New YT channel, Market Analysis, and Series A focus
New YouTube Channel
I'm going to create videos to cover status updates and every concept related to Employee Led SPVs. I'll make an Employee Led SPVs instructional videos playlist in addition to other content. These videos will complement the current >10 page guide. I'll also make hypothetical financial model walk-throughs for individual companies that have exited.
Market sizing
I'm building a market sizing analysis (current rough version) along with a video walk through (coming soon). The following seems feasible on an annual basis (based on data from 2019)
100-1,000 employees each leading 2 SPVs (one into the Series A priced round and one into the A+ convertible round) for a total of 200-2,000 SPVs
Average SPV Paid-In Capital of $250k
$50m-$500m raised in aggregate
4,000-40,000 unique LPs investing (assuming 20 LPs per SPV and each LP invests in only one SPV)
Sourcing deal leads
I'm narrowing my focus to employees at US based Series A companies. Why focus on the US? The market is deep and tends to be a trendsetter for the rest of the world's private capital markets. Also the infrastructure for turnkey SPV formation is highly developed with multiple strong players.
Why Series A companies?
The below charts show the estimated hypothetical carry earned per dollar raised for each SPV for companies that have exited. I calculated the estimated carry using either the acquisition price or the public listing price. The return profile generally changes dramatically after the Series A.
For example, an employee raising a $100k SPV and investing in the Slack Series A would have earned $7.58m in carried interest (20% of the profit after initial capital is returned to investors) at the time of Slack's direct listing. If the employee invested the same amount just in Slack’s Series D, they would have earned $280k in carried interest. I’ve also shown Lyft and PillPack as additional examples.
Later stage SPVs require raising an enormous amount of capital for the carry to be economically significant. Earlier stages require far less capital to create a life changing amount of carry. If I target employees at Series A companies, and it's too late for them to get into the A round, then I can at least help them lead SPVs into the A+, B, etc. which also lays the infrastructure and network for later rounds. Solving for Series A essentially solves for all the later rounds. Also the earlier an employee leads an SPV, the earlier the company gets the benefit of the employee behaving under their new incentive structure
Seed Stage Companies
I will opportunistically work with employees at Seed stage companies if the team is experienced (previous exits, former colleagues, etc.) Series A is ideal for now since A leads will generally complete a significant round of diligence and implementation of basic corporate hygiene.
Current Pipeline
I will continue working with everyone in the pipeline who works at later stage companies but will prioritize sourcing new leads at the A stage.
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