Dovi Frances

Dovi Frances — Group11

Wednesday, May 25, 2022

Dovi Frances is the founder of Group11 VC, one of the nation’s top decile performing FinTech funds.

Group11 has led fintech investments into category defining companies such as Tipalti, Sunbit, TripActions and next insurance to name a few. (Series A sweet spot).

Dovi is a bold thinker who isn’t afraid to throw jabs at other venture capitalists for hosting too many lavish parties and yoga sessions. This one is a fun listen.

 

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Dovi Frances is the founding partner of group11, formerly as SGVC. group11 is an L.A. based venture fund. Investing in fintech, Dovi has led investments into companies like TripActions, Tipalti, Sunbit, Home Light, Next Insurance. Before becoming an investor Dovi worked for a decade in the financial services industry, but I was going to add Dovi. I’m super excited because I happen to know that you’re married to a world class surfer, you are a shark on the Israeli version of Shark Tank and you’re super bold.

I’ve been reading. I’ve been reading and listening to you. You’re really bold in what you say and write. And I think that you make a good conversation.

I sure hope so. Yeah, I hope so too. But first up today, did I just get the basics of group11?

It sounds fine. I mean, we can talk more about that as we as we dive deeper into their phases. And what makes us tick.

Yeah. Well, please do tell me some about your thesis. What makes you tick? As I understand it, your sweet spot is a series A investment into a fintech company.

Yeah. You know, when I was reading the questions for this interview, I thought to myself, how interesting that we’re trying to put all of us into some kind of like, you know, I understand we’re doing it for the audience and there are many entrepreneurs listening to your podcasts. And by the way, congratulations. I looked at the numbers. They’re pretty staggering. It looks like, given the very nice saw the next 10x improvement over time. Who the with the podcast and the newsletter.

So really, congratulations. You are doing a great job. And actually, the content is interesting. But I was trying to say that it’s it’s for me, I feel when I speak with prospective limited partners that it’s kind of tough to put to put us into one specific box 

But in general, we invest in financial technology companies first and foremost. That’s my sandbox. I don’t get out of the sandbox.

I feel like I could spend many more lifetimes before I can master the art of being a really good financial technology investor. And that’s my aim. My aim is to be, you know, if you ask me above it all. My aim is for group11 to be the nation’s best financial technology investor in terms of performance and performance is tangible, right. In our industry. Everybody, like in the real estate, in the real estate brokerage industry, everybody talks a big game.

It’s quantifiable, right? Participate in capital distribution, debating capital IRR.

So I really want to kind of like master my craft. Right. So, anyway, fintech number one. Number two, software as a service. I’m far more intrigued than interested in companies that help disrupt mundane human intensive processes.

So I consider it like men-machine symbiosis in financial services.That’s secondly, companies that are led by seasoned entrepreneurs. It’s typically not their first rodeo. I prefer to put significant checks behind founders that have done it before, succeeded or failed.

But at least have the muscle memory of how it is to scale a company from zero to one.I prefer to invest in California. It’s easier for me to take a board seat, to travel, to add value, to meet with the executive team and so on and so forth.

And lastly, which is interesting, about 60 to 70 percent of our portfolio is led by people like myself, people who left Israel about 10, 15 years ago and are now here. And I guess it’s kind of like a it’s a it just happens naturally. Right. I’m Israeli and I tend to gravitate toward those people and I guess vice versa. I also understand them. Right.

That’s what I was going to ask is, is it your pipeline or do you think it’s a personality fit? And if it’s a personality, sort of fit. What is it about that entrepreneur that resonates with you? Yeah, I feel like, you know, pipeline is not necessarily disjointed from personality fit sharing. If you think about it, our companies are kind of like in our founders are kind of the same people that we would like to hang out.

We then have a beer. Right. So. So that’s that. And definitely it’s a cult. I think it’s a cultural thing. You know, I spent four and half years in the army in my last well, I was a company commander in Officer Academy. So. I tend to resonate with other people who were officers as well. And and many of my founders were officers and special forces or intelligence units and so on and so forth. So there was something about that insight.

And the second thing is that the Israelis is a fairly poor country, maybe with good PR, but fairly good. The PR around tech. Right. Not around human rights, but a fairly poor country with not too many natural resources, if any, maybe apart from the Dead Sea Salt. Right. So. So I feel like many of the founders that we invest in and have maybe R&D centers and these are also the cost is actually lower than the costs here for engineers, but also have that time type of like grit.

Nimbleness that I think characterizes so many of our portfolio companies. So that’s that.

Yeah. And then going backward, one thought on. Well, I guess one question is, what if I’m not Israeli like it?

The next the sort of 40 percent. OK, ok. Fair enough. Yeah.

I do not discriminate between Israelis, non-Israelis. I still happen to have statistically invested more in people like myself who left Israel, moved to the states and started the company. And I think that’s just kind of like how the pipeline also works. Yeah.

And the SAAS focus is that. Have you changed as over the course of your investing to have more of a SAAS focus? Yeah, I mean, look, when I when I started investing in tech, I was still running a family office out of Santa Barbara. And. It was kind of like an escalation of commitment, like over time. I just fell in love with it and decided to turn it into my full time profession. It took me about five years to get there. So I left the family office May of 2015 to focus 100% percent of my time on venture capital investing.

So it took me some time to to kind of like figure out what my sandbox is like and what where I feel more comfortable. And the answer is that I feel much more comfortable predicting the future where I can see a path that is a consistent path off of value of value add and and MRR, ARR appreciation, and that typically calls with software as a service. Right. Yeah.

Well, then what? I mean, you it sort of sounds like you put yourself in a box more than I mean, I called you a fintech investor. It sounds like you’ve actually narrowed your focus. I was actually alluding to the questions that you sent me, like, what is the average check like? And, you know, I like I think they’re we kind of differ. I will do things from super early before there is any proof of concept. It’s uncommon, but I’ll do that to investing in series B if I feel like there is still a 10x potential for the company. So 10x potential mean that the enterprise value can grow 10x from where we invested.

So that’s that’s what I meant. But in terms of kind of like the areas of interest, we have limited hours in the day. Right. But I prefer just to choose areas that are enterprise software, for example, accounts payable, accounts receivable, invoice automation, financial reporting, a payroll, global payroll processing, and the list goes on and on.

I think in one of our descriptions of TenOneTen, we said yes. The less sexy, the better.

So, yeah, I want to say I wanted to say boring. But then somebody told me recently from my team that I use the word boring too often. And I decided not to use it in the description. But you’re absolutely right. Boring is the new sexy guy.

And group11. As the brand group11.

You guys used to be SGVC. Right.

So there’s kind of a new new fund name at least. Yeah.

You know, we rebranded about a year ago. I wanted to rebrand. Years ago when I left the family office, the family office name was S.G.. And that’s how the name SGVC was born. It’s the initials of the principal. And when I left in May of 2015, I really wanted to rebrand. But it didn’t have the money. I was I was really busy. There’s like an infinite list of things that you can do around branding and marketing. Most of. Most of it cannot is not tangible. Hard to know how it is as a fund manager is very, very difficult to do. To a certain what really adds value or not. Like I see a bunch of VCs here, like doing yoga sessions on, on, on their balconies and so on and so forth.

Like I couldn’t care less about this bullshit. For me, I wanted to change the name to a name that reflects and encompasses what we are about. Right. And because we focus on fintech, I thought to myself, okay, what will be a really cool name to choose that? That kind of flex speaks to what we’re doing in group11. Obviously from the elements chart are basically all the precious metals. So it’s gold, silver and copper and another one that is not a real but a real metal.

So that’s that’s why we chose the name. OK.

But I have to go back because I think you just, you know, call it something like the touchy feely bullshit that, you know, the yoga sessions, which I guess might push back.

They are a little bit if it is pushed back, is that, you know, mental health is super important. I agree.

And what does it have to do? What does that have to do with my profession? Go to betterhelp.com or talk space or see a shrink. Right.

Right. So you think not the role of the venture capital is to be leading the yoga sessions for their founders?

You know, I think with time there is a very blurry line between venture capitalism. I’ve seen a bunch of venture capitalists. I won’t name names, but, you know. That I think lost a little bit of direction between what matters and what adds value to your limited partners and your and your companies and your overall community and what does not. And I see I definitely see us as a part of our overall greater community. My responsibility is first and foremost.

I have two customers buy two types of customers. I have my limited partners on one hand. And I have my portfolio companies on the other hand. That includes the founder, C suite level executives and their employees. Rightthe greater community. So I just don’t think that there is a good bank for the buck and me hosting any events, doing any type of press, paying a PR agency to promote my brand and so on and so forth. I just don’t see value in it. I don’t think there is a good bang for the buck in it for me.

I think that our story needs to be told and carried forward by our portfolio companies, employees and investors. And as long as I service those two communities properly, I think that we will build an excellent brand name over time. And of course, we need to also succeed and deliver results. But that’s kind of like how I want to play the venture capital game. I think I think it cannot be that there is such cohesiveness among so many of our peers.

If everybody is deploying capital on lavish events and yoga with minimal clothes on the balcony in a nice office in Venice, then, you know, I probably should not play that game. I should be contrarian if I want to win. Yeah. Yes. And yet, you know, you could say that a a seed stage or a series, an early stage entrepreneur benefits a lot by having a big brand name investor on their cap table. And so establishing your name helps them.

It helps gives them some stamp of approval. Let me tell you.

I think. Let me. May I. May I give you a contrarian?

Yeah. Absolutely.

OK, so what is the importance of a brand name today? Like in the end, it’s a question that I kind of like asked myself as well. What do I forgive me for putting the sunglasses on? It’s not that it’s not the tour. Because we’re in Venice or Los Angeles. It’s really because my hair is getting too long and I cannot hold it any other way. You know, back in the days. You ask your parents or mine about Goldman Sachs or Deutsche Bank or Wells Fargo or Citi.

or any of those like large insurgents.

They would absolutely only bank with the big ones. Right. I mean, that’s basically it. Right. And I think what you’re seeing nowadays, you know, you’re seeing neo banks like M26, you know, Chime for the time is a great example. Chime is onboarding on a monthly basis. More clients in Wells Fargo right now and Citi retail clients. And they have you know, I think Wells Fargo has more than two hundred thousand employees and Chime has a few hundreds.

Right. So brand is a big is a big word, but I think the importance of a brand name is changed as well. Like, I don’t know, today. If if you ask any of my entrepreneurs, and I’m like, yes, entrepreneurs in general, you know, I think, yeah, it would be nice to take money from Sequoia or Andreessen. And I think they’re great. They’re great investors, eh? But, you know, the delta like the distance between it two one investor and a two to investor like like ourselves, and allow me to put us as a to invest investor for the time being.

A is not that the distance is not that long. Right. So a so, so I am trying to make a couple of arguments. Number one, I don’t think branding matters as much as as much as you think. And if, if, if and if he does matter. It matters around. Two things, subject matter expertise and value creation by and I. Sorry. I’m sorry, I just don’t consider many of the events that we’re seeing in the marketplace around brand recognition.

Like yoga sessions or many other stuff. I just don’t don’t consider them as any any sort of value creation to the community. I just don’t. Yeah, yeah.

Well, but what I think about is I’ve spent my whole career in product management. And so we’re we’re told to think, what does the user need? What is the user need? Right. And the user in this case being the founders.

And I tried to think about some what do founders need today and what are they going to need in three to five years that they’re not getting?

Yeah, I think you’re asking such a great question. I think that entrepreneurs. Need three things in general from a venture capitalist. I’ll break it down for you. I would say above that, though, you know how many voices we have in the US now? About 1816. Something like that. As of the end of last year. OK. And how many do we have globally? About three thousand twenty nine hundred seventy three.

It’s too it’s too many pieces. So I think what entrepreneurs need first and foremost is less of us.

I’m not sure I agree because of the number of entrepreneurs is growing so rapidly. I just feel this amazing. I think it’s the huge bright spot of our country and of Israel and some of the other very innovative countries is that you’re getting such so many. So much more entrepreneurship growing out of, you know, universities in the area.

Of course, as long as there is enough of it. Look, it depends on which subsectors and where, you know, where innovation can take place. Right. So we’ll see. I’m sure. Continuous continuous innovation around biotech, sure, culture, technology, financial technology. These are areas where I consider, you know, we’ll continue. You know, the European renaissance lasted like almost 100 years. There is no there is no reason why our renaissance here, which has only just begun, will not continue for decades to come, I think what we have seen over the past couple of years, which might explain, by the way, why prices went went up so significantly, is too much money, too much money in the system and not enough not enough good and good entrepreneurs. So I think we’ll see some some consolidation amongst venture capitalists, and that’s that’s number one. But to your question and by the way, I hope that’s the case because that would allow us to differentiate ourselves and to build some kind of a legacy.

It’s you know, when everything is going up and everybody looks good in terms of total value to paid in and and and and distribution debate and capital and their execs are on companies that shouldn’t have been being sold from the get go. Because it’s kind of like the hay days. It’s one thing. But when everything is brought back into some kind of normality, which I consider the current, you know, the current I consider post Covid 19 to be that over the next few months.

Then when you when you win it, it is warranted. Anyways, going back to value creation, there are three things that I think matter to the entrepreneur. One is that to get they get money from you, but from other deep pocketed investors. And to the extent as a venture capital is that you can bring other venture capitalists with you into a deal as your partners just to make sure that we have enough enough money around the table in future rounds.

I think that’s that’s very important. The second thing is helping with securing customers, because many of our companies are a software service companies.

I think it’s really important to help them win new customers. And this is I consider I consider each one of far. I take big pride in our value creation efforts. Lian Kimia, whom you have Matthews’s leading leading that effort on our behalf. But, you know, I work in tandem with her and so are other members of our team. We take our portfolio companies, we meet with the S.R.O., we meet, we do some of the executives in the sales team and we ask them some fundamental questions like what are your top 100 accounts that you would like to win?

Give us us give us the names of the accounts. Give us some background on where you feilding painting them. And let’s see if we can help you. And too much, to my surprise. Not too many VCs are focusing on that. And I guess I guess it’s a shame because it’s we have learned and you know, if I can inspire anybody who is watching this podcast has to go through or venture companies and demand that they will do it for them, it’s very effective.

When when when when an investor reaches us, reaches out. To a CFO of a company, for example, that’s a target customer. A foolish thing, and just endorses their portfolio company and say, hey, you know, so and so, I you know, I would like I would like to share with you why we’re excited about the Tipalti or TripActions. I would like to offer my endorsement. And I’m happy to facilitate the call with ourselves. And because I think they can add military organization, as simple as it may sound. What I just described doing it at scale. By the way, it’s quite complicated. It’s it’s demanding because once you do it and you do it for a bunch of companies, you also need to follow up.

And you also need to you also need to send a reminder once you send the first message and so on and so forth. But it has been very, very effective. The third thing. He’s helping the company retain top management, so c suite level executives and I feel like we’ve done we’ve done a good job there as well. So these are kind of the three things that we’re trying trying to do.

Yeah. So you you said some about having big parties and yoga sessions and summit, some might not be your thing, but you are doing a fair amount.

I think I just saw you guys tweeting about was it office hours or webinars? See, you are doing some convening and bringing people together.

Yeah, I mean, I, I never hosted the never hosted a party as a venture capitalist in my life. But what we are doing is, is always around a certain theme. So for example, I hosted free office hours since the crisis has begun to anybody in the community. It’s a first come, first serve. It’s always like five to seven people in the room right in the Zoom chat room. We’re doing it for about an hour. Everybody’s presenting a question.

Then we I try to answer. Other members tried to answer it. We just have an open conversation there that has been really nice. I really enjoyed that initiative. And it allows. It just allows us to be connected with the community, with whomever it is wants to communicate with. I force I write my medium post every time I want to. To vent. Oh my gosh.

You write some bold medium posts. Yeah, I know many of my Democratic friends are not happy about it.

Some of what you wrote was things like send everyone back to work. You wrote that early in the in the in the pandemic lockdown here. But you also wrote. You wrote something to Sequoia when Sequoia you said she was great. Like I’m gonna direct everyone back to your medium post. Yeah. Yeah. I appreciate them. They’re kind of funny.

Yeah. They are kind of funny. They’re good actually. I do. But I think in response to basically you said something like, you know, yes, there’s a virus out there. I was. Fundraising’s gonna get no shit. Thanks to you. Yeah.

Yeah. You know.

So do you like VCs? My question is, do you dislike VCs?

I don’t know if I dislike or like VCs. I think all of us in our society, everybody serves a function. And I don’t hate people for serving their function. I hate people for having too much ego when it comes to their profession. And I hate people or not hate people. I hate I I dislike I don’t appreciate people who don’t understand what is the function that they serve. We are conduits of capital. We’re not the end all. Be all.

It’s not about us at all. It’s about our founders. It’s about our portfolio companies. And it’s about the value the day to society. And as long as whomever I work with understands that. And and, you know, carrying that role. Their role with that. With that in mind, with the humidity in mind, I’m I’m down for collaborating with them forever. But the moment it turns into, like all these yogas, parties and all this bullshit. I just don’t I just think it’s crap. And and it maybe it comes to bolster one’s ego. And I just doesn’t resonate well with me. More importantly, the thing I do care about, which I don’t know whether you and I agree on this one, but is what you just alluded to, which is the sort of the value that your portfolio companies are adding to society or to the community. And how do you think about the sort of role of business is a big question. How do you think about the role of business in like capitalism in our society? And, you know, is it is it, you know, maximizing shareholder value or is there something more there?

Well, what a tough question, right? Because many of the companies that we back help eliminate redundancies. So in essence, they also help eliminate employees that are doing today manual labor. Yeah. So. You know, and I think that nothing can stop human progress. And whatever was meant to be will be. So, for example, you know, back in the days, my grandfather was a bus driver. OK. And back then in Israel, being a bus driver was a big thing, like to be a bus driver in Agard, which was the National Transportation Company, was a big thing.

You would get one share. You will buy it with real money, hard earned money. And my grandfather was a Holocaust survivor, borrowed money from the bank to buy that share. And then he became a bus driver. And it was you know, he took great pride in these in his work to retire a, you know, fast-Forward today. You know, being a bus driver, it’s a great job. You know, nobody looks at it as if it was as if you were a banker at Goldman Sachs.

And by the way, when I graduated from business school in 2008, being a banker at Goldman Sachs was a big thing. Well, I think today today being an entrepreneur is the next big thing. Right. So when things evolve I guess I just see businesses playing a bigger role in society than they used to play. And maybe government becoming less effective.

Perhaps that’s particularly true in our country. So I feel like someone has to. Someone is making bigger. A lot of businesses are making bigger decisions than they used to be that affect our lives. So, yeah.

No, I, I. I agree with you, actually. Yeah, it’s interesting what he said, what he said about politicians. 

I mean, I think it’s enough to look, Gavin Newsom is a press release from like two days ago when he’s putting his Thirty Seven Steps program to open California over the next 10 years. Businesspeople?

Yeah, you’re pretty you’re pretty adamant about getting back to work, aren’t you?

We have to. There is not a way around it. This economy was not this society was not built to stay at home scared. We need to look at the odds and we need to open the economy. And the price that needs to be paid is the price that needs to be paid. But mind you, you know, people work through people work for wars. Right? Definitely in Israel. But, you know, look at the World War two as well.

People worked through wars. People worked through bombers flying above their above their homes. The reason for the way around it. We got too spoiled. We have to provide for our families. And we have to get back to work. And by the way, really, the sooner the better, because the second bounce of the ball is coming. And it’s coming to commercial real estate. It’s coming to commercial loans. It’s coming. We have to get back to work.

The price will be unbearable if we don’t.

Yeah. Yeah. Yeah. I’m scared about. I feel like we also have a lot of B2B I feel like the B2C stuff has felt the hits that a lot of our companies are.

I think it’s still going to be a bloodbath later this year, which is scary.

Yeah, I’m not even you know, I’m not even talking about my own portfolio companies.

I’m more worried about the average American that doesn’t have a thousand dollars to her name, that has a family of two or three mouths to feed. They don’t live in a single family residence that living in the apartment building. I worried about those people. And I am as a capitalist, as somebody you know. A came from. I don’t want to say a poor family, but a family that had average. Average means. I know how it feels to be under significant financial pressure.

I know how it affects the household. And I can relate to it just because I remember how it was. And I know that many families are being squashed right now and where we’re not. I’m telling you, we’re not feeding it. I’ve had too many friends that argued with me over Facebook, around my comments. Know, I get back to work. Comments. And they’re all for staying at home, but they have the financial luxury to stay home.

And most people just don’t. Why? Why are you bolder than some? I don’t know what my question is, but that’s what I want to ask a.

Because, look, this is a very short simulation for all of us. A short life. And if I don’t speak my mind, then I just play the game like everybody else, then then, you know, then what the hell? In fact, I feel like I’m not bold enough and I’m not doing enough. So who knows? Maybe I’ll go to politics one day.

I think that’s why I don’t think you will. Because you write to me. Maybe. Maybe because our politicians nowadays are more authentic or something. Yeah, maybe.

And I just I don’t know how to be bolder, I think. Like you, I would like to be bolder.

But I don’t quite know. I’m not.

My head is as well. It sounds like you’re very clear on your direction.

Well, you know, I might be mistaken as well. I mean, I’m very I’m trying it’s very difficult to navigate life. Right? Because because, you know, back in the days I remember as a kid, you know, we had one channel on TV and that was the truth, finding out.

Now, you know, you open CNN. The war has ended. You opened FOX. Nothing has happened. And the truth is somewhere in between. Yeah.

And we all have to kind of like have our own northern northern star. I’m just trying to have mine and that, you know, and I might be wrong or I might be right, but yeah, that’s the name.

So, staying on it a little bit. Is your background’s fascinating. And I probably could have a whole podcast. By the way, I listen to a podcast that you’re on. And it was so good. And I loved it so much. One is huge. See, what was it called?

Say forward.

Say it forward. Yeah. You know what? No, but not too many people. It’s amazing that you found it.You know, I came I came to the book just not even knowing what they’re going to ask me about. There was no preparation in advance. And we ended up talking about interesting things like depression, family, the army.

It was it was great. It was very interesting. Yes.

So, yeah, I’m an add a link. I’ll add a link to it because he was great. You know, I, I ended up liking you more after listening to.

I also was depressed and dropped out of college actually. And I counted as one of the best things that happened to me like was like wham!

Was there anything else.

There’s a whole you have such a rich personal side of things. So are you still on the Israeli shark tank?

I just had to ask. I did two seasons. I think that’s enough for me. I mean, I really enjoyed both seasons and they had great rating actually.

I think on average were anywhere between 14 to 16 percent of all households in Israel was good. It really helped me build a good brand name in Israel, which was to the benefit of the fun because, you know, because we get an amazing pipeline of full opportunities from Israeli to the Americans. Right. The Israeli entrepreneurs leave Israel, come to the Americas, and now they feel like they know you. So that was good.

But this is what we were talking about before, which is there is some value in having a brand name that people know and are attracted to.

 just don’t believe in parties because nobody gets to engage. It’s all about having fun, self-indulgence for that. I don’t need to host the party. I can participate in one. And if I do, it’s definitely not going to be one hosted by NBC. OK.

Thank you. My. I just don’t get it. I just cannot get on anyone’s guest list.

They might invite me just as a contrarian. You know. I guess so.

Yeah. How. Give that guy the mike. No yoga. No yoga. But let me make sure.

Did I miss though. Talking more about the entrepreneurs who should approach you. You’ve got this great portfolio. You’re actively investing. You know other ways that people should best get to know you.

You don’t know. Coming AIDS. We have a good Web site. I think it’s group11. We see where five members in the team. 

Everybody’s approachable. And that’s the spirit of the firm. We’re not that it’s not that difficult to find us. I would just say that, you know, if not a fintech startup, don’t butter. Right? If it’s not a thing. It’s not a bone butter. Just just because we’re laser focused on this on the sector.

Well, we will. We will send our our seed companies that are in the fintech space your way for sure.

I would love that. Great.

Great. Well, I’ll get to wrap this up and say thank you so much for coming on the show. This is great.

Thanks for tolerating me. Oh, no. Here. You’re so much fun.