Latest / The Inspired Stories Podcast / Force of Will Creates Success: John Frankel's Path to Venture Capital Mastery | Venture Capital Series

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Force of Will Creates Success: John Frankel's Path to Venture Capital Mastery | Venture Capital Series · The Inspired Stories Podcast

0:04
Welcome to another edition of the Inspired Stories podcast,
0:08
where leaders share their experiences so we can learn from
0:11
their successes and be inspired by how they've overcome
0:14
adversity. My name is Anthony Kotaspodi,
0:17
and today's guest is John Frankel.
0:18
He is a founding partner at FF Venture Capital, a firm that
0:23
invests across emerging industries such as AI,
0:27
manufacturing, energy, robotics, and security.
0:31
They are recognized as one of the best performing seed and
0:34
early stage venture capital firms.
0:37
They have helped launch numerous early stage companies by
0:40
offering hands on support and resources.
0:43
Under John's leadership, the firm has invested in over 150
0:47
startups and he has personally served on the boards of more
0:51
than 60 companies. He founded FF in 2008 after an
0:56
impressive career at Goldman Sachs, where he spent over 2
0:59
decades working in capital markets and technology
1:02
development. John holds an MA in Mathematics,
1:05
Philosophy and Logic and is recognized for his focus on
1:09
applied artificial intelligence. He has also gained recognition
1:13
for investing in groundbreaking AI, drone and robotic solutions.
1:18
His passion for supporting innovative founders has had a
1:21
lasting impact on the New York tech community.
1:25
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1:59
All right, back to our guest today, the founding partner of
2:02
FF Venture Capital, John Frankel.
2:04
I appreciate you making the time to Share your story today.
2:07
Not at all. Thank you for having me on your
2:10
podcast. So, John, usually when I look,
2:14
when I when I'm talking to somebody, especially somebody in
2:16
the VC world, I look at their LinkedIn page.
2:20
Maybe they've got 1525 different stops in their career path.
2:26
When I look at yours, I see three, which is highly unusual.
2:31
You started out as a chartered accountant at Arthur Andersen
2:35
for a few years and then spent 21 years at Goldman Sachs before
2:40
founding your own firm. I guess starting first, it
2:44
suggests a couple of things to me, but certainly that the
2:48
longevity of your, your stays at, at these organizations I
2:52
think is impressive. But let's let's start first with
2:55
Arthur Andersen before we kind of get into what you guys are
2:58
doing at FF. What first drew you to this
3:01
place? And what was the biggest lesson
3:03
that you learned here, which became helpful to you later with
3:06
FF? So I was fortunate to go to New
3:11
College, Oxford, where I read mathematics and philosophy and
3:14
logic. And towards the end of my time
3:20
there I went to the career's office and I sat down with a
3:24
career's advisor and he gave me what seemed like very personal
3:27
advice, which was the next natural step would be to become
3:32
a chartered accountant. Little did I know of a few years
3:37
later this is what 80% of people were told.
3:40
But the the the logic behind it was in the UK at the time, half
3:44
of the boards were run by engineers and half were run by
3:48
charts accounts. In the US it's half by engineers
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and half by MBAs. So it was the MBA half at the
3:54
time. So I went and interviewed with a
3:57
number of firms and Arthur Hansen appealed to me and they
4:04
offered me a job and the money was very decent.
4:08
I think, I think it was £4800 a year.
4:17
And so you have to remember when you study as an accountant in
4:22
the UK, it's called taking articles.
4:25
And only a few years previously people had to pay to take
4:31
articles and then it switched around.
4:33
People actually got paid to do this.
4:37
And yeah, people equate charts accountancy to being to to the
4:43
CPA program in the US. I've not taken the CPA program,
4:52
but the nature of the role for someone who wants to take
4:56
articles to become a charts accountant is that you have
5:00
three years of exams each year takes about the equipment of
5:05
three months worth of work to study for them on top of a full
5:09
time job. You're working incredibly hard
5:13
and 80% of people aren't able to pass the exams first time
5:20
because it's a it's a heavy filter.
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I I Fortunately it's a. Tough program.
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I thought she was able to, but I felt a little bit about a square
5:32
peg in a round hole there. I spent the next six months
5:37
learning a deferred tax accounting, which is a
5:40
fascinating topic, and taught it to the management consultants at
5:44
the firm. And then the last six months in
5:47
the insolvency division and it became clear to me that whereas
5:53
my objective of becoming an accountant was a full back role
5:59
so I could take more risk in my career, being an accountant was
6:03
not what I really want to do. And you know, I had a lot of
6:06
respect for the managers and the partners that are for Handsome.
6:11
What did you feel called towards?
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Well, I, I just looked up and said, you know, these folks,
6:18
they're relatively boring people doing relatively boring jobs.
6:22
And if I stay here, that's my future.
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And that didn't entice me. But I had no idea what to do.
6:29
I'd I'd ordered financial service companies.
6:32
I found a recruiter who helps candidates.
6:38
I applied to six jobs. I had four job offers.
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And the least known firm that was paying the least
6:47
compensation was this American investment bank called Goldman
6:52
Sachs. And I, you know, I was clueless
6:56
as to who they were. And I spoke to one of my
6:59
colleagues at Arthur Anson, who was American.
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He goes, no, no, that's the one you want.
7:07
I go, really? He goes, yeah, I said, but
7:10
they're paying the, you know, lease comp.
7:12
And so he goes, they have the capacity to pay a lot more.
7:15
That's the one where you want for the next step of your
7:18
career. So he understood enough of who
7:19
they were and where they were going and what your
7:22
opportunities could be there, but you could have really nice
7:26
career trajectory. Correct.
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And so, you know, after an excruciating couple of weeks of
7:33
making a decision, I decided to join Goldman, and that was the
7:38
next 21 years. So to be clear, I did about a
7:42
dozen different jobs in Goldman and I worked in three different
7:50
divisions of the firm. Let's pick one of those 12 jobs
7:55
that was sort of the most exciting, or at least the most
7:58
formative for you. What were you working on?
8:01
And I I would say 10 of the 12 jobs were great jobs, 2 less so,
8:07
but but the last one was really intriguing.
8:10
It was 11 years of my career. I was on the sales and trading
8:14
floor as an equity research salesperson in New York covering
8:20
hedge funds. I don't think that job exists
8:21
today, but the idea was Goldman produced a lot of research and
8:30
clients of the firm, including hedge funds, would pay
8:33
commissions based on how much they valued the research.
8:37
So my job was to be a connector to absorb every single piece of
8:43
research the firm produced, summarize it, and then, you
8:50
know, I had 20 clients. There's probably 60 different
8:53
people before the open before 9:00 AM.
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Speak to those 60 different people and give each their
9:01
tailored story about what was going on on a.
9:04
Daily basis. Everyday.
9:07
So you were up all night? No, I'd get up at 5.
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I'd be in the office by 7 and then, you know, listen to The
9:16
Morning Call. I mean, you'd read all the
9:17
research on the way in, read the newspapers, et cetera, and then
9:23
break it down into very digestible pieces.
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And, and to be clear, you had to understand every single industry
9:34
the Goldman covered in the US. So you had to understand the
9:37
steel industry and retail, insurance, banking, brokerage,
9:42
credit cards, healthcare, and understand how each of the
9:47
business models worked, understand what the drivers
9:51
were, the significance of information, how it might move
9:55
stocks. And then you're talking, you
9:57
know, I, I covered folks like Stanley Shopkorn, Stanley
10:02
Druckermiller. And you, you call up Druck in
10:05
the morning, he doesn't have to pick up your call.
10:08
So, you know, each call you wanted to make to him needs to
10:14
be impactful and meaningful or he wouldn't pick up your call in
10:18
the future or he'd ask for different coverage.
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So it was, it was a fantastic job for me because I learnt so
10:26
much and and I got exposed to just so much information in the
10:34
short period of time over a number of years.
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It was great. Job yeah, what you're what
10:38
you're describing there is incredible having to understand
10:41
all these different business models from all these different
10:43
industries and then being able to synthesize, you know the new
10:47
information coming out every day to deliver to each of your what
10:51
did you say 60 different. Clients, well, they're probably
10:54
20 different firms, but there were multiple people at the
10:56
firm, so yeah, so if each. One of them needs.
10:59
Their. Own angle.
11:01
If you're talking to PM, it's what's relevant to that PM based
11:04
on everything you know about them.
11:06
If you're talking to their technology analyst, it's just.
11:09
If you're talking to their steel analyst, it's just that
11:12
etcetera. So, yeah, back when you were
11:15
doing this takes a special brain to be able to sort of see the
11:19
full scope and be able to analyze, understand and then to
11:24
synthesize this information, simplify it in a way that each
11:27
of these, you know, 60 different folks can find good use in.
11:31
And now I understand why you said the position probably
11:34
doesn't exist anymore, because now they're AI models that can
11:38
do that pretty easily. No, I, I, I think, I think the
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business has moved on somewhat, but, but now it's multi product
11:46
And so at some level it's a larger file host, some level
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it's narrower. But what was interesting to me
11:54
was when I moved up to the trading floor, I felt I had no
11:57
short term memory and clearly the job required and forced the
12:04
development of short term memory because you know, you hear the
12:08
earnings numbers recall, you can't keep referring to your
12:11
notes. You have to, you have to
12:15
synthesize everything and put it in your head and dial not
12:19
knowing what you're going to say because there isn't enough time
12:21
to prepare each call. And you know, it was, it was a
12:30
great job. 1 You know, one lesson from that which I think
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is very true, is I think pretty much there's always exceptions
12:39
to this, but pretty much every human is capable of doing any
12:43
given thing if they set their mind to it.
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If you say I want to learn how to do hand stands and you set
12:50
your mind and energy to it, you can do that.
12:53
If you say, yeah, I want to break the world record and pull
12:59
ups, it'd be really tough because I think it's like 10,000
13:04
and 24 hours. But I truly believe that the
13:09
8090% of doing that is just setting your mind to do it.
13:16
I think the human body is very plastic.
13:18
The human mind is very plastic, and people have way more
13:24
potential than they'll give themselves.
13:29
And it's a matter of application and consistency.
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So there's some folks who are going to hear you say that and
13:35
they'll say, well, that's easy for you to say, John, you're
13:38
brilliant. You've got a special brain.
13:40
Things are just kind of easy to you, but I'm just a regular
13:44
person. I don't have that kind of brain.
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I don't have that skill set. What, what evidence or what can
13:51
you point to that would sort of convince somebody of the point
13:55
that you're trying to make? What what have you seen in other
13:59
folks, not just yourself, that that that has you believing that
14:04
what you're saying is true, that anybody can achieve anything.
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They put their I. Think it's.
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I think it's a statement based on lots of experience, not, not
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just mine. By the way, I can't do hand
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stands. I certainly can do 10,000 for
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laps. Like, yeah, I find it difficult
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to get to 50 or 60, but it's like it's, it's, I truly believe
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having observed people that those who put their mind to it
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achieve things and they achieve things which are within their
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control. And sometimes they achieve
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things outside of their control. I think there is a huge benefit
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in just pure force of will to make things happen.
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And I think there's a lot of the difference in success in life.
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I think when I was younger I used to think it was just
15:02
confidence, but I think it's confidence combined with a force
15:07
of will. How does, how does one find
15:13
within themselves or develop those two elements, the
15:17
confidence and the force of will, as you put it, confidence?
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Is very difficult. Yeah, I was.
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I was always the bottom of the class in school and but I always
15:35
did well in exams and no one understood why, including me.
15:42
I mean, I at the time. And so, you know, it wasn't
15:49
until I got to Oxford that I really had a sense of
15:56
recuperating and building some confidence, because Oxford's a
16:00
pretty good university and if I could get in there and survive
16:04
there, then probably I was shooting above average.
16:11
So for you there was a little bit of external validation that
16:13
happened there. There was, there was some the
16:15
the the external validation. So confidence is very difficult.
16:19
Yeah. I used to think that the British
16:21
education system, the differences between the people
16:24
who succeeded and those who didn't was literally a matter of
16:28
the confidence to, to have the willingness and the, and the
16:34
ability to ask. And I think the flip side of
16:36
confidence is the acceptance of failure and embarrassment.
16:42
And so it takes a certain risk profile.
16:47
But the delta between two people is is putting yourself out
16:56
there, asking, taking the risk. Do you think some people are
17:00
just born with it? I developed it.
17:05
I was incredibly insecure as a kid.
17:10
I, you know, I, I, yeah, yeah. How?
17:16
How? What were the steps that helped
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you develop that? Helped me develop confidence or
17:21
made me insecure? No, definitely the former.
17:25
Everybody has familiarity with being insecure.
17:29
What people want to understand is how can I be more confident?
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Well. What's the?
17:35
What's the path pot? What's the potential path look
17:37
like? What did your path look like?
17:40
So, you know, I'm, I'm severely right brained and I was in the
17:45
left brained education system. So what that means is I was the
17:49
kind of person who would intuit the math answers and couldn't
17:52
show workings because there were no workings because the answer's
17:58
6, isn't it obvious or whatever it might be.
18:02
And you know, that did not go down well in the school system I
18:07
was in. And so that's why I was
18:09
predominantly bottom of the class.
18:12
Also struggled with languages and and pronunciation precision,
18:18
just just not my thing. Again, you know, not well liked
18:24
in the UK system and I, I, I, so I'll give you, I'll give you 2
18:31
quick stories about Oxford that that really gave me confidence.
18:35
So I got my A levels out. So like your SA TS, they're the
18:39
ones you take the, to qualify where you go for university.
18:43
And mine were Beth and I expected and so, and I was going
18:50
to go to Manchester University. Very good school, probably
18:54
second best in the UK for the subjects I want to study.
18:59
But Oxford was the 1st and I was like, well, I did better than I
19:04
expected. How do I get into Oxford?
19:08
So the standard path while at that stage was take a year off
19:13
of education, take the first trimester and take an Oxford
19:19
entrance exam at that stage. They call that seventh term
19:22
because there's two years for a level.
19:25
So that's sixth term. So this will be seventh term.
19:28
And then take the rest of the time off travelling the world or
19:31
doing whatever and you either get in or you don't get in.
19:35
And it's like, I don't like that.
19:38
So I looked up in the phone book, this was, this is pre
19:43
Internet. I looked up in the phone book
19:47
and I saw there was someone who had the title.
19:50
So options AI think it was a Federated system.
19:55
So there's I think 45 colleges and halls and then there's a
19:59
central bureaucracy. And there was someone in that
20:02
central bureaucracy whose job title was the matriculator for
20:09
the joint on the subject of mathematics and philosophy.
20:14
Now to be clear, only six people took mathematics and philosophy
20:18
when I went there. So anyway, thinking he had a.
20:21
That was his title. So I picked up my phone and
20:25
called him and said, can I come and talk to you?
20:26
He goes, yeah, why not? So when a spokesman told him,
20:31
you know, a young man in a hurry, I don't want to do
20:33
seventh term. I might want to take an MBA at
20:35
some point, and could I get in this year?
20:43
And he laughed a little and said, well, you know, not really
20:46
my job, but, you know, each college has admissions tutors.
20:51
And, you know, it's the summer, everyone's on vacation.
20:54
But I guess we could call up and see if any admission tutors here
20:59
say rings and no answer and rings no answer.
21:01
I think on the 6th or 7th call, as he's about to hang up, a
21:07
squeaky voice at the end of the phone goes, Wilson Sutherland
21:10
here. Wilson was the admissions tutor
21:15
for New College. He said send him over.
21:19
So I wandered over and knocked on his door and he said come in
21:26
and we talked and I told him my story young man to hurry and he
21:30
said well look you know we have 6 places in that this year and
21:36
they can be joined. Four of which have accepted, one
21:43
we're wavering on and one they're wavering on us because
21:49
the place opens up. I'll give you a call.
21:53
And that's what happened A. Week later I got a call.
21:56
Come on up. So what I get from this story is
21:59
sort of the, I don't know the proactiveness that you showed
22:03
that other people may not have they get.
22:06
The results, I think it was a bit of naivety on my behalf.
22:10
So I go up, I get interviewed. A week later I get a call.
22:16
You're in my my school couldn't believe it.
22:20
They thought some uncle had donated some money somewhere or
22:24
something. You know, again, I was bottom of
22:28
all the class, you know, you know, undeservingly got into
22:32
Oxford and then Oxford had a blast.
22:36
It's a strange place. It may well be different now,
22:41
but if you managed to not commit suicide or go insane, you would
22:48
qualify with a degree. OK.
22:52
And, you know, if you're very studious, you get a first and
22:57
less studious, you get a second, and that's 95% of people.
23:00
And then there were thirds and fourths and, you know, passes
23:04
and that kind of stuff. But you know, it was like, once
23:07
you're in, you're in. Now you're part of the club and
23:10
membership has its privileges. You've got that, that diploma
23:14
that means a lot. Yeah.
23:16
And so, so, yeah, I, I had a lot of fun there.
23:21
So that was the first story, big confidence booster of getting
23:25
into Oxford. And then the second one was
23:31
there was a professor called Michael Dummond.
23:36
He was the Wickham Professor of Logic.
23:39
AJ AI had been the previous Wickham Professor of logic.
23:42
Consider one of the foremost logicians in the country.
23:46
And I was like, well, it would be great to spend a trimester
23:53
studying under him, but he doesn't do anything with
23:56
undergrads. So I went and read the rule book
23:59
and found that you could create your own course if it was
24:03
approved. And he had done a lot of work on
24:07
Frager and known, you know, Russell and that kind of stuff.
24:12
So there was a book from Frager to Godel, which was a really
24:21
great history book on. And I said, well, let's make
24:24
that the syllabus. It'd be great if Michael would
24:26
do it. So I asked and he did.
24:29
And, you know, for a trimester, for eight weeks, I got to write
24:34
8 essays and spend 8 hours with one of the greatest, you know,
24:40
philosophers in the country, which was, it was just a blast.
24:44
And I remember four or five weeks in, he had set a problem
24:48
on Russell and some form of paradox.
24:55
I, you know, I got sort of part way through it and I just hit
24:59
this roadblock. So I've given my essay and I'm
25:03
sitting down and he's reading it.
25:05
And I said to him, I said, yeah, I, I, I had a real problem on
25:11
this one. I only got this far, you know,
25:14
like a great one. What's the answer?
25:18
And, and he looked at me and he said, yes, I've, I've often
25:25
wondered about that myself. So that that was.
25:29
That was you got to the same place that the The Great One had
25:33
gotten to. Exactly.
25:34
Yeah. So, so that was that was that
25:38
was the intellectual highlight of of my time at all.
25:42
So I, I love those stories. I, you put it as a little bit of
25:45
naivete. What I see is guy who's just
25:50
said, hey, let's just go for it. Let me, let me pick up the
25:54
phone, let me go take the meeting, let me ask, let me
25:57
raise my hand. You know, because you don't know
26:00
unless you put yourself out there.
26:02
And it doesn't always come from a place of initial confidence.
26:07
It just comes from a place of why the heck not being curious,
26:12
give something a try but doesn't work out.
26:14
You're in the same place that you were to start with.
26:17
Yeah, I, I often, I often describe successful
26:20
entrepreneurs as being delusionally optimistic.
26:28
Yeah, which doesn't mean that everyone who's delusionally
26:31
optimistic is a successful entrepreneur.
26:33
But I, but I think it's, it's an important part of it.
26:36
A, a belief that you can change behaviour of millions of people,
26:43
that you're right and others are wrong, you know, whatever it may
26:46
be. And if you look at successful
26:48
companies that have really changed the world, it started
26:51
with someone with this, you know, crazy idea that became
26:55
less crazy over time. Yeah, because starting a, a new
26:59
business, especially something that's super innovative is
27:02
really hard. There's a lot of headwinds
27:04
there. And so, yeah, I, I see what
27:07
you're saying. You kind of have to have a
27:09
little bit of delusion going into it to, to push you through
27:13
all the, the really hard stuff. So let let's talk about FF.
27:17
Why start this? Where did the idea come from and
27:24
why Started in 2008 in the midst of the Great Recession?
27:31
We can't have everything. So I left Goldman in O8 and the
27:40
the precursor to that was I was pretty facile in the public
27:46
markets. I was talking to very smart
27:48
people. I was coming up with decent
27:50
investment ideas. 99 was an unusual year in the market where
27:59
multiple stocks could be up 10% a day throughout the year.
28:06
You know, people refer to as a bubble and I think there are
28:09
elements that for sure, but you know, stocks were stocks could
28:15
move if you caught the right wave and I pretty much caught
28:19
every wave I hit right during that year.
28:23
Now Goldman had a 30 day holding period.
28:26
You can be randomly restricted when you buy a stock or when you
28:31
sell a stock. You had to hold it 30 days.
28:33
They tried to discourage active trading and my average holding
28:41
period for the year was 31 days. But, but you know, to me, I'm
28:48
covering hedge funds, I'm pitching someone an idea.
28:51
If I didn't go and buy, you know, 10 shares of that company
28:55
a week later, when they said to me, what's so what's happened
28:58
with that company, I would go which company?
29:01
Whereas if I actually bought the stock after telling them, then
29:05
that would, you know, encourage me to stay current and watch the
29:11
stock. There's, there's, you know, So
29:14
to me it was an essential part of my sales technique.
29:18
Any case, I was up tenfold in 99 and I started to accumulate
29:21
capital and I just didn't want to have it in the public
29:24
markets. I felt that there was too, it
29:28
was too high beta, too much market risk, less specific risk
29:34
or alpha. And I looked around and said,
29:36
where's the alpha? And Angel investing appealed to
29:40
me because there was no mark to market.
29:42
So it wouldn't distract me on a daily basis if it moved and it
29:49
was all alpha and no betas how a particular company performed.
29:53
By the time I left Goldman in 08, I'd actually made more money
29:57
on a realised base of an Angel. I had worked with Goldman for 21
30:03
years and said maybe I shouldn't be spending 2% of my time doing
30:06
this, maybe I should take a professional.
30:09
But Goldman was an intense place.
30:11
Arthur Anderson was an intense place and I've been working
30:19
weekends, Saturdays and holidays since about the age of 12.
30:24
So I decided to take six months off trying to do nothing, to
30:27
decompress. Just to review that when you
30:30
come off something intense you will need your reaction is to
30:35
pick up something of a similar character, which may or may not
30:39
be the right decision. So I want to see what spoke to
30:43
me. And after five months, I found
30:46
myself in the law's office drafting up documents, set up a
30:50
French capital firm. And you're right, you know, like
30:55
our initial close was two months after Lehman blew up.
30:57
It was a tough time to ask for 10 year liquid when everyone was
31:01
rushing to money markets. We racing up hang a Shingle and
31:06
got started with the firm. And So what was the idea behind
31:09
it, sort of the investment thesis, like what was your
31:13
driving objective? So the sense was that that Angel
31:21
investing has a trade off for liquidity, which is higher
31:26
returns when structured right. That in the average portfolio,
31:33
1/3 of your companies go to 0, a third are boring, 1/3 generate
31:39
returns and a further further about 10% of your portfolio
31:43
would generate 85% of your returns.
31:46
That's an equal weighted portfolio.
31:50
And the sense was, were there things you could do?
31:53
And that's a power curve distribution.
31:56
So if you think about it, if there's a hundred companies that
32:00
raise what, what today would call precede 30 Raisin A10 Razor
32:07
B1 goes public. That's kind of like it's a
32:10
similar power curve. And that one that goes public
32:13
generates so much return that helps pay for a lot of the
32:17
losses. So the question was, can you
32:20
take that power curve and shift the curve a little?
32:23
You don't have to shift a lot. Can you shift a little?
32:26
Can you move sanctions around? And the, the belief going in was
32:31
if you do diligence and the research to support this, you
32:36
have high returns. If you don't, if you help your
32:40
companies, you have higher returns.
32:44
And if you don't, and then the last one was if you follow on
32:49
invest into the ones that are succeeding correctly, IE they
32:55
don't subsequently fail, then you have higher returns, you
32:59
don't. And so we build a model around
33:02
deeper reserves, high diligence and really helping companies.
33:07
And that's, you know, the FF. In FF venture capital stands for
33:12
founder friendly. It was this belief that if we
33:14
could really help entrepreneurs be successful which sometimes
33:19
delivering a hard message, but if you can help them be
33:21
successful, then you should through the cycle generate high
33:26
returns. So that help, does that mean
33:29
getting involved from an operational aspect?
33:34
Well, if we owned 51 percent of a company would be a private
33:39
equity firm and you'd get very involved operationally.
33:43
So no, it's, it's really advice, it's based on experience, it's
33:48
based on understanding the business models.
33:52
And so it's really, you know, talking about product and
33:57
pricing and positioning and you know, there's 10,100 thousand
34:03
decisions an entrepreneur needs to make and help, you know,
34:08
being there to help them think through, you know, the difficult
34:12
issues. And then, you know, there's just
34:15
the nature of having been on so many boards and involved with so
34:19
many companies now the the the experience you bring to table
34:30
hope them should know is you know, it's a compounding
34:33
benefit. What is it that you're looking
34:36
for in an investment opportunity?
34:41
You know the the natural answer to this is the list.
34:47
And I will tell you, let's say the list has 12 items.
34:51
Every company we invest in fails on three or four items.
34:56
It's just a different 3 or 4. And if I give you the list, I'm
35:00
not sure it's that distinguished from what anyone else would say.
35:07
But yeah, the, the probably the the most differentiated things
35:12
are we look to invest in what we call businesses.
35:16
So we want something where we think there's a business model
35:20
where the lifetime value could be higher than the cost
35:23
acquisition, where they can get to a business model early.
35:29
We want an entrepreneur that will listen, listen to the
35:33
market as much as you know outside advice.
35:39
We've seen entrepreneurs who know the answers and just build
35:41
and build and build and never get to revenue.
35:45
We think early revenue is very informative because it really
35:52
gives you a sense of, of, of true feedback.
35:56
You know, half dozen bright people around the table can you
36:00
know, debate whether the font colour should be blue or green
36:06
or black, But the market will tell you pretty, pretty fast.
36:12
So big believers in the AB testing and checking things out.
36:16
We want businesses we believe can build barriers to entry and
36:19
we want businesses where we think we can be helpful and
36:21
additive. Because if we're not, then we're
36:27
not changing the shape of the outcome of a curve for the
36:31
company. We're just, you know, passive
36:34
passengers. Now at some point we've become
36:35
passive passengers because we're early stage investors and late
36:39
stage investors take over. But you have to get there in the
36:42
1st place. And what we found, so let me
36:47
give you some stats because we've got 17 years of data now.
36:52
We found that the average precede to series B is about 10%
37:02
of companies. It's based on data from
37:04
frequent, you know. Folks who are in precede that
37:07
get to series B. It's only 10% of the companies
37:10
that's. What you're saying?
37:10
Yeah, it's gonna get sold long the way others never make it as
37:15
some become zombie, whatever it is only 10% of precede, you know
37:20
that sort of sub $10 million price round get on to raise the
37:24
Series B. In our portfolio it's 50%.
37:27
So we're running five times. That means that by Year 5 or 6,
37:35
about 3/4 of our portfolio is live, whereas for the average BC
37:39
it's about 1/4. So we have a lot more at bats
37:44
now. Companies can hit their stride
37:49
in their first year, but they also hit their stride in their
37:51
sixth year. It it, you know, varies.
37:54
So the the longer the company is live, the higher the chance of a
38:00
good outcome. We found that 11% of our
38:04
companies become what are called centaurs or get to 100 million
38:08
revenue run rate. Now we don't have good data on
38:12
that. We suspect the average in the
38:14
industry is sub 1%. Marc Andreessen a few years ago
38:19
said that only 15 companies in a given year or vintage get to 100
38:26
million revenue run rate. So we're hitting about one a
38:31
year. So you know we look at that and
38:37
we go, you know that's a pretty high hit rate.
38:42
Now a lot of firms later stage you're a Series B firm, we're a
38:47
Series C firm. At entry point you should have a
38:52
lot of your companies hitting 100 million revenue run rate
38:55
because you're investing when they're at 50 million and you
38:58
know if they don't hit 100 million then something is
39:01
probably wrong. But we're investing when there's
39:03
no revenue. You know if the last quarter we
39:08
have numbers for our companies were they're still in the
39:14
portfolio, we're putting up about a billion and 1/2 in
39:17
revenue and that was growing at 29% year over year.
39:21
So John, do you think what you guys are doing so much better is
39:25
identifying the ideas and the founders that have the most
39:29
potential early on or are you, do you think that what you're
39:34
really great at is helping after they get launched?
39:41
Is it, let me say, I have no idea.
39:47
If I knew exactly what it was, we'd do just that.
39:52
And we've experimented over the years.
39:54
It's, it's taken, you know, a dozen plus years to test out our
40:00
hypothesis. So one other thing we we do,
40:03
which I think is different. If you remember the standard VC
40:07
math is only 10% of your company's the winners.
40:10
And you're busy as AVC, so a company calls you up and says,
40:12
hey, we're having trouble making payroll.
40:15
A lot of VCs will say, well, that's a pity.
40:21
And they'll say, yeah, it's not my 10%.
40:23
I our view is, well, let's listen and let's understand.
40:28
And if you just tripped over your shoelaces, maybe we should
40:31
find a way to really help you. And we've done that a number of
40:34
times. And sometimes you've done it.
40:37
The comp has gone on to become, you know, very successful
40:41
companies. So, you know, but it takes a
40:46
long time to play that out. You know, I know another firm
40:49
who will never participate in the pay to play.
40:52
They just see as a negative signal and the high ROI to put
40:55
capital to work there. I still don't know, you know, I,
41:00
I, I think about that as a, as a, as a standard and whether
41:05
that's right or not, sometimes we have, sometimes we haven't.
41:09
But I'm not sure I have enough broad data yet to know whether
41:15
participating in a pay to play is a winning strategy or not a
41:19
winning strategy. So it's, it's, you know, early
41:26
stage venture takes forever to exit, which means it takes
41:31
forever to work out the right strategies.
41:36
We're one of the few firms that have been doing it for 17 years
41:40
as opposed to starting at C then moving to Series A and then
41:44
bigger fund then moving to Series B etcetera.
41:47
So we just have a ton more data and even some things are not
41:53
clear to us. Are you industry agnostic or are
41:59
there particular verticals that you like to stick to?
42:02
So for our for our 7th fund, we are very focused on the
42:08
rejuvenation of US energy and manufacturing sectors.
42:12
We think there's huge secular drivers there and which which
42:19
I'm happy to dig into. But I think we're in the
42:22
absolute renaissance with regard to both driven by necessity
42:28
irrespective of administration and and so that, that that's
42:34
where our focus is today, very similar to where our focus has
42:38
been the last few years, but but it's really refined around that.
42:43
So you're bullish on energy, US energy and manufacturing and
42:48
this has nothing to do with recording this in May of 2025
42:50
with the tariffs that are going on in an attempt to?
42:54
No, because you said it's irrespective of administration.
42:57
I mean, remember the time horizon we're investing over,
43:00
There's going to be 3 or 4 administrations.
43:02
There's going to be a couple of recessions.
43:04
There may be another major war. Who knows what happens?
43:08
So we have to find drivers of so powerful.
43:10
Let's talk about energy for a second.
43:14
US energy demand has grown 50 base points or half a percent a
43:19
year the last 20-30 years. And so every energy project
43:27
that's streamed to come online comes online with that.
43:30
And they're long tail projects. You can't just spin up energy
43:33
tomorrow. It's going to take 510 plus
43:36
years. And so this is very slow
43:39
cadence. Demand last year was up 4%.
43:43
It's projected and whatever the projections mean between 2.7 and
43:47
4.3%. Now there's a cushion that's
43:53
getting smaller. So that's one data point.
43:57
So, so, so what's driving all this energy?
44:00
Well, we'll come back to this, but US manufacturing is a big
44:06
user of energy electrification and transportation.
44:09
I don't think that's going to stop.
44:11
I mean, that's only going to grow.
44:13
And then data centres, half the data centres in the world are in
44:18
the US and that number probably wants to go the three quarters,
44:24
you know, it certainly doesn't want to go to 1/4.
44:26
So these are huge demands on energy.
44:32
Next data point, if you look at energy production and energy
44:35
utilization, only about 2/3 gets used, 1/3 gets lost along the
44:40
way. So there's a lot of energy
44:42
efficiency. Maybe your next 4-5 percent
44:45
comes from a is going to be cheaper to come from efficiency
44:48
than generation. And then, you know, so think of
44:53
it this way. Space exploration and getting
45:00
payloads of space has been what NASA's been about.
45:04
And it's literally full of rocket scientists.
45:07
They're not dumb people. Elon Musk comes along and says
45:12
we need to think about this sophomorally.
45:15
We need to think about this differently.
45:17
How do we get the cost of payloads of space down by 2-3
45:23
orders of magnitude? He's been pretty successful.
45:31
I think he posted. I hope I'm not getting the the
45:34
ratio wrong that Starship 3 is the same cost as Raptor 1 but
45:44
gets 40 times as much payload to space for the same price.
45:49
So even, you know, he's pulling these economies of scale through
45:53
his own. But I think 90% of payload space
45:58
is is SpaceX. So it wasn't that his team was
46:04
brighter. They were just solving different
46:06
problems. Those different problems.
46:09
People were blocked that because of their mindset.
46:13
So when I think about the energy, I think there are lots
46:17
of places where we can just do stuff a little differently and
46:21
bring a different mindset to it. Now we have to have a will to do
46:25
that, but there's a demand and there's a necessity to do this.
46:29
If you look at if you look at energy generation in China, they
46:36
have massive generation growth versus US and they have cheap
46:45
electricity. With all the green initiatives
46:48
we've made electricity expensive, all the regulation
46:51
we've made energy expensive. And so how can we, we need to
46:56
fix this to be a really successful country and I think
47:03
we will so that. Can you give an example of maybe
47:07
something you've invested in or a technology that's here or on
47:10
its way? I think small nuclear power
47:14
stations on the way. I think forum reactors are
47:17
fascinating. I believe that.
47:23
I mean clearly it was regulation of shutdown nuclear power.
47:28
It is one of the cleanest, most environmentally friendly, most
47:33
capable technologies and I think there are advances that have
47:39
been made in theory the need to be put into practice, but I but
47:46
I believe nuclear will be a fascinating.
47:51
And with these smaller facilities now there's been a
47:55
big addressing of the the safety question that I think kind of
48:00
pushed everybody away from this in the past.
48:02
Right. But the the new technologies
48:04
have different different safety parameters, but they're in
48:08
reality it's still relatively safe.
48:17
Now what this does think of our grid system in the US today and
48:22
around the world, it's a broadcast system, centralised
48:26
generation, electric is pushed through transmission to the
48:29
nodes and it's consumed. Go forward a number of decades
48:35
and you're going to have multiple points of generation at
48:40
given points in time they will have surpluses.
48:44
Those surfaces can be stored locally on battery and used to
48:48
smooth out locally or they can be sold back into the system.
48:52
So now you move more to a multi generation mount multi point
48:57
generation space where you need to start trading electricity and
49:01
transmission has to work multiple ways.
49:05
So there's there's a whole new concept that needs to be worked
49:10
out and how we get from here to there is fascinating.
49:13
It's going to involve a lot of AI.
49:15
It's going to involve trading systems set up around the
49:24
energy. Ironically, that was something
49:27
Emeron wanted to do 25 years ago.
49:30
It's going to it's, it's a complete change.
49:33
And so we think this is a really fascinating space where no one's
49:37
focused. There's a lot of real estate
49:39
opportunities, a lot of debt opportunities, a lot of private
49:42
equity opportunities, but there's also a lot of venture
49:45
opportunities and those are the ones we're going after in
49:47
energy. And why are you?
49:49
Let's talk about US manufacturing.
49:52
Why are you so excited about US manufacturing?
50:00
Because it's going to happen. Why?
50:03
Why are you so confident in that?
50:07
It's hard to move supply chains, right?
50:09
It's. If it was, if it was easy,
50:12
everybody would be doing it. It does the national security
50:17
dynamic, which means there'll be economic intent.
50:20
Again, don't really care about which administration like, but I
50:25
think, and this is a this is a bigger question.
50:29
We have a certain workforce and we've built that workforce to
50:34
folks around services type businesses.
50:40
It is a couple years ago when we ChatGPT first came on the scene
50:46
and we saw these LLMS, large language model solutions.
50:50
To me, it was the first time that you actually had
50:55
computational help for the non STEM sciences.
51:00
So all the STEM things were helped by computers.
51:04
Now you have things to help people write stuff and research
51:08
stuff, etcetera. Our our estimate is 10 to 40% of
51:14
jobs could be taken out today by the application of LLMS.
51:21
We're seeing that in our portfolio companies.
51:24
We think that happened in large countries.
51:25
We think it can take longer. We think the larger the company,
51:28
the longer it will take to happen, which actually gets a
51:30
lot of advantage. Startups today you have you've
51:34
had this huge influx of employees into government who've
51:38
been released. And so now you have all of these
51:43
talented people who want to work.
51:47
And my belief is we're going to see an absolute renaissance in a
51:55
Cambrian explosion as it were in new business start-ups tackling
52:02
problems that are non service economy related manufacturing
52:07
for want of a better term. And I think they're enabled
52:13
because of AI enabled because of the advancing robotics, which is
52:18
just an application of AI such that it will be easier to set up
52:25
a factory to make screws or factory to make this or
52:28
whatever. That then can lead to the
52:30
tooling, then can lead to the manufacturing and you know, and
52:33
build all the way up to doing more and more for production
52:39
within this country. And I, I think there's a lot of
52:41
advantages in it. There's, there's a, there's a
52:44
new US toy company and they have built small little plastic toys
52:52
with movable pieces that are 3D printed.
53:00
So there's no molds and then 3D printed in the US and they're
53:06
collectibles and there's over 160 of them and they sell for
53:12
$2.00 each. You go, how can you have AUS
53:15
plastic toy sold for $2.00 each? It's just 3D printed.
53:19
Well, the cost of building molds for 160 different items that
53:24
have moveable pieces is impossible.
53:26
But 3D printing, you can do it. There's no packaging for items.
53:29
They're delivered to the toy store in a big bucket.
53:33
For one to a better term, the kids pick out what they want.
53:38
Highly innovative. And so you think the US is well
53:42
positioned for this renaissance in manufacturing because there's
53:47
innovative minds here, and they're increasingly combining
53:51
AI and robotics to be able to produce things in efficient ways
53:58
that didn't exist before that or, or that existed, but they
54:01
were too expensive to do more manually.
54:04
Yes. And look, when 3D printing first
54:06
came out, it was exciting. We didn't invest in any of them.
54:09
Lots of people did. We said, you know, to us it's
54:12
like having your own pottery studio at home.
54:15
OK, I can print out the plate or, you know, I can do this.
54:18
But it's a, it's a hobbyist tool.
54:21
We think it's coming to the point of being able to be used
54:25
for real manufacture and the, the technology's being
54:28
developed, the materials are being used and the like.
54:32
And so I, I just think there's a confluence of technologies and
54:37
willpower that will do this. And it'll take a long time.
54:43
And not all the content today will be American in a given
54:48
item, but that will go up over time.
54:51
This is a massive country. We have enormous amounts of
54:55
resources. We're going to rebuild the
54:58
mining capabilities we shut down decades ago to get our own rare
55:03
earth minerals where we need them.
55:05
I mean, they're in this country. We've got massive lithium
55:07
deposits in Nevada and elsewhere.
55:10
Can they just goven up one in the Salton Sea in California?
55:16
All of this is going to be slowly turned on as more and
55:20
more people are convinced that local sourcing is the way to do
55:25
it. What do?
55:26
You think the timeline is for this?
55:29
Some parts of it 2-3 decades, other parts 2-3 years.
55:33
OK. What do you think we see in the
55:35
next two to three years? What sectors of manufacture do
55:40
you think are well positioned to be domesticated?
55:45
Simple things next 2-3 years it's it's going to be items that
55:51
that require some skill, but not massive skill that can leverage
55:56
some robotics and automation and what they do.
56:01
The complex electronics will take longer, but you're turning
56:10
around the Super tank. The idea that you know was born.
56:14
Pick a date. I'm going to say 30 years ago,
56:16
probably longer that, you know, the average good had labour cost
56:21
was 60% and the cost differential between here and
56:27
China was a factor of 10 plus. So you take a big chunk of costs
56:32
out. Today the labour costs are 20%
56:37
and the labour differential is much less, maybe a factor of 2.
56:43
But then you got shipping and national security and other
56:46
dynamics. We, you know, we're just, we're
56:49
just going to shift. It's a shifting of mindset that
56:54
then creates opportunities and then the administrations that
56:58
lead into that and where that then becomes the default.
57:03
How do I do this as opposed to default 30 years ago was how do
57:08
I take this offshore? And I think it does create a lot
57:12
of opportunities for people to have high paying, skilled jobs
57:18
in this country. Again, it takes time.
57:22
Now. In the interim, when we import
57:26
stuff, tariffs will generate revenues that can help
57:30
subsidizes. Do you think that's how they'll
57:33
be redirected the tariffs? I don't know.
57:37
I don't know, you know, what the administration wants to do.
57:40
No one believes so. No one believes that you can get
57:45
an incremental trillion dollars from tariffs.
57:48
You can save a trillion dollars from wasting government and with
57:53
that eliminate taxes on people up to 150 or 200,000.
57:59
But I'll, I'll tell you this, if they were able to do that
58:10
entrepreneurship, it's, it's like fuel on the fire to being
58:14
an entrepreneur in the US because you can basically keep
58:19
much more of your income whilst you're being an entrepreneur.
58:24
And obviously taxes move from income taxes to consumption
58:28
taxes. You'd probably need like a 10%
58:31
national sales tax or VAT to supplement state sales taxes to,
58:36
to balance the books. But if you did that, you can be
58:40
an entrepreneur in Europe and pay half your income to the
58:43
government. Some countries more than half.
58:46
You come into work in the States and you pay nothing to the
58:51
government. And by the way, VAT in Europe is
58:54
20% ish. And so if you have national
58:57
sales tax of 10% and you have a state sales tax of what is it 5
59:01
to 10%, it's probably equivalent.
59:07
My God, you know, the, the, the great sucking sound would be all
59:11
the entrepreneurs trying to work out how to get into the US
59:14
without having to pay $5 million for the, I mean, I'm just saying
59:18
no one believes that's going to happen, right?
59:21
And my job is to think about strange things.
59:25
And if they happen, what if everyone took delivery of food
59:28
by drone or, you know, whatever it is the company we're backing?
59:33
And so I'm, I'm like, I know enough about public markets that
59:38
if we ever hit the point where people start to believe that
59:43
could happen again, I don't know if it can or can't, but if we
59:46
ever hit the point people believed it could happen,
59:49
there'd be a seismic change in the value of, of reflecting the
59:56
US economy. Through paint an interesting
59:58
picture for sure. John, I've just got one more
1:00:02
question for you today. But before I ask it, I want to
1:00:03
do 2 things. I'm going to let everyone.
1:00:06
Go ahead and pause for a moment and hit the follow button on
1:00:09
their favorite podcast app so you can continue to get more
1:00:11
great interviews like we've had today with John Frankel of FF
1:00:15
Venture Capital. Also going to let you know the
1:00:18
best way to get in touch with John, which is his Twitter
1:00:21
handle, which is John under score Frankel and Frankel's
1:00:25
spelled Frankel. Is that right, John?
1:00:30
That's that's the best place for people to connect with you.
1:00:33
Absolutely. OK.
1:00:34
And then the last question I have for you tends to be my
1:00:37
favorite question. I I'd like to hear about a
1:00:38
serious challenge that you've overcome, whether it's personal
1:00:42
or professional. What what was it?
1:00:43
How did you get through it? What did you learn?
1:00:49
So my father passed away 25 years ago and he was a young 74
1:00:58
year old and yeah it shouldn't have happened but it didn't.
1:01:06
This mortality thing sucks by the way.
1:01:10
And I had noticed that a lot of men, when they lose their
1:01:17
father, become just bitter people.
1:01:24
I'm not a psychologist. I don't know why.
1:01:27
I'm sure there are many people on this podcast more qualified
1:01:31
to articulate the whys or whatever.
1:01:34
But I decided that was not what I wanted to do.
1:01:40
And so I felt there were three things that I would do to try
1:01:50
and counter that and sort of honour my father.
1:01:58
And one was to have more children.
1:02:02
So we had five children at the time I'd had a, a vasectomy.
1:02:07
I went in for a reversal. Unfortunately it didn't take.
1:02:11
But elsewise would have a couple more kids.
1:02:14
Second one was to get a fast convertible.
1:02:19
So you know that, that, you know, that was fun for like 3
1:02:23
years. And then the third one was at
1:02:26
some point I'll set up a, a business, run my own business.
1:02:31
He, he ran his, his own business.
1:02:34
He was an entrepreneur. And so I, I got two of the
1:02:38
three. But the, but the, the other
1:02:41
thing that I will tell people that really helped me was, and
1:02:46
people should think about this when they have a loss in their
1:02:49
life, it unfortunately happens is when people would say, you
1:02:55
know how you do, you know, your father passed away, how you're
1:02:58
dealing with it. I would tell them.
1:03:01
So I use that as my sort of talk therapy, as it were.
1:03:06
And I'd tell them, you know who he was and what he meant to me
1:03:10
and I and I that that really helped me as well.
1:03:13
And for those people who might be listening, who suffered from
1:03:17
me, tell them how he's doing when they were asking, I want to
1:03:22
thank them because it was it was very helpful.
1:03:27
But, you know, one of the things I tell people is if you want a
1:03:33
long life, you're going to attend a lot of funerals.
1:03:39
And just as there'll be a lot of happiness, there'll be a lot of
1:03:42
misery. And, you know, we're blessed
1:03:44
with a large family. We currently have about 14
1:03:49
grandkids and I know that's a lot of surface area, a lot of
1:03:56
surface area for joy. And you know, I can't ignore the
1:04:02
fact that that there can be misery that comes from that.
1:04:09
None to date. But you know, one has to be
1:04:12
realistic in life. That stuff happens.
1:04:18
And so when it sounds like one of the things that really helped
1:04:20
you through the initial period of losing your father was the
1:04:25
opportunity to talk about him, who he was and what he meant to
1:04:28
you. The the yes and and look what I
1:04:31
think one important life lesson that I've lived with is you can
1:04:35
never control the hand you're dealt in life, but you can
1:04:40
control how you play it. And so by being self aware and
1:04:45
by being cognizant that you know bad things happen to a lot of
1:04:54
people, you how you, how you respond and deal with it is is
1:05:04
really important. Not just for you, but if you
1:05:06
have children or others who depend on you, how they see you
1:05:11
react is in itself an important lesson.
1:05:17
John, what was your father's first name?
1:05:20
I'm sorry I didn't hear what you said.
1:05:22
What was your father's name? His first?
1:05:24
Name Leslie. Leslie, with your permission,
1:05:27
we'll dedicate this episode to Leslie.
1:05:30
Well, thank you. Absolutely.
1:05:32
He would appreciate that. John, I want to be the first one
1:05:36
to thank you for sharing both your time and your story with us
1:05:39
today. I really enjoyed it and very
1:05:41
much appreciate it. No too, thanks.
1:05:43
Thanks for having me on. I, you know, this is, this is a
1:05:46
great podcast and I really, I'm honoured to be a guest.
1:05:52
Folks, that's a wrap on another episode of the Inspired Stories
1:05:55
podcast. Thanks for learning with us
1:05:57
today.