In this episode of the 20 Minute VC, host Harry Stebings interviews David Cohen, founder and managing partner at Techstars, a leading startup accelerator with impressive statistics: 762 companies with 90% active or acquired, and over $2 billion in funding raised. Cohen, a serial entrepreneur with successful exits such as Pinpoint Technologies and earfeeder.com, shares insights on the early success of Techstars, the strategy behind his first fund Bullet Time Ventures, and the importance of being valuation-sensitive and disciplined with investment sizes. He also discusses the venture model's inefficiencies, particularly the gap between angel investing and venture capital, and the potential of 'big boring' industries. The episode touches on Cohen's personal investment philosophy, the significance of instinct in seed investments, and the story behind his investment in Uber. Harry also promotes Lisa mattresses' social mission and VC Unlocked, a program for aspiring investors.
"So joining me today is David Cohen, now David, the founder and managing partner at Techstars."
The quote introduces David Cohen and his role as the founder and managing partner at Techstars, setting the stage for his insights on venture capital and entrepreneurship.
"Well, within a year of the first program in 2007, there were three acquisitions, and they were all relatively small."
The quote highlights the early indicators of Techstars' success, with several acquisitions of companies from the first accelerator program, demonstrating the effectiveness of their model.
"So bullet time is really just the Techstars fund."
This quote explains that Bullet Time Ventures was essentially the initial investment fund associated with Techstars, aimed at providing follow-on funding for promising startups emerging from their accelerator.
"I raised two and a half million almost instantaneously. A couple of weeks intros from Brad."
This quote reflects the swift success in the initial fundraising efforts for Bullet Time Ventures, emphasizing the trust and interest from investors familiar with Techstars and the broader VC ecosystem.
"Under the mentorship of amazing people like Brad that you mentioned, his partner, Jason Mendelssohn, and others that I had learned from."
The quote highlights the role of mentorship in shaping David Cohen's investment strategy and the value of the insights gained from being closely involved with the companies in the Techstars ecosystem.## Consistent Investment Strategy
We had lived with them for three months. And it really comes from this learning that as an angel, and this was really just a scaled angel fund, it's about having a consistent strategy and just sticking to it.
The quote emphasizes the importance of consistency in investment strategy, learned from experience with a scaled angel fund.
That statement where I still am? I think there's plenty of great companies that are being built and funded at reasonable prices.
The quote reflects the speaker's ongoing belief in the importance of valuation sensitivity and finding reasonably priced investment opportunities.
You have to have enough portfolio diversification to where if you're concentrated in just a few companies as angel, the stats are pretty clear you're going to lose.
This quote stresses the statistical likelihood of failure without sufficient diversification in an angel investment portfolio.
We're fortunate at Techstars today. So we went from that $5 million fund. Today we're over $300 million in managed capital, but we have 150 people in the organization.
The quote highlights how Techstars has scaled its team in parallel with the growth of managed capital, allowing for better time management and support for portfolio companies.
Clearly we sort of proved early on we're good seed investors. The Techstars funds perform well. The question is, could you then get more capital to work?
This quote explains the rationale behind scaling operations, leveraging Techstars' proven track record as seed investors to manage more capital.
Well, I think it's a function of the capital you have available and the strategy of the fund in place at that time.
The quote indicates that investment decision-making is contingent on the available capital and the strategic objectives of the fund at any given time.## Decision-Making in Venture Capital
The company came out hot with its next round and obviously has done really well, didn't match the strategy at that moment in time, and didn't really have enough capital under management to make that decision make sense.
This quote explains that a venture fund passed on an investment because it did not align with their strategy and they lacked the capital to invest significantly.
No, I still think that we have all this signal coming from the system. Right. We're living with these companies for three months.
David Cohen emphasizes the importance of close interaction with startups to assess their potential.
Due diligence you do to really look at the market dynamic or whatever can quickly talk you out of stuff.
David Cohen suggests that extensive due diligence can sometimes prevent investors from making what could have been successful investments.
If you go back and play the data that I have, and we do this sort of retrospective analysis all the time, had all the investments we've done been uncapped notes, it's something like a five x lower return.
David Cohen explains that uncapped notes have historically led to lower returns on investments based on retrospective analysis.
Big boring is the idea that there's industries that are not sexy to most of the entrepreneurs that might listen to something like this, right?
David Cohen describes his interest in large, established industries that many entrepreneurs might find uninteresting, highlighting the investment potential in these areas.
They tend to stay the same. That's what makes them boring. People don't view them as new. They're so big and so much money flowing through them.
David Cohen discusses the enduring nature of big boring markets and their potential for innovation despite being perceived as unchanging.
Nobody really has a name for that segment. So I think that segment gets named seed at scale, whatever it is, and can be organized much better.
David Cohen identifies a segment within the private equity market that lacks clear definition and organization, suggesting the term "seed at scale" for it.
He and I went for a beer afterwards. He gave me feedback on the ten companies, and I thought it was incredibly insightful.
David Cohen recounts his meeting with Ryan Graves, emphasizing the value of the feedback and insights Graves provided on the companies at Techstars Boulder.## Investment in Uber
"I said I was in sitting on that bar stool. I think I asked for $100,000 because at the time, I think that was the sort of up leveling that we were trying to do in that fund. And I got 50. It's fine. I took 50."
This quote explains David Cohen's initial investment in Uber, highlighting his decision-making process and the amount he invested.
"There were a couple for me, and this is what's so gratifying about being an investor."
This quote reflects David Cohen's gratification in witnessing Uber's growth and impact on individuals and the economy.
"I'm very concerned about the health of the long term dynamic where entrepreneurs and investors value fame and boisterousness over shut the hell up and do a great job and help the company."
This quote highlights David Cohen's concern about the current state of the industry and his desire for a change towards valuing real performance.
"I'm not there yet. There's so much paper return."
This quote conveys David Cohen's humble perspective on the success of Bullet Time Ventures, implying that there is still work to be done.
"Soul of money can't remember the name of the author, but because it really makes you think about why we're all in this business in the first place and how what you spend on is really who you are and what you worry."
This quote reveals the impact "Soul of Money" has had on David Cohen's philosophy regarding money and business.
"I try not to work for the first hour or so of the day. I really try to focus on my kids and my family."
This quote emphasizes the importance David Cohen places on family time in the morning as part of his daily routine.
"It's a company that's in Cincinnati. It's off the radar, doing incredibly well."
This quote explains David Cohen's investment in Kinexis, underscoring the company's success and potential in the supply chain industry.
"Anytime. I'll keep listening. And it's always a pleasure."
This quote conveys David Cohen's enthusiasm for engaging with the podcast and his commitment to the Techstars community.