5 Minutes With... David S. Rose

Meet “The Pitch Coach,” David S. Rose—the legendary founder of Rose Tech Ventures, chairman of New York Angels, chairman and CEO of Angelsoft, and all around serial entrepreneur. He also serves as an active early stage investor in companies including BioScale, eJamming, Goodmail, and more than 60 other early stage ventures. NY REPORT managing editor Daria Meoli recently spoke with Rose about how the rules of angel investing are changing.

Daria Meoli: How has angel investor criteria changed over the last decade?

David S. Rose: The cost of funding an Internet-based business
dropped over the last decade to the point where you’re down by
multiple orders of magnitude. The first Internet company I started took $20 million in venture capital to get to our product launch. The second company that I launched only took $2 million up until the product launch. And then when I started investing, the first company I invested in only took $200,000 to get the Internet product launched.

Then last year, New York Angels invested in a really cool, early-stage company that was operating and generating revenue, and their total cash investment was $20,000. That’s like three orders of magnitude.

Lots of people are starting companies very, very inexpensively, so the bar has risen. Twenty years ago, if you had a business plan, you would go to a venture capital funder and say, “Here’s my business plan. Give me money to launch the company.” If they liked the plan and they liked you, they might do it. Now, that doesn’t cut it.

Nobody is funding business plans any more. Now it is so cheap. If you have such a good plan, go fund it yourself. I have too many other options out here to invest in. What we’re looking for now are companies that have their product done and they actually have people using it who are happy and actually paying something for it. The business may not be profitable yet, but it has to have some customers.

DM: How have performance expectations changed as a result of the recession?

DSR: The new metric is, “We’ll put in cash now, but you had better show us how, in a worst case, you can break even on the money we’re putting in.” Companies don’t have to hit a home run with the money that I’m putting in, but they do have to be able to get to a point where they don’t need more money, because there might not be anyone else investing after me.

It used to be we’d step in and VCs would come later, but right now, we’re still coming out of the recession, and getting VC is not as easy as it once was. If you’re asking for $500,000 from us, then you have to show us how you get to profitability on that $500,000. If there is a venture capitalist willing to come in, great. They’ll put in a big chunk of money that’ll help to take you to the moon. But if not, at least you can keep the company going without requiring more cash.