Making Fun of Fundamental investors – The Frank Thelen edition
Frank Thelen is a household name in Germany. As part of the German version of “Shark Tank” (which he left in 2019), he clearly became the Venture Capital investor with the biggest public exposure (the guy in the back in the middle):
Recently, Thelen announced that he will launch the “German Version” of Ark Invest which he calls 10xDNA Fund. The idea behind is that he, as successful VC investor is able to run a big fund of public stocks that aims at “disruptive technologies”.
With regard to public listed equities, his track record is mixed. He has been a big supporter of Tesla for years, however he also promoted Wirecard almost until the very end.
As modest as he is, he expects “only” 3x for his fund over the next 4-8 years. And of course, he targets all disruptive areas, from Software, AI, robotics but also Cancer therapeutics, Quantum Computing, Brain Interfaces and Nuclear Fusion. For this service, he only charges 1.8% fee p.a. plus performance fee plus 3% upfront fee for retail investors.
Where it gets really interesting is when Thelen explains the “secret sauce” of his fund which can be summarized as follows:
“BRINGING OUR VENTURE CAPITAL EXPERIENCE TO THE PUBLIC MARKET”
So what does this mean? Thankfully, he has put up a great overview which I find is the highlight of the whole website:
In perfect “Denglisch” he actually makes fun of “Value Investing 1.0”.
Instead of Cashflows, balance sheets, Earnings multiples, dividends and Buybacks, he focuses on the people, exponential developments, network effects and “DNA” of a company.
I am not someone who tries to call tops or bottoms in the market, but this screams almost that some kind of top seems to be very near. Yes, we had one of the biggest Tech bull runs that I have seen in my investor career (which started in 1987), but launching such an unfocused fund now clearly seem to look like a very bad idea.
So why did I actually spend precious time with a post of this fund ? I think there are a few fundamental points worth mentioning:
- There are very few investors out there who are both good in private markets (VC and PE) and public markets. The main difference in my opinion ist the kind of access PE/VC have to companies compared to public companies. As a Private investor, you can ask management during DD whatever you want, as a public investor you only have information that everyone else has. The difference is especially wide for early stage VCs compared to public markets
- Running a VC fund means to be able to stomach that 6-7 out of 10 investments will be losers, 1-2 will do OK and one single investment must “make the fund”. VC investors can ignore volatility because there is no real mark to market on the assets. Valuations only get updated if a funding round occurs or a company goes bust. It will be interesting to see if and how retail investors will stomach that kind of volatility
- The limited success of public listed VC vehicles shows that public investors are not so keen on VC risk profiles in the long run
- Having worked myself some time in the VC area, I do think that one actually can learn something from (good) VC investors. Especially the long term orientation, identification of structural growth opportunities and a focus on the motivation and abilities of the management are very useful tools for any fundamental investors
- However I am 100% sure that ignoring Cashflows, Balance sheets etc does not work long term in public markets for a fund that aims to pick stocks
- Being a “fundamental” investor these days who cares about fundamentals really seems to be almost a contrarian approach in itself
Some fun facts about the fund:
- Thelen does not show any track record. So we don’t even now if he is any good as VC.
- His VC portfolio includes also Müsli and liquid egg white. His flagship is Lilium, the Air Taxi start-up that just had a very rocky start as a SPAC. There is little to nothing with regard to “Deep tech”
- He claims that he would invest “50% of his liquid net worth” into the fund himself. However we do not know how much of his total net worth is liquid.
- At the time of writing, the fund is down -4% since inception (01.09) vs. +-0 for the Nasdaq
- The job to come up with actual valuation models is still open, however they are already able to calculate the value of the Tesla share at 1800 USD/per share. The model is remarkable as they actually use EV/EBITDA multiples which is clearly not “VC DNA”….
My predictions:
I am usually not making predictions, but in this case I will make some predictions:
- The fund will not make 3x in the next 4-8 years
- Instead the fund will (after fees) significantly under perform any Nasdaq ETF
- Nevertheless, Thelen will raise a significant amount of money and earn a lot on fees
Deep inside I hope that there is somewhere a minor “God of fundamental investors” who will strike down on the portfolio of this fund in a very short time, but I guess this is wishful thinking 😉
For some additional fun I will include the fund into my “peer group” for my performance reveiwa,
value and opportunity 
The „God of fundamental investors“ has recently started his job by launching the StrgF documentary on Thelen recently. I am sure the God has some further steps in mind.
Stupid money collection! As long as people don´t want to think themself and follow snake oil salesmen…
btw. how is the Mr. Dax and his Fond performing…
MMI I reckon you are 100% right. The way to create value in VC, PE, or secondary market is totally different.
In VC, investors can insert experienced managers/board members, providing resource, leverage sales channels and personal networks…etc. Companies are so new, there are plenty of room for improvements and see results fast. Balance sheet and cash flow are secondary focus just because companies have so much to do. VC companies thrive on having disruptive tech and new business model, in such environment entrepreneurs are rewarded for risk taking and trailblazing. Do as much as possible until someone stop you. Also because companies are unlisted, they can operate in the dark and be nimble, unnoticed by regulators and competitors. Another thing to note is a lot of successful VC investments probably have survivorship bias, failed cases are less reported if at all.
For PE, the name of the game is financing. A lot of value can be created by applying leverage on a stable, predictable, income generating asset, e.g. doing dividend recap on a mobile home park. Value comes from knowing the right financial structure/alternatives/provider and obtaining low borrowing cost.
In stock market, companies already went through growing stage. Structures and norms are established. There are less short term fix, and strategies need time to materialized. Investors are less likely to provide resource to companies and see results right away, because management already know what they doing. Once company is in the public, all info are accessible for competitors, suppliers, customers, regulators…etc. Every move is under microscope. It is definitely much harder to compete when everyone can react to you. What investors can do though is downside protection. Prudently looking at balance sheet, cash flow, dividend, buyback…etc is boring and unsexy but it helps preventing mistakes. If mistakes are prevented in aggregated upside is going to come.
In short, skills required for VC/PE/secondary market investors are different. VC is a enterprising game and stock market is a disciplinary game. Frank Thelen cannot just willy-nilly dumping what he learnt in VC to stock market. One analogy is VC companies are like little leaguers and public companies are MLB players. It is easy to give kids good advice on nutrition, training, strategies and see growth right away. But little league coaching for MLB players are definitely unsuitable and inadequate. Frank Thelen to me looks like a little league parent try to coach MLB players.
Is it true that Thelen attended Real schule? Maybe his investors too…
I would not hold this against him. He seems to have started studying in University but left to found a company. That part of his CV is OK as a founder in my opinion. I know some very smart people who for some reason or the other do not have the Abitur.
I look forward to the Muddy Waters report on Lilium.
Thank you for this post! I was watching Thelen’s 1h interview with “mission money” (german yt channel on markets) and asked myself many of the same questions you are raising…
Well, of course the fund is ridiculous, but can you really blame Thelen for picking up the money that is lying there on the street?
That’s true. But maybe I can reach some potential investors who might think twice about investing into this fund.
This minor “God of fundamental investors” might save a lot of naive German ‘growth investors’ a lot of money, by destroying the near term performance and making them NOT throw their money at Thelen – I fear otherwise
Nice. Looking forward to those peer group comparisons. I always thought this guy is awful. The typical example of someone who just got lucky and now suffers from blatant overconfidence.