Operator-Investor Nano Funds are The Future (and Present)
Founders want to take money from smart experienced founders. They want people who have gone through the journey of founding a successful company themselves. Someone who can empathise with their experience in a way a professional investor just cannot.
It started off with the Side angel funds as exemplified by Sriram Krishnan of Kearny Jackson & Ryan Hoover’s Weekend Fund. Both strong operating executives/ entrepreneurs who have gone through the scaling phase of their companies and running their funds alongside their day jobs. This was capped off by $8.3M usd 20Min VC Fund of Harry Stebbings and $7M usd “Todd and Rahul Angel Fund”. Rahul, in case you don’t know, is the Founder & CEO of Superhuman. (I love the name by the way for its simplicity!) Something I wrote about earlier and will explore a bit more here.
Angellist tested this concept of acting like an LP and giving top founders money via their Spearhead investment Fund program, giving each founder up to $1M usd to invest in tech startups in their network. Carry is split between the founders and Spearhead. A very good deal for everyone. A rare Win-Win.
“Spearhead is designed to train founders, who tend to be well-connected to the tech ecosystem and knowledgeable about startups, to be effective angel investors. Previous Spearhead leads include Shippo co-founder and chief executive officer Laura Behrens Wu, Scale AI founder and CEO Alex Wang and Rippling co-founder and chief technology officer Prasanna Sankar. To date, 35 founders have completed the program.”
This trend has been supercharged by the development of Angellist Rolling Funds. Some of the more notable being Sahil Lavingia of Gumroad, Cindy Bi, Jason Jacobs of McJPod, Shaan Puri of Monkey Inferno fame & Immad Akkhund of Mercury Bank fame. Of course, I can’t miss mentioning my friends Carlos Diaz of Diaspora Ventures and Anthony Pompliano (aka Pomp) of the Pomp Podcast.
I foresee a growing Barbell-like structure in Startup Investing. Many big branded institutional Venture Capital Funds dominating from the top. From the bottom, Niche/Industry Specialist managers, Solo Capitalists and Rolling Funds managers will dominate. Some of these may even begin building a traditional venture fund/ firm. Everyone in the middle who is undifferentiated will be squeezed out as they become totally irrelevant to startup founders.
We are seeing the beginning of a new era of operator angels who will displace many of the middling early stage Venture funds. Almost like the structure of many jungles and forests. Lots of big trees covering the top and lots of varieties of plants on the ground floor. Nothing in between, almost like a literal dead zone.
As my friend Harry Stebbings posted:
“With rise of micro funds & supportive/strategic angels; the co-lead/second lead check will be displaced.
Would you rather a 2nd firm w/ $600K (sub-optimal ownership for them) or 3-4 150K angels all bought in, providing value.
The times they are a changing…”
This means all the early stage venture funds out there better step up their game and add that value to founders they claim they do. This has been happening in Silicon Valley for the last few years. With the spread of technology, best practices, more Unicorns growing in other ecosystems and more big exits, I anticipate that this phenomenon will happen in other places across the United States and the rest of the world over the next decade.
Listen to this Newsletter: https://listencat.com/the-hard-fork-by-marvin-liao-podcast/