[Updated, October 18, 2012–see below] A few weeks ago, Xconomy posted a slide-show extravaganza called Top Angel Investors of New England that featured short profiles of 34 of the region’s leading individual investors. To help choose the candidates, we culled through editors’ knowledge banks, and surveyed entrepreneurs and investors alike.
One name on nearly everyone’s list: Xconomist John Landry. The charismatic erstwhile CTO from Lotus Development, known for his sense of humor, contagious laughter, and wit, is one of New England’s best known angels, perhaps the closest we have to a super angel (he’s also an investor in Xconomy).
As part of the top angels story, I spoke with Landry about his philosophy of investing—and how that has changed in the past few years. There was more there than we could fit in our brief profiles. So I thought it would be interesting, and hopefully insightful, to share some highlights about his evolving investment philosophy.
1). Down on Consumer investments—but Enterprise is Great
Landry has long concentrated his investments in software, his field, and in past years has done a lot of Internet and consumer deals. Scratch the consumer, he now says. “If I looked back, where I made all my money was enterprise, and where I lost all my money was consumer,” Landry says. “After awhile, you go, ‘Huh, interesting.’” (He’s no dummy, after all.)
For one thing, he says, there’s more to mine in enterprises, which tend to be way behind consumers in adopting new trends in software. Plus, they have a critical difference in attitude about software—they are willing to pay for it. As Landry puts it, “So there’s an enormous demand, and they pay a lot of money as opposed to, ‘This should be free, this should be free, this should be free.’”
2) You Need More than Software Expertise—You Need Disruptive Domain Expertise
“Software’s too easy,” says Landry. “If it was hard, there wouldn’t be 800,000 iPhone apps. So it is a prerequisite that you have very good software skills.” One thing that sets potential investments apart, in his view, is whether the founders have other skills as well, such as sales and marketing experience and what he calls “disruptive” domain expertise in the field they’re targeting. That means more than just being highly adept in their field, he says. It means the entrepreneurs he looks for “know the field so well they know how to disrupt it. That’s what I’m looking for.”
3). Loves Co-Founders, Hates Couples
“What I look for ideally–I like co-founders,” says Landry. For starters, he says, two people help motivate each other through the trials and tribulations of entrepreneurship: “It’s better to have somebody you can work with.”
Co-founders also complement each other’s skills. “I like to have companies that have two or more founders, and ideally one that’s got, in the domain that they’re in, very good sales and marketing experience—and a tech guy that’s awesome but also has really good domain knowledge in the field they’re going after. Seldom are both of those things in the same person.”
One caveat though: “I don’t like husband wife teams. If they get pissed off, then I’m left holding the bag. I’ve seen that movie.” (I’d love to get to the bottom of that story.)
4). On Non-Tech and the Internet of Things (IOT)
Lately, Landry says he has gotten away from pure software investments and is eyeing more in IOT-type companies that blend software and the Web with the physical world, preferably with unique business models. An example he is considering investing in is Sproutel, a Kendall Square startup now at Dogpatch Lab that makes interactive toys for kids who have chronic illnesses.
One of Sproutel’s products is a “diabetic” bear called Jerry. The idea is to help kids do a better job of taking care of themselves by having to also take care of the bear: Jerry needs regular “insulin” injections and the right “food,” to keep his “glucose” levels balanced. Helping kids take better charge of their health is obviously important, and parents are highly motivated to find new ways to help their kids cope—so there is a good market opportunity to go with the social good, he says. “People will do anything to help their kids with diabetes,” says Landry.
Landry has even gone completely non-tech, with a recent investment in Banshee Wines, a “negociant” (or negotiant) that buys surplus grapes from top California winemakers and uses them to produce comparable quality wines at 50-60 percent of the cost because it doesn’t have the overhead of a vineyard.
“Now that’s my type of consumer investment!,” Landry wrote me on follow-up. “Disruptive biz model, a terrific, hard-charging team, capital efficient, no freemium b.s…And trust me, the UX (user experience) is awesome!!”
5). What keeps him up at night?
[Editor’s note: This section was updated and amended on Oct. 18, 2012]
Liquidity. At the core of any insomnia Landry has, he says, “is what I consider this radical supply of companies versus demand of buyers. It’s so easy to start software companies. Everybody’s doing it, therefore there’s thousands and thousand of companies forming…and now there’s ‘n’ numbers of incubators. There’s 800k iPhone apps, how hard can it be?”
“With equity financing, the only way to achieve liquidity as an investor or founder is to get bought,” he says. “There’s a tremendous supply of companies, and yet there’s a massive consolidation in the software industry resulting in fewer and fewer buyers…And even if they get acquired, this supply-demand imbalance argues for lower prices. So that’s what keeps me up at night.. But then I get up and it’s a new day, and [I think], ‘Let’s go see that hot new startup!'”
