What's also different about these solo capitalists is that they are public about their investments. Not just an obligatory LinkedIn Post "hey we invested in X startup, here's why" but in the sense that you can see exactly what their mission is by tracking their investment records on AngelList or other third party website.
Chapter One (@JMJ), WorkLife (@BrianneKimmel) and other solo capitalists are openly publishing their track record and investment thesis which has become their signal to those who are listening in. It's like listening to a radio station and tuning into their broadcast. That's very powerful and it cuts out the middle person and other institutional players who can muddle the message or make it less powerful than a singular voice.
You're definitely onto something Nikhil and I can't wait for future essays on this subject!
I wanted to surface another type of solo capitalist: A startup employee who leads an SPV into their employer.
They differ from external investor solo capitalists in a few ways:
-Sourcing: the employee has already picked the deal and doesn't invest energy in continuously sourcing new deals.
-Allocation: the employee often has preference over external non-lead investors since there is a huge retention/incentive benefit to the company if the employee leads multiple SPVs into the company over the years and has potential to earn carry: https://www.youtube.com/watch?v=w3gcYh1p04w
-Diligence: The employee is already a functional expert and likely a domain expert in the industry. Plus they would probably be involved in preparing diligence materials for external investors so they don't need to spend the same amount of time on diligence as an external investor.
-Value add: unlike external investors, the employee SPV lead is 100% focused on a single portfolio company with plans to lead follow on SPVs. The employee also effectively gets their management fee as an investor paid for by the company (their salary). Arguably, the employee may even have more tactical power than a board member since the employee is often the ground level implementer of any decisions.
great post. you ask how they scale...but why do they need to scale? i am guessing anyone that is able to create one of these situations for themselves is quite happy - they can make big interesting moves, generate returns, etc. without the overhead and headache that goes along with hiring people, performance reviews, investment committees, partnership dynamics, etc...seems very different than the businesses they are backing which must scale or die.
Will attempt to answer this question directly: "Are LPs just more amenable to backing individuals given the past decade’s rise of the super angels?"
As someone who, in a past life, did diligence on VC firms for large institutional investors (endowments, specifically), the main questions a good LP asks on the diligence front are always centered on 1-2 specific deals - the deals that return the fund - and claims by specific partners that they 'led the deal.'
The goal is to prove/disprove that specific partner X really did A) Source the deal; and B) Added some specific, proprietary/unique value to the founder.
That process used to be a nightmare, and was intentionally obfuscated by both the firms, and the individual partners themselves, with founders caught in an awkward situation because they never wanted to disparage the partner, or state they they 'didn't' source the deal or add-value.
That diligence process is significantly easier today as founders are much more honest/open/vocal about past partner involvement in their company, and individual partners more willing to build their own brand - vs. staying in 'their lane' and touting the firm brand.
Great post NBT!! An accurate observation that hasn't quite been written about. Another facet of this - it seems there's been a shift towards funding that comes with operational experience. (Notably, the individuals you spotlighted above are all ex-founders.) In addition to a looming recession, unicorn alums and AngelList SPVs have contributed to this trend.
Really excellent writing, thanks for sharing your thoughts!
Are these solo capitalists able to participate or lead follow on rounds? Or do they leverage their network and reputation to attract other funds for later rounds?
Hey Nikhil - fascinating insight into the shifting dynamics of the space! I don't ask with any judgement, but what inspired you to form your recent fund Footwork after having written this article?
What's also different about these solo capitalists is that they are public about their investments. Not just an obligatory LinkedIn Post "hey we invested in X startup, here's why" but in the sense that you can see exactly what their mission is by tracking their investment records on AngelList or other third party website.
Chapter One (@JMJ), WorkLife (@BrianneKimmel) and other solo capitalists are openly publishing their track record and investment thesis which has become their signal to those who are listening in. It's like listening to a radio station and tuning into their broadcast. That's very powerful and it cuts out the middle person and other institutional players who can muddle the message or make it less powerful than a singular voice.
You're definitely onto something Nikhil and I can't wait for future essays on this subject!
Best,
Chris Harvey (Twitter: @chrisharveyesq)
Phenomenal overview, thanks for writing Nikhil!
I wanted to surface another type of solo capitalist: A startup employee who leads an SPV into their employer.
They differ from external investor solo capitalists in a few ways:
-Sourcing: the employee has already picked the deal and doesn't invest energy in continuously sourcing new deals.
-Allocation: the employee often has preference over external non-lead investors since there is a huge retention/incentive benefit to the company if the employee leads multiple SPVs into the company over the years and has potential to earn carry: https://www.youtube.com/watch?v=w3gcYh1p04w
-Diligence: The employee is already a functional expert and likely a domain expert in the industry. Plus they would probably be involved in preparing diligence materials for external investors so they don't need to spend the same amount of time on diligence as an external investor.
-Value add: unlike external investors, the employee SPV lead is 100% focused on a single portfolio company with plans to lead follow on SPVs. The employee also effectively gets their management fee as an investor paid for by the company (their salary). Arguably, the employee may even have more tactical power than a board member since the employee is often the ground level implementer of any decisions.
Employees can generally raise an average of $1m per SPV relatively quickly: https://harveymultani.substack.com/p/metrics-employee-led-spvs
In the long run, employee led SPVs may become the dominant shareholders on startup cap tables: https://harveymultani.substack.com/p/master-plan-employee-led-spvs
CEOs are also huge fans because they get capital from a pre-existing relationship on great terms along with the ability to retain talent (and ensuing compounding benefits) for much longer: https://harveymultani.substack.com/p/the-ceos-guide-to-employee-led-spvs
great post. you ask how they scale...but why do they need to scale? i am guessing anyone that is able to create one of these situations for themselves is quite happy - they can make big interesting moves, generate returns, etc. without the overhead and headache that goes along with hiring people, performance reviews, investment committees, partnership dynamics, etc...seems very different than the businesses they are backing which must scale or die.
Will attempt to answer this question directly: "Are LPs just more amenable to backing individuals given the past decade’s rise of the super angels?"
As someone who, in a past life, did diligence on VC firms for large institutional investors (endowments, specifically), the main questions a good LP asks on the diligence front are always centered on 1-2 specific deals - the deals that return the fund - and claims by specific partners that they 'led the deal.'
The goal is to prove/disprove that specific partner X really did A) Source the deal; and B) Added some specific, proprietary/unique value to the founder.
That process used to be a nightmare, and was intentionally obfuscated by both the firms, and the individual partners themselves, with founders caught in an awkward situation because they never wanted to disparage the partner, or state they they 'didn't' source the deal or add-value.
That diligence process is significantly easier today as founders are much more honest/open/vocal about past partner involvement in their company, and individual partners more willing to build their own brand - vs. staying in 'their lane' and touting the firm brand.
Great post NBT!! An accurate observation that hasn't quite been written about. Another facet of this - it seems there's been a shift towards funding that comes with operational experience. (Notably, the individuals you spotlighted above are all ex-founders.) In addition to a looming recession, unicorn alums and AngelList SPVs have contributed to this trend.
Really excellent writing, thanks for sharing your thoughts!
Are these solo capitalists able to participate or lead follow on rounds? Or do they leverage their network and reputation to attract other funds for later rounds?
Great post
Thank you very much for sharing! https://substack.com/
Hey Nikhil - fascinating insight into the shifting dynamics of the space! I don't ask with any judgement, but what inspired you to form your recent fund Footwork after having written this article?
You are a Great 👍 Inspirator for me!
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Perry Mistry & Associates
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