David Cohen is the Founder and co-CEO of Techstars, a worldwide network that helps entrepreneurs succeed. David has been an entrepreneur and investor for his entire life. He has only had one job interview in his career, successfully got that job but then quit shortly thereafter to start his first company. Since then, he has founded several companies and has invested in hundreds of startups such as Uber, Twilio, SendGrid, FullContact, and Sphero. In total, these investments have gone on to create more than $80B in value. He is married to the Coolest girl he has ever met and has three kids. He shared his views with Capital & Growth recently.
We usually start each interview with the Rapid Fire Response Good or Evil Round. See David’s answers here.
You’ve run Techstars successfully for over a decade. What are key lessons you’ve learned?
We just had our 120th exit by M&A (mergers and acquisition), by the way! A key ingredient in our success is the network we’ve built around the founders. That is why we continue to expand our program globally–to create unfair advantages for Techstars founders.
The network is obviously important but what do you think is essentially different about successful startups? The answers we hear most often are team, product-market fit and timing.
At Techstars we are firmly in the team camp. We’re very early stage investors and every major venture fund under the sun has subsequently invested in our companies. Based on over 1000 data points I’ll pick the “team, team, team” every single time! A great team will listen to the customers and find product market fit. They will also figure out if the timing is off and pivot when necessary.
In the last few years there’s been a proliferation of tech startup accelerators. It seems like everyone with a bit of money is starting one, to cash in on startup riches. What do you think about this trend? Has it affected Techstars?
Yes, there are thousands of them. The allure is that they’re inexpensive to start. But people are realizing that like startups, it is not as easy as it looks and most will fail. You’ve got to scale up, build a global network and forge strong ties with the venture capital ecosystem. Running a single instance of an accelerator someplace is often neither a viable nor an exciting business!
Have they affected Techstars? Not in the least. The market views us as one of a few proven, top offerings. We have over $300 million under management and 30 accelerators globally. The real value we offer is our mentorship and global network both of which have a big early mover advantage—we’ve funded many more companies and therefore have a bigger network. And our results are very strong, which in turn has helped us and our companies attract additional capital.
Strange as it may sound, we sometimes help and advice other accelerators because we believe that more people investing in startups is good! We’ve also acquired a few that have done well, like Springboard and Accelerate Labs in Chicago.
Earlier you mentioned Y Combinator. If they asked for advice, would you help? ?
Of course! Their model is different but we have a great deal of respect for them. We are not anti-Silicon Valley, just pro everywhere else. We believe great startups are created everywhere.
Let’s switch gears a little. In your bio you say that in between your two successes you had one graceful failure. They say that one learns more from failure than from success. What was the company and what did you learn from this experience?
The company was iContact but not the iContact for email lists—although I did meet Ryan Allis (the iContact for email founder) around the time my company was failing and sold him my domain “icontact.com”.
We were more a mobile social network about 18 months before News Corp acquired Myspace. Social networking existed but nothing had really taken off on mobile phones. I wrote a blog post about it and the lesson was that you need to control your distribution.
We tried to get distribution through mobile network operators but were dead in the water. If you do not have the right contacts you have to pay dearly just to get a shot. As an investor I won’t touch things that are built exclusively on platforms like Twitter or Facebook, as a result of this lesson.
How much did iConact pay you for the domain?
Oh, gosh, I can’t remember, but it wasn’t a lot compared to how successful they were! I wish I had sold it for stock because he flipped that company for a lot of money! [Icontact was acquired by Vocus for $170 million in 2012]
You have said you like investing in big boring industries with “must have” business models versus merely “nice to haves”. But in the last few years investors who put money in companies that the world didn’t really need, like Facebook, Twitter or Snapchat profited handsomely while those who backed important things like renewable energy and clean-tech didn’t fare as well. It there a ‘super-model paradox’ in investing as well? (super models make far more money than, say, doctors who cure disease!)
I would not draw the dichotomy the same way. To me, “big and boring” would be sectors like the taxi industry, hospitality, storage or office space. You can’t really get more boring than this. HR, payroll and eyeglasses are pretty big but not exciting either!
I was a first-round investor in Uber in 2009 and it turns out there’s a much bigger shadow market that exists around the traditional taxi industry. Today, Uber is worth almost $70 billion and has really changed the world.
More examples of big and boring are AirBnB in hospitality, Dropbox in storage and Warby Parker in eyeglasses. In their pursuit of shiny objects, people tend to forget about these industries and so they are less competitive!
What are three things that turn you off when an entrepreneur pitches to you?
There’s two that I talk about all the time and I’ll have to think of a third.
The first thing I tell founders is, investors have shortcuts. Two easy ones to trip over are that I don’t think you’re very smart or I think you are a liar. Often, I might not think you’re smart when you are or I might think you’re a liar but you are not.
Both of these are a case of poor communication skills, i.e. you cannot communicate in a way that projects intelligence or credibility. But if you are indeed not smart or a liar, these are turn offs.
The third is a commentary not on the person, but on what I am looking for as an investor. I like investing in entrepreneurs who are mission driven. You need to convince me you have a vision of the world that your venture will help realize. If you don’t have a strong world view you care about, I won’t get involved.
Speaking of smarts, studies have shown that raw academic intelligence is not nearly as important as grit or emotional intelligence. I’ve heard people like Paul Graham of Y Combinator say that smarts are overrated in the startup world. He has this famous line—and I am paraphrasing here—that if you start with a founder who is 100% smart and 100% determined, and you start systematically discarding the smarts, you can get rid of a lot of the smarts before they stop succeeding. But the moment you discard even an iota of determination…failure ensues. What do you think of this view?
When I talk about smart in this context I usually mean street smarts—the ability to think on your feet and to learn fast, more than the academic sort of intelligence. This probably aligns with what you described. We have not seen founders from top schools necessarily do better than those from less well known schools.
You also mention lying. Founders are an optimistic bunch and like to embellish things, while not intending to lie. Steve Job’s famous ‘reality distortion field’ didn’t seem to diminish him. And from what we’ve read, Travis Kalanik (Uber’s founder) isn’t exactly a paragon of virtue! Where do you draw the line?
Yeah, I mean, everybody’s going to present the best version of themselves. It’s why everybody’s three inches taller than the general populace on Facebook!
But there’s a difference between a lie and presenting the best view of something, fuzzy though the line may be. Stating that someone is a customer when all they’ve said is “we are looking at your product” is a lie. And frankly, we’ve caught some of our own founders doing this. We let them know it is not acceptable. If you’re talking about future vision, make sure that’s clear.
As for Travis, I’ve never met him. I’ve only read what you’ve read. I made the angel investment in Uber through Ryan Graves, the first full time employee and in my mind the original CEO (at that time, Travis was not active in the company and had recruited Ryan).
I have a rule about making my own observations and won’t use what the media or others say to judge them. I’ll take it as input, but also make my own direct observations.
Who are two fellow investors you admire? Why?
Brad Feld and Jason Mendelson are two of my role models. We share a cultural alignment–give first, help entrepreneurs and the rest will work out. These guys conduct themselves in an exemplary manner and I’ve seen first-hand how giving without expecting any direct benefit pays back in spades.
I also admire Fred Wilson of Union Square, Mark Suster of UpFront, and Josh Kopelman at First Round Capital. They are all are good actors in our space and all feature substance over flash. Too many VCs run around waving their arms and making noise as their only redeeming trait!
What about the bad actors in your space? With all the revelations about sexual harassment in the last two months–some investors essentially telling female founders ‘if you want to play with the big boys, you’ve got to lay with the big boys’–I’d be remiss if I didn’t ask you about this. What needs to be done to improve things in the space? Is the Reid Hoffman Decency Pledge enough?
Everyone needs to do something about themselves first. Techstars is an enormous organization with hundreds of employees and tens of thousands in our extended network of mentors, founders, and corporations. We have a code of conduct that has been in place for many years and ask every new founder, mentor, etc to sign off on it. You have to have a process and police your own organization aggressively and live up to your values. It’s easy to point the finger at others, but there is enough news about them. Everyone should focus on improving themselves.
Do you have any parting thoughts or advice for entrepreneurs? If you were to give just one piece of advice what would it be?
Surround yourself with great people. I’m going to assume that the founder has a mission, is driven to change the world and has a great team. In addition, figure a way to surround yourself with people and networks that can be impactful. That can change your business, speed things up and open doors. People really undervalue the network in business.
