Spearhead launches $100M fourth fund to rework founders into top-notch VC traders

By | November 10, 2020

Enterprise capital continues to get a founder makeover.

Two years in the past, I profiled Spearhead, a brand new program and fund created by Jeff Fagnan at Confederate and Naval Ravikant, the co-founder of AngelList, to mentor leading founders into becoming the next-generation of angel and seed investors. The premise is and stays easy: provide founders with nice networks and hustle $1 million in capital to exit and begin writing angel checks and construct their very own portfolio. Present a little bit of infrastructure and help to information their choices, however in any other case, empower founders to be taught the craft of investing, and within the course of, even perhaps enhance their very own fundraising prowess.

Effectively, so much has modified within the early-stage world, each broadly and with Spearhead over the previous practically three years.

In the previous couple of months (partly driven by AngelList’s push), rolling funds have erupted to utterly rework the solo and first-time capitalist world. Rolling funds enable newly-minted VCs to boost smaller quantities of cash over time moderately than elevating a complete fund first, which dramatically lowers the limitations to start startup investing. How does Spearhead match into such a world? That’s the place this system’s new fund comes into play.

Spearhead introduced at this time that it has raised $100 million for its fourth fund. The essential define of this system stays the identical, however what’s modified is what occurs after the formal Spearhead program has completed. “High-performing founders” will now get $5 million to stake a follow-on rolling fund, as decided by an LP committee. Half the fund is devoted to follow-on investments, which implies that $50 million can be invested within the pro-rata stakes of Spearhead investments. In an interview, Ravikant mentioned “we’re scaling the {dollars} however we’re lowering the courses” and Fagnan chimed in saying “deeper, fewer bets.”

Purposes for the fourth class of Spearhead founders are now open.

Jeff Fagnan and Naval Ravikant of Spearhead. Picture through Spearhead.

Spearhead isn’t constructed round formal lectures or materials, however as a substitute is designed to be an energetic group that helps prepare founders for 2 years and extra to be taught the artwork of investing. “We write down the rules on how you can make investments — the stuff that may be taught — on one sheet of paper,” Ravikant mentioned. “And it’s fairly primary stuff … there’s no rocket science right here. The work is within the precise day-to-day execution.” The actual studying takes place round reside offers the place it’s all concerning the discussions between the companions and the opposite Spearhead contributors and alumni.

Spearhead shared some knowledge about the place this system stands after about three years. Throughout three courses, 56 founders have joined this system (with eight unicorns represented), funding 380 startups with $18 million in capital. Among the many founders in this system are Alexandr Wang of Scale AI (which was simply offered funding at a $3 billion valuation according to The Information), Laura Behrens Wu of Shippo (which raised its Series C earlier this year) and Peter Reinhardt of Phase, which was just bought by Twilio for $3.2 billion.

“We’re an investor, we’re not operating a scout program,” Ravikant mentioned. “We’re the primary and most value-added restricted associate in a brand new GPs profession, and similar to Y Combinator is form of pulling these firms into existence, from faculty youngsters who in any other case wouldn’t have gotten the time of day, we’re pulling these funds into existence by serving to the founders who till now have been dabbling in angel investing and knew that down the street, they’d should learn to be a VC or an angel.”

As Spearhead has matured, the group has discovered which founders have succeeded, and what their blind spots are. “Probably the most profitable founders in my thoughts which might be Spearhead leads are individuals who didn’t think about themselves an angel investor earlier than becoming a member of this system,” Fagnan mentioned.

The problem although has been, paradoxically for these folks, ambition. “The principle problem has simply been investing too little,” Ravikant mentioned. “They’ve been very timid beginning out — as angels they’re used to writing 25 or 50K checks and the concept of writing a 100K or 200K or 500K test could be very intimidating.” So, “the error to this point has been simply investing too little, however the high quality of that could be very very excessive.”

With Spearhead’s new follow-on financing, the duo hope that they’ll information founders towards making greater bets on riskier initiatives. They need founders to not have 5 successes throughout their 5 checks, however one mega-success and 4 failures. “What we’re making an attempt to infuse in them is: we’re danger capital and conviction capital [and] we actually need them to be taking dangers,” Fagnan mentioned.

Unsurprisingly although, Ravikant is a long-term believer. “I personally now make investments my very own capital into each single Spearhead fund,” he mentioned. “I feel it’s principally among the finest offers in enterprise.”

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