DAN ZITTING ‒ NYA MEMBER SPOTLIGHT

Dan Zitting joined New York Angels in 2022 with a background as a software entrepreneur and operator whose journey allowed him to explore many different ways of building software companies, from bootstrapping to venture capital to large private equity. In this interview, Dan discusses the value of investing in industries that are outside of his expertise, why founders should consider raising the minimum needed, and how intellectual stimulation provides an additional return on investment for New York Angels Members.

How did you meet New York Angels, and why did you decide to join?

This is actually my second time living in New York. When I was coming back to the city, I had relatively recently sold my company and knew I wanted to broaden my experiences and explore new opportunities. I really wanted to become more involved with early-stage startups again.

As an entrepreneur myself, I had always found that there were lots of people who had advice, but not nearly as many who were willing to put up their own resources or, more importantly, share their actual experience that might be relevant, as opposed to just giving advice.

I thought an angel group would be a good fit for me. I had done a little angel investing on the West Coast before joining NYA, but as I met the New York Angels team and became familiar with the group, I found it particularly compelling. There was a strong process, fellow angels with great experience, and interesting companies to work with. As I was coming back to the city, I was introduced to New York Angels and could not wait to join.

What has been your most memorable experience as a New York Angel?

I joined New York Angels with the intention of investing in businesses I knew and had experience with, primarily technology and software. What has surprised me is how much I have learned and enjoyed looking at companies that are everything but that. It is almost the opposite of what I thought I would be doing.

I find myself constantly surprised by what I am learning, whether it is something in the medical field from our doctor members or insights from members who specialize in consumer goods. There have been so many of those learning moments from the collective experience of the NYA Members.

What do you look for when you’re investing in a company?

First and foremost, the authenticity of the founder and whether they really care about the problem they are trying to solve. I think that can come across even in the earliest-stage pitch.

After that, I am looking for momentum. There are so many resources available to founders now to make progress early, so I want to see some evidence of traction. It is not so much about the traction itself, but about demonstrating that there is hustle in the founding team.

If those two things are in place, there are a whole bunch of other aspects of the business to assess. But authentic, compelling passion from the founder, followed by evidence of traction, are definitely the starting points for me.

What do founders appreciate most about working with you?

I hope it is that I try to share experience rather than just give advice. Instead of saying, “You should do this,” or “You should do that,” my approach is to say, “Well, in my journey, I had a situation that looked like this, and here is what I did.” Maybe it worked out terribly, or maybe it went really well, but whatever the outcome, I try to share what I actually experienced.

I think everybody is full of advice, but wisdom comes from experience. So I try to share experience rather than advice. I think founders I have worked with would tell you that is appreciated because it comes from an authentic place. There is learning involved, as opposed to simply telling somebody what they ought to do, wishing them good luck, and leaving them to learn the lesson when it goes wrong.

What is the biggest difference between companies you see at screening and those that make it through to due diligence?

Companies that make it through screening have a compelling story, but one that is not necessarily grandiose or oversold. What I see fail between screening and diligence happens when we scratch beneath the surface and discover that the story is not nearly as grand as the entrepreneur initially illustrated. It still may be a good business, but that disconnect makes people uneasy.

We know building a business is hard. Starting with a big idea and genuine excitement, while also showing some humility and recognizing that you are going to learn along the way, often makes the difference. Otherwise, angels can start losing enthusiasm as the process progresses because each step becomes a little less exciting than where we started with the initial pitch.

What advice would you give founders who are starting to fundraise?

My number one piece of advice is to really think about what you want your business to be and exactly how fundraising is going to help you accomplish that.

One of the biggest mistakes I have seen is founders treating fundraising as though it were an outcome in and of itself, as opposed to one small step in a very long journey. In tech especially, there is a lot of emphasis on achieving the highest possible valuation when raising money. I have seen that lead to traps where what the business needs to become is suddenly so big and so grand that the founder is almost trapped behind the money they have raised.

My advice, candidly, is to raise as little money as possible to accomplish exactly what you want to accomplish, and do so at a reasonable valuation. That way, if things do not go exactly according to plan, you are not trapped behind a promise of extreme value on the other side.

You will have a much better entrepreneurial journey, in my experience.

I may be giving the opposite advice of some other angels and investors, but raising less money at a more reasonable valuation to accomplish your goals demonstrates thoughtfulness to the investor and leaves maximum choice for you as the founder.

And in 99.5% of startups, things do not go exactly according to plan.

What advice would you give newer angel investors who are interested in joining New York Angels?

Love the journey. For me, the best return on investment I have received from New York Angels every year so far has been what I have learned, more so than any money made from investments.

Being part of the community and experiencing the learning that comes with it is incredibly rewarding. If intellectual stimulation and learning are part of your definition of ROI, then you will love the rest of it.

When you look at your past investments, what is most critical for founders to deliver a successful exit?

The exit will come if you spend your whole life obsessing about the customer, how to make the product better for the customer, and how to help the customer succeed. We spend an awful lot of time thinking about strategy toward a high valuation and how to achieve an exit. My experience, having sold a number of businesses, is that selling a business almost never happens the way you think it is going to happen, through some grand sale process at the end of the road.

Great businesses are bought, not sold. The way great businesses are bought is because another great business notices that your customers are happy. There is a positive buzz in the market that your customers are creating, and the next thing you know, somebody shows up. They want to talk about how they could partner with you or become part of your journey, which is often the polite way of saying, “We would like to talk to you about buying your company.” Great companies are bought, and not necessarily when you would expect.

What is something about you that has been helpful in your career?

For someone who lives in downtown Manhattan and is a New York Angel, I actually grew up in a very small town in the middle of nowhere in Colorado. My parents owned the little local hardware store in town.

It is funny, because as I look back on my whole career, having gone through all the different stages of acquisitions, buying businesses, investing, and building companies, I can authentically say that the most important lessons I have learned came from my first job working for my dad at the hardware store.

He was a salesman by nature and was obsessed with the customer. He always talked about being out on the floor. He wanted to stand down there and sell nuts and bolts every day rather than be in the office doing the ordering, accounting, or any of that sort of stuff. Growing up in a retail store and learning to be, as they say, "on the floor," down with the customer, has probably helped me more than anything else in my entrepreneurial journey.

What motivates you?

At this stage, I have had the opportunity to take a great journey through the software business, and I just want to learn more. What motivates me is learning about all kinds of different businesses that I have not yet had the chance to be involved in. That is what fills my bucket.

I would pair that with the fact that my journey through entrepreneurship was hard, but stepping out to become an entrepreneur completely changed the trajectory of my career, my financial security, and so much more. Having the opportunity to help even a small version of that happen for somebody else, someone who is passionate about a problem or something they think needs to change in the world, is incredibly rewarding. It makes me immensely proud to have even a small part in supporting that.