What If Ventures invests in startups focused on mental health and addiction recoveryRead more...
ff Venture Capital typically puts $100K to $500K into 15 to 20 companies a year
There has been a big debate over the last few years over whether the Series A crunch is real or not.
What everyone can agree on, though, is that there are definitely more seed and early stage funds now than ever before, and more people willing to give more and more money to young companies looking to make it big.
But just who are these funds and venture capitalists that run then? What kind of investments do they like making, and how do they seem themselves in the VC landscape?
We've been highlighting members of the community to find out.
Prior to founding ff Venture Capital, he worked at Goldman Sachs for 21 years in a variety of roles that involved technology development, reengineering, and capital markets. He has served as a director of over 35 companies and an investor in more than 76 companies, including Cornerstone OnDemand, Indiegogo, Ionic Security, Klout, SkyCatch, Plated, 500px, Distil Networks, and Bottlenose.
VatorNews: What do you like to invest in? What are your categories of interest?
John Frankel: We are fundamentally early stage. We like to invest around the formation stage, when companies are getting going. If we are going to find really big companies, we can't start with a thematic view, because it doesn’t really exist at that point. When we invested in Indiegogo, crowdfunding wasn't being discussed, when we met with Slava in early 2011. When we invested in Skycatch, no one was really not talking about domestic commercial drones.
We are really looking for people who are driven to change the world, to change the behavior of millions of people, so that can be pretty broad. We have invested in companies in the enterprise space, hardware, and SaaS. We are intrigued by various spaces at various times.
We do tend to avoid certain spaces. We avoided flash sales, and we are avoiding Bitcoin, things with troubling regulatory backdrops.
When you looked at flash sales, the business model was predicated on a lot of breakage. If you encourage 100 people to get 50% off, perhaps 40% would never use the coupon. It was either lost, sat in drawer, or expired. Over the long term we surmised that breakage would not continue to exist, either because people would stop buying things they didn’t use, or a secondary market would come into existence, or a regulator would step in, and try to claim the money not being utilized, like they do with debit cards. It was not long-term sustainable.
On some level, buying hardware on crowdfunding also burned a lot of people’s fingers, but that being said, Indiegogo's largest campaign internationally is for a beehive called Flowhive. Before, to get honey out, you had to put on a suit, and smoke them out, and hope to not get stung. With this, you open the honeycomb, it's plastic honeycomb solution and once the bees have populated, and you want honey you turn a crank and it opens up, and the honey drops out the bottom. They wanted to raise $70,000, but raised $12.2 million.
Indiegogo has that vision of trying to change the way things get funded, and I never would have told you a beehive would raise $12.2 million. Most would say they shouldn’t, that other things deserve to get funding, but Slava and Danae had a unique insight that it's not up to you, it's up to the crowd.
VN: What would you say are the top 5 investments you have been a part of? What stood out about those investments in particular?
JF: UniKey, which is now the world’s leading smartlock company. We invested two to three years ago and they just closed a $10 million round. I still think it's early, but once you go smartlock you don’t go back. Physical keys are analog.
Plated, though many were skeptical of the food delivery space, has in two years grown to 420 employees. Another worth a call out is Skycatch, the leading drone mapping company, as well as 500px, which is taking on Getty and Shutterstock in the commercial licensing space.
We try to be early to the space we invest in - this is long duration business.
VN: What do you look for in company's that you put money in? What are the most important qualities?
JF: Part of it is the team, which is more important than space they are going after, because they are likely to pivot and change their model over time. We're very focused on the opportunities that they can go after, but its about the people you’re backing.
We look for things where we can say that this is an idea that is a change in behavior, but not such a change that people won't do it. I was skeptical of the check-in space, because I felt it was too much of behavioral change, and now very few people do it.
Comes also down to alignment; our view of what they can and do, their view of what they can do, do they line up? And it's a matter of do we think we can be helpful?
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
JF: I went to New College, Oxford, where is got my masters in mathematics and philosophy. I became a chartered accountant and joined Goldman Sachs and worked there for 21 years. For the last 11 years I was on the trading floor covering New York based hedge funds.
Around 1999 I started to accumulate capital, but I looked around and I didn't want to keep my money in the public market. I wanted something high returns, with no distraction from my day job, so I started angel investing.
I left Goldman in early 2008, having been rather successful at angel investing. I took a few months off to figure out what I wanted to do, and after that I decided to go and raise a venture capital fund, but it was a tough time to raise capital. It was when Lehman blew up, but we raised the money to get funding going. Now we're on our fourth fund, and we're trying to build a different model and how we think about and address the space. We provide a lot of resources.
We are in our 7th year, with 56 active portfolio companies and 27 employees. In most cases firms would be five people, but their ability to be responsive to their companies is really constrained.
A third of our team is focused on accounting, the back office, an financial planning and analysis. We charge for it at cost, so there is no conflict between what our management company and our LPs, and we are not making money off of our portfolio companies. They can also replace us, they don’t have to use us,, but we insist that they have projections that make sense. Our sense is that a lot of companies fail because they don’t know their numbers, so we try to help them be more sophisticated about them early on.
Our other services are all free, including community management, recruiting, PR and branding. We review every deck before every fundraising round and introduce companies to other investors.
We are driven to providing multiple points of contact for our companies, so that they end up talking to a half dozen people at our firm in a given month. We assign two partners to each company and the end result is that we can add a ton of perspective and help.
It's a bit like an accelerator, but thy love you for 4 months, then you move on, then they bring in next batch and love them for four months. We provide services that can be used for the life of the company. We look at situations from the founders’ perspectives, ahead of our own, which is part of why we have a strong reputation in the marketplace.
We’ve taken the approach to building a VC firm, where we ask, 'How would you build it, make it successful? What are the criteria that are really important to make this work at an organizational level?'
VN: What is the size of your current fund and where are you currently in the investing cycle of the fund?
JF: Our current fund is $52 million. We are in the early part.
VN: What is the investment range? How much do you put into each startup?
JF: Initially, we invest between $100,00 and $500,000. As the companies succeed we invest in subsequent rounds - we maintain deep reserves for follow on.
VN: Is there a typical percent that you want of a round? For instance, do you need to get 20% or 30% of a round?
JF: We have no specific target range, and always syndicate. We often lead, but it depends on the round dynamic.
VN: What percentage of your fund is set aside for follow-on capital?
JF: We receive 75% of our capital for follow on investments. In some cases we have been able to invest six to seven times in given company
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
JF: Around the seed stage.
VN: In a typical year how many startups do you invest in?
JF: We usually invest between 15 and 20 companies.
VN: Is there anything else you think I should know about you or the firm?
JF: We have five partners who I think are extremely talented. We have built up a deep service model and what we’ve tried to do is add some bandwidth to work with companies as they grow. We want to do more than just focus on the initial winners, we want to invest across the spectrum of our portfolio - sometimes the initial failures become the evident winners.
Read more from our "Meet the VC" series
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IA Capital Group focuses on fintech and insurtech startupsRead more...
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ff Venture Capital invests in startups that can be the low cost, disruptive player in their respective industry and can grow to over $100m in revenue. Founded in 1999, we are one of the oldest and most active early-stage investors in New York. ff has made over 100 investments in over 55 companies. We typically invest $50-$300K initially, and will invest up to $1m in subsequent rounds. Among our most successful seed investments that have reached maturity are Cornerstone OnDemand (March 2011 IPO, ticker CSOD) and Quigo Technologies (sold to AOL for a reported $340m).
We offer portfolio acceleration, not just advice.
We have eight full-time employees and 5,000 square feet of office space to help our portfolio companies. We provide hands-on support through our in-house operating team, plus a proprietary network of outside mentors who work with portfolio companies on an as-needed basis. Our finance team acts as your outsourced CFO. We have built a library of best practices in building startups; see ffvc.com for details. We particularly help companies in raising capital for subsequent rounds from top-tier late-stage investors. We also offer you discounted services from 20 (and growing) service providers specializing in the startup community, including providers of legal advice, development services, testing, infrastructure, public relations, and recruiting.
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IndieGoGo is a collaborative funding platform. Anyone with an idea (creative, cause, or entrepreneurial) can create a campaign on IndieGoGo, offer perks and raise the funds needed for execution - all while keeping 100% ownership. Customers range from artists (musicians, writers, filmmakers, etc.) who pre-sell their work as a way to fund it, to people raising money on behalf of charities to small businesses offering limited edition items or access to fund their start-up capital.
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Joined Vator onSlava Rubin is the CEO and co-founder of Indiegogo, a company dedicated to revolutionizing the way that people fund what matters to them, and has led the organization to becoming the largest crowdfunding platform in the world.