Entrepreneurship Podcast post

Private Capital Markets with David Frank

George Grombacher July 13, 2023

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Private Capital Markets with David Frank

LifeBlood: We talked about private capital markets, creating a marketplace and operating system to bring together companies, investment bankers and placement agents, and how to get the support you need during tough times, with David Frank, CFA, Founder and CEO of Stonehaven, a private capital markets fintech operating system.      

Listen to learn how the current economic climate is impacting capital markets!

You can learn more about David at Stonehaven-LLC.com and LinkedIn.

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Our Guests

George Grombacher

David Frank

Episode Transcript

/lb/lb/lb/lb/george grombacher 0:01
Well blood for this George G and the time is right welcome today’s guest struggle powerful David Frank. David, are you ready to do this? Let’s do it. Let’s go. David is a CFA He is the founder, CEO and Managing Partner of stone Haven, their private capital market markets, FinTech operating system, collaboration network for investment bankers, placement agents, who are working to support companies as well as investors. David excited to have you on tells livid about your personal lives more about your work and why you do what you do.

David Frank 0:34
George, well, thank you for the opportunity to join you this morning. feeling awesome. Just got in a good workout and ready to do this. So about me on the personal front, just to start there. I grew up in Denver, Colorado, have an awesome family there who still live in Denver, grew up as a big skier lacrosse player, mountain biker, and then went to University of Michigan, eventually found my way to New York City. And I have two children. Hunter who’s 14 and Lior who’s 11. I’m engaged to Romy. And we’re getting married in the month in two days. So very exciting. Ice. Yeah, on the professional side. So I’ve spent almost my entire career building, Stonehaven. So I started the firm when I was 23. I’m 45. Now so it’s been a long journey, many chapters. Early on in my career, I focused on raising capital and executing mandates for various asset management firms and corporates, and then eventually evolved to building teams to go execute on that. And then about four to five years ago, pivoted and started that went from being somebody who executed deals in the marketplace to building a platform to support many underlying companies who execute on our platform. So that began our journey building a FinTech platform, which is now as you started to describe an operating system. So we provide the infrastructure, data, and technology for intermediaries and capital markets. And they, in turn, raise capital, execute m&a transactions, do secondary transactions with a wide range of companies. So we’re active across venture, private equity, private credit, real estate, and other private markets. And we’re very active on both the placement agent side where we represent asset managers as well as the investment banking. So we represent today, over 200 companies have over 100 investment bankers in place, and agents on our platform. We’re raising over a billion annually and happy to dive into more details.

george grombacher 2:47
Nice. So the problem, so many businesses start because you recognize there’s a problem, you say, Okay, I’m going to be the solution. Was that true of you?

David Frank 2:59
Absolutely. So as I sort of mentioned, earlier, we were, I was in the marketplace directly raising capital. And actually, at the same time, we started building a platform on the side to support other investment banks and placement agents that wanted to work with us on deals that we had done. And it went from a side business to seeing that there was a really unmet need and all of these groups, and they’re really entrepreneurial groups, let’s say mainly teams of one to 10 people. They were out in the marketplace. And I saw that we could provide a better infrastructure. So compliance, legal due diligence, finance operations, a better tech stack, we saw all of the people in the marketplace, were attempting to build various CRMs and glue together databases that really weren’t that, that that scaled, and also from a data perspective that all of the people that we were interfacing with had incredible insights into various investors. But if we could bring it all together in an open source data model that we could really unlock all kinds of value. And the other insight we had was that we had originally started our platform largely to actually collaborate with people. So we would originate deals and see that there was an opportunity to expand our distribution, or sometimes our origination capabilities by bringing in other companies. And we saw that the one of the biggest demands in the marketplace was to collaborate with other people. And so we decided to go all in on one vision and to build it. So we back in 2019, we had about 15 people on our platform. We’ve scaled to 100 today and looking to go to 200 by next year. So it’s it’s kind of just been a never ending journey of building it. And it didn’t really come together initially as as clear as it is today, which today is now it’s really obvious to me that it’s an integrated operating system. So the idea is that if you’re an intermediary in the market it, we’re building the entire infrastructure, Tech Data, everything around you. So you from the minute you log in from the minute you log out, you’re running on our kind of core tech stack and everything that’s involved in that.

george grombacher 5:12
What is an example of an intermediary in the market?

David Frank 5:16
All right, so let’s keep it simple. So let’s just say, an investment banker. So let’s say an everything we’re doing is in private market. So as an example, say you have a series B Company technology company that wants to go raise a $25 million round, and that they would be hired by that company to go execute on that deal. Or they could be helping a company sell itself or helping the company go execute on biocide transactions. Or you could have an investor who owns a stake in a company and wants to sell it to another investor as a secondary transaction. So that’s more on the investment banking side. And on the placement agent side, let’s say you have a $500 million private equity fund that wants to go to a billion dollar private equity fund, people on our platform would help them scale up. So they would help them go interface with those family offices, pensions, endowments, etc, to go build an institutional capital base.

george grombacher 6:19
So I am that person who’s at 500 million, I’m looking to double. I wake up in the morning, I instead of going and looking at all these different programs, I’m coming to Stonehaven, I’d log in. And that’s given me everything that I need to conduct my business to grow it to manage it to stay in compliance.

David Frank 6:41
So think of it actually this way, our everything we’ve built is around the intermediaries. So in this example, it’s really our the an affiliate, that’s what we call one of these investment bankers or placement agents on our platform. So it’s an affiliate who is in the market, they’re interfacing with this private equity firm, saying, Hey, we can help you go execute on your capital raise. And then they in turn, leverage our entire platform from everything from sourcing the deal to contracting due diligence, deal structuring, identifying which investors, they want to go pursue running all of their pipeline activity, transaction data and then collaborating. And then they might say, Okay, I might be able to execute on half of this raise or some portion of it, how can I increase the odds of success by bringing in other firms operating on the platform to go help them execute, so they can identify who those parties are, and then all the workflows to go execute on collaboration, which we can, we probably have the time to get all of that, but a lot of those kind of workflows. So we’re essentially a platform to help the intermediary help their clients.

george grombacher 7:51
Got it. Nice. Okay. And as you’ve been iterating, improving, changing and evolving, here we are in 2023. Is this an easier marketplace? Is it is it more difficult than it’s ever been?

David Frank 8:07
So this is, I think the economy is actually still relatively strong right now, surprisingly, strongly, labor markets will are showing that. But I think a lot of parts of the capital markets are breaking right now, or under really incredible stress, whether that’s the venture market, the real estate market, all types of markets right now, or are pretty challenged. And I think what that’s what that’s causing is a flow through effect, where the amount of funding going to early and mid stage companies is landing them in an environment of the haves and have nots. So I think you’re still seeing the news headlines, about 10% of companies that are winning great rounds, doing really well. And then there’s this huge wall, where at the start of this year, about 75% of venture backed businesses had less than a year of runway on their balance sheet. And so they either could stick their head in the sand and not live in the reality that we’re in right now. Or they had a lot of a few difficult choices, which is really cut, burn. Innovate, although it’s harder, everyone’s always trying to innovate. So cut, burn, or sell themselves or do other things. And so I think it’s been an environment where the level of hustle that people need to demonstrate to execute in today’s environment has just gone up. And I think it’s also caused a lot of firms in today’s environment to focus narrower, and cut fat, and think about what’s the fastest path to profitability in the case they aren’t profitable. Or in the cases of other markets, like say, for example, real estate. I think it’s just stopping a lot of the deal volume out there and causing people to focus more on the micro of what are the smaller things people can be doing to increase revenue costs, be more innovative. I think it’s actually a healthy environment. It’s it’s kind of the winter of capital markets right now. And I think if you embrace capitalism, you have to understand that this is part of the innovation cycle. And out of this come spring, but we’re we’re kind of still, it feels like the dark before dawn, from a capital markets perspective. And I don’t even think we’re through it yet, I think we still have probably 12 months more of, of a challenging operating environment for entrepreneurs. And so we’re, we’re a very entrepreneurial company ourselves a bootstrap business that basically supports 100 plus people that are also all entrepreneurs who then raise capital and execute for small and medium size entrepreneurial businesses. So we our entire ecosystem, is this entrepreneurial environment. And so we’re coming to work every day and in the trenches really trying to help everyone execute their their best game.

george grombacher 10:54
So you’ve been at this, since I think you said 2003

David Frank 10:59
crore? Well, 2001 actually, for 10,000, it was

george grombacher 11:02
my three got it. Yeah. So does this. Does it feel the same as it’s always been? Or does it feel like there’s outside influences like like legislation and politics and monetary policy that is making, making things different?

David Frank 11:20
You know, I think it’s actually amazing how much the the, the rate environment has really flowed through into everything. And so we were in an environment of an incredible tidal wave of liquidity coming out of COVID, that really wasn’t a natural environment. And now we’re kind of facing the pullback of that liquidity and implications of that. And so I think it’s, it’s, it’s a very difficult operating environment, we’re still growing at approximately 50% annually right now. And so we’re doing everything we can to really drive in this environment. But I think in a, in a more baseline normalized environment, not even a 2000 22,021 20, early 22 environment, but in a more normalized environment, I think it’d be much, much easier to grow right now. But it’s not so much legislation. It’s, it is the Fed, I think is part of it. But I think it’s also the macro environment. I think investors right now are really cautious about the environment. They’re they’re confused on trends. On one hand, you see kind of the leadership at the top of technology right now blooming NASDAQ’s up big this year. But you’ll see things like for example, the market cap of Apple is greater than the entire Russell 2000. Right. So you’re in an environment where Yeah, some of these companies who are in the headlines are killing it. But at the same time, the entire Russell 2000 is struggling. And so in that kind of environment, it’s it’s, you know, wide range of outcomes. And this happens, though, I mean, it, we all survived through it. And I remember what it was like operating a business through, Oh, 809. And I remember hustling like hell in 2008. And feeling like nothing was happening. And then it was until 2009 10, where everything unlocked all at once. And it wasn’t my work ethic that changed. Or I didn’t get smarter from one year to the next, it was just sometimes you work really hard, you hustle, you try to be one step ahead of the game. And then when things unlock a lot of pieces of the puzzle, come into play really quickly. So I think that’s the attitude you have to have. And a lot of it’s staying in the game right now, I think for a lot of entrepreneurs. So taking making sacrifices, you have to make it and being on the field, the next day is the most important thing.

george grombacher 13:50
Yeah. It’s not staying ready, it’s staying ready, not not not not not getting ready, the tide goes out, you’re gonna see who’s actually wearing clothes, and who is not all these different things that we could say. And obviously, you have stayed ready and you consistently work, what are some of the sacrifices that that you see that maybe people aren’t willing to make, and therefore, they’re not going to be a sustainable business.

David Frank 14:21
You know, I think in at least in the venture ecosystem, there’s been such a focus on growth at all costs. And there’s been so much capital available, and you were evaluated more based on your growth rate than your ability to actually prove unit economics and really prove profitability. And so I think that really has shifted to prove a rapid path to profitability in the venture ecosystem. So that’s shifted dramatically and I think is is causing a lot of people to rethink how they’re building an extreme businesses. I think, in the in the private equity world, I think that’s changed. A little bit less. However, I think that with the raising rate environment, the availability of debt has changed the way in which people think about running their businesses. And so m&a is less about leveraging up cash flows and kind of scaling in that direction. And I think more about operating businesses. And I think that’s a healthy shift to be less finance, less financial engineering, more actual real value creation. So I think that’s a healthy kind of evolution. And at the same time, you have everything kind of going on where technology’s never been evolving faster. AI is a wave coming in. And I think just AI is I think, a term for way too many things. One, you know, obviously, it’s large language models. But a lot of other things are going on in tech that are, are pushing innovation so quickly. So I do think there’s, if we look back in 10 years, people are gonna mainly focus on huge shifts in tech right now, and not on some shift in the interest rate environment, candidly, so you have to, I think be focusing on where’s the technology shifting. And in our space, a lot of that is going from the millions of manual workflows and capital markets to really streamlining those into technology, UI and building logic that humans execute into code, and then refining that based on where it breaks, where it could be better, where you can instantly do things. And so, you know, how do you take a term sheet that instantly you click a button that turns it into a contract? That’s the kind of thing where if you can do that, you can streamline all kinds of other legal processes that will cost you money? Or where we’re gonna use technology to instantly find the best investors or buyers in a narrow subset, not only based on their characteristics, but based on my relationship dynamics with them and other kind of elements? Or how can I see into my pipeline faster? To see where I should focus when I have, you know, 100 plus sales situations, I can start the day focusing on which is the one I focus on today? Or how can I tell what’s gaining traction, what’s not getting traction, and there’s so many of these types of workflows that we’re focusing on and trying to block out the noise and say, hey, if we continue innovating at a really rapid pace, we’ll be in a really strong position, and keep winning the right talent to our platform building community. I think this is also just to take another step back from the tech side, one thing that I think a lot of people are seeking, especially in this remote work environment is still remaining connected and being really tied in with their community. So we really view that as another part of our value prop is focusing on building human human connection, and then facilitating it through tech and workflows, and all kinds of ways that we try to build infrastructure around that. And so I think that kind of dual approach of heavy kind of focus on on streamlining and architecting technology, and then the flip side of it, focusing on the human element of it intensely as well, which I think a lot of tech companies don’t focus on, it’s so much easier to build code than to build community. So that’s, that’s where we’re thinking and focusing. And it’s not just zoom, zoom does a lot of that. I think it’s also getting in seeing people in real life. And the less people meet everyday in the office, the more I think they actually have a desire to meet and spend quality time with people. lower frequency, but higher quality, human to human kind of connection.

george grombacher 18:39
I think that that makes sense. But David, thank you so much for coming on. Who and how can people come into your ecosystem?

David Frank 18:50
So best place to find us to places our website Stonehaven dash llc.com Or on LinkedIn and LinkedIn we’re in look for Stonehaven. And you can also connect with me follow me, David Frank on LinkedIn. I’m heavily engaged there. And we’re posting all the time about various technology. We’re launching people joining our community trends we see in capital markets, all types of other things in our in our ecosystem. So thanks, George, for the opportunity to come on today. For sure.

george grombacher 19:23
Well, if you enjoyed this much as I did show, David, your appreciation and share today’s show with a friend who also appreciates good ideas, go to stone Haven dash llc.com. And check out the free resources that David has on the site. You can find them on LinkedIn as well, David Frank, and find out if there’s an opportunity for you to tap into the great operating system and community that David has curated and cultivated and created and all those other things. Thanks again, David.

David Frank 19:53
Thanks, George.

george grombacher 19:55
And until next time, remember, do your part by doing your best Okay

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