TitleManaging Partner
CompanyFounder Collective
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David Frankel, Co-founder and Managing Partner, Founder Collective
David Frankel, co-founder and managing partner of Founder Collective, arrived at Harvard Business School without a clear internal mandate for his presence at the celebrated campus. Unlike most of his classmates, Frankel arrived from his native South Africa as a wealthy young entrepreneur who had already co-founded and sold a hugely successful company that left him, at age 29, “sitting on the floor, bored out of my mind.”
Having been accepted to HBS prior to starting Internet Solutions, an internet service provider, Frankel had deferred enrollment twice during which time he founded IS and grew it into what became the largest ISP in all of Africa. By age 27, he had sold the company to Dimension Data, taken a board seat as an executive and was zealously obeying the non-compete clause in the agreement.
He helped Dimension Data go on a global acquisition tear, buying up Cisco distributors around the globe, and transforming the company into the largest Cisco distributor outside the U.S. He was part of the IPO that raised $1.8 billion and listed the company on the London stock exchange. And through all this, he came to an important realization. “Three years into it, it became clear to me that I wasn’t made to be a corporate guy and work for a boss,” he said.
With his sudden wealth, Frankel had begun investing in South African startups as an angel investor. “For every success, there were at least two complete failures,” Frankel recalled. One success was Healthbridge, which grew into the largest independent healthcare data processing company in Africa. Despite his obvious entrepreneurial and investing skills, Frankel felt a relentless itch. The HBS acceptance sat untended in the back of his mind until he said to his wife, “I need a total change and this HBS thing is unfinished business.”
He packed up, flew to Boston in the fall of 2001 and arrived on campus with the words of his peers echoing in his head. “A lot of people said `You are a lunatic. Why are you doing this? You are wasting your time. You don’t need to do this.’” he recalled. “But I needed to tick this off the list.”
His introduction to the campus was a shock. “I absolutely hated the first few weeks there,” he said. “I thought `What have I done? This is the worst decision in my life.’” He was missing his wife, a neurologist who had stayed back home, and as a traditional Jew with the high holidays looming, he felt utterly alone. Fortunately, he sat down with one of his professors, Andre Perold, who taught finance and banking, and expressed his remorse and desire to head back to South Africa. Perold quietly counseled him to sit tight and see it through. “I owe him big time for that,” Frankel said.
By staying, Frankel ended up meeting “some lovely and interesting people” who would help change the trajectory of his career. Among his classmates were Eric Paley and Chris Dixon, two talented young entrepreneurs whom Frankel supplied with seed capital for their nascent ventures. In all, he backed eight of his classmates in starting successful companies.
For example, he gave Paley his first seed capital for Brontes, a maker of 3D imaging technology for dentists that Paley sold to 3M for $95 million. He also funded Dixon who founded SiteAdvisor, which was sold within a year to McAfee for $75 million. Frankel was the lead investor for Victoria Brown when she started Big Think, a venture which simultaneously attracted investments from Peter Thiel and former Harvard president Larry Summers.
“I had fantastic classmates and they introduced me to more great people,” Frankel said. He ended up backing 27 startups before he and Paley founded Founder Collective, a venture capital firm based in Harvard Square and New York (Chris Dixon was an integral part of the founding team but at the time, he was also CEO of Hunch, a decision engine startup, and not a full-time founder of Founder Collective).
Frankel’s ability to juggle his HBS course load while indulging his emerging venture capital career was impressive. He also remained on the board of Dimension Data and found himself flying to London for regular board meetings and then showing up bleary-eyed to class. “I may not have been the world’s greatest student,” he said, “but I tried really hard. There was loads of superior intellectual horsepower in those classes but I had the advantage of not having to look for a job.”
He actually didn’t begin investing in his classmates until the end of his second year but he embraced the opportunity to be a VC “on the inside.” Being able to sit in Spangler for lunch kicking around ideas with a talent like Dixon “was an amazing position to be in. I was not labeled a VC. I was more of a super angel. I was generally writing checks for $500,000 to $2 million.”
For Frankel, the decision to stay at HBS proved to be a watershed. “I was a kid in a candy store,” he said. Ironically, up to this point, he had not given up on starting another venture. But the transformation from entrepreneur to investor was happening incrementally, bit by bit, with each new investment. “My yearning to be involved in entrepreneurial pursuits was being satisfied and I could sleep at night,” he said. “The founder is the hero; they really own the problems.”
In 2009, when Frankel and Paley decided to launch Founder Collective with a first fund, it was possibly the worst year in recent memory to be fundraising. But in hindsight, it was a brilliant time to be investing, Frankel said.
Early on, they bifurcated their strategy: they continued to make smaller angel investments of $100,000 to $200,000 in more volatile startups with hope of a high return and also do seed rounds of a million dollars for core investments. Fund One ended up with 150 investments, approximately twenty of which were of the core variety with bigger checks.
“We were off the charts lucky,” Frankel said about the opportunity to invest seed capital in startups like Uber, Buzzfeed, Makerbot and Coupang, which is South Korea’s equivalent of Amazon and Fedex rolled into one, according to Frankel. Among the bigger investments were Seatgeek, a mobile app for selling event tickets that is disrupting giants like Stubhub and Ticketmaster.
Their early success eased the path for Fund Two and Frankel said they could have easily raised a far larger fund. Instead, at Paley’s insistence, they capped the fund at $70 million. “Eric said `We are just starting to show we’re good at something so let’s keep that going and stay strategically focused,’” Frankel said. “I think that’s what we will look like for a long time.”
Ever modest, Frankel believes that good timing and a fair amount of luck has played a significant role in his success. He began his first company in the early 1990s, just as the internet and web were emerging, which fueled the success of his first startup. He sold the company in 1997, just before the dot.com meltdown torched the tech industry. He went to HBS between 2001 and 2003, which, with a laggard economy, turned out to be a serendipitous time to be sitting on the sidelines. In 2003, when he invested in Dixon’s startup SiteAdvisor, Dixon had been turned away by dozens of VCs who refused to fund the consumer Internet. “I remember thinking `It’s a compelling concept and you are a compelling entrepreneur,’” Frankel said about his decision to invest in Dixon’s venture.
At 44, having already achieved a lifetime’s worth of career success, Frankel reflected on the lessons he has absorbed thus far.
“In all our lives, that thumbnail of opportunity presents itself,” he said. “Most of us tend to walk past it or ignore it. It happens serendipitously; a chance meeting, a lunch at Spangler, a late night discussion with friends where someone mentions an invention and everybody goes `Wow, that would be game-changing’ and nobody does anything about it. Be conscious and recognize those moments of opportunity around you. Act on them, really act on them.”
Frankel believes that for HBS students, this is the most advantageous time to take these risks. “Bear in mind, your risk-taking appetite has to diminish as you get older,” he warned. “So you are at the best time of life to take risks.
“I have seen guys in their 50s and 60s who spoke to me for years and years about starting something and could just never get it together,” he added. “It’s sand through an hourglass.”
Finding binary certainty is an unrealistic expectation, Frankel said. “Most of the best decisions I made, I didn’t have binary certainty. It was 51 percent at the most. What underpins those decisions and what is non-negotiable for me are 100 percent trust and 100 percent belief in the competence of the people you partner with. One of our rules is to ask this question: `If this was the last business you were starting and this was your full-time job, would you partner with this person? If you hesitate, if you can’t say yes, you probably shouldn’t do it.’”