The story of Andy Funk left me impressed, amazed, envious and motivated. I think it will do the same for you. Funk moved to the US from Germany at the age of 19. Just six years later, without a formal college education, he had founded and sold 3 companies, and then became the youngest founding member of a venture capital firm in the country. His firm, Funk Ventures, is also one of the leaders in a new category of VCs that maximize social and environmental impact as well as financial return in its investments.
I reached out to Funk to understand more about his VC work, and found his back story equally compelling. Funk was born into a wealthy family in Germany. His family owns and runs Funk Gruppe, the largest privately-held and non-American owned insurance brokerage company in Europe; and as the oldest son, Funk was slated to take over the reins. This did not appeal to Funk whatsoever and he instead shipped off to the US. Funk cited that “[the family business] was already perfect – I am an innovator and a creator,” so he had no passion for running it. After a 2-month long cross-country motorcycle adventure, he landed in Santa Monica and decided to stay. It was there that he started building his first company, Microdyme, a technology company focused on vector-based online animation, and began living on his credit cards. “I never thought about the fact that I would have to pay these cards back,” he commented. By 21, Funk faced almost $250,000 of debt. “I was building my business but it barely made any money for the first few years… As an entrepreneur you have to be willing to fall on your face and get back up.” Luckily his first company took off, and as he puts it “I got a little bored, and felt the need to start more companies [Daily F1 and Helping.org]. I didn’t enjoy being CEO and had too much energy to focus on just one company at the same time, so I decided to build several. After exiting out of the companies, I was wondering how I could apply my passion for building companies but without the need to run each venture as CEO, and it dawned on me I would have to go into venture capital.”
Funk got a taste for socially conscious investing with his 3rd company, Helping.org, which allowed Americans to donate to any charity using a credit card or e-check. Funk noticed that non-profits often use a disproportional amount of their money on fundraising, which is an unsustainable model, so to change that, Funk’s company streamlined that process. Helping.org was sold to AOL in 1999 and later renamed to Network For Good. Funk noted, “Helping.org made me realize that it must be possible to make money and do social good at the same time.” So, in 2000, at age 24, and just a few months after the market crash, Funk founded Funk Ventures, a VC firm with an exclusive social and environmental focus. Funk never formally attended university – instead he poured over Harvard business school text books in his free time. However, he notes that “the best way to learn how to invest is to actually invest. Venture capitalism can’t be taught in school. This business is just as much about relationships as it is about money, and even more so about how much value you can add to your portfolio companies.”
Funk receives well over a thousand business plans each year and will take on 3 to 5 new deals annually, ranging in size from $.5M to $5M. When making investment decisions, Funk’s team of 7 looks at dozens of metrics, including the quality of the team and board, scalability, market growth, whether intellectual property is protectable, and the overall fit with the firm’s investment philosophy. That said, Funk pointed out that “80% of it comes down to the people and how we feel about the core management team. Is this a team I trust and believe in?” Some of the portfolio companies include Prolacta Bioscience, a medical technology firm that uses breast milk to nurture premature babies, and Cyber-Rain, makers of a smart sprinkler control unit which senses weather conditions and waters lawns accordingly, preventing over-watering and saving consumers 30-70% on their monthly water bill while conserving a vital resource.
“There are a lot of sharks and it’s easy to be labeled poorly,” Funk noted, keenly aware of the poor reputation that VCs have acquired. “But venture capital is still the backbone of our economy. The riskiest period of finance is the first 3 years…you have to be open to failure.” Despite Funk’s risk-taking, his portfolio is doing exceptionally well. Out of ~15 portfolio companies, several have sold or gone public while all but one of his current companies are on the path to success. Compare this to common VC experience, wherein of 10 investments 2 will be home runs, 4 or 5 will break even, and the rest will fail. Perhaps there is more than a little wisdom in a model that allows all stakeholders to win. “With some exceptions, I actually find for-profit companies more effective than non-profits. A for profit company can bring about the same social and environmental returns as a non-profit, the difference is that the entrepreneur and the employees are still incentivized with potential profits which encourages them to produce a better product or service, a scenario which benefits both the consumer and the shareholders. Ultimately, everyone wins, which to me seems like the most sustainable way to do business.”