Founders are investors, too
Welcome to Incubateme’s newsletter, curated by Alice Zhang.
Dear all,
In typical founder-funder dynamics, most founders perceive funders as being the more powerful.
If money is the only measurement, yes, a funder holds more power over a capital-seeking founder. However, if we consider a founder’s mission, expertise, experience, network, etc., all as assets that can be monetized, a founder may very well be a much richer investor than a money-as-the-only-asset funder, especially to fellow founders who are just a few steps behind! Indeed, founders are investors, too.
To illustrate this concept, I share an article talking about three trends of founders building an investment portfolio of their own, i.e., 1) founders being agents of other founders; 2) founders form a community with dedicated community manager to invest in other founders; 3) founders form collectives to combine the network, capital, and bandwidth to do something that a single individual could not achieve.
The thesis goes that if founders invest in each other collectively, we can build a bigger pie where everyone could benefit and get a bigger slice of the pie!
If you would like to invest in other founders from the community, especially any of our featured businesses, whether through money, time, or expertise, please CLICK BELOW TO LET US KNOW! We are building something to enable founders to invest in founders!
How agents, communities, and collectives are helping entrepreneurs diversify
Just like investors, entrepreneurs should be building a diversified portfolio. After all, everyone is an investor.
Unfortunately, the time when entrepreneurs are best positioned to diversify and create their own personal flywheel is the time when it’s hardest to do so – when they’re building a company.
Founders who are building startups get access to powerful networks through their investors, see compelling early stage deal flow from founders who come to them for advice, meet impressive advisors, and learn skills and hard lessons around company-building which make them invaluable to founders a few steps behind them.
They aggregate these assets along their journey, but they usually don’t have the bandwidth to leverage these assets for much else other than trying to make their own startup work.
This leaves a lot on the table for the founders, and the potential value of these assets go largely unrealized. If they were able to clone themselves while building a startup, that clone might be able to start a seed fund, start advising a few startups, or splinter off side businesses. If they were able to plant these seeds in parallel while building a startup, they would see compounding returns years down the line. But we can’t clone ourselves, and so founders generally make investments sequentially, being all-in on their venture and not planting any seeds until they come up for air.
The good news is there are three trends emerging which make this type of diversification more accessible for founders in the throes of company-building: (1) agents, (2) skin-in-the-game communities, and (3) collectives.
The Agent
A few months ago, I saw a twitter exchange that demonstrated the Agent dynamic that I’d been thinking about. Austin Allred is the twitter-savvy founder of Lambda School, a hot startup with over $100M in funding from top investors. Austin made a quick joke about his angel investing.
Austen Allred @Austen
I’ve now made 5 angel investments that are <$5,000 each lol
Austen Allred @Austen
Everyone asking “How?” I invest in founders I want to bet on going after huge markets. I meet them randomly. Would invest 20x as much if I could, $5k checks are barely worth legal fees.
Sahil Lavingia, an internet entrepreneur who founded Gumroad and has started his own rolling fund, commented on the tweet. He asked for likes to test investor demand for a hypothetical Austen-led rolling fund, committed as the first LP, and created a google form to garner other LP commitments.
Austin Allred didn’t have the personal bandwidth himself to overcome the inertia that requires when starting a rolling fund. As a result, much of the potential value of the network Austin was building as the founder of a hot startup was going unrealized. Sahil Lavingna acted as his agent. He helped Austin overcome that inertia quickly, and now Austin Allred has a small fund where he’s writing bigger checks at a frequency that doesn’t distract (too much) from his core job as the Lambda School CEO.
In this case, Austen was leaving so much unrealized potential value on the table that it made sense for someone to step in and unlock that value for Austen.
I believe there’s a big opportunity for “entrepreneur agents” who unlock potential value which company-building entrepreneurs do not have the bandwidth to unlock themselves.
But not all of us are CEOs of darling startups with over $100M in funding from top investors and over 100K twitter followers. Therefore, entrepreneur agents will not be accessible to all of us. For the rest of us, that’s where the power of Skin-in-the-game Communities and Collectives come in.
Skin-in-the-game Communities
In August 2018, five influential members of the NYC startup community – Matthew Brimer, Jenny Fielding, Scott Harley, Katie Hunt, Adam Carver – launched The Fund, a “community-powered venture fund fueled by some of the best founders & operators.” When they launched, they had 75 investors in their fund who were NYC-based entrepreneurs.
The 5-person team powers The Fund, organizing and setting the rules for how the community-powered fund operates. In a Forbes interview in August 2018, Matthew Brimer explained this approach:
The fund is intentionally small. The capital is almost entirely made up of personal investments from founders, not endowments and pension funds. When people are personally invested they care more. We intentionally didn't want to have the investment size so large that we limited getting good people because of this personal money. We want people who had an exit as well as successful people who are running growing companies but don't currently have a ton of cash sitting around.
The Fund is lowering the barriers to entry for NYC-based entrepreneurs to diversify their entrepreneurial portfolio through investing in the next generation of founders. Entrepreneurs are able to efficiently leverage the network and expertise they’re accumulating while in the throes of company-building on the behalf of others. In return, their networks become even stronger, they’re broadening their expertise through exposure to a more diverse set of entrepreneurs and deals, and they’re accessing and investing in high quality deals which have the potential for strong financial returns.
In short, The Fund is making it easy for entrepreneurs to diversify their entrepreneurial portfolio without distracting them from their #1 focus of building a company. By consolidating the work in running The Fund with 5 people, they keep barriers to entry low for entrepreneurs who join the community, while setting a minimum threshold for skin in the game – investing in the fund and committing a certain amount of time.
These skin-in-the-game communities are a win-win for everyone involved. Those who lead these communities get a higher share of the returns for doing the work of organizing (both financial returns and network returns) while providing a service to other entrepreneurs of “easy diversification” – making it possible for them to generate their own personal flywheels.
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As a result, I think we’ll continue to see models like The Fund emerge, which are community-powered and more decentralized.
And as the operations involved in fundraising, fund management, and community building becomes easier, barriers to entry for building funds or communities will continue to lower. This opens up room for egalitarian collectives.
Collectives
A month ago, I saw the launch of Long Jump, a Chicago-based first-check fund. I was scratching my head a bit when I saw the announcement. All of the founders – Ablorde Ashigbi, Garry Cooper, Tim Grace, Brian Luerssen, Daniel Rogers, and Kristen Sonday – were currently running their own startups. And those startups were all early stage. They collectively run five startups, four of which were seed-backed and one of which had raised Series A. They have raised a combined $19.5M raised and have a combined 10K twitter followers.
I had thought that people launching funds needed to either (1) have reached a certain level of success, (2) have a huge audience/network, or (3) have a lot more bandwidth available than people currently running startups. After all, Austen Allred had raised over $100M for Lambda School and had over 1K twitter followers, and the founders of The Fund weren’t running startups and had already built communities in the NYC tech ecosystem for years.
But with the barriers to entry getting lower for launching a fund, it makes sense that this group of early-stage foundres could start a fund, and it’s a smart move by each of them. I’d guess that none of these founders independently have the network, capital, or bandwidth to launch their own fund. But collectively, they likely have one of the strongest networks in Chicago and they can provide collective accountability to each other to stand up and operate a fund even though they’re currently laser focused on building their startups.
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As a result, all six founders are able to diversify their entrepreneurial portfolio, building a venture fund while remaining 95% focused on building their startups. They’re able to quickly leverage the assets they’re accumulating as Seed and Series A-backed founders to create personal flywheels for themselves. If we fast forward a few years, regardless of the outcomes of their startups, they will have built something else in parallel, rather than waiting until the end of the current leg of their entrepreneurial journey to do so.
I believe we’ll see this trend of entrepreneur collectives continue to grow. This already happens a lot informally, but I think we’ll see more funds and communities pop up like Long Jump.
The funders in the startup ecosystem (VCs) have always been diversified, as the venture model is based on portfolio theory. As a result, there’s risk asymmetry between the funders and the entrepreneurs in the ecosystem. VCs place dozens of bets, while founders are often expected to be fully concentrated on their current startups. But it’s vital for entrepreneurs to diversify to maximize the returns of their careers.
We’re in the early days of enabling diversification for founders, unlocking the potential value they could be planting seeds with while building companies. I expect Agents, Skin-in-the-game Communities, and Collectives to drive a lot of that diversification for entrepreneurs in the next 5-10 years. As a result, diversification will be easier and building an entrepreneurial career will become far less risky.
Getting shots up by Mike Wilner
Featured business: Peaceful Fruits
Company URL: www.peacefulfruits.com
Location: Cleveland, OH
Founders: Evan Delahanty
Founded Year: 2014
Business is about: healthier, organic fruit snacks.
🍓 Tell us about yourself, your company, and how you got started.
I founded Peaceful Fruits after serving as a Community Economic Development Specialist for the US Peace Corps in the Amazon Rainforest interior of Suriname. I set out to create a social enterprise that would connect people back to Mother Nature, using sustainable fruit to make amazing, authentic fruit snacks. At home, we employ adults with disabilities to help us make our products to do things right every step of the way. I started with a bootstrap pilot operation, moved on to a Kickstarter and an Ohio Social Enterprise Pitch Competition, and then secured a spot on ABC's Shark Tank. Following that whirlwind experience, we worked with local investors to put together a production facility of our own and take the next growth steps.
🍓 How did you acquire your first batch of customers?
Our very first customers were at a local farmers market - behind a table, handing out samples. From there, we went door to door with small stores until we launched our e-commerce with a Kickstarter campaign that helped us get rolling online and in the local community.
🍓 Did your business pivot in the pandemic? Or, how did your business start during this time?
During the pandemic, we had to re-think our production model to protect our folks with disabilities who are at extra-high risk. We also tried out some new pandemic-specific flavors and other initiatives to keep things fresh for ourselves and our customers. Mostly, though, we hunkered down to preserve resources and make sure that our people and our longer-term strategy were protected.
🍓 What is your plan for the future? What trends do you foresee for your industry?
We are working to offer healthier options that are mission-based and on-trend. We see those trends digging more deeply into the snack industry in particular, and we are looking to do what we did for fruit snacks in adjacent categories - take out the junk and replace it with real fruit to make delicious, healthier snacks!
🍓 Any other lessons/advice you’d like to share with other fellow entrepreneurs?
Cash is king, and it takes way more than you think, especially to build a brand. But the biggest problem is either not starting or not being ambitious enough in what you try to accomplish - don't undervalue your dreams.
🍓 Any requests for help from our community?
We love working with healthy office initiatives, schools, etc. - pass us on to your office manager or similar, or check us out on Amazon! Good reviews and word of mouth mean everything to a growing business.
You made it to the end!
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