right? Show me something else just like that. Did you start something in school? Did you, it sure could you, you know, have some kind of activity where you had an idea, you've got an implemented, you got people to follow you, all the things that you would do there, right? So look for analogues. That's one kind of experience. Another kind of experience is what we call domain expertise. Do you know about the area you're doing? If you're talking, you know, about creating a a radio channel, have you ever, you know, been on their talent, behind the scenes production, have you, do you know what the business meant to get doing radio sales? I mean, you know anything at all about it, right? Okay. So I want to see that experience. Then the third kind of experience are skills. Do you know how to create your product? You know how to do sales and marketing? And I come in a company started and so on and so forth. And that's that you can, if you don't have those skills yourself, you can have other people on your team who will have those skills. So the next thing I look at is this whole question of leadership. Well, people follow you. Have you pulled together a team of people? And that's, and that's really important. Work for you. If you know, if I were looking for a job. And so then the question, well, why would somebody follow you? Well, one of the things that they're gonna follow you for is commitment. If they don't think that you're committed to this company, you won't get anybody to follow you. They will, you know, to go into the valley of death, you've got to be convinced you're going in there yourself before anybody will come right after you there, right? Commitment is really important. And one of the things that drives that commitment is your vision of this future world. That's one of the things that separates entrepreneurs for almost everybody else. Entrepreneurs see the end state. They see the vision, right in front of their eyes. They see exactly what it looks like when it's all done. And then it's just details. Is that how you get just instantiate the details that they have? So that nation is what drives you. But at the same time, you got to be realistic. Because, okay, young, so, you know, all I need is, you know, 10% of the people in China to buy my, you know, news over there. That way, who's the first person in China who's gonna buy your glasses? In the second person? Where's your storefront? Who's gonna pass by? Hamming? So I want to know who your customers are, first, second, and third. So that's realism, right? So you got to temper the vision on the one hand with realism as to how you get there on the other hand, huh? And then finally, there's the whole question of flexibility. The ability to pivot, the ability to deal with with setbacks, and the ability to listen to advice, right? So I've got a lot of experience in the startup world. I am not always right. I don't ask that you do everything I tell you to do. I do require that you listen to me and then process it and then make a decision. So, so hear me out. And there's some experience here, and there's some intelligence. And I'll give you my best shot. But you're the entrepreneur, you make the decision. But I need you to be sort of coachable and flexible. So those are, that's the sort of rubric of the things that we look for in an entrepreneur before we invest. And then on top of that, you have all the things we've talked about before, the business model, the marketplace is growing, the special secret sauce, you know, how you paint, you compare with your competition, and so on and so forth. Our Nobody Told Me conversation continues in just a minute. 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David, our final question. We always ask all of our guests, what is your nobody told me lesson? So what is it that you wish somebody had told you about investing that you wish that they had at the beginning of your career as an angel investor that would have saved you some money and some hard times?

To your diligence. The biggest problem for angel investors who were once entrepreneurs or are entrepreneurs is the average angel who belongs to a group of angel investors in the US that belong to the Angel Capital Association has been an entrepreneur for close to 15 years and has started two or three companies. So we are new angels, semi-reformed entrepreneurs. And therefore, we think like entrepreneurs. We think with

the same vision and craziness and risk tolerance and so and so forth. And the same goes with your gut. Your gut is great, right? Gut doesn't always work in angel investing, and it often doesn't work, right? And so it turns out that if you, if you're enamored of an idea, do the diligence, do the research, interview the customers, try the product, look at the numbers, see, does this make sense? It's all too easy for an angel investor, especially one who's been an entrepreneur, to get carried away with the same exact entrepreneurial zeal that is following the founder to do this, right? When in reality, both of them would do a lot better to sit back and look at the numbers, do the research, check the customers, see the very hard truths about what's going on.

I have another question. How do you deal with failure? What do you do when what you invested in, or what the idea you came up with, is a bust? Remember Rudyard Kipling's "If": "If you can meet with triumph and disaster and treat these two impostors just the same." And so the answer is, if you can't deal with failure, you should be neither an entrepreneur nor an angel investor, because both of those have failure written all over them in every aspect. A majority of all angel investments fail, and a super majority of all early-stage, first-time startups fail. And so therefore, you have to understand that that's part of the game. And so it's not, you shouldn't go in wanting to fail, you shouldn't go in expecting to fail. But if failing is going to knock you for a loop, to psychological depression, lucky for loop, you will never be able to get up again, then this is the wrong business for you.

So, but what you have to do is look at this rationally. You know, you're taking, you know, people say entrepreneurs are not risk-averse, they take crazy risks. I know I look at entrepreneurship, and by extension angel investing, not like, you know, sky jumping or, you know, you you wing jump when something is done, which I think is. But but it's a, don't think they're taking risks. They think they see it very clearly. They think they're making a rational decision based on what they know. It may be something that everybody else would think it's a risk, but it's not gambling, right? So they're looking to reduce the level of risk. And and so, you know, the, the important thing is to understand, you know, what you're doing and understand the fact that it might fail, and you might have to pick yourself up and start all over again, right? And I've done that multiple times in my life. And it was tough because I started a very sort of charmed life from early on. And my first failure was that it was that first big company in the dot-com crash. Until then, virtually everything I had done for the first 30 years of my life, you know, had been a sort of unending stream of success. And then all of a sudden, I have a failure of a company over here, and people are out of work, and and it's a real problem. And that was not a lot of fun, right? And so, yeah, but you have to, you know, you know, spend a day or two commiserating, you know, crying to your pillow, and then pick yourself up, dust yourself off, and and start over again. And and as long as you deal with everybody and everything honorably, for the right way, you don't take shortcuts, you understand what's going on, you know, there, this world is very forgiving in the sense of angel investors. They know they're taking risks when they put in their money. That's why they get the high returns, right? People who work in startups know, or should know, it's not guaranteed lifetime employment, right? All of us in this field are in it together, knowing we're taking risks. It's calculated risk that we're trying to make something really, really big. You can't make an omelet without breaking eggs. And in this particular case, the broken egg is the potential failure.

And how can people connect with you and learn more about all this amazing advice that you have? Where can we get more of it? Well, first of all, there's a website called Quora. I don't know if you guys are familiar with it. You are. I've been on Quora since beginning and I am addicted to answering questions. If anybody writes, but in fact, my debrief on Quora is because my family and all my employees have given up listening to me. There's 10,000 answers on Quora about angel investing and startup entrepreneurship and stuff. So I think when Western Quora had about three or four hundred million monthly unique visitors, and I think I was, if I'm the forty-second most followed person on Quora. Oh, if you, so the best way to find my pearls of wisdom, or such as they are, over here is to go to Quora.com. Just look for David S. Rose. Alternately, if you're interested in Gustin, in in creating a high-growth company, remember this is not for the typical independent small business. Yeah, if you're looking for a high-growth company, go to Gust.com. GU ST.com. And if you're a masochist, just want to get more information about me, you can go to DavidSRose.com.

Okay, super. We thank you so much for stopping. This has been fabulous. We could go for hours and our words, we're just holding onto every word. Into this. I know this is. And I love your energy. Yeah, it's amazing. How do you do that against something? Yeah, we are all so lucky, right? I go through life aware of how lucky I am in every way, in terms of health. And my parents are 89 and 90 and completely competent, doesn't know live and function. My father's second book is coming out next month. My mother's. But I mean, every, my family had books out a couple years ago, seven pages. My mother's outranks me on Amazon. My father was a, was a books of the year. My sister's won the flight making a capital award for best history book of the year. I only had a little seller. But you know, there, between your, whether whether it's family, whether it's, I get to do what I love, which is entrepreneurship, whether is teaching and stuff. And one of the things I was happen to be born with very high energy. So I know a lot behind every person. And you can't frame that. I don't take credit for is what it is. But it makes life a lot of fun. Wow. Well, David, we thank you so much for stopping by again. Our thanks to David S. Rose, whose books are Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups, and The Startup Checklist: 25 Steps to a Scalable, High-Growth Business. I'm Jan Black, and I'm Laura Owens. You're listening to Nobody Told Me. Thank you so much for joining us. [Music] You.