Earnest Capital Trailhead
earnestcapital.com
earnestcapital.com
It's really promising to see that you value the time of the founders you fund so much that you are ready to talk to them in a way that suits them, not just you.
I like this.
I go to LP meetings from time to time and it’s fun to see the inversion.
But also, the way raise money for Earnest is very similar to Trailhead: https://twitter.com/tylertringas/status/1260972763285774337?...
Build a relationship and have a discussion over time is so much better for all parties vs "pitch me right now and I'll decide instantly"
You’re saying that a setting up a system where founders share confidential information (monthly!) with an investor who has zero timeline for providing any kind of feedback, let alone an investment decision, is a good thing?
Who benefits from that exactly?
However, their target market is bootstrappers, who are probably not actively fundraising.
For example, I'm not fundraising, but I have no problem replying to emails about how things are going. If Earnest finds the progress interesting, maybe we can talk about a partnership. If not, I probably didn't spend much time on it. (This is assuming the Trailhead updates are quick to answer, that remains to be seen.)
The model actually sounds somewhat similar to Pioneer, which also involves continuously providing data without a promised timeline.
Venture capital is a product, and almost no product can cover all use cases. Experiments like this enable VC's to cater to different types of founders.
As a founder of a company that has gotten to 8 MM users across 95+ countries, and $1M in revenues, and there is a lot more I can tell you in a private conversation. We've applied to VCs along the way, but the model is not always aligned with companies like ours, which make revenue from the beginning rather than hockey stick growth and zero revenues.
One of the major reasons is that these kind of startups often need small amounts to get to the next level, but the due diligence of a VC sometimes costs more than that amount. If there was a "roadmap" model that VC would fund, say, $10K to get to the next level, then $20K, etc. and if it falls short, then they have to seek another such VC and syndicate. A bit like taking on lenders except it would be more along the lines of your Shared Earnings Agreement + Equity. Everything would be clearly spelled out, and rather than spending tons of time on due diligence, it would just be about a history of execution.
PS: We filled out your "regular" application in early April, please check email from @qbix.com ... would love to talk next week.
PPS: If you're a startup founder chime in and add your 2c, does your own experience in early stages resonate with what I've said? That if you were able to break down what you need to get to the next level, in $10K and $20K increments, with a second or third chance on slightly worse terms, you'd be happy to be funded in that manner, and work hard to make serious progress and document it.
That’s like paying a UBI of $300 a month vs paying a whole department doing means testing for $100/month and then paying $300 a month of welfare to those who qualify.
May as well do something more automated and send the money. Like what Tyler is doing here — collecting info over time. Make the entrepreneur spend most of the time providung the due diligence in the format you want. They have the time not the money — and it is reusable for other investors too.
It should be a portal. Like the “Prizes, not Patents” debate. Same thing.
I really like where you are going with this. Trailhead seems to be a formalization of the method that has worked best for my startup: keeping investors in the loop as to the development of our company, soliciting and then incorporating their (usually very valuable) feedback when we need it, and being transparent about where we are in terms of a raise.
Really great idea, and I hope more investors follow in your footsteps.
This little speaker pops up, so I clicked it out of curiosity, and it started to speak the text. The icon choice is a little unusual (I'd expect a play button or something, but that icon is typically used to control volume). But then I couldn't get it to stop playing. I even closed the tab and it was still playing. And for some reason Chrome doesn't show that tab as even playing audio so I could mute it. What the heck is going on there?
[1] https://developer.mozilla.org/en-US/docs/Web/API/Web_Speech_...
[2] https://bugs.chromium.org/p/chromium/issues/detail?id=517317
(This is not a personal attack on you, and I'm not trying to downplay the poor design, just that...I come to HN to read about the content of the stories, not their design.)
Re: https://earnestcapital.com/shared-earnings-agreement/
"One reason for wanting to handle every possible outcome is that we are committed to a SEAL not having any control over the business: no equity, no shares, no board seat, no preferred voting rights." isn't congruent with "... there is a residual Equity Basis that remains after the Shared Earnings Cap is fully repaid" - I'm not sure if I'm misunderstanding or you're first saying there is in fact an equity-like function but in the conclusion claiming "no equity" taken?
Also, anything regarding to the value of the mentors-investors that they claim will help out an investment (because they're incentivized) is all just ear candy and hype without evidence that they'll actually add any value or give useful direction for whatever business model(s) you implement.
Maybe earn trust with founders before asking for or expecting extra icing?
> is all just ear candy and hype without evidence the only evidence i can think of would be reviews from other founders who've worked with us. They are a super nice bunch and are generally happy to have a chat if you're curious. Here's one founder quoting another on the non-cash benefits of working with us: https://twitter.com/_rchase_/status/1233074457406771208?s=20
>Maybe earn trust with founders before asking for or expecting extra icing? 100% Agreed.
I just don't like uncertainty and I like measured fairness. I understand the excitement of getting an extra payout if there's a big exit but I feel 2-5x return on investment is already a great payout - and I don't like the VC justification that a higher return is aimed for to diversify risk because that's just an excuse for VCs that are making bad investments in an unskilled, inexperienced way, hoping for a few unicorns of 100x+ return that cover the losses of bad investments + that provide all their profits.
Ultimately my goal, if I ever raise any outside money, is to retain as much equity as possible, for myself and for the team - especially early on so then later at higher sums of money are necessary for expansion then equity is more likely to be necessary to be part of the equation but the company being in a better position allows better leveraging.
I'm not trying to disparage, this is much better than traditional VC already and I also like what Indie.VC is doing - the flaming unicorn in the hero of their landing page is a nice Minimum Viable Personality touch too. Just used this opportunity as a thought exercise, I appreciate your responses. Maybe the timing just isn't right for me to be able to as reasonably consider this model until I am certain I would continue on the external fundraising path.
Under a SEAL, an exit isn’t the only way for investors to realize ROI — we can run a profitable business and distribute Shared Earnings.
FWIW, the mentorship and cohort of similar founders has been valuable to us so far.
But looking at the web site, over approx 2 years, 15 investments, I presume low-6-figures.
So out of 1000s online applications of "self builders" u have a 1 in 1000 acceptance rate?
This statistic is just as important as being "founder friendly" or "no song and dance needed".
1. The experience imbalance. VCs do pitch meetings every day for years on end. Founders, not so much. No wonder the expectations mismatch.
2. Wildly unpredictable outcomes. Early stage fundraising is more like working a fuzzy strategic partnership than applying for a loan. The same inputs probably don't produce the same outputs.
We do "funding for bootstrappers" so most founders that work with us don't really plan on needing to raise more capital (it's not prohibited or anything, just not Plan A). So we and they don't really care about how "good" they are at playing the game of pitching.
Has this been much of a choice? I figure most tech founders either get on the VC track or don't get to have a company.
"Funding for bootstrappers" seems like a relatively new concept. Good to see another option!
VC is ostensibly generally accessible. Even accelerators like YC are VC-track.
On the other side, I see many many founders essentially twist their business plan into something VCs want to see because accelerators/VCs are the only source of capital for early stage tech companies.
Funds like Earnest trying to change that.
> You can leverage the Founder Summit forums for feedback from the Earnest team and our broader community of awesome founders and mentors (a free trial is included for everybody on Trailhead).
I’m not familiar with the founder summit forums, but this sound sounds similar to the community aspect of Startup School.
You mentioned that people get a free trial, but it sounds like someone can sign up for trailhead and stay in it for the long term without ever deciding to raise the earnest. What do you guys do in that case? When does someone get kicked out of their free trial? :)
1/ this explicitly designed to be a replacement for the application process at Earnest. Over time you build up a profile that contains most of what we need to make an investment decision. We'll still need to chat and do diligence, but we're trying to remove a lot of the uncertainty around what should be in a pitch and when to time the pitch. Basically pitching is not a skillset we optimize for at Earnest (since most of the founders we back not intend to raise continuously more rounds of capital).
2/ This is explicitly opinionated in structure. Everything will intentionally skew towards our "funding for bootstrappers" strategy vs being generic advice. This should help founders decide if they are a fit for working with us long-term.
3/ This is not a "how to build a business" process. It's much closer to "here is a bunch of questions and prompts that we have found valuable to strengthen founders' thinking and strategy + some resources"... we're not here to teach you how to build a business with this.
> You mentioned that people get a free trial, but it sounds like someone can sign up for trailhead and stay in it for the long term without ever deciding to raise the earnest. What do you guys do in that case? When does someone get kicked out of their free trial? :)
good question. this is subject to experiments/change but the way we're thinking about it now is 1) Founder Summit remains a paid community (we are still a small fund and this allows us to hire an awesome team + pay people for workshops, etc) 2) We want to avoid a "pay to pitch" scenario so Trailhead folks get a 3-month free trial. 3) At the end they can choose: don't apply to Earnest but stay in the community and pay, apply to Earnest (portfolio co's get free access), or decide they've gotten what they need and move on from both.
Keep up good work, we need a different route/way of building business as well. :)
As an early stage bootstrapping founder, I'm curious to see how Trailhead works in practice. But regardless of whether or not it works, thanks for thinking like a founder and being willing to experiment.
btw small typo: the link to 1 Second Everyday in your portfolio actually directs to yac.chat
As a founder, it's nice to have options though. Fundraising is a series of pros and cons. As we're seeing in this downturn, SAFE's aren't that safe either, but I'd still choose that over the hassle of a priced seed round.
Ideally investors would provide multiple options, and one could choose the vehicle that aligns with your goals the best.
Any thoughts yet on how to address that?
What's your main concern re: data collection with SS and/or trailhead?
At your scale, it's not much of an issue yet. But at larger scale, like SS or with what Social Cap's Capital-as-a-Service program was trying to do, founders are freely contributing their co's data to unknown investment algorithms, in exchange for ??. .ie a honeypot.
That's not really different from how it is now (giving your data away to VCs). But rather than solving the asymmetry problems between founder / investor, my concern with any kind of VC platform model is that asymmetry will be magnified at scale.
(All that said, I think Trailhead is a great approach to invert the standard process based on how things stand today.)
Our approach here is 1) we always give value before we ask for anything. Some strategy, resources, writing prompts, and anything else we can think of on a topic.. THEN we say "hey if you want to share your thinking on this here's how" 2) it's 100% optional. Founders can go through the entire process, get feedback from the community, hopefully improve their strategy, without ever sharing anything with us.
But good points to consider and thanks.
They steal your idea or sell the data? I don't think a plan or a business description is that much worth, because "the thing" doesn't even exist yet.
I could be very very wrong here. :/
https://trademarks.justia.com/865/88/trailhead-86588816.html
I think it's a generic enough term but we'll find out!