We are often asked why we invest equity capital in individuals. It’s complex, relatively untested, and will require education and real proof points for the model to go mainstream. Our answer is simple: while the structure is novel, financing individuals with equity is grounded in fundamental components of venture capital investing, and our thesis is supported by two, core observations:
With the right amount of growth capital, we believe that people, not companies, will create outsized value across multiple businesses and platforms – all underpinned by their personal influence.
The shift in customer acquisition
Technological and societal shifts have brought new meaning to the adage “people follow people.”
Technology has unlocked distribution and rendered traditional gatekeepers irrelevant – anyone with a wifi connection can reach millions of people, at scale, at near-zero cost. Not only can individuals achieve the same reach as massive corporations, but also consumers can frictionlessly seek out like-minded leaders and participate in communities and interest groups.
Because of this, a single individual can wield cult-like influence, and the impact can be seen across business, culture, commerce, and even politics. Elon Musk, LeBron James, and Alexandria Ocasio-Cortez are arguably more important than the companies and institutions they represent. These leaders short circuit conventional acquisition channels by fostering direct relationships with their highly engaged customer base. Consequently, businesses built on the foundation of personal brands are armed with strong conversion and an extremely attractive margin profile (especially in the early days), giving them a structural advantage against their traditional contemporaries.
Providing capital where others won’t (or can’t)
So, in a world where individuals themselves are big, multi-hyphenate businesses with superior economics and, in many cases, generate meaningful cash flow, why don’t they have the same access to growth capital that companies do?
Despite looking like best-in-class SMBs, individuals have to rely on debt or draw on cash from operations to finance growth. In certain cases (as previously discussed), these options can be suboptimal; ‘influence’ is hard to underwrite, making debt expensive, and cash flow can limit the rate of acceleration if it's the single source of growth. Because venture capital, in its truest form, serves to provide dollars where others won’t (or can’t), we believe it’s particularly well-suited to help individual-first companies grow.
What our thesis means in practice
Our investments offer individuals growth financing without conditions – no expected milestones, performance hurdles, or board seats. In exchange, we receive a small financial interest in the individual's future earnings, equity and/or IP.
There are important nuances to this structure that we’ll explore in future letters, including specific earnings that don’t apply to the deal and a threshold below which we don’t receive anything. Overall, our model creates strong incentive alignment, allows for flexible decision making, and is consistent with venture capital’s discontinuous outcomes.
While we have focused largely on creators building consumer-focused businesses, our vision is much bigger. We believe equity capital for individuals will enable all types of entrepreneurs and creators to build something that ultimately transcends themselves.
An exploration into individual- and creator-first companies: how they are built, underwritten, and financed. From the Slow Ventures Team, Sam Lessin, Megan Lightcap, and Caroline Cline.