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Protocol Pipeline
The inside story of the venture capital and startup world by Biz Carson.

Micro, solo and vocal: The new million-dollar lone-wolf VCs

Micro, solo and vocal: The new million-dollar lone-wolf VCs

Hello and welcome to Pipeline. This week: The art of Twitter VC bios, hypocrisy at Carta, and how to raise a VC fund through Twitter.

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Overheard

  • GPT-3 may sound like a time zone, but it's actually the tech industry's latest obsession. The AI text-generating system is pretty fluent at VC-speak, from completing investment memos and blog posts on board seats to translating term sheets into plain speak and imitating Paul Graham calling 911 on a dead startup.
  • The art of VC Twitter bios: There's a lot of signaling when it comes to the portfolio companies that VCs like to list in their Twitter bios — just ask early Uber investor Jason Calacanis. But thanks to Spoonbill, I get a daily digest of how the people I follow on Twitter have edited their bios. There's a lot of shuffling of names and adding titles, but it's also fun to track the companies that are added and dropped. This week, Benchling and GPT-3 were in, while Bird and Wish were getting cut. Ouch.
  • "I wrestled with what I considered hypocrisy at Carta daily," said former VP of marketing Emily Kramer. She had led Carta's groundbreaking study on the gender equity gap in venture capital — only to find out she had been underpaid. And she then faced alleged discrimination and retaliation inside the company. Now she's suing the $3 billion startup, which declined to comment.

Biz on Biz

The rise of the 'micro solo capitalist'

Investor Nikhil Basu Trivedi coined the term "solo capitalists" earlier this month after picking up on the trend of individuals like Daniel Gross, Elad Gil and Lachy Groom leading later-stage rounds, like Front's $59 million series C.

  • Basu Trivedi defined the "solo capitalists" as the next evolution from super angels, where the brand of the fund is tied to the individual (there's no investment team) and the solo GP raises larger, $50 million+ funds.

But not all solo GPs are made equal, and the amount of capital at their disposal can vary hugely. Enter the micro solo capitalists, who raise funds under $25 million as part-time investing jobs. And two well-known tech influencers did just that in the last two weeks:

  • Twenty Minute VC podcast host Harry Stebbings launched an $8.3 million micro fund called 20VC, meant to invest in early-stage startups in the U.S. That's a key differentiator, since Stebbings' other day job is as a partner at Stride.vc, a firm he co-founded in 2018.
  • Also picking up a part-time fund, Gumroad CEO and founder Sahil Lavingia put out a call on Twitter to announce he was raising a new fund — an eyebrow-raising move that I'll come back to in a second.
  • The plan: monetizing a brand, whether it's operating experience or a large social following, to get into early-stage companies by co-investing with bigger VCs instead of competing. "The check sizes are really inoffensive," said Switch Ventures' Paul Arnold. "So if you have things that founders want, like operating experience or a VC influencer, there's obviously room for those people to put in $25K."

In some ways, this is all just a little bit of history repeating. Micro VC funds aren't new, and, if anything, they've been exploding in popularity: First Republic counts nearly 900 firms that have assets under $100 million. And solo fund managers aren't exactly breaking the mold, either.

  • "It feels like it's more of the same," said Kleiner Perkins' Mamoon Hamid, who compared the rise of the solo capitalist now to the rise of the super angels years ago. "We saw this happen over a decade ago with folks like Chris Sacca, Mike Maples, Aydin Senkut and Steve Anderson who started out as solo capitalists. Two of the four now have funds with institutional investors like traditional VC funds. It seems like a natural evolution over time."
  • There's also upside to traditional VCs like Hamid, who invested in Stebbings' fund. "I really just wanted to back Harry, because I think he's fantastic as a person and someone who I believe in," he said. "I think it is inevitable that he will invest in companies that I'll end up meeting with — I already have actually in the past few weeks."

But if the idea's the same, the execution is very different because there's also a new model emerging that could open up the industry to more people. Enter: the rolling fund.

  • While Stebbings raised the traditional way, reaching out to a network and raising a fund in quiet, Lavingia is taking a different path: He put out a call on Twitter asking who wanted to be an LP. Normally that kind of general solicitation would be an SEC violation, but Lavingia's fundraise qualifies under a different set of rules because it's open only to accredited investors.
  • Lavingia hadn't actually planned to raise a fund — after all, he's running a company and doesn't have time for a full fundraising process, which can take investors months. "I really wanted to treat it like a side hustle," he said.
  • But after investing in six Black founders and putting out a call to his network to help them raise follow on funds, AngelList co-founder Naval Ravikant told him that a so-called rolling venture fund, where Lavingia could raise as he went on a quarterly basis, might enable him to write larger checks himself, and Ravikant would be happy to anchor the fund.
  • Managing the cash is made easier for him by AngelList's new rolling fund software, which allows qualified accredited investors to subscribe to backing his fund on a quarterly basis, and "unsubscribe" if they no longer want to back him. The model also makes it possible for Lavingia to talk about the fundraising publicly — tweeting and sharing documents — instead of having to keep it quiet until after the close.
  • He's looking to raise at least $100,000 per quarter, and requires backers to commit to at least through four quarters, but hopefully longer.

The bigger hope here: that the approach improves diversity in the industry. While working as a scout is one way to rise up the VC ladder, Lavingia hopes more emerging fund managers might take the micro solo approach instead. Already, groups like the women-led W Fund and Diaspora Ventures, focused on French founders, are raising rolling venture funds. And Lavingia argues that it could unlock new diversified LPs and new diverse fund managers, too.

  • A big part of that, he says, is just being able to talk publicly and being transparent about the process. "I'm pretty connected, but unless you are in the right sort of conversations and WhatsApp groups, you just don't hear about this stuff," he said. "And I hope that this 'new model' of being super public and raising in public leads to a more diverse LP base. That's gonna hopefully lead to more diverse GPs from different backgrounds, and then I hope that leads to more diverse investments and more diverse founders, which will hopefully lead to more diverse employees. I think there is kind of this waterfall effect."

JOIN US ON JULY 30

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Protocol's transformation editor Mike Murphy will lead a discussion on how businesses have long "gone digital," even if they didn't start that way. He'll be joined by New Balance CEO Joe Preston, WW CEO Mindy Grossman and Honeywell Chief Digital Technology Officer Sheila Jordan. This event is presented by AlixPartners.

RSVP today.

Inside Track

  • Congress needs to accept that we won't be going back to the old economy, argues Revolution's Steve Case. Instead, he thinks it should be expanding PPP and directing unused funds to female founders and entrepreneurs of color.
  • Now months into the pandemic, there's a clear bifurcation emerging between the startup categories that are growing and those that might be permanently derailed, says Greylock's Asheem Chandna.
  • Need some summer reading? All Raise asked 26 founders, investors and operators for their book recommendations. Good luck not buying them all.
  • There's value in a "velvet rope," says Ground Up Ventures' Gaby Goldberg and Jordan Odinsky. From Superhuman's waitlist strategy to Clubhouse's beta in TestFlight, the pair broke down the product launch strategies of companies from Lambda School to MSCHF.

Need to Know

  • Investors want to save TikTok's U.S. business. With Congress racing to outlaw TikTok on government phones, a group of its backers, including Sequoia and NEA, are reportedly considering buying control of the business.
  • The startup equivalent of Amazon's buyer's remorse: The Wall Street Journal reported that some companies regret meeting with Amazon's investment fund after Bezos & Co. turned around and launched competing projects.
  • SPAC-cess: Airbnb was approached by a SPAC as it rethinks its IPO strategy. The health product DTC startup Hims is thinking about going public with a SPAC. And Ribbit Capital is reportedly planning a $600 million SPAC of its own to buy fintech companies. Yep, definitely a trend.
  • A VC and an actress are bringing women's soccer to L.A. Upfront Ventures' Kara Nortman teamed up with Natalie Portman and unveiled Angel City this week, with backers like Alexis Ohanian and Serena Williams, to bring a team to L.A. by 2022.
  • From Protocol: After 15 years at Google, Sridhar Ramaswamy wanted out of the ad business. And he thinks getting out of ads is exactly what search engines need to do if they're to beat Google.
  • This week in VC history: Peter Thiel took to the stage at the Republican National Convention four years ago to praise Donald Trump as a builder and argue that the time was right to rebuild America. "We don't accept such incompetence in Silicon Valley, and we must not accept it from our government," he said. Four years later, Thiel is reportedly sitting out of Trump's reelection campaign because he believes it may be a long shot.
  • And your weekend reading: Citizen wants people to report on the crime next door. The startup has faced growing pains, but Wired's deep dive takes you into its world, including a 12-year-old who's filmed hundreds of crimes.

Five Questions With... 

Redpoint Ventures' Medha Agarwal

What's one startup or product that failed or was shut down that you wish was still here today?

Rapportive, a Gmail plugin that verified emails and displayed LinkedIn and other social information about the person you were emailing. I loved having all of that info populate automatically alongside my emails. I was definitely a superuser, especially in my cold outreach days building skedge.me!

What's your favorite piece of advice to give to first-time founders?

Hire for key roles ahead of feeling the bottleneck. If you feel like you need to make that hire ASAP to hit your goals or because you feel overextended, you've waited too long. It takes at least a quarter to find and ramp up a new hire. So if you need someone today, that means in the best case scenario, you'll be at least three months behind by the time they will be able to really move the needle.

What's one problem you wish an entrepreneur would solve?

The rising need for products and services targeting the next-gen of retirees. Led by baby boomers, the 65+ demographic is going to surpass 20% of the U.S. population in the coming years and double in absolute numbers by 2060. With this shift and their changing preferences relative to those who have come before them, there is a large opportunity to help them stay happy, healthy and connected to friends, family and society.

What's a startup area that's under-hyped right now?

Tools for the CFO's office. Today, finance teams spend most of their time collecting, cleaning and analyzing disparate data to piece together a holistic, accurate view of a company's financial situation. They spend a lot of time tracking down leaders in the organization for model inputs to plan for the future as well as historical data to understand what has already happened. With the shift to 1) strategic CFOs responsible for company strategy and outcomes as well as 2) an increase in remote work, software that automates workflows and increases collaboration across an organization will be key. This will allow finance teams to become more proactive in nature, something they have been frustrated with the inability to do historically.

What's one of your new quarantine hobbies?

Cocktail making … my husband and I have really enjoyed trying new recipes over the last few months. One of us plays the amateur bartender while the other puts our daughter to bed. I'm a huge mezcal fan so highly recommend the Bitter Smoke!

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