1Mby1M Virtual Accelerator Investor Forum: With John Frankel, Partner at ff Venture Capital 2021 (Part 5)

Sramana Mitra: What check sizes are you writing in the seed stage?

John Frankel: Our check sizes are from $300,000 to $700,000 for 10% of the company. 

Sramana Mitra: What are the secrets of your higher hit rate? What are some of the nuggets that you have learned? What are the best practices? 

John Frankel: This is difficult to say succinctly and completely, but I will try to give you a couple of bullet points. Let’s talk a little about VC math. If you did an equal-weighted portfolio that is large enough, a third of your companies will likely just fail. A third will go nowhere, and the last third will give you a return on the capital. The last third will give you 85% of your returns.

As a VC, you’d get a phone call from a company that is in trouble and you are busy. You are raising a fund, hosting shows like this, looking at new companies, and talking to existing companies. You are mentally just putting that company into the third that is going to zero.

What we have learned from what we have done is when we get that call, we pick up the phone and try to understand what the issue is. To the extent that the issue is something that we can address and help with, we might be able to take something that would otherwise be in the last column and move it into the profit column. It takes years to prove that out.

We think that we are at that point where we can prove that. That is what we do. Part of it is culturally listening and having a willingness to step up when companies have a problem. Sometimes it is cash and sometimes it is not. It can be other things that you can do. You can lend other resources or step in as the temporary CEO or whatever the item might be.

The other thing we do is, we think that it is important to help educate our CEOs and embed them within the ecosystem. We run hundreds of events a year to do that. We do roundtable discussions and get all of our engineers or sales guys in the room. We can also bring a service provider to talk to our companies or get our companies in front of later stage VCs.

We do this and we found that to be valuable. We think that it is important for CEOs and founders to make a number of informed decisions, but we came to the conclusion that there is no good accounting firm out there that was doing this. They were doing the books on records and then handing over an extended trial balance, but they weren’t educating the CEO.

They weren’t explaining how a contribution margin, a product line PML, would be helpful. They weren’t giving them a set of projections that they use in their business day to day and not just for fundraising.

We ended up building the firm. We spun it out and sold it out to a company called Graphite Financial. It is now a 40 to 50-person team of accountants that anyone can use. Those are the sum of the things that we have done.

We run a larger team than average and this gives us bandwidth. The last thing we did is we built an operating system for VCs which we also spun out. We want to make sure that we have the best-in-class operational efficiency. 

Sramana Mitra: Thank you for catching up with us and giving us a perspective on what is happening through this pandemic.

This segment is part 5 in the series : 1Mby1M Virtual Accelerator Investor Forum: With John Frankel, Partner at ff Venture Capital 2021
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