Had 32-year-old Andy Funk followed his family's wishes, this would have been the year he would be taking the helm of the family business, Funk Gruppe, Germany's largest independent insurance company and brokerage. But he took a different path, choosing to become an entrepreneur rather than leading the structured life of an insurance executive. During his senior year in high school, Funk started a software business. After graduation, he left for the United States, taking his online business with him. Funk moved into a Hollywood apartment, where he was surviving on pocket money because sales were slow. Funk launched two other software ventures, and by 24 he had sold all three. He sold his third software company and decided to launch his own venture capital firm. Funk focused on investing in socially and environmentally responsible companies. Funk Ventures has invested in more than a dozen companies, including Organic to Go, Prolacta Bioscience and Encore Fitness. Funk recently met with the Business Journal to discuss his unusual career trajectory and the prospects for his venture capital firm during one of the toughest investing climates in years.


Question: Why didn't you go into the family business?

Answer: As the eldest son of a family owning a 130-year-old insurance company, it was always expected of me to take over the business when my father was ready to retire. I'm the sixth generation of the family since the business started. But I didn't want to know how my life would pan out for the next 40 years. That was not exciting to me. I like to create things. I really figured this out when I was in high school.

Q: How did that come about?

A: I was on a class trip to London and got a glimpse of how a less-structured business world worked. I had an epiphany of sorts: I knew then and there that I wanted to move to America and become an entrepreneur. So, right after I graduated, that's what I did.

Q: Why America? And where did you go?

A: It's the land of entrepreneurs, where you can build something out of just an idea. I shipped my motorcycles and musical instruments to Chicago and toured the country for a couple months. I followed the old Route 66, ending up on Santa Monica Boulevard at Ocean Avenue. I fell instantly in love with this place and decided this was where I wanted to live and build my company.

Q: What did your parents think about this?

A: They were not pleased, but were willing to let me use the family credit card. They really thought this was a phase and that I would return to Germany in a couple of years. But when they realized that this wasn't a phase and that I wasn't going to return, I sort of became the black sheep of the family. They were hugely disappointed in me.

Q: Were there any other consequences?

A: Yes, by deciding not to go into the management of the insurance business, I essentially forfeited my inheritance. The way the bylaws were written, only heirs that were in management were eligible for the inheritance. I guess the purpose of that was to ensure continuity.

Q: So what was it like starting out on your own?

A: At first, not so good. I was deeply in debt, living in an apartment in Hollywood, which was all I could afford. I was spending only about $2 or $3 a day. Yes, I had the family credit card, but I only used that to finance the business that I had started while in my senior year in high school. I had run up something like $250,000 in debt. I sold everything I had, except for a computer and a phone, which were essential for the business.

Q: What was this company?

A: It used Flash technology to produce animation on the Internet. Remember, this was 1993, '94, right at the start of the Internet revolution. But I only managed to bring in about $5,000 a year for the first two years.

Q: Wasn't it tempting to ask for family help when you were living on dollars a day?

A: I chose not to go back to my parents for help. I pretty much already knew what their view was: "The less we help, the quicker he comes back." In retrospect, I believe that not going back to them for help made me a better person and made me truly appreciate what being an entrepreneur was all about.

Q: So how did you get your first break?

A: My break came with another company that I had launched, using that same credit card. That company was called Helping.org and provided a model for how to donate to charities over the Internet. The company came to the attention of AOL and sold to their foundation arm within a year. They renamed it Network for Good and it went on to become a phenomenal success.

Q: How much money did you make on that deal? And was that enough to get you out of debt?

A: I'm not at liberty to say how much I received. While AOL was public, the foundation was not. But it was enough to transform me. I managed to get rid of most of the debt. But I didn't go out and buy myself a fancy car or anything. Most of the remaining money went to the other two businesses I had. These businesses were just becoming successful and I was scaling them up. I could finally afford a small office on Sunset Boulevard.

Q: What was the other business?

A: It was called Daily F1 and it distributed media to Formula 1 fans. Growing up in Europe, I was a big Formula 1 racing fan. But it wasn't easy to get the rights to distribute the Formula 1 media. Unlike the other two companies, I was in on a partnership on this company, so it wasn't wholly mine. It sold to a French company.

Q: What about your first company? How did that sell?

A: That took a few years to start making money, but by the year 2000, I sold it to iBoost, a venture capital firm funded by Softbank, which was a big Japanese bank focused on technology. IBoost isn't around anymore; it went belly-up during the dot-com bust.

Q: Did that transaction result in you owning a lot of iBoost stock?

A: It was a part cash and part stock deal. The stock of course went to nothing. But the cash was significant it allowed me to buy a Mercedes and for the first time as an adult, I was able to live what I would call the good life.

Q: So what was your next move?

A: I had reached a turning point. All of my companies had sold, I had enough money to live comfortably and so I had to figure out what to do. I realized that I didn't want to be a serial entrepreneur. I'm not that good at running companies. I found that what I really liked was the investing part. While I was struggling to grow my companies, I didn't even realize that you could take them public. No one really sat down and explained this to me. Things are so different in Germany. Realizing that you could take companies public opened up a whole new world for me.

Q: What happened next?

A: I started networking and trying to find out all I could about the venture capital world. But I didn't want to work for just any company: I was looking for a VC firm that would invest socially, in companies like Helping.org or environmentally conscious companies. I didn't see any venture capital companies like this. Also, there weren't many companies that would let someone as young as me I was 24 years old at the time to come in at a high level. I would have had to start as a low-level analyst or salesperson not what I really wanted to do. So I decided to start my own VC firm.

Q: With the dot-com bust, wasn't that a bad time to start your own venture capital firm?

A: Actually, no. With so many others folding up shop, that left room for someone like me to come in. There were lots of businesses socially responsible businesses that were hungry for investment. When I started, I was getting about 150 business plans a month to look at. As for the funding, I had enough money from the sale of my three companies to get the investment process going. I started by hiring a couple of staff and making small investments in socially responsible companies: $50,000 here, $100,000 there. It wasn't until about 2005 that we scaled up our investments.

Q: We're in another difficult funding period, how are you surviving?

A: While raising capital in general is very difficult now, I believe the green tech and socially responsible industries that we focus on are about to receive a significant boost from the Obama administration. In the meantime, there are some deals now we're saying no to.

Q: What was your breakthrough deal?

A: That would be Encore Fitness. As a company in the health and wellness sector, it's a very desirable company to invest in, given the aging of the baby boomer generation. The company was largely ignored by other venture capital firms, which left room for us to come in. That deal really brought us recognition and got us going.



Q: What was your favorite deal to date?

A: I think that would be Prolacta Bioscience, which makes human milk-based products for premature and critically ill infants. To know that you're saving human lives at such an early stage is an outstanding reward. I also am proud of our investment in Virgin Charter, which fills so-called "dead legs" in private flights. From an environmental standpoint, it reduces the number of empty flights using fuel and polluting the atmosphere.

Q: On the Virgin Charter investment, did you deal with Richard Branson?

A: Yes. Branson actually knocked on our door, so to speak. He always wanted to get into the private aviation field. You see, we had invested in this startup that had technology to track the flights of all private planes, which made it easier to figure out which flights were dead legs, basically empty planes with no passengers or cargo. That was the technology that interested Mr. Branson. I only met him briefly, though.

Q: Where do you see Funk Ventures in five years?

A: I'd like to see us doing a handful of major investments each year in the $3 million to $5 million range. I'd also like to see us do multiple rounds of investment in companies. Then we can really make much more of an impact.

Q: How is your relationship with your parents today?

A: Much better now. Once I established myself here and sold my three companies, they came to terms with the fact that I wasn't going to return to Germany. But they were still disappointed. Now, though, they are much more in tune with my outlook. As my father was retiring from day-to-day management at Funk Gruppe, they both became missionaries and started a foundation. In a sense, they had the same epiphany about socially responsible investing that I had, but at a much later date. So now, we're on much better terms. And they are also pleased that my younger brother has just taken over the reins at Funk Gruppe.

Q: How did you meet your wife?

A: We met through a mutual friend four years ago who set us up on a blind date at a bar. She's a breast cancer surgeon and is about to open the first all-female-run breast cancer center in Beverly Hills next year.

Q: What's your typical day like?

A: I get up early and work out in the morning and drink my herbal tea. I usually come in to work around 9:30 or 10, and spend part of my time dealing with the companies we invest in and part of the time running Funk Ventures. And if we're in fundraising mode, I'm hitting the circuit pretty hard. Of course, if there's a fire to put out at one of our companies, I can spend long hours dealing with that. I love that I can walk to work; we live just about a mile away. It's my wife who has the commute; she now works at Cedars-Sinai.

Q: What's your advice to anyone entering the venture capital world?

A: The venture capital model is about to change. VC firms have been far too loose with their money. The advice now is to be cautious.

Q: How about to entrepreneurs?

A: Surround yourself with the best people you can get access to, even if you have to surrender some control of your company to do so. It will do you no good to retain full control of your company and then watch it fail.

Q: What's the best advice you've received?

A: It's not really advice, but I was told: "You leave this world without any possessions, so what you do with your life in the here and now is what makes the great difference."

ANDY FUNK
Title: Founder, Managing Director
Company: Funk Ventures
Born: 1976; Munich, Germany
Education: Graduated high school in Hamburg, Germany
Career Turning Points: Decision to start a software company during his final year in high school; decision to start venture capital firm at 24
Most Influential People: Father, wife Kristi and "dozens of other people" who have provided guidance
Personal: Lives in Santa Monica with wife Kristi; expecting twins
Hobbies: Surfing, cycling, golf, tennis, travel, wine and cheese tastings

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