NYA Member Spotlight - Mark Schneider
Each of our investors has a unique background and substantial investor credentials and experience. Below is an “investor spotlight” on current New York Angels Chairman, Mark Schneider, who has been a member of the organization since 2006. Mark discusses his experience with the angel community, why he joined the New York Angels, and what he looks for in entrepreneurs and fellow investors when considering a business deal.
Mark Schneider, NYA Chairman
What first attracted you to join a formal network for Angel Investors?
Before I joined NYA, I spent a few years investing in young companies on my own and dabbled with some smaller angel groups. I first met David Rose — the founder and past Chairman of NYA — at a post mortem for a common investment. He called the investors together so that we could collectively learn from the experience. The professionalism at that meeting impressed me. This was a group of people who were not investing as a hobby, but as a serious professional activity. They are people who are passionate about helping startups grow, but also understand that to be sustainable, investing in young companies has to ultimately be profitable. This outlook spoke to me. Through collective work, we can screen a hundred times the companies that I could ever hope to do on my own and gain the perspective of a myriad of viewpoints when considering which founders/CEOs and companies to back.
What did you do before you were an investor and how has that experience shaped your own investment thesis?
After a few years doing strategic planning for PepsiCo and a systems consulting firm, I became the founder and CEO of a company whose business model would now be recognized as SaaS. As a practical matter because of the technology in the 1980s, we also sold physical equipment to customers and installed and updated our software locally. We charged subscription and usage fees for prescription processing systems installed in pharmacies and later added systems for retail point-of-sale and for prescription benefit managers. Over time, we grew the business internally and via acquisition. We built systems to enable the first co-pay assistance programs, and you can still see the model in action today if you receive copay assistance from a drug manufacturer.
The financial power of a high margin software company is one factor that continues to be relevant to my investing. In these companies, particularly B2B companies, customer retention is everything. CEOs who understand this gain my attention.
Another investment factor I consider is timing. Is the time right to build a company around a particular product? Is the technology available in an appropriate time frame for a successful company? Is it too early? Is it too late — are there other companies that have a sustainable head start?
Most important are the people who will execute the plan. As I think back to all of the people who worked in my company, I realize that people are the most critical asset. The ability of the founder/CEO to first attract and then motivate the top performers, as well as quickly recognize underperformers, is always top on my mind when looking at potential investments.
What is one of the best investments you made with the Angels?
A number of us invested in a stock video business which aimed to do for videos what Getty and Shutterstock did for still photos. I remember going to SXSW a few years later as the company was building real traction. They had a huge party. It was an extravaganza with 3 live bands. People were having a ball, but all I was thinking was “this is how they are spending our investment?!” In reality, it got them a ton of positive exposure, and a lot of new business. Two years later (and seven years from the original investment), investors received over a 60X return. The lesson there is twofold. First, when you invest in a company, you have to trust the founders. In this case, business was going well , and the CEO understood (better than I) what was good for the company. Secondly, the most effective way to get a positive return is to find companies who can get to achievable and accretive growth milestones before they need to raise more money. That seems like common sense, but unfortunately, many of today’s startups fail to raise sufficient money out of the gate and end up spending too much time raising small follow on rounds.
What do you look for in a pitch? In a founder?
The basics are always a business plan that gets to growth and a pitch that concisely answers standard questions. In particular I want to know how, once the product is in the marketplace, the company can build a sustainable advantage that discourages competition. I also want to see that a company can get big enough to achieve a serious exit. High on my list is whether the company’s business has the chance of achieving a significant (perhaps 20X-30X) increase over the post money valuation. Almost all companies will require growth capital before an exit, so angels expect to end up with a smaller percentage than they started with. A company that exits for 30X the value of the angel round will have likely taken in more capital. That hypothetical 30X will therefore be less. All this doesn’t mean I’m not thrilled to have an exit with a smaller number when it happens. However, many startups don’t succeed to a positive exit and those that succeed must cover the losses in my portfolio. Of course, some companies have different risk profiles and sometimes I relax these expectations. However, in general, if I cannot project how a company can return 20X to the round’s investors, that investment is probably not for me.
Regarding the founder: If I had a formula for investing, it would be 10% about growth, 10% sustainability and 80% the founder and team. The idea and the plan is just the beginning. They need to grow this into an organization. Founders need the right experience, knowledge, judgment, tenacity and flexibility. Angels like to give advice. I always look to see that the company leaders know when to accept views contrary to their own and when to push back.
What’s the benefit to YOU, as an investor, of collaborating with other angels on investments?
The obvious answer is more cash. It’s a truism that most companies fail to meet their financial projections. Raising sufficient money out the gate is imperative. Too often, individual investing runs the risk of investing in a company that raises too little capital.
The less obvious, but more important, answer is that investing with a professional group like the New York Angels is one of the best ways to get a truly complete picture of a business proposal. Everyone in our group comes from different experiences and perspectives — and they ask questions that would never dawn on me. They challenge my thinking and force me to consider contrary views. I’ve found that sort of collaboration makes for smarter investments, and I wouldn’t do it any other way.
What do you think your strength is as an investor and member of the New York Angels?
As for my own strengths, I like to think that I am a discerning voice when it comes to considering the line between a good business and a good investment. They are not always the same thing. I’m also a big proponent of a well diversified angel portfolio. To that end I have been active in creating our side car funds to enable our members to invest in a wider spectrum of companies than they otherwise would. As Chairman of NYA, I devote much thought to how our organization can create a process so that investments will be profitable for individual angels. The success of our entrepreneurs and our investments is the most important marker of our success and I work to make sure that our model is sustainable.
