July 11, 2020

Getting acquired by IBM and starting to invest in companies - Edith Simchi-Levi on how the investment climate changed.

Getting acquired by IBM and starting to invest in companies - Edith Simchi-Levi on how the investment climate changed.

In this episode of Fundraising Radio, Edith Simchi-Levi the VP of operations at Logictools explains how the acquisition by the IBM went and how times are different now. We also discussed where should founders go to get their first funding.

New York Angels: http://newyorkangels.com/

Leaf Logistics: https://www.leaflogistics.com/

In this episode of Fundraising Radio, Edith Simchi-Levi the VP of operations at Logictools explains how the acquisition by the IBM went and how times are different now. We also discussed where should founders go to get their first funding.

New York Angels: http://newyorkangels.com/

Leaf Logistics: https://www.leaflogistics.com/

 


Transcript

Alright, this is fund raising where you introduce a guest speaker we have a venture dammit feature president your vice president of operations right? Ads logic tools. 

Right? Alright. Let me record that part. Well, at this point, no, no, that's kind of historical, but right. 

I mean, it's just like, you know, just to give some background about the CO founder Co founder. Yeah. 

That's your Co, 

founder of a log acquired by IBM and also a CO founder of ops operations. 

Right pops rules. Actually just say I wasn't actually. 

So also a Co, founder of, I forgot was acquired as well or yeah there were two companies. 

It's kind of confusing me with two companies, but I actually was switching the software. All right? And it was acquired by a central was acquired by center. Alright. Perfect. Then, let's begin. 

This is fundraising radio entities, 

a guest speaker with Co, 

founder of logic tools, 

acquired by IBM and also a CO founder of acquired by central and in this episode, 

we'll talk about these two acquisitions how they happen how that happened back in the days. 

How is now doing angel investments and how does the climates in this third world investment field is looking right now during this condemning. 

So, if a Laskey called by, you giving us some background on yourself and on your angel switch your part off. I forgot to mention that. 

Sure, thanks for having me on it. 

So I'm actually somewhat new to investing the last couple of years, 

but we have a computer science background, 

and we moved to the states in nineteen eighty six when David became part of Columbia University, 

and he had an opportunity at the time to work on school bus. 

Routing and we saw that mapping for PCs was just coming up. So we could use off the shelf software for that. 

And we thought it would be kind of an interesting idea to combine algorithms with with this kind of software and ninety three. We moved to Chicago and actually I worked from home there. 

So it's strange that this is a whole new thing now, because it takes a while and while we were there, we actually really liked this. 

We thought this idea had some value, and we were talking to some companies about funding it, and maybe developing this type of software, but we could never went on successfully in getting anyone to funded. 
So, we just decided to develop a prototype ourselves with today's call a minute and kind of creating a product that you can test in the market. 

And. 

And we start the Internet just started so we put some stuff up up on the web and we thought we could do different things. 

We were talking about that work design, inventory, optimization, routing, and a few other things, and we go over hits on network design for some reason. So, we, we decided to focus to focus on that and really the packages in the market at the time. 

Even though they were a few PC packages that they tended to be very expensive, because they had started the mainframe and they may maybe develop their own mapping. And other components, which, which made it very expensive. 

So, once we had a prototype, we started kind of showing it around and we got we got some interest. So, we got a few consulting projects where we refined the product as well as the more important from the Internet. 

We got some of our initial employees were interested in doing this. So. 

We had a developer and a business development guy and if you think the mid nineties was still, not last. 

I mean, the whole fundraising type environment that we have ecosystem. That we have today. Didn't didn't really exist. So we were kind of lucky that, that first year. 

When we needed to create a product for for mom, kinda minimum, viable product, we got a consulting project funded so we started and also we actually had an office in we were in Chicago. 

We had an office in Eugene, Oregon, because the guy that we had hired, moved out there, and we have to do office there and that was actually very efficient. So it's kind of remote work has been around for a while. 

And so, the company sort of grew, I mean, we got some pretty strong, early customers, like QPS there mountain a few and a few others. We did some innovative type marketing influences. 

We sent colorful one pages to a list that we got, because of the time in conferences, they would give you a list of all that these with their addresses. 

So, we use that the main goal was really to kind of establish a brand in this somewhat niche market. And also, I think that's why we were approached by. He sees over the years. 

But, you know, but again, we didn't. 

I think we had that kind of growth curve that made sense to take money and also, but by that time, we had clients and we had revenue. 

So there was, there was no reason for us to do it. It just didn't fit us. 

So, we ended up growing the company and in two thousand, we moved it moved to MIT and we, we moved to Boston, but the company stayed in Chicago because this kinda logistics business. A lot of our clients were in the Midwest. 

So, it made a lot of sense and it actually the business took off. We had a big office in Chicago, and our offices where the nice offices in Eugene, and then in two thousand, six. 
We decided that it's getting a little too big for us to manage on our own with David being a faculty and and wanting to bring any kind of outside and we started. 

And there was a good time for for acquisition. 

So, 

we, 

we started looking around and we were very immersed in in the market in two thousand for it took us was using our software and recommending it to their clients. 

So we were at all the conferences and so on. So, I met a company called the, I love with you after using their simplex, which is an optimized that we were using that and they were interested in, getting into the application space. 

We started talking to them and then so long story. But somehow, by the end of two thousand six, we got a good offer from them and we decided to sell. So, two thousand and seven the company was. 

So and then and then I log itself with. So, the two IBM in two thousand and nine. 

So, that's how we ended up with IBM, and then in the middle of two thousand and ten, we, we finished our commitment to IBM. 

And we started thinking of new things to do and actually, what are the topics that we were very interested in? Because of the book that David wrote operations rules was risk management. 

So, we were really thinking a lot about creating, but we never actually, we never thought that would be a market just for that product. So in two thousand and twelve, we started a consulting company with the partner. 

My for Mary, and that company, we did a very interesting things, including. 

Very interesting work in price optimization and again, we did a lot of our traditional work in network design optimization and then we in two thousand and sixteen, we sold that company to Accenture and in parallel. 

We started to politics, creating software somewhat similar to what we did before, but this time, everything on the cloud and using very advanced kind of development practices and so on. 

But even though we had a great, great product, we didn't really get any traction. Like, we had with our first, so all of it is timing and also there was there's a big competitor in the market. 

But then, and this this thing that never really took off and we ended up selling it two years ago to Accenture as well. 

So, that's kind of thing to porno store and then my brother is in Israel is an IBM expert, and he's started a company to try and analyze embryos, using artificial intelligence and so forth. 

So I invested a little bit in that. And they gave me a little bit of taste for investing and later on, I invested in a solar company. 

Somebody I knew and then I moved to New York three, three years ago. So I, somebody recommended new angels. 
So, 
I,
I approach them and they actually don't don't get a lot of cold calls like that but, you know,
it's a very established angel group that has been in New York for,
since the early two thousand,
different for two thousand three. 

I think it only became new angels, and it's about one hundred and twenty one hundred and thirty investments and is actually a minimum required investment, two years. So we always have to invest as part as part of this. Nice. 

That's really interesting. I haven't heard that there's minimum requirement, which is, I think is really great. 

So first thing that I really wanted to discuss with you is the difference between fundraising process, then when you just started your first company and now nearly twenty five years later, what do you think changed the most. 

I mean, 

I I think now there's obviously a huge ecosystem around around fundraising, 

you know, 

you have incubators, 

you have a lot of organize a local organizations yesterday. 

We were listing this know this organization in New York, the organization in, in the Midwest. 

I mean, in a lot of areas of, you know, it's been recognized that, that, you know, startups should need to be supported. 

And and then it also bring brings a lot of value to the community and a lot of potential business and, you know, a thriving economy. 

So, there's a lot of every, there's little different types, so you could have local. Type initiatives,
and you have initiative based on some topics so in New York,
for instance, 

there's a few decks,
which just specializes in food and I think, in Taiwan,
the same company, 
which is a huge BC. 
They, they also have one in Taiwan, but in Taiwan, they focus on on on cellphones, electronics, cellphone, technology and telecom. So it's is a huge, huge ecosystem out there. 

And I think based on what you're doing, you can tap in.
There's a lot of ways to tap into it,
but still,
I don't think it's it's it's it's definitely there's a lot of money out there, but I still think, 

you know, 

you have to start from a showing quite a lot of value because there's also a lot of competition and, 

you know, 

when we see companies, 

they usually go beyond the kind of we never really invest in. 

Someone's idea. I mean, there's always already some sort of a basic product. Preferably there's some revenue. 

And as I mentioned about my last company, I think one of the most important things obviously that the customer demands, I mean, that's that's sort of the driving thing for these things. So the more the more traction you can show. 

The better the better position, your. 

That's that's completely right. So, I figured that we shouldn't move on streets in New York angels, because I just got so interested in that main requirement investment per year first. Let's let's talk. 

So each angel group, especially large as large as New York angels, they usually have some sort of focus. Does New York angels have some specific field that they like to invest in as well or are they really? General investors? 

There's no, there's no particular focus. I think it, you know, we, we see a lot of different things. So, I mean, there's definitely and, you know, I think health care is probably one of the areas. And then,
of course, 

because we're in New York,
and some of the fintech stuff that we're interested in, we,
we were before, 
you know, 
before covet that there was more focus on kinda local companies. 

Because because people actually came to pitch. 

Into our offices, so it wasn't exclusive, but there was a bit of a focus on that. I think that's one of maybe the advantages of the day because is that everything is done remotely now. 

So, this morning, for instance, we were looking at some many companies in the Midwest incubator or some organization in the Midwest. That was like, so, if sophie's people from Kansas City and whatnot so it's much more open. 

There was also a little bit of focus on Israel. Because members really like me. So, but that's no, not necessarily. 

So, and there is somewhat kinda us focus, but but overall, it's it's very it's pretty open. I mean, we see we see a huge variety of companies, marketplaces. 

So guide and what's what's the process like? So I know that, for example, for Deco San Jose, the West Coast, the angel group, there was a really long process. 

And the key feature of tech goes to analysts, I think, is that they give feedback on each each deck that they receive as a inquiry doesn't work the same way with angel New York angels. Or do you just get the pitch deck? 

And if it's not, if it's, you just say, hey, sorry, it's not not a good fit.
So so that there's a few, the, there's a few steps that there's a few steps that we go through. 

So we get a lot of we have a system called the gust. So, people can that was developed by the way New York. 

If everybody's really interested in the New York angels, one of the initial founders, David Rose, who also answers questions on core if you're interested. But he also has a book about angel investing. That's that's really good. And I think he did that. 

He developed the system gusts. So, we get a lot of and through our website, you know, you could, you could have, you could apply and, and usually load pitch deck and another type of information. 

But usually it's a bit of a kind of crowd sourcing thing. 

So, we, you know, everybody kind of reviews these initial applications and then if there's enough votes, I think you need just three positive votes. 

Then it will go into the committee. And then sometimes some companies, if they already have a connection with one of the angels. 

And the angel wants to promote them, then they can go directly into the committee. And then this this committee decides who will present and we see we have two meetings a month. 

And we see, probably between fifteen and twenty pitches a month. Just for that. 

We also do some pitches through all sorts of incubators and other connections that the angels and then once we see a company pitch again, 
we haven't kind of voting system online where people say, you know,
if,
if they, 

you know,
if they're interested or not and most importantly,
we need somebody has to lead because there's a process of discovery and everywhere else, but it's all done by our own people. 

So, if somebody's interested enough to to lead this, and now, if somebody gets to the pitch and and is rejected, we usually would obviously say, say, why? And there's actually an option to come back again. 

If, you know, some of the issues were, hey, you don't have enough customers, but six months later, you do, you read a lot of progress and and you do have the customers, then there's an option to come back. So. 

And so it's, it's kind of and then the next stage after we have a pitch is we have a discovery session, because the pitch is like a ten minute thing. So Q. and a really fast but we do have information on the system. 

So, we can look a little bit more in depth prepared before. And if something's really interesting, and then we have a like, a two hour discovery. And again, you know, everybody, who's interested votes. 

If there is still interest,
then then we'd go to the next stage,
which is kind of a due diligence and the whole process,
and it depends on the urgency is takes less than three months usually, but it it could be if there's some sense of urgency.
You know,
it,
it could be more then we also,
I mean,
what I see now,
a lot of people,
especially within the more advanced,
little more advanced, 
you know,
they talked to a lot of investors and and so they the most convincing thing to investors. 

If I think is already somebody on board that's kinda right that helps but we also have to convince enough people that it's, you know, that this is something that they want to invest time and money in. So. 

So one of the frequently asked questions that I got a lot recently is fundraising was going on and who should founders approach venture capital or angel investors. 

And right now my general answer is venture capital is basically, because they're eventually forced to invest their money. And what do you think is going on How's the, you know, how is the field looking from the inside? 

Basically what do you see their power angel investors react into the spend dynamic? You know, I I think initially it was obviously in the market went down a lot. 

There was a bit of a so, the first instinct and that's also true for angel investors and envisaged. It's going to protect the current investments. 

So so they would go with maybe the current investments need. If you were lucky enough like, I working with a company in New York. That was lucky enough to raise money. Just before this, all started. So it doesn't make any difference for them. 

But but in all of the investments that have already been made, they need some money to so so the first priority would be, and that's true for these two is to prop up, whatever investments they already have. 

So, I think initially thing things went in in that direction and listened to new investments. But I think now, I don't think things are pretty much back to normal. 

The only thing I hear once in a while is that people expect somewhat lower valuations. 

But then there are businesses if your business is doing the business is actually do well, 

because they relate to trends that are already happening, 

because it's related to work from home telemedicine or something like that then the value actually may have gone up. 

So, it's so, it, it, it really depends, but I, I think things are, it feels like, you know, except for the fact, and actually people are getting pretty comfortable with the meeting remotely and we get we get more participation today. 

In our meetings that we did, when things were done in person so this is actually nice. So, yeah, because it's, it's it's great. You don't, you know, you don't have to go anywhere. 

So I think there are, I think there are some good things that have come out of this, in the sense that people I've got in people who have never used the we use WebEx in my company, you know, ninety. 

So, but today, the zoom technology is really good as far as actually seeing people and interacting. 

So a lot of people feel comfortable, you know, hiring and investing before it was all I have to be and I have to have lunch. I can invest. I think that's becoming less of an issue right? 
So, it's good because it it, as I said before it, it tells you a little bit from the regional and travel to, to the 
West coast to meet with people on the East Coast or whatever.
Especially if you're not in one of those central places, I think it's a huge advantage. 

Right, right? That's absolutely true. The world is more flat says some author coined that phrase, but yeah, that's that's that's a great list. I would say more virtual, right? Yeah, yeah it's more visual. That's true. 

You don't really have to move anywhere nowadays. And what's your general advice to foundries for trying to make to fundraise right now? So now, that the does sell down just a little bit what should they do? What do you think their first action should be? 

Should they start by submitting their beach decks to large angel groups like New York angels? Where should they go to individual angel investors? First? I mean, it really depends where they are. 

I think, I mean, I'm in the stage where I feel like, you know, like, precedes, like a very early stage, then you could you could I mean, one way. 

I mean, I actually invested in a company somebody approached me on LinkedIn and I really liked it. So, it's actually interesting company. It's called go stalk. 

It's forum he went through surrogacy, which was very difficult and complicated the non transparent. 

So he decided to create a kind of market where it's easier for people to understand the process and shop because you need, you need a, you need a donor, you need the surrogate, you need the IDF. 

It's a very, very complicated process. So, I kinda like, I'm sort of close to this, and I really liked the line. I was his first investor. 

So that's stayed, you know, before you actually have a report, it's very hard to go to a VC or even to our group where they're going to ask a lot of questions and more to see. 

So it's kinda it's a bit of a leap of faith. But one of the things,
I mean,
I really, 

you know,
I I think you need to connect to have jobs you still have networks either professional networks, or through school,
or a lot of universities now that whenever you just did the discussing,
like,
for instance,
Princeton,
you know,
everybody's getting into this now, 
as I said, 
because people understand that this is a huge driver of value and growth for the economy and personal achievement for the grant. 

So, universities are now creating funds and so forth or even local. 

So, I think the first thing you kind of have to have a strategy and really understand and do some research about what's going on as it relates to. 

You know, 

you and your founder specific background alumni network, 

I mean, 

you should need to utilize all of that, 

and just be kind of relentless selling it or, 

you know, 

if you can afford to, 

you know, 

just fund it. 

Yourself that's actually somewhat of a of a better option to to some extent, because then spending time, because it does take quite a long time to do this. So it's it's a trade off. 

Right? Right. It does require plenty of time. So, before I move on to the last question, if I remembered that, I forgot to ask you what do you personally, like, investing? So you mentioned, that's what New York angels invest in. 

But what do you personally like to invest in? So I just want to mention that the New York angels we have two ways to invest one is we invest as a group, but directly into a company. So we look at a company, for instance. 

So, 

I invested in a company called sandstone, 

which makes a medical device for separating blood, 

which again, 

which may be a good thing for now, 

because it's, 

it's a way to to do a take a blood sample some sort of a blood sample at home and send it out without it spoiling so that's so that's and I invested in new lab, 
which is in Brooklyn, 
Navy pier that they create this beautiful. They renovated this beautiful building. 

There was a hangar, and it's very, very popular started very interesting startup place anyway and, I mean, there's a lot of turns out to be very different from what I expected. 

So, it's to be maybe at this point, a little bit ad hoc but the thing with with investing is that it's it's a bit of a C***. Shoot. You don't know. Yeah. 

And I can't tell you which one of my investments, which are very different, which one of them will actually pay off. It's a matter of five to ten years from now. So it's, it's a C***. 

So that's why, you know, it's recommended it's a sort of an accredited investor, so it's money that you can afford to lose because it's yeah, but I think I know, you know, the New York angels people do it. They definitely want to want to make money. 

It's not, 

it's not something they are averse to, 

but also, 

especially in New York angels, 

they love they love the interaction with the founders and the excitement and actually, 

they're pretty interested in helping out within networks and so forth and and being a little more involved. 

You know, it depends on into printer, I think how much they actually use. And again, you know, I think. 

If you are raising money or finding an angel, you know, you may want to try and find somebody who can help you in whatever area. You re, doing medical device. 

And, you know, somebody who's an expert in your area would would also will understand what you're doing. And also could help out because they have because they have a network, right? Those are strategic investors. 

And that's that's a pretty cool thing to pursue. So, moving onto the last question of today's episode, which is a call to action. Was that one thing that you want the listener to do? As soon as the episode is over. 

I mean,
I,
I,
I think,
I mean,
I think having a strategy for how you want to, 

to raise money and and really and take some time to study kind of the ecosystem because it's just it's just pretty complex and release and decide who it's sort of like, 
a sale, 
you know, 

making sales, 

you have to decide, 

you know, 

who your market is. 

And so you're basically selling your company. 

So, 

it's good to decide where where it where which people are good fit for you and go after it or maybe, 

you know, 

there's all these incubators of things that and you're probably familiar with that that they may everyone is a little different, 

but they may invest in you, 

or and take some percentage of the company, 

but they can really open doors and support you and train you independence, 

keep you in a first time doing this you may really gain a lot by by sitting in his incubators and learning because they think they help you with pitches and with an exposure to people and. 

And you're around other people like that. So, I think that actually a lot of options, but, you know, but for every single case, there's probably things. 

You can focus it that fits you and the network, I think networking and probably the, maybe it's too much for just one thing. 

But also, 

I think one of the things that is really become sort of, 

you know, 

an expert in what you're doing kinda little, 

this new inbound marketing but that's sick yourself as an expert in whatever field you in and then talk to other people in this field. 

And network around that, and also that way, you could also research to really has value in the bucket. Right? That's actually great call to action. 

It's not one quotation numbers ones, but it's good. You know, the more things he told them to do the higher the chance that they will do, at least one of them. So it's a great call to action. Thanks a lot for that one. 
And my personal call to action, by the way is go to Apple podcasts and you five stars to this, just because, you know, I have over four thousand listeners and ten, fifteen rating seriously, come on five stars. 

So thanks a lot. We'll wrap it up here. Thanks. A lot for your call to action thanks for sharing your knowledge in the fields. Really appreciate and stay safe out there. 

Thank you appreciate it, right?