Scott Greenburg is an attorney with more than 25 years of experience in venture capital, public offerings, intellectual property and technology issues, mergers and acquisitions, complex commercial transactions and international product distribution.
He has completed more than 100 corporate transactions for a variety of companies, including Starbucks, Classmates Online, VoiceStream Wireless, Westin Hotel Company, The Basketball Club of Seattle (which owns the Seattle SuperSonics and Storm), Western Wireless, Oh Boy! Oberto and many more. In addition, Greenburg has been an angel investor with many of these companies, including Starbucks and VoiceStream Wireless (now T-Mobile).
NuWire: You’ve been an active investor in a number of different startup companies. Can you tell us about some of the companies that you’ve invested in?
Greenburg: I’ve invested in quite a number going back quite a few years. The first one, I was quite fortunate because I don’t think you get a chance this often, but I ran into a young entrepreneur named Howard Schultz that I worked for as a lawyer and was able to invest in this little coffee company called Starbucks. And in fact, its first name was Il Giornale, but it went back and bought the Seattle assets of Starbucks coffee and became quite a juggernaut.
I also invested with a guy named John Stanton…he started a company and bought a company out of bankruptcy called General Cellular down in California and put together Western Wireless, and out of that invested in and bought PCS licenses under the name of a company called VoiceStream. VoiceStream went on to become T-Mobile in the U.S. today, so those probably are the two most successful early-stage investments I ever made, but I’ve made many others.
There were several others that I think are quite good investments….One is a retailer here in the Seattle area called InSpa….It’s an everyday retail environment, which is regular services that you’d find at a spa, but…a very convenient, well-priced version of those things. And it’s doing quite well.
Another company I’ve invested in recently that I think is doing very well is called Sambazon, and they have been importing and making products from a berry, a Brazilian berry called açai. That’s a very interesting product because it dovetails with a lot of my recent investments, which have been in products that are not just good, profitable products but also have a “save the world” component, I guess I would call it, because quite frankly, it’s a berry that if you harvest it in the Brazilian Amazon will save the rainforest. And not only that, it’s a great tasting—one of the best for you products in the world and can be put in the form of smoothies and beverages.
NuWire: Can you tell us about your least successful investments?
Greenburg: There’s always some companies you invest in that you think will do great, and you can’t go below zero most of the time…but I’ve gone to zero a few times.
There was one where I invested in a bridge note that was a barcode inventory system, and it did go to zero.
There was one that I thought was going to be a super high flier and invested a lot of time and effort into called LockStream Corporation, and it had a great technology that would allow digital rights management to operate on cell systems, but the market didn’t develop very quickly, and at the end of the day, people didn’t accept or want digital rights management in their downloaded songs, and so it didn’t find a platform….I didn’t go to zero, but it certainly wasn’t one of my better investments.
NuWire: Retrospectively, did you see any red flags? What are some things about companies that might raise red flags for you?
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Greenburg: One is the market developing as fast as the company thinks it will. Most of the time, entrepreneurs are so enthusiastic that they don’t see how long it will take a market to develop….So if there’s any red flag, it’s people who don’t quite understand how long it really takes to build the business. I really like somebody who has a passion and enthusiasm and a sense of urgency, really does believe they’re going to change the world with their product. But I also want it to be tempered by what it takes to get it done.
Another red flag, I think, for me is whether the person—the entrepreneur—has the character to see it through. I want to look at somebody and know that they would lose a lot of sleep and they would face a lot of pain if they lost anybody’s money, that they just have no desire ever to fail.
NuWire: What are the most important things that you look for in a company that you’re thinking about investing in?
Greenburg: I invest generally in either technology, consumer branded or some other kind of consumer brand idea, and that could be a food product like Starbucks or it could be a shelf product. But basically, I’ve come to the belief that when you invest, you invest with people, and so the first thing I want is a message and a messenger.
I want a company that has a story to tell and somebody who can tell it well, and they have to have a brand…to develop high margin, a plan on how to get to the market and excellent execution because execution is what wins.
A company that can execute—even if it’s lacking some of the other things—can turn a profit pretty easily because they can learn how to make the product or acquire the product at a price that gives them a reasonable margin. If you can’t operate well, it usually means that you can’t achieve the kind of margin that you need to stay in business.
NuWire: Have you ever invested in real estate developments?
Greenburg: I have, and I think real estate is a great long-term investment. I’ve purchased apartments and houses. I’ve never done commercial real estate, but what I’ve learned is that I’m more suited to want to build the business than to build a real estate portfolio.
NuWire: Can you tell us about any other alternative investments you’ve chosen to participate in outside of startup businesses, traditional stocks, bonds, mutual funds, that sort of thing?
Greenburg: I’m an investor in five different venture funds…they’re kind of the mutual fund of investing in startup businesses. You give your money to some pros, and you ask them to go out and find investments. Because they’re able to pool money together, they’ve got a little bit more bargaining position than an individual would, and I think because of that, for some investors, venture funds and private equity funds are a good place to invest their money.
NuWire: What is the most important thing an angel investor should know?
Greenburg: The way I’ve had the best success is when I’ve known the business the best. When you just get a private placement, and you look at it, and you’ve never seen one before, and it seems interesting, and you invest, you’ve probably made a mistake. You really do need to spend time with the entrepreneur. You need to understand what they’re doing.
NuWire: How much money should somebody have before they start thinking about being an angel investor?
Greenburg: Well, I would say that there’s no great answer for that because somebody who literally has no cash but has a home equity line because their house appreciated in value by three-quarters of a million dollars or a quarter of a million dollars, they’ve got access to $25,000 or $50,000 or $100,000 that they could put to work in the right angel investment. So I think somebody just needs to have enough of their money invested in safe investments and enough regular income that they can have a chunk of funds at some level to be able to invest.
I also think that they need to realize that if they invest in the very first stage, the very first round of an angel investment, where people often invest, that they need to keep some powder dry. They need to keep some more money on the sidelines because that company is not likely to be done with its fundraising, and every new round of fundraising is usually senior to the last, and especially as you get bigger, and you can start getting institutional money, they always have preferences that go into that last money in, and the rule generally is last in, first out.
The first money that comes out of a business when it sells or goes public or that sort of thing is going back to the people that put their money in last. So if you just put your money in the first round…you’re much more likely to be several tiers down in the liquidation payout waterfall, and it’s better to have some extra money to put in each round and stay fresh.
NuWire: Are there ways for nonaccredited investors to invest in small and startup companies? And if so, how?
Greenburg: Well, the whole securities regime in the United States is built so that nonaccredited [investors] really have very few opportunities, and the opportunities that they have are made more difficult because a company trying to reach the nonaccredited community has a lot more that it has to do in terms of providing disclosure and financial statements and that sort of thing.
So while there are chances—and in fact…the very first round of Starbucks, I believe, we actually allowed 35 nonaccredited investors in that round, but since then, almost all companies that I work with and all companies seeking capital really are limiting themselves…to accredited.
There is a lot of risk associated with selling to a nonaccredited investor from a securities perspective and from a disclosure perspective, and while it’s highly risky, it’s far less risky to sell to accredited investors, who are generally believed to be sophisticated and able to fend for themselves.
NuWire: What suggestions would you make to a new investor interested in getting involved in angel investing or investments that you’ve been a part of?
Greenburg: Well, in the Northwest, there are a couple of pretty good groups that are involved in the angel community…you have to basically apply for membership, and accredited investors are able to then see screened opportunities.
And then beyond that, it’s just asking your lawyers and law firms and accounting firms and just serendipity of knowing somebody who’s starting something, and I would say serendipity is a bigger part of it than you’d think.