David Tisch - Tech Investing Outside of Silicon Valley - [Invest Like the Best, EP.55]

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At a Glance

David Tisch (Co-founder of TechStars, Managing Partner of Box Group) discusses the tech investment ecosystem beyond Silicon Valley. The core theme: early-stage investing has shifted from the "incubator model" to a more geographically dispersed landscape, with high-quality companies emerging from non-traditional venture capital hubs. Tisch argues that future customer acquisition strategies require fundamental change, as traditional methods will fail because "today, the average user downloads 0.0 new apps per month" (meaning users have zero interest in new apps), and all low-cost acquisition channels have matured, leaving no "magical arbitrage opportunities."

The Rise of New York: A Paradigm Shift from "Infrastructure" to "Consumer Experience"

David Tisch believes the center of gravity for tech entrepreneurship has moved from Silicon Valley's "infrastructure layer" to the "consumer experience layer" in places like New York, creating the conditions for New York to become an emerging tech hub.

• Historical Context: In the past, tech entrepreneurship relied on "hard technology" like hardware and R&D, which naturally concentrated in Silicon Valley. However, over the last 7-10 years, technical infrastructure has become a service (e.g., cloud services, APIs), meaning founders no longer need to "reinvent the wheel."
• Mechanism Breakdown: Tisch uses his investment GroupMe (group messaging service) as an example: in 2009, they had to "invent" how to make group messaging work; today, it's "a piece of cake." This change has dramatically lowered the barrier to entry, allowing founders to focus on the "core experience" rather than the underlying technology.
• New York's Advantage: New York is a hub for numerous traditional industries (fashion, real estate, healthcare, sports) and has a complex, diverse consumer base. This provides "fertile soil" for building consumer-facing tech companies. Tisch points out that after the 2008 financial crisis, a large amount of talent that would have flowed into finance began shifting towards tech entrepreneurship, a key turning point for New York's tech ecosystem.

The Incubator Model: From "Catalyst" to "Winner-Takes-All"

Tisch argues that the incubator model has evolved from a community catalyst into a winner-takes-all market, where only the top few (like Y Combinator) and vertically focused specialist incubators hold value.

• Model Comparison: Tisch contrasts TechStars (mentor-driven) with Y Combinator (YC). TechStars emphasizes helping small batches (10-14 companies) through a community mentor network, while YC is more scaled. Tisch believes both have now scaled, but the "customized" service of early TechStars was its differentiator.
• Selection Criteria: Tisch emphasizes that when screening applications, he focuses on "vision" rather than "history." He personally reviews all 2,000 applications and uses clever questions (e.g., "Who are your next 10 hires?", "What's the biggest fight you and your co-founders have had?") to gain insight into the founder's thinking and team dynamics. He particularly values a founder's "performance ability," as they need to convince investors, customers, and employees.
• Future Outlook: Tisch states bluntly, "There are too many incubators." He believes that aside from top-tier institutions like YC and Techstars, and specialized incubators focused on areas like biotech or fintech, most average incubators will struggle to find quality companies and will eventually "fade away." He warns that running an incubator like a "lottery ticket" is a losing strategy in the long run.

The Customer Acquisition Revolution: From "Product is King" to "Brand Belief"

Tisch points out that the customer acquisition environment for tech startups has fundamentally changed, evolving from "product design as a competitive advantage" to "product is the entry ticket, brand belief is the moat."

• Historical Phases:
• 2007-2012: Product design was a "standout skill." Users were eager to try new apps, and a well-designed product was enough to win.
• 2012-Present: Excellent product design has become "table stakes." Users have extremely low tolerance for new apps; one bad experience means permanent user loss. Tisch references Kevin Simler's concept of "identity colonization," noting that giants like Facebook and LinkedIn have already "colonized" users' primary identities, leaving little room for new players.
• Acquisition Dilemma: Tisch emphasizes that all low-cost acquisition channels (e.g., App Store featuring, SEO/SEM arbitrage, Facebook social distribution) have "matured," and there are no more "magical arbitrage opportunities." New companies must rely on "word-of-mouth" or "high-performance marketing," which requires significant capital. He states directly: "To reach the US consumer, it probably takes about $100 million just to get your name heard."
• Future Trend: Tisch believes the future winners will be companies that can build "brand belief." He cites data: "Millennials spend 90 cents of every dollar on brands they feel connected to." This means companies without a "heart" (brand core) will die. He warns that industries like airlines, which lack emotional connection with customers, face significant disruption risk.

Position Moves

Position	Guest Stance	Key Data
GroupMe	Positive Case	Invested in 2009, later acquired by Skype, now a top 50 App Store app under Microsoft.
ClassPass	Positive Case	Founder Payal initially applied to TechStars wanting to build a "class search engine"; Tisch advised her to build "ClassPass" directly.
Casper	Miss (Sin of Omission)	Saw it early but didn't invest; Tisch considers this a "huge mistake."
Plaid	Invested	Provides APIs connecting consumer financial services with bank infrastructure.
Remind 101	Miss	Was not accepted into the TechStars application pool; now the #3 ranked free app on the App Store.
VIA	Miss	Ride-sharing company, recently raised $250 million.
Zenga	Miss	Founder Mark once mentioned to Tisch playing poker on Facebook; Tisch thought it was "crazy" at the time.
Uber	Positive Case	Used as an example of "transformative technology" that trained society on the behavior pattern of "press a button, something happens offline."
Betterment / Wealthfront	Positive Case	Cited as examples of consumer experience innovation in fintech, replacing "phone calls and human advisors."
TurboTax / H&R Block	Negative Case	Represented as "outdated, ugly" software, seen as having innovation opportunities.
Shake Shack / In-N-Out	Positive Case	Represented as fast-food brands with a "brand core."
Arby's	Negative Case	Represented as a brand "lacking emotional connection with customers."

Judgments Worth Remembering

1. "Users download 0.0 new apps per month" (David Tisch). Support: Users have zero interest in new apps and extremely low tolerance. One bad experience leads to permanent loss; only a recommendation from "5 friends" can bring a user back. This is the most fundamental challenge for current consumer tech startups.

2. "All low-cost acquisition channels have matured; there are no magical arbitrage opportunities" (David Tisch). Support: Whether it's Google SEO/SEM, Facebook social distribution, or App Store featuring, all channels have become crowded and expensive. New platforms (like Snapchat) no longer allow other companies to "parasitically" grow on their ecosystem.

3. "There are too many incubators; only the top-tier and vertically focused ones have value" (David Tisch). Support: The incubator business model seems attractive (low cost, high equity), but "finding good companies is impossible." Most average incubators will eventually die out due to a lack of results. Exceptions are top-tier institutions like YC and Techstars, and specialized incubators focused on biotech, fintech, etc.

4. "Millennials spend 90% of their consumption on brands they have an emotional connection with" (David Tisch). Support: This means "companies without a heart will die." Brands must build deep relationships with consumers or be eliminated. Tisch believes industries lacking emotional connection, like airlines, face significant risk to their monopolistic positions.

5. "To reach the US consumer, it probably takes about $100 million" (David Tisch). Support: Tisch believes most tech companies are "underfunded." He cites old data ($60 million to get 30% of Americans to hear your name 3 times) and believes this number is now higher. This counters the common view that "everything is overfunded."

6. "I'd rather make a mistake (invest and fail) than miss out (on the right company)" (David Tisch). Support: Tisch believes missing a good company (like Casper, Remind 101) is more painful than a failed investment, as the former is the primary culprit for "losing your entire fund." He adopts an "NFL cornerback" mentality: allowing himself to "give up a play" (a failed investment) but must quickly move on to the next opportunity.

7. "The most important trait for a founder is leadership" (David Tisch). Support: When evaluating a founder, Tisch imagines "this person standing in front of 100 people running an all-hands meeting." A founder's ability to attract, inspire, and lead a team is a more important judgment criterion than the current product.

8. "Getting fired was the kindest thing that ever happened to me" (David Tisch). Support: Tisch was fired from a company "with security," which led to six months of depression. However, this period allowed him to research the incubator model, ultimately leading to the founding of TechStars New York. He views this as a life-changing turning point.