Dovi Frances, Group 11 — Breaking Barriers in Fintech and Venture Capital

In today’s episode, Josh Benadiva hosts Dovi Frances, the founding partner of Group 11. Dovi and Group 11 have backed several unicorns in the Fintech space from Navan, Tipalti, Sunbit, Homelight and more. Dovi has been investing in early-stage Fintech companies since 2012.

“I hope to be an enabler, a conduit of capital and enabler of founders who build global platforms that disrupt massive markets…. I view it as a partnership that has to be a win win, we have to add tremendous value to the portfolio company in order for the company to do what it was meant to be doing and disrupt markets.

We discussed:

• The inflection point Fintech is about to hit
• Dovi’s unique experiences on the Israeli “Shark Tank”
• Dovi’s thoughts on the future of venture capital and how to break down barriers in the industry

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From an Early Years of Fintech To Hitting an Inflection Point

“In 2012, when I started investing in financial technology, the term [FinTech] was not coined yet. But when you look at cycles of innovation…in the beginning, we saw things that were easy to disrupt. In 2009, the CARD Act was enacted by the government, so you saw lots of lending startups that emerged, Lending Club and the like. That was the first cycle of innovation that we have seen…Over time, there has been an evolution. I think we’re seeing around 10% penetration of financial technology into financial services. Financial services is about 7% of our gross domestic product, employing about 10 million people in the US alone, from banks, insurance companies, endowments, foundations. We’ve seen a bunch of companies that have emerged trying to solve various issues in financial services, whether its online Investment advisors, financial reporting software solutions. Those have grown in scale over the past few years tremendously. Financial technology was less than 1% penetration back in 2012, and now is at around 10% penetration today…[From business school case studies] we see that the tipping point for disrupting incumbents is around 15%. So we’re very, very close to globally, financial technology disrupting traditional financial services…We still need to figure out a way to harness the power of financial technology, even into industries like healthcare, education, and the real estate industry. Industries that are yet to be disrupted that are still very much outdated.

On Identifying Great Companies at The Beginning

“With respect to how we find successful companies, you need to be directionally correct, and you need to be technically correct. So to be directionally correct, you need to find the right markets that are ripe for disruption. And you need to make sure that the company that you’re investing in solves a big problem in those big markets. Otherwise, even if you do very, very well, you won’t be able to build significant enterprise value. Secondly, we focus on enterprise software and not business to consumer, as 90 something percent of our investments are in enterprise software. And why is that? Well, because enterprises have loyalty. If you solve a big problem for them, they stick around. So the churn is low, net-retention is high, they grow with you, they’re loyal, they appreciate you. [Enterprise customers] help you turn anti-fragile in this economy that became rather chaotic in the past couple of years. Going into 2030, we have a long thesis that the Era of Chaos is upon us and technology will need to help companies become anti-fragile.

“Also, we prefer people that are outsiders to the problem. maybe in certain industries, you’d want an insider, but in most industries you prefer people are innocent, or not familiar with things and think about things completely differently.

On Joining the Israeli Shark Tank

“So I was visiting Israel with my wife, and we were looking to rent an apartment in Tel Aviv. And I’m talking to the real estate broker, who was a very nice guy, about America. And I don’t know why I mentioned Shark Tank, but I told him that I like to watch Shark Tank a lot. In fact, throughout business school, when I was running at the gym and I was running long distances, I used to watch it and get inspired while on the treadmill. So he said, “Oh, you know what? My friend is a producer of Shark Tank in Israel.” I said, “what there is shark tank in Israel?” He said to me, “do you want me to introduce you to the producer?” I said, “Yeah, sure. I’m happy to meet.” So I had a few interviews and camera auditions while I was in Israel, and they elected me to be one of the five sharks. And I’ve been doing it now going into the fourth season. It’s primetime TV, about 16% of all Israeli households watch us on average. And I feel very good about educating the next generation of investors in Israel and giving people the hope that anybody, especially somebody who comes from a humble background, like myself, can do well eventually if they work hard. So that’s how things came about.

On the Next Generation of Venture Capital

“I believe that venture capital is an industry that is also ripe for disruption. And I consider myself and my team at Group 11 to be part of the forces that bring this disruption about. Venture capital has always been quite a secluded industry, with most of the venture capitalists that I know having grown from within their firms… My background is non-traditional. I came into the venture capital industry, completely from left field. It was important for me to bring transparency into the industry. So, I like to share how I make decisions, I like to share my returns -all of our returns are public to see. For example, there’s a Business Insider* article where I actually gave them the returns and the audited books, and I let them publish it.

“I think the venture capital industry is bound to change. And some of the things that I’ve done in order to effectuate the change is to report our returns publicly. I have even taken the fund public in Israel! So now retail investors can invest into the fund, which I think is quite unique. Nobody’s done it before. And the Shark Tank Series is just another component in bringing transparency; it comes and shares the secrets of the trade on national TV, and I think that’s really, really cool. I hope more people will do that.

My fundamental belief is that venture capital is going to radically change over the next eight years, going into 2030. And we will see a lot a lot of changes taking place, starting with the number of venture capital firms shrinking meaningfully. Also, we will see some changes with how regulators view venture capital, and what we will be required to disclose. Hopefully that will change and institutional money will follow into the right venture capital firms. The venture capital industry in its size is about $900 billion in assets under management. There are about 4,000 VC firms, 1,400 of us started during the last few years. Less than 1% of firms hold 70% of the assets.

*See here for the business insider article Dovi referenced: https://www.businessinsider.com/los-angeles-vc-investor-sharing-return-data-startups-venture-capital-2022-5

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About Dovi Frances

Dovi Frances is a financial services entrepreneur and the Founding Partner of Group 11, a venture capital firm based in Los Angeles, California. Over the course of his career, Frances has invested over $550 million in some of Silicon Valley’s most prominent and disruptive financial technology companies, including Tipalti, Navan (fka TripActions), Next Insurance, Papaya Global, HomeLight, Sunbit, Masterschool, EquityBee, Venn, and Lili to name a few.

Prior to launching Group 11 in 2012, Frances worked for nearly a decade in the financial services industry; having managed an independent financial advisory firm, as well as having served as Vice President at Deutsche Bank AG Private Bank (NYSE: DB).

Frances currently serves on the Board of Tipalti, HomeLight, Papaya Global, Sunbit, EquityBee, Lili, Venn, Masterschool, Sorbet, SMBX, Healthee, and Fintastic. He is also an Advisor to TripActions, a member of the Advisory Council of Leumi Bank U.S., and serves on the Steering Committee of the Israel Collaboration Network (ICON)

About Group 11

Group 11 invests in revolutionary software companies that are redrawing the landscape of the financial services industry. As FinTech continues to gain momentum and to disrupt the traditional industry value chain, Group 11 has positioned itself as a partner of choice to provide capital and guidance to entrepreneurs that are creating the world’s next generation of financial services industry leaders.

About the Author

Joshua Benadiva is a first-year MBA Candidate at The Wharton School, where he is part of the Wharton FinTech Podcast team. Josh has a passion for building fintech products, solving critical financial problems, and exploring niche financial software.

Don’t hesitate to reach out with questions, comments, feedback, and opportunities for Josh at benadiva@wharton.upenn.edu.

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