6/9/19 Exicate Weekly Update
Can startup executives get 10x more equity exposure? I’m trying to find out!
Hey all!
I received many replies to last week’s update. Thank you! I’m catching up on the backlog of next actions so I greatly appreciate your patience.
I’m calling this research project *Exicate* because “executive/employee led syndicates” is a bit of a mouthful.
How you can help
I’m speaking with startup executives (VP and non-founding C-level) to validate if they are willing to negotiate for allocations in their employers’ next funding rounds.
Please forward this email to a VP or non-founding C-level executive you’re close to that currently works at a Series B or older company with the following text
“Harvey is researching how to get startup executives more equity upside. Should I connect you?”
I would greatly appreciate it!
Last Week’s Progress
See previous update for context.
Newsletter subscribers: 79, +28 from last week. 55% WoW growth
Insights this week
Series B-F CEOs liked the idea of executives (VPs and non-founder C-level) negotiating for and filling allocations
Execs tend to be
Relatively few at any given company so # of allocations will be small
Confident negotiators
Difficult to recruit
Capable of affecting the company’s core metrics and thereby valuation
Accredited investors with many others in their networks
More susceptible to principal/agent issues which can cause vastly more problems at the executive level than at the individual contributor (IC) level.
Some VCs/angels confirmed that they know executives who have sourced/filled allocations
Series A and younger company employees wouldn’t be good targets since they tend to be almost all individual contributors.
Counsel provided initial review of various business models (GP-LP fund, etc.)
No compliance/legal/regulatory hurdles that immediately surfaced but further review in certain areas
Simpler if executive is not able to make any decisions on behalf of the SPV
No issues (aside from some disclaimers needed) blocking fully open sourcing process/docs/returns/positions etc. if fund model is pursued.
Evaluated SPV providers (costs paid by SPV investors, not manager)
Potential business models
GP/LP fund that raises $x dollars and invests 50% (or 100%) of the SPV’s allocation seems feasible.
Fund could secure a Right of First Refusal (ROFR) from executive for the allocation + any future sale of the executive’s common shares
If fund exercises ROFR
Fund will set up an SPV
Invest fund capital into the SPV
Source any other capital needed to fill out the allocation
Share the carry with the executive
If fund does not exercise ROFR
Executive is free to fill allocation or not participate in the round
An RIA/family office targeting startup execs (Series B-F) that also does wealth management + compensation negotiation similar to a manager for celebrities/athletes in addition to filling allocations is feasible.
SecFi seems to do something similar but focused on option exercise/stock backed loans
P2P investing platform seems too cumbersome and might end up duplicating much of AngelList’s functionality
Next Week
Draft template term sheet that a startup executive can present to their CEO
Meet at least 10 VP and non-founding C-level employees at Series B-F companies
Add at least 30 newsletter subscribers
Deeper dive with counsel on open questions
Interested in learning more? See the next update.
Disclaimer
I'm not a professional CPA, lawyer, CFP, RIA, B/D, ERA, etc. or anything else. All content is informational only and is not intended as professional advice/counsel or an offering of any kind.