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14. 5. 2024

8 min read

From Wall Street to Venture Capital

Our latest blog summary from the Startup Huddle podcast, features John Frankel, a seasoned investor and former Goldman Sachs equity research salesman. Explore crucial insights from his experiences in the hedge fund industry during the bustling '90s and early 2000s, and his shift from Wall Street to venture capital. This post is packed with essential knowledge for those keen on understanding the financial landscape's changes.

Silvia Majernikova

Social Media Marketing Manager

John Frankel is an Oxford graduate and former Goldman Sachs employee turned venture capitalist. Over a 21-year career at Goldman Sachs, he held various roles and developed an in-depth understanding of multiple industries. In the late 1990s, Frankel began angel investing and realized significant success. He left Goldman Sachs in 2008 and founded FF Venture Capital, leveraging his extensive knowledge of business models and industry dynamics from his prior experiences.

What's the transition from Goldman Sachs to VC and becoming an investor?

The role of equity research sales means that you have to go and understand every single industry on the market. You have to understand how energy companies work, how refiners work, how banks work, how biotech companies work, how retail works in each of its nuances, how financial services work. You have to absorb what's happening quickly and then explain it to people very fast. So that was incredible background training to think about business models, about businesses, what succeeds and what doesn't succeed. As part of the job, for every single company that went public, you got to meet with management before the investors did and help craft a story.

“I started investing in startups as an angel. And by the time I left Goldman in 2008, I'd made more money on a real basis as an angel than I had working for Goldman for 21 years.”

1999 was an insane year on the stock market. What we've seen in crypto in the last couple of years isn't as crazy as what was happening in 99. Goldman had what was called a 30-day trading rule, which meant you had to hold onto a position for at least 30 days. They didn't want people trading, they wanted people investing. So in 99, my average holding period was 31 days. And I was up 10-fold. That's how crazy the market was. I came in and there were several days where over 10 positions that I owned were up more than 10% on the day. So I was tenfold and I got to the end of 99, and I looked around and said, things are a little toppy and everything is high beta. And what I mean by high beta is if a market goes down, it's going to go down. My salary, my bonus, the investments I had in approved hedge funds, my equity investments, everything was tied together and I didn't like that. So I started investing in startups as an angel. And by the time I left Goldman in 2008, I'd made more money on a real basis as an angel than I had working for Goldman for 21 years. And that was just being like 2% of my time.

Investing in early-stage startups during the 2000s

The VC business was much smaller. Today, VCs deploy about $300 billion a year. Back then, they deployed about $30 billion. There weren't that many VCs. There was a pretty active angel market. What happened from 98 or 2001 was that a lot of people on Wall Street started to move to startups and parts of my network started to move into startups too. That was my deal flow.

“Two-thirds of your portfolio is disappointing, one-third is decent, and a further third or 10% of your portfolio is where you make the majority of your returns.”

I think access to capital is easier now because more VCs and more people are looking. There just weren't that many VCs before. There also weren't that many founders. For my generation, it was Wall Street. Wall Street was a cool movie, and it was all about the evils of Wall Street and how greed is bad. Everyone heard that you could get wealthy on Wall Street. And then, you know, post Facebook, there was a movie, The Social Network, that came out and said, this guy is geeky and he's not good with his friends, he can't talk to girls, he's a billionaire, and he's being sued. All people heard was that you could make a lot of money from startups. And it was the swing.

But so that you understand the math, if you have 100 companies at the seed stage, on average, 30 raise a series A, 10 raise a series B, one goes public, and maybe 15 sell in M & A in a decent situation. So, generally, two-thirds of your portfolio is disappointing, one-third is decent, and a further third, or 10% of your portfolio is where you make the majority of your returns.

Targeting high-growth companies with strong foundations

So we like to invest in companies that are going to make money. Let's break this down. The target company we want to invest in is one that we think can get to a hundred million revenue run rate and grow rapidly from there. So we're looking for a massive town, a total addressable market. We're looking for founders that we think have an edge. So it's a lot down to personality and people. We're looking for companies that have business models. We don't invest in non-businesses. A lot of what's going on in the blockchain space is non-business. A lot to date, there's been AR and VR have been non-businesses. So we like things that are businesses, where we're early on a business model. As a venture capitalist, you wanna find those crazy ideas and good founders who can build massive businesses that 5 to 7 years in the future start to become mainstream and less crazy.

Who is a good founder?

Someone who can raise money. They have to have a personality, they have to be outgoing, they have to convince people to join their team, but they also have to have domain expertise. We invested in another company called Privacy Hawk. Privacy Hawk is a company in the privacy space, trying to help consumers reduce the amount of tracking of them out there. What Privacy Hawk does for subscriptions, is they allow you to tell companies and data brokers to delete your data or not sell your data, depending on what you want to do. And it's a great company. We like the team because of two things. One is that they understand this space. They understand the hurdles they have experienced. And the second one is that they understand consumer marketing. That's why we backed them and now we're two years in, they're crushing it.

How does FF Venture Capital help founders?

We have 15 years of data. In our portfolio, 75% of companies raise a series A and 50% raise a series B. We run with a large team at FF Venture Capital and help companies think on the business side. We tend to lead rounds, we tend to sit on boards, and we tend to be highly engaged. We do not know the underlying engineering. We're not specialists in drone delivery or generative AI, but we are specialists in helping people build businesses. We proactively help them fundraise.

We're the only VC firm we know that built an accounting firm called Graphite Financial a couple of years ago. We believe that founders rarely are accountants, but they need to make number-informed decisions. If they have two products, what are their margins? What are the metrics for this business? For each business we invest in, we help them think about what metrics they need to care about to build their business.

We also have a newsletter that you can access from our website called our Gives Asks News newsletter. I mention it because there's a lot of stuff that we do on our platform for our founders. We also do things for the community. We have over 30,000 people now who get our newsletter. It goes out twice a month and it's things we want to give the community, ask the community, and news related to it. It's also the on-ramp to events we organize. We organize 100 to 200 events a year. Some are open to the community, like our Drones and Robotics Conference. Some are close to our founders. But our objective is to help our founders get up the curve. 10% of our portfolio has a $100 million revenue run rate, 10 to 15 times the average in the industry.

FF Venture Capital investing in the CE market

We wanted to move to Europe about five years ago. We were looking for analogs to the growth we saw in New York. And we felt Warsaw fit that. As far as I know, we're the only USBC firm with an office in Warsaw. And we're building out a platform, a community in Central Eastern Europe. It is becoming more obvious that Warsaw and Poland are going to be at the center of a lot of things going on in Central and Eastern Europe because of the size of the markets they offer and their expertise. But we have investments in a half dozen countries around that.

We have companies in Europe that want to come to the US and a lot of our US companies bridge into Europe. They want customers and they want to expand into markets there. This sort of two-way bridge has become very valuable.

In general, if you go into a lot of countries that were formerly part of the USSR, the younger generation speaks English. They strive to build their countries. There's this entrepreneurial spirit, this desire to build and grow. There's a work ethic and a strong educational aptitude for engineering and for building businesses. I think some great companies are going to come out of here.

We're very excited about our ability to be part of their stories. Our ability to help. We think we can help move it forward maybe a little faster because we bring some expertise and capital into the region. We think it's very important.

If these handpicked highlights have sparked your curiosity, you won't want to miss the full conversation with John Frankel on our YouTube channel or your favorite platform.


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