Brandon Shelton Of TFX Capital: 5 Things I Need To See Before Making A VC Investment

An Interview With Orlando Zayas

Proven Domain Expertise Among the Founder Team: We look for founders who know and understand their industries and customers at a strategic, operational and tactical level through first-hand experience.

As part of our series about “5 Things I Need To See Before Making A VC Investment” I had the pleasure of interviewing TFX Capital Founder and Managing Partner Brandon Shelton.

Brandon Shelton founded TFX Capital (TFX) in 2015 with a fundamental belief that the best entrepreneurs come from those who have served. With a focus on Pre-Series A and Series A B2B technology companies, TFX provides unique and trusted access to companies founded by high-performing, commercially tested former military and national security leaders. As a Veteran himself, Brandon brings more than 20 years of military, financial, strategy and operational experience including within high intensity and change environments.

Thank you so much for joining us in this interview series! Before we dig in, our readers would like to get to know you a bit. Can you please share with us the “backstory” behind what brought you to this specific career path?

I didn’t necessarily envision myself as a founder of a Venture Capital firm. However, what I did know from an early age is that I wanted to make a difference in the world and that has been my North Star throughout my life. I’ve also always aspired to work in dynamic and intense environments, make things happen, and provide for my family. I grew up in a middle-class family in a small rural town in Virginia. Many members of my family served our nation, and I wanted to go to college, so it made sense to leverage the Army’s ROTC program to pay for my education at the University of Richmond. After graduation I served eight years as an Army Airborne Infantry and Intelligence Officer (six years on active duty, two years in the reserves).

Following my service in the Army, I was offered a junior role on a trading desk in New York City. This step back was really shocking to me. I was 28 years old with six years of experience leading people to accomplish hard things and offered an entry-level job. But instead of letting this discourage me, I put my head down, learned the trading business and simultaneously worked to obtain an MBA from Duke University’s Fuqua School of Business. Then came the 2008 global financial crisis during which I was a trader at Bear Stearns and experienced its collapse. With my military and Wall Street career trajectories basically done and as a new parent at the time, I made another transition into strategy consulting. The consulting firm I joined leveraged military techniques to inform commercial planning and execution. After four years of helping leadership teams across dozens of industries, a client hired me to lead their internal strategy and growth initiatives.

While these roles provided excellent experience, I was drifting from my North Star and my passion to serve. Moreover, it became increasingly clear to me that barriers existed for my fellow Veterans that were seeking investment capital to grow their respective businesses, and their service was often undervalued. For example, if you look at the data on Veteran entrepreneurship from the Small Business Administration, 1 in 10 small businesses in the U.S. are owned and operated by Veterans and Veterans are 45% more likely than someone without military experience to start a business, despite less than half a percent of the U.S. population having served in the military. It is with this motivation, realization and data that I founded TFX Capital (TFX) in 2015. We are a Veteran-led and service-driven venture capital firm that invests in B2B early-stage technology companies founded by high-performing and commercially tested military and national security Veterans.

Is there a particular book that made a significant impact on you? Can you share a story or explain why it resonated with you so much?

Start-up Nation: The Story of Israel’s Economic Miracle, by Dan Senor and Saul Singer, has been highly influential during my time launching and growing TFX. The book attributes the abundance and success of Israel’s startups, and therefore the strength of its economy, to its mandatory military service and creation of resilient leaders who are not afraid to take risks and start from scratch. When questioning what it is about Israel’s military that fosters entrepreneurship, the authors explain it is a story of “not just of talent but of tenacity, of insatiable questioning of authority, of determined informality, combined with a unique attitude toward failure, teamwork, mission, risk, and cross-disciplinary creativity.”

As a Veteran who launched a startup, I found the book’s advice helpful in defining TFX’s investment thesis of investing in early-stage technology companies founded by high-performing and commercially tested military and national security Veterans. It was also helpful for better understanding how to leverage the unique skills and experiences of Veterans within the startup and technology arenas, leading to my decision to create the TFX Talent Network. This is a network-driven task force that brings together a full spectrum team of experts — across talent identification, development, growth, mental wellness and more — to help service-driven founders turn their ideas into companies that make a difference.

Do you have a favorite “Life Lesson Quote”? Do you have a story about how that was relevant in your life or your work?

One of my favorite quotes, and something I live by, is “Work the Problem. Stay Focused. Never Give Up!” This quote has applied to my life during numerous milestones, including when I served, in my Wall Street career, when I founded TFX, and now as I continue to lead and grow TFX while providing relentless support to our founders and their teams. It also helps guide our decisions on the type of Veteran founder we invest in. We don’t believe a founder’s “origin’ story, or where they come from, is by itself indicative of their future success and therefore do not react to pedigree when making investment decisions. Instead, we invest in founders based on their character, drive and grit.

Additionally, this quote has informed the values that the TFX team and I live by every day: perseverance (never give up); purpose (back companies who make a positive impact); curiosity (solve the critical problems that surround us); integrity (be transparent and honorable); empathy (carry the utmost respect for service-driven Veteran entrepreneurs); and discipline (hold ourselves and others accountable).

How do you define “Leadership”? Can you explain what you mean or give an example?

I define leadership as “resilience borne from service,” in that service has the power to unlock tremendous opportunities for people to learn and grow. When a person gains experience within a service-driven environment where monetary rewards are limited, the stakes are enormous, information is ambiguous, and creative solutions are required, then he or she is most certainly able to build leadership and entrepreneurial muscles. For example, when someone serves within the military or national security communities, they acquire critical thinking skills, agility, humility and a passion for lifelong learning. From my experience, this often enables them to become highly entrepreneurial leaders that can wear many hats, rally a team, set priorities, handle pressures, and accomplish a mission. This continuous improvement mindset translates to resilience.

How have you used your success to bring goodness to the world?

I believe in improving the world through investing in service-driven, high-performing and commercially tested military and national security Veteran entrepreneurs who have a passion for solving tough, real-world problems with technology. As creators, builders and leaders, service-driven founders have a unique boldness and courage that powers their ability to turn ideas into products and services that alter the course of society beyond the status-quo. I am in awe of these founders and how they push ahead with resilience, perseverance and grit to build and grow their companies amid massive uncertainty and resource-constrained environments. They are the lifeblood of our country who have my and TFX’s relentless support.

Ok, thank you for that. Let’s now jump to the main part of our discussion. The United States is currently facing a very important self-reckoning about race, diversity, equality and inclusion. This is of course a huge topic. But briefly, can you share a few things that need to be done on a broader societal level to expand VC opportunities for women, minorities, and people of color?

It’s well known that the venture capital industry has a diversity problem. There are organizations, such as Impact Capital Managers (ICM) that TFX is a member of, committed to changing this by raising the profiles of venture capital firms led by and investing in companies founded by underrepresented groups, including women, minorities, people of color, and Veterans.

With Veterans representing less than three percent of employees at venture capital firms, according to the 2021 NVCA Deloitte Human Capital Survey, a huge translation gap exists. This is why TFX exists: to fill an unmet need by providing a deliberate source of capital for Veteran-led startups. At TFX, we believe that it’s time for the barriers to capital to fall for founders who have served. These founders, whose leadership potential and expertise are often undervalued by investors, possess an innate sense of service that has called them to the innovation ecosystem to solve tough problems via the technology and companies they build. Barriers to investment capital, buttressed by the same long-standing inequities facing women, minorities and people of color, are roadblocks for Veterans too. My experience has proven that there are durable outcomes in helping those who have served build businesses that solve problems in need of a solution, and that making an impact and generating investment success are not mutually exclusive.

Can you share a story with us about your most successful Angel or VC investment? What was its lesson?

We partnered with CounterFlow AI, a cybersecurity firm co-founded by a military Veteran. CounterFlow’s goal was to transform an enterprise’s cybersecurity efforts through the use of AI to identify, evaluate, and eliminate threats to their networks, including those embedded in encrypted traffic, in real-time. With help from TFX’s investment, CounterFlow was able to successfully launch its flagship product during the peak of the pandemic in 2020. The product, ThreatEye, is an AI platform for enterprise and government security teams that’s used to analyze all network traffic and rapidly identify cyberattacks. The partnership between TFX and Counterflow was also key in raising the company’s profile to position its acquisition by LiveAction, a portfolio company of Insight Partners, less than two years after TFX’s initial investment. The lesson learned with this experience is that by helping fellow service-driven Veterans, we can create a virtuous cycle. CounterFlow’s Veteran co-founder is now considering investing in TFX to help other Veteran entrepreneurs realize their dreams.

Can you share a story of an Angel or VC funding failure of yours? What was its lesson?

I learned that we should not completely replicate the military environment within a venture capital business model. We should aim to replicate the focus on hard work, purpose and steadfast trust that exists in a military unit; however, the partnership and bond between venture capital firms and founders is different. These relationships must be developed and nurtured in a way that works best for our industry, our firm, and our founders.

This led me to the realization that not all help and support is helpful to founders. We don’t want to distract founders from the day-to-day firefighting and the kinetic decision-making evolutions. But we do want to provide relentless support to them before they ask. Finding this balance with each founder and company, over the long arc of a multi-year relationship, is where we spend the most time learning how to improve.

Can you share a story with us about a problem that one of your portfolio companies encountered and how you helped to correct the problem? We’d love to hear the details and what its lesson was.

The U.S. has one of the highest rates of infant and maternal deaths among industrialized nations. American obstetric care is also among the most expensive in the world. After years of experience in the medical technology industry, U.S. Army Veteran Ann Holder co-founded Marani Health to create technology to empower women to understand their health and improve outcomes for themselves and their unborn babies. Ann knew this technology was possible after working with and learning from doctors at the Mayo Clinic about fetal monitoring which inspired her confidence to create Marani. Our partnership with Marani during COVID-19 came at a critical time for the maternal and fetal healthcare industry, when telehealth was imperative for keeping expectant mothers and their unborn babies safe. COVID-19 shifted Marani’s strategy to focus on telehealth technology first which required a new software platform for their prenatal health monitoring tool. As the winner of TFX’s 4th Annual Veteran Startup Competition Showcase and the investment and support from TFX that followed, Marani is on track to bring this platform to market in 2022 which I am especially proud of as a father to three daughters.

Is there a company that you turned down, but now regret? Can you share the story? What lesson did you learn from that story?

There have been a handful of regrettable passes in our journey to date. Generally, we passed at the margins because we lacked the conviction needed to overcome the risk on the deal. As we have gotten further down the path at TFX, we’ve gotten better with our due-diligence processes as to not miss the great opportunities.

Super. Here is the main question of this interview. What are your “5 things I need to see before making a VC investment” and why. Please share a story or example for each.

1. Service-Driven, High-Performing and Commercially Tested Veteran Founder(s): We invest in service-driven, high-performing, commercially tested former military and national security leaders at the helms of Pre-series A and Series A B2B technology companies. Our investment thesis can be seen as a contrast to the typical Silicon Valley VC model in that we invest in founders first and foremost — for their character, values, principles, decency, and ethics. We look for leaders who are resilient, inspire others, and can communicate and rally a team against a common mission.
2. Proven Domain Expertise Among the Founder Team: We look for founders who know and understand their industries and customers at a strategic, operational and tactical level through first-hand experience.
3. Functional Expertise of Startup and Scaling Potential: The founders we invest in have the tested ability to learn and adapt with their unmatched experience in leveraging technology at scale and operating in dynamic, high-risk environments. They know how to build technology, products and talent and will be able to smartly scale to achieve long-term success.
4. Excitement about the Market Opportunity: As a service-driven VC firm, we want to be excited about the impact the founders we invest in aspire to make. This excitement propels us to use our experience as Veterans ourselves to coach, mentor and support the teams our founders build to get the best out of them, as well as help guide their recruitment efforts through our ability to quickly assess talent and character.
5. Ability to Help the Founders: It’s imperative for TFX to believe that we can actually help the founders we invest in by accelerating their success in order to deliver investor returns, develop teams, and grow a value-added network.

You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)

Whether TFX was the inspiration, or the time has simply come, we are no longer alone in our investment approach. With that in mind, perhaps the movement we aspire to create has already started. When I started TFX there were just three other early-stage venture capital firms that targeted Veteran founders directly or indirectly; now there are almost two dozen. While I aspire for our firm to continue to grow, I do call on others in this industry to see this opportunity to invest in service-driven founders. One way we do this is by hosting the annual Charlotte Veteran Startup Showcase to elevate the profile of B2B startup founders who have served. Now in its fifth year, the Showcase provides these service-driven founders with the opportunity to compete for $50,000 in cash prizes to help grow their businesses as well as the chance to grow their networks via the Showcase’s attendees, which include investors, enterprise executives and ecosystem stakeholders. Not only are we exposing competing startups to investors, but we are also exposing investors to the primed pool of founder talent found in high-performing, service-driven founders. We are making a call to action to a variety of investors such as endowments, family offices and pension funds to prioritize funds like TFX, that are small, focused on the greater good and provide value-add above and beyond durable outcomes.

We are very blessed that some of the biggest names in Business, VC funding, Sports, and Entertainment read this column. Is there a person in the world, or in the US whom you would love to have a private breakfast or lunch with, and why? He or she might see this. :-)

I would love to have a private breakfast with Dr. Condoleezza Rice. She has never let “pedigree” define who she is or impede her remarkable trajectory. Despite the challenges that came with growing up in the racially segregated South, she persevered through grit and resilience, becoming one of the most admired figures in the history of public service.

This was really meaningful! Thank you so much for your time.