Submitted by Aditya Agarwal
With a bit of recent press, several cats are out of the bag: SPC Fund I is already seeing results and SPC Fund II recently launched. While it’s still early, I want to write a bit about the novelty of Fund I and why we are so excited about the future.
Our strategy for SPC Fund I was simple: Invest in the best companies out of South Park Commons and its related networks.
Behind this strategy was a central hypothesis underpinning the SPC community: creating an environment that pushed talented people to do unstructured tinkering and exploration would lead to non-linear outcomes. The key aspects:
- A focus on exploration, not on the straight-line outcome
- People who are in the same mind-zone can provide the best support
- Meta-structures on how to explore
On the face of it, deriving a fund’s strategy from the core tenets of a learning community — and building the fund’s deal flow on that community foundation — is highly unusual and non-deterministic. Most funds evaluate specific opportunities presented to them in a specific context. At the early seed-stage horizon, they look at things like market size, founder-market fit, ability to build and iterate etc. They go through a standard vetting and evaluation process. There are some variations, but the basic formula looks quite similar from fund to fund:
- Find Good Deals (aka Sourcing)
- Evaluate Deals
- Support Companies through their Growth
Our idea was novel: cultivate an environment that allows people to take on outpaced learning and outsized risk. If and when people start a company, put in capital to help accelerate the outcome. This is very different from the above process for standard VC.
SPC doesn’t evaluate potential members on the basis of an idea. Imagine most funds saying they don’t evaluate ideas at the widest part of their funnel.
We instead look at someone’s ambition, intellect, and drive, and then rely on the ‘-1 to 0’ framework to get to positive outcomes. This is the crux of how we ‘find good deals’ and ‘evaluate deals’ in our corollary of the framework above.
The early days of Fund I involved a lot of experimentation and iteration. We were figuring out how best to support founders in the -1 to 0 journey. We were figuring out how to co-invest with other partners and make sure that we got a strong investing team around the table for the pre-seed and seed rounds. But maybe most importantly, we were figuring out how to get the SPC community involved with things like helping us find interesting areas to explore and diligence on opportunities. The community acted as a huge accelerant by dramatically expanding our knowledge base for diligence and analysis.
This works because the incentives of the fund and the community remain tightly aligned. The fund was founded for and exists in service of the community. All of our operating expenses, including both community ops and our full time team, come from the fund’s management fees. SPC members are invited to invest in the fund, and a portion of the fund’s carry goes toward a permanent endowment for the community. This all took some figuring out but created a virtuous flywheel that powers both sides of SPC.
Fund I has existed for three years now and it’s been a fun ride so far. And while I can’t get into exact fund numbers, I can report that we are in the top 1% of all funds started in our vintage (2018). The MOIC (multiple on invested capital) is very strong and we have already returned the fund’s initial capital to investors, far earlier than most funds do on average. We are pretty happy with our first attempt so far — but after getting the fund’s incentives aligned with the community’s, we’re not particularly surprised.
There is more to come here. I believe that we are still only scratching the surface of the SPC model.