Why I’m Investing in CardMunch

This post will replay some of my thought process prior to investing in CardMunch. I’ll attempt to discuss not just the standard checklist features (“Is beta built?” “How much revenue?”) but also the intangibles that led me to jump in.

At startup presentations, I initially have interest in probably 1 in 4 deals, but in most cases any infatuation goes away after a little due diligence on the team and market. In the end, the actual hit ratio ends up much lower—in 2010, I’ve invested in 12 deals out of 237 seen, i.e., 5% of the deals I’ve seen, and I’m only counting the ones that came to me via a filter, such as angel group presentations, incubator demo days, and recommendations from angel friends. So, 95% of the time, fear/apathy/conservatism trumps excitement/greed for me.

Even with those twelve deals done in 2010, half of the time I still had a few minor reservations while I was wiring out the funds. However, in those other 6 deals, (or just 2.5% of deals I see) when I look deeper, everything  I see gets me MORE excited—and that is the case with CardMunch.  Different people have different steps they consider, but for me, Card Munch checked out on all of them. So, here’s how I approached reviewing the CardMunch opportunity, and I include rough weightings on the factors.

There are just 3 inviolate areas for any investment: 1) A large, addressable market; 2) a capital efficient business model which can create good margins; and 3) great people.  The first two I don’t even have to consider carefully—you can normally disqualify a deal that doesn’t cut it in less than a 2 minutes. But most everything else takes some time. My rough weights are as follows:

10% Product: (with at least a beta product up and testable)

60% People: Who is the team?   (Past experience, past SUCCESSFUL experience, technical chops, hunger, humility, coachability, advisory boards) Do I believe the CEO? Do I like them?

10% Distribution: Who’s leading sales? Can they sell at the Startup (as opposed to Big Industry Leader) level? How will they reach customers? Also pricing, sales cycle, staffing requirements, etc.

5% Operations: Is this scalable? Tested technology? Dependable outsourced vendors?

5% Social proof: Who else is investing, and do they bring anything besides money?

5% Price and Terms

5% Everything Else

PRODUCT (10%): What is CardMunch?

CardMunch solves the business card problem, allowing super-easy and accurate transcriptions of business cards. (The best description of the business card problem can be found on the blog of first investor and co-founder Manu Kumar.)

Business cards before CardMunch

After going to an app on your mobile phone, you simply snap a picture of the card on the phone camera, and within an hour all contact information contained on the card has been uploaded, verified as 100% accurate by humans, and synched to your phone contact list. You can see the user pitch here , and the investor pitch here on AngelList.

In this case of CardMunch, it was easy for me to understand the product, because I had been an active and enthusiastic user of this app for two months before investing. Looking at the stacks of old, unfiled business cards on my desk, I also viscerally understand the problem, CardMunch’s value proposition, and the target audience, i.e., people like you and me.

Once I know what the product or service does, I ask myself if the product creates something useful and distinctive.  This question keeps me on sector focus: for example, it stops me from considering companies related to fashion (may be distinctive, but of questionable utility) or the restaurant industry (definitely useful, but you can take away any single restaurant or chain and you still aren’t lacking for choices).  CardMunch can offer a way to easily and inexpensively save time and accurately solve my business card problem, and I can do it at anytime from anywhere?  Yes, CardMunch gets through the first round with zero deductions, and I’m trying hard to rule things out.

Addressable Market (It’s really binary…it’s either big enough to grow to a minimum of $20mm EBITDA, or I’m not pursuing it further)

Normally I’d scrutinize the projected addressable market of an item.  A new advancement in luge sleds might be useful and important for a luge athlete, but would flunk the addressable market filter.  In this case, the potential is evident—all business people with cell phones who exchange business cards. I don’t need to study it any more before checking off this box.

Capital Efficient, High Margin Business Model (Also binary) OK, I admit that I would have passed on Google and Twitter had I had the chance to invest, so this might not be the smartest rule, but it’s what I need for my own discipline.  The company has to have a reasonable plan in place to make money.  In this case, CardMunch is already making revenues with a high-value service that hooks its users into using it over and over again.  CardMunch can work on either of a SAAS subscription or a pay-per-use model. As in the classic “give away the razor, sell razor blades” example, CardMunch gives away a free version of the app along with a number of free trial usages, and then continues to make money through the lifetime of the client.

TEAM! (60%)

I’m a 60% jockey, 40% horse investor, meaning that I emphasize the management team more than all other factors combined. In 84% of my angel investments, the CEO previously has run a successful startup.

Before I spoke to anyone at the company, a Google search showed me that Bowei Gai, the CEO of CardMunch, is one of those proven winners.  Even though he’s still in his twenties, Bowei has already worked at Oracle and Apple, but most importantly for me, also has launched a successful startup, Snapture.  Snapture sprang out of insights he had while at Apple on how to improve photos taken on the iPhone.

However, for me the team analysis is less about resume and more about intuition…which leads to discussion of intangibles. (This can’t be overrated.  Tom Brady sat on the bench for 2 years in college, went in the 2nd to last round in the 2000 draft, and was a 4th string quarterback for the Patriots…but scouts there promised his “intangibles”, including leadership, were off the charts.)

To me, the intangibles you look for are hard work, humility, hunger, and happiness.  I contacted Bowei late one evening via email to let him know I was a happy (and evangelizing) customer who had seen his company’s pitch via AngelList, and I wanted to follow up.  Right away I got back an email, showing his delight to talk to a satisfied customer. Mistaking his 917 area code (NYC) for his location, I asked if he could talk early the next morning.  He agreed and called back promptly the next morning…when I learned that he was actually in San Francisco, and had woken up early to accommodate my call. That’s hunger and hard work!

We talked about his experience at Snapture, and why he decided to start CardMunch.  I learned he had the humility and wisdom while at Snapture to make a big pivot, switching from an expensive hardware add-on to an inexpensive, elegant software offering.  Even though Snapture  had impressive sales at the AppStore and great reviews, he also began understanding the limits of one-time app sales, and he began to look for ways to get into a better subscription or per-use business model.  That quest led to CardMunch During our discussion, while I found myself taken with his strategic grasp of apps and the mobile market, the overall impression I got was of a businessman who conducted frugal experiments, iterated, improved and repeated—a virtual embodiment of the Lean Startup Principles championed by Eric Ries and Steve Blank.

The two others on the founding team are engineers and hackers from Carnegie Mellon.  I’ve always passed on teams where I liked the CEO but had reservations about the other key founders. (FWIW, the smallest teams I’ve invested in had at least three people, including a minimum of one technical founder or industry notable.) To me, three engineers on a consumer product can smell like trouble. Could CardMunch’s three engineers (including Bowei) put in place a sales culture, or would they die the typical engineering startup failure, swamping their product with feature overload? The clean UX of the app provided some comfort, but the sales culture was still unknown.  However, I had already come into contact with Co-Founder/Engineer #2, Sid Viswanathan, via email followups from my CardMunch sign-up.  Sid emailed to encourage this new user to post a review on the AppStore, and offered a place to go with user questions. Good hunger and customer service points there.  The Lead Engineer, Sudeep Yegnashankaran, showed that he too kept his ear open for any and all customer hot buttons:  while doing my due diligence, I took a return phone call from the company while I was at the squash courts—and Sudeep, upon hearing this, challenged me to a game next time I was in San Francisco. While it may sound corny, this is just the type of personalized, personable touch that makes a total difference in creating client loyalty and buzz. (At my previous company, it was not a sales guy, but the CTO who made the connections that concluded with us winning a $40 million revenue account.) So don’t let the Carnegie-Mellon label fool you—these guys can convert leads to sales as easily as they code Ruby on Rails. Another little thing: it doesn’t escape my eye that their tweets are getting out at all hours of the day, and that any email or voicemail I lob in, no matter when, is instantly answered—and I work offbeat hours to boot. They’ve created a get-it-done culture, borne out by how far they have come in such a short time on a tight budget.

SALES: 10%

Bowei will lead sales. Because of the success of Snapture, I already inferred that Bowei had good sales skills before talking to him.  Not only was the sales material in the angel pitch simple, direct, and compelling, but I know that it takes a lot more than a good product to attract so many great press reviews and product buzz.  Just as the PR campaigns he led at Snapture were well-managed (just check out the site and see the press clippings), CardMunch already is attracting attention with a social media presence (e.g., Facebook, Youtube and Twitter pages) and also great reviews from internet thought leaders like TechCrunch, and GigaOm, mainstream media like the NYTimes,  and my favorite video review here on Slate.

Here’s Robert Scoble’s interview with Bowei: http://www.youtube.com/watch?v=ZWDgqCYLKzw

For me, no one can sell the company better than the founders and the CEO. To have the CEO embracing sales and leading the charge is the best possible org chart—and if the CEO can’t sell or communicate his product clearly, be it to an investor or a customer, that’s an instant walk-away.

OPS: 5%

When I invested, CardMunch had a sizable paying userbase…and an even more impressive data entry workforce managed via Mechanical Turk, already trained and qualified for data input within the CardMunch system. Scaling doesn’t appear, either in ops or even customer support, since FAQs and support functions lend themselves to videos…which the company is already doing. Even with Android and Blackberry versions coming online in coming months, CardMunch should be able to handle all of the new volume…which is a good problem to have.

JUST US LEMMINGS–“SOCIAL PROOF”: 5%? (I say 5%, but honestly, this varies depending on the company. The more borderline I am and the earlier stage the company, the bigger the impact this has on me…though it shouldn’t)

No angel should ever fund an investment that he doesn’t think has the power to attract some deeper-pocket investors. And this is where sourcing the deal from AngelList made it easy.  It could be easy and dangerous, via AngelList, to join in a “Party Round”, i.e., no due diligence, with no logic to the angels other than name recognition and the bandwagon effect. That doesn’t appear to be the case here. I could see that the three investors preceding me were Manu Kumar of K9 Ventures, Mitch Kapor of Lotus123 fame, and Dave McClure of 500 Startups. With that collection of angels, syndication, engineering, design and, yes, Metrics for Pirates are solidly covered. For my part, I hope I can bring some East Coast connections to the mix, along with the enthusiasm and support of a true believer in the product.

Before going further, I want to send out a hat tip to Manu Kumar, whose post on CardMunch’s value proposition for user and investors was persuasive to me, and whose early involvement assured solid business understanding, which is evident in all aspects of dealing with the company, especially in clean legal docs.  Similarly, thanks to Andrew Parker of Spark Capital, whose blog post on “Turkable Problems” first alerted me to the company.


Only once (when I started investing in a company at the B round valuation) have I gone in at a valuation higher than $4 mm.  This deal was priced reasonably all around. Otherwise, straight Wilson Sonsini Series Seed docs: 1x participating preferred, very clean.

Other Miscellanea: 5%

Nothing here seemed out of the ordinary either way. I like the competitive positioning (even though there are lower cost competitors) and appreciate the company’s “secret sauce”, although there is no real barrier to entry for others to imitate.

In CardMunch’s case, that edge is literate, live, human workers, with multiple people inputting and verifying.  Prior to cellphones, business people had to either type things in themselves (big time sink), buy OCR readers (big upfront costs and accuracy problems), or carry around a big rolodex. With the advent of cellphones and cameras, other competitors came up…but they typically take the less accurate, edit-requiring OCR route as well. CardMunch’s use of Mechanical Turk staffing changes all that.  I’m happy that CardMunch is able to charge a premium to (generally) price-inelastic business buyers in return for the benefits of Easier, Quicker, and most importantly, More Accurate card transcription.

I am a fan of the “Early Exit” observations of Basil Peters, but excepting the field of medical devices, which are flippable once FDA approval has been granted,  I like a management team that wants to build something meaningful. Let’s call this mission-focus.  Sid, when asked about his exit plans, proudly said “Death.”  Which I doubt, but I like the chutzpah.  Before you make a rabbit stew, you have to catch a rabbit, and before you sell a company, you have to BUILD a profitable company.  The CardMunch founders are focused on executing, not dreaming.  Go get ‘em, tigers!

So that’s what crossed my mind before deciding to jump in. Below are some links on what Don Dodge, Mark Suster , Will Hermann, Paul Graham and David Lerner think are necessary preconditions for successful angel investing.  I’m an old hand at investing—at one point I oversaw or directly managed $60 billion in institutional investments– but I’m still relatively new at figuring out the angel angles, and this is far more art than science.  If you know of other good sites that go through an angel’s or VC’s thought process, I’d love to hear about them. Email me or leave a comment.





and http://www.davidblerner.com/david_b_lerner/all-about-angel-investing.html

20 thoughts on “Why I’m Investing in CardMunch

  1. Josh Bob Reply

    Ty, great writeup – very informative.

    I do question, however, whether the future of business information exchange is in apps like Bump, rather than paper cards. For that doubt alone, I wonder whether CardMunch can reach anywhere near the cap you put on them of $20mm EBITDA.

    Either way, good luck to CardMunch!

    1. Ty Danco Reply

      I think that Manu Kumar said it well in his blog for K9 Ventures Here’s an excerpt below.

      Business cards are a core part of our everyday business interactions. When someone hands you business card, you feel the stock of the paper, you look at the shape of the card, the color, the logo, the typography — all of that says something about the person whose card you received. Business cards are often the first introduction to a company’s brand or to a person’s brand. As such, I firmly believe that business cards are here to stay and that they serve a social and a practical purpose.

      There has long been chatter about electronic card exchange solutions — from beaming someone your contact information using IR on a Palm III, to using Bump on the iPhone today. However, the electronic card exchange suffers from “you can’t clap with one hand” problem, i.e. both parties must have the application installed to use it. Furthermore, electronic card exchange applications break the social protocol — if I meet someone important, I’d be happy to take their paper business card and slip it in my pocket. I’m not really going to say, oh, “let me Bump you instead.”

      The exchange of business cards is a ritual at the core of the social protocol for business. This is especially evident in Asian cultures where knowing how business cards are given and received are an important part of the cultural training to do business in those cultures. Bottomline: The paper business card is here to stay for the forseeable future.

      One more quick story: Remember the Palm VII version of bump, when you were said to have your units “rub noses”? Some hacker spread a virus only from Palm to Palm contact. The nickname for the virus? “Sniffle-is”

  2. Jay Caplan Reply

    Ty –
    Great post. Is there anything you look at differently for medical devices – e.g. IP or reimbursement?
    – Jay

    1. Ty Danco Reply

      Your question makes me realize the continuum of changes in the weightings I apply to different sectors. With medical devices, it’s very different due to my own lack of fluency in the technical details. In the case of CardMunch, I understand the product and its design perfectly well, and I am an active user. That makes me more comfortable in my own judgment, which minimizes the extent to which I have to effectively delegate due diligence and other matters to experts and other angels. (That explains the low score on social proof on my CardMunch weighting. Of COURSE I feel great knowing the quality of the angels–Manu Kumar, Mitch Kapor, who have invested. And I like it when Dave McClure is in on the deal–although I would go broke trying to get in on the continual number of companies he invests in quickly (c’mon, 500?startups?), I know that his companies will thoroughly understand metrics of converting customers in short order if they are not masters of that already. But again, for CardMunch, social proof was almost unnecessary.)

      In medtech, however, I generally don’t care if I don’t understand the science as long as there are trusted others that do. So that will increase my social proof score greatly. (The sole exception is my investment in Castlewood Surgical. I had been delighted in my investment in Boston Heart Lab, which Wolfgang Daum led as CEO from near inception until the B round investment led by Bain Capital Group. Wolfgang had numerous opportunities shown to him by angels (including me for a local Vermont medical informatics company), and when he chose to go to lead Castlewood Surgical, I was fairly quick to commit. In that case, it was probably 70% team, 20% product, which already had a Class 1 FDA clearance.

      Polytouch Medical, on the other hand, was at least 50% social proof. In this instance, I never met management or saw them present, but was taken by the very detailed knowledge and care given the investment by the Mass Medical Angels group. I take it as a matter of faith, for instance, that a DD committee with Ed Berger serving on it is going to have reimbursement and approval areas figured out cold. That deal, however, may be the exception that proves the rule, as in all other investments I put the predominant weight on liking management. I similarly only have invested once in a company with a pre-money valuation greater than $4.0mm. In that instance, it was in a B round for Pluromed, but I was sufficiently impressed by the background and approach of the CEO, Jean-Marie Vogel, that I threw out my otherwise hard limit on valuations.

      Especially with the somewhat murky cloud of getting FDA clearance in future months, I will lay greater store on companies that have passed that hurdle, as who knows how costs could escalate if the bars for 510k approval keep getting raised. Similarly, patents applied for don’t carry any weight with me, but my interest is peaked when I hear that patents are already issued or exclusive licenses have been obtained.

      Does that muddy the water up for you some? I suspect every angel flexes his weightings, and no one tries to delude themselves that the investing equation can be reduced to percentages. In summary, those were the percentages for CardMunch, they change some every deal, and they especially change in areas where I don’t have specific technical expertise. But with rare exceptions, the quality of the CEO and the team still are #1 in my book. Have they built previous success, are they hungry and humble, and can they successfully sell and communicate their vision. If so, they are well on their way to getting backers and customers, and I will give their company a close look.

  3. Olivier Ceberio Reply

    Interesting! Thanks!

  4. [...] that CardMunch, which just did its seed round of funding in late November, (see my writeup on why I inve... tydanco.com/2011/01/26/cardmunch-acquired-by-linkedin%e2%80%94an-investor%e2%80%99s-view
  5. [...] to date I’ve had great luck with AngelList (investing in CardMunch—see my blogposts here and here, S... tydanco.com/2011/02/03/why-i-passed-on-investing-in-a-real-but-unnamed-startup
  6. [...] you know from earlier columns like Why I Invested in CardMunch, I’m big on CEOs with previous entrepre... tydanco.com/2011/02/10/changing-from-no-to-yes
  7. Skill-Guru Reply

    I have never seen such a detailed review by an investor on why he invested in certain company. For me as an entrepreneur , this post really explains what are the qualities a investor looks in an company or an idea.

  8. Julian Awad Reply

    Great post Ty. One question I get asked alot… where do entrepreneurs start when they don’t have a successful startup under their belt? So many angels look for that proof point to check off the box.


    1. Ty Danco Reply

      I may not be the best guy to ask, since I favor the veterans myself. For new entrepreneurs, the biggest issue is credibility. So, if you can both assemble a good Advisory Board (showing you have some sale skills) and a solid team (also showing some sale skills), that goes a long way to establishing credibility in my eyes. In the end, it’s just about getting those customers.

  9. [...] one iPhone snapshot, get all data entered into your phone and get connected via LinkedIn. (Also, my fav... theventurecapital.wordpress.com/2012/01/09/the-big-list-the-best-and-worst-startup-stuff-in-2011
  10. [...] Top Posts Why I Invested in CardMunch [...]... tydanco.com/2012/04/16/1564
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