Frank Rotman | Building Capital One ($58B) and QED Investors ($4B AUM)
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Frank Rotman is the Co-Founder and CIO of QED Investors, and before that helped start Capital One. Frank and I go deep on their founding stories, as well as one of QEDs first big winners, Nubank.
Frank also gives us a crash course on fintech, lending businesses, and crypto use cases; his hot takes on the venture asset class as a whole, with lots of advice for emerging managers; plus a case study on how high valuations too early on are bad for a startup.
Timestamps:
(00:00) Intro
(04:22) Starting Capital One in 1988
(07:04) Spinning out as an IPO
(10:42) Starting QED in 2008 before Fintech was a category
(20:51) Raising their first outside fund
(22:03) Investing early in Nubank
(25:11) Fintech opportunities in India
(27:45) De-risk investing in new markets
(29:55) How financial services have changed over the past 30 years
(31:33) Inside a new Capital One credit card in the 90’s
(36:31) How most companies launched new cards in the 90’s
(39:46) The most profitable types of credit card customers
(42:00) Mistakes founders make building credit businesses
(48:33) Frank’s “Three Body Framework” for VC
(54:48) Losing strategies in VC
(01:03:39) Unpacking why high valuations are bad for startups
(01:16:20) Frank’s journey in and out of crypto
(01:24:23) Actual use cases for stable coins and NFTs
(01:34:09) Unpacking the lending supply chain
(01:41:44) The difference between Fundamentalist and Revolutionary investors
Referenced:
VCs Three Body Framework: https://cdn.prod.website-files.com/605db59b78445cf5ae548e49/628b9d826f9af3217c9807a2_Three-Body%20Problem_%20Finding%20the%20New%20Stable%20Points%20in%20Venture%20Capital.pdf
The House Money Effect: https://x.com/fintechjunkie/status/1466217991532650496
Fundamentalist vs Revolutionary Investors: https://www.linkedin.com/posts/frank-rotman_there-has-been-and-always-will-be-two-competing-activity-7128137991654445057-NuXf/
Where to find Frank:
Twitter: https://twitter.com/fintechjunkie
LinkedIn: https://www.linkedin.com/in/frank-rotman/
Where to find Turner:
Twitter: https://twitter.com/TurnerNovak
LinkedIn: https://www.linkedin.com/in/turnernovak/
Newsletter: https://www.thespl.it/
20VC Roundtable: NEW FORMAT: Why the Seed Investing Model is Broken, How to Make Money at Seed Moving Forward; Who Wins and Who Loses, Why Venture Value Add Platforms are BS and Failed and Why There Will be an IPO per Week in H2 2024
Sam Lessin is a Co-Founder and Partner @ Slow Ventures with a portfolio including the likes of Airtable, Robinhood, Slack, Solana, PillPack and many more unicorn companies. Prior to Slow, Sam was a VP Product at Facebook having sold his company to Meta.
Frank Rotman is a founding partner of QED Investors, one of the leading fintech-focused venture firms investing today with a portfolio including the likes of Klarna, Kavak, Quinto Andar, Credit Karma and more. As for Frank, prior to QED, Frank was one of the earliest analysts hired into Capital One and spent almost 13 years there helping build many of the company's business units and operational areas.
Jason Lemkin is the Founder @ SaaStr one of the best-performing early-stage venture funds focused on SaaS. In the past, Jason has led investments in Algolia, Pipedrive, Salesloft, TalkDesk, and RevenueCat to name a few. Prior to SaaStr, Jason was an entrepreneur, selling EchoSign to Adobe for $100M where it is now a $250M ARR product.
In Today's Discussion on Why Seed is Broken We Discuss:
1. The Seed Model Was Broken and What Comes Now:
Why does Sam Lessin believe the model for seed of a "factory line" was broken?
What does he believe will replace it?
Why does Jason Lemkin argue that this might not be the case for SaaS and enterprise?
2. Round Construction: YC, Multi-Stage Funds and Party Rounds:
Why does Sam Lessin believe we have seen the end of party rounds? Why does Jason Lemkin disagree and we will see more than ever?
Why does Sam Lessin believe the factory model of YC churning out companies is over? Where does Jason Lemkin believe the value lies in the YC model?
Will the multi-stage funds remain in seed? How has their entrance and deployment changed the seed market?
3. VC Value Add at Seed: Is it BS?
Why does Jason believe all talent arms in venture firms have failed?
Why does Sam believe that no VCs provide value?
Do the best founders really need help? Why do Jason and Sam disagree?
4. What Happens Now:
Why does Jason believe that every manager can write off their fund from 2021?
Who will be the winners in seed in the next 10 years?
Why does Sam believe if you want to bet on AI, just bet on Meta or Microsoft?
What will happen to the many companies with no PMF but 10 years of runway?
EP 24: QED’s Frank Rotman Talks Crypto and Capital One Origins, Plus Redpoint’s Own TikTok Guy Revealed
In the 24th episode of Cartoon Avatars, QED Investors Co-Founder and CIO Frank Rotman joins the crypto debate with Zach, and discusses Capital One’s unique origins and structure with Logan. Plus the “Redpoint TikTok Guy” Rashad Assir is finally revealed in his first appearance on the pod.
(0:00) Intro
(0:44) Introducing Rashad Assir
(3:25) Introducing Frank Rotman
(6:36) History of Capital One
(14:40) Building the infrastructure
(16:25) Starting QED
(18:29) Frank’s Web3 journey
(24:15) Where’s the substance?
(28:37) What in crypto makes the most sense?
(30:48) Lending vs Leverage
(36:55) Crypto in different countries
(45:14) Products are the hard part
(50:24) Noisy data
(52:40) To what extent is this interesting?
(1:00:16) The oracle problem
(1:07:47) Protections of a bank
(1:12:45) Reversibility
(1:17:52) Embedded features
(1:23:13) Mercenaries vs missionaries
(1:27:13) Web3 living up to its name
(1:36:06) Immutable public database
(1:39:09) Outro
Links:
https://www.tiktok.com/@redpoint?lang=en
https://www.tiktok.com/@corporayshid?lang=en
Mixed and edited: Justin Hrabovsky
Produced: Andrew Nadeau and Rashad Assir
Executive Producer: Josh Machiz
Music Griff Lawson
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About the Show
A Saturday morning podcast hosted by Logan Bartlett (Partner and Managing Director at Redpoint Ventures) covering the tech news with his friends and other people with industry expertise.
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About the Show
Logan Bartlett is a Software Investor at Redpoint Ventures - a Silicon Valley-based VC with $6B AUM and investments in Snowflake, DraftKings, Twilio, and Netflix. In each episode of The Logan Bartlett Show, we sit down with the people behind today’s most important startups and extract the tactics, lessons, and frameworks they’ve learned the hard way. Conversations span hiring to GTM, product, growth, fundraising and everything in between - collectively forming the ultimate playbook to make you a better CEO, investor or board member.
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20VC: Has Price Discipline Disappeared? Is it Possible to Build Ownership Over Time? Why Venture Is Less Collaborative Now Than Ever? How fast Do Breakout Companies Become Obvious? How To Construct an Optimised and Repeatable Investment Decision-Making Pr
Frank Rotman is a founding partner of QED Investors, one of the leading fintech-focused venture firms investing today with a portfolio including the likes of Klarna, Kavak, Quinto Andar, Credit Karma and more. As for Frank, prior to QED, Frank was one of the earliest analysts hired into Capital One and spent almost 13 years there helping build many of the company's business units and operational areas. Post Capital One, Frank went on to found a student lending company before joining up again with Nigel Morris to co-found QED.
In Today's Episode with Frank Rotman You Will Learn:
1.) How Frank made his way into the world of venture having spent 13 years scaling Capital One? What was the founding moment for Nigel and Frank with QED? How does Nigel compare to poker to venture capital? Where are they similar? Where are they different?
2.) Does Frank feel that price discipline has disappeared in the venture market today? What have been some of Frank's biggest lessons on price? Is Frank concerned by the compression in deployment timelines for funds? How does Frank feel on the rise of pre-emptive rounds? In what way does Frank advise his founders when they are offered pre-emptive rounds?
3.) How important does Frank believe sizing your initial position is, from an ownership perspective? Is it possible to build ownership in your winners? What have been some lessons for Frank with regards to the speed of which breakout companies are clear? How does Frank assess and analyse bridge rounds and whether to participate or not?
4.) Why does Frank believe that the VC world is less collaborative than ever today? What has caused this? What can VCs do to change this? How do we solve the structural problem of VCs needing ownership for their business and founders not wanting excessive dilution? What does Frank believe is the most dangerous trend in the VC market today?
5.) How does Frank think about what he can do to improve his investment decision-making process? What repeatable process has Frank landed on that works? Where do many make mistakes here? How does Frank view the relationship between process and outcome?
Item's Mentioned In Today's Episode with Frank Rotman
Frank's Favourite Book: Tom Robbins
Frank's Most Recent Investment: Hello Alice