Editor’s Note: Brandon Shelton is Founder & Managing Partner at Charlotte-headquartered TFX Capital, and Shelton also serves on the Advisory Council for Veterans Business Affairs. He served eight years in the U.S. Army as an airborne infantry and military intelligence officer. He earned a B.S. with honors from the University of Richmond and holds an MBA from Duke University’s Fuqua School of Business. He founded TFX Capital in 2015. The company was an investor in Triangle startup Spiffy, and has exited its position, and is a current investor of Charlotte’s ProctorFree. This is Shelton’s first column on WRAL TechWire.
CHARLOTTE – In the first half of 2021 the volume of venture capital investment in U.S-based startups was record-breaking with $150 billion invested in over 8,000 startups. To put this into context, approximately $30 billion was invested into startups in all of 2010 and $160 billion in all of 2020.
Over the past decade, we’ve seen the rise of mega VC funds that are deploying billions of dollars via increasingly larger investment amounts.
Simultaneously, there’s a rise in first-time fund managers with $10 to $50 million funds who are investing in diversity across demographics and locations – such as in female founded companies and in startups outside of the San Francisco Bay Area.
TFX Capital, a veteran-led VC firm, was launched in 2015 to invest in entrepreneurs who have served in the military, with a belief that betting on company founders versus the product or market is key to better investment outcomes. Our approach of investing in veteran-led technology startups puts us in a unique position to help make our nation and society stronger.
While every company will have challenges, not every company is led by high-performing former military leaders with experience in leveraging technology at scale and operating in volatile, uncertain, complex, and ambiguous (VUCA) environments. The veterans we invest in have made the world better through their service, and now they are doing so through the application of technology to solve hard problems.
Making an impact with our investments is very important to us, yet it’s not mutually exclusive to generating success for our investors. There’s a direct correlation between our mission and our ability to deliver above market returns. Veteran entrepreneurs are prime candidates for success in business.
Some of the most recognizable companies have been founded and led by military veterans, such as Walmart, FedEx, Nike and RE/MAX, to name a few. But if you look at the data on veteran entrepreneurship from the Small Business Administration (SBA), about 6% of small businesses in the U.S. are founded and run by veterans. By contrast, veterans comprise only 0.5% of the U.S. population.
The data demonstrates that veteran entrepreneurs are a largely underutilized, successful demographic, yet the vast majority of venture capital firms do not have leaders with military backgrounds. The venture capital industry struggles to identify, engage and value technology startups founded and led by veterans who are trained by the U.S. military, one of the world’s largest investors in leadership training and technology development.
The business world thanks veterans for their service and will ask where they went to school and about their commercial experience. These are important factors, but not the most significant one when deciding if to invest in a veteran-led business.
The most significant factor to evaluate is how the leader has failed, adapted, and grown during their time in a high intensity, high-risk, mission-driven environment. The military is an incredible environment to learn within, mimicking many of the environmental factors that leaders experience within the first few years of starting a business.
As a venture capitalist firm with leaders who have military backgrounds, we are able to efficiently assess and confirm the leadership, qualities and performance of the veteran entrepreneurs in whose companies we invest, whereas non-veterans can struggle to understand their backgrounds. Post-investment, we coach, mentor and support the companies, and are able to de-risk and enhance investment outcomes by getting in the trenches with them and leveraging our veteran network.