20VC Biggest Lessons and Challenges Building One of the Most Successful Seed Funds, How To Manage Investor Psychology, SelfDoubt and Insecurity & The Secret to Truly Successful Venture Partnerships with David Frankel, CoFounder @ Founder Collective

Summary Notes


In this episode of 20vc, Harry Stebbings converses with David Frankel, co-founder and managing partner at Founder Collective, a prominent seed investment firm. Frankel, who has been a steadfast mentor to Stebbings, shares insights from his extensive experience in early-stage investing and his journey from running a flea market store at 15 to becoming the CEO of Internet Solutions, Africa's largest ISP. They delve into the importance of the 'who' versus the 'what' in investments, the challenges of maintaining a small fund size for seed investments, and the necessity of patience and empathy in venture capital. Frankel also discusses the difficulty of delivering constructive feedback, the impact of COVID-19 on investment dynamics, and the excitement of investing in innovative ventures like Pear Tree, which is revolutionizing the adoption industry. The conversation is interspersed with mentions of Tegus, Cooley, and Sprig, companies providing valuable resources for venture capitalists and startups.

Summary Notes

Introduction to the Podcast Episode

  • Harry Stebings introduces the guest, David Frankel, as a significant figure in seed stage investing.
  • David Frankel is a co-founder and managing partner at Founder Collective.
  • Founder Collective's portfolio includes companies like Uber, Coupang, Airtable, and WHOOP.
  • David Frankel also co-founded Internet Solutions, which became the largest ISP in Africa.
  • He was a founding board member of Endeavor South Africa and was recognized by the World Economic Forum.

"And today we're joined by another true craftsman encapsulating to me what great seed stage investing is."

The quote introduces David Frankel as an exemplary figure in seed stage investing, highlighting his expertise and impact in the field.

Founder Collective's Influence and David's Background

  • Founder Collective is recognized as one of the prominent seed firms over the last decade.
  • David's entrepreneurial journey includes co-founding Internet Solutions, which was acquired by NTT.
  • He has been involved in various influential roles, including being selected for the Global Leader of Tomorrow program.

"Previously, David was co founder and CEO of Internet Solutions, the largest ISP in Africa, ultimately acquired by NTT."

This quote summarizes David's entrepreneurial achievements and his role in creating a leading ISP that was successfully acquired.


  • Harry thanks Eric, Micah, and Amanda from Founder Collective for their contributions to the podcast.
  • The introduction sets the stage for an insightful conversation with David Frankel.

"I'd also want to say huge thank you to Eric, Micah and Amanda at founder Collective for some amazing questions suggestions today they really did make such a difference to the schedule."

Harry expresses gratitude for the input from Founder Collective's team, which improved the podcast's content.

  • Tegus is introduced as a platform aggregating qualitative information on private companies.
  • Tegus helps venture capitalists and corporate strategists with expert call transcripts, sourcing companies, and due diligence.
  • Cooley, a global law firm specializing in startups and venture capital, is mentioned.
  • Sprig is presented as a user research platform for product teams.

"Tegus is the only company in the world that aggregates qualitative information on private companies from seed stage to pre ipo."

This quote describes Tegus's unique position in the market, providing valuable information to its users.

David Frankel's Journey to Investing

  • David started as an entrepreneur, co-founding an ISP in his early twenties.
  • He engaged in seed investing through Founder Collective, leveraging the cash flow from his ISP.
  • David's investments were diverse, including Olo and Volaris, a low-cost carrier airline.
  • He transitioned from angel investing to starting Founder Collective with his partners.

"At the age of 15, I was running a flea market store with a close friend, his brother Ronnie uptaker got us involved in the original ISP Internet solutions, which we built to be incredibly luckily in our very early twenty s to be the largest Internet service provider in the southern hemisphere."

David's early entrepreneurial experience led to the creation of a significant ISP, setting the stage for his future in investing.

Transition from Angel Investor to Institutional Manager

  • The transition involved adapting to a higher volume of opportunities and recalibrating investment decisions.
  • Having a partner to challenge and double-check decisions was a significant change from solo angel investing.

"The first thing I'd say is when you hoist a flag and say, look, we're open to give capital at the earlier stage, if you're any good at it. The amount of opportunities that you see seem to go up one hundredfold."

The quote highlights the increase in investment opportunities that come with establishing a venture capital firm.

Decision-Making Structure at Founder Collective

  • Founder Collective's decision-making is conviction-driven, with rigorous testing of reasons for investment.
  • Disagreements and discussions are part of the process, but they are approached with mutual respect and trust.

"It's very much conviction driven, but you have your conviction tested like crazy."

This quote explains the core principle behind Founder Collective's decision-making process, emphasizing the importance of conviction in their investments.

Reflections on Past Disagreements and Investments

  • David recalls a disagreement regarding an investment in Motorway, where he had to justify a later-stage investment.
  • The decision-making process involves balancing the 'who' versus the 'what' in investments.

"But later know, Tom and I reconnected, and in a later stage financing, I brought this to the team and Eric, rightly, you know, resisted and said, we do seed."

David reflects on a specific case where he had to advocate for an investment that deviated from the firm's usual focus on seed-stage funding.

The Importance of Trust in Investment Decisions

  • David emphasizes the importance of the 'who' over the 'what' in his career and investment decisions.
  • Building and maintaining relationships with exceptional founders is a priority for David.

"The who is more important to me than the what."

This quote captures David's investment philosophy, placing a higher value on the people behind the companies rather than the companies themselves.

Approach to Trust in New Relationships

  • Trust is essential but must be accompanied by verification.
  • Only one instance of being lied to in over a decade of institutional practice.
  • Trust is compared to a marriage, requiring intrinsic belief in the partner.
  • Mistakes have been made by being too captivated by potential rather than trust.

"I would say it's trust and verify." This quote emphasizes the balance between having an initial level of trust but also the importance of confirming the veracity of information provided in new relationships.

"Look at your partner in the eye and you have to feel that humanity and feel that trust is intrinsic." This quote underlines the importance of a human connection and the need to feel a genuine sense of trust when forming new relationships, particularly in business.

"I've made that mistake as well." Acknowledges that even experienced individuals can sometimes prioritize potential gains over the fundamental value of trust.

Analysis of the Early Stage Market

  • Historical context of tech growth from the mid-90s to 2021.
  • The dramatic change in the nature of seed funding over the years.
  • Increase in competitors, funds, and new forms of funding.
  • Shift from relationship-based decisions to market-driven and proprietary approaches.

"You've almost got to throw some history at this." This quote suggests that understanding the current market requires knowledge of its historical evolution, particularly the exponential growth of tech companies.

"Tech has eaten the world." Refers to Marc Andreessen's famous statement, which highlights the pervasive influence of technology in today's economy.

"The nature of seed, it's changed massively." This quote points out the significant transformation in seed funding, reflecting the evolution of the venture capital landscape.

Venture Collaboration Dynamics

  • The venture environment has become less collaborative over time.
  • Larger fund sizes lead to less sharing of investment opportunities.
  • The terminology used in the industry, such as "deploy," reflects a depersonalized approach to investment.
  • Founder Collective's commitment to maintaining a consistent fund size and alignment with founders.

"I'd agree. What I'd say is it's a function of fund sizes." This quote connects the decrease in collaborative investing to the growth of venture fund sizes, which affects the dynamics of investment sharing.

"We never deploy, we invest." The choice of language reflects a philosophy that emphasizes the human aspect of investing over a purely transactional approach.

Fund Size and Investment Strategy

  • Founder Collective's deliberate choice to keep fund sizes consistent.
  • The strategy is aligned with the goal of being the most founder-aligned seed fund.
  • Larger funds could lead to different investment stages, but Founder Collective focuses solely on seed investments.

"We could sound almost anachronistic, because we've kept the fund size pretty much the same for the last twelve years now through FC 1234." This quote highlights the intentional decision to maintain fund size, which is central to the firm's investment philosophy and approach to alignment with founders.

"We only do seed." Emphasizing the firm's exclusive focus on seed-stage investments as part of their disciplined approach.

Investment Cadence and Decision Making

  • The current investment pace is rapid, almost defining a different asset class.
  • Concerns about the sustainability of the environment where everything is expected to grow indefinitely.
  • The importance of careful investment decisions, especially when personal time and attention are at stake.

"So I don't think about pace." This quote signifies a rejection of the pressure to invest quickly, favoring a more thoughtful and selective approach to investment.

"Satisfaction equals perception minus expectation." This equation is used to explain the importance of setting the right expectations in investment relationships, which affects overall satisfaction.

Founder-Centric vs. Investor-Centric Approaches

  • The investment environment can be challenging for founders due to its noisiness.
  • Founders need to be savvy and clear about what they seek from investors.
  • The importance of due diligence and going beyond the provided references.

"I've met founders whose only job, the only thing they were good at, was fundraising." This quote reflects on the skill of fundraising as a potential singular strength for some founders.

"We always do our diligence off list." This quote emphasizes the importance of conducting independent due diligence to get unbiased perspectives on potential investments.

Investor-Founder Relationship Dynamics

  • The relationship between investors and founders is likened to a long-term commitment, often spanning a decade or more.
  • It's important for founders to perform due diligence on investors, going beyond public statements to get private opinions.
  • The longevity and success of investments in "fund one" are highlighted, with over 60 companies still active after 12 years.

"Certainly at the seed stage it can be a ten year relationship or more."

This quote emphasizes the long-term nature of the relationship between investors and founders, particularly at the seed stage of investment.

"You should go off list and diligence your investor."

The speaker advises founders to thoroughly investigate potential investors by seeking opinions and information beyond public interviews or statements.

Lessons from Investment Misses

  • Investment misses can profoundly affect an investor's approach and mindset.
  • David Frankel reflects on a missed opportunity with Beam and how due diligence influenced the decision.
  • He discusses the balance between belief in a founder's abilities and the practical challenges of a business model.

"What's the miss that most comes to mind for you and how did that change or impact your investing mindset?"

This question prompts a reflection on past investment misses and their influence on future investment strategies.

"I would have loved to have gone on where I think they're such high caliber founders."

David Frankel expresses regret over missed opportunities with founders he believes to be of high caliber, indicating the importance of the founder's qualities in investment decisions.

Capital, Market, and the 'Who' vs. 'What'

  • The significance of the founder ('who') versus the business model or product ('what') is discussed.
  • David Frankel acknowledges that sufficient capital and a strong market can drive a company's success, but also emphasizes the long-term perspective.
  • The discussion includes the sale of PillPack to Amazon and the importance of analyzing market dynamics.

"Is sufficient capital from good brands and a hot market enough?"

This question addresses whether external factors like capital and market conditions can compensate for less impressive company leadership.

"Many people have said, post the pill pack sale to Amazon, have said, don't you feel silly?"

David Frankel uses the example of PillPack's sale to Amazon to illustrate the complexities of assessing a business's potential long-term value, despite immediate outcomes.

Maintaining Mental Plasticity in Investing

  • The challenge of retaining objectivity and mental freshness when evaluating new opportunities is discussed.
  • David Frankel stresses the importance of respecting and trusting the investment team's diverse perspectives.
  • He highlights the role of partnership dynamics in overcoming personal biases from past experiences.

"How do you retain mental plasticity with every new opportunity?"

This question probes into the methods investors use to approach each new investment opportunity without biases from past successes or failures.

"The only way through it is to have people around you who you feel more objective and less tainted, less biased than you."

David Frankel suggests relying on the varied perspectives of a team to counteract individual biases and maintain a balanced approach to new investments.

Investment Team Dynamics and Decision-Making

  • The process for preparing for and conducting internal investment discussions is detailed.
  • There is an emphasis on the use of software and operational support to facilitate informed decision-making.
  • The impact of Covid-19 on remote collaboration and team dynamics is acknowledged.

"Everybody will have access to the deck and everybody will have access to the notes."

David Frankel describes the thorough preparation process for investment team meetings, ensuring that all members have access to the necessary information.

"Covid's been tough doing all of this on Zoom."

The quote addresses the challenges posed by the pandemic on maintaining team cohesion and effective communication when working remotely.

Encouraging Conviction and Handling Internal Feedback

  • David Frankel discusses the importance of building trust and conviction within the investment team.
  • He reflects on the transition from angel investing to institutional investing and the learning curve involved.
  • The conversation touches on the balance between encouraging team members and ensuring they are comfortable with making mistakes.

"Our job with the investment professionals that are involved in the team is to help them find their own voice and help them find their own conviction."

The quote highlights the leadership approach of nurturing individual judgment and confidence within the investment team.

"Patience and judgment. You're going to hire people, or have hired people because you think they're extraordinary."

David Frankel advises on the need for patience in allowing new team members to develop their skills and prove their worth in the investment field.

Learning from Mistakes and Building Confidence

  • Confidence should be a result of learning from real mistakes.
  • Mistakes are seen as valuable learning experiences that contribute to personal growth.

"But you need confidence born of real mistakes. I think we all would say we learn so much more from our mistakes."

This quote emphasizes the importance of learning from mistakes to build genuine self-confidence.

The Role of Self-Awareness and Asking Graciously

  • Self-awareness is highlighted as a positive trait.
  • Harry is commended for his gracious manner when asking for something, whether via email or phone.

"It's because you're so self-aware, Harry. I mean, you're so self-aware."

David Frankel attributes Harry's ability to ask graciously to his self-awareness.

Delivering Constructive Feedback

  • The challenge of giving feedback over virtual platforms like Zoom.
  • Importance of creating an empathetic environment for feedback.
  • Feedback should be delivered one-on-one and without an audience.
  • The speaker advocates for starting feedback with empathy and a collaborative spirit.

"I think the tough stuff is much better done in person and much, much better done without an audience."

This quote suggests that difficult conversations and feedback are more effectively conducted in person and in private settings.

Emotional Context and Influence Over Power

  • The significance of emotional context in discussions, especially trust.
  • Influence is more important than power in relationships, particularly in investment scenarios.
  • An empathetic approach can lead to better advice and influence.

"We're always a minority. So at best, we have influence. We never have power."

David Frankel explains that as minority stakeholders, their role is more about influence than exerting power.

Importance of the 'What' in Investments

  • Balancing the importance of the 'who' (the team) and the 'what' (the product, market size, problem being solved).
  • The speaker is currently placing more emphasis on the 'what' aspect of investments.

"I keep on changing between the who and the what to me, the who is everything but the what matters a lot."

This quote reveals the speaker's evolving perspective on the relative importance of the team versus the business concept in investment decisions.

Stance on Uncapped Notes

  • Uncapped notes are generally avoided by the speaker as an early-stage investor.
  • They can be useful for operators under certain conditions but are not preferred for the speaker's investment strategy.

"Always a no no from us. It doesn't make sense."

David Frankel clearly states his position against uncapped notes in investments.

Learning from Mentors and Experiences

  • The speaker values learning from a diverse set of mentors and experiences.
  • Entrepreneurs, podcasts, and industry leaders are sources of learning and inspiration.

"I learn from everyone."

David Frankel expresses his philosophy of gaining knowledge and insights from various people and resources.

Insecurities as an Investor

  • Concerns about the amount of capital early-stage companies can absorb.
  • Navigating the uncertainty brought by global events like the Covid-19 pandemic.

"It's been extraordinary to see how much confidence we're seeing in the funding ipo m a environments, but it feels precarious."

The quote reflects the speaker's apprehension about the stability of the current investment climate amidst global uncertainties.

Excitement for New Investments

  • Enthusiasm for innovative investments in unconventional industries.
  • Pear Tree's approach to the adoption industry is highlighted for its potential to revolutionize a traditional sector.

"Pear Tree is using dating style software in the adoption industry, literally adopting kids."

This quote describes the innovative approach of one of David Frankel's recent investments, showcasing his excitement for its potential impact.

Appreciation for the Venture Craft

  • Harry Stebings expresses gratitude for David Frankel's mentorship and impact on his personal and professional life.
  • The value of passionate discussions in the venture capital industry is acknowledged.

"I think for me that was such a special show because you really see and hear the passion that David has for the craft of venture."

Harry Stebings reflects on the passion and influence David Frankel brings to the field of venture capital.

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