Direct investment in people is the future of VC. How does it work?

What VC for Individuals Means

When we talk about VC for individuals, we’re talking about hundreds of thousands and even millions of dollars of no-strings-attached money provided by investors directly to people in return for a percentage of their future earnings and intellectual property.?

The main point of this idea is to give people every freedom and protection on the downside. That is, they will not be obliged to return investments and, in the same way, have the right to independently choose where to spend their financial flows. It also means investors can rationally assign valuations into the tens and even hundreds of millions of dollars to individuals relatively early in their careers. That works because the super winners carry the cost of capital for everyone.

Let's look at some examples from Sam Lessin:

Model 1:? The Serial Entrepreneur

Slow Ventures recently invested several million dollars into the Lieberman Company, a holding company founded and operated by four siblings with a great track record of starting companies. The fund invested in the holding company for two reasons:?

The first reason is simple economics:?

The value of the Liebermans' company stock is far greater than that of their latest startup alone. That means that the Libermans can raise much more capital with much less dilution if they sell shares in the holding company as a whole rather than in any particular project.?

In practice, this looks like a seed round requiring the sale of less than 5% of the holding company, while the same amount of capital could easily cost them up to 20% of an individual project.?

That means that they can use the framework and skip all early-stage financing for the projects they want to start, going directly to Series A, while still owning 100% of their companies - a very financially powerful thing to do.

The second answer is alignment.?

Venture capitalists like to tell founders that they are ?on the same team?, but as anyone who has ever started a company knows, this is not entirely true. Their incentives may largely align when things are going well, but they can quickly drift apart when things don't go well. The Liebermans need investors who will be interested in their success, not just the success of the particular project they started.

Model 2: Creators?

But the model with the Libermans is still very reminiscent of classic venture capitalism. What would happen if we went beyond that even more? We think a more accurate description would be the Slow Ventures investment in the content creator on YouTube Marina Mogilko.?

Investment structure in Marina involves funding an ?investment LLC?, which she controls and can use as she sees fit. She conducts all her normal creator activities as she does every day: building YouTube channels, doing product partnerships, using her likeness and ideas to start companies and so on. Slow Ventures has no control over the deployment of the funds. In return for their investment, the fund gets a single-digit percentage of all of the money she makes annually for 30 years. Further, if she develops any intellectual property during that time frame, we get a small percentage of the proceeds from that.

Slow Ventures doesn’t get anything until Marina clears a substantial six-figure profit every year. Also, the deal is only related to her creator's work. If she decides to stop being a creator and take a regular job — that is outside the deal. The fund taking on the risk by betting that she’ll be a serious creator over many years.

What is the bottom line??

What can this approach explain to us? A few simple things:?

First, investing in people isn't weird and certainly shouldn't be intimidating. There is no talk of "debt slavery" or attempts to take over people's intellectual property rights.?

Investing in people is an opportunity for talent to advance and become the geniuses of the modern world. Generation of TikTok proves that content creation is an amazing business that can generate millions of dollars a year.?

Second, venture capital investment is a very conservative field. But it needs to change, as the world changes. And it's not just about what you can invest in. But now also how to invest: what are the best strategies and approaches. To understand how the venture capital market is changing, we recommend reading another of our texts about the Tigers Global Management fund.