Dave Berkus is a prominent figure, recognized for five decades of building businesses, pioneering hotel tech, and making bold bets on innovation. More than just an investor, he’s a superangel who has backed over 200 startups, chaired one of the largest angel networks in the nation, and earned accolades like Director of the Year and Tech Leader of the Year.
Dave’s career is centered on transforming visionary ideas into thriving companies—from groundbreaking software for the hospitality industry to developing the Berkus Method, a risk-based valuation approach that’s become a staple for founders and investors. As a prolific speaker, author, and fund manager, he guides the next generation of entrepreneurs, sharing hard-won wisdom and epic stories from the front lines.
In 1974, during a fuel crisis, Dave Berkus was approached by two hardware company customers. One, an accidental life insurance company, offered $10,000 (about $55,000 today) for his inventory control system. A food broker offered $6,000 for his order entry system. These offers made him realize the tech business held more promise than the record company.
He sold his interest in the public company and fully entered the computer business. After serving 215 customers in Los Angeles, he landed his first hotel client, a moment that clarified his future direction. He tasked his three programmers with maintaining the existing business, giving them $2.1 million worth of work, and then launched a new venture: hotel reservations and front office software, one of the first systems of its kind.
The hotel business grew rapidly, from $800,000 to $30 million by 1990—equivalent to a $100 million business today when adjusted for inflation. Dave Berkus sold it back to the same hardware company just before the 1990 real estate crash. He often recounts this experience, distinguishing between strategic, financial, and emotional buyers, a story that became popular and led him to the speaking circuit.
Dave Berkus shares a story about how his hotel business grew to be dominant worldwide, with 29 dealerships and three foreign subsidiaries. He traveled globally twice a year, meeting customers and signing deals. In 1982, Marriott licensed his software for their new Courtyard concept, initially envisioning a maximum of 50 hotels.
He charged Marriott $3 million for the software, and they also purchased hardware from him with a 25% margin. Remarkably, 44 years later, Marriott is only now replacing this system with an Oracle Cloud Suite. Tim Staton expresses surprise at the system’s longevity. Dave Berkus attributes its success to its user-friendly design, allowing front desk staff, who often had high turnover, to perform tasks with a single button.
He tested the system’s simplicity by asking hotel staff about it. Many didn’t even know its name. He would tell them he knew their password, which used to be “Dave” for training purposes. The night auditors, often new to the job, confirmed they simply pushed one button to perform complex tasks. This ease of use made it incredibly difficult for Oracle to replace for decades.
Tim Staton asks how Dave Berkus trained his team for leadership roles. Dave Berkus explains he had to empower his 14 middle managers at the hotel computer company. Six managers reported directly to him, and he taught these six to adopt a hands-off approach. He would tell his assistant not to call unless the place was “burning down.” This demonstrated the importance of giving authority, not just delegating tasks.
This leadership approach yielded more stories and speaking opportunities, leading to several books. When he sold the company, he immediately entered angel investing, setting up business on his son’s school desk with a multi-line phone and multitask printer he bought at Staples.
Dave Berkus explains that “angel investing” wasn’t a common term when he started. His first book, co-written in 1994, was titled “Resource Capitalism,” as there was no word for “angel” outside of Broadway. In 1996, Inc. Magazine called him a “super angel”—a term that had never been used before—featuring his picture with wings. The term “angel” began to circulate two years after his book.
In 2001, Stevenson Harvard wrote “Winning Angels” and interviewed seven investors nationwide, including Dave Berkus. During the interview, Dave Berkus shared his approach to pricing pre-revenue companies. He never trusted financial projections and developed a method that Harvard called “the Berkus method.” Dave Berkus felt a little embarrassed but accepted the name.
The Berkus method has since been used by over a million entrepreneurs and investors to value pre-revenue companies. Dave Berkus still hears from entrepreneurs who have used his method to value their companies. He has made 213 investments, seen 40 positive exits, and around 60 negative exits. He is still in contact with 91 companies, one of which is projected to have a three-quarters of a billion dollar exit soon, with Dave Berkus involved since its founding.
Dave Berkus explains how he began evaluating companies. He had no established deal flow or industry groups, so he approached the only venture capitalist in Southern California and the vice president of Silicon Valley Bank. He asked them to send him early-stage companies that were too early for their investment criteria. This allowed him to get an early look at opportunities from universities and game companies, where there was little competition, keeping prices low. Entrepreneurs often didn’t know their company’s worth.
The Berkus method, with a maximum valuation of $2 million to $2.5 million, focuses on four elements:
Dave Berkus would assign up to $500,000 of value for each of these elements, depending on the entrepreneur’s position. This encouraged entrepreneurs to self-evaluate their companies. He invested in “Heartland” companies, often with lower valuations. A $35 million exit from a $1.5 million investment could yield 25x or 30x returns.
Dave Berkus states his internal rate of return (IRR) varies between 99% and 102% per year. While this sounds substantial, he clarifies that IRR can be misleading. It stops when capital is reinvested in less risky assets like bonds. His actual return from 1993, when he professionalized his investing, is 23%. This was typical for angel and venture capital communities but has since fallen to 9% due to increased competition and higher prices.
He compares this to bankers managing his funds. Goldman Sachs, U.S. Trusts, and Bank of America provided 3-5% returns after fees. He eventually shifted to index funds, managed by a friend, which now yield 8.5%.
Tim Staton asks about red flags in potential investments and factors that ensure an investment. Dave Berkus says he knows within 10 to 15 seconds if someone is too focused on themselves or their achievements. Such individuals may not be coachable or flexible. He emphasizes the “jockey, not the horse” principle, meaning the focus is on the entrepreneur.
Another red flag is when entrepreneurs focus on “feature, feature, feature” instead of benefits. They should be marketing their product with a memorable, concise message. Dave Berkus recalls a keynote where he heard 50 30-second pitches. One person stood out by saying, “We move oil over the internet.” This immediately caught his attention. He invested $100,000. Although the company failed, it showcased the power of a strong mantra.
Dave Berkus notes that people often overcomplicate their pitches with 35-page slide decks. He quickly loses interest after the fourth or fifth slide. Having reviewed over 12,000 pitches personally, and another 12,000 through his angel group, he can quickly identify patterns.
He mentions a company with an upcoming three-quarter billion dollar payout. He was present at weekly meetings during its creation. The key factors were belief in the people (the jockey) and a clear understanding of an emerging trend. The trend involved connecting influencers with major brands before they were widely recognized. This advertising agency charged a 15% commission.
Tim Staton asks if there was an investment Dave Berkus wished he had made. Dave Berkus shares a story about his former chief programmer, Tom Schoenhoff. Tom expressed interest in marketing, not programming or management. Dave Berkus could not offer him a marketing role, so Tom quit.
Five years later, in 1995, Tom emailed Dave Berkus from aol.com. Tom was employee number seven at amazon.com, heading marketing for Jeff Bezos. Tom described their daily routine of packing books. He mentioned Bezos was seeking capital in round two, asking for $100,000 increments. Tom offered to introduce Dave Berkus to Bezos.
Dave Berkus had a rule: invest only in Southern California companies. Despite owning a twin-engine airplane and having flown to Seattle before, he declined based on this rule. He wrote back, “Great to hear from you. Keep me informed.”
A $100,000 investment in Amazon in 1995, two years before its 1997 public offering, would have been worth $33 million at the IPO. Holding it for another year would have yielded $66 million. At the time of his keynote, if he had never sold a share, that investment would have been worth $3.5 billion.
Dave Berkus uses this story to illustrate “My Land of Success and Laughing at Failure.” He shares stories of companies that failed and what was learned, alongside stories of successes. He notes that it’s important to laugh at failures and not get emotionally attached. There are so many deals that he sees, but he only invests in 2.1% of them, so he expects to lose some.
He recalls another missed opportunity. He was chairman of a spa technology company in Atlanta. A competing company in Southern California pitched to Tech Coast Angels. Despite his expertise in the industry, he recused himself due to a conflict of interest. That competing company was later sold for 233 times the investment, while his company went broke.
Tim Staton asks what Dave Berkus finds most fulfilling in coaching. He values coachability. He enjoys offering insights from his experience or connecting entrepreneurs with other CEOs who can help. He recalls a recent instance where he made a tangible difference, which gives him satisfaction.
Passive investing in startups is risky, time-consuming, and illiquid. Dave Berkus states his average time to liquidity is 11 years. The average time to failure is three and a half years. The largest returns, such as a hundred times the initial investment, often come after 18 years.
Tim Staton asks about recognizing when to stop investing time in a failing company. Dave Berkus cites statistics that 83.1% of businesses fail within five years across all industries. For tech companies, this figure is likely closer to 15% within five years. He knows many businesses will not succeed.
Venture capitalists expect one in ten investments to generate significant returns. Angels invest earlier, making companies more fragile. Dave Berkus states his numbers are closer to one in twenty, with six of his deals generating 90% of his wealth.
He quotes Luis Pelillo, a mathematician and founder of Tech Coast Angels. Pelillo calculated that 25 investments guarantee a break-even point. This led many new members to rush into making multiple investments, often in marginal companies. Dave Berkus cautions against this approach.
Dave Berkus enjoys helping people and investing in companies. Tim Staton mentions Dave Berkus’s book, “The Leaders Toolkit.” Tim Staton notes the book’s cover reminds him of military toolkits, essential for basic principles. Tim Staton highlights Dave Berkus’s advice on inspiring others to lead when the primary leader is absent.
Dave Berkus explains “The Leaders Toolkit” is his 15th book. It is the first off-brand book from his “Birgonomics” series. He wrote it to teach coaching at a distance. The book has 63 easy-to-read sections covering leadership styles, dealing with situations, emergencies, best practices, and options.
The articles contain real stories without naming companies or individuals. He shares stories of awful situations, like a company losing its building because the CEO refused to get insurance. He also recounts four instances where CEOs died in office and what happened to those companies. The book shares patterns and experiences for others to learn.
Tim Staton recommends the book, especially for those entering the job market or leadership roles. He praises the book for its practical advice on making businesses run effectively even when the leader is not present.
Tim Staton asks Dave Berkus what question he wished he had been asked. Dave Berkus replies, “How do you surround yourself with the right talent?” This includes advisory boards, governance boards, and hiring/training employees. He stresses telling employees “the why” not just “the what.”
He authored a book on board governance, an important function. He mentions the movie “Steve Jobs,” noting how Jobs had a poor board. Jobs fired his entire board upon returning to Apple to rebuild with a future-focused team. Dave Berkus knew the president and CFO Jobs fired. He emphasizes that a board can fire the CEO.
However, if a CEO works with the board transparently, shares their vision, and allows others to handle operational issues, they become more powerful.
Dave Berkus shares a story about negotiating a company sale. He was one of two outside board members for an enterprise software company. The CEO wanted $6 million. Dave Berkus decided to negotiate without the CEO, knowing the CEO would be too emotional.
He rented a large hotel room, creating an imposing atmosphere. He did his homework. He showed the buyer how their company would be accretive, generating more value together. Based on the buyer’s earnings, the sale should be $18 million. The buyer was only authorized up to $12 million. After 15 minutes of silence, they had a deal for $12 million, double the CEO’s asking price. This experience taught him two key lessons: remove emotion from negotiations and do your homework. AI can now help significantly with the latter.
Dave Berkus thanks Tim Staton for the interview. Tim Staton encourages listeners to check the description for links to Dave Berkus’s books, YouTube channel, and LinkedIn.
Dave Berkus’s journey showcases a remarkable blend of entrepreneurial spirit and investment acumen. His insights into building businesses, valuing startups with methods like the Berkus Method, and fostering strong leadership through empowerment are invaluable. His experiences, including missed opportunities, offer crucial lessons on resilience and learning from both successes and failures. Dave Berkus’s dedication to mentoring the next generation of entrepreneurs shines through his books and coaching, emphasizing the importance of a clear vision, strategic talent, and emotional detachment in negotiations.
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