0:30 Hey Everybody, this is going to be a great episode, welcome David Cohen of TechStars stick with us!
4:15 Our next Live TWiST Event will be with Dave McClure 2/8 in San Francisco!
5:35 ShareFile by Citrix! Enter the code TWIST for a free 30 Day Trial!
7:30 How many programs does TechStars have now?
9:00 Did you think it would be this big when you started it?
9:20 How did you get the brand partners that you have today?
11:00 As a startup how do you balance the startup culture versus your massive brand partners?
13:45 What is the optimum size for a TechStars class?
15:00 What would you define the Series A-Crunch as?
15:40 If the quality of companies is better than it was 10 years ago, then why is there a Series A Crunch?
17:15: What does a startup have to show to get a VC’s attention?
18:00: What is social proof? Unpack it.
19:50 What happens to the companies that graduate and don’t receive additional funding?
21:00 Do you feel there is a sense of entitlement with startups to receive an A Round?
21:45 Are people gaming the metrics now?
22:30 Let’s talk about valuations.
24:20 So optimizing for valuation may not be the best idea for the long run?
25:45 Let’s thank our long term friends MailChimp! The free plan is always free!
29:20 How does it feel that you have helped you graduates pull in $200M in funding?
30:00 Why so much transparency with your companies?
31:10 In the last couple of years what is a company that you instantly now they were a winner by meeting the founder?
33:50 What’s happening with GroupMe?
34:20 What is something a founder could say that would turn you off to that company forever?
35:15 Are you surprised how often you can tell if someone is dumb or stupid?
36:45 What is the toughest thing about being a founder?
38:30 What is the biggest mistake young founders make after they receive founding?
39:45 What is a party round?
41:20 How much does the stock market effect startups?
42:00 What impact has AngelList made?
45:40 Are acqui-hire deals scaring away Angel Investors?
50:45 Would you ever let Facebook into TechStars to take a look at the companies?
51:25 What do you think about Google in terms of M and A?
51:50 What do you think about Yahoo and Marissa?
52:50 Are there too many startups in the ecosystem now?
53:50 What is the biggest mistake you’ve made by not funding a company?
54:30 Why is Boulder so filled with superhumans?
56:25 What is about New York and Boston that have lead to an explosion in startups?
57:30 When you have  a great company who do you take it to first?
57:45 What make Brad Feld such a great investor?58:25 What is it about those guys that sets them apart from the rest?
58:45 What is the right work that investors need to do?
59:20 Jeff, the superfan, how long have you been watching the program?
59:40 Who are your favorite guests?
60:00 What exactly do you do?
60:30 Do you envision a future where incubators become gatekeepers?
62:45 Does it worry you that a lot of people who run incubators are failed entrepreneurs?
65:45 Do you envision a time where you will open up in the Valley?
66:20 What are the next 2-3 cities you are considering?
68:00 What is the benchmark for success today?
71:45 Have you had companies come in with exact copies of existing companies?
82:40 Do you think the crowdfunding thing is going to work?
74:00 Do you think small companies will ever go public again?
75:30 What trends do you think we will see this year?
77:00 What’s coming next from Nike?
77:35 What are the next couple of things we will know about our bodies?
79:50 David thanks so much for being on the show, continued success with TechStars!
80:50 Super fan how much have you learned from these interviews with these founders?
85:50 Thanks to Citrix’s ShareFile and MailChimp! We’ll see you next time on This Week in Startups!

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Today’s episode of ThisWeekIn Startups, is brought to you, by ShareFile from Citrix. Secure File Transfer, Built For Business. Visit Sharefile.com, Click the microphone and enter TWIST for a free 30 day trial.

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Jason: Hey, everybody. Hey, everybody. It’s going to be an amazing ThisWeekIn Startups. David Cohen, the founder of Tech Stars is with us. They’ve graduated hundreds of amazing startups. It’s going to be an amazing episode. We’re going to talk about entrepreneurship, accelerators, incubators, angel investing, and what makes for success in the startup ecosystem in 2013. Stick with us. It’s going to be an amazing episode. One of the best ever.

TWiST title sequence.

Jason: Hey, everybody. Hey, everybody. It is time for ThisWeekIn Startups. Maybe, you’re listening to it on TuneIn. Maybe, you’re listening to it on… There are a bunch of apps now. Stitcher, I guess is one. All these different apps are featuring ThisWeekIn Startups. Thanks TuneIn. Thanks Stitcher. Thanks, most of all to our friends over at iTunes. They feature the show sometimes. Which, is really nice of them. The show is growing, in such a major fashion. I have to tell you, I’m super motivated for 2013. It was like in 2012, I was kind of getting tired of the show, to be honest. I was like, “I don’t know how much show I have left in me.” Then, boy, we leveled-up on the guests. The technical issues went away. So many people participating in the event. It’s really recharged my batteries. I’m hearing great things from the audience, too. If you’re one of those people who’s a fan of the show and you see me at an event or if I go take a leak, or something like that, don’t be the weird person who doesn’t say hello, but stares at me. I’ve been having a lot of this, David. You know what I’m talking about?

David: I’m familiar.

Jason: Yeah. People like come up to you and they’re in the urinal next to you. They’re sort of looking at you. You don’t know… Are they looking at me because they’re a fan of the show? Do they know my work? Or, are they looking at me for some other nefarious reason? There’s a very easy way to sort all of that out. It’s just say, “Hey, Jason. Fan of the show. Love the show.” Baba Booey. Just yell something out. Just be like, “Ay! I love the show.” Hold on a second. That’s my wife calling. Would it be fair to do a… It’s my wife’s ringtone. Don’t tell her. It’s the Imperial March. I got that from…

David: Yeah, I’m wondering where you got that.

Jason: … Brad Feld.

David: Mm-hmm.

Jason: You know, there was a big controversy about Brad Feld answering his phone, during the show.

David: Is that right?

Jason: Did you hear that?

David: I saw the episode. Yeah.

Jason: By the way, that’s David Cohen, everybody. The founder of Tech Stars. Everybody was like, “Oh, my God.” It was a thread on the TWiSTList. Which, is the back channel of the show, twistlist.co. They were like, “He is so rude for answering his phone during the show.” Then, everybody came to his defense. “No. You have to read the back story. He’s doing this thing with his wife. He’s trying to maintain a great relationship.” It was really interesting.

David: Work/Life balance. If, it’s a priority, that’s what you do, right?

Jason: Yeah.

David: I’ve seen him do it at a keynote, in front of hundreds of people. He does it all the time.

Jason: Right. So, it would be rude… if, somebody said you answered your phone during a keynote, or they ask me in a bubble, I’d say, “Yes. Of course, that’s rude, during a show.” However, there is always context and there is always intent. He’s got great intent. The context is maintaining Life/Work balance. He’s sort of making a point. Hey! Some housekeeping notes. The TWiST Live series has been going fantastic. We’ve had two so far. Jeff Clavier, the french angel investor extraordinaire. One of the original super angels. He just crushed it in January. Hold on. My wife again. by the way, the Imperial March is not just my wife’s ringtone. It’s everybody’s ringtone. Then, we had Phil Libin, from Evernote did February. Believe it or not, Dave McClure, a good friend of mine, is going to be doing the Live TWiST, in February. February 8th. twistlive3.eventbrite.com. As David Cohen knows, I’m always trying to rip off startups and get as much money as I can, from them, and abuse them as much as possible. There’s your ticket price. $2. Basically, I told my team, “Every time we do one of these events, increase the price, by $1.”

David: $2. That’s outrageous.

Jason: It’s outrageous.

David: How do you get away with that?

Jason: It’s so crazy. Everybody tweeting me today because, some other Credit Suisse event, in New York is charging people to pitch VCs and angels.

David: Yup.

Jason: It never goes away, does it?

David: It always happens. We always rally against it. Don’t pay to pitch.

Jason: Don’t pay to pitch. Garbage. Anybody who associated with that Credit Suisse… Probably the thing is Credit Suisse doesn’t even know that they’re supporting an event that’s charging entrepreneurs to pay.

David: The other thing is, a lot of times, the actual investors don’t know that they’re showing up to an event that’s charging entrepreneurs.

Jason: Right. They’r duping them. It’s so ridiculous. It’s loathsome. But, hey. Something that is not loathsome and something I’ve really been enjoying is Share File. That’s the most awkward segue I’ve had into a sponsor. Something that’s not loathsome. Kill yourself. Share File by Citrix. What a great product. This is professional file sharing for corporations and for startups. Send files of almost any size. Access files from any computer or mobile device. Safe and secure. Because it’s built for business. Like, the other Citrix products. Like GoTo Meeting. Which I use all the time. Rock solid, like GoTo Meeting. What’s really interesting is… I love this feature. I’ll just tell you about a couple of quick features. You can request a file. So, if I request a file, you don’t even have to have an account. I just click ‘request’, it’s sends you email, “Send me that file.” Boom. You send it to me and I get it. Email alerts when someone uploads or downloads. Really great auditing and tracking. I can see how many people uploaded or downloaded this. What activity tags between these two things? That sounds like overkill, unless you’re sending a deck with your startup. Or, you have a document library and all these important things. I really love the product. We’ve been using it here. If you want to try it, go ahead and try it. No credit card required. Smart. These guys are smart. They understand that no credit card required means, people are going to try it. Go to ShareFile.com. Click on the radio microphone button and use that promo code TWiST. Thank you so much to my friends @citrix for making @ShareFile. What a great product. Independent media, like this, is only made possible by our friends at Citrix and @Share File. Go ahead and thank @sharefile on your Twitter, Google+, Friendster, Spoke, Rise or Six Degrees account. Did I get all of the social networks?

David: MySpace.

Jason: Oh, MySpace. Yes. MySpace, of course. I’m the new MySpace. Dave Cohen launched Tech Stars back in Boulder, in 2007. They have 4 programs now. Boston, Boulder, New York, Seattle. They’ve got a couple of ‘Powered by Tech Stars’ now, which is the cloud one in San Antonio, the MicroSoft one in Seattle. The one I was most interested in, the Nike+ one that just launched in Portland. Ten companies, per program. Locations are selected. Thousands apply, obviously. Fewer than 1% are accepted. It’s pretty hard to get in.

David: It’s competitive.

Jason: Very competitive. Each startup gets $118K. $18K from TechStars and an optional $100K convertible note. TechStars itself, raised $34M from Foundry Group, SoftBank, RRE Avalon, The Mercury Fund, SVB Financial Group, i/oVentures. Of it’s 176 grads, a whopping 139 are active. That’s impressive. So, 79%. 19% have failed. 11%. 18% have been acquired. 10%. 142 have gone public. No. I’m joking about that last number. That’s what he’s hoping for. On average, grads raised $1.56M and over 1,000 jobs created. Welcome back to the program, David Cohen.

David: It’s great to be here. It’s good to have all of those stats.

Jason: I just like to go through them, because you know what? A lot of people are tuning in. The show leveled up from a lot of the big interviews that have occurred over the last year. Brad Feld, Sacca, a lot of great folks have been on the program. A lot of promotion, as I said earlier, from TuneIn, Stitcher and iTunes features. We got a lot of new people listening to the program. I like to make sure they understand who’s on the program. Give a little stats after them. TechStars, you’re 4 or 5 years old now.

David: Since 2007. So 6.

Jason: 6 years old. Wow. In those 6 years, did you envision it would get to where it is? In your mind’s eye, did you think it could get this big?

David: You never do. It’s just like any company I’ve ever started. You do cause you love it. I had no idea it would be in New York and Boston and other places. No idea we would have these great brand partners.

Jason: Let’s talk about those brand partner things. That’s something that’s happened in the second half of the last six years. How did those emerge? How do you wind up having a Nike, MicroSoft or… who’s sponsoring the cloud one, RackSpace or somebody?

David: Yeah. RackSpace is running it.

Jason: Those are big names. Public companies. Obviously, the biggest of the big. Do they come to you? Do you pitch them? How do those happen? Take me through each one.

David: It’s all inbound. These corporations want to innovate. They haven’t really been able to figure out how to do it, historically. To really put a lot of entrepreneurship around their own business, in their own ecosystem. Take Nike as an example. They come to us and say, “We love what you’re doing. Can we do one around our ecosystem with the Fuel API?” We’re really into the quantified self. We like that space.

Jason: Yeah. It’s genius.

David: I have a lot of personal gadgets that I use in that space. I love Nike.

Jason: You look thin. How many pounds have you lost?

David: I’m less fat.

Jason: You’re less fat. Me too.

David: 35.

Jason: 35LB. You were a little pudgy weren’t you?

David: A little. Yeah.

Jason: Your face is so thin. I’m proud of you David. Isn’t it the best feeling when you lose weight?

David: It is. When you do it well.

Jason: Let me just tell you… How many pounds are you from your target, right now?

David: I’m actually 2LB. under ideal for me.

Jason: Perfect.

David: I’m there.

Jason: Yeah. I have to say, I remember Mark Cuban and I were talking. The one thing he wished he could change in life, at one point in time, is that he was overweight and he couldn’t get it under control. The most powerful people in the world, they just have a hard time with it. Which, I think, speaks to how difficult it is to stay in shape.

David: It’s hard if you travel. I travel a lot. So do you. Right? You’re always eating out. I remember eating at a burger joint, in New York with you.

Jason: Yeah. When we’re eating milkshakes with them at a1 o’clock in the morning.

David: It’s a lot of that. You’re hanging out with people. You, sort of, have to just learn. That’s what I did. I relearned how to eat well. Even when I was on the road.

Jason: Nike, says to you what? “You guys run it. Here’s $1M.” How does the economics work? As a startup, how do you balance the startups… there must be some fear. “Oh, my God. I’m in this Nike thing. They’re going to steal all of my ideas.” Isn’t that the first thing people think?

David: Totally. What we’ve figured out is, the combination of Nike and TechStars is pretty powerful. So, TechStars is the investor. Nike is really just doing this as good will. They don’t have… They’re not on your cap table, if you’re a startup in the program. You don’t have any obligation to them. They’re providing the funding, the access to their exec team. Obviously, a lot of great opportunities around their ecosystem.

Jason: How do you deal with that issue of strategics are… How do you deal with personally. Strategics are good or bad. I’ve been hearing my whole career, “Stay away from the strategics.” I’ve actually had great experiences with it. Where do you stand?

David: I think, it generally limits your exit opportunities. It limits distribution opportunities. That’s why it was really important to us to make sure that it was TechStars that’s the investor in these companies. Nike or MicroSoft.

Jason: It is Nike or MicroSoft’s money?

David: It’s their money. We’re the investor long term. We’re the one that gains from being involved. They have no control. You don’t have to go do something with them, but yet, they’re giving you all this access.

Jason: So, they’re like a limited partner. Is that how you would phrase it?

David: Essentially. Just knowing those people in the network. Talking to them about the opportunities you could have together. It’s pretty powerful.

Jason: Ahh. So, you get the upside of the strategic relationship, without the… I don’t know if it’s a Scarlet Letter, but the potential downside of Nike’s competitor, or MicroSoft’s competitor, or RackSpace’s competitor saying, ‘We can’t work with that company.”

David: Exactly.

Jason: “That’s a RackSpace company.”

David: That’s why we insisted, if we were going to do it, it was going to be that way.

Jason: RackSpace and the cloud one, those have graduated one class each? Two classes?

David: The cloud one just started it’s second class, this week. Actually, last week. I’m heading there, tomorrow.

Jason: Oh, great. How does RackSpace define success?

David: I think with any of the corporate programs, they really are looking for learning. They want to understand what the startup wants to do with their tools and technologies. They’re looking for PR. They want to be seen as helping them. Of course, they’re looking for Biz/Dev, M&A, investment opportunities.

Jason: This puts them in the pole position, because if they’ve already become a limited partner, they built up some good will, maybe if they know a couple of people there. That helps.

David: Yeah. It brings those companies to our overall system, around TechStars. We’re still super focused on the more traditional programs, where we’re super selective. Having Nike, having MicroSoft, RackSpace and others helping those companies is a net add, as well.

Jason: Let’s talk about the size of the classes.

David: Yeah.

Jason: What is the optimal size for a Tech stars class?

David: 11.2.

Jason: 11.2. It’s what you have scientifically gotten too.

David: We’ve done everything from 9-13.

Jason: OK.

David: We are experimenting now with 14, for the first time, in Boston. That’s stretching the boundary for us. I don’t think, if you have more companies than that, that you are meaningfully helping them. We want to help each one. It’s not a funnel for us. It’s family, once we fund them.

Jason: It’s not a funnel, it’s family. That’s sort of like an internal mantra.

David: We want them all to be successful. A smaller group of companies, tend to know each other pretty well, at that size. They tend to get a lot of learning from each other, not just from the mentors.

Jason: Cause, you can remember 14 people’s company’s name.

David: Yeah.

Jason: When you get to 40 or 80, I guess where Y Combinator peaked out, it gets a little hard, I guess, to manage something like that.

David: I don’t think the companies even know each other.

Jason: No. Clearly, they don’t.

David: If, you sort of do the math, how many meetings are they really getting with the person that’s running the thing.

Jason: Right. Paul Graham, as successful as Y Combinator is, he’s one human being. He can’t possibly meet with all 80 companies. They pulled back a little bit. Which, I think is some recognition that they got a little over frothy.

David: Yeah.

Jason: Let’s talk about the series A crunch. There’s a lot of debate. A lot of people talking about it. The Series A Crunch, for our listeners who are new to the program, you would define as what?

David: Basically, a lot of companies out there that have been seed funded, are all looking for their series A. Not enough Series A rounds to go around.

Jason: So, you have a bunch of angel investors who put in $250K- $1.5M, I guess would be an angel round, these days.

David: Sure.

Jason: The Series A round is typically $2M-$5M?

David: Yeah.

Jason: That’s done by VCs. Let’s call them professional investors.

David: Yes. Because we’re not… Angels are not professional.

Jason: No. We’re very unprofessional in our approach. They generally write a bigger check.

David: They do.

Jason: They have the bigger fund.

David: They do.

Jason: If the quality of companies has gone up dramatically, why hasn’t the ability to fund those companies gone up? You would think that VCs, the VC pool would get bigger, the number of VCs would get bigger. Because, clearly the companies coming out of accelerators now are 10X better than the companies that were just coming out of the angel investment environment, just 10 years ago. Would you agree with that?

David: Well, certainly the one coming out of Tech Stars.

Jason: Well, on average, they’re much more thought out.

David: Right.

Jason: There’s much more access to information.

David: Yeah.

Jason: The tools are better.

David: There’s better companies. There’s plenty of them. There’s only a certain amount of partners out there that can do deals. Certainly, there’s more capital. That’s a cycle that comes and goes, over time. There’s always going to be ups and downs, in the market. My belief is, ignore it. If you build a great company, there’s plenty of funding out there, for you.

Jason: Ah. Although, statistically, it could be scary. Just ignore it and focus on your product.

David: Statistically, startups are scary.

Jason: Yeah. What’s the expectation on startups, in terms of success?

David: Big success?

Jason: 2 out of 3 dies.

David: Oh. Way more than that, I think. If you’re talking about real success.

Jason: Real success.

David: Elon did an acqui-hire, of course. I don’t know that they would define that as success, if they’re being honest. I think, there’s plenty of capital if you build a great company. If you’re out to build not a great company, you’re going to have all kinds of problems. This is just one of them.

Jason: What’s you’re advice to being one of the anointed series A startups? What do you think, in 2013, a startup has to show a VC, in order to get the 3, 4, $5M check?

David: I think, it’s real important to read your Series A Crunch newsletter, that you sent out.

Jason: Yes. Exactly.

David: I stopped reading, cause you said, “Investors stop reading.”

Jason: Exactly. I said it halfway through. No. I want your position.

David: I thought that was an excellent run through. Obviously, if it’s more competitive, they’re looking for more traction and they’re looking for more social proof. So, who else is around the company. It’s always been… Part of the game is to surround yourself with great people. Have great supporters that help you stand out. That’s one of the secrets of a great accelerator, I think, as well.

Jason: Let’s talk about that and unpack that a little bit. The term is social proof that we hear. AngelList talks about social proof. Some people say social proof is nonsense. Some people say social prod is everything. You’re saying that it’s important right now. What is social proof. Let’s go through it on a more granular basis. Unpack it.

David: I think, surrounding yourself with great people and having great customers who will talk about your product, who will vouch for it, matters. Social proof, in the sense of, get a share on AngelList or something like that is one thing.

Jason: Right.

David: I’m really talking about who your customers… Do you have a name brand customer? Maybe, you’ll sell them the product for a little less. If you can get a customer, like Nike, that people know. You might discount them a little to get them onboard and say great things. Advisors, again another thing. You can have advisors around your company. People know that often that is just BS.

Jason: Right. Just free shares. You gave somebody 50 basis points.

David: But, if those advisors are doing real work, really bringing you customers, really talking to customers on your behalf, that can really help.

Jason: Ah. So, there’s really two high order bits there, if I’m reading you correctly. One, clients equal the ultimate social proof.

David: Sure.

Jason: Advisors, who are meaningfully involved, not just on your AngelList profile, on your website, but meaningful would be helping hire, tweeting and blogging about the thing. Maybe, helping you get customers.

David: Yeah. Maybe, even being on the board. Being sort of a partially active role in the company. Those things can really help you get noticed in a crowd. It’s the same thing we see with our Demo Day. There’s 1,700 startups applied to Tech Stars New York.

Jason: Wow.

David: We’re going to fund 10 or 12. So, for the investors around the system, that’s a pretty strong signal that they should pay attention to these deals over other things.

Jason: So, getting into an accelerator, in and of itself…

David: It could help.

Jason: … is an absolute, awesome first step for social proof. Of the ten startups that graduate from each class, on average how many get funded? Not your funding, but additional funding.

David: It’s on the stats page. If I remember, it’s about 75%. 3 out of 4 will go on to raise an average of $1.5M, I think.

Jason: The ones who don’t, what happens to those companies? What’s your advice to them, when you’ve only got, whatever it is… $100K, which means 3-6 months of runway?

David: Well, a few of them are bootstrapped. There’s this concept that people sometimes forget about. Which is, not raising any money. Cause, that’s not the measure of success. Some of that group is just bootstrapping with this thing called revenue. Which is very sexy to me as an investor.

Jason: Yes.

David: Of course, there are some that will struggle along and stay alive for a while then, ultimately either die or sell the company early, in an acqui-hire type fashion. Advice to them would be, if you can’t raise finance, go and get customers. That’s the best form of revenue.

Jason: Got it. So, getting customers and making some revenue, we hear this debate, focus on growth at all costs. Scale is what matters. Then, you’re saying, for that group that couldn’t get funding, they need to think about revenue.

David: I’m in that group. My first company was in that group.

Jason: Me too.

David: I didn’t understand how to pitch for capital. We never raised any money. We ended up getting a $100K loan from our first customer. There’s other ways for getting some, sort of, fuel for the business.

Jason: Do you feel like there’s some sort of entitlement in the startup community, right now, amongst the group? Or, some portion that like, “I deserve an A round. I’m working hard. I’m putting in 18 hour days. I need it.” It’s not results based, it’s I’m working hard, why am I not getting a VC to give me $3M. This, sort of, over reliance on investors.

David: Yeah. The pop culture drives it a little bit. We watch the Facebook movie. We hear about the YouTubes and companies that just go crazy. Instagrams. So, we’re doing something just as interesting. Where’s the funding? I need it. Sometimes it’s not enough to have something interesting. You’ve got to have real momentum. It’s got to be viewed as a real business.

Jason: Are people gaming the momentum metrics now?

David: Yes.

Jason: I’ve been to a lot of Demo Days. Everybody’s got a hockey stick. I know how these games are played. I’m an entrepreneur and an angel investor. Anyone can go buy traffic on AdSense or Stumble Upon and make page views, views, downloads go up and up. It feels that people are taking that seed accelerator money or some seed money and just painting a picture, as opposed to studying their actual customers.

David: Yeah. I would crush anybody in Tech Starts that tries to take that approach. It’s not sustainable and it’s kind of stupid. The smarter investors understand that and they look for that kind of behavior. So, it can actually work against you if you’re talking to the best investors. They’re going to understand what you’ve done and they’re going to see that you tried to game it.

Jason: Let’s talk about valuations.

David: Yeah.

Jason: About a year ago, it felt like things were out of control. I bowed out of a lot of investments I wanted to make. I just said, “If I’m putting in $10K-$50K and your valuation is $10M, $15M, $20M or an uncapped note, there’s just no way for me to play in that area. Cause, I think the chance of success is X and across the portfolio, it’s just not going to actually, mechanically work. Have things gotten more logical? How do you coach your startups on how to not scare off savvy angels?

David: From my perspective, valuations are a still a little out of wack. Again, it’s just a cycle.

Jason: What is out of wack to you, for someone coming out of an accelerator?

David: A couple of people and a dog, an idea and a prototype off of an app, raising money on $5M-$10M pre. I think those companies, realistically, should be in the $2M-$4M range, typically. Now, if you have a million users and lots of daily actives, obviously, it’s going to increase. Or, if you’ve got a track record. You know, Tech Stars is not in San Francisco and that’s a reason for that. It’s a little out of wack there. It’s extremely out of wack. It’s hyper-competitive. I think what’s happening in that ecosystem is that entrepreneurs, in many cases, are driving away the good investors, because they’re focused on valuations.

Jason: Yeah. It’s driven me away.

David: There you go. Lots of people say the same thing. I’m very disciplined about it. I’m investing and focused on valuation and getting a reasonable deal. It doesn’t have to be cheap. Just reasonable.

Jason: Yeah. I’m looking for reasonable.

David: Yeah. Fair. The best entrepreneurs get that. They want the best people around the system. They value the people and their experiences over purely the valuation.

Jason: So, optimizing for valuation, short-term, makes you feel good.

David: Yeah.

Jason: That company’s worth $10M or $15M. But long-term, you may not get the Kevin Rose, you might not get the Shervin, you might not get the Chris Sacca, or the Calacanis, or the Dave McClure, the person who… Dave Cohen or Brad Feld. The person who is more intelligent about that.

David: That’s right. We have lots of deal flow and lots of things to pick from. In the end, it’s a seed investment. You’ve got to make a reasonable concern. There aren’t that many companies that can exit for billions of dollars. There are a lot that are $100M or $200M exits. That’s got to work for you.

Jason: Alright. When we get back from the commercial break, I want to go through the specific statistics here. I am looking at the quarter of a billion dollars. You guys have surpassed a quarter of a billion dollars in funding for your 176 startups. Truly an impressive number. And, I want to go deeply, deeply, deeply into stories of companies that you felt you had no choice but to accept. So, while you’re thinking about that, what were the signals that you just said, “This company’s in. This company’s in Tech Stars. There’s no debate,” and why. Just think about that. Noodle on that while I’ll tell the audience about… So easy to do this commercial. EEeee Ee ee. You like that Jeff. Super fan Jeff is here. Give me one Jeff. You’re a super fan.

Jeff: EEeee Ee ee

Jason: There you go. Everybody loves MailChimp. I’ve been using MailChimp. You know, people ask me, “What’s going on with Mahalo? What’s going on with Inside.com? You know, it’s going really well. We got funded by this little company up in San Bruno, YouTube. That is having us do shows for the inter webs. So, we have 9 shows. One of them is called MMA Surge. I don’t even talk about this stuff. I’m trying to figure it out and not tip people off. But, I’ll tell you about it right now, cause it’s related to MailChimp. We said, on our websites, “Please sign up for our mailing list and get our app.” We did this really simple thing here. Sign up and get Squid’s 10 secret moves. In our videos on YouTube, we sent people there. 400 people signed up, in 2 months, for this email. Those are now our super fans. Like, Jeff is a super fan of ThisWeekIn Startups. Super fans, you get their email, then when you email them they are the first people to go amplify the YouTube videos. This is from Jason Calacanis’ secret playbook. You get the email addresses of your super fans and you curate super fans. They then do the heavy lifting for you. When you need to get people to comment on a story or to vote something up in a social network, or amplify something, or just tell you, “Does this episode of the show MMA Surge, suck or not? What episodes do you want to see us do?” We actually have our directors here, at Inside.com, a product I’m launching. Mahalo’s being sunsetted. You guys heard that. It’s doing well, it makes a couple million bucks a year, but I have to sunset that brand and work on this new one on Inside. Email is at the core of what I’m doing. I don’t talk about it because it’s such a great secret, but I just did. I’m an idiot. Anyway. Listen, you need to get MailChimp. Go to MailChimp and use email. Emails are for life. Social networks are for 6 to 12 to 18 months. People change social networks, like I said, like they change their underwear. Every 6 to 12 months. hopefully more than that. That doesn’t make any sense. Listen, MailChimp, the free plan is always free. 2,000 subscribers and 12,000 emails per month. They’re constantly, constantly releasing new awesome features. Like, mobile friendly email templates, drag and drop file uploading. The free plan is always free. There’s no contract, no trial. They’re super confident that you’re going to love it. The Launch Ticker, Launch.co, 60% of the people who get the hyper ticker, which is the multiple times a day. Over 40% of the people open the email everyday. That’s the HTML email is a portion of that. It’s probably 60% to 70%. MailChimp people tell me, I’m one of the record setters, in terms of open rate. You really have to learn how to do this. The MailChimp platform teaches you how to get higher open rates, teaches you how to A/B test subject lines. So, you can put in two subject lines. You send it to 100 each. Then, which ever one performs the best open rate, then they send the other 10,000 emails to those people. Just genius things like that. They’ve really made a great product. I’ve tried to invest in the company. They won’t let me because they are so successful. They’re huge sponsors of my program, ThisWeekIn Startups, and The Launch Festival. Thank you @mailchimp. Everybody thank @mailchimp. OK. You must feel so proud when you pull up your public statistics. This has got to be such great vindication for you. To have started this in 2007 and only raised $5M for those ten companies. But, then the numbers go up. $12M, $43M, $40M, $20M, $50M. All of a sudden, after doing whatever number classes it’s been here. I’m trying to see. That 176 companies raised $274M.

David: Yeah. It’s light, of course. We don’t publish all the rounds that have happened.

Jason: Yes. Right. Actually, it’s 125 of the 176 got funded for that amount. So, it’s even a bigger number. Whatever it is, a couple million dollars each. That’s gotta feel great. Huh?

David: Well, it feels great. Ultimately, what feels great is we’ve now had 18 exits out of that Tech Stars portfolio.

Jason: Ah. Here’s the full break down.

David: I’m working on another one, this week. That’s really ultimately when you, the entrepreneur, sort of achieves their dream, is what matters. The funding is just one step along the way. It’s an imperfect measure. It’s obviously, awesome to be around it.

Jason: Look at this. You go through every single one these and say, Foodzie was acquired by Joyus. DailyBurn was acquired by MindSpur Interactive. This company failed. BuyPlayWin failed. People’s Software Company failed. You actually list your failures. This is an incredible level of transparency. Why? Why is this important?

David: I think the entrepreneurs deserve it. I think every program that’s out there should list the companies they fund. We’ve went so far to, essentially, give this tool away that tracks a portfolio. You’ve seen CDB try to do some work in this area now. But, they have to update the numbers, all the time. It would be better to have the actual accelerators do it.

Jason: Right. This just keeps you honest, huh?

David: It does.

Jason: If you can measure it, you can manage it.

David: That’s right. Again, sometimes the criticism as well, you’re overly focused on funding. We’re not. We’re focused on long-term value of the company and helping the entrepreneurs accomplish their dreams. We’ll only know the real value in the end. Just cause you’ve raised this money doesn’t mean it won’t be lost money.

Jason: I just love the fact that you’re listing full-time employees. Because full-time employees… If the company is doing well, the full-time employees is a pretty good indication.

David: This isn’t data that you can get. It’s always out of date. Company’s sometimes don’t want to disclose how big they are, how much funding they’ve really raised. It’s a good proxy for it.

Jason: So, in the last couple of years, what’s a company… you can say the name of the company. I don’t think there’s any harm in doing that. If you don’t want to say, you don’t have to. What’s a company that the founder came in and there was just a big neon sign above them that said, “Accept. Accept.” Tell me that one. The one you’re thinking of.

David: I guess, jumping to mind would be Isaac Saldana. We were talking about email. It’s interesting to hear that Inside is about ‘email.’

Jason: Inside.com isn’t exactly about email.

David: I didn’t know that.

Jason: I’m tipping a little bit of my cards.

David: I’ve been trying to figure it out piecemeal, here. It’s also an email company called, SendGrid.

Jason: Yes. They’ve been a sponsor of the program. They do great.

David: It’s the app transition layer, not the newsletter layer.

Jason: Right.

David: Meeting Isaac was here. It was LAX. At a Marriott next to LAX. I just remember meeting him and his team. It was another level of they understood the problem, just technically. They had experienced the problem. They were pissed off about it. Their level of technical accomplishment, what they were trying to accomplish was very very high. Every time I talked to them, I was more impressed than last time.

Jason: So, if we were to put a word on that, what word would you put on it?

David: I think it’s just passion and knowledge of the space.

Jason: Got it.

David: And, the interaction from meeting to meeting being better and better every time.

Jason: Got it. So, there’s a certain depth of their knowledge, expertise if you will, and a thoroughness to it that you saw over multiple occasions?

David: Correct.

Jason: That really is what Mark Suster has talked about connecting the dots.

David: Yeah. Lines not dots. But, it really curves. Right? It’s like how quickly that changes over time.

Jason: If the person’s enthusiasm wanes or their knowledge doesn’t seem to be growing, or their insights seem to be stagnant, then you start thinking maybe this project isn’t going to get where they need to go.

David: If every time I hang out with you it’s a better interaction, I get more excited about what you’re doing, that’s what I’m looking for. I’ve also funded companies at the other end of the spectrum. There’s a company called Ubooly, that you stick your old iPhone into and it comes alive.

Jason: I know this one. Yeah. It’s genius.

David: They’re going to hate me for saying this. Sorry, Carly. But, I didn’t love it when I first saw it. But, the founders had so much support in the community and they were so passionate about what they were doing. Again, every meeting was better than the last. Eventually, I fell in love with it.

Jason: So, that would be the slow burn, the slow boil. It just slowly warmed you up to it. What were the things that actually warmed you up to it? Was it, in fact, the passion of their customers?

David: I think it’s getting the product in the market, getting a bunch of great feedback, leveraging the community around you. They were just great at getting everybody that interacted with them to be a fan.

Jason: Transference of enthusiasm. Good salespeople.

David: How to build a brand. They’re community builders. I remember that with GroupMe. Which is not a Tech Stars company. They’re very much like, they can build that brand and feel passionate about it.

Jason: What’s going on with GroupMe? They were like the media darling. $40M first round and I haven’t heard of them.

David: Well, they were acquired.

Jason: They were acquired?

David: Skype, MicroSoft. They went the way of Skype and MicroSoft.

Jason: Right. So, sometimes those things tend to disappear.

David: Yes.

Jason: They get acquired and they just…

David: They’re working on the social layer on all that. It was acquired a while back.

Jason: So, let’s think for a moment about meetings where the person said something that turned you off so much that felt like you could never fund them. Let’s think about that. In this case, I don’t want you to say the name of the person, but I do want you to be honest about the interaction.

David: If anything, I always tell people that I’m looking for one of two things. I want to know you’re dishonest or you’re stupid. These are great shortcuts for me. If I find out you’re dishonest or stupid, I can be done. It’s awesome. I can save my time.

Jason: Easy no.

David: The number one thing you can do is exaggerate or you can say something that is maybe based on something you think could be true in the future. I have this guy as an investor, I go check with them and they haven’t heard of you.

Jason: Whoa.

David: You’re trying to leverage something that’s not real. I value integrity.

Jason: Leveraging something that’s not real. Also known as a lie.

David: Yeah. I value integrity very highly. If you’re going to lie or prove to me that you’re dumb, I can be done. That’s awesome for me.

Jason: Right. Those are quick filters. You’re surprised at how often you’re able to apply that filter, I’m suspecting.

David: It happens regularly. Yeah. You meet with somebody and they tell you something is true. Often, it is a kind of social proof kind of situation. Cause, people understand the potential value of that. You go talk to the other person. “No. I didn’t tell them I was investing. No I didn’t tell them I’d be their advisor.”

Jason: So, it’s overplaying their hand?

David: Yeah.

Jason: Right. So, the advice to young people is, never overplay your hand. Be honest. In all things, be honest and have integrity.

David: In Tech Stars it’s day one orientation. “Look. We want to see worts and all of your company. We’re here to experience the things that aren’t working, help you fix them.” I think, you could probably think about a lot of your business interactions, when people have had something really bad about the company and they’ve been transparent and fixed it. You feel a lot better about them. That’s the curve not line, line not dot thing.

Jason: Right. For me, when someone can just be honest and say, “This is a disaster. It’s not working.”

David: “I don’t know what to do.”

Jason: That’s when I get engaged. Let’s arm, let’s go. Mission impossible? I’m signed up. Let’s go do it. The odds are insurmountable? The chance for death is high? Let’s go.

David: Yep. Every company that I’ve ever run, that I’ve built, I can think of one occasion where we totally screwed it up with a customer. They hated us. We just came to them and said, “Yep. We screwed it up. We fixed it.” They were then, a customer for life. It’s the same kind of thing, right? It’s dealing with the actual problems and being honest about it. That’s what we want to do. We want to help.

Jason: What’s the toughest thing about being a founder. Now, that you’ve worked with so many and doing your own. You’ve opted out of being a founder in a company and saying you’re in an accelerator. Which I can understand. It is still a company. But, you opted out of it. Was it just too hard and soul crushing for you to keep doing startup? I know a lot of people who did startups. It was so hard, after a certain point. “I’ve put my 20 years in. I’m just going to be an investor. I’m just going to do that. It’s a lot easier.”

David: I did three. I had one that failed. It was called iContact. You probably heard of that. We sold them the domain name. It was the most money we made in that company. It wasn’t my iContact. The other two worked. So, there’s two in one. I had eleven startup ideas. One of them was this idea of this new type of incubator. Literally, I was thinking about doing other companies at that moment. To me, this is a nice hybrid of an operating business and a venture business. It’s why I like it. You do get to a point in life, “I’ve got 3 kids.” You want balance in your life. I don’t have it. You imagine you would get it.

Jason: Yeah. You have a little bit more than if you were in the binary state of 01. 1 Startup. I mean, you do have a little bit of hedging here. You’ve got interest in so many companies.

David: That’s true. It’s going to work because of the distribution, the investments, how well the companies are doing. It still is for me, today… We’re 32 people now, it feels like it’s year 5 of a startup. It’s really the same.

Jason: You were trying to start something light weight. Now, you’ve got 30 employees, suddenly.

David: Yeah.

Jason: All these locations. Doing stuff.

David: You’re traveling. The entrepreneur inside you wants to do more and do it well.

Jason: What do you think is the biggest mistake a lot of young founders make these days, in terms of… Once they’re operating a company, once the company’s funded, what do you see as the number one issue or the top couple of issues that this, sort of, seed funded entrepreneurs facing in 2013?

David: I think, a lot of them still don’t recognize the value of a network. Surrounding yourself with people that can make connections and create leverage for you. Give you feedback and hope that you don’t make all the same mistakes. So, they get inward focused. They raise the money, they’ve got all these great investors, sometimes. Sometimes, they don’t. Then, they get heads down focused without, sort of, bouncing it off the people around them. Sometimes they’re right and what they’re doing is perfect. That happens. That’s Facebook, once in a while. Most of the time, if you leverage those people around you, you wind up with something much better. They sometimes don’t do it well.

Jason: They isolate themselves, don’t they. They don’t talk until it’s a disaster.

David: The next time you hear from them is, “We need to raise another round.”

Jason: Yeah. “We’ve got 30 days left, 60 days left.” You’re like, “Wait a minute. What happened to 6 months ago or 12 months ago when we could have actually worked on the roadmap. Now, you’ve got no roadmap. You’re facing the plank.

David: I think there’s also a lot of companies that have done these party rounds. They don’t have a strong investor who’s actually engaged in the business.

Jason: Explain what a party round is.

David: There’s no lead investor in a party round. It’s just a bunch of angels that get together and sort of do it. Nobody’s on the board. Nobody’s really driving it, but everybody’s willing to do it.

Jason: Almost too much founder control.

David: Yeah. It’s great. For the founders it’s fine, but when you’re in that situation you don’t have someone who’s got their nose in it, a little bit. And, can vouch for you with the other investors. So, when you come back for more money, it’s like we haven’t heard from you in a year. So, make sure to engage those people around you. Whether they’re investors or… you know.

Jason: What’s the best way to do that? I have a couple of startups that send me their monthly report. Here’s what’s going well. Here’s what’s not going well. Here’s how you can help. You might be an investor in the company that does it particularly well. That I think we both met at the Open Angel Forum back in the day. A number of entrepreneurs have taken to this monthly what’s going well, what’s a challenge, how you can help email. You like those?

David: Good, bad, ugly is what we teach. I want to know the good, the bad, and the ugly. Just bullet points. Ticker style, if you will.

Jason: Ticker style. Brevity.

David: Then, at the end in red or to really make it stand out. Not way down the email TL;DR, right? But, somewhere easy to see, what are the one or two things I can do to help you? If anybody knows a high-level contact in this company or if you play with the product and give us feedback on this feature, that would help us. Those are the ones I like. We train that into our companies.

Jason: Awesome. Looking into 2013, what is your outlook for the economy? Do you think about that in general? It seems like the economy’s pretty strong. Unemployment’s lower, people have debated. How much does the stock market, M&A activity, all this stuff impact startups? You must have to think about this, because you’re running an accelerator, which is a group of them. Should individual entrepreneurs worry about these things?

David: I don’t think so. I think, you just play your game and play through it. You can’t control that stuff. There’s nothing you can do about it. So, you need to build a great company no matter what happens in the macroeconomy. I don’t’ worry a ton about it. There is going to be some ebb and flow in the number of angel investors out there. The ones that are good will play right through it. We’re focused on getting quality investors.

Jason: What impact has AngelList made.

David: Huge.

Jason: Yeah. How?

David: I think, just awareness. It’s always been a social sport, angel investing. You call up someone you think is good. You try to syndicate a deal you’re working on. AngelList just makes that easy. I think, it’s been a game changer for startups that deserve funding, to get them in front of people. All of this, sort of, thousand dollar crowd source stuff is less impactful. I think it’s been the building of the social network around these investors.

Jason: Deeper bonds between investors?

David: Yeah. I sort of know what you’re looking at. I know who you’re following.

Jason: What I’ve invested in.

David: Yeah. I can see that stuff. I can use those signals to maybe go look at a company I haven’t seen.

Jason: I’ve found this particularly powerful when I’ve referred someone to it. Or, I actually do an investment. I just did an investment with Wittlebee, because Sean Percival worked for me. He asked me my advice. Well, I actually like what you’re doing. I’ll put a little money. Then, if I invest now, as one of the top most followed people there, it really is like this amplified signal now. You’re in the top ten too. When you invest in something, you just… You have to be careful though. Cause, doesn’t everybody want to put you down as an advisor or the referrer. How do you handle that?

David: I’m just really careful about what they put me down as. An advisor means I’m actually pretty involved in the company. It doesn’t mean that I’m taking equity from me. That’s my rule about it. An investor means I’ve actually put money in it. I just make sure that it’s true. I think the biggest thing too is LinkedIn. If you want to meet a person or understand them you send their LinkedIn profile. Now, you do that with a startup, with AngelList. It’s kind of their calling card, almost.

Jason: Right. Now, you’re not big on the $1,000 crowd funded approach. I looked at it and thought, “If Naval is pre-screening those, in the same way you’re prescreening them, and he does 100 of those a year. Let’s say he does 200 of them a year and 100 actually close $1,000 funding. If I put $100K into that, that could be a nice mutual fund, in a way. What do you think of that?

David: Yeah. The idea of diversifying a bunco of money into a bunch of stuff.

Jason: Yeah.

David: That are vetted by other people. You might as well be an LP in a fund, I think.

Jason: Well, yeah. Which I’m already an LP in the top fund.

David: Yeah.

Jason: Why am I doing that, is the question now.

David: I’m not saying it doesn’t matter, it’s not important. It’s a great way… There’s things like Funding Club and other things that aggregate this little bit of money. For the startup it’s good, because they only have that one investor. I don’t have to deal with a thousand $1,000 investors.

Jason: So, it’s cleaner on the cap table. However, you do have this party round where nobody’s in charge. Diffusion of responsibility.

David: That’s right. So, it’s just money, right? In the same way that just money can be good…

Jason: Just money can be bad?

David: That’s right.

Jason: Interesting. What do you think of the M&A space? There’s been this massive push of acqui-hires. I’ve been at the receiving end of a bunch of these. For me, angel investing is a little bit of a sport. I’m not cutthroat on my returns. I know that, given my access, one out of 25 will turn into an Uber. Which, in fact, Uber turned into Uber. So, I’m golden right? I’m going to do OK, based on the fact that I have access. I think for a lot of angel investors, they’re starting to see acqui-hire, acqui-hire, acqui-hire. No singles, doubles, or triples. Acqui-hired just means you get your money back.

David: If that.

Jason: If that. I’ve had a couple of these. Is this turning off a large amount of angel investors? Are the M&A people on the other side, poisoning the angel investing well by being so cutthroat to just acqui-hire these companies. Instead of just putting a little icing on the cake for angel investors?

David: Yeah. We see every case. I was dealing with one case just today. Which is basically, a company that there’s an exit opportunity that’s pretty attractive. It’s an acqui-hire. It’s on that scale. The technology’s 3 months old. It’s a great team. You’ve got on the other side, people trying to fund the company. A term sheet is a term sheet in the sense of trying to improve the position that you’re in.

Jason: Ah. So, the term sheet from the VCs becomes leverage to the acquirer saying,

David: And vise versa.

Jason: On the acquirer’s term sheet they can go back and work against each other. So, the advice is get an investor term sheet to push up the acqui-hire or use your acqui-hire to get a good round.

David: Exactly. You have to make a decision at some point. Do you want to sell to this company early or do you want to build something big? Sometimes, I’m seeing, what I call acqui-hire++. Which is, there is that competition between investors and the company that makes the acqui-hire more attractive. It almost becomes a bidding situation. Where it gets into the 10, 15, $20M range, even though it’s a few months old. That’s pretty hard to say no to, if you’re a 22 year-old first time entrepreneur.

Jason: Right. You’re going to make $3M or $4M.

David: It’s not why we’re doing it. But, we’re alway supportive of what they want to do.

Jason: In that case you can’t say… You’re not going to deny them.

David: Of course not.

Jason: Nor can you. So, you gotta go with the flow. You never know what the entrepreneur is going to do next. Sacca, was on here talking about the bad behavior of Facebook. I’m not going to have you confirm or deny that. In a lot of cases, they’re loading individuals up in employment packages.

David: Yep.

Jason: Giving the angel investors back, maybe, their money. Maybe half their money. Hey, now the founders have $2M or $3M or $4M in Facebook stock, plus they made $1M or $2M. We all, as the angel investors, got hosed. Facebook, by the way, has billions of dollars in cash. They don’t seem to be behaving well in the ecosystem. Whereas a Google seems to be fine and understanding that. The angel investors need to make a little bit of money to keep the ecosystem going. Is that a trend that you’re seeing?

David: Yeah. Again, I’m not going to put it on any one company. You certainly see that compensation being loaded into their employment package. In the form of options. It’s kind of bullshit. The entrepreneur needs to stand up…

Jason: Well done. There’s your first.

David: Oh, Shit.

Jason: That’s two. That’s twenty.

David: There it is. He had it queued up. Ten.

Jason: But you did an OS.

David: I’ll put ten in. Did I actually say the full word? I think I said, shi…

Jason: Alright. $7.50.

David: We’ll have to play that back. Do you make change?

Jason: This season the NBA got together. We’re having an instant replay if it’s within the last ten minutes of the program.

David: OK.

Jason: We can throw a flag, we’ll go to the instant replay. We can see exactly…

David: But, I can’t call it?

Jason: No. The ref does. Brandice. Kirin and Brandice will do an actual… That would be actually pretty funny. On the next show we can play it back and see exactly how much of the sh…

David: But, on some level, I think the entrepreneurs in that situation, need to do right by the people that put their faith in them.

Jason: Right. So, it’s really the acquirer being so cutthroat and evil…

David: Most are not. I want to be clear.

Jason: No. But, now that we’ve heard of Facebook doing this so many times, I can say it outright. This is like Facebook now is… Somebody who worked at Facebook told me that the approach at Facebook is so cutthroat that if you can screw somebody, internally/externally, and get the best deal, that’s what you need to do. You can see it in the way they just copied SnapChat with Poke. They just have this absurd… It’s us versus the world, screw everybody mentality. You know what? Now… Sacca sort of explained it to me and other people have said to me, people are just not going to them. They’re not bringing stuff to them. They’re starting to get this reputation of don’t trust Facebook with your angel portfolio, if you’re an angel investor. If you’re a startup, expect them to screw your angel investors. The message to the startups is, “You may only sell your company once to Facebook. But, you may raise money from angel investors several times. I’ve had Mark Cuban invest in multiple companies of mine. I’m not screwing Mark Cuban, ever. Mark Cuban is getting a return in my world. Yes. And, it’s a very small world.

David: They’re going to talk to each other.

Jason: Of course and think it through.

David: There are other companies. You see there behavior. It’s not just the structure of the deal, but bring in the company, learn everything about them, then copy the product, right?

Jason: Yeah.

David: OK. All’s fair in love and war, I guess. But, on some level you get a reputation in the ecosystem for how you behave, as a larger corporation.

Jason: This was the thing. When Y Combinator said they were bringing Facebook in, I said, “Are you kidding me? You’re bringing that fox into the henhouse? That was the most the most insane thing. Then, Paul Graham, got on his high horse and said, I don’t know what I’m talking about. Well, Paul, obviously, I was right about this one. When you see Facebook brutally copying Quora, brutally copying Groupon, brutally copying FourSquare, brutally copying SnapChat. They have just absolutely raped and pillaged the startup ecosystem and you’re bringing them into… Would you ever let Tech Stars to look at the companies, if they said, “We want to do something?”

David: Early on, Facebook was around. We’re part of their online program, where we get support.

Jason: Yeah.

David: We’ve kept it mostly to the, sort of, online. We’ve found that those big companies come in and they really just want to talk about what they’re doing. There’s a time to bring them in, I think, for individual companies. We have had them involved, a little bit.

Jason: You gotta be careful. Their reputation is undeniable now. Would you say?

David: It’s certainly out there.

Jason: The reputation is out there. So it makes the antennae go up. The antennae with a Google? Let’s go through Google, in terms of M&A. What do you think of them? If one of your startups comes to you and says, ‘Hey. I got Google. They want to look under the covers. What do you think?

David: We’re connected enough to enough people in Google, that there is a sort of trust relationship. So, generally, they’ve been fine around Tech Stars. Great, actually, around Tech Stars.

Jason: MicroSoft, obviously, you run a program with them. You feel a high-level trust with them?

David: Absolutely. We’ve been through cases with them. They’ve behaved really well, internally.

Jason: And, AOL, clearly you’ve sold a couple of companies to AOL. They did a great M&A…

David: Yep.

Jason: What do you think of Yahoo, with Marissa?

David: Look. I hope it all works. I’m excited about the vision that she has, that’s she’s presenting. Time will tell.

Jason: Yeah. It feels like she’s got the culture turned around, already. She’s got a bunch of the right people on the bus. Some of the wrong people are off the bus, now. In a good to great sort of metaphor. If you do that well and you’re good at getting attention, all she’s got to do now is bake a couple of good products.

David: Right. Now, you just have to execute. That’s easy.

Jason: Right. Well, I have to say, getting culture turned around like that…

David: Is huge.

Jason: … is huge. So, to get the communication and transparency… I’ve got to give Marissa a lot of credit. Now, you’ve got those fridays, where they talk to everybody. I saw a thing today, I thought it was so ingenious, they started sending packets out to people who left Yahoo, saying, “Welcome back. Come back.”

David: Hmm. I didn’t see that.

Jason: So, they went through the great performers who left and sent them packages. Like, “Hey, consider coming back.” It’s so ingenious.

David: It’s interesting. I know several of them.

Jason: Yeah.

David: I wonder if they got them. If you didn’t get them, maybe they don’t want you back.

Jason: That’s could be a tell too. Are there too many startups in the ecosystem, now? Is there such a thing as too many startups? Are people going after too small… I guess, is another way to say it… to small of an opportunity?

David: My answers would be no and yes.

Jason: OK.

David: I don’t think there’s too many startups. I encourage everyone who has a dream to follow it and go for it.

Jason: Right.

David: Many things that are out there, do sound small. But, I think you also have to remember you get a little overly critical of the first thing they see coming out of a company. Often, it turns into something much bigger. It’s just the starting point.

Jason: Right. The pivots come.

David: It’s easy to criticize, oh you’re doing another photo thing. Until, it turns into Instagram.

Jason: Or, yeah, you’re doing email reconciliation. It turns into SendGrid.

David: That’s right. I think it’s don’t judge too quickly. Look at the team. Look at the broader market. Yes, there’s a lot of me too stuff. Yes, there’s some people, that’s all they’re thinking about. That’s not great activity, but the fact that people are out there following their dreams and have access to capital, is great.

Jason: What’s your biggest mistake, in terms of, not accepting a company? Cause, you can talk about that. That’s fair. That’s like a compliment to the community.

David: Yeah. Like anti-portfolio?

Jason: Yeah. Like, what did you screw up, either on an angel investment or accepting into Tech Stars? Say, which was the situation.

David: I don’t know. I remember WePay. It would have been fun to take a shot at WePay. I don’t know how that ended up. I think, it wasn’t necessarily great. I thought it was a real interesting idea. Didn’t get them.

Jason: That’s the group pay.

David: Yeah.

Jason: You competed for them and they ended up at another accelerator.

David: Yeah. At the time, we were just in Boulder. We were competing just on a geographic basis.

Jason: A lot of smart people coming to Boulder. Why is Boulder so filled with these hyper intelligent, athletic like master’s degree…

David: People like me.

Jason: No. It’s crazy. I go there… I was just tweeting it’s so depressing when you go. “I’ve got two masters and a PhD. I just went rock climbing this morning after my yoga class. I’m having my vegan breakfast then, I got to go to the office and work on this startup. Then, I’m speaking tonight at this event.” I’m like, “I’m barely getting out of bed to watch the Nick’s game.”

David: Then, I’ve lived there. I’m riding my bike along and some 80 year old, incredible athletic woman goes flying by you, right? It’s like always somebody more amazing there. It’s one of those places, it’s only 100,000 people. In the sense of Colorado, it’s an expensive place to live. Not compared to…

Jason: Aspen.

David: … L.A. or San Francisco or somewhere.

Jason: Or, New York.

David: Right. You have to be there for a reason. You have to want to be there. So, it attracts sort of the hippie culture crossed with really ambitious people.

Jason: Right. It’s hippie ambitious.

David: We think like half of the community is involved in some kind of entrepreneurial activity.

Jason: Wow.

David: They’re either an early employee at a company or they’re starting one. So, the density of entrepreneurship is really high.

Jason: Oh, interesting. And, the other half works at dispensaries, basically.

David: Pretty much. Pretty much.

Jason: It just seems like it’s such an ideal place. A lot of people leaving the valley, leaving L.A… I know some developers who worked for me, I sent your way. A lot of folks saying, “I’m going to go to Boulder.”

David: Yeah.

Jason: I’m like, “What are you going to do next?” “I’m just going to go to Boulder.” “What are you doing?” They’re like, “I’m just going to go.”

David: Yeah. Do you want to live in a place that’s smaller and it’s near Denver? It’s a half an hour away from Denver. You can get sports and culture stuff. But, it’s a small town, college town, beautiful setting, where there’s a lot of startups and entrepreneurship, right? So, a lot of people are choosing it for that reason.

Jason: What about New York and Boston? Those programs have done particularly well for you guys.

David: Yeah.

Jason: What is it about those ecosystems? I mean, New York has exploded.

David: Huge. The volume is… almost 1,700 companies applying there.

Jason: That’s double the other places or something?

David: Yeah, it’s significantly… Some of the other places get closer to 1,000. There’s a volume of activity that’s huge. It’s also a place that attracts international companies that want to land and come there.

Jason: Got it. Port of call.

David: Yeah. It’s a good place for them to enter the U.S., I think. It’s exploded in the last 3 or 4 years, really. Great investors, like Fred, that are there and lots of others.

Jason: Sure. Fred has really taken it to the next level with his group of investments. But, he hasn’t made an investment in 18 months, by his own admission. What’s your take on that?

David: He’s about to make one, I think.

Jason: Really?

David: Yeah.

Jason: He did say he was working on something.

David: I hope it doesn’t fall through.

Jason: Is it something you’re related to?

David: I can’t say.

Jason: Oh, well that’s a yes. My poker intuition tells me from the 17 signals you’ve sent that it’s a yes. When you have a great company, is he the first guy you go to, or amongst the first? Cause, you must have a list?

David: Yeah. There’s some people that we do love to see invest in our companies. He’s certainly on that list.

Jason: Give me the short list. Who’s the people that… I know you’re going to leave some people off. Give me a couple of people off the top of your head.

David: Obviously, Foundry. We’re super close to Brad and those guys.

Jason: That’s a given. What makes him so great? He’s got such a great reputation.

David: He’s really smart.

Jason: Ah.

David: I think all four of those partners are really smart.

Jason: Just raw intelligence.

David: They work their asses off. Damn.

Jason: Hard working, huh?

David: Now, I owe you twenty.

Jason: Ass is fine.

David: Ass is good?

Jason: Ass is good. The seven dirty words. You can say ass till the cows come home.

David: OK. Ass is fine.

Jason: If you say the ‘C’ word, we’re going to have an unprecedented fine.

David: Not going to do that.

Jason: Nobody’s ever said that.

David: I would never say that word.

Jason: There’s a lot of ‘Fs’ that have been dropped. Chris Sacca has said 72% of them.

David: I love the First Round guys.

Jason: Oh, really? First Round.

David: I love SoftTech. Jeff Clavier.

Jason: Jeff Clavier is great.

David: There’s tons. We work a lot with them in our companies.

Jason: What do you like about those? Jeff and First Round. What is it about those firms that makes you comfortable sending the best hatchlings from Tech Stars to them?

David: They work hard for their entrepreneurs. They really work hard. They are active. They try to make connections, try to get customers. Pimp the products. I think that’s the attribute of a great investor.

Jason: Is the hard work they put in?

David: Yeah. It’s not really a lot of work. It’s the right work that really helps.

Jason: Interesting. What is the right work for an investor to do?

David: Get me distribution. Get me an introduction. Don’t just throw me on Twitter and tweet my Java links.

Jason: Blow me up.

David: Send me an amazing VP of engineering. Get me on an article that really changes the trajectory of the company, with media. Or, bring me 10 customers. I think Jeff, with SendGrid, the number of customers that he’s brought to that company in the valley is huge.

Jason: Interesting. Super fan Jeff, you’re here.

Jeff: Yep.

Jason: You have a question. You’re a super fan.

Jeff: Yeah, yeah. I wish I could have gotten a haircut before I came on.

Jason: How long have you been watching the program?

Jeff: I started late 2009.

Jason: OK.

Jeff: It was after you had done a Startups Uncensored with Jason Nazar.

Jason: Oh, yeah. Sure. That was fun. And you have some favorite guests. Who are your favorite guests?

Jeff: David Cohen.

Jason: Well, there you go.

David: I got ten bucks for him too.

Jason: Yeah. Exactly. What else? Who else are your favorite guests?

Jeff: I thought Brad Feld’s episode was particularly awesome. Chris Sacca, obviously.

Jason: Great episode.

Jeff: Jeff Clavier was a great guest.

Jason: Now, what is it that you do, super fan?

Jeff: I am a software engineer.

Jason: You working on a project now? Are you at a startup?

Jeff: I left a startup to join… I just got a job before coming here.

Jason: Oh, great. Like, literally before coming to the studio.

Jeff: Literally. Signed the offer letter.

Jason: Can you say what it is, or no?

Jeff: I’ll tell you off air.

Jason: OK. Startup company or big company?

Jeff: Uh.

Jason: Or, in between.

Jeff: Yeah.

Jason: A twiner. OK, very good. So, you have a question, for David? Let’s hear it.

Jeff: The recent pattern of accelerators has done well to democratize startup and democratize fund raising. Do you envision a future where that actually turns on itself, they become a gatekeeper, in a way. How do you prevent that?

David: I don’t think the best investors will let it become a grate keeper. I think the best investors will find the best investments. It certainly is a… I think Tech Stars and other accelerators act as a filter for the VC community. So, they can focus their energy on looking at those companies. I think, no. I don’t see it becoming an absolute big gate keeper, where that’s where all the deals are.

Jason: Yeah.

David: I think it’s making a dent in the way venture capital works, especially at seed stage. Expect to see some of the accelerators getting along on the follow along funding and not just doing seed. To kind of protect ownership. In concert with the venture capitalists around the system that can really fuel the company.

Jason: It seems to me that the VCs out there, loved that these accelerators exist because, it’s almost like everything comes to them leveled up. The valuation is slightly higher. As long as the valuation isn’t disproportionate to the improvement of the startup, then it’s a net benefit for them.

David: There’s two types. There’s the type that get and the type that don’t. They all like it, but some of them like it for the wrong reasons. Some of them come to Demo Day. They show up at the end and they see these polished pitches. They like it because they’re getting an efficient view of the companies, but the criticism would be, well, you just put lipstick on the pig. All that.

Jason: Yeah, yeah, yeah, yeah, yeah. Too much showman ship, not enough substance.

David: If you’re saying that and you’re a VC, you don’t get it. The ones who do get it engage in the program.

Jason: Right.

David: They come. They mentor. They see the curve. The line, not the dot.

Jason: Right. They see week 2, week 6, and week 12.

David: So, if that’s inside your firm and your a VC, you’re thinking these things are just show and tell day and it’s a play, you’re engaging at the wrong moment. Engage earlier.

Jason: The people who run these accelerators… and there’s been a large number of them.

David: 700+.

Jason: I have seen a trend of late. That a lot of the accelerators that are emerging are run by people who were unable to run successful businesses. Is that something that worries you, in the same way it worries me?

David: I think it’s something to keep an eye on. Actually, my article in the WJ Accelerator this week is about, are entrepreneurs turned investors the only good investors? I think the answer to that is no. There are plenty of investors who didn’t have startups.

Jason: Fred Wilson is a pure investor. He’s always been a VC. I don’t think he had a startup.

David: Yeah. There’s plenty of people like that. I think if you have a combination of the two, you an advantage. A great investor and a great entrepreneur. Because they’ve actually lived the war.

Jason: Right. But, that is the advantage if you’re… in most cases, being an entrepreneur is the big the win.

David: If you can get to an investor who has that experience, they’re going to be able to talk to you about the experience. Instead of just the financial piece. or their own learnings of just having watched a bunch of companies.

Jason: Interesting. I am a little concerned, right now. I have to say. I was meeting some of the companies coming out of the accelerators. One of the accelerators sent me 3 companies. I met with all 3. I was just flabbergasted at how bad they were. I said, to them, “Why wouldn’t you do this? It seems it would be a better opportunity.” “Well, we were told not to do that and do this.” I was like, “Who told you that?” They’re like, “The accelerator.” I’m like, Oh my God. The accelerator just ran you off a cliff.

David: There are some that are not good. There are a lot that are not good. I think, many of them, even if they’re well intentioned, will not be good. We’ve seen a stat that over half of the accelerators out there have never had a single company funded or have had a successful exit.

Jason: Really?

David: Keep in mind, a lot of them are really new.

Jason: So, there’s a lot of runway, there. Looking at the track record of the entrepreneur is critical?

David: Absolutely. That’s why I’ve been pushing, every accelerator ought to publish their portfolio. It ought to be easy, like it is with Tech Stars. You can email any Tech Stars’ company, founders@theirdomain. Ask them about their experience. Accelerators should make that transparent. There are a lot that are going to suck. They’re going to take a long time to kill, cause they’re not that expensive.

Jason: Anybody’s who has been in your program, if you type founders@techstars, it goes to them? Or, founders@theircompany?

David: founders@sendgrid, for example.

Jason: Oh, OK. Goes to the founders?

David: Yeah.

Jason: That’s a great hack. You can say, “Tell me about your Tech Stars experience?”

David: Yeah. You can write who you want. We don’t care who you write. If you think they will like you, send them a note. The founders had such a great experience that they’re willing to answer those emails. Now, there are plenty that are well-intentioned. They’re trying to connect with them as mentors. Like, with developers, if you’re going to start a company… you’ve done this many times… you’re going to hire developers. You’re going to hire the top 1%, if you can. It’s the same way. You want the top 1% of accelerators, the top 1% of mentors who bring the top 1% of investors. Because, they’re 10X better than the next 10%.

Jason: Right. They’re going to have just that much more efficiency.

David: Right. There’s a big variance in quality in the accelerator world. I think that this transparency that we can provide will help with that. We need to do it.

Jason: Do you envision a time when you will actually open up in the valley? Or, is that like it’s too frothy for you?

David: You never know.

Jason: You must have been pulled into there many times?

David: Of course. We get asked all the time. I think for us, our DNA and our origin story is really about building entrepreneurial communities. The valley community is fully mature and fully built. We’re in places where we think we can have a meaningful impact by putting our model into that community.

Jason: What are the next 2 or 3 cities, you’re considering? Or, would consider? Austin?

David: I don’t know. Maybe.

Jason: Austin?

David: Maybe.

Jason: Austin seems like it pretty…

David: Austin’s got some stuff going on.

Jason: D.C., Chicago?

David: Accelerate Labs is in Chicago. They’ve done a great job with their program. Obviously L.A.. Mark’s got an awesome program here. I’ve seen him. Mucker Labs. There’s a bunch of program here.

Jason: There’s too many programs.

David: I think there’s like ten.

Jason: I know of 6 or 7. I have to say that I’m thrilled by it. I do think that the first run of classes is going to be majority fail. I think it’s going to have a higher fail rate than average. I do think, I’m interested in year 3. I want to see which accelerators make it to year 3. Then, I’m going to lean into year 3. Most of them are in year 2. Mark is in year 2. The difference between 2 and 1 is striking. I think year 3 is going to be the winner.

David: You’re right. We’ve actually seen that in year 3 is when we’ve seen the level up of classes in every city we’re in.

Jason: Really?

David: It’s been very noticeable. Seattle went through it, just now. Boulder’s year 3 was SendGrid.

Jason: It feels like, year 1 you are panicking to get the thing underway. You’re just trying to get something going. Year two, you’ve learned some lessons. Year three, you’re like, “OK. We’ve actually seen what didn’t work those first two years. Let’s do it, for real.”

David: That’s right. I would just tweak it and say, it’s not which ones who make it to year three, almost all of them will. They don’t cost that much money. People are pretty motivated. If you’re an entrepreneur with an exit or someone with some cash, you’re going to run it for a while. It’s not that costly. But, year three is the one to look at for, do they produce potentially $1B companies, coming out of that program?

Jason: Interesting. Is that the benchmark for success today? Are you trying to get your companies to big $1B opportunities, like Sequoia does?

David: We certainly want to fund a lot of those. We actually like having the diversity of people who… We’re not going to fund pure lifestyle business, but if somebody says, “I want to change the world in this way. The market’s only at $200M market.” That’s OK. We’re investing very early. So, it can work for us, at seed. We do want a lot of shots on goal at companies that could be very big.

Jason: What do you think it takes to make those today? It seems there’s this incredible acceleration, now, that nobody could ever have imagined. Instagram, a Pinterest, AirBnB. Some of these things are just growing at phenomenal rates. That really, you haven’t seen before. At least not in our 20 year history. The big successes, even Twitter as a big success, is a 7 year story. Facebook’s a 10 year story. These things are accelerating much faster. Why are things accelerating so fast?

David: They’re hitting a nerve. They’re in a seam and the people really want it. Then, they get copied all over the world. Whatever is working in the U.S…. Groupon… at one time, there’s a million of them, all over the world. AirBnB. We’re seeing that today.

Jason: So, that actually benefits them. It lays the ground work for their brand to become the big one?

David: I think, in some cases, if they’re not quick enough, they get cold. We’re seeing that, in some cases. You also have entire accelerators out there, that are just copying things that work in the U.S. and bring them to other markets.

Jason: No. Really?

David: Yeah. Absolutely.

Jason: Well, obviously, the germans. Obviously, the Samwer Brothers. When you see the Samwer Brothers, as an entrepreneur, it just makes you sick. Doesn’t it?

David: It makes me sick. At the same time, I get it, from a capitalism perspective. They’re taking advantage of what they can do. There’s a certain amount of respect for that. That’s not how I would choose to make a dent in the universe.

Jason: If those guys came to you and wanted to be involved, they would fail your honesty and integrity test?

David: I don’t know.

Jason: You wouldn’t want to be involved with those guys?

David: I don’t know them personally, so I don’t know. Maybe, they’re very straight forward about what they’re doing.

Jason: No. They’re Scumbags. No. I could tell ya.

David: If you know them, you know them.

Jason: I can tell you they’re scumbags.

David: OK. I trust you.

Jason: I’ll tell you why. One of the top entrepreneurs, in the world, that you and I respect incredibly, 5 years ago at the DLD Conference… it’s going on now… this is a true story… He goes, “How are you doing? I’m really excited about Mahalo. I think this human powered search thing is interesting. I’m not sure it’s going to work. Maybe I’ll angel invest in that. Wow. That’s great. I’m meeting with these Samwer guys, up here. He’s like, “Oh.” What? He goes, “Well, let me just tell you. They invested in our company.” This a very, very, very famous public company, right now, that’s doing tremendous. They then copied it, pixel for pixel, after they invested in it and went through tons of due diligence. I was like, “That’s the worst thing I’ve ever heard in my life. Like, they’re the most evil people in the world.” He just said to me, he goes, “I’m just telling you a couple of facts. You can make your own determination as to what you think about investing in a company, doing due diligence and then copying the company, in your native thing. He’s the nicest guy in the world. You know who I’m talking about now, probably.

David: It’s not good.

Jason: Unbelievable scumbaggery.

David: On the other hand, if they come out and say, “This is what we do. This is our model.” If they’re very straight forward about it, I say OK, bring it. I don’t like I wouldn’t choose to do that.

Jason: It’s the pixel by pixel copying that infuriates me.

David: Absolutely.

Jason: I’m going to photocopy your site? At least, if you said, “Oh. Listen. Slashdot’s interesting. But, I think I can make it better with Digg. Dig is interesting, but I think it can be better with Reddit. Here’s how I’m going to make Reddit a little bit more interesting. Reddit’s interesting. I’m going to make something more interesting. I’m going to add to the thing.

David: Right.

Jason: If you just photocopy it… God. That is just… You’ve had people do that? Come in with like a Pinterest knock-off or a FourSquare knock-off? When you see something like that, how do you manage that?

David: Every single class we’ve ever had, every year, there’s something like that. We’re the Pinterest of X. We’re the Pinterest for dudes. Right? You have to look at it and say, “That’s a user interface thing. They’re not going after the same market.” In many cases they are, but they don’t know they are.

Jason: Right.

David: So, they’re two years behind the explosion. They’re too late, in most cases. It’s just like… I can remember the Groupon year. Everybody was Groupon for X. Now, it’s crowd funding for Y. Everybody’s doing that.

Jason: There’s so many crowd funding sites.

David: Yeah.

Jason: It’s like it should be a crowd funding site for crowd funding.

David: There probably is.

Jason: You could crowd fund your crowd funding site.

David: They used to say that about accelerators. There should be an accelerator for accelerators.

Jason: Yes. Then, the world rips in half after the space time continuum… The aliens come in from the other side. It’s just madness. The crowd funding thing, do you think that’s going to work, or not? What do you think?

David: I think there’s pockets of it that’ll work. I think it’ll have an impact on small business. The pizza shop that wants to buy new chairs, I think that’s awesome. For the high growth startup, I think entrepreneurs are going to want capital from people that can bring in more than just the money.

Jason: Yeah. Although, it does seem like… The thing that intrigues me about it is, if you have a fan base and you have fans, it reminds me of… What’s the name of the football team, the fans own it? Green Bay Packers?

David: Green Bay. Yeah.

Jason: The fans own it?

David: Yeah.

Jason: So, then the fans are like, “I own a share.” They become, like, rabid. Right? I kind of feel… imagine if Path, as an example. Path, Dave Morin could raise money, like crazy. Imagine if Dave Morin said, “I’m going to crowd fund Path. You could buy a share of Path for $1,000 or whatever. Accredited investors. Non-accredited could buy it for $150 or something. You then would feel this vested interest in the social network that it would almost make it like a cooperative or something.

David: I think we’ll see some of that. I don’t think it’ll be the majority of it. I’ve already seen a couple of businesses, that’s their plan. I think it can be great to generate interest in the company. It’s kind of like, if you go public, you have a bunch of shareholders too, that care. It’s just for an earlier company. I think there’s something there, but I don’t think it will be wide spread.

Jason: Do you think it’s going to go back to where small companies can go public again? You used to have, the benchmark was, you made $25M, $50M, $100M in revenue. You’d go public. It was easier, back in our day. Right?

David: Yeah.

Jason: Now, it like, if you’re not making $1B, at all costs don’t go public. Companies are waiting and waiting for the SEC’s got shotguns outside their front door saying, “You need to take this company public. Before we raid it.”

David: The pattern I’m seeing is, the companies that are thinking that way and are on what they think is the trajectory to go public, are really looking at the comps. It’s actually really interesting, if you look at the data of the size of the company in each year, it’s very consistent for companies to go public.

Jason: How so?

David: The SaaS company going from $2M to $8M to $17M to $40M. The numbers…

Jason: The revenue numbers.

David: … of companies that have gone public over time, in various years and what year they go public, is really weirdly consistent. It’s almost like you have to be on that, sort of, path for it to work.

Jason: You have to, in some cases, you’re designing your business around that path. Then, that becomes the driving factor.

David: It just shouldn’t.

Jason: Which, it shouldn’t be.

David: It shouldn’t.

Jason: Cause you might leave money on the table. Be making… “We gotta go from 8-20, this year.”

David: Or, you get into the same artificial… you’re trying to hit a number and you’re spending too much to do it, or whatever.

Jason: Or gaming the system a little bit.

David: Yeah.

Jason: Getting people to pay in advance. All kinds of crazy stuff. What do you think the trends are going to be this year? I mean, I hate to ask that question, because it’s kind of stupid. We did see this collaborative consumption. It seems to have really struck a nerve. Whether, it’s Uber or AirBnB or Black Jet coming out or GetAround. What do you think on the trends that you’re starting to see? I guess mobile is one of them. Is mobile peaked?

David: Mobile is the one that’s been there for 15 years. We’ve all been waiting on it. Definitely, it’s heating up. Real progress being made. Everything is so open and so accessible. I’m still a huge believer in white space around the human-computer interaction stuff. We’ve seen the tablet take over. We’ve seen all kinds of sort of new interfaces. I think there’s a a lot of room as we have more and more data in the world about how we interact with this environment that we’re building.

Jason: So, that would be things like the MicroSoft Connect?

David: Yeah.

Jason: Or other 3D type interfaces.

David: Oblong’s here, in L.A. Do you know those guys. Minority Report guys. I was in that, early on. I love that kind of stuff. Just really forward thinking about how we’ll interact with so much data, in our world.

Jason: How does that go from being Minority Report to being majority use case?

David: I think, you start to see conference rooms that are fitted with this kind of technology. If you want to pull the Tech Stars website up to that screen, you just point at it. Things like that. In the home, I think consumer electronics… Why can’t we just put our hand out and turn up the TV volume? Why do we have to find the remote?

Jason: Yeah. It makes no sense.

David: It’ll get there.

Jason: Yeah. That stuff’s coming.

David: That’s one area. We’re working with Nike because we like the quantified self area. This is the most…

Jason: What’s coming out now? I’ve heard some scary stuff’s coming. Somebody told me that… this is an inside source… Nike has some stuff coming out that is going to be mind-blowing. Forget about tracking steps. Things in your blood. Things in your perspiration. What are the things that we might expect, not from Nike but from other places.

David: I can’t talk about Nike. I do think our bodies are the most sophisticated machines that we own. We hardly track them at all.

Jason: Right.

David: Whereas, the other machines that we own, we know everything about them.

Jason: Sure.

David: I think we’re going to know everything about our bodies.

Jason: What are the next couple of things we’re going to know?

David: You’re going to know if you’re relaxed, if you’re tense. What percentage of the day do you spend tense or relaxed? Warnings: “Hey, David, you should drink more water.”

Jason: Interesting.

David: Early heart rhythms that look weird. Anything that can be a signal around, take care of yourself or improve your health. We all should care about our bodies. It’s how we’re going through the world. But, we really don’t measure much about it. Some of us step on a scale… I’ve done that everyday for the last 3 years.

Jason: The Withing or the Fitbit scale.

David: Yeah. I can see the patterns in that and the trends.

Jason: Right. Christmas, I gained 10 pounds. Post Christmas, I lose 10 pounds.

David: Yeah. Some of it’s obvious. When you couple it with Fitbit or a Nike Fuel band and all these things, you really learn a lot about yourself.

Jason: I really feel we have to figure a way to measure glucose and blood on an ongoing basis. So people can understand when they drink a soda or a glass of orange juice, which essentially is the same thing. Or, they eat bread. Exactly how ice cream orange juice and bread and Coca Cola are the same thing, in terms of spiking your glucose and making you fat.

David: That’s right. So, we have this amazing computer in our pocket. My view is that we’re 5-10 years out from having something actually in your body measuring this stuff.

Jason: 5 years out?

David: 5 to ten.

Jason: 5 to 10. You put an implant in.

David: It’ll be tiny. It’ll be like a shot or something.

Jason: Over low-powered Blue-tooth. It sends your glucose.

David: All this stuff is intermediate right now. I’m involved in a company that is making clothes that measure your body. They’re just regular clothes.

Jason: Really? What company is that?

David: I haven’t announced yet. I’ll send you a note, They’re still looking for…

Jason: That’s be great for Launch.

David: … for financing.

Jason: I’m in. Are you in?

David: I’m in.

Jason: Alright. See, there’s your social proof. This is how it goes down. It’s like, it’s this high stakes poker game. That if Dave says he’s in, I’m like, well that has just mitigated all my risks, cause I know you have a high benchmark.

David: I’ll get them at Launch. I’ll get them at Launch.

Jason: OK. Perfect. Good.

David: And you can check it out.

Jason: Awesome.

David: So, we’re still in an intermediate step. We’re still wearing stuff. It’s a Fitbit that you clip on or a shirt that you wear. That’s all going to go away. It’s going to be part of us. That scares the crap out of a lot of people. But, it’s going to help a lot of people.

Jason: Listen, David, this has been amazing. Continued success with the program. Everybody go to Tech Stars.com. If you’re going to apply for a program, I really sincerely think you should focus on Tech Stars, because you’re going to get a lot of attention. The alumni group is incredibly powerful. You get 100 dimes. You’re going to get a decent amount of funding from it. They really care about the startups. Which to me, I’ve seen the quality of the startups that have come out of Tech Stars. It’s just unprecedented. Really great stuff. Follow @davidcohen. Jeff, do you have a final question or comment, here? It’s kind of cool to come and watch the show?

Jeff: It’s cool.

Jason: How cool is it?

Jeff: It’s so cool, I don’t have anything to say, beyond that.

David: You put him on the spot.

Jason: I’m just curious. Who as a super fan listened to… you listened to over 100 episodes?

Jeff: I’ve listened to all of them. Going all the way back.

Jason: You’ve listened to 323 episodes?

Jeff: Yeah, yeah.

Jason: Of an hour and a half in length? 500 hours?

David: He’s an expert at this point.

Jeff: Probably yeah.

Jason: Let me ask you a question. In all honesty.

Jeff: OK.

Jason: How much have you learned fro the program? Compared to the other sources of information out there. I don’t know if… I don’t know where you went to school. Whatever. How much have you learned from these interviews with these founders?

Jeff: Tons. Certain ideas… It’s like being privy to a private conversation, a little bit. Similar to how Adam Corolla talks about inner workings in HollyWood that you wouldn’t get normally, that people are afraid to talk about, bringing things to light. It’s enjoyable.

Jason: That’s good. It’s given me some motivation. I can focus on. The inside information is the reason you listen too.

Jeff: Absolutely.

Jason: So, if you could get something along the lines of inside information, inside information is good.

Jeff: It is.

David: Through email.

Jason: Through the web or mobile or video? There’s a lot of different ways to get inside of something, David. Inside of a topic. With authority.

Jeff: Inside the body. You’ve piqued my interests.

Jason: If I came into Tech Stars and I was like, “Hey, we got this project, Inside.com.” You came in with a domain name and a Twitter handle, like ‘Inside’, that would be like… forget if it’s me or not. Somebody you don’t know, Joe Schmoe, applies. Joe@Inside.com, what does that signal to you?

David: They understand brand and the power of having a good domain name, good email. They probably have a little bit of money.

Jason: Yeah. What’s that domain worth, do you think? And the Twitter handle. If a startup came to you and said, “We raised $10M in funding. We’ve got plenty of money. We have to the opportunity to get Inside.com. What would you tell them would be an acceptable amount o their $10M to spend on that? You’re on the board.

David: $500K-$700K.

Jason: Really?

David: That’s pretty expensive.

Jason: Yes. Yes.

David: Unless you were a master negotiator and you got it for less. Pretty good domain name.

Jason: You wanna guess how much I got it for? I’m such a genius.

David: $50K?

Jason: I got it for $60K.

David: Wow. That’s impressive.

Jason: I got the Twitter handle…

David: You’re going to sell it for a lot more than that someday. When you’re old and grey.

Jason: Exactly. I got the Twitter handle because a journalist who has interviewed me… you can’t pay for Twitter handles.

David: No. You can’t.

Jason: You can’t. However, you could hire them as a consultant for $1,500 and get the handle as part of a consulting agreement. Or as a favor. A consulting agreement is completely separate.

David: So, I will definitely talk to you about Tech Stars. If you’re interested.

Jason: That would be kind of mind-blowing. If I joined Tech Stars.

David: I’m in.

Jason: That would be pretty funny. I’d be like the 40 year old freshman. It’d be like Rodney Dangerfield. Remember that?

David: Yep.

Jason: What was that?

Jeff: Back to School.

Jason: Oh, God. To my Gen Y millennial samurai. Just rent this film cause it’s so funny. Rodney Dangerfield goes back to school. He’s this rich, you know, billionaire type tycoon. He goes to school to bond with his son. It was some bizarre premise. It is the funniest movie ever. He goes and he takes over the entire university. He goes to business class and he schools the Ivy League Business Professors. Pretty awesome.

David: You should do it. We’ve had mentors go through Tech Stars. It’s happening now.

Jason: Really?

David: Yeah.

Jason: I’ve got to get more involved in mentoring.

David: You’ve got too much going on, maybe.

Jason: No, no, no, no. I gotta go and mentor. I get a lot out of it. Like the show. This show is a front for me to accumulate as much knowledge as possible, to put into my other projects.

David: Same for me with Tech Stars. I’m just learning.

Jason: Exactly.

David: It’s awesome to learn from these people.

Jason: Isn’t it amazing how much has changed now, to just 10 years ago… let alone 20… in starting a company. Ten years ago, you had never seen a term sheet until you got one.

David: Yep.

Jason: You had no idea what a liquidation preference is. Probably was afraid to ask. Attorneys didn’t like really know. Let alone M&A. Nobody knew how anything worked. Now, everything is so transparent and upfront. These programs get you to third base. It’s so much easier.

David: Everything’s out there. Dissected in detail and open sourced to use. It’s awesome for entrepreneurs.

Jason: I think this is great. Some people say it lowers the benchmark. I have to say, that’s kind of nonsense, because I wasted so much time trying to figure out how to get a bank account open. Should I be an S corp or a C corp? I can’t tell you…

David: Who cares? Right.

Jason: I put thousands of dollars in conversations with attorneys. Of what the difference between an LLC, an S corp and a C corp is. None of them explained it as well as Brad Feld or Fred Wilson or Mark Suster or you or Naval on their websites.

David: That’s right. Yeah. Now it’s just go read about it and just go do it. Focus on what actually matters, you’re business. Instead of all that crap.

Jason: Listen. Thanks @mailchimp. Thanks @sharefile by @citrix. Thank you, thank you @sharefile. Great to have a new sponsor involved. If you would like to sponsor a partner on the program, tough luck. We’re sold out for six months. How great is my life? Thank you Jason Demant, for selling out the program. No. Seriously, if you have a product that I love and that the team loves, we’ll take you on as a partner for the program and you can support entrepreneurship. But, if your product is like ecigarrettes or some kind of spammy product or you trick people into like… I don’t know… like doing the monthly subscriptions. This one thing. It’s like one of these tricky radio sounding businesses. I can’t read that ad. I can read an ad for Share File. I use the product. I use GoTo Meeting, MailChimp, SendGrid. If I use the product it makes it pretty easy to read it. Cause I use this. Launch Conference March 4th, 5th, and 6th. David Cohen will be there. As will many of the Tech Stars companies.

David: We got 100K for that also.

Jason: Oh, yeah. You’re accepting somebody, so that’s a 100K prize. Thank you. I’m announcing that on wednesday. Tomorrow we’re going to announce that. Thank you.

David: Did I just blow it?

Jason: No, no. It’s fine. The people who tune in live and get to the show early, I like for them to get a little bit of something. You’re going to be putting up a $100K prize. That’s a ‘BFD’ as we say in the business. A Big Fricking Deal. Then the first Hack-A-Thon will be on the 2nd and 3rd. The companies that win the Hack-A-Thons, the top 5 companies out of the 50 or 100 teams that participate, those 5 automatically get on stage at the Launch Festival proper. In the Launch Alpha competition. The Launch Alpha competition is things that were made that weekend. I’m going to personally invest $25K in the winner and the co-founder of HubSpot is also going to invest $25K. So, a $50K purse prize and investors for the Hack-A-Thon. Which is sort of unprecedented. This is the largest prize in Hack-A-Thon in history. I can’t find another that’s bigger. So, it probably is. Then, there’s the 1.0 competition, the 2.0 competition and the Demo Pit competition. Demo Pits are companies that have been around for under two years, but are public already. 1.0 is a brand new company, brand new product, nobody’s ever heard of. Totally stealth. 2.0 competition is an existing company with a new product or service. Or a new version. You can participate. As long as your company is under two years old, you can participate. Send me all your great companies. jason@launch.co, jason@inside.com, jason@mahalo.com, jason@calacanis.com. Is there any other housekeeping guys, that I need to know about? Go to YouTube.com. Search for ThisWeekIn Startups and subscribe to it. See you all next time on ThisWeekIn Startups.