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My Life as an Angel

A veteran entrepreneur shares how he figured out how to be successful in new-venture investing.

Silvia Otte

THE PARTNERS: Norm Brodsky (left) and David Schneider at Harvet Restaurant.

Street Smarts

It took me many tries, but I finally figured out how to get what I want out of new-venture investing

We set another record last Wednesday. I called the restaurant at 10:30 p.m., as I do every evening, and David answered with his usual, "Hi, Norm." He doesn't even bother to ask who's calling anymore. At 10:30 he knows it's me. He told me we'd served 145 meals for dinner, beating the old record by 8, and I felt the same charge I'd feel if it were my own business.

Of course, it's not my own business. Or rather it is, and it isn't. I'm the investor and the adviser, and I own 100% of the stock. But David Schneider is the entrepreneur. He's the one who came up with the concept, found the location, put the operation together, and is making it go. When he pays back my initial investment, he'll become the majority shareholder as well.

In the meantime I'm having a ball. I go to the restaurant at least once or twice a week. If there's room, I sit at a table. If not, I eat at the bar. I like to watch the action and talk to the customers. Five women were finishing lunch there the other day. I said, "Hey, is the food good?" They said, "This is the best food we've ever had. It's delicious." And I felt a warm glow.

For me, there's nothing like it--the excitement of seeing a business rise up from nothing. I can't even explain the feeling. There's just something unbelievably thrilling about seeing the growth, watching the numbers go up, getting the business to stand on its own. I've done it myself a number of times, and I can't get enough of it.

And now I'm having the same experience with David's business. I'm seeing it all unfold through his eyes. I see the same spirit, the same perseverance. I know exactly how he feels, coming home at night, not being able to sleep, thinking, "Oh my God, 145 meals! I broke a record!" You can't wait to go back and set another one. It's incredible. It's the greatest feeling in the world.

It's also one of the greatest payoffs you can get as an investor, or so I've realized. Yes, making money is important. I wouldn't go into a deal unless I thought I could get my capital back and earn a good return. But I really don't do this type of investing for the money anymore. I'm more interested in helping people get started in business. Whatever I make is a bonus on top of the fun I have being part of it and the satisfaction I get from helping people like David succeed.

I wish only that I'd figured out how to play this game sooner. It's taken me 25 years and a lot of bad deals to get it right. Not that there weren't opportunities to make money along the way, but somehow they got screwed up. Even when I did make some money, I seldom felt good about it, and I never had much fun. Something always came along to spoil the experience.

In the process, however, I developed a few rules of angel investing, which I've finally been able to bring together in one deal. They may not be right for everyone, but at least they've allowed me to find what I've been looking for all these years.

Rule 1
Invest in people who want your help, not your money

If I'm going to invest in a new venture, I want to play a role in its success. I come in as a partner, and I expect to be treated like one. Not that I want to run the business or make the key decisions, but I like my opinions to be heard. That means investing in someone who wants to listen. The problem is, people always come across as good listeners when they're asking you for money. So I prefer to give my financial support to those who don't expect it.

David Schneider, for example, came to me looking for advice, not money. He was the manager of a restaurant near my office. My wife had given him an article about my work with a couple I knew who were just getting started in business. He asked me if I'd mind looking over a business plan he'd written for a restaurant he wanted to launch. I said I'd be happy to.

The new place, it turned out, would be located in Greenwich Village. David intended to take over space that had been occupied by another restaurant, now defunct. It was clear from the plan that he knew a lot more about running restaurants than he knew about business. I told him it would never work. For one thing, he needed more money than he was asking for, and I didn't believe he had the ability to raise it. For another, he was paying too much for the space. Beyond that, he would be starting up in the heart of the most competitive restaurant market in the world, and he had no niche, no unique angle, nothing that would give him an edge.

I advised him to try something less ambitious for his first venture, preferably outside Manhattan.

What happened next was most important. He listened to me, took my advice, and--a couple of months later--came back with a new proposal. This time he had found a place near his home in the Cobble Hill section of Brooklyn, an up-and-coming neighborhood with tree-lined streets, old brownstones, and lots of high-income, two-earner families. There were other restaurants in the area but nothing great. The space he had in mind had previously housed a Middle Eastern restaurant that had been around for 24 years. He figured he could lease it at a reasonable price.

I looked over the proposal and went with David to view the location. He asked me what I thought. I said it looked perfect; he should go ahead and negotiate the lease.