In early 2001 I wanted to invest in DataPower, a middleware appliance company founded by Eugene Kuznetsov. The company was located in the Rindge Avenue area of North Cambridge, which was a rough neighborhood twenty years ago. Babak Nivi (co-founder of AngelList) and I worked together at Seed Capital Partners then, and we decided to go visit Eugene, who was a MIT fraternity brother of Nivi’s. We took the Red Line, the main artery for most of the Cambridge tech scene at the time. Both of us stepped off the train wearing backpacks; I wore shorts, a T-shirt, and Chuck Taylors, and Nivi had mismatched shoes, along with a thrift shop outfit that reminded me of Duckie from Pretty in Pink.
DataPower was in a run-down office with a partially collapsed roof housed next to an ambulance repair shop. I later learned that another VC had cut his meeting short with DataPower because he saw a huge rat there. The proprietor of the ambulance shop, Mahmood, stopped us as we entered the gate and asked us to state our business and intentions on his property. We told him we were contemplating an investment in the company and were there to meet with Eugene. “Ah, you are a VC. Lots of VCs have been coming by,” he exclaimed. Then he eyed us suspiciously and inquired further. “You sure you are a VC? Where is your Porsche?” He seemed even more incredulous when we explained that we took the Red Line, but finally he relented and let us pass while taking a parting shot: “These are smart, good kids. Don’t fuck them over…”
There has always been an arbitrary mindset division between labor and capital in early stage funding. VCs manifest and maintain this divide in many ways, including using confusing term sheet language, adding a liquidation preference signaling that capital is worth more than labor efforts, and resisting against early founder liquidity (which, even if it’s not the intent, is an anti-competitive tactic to keep founders from competing as angels in early stage opportunities). They reinforce it with the arrogant carrot-holding notion that a founder, after getting successful liquidity, might be lucky enough to get added to the venerable VC firm’s roster. Or maybe they could be a venture partner, an entrepreneur-in-residence, or a scout, where a founder brokers their most important relationships to a single, siloed firm in which an arms-length general partner renders final judgment over them. It’s not that all VCs are bad. But given their small position on cap tables and their typical lack of context and alignment to help early stage companies, they have too much power.
Spearhead was purpose-built to do two things for founders: (1) empower them as full-stack founders to allow them to start investing and compounding on their relationships earlier in their careers; and (2) blow up the power divide. Even for young founders in seed-stage companies without liquidity, Spearhead enables them to be GPs and LPs. It’s Keiretsu done right with owner-operators:
- Access the most relevant capital for your own cap table (e.g., other founders who can relate and help you beyond just funding)
- Back your most talented friends and coworkers as they start their entrepreneurial endeavors
- Become an LP in other founders’ angel funds and posse cut together to displace traditional venture dollars in seed and series A rounds.
Our steadfast belief at Spearhead is that the best money and mentorship for all early stage companies stems from other founders — today’s founders, not seasoned founders who built something twenty years ago. Today’s founders have the relevance, empathy, and contemporary pattern-matching that early companies need from their investor syndicate.
With Spearhead, you get your own pool of capital and can brand your own fund. Naval and I only operate as a meta sounding board, taking the best of our experiences and syntax, but always deferring to your conviction as consensus beats out the outliers, and the outliers are the only projects that matter. Spearhead operates on the “learning by doing” premise through active engagement, not the passive learning that we see with other programs that offer tutorial and instruction on being an angel investor without actually offering the most important part: capital.
Spearhead is simple:
- Get your own $2M angel fund, branded however you want. There’s the opportunity for downstream capital for pro rata, plus capital concentration in the best projects and in subsequent funds.
- Leverage Naval and Jeff and their collective experiences as a sounding board for projects. We use WhatsApp as our OS and make each proposed project a nucleus for knowledge accumulation. AngelList is the back office, using software to replace cumbersome legacy paperwork and process.
- Don’t change your day job. If you feel so compelled by a person or an opportunity that you would offer them mentorship, write a check to align the upside and get paid for your efforts.
- Join a select network of other founders focused on angel investing while building their own companies. As part of cohort 5, Spearhead is launching an investment club to enable Spearhead leads to invest seamlessly in each other’s companies and angel funds. To date, our 64 founder leads have generated 16 unicorn companies, and the entire group as an index has increased valuation 9x from pre-Spearhead to today.
We want Spearhead’s ethos of “founders backing founders” and the full-stack founder approach to be a movement that takes over everywhere. We see this as an important societal shift that further democratizes a black box asset class and closes a nonsensical divide. We want other programs like Spearhead to exist. We want people to copy it, so over time, we are committed to open-source our findings, programming, track records, and access to the funds. Today, though, we are focused on Spearhead cohort 5 applications and fueled by our belief that the strength of any early movement is not large crowds and rhetoric, but small groups and engagement.