How agents, communities, and collectives are helping entrepreneurs diversify
And why entrepreneurial careers are about to become far less risky.
Hi - I’m Mike Wilner, the writer of this post which is part of my weekly newsletter, Getting Shots Up. The newsletter includes frameworks, analyses, profiles, and musings about building entrepreneurial careers. This isn’t just startup advice – it’s a zoomed out view of how entrepreneurial people can think about constructing a career that results in a lot of high quality shots on goal.
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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 (a theme of this newsletter).
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.
A few months ago, I saw a twitter exchange that demonstrated the Agent dynamic that I’d been thinking about. Austen Allred is the twitter-savvy founder of Lambda School, a hot startup with over $100M in funding from top investors. Austen made a quick joke about his angel investing.
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.
Within 24 hours, there were $30M in commitments to Austen’s rolling fund.
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. If you fast forward five years, Sahil’s late night tweets will have resulted in potentially tens of millions of dollars that Austen will be investing into startups that he otherwise would not have had at his disposal. This convinced me of something I’ve been thinking about:
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.
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.
This role in the ecosystem has traditionally been the role that VC Firms have played by raising money from institutional investors, creating a network of part-time venture partners, and investing in platform and community management.
However, the automation and commoditization of some of these responsibilities is making it easier for community-powered funds to emerge. AngelList has made it easier to raise funds from LPs through rolling funds, Carta has made LP fund management easier, Slack has made it easier to stand up and run communities, and no-code tools like Airtable, Webflow, and Zapier have made it easier to stand up and automate operational workflow.
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.
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.
As Kristen Sonday explained in her post about why she co-founded Long Jump VC,
Don’t you all run other companies? How will you manage this? We already spend many hours per month in our communities mentoring, hosting office hours, speaking at events, and angel investing. LongJump is a great way to combine and elevate that work more intentionally to maximize our impact, and our networks through our businesses are a unique value-add to portfolio companies.
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.