Investing in the Future of Automotive Technology with Chase Fraser
Updated: Sep 4, 2020
Chase Fraser is a Managing Partner at Fraser McCombs Capital, a VC firm that invests in early- and late-stage automotive technology companies. He also founded MarketView 360, an automotive digital company that was acquired by SCI MarketView in 2008. Chase currently lives in Boulder, Colorado with his wife and two children.
Here’s a glimpse of what you’ll learn:
Chase Fraser from Fraser McCombs Capital shares how his entrepreneurial background helps to guide his decisions as an investor
What should investors look for before backing a company?
Chase discusses the challenges he’s faced as an entrepreneur
The different stages of business growth
Chase talks about the forthcoming trends in automotive technology
In this episode…
Investing in a business comes with many risks. An investor needs to ensure that the company they are financing is committed to overcoming any challenges that can (and will) arise. Chase Fraser, a Managing Partner at Fraser McCombs Capital, believes that having confidence in an entrepreneur and their ability to pivot when needed is a key factor when considering an investment opportunity.
Tune in to this episode of Inside Auto Podcast as Aharon Horwitz and Ilana Shabtay are joined by Chase Fraser from Fraser McCombs Capital. Chase talks about his experience on both the entrepreneurial side and investment side of business. He also shares his advice for entrepreneurs, explains what businesses need to consider as they grow, and discusses the innovations that are on the horizon for the automotive industry.
Resources Mentioned in this episode
Sponsor for this episode...
This episode is brought to you by AutoLeadStar, a company that helps car dealerships engage quality customers on the web and convert them into car buyers.
Co-founded by Aharon Horwitz, Yishai Goldstein, and Eliav Moshe, AutoLeadStar’s state-of-the-art software automates a dealership’s entire marketing funnel and provides around-the-clock service for dealers.
Visit their website at www.autoleadstar.com to learn more about their around-the-clock marketing service.
Welcome to Inside Auto Podcast where we feature everyone and anyone you'd want to talk to in and out of the automotive industry.
Ilana Shabtay 0:15
Ilana Shabtay here, co-host of the Inside Auto Podcast where we feature top leaders across the automotive industry. I'm here also with co-host Aharon Horwitz. Aharon
Aharon Horwitz 0:27
Hey guys, how are you all we're so happy to be here. And our guest this week is someone who we're very excited about and we're excited to hear his thoughts. And someone that we've known for a long time. It's Chase Fraser. Chase Fraser is a managing partner at Fraser McCombs Capital, Chase invests all across the automotive industry early late and you know, with a heavy emphasis, of course on tech, and they've been around since 2011 invested in lots of different ventures prior to that Chase was actually an entrepreneur and founded a company sold a company, which gives him kind of that both sides of the table perspective that we love. Chase, thank you for joining us. We're really happy to have you.
Chase Fraser 1:10
It's late your time. What time is it?
Aharon Horwitz 1:12
There? It is late. It's 8:42 to be exact. In the office, and it's uh, it's nice to be in an office. I'll say that considering uh, you know, we've been holed up at home. What about you? Are you guys you guys in an office at all? What's your situation?
Chase Fraser 1:28
Been working them out? Most of the time in office? Some but yeah, cool. I'm in Colorado, so we're a little better here than most mostly other states.
Aharon Horwitz 1:37
Yeah. So is the outdoor culture sort of did that continue during the the worst months like what was the I think
Chase Fraser 1:46
this is the most fit the state is ever bad. Everybody hasn't. Like there you go on the trails and it's five x the number of people now so it's it's good.
Aharon Horwitz 1:58
It's good to get good. Get out mentally, right. It's Just get to get outdoors. Yeah. Oh, absolutely. We there are a lot of people walking nights in here in Israel, I see there's just like people out and everyone is clearly happy to get a break from from kids at home and other things so
Ilana Shabtay 2:16
we could check out where everything is open, no matter what.
Aharon Horwitz 2:21
Yeah. Chase, tell us I'm always interested in people who, who kind of see both sides, you know, that entrepreneur side and the investor side, and I'm curious in your journey, and, you know, and how you came to becoming a, you know, an investor is a sort of an entrepreneurial investor, but to what extent is our the analysis you make today informed by that period of time, you know, from I think it was 2001. If I recall, where you were founding and running a company.
Chase Fraser 2:51
It's so funny, it's, it's, I'm going to call it well not 100% of the decision, but it's a massive part of the decision. When I first started investing, I somewhat fell in love with the idea. And you know, you we see we're seeing about roughly a deal a day, let's remind servers that are automotive related. And you say you fall in love with this deal. And you look at it, you're like, Okay, what really matters to people and more specifically, has this entrepreneur had exits as he had places where he had to pivot. You know, that's an overused term, but it's important about that even in your business. You've had a couple of pivots, you know, already, you just gotta you got to do that. Right. And so what's changed with the way I see investing today is it's, it's less about the idea. The idea is important. But I can kind of get through that in 30 seconds, really? And decided, Okay, this is flower, does it not? The rest of the conversations around the person in his team? And can they weather storms because they are going to be storms? And then I think that that comes from my to your question that comes from entrepreneurial Right, yeah,
Aharon Horwitz 4:00
so what tell I mean, it's I think it's important to hear that and I think that that's something that, again, it's, it's why it's such an interesting meeting, many people in the world of VC come from more of a finance background, Wall Street or what have you. And I think coming from the entrepreneur side, I assume you face some pretty challenging moments during your own journey. And those are those I think are things that inspire entrepreneurs a little bit to hear about and kind of how in those moments you you attack those things, for better and for worse, is there some is there is there a moment that like stands out? And again, you guys have this combo, but I'm, by the way, I know of a few because once we when we had dinner, you told me about a few I don't know, I don't know what you'll share.
Chase Fraser 4:42
I'll probably share one. I don't know which one to share with you. But I don't talk much about if I'm more than happy to share it. Yeah, so I was. I guess at this point, we had Ray Ray's play 1,000,002 and it had been friends and family. We had burned through the money I had the absolute wrong business model. And it was this kind of this the night of the Dark Soul right where you were, yeah, I'm going okay. We're going to close it, but we're going to close the doors tomorrow. We just can't can't be in business. And my wife, bless her heart she had been saving. She'd saved $24,000 just it was a ton of money to her. She didn't come from a lot of money. And I went to her that night. I actually woke her up yesterday, three in the morning. I need that money. I need that money to pay payroll. And I said, I promise you we will take that money and we will build something from that point forward. And I stayed up all night that night. I changed the name of the company that night. The night we refocused what we were doing and actually the pivot was from non automotive, automotive, actually. So that was a very, very faithful, faithful evening and we we never raised another penny. We were We were profitable, probably six months later. Well, I was I was a bit more of a bootstrap case than most, but ended up having, you know, a fortunate to have a good exit and with a profitable business, so, and I actually love that story. I think about that often. And I look at going back to my earlier comments about me trying to read the person, I can sometimes say, what is that person going to do when they run out of money? How is that person going to react? And I feel like I made the right move. And maybe it was rotten. Maybe it wasn't I don't know. But I look at others a little bit. Not quite as I'm, as we're looking at investments.
Aharon Horwitz 6:47
Yeah, I you did tell me that story. And I've thought about that often since.
Ilana Shabtay 6:51
I know. We decided to go from non automotive dominated.
Aharon Horwitz 6:56
That's true. That pivot.
It also happened overnight. That's like walking in the morning, we're not about a company. Yeah. No, but I think from the outside again, the entrepreneurship looks like it's, it's sort of, you know, usually what what gets put up on social media that are the are the oh yeah moments, but so many of the moments are so intense and so much of it is about these like, decisions and the stresses that he put on those that you love and the, you know, the relationships between colleagues and founders. And it's a very intense experience. I think grit and determination and just sort of a certain level of tolerance of a you know, of pain is an important piece of, of making it through in most cases. Yeah,
Chase Fraser 7:39
you've experienced it. You're gonna have your best day and your worst day in the same day, sometimes. Yes. Yeah. You're like, How can this happen? How can I have that huge winner? How can I just get absolutely knocked down?
Aharon Horwitz 7:51
Oh, I remember what he said to me, like, you know the order of magnitudes of issues. I might be concerned about one level. In one moment. Sometimes you're looking at You know, a very significant company as you know, there's a it things have different levels of immediacy based on what what chair you're sitting and of course, it's intense. Very nice. Okay, I appreciate you sharing that it was a very, very meaningful story and I think it can help a lot of people kind of dig deep that you
Chase Fraser 8:19
are gonna have your you're not evil as an entrepreneur, you will have a dark night of the soul like guarantee. Yeah, and it's just a function of how you how you navigate that period. And it's not it may not literally be the night. It may be three months, it may be a month it may be but you're gonna have it and
Aharon Horwitz 8:38
yeah, I think um, what was it Jason Lumpkin from Sastra he called it like his year of hell. I think that everyone everyone has the those periods. Look entrepreneurship in some ways, a very like spiritual sort of pursuit. Right. You're you're you're essentially mobilizing you often around an idea for sure. That's not me. It's it's not a functioning business. When you Start, right it's, uh, I think the guy who, who wrote um, Steve Blank The Four Steps to the Epiphany, it's a, it's a, it's a temporary organization in search of a repeatable business model. And, you know, that period of temporariness until it can be can be started to be long. And you know, to really optimize that business model can take quite a lot. And in that period, it's almost just a leap of faith in many cases. And I think that that that's what it often looks like from from the inside, you know, it's it looks more like a religion than it does like, you know, an organized an organized business.
Chase Fraser 9:33
And this there's no science behind what I'm about to say. But when I look at businesses, I'm finding because we see a pretty decent sample size, there's something happens with just what that business is at 1 million, 5 million, 10 million, and 25 million. Those are the the growth hurdles, but not just growth, the way the business operates. If you can go from five to 10 you've made The appropriate changes to go from five to 10. I mean, I know that sounds pretty logical, but a lot of people don't. But people get stuck at levels. And for whatever reason, I think those are the levels, you get north of 25 and kind of rolling, and you can So
Aharon Horwitz 10:13
wait, unpack that a bit more. Let's let's take each stage and you may not have specific but maybe one thing to go to one to five, what's the what's that? What's up? What's What's something you observe seems to happen? And then five to 10. And then yeah, let's go one to five, and then five to seven and also done. 10, 10 and up.
Chase Fraser 10:31
Yeah, and so much of this has been intuitive, but I'll try
Aharon Horwitz 10:33
to put it in. That's great.
Chase Fraser 10:35
one to five for me is is I'm going to call it CEO hair on fire. That person, lady lady or man is just got to be just this this ball of energy because so much is going to go wrong. And you've got to convince him a couple of things. You got to convince investors that your idea is got traction. So that's obviously before a million, but then you're probably you're moving than emissaries a bay at this point potentially, you just got to be so passionate at that period. And if you're kind of, in my opinion, early on, you're the guy that wears all that garbage out. And so although you've got a team, you're a little bit of a jack of all trades. And so we'll move to the next phase, what happens is the guys that fail, keep on the jack of all trades hack, and I'll take it off. And they get really stressed out because they work 80 hours a week and they're doing far too many things, because they're smarter, or I can just do that myself kind of kind of an attitude. So that's really the the jump from five to 10 is you got to hire some real people. And those people are going to cost some money when I say real deal people that have got experience and probably more experienced than you have as the the proverbial of idea guy. Yep. I think That's really that's the 510 stretch that the 10 to 25 is becoming a real company where your accounting processes This is the blocking and tackling stuff. You got real accounting processes, you've got gap accounting, you're probably getting audited where it looks nice and clean, you have probably got a CEO that came from a business that was maybe 50 to 100, that he or she is really, really good about keeping the train on on the track and keeping it running on time. So the the CEO is still hair on fire. But there's this broader team that's keeping the momentum rolling. And then north of 25, your real business and when I say a real business, it's just harder to dethrone the business. You can still get knocked off the pedestal by competitors, but you're rolling and you've got you wouldn't be at 25 if you didn't have structure in place that allows you to to be At 25 there was a formula.
Aharon Horwitz 13:04
Yeah, very good. That was really, you distilled out something to take, take?
Ilana Shabtay 13:10
Take. That definitely is not stuff that we I've never heard that before. So that was interesting to me. Anything that can really break a $25 million company besides we're just competition, anything that you've seen.
Chase Fraser 13:23
We got to watch out for complacency. You know this. You guys know the rule of 40. growing it, we get the best exits when our businesses are growing at 40% year. Now when you get and that's kind of up through 25 million. When you get it above 25 million. It's the exception that a business grow at at those kinds of rates. But if you're above 25, you got to be cranking it's got to be it's got to be double digit growth, at least, you know, I would say about 25 call it 20 25% growth is what you made. So when I when you asked me what What comes what goes off the rails? It's it's getting, it's not paying attention to that growth. You just got to keep putting fuel on that fire continuously. I find sometimes boards get weird around them, because you've kind of outgrown your board. And maybe you had some angel investors and maybe you had some folks on the board that shouldn't be on the board anymore. So it's a bit of a housecleaning, you can get a sometimes I get people get at that level and you've got, you know, a seven or nine person board and it's bureaucratic and it's just a bit of a mess. And keeping your board it five ish members is smart. It's flexible. It's efficient. Yeah, it just works better.
Aharon Horwitz 14:45
Yeah, got it. Very good. Good insight. Wait, so Chase pivoting a bit. Being that you see a deal a day. Kind of, let's say the center of mass of those deals. what's what's bubbling up in Like, what are we all going to be hearing about talking about over the next, you know, year or two, from just your kind of eye on the kind of what's called deal flow. But it's really the pulse of innovation in this industry, which is a critical piece of meaning transportation historically has been one of the core most important pillars of kind of human interest, right? How do we get places safer, more quickly, in a more comfortable way. And here we are in this industry, automotive now is a major piece of that. And you're sitting there looking at innovation in that important industry, what types of things or whatever things matter now, and what do you think needs to be there?
Chase Fraser 15:38
And I guess we could go on for like two hours on this one. So I'll be careful. From a guy's point we're broader than just the dealer landscape. And maybe maybe we should talk about the dealer or the OEM landscape just because that's your world. But we're doing deals and autonomy, connected vehicles rideshare. We're branching into zero emissions. We're building Can it battery tech, and it's just micro mobility. I mean, it was a bit of a joke, honestly, two years ago, all of a sudden micro mobility as it gets to a different form factor, not scooters. But what is kind of the next version of moving a single person from point A to point B. Nice, rushing. So he'll know you might be that broader. You want to talk a little bit about
Aharon Horwitz 16:24
No, yeah, so and that stuff interests me also, as a consumer of micro mobility. I'm curious, but but let's actually because we tried to keep we try to keep these things tight, Ilana, I'm just checking our clock here. Yeah. So let's zoom in for a moment on retail mean, auto retail. Tell. And in that, I mean, actually the full funnel, we don't need to talk about the shopping cart, necessarily the checkout but when you think about how cars are retailed, you guys have had some big successes recently in innovating in that space. And, you know, congrats on some of those particular like, you know, some really big high profile exits, but the question is, you know, what are you seeing what's the technology piece that you think is going to be most important, say, for the dealer ecosystem for the OEM ecosystem when it comes to retailing their vehicles.
Chase Fraser 17:06
Yeah, you think Tesla set the tone, you know, two, three years ago when you got to a place where you could buy a vehicle online. And it's it's really what the industry talked about for a lot of years, but we just never really done. We've looked at, well, more than six, but I think there's six companies right now that are doing online transaction pretty well. They're, they're pretty similar. There's some there's some in that group that are a little better than than others, but there's a lot of similarities. You can't believe what's going on with your business right now. You know, post post COVID, pre COVID they were cranking along and growing and talking about my kegger my growth number 40%. Those guys are I don't know all of their numbers, but they're blowing through their growth numbers because dealers in a big way needed to have online transaction Way to transact vehicles online. Now the problem with that is that when you look at a dealership and their profits, they make okay money on the vehicle depending on what you're selling. If you're selling a seven series you got great gross. If you're selling a Honda Accord, it's pretty skinny. So a dealer has got to make money in f&i. And that is the biggest shortcoming of all of these online retail tools is they have not, and they will, but they've not properly integrated, an online experience that generates the same kind of gross margins that you can get in a dealership and bluntly until they hear that out. There's a big problem with that whole space. Because if I'm a dealer, and I know that I've got to have an online solution, but I'm giving up $1,000 gross on that vehicle. I'm just flat out what one it's not a long term solution. Now maybe the dealers gone Oh, it's okay. I'm only selling 10 or 15 cars that way a month and I'm selling 100 Much vehicles of mine. So I'm still getting good gross on those other 85 folks that are going through f&i man when that number moves up 50%, which will, I think you got a big problem. So I think what we will see as a trend over the next 12 months is these online retailers getting other platforms getting much better about having our sales because they have very good insight.
Aharon Horwitz 19:30
And then generally, let's say on you know, we live more in this marketing automation space, which sees the full funnel from the acquisition of the customer all the way down through the sale, but then through the data mining, and then the lifecycle management. Are there things that you think are important in that kind of, you know, full funnel view. Yeah,
Chase Fraser 19:51
I'm very passionate about about this one. This whole idea of machine learning as you walk around the NADA floor, you look at vendors that sell to to deal with People talk machine learning but they really don't know. They don't mind. They either don't know what it is or two, they're just selling something they don't have. It's a bit of a buzzword. It's very hard to do AI. Right. And I've just, you know, you guys are from Israel. We've got five investments in Israel. And part of the reason we love Israelis is we love the tech. We just think you guys do it the best. Culturally, it's it's phenomenal. So that right there the ability to take all that disparate data that floats around in a dealership and make better decision a more efficient decision in indecision that leads to better closes. That's huge. And it's not only on the front end, it's in the back end. We've got a company in our portfolio that I think does a good job and fixed ops. And it's a differentiator that does rolling, rolling during COVID big time, when you would think the business would be would be retreating.
Aharon Horwitz 21:01
Chase Fraser 21:03
So there's gonna be a bit you're gonna see a big trend over the next 12 to 24 months of real deal machine learning, not Heidi vaporware.
Aharon Horwitz 21:13
Yeah, and that's where I think there is this kind of alliance between the platform and what you talked about Initially, the, you know, the the sensors, the AI, the that, obviously, you must have machine learning and real deal there because you're talking about, you know, cars talking to each other on the road and making decisions and mapping and that whole universe. I think, when it comes to marketing and martech out of auto, it's just as developed as that stuff. And the sensor evolution loop is very tight. And I agree with you, I think this would be this this alliance, that the same depth of technology that's being brought to bear on the car is going to be brought to and frankly actually in the manufacturing processes. I know some of these Israeli, tech companies. It's gonna be brought to bear in in marketing, which is kind of where we've been trying to orient ourselves, so bear are chasing
Chase Fraser 22:01
me phrase it not just maybe we become a little jaded because we see such good machine learning AI and autonomy, and then connected. And then micro even micro mobility and
Aharon Horwitz 22:13
yeah, but that the same level of tech is brought is in the marketing universe. It's not there yet an auto
Chase Fraser 22:19
right? It will be that it's kind of Yeah, man. Oh yeah. Hey, you have to have it or you're
Aharon Horwitz 22:25
putting behind me that's what they're working on.
Chase Fraser 22:26
Yeah. So you're not running your store properly. So Exactly.
Aharon Horwitz 22:31
Alright, Chase, we like to get people out on time. We thank you for your time. It was very interesting. And we look forward to keeping in touch with you and seeing what you're up to and where you're going. You guys,
Chase Fraser 22:42
you guys are great. I'm a big fan. So keep it up
Aharon Horwitz 22:45
Amazing. Alright, Ilana I'm gonna kick it over to you to wrap us up.
Ilana Shabtay 22:48
Awesome. Thank you so much Chase. This episode was sponsored by www.autoleadstar.com and to our listeners If you liked this episode, please subscribe to Inside Auto Podcast. Thank you.
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