FUTUREPROOF.

How to Identify the Business Ideas of Tomorrow (ft. John Frankel, ff Venture Capital)

August 14, 2019 Season 1 Episode 40
FUTUREPROOF.
How to Identify the Business Ideas of Tomorrow (ft. John Frankel, ff Venture Capital)
Chapters
FUTUREPROOF.
How to Identify the Business Ideas of Tomorrow (ft. John Frankel, ff Venture Capital)
Aug 14, 2019 Season 1 Episode 40
Jeremy Goldman
Jeremy sits down with John Frankel of ff Venture Capital, the investor behind successful startups like 500px, Contently, Indiegogo, Parse.ly, Pebblepost, and Stocktwits.
Show Notes Transcript

Today we’re speaking with one of Jeremy's favorite sources…John Frankel, founding partner of FF Venture Capital, a New York-based, seed stage investment firm.. You’ll learn about how a VC has to work to become a better futurist on an ongoing basis, why an emoji is not a fad but why becoming the foursquare mayor of your local sushi place is. We also discuss how much friction a consumer will accept with any new invention, why people are so scared of technology and AI in particular, and why it’s not that easy to predict how things will look in a few years. 

As always, be sure to rate and review - all of the support from our community helps us grow!

Speaker 1:
0:00
I will tell you this, that the Egyptians found emojis to be very helpful.
Speaker 2:
0:08
Hi, I'm Jeremy Goldman and this is future proof.
Speaker 2:
0:16
So today we're speaking with one of my favorite sources of all time. Honestly, John Frankle, he's the founding partner of ff venture capital and New York based a seed stage investment firm. You'll learn about how a VC has to work to become a better futurist on an ongoing basis. Why an Emoji is not a bad but, but, uh, becoming the foursquare mayor of your local Sushi places. One, uh, how much friction a consumer will accept with any new invention, why people are so scared of technology and AI in particular and why it's not that easy to predict how things will look in a few years. So let's jump right in.
Speaker 1:
0:56
I'm really excited about this. I wanted to ask you, even though I know the answer to this, since we often start with this is a you, what do you do on a day to day basis? How do you kind of describe yourself? So, um, I'm a technology investor. Uh, I'm a founding partner of ff venture capital, which is seed stage firm based in New York. We've been around about 11 years. We have 73 active portfolio companies. Um, some of them are household names, lot of them are not because they're on the enterprise side and we predominantly invest in US space software companies. You have a few hardware, have a few outside the u s uh, I'm, we're seed stage investors. So we invest when this fear for people in the room and we look to exit the number of years later when the Andrea 200, 300 people. Canalization yeah, I mean and I think that it's interesting cause I know I've spoken to, you know, a few other times, uh, you know, for some other stories that I've worked on and I, I mean I have this hypothesis which is that, you know, venture capitalists, especially seed stage, they have to be good futurists in some ways.
Speaker 1:
2:08
They have to be good predictors of what are the, uh, traits that are going to make a company successful as well as an industry in a particular discipline a few years from now. And that's something that their investments don't pay off. And you don't hear about those people if they're not that successful at it. So the good ones at the very least have to be relatively good futurist. But I'm curious what you think about that. I've spent too many years working in investing too. No, not understand the notion of Hubers but the moment you think you understand something as the moment, you probably understand that the least. And so my approach and I think all firms approach is with students at the market place. We don't think we're smarter. Everyone else around, we just try to work hard to understand the landscape and what's going on. So the term future is to me is at best aspirational as opposed to descriptive, which is we try to think about where things are going.
Speaker 1:
3:15
Um, we've had some good hits in the past. We've had some, yeah, good misses in the bond. Um, but we try to think about where the world will be in three, five, seven years. The companies that come across our threshold that we look at and we tried to pick. Yeah. We looked at two and a half as a company. We invest in a dozen or so. Yeah. We're looking to find those companies. We think we'll have a secular wind to their back. The uh, two's, the fee, very famous. Wayne Gretzky, both going to where the puck is going to be as opposed to trying to invest in something because it's a fad at the moment. Capturing people's attention right now, that's often for us a negative signal. That's also, I mean, it brings up the point about what is a fad and what isn't because it's not, I mean, there are people who I think say Emoji is, let's just say r Oh, that's the thing that's going to be around for six months or some things such as, yes. Right. Because giphy is big right now. I will tell you this, that the Egyptians found the emojis to be very helpful. Yeah.
Speaker 1:
4:26
Yeah. Hieroglyphics being a, yeah. Look, I hadn't drawn the emojis, but, but seriously, I have a view that everything is of that. It has a beginning, a middle and end. Telex was a fad. Yeah. All right. Tell him, I remember going to weddings when I was a kid and there'll be a point in the wedding after seminarian in the party. Well, someone will say we have the telegrams from the people who couldn't be here and they would read out the telegram. So all right. People tend not to use telegrams anymore unless it's an app on the phone. Ah, cool. Telegram. That's true. So I think everything is a fad. The question is how long is it going to be? Yeah. I remember a few years ago foursquare, everybody was checking in. No one wants to do that anymore. No one wants to be the mayor of our office or the, yeah, the Sushi place downstairs anymore. Um, but which makes it easier to be the mayor. So if you start with the premise that every technology company is trying to change a behavior of people in a meaningful way, so change behavior of millions of people. The question is, is that behavioral change something which [inaudible] is long lasting? Oh, I'm an and so too strong a term. Oh, is it something which they'll do for a while and it's kind of cool and then they'll get bold and stuff doing. So four square became three square became two square. Yeah, less.
Speaker 2:
5:58
Less of. Well, it, it's kind of I, the thing that's interesting that I know you're joking in some ways about the Egyptians and the Emoji, but it actually, to me it touches upon an important thing, which is that you have to, for any technology or for any company, you have to think about what are normal quote unquote things for humans to be engaged in. What are the things that add value that are additive?
Speaker 1:
6:23
Absolutely. A number of years ago we invested in Chemical UniKey and the is a smart key company. They power smart locks, so key vote, which is the world's largest selling smart lock spectrum brands. Kwikset branded product. You rather than reaching into your pocket, pulling out a metal key, putting it into a metal lock and twisting, which is a [inaudible] behavior. We've, yeah, it goes back a hundred plus generations. That's how humans have bay. Is it better to replace that with a single touch? On the [inaudible] wave in front of a, a sensor to wake up the lock, to then unlock the door based on the key sitting on, on your phone through Bluetooth, low energy and action. And the interesting thing is that we think it is and we think it will, once you go smart lock, you don't go back to the information lancer powerful things you can do is send people keys, electronic play in their life. Well, when it first came out, it took about a second to unlock a few time. The amount of time between you putting your hand in your pocket, you're taking out the key and you putting it in. That's more than the second. Hmm. But it seemed like a worse experience initially.
Speaker 2:
7:42
[inaudible]
Speaker 1:
7:42
well you weren't doing anything because that wasn't doing anything. Yeah. And it wasn't until they got it down to somewhere around about three to 400 milliseconds. They felt much better. By the way, 102 hundred Phil's even better because it's Oh yeah. Starts to fulfill almost instantaneous. If you don't occupy people during that extra time, you give them, it feels longer than so. So these behavioral dynamics become very important when you think about it. But yes, we're looking about adopting behavior.
Speaker 2:
8:14
I think that in some ways that also touches, I feel like the idea of, you know, all these new people coming into the workforce, uh, and or every like perfect examples, you take an UniKey customer take a 12 year old, 13 year old that uses something like that for the first time that they have not yet used a traditional key. So that feels like I'm more than
Speaker 1:
8:35
normal introduction. [inaudible] nine year olds, eight year olds. So your, the kids toys have keys on them. They understand that concept. The question is what, what's, what's natural against it does. Um, I'll give, I'll give you and interesting. So the physical design concept around this, there's something called a Mfi, sorry. Take that back. [inaudible] Norman door and the Norman th the, the problem of a Norman door is a bad user experience. So you walk up to the door and you don't actually know whether you should pull or push. We will experience this and sometimes multiple times a day. Goals are very badly designed. It's symmetrically designed on both sides. Even the one side you meant to pull monument to Bush and it's, it's amazing how such a simple concept of designing a door so that when you reach for the handle, it naturally does what you want it to do and work through.
Speaker 1:
9:35
It's very difficult to actually do it and so yeah. This is something that you see in design everywhere you come to something, it needs five clicks rather than one. Yeah, it will. You go to Robin Hood, Robin Hood is trading app is sales just natural click, click done. You go to that same, you tried to do the same function on a lot of existing broker dealer websites and Oh my God, you've got to enter in a fields. You got to click a box and Arrow box and you got to click somebody else. You got to type something in over here. It's ridiculous. How much use user injections necessary to do something that can be done collectively and that's why to me it almost seems like, and I don't know if this is too much of a oversimplification, but in general in general, okay. Consumers will be okay with two steps forward and one step back and you know maybe it's three steps and half a step back.
Speaker 1:
10:32
But the point of it is is that there'll be, there'll be okay, most people, especially early adopters with some degree of additional friction if it overall the experience is better and if they feel that this is overall adding more as opposed to what they're losing, you know because we're always losing something with technology and then we introduce it a new thing to it helped solve the thing that we just lost sometimes of benefits and non obvious. So coming back to a normal door example, we will, I'm doing some construction we want to put door handles on and we looked around and most all handles breaking driver around the hub. Oh. So I'll shake a handle that you twist those. Those are the two main ones and they both have problems. The round one is difficult. As you get older, that action of putting a hand on and gripping it, it's really not an easy action.
Speaker 1:
11:29
And the doll hand, the ones we put your hand over a piece of that will shake metal and turn it those, those are pretty standard. But over time the weight of that owl actually weighs them down. So they cease to be horizontal. It weighs on the spring in the light. So not many people think about this. All about it came across a door handle the sauce cells soss then known for hidden the head hinges. They sell these handles and these handles are particularly used in ah, nursing homes in life. Hmm. And they were designed to be incredibly low friction and they work, they look weird bought. They are so natural to use that it's such an uptight, it's such an improvement on the existing one, but they look different. And so they have a tiny percentage market share and it's a massively better experience. And what happens with the handle is if you're going through, there's a push, you push the handle [inaudible] and the hat.
Speaker 1:
12:32
And if it's a pole, you pull the handle, it looks the same and you don't need that twist action. And so that's why I love that it goes into Nazi hunt. Um, but it's, it's fascinating where someone actually sat down and said, let me take a problem that everybody has a contact [inaudible] and sold it and they sold it. In a way, it's very difficult to communicate, which is why this is not on 90% of doors. And honestly it shouldn't be. It's, it's a, it's a much better solution to the problem. I think apples airpods fit into a similar way that if you use them, you go, oh my God, this is amazing. Once they had it and they try it, then they get it and they don't feel like they're ostentatious. It, it, and they reduce the friction in a lot of ways. And Yeah, even more so I think with the airpods when you look at them well, things you'd say, well, I don't really know, et Cetera.
Speaker 1:
13:27
There's a lot of doubt. And once you actually use it, you go, that's a great experience. And I think it is one of the highest rated products ever put comes customer satisfaction way above the iPhone. I remember when the iPhone first came out, there was a lot of skepticism and the iPad itself when it first came out, loves skepticisms. So I think sometimes good solutions to problems a non-obvious and they do require a fair amount of convincing of people to adopt them. But once they adopt them, they, the the like discretion the hands like what I'm missing. So I just human behavioral aspect and trying to understand how much is a sup mission change, but not too much. It's important though, investment in UniKey was based on the belief that this was a change in behavior and was moving in the right direction. Once you go smart lock, you don't go back.
Speaker 1:
14:21
But it wasn't too much of a change of behavior that people wouldn't adopt it. You talk about this, and I think this is a really important point, the idea of thinking about and being able to anticipate how you're going to feel. P people can often imagine a certain aspect of he here's what's gonna be happening in the future, such as artificial intelligence and automation are cutting down on the jobs that we have access to, but they're not necessarily thinking about and this is going to give us more time with our kids. Or it's not thinking about, oh, are there going to be more value added jobs in our society as opposed to purely automation jobs that people might not necessarily want if they had the option of moving up. So what do you, what are people missing on average when they're just plain scared of AI and not looking at any benefits that might be coming up there?
Speaker 1:
15:14
So I call this the luddite document and like cool. That I think is very attractive as an argument, which says the areas where we employ a lot of people in the economy are in jobs that automation can eliminate. Therefore, automation will eliminate them. That fall we will have on unemployment. I mean that's a luddite argument. It didn't work during the industrial revolution. Now there were a lot of jobs lost, but there were a lot of new jobs created. I, you know, I remember, I think it was in the late, I think it was the mid to late eighties it was a UK program, a bit like 60 minutes over here called Panorama [inaudible] and they talked about the factories of the future in the year 2000 and how you would have three or four workers in the factory and it's a most of the time in the gym. And then every now and then an alarm would go off and they'd have to go and fix something and then to go back and do it.
Speaker 1:
16:12
It's been data on this where it's like even if you get something wrong, right, that you predict it's going to happen in 18 years and it does happen, it just takes 47 years, you know? Listen, there's an element to that and I'm sure that people still using AOL dial up modems and you know, telephone directories and stuff, but I get the long tail on it. But this, this, this is a little different. This is secondary and tertiary impacts of people done on this thing that the hundreds of billions of dollars that's being generated by the app economy didn't exist 10 years ago. There was no app store 10 years ago. All these, yeah, all these influences are earning money. That chunk didn't exist all that time. I mean the so many jobs that it didn't exist, the can now exist. I'm fundamentally, when you apply technology to a problem, you generally take out the most labor and boring aspect of that job.
Speaker 1:
17:08
You allow people to do more interesting things and maybe more interesting things is, you know, spending time watching marvel movies and playing video games and being on Facebook. But generally my sense is, you know, I work as many or more hours than I've, I have a walk to my life and the people, our team, I also do, we, you know, we have tools that will enable us to do far more than we could do before. But that doesn't mean there's less people doing stuff. It means that more values being created in the economy and that value. It's a peculiar thing, but it is something that has been created. Why do you think that there are so many people who don't notice or are, I think you're right, there are a lot of people who are maybe less educated or just don't spend as much time understanding the benefits of AI and almost getting to know it and you're in a unique position and that you're invested in.
Speaker 1:
18:02
You work very heavily in this world, so of course you know it more, but why do you think people can get better at predicting the positives? But we always had, it just seems like genuinely only in life were predicting the negatives and not necessarily, but here are all the positives that are going to come from something. Couple of reasons. Firstly, don't take anything I say for certitude. I said with students in the market a lot, I document it's very seductive. Being wronged. In the past it might be right that some point in the future we don't know, but when not seduced by the young. We live in eight Q Leah world where different people believe contradictory things all the time and where something can be stated and people interpreted all different ways. So I don't know why, I mean I kind of icon. So why do people interpret something one way or another?
Speaker 1:
19:00
Um, I mean, you know, politics is very clear where we're getting contradictory [inaudible] interpretations of statements that are made on one side or the other, the read by people. It's completely different outcomes. Yeah. And I think that's true. I think that there's another point which is just naturally, if there's something that we fear, it's better to be err on the side of being a little bit conservative and worrying about that thing. And you might even argue that the fearful ones are the ones that uh, you know, procreated because they lived long enough to procreate. And maybe that's why we're, I mean, some people posit that and it's an interesting theory, which is just the people who are more cautious and worried about the future are the ones who are more likely to pass on their genes. I mean maybe, I'm not sure there's going to be much [inaudible] genetic development of people prospectively because of, because that's not how society works.
Speaker 1:
19:57
Yeah. But that's number issue. So, so I, you came back to your question, we tried to look for trends we think are important. Ah, we like to invest with a secular wind to our back and, uh, we think AI, which has been around for a long time and as you know, the funny thing is as soon as something becomes mainstream in AI as ceases to be AI, that's, and I know we talked a little bit about that before or just the idea that frankly from a valuation standpoint, people say, well, is there any AI quote unquote in our product? Well, let's throw that in as a marketing term as opposed to, and that the topic, you know, and the, the concept gets watered down. But the reality is yes, it's in, in some ways, so many products now that we don't really think of as AI.
Speaker 1:
20:42
Right. If you looked at the app, pause is probably at least five different AI systems embedded within it. We don't even think about unsurfaced unmarked about, it's just magic and it just works well. There's a lot of technology that would, would naturally be classed as AI embedded within it to make it just work. Yeah. When you're thinking about AI and kind of like even moving past that also, what are some of the concepts and ideas that are most transformative to you at the moment? And the most interesting AI related or VR, ar, Eh, any of the initials, but really any, any area that you think might be a, you know, something, a focus for you, but also something that the average a CMO, chief digital officer should be thinking about and isn't necessarily. So I will tell you the areas that intrigue us most around I applied AI, so the application of AI to create tools that didn't exist before that can be, I'm much more efficient at getting a given function done.
Speaker 1:
21:49
We'll do a function you can do. And so within that was spending a lot of time in drones and robotics. So like across the field, uh, and also in Fintech. Uh, and we think fintech from a couple of prospectives. Again, behavioral, we've been new consumers, less brand loyal than they used to be. That in a world of social media brands count for a lot less and they used to and they have to take sides, which is very uncomfortable. And then if they do it successfully they do well. And if they don't do it successfully they don't. But we've seen, yeah, Nike and Starbucks both get political. Yeah. And that I think is inherent aspect of the age we live in that they feel the need to do that in order to manage and stimulate growth and carve out their market niche.
Speaker 2:
22:40
And I wanted to leave it there just because John has so much to say and it was really quite a lot of information in the second part of our conversations. I really wanted to let it stand on its own. So look for that in the feed in the very near future. And thanks so much John for making the time to talk to us. Thanks to you guys. By the way, I know we say this a lot, but thanks so much for helping other people find out about this show. It's really meant a lot to us. This show was edited today by Jason Stack, and once again, I'm Jeremy Goldman and you've been listening to future proof.