David Mandel, SoCal-based super Angel, investing in emerging technology startups who Invested in over 500 startups up to date, talks about early stage startups. We focused our conversation on how helpful accelerators can be and why founders should consider applying to those. We also talked about David’s investing thesis and the way he gets his deal flow.
Analyze get start and today’s a guest speaker. We have David Mendell seller, California base super angel. He’s investing in emerging technology startups and currently, he is an investor in over 500 startups.
So, in this episode, we’ll talk about who Super angels are, what they invest in how they think, and how they make their decisions. So, David, unless he calls by, you giving us some background on yourself and on emerging Ventures fund.
Sure, thanks for having me.
I had a career about 28 years in 4 different businesses in Southern California that were in.
Finance and insurance, the largest of which was a alliance United insurance company.
Which salt to Kemper in 2015 and, uh, since that and before, then I’ve always been interested in tech and the Silicon Valley ecosystem was always fascinating.
Um, and I dived into that full time after exiting the insurance industry.
Got to know a lot of the other very active investors up in Silicon Valley followed them participated in a lot of their syndicates and some of their funds.
Eventually locally in Southern California.
Got involved in the angel ecosystem down here.
Joined Pasadena, angels and tech Coast angels, which are 2.
Large Southern California based angel groups that have been well established and have good deal flow and helped the local ecosystem help start ups here,
and syndicate some of those deals out to other angel groups nationally as well.
Um, and through that process, I became very familiar.
With the whole ecosystem down here and in particularly a lot of the university based and other.
Nonprofit and some for profit startup accelerator and incubator programs.
And got really intrigued by that got heavily involved and various roles.
And from judging pitch days to mentoring to speak and get events.
Just snowballs referred many other.
People to the angel groups, and it turns out that angel investing isn’t for everybody. And while a lot of people.
I would love to be involved in investing. They don’t really want to do the work and that’s where the fun came around. So last year I finally formed.
Emerging Ventures fund 1, which is.
Find the invest in my next vintage in a sense by 2020 deals and beyond the next 25 or so deals going to that fund and we’ll hopefully keep on rolling that that way. So I can invest out of a fun.
Uh, that has other limited partners in it and have them participate along with me and all the other local deals I’m investing in and we share together. Just allows me to write bigger checks into each round. So it’s a win win.
Um, my investors, the limited partners in the fun.
Get a diversified basket of the.
Startups, they get to be in 25 different start ups.
Rather than just 1 or 2, if they would have done it on their own.
And that helps them without the overall performance. Uh, each individual startup can be highly risky. Half of them are so fail half will succeed and have some decent exit.
Um, but you don’t know which half and very few will be great exits, but.
Some will be good existence. Some will be better exit. Uh, overall, when you have a big enough basket, you can have a good blended return. That can be a much safer kind of investment. So, my goal is to help those who want to be involved and invest.
But do so, without having to do a lot of work and that’s where the fun.
Right, right and that’s a great move. Congrats by the way on the fund and best of luck to you there. But let’s start by discussing. Why? Southern California? What you say? Are you investing locally? So just so Cal or are you investing all across the United States?
And maybe even cross border investing.
A, very good question. I personally I’ve invested everywhere.
I started out following tech and Silicon Valley. The Bay area is the mecca of technology start ups.
Over the years, after seeing what’s going on locally and comparing it to Silicon Valley.
I realize that there’s a lot of money chasing Silicon Valley startups. Right now there’s been several generations.
Of startup founders who have exit.
And after they have exits, they tend to almost automatically do 2 things, start their next startup.
And start investing as an angel investor, and eventually also also syndicating deals and or doing what I did, which is starting and what we call a micro VC fund, the small venture capital fund, taking on capital.
So there’s hundreds, most likely thousands now of small VC firms. In Silicon Valley, almost as many as there are startups, there’s a lot of money chasing all the startups there.
Southern California has great university programs. Great research, going on a lot of deep tech. Same thing is true in the Boston area in the Austin, Texas area, and many other.
Um, cities with good university programs, uh, Toronto, Canada, there’s many and, um.
Being here, so why Southern California? Because I’m here I live in Southern California. I live in the greater Los Angeles area.
Uh, and that’s where I joined local groups. Um, but.
Um, I have deal flow.
From all over the country so, while I’m locally.
Helping the ecosystem a lot and active in person before Coby, while there’s a lot of in person meetings and pitch days.
1st of all with cobit, everything’s virtual 2nd, attempt pitch dates all over.
Just as easily as locally, but in addition to that, there’s deal flow referral between groups and others. So I’m not limited to Southern California.
I have a bias towards it, but I look at deals from everywhere and, in fact, in the funds were quite diverse right now with the 1st, 14 deals this year in the funds.
Uh, there’s 1 Canadian deal 1, Boston deal to Texas deals.
So, it’s a bit a bit of a diversification, but it’s still about half Southern California.
Nice right. My next question is about, you know, California in general. So our printer you mentioned that you don’t really invest in Silicon Valley based startups why is that? Why don’t you like Silicon Valley.
Well, as I was mentioning, I felt there’s a lot of money chasing it there. I don’t want to say it’s a bubble that, uh, has a negative connotation, but there is.
You’re just so many startups popping out, um, and a lot of repeats a lot of the same kind of themes, um, a lot less originality, because there’s only so many ideas and everyone’s leaving.
Startups to start a competition to it, and they get they know they can get funded so easily. If you’re an early employee in 1 startup that got some good funding and has a good idea. And going somewhere. Some of the early employees who don’t have as much equity.
Pretty quickly leave and start a competition to it, start another 1 and get funded for that cause almost too easy in Silicon Valley. And I do have a lot of personal money invested in there. There’s a lot of really connected people who are really smart both.
Running to start ups and investing in them. So I have no connections in Silicon Valley other than the people I know there, but I’m not in that ecosystem. I do very little there myself. Um, I do attend some of the demo days from there, but.
For the most part my investments in Silicon Valley, I’m. Doing, uh, through others, I let them get their.
Carrie and their management fees and return for getting me the access. I’m happy to be a limited partner in funds and investment Silicon Valley and to go into syndicated deals there as a limited partner.
Um, that others who have the connection and vet the deals and know which ones are the best ones.
And while I do the same down here, I feel like in Southern California after several years, and being heavily involved.
I can do that here. Uh, I see just about everything that’s coming up through the ecosystem here and. Uh, I can vet them, uh, in Silicon Valley.
I cannot as well, there’s a lot of deep roots there, people who are well connected in the ecosystem who have early access to all the incubator and accelerator programs there, and get the cherry pick the deals.
Um, so I rather let them do what they do there and I do what I do here and that’s why we, each 1 funds.
A sum of my limited partners, in fact, are themselves general partners of other funds who I’ve known in the industry who come and limited partners in my fund to gain access to the Southern California.
And while I’m doing down here, just like, I’m a.
Uh, limited partner in their fund up there so it can be honest. That’s really nice. I love personally watching how that system works as you mentioned sympathetically, but let’s talk about.
The, I had some particular question in mind.
But I forgot. Oh, gosh. Do you mean just saying here.
Great the deal flow you mentioned that your gain deal full across the country where is most of that deal from deal flow coming from?
So, for example, if some founder reaches out to you on LinkedIn, are you going to check out their paycheck or will you just skip it automatically?
Um, that’s a very good question and the deal flow is from everywhere in fact, uh.
I just put together a little blog post that talks about kind of.
A month in the life of a VC, which.
It’s from my perspective, and it’s probably true for many others as well. From my perspective. I see. 3 to 500 deals per month and it sounds like a lot than it is.
And in many months, it’s actually more right now, but if you add in older virtual pitches, I’ve been getting close to a 1000 the most recent months now. So that basically is 20. plus per day that I’m looking at.
And that usually means actual pitch deck. So some unreached steps, how someone could reach out on LinkedIn and say, hey.
5 minutes to chat about that idea, I’ll say well, if you have a pitch deck, send me a pitch deck, I’ll look through it. And if I like, what I see, then we can schedule a call, but I’m not gonna schedule a call without seeing a pitch there. And that’s 1 of my rules.
Um, and, uh, so that we found a lot of those, a.
Cold outreach, um, but then from the pitch deck, so I’m looking at 20, plus pitch decks a day.
And from those, there’s a few that might be interesting often, not, uh, you know, we look through them and and generally, what’s great about that.
Is you can see some? I can’t be an expert in everything.
And hence, I narrow the focus of the fund to emerging text. I’m not.
Even looking at anything, that’s not emerging tech, but emerging tech is such a broad.
Area by itself and there’s and each and within it, there’s a lot of specialties and I’m not a technical expert on any of those specialties. But what I do have a good sense for a good calibration is what’s being worked on in each of those specialties.
So, you know, I might see in 1 month, 30 different drone start ups, I might see 30 different.
Avenue, you know, agricultural, uh, technology, start, ups and different sensor, start, UPS or security startups.
So, you really do get a feel after a while and about who’s doing it better who seems to really be onto something. You’ll see something. It’s like yeah, I’ve seen the same concept very.
For the last 2 years, I’ve seen 20 similar concepts. Nothing’s so special about you. Someone thinks they’re doing something revolutionary and they have some plan then you might you see it and it’s like, now I’ve seen better.
In my head, I’m looking through their pitch deck, uh, and, um, a lot of the deal flow. So, yes, there’s some outreach from from LinkedIn and emails and my website, but I’m a lot of the deal flow also is pitch days. So they’re the Excel.
I follow a lot of the accelerator incubator programs, else, everything I’m interested in and, um, they all have pitch days.
And, for example, yesterday there was a clean tech and a clean tech open and it’s a, what? It sounds like it’s a pitch day for.
Um, clean tech in general, and that’s everything from a power generation to power storage to utility management to clean water and everything. It has to do with that.
And they were 30 companies pitching and then we got to select from the 3012 we wanted to meet, and we had with each. So we got the pitches of 30 companies.
And then we got to select 12 to have 12 minute 1 on 1 meetings with on zoom with breakout rooms. Very interesting. That been overwhelming. The 12 minutes.
Times 12, it’s 2 and a half hours just back to back meeting with the 12 we selected from the 30, but it’s fun, but exhausting. And that’s just 1 morning. That’s like, okay, that’s just half a day in the life of doing this.
And from that, there’s none I’m going to invest in, but there’s 3 that I’m following up with. There’s 3.
There on my follow this I ask them to keep me in touch and gave him some milestone to say, okay, when you get here, I want to know more and I might be interested to take a look when you hit certain milestones. So that’s how you developed deal flow. There’s.
Hundreds of companies now that I’m following them that have not invested in, but I had interest in that. I’m following up with their following up with me. I’m on their monthly.
Update list if they send out monthly, I’ll take that freight and those who don’t, uh, that’s on them.
And eventually they are at the right stage I may invest in some of them. Um, but that’s how, you know, you wind up building quite a pipeline that you do that every day.
Up the pipeline is just overwhelming. It’s just there and I can pick any 1 of those to invest in. But I have to be very particular defined is making 1 to 2 investments per month.
Uh, into the fund, I may personally write small checks as an angel investor and to other deals that either aren’t on thesis for the fund.
Or aren’t at the right timing stage for the fund, maybe too early, and so forth. And that can gamble personally on those right? A small check to stay in touch, but they’re not appropriate for the fun that I may sometimes do that. So, I invest a lot more personally.
Outside of what’s available for the fund as well.
I do both and a benefit to both the companies and hopefully it’s my own portfolio but the way for me to build additional pipeline because if I write a very early small check into a company before, they’re ready.
And then when they are finally raising a seed round.
I’m there I know them, I’ve been following them and I can have an opportunity for the fund to be participating in that seed round.
Nice. That’s great. I love that approach. And next thing I want to discuss is, you know what, from the perspective of our founder how valuable is is super angeline.
My opinion is extremely valuable, because Super Angels they have insane number of connections. So, what do you think is the major value that you provide to your portfolio companies, or to your partners in general?
Right. Um, well, it varies on what they do uh, often, it’s being a connector amongst them, which is something they don’t think of that much. But because I see so many startups.
we personally help by introducing them to there’s a lot of companies,
a lot of startups that I didn’t invest in,
but I help connect them to others who might and I helped get them in front of the angel groups to pitch to the angel groups by saying,
you might be suitable for techwest angels that you might be suitable for Pasadena angels.
Have you thought that the intro here’s how that works? Let me coach you on what you need to do, or if you did this, and this in 3 months, you should be able to go here. So, there’s a lot of, um, I give a live advice to startups.
About the system, because especially if their 1st, time founders, I try to help them if they don’t know where to go. If they’re not ready yet to help try to help them, give them pointers and what they need to
do to get ready. Uh, also I’ve been a big connector amongst because I see so many. I see a complimentary.
Start ups I see someone doing something.
With ad tech, and they might be measuring water and someone else might be doing something with lighting and it’s like you’re going up to the same customers, but with complimentary products, you’re not competitive.
Maybe, there’s some synergy there. Maybe you can cross market your products. Why don’t you just introduce founders now? You guys should get to know each and I, and I connect founders, whether I invested in both of them or not.
Just everybody pitching to me, I may use an existing portfolio company to help me vet them.
Or I might just introduce them because I think it’s interesting for them to get to know each other. And they may be able to help each other.
Uh, so I can help them that way.
Uh, and as well as sometimes introduce him to.
The VC that will lead their, their next round their Series A, because I am and now I’m an investor as an and a bunch of other funds.
I get to talk to those fund managers, the general partners of those funds, because I’m 1 of their investors and.
We know it works both ways, but that too, they’re always looking, they’re giving me updates on the fun.
And I often say, Here’s some of my come, Here’s some companies.
That are looking to raise a series A, that might be on thesis to what you do. And I know what they do if I know that they do enterprise software that there happens to be something in my portfolio that is suitable.
Uh, our site here, this company.
I think would be on thesis for you, and they’re just about to, you know, to raise their Series a last time. I thought them to sign to look for leads the raised our series a May I connect you guys and with permission. I make a warm intro bump on both sides.
Opt in. I make warm intros. Mm, right and that is.
Valuable and good, because that just gives birth to multiple great partnerships there. So the next thing that I want to discuss with you is.
A small annual investment checks, versus applying to a incubator or an accelerator. So you mentioned that you sometimes do write smaller checks to, um.
Companies just to keep an eye on them who should actually try to pursue those small checks from angel investors and who should instead go to those and, and accelerators.
Incubators are for idea stage to help you get off the ground um. They’re very valuable for founders, especially 1st time founders.
Who have an idea, but don’t really have a business yet. They’re if you can get accepted to any of the incubator programs now, they’re, they’re amazing. Um, accelerator programs. Likewise, I’ve seen some startups go through multiple accelerator programs.
Those are for existing business, existing businesses there, startups that already have some kind of minimum, viable product. Usually.
And are trying to now, as the term said, accelerate their growth and there’s a lot of resources that the accelerators provide to the cohort, besides the fact of being around other, like, minded founders.
They provide a lot of resources. They get a free or discounted hosting services. And a whole array of services, they’ll help you get the right legal the right accounting in place so that you become venture fund.
The idea is to.
Uh, come into an accelerator as an early stage startup and leave the accelerator at Demo day with hundreds of investors seeing your pitch at that pitch date. Hopefully getting some good investment.
But also, at that point, having a lot more robust business, having everything in place correctly. So that.
Your venture basketball for the future even if you only racing from, at that point it from angels.
Um, that eventually you’ll be venture basketball, because you have the foundation set up correctly. You have all the right legal and accounting and everything else in place. And you have now a pitch that is appropriate for Ventures and you kind of learn the ropes.
Those those 6 to 12 week programs are well worth that besides all the freebies you get from being there and some of the money you get from coming into the program, it’s worth the equity, a giveaway allied accelerator program.
Take on average 6% of equity they usually give you from 50 to 150000 dollars and a bunch of freebies a lot of access to our resources.
And it’s well worth it. Don’t worry about the valuation.
Of what that equity means what you get in return is almost invaluable.
Absolutely, that’s just perfect advice. 100% on your site here, seeing a lot of founders who are like, oh, you I don’t want to keep out 6% of my company for a bunch of resources and 1015000 dollars and it’s just.
Give out, having 94% of something does worth 10M dollars better than having 100%. If something does 0T and they come out being worth. For example, there was a business that was in us. The.
Incubator down here and that it’s free to there. It’s fine. The perks they provide their MBA programs. I invested in them without naming names. I’ll name this. Right the scenario I invested.
Um, this is even before to fund about a year and a half ago. I invested in them at a 50 50000 square of a small round are raising at a 3M valuation on a safe note that next summer, just a few months later.
They got into why the summer batch and.
Demo day, when they got out of when they finished the program on demo day, they wind up raising another much larger round.
Uh, they raised a 1M dollar round at a 10M valuation so they 3 X their evaluation, just by going through the program and they were able to before they struggled to raise 200000 something almost 6 months ago angel by angel to try.
Takes over and over to find a few investors to collectively write them. 200000 of which I was 50 and they picked up some tens and twenties and, um, where.
Going through the accelerator program on 1, demo day, and then a few meetings afterwards, they’re able to raise a 1M dollars and that’s much higher evaluation.
So whatever amount, you know, that 6% of equity they had to give Ray was well well, worth it for them and mind you. I, I don’t run an Excel way or or incubator.
See, the value of it, um, most of them, so I’m not selling anything.
That I see the value of it there. I, I, that’s my main deal source is all the deals that are going the company’s going through those programs and following them.
Uh, that’s my main favorite deal. Deal flow is following every accelerator. I think you’d be a program that is relevant to me. Somebody might somebody I’m, I don’t there’s many that I’ve.
Rolled out, because they don’t have the right kind of deals for me or I don’t like the quality of the ideals and I won’t say who those are, but there’s many that I, you know.
Um, don’t like so they’re not all equal. You got to choose wisely. Um, but I, I continue to follow the ones that I do like, and there is.
A lot of them, it’s not just a few, uh, there’s a lot of great ones and a lot more that are just good ones and there’s not that many bad ones to be honest. Um, most of them are either good or great.
I follow, I follow them they are usually, you know, every 3 months have a new cohort as a whole bunch of companies.
Uh, if you’re active, you can get to know those companies before demo day. Um, can you find them on the screening? They, you can find out which companies are going into the next batch and see the list in advance.
It’s in their interest to tell you that they want active investors.
To know, who’s going to be in their batch and to meet their companies because they want to get them funded.
I know so, um, so.
You know, they’re happy to have myself and and other angels that are active.
Get now get to know who’s in their call hurts and get to know their, the founders and those companies and have conversations with them. And.
A mentor them, in fact up some of these programs.
Uh, hot pro allow Pre, demo, day, demo days where we get small batches.
Get to view their pitches and mentor them on them a few weeks before demo dates. And therefore, of course, if there’s something we like, we can preempt them what they invest early. But also mostly we’re providing them a service of.
Helping them refine, practice their pitch and also refine their pitch and often you’ll see.
On the early demo day like that, I’ll see a pitch and I would say, hey, you know, that’s great.
But what about the system this? I didn’t understand this. I didn’t understand that. You were saying, I’ll tell them add I’ll have them add 2 or 3 slides that.
Add more information that was missing, um, and maybe clarify some other slides or, you know, because what’s obvious to them is not obvious to us. So, it’s like, okay. All that I had to ask it wasn’t obvious to me. I don’t know your business.
And there won’t be obviously other investors, so you need to put a slide in on that. You need to explain the industry, for example. So there’s things like that that founders miss very often. Um, and.
We provide that service we, I mean, myself and other investors who are willing to volunteer to do these early demo days, and are active following these programs to give them that advice.
Right. Perfect. That’s absolutely accurate. And by the way speaking of inquiry accelerators, in a few weeks, I’ll be interviewing the founder of large accelerator in Los Angeles called expert Dojo, which makes like.
I think at this point, they’re making 1 investment per week. So if you’re curious to hear that definitely keep an eye on fundraising radio. So, David, here, we’re moving on to the last portion of this episode, which is a call to action.
So what is the 1 thing you want to listen to do? As soon as the episode is over?
Well, whether you’re a startup founder or.
A potential limited partner, or someone who is an accredited investor, might want to invest checkout.
Emerging Ventures website that’s emerging that VC very easy E. R. emerging that, and then there’s some information on there.
You can also subscribe on there to the emerging BC newsletter about once a month we send out a newsletter and sometimes the time issue, some press releases as well, and not going to overwhelm your inbox. They can sign up for on the website and get our news.
Uh, for founders, that can be interesting up.
Start ups that think they may want to talk to me further. There’s a, a contact us button on there and feel free to submit your pitch deck. I’ll take a look and I’ll get back to you. Um.
And either way you’ll hear from me so feel free to reach out to me through there. I’m also. On LinkedIn and on Twitter.
Uh, you can find me anywhere, uh, David Mendell.
Um, just about anywhere, you’ll find me.
Perfect great. I’ll definitely only links to emergent Ventures, a description of this episode so if someone is bad at memorizing things, just go to the description. The link will be there. Just click it
down here there.
So we’re going to wrap it up here. I’ll say my call to action is going to be as usually now, go to the description of this episodes. The links that David mentioned will be there and.
Only 1 more link to the type form, which you can fill out and get access to a list off. I mean, not the least I will personally connect you to a number of advisors and actively invest investors. If I like your projects.
So definitely fill out that form checkout, a merchant Ventures and have a good day.