August 12, 2022

Angel investing 1.0 → Solo Capitalist

Let's talk about the Solo Capitalist and how individual managers with small teams are deploying huge capital, to even bigger success.

Written by

An Vo

It was (and still is) a common trope in Silicon Valley for founders of tech companies to build fabulous companies, exit those companies before turning part of their time, attention, and resources by making small investments into promising startups under the loose moniker of “angel” investor. Seasoned angel investors like Ron Conway made their name and reputation investing early in companies like Google, Facebook, Twitter & Cyan Banister early investing in Uber, Space X and more.

Over time, angel investing has attracted media attention as stories of amazing returns drew in the masses, spawning hordes of books, podcasts, and all manner of resources, of varying quality, in the topic as a dedicated asset class, and career.

Until more recently, angel investing was an important but small part of the funding ecosystem, with angel investors typically sticking to the earliest rounds of funding in promising startups given their relatively smaller cheque sizes and limited resources.

Solo Capitalists in the US — Angel investing 2.0

What we’ve been seeing in recent years in the US is the fascinating rise of a new class of angel investors, some have dubbed “solo capitalists” (as distinct from a group of venture capitalists who usually raise funds from institutional or wealthy individual investors in some form of closed-end fund).

These solo capitalists act as one-person investment teams and are the sole Partners in their funds, similar to angel investors of yore.

What’s new is that these solo capitalists are investing, not just at the earliest stages of companies, but at Series A+ rounds. To do this, they’re raising dedicated funds and special purpose vehicles from the traditional base of investors in VC funds and competing with (and increasingly, outcompeting) traditional VC funds in leading rounds for later rounds.

At TEN13, we’ve seen this play out in our own portfolio companies, Chipper Cash. Many of the company’s early rounds were led by a solo capitalist who raised special-purpose vehicles and tens of millions of dollars to fund the company’s growth before Ribbit Capital and Bezos Expeditions invested in the company’s Series B round with other investors joining more recently.

Why is this happening?

Personal brand and network have never been more important than in the current venture capital landscape. More so than ever, founders are optimising their fundraising decisions around individual partners who they want to personally work with, based on the relationship built with them, and based on their brand and expertise, instead of the reputation of the firm that partner works at.

This is hardly surprising; we’ve seen this dynamic in other services industries like law, investment banking, and others, where clients value direct relationships with star deal makers and tend to stick with them, even as they jump ship to new firms.

Solo capitalists can make much faster decisions than most traditional venture partnerships who typically have gated processes, with some level of buy-in needed from other Partners, and formal Investment Committee meetings. Founders only have to interface with one person, under the solo capitalist model, which can result in faster decision-making.

Solo capitalists can be more flexible on ownership, and issues including board representation, minimum ownership, share classes, and other terms as a result of being single decision-makers.

As a local example of this, VC firms in Australia establish themselves as an ESVCLP which gives rise to some limitations around where they can invest and what they can invest in.

What will this mean for Australia?

There is an emerging class of high-profile angel investors in Australia including Steve Baxter, Matt Allen, Brendan Hill, Alex Zaccaria, Cheryl Mack, Emily Mason, Matt de Boer, Leigh Jasper, Les Szekely, Rayn Ong and others who have had some fabulous early wins in names like SiteMinder, BuildKite, and others, off their own balance sheets.

Much work is being done locally, including by TEN13, to help build the infrastructure to empower the next generation of Australian solo capitalists so they can invest beyond their own personal balance sheets, increasingly in direct competition with incumbent VC funds. Some challenges that have slowed progress so far include:

  • Legal/regulatory
  • Distribution and access to investors
  • Operations

At this stage, it’s likely that the evolution in the US will extend to Australia. Is this a good thing? Yes, in so far that it results in more choice for founders, more capital being deployed into the next generation of great Australian companies. However, some challenges abound:

  • Will these solo capitalists be able to scale to be meaningful players in the industry?
  • Does the model result in better outcomes for founders?
  • Will investors who back solo capitalists be able to generate meaningful returns?

It will be interesting to see how this plays out, though our bet at TEN13 is that you’ll be hearing more about solo capitalists in the future.

Safe Travels,

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