New York Angels has invested in more New York startups than any other organization, Cohen maintained. That’s about $54 million invested in 70 companies. Cohen has developed a sense for what works by fielding 50 pitches a week. He was one of the first investors in Pinterest.
Cohen shares what he knows in his forthcoming book, What Every Angel Investor Wants You to Know: An Insider Reveals How to Get Smart Funding for Your Billion-Dollar Idea. He provided a sneak preview at the Princeton Public Library on February 25, 2013, before a standing room-only crowd.
Cohen is no slouch on the startup side. He’s built publishing empires, sold a public relations agency to Interpublic Group and is beta testing a new business built with his son Trace. It’s called Launch.it, and he thinks it will disrupt the market. He challenged all his children to start a business before age 26 — and they have.
For starters, Cohen said, you must know that he is an “emotionalist” and a hugger. He has to make some kind of real connection before he’ll make an investment. His passion for the “Spider-Man” comics led him to invest in comiXology early enough to corner the market on digital comic distribution.
The “dirty little secret,” said Cohen, is that most angels never make money, and it takes an average of nine years to get to an exit. “There’s a lot of angel exhaustion out there right now,” he noted. Still, 90 percent of all seed startup money comes from angel investors, he added.
What does Cohen consider to be the most important qualities for entrepreneurs?
The first is leadership, he said. “I want to know that you’re in control. You need to be sure of yourself. You own your belief and know where you’re going. Being in control is something you have to be as a state of being. That also goes for your time. If you’re in a meeting where you’re wasting time, get up and leave.”
Cohen provided some insight into what a smart angel investor is thinking when he or she talks to a startup
- How much can I make?
- How much can I lose?
- What is my exit strategy for this deal?
- Who else says this deal is viable?
- Does the founder already have resources at risk?
- What other value can I bring to the table?
- Can I trust the management team?
- Is the company’s target market large, growing and reachable?
- Does the company have a sustainable advantage — either operational effectiveness or strategic positioning?
- Are the company’s business, revenue and profit models credible, verifiable, efficient and sustainable?
Other business questions Cohen says the smartest angel investors will probe: Do you know your customer? How much time have you spent with your customer? (It’s all about behaviors.)
- Do you know your business? Be ready to answer any question thrown at you about your industry. Said Cohen, “The kiss-of-death answer is, ‘That’s a good question.’ My next response is, ‘Get the [expletive] out of my office.’ ”
- Do you know what makes you special? One of Cohen’s best investments, he said, was Tommy John men’s underwear, which has a horizontal “quick draw” fly.
- Can you prove you can execute? “There are very few ideas that people haven’t come up with before. But execution is everything.”
“Iteration is the new innovation,” Cohen noted. “Don’t be afraid to change. We love it. The big change is when you pivot, when you have the guts to make a giant pivot. And that’s OK. You’re thinking, and you’re working hard to meet the needs of your customer.”
Cohen insists on spending social time with the management team of prospective investments to gauge how well it can communicate. “I like to see how people interact with each other and how they talk about money … how they work together.”
The right angel will help you get business, not give you advice, he said.
Cohen thinks young companies are better off selling when they’re small. “It’s a lot easier to exit when you’re small. Take the money and run, start a new company or go to Tahiti for a while. Enjoy life. IPOs are far and few between.”