Episode 23 -We speak with Derek Distenfield Managing Director at Fundamental Global and FG Ventures
Derek talks about what Fundamental Global looks for when investing in companies, more importantly the leaders of the company. He shares FG Ventures unique approach in supporting CEO’s, founders, and Leaders in their journey to (IPO) Initial Public offering which is the strength of the FG Ventures team.
About Fundamental Global:
Fundamental Global is a closely held private partnership focused on long-term strategic holdings. It was co-founded in 2012 by Kyle Cerminara (former T. Rowe Price, Point72 and Tiger Cub portfolio manager), and Joe Moglia (former Chairman and CEO of TD Ameritrade).
Fundamental Global uses our resources, network and capital to deliver results.
FG Venture: Venture Capital
FG Ventures is the venture capital arm of Fundamental Global, a private partnership co-founded by former T. Rowe Price, Point72 and Tiger Cub portfolio manager Kyle Cerminara and former Chairman and CEO of TD Ameritrade, Joe Moglia.
FG Ventures’ team consists of seasoned founders, current corporate leaders, and serial venture investors, forming a collective that has launched, seeded, and invested in hundreds of startups to date. FG Ventures takes an approach that is stage and industry agnostic, backing bold entrepreneurs looking to deliver innovative, technological-based solutions to pressing challenges.
By bringing to bear a network of experts and resources that can help portfolio companies grow through direct support and mentorship from experienced leaders, coupled with a conduit to additional sources of capital, FG Ventures offers founders a unique value proposition in growing their businesses to new heights.
This podcast was sponsored by OMI,the company that makes CRM work.And today's guest is Derek Distenfield from Fundamental Global.Derek,welcome to this episode.Excited to talk to you.You told me before that you guys focus on companies.You purchase companies that you can take all the way through to IPO,but that you don't really have a position on like what stage you want that company to be.I wonder if you could just sort of introduce what you guys do by telling me how you evaluate that then?Like,what is it that you guys look for?What is the main broad category you could identify for us?Derek Distenfield:
Yeah.Well,thanks for having me on,George.I'm really excited to be chatting with you.Fundamental Global in best in companies,agnostic to stage,agnostic to industry,and really agnostic to asset class.What we are ultimately looking for is outstanding leaders.We really do believe that great companies start with great founders and great CEOs,and that could be in the lumber space,it could be in the movie industry,or it could be in tech companies like Firefly.And we've ultimately found,if you find the right leader,good things can happen.And so it's a cliche that we've all read a lot about,but we've seen it absolutely become true.And the co-founder of our firm,Joe Moglia,ran TD Ameritrade for many years,but then at the height of his success,he stepped down as CEO and went and coached football.And he has really instilled leadership at Coastal Carolina University where he coached,but he's really pushed those principles into us and helped us look for those traits in the leaders that we're investing in.Play the King:
That's really interesting.And so I want to ask about your background first.What kind of experience do you have that helps you to identify people who,you know,I assume you're not an expert in every single industry,every single sector that you guys invest in.How do you identify the people who might be or who can take those companies to the next step?Derek Distenfield:
It's a good question.I've sat on multiple sides of the table.I've worked in technology companies from$0failures to2billion dollar exits and pretty much everything in between.I helped start Bunker Labs where I seated250companies that went on to raise another a hundred million in venture capital.I ran and co-founded an AI venture studio.So I really looked at companies from all angles in terms of tech,but then also I was an officer in the US Army and a lot of my leadership experience started with that.I think there's not always a checklist that you're looking for in terms of great leaders,but kind of like the Supreme Court said about pornography,you kind of know it when you see it.Play the King:
<laugh>.That's right.Classic line from the Jury Team<laugh>.I wonder,you know,it's always instructive to me.You don't have to name names here,but like,can you just to illustrate this point,maybe could you give me an example of a time maybe that you found someone and you were like,this is a long shot,never gonna work,but you had a gut feeling,you went with it,or maybe and or someone you're like,Oh,this slam dunk and it didn't work out for whatever reason.What are those stories?Derek Distenfield:
The long shot that's never gonna work.It usually has to do with the situation where the cash flow statements,the balance sheets,the PNLs are just not adding up.And you see a business that's losing money.You see a business that might not economically make sense,but what you're betting on is the CEO and his leadership team to find a way to make it work.I often really think about technology companies,especially at the early stages as science experiments,and you're betting on the professor or you're betting on the leader of the experiment,not the experiment itself.And so oftentimes1,2,3,4years into the business,the experiments aren't going well,the economics aren't adding up.Maybe the traction isn't,or the growth isn't where you want it to be,but you see that leader and you're going to continue to engage and invest in that experiment.And so on the other side of the coin,there are times where you see great ideas,you see great design,you see great investors,but perhaps that leadership team wasn't the best in the world to bring it to market.And you know,I you do misjudge that sometimes.I certainly have,we try not to,but that's where things kind of go wrong and,and go,Right.Play the King:
Okay.I'm going to respect your discretion there,uh,<laugh>and not press too much to name the biggest failure<laugh>that you've ever invested in.Although I know,investors,if you are not investing in failures,you're not doing it right.Right.Derek Distenfield:
Yeah.And I would say the biggest failure,I'm trying to think.We invested in,not Fundamental Global,but I invested in a legal tech company that we thought was ultimately going to change the legal profession.And we put a lot of money,a lot of time and,you know,we really thought it was going to disrupt things.But what we didn't take into account is how angry lawyers were going to be.And we didn't pay close enough attention to what the reality of the climate of the situation was and how much lawyers wanted to do it.I mean,Justin Kan famously did the same thing with his business.He's like80million dollars and soon ran into similar headwinds that we ran into two or three years before him.And I remember I met him and told him that was gonna happen.And of course when you're Justin Kan and you found Twitch and you work at YC,you're gonna be able to raise the round and you're going to bet on the guy running the experiment.But sometimes they don't run the way you think they are,even when you have an experience credible founder like him.Play the King:
It's funny,I think I was reading something recently about college professors and they're reluctance to use scheduling software.It's like almost a mark of their own autonomy and ability to like do things their own way to resist doing that and like force people into a little more discomfort when they need to schedule with them.It's like,you know,lawyers I can see being very similar,you know,like,no,it's my prerogative to do it the way I want.I'm gonna,your software be damned,you know?That's funny.So talk to me about scaling a company.You have to see it for what it is and you have to see what you think it could be.And I wonder what are some of the things that you look for?I know that's a really vague,broad question because every company's different,every industry's different.And maybe it relates back to the question of of it's not necessarily what you know,it's who you know,but think about those different dimensions of this question,the people running it or versus the what it is and the various factors you look at when you think,hmm,could this become what I think it could become?Derek Distenfield:
Yeah,I think the importance saying in terms of scaling a company is it is very,very difficult to be the guy that comes up with the idea and sees it all the way through.I think the challenge with that statement is,people will point to guys like Zuckerberg and Gates who,you know,the exceptions came up with these incredible company.They are the exceptions and that's why you know them.It's not something that happens every day.And there's very few personality types.Even Elon Musk is one where you can have an idea at the early stages and push it all the way through,but regardless if it's the original founder,original CEO or not,in terms of scaling,there has to be a process in a culture,a machine that works.You know,I've seen some pretty good leaders drag a company to50million in revenue,maybe a little bit higher.But to go much beyond that,you really need to have both the culture and the processes and it takes a lot of rigor and discipline to develop those things.And,you know,that's much different than what is needed for a guy to have a completely disruptive idea.So if it is gonna be the same person,there's gonna have to be that shift that is oftentimes unpopular with your dorm room buddies or your original team that you hired.And you're going to have to push people through that.I think the other thing that doesn't get talked about enough is the economics.And there has to be a really strong business case and maybe that's an obvious statement to make,but I see a lot of companies who raise their marketing spend and their revenue goes up,but it's just going up in parallel.And at some point in time that hits a brick wall.And so Slack is incredible for all the reasons that get discussed,but they also had an interesting revenue model and you know,I think people forget that usually disruptive businesses that scale like Slack,like Airbnb,we wind up taking their revenue models for granted.But at the time that they were developed,they were new and they were different and they were scalable.So it's not just the product,it's those economics that can move alongside with it that can reach a lot of people and make a lot of money.Play the King:
That's really interesting.Tell me about some of the earlier stage companies you've invested in,especially the role that forming a community around them can play.You know,so I'm thinking about accelerators,incubators,the places people think of as,you know,sort of the birthplaces of startups.How important do you think that is?Do you look for a company that sort of comes out of those areas when you guys are looking to invest?Derek Distenfield:
Yeah,so I'm a little biased because one of the things I also did is I ran a community building marketing firm.It was called Cult Following.And we would recruit,indoctrate and spread and help brands think about community.So I really sometimes overindex around community and you know,I think there is nothing magic in the water in San Francisco.I think intellectual capacity is evenly spread around the world,but opportunity is is not always there.And I think that if you provide people the network,the resources and the capital that is needed to build businesses,you can build them from anywhere.And I don't mean just any city,I mean any town,any place.And certainly I've seen accelerators do an outstanding job of providing that bridge to the capital resources and connections that are needed to build your business.I think Y Combinator has really set the standard,Techstars has done that,but there's lots of companies that need those community and resources to succeed.And especially if you are a first time founder that's looking to raise your first round of venture capital accelerators and communities for that matter.It doesn't necessarily have to be an accelerator,but finding that place for you can be a great step in the right direction.Play the King:
How does an investor like yourself help companies scale?And I guess behind that question is maybe another question about when is the right time to,to be hands off and just let,let companies,you know,cook and when,when is it,you know,when can you be helpful and when can you actually get involved on a more granular level.Derek Distenfield:
Step in?The way that I think about it is at Fundamental Global,we don't have like a program that CEOs have to go through or this is what we will do for you.We really support the CEO in the way that they want to be supported.Sometimes that means getting really hands on.Sometimes it just means being a good board member and providing advice and governance that we're required to do at that level.So I don't really believe in the kind of cookie cutter approaches to helping founders scale,but I do believe that we have seen a ton of early stage companies,a ton of late stage companies,and that there's not always a unique situation.It might be the first time the founder has gone through it and there might be unique ways to address it that are important for your organization,but usually we've seen something similar or know someone that has,And oftentimes as a founder you feel alone and when difficulties arise you feel that you're the only one suffering from this challenge.But it's usually something that we've seen before and we've seen founders get out of.And if we haven't,we can find someone that has and we can be there and support the founder.We also have the ability to look at the economics and help with modeling and business decisions.But ultimately at Fundamental Global,what we're trying to do is use our network connections and resources to help companies fulfill their KPIs or OKRs to be successful.And that's really what we try to focus on,but it's always gonna be pull from the founder,not a push from us because ultimately we are the investors,the CEO and the team are the ones in the foxhole and they need to drive when they get that support and when they need it.Play the King:
I wonder if I could just ask you to tell me about an investment you made recently that gets you the most excited.What is the deal you've done recently that you're just like,man this was fun,this is potential,whatever it is that makes you excited about it.Tell me whatDerek Distenfield:
It is.We are very long on Firefly.They have a unique approach to advertising.They actually started out by putting screens on top of Ubers and sharing the revenue with Uber drivers,but they've really expanded much beyond that and we think they are a unicorn two times over heading into that decacorn space.They have an outstanding CEO and leader that we are a hundred percent behind and will go through by the tooth and nail to help them continue to succeed.That'sPlay the King:
Great.And where can people go to learn more about Fundamental Global and what you're doing?Where do you want send them?I know you have a sub stack,maybe that's the place,Derek Distenfield:
<laugh>.Yeah,I mean FundamentalGlobal.com,our website.I'm on LinkedIn and Twitter.I will help any founder at any stage.All I can regardless if we invest or not.I really do believe in#givefirst and excited to learn and engage from people every single day.