Investing in Veterans, Founder and Startup Team Resilience, and TFX Capital with Brandon Shelton

Join host Callye Keen in an insightful conversation with Brandon Shelton, founder of  TFX Capital, as they delve into the unique world of venture capital, resilience, and the unparalleled qualities of veteran entrepreneurs. Discover the essence of entrepreneurial success and how military backgrounds foster resilience in the business arena.

Topic Highlights:

[00:00] Introduce Brandon Shelton
Callye Keen introduces Brandon Shelton, founder of  TFX Capital. As the Managing Partner of TFX, Brandon leads the firm’s service-driven investment strategy.

[03:45] The Unseen Role of Founders
Founders play a pivotal but often unseen role in startups. Brandon sheds light on the challenges and decisions faced by founders, emphasizing the importance of understanding their journey.

[11:02] Resilience in Veteran Entrepreneurs
Explore why veteran entrepreneurs exhibit remarkable resilience. Brandon elaborates on the distinct experiences that shape their mindset and problem-solving abilities, making them assets in the startup landscape.

[27:48] The Critical Role of Teams
Uncover the significant role of teams in venture capital. Brandon discusses the key elements he looks for in founding teams, emphasizing the critical balance of resilience, domain expertise, and mission-driven mindsets.

[37:00] Hubris and Humility in Entrepreneurship
Brandon navigates the fine balance between hubris and humility in entrepreneurship. Understand how successful founders blend confidence to change the world with humility to build the best teams and seek necessary guidance.

[42:00] Veterans and Immigrants: A Resilience Connection
Learn about the shared resilience traits between veterans and immigrants. Brandon highlights the value of individuals who overcome challenges, emphasizing their unique perspective and adaptability in startup environments.

"Resilience wins. And we know one talent pool that produces it kind of at scale, but you can get it through lots of places." - Brandon Shelton

Callye Keen - Kform

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Brandon Shelton TFX Capital

Brandon Shelton founded TFX Capital (TFX) in 2015 with a fundamental belief that the best entrepreneurs come from those who have served. As the Managing Partner, he leads the firm’s service-driven investment strategy. With a focus on Pre-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 building solutions in cyber, defense and healthcare.  As a veteran himself, Brandon brings more than 25 years of military, financial, strategy and operational experience including within high intensity and change environments.

Website:  www.tfxcap.com

Insta:  @taskforcexcap 

Twitter:  @Shelton_TFX

Transcript

Speaker 1: 0:00

Founders are still stubborn. I'm a founder, I'm hard to work with, I don't listen so well, neither do most of our founders. But you need that. They need to have this cognitive dissonance where they know it may not work and they know it's on fumes, but they have to ignore that, to stay positive and inspire their teams to go forward.

Speaker 2: 0:16

Welcome to the start of defense. My name is Callie Keen. Today I have Brandon Shelton. Brandon, welcome. This is gonna be a really great conversation. I'm really excited we prime the pump here. But before we jump into it, what are you passionate about right now?

Speaker 1: 0:31

I'm either a hundred miles an hour or zero miles an hour, so I'm passionate about a lot of things, I would say. As it relates to work, I am really, really passionate around doing everything in my power to help anything that's dual use or Defense oriented or national security oriented, as from up as a small five, seven, ten Person startup doing everything in my power to try to help those folks gain an audience within users. I think our country is probably a war now and we just don't understand it. I think that a volume of instability in our world and the sheer unprofessionalism of our Domestic political class and political leaders right now create this very dangerous opportunity with new technology tools that now terrorist organizations have. I think just yesterday a terrorist organization took down a 30 million dollar Reaper drone with a ballistic missile. That's insane to me. I'm not trying to be negative, but I just think that the US and our allies possess all the ingenuity, passion, know-how, entrepreneurial mindset to know what we need. Keep our country safe, keep our allies safe, live in peace. But I think there's just just this cognitive dissonance. I know in my own circles where that's happening over there or that's happening in cyber land or that's happening in space. So are you a war? Maybe that's what I'm probably today, in this very moment, super passionate about. That's what I'm listening to, that's what I'm reading I'm actually just bought another book kind of understand more around how, like the Gaza Strip got created, I still understand how that strip of land got created. So, yeah, it's been quite fascinating for me, just as being intellectually curious.

Speaker 1: 2:08

But I'm a military veteran myself. I come from military family. Most of my family members have fought war and their mental and physical Casualties from last service periods and my wife and I both served. So we're all in in terms of patriotism and loving our country Despite its ills and all its growth needs. But I'm really passionate around. And what are some of the tools that two people in Arkansas can create to solve a major problem for a manufacturing Hub that supports a Navy shipbuilder? Something like maybe Doesn't always have to be the latest silencer or laser or something like that that goes on on the weapons system. It's all kinds of ways. It's a lot of money. You knew it can solve real problems and make her, make our military and our security posture better.

Speaker 2: 2:48

I want to unpack this a little bit because, similar to many of our guests, you served, you were in the army your intelligence officer correct me if I was wrong and then you went out to industry and had a number of Roles working in, let's call it, commercial business, regular business, and then you've moved into this role as an investor and a mentor and I see you around the dual use space. So we share that in common. You share that with a lot of the people listening to this show. So you have this broad spectrum of experience where you're pulling from that service, and then you have also seen how non-defense companies work and innovate and conduct themselves, and then bringing that experience to what I feel is is incredibly important.

Speaker 2: 3:33

I think we also share the opinion that we're technically already in a war, if not several wars, if you want to think of it that way. We just don't broadly disseminate that information or make it as clear as it could be. As really concerning to me because innovation allows us to better react and asymmetric warfare of our enemies, of spending for a hundred thousand dollar ballistic missile taking down a 32 million dollar reaper that's the definition of asymmetric warfare and I thought that was our job to be asymmetric and to increase speed and lethality and technical precision. And all of that and to me, dual use is Bringing the promise that that may be the case again, bringing the commercial speed and creativity outside of the traditional market.

Speaker 1: 4:23

I really want to get your perspective on this, because you do have the operational expertise from the ground and from being an officer, and then from the commercial space listen, I think you like a lot of very level headed people, military or not, and if you're in your Frankly upper 30s, 40s and 50s in your parents and you're also all consumed with trying to be a professional I'm paid for your kids and then saving up for ridiculous college costs, which is a conversation for another podcast. It's very easy to be distracted by the latest Taylor Swift, this Football, that sports, that. I just think that there's a working assumption that I have that if the chips were down, if we were massively attacked like Israelis were, that it would be a disforcing function that would discharge the extremes of our political class, bring most level headed people together. We literally just want to live in peace, want to raise their families, live in community, early principles of democracy and we would figure it out. But do we need to be attacked and we need to have, like, some mass at 9, 11 to shake us out of this doldrum of Divisiveness and stuff like this? Right, I think the interesting thing for me is and I'll back up a couple steps for me, we're not a dual use tech investor. That's not what we're in business. We do it and it's not our North Star. We're not a national security investor only. It's not our North Star. We do it, but there are many more professional firms that do it at scale and and they do a great job of that. I think that for us, because of our backgrounds, all of everyone connected to us is connected to the military advisors, investors, teammates, evaluations guy, our lawyer, right. So there's definitely a common mission across all of us. We naturally get pulled into some of this stuff.

Speaker 1: 6:03

You and I were talking to pre-call or part of the part of getting on here today. I was scared to death in 2015, 16, to put the word defense or even the word veteran on our marketing materials. The civil military divide in the United States is dangerously wide and we'll get wider. There's nothing you and I could do about it. We can talk about that if you'd like, but I just think that I mean in six, fifteen, sixteen, seventeen I was in shorelet, north Carolina. I wasn't already wealthy. Generally, people who start cons, in my opinion, they have immediate access to capital. That can come through a lot of ways. For us, we didn't have capital. We knew what we wanted to do, we knew the founders we wanted to get to, but, like we had to figure out this capital element. So the word veteran generally from most of the family offices and high net worth individuals. Not all of them, a good chunk of them.

Speaker 1: 6:44

I believe they view this as a nonprofit, that all veterans or a PTSD or this subservient class, or I don't want to offend you because I didn't serve, but I don't know anyone who serve, so I don't know what to do. So, whether it's in the hiring front or our role in the investing front, there's actually like a subconscious bias, a discount, a zero sometimes. That's what we started for. So I would say in 2018. I was talking to an Ivy League endowment director. This endowment director actually we're trying to reserve second fund actually told me or asked me brand in no offense, why would you invest in veterans? Veterans won't make good entrepreneurs. Now, this person never served and, to the best of my knowledge, then and now they didn't have a family member to serve. So this is like just your average civilian, generally in finance good person made their taxes on time, votes, does everything civically we try to ask them to do, but from a perception standpoint. They then said, when I asked them, can you tell me more respectfully? Well, veterans, you know military people just march in lines and take orders. They don't creatively parven, solve, they don't have this entrepreneurial mindset, which is true for a few moments, a few organizations in the military, but 90% of my experience, my wife's experience, my brother, father, brother in law, I mean generationally has been the total opposite. It is the apex of entrepreneurial, problem solving information, vacancy, dynamic environment where there's in some roles in the military not all, not all roles are dangerous in the military, you know, but I jumped out of airplanes. You make a mistake that people get hurt, right. I mean, you know there's real things here. So when you're a young person in those environments it forces you to creatively problem solve. If you look at our founders, we have founders in their 70s, we have founders in their 30s. We're for a military and they will tell you that they Generally have found moments in their startup journey where they remember back to being 18, 20, 22 years old and remembering how the problem Solved, like that, how to operate with freedom, mission, yep.

Speaker 1: 8:34

Onto the next task, main effort, let's go backwards, plan all those things that sometimes are constricted in the corporate environment. This person asked me that. I was like, wow, how does that happen? Right, okay, all right. Then you get to 20, 22, february, 22. So it'd be last year and ukraine gets invaded, and right about this time.

Speaker 1: 8:51

So think about softworks, afwarks, kind of where jen snow and hondo. Then they got started 2013, 2014, softworks and afwarks. Then the AFOA is turned on. The SIPR spigot in 1516. So if you look at the publicly available data, it's a sharp incline of $7. They put on steroids. So right now, I think the number is well.

Speaker 1: 9:08

Every 12 months, the Air Force, through the AFOA program, hands out about $500 million in non-diluted research funding to generally 1,500 companies, and I think the number is like 90% or generally startups. So that would make them, every 12 months, the world's largest tech investor if you look at it that way, right? So then, when you start seeing 1516, when you start seeing these other things DIUX, what I think, 2018, 2019, army Futures Command, insen, mirrored Innovation Unit, naval what I mean? It's just like this. It's extra-engineering faster, I think, more innovation faster. I'm not saying they're effective, I'm not saying that. I'm just saying they were indicators that, wow, there was an increase in people talking about this and paying attention to it. So that was a leading indicator that things are changing.

Speaker 1: 9:51

Again, not our North Star. We had a couple of companies that benefited from that, but it wasn't the sole reason we were in business. When you go to 2022, after five, six, seven years of that happening on its own and then boom, ukraine gets invaded. I would say on a dime, lots of interest from my current investors, west Coast-based VCs, calling more and more defense startups. Like it's actually cool, it's okay, which is crazy to me In the last 18 months that's where we've actually put the wording on our materials, our publicly-facing materials, just in the last 18 months that we will invest in defense tech. It has to be mainly software, sadly, because we're small-flying and we've got to be very careful with valuations and stuff. We really love it.

Speaker 1: 10:29

Defense stuff has a hardware component and that's how traditionally BC in the 70s and 80s really got going. If you talk to the OGs, some of this was geared towards a lot of hardware problems, a lot of hardware science and stuff. So what we've gotten to a trap of, if you listen to Dr Raff G at OSC is, since 2007, a most venture capital dollars have been chasing e-commerce startups, less hardware stuff, right? So we're just saying it's been interesting just within the confines of my personal journey. How does dual-use defense tech get talked about? And it literally upwards open curve from when we started. It wasn't because of us, it just was happening around us and you start seeing these little data points. And then boom 2022, then you just have this ground swell climbing up the ladder right Now. Also long, their Space Force gets birthed what 2019 or 20 or something like that and they get their own space works and now they're trying to accelerate all things into space and we see a lot of veterans who come from Air Force and Space Force building, a lot of times, hardware-centric startups. So I'm just saying, for me it's been very inner.

Speaker 1: 11:28

I think it's a good thing for our country, I think it's a good thing for the capital markets that this is happening. There will be a lot of carnage, there will be a lot of zeroes. Some things have blown up, I get it. But the more investors who come from different parts of the country with different personal backgrounds and maybe no connection to the military whatsoever and that's okay they are finding value and they're finding mission. They're finding purpose to making investments and supporting founders like Underworld Rebellion, some of these other things. So a lot of their investors now view this as a good financial decision and their personal politics aren't seen to be interfering anymore.

Speaker 1: 12:00

Where, oh, the military spies on people? They do facial recognition, so we shouldn't back any military things, or oh, this is this political party versus that political party. No, in the last 18 months, the totality of my conversations have been, really, I would say, 99 out of 100. Tell me what they're doing. What are they doing? How do they do it?

Speaker 1: 12:15

Now, if you're not for a military and I'm not a DOD procurement specialist, I'm not. I served many years ago. I've had to reteach myself on how the military works. Today. A lot of it's the same, but a lot of it's different. I lean on a lot of advisors, but how DefenseTech was handled when I'm my last day in active duty in like 2004. It's very different than now in 2023. But I understand the lingo, I understand different units, I understand the chain of command process. I understand how things get done in different places. I don't know all the services. I only serve in the Army. So I just think I have a reference point to it and a familiarity and I'm comfortable.

Speaker 1: 12:50

Whereas the last thing I'll tell you is I feel that the call once it's called it 12 months ago from a well-known venture capital firm and one of those founders this company was way past us. We had met the founders just through veteran networking and they listed us down as a reference point. And this VC, this general partner, called me and said, hey, I don't understand anything about what they're, who they're selling to. And I said, well, give me some of the acronyms or things you're looking at. And he coughed up some of the acronyms and I'm like, yeah, that's good, let me translate to civilian speak what that means. And they're like oh, so we still probably got about 10 years of awakening thousands of VC firms and all the tens of thousands of people in the process to this.

Speaker 1: 13:29

Things like rebellion and shield and under roll and stuff like that will. They're going to spread the knowledge, which is great, and DLD will continue to try to change. It's slow and crazy and so will the IC. This is all moving just in the lot Within eight years that we've been doing this. This has been happening around us. I think it's good, but there is a lot of noise in it.

Speaker 2: 13:48

I mean, there's a fair argument to make about the effectiveness of some of those programs and the criticism can be fair. But then if we look at the net net gains of this I'm tracking, what you're saying is that I've been doing defense tech manufacturing. That's what my family has done forever. That's what I spent my whole career doing. I've been tracking. We didn't even have the term dual use 10 years ago, so that is a point in and of itself. But running accelerators, I would just say, yeah, I'm a product development person. We help stand up e-commerce companies because that's what people were interested in. That's what they're funding. But we would be pinging and looking at that traffic and you see, this in the hype cycle is like lots of people are going after AI right now, where they went after blockchain or they went after a number of different technologies. 20 years ago it was e-commerce and SaaS and then it's been SaaS for a while. Then it was e-commerce and the market promise either plays out or it doesn't play out. For the most part, saas hasn't really returned investor dollars the majority of SaaS companies. They don't make money and e-commerce businesses proved to be harder than people anticipated, of course, because they don't have project experience, supply chain experience, all the boring stuff. I appreciate the market signals from having those programs out because if we look at that, today is eight years ago. We wouldn't see, andrew, absolutely zero possibility that SHIELD AI would have all the funding that they have from the sources that they have. And so, whether DIU is effective or futures command or any one of those particular programs from a net net gain, today dual use is a credible and fairly well heard term. It's not a well understood term and there's people putting a lot of effort behind programmatically understanding that. But the investment dollars are increasing dramatically behind dual use, startups or the effort of porting over commercial technology into defense or just defense straight up, and so I really appreciate that from that big environmental view. The net net view of this is that there's a lot of activity around it, but once you really dive in, you realize how far we have to go. My big bold bet is like startup terms.

Speaker 2: 16:09

I tell people that, especially in my space hardware, so electronics I think that dual use isn't a market, it's the only strategy. I joke because I'm from the Washington DC area and I always tell people every single person in this area works for the government, you work at McDonald's. You work for the government. Why do I say that? Because if the government wasn't here, if we weren't here there probably wouldn't be the McDonald's. Everybody works for the government. We're all contributing and that's just the way that it is. If you're uncomfortable with that thankfully I think people are a little less uncomfortable with that more recently but if you're uncomfortable with that, maybe this isn't the place for you, because that's really what's going on.

Speaker 2: 16:47

Predominantly here is tech and GovCon stuff, and when you talk about electronics and then try to make a separate category of defense electronics, oh, this computer is for defense systems, this computer is for gaming. We already see these things merging together with Nvidia. We already see this converging with things like Cerberus or Blaze AI. So the supply chain issues, the intellectual property issues, the actual can I really secure this device and know what it is, and then can I deploy it or can I trust it in my home? What is this software actually doing? My big, bold bet to people is that dual use is not a strategy. It's not a thing. It's more of a way of conducting your business, but I believe that it is perhaps the only strategy. It's like a consideration that all businesses will make if we're still tracking this interaction that we're tracking now, and so I like that, because people will tell me I'm wrong, why I'm wrong, so I learned more. But that's my big bold bet is I'm focusing on this thing because I think it's going to be the only thing.

Speaker 1: 17:58

I see where you're going with that. I mean, I would build on that for me and say I view it similarly in terms of but true understage forget the definitions which seem to move by zip code when that early stage company is. But if you're kind of four to eight people, 12 to 24 months, in a couple months of money in the bank no revenue really, but you're chinking around with customers. You're not building a SaaS company. So I think, just like everything in venture, there's a lot of zigz and zag. There's a lot of smoke and mirrors. Someone told me the other day it's like carnival nature venture shiny objects, a lot of childish behavior, a nonsensical behavior. But at the end of the day, the founders are not trying to be that way. They're actually trying to solve a problem. They're going to be a tech-enabled service to start the customer and the enterprise. I can't speak to B2C, but we only focus on enterprise business customers and some government customers. They just need the thing to work. Are you saving me money? Are you helping me drive revenue? How you get there, I actually don't care. Your margin is your margin. So if you're using machine learning techniques to do it, awesome, they'll put AI on the marketing materials to customers why they don't care. Artistically, every time I've really talked well, most times I've talked to major buyers at large corporations, either my friends or investors or contacts. They really don't care. Like it doesn't? It's not additive to the proposal, right? Oh, it's a SaaS product. I don't care, it's a tech-enabled service. I don't care. Now is it operational? When's it working? How much does it cost? Okay, now, as a buggy, yes. So let's work through that, right? I actually we want our founders to be a tech-enabled service, because that's how you start an underway. You're going to QA, qc your product with humans in those early years, early months, early customers, right. Same thing with AI, right. So dual use, I would say, is great.

Speaker 1: 19:35

You can go both ways. For me, though, the way you said it, callie One, is if you're building something only for the military, will you achieve the maximum enterprise value on exit with just military contracts or military contracts and commercial contracts? I think it's with both right, but they don't need to be both simultaneous. You could start with one lane or the other, depending on what you're. Another way to go at direction is to say well, the hardest use case or, ultimately, the problem I'm trying to solve for customers and government and companies. The hardest customer to please, the hardest use case is actually within this military environment, this government environment. If I can solve it for them and use a little bit of DoD or other silver dollars to help get there, two, three, four years later or not, I'm now ready to sell to Coca-Cola, geronauters, google. I think that's great too, so.

Speaker 1: 20:22

But people want to define themselves like I'm AI, I'm SaaS, I'm dual use from day one. A lot of times are in sequence. You're really what you're doing, talking to me today, and you're using terms where you'll be three years from now right, or five years from now right, when I really just want to know who you are today. What's v1? What's use case one? You know this as well as I do. The crazy world of innovation and venture fuel stuff. You start getting these terms and jargon and everything else there's like this crazy hype cycle behind it.

Speaker 1: 20:52

Sorry, the other thing I was going to add is that they're humans at the center of all this. I mentioned, the end of the day, your sales process, your engineering process, your investors, your board, your team or whatever. They're human. So most of the friction, in my view this is why I see venture very similar to my corporate background where it unites my background. It's just human communication. That's where 90% of my personal friction comes from friction with founders, not between me and the founder, but founders and their teams, or investors or corporations or government. It's just humans, right.

Speaker 2: 21:28

Yeah, absolutely. People treat B2B like, okay, now we have to be this big corporate monolith or we have to do this or that in this corporate speak way. But then when they start working, they realize, oh, there's actually a person, another human, there. Acting like a human being gives me a disproportionate advantage. I have to understand the emotion of if this person's at a big company. What are they looking for? To de-risk their job, to line them up for a promotion? To show enterprise value? What metrics are they measured with? And the easiest way to do that is be a person and have some emotional intelligence. Talk to another person. It's not dissimilar to anything else, right?

Speaker 2: 22:07

And I really hate the layering of tech to try to gloss over the fact that what we're really trying to do is build relationships, because we just got through the whole blockchain hype cycle right, where people are adding crypto or blockchain to their business needlessly. We didn't need smart contracts. It's like that just sounds like a database to me. I understand the technology on a pretty deep level and this is a bad application of this technology. And then we're going through this hype cycle with AI and, because we do, computer vision and lots of other ML and AI enabled products. I've been working with this for a while and then now it's this really popular piece. But in reality, even if you're making a SaaS product, highly likely that somewhere in your tech stack it's already AI enabled and, like in the future, it will be so it really is a differentiator with no difference at all. It doesn't make sense and at the end of the day, you're right. And if I slap that all over my website and my materials and I tell investors that we're this leading AI thing but most likely we're just leveraging some models that are publicly available on the hugging face or something like that, it's just something fairly straightforward In six months.

Speaker 2: 23:20

No one's going to care about that. They just care Does it do the thing, how fast does it do the thing, how easy is it to use or deploy or train? Like? They just care about the human factors of it. They don't really care that behind the hood you have some advanced neural network that you goofed around with for 18 months to do, instead of just getting a model that's publicly available and open source and implementing it. Then nobody cares.

Speaker 2: 23:44

Nobody cares about that and I mean I don't care as an investor or a tech person and I don't think that most of the serious investors in the space really care about that. It's really interesting to me the human behavior. You call it like the circus to it, but the hype train, or however you want to think, is like now, every pitch deck that I see, it's like this is how we're using AI, or we built this pitch deck with AI and I'm like that's cool. But you're going to have to talk to somebody eventually and I can tell you that if you talk to my customers, they're extremely pragmatic and good at assessing personal risk because they're probably they are active military or past military, so they have a really good eye for assessing the situation quickly and asking uncomfortable questions without feeling bad about it. So be prepared. Be prepared for the bluntness that you're going to get from your customers and saying it's AI enabled is not going to help you.

Speaker 1: 24:43

The only caveat I would have there is, the end of the day, the founders are the ones in the fight, right? So, in military terms, if I'm in the talk and the rear, lobbying and good ideas which is what I do as a VC you have to be careful, right, like they're growing tired, their time is compressed, you know there's friction involved, but they're the ones talking to the customer or they're the ones on their right. So, yeah, I think there's like a natural balance. Each founder, each set of founding teams, has to find, as they grow or scale, fail, stumble, ridge down, round up, round. Right now there's a whole lot of carnage, lots of pain going on right now on top of a pandemic. So you have tired founders on top of tired founders, right? So I just think that there's some medium balance.

Speaker 1: 25:25

I've noticed I don't have like a one size fits all. It really don't. There's best practices, you know, as it relates to cutting costs, or how do you prioritize who you talk to in the capillary sequence in the month of November versus the month of February? I mean, there's some kind of like tried and true, like things most VCs know but most everything else needs to be curated. To that team they're more good because, ultimately, unless you're doing like the commerce thing kind of like you were talking about in our portfolio all 18 of our companies and definitely the next one we're about to invest in they're trying to create something net, new. It doesn't exist today. They're not like, oh, that exists, but we're just slightly better. No, no, the way we're doing it is actually quite bespoke, quite unique, and we're trying to tackle a nasty problem.

Speaker 1: 26:05

So, in that regard, the reference points, the advice, the to do it to play books, to a degree help, but like you've got to have, they've got to sustain a freedom within a framework to meet and engage your customers and some sort of you know saying in some sort of fluid environment, especially on, like the DLD side is, despite all the movement, like you were just talking about since 2013. The doors and windows are still not the right size. They're really not For me. I can go seven or great Phase one, phase two, phase two, phase three, great. In my opinion, that alone is insufficient, insufficient, right, and so I have a bunch of crazy ideas maybe to throw at the wall and stuff, but like it's at what? 1.6 million percent monolith plus the DLD civilians and everything else, like with the $840 billion budget.

Speaker 2: 26:51

So I'm here to listen to the new ideas of how this could work and I agree, I like the window metaphor because if that wasn't true, there wouldn't be so many organizations that help people get SBIRs and apply for grants and get contracts, and I love those companies because they help our startups, they help customers of mine get funding. But if the windows were the right size, somebody with a great team and a great product could go through them without a lot of help, and that's my opinion. You wouldn't need to continue to hire consultants just to get the contracts when you have the perfect thing. So ideally, that would just. It would happen together. But I want to key in on something that I think we're talking around is where does team fit in your investment thesis? Obviously you're looking at veteran startups but, like, where does team fit in, especially right now where there is some carnage and some difficulty in the capital markets?

Speaker 1: 27:48

Yeah, so it's a great question. So in our formal business process we basically look at nine areas and we score it. We have some measurement rules. A lot of it's objective right, witnessing, guessing, anticipating. We do try to be as empirical and objective as possible. Two of the nine categories are team based and they represent about 70% of the decision, and so that's why we started the firm.

Speaker 1: 28:08

So we didn't start the firm for DeVint Stack. We definitely didn't start it for a lot of venture capital. It was painful. It's a small fund manager.

Speaker 1: 28:15

Don't recommend it to anyone listening, do not go start a fund because you think it's fun. You need to do it for very distinct purpose. And driving a Lamborghini in three years, not it? Very similar advice we get to founders before they cross the transom in the starting of business. Right, it's not going to be super glorious. It's a long burn. You've got to be purpose driven. You've got to be able to. Why You've got to be very methodical and intentional. So I think that why we started it was and I'm at Nate here in Charlotte, north Carolina, where it was.

Speaker 1: 28:40

I was in the space of time in spring in 2015. I left a corporate job trying to take a little bit of time off while I was three. I've been commuting via commercial airline for seven years. Don't advise that either. And I just started meeting some better founders tech founders here in the Charlotte area, and they weren't talking about their military backgrounds in their pitches and they weren't really highlighting in their decks. And I'm not talking about for the purposes of entitlement, that would be the. If anyone on this call knows me, that is the Polar Officer who I am. I don't think you should all be quiet servants in my opinion, but there's a performance quotient right, and we talk about between ages 18 and 25, which is the primary entrance window for people into the military, is if your brain for males is not formally formed by age 25, 83% of the military is nailed all the way, and for King Males it's actually a few years earlier than that.

Speaker 1: 29:26

If you're put under high, high in pressure most roles, not all roles in the military, high pressure, basic training, officer training, whatever it is, emotionally, physically, mentally, problem solving, like repeatedly under supervision, and then your debrief literally right afterwards. Nowhere does that exist in corporate America, right? Nowhere. And you're over. You're thrown into a team. You lead a team now. You follow the team. Now you do this, you do this right.

Speaker 1: 29:48

Most roles start off that way, most professions in the military not all, not all doctors and lawyers and other people, but generally speaking, there's this early leadership element, development component, leadership and follow-up component. It sticks with you. You're not a normal 25-year-old when you get out of the military. You're just not. This leads to lots of friction these days as the civil military divide gets wider. Right, I go to corporate America, I go to bank America. It's unfulfilling. I go from a team to a singleton. It's not 24-7. It's just more than nine to five. I don't know how much anyone makes. I'm working for someone who's actually younger than me, which drives them nuts. Right, like just, I'm not supported anymore. I'm kind of left to my advice. Like there's all kinds of stuff that goes in there.

Speaker 1: 30:24

On the investment front, if 10% of all small businesses are successfully run and founded and run by military veterans but yet less than 0.5% volunteer to serve, there's something entrepreneurial happening in there. So this was the spark, this was the cause, the calling to start a business, saying there's an unmet need here, not just an unmet need a veteran with capital on the other side who can give you the appropriate risk premium or discount and factor into the investment decision. But post-investment, can we form a task force in certain name, a task force of community members connected to the military or connected to me or whatever, that we can get them leaning a little bit towards that founder with their network, their expertise, maybe their capital? Who knows? Mission is the essence of setting a mission. I'm going to be a part of something bigger than myself, right?

Speaker 1: 31:06

And so this is generally what's missing in most commercial teams. It's missing in a lot of professional sports teams, sadly. You know the ones that win, you get written about. It's like wow, we were all in every minute, every day. True trust, high trust, right. And, by the way, for civilians listening, military is not that way. All the time. There were bad actors in the military. There were bad actors in the veteran community, my entire time, six years on active day. It wasn't all amazing, but there were some very memorable moments in teams that I was always like, wow, these are phenomenal people, right. So that's why we started that that is an investable win development area and I need to see that in the founding team, who are domain experts, two or three founders, have they done this?

Speaker 1: 31:43

So we don't invest in people right out of college or business school anymore Like you've got to work commercially. You've turned the page, you've developed a Rolodex and your opportunity cost is a little bit higher. You're 30, you're 40, you're 15, maybe six years old. You're not doing this because you're bored, right. You're doing this because, okay, I can't resist the temptation anymore, I have to go do it. And you're resurrecting that mission driven mindset where your heart, mind or operating is one. And you'll go a little further. You'll fight a little harder, you go a little deeper. So when pandemic happens you don't crawl up and pray that it works out.

Speaker 1: 32:12

Capital markets fall through the floor like they have the last 18 months. Figure it out, get to the next ridgeline, figure it out. And we've noticed that the non-military co-founders sometimes they have to leave, right, like. But the veteran founders know if they're still committed to it, right. So I'm not saying, keep zombie businesses perpetuating, but if they're still in it and they're still making incremental progress and they know they've fundamentally done something harder, it's not a combat thing, it's not an officer thing, it's not listening. It's just that they know that they've had a harder professional experience than this they're experiencing now. They will make better decisions. So I don't want your worst day professionally to happen with my limited investor capital. You need to know there's a reference point. So that's why we got into it. So we care immensely.

Speaker 1: 32:52

Cali around, who are the teams? How did they come together? Why are they here? What's their background? When I say background, please don't start with your last job or your college or your MBA or where are you born. And for the veterans and we tell people all the time you shouldn't.

Speaker 1: 33:07

Thank you for your service is great Ask another question why do you serve? What do you do? Where were you Get to know it? Familiarize yourself. You'll never understand it. But the thank you for your service is kind of sometimes a lazy like oh, I don't want to offend you, I'm out. So for us it's like hey, where are you from? Why did you voluntarily join the military?

Speaker 1: 33:23

That story is important. Great. As a young person, how'd you fail? I look at who that veteran is, unless you're super arrogant. But 99% of all veterans you meet will tell you a story and they remember it in great detail of how they failed. Well, they made a huge mistake as a young person. You got yelled at and trouble or whatever. Right. Okay, why did you voluntarily choose to leave three years later, 10 years, 20 years, 30 years, whatever?

Speaker 1: 33:44

That story is important, okay, Okay, we've been doing the last five years before we started this business. Well, I transitioned out into this and I did this and this and this. Okay, why do you want to start this business? It's awful. I said 90% failure rate. Why would you want to do that? And we're pretty blunt, right, because we're from an military. We get to as maximum as a trust as quickly as possible. Let them tell you the story and very quickly you can start this bucket of people.

Speaker 1: 34:02

They're a big deal of veterans In front. They don't want to assimilate into corporate America, so starting a company seems to be easier and easier and easier these days and they fall in love with the empowerment of being the real boss the t-shirt, the logo. You're the man, you're the woman. That's great. So they're 12 month glory, very bright, depending on how old they are, and they get to like that 12 month market and they realize they can't raise capital now and they're starting to like check themselves in their head and they're like man, I don't know if I really want to be doing this. You shouldn't never start the company again with it. Finding your path to commercial corporate America through a startup is not the way, but the ones that we back, which is a lot of them, they're like none over and I was like end holder, 56 years old and 57 years old.

Speaker 1: 34:43

Minneapolis, west Point grad husband was in the military. Three of her four now now almost four four children in the military, long career CPG. Then was a non-career residence in Mayo Clinic, starting a fetal health care startup. Like you, get her on the phone, she'll talk to you. The strategic, operational, tactical level. What's going on? You look at the people around her, her board, her investors, their world class. Why? Because she has a special knack of attracting the best of brightest and getting them a part of a mission. Right.

Speaker 1: 35:09

It still may not work right, it may still fail, it may still with it right, but you can't doubt the team. Now the last piece I'll tell you is on the team, but like any but I'd say we're the same as most venture firms that invest in their stage. Founders are still stubborn. I'm a founder, I'm hard to work with. I don't listen so well, neither do most of our founders. But you need that. They need to have this cognitive dissonance where they know it may not work and they know it's on fumes, but they have to ignore that to stay positive and inspire their teams to go forward right. So they have to do this right. Like it's weird but like sometimes they don't want to. I don't need a fraction CFO. I don't need a lawyer. I don't want to go through that type of financial planning. I don't want to think through that. You know what I'm saying. Like they bear those same tastes.

Speaker 1: 35:51

You're trying to surround them with commercial experts, like every all BC firms in the early days and try to help advance them and hack their pathway. But for us that initial investment is 100% attributed to who that team is. Are they balanced and various specific? I'm looking for how resilient? What's the story on the one veteran or also former intelligence community leader? Who are they right? You're kind of factoring out that and you're assessing them and our whole team is assessing them. We haven't exactly coached, they're assessing them all whole nine yards. Then can they navigate all the bends and curves and all the challenges over the next five years. So to?

Speaker 2: 36:24

speak. It's a fine balance, because to be an entrepreneur, to launch a startup, it requires a certain level of hubris, ego, whatever you want to call it because you're going to change the world. Right, I need to break through the inertia of the way this industry is done, the way this is accepted right now. I, me, I'm going to change this, my team, we're going to do this thing. So that requires a significant amount of yeah, ego, right, but then the winners, long-term, are the people that have the humility to say I'm going to pull in the best team, I'm going to pull in the best advisors, I'm going to get the help that I need. And so that fine balance between the hubris to change the world and humility to learn where our shortcomings are is really a tricky, sticky thing.

Speaker 2: 37:11

I always think about that. It's really hard to judge someone who hasn't had an exit or hasn't had moments of high stress in the past. They haven't done significant projects. And really I always ask a question around veteran entrepreneurs or team because I've just seen and this is like from my perspective as an outsider, but as somebody that's worked for 20 years with basically startups, innovators making products so it's like why do I see so many of the people as veterans. And what is it different about this group of people that are able to navigate through the stress of starting something new? Because there is, with people that go through a traditional path. I've had people that have PhDs, people at Harvard Business School grads. They crumble immediately because they lay out a big plan and then the real world just collapses around them and they've never had that experience before. You know, they're straight A student, straight A's in college, Harvard Business School, corporate experience, and they come in to be a startup and it's hard and they're not used to it being hard. They're used to it being difficult but having a clear path on how to win. It's like study this book, take this test, get an A. And their stress management is about knowing what the unknowns are and knowing exactly how to overcome those unknowns, whereas it seems like the people that I more typically would work with they're more comfortable operating in unknown, unknowns and in stressful situations saying like, okay, well, what can I just do tomorrow? What can I do like this week? What pieces do I need? And so it's just interesting. It's like I accept this as a risk and I'm going to do it anyways, because this is what my mission is, all right.

Speaker 2: 39:04

So there's like odd things. I always try to ask a flavor of that because people have just different experience and perspectives. But unpacking, why does that make sense? Like you said, the entrepreneurship statistics are really strange. From a population standpoint, one understands that running a business is risky, but why are there so many veteran businesses? Or, if you expand that, there's law enforcement and first responder businesses like every firefighter I know has at least one side business and I'm like how Isn't their job already so stressful? It's like, yeah, because running a small services business on the side is like much less stressful than what they're used to, so they're able to just walk through the pains of running a business, because they're used to like running into burning buildings. You know it's like okay, well, philosophically that makes sense. I really I appreciate your answers. Definitely the best answer anyone's given on the show is just like a lot of information to kind of think about. So I'm just back cataloging it right now.

Speaker 1: 40:03

No, I appreciate you saying that. I think, at the end of the day, I definitely not all veterans are investable. I'm not saying veterans are better than their civilian counterparts. I'm just saying any professional task out there, whether it's you're looking for performance elements in your company and trying to transform it Team Rubicon or I'll be this evening right, I'm trying to get volunteers out just for people attached to a mission bigger than themselves. Investments I'm trying to do a startup that I can't sell fun most people and thus I need outside investors, and so I'm going to be put on this treadmill that, frankly, I think the statistics will bear out that the probability of poor mental health and physical health over the journey of your five to 10 years is bad. If you're going to go down any of these paths looking for performance, transformation, growth, you know, mission whatever you need to have an assessment kit bag of who you're picking. So I think, resilience and people, because I was listening to Peter Thiel and Mark Andresa and we're all switching things about their politics, I don't care.

Speaker 1: 41:00

I asked myself the question of spring of 15, because I'd never venture, invested or worked with a VC fund who's done this a long time. Both of them were operators. It created something that created their wealth. And then they went back again and again and again and repeatedly in 15, I was watching videos from Stanford Business School and other startup conferences on YouTube where they were openly talking about like, look, there's no blood test you can give the founders or meters, it isn't. And so if you talked about the way, like the SEAL Team Six guys that's not what they're called but like the Dev, high performing units in terms of how do you select the people? They're constantly tinkering with this there's no Myers-Briggs blood tests, whatever, because you don't know how those individual will operate in that environment, in that team at that moment. We're all getting older every minute, so how I was last month is different than how I am now. Like, people don't account for that. Just because you went to some school or you got some, you were number one person at that may not mean anything here. It actually could be the person who worked at the McDonald's, read the single mother and put themselves through school, who was transformational. Now, right, Because everything kind of clicked in that moment, right, so for us, that's how we see the world.

Speaker 1: 42:07

So within venture, he's saying resilience wins and we know one talent pool that produces it kind of at scale. But you can get it through lots of places, I think, by being a college athlete. Why? Because it's between ages 18 and 22,. You're not a normal college student. You have enhanced responsibilities. You have physical stress what mental stress? Competitions, games, whatever it is you're doing.

Speaker 1: 42:29

So if you talk to people on Northwestern Mutual, they generally only want to hire former college athletes and veterans because they have done the math and they see this resilience, independent problem solving, creative thinker promotion. If you grew up in immigrants a lot of people don't realize this Celebrate unshackled ventures on this podcast when they tend not born a veteran, you're not born an immigrant. You become those two things through your journey and through your decisions, and maybe not decisions and environments. So some of those folks that fight to get to this country and try to become a citizen and maybe are treated poorly who knows?

Speaker 1: 43:00

But there's a resilience equation can do figure it out, survive mentality that when they then take that into the early days of a startup, they have this reference point, they know what's possible and they know that the drama we're dealing with, the investor problems we're dealing with, the customer problems we're dealing with you should have perspective. And then that veteran in those heightened environments, our expectation should be the calm one. They are the ones putting their arms around their civilian teammates. It's okay, guys, and you're saying we're going to get through it. That type of thing, right, and still that confidence to get to the next hilltop.

Speaker 2: 43:33

Brandon, that's amazing. Thank you so much for taking the time. I know you've got to run because you're super busy. Thank you for taking your 30, 45 minutes out of your day.

Speaker 1: 43:42

I said no busier than anybody else. I just don't do a very good job of balancing my calendars.

Speaker 2: 43:47

Well, thank you for taking the time to be on the show. I really appreciate it. Where is the best place that people can follow what you're up to?

Speaker 1: 43:55

We're trying to do a better job of this, but our website, tfxcapcom. Linkedin is probably the best thing for us, so you can follow me on LinkedIn, connect with me, follow us. We are trying to do a better job, going into the next year, of just putting out more materials. We've been bogged down with capital raising and stuff like that, but that's probably the best way we run a foundation as well. It's our give back model. Every six months, we bring on student, veteran and military spouse interns. We're called them fellows, so if you're interested in that, please apply. We definitely are trying to force multiply. Just within our small base, try to help as many people as possible.

Speaker 2: 44:26

We'll make sure all those links are in the description in the post so people can connect with you and follow. My name is Callie Keene and this has been the Startup Defense.