Flying solo: A new generation of VCs are rewriting the Sand Hill Road playbook and anointing themselves general partners of their own funds

• A new generation of tech investors are raising their own venture capital funds as solo general partners.
• The number of micro-funds is actually on the decline, but the solo general partner's ranks are expected to grow as more companies go public and capital becomes more available.
• The solo general partner participates in the crowded early-stage investing space, but their size and background gives them an advantage over institutional funds.
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Sand Hill Road is paved with venture firms raising bigger and bigger pots of money.

Call it the SoftBank effect: The biggest venture capital fund in history has forced rival firms to take more money from outside investors, which is then pumped into the startups in their portfolios. Investments of $100 million or more, known as mega-rounds, accounted for almost 25% of the capital put into early-stage startups last year, according to PitchBook data.

But there's a flurry of activity taking place at the opposite end of the spectrum too: A new generation of tech investors are raising funds on a more modest scale, and they're doing it outside the confines of the traditional institutional investing firms.

Say hello to the "super angels," a special breed of investor that has carved out a valuable niche in a tech landscape increasingly dominated by giants.

These solo general partners invest in mostly early-stage startups and writes checks in the range of $25,000 to $500,000, based on the fund's size. The deals are especially competitive in early-stage investing, but some of these fund managers say they have an edge. Their small size lets them move fast on deals, and their personal operating experience gives them instant credibility with founders.

These one-person funds aren't especially common. In fact, the number of micro-funds that closed on $50 million or less has been halved since 2014, PitchBook found. Still, the ranks of solo general partners are expected to grow, as more companies go public and free up their employees to pursue new opportunities, like raising a fund.

"There's this sort of new class of people who are entering early-stage investing," said Ryan Hoover, the founder of Product Hunt and an investor through his fund, Weekend Fund. He described it as a close group of operators, knitted by the same relationships and even some of the same deals.

"In some ways, it feels like we're all learning together," Hoover said.

The rise of the solo GP

The name "super angel" is a misnomer. An angel investor describes someone writing checks with their own money, as opposed to an institutional investor, who pools money from outside sources to purchase shares of a private company.

The name is more a reflection of the super angel's background. A good number of them start out investing their own savings - money stashed away from years working in tech or from cashing out their company shares after an exit. Of those founders who leave a business after an acquisition or an initial public offering, at least 5.7% go on to become angel investors, according to PitchBook, though its senior analyst Alex Frederick says the percentage could be much higher because many angels are unnamed in regulatory filings.

Some of those angel investors graduate to raising a fund. They can access better opportunities with more money to play with, said Katie Jacobs Stanton, the sole general partner of Moxxie Ventures.

Twitter's former head of media came out of its market debut with enough cash to start angel investing. She continued to work at Twitter while making a side hustle of investing in companies like Carta, Lambda School, Coinbase, and Color, where she took a job as chief marketing officer.

Last year, Stanton turned in her badge to become a full-time investor. She raised $25 million from some of the most recognized figures in the valley, including Marc Andreessen, Chris Sacca, and Susan Wojcicki, for her debut fund.

"What I needed to become an even better investor was more capital," Stanton said.

Some super angels we spoke to also considered joining a traditional VC firm's "scout program," which enlists founders to bring deals to the general partners in exchange for a cut of the profit. It provides a shortcut to institutional investing, though some restrictions may apply. Most scouts have a budget of a few hundred thousand dollars, and they can't close a deal without a partner's approval.

There's never been a better time for investors to strike out on their own

The solo general partner has been buoyed by two forces.

The tools for fund managers are getting better. Companies like AngelList and Carta have put out software that eliminates some of the overhead of starting a firm. AngelList's service can set up the fund's corporate structure, create legal documents, accept money from investors, handle the financial reporting, and wire money to portfolio companies. It can save fund managers tens of thousands of dollars in accounting and legal fees after AngelList's management fee, which is 1% of the capital raised.

The other contributing factor is the flood of capital. Last year saw 49 unicorn startups go public, which puts money back into the pockets of their investors. Some of them will write personal checks to the next generation of fund managers. Marc Andreessen and Chris Dixon's names show up on more than a few blog posts buzzing about a fund's backers.

Others, like the investors who delivered those unicorns to their partnerships years ago, will strike out on their own, said Frederick, the PitchBook analyst. Most recently, Kleiner Perkin's Lynne Chou O'Keefe raised an oversubscribed fund of $87 million to invest in digital health. She led the firm's investment in Livongo, a now publicly traded company that makes tools for managing chronic diseases.

'How can I be helpful?'

The solo general partner is often writing one of the first checks into a company. The potential upside is higher at an early stage, but so is the risk. Most companies fail, and a small portion of investments provide all of the fund's returns.

The situation means these fund managers have to get into the very best deals or earn their right to participate in future financing rounds, which is how they maintain their ownership stake.

The solo general partner gets the golden ticket into these rounds by proving their value. Many of them rely on their experience as operators to demonstrate their usefulness, several investors said.

Linda Xie was an employee at Coinbase at the height of bitcoin's price surge in 2017, also blogging and hosting meetups for cryptocurrency developers, when investors started reaching out to recruit her, she said. She took some meetings and liked the job descriptions but wasn't keen on having less control over investment decisions than the general partners.

"If there is demand for this knowledge, I think I could do something like this on my own," Xie remembers thinking.

Her fund, Scalar Capital, which has a second managing director, Jordan Clifford, also from Coinbase, is structured like a hedge fund that invests in early-stage projects and crypto assets. They participate in the exchanges they fund, which lets them give detailed feedback that crypto-curious investors cannot muster. Xie said she has placed multiple hires into portfolio companies from the community she has helped build.

Niv Dror's marketing skills make him a desirable partner for almost any early-stage startup. The former head of social at Product Hunt started its newsletter and grew its social media following to hundreds of thousands of users before its sale to AngelList, where he ran marketing.

His fund, Shrug Capital, named for the emoticon that's tattooed on Dror's wrist, shows founders that it knows marketing. During the holidays, Dror and his staff designed, printed, and mailed more than a thousand desktop calendars to people in tech. Each day features a memorable tweet from a venture capitalist, founder, or one of the industry's rising stars.

The calendar prompted anyone who was included to tweet a photo of "their day" in the calendar, introducing their followers to Shrug Capital and raising its profile.

Other investors called the calendar a "masterclass" in content marketing.

Teamwork makes the dream work

Another strategy is going after a deal as part of a collective, said Brianne Kimmel, who raised $5 million for her debut fund, Work Life Ventures. She has experience driving new business as a marketing manager working on Zendesk's startups product. Sometimes, that isn't enough to land a spot in a deal that has her competing with much larger funds. Kimmel said she will pool her money with other one-person funds to get an edge.

She referred to this ensemble as the Ocean's Eleven. Her friend, Jeff Morris, Jr., brings expertise from leading revenue products at Tinder, which he helped grow into the world's highest grossing app. Bobby Goodlatte's prowess as a former product designer at Facebook means he can help founders execute on design mockups, prototypes, and product feedback. Both run their own funds. The hope is that the collective's usefulness makes it more attractive than some of the larger funds.

Ryan Hoover said he keeps a log of investors who introduce him to companies, whether his fund invests or not. It's helpful for recording who sends the fund opportunities so that when he comes across a company that fits the investor's focus, he can return the favor.

It seemed inevitable that Hoover, one of tech's most visible benefactors, would jump into investing. His company, Product Hunt, is a website that surfaces cool new tech products, and is known as a hunting grounds for venture capitalists looking for deals.

Hoover raised his debut fund, Weekend Fund, a few months after selling off Product Hunt to AngelList in 2017. Now on his second fund, it backs consumer and enterprise businesses and is particularly excited about voice, apps for remote workers, and low-code tools.

Weekend Fund is still waiting on the first fund's investments to return, Hoover said. A lot of these young funds are in the same vulnerable position, which creates an "even greater desire to come together."

"If I can get the best marketer in the world on the cap table for this company that I invested in, that's good for the company and, hopefully, will help my investment," he said.