Defining Frost Data Capital isn’t easy, says Stuart Frost, a serial entrepreneur who founded the San Juan Capistrano-based company to invest in startups focused on “big data.”
“We’re not a ‘VC,’” said Frost, who serves as managing partner and chief executive, declining to identify his operation as a venture capital firm. “We can say ‘incubator,’ but that’s also not exactly what we do. We’ve started to describe ourselves as venture builders. I think that captures what we do reasonably well. We have our own venture-capital fund, and we’re certainly growing that, but that’s a means to an end. The end is to build valuable companies.”
Frost Data Capital started in 2010 and has solidified corporate partnerships with Fairfield, Conn.-based conglomerate GE Corp. and Mountain View-based software maker Symantec Corp. It now is building data-analytics portfolio companies that cater specifically to its partners’ needs.
There’s an understanding, Frost said, that the startups could eventually be acquired by the partners.
“We recognize that our major partners are our customers,” he said. “We’re not building these companies for [initial public offerings] or to generate a bunch of unicorns. Our partners, like GE and Symantec—we’re working on several more—they look at us as a means of generating a stream of potentially acquirable companies.”
Frost Data Capital has about $50 million in its current fund and has started 24 companies. The goal is “to get to 50 in the next two, three years,” according to Frost.
“The point is to end up with say, four to six strategic partners … with a few hundred million [dollars] available to us to invest in these companies,” he said.
“The deal with GE was that we’d start 30 companies with them in the next three years. It sounds simple, but there’s a lot of complexities. It’s not like GE comes to us with fully formed ideas. It’s more like they tell us about situations, like ‘failure rates are too high,’ ‘efficiency too low,’ so ‘can we apply something to this situation?’ We then take that and we’ll go explore.”
Frost’s role in creating companies from scratch with an objective to solve real, corporate problems earned him honors at the Business Journal’s inaugural Innovator of the Year Awards on Sept. 24 at Hotel Irvine (see related stories on pages 1, 6, 7, 8, 9 and 10).
He graduated from Nottingham University in his native England in 1983 with a degree in electronic and computer engineering and went on to work for a company, which lasted “about nine months, and I went freelancing when I was not quite 21,” he said.
“I just kind of went out on my own, programming software,” he said. “I started my first [company] in 1988 when I was 26.”
It was called Select Software Tools, which ended up with an office in Irvine. Frost headed the company about 10 years, raised venture money, and guided it to a public offering on Nasdaq in 1996.
He left Select Software in 1998 when the company had about $30 million in revenue, and made a couple of stops before founding DatAllegro Inc. in 2003. He ran the analytics outfit until Microsoft Inc. bought it for $275 million in 2008.
Frost spent two years with Microsoft before he started Frost Data Capital as “a fairly ad-hoc thing.”
“I didn’t really want to put myself back in the hot seat of being the CEO,” he said. “So initially I came out with a few ideas, started companies, hired teams—mostly people I’d worked with before.”
Among Frost Data Capital’s current portfolio companies is Sentrian, one of the older companies incubated there. The Aliso Viejo-based firm, headed by Chief Executive Dean Sawyer, focuses on eliminating “preventative hospitalization” by remotely detecting patient conditions.
Another portfolio company, Exara Inc., provides access to industrial control systems data. It’s housed in the same office as Frost Data Capital and is headed by Chief Executive Brian Murphy.
“I build all my companies in South County,” Frost said. “Right now it’s a campus approach.”
Frost said OC provides a “nice cultural backdrop that’s attractive to hiring people.”
“The overall pool of candidates here is not like what it would be like in Silicon Valley, but turnover is low,” he said. “The real upside is that people don’t leave after one year.”