Why invest in TechStars class of 2011?

“Tada!” Eleven-year-old Jude Sack, son of TechStars leader Andy Sack, swept his arms with a flourish.  It’s the halftime break between TechStars demo day presentations. A rope “magically” bisects young Jude’s middle, leaving the audience delighted and applauding.

It was a decent metaphor for TechStars 2011.  When I first met them, Andy’s proteges were young and green.  Last Thursday, on stage, their presentations were equal parts showmanship and minor miracle.

With industry leaders announcing that the sky is falling for seed-stage investments, it can be a scary time to make angel investments.  But I’m putting my dollars on the line for two of the 2011 graduates, and I think a lot of other people should too.  Let me tell you why.

Good Investment

Dan Shapiro

First things first: Early-stage companies can be a great investment.  The most recent hard data I can find on the matter is from the Kauffman Foundation, who reports that angels surveyed showed a 27 percent return.

That’s a pretty fantastic average reward for an early stage bet.  Investors get that kind of return, of course, because the bets are so risky – more than half of angel deals fail to return anything, by some estimates.

But a well balanced portfolio is a mix of investments in different risk and return categories,  and angel investing is a terrific way to invest in one end of that scale.  Note though that you do need to meet one important criteria – you must be an accredited investor ($1 million in assets or $200,000 in annual income) to invest in most startups.

As a side note, legislation is wending its way through the system that would let anyone make small investments in startups – a quick email to your Senator would go a long way.

Do Good and Create Jobs

There’s probably no single action you can take with your investment dollars that creates more jobs than investing in early-stage companies.  By my rough estimate, at least 70 cents on every seed-stage dollar (and in many cases more) is going directly in to hiring.

While later stage investments may be channeled to marketing, infrastructure costs, or even cashing out investors, seed stage is arguably the best contribution you can make to our nation and our world’s economic recovery.

Furthermore, you’re enabling people who are on the edge of a transition: teetering between working for “the man” and transforming in to entrepreneurial creators of wealth.

If I hadn’t raised angel capital successfully in 2006, I would have gone back to work at a day job, and that would have been the end of my entrepreneurial journey.  These entrepreneurs are at a crossroads, and investing helps them find success along the right path.

It’s like charity with a positive expected rate of return.

It’s a blast

Andy Sack (Randy Stewart photo)

Andy Sack asked me why I liked angel investing.  I told him I invest in startups for the same reason that you bet on a football game: it’s more fun to watch when you’ve got some money on the line.

Finding a startup that you love and taking a position with them gives you the vicarious thrills of entrepreneurship without the harrowing hours or cheap ramen.  It’s rewarding to help a company with good advice, but it’s way more satisfying when it’s your company - even if you just own a little.

And while I’ve never been much of one for Vegas gambling, there’s really no jackpot like a startup jackpot.  The rewards that accrue to early investors in the best technology companies are legendary.

Can you pick the next Facebook?  The next Twitter?  The next Linkedin?  It’s long odds, but it’s fun to play, and the rewards could be enormous.

These are some terrific companies

Confession time: I have not been a stalwart TechStars champion.  Although I’ve mentored since the first class, I’ve seen some companies that I just did not believe in.  As recently as the first month of this years’ program, I had serious doubts about half the companies in the current crop.

But TechStars has hit its groove.  Andy Sack told me from the start that these were A++ teams and they would find A++ products, and I now see the truth in his judgment.  There are a lot of great early-stage companies, both here and in other cities, but Seattle’s 2011 TechStars class has some of the best.

So… I’m proud to announce that I am investing in S’more (aka Fireplace)

Gilad and Shlomi are the epitome of entrepreneurial determination: they flew from Israel to apply to TechStars, a program with a 98 percent rejection rate, on their own shekel.

Once they accepted, they relocated their lives to Seattle, committing themselves fully to their vision of code that builds beautiful things.  These guys are so good, they’ve already turned down a legitimate acquisition offer.

I’ve seen more companies around “Easy web pages” than I can count.  But the devil is in the details, and S’more has nailed those details cold.  It’s ridiculously easy to use.  It makes beautiful designs, and those designs stay beautiful now matter how much my ham-handed design-impaired self pokes at them.

And most importantly, it has a clear mission: single page flyers that are a call to action for a specific product, service, or event.

You’ve got to see it to believe it.  That’s why I’m investing in Fireplace, along with the entire founding teams of Urbanspoon and Snapvine, we know and love great entrepreneurs and great products.

…And I’m delighted to announce that I’m planning to invest in Vizify

This is the magic of Demo Day.  Vizify was one of only four TechStars companies I didn’t talk to during the program.  They sent me a few emails asking about market research methodologies after I gave a talk on the subject, but I didn’t give them a second thought.

And then I’m sitting next to Jonathan Sposato, one of my entrepreneur-heroes, and he starts telling me about what they do.  It turns out he’s leading the investment round, and that my friend and investment role model Geoff Entress is in too.

No wonder: I love this pitch.  They build a one-click profile that makes you look good.  It’s like you paid someone a bunch of money to design a web page to show off everything cool about you.

Investment thesis?  You’re not going to go wrong playing to people’s egos.

While I didn’t set out to invest in a second website-creation tool, this company is just too good to pass up.  Brilliant design, terrific marketing chops, rock solid engineering; these guys are going to make something great happen.  They’re nailing down their final terms but I plan to be in.

Please consider joining me

You may not have made it to Demo Day.  That’s OK.  Great investments come through word of mouth, and this is mine: I believe in these companies.  I believe in Seattle.  I believe startups are the engines of economic growth.  And I believe these are going to be great investments.  Let’s help these companies make some magic.

Other notes:

I’m not soliciting anyone to buy the stock of these companies.  Nor am I employed by them, get paid by them for investments or have been asked by them to find other investors.  I just think they are going to be great

I mentioned a few terrific investors (Jonathan, Geoff) who are investing in S’more and Vizify. I should point out that, between just the two of them, they’re investing in half the TechStars class.  If you’re going to pick an investing role model you’re better off following those guys than me.

Even choosing these two was a really tough call.  Every one of the TechStars companies has raised at least $100,000. Everymove, who are a spectacular play in healthcare, are over $1 million and have just a bit of room left.  Beamit, a clever mobile payments system, has finished their $750,000 round.

If you’re not an accredited investor, you can still do something awesome:fund Romotive on Kickstarter.  And instead of a stock certificate, you get a robot, which is arguably a lot cooler anyway.

Dan Shapiro previously co-founded Sparkbuy and Ontela. He now works at Google. You can follow him on Twitter @DanShapiro or read his blog here.

(Editor’s note: Jonathan Sposato is an investor in GeekWire).

Previously on GeekWireMy five favorite pitches from the TechStars Seattle Demo Day… “TechStars: An inside look at 87 days of madness”

  • Gary

    Here’s what I don’t like about this advice – it sucks!  You say-

    Investment thesis?  You’re not going to go wrong playing to people’s egos.

    It should be:  Because they can attract a user base and make a ton of money.

    I’m not throwing money at ego’s, that’s a fail.

    • http://www.danshapiro.com/blog Dan Shapiro

      My apologies.  It should say: 

      Investment thesis: Attract a user base and make a ton of money by playing to people’s egos.

      Hope that cleared things up.

  • http://hark.com David Aronchick

    I love this post – I think it’d be really fascinating to have more people put in small amounts of money vs. just getting the large amounts we do right now. Small enough that 100x or 1000x more people can play – $1000 for example.

  • http://twitter.com/AndySack Andy Sack

    Dan
    Great post….and great companies to invest in!  

  • http://twitter.com/kaylakristine Kayla Roark

    I was wondering who made the football analogy! Great post Dan. Excited that you’re getting behind Vizify and Smore.