Playing Solo Games

Not Boring Capital: Fund I, Update II

Oct 18

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Hi friends 👋,

Happy Monday! Three months ago, I announced that I was raising an $8 million venture fund, Not Boring Capital. In the announcement, I shared both the memo that I used to raise the fund and the quarterly update that I’d just sent to LPs.

One more quarter down, $9.9M raised, and Fund I mostly deployed, I want to share an inside look at running a small fund during one of the wildest markets in history.

Just like companies need to send updates to their investors, investors need to send updates to their investors. Part of what I want to do with Not Boring is to make all of this more accessible and less closed off, so I’m opening up the LP Update I sent this weekend, with stats on the last quarter and an outline of my strategy as a Solo GP of a small fund, with everything but company updates and any confidential company details.

Everyone is becoming an investor, and if you’re reading Not Boring, chances are you’re investing in something. Hopefully there are some takeaways in here that are useful as many of you go on (or continue) that journey. If you’re not investing, and are actually doing real things like building companies, I hope it’s useful as a way to think through your own strategy given your own unique circumstances.

Let’s get to it.

Playing Solo Games

Two of my favorite essays this year were Everett Randle’s Playing Different Games and Dror Poleg’s Andreessen Pulls a Bezos. The essays break down the strategies employed by two of the world’s largest venture capital investors, Tiger Global and a16z, respectively.

Before this year, I’d never given much thought to venture capital firms as businesses. Most people probably hadn’t, except for the people managing the funds (and often, probably not them, either). When capital was harder to come by and funding rounds were less competitive, funds focused more on their investment strategy -- we invest in seed stage fintech deals, we’re a multi-stage fund focused on emerging markets, we’re early stage investors -- than their competitive strategy -- an action plan to gain competitive advantage over rivals as evidenced by superior performance, often measured in Return on Investment (ROI), or in venture capital’s case, Multiple on Invested Capital (MOIC) or Internal Rate of Return (IRR).

They hadn’t spent time digging moats, which Flo Crivello defines as “those barriers that protect your business’ margins from the erosive forces of competition.” As Redpoint’s Logan Bartlett satirized:

logan bartlett @loganbartlett

VC: we only invest in businesses with defensible moats and competitive advantages. Founder: and what differentiates you? VC: mostly our brand.

Dror put the same idea in non-tweet format:

Venture capital investors are big fans of the word "strategy," but they hardly give it much thought in their own business... As Michael Porter points out in the book about strategy, acting strategically means "doing different things" rather than "doing the same things better."

VCs can’t just try to be “better,” they need to be different. The rules of the game have changed. In The Cooperation Economy, taking inspiration from both Randle and Ben Thompson, I drew up The VC Smiling Curve:

As a Solo GP (short for General Partner), I’m clearly biased in thinking that differentiated funds -- quite literally, funds who do different things, like Tiger or a16z -- and Solo GPs are going to do great while commodity funds get crushed. That makes sense for the differentiated funds, and the reasons they’ll outperform have been well-covered.

It’s less intuitive why Solo GPs, like me, could outperform, given that we have far fewer resources, smaller (or no, in my case) teams, and often less track record. I’ve seen less written about that topic other than the “Everyone is an investor” and “People with audiences are now playing VC” articles, so I figured I’d share my strategy. This whole thing is a work-in-progress, and I might not be the best venture investor out there, but I’m the most willing to pull back the curtain!

Not Boring Capital: Fund I, Update II

Welcome back for Not Boring Capital, Fund I, LP Update II.

I hope you all enjoyed your summer and the start of your fall, and that most of you got the chance to rest and relax. Not Boring Capital did not.

In Q3, we have invested $6.0 million into 59 companies (60 investments including a follow-on), for an average $100k per company. We had our first markups (all of which are yet to be publicly announced) and our first public token sale.

Braintrust launched its token and is currently worth $2.3 billion — our first company to go public and a 14x return in a couple of months. Adam and the team at Braintrust are building something special, and did a fantastic job with the public sale, with $BTRST already trading on Coinbase. Short-term prices post-public token sales are always a little bumpy, but that’s noise. In the long-term, I believe that Braintrust’s community-owned model is going to wipe the floor with companies like UpWork. Braintrust will be a reference point and playbook for how to use tokens to supercharge existing business models.

It feels good to get the first markups and public sales under our belt, but we’re obviously just getting started. In the first update, I mentioned that I was a little self-conscious about the pace of deployment in Q2. We did 20 investments. I thought that was fast. In Q3, we tripled that pace.

That was faster than even I anticipated, but I’m thrilled with where we’ve landed and the portfolio we’ve built. The thesis is working better than I could have anticipated or even hoped. We’ve been seeing a ton of great deals, and have been able to win allocation in them.

This update will have three sections:

Portfolio Stats. High-level overview of the portfolio.
Not Boring Capital’s Strategy. Or, how I’m thinking about operating as a small, non-lead fund.
Investments. A selection of Not Boring Capital’s Q3 investments.

Let’s get to it.

Portfolio Stats

We invested in 79 companies in the first two quarters, with 16 more closed in Q4 or in process. When those deals close, we will have deployed Fund I.

It’s very early -- the average investment is 73 days old -- but already, there are good signs of progress:

First Public Token Sale
First Closed Markup
A big handful of others in closing or with signed term sheets

There are two obvious caveats here -- this market is wild and markups aren’t cash -- but I’m happy with how things are starting to shape up.

Stage Mix

In the Fund I Memo, I wrote that I was aiming to invest ⅓ in Pre-Seed and Seed, ⅓ in Series A, and ⅓ in Series B and beyond. Round names have become a little meaningless, but breaking it down by valuation at the time of investment (and yes, I know, as Lan said after the last update, “I LOLed when seeing your definition of preseed valuation :-)”), here’s what it looks like:

As of the end of Q3, as with Q2, we are leaning a little earlier than anticipated, with 84% of our dollars going towards investments from Pre-Seed - Series A (as defined by the valuation ranges) and 16% going towards Series B deals and beyond. This will shift a little later as some of the pipeline closes. Here’s a look at our investments by stage (stage name, not valuation) today:

Vertical Mix

Fintech remains the leading vertical for Not Boring Capital, by both number of investments (13) and dollars invested ($1.36 million) with new additions like Ramp, Unit, Lithic, Modern Treasury, Flexbase, Equi, and Zage joining the fold.

If you’ve been reading the Not Boring newsletter, you won’t be surprised to see that the fastest-growing category is web3. In Q2, we made only one web3 investment, Mirror, and in Q3, we invested just under $1 million in 11 web3 companies and projects, including Rainbow, Eco, XMTP, Braintrust, Massive, Optilistic, Alongside, Meow, Rare Circles, Syndicate, and Anima.

Web3 will continue to be our biggest category for the remainder of Fund I, with 6 of the 16 to-be-closed deals squarely in web3 and three more web3-adjacent, and certainly into Fund II. This shift reflects both my bullishness on the space and the increased dealflow we’ve seen as a result of going deeper down the rabbit hole and writing more about web3.

That said, I’m happily continuing to invest in both web3 companies and in companies that have never even heard the word crypto. I’ve gotten the question many, many times over the past couple months: “Why don’t you just become a registered investment advisor and go all-in on web3 investing?” There will be massive winners that incorporate web3 tools, and massive winners that don’t, and shouldn’t. Companies like ScienceIO, NexHealth, Kingdom Supercultures, Fount, and many more wouldn’t make any sense as web3 companies, at least for a long time, and most of the fintech companies in the portfolio, with whom web3 theoretically competes most directly, work far better without tokenizing, even if they might incorporate certain web3 features and work with web3 clients down the line.

Not Boring Capital’s strategy involves investing in as many of this generation’s great companies as possible, which means leaning in hard to web3 but not being dogmatic and recognizing which business models and technology stacks give which projects the highest likelihood of success.

Speaking of Not Boring Capital’s strategy…