The Twenty Minute VCThe AI Boom Will Create Enormous Roadkill: Who Wins & Loses? | David Frankel
EVERY SPOKEN WORD
80 min read · 16,120 words- 0:00 – 2:03
Intro
- DFDavid Frankel
You've got this narrowing out in venture where the bigger you get, it becomes like a pyramid. If you missed the $3 trillion companies, you're much harder to sell. This may just be another Uber, another Suno, another Shield AI.
- HSHarry Stebbings
David Frankel is one of the best from Founder Collective. He's in Uber, he's in PillPack and SeatGeek and many great names. It's incredibly hard to move to a second wave, the wave of AI. The dude is in seeds for Shield AI, for Suno, which is now worth $5 billion. He has moved so seamlessly from a pre to a post-AI world in a way that very few seed investors have been able to. This was an incredible discussion with one of the true craftsmen of seed investing today.
- DFDavid Frankel
Are we headed for another dot-com crash? Definitely. If is not a question. When, nobody knows.
- HSHarry Stebbings
Ready to go? [upbeat music] David, last night you sent me an email, a forwarded email, and it was my first ever email to you 11 years ago.
- DFDavid Frankel
11 years ago. Yeah.
- HSHarry Stebbings
I can't believe that.
- DFDavid Frankel
Yeah, yeah.
- HSHarry Stebbings
Uh, do you know what I found so funny is I just had dinner last night with Mamoon, and I look at the people who've been kindest to me, which is you, Mamoon, Josh Kushner, Neil Mehta, and it's just fascinating that the people who were there when there was nothing are also the greats.
- DFDavid Frankel
Oh.
- HSHarry Stebbings
And it's like maybe that's what made them great, that they give time to people where they just believe with no reason to. Does that make sense?
- DFDavid Frankel
I'm honored to be included in that list. But, but maybe some of the thing is they're, like, they're intoxicated and you were intoxicating in my view. Like, there's, you know, you were 19 years old, but you were full on focus, energy. Like, you, you just brought it, right?
- HSHarry Stebbings
[laughs]
- DFDavid Frankel
And I think maybe part of the job and part of the fun of the job is just, like, recognizing that. It's not all it takes, but, but you kinda, you had it. You
- 2:03 – 6:14
The $50-$100M Seed Fund Trap
- DFDavid Frankel
have it.
- HSHarry Stebbings
Uh, that's super kind of you to say. In terms of, like, having it, obviously we both play at the early stages, and I've said before on social media and on X that the hardest part of the market is seed in many ways, and the worst performing funds will be the $50 to $100 million funds. I say this to explain because you're too big to be collaborative to write those 100 to 250K checks and be a friend, but you're too small to lead a $8 to $10 million seed round. Why am I wrong, and why will this vintage be great for those funds?
- DFDavid Frankel
Okay. [laughs]
- HSHarry Stebbings
[laughs]
- DFDavid Frankel
There is so much to unpack here. Look, you've got this narrowing out in venture where the bigger you get, almost like it becomes like a pyramid. Like, I think there is, uh, the business of venture, which is asset management and this channel, right? So you've got the Cambridge Associates and you've got the, um, fund of funds, and all they're doing is selling access, and they, they're fine with it. And if the, you name it, top 10, top 5 names are not in X, Y, Z great, great company, and I would say at this point, if you're not, like, in the top five, if you missed the... At a certain level, if you missed the $3 trillion companies, right? Like, you're much harder to sell, right? And so, so it's not trillion dollar or bust, but, like, if you look at the numbers over the last 25 years of how many companies were created that are over $100 billion and the numbers on, like, there were less than 100 companies over the last 25 years, less than 100, that are sustainably over $10 billion companies. So you've, at that top end, you've gotta be in that. The median company, and we've done a lot of work on this very recently, but the median of the top 500 companies created in the last 25 years, the median is 2.6 billion. Now, if you own 5% of one of those companies, you return the fund each time. And I would say what's gone on in seed is, like, there are a whole bunch of unreasonable bets being taken with loads of funds and loads of money and, you know, it's quick, right? Because, you know, you've gotta get the check in because you've gotta get to the next fund. It's, so it's incredibly tough at seed. What's, what makes this still a great business is it's a little bit of what I said about you, is you can wait and wait and wait and wait if you're patient, and then you just see someone, right? You see a founder or you see a team and you just go, "I have to be there," right? And to me, that's code for this may just be another Uber, another Suno, another Shield AI. And I think a little bit I'm ans- I'm answering this personally, a little bit of this is a drug, right? Is like, you know, finding Harry, finding that is a bit of a drug, so I, you know, addicted if that's the case. And I think that that, if you're in early, um, you still have a chance of returning a fund. I think it's a to- it's a totally different business. And by the way, do you have to be the full 8 million? Definitely not. We can't be. Can you write a $3 million check? Can you write a half a million dollar check? Now, valuations, uncapped notes, that's changing the business. But you don't just have to do that. So i- if you're, if you're on Piste, and I would say if you're on Piste for the last, I've been doing this for 18 years nearly, is it was always expensive. It was always tough. But you find some of the best people off Piste, always.
- HSHarry Stebbings
Can I ask you, on those rounds, when you look at the 8 to 10 million rounds or the, the large seeds that we see today, are you able to participate, though, with the 2 to 3 million when you have your la... The multi-stage products provide such an efficient seed product that actually you might get 100K, but being a 3 million check is much harder. Are you able to even do that strategy?
- 6:14 – 10:24
Price Matters Less Than Ever
- DFDavid Frankel
You know, I, I hesitate to say this, Harry, but I think we're, we're being seen and I'm, I could be over-extrapolating the last 20 deals that we've been involved in almost as an insurance policy where we're side by side, we're putting in 500K or a million. There's been $8, $9 million going in, and there's, from smart entrepreneurs, there's almost this knowledge of they may abandon me, and then having FC in my back pocket could be useful.
- HSHarry Stebbings
Sure.
- DFDavid Frankel
And I'll use their brand, right? I'll use their, I'll use their distribution network to go out and say, "They actually don't suck," right? They're not, you know, we're not doing 10 million ARR yet, but like they're more patient and be patient and we're the testimonial sales person. So I think there's some recognition of, wow, for $500 or a million dollars, not a bad insurance policy.
- HSHarry Stebbings
Totally get that. So that's the 8 million round and that's at 40 if we assume-
- DFDavid Frankel
By the way, no we're doing, we're not doing that many $8 million rounds. We're still finding three, $4 million rounds.
- HSHarry Stebbings
Are you?
- DFDavid Frankel
Yeah. Yeah. The valuations there move a lot.
- HSHarry Stebbings
Yeah.
- DFDavid Frankel
Right? They change a lot. By the way, the other thing is there's very little evidence yet that these hot, hot AI companies that are raising huge amounts of money are capital efficient, right? They're anything but capital efficient. There's, like the jury's out on whether that's gonna work still.
- HSHarry Stebbings
Totally get you. Just before we move away, you said it's not in the hot, hot, hot. You often don't get paid for being a value investor, and you can sometimes be criticized for being smarter than the market or w- whatever, contrarian you wanna say. My question is like I- we do think about like is this an asset that will get financed in future funding rounds? And if it's not in AI and it's a traditional enterprise HR company, dude, I can't get that funded for a good A. Does that impede your thinking on whether you'll do the seed?
- DFDavid Frankel
Well, look, everybody's AI, right? Like it- it's almost like saying that you're not AI today is like I'm, I'm not using the internet, right?
- HSHarry Stebbings
[laughs]
- DFDavid Frankel
It's like why wouldn't you use the most contemporary tools? So everyone's AI. You've just got different approaches where you've got a second-time entrepreneur that goes, "I know this domain really well. I've been, uh, doing SAP consulting for, you know, 10 years or 20 years, SAP, and I've built a platform, but this part still sucks. And I was playing around with Claude Code." This is a real situation. "I was playing around with Claude Code. My CTO is playing around is, is unbelievable. We're now putting four or five together. Will you be, will you be involved?" And it's a 20 million cap.
- HSHarry Stebbings
Sure.
- DFDavid Frankel
Right? We see lo- we see loads of that. So the, the concept of it's only a 20-something... You know, I'm not saying we don't do that. I mean, you know very well we do that all day long. But we also see other startups in places that feel off-piste and then you look at it and it's got, it's worth tens of billions of dollars this TAM.
- HSHarry Stebbings
The statement that is said to me more than ever is price matters less than ever because the only thing that matters is in, that you're in the true winners of the day. How do you feel when you hear that?
- DFDavid Frankel
I mean, the, the scale of how much you have to win, right, is different based on your price. It's pure math. So uncapped notes suck at the seed stage.
- HSHarry Stebbings
Yep.
- DFDavid Frankel
I'm not saying we've never written one. Like unfortunately I've written one and I'm, I think the founders are exceptional. I think they'll do great.
- HSHarry Stebbings
Do you regret it?
- DFDavid Frankel
But I don't regret it at all.
- HSHarry Stebbings
Right.
- DFDavid Frankel
Because I love the relationship. But financially, you know, will we do as well there? That's gonna be $100 to $300 million priced when it's, when it happens. Now, you're in a year in advance and you take that price. From a venture perspective it doesn't make much sense.
- HSHarry Stebbings
No.
- DFDavid Frankel
And access is being sold, right? The IVs, Stanford's done this forever, but MIT and Harvard are doing the same thing. It's like you just want to be there, right? Sometimes you really have to think that through and we've said no plenty.
- HSHarry Stebbings
Can I ask you-
- DFDavid Frankel
But we, we'll probably regret the ones we said no to.
- HSHarry Stebbings
We see YC
- 10:24 – 11:12
Has the Normalization of Startup Founding Killed What It Actually Takes?
- HSHarry Stebbings
really professionalize startup founding in a way that it turns it into almost a norm for people leaving some colleges in particular and some programs at certain colleges in particular. Do you worry about how almost easy it is to be a startup founder today in terms of that normalization of it and what that means for what we do?
- DFDavid Frankel
I, I do.
- HSHarry Stebbings
Yeah.
- DFDavid Frankel
I think there are so many founders, right? It's like du jour. I think there are fewer entrepreneurs and when the tide goes out everybody goes, "I knew. I told you so." And nobody knows when the tide goes out. But what it takes to be an entrepreneur is just, it's just very different in terms of fortitude, in terms of the ability to energize, the ability to go up that learning curve.
- 11:12 – 12:55
CEO vs CTO: The Journey Diverges
- DFDavid Frankel
The number of times I've seen the difference in the trajectory between the CEO and the CTO. The CTO at some point up to 50 people, you're golden. And then at some point you go, "Actually we could bring in better, better technical skills." And if you've got a good co-founding CTO, that person becomes like a Swiss Army knife and is deployed in different ways. The CEO goes on this serious journey, right, where the learning curve is steep and they've gotta learn to manage and they've gotta learn to put bums on seats. And I think of people like TJ at PillPack or Jack at SeatGeek, and they're changed individuals. I had, uh, coffee a week ago. We had an hour, uh, Mikey, M- Mikey Shulman from Suno. And I said, "What are you doing?" And he said, "I'm, 30, 40% of my time I'm just recruiting." I had lunch years ago, decades ago with Jeff Bezos. I was invited to a lunch and someone smarter than me said, "What do you spend your time doing?" And he said- 50% of my time is bums on seats. That's never left me. That's the CEO journey. That's the entrepreneur's journey. And there are many founders that don't get that.
- HSHarry Stebbings
I think one of the biggest mistakes that I see investors make, though, is when they turn down a company because they don't like the other co-founder. And the truth is, the other co-founder's most often not there in three years. You don't like them because you don't think they're good enough and not as good as the CEO.
- DFDavid Frankel
Yeah.
- HSHarry Stebbings
Will you invest if you think the CEO's amazing but you don't think the CTO is up to scratch, or the head of sales, who's also the co-founder, isn't as good? What are your lessons on that?
- 12:55 – 14:26
Will David Invest If the CEO Is Great But the CTO Isn't?
- DFDavid Frankel
Rarely. We do that less. And I think your logic is correct, but so early on we're looking for this package. I'm looking for this CEO, CTO kind of magic. And in some ways, I literally use that word, like, I'm looking for the CTO to be a bit of a magician and the CEO to be a good salesperson. That's, like, my favorite combo. And I agree with you. The CEO being a good salesperson and being a real entrepreneur is actually more important because the CTO role can be fungible depending on how complicated it is. But I have said no more times than yes in those situations, and I regret some of them. But the, the dynamic between the, those founders matters. Early on, like, to me, I look at the dynamic, and in some ways I think I wanna replicate the partnerships that I've loved and go, "I'm looking for some kind of alchemy here." You don't have to be identical. You don't have to finish each other's sentences. In fact, I'd prefer that you were different, but how aligned are you and how much do you trust each other's, kind of, competence and go. And in a career, I've seen alchemy maybe one hand. You know, one, like, five times. Four or five times. But when that alchemy happens, it's because of that interplay between those two people. So I'm watching that pretty
- 14:26 – 16:22
Has the Type of Founder David Wants Changed in the AI Era?
- DFDavid Frankel
carefully.
- HSHarry Stebbings
Has the type of founder that you like changed, especially in the last few years? I think our team has definitely oriented much more towards, like, deeply engineering specific people who come out of DeepMind, who come out of Gemini, or... Has that changed?
- DFDavid Frankel
Less than you'd think.
- HSHarry Stebbings
Hmm.
- DFDavid Frankel
So I would say the youth, the energy, the focus, the smarts, you put that package together and it's an intoxicating package.
- HSHarry Stebbings
Mm-hmm.
- DFDavid Frankel
I look at experience and I go, "What are we gonna need to package with that experience?" There are certain situations, SaaS and enterprise SaaS certainly looked like that, where, you know, you'd learnt the lessons, you understood the market, you understood, like, who the buyers were, although that's very fluid, too.
- HSHarry Stebbings
Mm-hmm.
- DFDavid Frankel
But did you have the focus and the energy? And I see these 20-somethings and it's a psychographic in a way. So I'm not saying that ... I don't wanna sound ageist. The psychographic of that focus and intensity can last for decades, but there's something about it at that early stage that is just, "Wow, I wanna be part of that." And that still turns me on a lot. Now, the theory of, you know, the relationships, et cetera, go one more time is, it's great in theory, but man, you need, to go this journey, you need so much energy.
- HSHarry Stebbings
When we look at the scaling journey, and we said about kind of how founders have changed that in terms of what we look for or not changed for you, one thing for me that's changed, and I g- I get in so much trouble for this, and, like, VC Brags, this Twitter account, killed me for it the other day, um, I very candidly said, "I turned down a company the other day that went from 1.5 and they were gonna go to 5, and then they were gonna go from 5 to 15, and it's just not enough
- 16:22 – 32:26
Is 1.5M to 5M ARR Still a Venture-Scale Path?
- HSHarry Stebbings
anymore. It's j- it's just not interesting." I'm sorry for venture. We have an opportunity cost of capital where we can deploy, and that's not fast enough. Has triple-triple, double-double gone? Is that still a venture path in today's landscape?
- DFDavid Frankel
1.5 to 5 billion?
- HSHarry Stebbings
1.5 to 5 million ARR-
- DFDavid Frankel
Yeah. Oh
- HSHarry Stebbings
... and then 5 to 15. And so you're looking at this company going, "Okay, you're gonna be 1.5 to 5, 5 to 15, 15 to 30." David, four, five years down, we might be at 70. I mean, like, i- is that still a venture pathway?
- DFDavid Frankel
You know, these 10-year funds are taking 18 years. The one thing you learn is loads of patience. There's no ... To me, it's such an opportunity when people go, "It has to be 1.5 to 10 to 15," and then reality sets in, and sometimes it's twice as expensive and it takes twice as long. Harry, we still own every last share in SeatGeek. That was an investment I made in 2010. It's become ... It's in the top three ticketing businesses in the world. It just takes a really, really long time. Uh, some of our greatest companies, they were showing tremendous promise. But that 1.5 to 10 to 20, like, I just think, are they executing? And, and, and by the other, the other w- side is, is revenue the only metric, right? Sometimes there i- is traction on dimensions that the market is not necessarily recognizing, but you're an insider. So, so that account, the retention in that account is really good, and that one account's now spending 4X what they spent a year ago. And they're more DAUs and ... So- There's gotta be traction, and frankly, a lot of what we do to try tell an entrepreneurial story to get more funding is the different dimensions of traction. But I think this like go, go, go overnight or you're, you're bust, I think there's a lot of orphans out there for that. And sometimes, frankly, I look at like those funding rounds and they're called seed plus or, or seed extensions, and I go, "That may be the opportune moment." Like, when they're being abandoned and they can't get the capital because the bigger funds have moved on, maybe that's the opportunity. It's not what we really do-
- HSHarry Stebbings
Sure
- DFDavid Frankel
... but I can see it as a capital markets opportunity.
- HSHarry Stebbings
Do you remember Bullpen, where it was like their business-
- DFDavid Frankel
Yes, of course
- HSHarry Stebbings
... to do exactly those rounds?
- DFDavid Frankel
Yeah, yeah.
- HSHarry Stebbings
I always thought that was an interesting business.
- DFDavid Frankel
Yeah. I don't know how they've done, but they priced those rounds. They, they priced them for bigger, bigger players.
- HSHarry Stebbings
I, I think the thing is, you're so paid for the risk that you're taking there, I mean, they really were aggressive in terms of ownership, that you need... I think they did Ipsy, which was a big business.
- DFDavid Frankel
Yeah.
- HSHarry Stebbings
And so you have one, and it pays for the rest.
- DFDavid Frankel
Yeah.
- HSHarry Stebbings
Um, can I just, when you look at this, David, you've been doing this for 18 years, and you hear people like me say, "Oh, 1 to 5, like triple-triple, double-double's dead. Is it really a home run if it's, you know, we need $1 billion in revenue?" Jason Lemkin says on our show, "Billion valuation? Come on. That's not venture anymore." Is this like peak bubble when you review the 18-year journey that you've had?
- DFDavid Frankel
The historical or anachronistic view on this would be the bubbles get bigger. This is the wave of our lives. I, I feel that way, by the way. If I look at, you know, internet, SaaS, mobile, AI, nothing looks the same. And will there be roadkill from this wave? Oh my God, there's gonna be a lot. You know, again, you look at those stats of 500 companies, less than 100 over 10 billion in the last 25 years. How many times, Harry, over the last 11 years have you heard, "This is different. This is different"? It doesn't mean that there aren't survivors and companies that are gonna ch- change the tr- trajectory of technology forever, and I think in, you know, OpenAI and Anthropic and SpaceX, we're seeing that already. Like, these are the Metas and the Googles of our era, highly likely. But wow, like, it's Hollywood, man.
- HSHarry Stebbings
[laughs]
- DFDavid Frankel
Like, 95% are not gonna be there. And it goes back to why is seed interesting? Like, I don't have to be in V1, right? Like, if there were five companies of, that, that are worth $5 trillion. Literally you go SpaceX, and I'm not even including, I'm saying like, um, with exits. So if you look at SpaceX, Tesla, uh, Meta-
- HSHarry Stebbings
Nvidia
- DFDavid Frankel
... that's trillions of dollars already. You take then Nvidia. I think Nvidia started pre-25 years ago.
- HSHarry Stebbings
Mm-hmm.
- DFDavid Frankel
But even if you look at the last 25 years ago, you can add Palantir to that, Palo Alto Networks. That's about $5 trillion of market cap. And then the, the other 495, right? At a 2.6 billion average. And some of those are, you know, we hope everything looks like Shield AI, Suno. But if you have 5% of a $500 million... If you have a 5% of a $2.6 billion outcome, you've returned your fund. If you have a $500 million outcome, it's incredible still. And that's why I think seed isn't dead. I think seed is crowded and, to some degree, very commoditized. I feel commoditized. I've said this many times. I feel like brand and in some, in some regard, distribution, as in your portfolio and people saying nice things about you, get you to the table.
- HSHarry Stebbings
But if it's commoditized, does price not just become the separator? And if price is the separator, the mega platforms win.
- DFDavid Frankel
Well, the problem is the mega platforms are taking call options. So is this good for the mega platforms? Is this good for the LPs, or is this good for the entrepreneurs? Well, probably for 95% of the entrepreneurs, it's not good.
- HSHarry Stebbings
Why? You get more... I'm, um, I agree with you, but I'm just playing devil's advocate. You get more money at a higher price with mostly a more junior VC who will let you do your work and not get in the way.
- DFDavid Frankel
Mm-hmm.
- 32:26 – 38:01
Why David Is a Contrarian on Large Platform Funds Returning Venture Economics
- DFDavid Frankel
Paley in this case is he always created some kind of discipline. So the post-money went up and up and up as rounds and the, the momentum and the size of money and the environment changed. It didn't d- we, we would do... But we would never lead another round. We've never done that in our entire history. So we haven't been preemptive and we haven't been like, "We'll lead your series A and we, we, we like you more than others." But our ability to participate has always been there.
- HSHarry Stebbings
Totally getting that. [laughs] Can I ask you, Peter Thiel said before that like if he had just done every round that anyone else had done at an up round and it was a good brand, he would've done much better, was kind of the ethos. Have you found that to be true?
- DFDavid Frankel
Given the era, like this has been the golden, golden era. It's probably, from a data-driven approach, it's probably true.
- HSHarry Stebbings
Yeah.
- DFDavid Frankel
Like if we'd followed on in Uber, Coupang, Shield-
- HSHarry Stebbings
Every round that had a tier one invest
- DFDavid Frankel
... you name it. So if we just followed on, probably the data would show that we've done pretty well, right?
- HSHarry Stebbings
Yeah.
- DFDavid Frankel
If we follow... Our view would be we'd had to, we, we, we would've had to have followed on in everything, and I think that the absolute return would be better. I don't think that the multiple would necessarily be better on the fund.
- HSHarry Stebbings
I'm not being rude. A framework's not the enemy of this venture cycle. Like, I think it's so easy to be rigid in your mentality around, "Oh, we won't do anything over a billion." I, I get you, but I, and you're gonna absolutely wince at me here, so are you ready for real shit?
- DFDavid Frankel
Go.
- HSHarry Stebbings
But I think a billion-dollar valuation is the new series A. And you're like, "Whoa, Harry. Whoa, whoa, kiddo, calm down. Listen to the facts." We used to do a 50 million post and hope it would become a billion, 20X without dilution, like blunt. Uh, now you enter at a billion and you hope it becomes 20. You know, we have Mercor at 20. We have Cognition at 26. Cursor got sold for 60. Sold. This is liquid. Well, maybe a billion's the new series A, no?
- DFDavid Frankel
[lip smacks] I think you may be looking at the top 2 or 300 companies.
- HSHarry Stebbings
Is that not our business?
- DFDavid Frankel
Um, I don't think so.
- HSHarry Stebbings
Huh.
- DFDavid Frankel
I think that you, I think that that's the momentum business, and I think knowing how and when to get out quickly with some of those really, really matters, and that's not really my business. So my business is value, is getting involved early and trying to find value opportunities. And there are times, again, where it's an intoxicating founder and being on that journey together, but I'm not sure that those are your fund returners. The difficulty with some of those momentum assets is, like it was what we were talking about earlier, is you've gotta be able to like run for the exits when you can-
- HSHarry Stebbings
Oh, yeah
- DFDavid Frankel
... on, on, you know, it's exactly what you were saying is [keyboard clicking] you didn't think that founder was all that great, right?
- HSHarry Stebbings
Yeah.
- DFDavid Frankel
So when you had the... Or, or you thought that the, like the valuation was so far ahead of the reality of the business. But you're asking a question, you're asking a m-mom- a momentum question.
- HSHarry Stebbings
Yeah.
- DFDavid Frankel
Right? And is it all momentum? I've gotta be careful not to be too anachronistic in this, because we have invested in momentum. There's just no... It would be so disingenuous for me to say that we haven't. Like-
- HSHarry Stebbings
Uh, w-when you say that, like w-what do you mean we have invested in momentum?
- DFDavid Frankel
Our knee-jerk tends to be when this has gotten across a certain point, like we're out of here. And credit to Eric at a point for going, like, we've captured 80% of the value. We could capture another 20% if we did Uber at series A or if we did Suno at series A. And by the way, it's not just on paper. I think there, there would be buyers for that position. In hindsight, I look at that and I go like, "Were you anachronistic?" By the way, we didn't, we didn't even seek to participate in that round. We kind of go, we built our ownership position and we're done. Like this is not the kind of investors we are. We're looking for the next seed stage round. And I think, Harry, what we've done is we've drunk the Kool-Aid to such a large extent now. You and I are so different-
- HSHarry Stebbings
[laughs]
- DFDavid Frankel
... that you're going, "This is hot. Let me go, go, go." I'm going, "I've got a smaller fund. Where else can I really X my ownership versus, you know, getting a, I don't know, 5X or a 10X?" But of course, the environment makes you look quite silly in retrospect. The question is how long does this environment go on for?
- HSHarry Stebbings
And it's also about like how, and this is the d- you, you have unbelievable returns and you've made a phenomenal amount of money for your investors, but the quantum of cash that you move matters. And Josh- And Elad and the multi-stage funds moving hundreds of millions and billions, you, you make a larger quantum of cash. And so I get you with the, in terms of your, your multiple goes down when you lead the Series A.
- DFDavid Frankel
Look, there's, there's so many different ways to play this, and I think when you talk about Josh and, you know, a handful, they've killed it. They've absolutely killed it. A lot of LPs, very wrongly I think, don't like the large platforms and always just come back to this very kind of, I think, basic rudimentary thought that as you scale fund size, returns always get worse. Always.
- HSHarry Stebbings
Yeah. Whenever someone says always, be careful. Um, but I think with the outcome expansion that we've seen, Cursor at 60 billion, trillion-dollar companies in a matter of years with OpenAI and, OpenAI and Anthropic, you will see venture returns with mega platform sizes. Do you agree?
- 38:01 – 40:31
Physical AI Was the Unloved Theme 10 Years Ago
- DFDavid Frankel
Largely, no. So largely, I would say, who are their LPs? Who are they working for? And in some of these cases, not even endowments anymore, right?
- HSHarry Stebbings
It's definitely not-
- DFDavid Frankel
It's sovereign wealth funds
- HSHarry Stebbings
... No, no, it's definitely not endowments.
- DFDavid Frankel
And if you... And, and sovereign wealth funds and public investment corporations-
- HSHarry Stebbings
Yeah, pension funds
- DFDavid Frankel
... are looking for IRR.
- HSHarry Stebbings
Yeah.
- DFDavid Frankel
They're not measuring this in how many times do you X the fund. Doesn't mean that a16z and Thrive haven't X'd a few of their funds really, really nicely. Again, subsequent to 2020, like the TVPI is there, and some, in some cases, they're on steroids. The DPI is less there, if you look at the actual stats. But they're working for these sovereign wealth funds, and they're giving great IRR. And some of the endowments, some of the biggest endowments are, like, rounding errors now.
- HSHarry Stebbings
Yeah.
- DFDavid Frankel
The, the question is who you working for, right? And, like, I, again, obsess with this alignment with the entrepreneur. And, like, we're working for ourselves as well, right? And we're working for DPI, and the bigger we make the fund, the tougher it is on the DPI. Like, what am I doing this for?
- HSHarry Stebbings
[laughs]
- DFDavid Frankel
Fund off the fund off the fund. And, you know, I, I can't give you the numbers, but fund one, fund two... By the way, there's this wave AI theme. You know, if we look back on fund two, it's all about a- applied AI. I mean, that's really what the fund... If you look at the winners in fund two, it's Shield AI, which by the way, in 2016 was called Shield AI. It's Verkada, right? It's Whoop. Now, all of these things are commoditized. All of the hardware is commoditized. Video cameras are commoditized. Drones, I mean, uh, you can buy a drone for, you know... Forget DJI. You can buy a drone for $20 now, right? $50. It's about putting AI around these completely commoditized platforms. It was 10 years ago, but it wasn't the theme. So the one thing that you're talking about is momentum around a theme, and I'm going, in 10 years' time or in five years' time, there will be a new theme. The job will have been to get into that theme ahead. I don't even know what it is. I hope I've got some on goal. And those weren't the expensive ones. Those, those were not... They never are. So using AI is really important. I guarantee you all of these things are called applied AI businesses today, or physical AI. Physical AI is all... The job is to be in there five years or 10 years ahead, and it's not where the momentum is. It
- 40:31 – 44:15
How Concentrated Are Founder Collective's Returns?
- DFDavid Frankel
never is.
- HSHarry Stebbings
When you look at, you said that kind of fund too, and you said a couple of names there with Verkadas and your Whoops and your Shields, um, how concentrated are the returns in your funds? I spent time with Ho Nam from Altos, and he's spoken about the return on concentration with Roblox, and it was mind-blowing to me. How concentrated are yours, and what lessons do you have from that?
- DFDavid Frankel
The amazing thing is they've been way less concentrated than you would expect.
- HSHarry Stebbings
Huh.
- DFDavid Frankel
So look at fund two. Forget fund one now. Fund two, Verkada, Shield, Whoop, PillPack. In and, for the most part, one of or the single largest investor in the first institutional round. It's not concentrated. If you look at fund one, we always talk about the, you know, the, the TradeDesks and the Ubers and the Coupangs. Fund one still has Airtable, like, in at the very beginning. Challenges in the SaaS environment, but Simply. Simply's the biggest piano teaching and, and music instrument teaching company in the world. SeatGeek. Haven't sold a single share in SeatGeek. That's still in fund one.
- HSHarry Stebbings
Why haven't you sold a share in SeatGeek?
- DFDavid Frankel
I think it's spiritual at this point. [laughs]
- HSHarry Stebbings
[laughs] It's a religion. I'm wearing Jack's T-shirt beneath this. Beneath this shirt, you've got Jack's face, right? [laughs] That would be an epic bit of-
- DFDavid Frankel
I, I did that. I did that at my LP meeting.
- HSHarry Stebbings
That would be very funny.
- DFDavid Frankel
Before Jack, uh, Jack and Mikey both presented, and I literally said to them, "Get me T-shirts," right? And I ripped open my shirt, right?
- HSHarry Stebbings
But I, I'm actually worried about this, which is, you know, and I'm not positioning this at Airtable at all. I think Howie's wonderful and brilliant, and a brilliant product team. But, like, you're seeing the cannibalization of leaders in a space like Airtable, respectfully, and like Snyk, the cybersecurity company, which in a similar vein is going through challenging times too in terms of growth rates and everything involved. Well, there hasn't been a liquidity event, but the cannibalization has already started. It's like the innovation cycle's taken steroids and gone too quickly to allow liquidity events to even happen. Does that worry you too?
- DFDavid Frankel
Look, I mean, by now, Harry, it's, it's very hard to play around with Claude or something like it and not have the revelation that we've all had. But then you look at some of these SaaS companies and you look at the SaaSpocalypse. When we were, when we were on the Olo board, when it was listed, we'd look at companies like Viva, right? Which is, I think, at a $30 billion market cap now. It's come down, I don't know how, at least 50% or more. And we'd go, "This is the most- ... perfect, like we wanna be this company. It's hard not to look at some of that market cap erosion and go, "Is the baby being thrown out with the bath water?" And it's about the last 5%, I think. It's about the last... And, and I would say if your Airtable and Viva or Olo look very different, the more embedded you are, like the more difficult you are to dispense because real time, thousands, billions of orders are being run on your system, or like mission-critical biotech research is being run on your system. The more embedded you are, I think the more overdone that SaaSpocalypse may be.
- HSHarry Stebbings
Mm-hmm.
- DFDavid Frankel
The less embedded, clearly, right, the easier you are to kind of turf out and play around with Claude, you name it. But I think we're underestimating that last 5%. And the contrarian in me, this is not what, what I do, would say buy a basket of like the top SaaS stocks that have all lost huge market cap, you're gonna do okay.
- 44:15 – 45:08
Are Deeply Embedded SaaS Companies Being Oversold in the Correction?
- HSHarry Stebbings
You, you are, and Rory O'Driscoll, who we do the show with every week, has done that, and I put my money into Palantir and said, "I'm a momentum surfer." I, I did better. [laughs] And that's the hard point, which is the opportunity cost of cash is so real-
- DFDavid Frankel
Yeah
- HSHarry Stebbings
... that you can be in one and try and be smart, but you're probably right long term, or you can just be momentum trader, and you'll be right actually in the short term, and if you can time it well, it makes a difference. You said there about J-
- DFDavid Frankel
The, the difference between, in a way, between our styles is every single company I invest in, and it's comes back to concentration, every company I invest in, I invest in with the hope, right, that it could be another Suno or Uber. I literally do. I don't invest in companies and go, "I'm investing in you, Harry, because I think you can be a 10X outcome." I don't, I don't do that.
- HSHarry Stebbings
You don't?
- DFDavid Frankel
No.
- HSHarry Stebbings
Wow. Yeah.
- DFDavid Frankel
So-
- HSHarry Stebbings
We are different
- DFDavid Frankel
... every company we're investing in we think, "Wow, this could be ginormous. This
- 45:08 – 47:16
The "I Love It Because…" Framework
- DFDavid Frankel
could be ginor-
- HSHarry Stebbings
Do you have-
- DFDavid Frankel
I'll give you-
- HSHarry Stebbings
Jason Lampkin, sorry, and then, uh, do you want... He just told me a very similar, he's like, "I'm not smart enough to predict the future. What I look for is can I get a 3X on my next funding round? And if I can get a 3X on my next funding round and I really believe in a great entrepreneur CEO and a great CTO, I'm in."
- DFDavid Frankel
So, so we, we use the same logic, but it's always been 10X.
- HSHarry Stebbings
Mm.
- DFDavid Frankel
I will not invest in this if I don't think, if I'm not sure that there's a 10X. We have at our team meeting, I love it because, dot, dot, dot. If you can't complete that sentence, you can't invest. That's how we start the team meeting. That's how we start talking about a portfolio company.
- HSHarry Stebbings
What's your greatest-
- DFDavid Frankel
I love them because-
- HSHarry Stebbings
... ever answer to that? Like when you look back on that, what's your-
- DFDavid Frankel
So, so in more recent times-
- HSHarry Stebbings
Yeah
- DFDavid Frankel
... I've gone, "I love it because I'm obsessed with Harry." Right? Like I just think that every question I ask, I get a better answer than I expected. Every time I press, there's no, there's no evasion of the facts. He never says to me, "Oh, we're the only one in this business." He always says, "It's so much harder than you think it's gonna be. It's so much tougher," and like, "This person's leaving me." And I love it because they're obsessive, they're all over it, they're, n- you know, they're so deep in this, and I just can't get this out of my... I d- I will not say I love it because of valuation. By the way, we've, we've always come to valuation last. We've always gone opportunity, market, founders, founders first and foremost, it's, it's in our, it's in our name, and we come to valuation last. And I cannot say that every single time we've invested we've gone, "This is a perfect valuation." In fact-
- HSHarry Stebbings
Rarely is.
- DFDavid Frankel
No, it rarely is.
- HSHarry Stebbings
The best deals-
- DFDavid Frankel
Particularly in this environment
- HSHarry Stebbings
... both sides feel uncomfortable, I find.
- DFDavid Frankel
Of course.
- HSHarry Stebbings
Yeah.
- DFDavid Frankel
Of course.
- HSHarry Stebbings
I, I-
- DFDavid Frankel
Exactly right. By the way, it, it can go I love it because of insight into the vertical. I love it because of an edge that nobody else can match in a commoditized business. I love it because, you know, it's a, I'm writing this piece on nepo babies, and I'm going, "I love to fund nepo babies." So-
- 47:16 – 1:14:15
Why David Hunts for "Nepo Babies"
- HSHarry Stebbings
What?
- DFDavid Frankel
I'm writing this piece right now.
- HSHarry Stebbings
Why do you love to fund nepo babies?
- DFDavid Frankel
So, so, so I go TJ Parker, right, working in his dad's pharmacy when he was 15, 14, 16. Like he has got more edge in that vertical than he knows. Uh, Mikey comes to, to AI, to voice AI, to music, to audio, right? They've come out of Kensho. That's all they did at Kensho. So you take Mikey and Georg and, um, y- Martin Camacho, that's all they did. Martin was the CTO of Kensho. They're not the nepo baby. But Evan at Rebar. So Evan at Rebar is HVAC preparation and HVAC quoting. There are over 100,000 mechanical engineers in the US that are making 100K each at least when they graduate, and all they're doing is sitting with this blueprint process so that they can quote on new commercial and... And Evan's sitting there, and by the way, he did work for his uncle's company that was rolled up in a PE 10, 10 of these things, and they said, "Go out and find the AI for this." And Evan goes out and goes, "There's no AI for this." And he goes, "I'm starting Rebar." And I go there are folks who have been in these verticals since they were kids. He watched his uncle in this vertical. It's like there's nothing else he was gonna do. And I go like they have more edge than they know what to do with.
- HSHarry Stebbings
I get you. Sorry, just to be clear for you.
- DFDavid Frankel
[laughs]
- HSHarry Stebbings
Nepo baby where I'm from-
- DFDavid Frankel
[laughs]
- HSHarry Stebbings
... is trust fund baby-
- DFDavid Frankel
Oh
- HSHarry Stebbings
... who has billions of dollars. [laughs] I was like, dude, I do not wanna be funding the kid who's at Skorpios in Mykonos spraying Dad's money. [laughs]
- DFDavid Frankel
I, I, I, I, uh, we- we're, we're using nepo babies with different definitions.
- HSHarry Stebbings
With very different definitions.
- DFDavid Frankel
I'm talking about folks who've-
- HSHarry Stebbings
Historical background
- DFDavid Frankel
... been in a vertical-
- HSHarry Stebbings
Yeah, yeah, yeah. I, that I to-
- DFDavid Frankel
... and have lots of edge in that vertical.
- HSHarry Stebbings
That I totally get. You said you haven't sold a share of SeatGeek. The timing of when you get out matters a lot. Do you have any lessons on when to get out, given I think this generation of seed managers will be defined by their ability to access and navigate secondary markets effectively?
- DFDavid Frankel
So it's interesting, you're asking this at a time where I have never seen secondary markets as liquid. It's probably not that surprising given fewer IPOs, fewer M&A up till the moment here, an IPO market that will probably op- be open for the remainder of this year, and then these IPO markets always close. So in the top 100 names, wow, the secondary liquidity is incredible. And you can price your position, I would say, reasonably efficiently.
- HSHarry Stebbings
Yeah, agreed.
- DFDavid Frankel
You can look at a round and go, "Okay, the secondary market's in- offering me a 25% discount. It's probably worth, you know, seven and a half, not 10." And then you can look at a number in the top 50 at least, where you're being offered at least the price per share of the last round-
- HSHarry Stebbings
100%
- DFDavid Frankel
... because loads of folks, loads of big folks, Blackstone, didn't get their pro rata, and then they're sucking it up.
- HSHarry Stebbings
Mo- most I'm seeing do not have a discount, for sure.
- DFDavid Frankel
Yeah. Uh, we, we, we've seen a premium, right, where insiders know there's another round. Talking to your point about momentum, right, you were talking about momentum in the early stage. We've seen situations in our multi-billion dollar names where the round goes down in December and the board's already talking about the March round. And we kind of see it sometimes when we're, when we're not on the board, but we just see it in the momentum in the secondary market. Now, Harry, you're in very rare air there. And let me just say, I, I don't wanna, um, in any way make it sound like we're in that with all of our companies. We're in that with, at any one point, a handful of companies. But in those situations, I think the difference in fund management is when you take secondary and the ability to give DPI. Even in your top names, sometimes taking 20% off the table, if you can return 25% of the fund, particularly if it's a new-ish fund, so if it's a, you know, if it's a 2024 fund and you can give back 25%, like, why wouldn't you do that? And you're still long. You still own 80% of that company.
- HSHarry Stebbings
I just think we don't think about the velocity of cash enough, and what I mean by that is, like, you know, yes, there might be another double, but if I have to wait five years and then the IPO and then an 18-month lockup, Jesus, give me 50% of that now and I'll way rather have the certainty and the DPI now than the maybe a double from here with six and a half years.
- DFDavid Frankel
Yeah.
- HSHarry Stebbings
Do you-
- DFDavid Frankel
This is not a precise science.
- 1:14:15 – 1:15:49
China Rising: Two Superpowers, AI & Why Defense Matters More Than Ever
- DFDavid Frankel
knew that.
- HSHarry Stebbings
No, I didn't.
- DFDavid Frankel
Yeah. So Great Britain displaced China. A lot of it was Industrial Revolution, and then the US displaced Great Britain. There was, in The Economist, there was a chart on this. But in the 1820s, 25% of the world's global output, economic output, was from China. It was the biggest economic machine in the world. And really what you're seeing is two superpowers emerge for sure, and I think a lot of this is gonna be about AI. AI flows into not just industry, but in terms of what's going on in defense, having been very, very early, the first check in Shield AI, and watching how that's played out. The US needs it. Like our, our enemies have access to all of that on steroids.
- HSHarry Stebbings
I, I'm terrified about China right now, to be honest. Uh, when you look at the power and strength of their open models, pfft.
- DFDavid Frankel
But that goes back to thinking about Microsoft and Google being disrupted. What could possibly... You know that Anthropic and OpenAI are going to be disrupted. It's like unequivocal. Like our whole careers are about disruption. Those platforms never ever stay forever. Where is it gonna come from? Excellent chance it comes from China. It's coming.
- HSHarry Stebbings
100%. God, we haven't had enough time to, for them to establish their incumbency yet before they're already being taken down by Chinese open source models.
- DFDavid Frankel
Yeah. Yeah.
- HSHarry Stebbings
It goes to the point on the speed-
- DFDavid Frankel
Yeah
- HSHarry Stebbings
... of innovation cycles.
- DFDavid Frankel
Yeah. Yeah. By the way, we haven't even touched on underlying computing. So if you look at photonic
- 1:15:49 – 1:18:41
Photonic Computing — The Next Nvidia Disruptor Nobody Talks About
- DFDavid Frankel
computing, if you look at what's coming down the line now, so you looked at Intel at a point when like that, that could never be disrupted, and then Nvidia, it's just like mind-blowing. What's coming again Nvidia, like the photonic computing plays right now, where it's not electrical anymore, it's photons. So if you look at the data centers where everything that can be optic fiber now is, so every single connectivity piece of hardware is fiber. The only thing that has not been nailed is the chip, right? You're gonna see optic chips with, which are very, very energy compliant. So when people talk about the data centers and the energy sucks, that's gonna change. In my view, if you say in 10 years' time, and I am not a thematic investor, but I am such a deep believer in the status quo being changed always and not, and like nothing stays the same. I think photonic computing's coming down the line, and I think that's gonna be the Nvidia disruptor-
- HSHarry Stebbings
Do you know-
- DFDavid Frankel
Or Nvidia's gonna buy those companies
- HSHarry Stebbings
... okay, and the capital intensity required to build a photon company, I think, uh, or an energy company as we're in some, is just dramatically more capital intense than prior technology. Again, going back to my point, you need more money.
- DFDavid Frankel
This is where the US could be deficient. If you look at the amount of money that's being spent in China on energy efficiency and energy research now, I don't think we're spending enough. And by the way, that's a negative of the Trump administration is we need much more money being spent on R&D. And I think there was a view that the universities are squandering it. To a large extent, I agree with that. But I think that we tapped off a lot of DARPA R&D that goes in, that finds its way into every nook and cranny of, of, um, of the economy, and we need more of that R&D. We see some of it. I live in Cambridge, Massachusetts. We, we have some of the best R&D organizations on the planet. If you look at MIT, Harvard, Northeastern, BU, BC, what's going on there, and cutting that spend, which goes back into society, I think is problematic.
- HSHarry Stebbings
Totally get that. Another one though that i- is more challenging I think it's changed is policy and regulation. Like Chinese approach to policy and regulation is, it's almost none.
- DFDavid Frankel
It's none. Yeah.
- HSHarry Stebbings
And it means that you can-
- DFDavid Frankel
Frightening
- HSHarry Stebbings
... bluntly build and deploy so much faster.
- DFDavid Frankel
Yeah, yeah.
- HSHarry Stebbings
I mean, Europe's the worst.
- DFDavid Frankel
Yeah.
- HSHarry Stebbings
US is tough too.
- DFDavid Frankel
Yeah. I'm not in biotech, but when I talk to friends who are in biotech venture investing, they're all flying to China all the time because they're going, "Look, in terms of R&D, in terms of licensing, in terms of anything goes." And in fairness, it's not a totally anything goes environment, but there's so much more grassroots activity, and a lot of it has to do with regulatory environment.
- HSHarry Stebbings
Totally get that. What would cause you, final one, what would cause you to increase fund size?
- DFDavid Frankel
[laughs]
- HSHarry Stebbings
Anything.
- 1:18:41 – 1:21:49
What Would Make David Raise a Bigger Fund?
- DFDavid Frankel
Oh, I would say, um, so if you, if, if I am honest about what we did early on is as an angel, I had said the risk premium for the seed stage was way overstated. So the premium for experience, right, like I couldn't get that. A lot of the folks that I got involved with very early were graduating. They were Noah Glass, Jack, uh, you name it, Eric and Micah, and the, there was a dislocation between the perception of value later versus earlier, and that has been largely narrowed and crowded out. So if there was some kind of, Harry, we didn't come- at this going, "I'm obsessed with economic arbitrage." We came at this going, "I'm, I'm obsessed with great founders and I want to vicariously be on that journey." But if you had to look at this retrospectively and say, "What did we do in economic terms?" There was an arbitrage. There was a real arbitrage because the risk premium at the seed stage was way overstated. That has changed completely. What would cause me to raise a bigger fund? If I looked at series A or series B or series C and went like, "There is such a value opportunity because everybody's abandoning this." I don't think it's true at the moment. I think just capital and money finds its way to everything. But if you went, "So many series A companies are orphaned and there's amazing value. There hasn't been 1 to 10 to 20 in ARR increase in one year, but wow, they're on track and that looks like, it smells like Ola. It looks like SeatGeek." I think that would cause me to say, "We should be investing $10 million at that stage." So it's not momentum, it's a sense of, wow, like I can't believe that others... And I have been very tempted there. I've been very tempted to say, "This company is doing incredibly well on the revenue side and it's being undervalued."
- HSHarry Stebbings
Final, final one on principle, quick-fire. You say that about Ola. I love Noa. I think Noa's one of the greatest, awesome human. Dude, his 17-year journey to, like, a $1.6, $1.7 billion exit-
- DFDavid Frankel
2 billion exit
- HSHarry Stebbings
... 2 billion exit.
- DFDavid Frankel
Yeah.
- HSHarry Stebbings
I love Noa. I love Ola. It's an amazing business. It's an amazing journey, but when you think about, like, utilization of cash most optimally, 17 or 18 years, a $2 billion exit, the IRR is not amazing. How do you reflect on that and, and justify that versus maybe hotter rounds?
- DFDavid Frankel
Yeah, I mean, the outcome was, it's publicly known, eventually Thoma Bravo, we took the company private for about a $2 billion valuation, so not a, not bad for a, a few years of work. And if you take it on an IRR basis, you're probably right. The journey and the fun of it was just enormous. So being involved with Noa, where it was Noa, a few other founders, and me from the beginning, and being on the board until that sale was just the ride of a lifetime.
- 1:21:49 – 1:30:37
Quick-Fire Round
- HSHarry Stebbings
So first quick-fire is what have you changed your mind on in the last 12 months?
- DFDavid Frankel
What's been surprising and what I've changed my mind on a little is, is, like, where is, where AI should have impacted like crazy, and I've seen lesser impact so far, with all the hype, with all the momentum, like AI changes so much in terms of software and enterprise and SMB, other than the models themselves and some good stuff around human interface. So a lot of stuff around the voice has gotten a lot better. I don't know about you, but I would have expected much more around consumer AI. So I've seen Suno, I've seen... But, like, in terms of changing how I do stuff, I, I type much less, right? Like, I speak much more in terms of communication. Like, I would say there are so many kind of consumer areas that I feel are not yet played out at all.
- HSHarry Stebbings
When you're doing Suno at 5 billion, what are you underwriting it to?
- DFDavid Frankel
I think that the folks investing at that level are going, "This is a Spotify disruptor," that this is, that Spotify and Apple Music, it's a big bet that because-
- HSHarry Stebbings
They've got to go from creation tool to consumption tool.
- DFDavid Frankel
Oh, totally. Totally. Uh, that's why Jack from Snap was brought in, is interestingly, I was at a conference with Martin, and Martin was on a- Martin Camacho, who's the CTO of Suno, and the panel, he was asked a question, "If a large language model could do what you do better than you do it, like would you slot that in?" And you're talking to the CTO, the guy who's built the m- the whole model. The entire Suno model is from the ground up. And without missing a beat, Martin goes, "Wouldn't think twice about it." It goes to your point of this is a consumer product. The experience, the interface, think Spotify, right? That's what we offer, right? How we get there is obfuscated from the user. The user couldn't care less. Like, whatever gets you there.
- HSHarry Stebbings
Did you ever predict the speed of that? I mean-
- DFDavid Frankel
No.
- HSHarry Stebbings
Yeah.
- DFDavid Frankel
No. Definitely not.
- HSHarry Stebbings
'Cause I... Do you remember the days when Slack, 1 to 10 in 18 months was, like, the gold standard? I mean, Suno-
- DFDavid Frankel
No
- HSHarry Stebbings
... is multiple hundreds of million. I mean-
- DFDavid Frankel
No, no
- HSHarry Stebbings
... half a billion or whatever it is now. I mean, it's nuts.
- DFDavid Frankel
No. No. Goes back to Uber. You know, when Eric's asked, "How did you know? How did you know?" And Eric goes, "I didn't." He said, "The company I saw before, the company I se- saw afterwards, like we underwrote those in the exact same way." And I think when you go, a- anyone in my seat who says, "I knew," is just full of shit.
- HSHarry Stebbings
[laughs] I, I absolutely love that. What's been the most controversial deal that you've done internally?
- DFDavid Frankel
What can become controversial is the what or the where. So certainly Coupang was like, got back... I, I said to Eric, "Korea," and he said, "You know, do you even know if it's north or south?" But the magic there is I am based in Harvard Square. So people go, "How do you get to Korea," right? Like, "How do you get to all sorts of places?" And the answer is Harvard Square. So Bom, you know, B- Bom drops out of HBS after his first year and comes to see me. And another controversial company was probably Shield in terms of the what it does. So I would say the whole partnership didn't necessarily love, you know, defense drones, and early on it was like, "Is this only defense?" So I Love It Because has certainly taken us to some very controversial geos and controversial whats.
- HSHarry Stebbings
Our prediction marketplaces just legitimize gambling
- DFDavid Frankel
It has to be, right? Like, it, it, h- I mean, if you look at, like, Kalshi and Polymarket, what's the difference there between DraftKings and Betway and ... They seem very similar to me. But by the way, [laughs] this will be controversial, TVPI versus DPI. The one looks like a prediction market, right, and the one's real. Like, I, I could say the same, you know, TVPI looks like a prediction market, right?
- HSHarry Stebbings
But, I mean, candidly, when they're doing 2 billion in ARR, who gives a shit?
- DFDavid Frankel
[laughs]
- HSHarry Stebbings
The one thing that you worry about is a Trump change in administration and what that does to regulation around them.
- DFDavid Frankel
Yeah. Yeah.
- HSHarry Stebbings
That's a different game.
- DFDavid Frankel
Yeah, yeah.
- HSHarry Stebbings
What do you know now that you wish you'd known when you started Founder Collective?
- DFDavid Frankel
So for the most part, frameworks have saved us. It's also the place where if I look at some of the deals that we didn't do and we just went, we used valuation as shorthand to say no, terrible mistakes. So Klaviyo, loved Andrew, loved Ed, came to me first, came through Hugo van Vuuren, who also sent us Suno, and didn't do it because of the framework, and the framework allowed me to easily say no. So we'll miss a lot. We'll make plenty of mistakes. I think I've freed myself, like you, a little more in that area and just go, "They're extraordinary." But the frameworks have saved us as well.
- HSHarry Stebbings
Penultimate one, biggest advice on a happy marriage and relationship?
- DFDavid Frankel
Kindness and being present, being present with each other, and I think, like, I think of this at dinner, at dinner time, no phones are allowed anywhere near the dining room table, and I don't take my phone to my bedroom. Like, my phone is never alongside my bed. Here's the rub. Doesn't, I don't need my phone to be distracted.
Episode duration: 1:30:47
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