5 Qs WITH A DEALMAKER
Good morning, Term Sheet readers.
My colleague Lucinda Shen is back for the second day in a row — this time with a Q&A. Below is an excerpted version, but you can read the full interview here.
Missing a headliner such a WeWork is worse than investing in 100 companies on the highway to failure.
That’s the philosophy of David Tisch, the founder of BoxGroup — an early stage investment firm with its hands in investments such as Plaid, Warby Parker, and ClassPass.
Dubbed one of the most prolific angel investors in the Big Apple, Tisch, through BoxGroup, has invested in approximately 310 companies since its founding in 2007. He typically writes checks between $200,000 to $500,000—usually written during seed stage to series A. The firm has invested in a wide variety of startups, from consumer healthcare, to fintech and Saas businesses—though usually in firms based in New York, the fund’s own home base.
Despite the firm’s broad range, Tisch still beats himself up whenever he sees a deal announced involving key players that he may have missed or declined to fund. He believes his job is one of tracking every potential startup in the space, and networking with each and every one. In fact, the investor keeps a running spreadsheet of all these so-called missed deals, reviewing where exactly the fund went wrong in the process.
Tisch operates in a space where the mantra goes, failure is constant: Roughly 60% of startups fail to recoup their investors’ money—an undoubtedly painful experience for the parties at play, but also a problem that can be balanced out for Tisch.
“If I funded 100 bad companies, and I funded WeWork, my returns would be perfect,” he told Fortune.
Here’s what Tisch has to say about the pain of missing a winning investment, his biggest wins and misses, as well as how he finds a promising startup to introduce to later stage investors.
FORTUNE: Tell me more about your process of workshopping the missed investment opportunities.
TISCH: We have a weekly meeting and we talk about things that have happened that we were not a part of. Every morning, you get an email in your inbox and there’s a bunch of deals news and I feel like our job as a seed stage is to know every moving piece of the (startup ecosystem), even though the industry has gotten so big that it’s unrealistic. But it’s the standard that we have to hold ourselves up to—especially if it’s a New York-based company, or a company that we know or which we may know of the founding team. If we didn’t see it, or if we looked at a company and passed, then we screwed something up.
So it’s questions like “Why didn’t we see this,” or “Why did we see this and not do it, was that the right decision,” as well as “This company sounds interesting, it’s a little late but do we want to reach out just to learn?”
But startups fail all the time, so how do you judge when a deal is going to be worth it later?
TISCH: In order of things I care about, the thing that bothers me the most is not seeing a company. The second is seeing a company and not investing in it when I should have. The third is seeing a company, investing in it, and seeing it not work—that is at the bottom because part of my job is to make mistakes, whereas for the first, I would have wanted to have the choice to make the mistakes.
The cost of missing something is much more expensive than the cost of funding a bad company. So if I funded 100 bad companies, and I funded WeWork, my returns would be perfect.
But when there are firms in spaces funded by investors we’ve never heard about, I don’t tend to care. It’s the ones where they are funded by a firm we like and work with.
So when, for instance, I see Sequoia out there on a deal, I automatically assume that they are right and I was wrong. The best people are really good at this, so if you see a really amazing fund invest in something you didn’t invest in, that’s a different signal than someone you’ve never heard of.
What were your biggest missed deals?
TISCH: WeWork and Peloton. WeWork and Peloton were built in New York, and we didn’t see those investments. They are two unique and pretty magical companies that we think we would’ve liked if we had seen them, but we never did. WeWork was built in our backyards— It was 2010 or 2011, and we had a couple companies that were talking about working about WeWork Labs (WeWork’s early accelerator program), and I think we should’ve just asked more questions about “what is WeWork Labs?” I don’t think we realized that WeWork Labs was attached to a bigger, broader company.
But I want to pretend to have figured that it was interesting at the time, but it was a co-working space—and there were a lot of co-working spaces. So I don’t know if things are so obvious that something as amazing as WeWork would happen. But I didn’t say ‘no.’ We just didn’t have the opportunity.
WeWork’s WiFi comes into our office now—it’s an investment that still regularly haunts me.
TISCH: We’ve had some great outcomes—we had PillPack which sold to Amazon for $1 billion last year, Flatiron Health which sold to Roche, and we were the first investor in Vine (which was sold to Twitter before eventually shutting down). GroupMe sold to Skype in 2011, and now GroupMe is top 100 in the app store. The last one is ClassPass I met [founder] Payal Kadakia at Techstars at the beginnings of ClassPass and watched her emerge as a wonderful person in the industry. So we’ve had about over 40 exits.
How do you find a new startup that is interesting, and could eventually be a viable candidate for Series A and beyond?
TISCH: So you think, ‘How do you put yourself in a position with a higher probability of seeing something rather than not?’ There are predictable ways: You know Y Combinator has a company every six months so you want to see that every six months. You see that very interesting people are coming out of Harvard Business School, Carnegie Mellon, or Stanford or starting companies—so you want to make sure there are ways to see things happening in their entrepreneur clubs or competitions.
But at the same time when an interesting person leaves a company to start something, you might not know that because you might not be inside the company to know. For example, you might know that the head of engineering at this company is leaving, and that she is very special. So how do we get her, and how do we get known?
So any sort of channel to meet people, we’ll go there. We’ll be at incubators, labs, schools, accelerators, and then it’s really just a consistent amount of networking required to figure out the signal.
Founders know future founders—that is probably the best way to put it. If you get a portfolio company to introduce you to someone starting something interesting, that’s a really positive signal. We spend a lot of time asking existing investments for potential new investments.
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• Nuvaira, a Minneapolis-based developer of medical devices that treat obstructive lung diseases, raised $79 million in funding. U.S. Venture Partners led the round, and was joined by investors including Endeavour Vision, Qiming Venture Partners, Lightstone Ventures, Advanced Technology Ventures, Morgenthaler Ventures, Split Rock Partners, Versant Ventures, Vertex Venture Holdings and Windham Venture Partners.
• InfluxData, a San Francisco-based provider of open source platforms to manage time-series data, raised $60 million in Series D funding. Norwest Venture Partners led the round, and was joined by investors including Sorenson Capital, Sapphire Ventures, Battery Ventures, Mayfield Fund, Trinity Ventures and Harmony Partners.
• Rapyd, a fintech startup creating a cardless financial network, raised $40 million in Series B funding. Stripe and General Catalyst co-led the round, and were joined by investors including Target Global and IGNIA.
• Chainalysis, a provider of cryptocurrency compliance and investigation solutions, raised $30 million in Series B funding. Accel led the round.
• Mode, a San Francisco-based provider of a collaborative data science platform, raised $23 million in Series C funding. Valor Equity Partners led the round, and was joined by investors including Foundation Capital and REV Venture Partners.
• May Mobility, a transportation company, raised $22 million in Series A funding. Millennium New Horizons and Cyrus Capital Partners led the round, and was joined by investors including LG Technology Ventures, Thayer Ventures, BMW i Ventures, Maven Ventures, Toyota AI Ventures and Y Combinator.
• ShiftLeft, a continuous application security platform, raised $20 million in Series B funding. Thomvest Ventures led the round, and was joined by investors including SineWave Ventures, Bain Capital Ventures and Mayfield.
• Qu, a provider of point-of-sale technology for fast casual and quick service restaurant chains, raised $10 million in Series B funding. Cota Capital led the round.
• Donde Search, a New York-based visual search engine that helps retailers power suggestions and related items on their websites, raised $6 million in Series A funding. Matrix Partners led the round.
• Evisort, a Silicon Valley and Boston-based artificial intelligence contract management company, raised $4.5 million in seed funding. Village Global and Amity Ventures led the round, and was joined by investors including Serra Ventures.
• Medivis, an augmented reality platform for surgery, raised $2.3 million in seed funding. Initialized Capital led the round.
• ecoSPEARS, a Florida-based global solutions provider of green remediation technologies, raised $2 million in seed funding. Kirenaga Partners led the round.
• PursueCare, a Middletown, Conn.-based technology-enabled health services startup focused on solving the growing opioid epidemic, raised funding of an undisclosed amount. Investors include WRD Capital and Starboard Capital Partners.
PRIVATE EQUITY DEALS
• BCM One, a portfolio company of Thompson Street Capital Partners, acquired SIP.US, an Alpharetta, Ga.-based provider of on-demand, enterprise-class IP communications software solutions to businesses. Financial terms weren’t disclosed.
• Darby Private Equity made an investment in Biopas, a Latin American specialty pharmaceutical distribution company. Financial terms weren’t disclosed.
• Monument MicroCap Partners LLC recapitalized Montgomery DME, a provider of durable medical equipment to hospices located primarily in Los Angeles and surrounding counties. Financial terms weren’t disclosed.
• H.I.G. Capital made an investment in Digital Ware SA, a Colombia, develops and sells ERP software, payroll human capital management solutions. Financial terms weren’t disclosed.
• Fiverr will acquire ClearVoice, a Phoenix, Ariz.-based talent network and content marketing platform. Financial terms weren’t disclosed. ClearVoice had raised approximately $3.1 million in venture funding from investors including PC Ventures, Desert Angels, Peak Ventures and Service Provider Capital.
• Catapult Capital acquired JibJab, a Los Angeles-based provider of social content through branded satires, eCards, and messages. Financial terms weren’t disclosed. JibJab had raised approximately $17.9 million in venture funding from investors including Polaris Partners, Overbrook Entertainment, and Sony Pictures Entertainment.
• Macquarie Infrastructure Partners acquired Wheelabrator, a Portsmouth, N.H.-based owner and operator of waste-to-energy facilities. The seller was Energy Capital Partners. Financial terms weren’t disclosed.
• Import.io, a web data integration company, acquired Connotate, a web data extraction startup. Financial terms weren’t disclosed.
• Arlington Capital Partners agreed to sell Endeavor Robotics, a Chelmsford, Mass.-based provider of ground-based robotic systems, to FLIR Systems Inc for $385 million.
FIRMS + FUNDS
• btov Partners, a Switzerland-based private equity and venture capital firm, raised 80 million euros ($90.4 million) for its btov Industrial Technologies Fund.
• QED Investors named Ciara Burnham as a partner.