Cohen Likely to Keep Aim on “Angel-Scale” Deals with new $150M Fund

The evolution of Techstars CEO David Cohen from an entrepreneur “vaguely dissatisfied with the way angel investing worked” to a full-fledged venture capitalist has taken another major step forward with his fresh efforts to raise a $150 million investment fund.

While Cohen is best known as the head of the Techstars startup accelerator, which has invested in nearly 300 companies and expanded all the way to London, he’s also a very active investor in his own right.

Cohen has made what he calls “300 angel-scale” investments in startups across the country. Many of those startups, such as SendGrid and Orbotix, have Techstars pedigrees, but many others do not.

Now, he’s shooting to invest in a lot more startups, although he’s stretching the definition of angel. The new fund, known as Bullet Time Ventures 2014, will be Cohen’s third, by far the biggest, and likely the most ambitious.

In an e-mail, Cohen declined to comment about the new fund, which was just revealed in an SEC filing Thursday and hasn’t officially collected any cash yet.

The evolution of an investor

So we don’t know much about Cohen’s specific plans for this new, larger investment fund. But recently I interviewed Cohen about his broader experiences as an angel investor and why he’s been working to change the angel-investing model—through Techstars, the Colorado chapter of the Open Angel Forum, and his first two personal funds.

The responses shed some light on how he’ll likely operate the new Bullet Time fund, whenever it finishes raising money and actually starts cutting checks to entrepreneurs.

The motivation to change things came in the mid-2000s, after Cohen had sold Pinpoint Technologies, the company he cofounded with Techstars president David Brown, to Zoll, a medical equipment manufacturer. Cohen continued with his own startups, but he also sought out a local angel investor group and began making investments with his earnings.

Cohen said he didn’t know how to pick a winner and was prepared to lose money in order to learn.

“I literally viewed it as a learning expense. It was like paying for tuition. I said ‘I’ll probably lose this money, but I’ll learn a lot in the process,’” he said.

Cohen made a good bet soon enough: his second investment, in Twilio, which makes cloud-based communications software, already has proven to be a successful business.

But Cohen’s ignorance went beyond vetting companies. He said he also didn’t know how to be helpful to the entrepreneurs personally, or what roles angels took on beyond cutting checks.

It wasn’t long until Cohen realized two important things—he wanted to make his living as an investor while staying in Boulder, and he thought angel clubs had too many non-investors who actually were “torturing startups.”

“Very often it is true that angel groups are full of people who never actually invest. They’re full of people who are being entertained by being around wealthy people, even if they’re wealthy. It’s a social sort of thing,” Cohen said.

Ultimately, his frustration and his desire to be more engaged with startups led to the formation of Techstars, which graduated its first class in 2007. But Cohen kept angel investing and made 20 to 25 investments. They were spread pretty evenly between Techstars startups, non-Techstars startups from around the country, and companies from around Boulder, he said.

The number of deals brought him to the point where enough of his net worth was tied up in startups that he had to slow down, and it led to a change in direction. Instead of investing only his personal money, Cohen thought he could use his money to create a small fund that others could invest in, making more and larger investments than he could on his own.

That realization, along with the help of prominent local investors, led to the creation of his first fund, Bullet Time Ventures, in 2009. It was good news for startups, but it also marked a change in Cohen’s trajectory.

“The moment when I created the first $5 million fund, I technically became a venture capitalist. A lot of people are confused by that. So even though we were investing $50K at a time, we were now a venture capital fund,” Cohen said.

Despite being relatively small, that fund’s investments went to winners like Uber and SendGrid, Cohen said. It also led to Bullet Time Ventures II, which raised $25.6 million and was formed in 2011. Cohen said that allowed him to make bigger investments, usually about $100,000, and to continue on in following funding rounds.

Following an angel’s strategy

While technically now a VC, Cohen said he follows an angel investor’s approach, making small bets in seed and early stage rounds and providing mentorship as needed. He also presents himself as an angel interested in helping entrepreneurs in a way that’s different and possibly more relaxed than early stage VCs can.

“If you look carefully at how I brand it, whenever I invest, you see it’s David Cohen, even though the fund is actually called Bullet Time Ventures. The reason I do that is that I want to be perceived as an angel, perceived as the first investor in. I think a lot of entrepreneurs want those individuals, they don’t want fund money that has pressure for returns and all that,” he said.

As the size of his funds jumped, the nature of his investors changed as well, and over time they are likely to become more like the institutional investors who are limited partners in large venture fund, Cohen said.

Those investors might be interested in the returns a successful angel investment could bring, but they would not be interested in screening hundreds of small companies and investing $100,000 in a few dozen deals, he believes.

We’ll have to see how that theory plays out with Cohen’s newest Bullet Time fund. With a target size of $150 million, it would be a much larger pool of cash to work with, and it could attract a new class of investors to angel-scale investing. But new types of investors are likely to bring with them new expectations for high returns. It will be interesting to see how Cohen balances their desires with the mentorship-focused approach he has been following for nearly a decade.

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