Chris Sacca on Helping Founders Take Money Off The Table
In my last post on the many changes happening in the venture capital industry, I mentioned the growing angel and seed fund phenomenon.
Well last night I came across this GigaOm video of my favorite in this class of "super angel" investors, Chris Sacca.
Sacca recently closed an $8.5 million fund to make seed-stage investments through his firm Lowercase Capital. While he is most famous around the Valley for these early stage investments, turns out he also has another fund solely dedicated to buying out the shares of early stage founders. The idea is similar to the later stage funding rounds now common among large tech companies like Facebook and Zynga; it allows founders to take money off the table and continue to grow their business instead of selling it. Yet, Sacca is taking this a step further and is doing it at a much earlier stage.
Here's part of his rationale:
"I think what we're starting to realize is that founders need some kind of comfort, a little bit of a hedge, to make sure that this isn't an all or nothing ... In a big VC fund, you need these massive billion dollar outcomes in order to move the needle. But I feel like if they really want their entrepreneurs to push to that level, they have to give them opportunities to take a little bit of money off the table."
Sacca then references the Foursquare deal and how Dennis Crowley and the other founders took $4 million off the table out of the $20 million that was raised. He speculates that doing so puts those guys in a place where they're more relaxed and in a position where they can really focus on going out and building the next multi-billion dollar company.
I also love that he refutes the idea behind the phrase "Pulling a Patzer," which is a reference to the story of Mint.com's Aaron Patzer who sold Mint to Intuit for $173mm and is now common Valley parlance for selling too early. He calls the notion "bananas" and I couldn't agree more.
The whole interview is worth watching, but the part about his fund to buy founder stock starts at around 4:30.
Again from my vantage point, the benefits of helping entrepreneurs take money off the table are many:
- Allows them to pay off their credit card bills and get to positive net worth
- Gives them a bit of a hedge so they can cover their risks
- Rewards them for their hard work and sweat equity
- Makes them less likely to sell their company
- Lets them retain control so they continue to grow the business
- And most importantly ... let's them actually enjoy life a bit
I couldn't be more impressed with the strategy and hope it's a trend that continues.
