Who are you? What’s your story?

That’s a pretty broad question. The short version is that I’m a 2x entrepreneur who started angel investing and transitioned in VC

How did you start to work with startups and how did you end up in Dreamit?

After exiting my first startup, I was trying to decide what to do next. I’d been so heads-down on that startup that I hadn’t really built my network nor my personal brand / platform. About the same time, I had started angel investing and decided to start blogging about it as part of a long term plan to establish an online presence. Soon after, a friend’s startup, AlleyWatch and asked me to (insisted that I) write a guest column. Looking for something unique to write about that would not be a massive time commitment, I decided to profile fellow angel investors. When the opportunity came to work with Dreamit, I had a platform to reach startups from and something concrete to demonstrate that I was well networked within the investor community which (I think) gave me a leg up on the other candidates they were considering.

You have been investing for a very long time. Is VC investing shark tank or this is a misconception?

I loath Shark Tank. It’s a complete myth. Nothing works that way. By and large, VC investors are much nicer, more helpful, less adversarial. We know that the best startups have their choice of investors so we want to be known as good guys to work with. Since you never know who knows whom, we generally go out of our way to be nice and assist even the most naive founders of the most throw-up-in-your-mouth ideas. IMHO, sometimes we are even too nice; many founders have learned about the infamous VC “soft no”:

  • VC says “I like what you are doing but you are just a bit too early for us. Let’s talk again when you have more traction”; and
  • VC means “I don’t think you have a snowball’s chance in hell but if I’m wrong or you somehow blindly pivot into something with actual potential, I don’t want to burn a bridge”.

On the other hand sometimes we do actually do mean exactly what we say so it’s pretty confusing to founders.

I respect time too much to let a founder waste it on a dead end idea so I’m brutally honest with how I feel. When I am genuinely interested in the startup, I try to give concrete goalposts for what kind of traction I’d need to see before I can consider investing.

You are based in New York City. Can you build a unicorn outside of Silicon Valley? What are the strengths of ecosystems outside of the Bay Area? What do these ecosystems lack in comparison with Silicon Valley? Does Coivid-19 level the playing field?

Absolutely. There are tons of unicorns from NYC and all over the US and even the world. Silicon Valley has a critical mass of investors and other entrepreneurs that creates a nice virtuous cycle but other ecosystems (e.g., NYC, Boston) are also there. For B2B startups, the most important thing is being near the customer so cities that are home to large concentrations of customers in a specific industry have the potential to become a startup hub for that industry vertical.

COVID-19 is a massive disruption in the short term and will have some long standing impacts but I don’t think it fundamentally changes anything. Startups need to be near customers, investors, and talent. We are becoming more comfortable with virtual communication but for big decisions, we do like to see the person we are dealing with face-to-face (and not on Zoom) so the impact IMHO will be mostly on the margins.

What are the biggest success stories of Dreamit with non-US based startups?

While Dreamit can invest in startups located anywhere, they must be incorporated in the US (or Israel) for tax reasons and committed to tackling the US market (or else we can’t help them / don’t have any insights into their market).

One of the most successful non-US Dreamit startup that I’ve worked with personally is Headout. The are primarily located in India where the founders are from and help people find and book last minute experiences ranging from theater tickets to helicopter tours to museums and beyond in over a dozen cities around the world.

With foreign startups do you “pray” or “spray” more at the seed stage?

No, not our style. We work very closely with all our startups.

How can foreign startups reach out to US VCs? Is there a good protocol for folks who are out of the network? What should the cold email contain?

Warm intros are the gold standard and, as someone who is very networked, it’s almost a yellow flag to me if the startup can’t get a warm intro to me. It even makes me wonder a bit about their ability to sell effectively….

That said, foreign startups get a bit of a pass here b/c we know they are outside our normal networks (although you should still try to get warm intros whenever possible).

If you must reach out cold, keep it focused and to the point.

  1. Clear subject line with your startup name (e.g., “STARTUP would like to meet TARGET VC”).
  2. Acknowledge upfront that this isn’t the ideal (e.g., “Apologies for the cold email. While our network in Poland is quite good, we are new to the US.”
  3. Follow with a 1 sentence description of what you do — just enough that the investor can decide if you are in his or her strike zone.
  4. Add a sentence (or half sentence) about traction — revenue, # clients, name drop a few if they are big logos, etc. If I don’t hear traction, I will assume you have none.
  5. Add a half sentence on why you fit with that investor (e.g., “Since you invested in X, Y, & Z” — you must, must, must show that you’ve done your homework) …
  6. … and end that sentence with your ask (e.g., “… so we’d like to meet with you to see if you might be interested in participating in our $$$. [Seed/A/B..] Round”)
  7. Attach your one pager.

Any tips for foreign founders looking to get into a top accelerator in the US?

Same as approaching US VCs but also understand how that specific accelerator can help (e.g., “You are focused on proptech and have connections to exactly the potential customers we want to reach.” — do your homework!) and cite it in the application.

How can foreign startups become attractive for US based investors? What are comparative advantages of foreign founders?

Foreign startups need to clear all the hurdles that US startups do… and then some. Incorporating as a US C Corp (the ultimate parentco, not a subsidiary) takes legal risk off the table. Having one or more of the founders commit to moving (with their family, if any) to the US for several years also shows commitment.

Depending on where the startup is from, the ability to keep its back office / tech staff in a low cost country but still manage them effectively due to the pre-existing relationship may be a small positive.

How can foreign seed investors work better with US VCs and accelerators? Should there be more alignment on terms, valuations, etc?

Simply take the time to understand what each US investor is looking for and be mindful to put the right startups in front of the right investors. Having a regular update email Newsletter that covers everything is fine, but it helps a lot if the personalized “you should really look at this” email is actually tightly aligned to the sector, stage, and overall investment thesis of that specific investor.

There’s no need to collude on terms. If a foreign VC is leading the round, the US VC can join or pass. Just don’t ask for ‘non-standard’ terms that would make it hard for a VC to invest. Rule of thumb is KISS (“Keep It Simple Stupid”).

In the digital world you spend a lot of time on describing what metrics and how decks should look like to get investor’s interest. Should investor materials and pitch calls from foreign founders contain information that significantly differs from decks from Silicon Valley founders?

Do the rules of gravity apply differently overseas? Neither do startup best practices.

Does investing in non-US based entrepreneurs contain any inherent risks for US VCs? Does sourcing foreign startups and portfolio management take more time then meeting people in NYC or Silicon Valley? What are the red flags?

The added risks are legal uncertainty (if the startup is incorporated in a foreign jurisdiction), harder due diligence (e.g., the investors are less likely to have mutual connections whose opinions on the founders they trust) (e.g., customers who don’t speak English), etc. But deciding which startups to dig into and which to pass over with just a quick look is a critical time management skill for VCs. That first quick filter is the same and takes the same amount of time for all startups and being foreign will only matter if the startup is right on the margin. It’s only if the VC has the luxury of several promising startups that they want to engage deeply with that the added time to due diligence a foreign startup might be a disincentive.

Do you have any regrets in not investing in a company that was based outside of the US?

Dreamit cannot invest in non-US incorporated startups and there are definitely a few foreign startups who would have been very interesting to pursue further.

What’s the right go to market strategy for foreign startups? For example, should European startups start in the local market because they can validate their product locally and then go for bigger markets in the US. Does this ever work?

Validate at home first. Otherwise, what exactly do you have to pitch? Or, come to the US first and validate here before you pitch investors.

And it works very often. Especially when the home country is a small market and the startup is geared to be global from day one. In mid and large markets, the temptation to stay home is higher. In smaller markets, the entrepreneurs know that they have to expand or die.

What “unexpected” book or movie has inspired you to be a better at your job?

Stranger in a Strange Land.