On February 6, 2020, ACT | The App Association visited Ghost Town Brewing, an Oakland, California based brewery, to engage with developers about the local tech community, California’s app economy, and general trends and opportunities for tech businesses. App Association member Fresco Capital’s Stephen Forte spoke at the event. Below, Stephen discusses the tools platforms provide for small businesses and how he works with Fresco Capital’s portfolio companies to best utilize those tools for their business, technology, or compliance needs.
I am Stephen Forte, and I am a managing partner at Fresco Capital, a venture capital firm based in Silicon Valley with offices in Asia. Before Fresco Capital, I built five different high-tech startups over the past 20 years. I’ve been involved with the App Association since the beginning and take the relationship between tech and the government very seriously.
At Fresco Capital, we make cash investments in startup companies in exchange for a percentage of ownership. As those companies grow, our initial investment grows in value as well. Fresco Capital invests in companies that leverage technology in order to scale their business. By investing in over 75 high-tech startups globally, Fresco is in a unique position to see, and take part in, major trends.
My role at Fresco Capital is to find great companies and lead negotiations around our partnership and investment in those companies. Every day I meet with several startup founders and CEOs over coffee—well, lately due to COVID-19 via Zoom only— and discuss their business plans. Most of them are pitching Fresco Capital for an investment, some are portfolio companies that we have already invested in, and we’re meeting to review their progress and future plans.
By definition the startups we invest in are small businesses. Most of the companies I meet with are so small or early stage that they don’t have office space yet. They are usually just a few people with a great idea huddled around laptops building a great product. Honestly, helping these companies grow into mature businesses is the best job in the world.
You may think it is crazy investing in such high-risk companies, but it’s fun. Each one of these companies are building something that can turn into the next major platform—the next Microsoft, Apple, or Google. You would think these startups are afraid of the big tech companies, but you would be wrong. Being small gives them an advantage. They can try things that the bigger companies can’t because they have less of a chain to move thorough. Bottom line: the startups can move faster and have many advantages based on their size. While they’re able to do what big companies can’t in terms of new, innovative ideas, they do have disadvantages when it comes to capital. In early stages, they need the money because their customer base is very small – this is where we come in as venture capitalists.
Outside of capital, startups are seeking trust and name recognition. If a startup is offering a similar product or service as a more established incumbent, even at a lower price, the startup faces a challenge in getting the customer to know and trust them. On one hand, privacy regulations that are already on the books in Europe (GDPR) and California (CCPA) help level the playing field. The intention of these regulations is to provide the public with mechanisms to see what type of data is being collected and used. By requiring companies to disclose this information when asked, the regulations are supposed to level the playing field for startups and big tech companies.
On the other hand, as I have argued before, the unintended consequences of regulations like GDPR and CCPA that target the big tech companies are huge. Complying with the regulations creates a burden on the small and medium sized businesses, giving the larger, more established companies an advantage. Instead of leveling the playing field, the regulations are giving the big tech companies a bigger moat.
An app developer, tech startup, content creator, or a direct to consumer (DTC) goods company can leverage the scale of these tech platforms. Since the tech platforms have a level of trust with their users, integrating your company or content with their platform gives your unknown company a level of trust by association. This is how unknown tech and DTC companies can build a brand and the trust associated with that brand, both quickly and inexpensively.
Bottom line: before Congress begins to regulate large platforms, like the ones I mentioned above, it’s imperative that lawmakers listen to the voices of the small businesses who use those platforms. Their livelihoods depend on it.