How 'solo VCs' are changing the venture game
July 30, 2021
When Playco announced its $100 million Series A funding last September, the co-lead investors were Sequoia Global Equities and Josh Buckley, a solo VC who at the time was investing from his first $50 million fund.
In a co-led deal, one lead investor usually sets the terms and the other joins with an equal-sized check.
In the Playco deal, it was Buckley, an under-the-radar investor, rather than the legendary Sequoia, who determined the price of the round and took the board seat at the gaming company.
Since then, Buckley, who juggles investing with his role as the CEO of Product Hunt, has raised his second $200 million fund, according to a person familiar with the matter. In addition, Buckley, a co-founder of Mino Games, in July launched Hyper, a Y Combinator-like accelerator program with partners including Sequoia and Andreessen Horowitz.
Individual investors have always been a part of the venture capital ecosystem, but they generally have written small checks for the earliest-stage companies.
But it's getting increasingly common to see deals like Playco's, where solo VCs invest in and even lead Series A or late-stage rounds. Their rise comes as investors of all sorts clamor to pour funds into the booming venture capital asset class, and many founders view certain solo VCs as a special talent who can give their startup a boost.
What's more, these newer entrants into the venture game are raising funds in the hundreds of millions of dollars and special-purpose funding vehicles with backing from top-tier limited partners. In some cases, this has enabled a nascent group of investors to beat out traditional venture firms for hot deals.
It's an open secret in Silicon Valley that this group of investors is willing to offer founders better terms and higher prices than traditional VCs in exchange for a chance to back fast-growing startups. Some are doing deals priced far above median valuations, such as last year's funding of software-development company Retool, which reportedly fetched a price 100 times its annualized revenue of $10 million.
"I think they recognize startups with high growth potentials, so they're willing to write checks that are higher than other firms," said an LP familiar with these investors' strategy.
Another advantage of solo VCs: They make deals more quickly than conventional firms.
In a market environment where rapid-fire dealmaking has become the norm, many venture firms are adapting by holding multiple partner meetings a week or voting on deals via text messages. "But no one is as fast to decide as a solo GP," said Laura Thompson, a partner with Sapphire Partners, an LP unit within Sapphire Ventures.
Since Solo VCs don't need to get buy-in from other partners, they can offer term sheets at an extraordinary pace, said Thompson. Her fund-of-funds recently backed Harry Stebbings, a solo VC and the creator of investing podcast "The Twenty Minute VC." Last month, Stebbings reportedly raised $140 million across two funds.
While fast-paced dealmaking is a hallmark of solo VCs, Lachy Groom's rapid capital deployment stands out.
Since emerging on the venture investment scene in 2019, Groom, who started his career at Stripe after moving to Silicon Valley from Australia as a teenager, has already backed over 40 early- and late-stage companies, leading nine of the rounds, according to PitchBook data.
Such torrid dealmaking is generally unrealistic for new managers because their funds tend to be small. But Groom has managed to raise an arsenal of capital that could rival many established multipartner firms.
Since last summer, Groom has launched a $100 million second fund, a $250 million third vehicle, and a $300 million opportunity fund, along with more than a dozen multimillion-dollar special-purpose vehicles.
Investors in Groom's vehicles, which go by the initials LGF, include Harvard University's endowment and the prestigious fund-of-funds Horsley Bridge Partners, which also backed Buckley's namesake firm, Buckley Ventures.
Elite LPs are betting on solo VCs because they recognize that these investors are not only exceptionally well-connected in the technology ecosystem, but are also desirable partners to many founders.
"Lachy sees himself as one of you," said Ben Herman, co-founder and CEO of Canvas, a tech recruiting startup backed by Groom. "Whenever you need something, he is always there to help. He takes every investment as seriously as the other one."
Groom did not respond to a request for comment.
Other solo VCs are also known to be laser-focused on doing whatever it takes to help their portfolio companies succeed.
Oren Zeev, the founder of Zeev Ventures and arguably the most established solo VC, told Herry Stabbings in a "The Twenty Minute VC" podcast last year that not having any partners or staff affords him time for helping founders.
While in many ways solo VCs' investment style—the velocity and high pricing—resembles that of Tiger Global and other hedge funds, the two groups are outbidding other investors for different reasons, Trivedi said in an interview.
He said crossover investors are paying higher prices for deals because they manage an enormous amount of funding and, therefore, have the benefit of an arguably lower cost of capital.
But for solo VCs, the speed and sky-high valuations have more to do with establishing their brand, Trivedi said, adding, "Solo capitalists want to show that they can compete for the best investments and win them."
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