Responding to a popular request, we are now sharing transcripts of our investor podcast interviews in this new series. The following interview with John Frankel of ff Venture Capital was recorded in December 2017.
John Frankel, Partner at ff Venture Capital, discusses the firm’s investment thesis as well as key trends in the industry.
Sramana Mitra: Tell us about your investing focus. How big is the fund? What sized investments do you make?
John Frankel: We’re a New York-based seed stage fund. We look to invest in companies when they’re just getting going. We really work hard to help build them up to teams of 30 and 40 and beyond. We invest from the seed round to an early B round. We invest across the country, primarily folks from US. There are a couple of exceptions in Israel and Canada. Our portfolio is predominantly enterprise, probably about 75% enterprise and 25% consumer with a focus on cyber security, AI, drones, and FinTech.
Sramana Mitra: When you say seed, could you actually elaborate on that? How do you define seed? When I was raising money throughout the mid-90’s, it was seed and Series A. In the last few years, the seed ecosystem has become very segmented. There are tons of micro-VC funds. Each of them specializes in certain pieces of the seed equation. There’s pre-seed, seed, post-seed, pre-Series A, and Series A. If you were to pinpoint your preference, where would that be?
John Frankel: You’re right. We think of seed as a million and a half round and a mid to low single digital valuation. It’s when the company is just getting going. Because we run with a large team, our objective is to work with that company and help them understand all the pieces they don’t have. We can bring considerable amounts to the table to help them understand the business side of what we’re trying to do and really build it into a successful franchise.
We’ve been doing this now for almost 10 years. We have some larger companies in the portfolio. These are companies like Indiegogo and Ionic Security. We invested in Plated a little under five years ago when there were seven people. When we sold, there were 700 people in the organization.
Sramana Mitra: Since you are doing enterprise to a large extent, you’re seeing mostly SaaS business models? Is that an accurate assumption?
John Frankel: Predominantly SaaS. Some are royalty based.
Sramana Mitra: Before you’re willing to put in a million and a half into a SaaS deal, what do you want to see in terms of validation. Is it revenue? Pre-revenue?
John Frankel: A point of clarification, the round size is about a million and a half to $2 million. Our initial check is usually close to $600,000. We like to syndicate deals. We like to bring other smart investors around the table.
Sramana Mitra: That’s fine. Before a company can raise a million and a half to $2 million, people are asking for validation already. Is that your point of view as well?
John Frankel: Not always. It really depends on the entrepreneur and the space they’re going after. If someone comes in with considerable domain expertise, capability and the like, we’re less focused on initial traction. It’s nice to have but not necessary. There’s a company called Drop which is into cross-platform loyalty. They launched initially in Canada. They’re now growing rapidly in the US.
You effectively get points for doing very little. They allow you to spend those points on brands you really care about. When the CEO came in, we sat down with him. We gave him a check based off of a business model. A few years later, this is a company growing multiple folds year over year and doing considerably well. It doesn’t have to be a certain amount of MRR or a certain amount of traction.
Sramana Mitra: That’s good. That point of view is fewer and far between these days. Everybody wants people to do the bootstrapping and validation and get to significant MRR before they’re willing to write any check. That’s really tough for entrepreneurs.
John Frankel: Traditionally, you bootstrapped. Then you raised somewhere between a quarter million to three quarters of a million from family and angels. That first institutional round is where we tend to come in.