investor

Jonathan Berman on Investing in What You Know

Introduction

Jonathan Berman has a strong background in entrepreneurship. After spending time in the Peace Corps, getting a business degree, and working for a multinational tractor company, he decided he wanted to be his own boss. From the late 80s on, Jon started and ran multiple businesses across the US. From manufacturing to eCommerce, Jon has an impressive professional background.

And that entrepreneurial knowledge has served Jon well as he began investing in startups.

Note: The following interview was conducted via phone and email. It has been lightly edited for clarity and length.

Inez Sanjaya

How did you get into startup investing? How long have you been investing?

Jonathan Berman

I am a serial entrepreneur who started several companies over my career after working for a large multinational. 

Since selling my last business, I have been doing semi-retired work, but I started with crowdfunding and angel investing with CircleUp. It was still Reg D only after the JOBS Act, and nobody knew what was going on. Fortunately, I was an accredited investor after I sold a couple of businesses, so I was able to get on to CircleUp as an early startup investor. I invested in three businesses at that time.

Inez Sanjaya

Were those startups raising publicly?

Jonathan Berman

Yes. But it was only accredited investors back then. They did not know what the JOBS Act really meant. The SEC had not really defined it very well, so they kept it for accredited investors on the crowdfunding platform. So instead of getting hundreds of investors, the companies got 10 to12 and got a fair amount of money to get started up. And also they [got] some friends and family through those platforms to make sufficient funds.

Inez Sanjaya

And this was in 2014, is that correct?

Jonathan Berman

It was 2014 to 2015. Very early days right after the JOBS act was passed. CircleUp was one of the early marketplaces for crowdfunding, but it was only for Reg D crowdfunding for accredited investors. I thought that was great because I was not exposed to it previously. I did know at the time that the ultimate objective of the JOBS Act was to allow people with vastly less investment amounts to have access to private equity deals. So I did a fair amount of investing early on, and I sort of took a hiatus to let things settle on the investments I had. So I just recently started up again with Reg CF crowdfunding, which is an interesting take on how things have developed over the past few years. So I recently made an investment on StartEngine and am looking for stuff on Wefunder and Republic. That’s where I am right now, and I am excited about all the opportunities crowdfunding now presents because there is a wider range of investment opportunities that were not there before. So I am glad this whole evolution has occurred since I first got started in it. 

Inez Sanjaya

How many companies have you invested in so far?

Jonathan Berman

Six. I will say that I like Reg CF. I like what it is doing to democratize startup investing. Personally, if I am going to invest in a company I prefer to invest in shares right away. Although I’m not sure if I understand SAFEs or even like them, I have made a SAFE investment in a company that was developing a cure for cancer in pets. When I do something in that realm I will consider it a contribution as opposed to an actual equity investment, and I would be willing to go by whatever the mission of that company is. Regardless, I will likely come to terms with SAFE investments.

Inez Sanjaya

I know from your website that you focus on early stage investment opportunities in consumer products. Can you tell me more about what you are doing with 321 Ridgeland Ventures?

Jonathan Berman

Well, it’s primarily an information source as I get more exposure and as people get more exposure to what my philosophy is which is primarily going after consumer products. That was my background in my entrepreneurial endeavors, and I think I can help people by investing. Hopefully I can be a value add investor – not just money but also with managerial support. The website is primarily an information resource to people who might be interested in who I am and what I am doing and my investment philosophy. 

Inez Sanjaya

What is your strategy for building your portfolio?

Jonathan Berman

I focus directly on my philosophy, which is consumer products like household [goods] and also personal care. After searching for products or services in that sector, I try to do as much due diligence as possible – going well beyond what is available and having conversations with founders. For example, I just made a reasonably-sized investment in a manufacturing company on StartEngine. I actually visited the factory and talked to the founders. If I can do due diligence, I really get into it and make sure this is a worthwhile deal and these guys are real.

Inez Sanjaya

Is that a Reg D or Reg CF? Often when I see a Reg CF deal, it can be hard to get hold of those founders like you did. So it is very interesting to me.

Jonathan Berman

Since the majority of venture capital and crowdfunding sites are oriented towards digital products, it is rare to have somebody to reach out – either myself to the founder or founder to me. So I really latch on when something looks attractive and has growth options and potential that I want. I do a fair amount of in-depth due diligence. For example the last investment I made, I did a spreadsheet based on the potential market share these guys could get based on the market size they were doing. And it was fairly expensive. You know, their main problem was not going to be demand, it was going to be producing the product in a manner that would beat the requirements for having a return in five to seven years.

So we had a long discussion about production as opposed to market and product. That’s why I went to the factory, because this was my main concern.

Inez Sanjaya

Is there any industry that you are keeping an eye on currently? Why?

Jonathan Berman

Well, the pet industry. You know, it’s a huge market, and it’s just gonna get bigger so anything in the pet industry I immediately get focused on to see if it’s something worthwhile. And you know, most of the platforms have that segregated out. I have made two pet sector investments, and one investment has done fantastically. I’m looking forward to it, and that’s something I’m really happy and excited about.

Inez Sanjaya

Is there any criteria that you always focus on when you’re picking a company to invest in?

Jonathan Berman

Market size and the share of the market that is achievable in five to seven years. I look for a growing market and companies that have the ability to get good market share. I’m also concerned with exit strategies. So that’s why I go back to the product. It’s always the product. If the product is innovative and disruptive, then they have the ability to get that market share. Then I ask, is the quality up to speed, is the innovation up to speed? And are they constantly improving? Are there suppliers on board with them and all those steps…

Inez Sanjaya

What do you think of the online private market and its future?

Jonathan Berman

Oh, I think it’s fantastic. I like what KingsCrowd is doing, how it’s expanding into Reg A and Reg D and all of that. Like I said, I have been participating in this for seven years and to see the availability on all levels is fantastic. I think it is great for founders. I think it is great for innovation. It is an exciting opportunity from a founder standpoint and from an investor standpoint. I think it is great.

Inez Sanjaya

What advice would you give to those who just got into online startup investing?

Jonathan Berman

Go with what you know. My background was in consumer products and in manufacturing. You can sense whether or not the business plan is a real deal based on your past experience. And you know this plan may look great, but if the team can’t execute then that’s a bad deal. So really the main thing to look for is a good plan that’s viable and a team that’s ready to get this thing launched dramatically. I would try to get as much information, get as much research as you can online, and have in-depth conversations with the founders. Now that may not be viable if you only do $200 to $300 but even still, you know, a lot of these founders are interested in talking with everybody. You never know what a $200 investment will eventually turn into. They are accessible, I found!

Inez Sanjaya

What do you think are the signs of a good team that will be able to execute its plan?

Jonathan Berman

Do they have experience in the sector they are involved in? So they have any startup experience at all? And are they well-rounded? Is it just a bunch of engineers, or is it an engineer and a business guy and a finance guy and all the disciplines included? And try to talk to as many team members as you can to figure this out.

Inez Sanjaya

I’m curious, how much time does it usually take you to do your due diligence before you invest in a startup?

Jonathan Berman

Well fortunately, I have time on my side and most of these raises are fairly long. I like to give myself six weeks, and that means really working online as much information about the market, the product, any users available, the advisors for the company and their connections on LinkedIn. Startup investing is not just something where you can wave your wand and hope for the best – it is really about due diligence.

Inez Sanjaya

Yeah this definitely makes sense for bigger investments.

Jonathan Berman

For smaller companies, I think if you like the company then look at your investment as a contribution. If you make some money on it, fantastic!

Inez Sanjaya

Yeah, that is a good insight.

Jonathan Berman

If you like the mission and what the product is, look at it as a contribution and maybe you are supporting a good cause and a good mission.

Many thanks to Jonathan Berman for his time and thoughtful answers. Jonathan’s portfolio can be viewed here, and his LinkedIn profile can be viewed here.

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About: Inez Sanjaya

Inez's background is in the startup ecosystem, which she is very passionate about. Inez has experience working in a startup, a Google-backed accelerator, and lastly in Plug and Play Tech Center. Prior to this, she was a part of VU Venture Partners doing deal sourcing and conducting due diligence. Inez graduated from the University of California Berkeley with an Economics degree.

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