Frank Rotman | Building Capital One ($58B) and QED Investors ($4B AUM)

The Peel with Turner Novak

Turner Novak

Technology

4.6 • 11 Ratings

🗓️ 1 August 2024

⏱️ 109 minutes

🔗️ Recording | iTunes | RSS

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Summary

Get first-party targeting with Brave's private ad platform: cookieless and future proof ad formats for all your business needs. Performance meets privacy. Head to https://brave.com/ads/ and mention “Turpentine” when signing up for a 25% discount on your first campaign. Warp: Don’t let payroll and compliance hold your startup back: visit https://joinwarp.com/peel to get started and receive a $1,000 gift card when you first run payroll. 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/

Transcript

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0:00.0	Back then, it was a very simple transactional product.
0:03.5	You could borrow if you wanted to.
0:04.9	It was very basic.
0:05.9	So this credit card product that crossed the entire industry,
0:09.3	Rich and Nigel said, why don't you treat people as individuals?
0:13.8	And based on the data, you should be able to offer them differentiated terms.
0:17.9	And the idea of customizing the product to get the right product in the right
0:22.3	channel at the right time to the right customer was very, very new back then. How are you going to
0:27.4	compete with Andreessen, Lightspeed, Sequoia? Why you? Why would they take your money? And if the
0:34.3	answer is they shouldn't, then if you end up winning a deal, that actually does say something.
0:39.3	Like that probably is adverse selection at work.
0:42.3	It doesn't mean that you can't be right every now and again, but building a whole portfolio about trying to win deals out of someone else's exhaust is not a winning strategy.
0:52.3	So for a lot of fund 1 managers, the answer is,
0:55.4	you have to build a track record by taking non-consensus risk. We saw ourselves as operators
1:02.1	masquerading as investors. We knew one thing and we knew one thing well, which was financial service
1:07.1	products. We thought that there would be an opportunity to help young entrepreneurs
1:11.6	figure out how to avoid landmines and see around corners. We started at precisely the perfect time,
1:18.6	2008, the global financial crisis. Nobody wanted to fund anything in FinTech. There wasn't a word
1:24.8	for it, by the way. So nobody wanted to fund anything in financial
1:28.8	services when the banks were just incredibly distracted. Welcome to the PEO, where we explore
1:36.3	the world's greatest startup stories. I'm your host, Turner Novak, founder of NAN Capital,
1:41.0	and I'm excited to share this conversation with Frank Rotman, who helped
	...

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