Some founders backed by top VCs end up with significant wealth that has nothing to do with how their startup performs.
How is that?
Here’s a recent example – from my inbox. I was emailing with a Benchmark-backed founder about a potential angel investment. And they said something to the effect of:
“I don’t really do much angel stuff because I’m an LP in Benchmark’s fund.”
You might be thinking, “Oh, that’s just a Benchmark thing.” But it’s not just Benchmark-backed founders that are so lucky. Here’s what I know:
–> A lot of VC funds keep a friends/family/founders carve out.
–> They’re often managed via a separate vehicle as the (typically smaller) check sizes can cause issues related to those SEC investor count limits that GPs know and love. (I know this because I’ve written a check into one of those vehicles myself.)
–> If you’re backed by a top-decile firm, the math maths that you’re probably going to do better on your investment in that firm’s fund(s) than you will on your founder equity.
I see a potentially compelling fund-of-funds strategy that would play off of this dynamic.
Think of a founder who starts 2 or 3 companies during their career.
Assuming those companies have 5-10 firms each as investors, that’s a pool of 15-30 funds where the founder would have a good shot at getting allocation.
Pick the “best” of the bunch. The top third, perhaps? (I didn’t have time to sharpen my pencil, so feel free to push back on this.)
Would it scale over time? No idea. But I could see a banger of a (Fund of Funds) Fund 1 coming out of it, that’s for sure 🙂
