Changing the Customer of Venture Capital

The gift of technology

TLDR: We need to change the customer of early-stage venture capital so that we can fund the future of technology and build global prosperity for decades to come.

Recently, I hosted a group of students from Wharton at Antler’s offices and we talked about the future of early-stage VC.

I alluded to this a couple weeks ago when I said:

…for $5B per year, you could seed the vast majority of meaningful tech companies for 8 years with the amount of money Elon Musk spent on Twitter. (Link here)

The reality is, $5B per year just isn’t that much money in the grand scheme of private equities—roughly .5-1% depending how you slice it.

As a former salesperson, that fact often leaves me wondering, “what if you changed the customer of venture capital?”

Could you attract more money, create more impact, and actually produce more returns?

Classically, putting your name on building was a way to not only have a fairly durable legacy, but let’s be honest, that gift is outdated.

And it hardly does any good in the world.

Instead, legacies and the world’s most important problems alike would be better served by a consolidation of brilliant minds and capital, combined with the speed and leverage of startups.

I think there are two interesting solutions, and both should be built.

The first is something I’d call the 501-VC, and the second would be to fund all of venture capital for a decade or more through a new kind of Giving Pledge.

I’m going to talk about the second one today.

Famously,

The Giving Pledge is a promise by the world's wealthiest individuals and families to dedicate the majority of their wealth to charitable causes.

The problem is, charitable foundations and organizations aren’t historically the most efficient way to solve the world’s problems. They exist for good reason, but most operate like old corporates rather than savvy startups.

However, what if we thought of economic opportunity and global prosperity as a more ubiquitous problem to solve, and instead of funding mission-driven work, we fund the entirety of the tech sector?

What if instead of the average high net worth individual trying to get a 3-5X return over 10 years, you focused on the ultra high net worth population, the economic development groups, and the sovereign funds who are both trying to achieve these returns and trying to improve the world?

What if you focused on their shared goals and values as customers, like creating economic opportunity and building a durable legacy?

What if you could do it in every corner of the planet through access to entrepreneurship?

What if instead of one PayPal Mafia, you had thousands?

What if you had an investor who could actually deploy $5B per year at the formation stage?

That has simply never existed before, and yet it is a defining opportunity for the human race and our evolution as a society.

Currently, high potential employees are stuck in their corporate jobs.

Our brightest minds handcuffed to benefits and addicted to a salary, never realizing their true potential or having a real impact on the world.

Many go get their MBA where they spend money to learn new skills and acquire a network, rather than receive money for becoming a more productive citizen of the world.

Many job hop looking for a low-risk way to get on a rocket ship.

Some try to build their own, but quickly run out of runway and mental fortitude.

It’s a broken system, and we need to rebuild it.

First it requires a product.

The product needs to be for two groups—the founders and the investors.

It starts with the infrastructure required to reduce the risk of being a founder which in turn attracts more of the brightest minds to the job itself. At the same time, the product also has to be an investment vehicle that attracts a new type of customer to early-stage VC.

Simply, the product needs to help the smartest people meet co-founders, find community, and get access to capital quickly.

And, that product needs to de-risk the investments they make with that capital so as not to flat-line returns or end up subsidizing tourist founders.

Then it needs to scale.

It’s not enough to do this in one market, with one vertical or industry. We need to engineer serendipity and birth new industries by creating destination communities where these ambitious people can overlay their apertures on the world across domains and geographies, and then as a beautiful byproduct, develop real novelty in their ideas.

The other reason it needs to scale is because ultra high net worth individuals, economic development funds, and sovereign entities usually don’t want to deploy $5m at a time, they want to deploy $500m at a time.

But how do you do that with $100k checks?

The answer is you don’t. Instead, you write $1m checks at $5m-$10m valuations.

You institutionalize the friends and family round with an amount of money that is both fair to founders, allowing them to survive 2-4 years, while retaining enough ownership to be interesting to investors.

And you do it a lot.

5,000 times per year, to be exact.

But you can’t do it the way most venture capitalists do it. You can’t just look at resumes and pitch decks and follow the heard.

You need to underwrite the people.

Talent is distributed evenly, but capital is not.

And the reason for that is because the 99% have not lived inside of virtuous cycles for generations—they’ve lived in vicious ones; lacking money, education, and a basic quality of life with near-guaranteed access to food, shelter, and running water.

But, if you can underwrite their execution you can write them a check.

And if you can write one check with that process, you can write hundreds, and eventually thousands. And each year that you continue to build that product, that local region will continue to become stronger. Eventually, great companies are built and those companies employ people who learn from that experience and perpetuate that same prosperity creation themselves.

It’s the inevitable butterfly effect of tech.

And because all of what I’m saying is already in motion and inevitable, and because rich people like to put their names on buildings, I don’t think it’ll be long until an Elon Musk or someone of that stature gifts $50B to seed the global tech ecosystem.

Look at Antler for example. At our current volume, we could increase our check sizes globally and call 1% of that Twitter money per year to deploy $400m+. We already have the infrastructure, volume, and underwriting processes I’m talking about above.

There’s no reason we couldn’t also increase that capital call percentage as our pro rata allocations increase our available investment options, allowing us to rebalance into the winners for even greater performance too.

I’m not saying that’s what we’ll do, but I do run this long-term thought experiment in my head quite often.

Think about that value proposition to Elon for example, with 25% of your net worth, or roughly what you spent on Twitter, you could fund the next decade of technology startups as ambitious as PayPal, SpaceX, Solar City, Neuralink, etc, and still have $150B to give to your family and to charitable organizations.

Furthermore, those 50,000 startups would give every city in the world an opportunity to create the wealth that Silicon Valley has created over the last four decades, improving not only their local economies, but the basic quality of life for every human on, and in Elon’s case, off the planet.

My bet is, they would also solve some of the world’s most pressing problems more efficiently than the traditional charitable organization.

Tell me that’s not at least worth a conversation.

And if you’re worried about the approach and the returns, there is of course more to that strategy, but you can keep reading about The Early-Stage Game in this recent post, and this one too.

See you Monday.