Video Investor Discussion: Hermann Eul + Wade Luders

Investor Discussion: Hermann Eul (Band of Angels and Sand of Angels) and Wade Luders (Band of Angels)

Silicon Valley investors, Hermann Eul and Wade Luders, discuss their thoughts on selling your company to investors – how to use time efficiently, the role of members of the startup team during this process and much more. Watch the full version above or jump to the section of interest below:- Ways to meet investors without referrals

Don’t miss the chance to hear from more experts like Hermann and Wade at the many tech startup events at Founders Floor in San Jose.

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Video Transcript

Hermann Eul:
I’ll try to make it short. I used to be, for many, many years in big companies. I used to be Chief Technology Officer, Chief Marketing Officer for Infineon Technologies. Then I was five years with Intel, and then I thought, ‘I want to do something else — but not sitting in big meetings and pushing hope.’ So, I retired. And in my retirement, I then became a board member, so I’m an independent board member, either on advisory or on a Board of Directors. And then people drag me into startups.

A friend brought me to Band of Angels and the Sand Hill Angels, and I joined both of them. So, as you are going to represent the bank, so I’m the central guy tonight. That is pretty much what I do. So I also work over there at the ABC Accelerator, some Unix startups. And in Slovenia, last week, I went to Rigar in one of the Baltic capitals and looked at their startups. It’s so exciting. I could rattle on forever, but I’ll stop now.

Matt [Host]:
Good, thanks Hermann.

Wade Luders:
I’m Wade Luders. I am a former FBI agent, turned angel investor, a pretty typical path.

Hermann Eul:
What more is there?

Wade Luders:
I left the FBI to start a business. I’d always wanted to start a business. My dad ran a business, so I thought, ‘Hey, this is a great thing to do.’ And I went to an Accelerator, Adeo Ressi’s Founder Institute. Fantastic experience, started a number of companies out of there, all of which failed quickly. I eventually did get one that was successful, a senior care business that I ran for a number of years. Unfortunately, it was not for me, I did not like it. Employees are a pain, especially lots of them. So I decided I’d do some real estate work because that’s something I could do by myself, and angel investing because it’s great to be involved with startups. So that’s how I got here.

I’ve been doing angel investing for about a year. I am relatively new. I’ve invested in about 14 companies, and I work with the Band of Angels because they have a fantastic group of smart people who can guide me, as well as introduce me to good companies like yours.

Matt [Host]:
You know, Band of Angels, Sand Hill Angels, very active organizations. You guys do a lot of investments throughout the years, and even recently. Do you have a couple of companies that you find to be very interesting, whether you’ve invested through the Band, or maybe individually yourself, that you could talk about, that might be of interest to you right now? I don’t know Hermann, if you have anything that’s very interesting?

Wade Luders:
My most recent investment is a company called Gravity. They are an AI, CRM for fundraisers. I am a bit of a sucker for a software company that targets a niche that I think they can win, that has technology that can expand and rule the world. So that’s the kind of model of this company puts forth. They make themselves writing emails, some cool CRM products, very focused on a very niche, colleges and universities and hospitals fundraising market. I think that again, it’s an area that can win, so that’s what drew me to them.

I see a lot of stuff but for me, like I said, I’m a sucker for software that targets a niche, that can grow.

Matt [Host]:
Yeah, yeah. Hermann, anything interesting recently?

Hermann Eul:
Usually I give me a budget at the beginning of the year. Then I have to stop investing when that budget is taken. I’m already running pretty much out of budget now. Yes, I did some investments. I invested in Keto, that is a larger fund, invested in fabric number three. It’s also an acceleration and a fund. I invested into Geo Semiconductor up the road here in their Round C. What else did I invest in? I invested in a health care company and in Connected Signals. I think I’m pretty much running out of money for this year.

Matt [Host]:
That’s good. I mean, you guys probably see quite a few startups throughout the year, almost as many pitch decks throughout the year. And then after a while, you start to see some patterns, some characteristics in founders. All those founders that are successful, just some characteristics that maybe have a propensity to make them successful. What do you see in those founders that you see time and time again in successful ones, or what do you like to see in those founders that you think make them helped to be a success? Because that’s one of the things with founders – they’re trying to figure it out, at the end of the day, there’s a core group of things that you kind of just see over and over again.

Hermann Eul:
In a way, yes. On the other hand, we cannot go and bake the founders, or have them like pretzels coming off the line. I think a common pattern though is a standup mentality. Again and again and again. Starting a company, raising money again and again. It comes with a lot of frustration as well. Nothing goes as easy as you think, and then you are on your own. I used to work for many years in big companies. I had a legal department, I had a finance department, and whatever I needed I could just call on expertise much deeper than I ever had and educate me. If you own a small company and a startup, you don’t have that. So that means you have to be very versatile in what you do, multi-skilled in many many areas, but never ever give up. That is, I think, the fundamental thing.

So never ever give up would mean, even though you recognize this idea wasn’t actually as good as I thought. Yes, there is a small likelihood that you are on the wrong path so that means yes, you have to have a little bit of a skill, maybe one out of a thousand that you know when to pull the parachute and just say, call it a day. It’s not going to work, period. I do something new. But until then, you fly this thing, and you fly it 24/7, period. And I think that is the most important skill.

Wade Luders:
Yeah, I completely second persistence. If you could find a way to quantify, let me know, I’d like to find a way. For me, there’s so many qualities but one that I think is necessary in a CEO is a salesmanship, a little bit. That’s a tough one, because I don’t want to be sold, I don’t want it necessary to be the ultimate salesperson. But I need to find somebody who can take this idea and sell me and then sell future investors because that’s what we’re investing in is someone who’s going to be able to stand in front of a bigger, much badder VC firm and get a Series A. So there needs to be that professionalism, that ability to do that, and I’d look for that, I’ve always said.

It’s all about the founders, it really is. We see so many pitchers that meaningless until you see the founder. The other thing I would add is domain expertise and knowledge of the industry. There’s a tendency sometimes to get so involved in your invention that you get blinded to what else is going on in the industry and we see that a lot. It’s completely understandable. I guess that I know firsthand how that happens, but to the founder that is able to identify and tell us about the competition. Tell us about the activity in the space. Tell us about recent acquisitions. That’s awesome.

Matt [Host]:
Totally agree on that. A lot of founders in the audience are fundraising now or they will be in the near future, and many times they’re first time founders and so they’re learning as they go. At the end of the day, they’re trying to figure out, “How do I reach out to investors like yourself and your colleagues. How do I engage with them in a meaningful way to be able to get a sit down meeting. How do you guys like to be engaged with or what’s a successful pattern? Is it literally a cold email, something you guys would reply to? Or does it need to be warm introductions?” How do you guys like to be engaged with?

Wade Luders:
Cold emails are tough, but I will say it’s a two-way street. As angel investors, we’re trying to get in front of you. Our job is to try to find the founders, your job is trying to find the investors. It should be easier, but it’s not. That’s why I joined and work closely with a group because it makes this easier to find than if I were on my own. It’s tough, I’m not sure there’s a magic pill measurable to solve it. I got to say cold emails are really tough. LinkedIn inmail, it’s tough. I’ve heard maybe if you send a video along that helps. I agree, helps a little bit.

But the best way would be, obviously, a warm introduction, or find a way to present in front of a few groups. I don’t think it’s that hard. I think that there’s a lot of groups that you can get in front of. You might not get funding, but you’ll get exposure and then you’ll get from there, “Hey, it’s not for me but check this out”. Or a lot of times, “It’s not for me today, so go back in a few months”. And things happen, it’s long term.

Hermann Eul:
Yes, I would agree, cold emails are usually not working, at least not with me. On the LinkedIn thing, usually also doesn’t work and I wonder on how that actually comes so I think that is pretty much a waste of time. Going through angels, that can work. There are more people and are usually in the Band or in the Center, usually 50 to 100 people listen to their pitch. So the likelihood that you find five guys that like your idea and put some money on it is actually fairly high. Why do I work with this? For the same reason. More people see more and more people bring in more leads. We have to understand the best deals are usually done in closed circles. That means the likelihood that a cold call or whatsoever would be that super unicorn deal is absolutely minimal. Absolute minimal. In an angel group, it’s already higher.
The inroads are established, the connections are established, many people know them, and that means everybody is pretty much keen on presenting in the Band of Angels and come to the central angels. And usually, if one is there, a few are like me and they are the one as well and bring it over there and then you already have a lot of connections and that works, that works much better. And you get a lot of feedback, that’s good for you. And those people that throw in money, they think of you. Be happy if they don’t call you everyday and want to know your status and how you’re doing. That’s kind of a balance but at least they think of you and if they find new leads or whatsoever, you have more people just watching you while you go.

Matt [Host]:
I’ll add, at the end of the day, we need a filtration process to some degree. I mean, there’s just too much volume coming in to be able to go and look at every pitch deck. So that’s one of the reasons we use our network as part of that filtration process. If it’s referred to a close colleague, I know that they’re vetted that to some degree and it’s worth our time because there’s just only so much time in a day to be able to look a stuff. So if you’re trying to invest in a really good startup company, you got to focus on the ones you think has highest propensity to be investible with. That’s a difficult process. Going through that fundraising process, especially for a first time, helping to set some expectations a bit maybe for these founders. How much time to they need to think about, in regards to from the time that they start pitching investors, the time that’s wired in the bank.

How many total investors do you think that they kind of maybe need to go through before they get that core group that are going to be investing in their pre-seed round, or seed or even Series A at that point? I know they’re different, but do you mind maybe giving your two cents on that?

Hermann Eul:
You want to know whether it’s a ten to one kiss frog experience or whatever. You have to kiss a number of frogs before you find a prince until you find a prince. Unless you are this one super unicorn that everyone jumps on, that everyone puts money on. So assume you have to do that, assume maybe if you are the CEO of this thing that pretty much you will be raising money all the time. So it does not stop. So once you have the last money in your account you already have to think about, “What do I do next time? What do I do? What do I do? What do I do?” So get acquainted with that situation. If you cannot, maybe it the next step that you find somebody that you resonate with and let that person be the CEO and take a step and become the CTEO and whatsoever and have somebody else doing it. If you don’t like it, don’t try it. Then maybe find a friend and have that friend doing it and you do what you like and work on the technology, work on the idea, and have somebody else going and polishing the other people’s doors and looking for money.

Wade Luders:
Yeah, I agree. As I mentioned before, I’m a flawed, flawed founder. But the job of the CEO is to fundraise a large portion of it. If it’s something you’re not comfortable with like he said, find someone who is because I think it’s important, it’s that salesmanship has to happen. In terms of how much time, I’ve seen 110% of the time, which doesn’t seem right to me, but I understand that that’s the drive and that’s the job so hopefully have a team that’s still able to get stuff done while you’re out there fundraising.

Only advice would be to try to get quick answers, try to get to a yes or no quickly. A yes quickly might not happen but at least get to a no quickly. That being said, be persistent, it’s a balancing act. I’ve seen companies that we tend to … Angel groups are great, but they’re slow. And I’ve seen companies get dragged for months and months presenting and pitching and refining, and that’s great, but it could be a waste of their time, and in my opinion, sometimes it is.

You can be persistent, but if you can get to a no quickly and move on, you can cover more ground because it is something you have to do full time.

Matt [Host]:
Yeah. I’d add that you don’t want to sit there and think 30 days before you’re running out of a cash and we’re going to start fundraising, that’s the wrong time to think about it. It’s really a multi-month thought. From the time when you start until the tie that wires money, it’s not going to be any faster in three months, so you got to start thinking in it and planning ahead like that.

The other thing is, understand what stage you’re in too. Are you angel pre-seed, or are you more seed-series A? Because those are different types of metrics those VCs needs to see to make a decision on that. Understanding what stage you’re in and then making sure you work months in advance to make sure you’re building up those metrics to make that higher probability of you being able to go and get investments in the amount that you want.

The other thing is is that I would say you got to be expecting to see anywhere from 20 to 40 individual investors, and that could be angel all the way to professional investors. It takes the time up front to do some reach of those investors to find out what their propensities are, what they’ve invested in in the past, and what they might be interested in. Let’s not waste their time our time pitching somebody that has never done a B to C company and don’t really lie it because they’re hardcore B to B. Don’t waste your time with that, so that’s just another thing I’d add on to that.

Last question, and while you’re answering I’m going to start getting a projector ready, but we have companies pitching tonight, but also companies that are going to be pitching in the future and man times you have a short as 30 seconds with an investor at an event like this, or you have maybe five minutes where you’re able to get a slide deck in front of somebody. What are some of the things you guys need to see in a five minute pitch like this that they need to put in their pitch tonight to be able to get maybe a sit down meeting? At the end of the goal, I think that sit down meeting is where you want to be able to get with yourself, your other partners in the room, to be able to go through the whole deck, maybe have 45 minutes? What are some of the things?

Wade Luders:
I’m not sure there’s a perfect answer for that. It’s so fluid. Something that’s often touched on for me it’s all about the founder, it really is. The idea is so secondary in my mind. It has to be a good idea but it really comes down to can you present it, can you articulate it, can you have a vision for it, how dedicated are you, do I get a sense that you are going to persevere through this? Do you have the domain knowledge? I told you what I’m a sucker for, but also in the details, do you know that Salesforce acquired 16 companies last year, and this market segment for this valuation, and therefore investors can expert a return of this. Don’t forget to get to those details, the numbers, because as investors, we look for what’s the ask.

A lot of times you’ll see a pitch and there’s never the ask. Oh, we’re not raising money now. Why are you here? I don’t mean to be dismissive because it’s a good practice, but as investors, we’re looking at the numbers all the time, whether explicitly or implicitly, so show us what you know in terms of the ask, the valuation, why it is that way, what’s your revenue, that kind of stuff. It’s hard. There’s no right answer. But those are some of the things that come to my mind.

Hermann Eul:
Yeah. Thank you. I picked this up. There’s no correct answer. In particular, not for the five minutes. Of course we could now say you have to this and that, then the five minutes are not enough, that means you have to make a choice what do I put into my five minutes and what convinces me and most of the cases is a kind of a gut feeling about the person, the fit to the technology and their idea that this could really take off. Somehow. Is that a gut feeling? Yes, there’s a gut feeling. That gut feeling is usually built by experience and then materialized somehow and identifies themselves in a gut feeling.

All the rest of the details will anyway be scrutinized in the due diligence. But you have to get there, but that means for me it’s always I like this idea. I personally do usually my investment decisions exactly in that point in time. You have a nice tool at the bed of angels, all the documents, in the central angels, that tool, and all the documents are in that tool and I can right away click committed, and put the dollar number behind that.

Or I can mark myself as interested and then people later come and ask me for the dollar amount, and that is usually when I make my investment decision. Very rarely I revoke this. Maybe if the due diligence later on figures this was far overstated or there was a significant glitch in the competition and it loses, which I couldn’t find or didn’t know, but that is usually when I make my decision. Right away at the evening, boom. And then I put committed and put a number behind it, and I’m usually done.