Meet the Investor: From a childhood interest in finance to a Fontinalis partner

Stallman also describes his fixation on FreightTech investments, how he evaluates their worth and how others with a love for finance can enter the venture capital space successfully.

Questions and answers were edited for clarity and length.

FREIGHTWAVES: From attending University of Michigan’s Stephen M. Ross School of Business to becoming a partner at Fontinalis, you have always been active in finance. Where did your passion for finance and accounting come from?

STALLMAN: “I think I was fortunate to have two great parents that had a hand in shaping where I ultimately am today.

“My mom spent her entire career in bank operations and compliance and that had a huge influence on me. … My kindergarten show-and-tell presentation was showing how I could count money and give change back after a transaction, which was pretty unusual. When I was around 8 years old, back when people still did this, [my mom] taught me how to balance a checkbook. 

“My dad was a Walgreens pharmacist and when he would get ready for work, he would plop me down in front of the television and turn on CNBC. I would have to wait until the Walgreen ticker symbol went across the screen and I had to tell him what it was at that day.

“They’ve always encouraged my interests. For example, when I was 15 years old, a friend and I started a Web 1.0 business focused on financial education. It was more of a hobby, but I managed to pay my way through college off of that and eventually sold that business to another tech company while I was in college. It helped me learn about customer acquisition costs and total lifetime value and other important metrics like those.

“It’s fun to look back and see these small seeds my parents planted in me or encouraged me to do that would pay off later on. A lot of kids don’t have two parents that are highly supportive of their kids’ passions.”

FREIGHTWAVES: As a parent now, do you think school systems could play a better role in teaching kids these lessons that you were able to learn at such a young age?

STALLMAN: “I definitely do support that idea overall and I think it’s challenging for the school systems because they don’t know what’s being covered at home. It’s pretty clear that certain academic subjects like coordinate planes and slope intercepts are things schools cover and hopefully parents are reinforcing those messages at home. But life skills and things like that have this blurred boundary of where that should be taught.

“That was something I was thinking about when working on the financial education business when I was 15 years old. How do we take younger people and help them understand the financial concepts that will be important for them later on in life?

“Aso, you now have so many people graduating with larger student loan balances and are having to push out some of these financial decisions to later stages in their life and it’s harder to get a start in those areas than prior generations.”

FREIGHTWAVES: What life experiences influenced you into going into venture capital?

STALLMAN: “In 2006, when I was a senior in college, I learned the University of Michigan had a $5 billion endowment and they have a full-time investment staff that manages that endowment, which has grown substantially since then to $17 billion today.

“I was really interested in how my own university was investing with this global portfolio across all different assets and I thought, if I ever wanted to be a professional investor, what better opportunity to see all aspects of that.

“I started pestering them with a few emails and letters and it turns out they never had an intern before. They took me under their wing and gave me an opportunity to learn from them while I was wrapping up my undergraduate degree and a few months after graduation as well.

“While I was there, they gave me the task of working on alternative investments and, at the time, I didn’t really know much about private equity, venture capital, real estate, oil and gas and other commodities. 

“I learned very quickly the University of Michigan was one of the earliest institutional investors in venture capital, so they had great relationships with various venture capital funds. As these firms were raising new funds, they would come into the office and pitch to us and you could really see where they had seen success before.

“I was really drawn to some of the case studies and war stories these partners had about companies they had been a part of building alongside founding teams. I remember being hooked by that. It was cool to take finance and marry it to building a company and it sparked my interest. 

“That experience also helped me recognize that you don’t just jump into venture, it’s a field you develop into so my plan was to spend the next few years developing real skills.

“At that time, I went to work for a firm, Stout, that did transaction advisory, valuation work and consulted corporate activities of companies both big and small. 

“While I was at Stout, I carved out a niche in working on oddball things. For example, working with technology companies, which can be very hard to value since they often don’t have a lot of revenue or profits in the beginning. I tended to raise my hand when those assignments came up and built up quite a bit of experience doing it.

FREIGHTWAVES: How does one go about assigning valuation to technology companies pre-revenue and what factors do you look at when evaluating those companies?

STALLMAN: “On the one hand, it’s scientific. It’s about trying to take something that’s already very complicated and finding a way to ascribe value to it and I really like that because I think value is the cornerstone of finance, and if you know what something’s worth, you can now make business decisions based off that information.

“But, it can also be a bit tricky. One of the things I learned in venture is that these companies are living, breathing companies that are changing every single day and a valuation is a moment in time. Sometimes a valuation is ahead of where it should be but those companies often grow through those valuations. 

“If you look back 20 years ago, there were probably some investors that thought they were really smart on passing on Facebook’s Series A round because it was a $100 million valuation but companies, like Facebook, grow through those valuations and become high-performing businesses. I have learned in this field that sometimes you overpay in the short run to have a great return in the long run.”

“Some of the deciding factors we look at are quantitative but a lot of it is qualitative. For example, how big is the market the company is operating in, how fast can the company capture that market? The faster we think they can capture their market, the more we’re willing to pay. A lot of times it comes down to the people and the hard-changing individuals that can surround itself with world-class talent and scale the company. Even more so, in some businesses, you are more concerned about how the company will have to convince its customers to move quickly with the product or how industry regulation can affect it as well.”

FREIGHTWAVES: What ultimately landed you a partner role at Fontinalis?

STALLMAN: “One day I read an interview with Bill Ford about a new investment firm he was going to be a part of in Detroit and he talked about his ambitions for the firm, Fontinalis. At the time, there was only one or two investments they had made overall.

“After a few interviews I was ultimately the firm’s first hire as all investment team members at the time were also founders.

“I remember being curious about their thesis and what they wanted to invest in because this was 11 years ago, and people didn’t talk about mobility back then. We would talk to other venture investors and say we were investing in transportation technology and they would look at us and say, that’s a capital intensive, regulated industry with long sales cycles, good luck with that, it’s not venture investable.

“Now 11 years later, all of those same VCs have piled into the space because the market is so huge. 

“It’s also not like other industries, you cannot build just regular enterprise software or consumer apps, you have to navigate other dynamics, different processes and workflows, as many players have their own way of doing things for decades. We thought we could play a role of not only bringing capital to our companies but helping them get through the idiosyncrasies of the industry.”

FREIGHTWAVES: Since there are so many idiosyncrasies in transportation, are there any factors in particular that you look for when deciding to invest in a company?

STALLMAN: “It’s an overplayed cliche in venture but it’s all about the team. I used to sort of roll my eyes when I heard that. But quite honestly, when you look back that’s the one common theme in all of the successful companies that we have been a part of. 

“What I tend to look for around the team itself is specifically the team’s ability to attract other great people around them. Sometimes a company can have an interesting hook and the technology can be very compelling, but we like to look at the unfair advantage the team has because at some point the technology advantage is going to wane and others are going to move into the space to compete with you.

“So we always ask ourselves, does this team match what they’re trying to build? Do they have a unique expertise that’s hard to replicate? Can they attract the best talent? 

“Every founder we have invested in, if you ask them what their most significant role in their company is, it’s that they are the recruiter-in-chief. Their job is to convince other people to join them on this audacious mission of building whatever they are building at the moment.

“I would also say that it’s important that the team can fundraise. We believe in our companies, but we need other people to believe in them as well. Sometimes teams aren’t great at fundraising and you need somebody that can not only build a business, hire great people around it, but also raise capital so that they can keep growing.”

FREIGHTWAVES: Going into 2022, what areas of investment and FreightTech are you most interested in?

STALLMAN: “Right now there is a lot of innovation going on in transportation and that is a really great signal for us. Personally, I am pretty intrigued by anything that enhances capacity and allows companies to stretch asset utilization and find new sources of capacity within their supply chains.

“Two examples of that would be a company we invested in called Coros, which helps e-commerce companies and logistics partners improve visibility. So, for example, FedEx or UPS can know in advance what parcels are going to come into their network based off the order volume and initial fulfillment of their e-commerce partners so they can plan their capacity needs accordingly. 

“We also invested in Veho, which is a last-mile delivery network that serves a lot of these e-commerce, direct-to-consumer brands where some of the traditional logistics carriers can’t fulfill specific aspects of their delivery or have a hard time getting the capacity they need from the big carriers.

“The other theme I have been spending time on these days is the financial side of logistics. Buyers continue to want to pay as late as possible and suppliers want to get paid as early as possible and supplier finance companies have been the sole providers of trade finance. FinTech has moved into so many other industries and is starting to really modernize a lot of this.

“We don’t have a whole lot of investments around this theme just yet but we are starting to see a lot of innovation and I think 2022 is going to be FinTech’s moment to emerge within supply chain technology and we want to be a part of that.”

Related: Fintech does FreightTech: 5 companies you should know

FREIGHTWAVES: For our readers who have not been fortunate enough to have such a solid background in finance but are interested in the venture capital world, what advice would you give them?

STALLMAN: “There is no single entry path into venture capital. Investors come from all sorts of backgrounds and even people with financing and consulting backgrounds go on to do completely different things with their careers.

“I look at venture as an apprenticeship type of business. The people that do well in this are very intellectually curious people who want to learn and tend to surround themselves with good people to learn from and continuously work on building out their personal network. A person who is in venture with no network really has limited value. So I advise people that early on, try to learn something new about finance and entrepreneurship every single day and try to be a continuous student and surround yourself with other ambitious entrepreneurs.

“There are also a lot of great services to help you get started. There is this group called GoingVC, which is an ecosystem geared towards helping people find entry points into venture by helping them build up their own networks. They can also help them understand how venture firms operate and how deals are done and what venture firms are looking for in new partners.

“Personally, if someone came to me and said I want to join Fontinalis, I would ask them to pitch me an idea or a company they are excited about because I want to really get a sense of how their brain works and what themes they are interested in. Venture can be a young person’s game at times because technology is always evolving. Young people have fresh ideas of what the future might look like, where as you get older, you can have a tendency to be jaded in some ways. 

“Again, there is no one path to venture but at the end of the day if you are a constant student, looking to learn and looking to network and build relationships, that is a good start.”

Disclaimer: Fontinalis led FreightWaves’ $3.4 million seed round and Stallman currently serves on the board of directors of FreightWaves.

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