“Everyone has competition, but why will you win? How will you maintain your leadership position?” with David Cremin of Frontier

We need to understand how your business can defend against competition in the market. Everyone has competition, but why will you win? How will you maintain your leadership position? With DivX, it was their technology embedded in devices. For Prolacta, it was nailing down the only supply chain of its kind.

I had the pleasure of interviewing David Cremin, who is the founder and Managing Partner of Frontier, where he leads fund operations, fundraising and portfolio management. David has raised over $200 million in venture capital partnerships and helped lead investments in over 100 companies, including DailyPay, Divx Networks (NASDAQ:DIVX), Big Frame (DreamWorks), MaxPreps (CBS), Clear Access (Cisco) and Prolacta Bioscience. He previously served as Founder and CEO of Vis-à-Vis Entertainment, a venture-backed startup focused on music media. He spent several years touring as a professional musician and recording artist for RCA Records, Atlantic Records, Elektra Records and EastWest Records. David has taught business feasibility as an adjunct professor at UC Santa Barbara and California Polytechnic San Luis Obispo. He holds a BS in Industrial Engineering from Stanford University.

Thank you so much for joining us! What is your “backstory”?

Well, as you can see from my background, I was a touring musician in the early part of my career. Bands are small teams of people creating intellectual property, music instead of software or hardware. So like tech entrepreneurs, I jumped from band to band until I found the one that took off. That was my passion, and it was truly fun and inspiring. Then, I caught the bug and realized music distribution would change, and launched my first real silicon valley startup in 1991. Tim Draper backed the company and we built that business over seven years. When we teamed up with BMG in 1997, we also officially launched a record company, indivision records, and signed our first two artists. But Draper had bigger plans and asked me to help him get a venture capital fund off the ground in Los Angeles. We launched that first fund in 1998, and have done a total of six VC funds since then.

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

Of the many successes, one that stands out is backing Prolacta Bioscience when it was just an idea. Prolacta makes a super food for micro-premature infants, and provides a 100% breast milk diet to those babies. Today it is a growing and important business, but when we invested, it was all on a thesis: that breast milk is as precious as blood, and since blood from one person can be used by another, and blood fractions can be used to create really interesting products, the same could hold true for breast milk. It turns out that is true, but there were a LOT of fits and starts along the way, and through each bump in the road, we had to keep going back to test our thesis on the one hand, while testing the immediate market potential on the other. You can’t always keep chasing a dream, but on reflection the thesis continued to feel right to us, and we kept talking to the teams in the neonatal intensive care units, who supported the company’s mission. This was one of the hardest roads we’ve ever taken, but also very, very successful due to our and the team’s persistence.

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

We backed a company that produced and marketed self-heating food packaging. You could buy a six pack of coffee cans, and whether you were on the ski slopes of Aspen, or the battlefield in Iraq, you could push a button, and an exothermic reaction would heat the coffee and it would be ready in under 5 minutes. Same with soup, stews, etc. The company had massive demand from the biggest retailers and the military in the hundreds of millions of dollars of orders. In our effort to streamline production, we went with a terrific and first-rate manufacturing partner, but because of their belief and investment in the product, they wanted exclusive rights to manufacture. Unfortunately, they were unable to deliver products in a timely manner. So we learned a biz school 101 lesson — if you can help it, never sole-source a product.

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

We were very early to find a terrific southern CA company called Trade Desk. We were negotiating terms, and i guess we were a little greedy on valuation. Our good friend Mark Mullen, from Bonfire Ventures in Los Angeles wasn’t quite as greedy and he won the chance to invest, and we lost it. The rest of the story you know, Trade Desk is a huge and successful company, with fantastic, deserving entrepreneurs. So in the words of my long-time colleague John Fisher (Draper Fisher Jurvetson), “don’t let valuation be your guide.” And HUGE congrats to the Trade Desk team and Bonfire Ventures.

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

Our fund mission is as follows:

Frontier supports uniquely capable entrepreneurs by fueling innovative technologies to amplify joy, well-being, safety and productivity around the globe.

As you can see, this is all about innovating positively. Prolacta saves babies’ lives every day. Syndio helps enterprises create equal pay for equal work. Sensydia tracks heart health faster, better and in real time. DailyPay helps enterprise workers feel less financial stress, through daily access to their paycheck. In our partner meetings, when we discuss a potential investment, we always ask ourselves, “does the world truly need this?”

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. We need to see a passionate, capable, urgent founder(s). People who get stuff done every day. There is always an innate need to go faster, better, cheaper, bigger. When we first met the founder of DivX in 2000, he was building a huge base of users with his video compression technology. The population grew every day, every week, and he already had something like 30 million users before we even met him. All we had to do was provide the gas to throw on his fire.
  2. We need to understand product-market fit. We want to understand the customer need. We want to be able to call customers and understand why they must use the product. Why they will buy. When we evaluated making further supportive investment in Prolacta, our partner Frank Foster visited several NICU’s and spoke with doctors, nurses and other staff to understand the need for the product, how they might use it, where were refrigerators? Common sense, operational stuff. We had to believe that people would turn around and use our milk in place of formula. BTW, it turns out they do!
  3. We want to understand your market opportunity. And when we say that, we mean YOUR market. Not some defined market. What is YOUR revenue opportunity? How did you calculate it? What is your target segment? Not to pile on Prolacta, but we dug in to understand how many micro-premature infants there were each year (and it’s a growing number btw), and if the product proved to have the positive medical benefits it is proven it has, how much would each baby use, and what would that look like each year? How did that multiply into a first, clearly stated addressable market.
  4. We want to understand how your business is extensible, either into other products or other markets. With DivX, everyone thought that the compression technology merely enable napster for video. Where was the business model? What the team knew, which was so ingenious, was that to unpack video on a consumer electronic device would be the key to the business, and they quietly licensed their technology into every consumer device. This generated a whole bunch of royalties and the company had a super successful IPO. They were able to articulate this extensibility, where others didn’t see it from the outside. In fact, a lot of people criticized us for that investment. But we kept quiet and watched the team deploy their secret plan!!!
  5. We need to understand how your business can defend against competition in the market. Everyone has competition, but why will you win? How will you maintain your leadership position? With DivX, it was their technology embedded in devices. For Prolacta, it was nailing down the only supply chain of its kind.

You are a person of great 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. :-)

At Frontier, we believe that revolutions in medicine are bringing a growing, tangible good to the most amount of people. With that in mind, we will continue investigating several areas where information technology sits on top of medicine, and can create better outcomes. Prolacta is of course an obvious one, it is the only company offering the product and it prevents death! Noteworth provides a comprehensive tracking system for patients through their medical journey, providing real-time insights to all stakeholders in that patients process, and better overall outcomes. Sensydia tracks your heart functions in a whole new way, providing this first-ever real time feedback to doctors. We are looking for ways to impact society positively, and we think improving medicine is a super cool, near term opportunity where we can have impact in our lifetimes, and beyond. So we try and influence how money flows into these innovative companies, so these companies can influence the world positively.

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 love what Bill Gates is doing with his time, money and influence to creative sweeping, positive changes in the world. I hear from my partner Frank that he’s also pretty good at tennis!!! I would love to hear some of his macro thinking, and share some of our efforts, and see if the combination inspires.

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

This was fun, and my pleasure.