"Solo capitalists" in venture capital & the fundraising game behind the investing game

For more than a decade now, successful angel investors have been encroaching further into the realm of venture capital. Whereas in the (slightly) more distant past individual investors only had the scale to play at the earliest stages of company formation, the more successful and connected ones have been leading larger and later rounds of venture financing.

Nikhil Basu Trivedi calls the latest evolution of this trend The Rise of the Solo Capitalists, describing them as follows:

They are the sole general partner (GP) of their funds

The solo capitalist is the only member of the investment team

The brand of the fund = the brand of the individual

They are typically raising larger funds and writing larger checks than super angels - i.e. $50M+ funds, and able to invest $5M+ in rounds.

They are competing to lead Seed, Series A, and later stage rounds, against traditional venture capital firms

In the 2010s, several successful angel investors scaled their activities into full-fledged firms (e.g. Jeff Clavier with Uncork, Kirsten Green with Forerunner). But others would keep an even more individualistic streak, leading investments on their own rather than creating institutions with distinct brands (e.g. Chris Sacca and Suhail Rizvi purchasing pre-IPO Twitter stock from existing shareholders). Today, these “solo capitalists” are raising more and more capital for funds and singular transactions, moving beyond those earliest stages of company formation and competing with the well-known institutional venture firms. These people, like Lachy Groom and Elad Gil, are neither building investment teams nor creating separate brands—they’re playing the investing game their way. Unfortunately, they’re also playing another game, one that isn’t well-equipped to serve these solo capitalists—that one being the fundraising game.

For GPs, the game of fundraising exists atop the game of investing. It’s one designed to benefit both under-resourced institutional LPs and well-resourced GPs—however, despite fundraising being so critical to the survival of investment firms, most GPs aren’t well-equipped to fundraise. The largest firms can sink tremendous resources into their fundraising and investor relations functions, creating products (i.e. funds) that are easy for institutional LPs to buy. Smaller firms will have fewer resources for this purpose, requiring them to pull their investment professionals away from investing. And, the solo capitalists will have only themselves.

That’s not to say solo capitalists are unable to fundraise—they are, or else we’d be discussing something else. The challenge they face (assuming they have such aspirations) is scaling both their investing and their LP base while remaining solo. Funds do solve problems for larger institutional LPs: they allow for those LPs to commit large sums of capital every few years across a diversified set of companies. Committing smaller amounts to smaller funds or investing transaction by transaction is much more difficult—it would effectively prevent an LP from spending time on other opportunities. Issues like key person risk and the lack of team or infrastructure will also push LPs away from solo capitalists (or search funds in the private equity realm), and towards the easier option of funds.

Funds should continue to unbundle, and the rise of the solo capitalist should happen. But, we don’t live in a vacuum where institutional LPs can commit to individuals with ease through a platform like AngelList. Instead, the fundraising game is both laden with technical debt yet functional enough for the players involved, those under-resourced institutional LPs and well-resourced GPs. Until that technical debt is removed solo capitalists won’t be the option for LPs and entrepreneurs alike—but that’s okay. There just need to be more options.

As always, enjoy the weekend.