LibermansCo

After a year of experimenting, we've come up with two models that work.

Earlier this year I wrote about the idea of investing directly in people versus companies—something my venture capital firm, Slow Ventures, has started doing. For us, this is a form of real VC, as opposed to the plug-and-play, low-margin growth equity that is rapidly becoming as boring as it sounds.

Even a year ago people thought we were crazy. But in that year, as we’ve all come to terms with the fact that financial outcomes for creators are growing increasingly discontinuous and somewhat random, the rationality of VC going directly to people—as opposed to the more traditional approach of taking on debt—is becoming more and more apparent. And yet for most people, the question remains: How do you actually...do it?

The Takeaway

Unless young people can leverage their natural equity value, we’ll forever be at the mercy of the olds.

I want to share two different examples of how we at Slow Ventures have answered this question, which I think can help serve as a template for the future—one investment in a family of entrepreneurs, and another in an individual creator. We’re aiming to do a lot more deals along the lines of these two models because we truly believe that in the long term, allowing people to do equity-based financing is critical to the future health of our society.

Why? Because young people have all the equity value in the form of their future sweat and ingenuity, but without the ability to unlock it, we’re stuck in a world where old people rule the roost. When individuals can only access debt, old people with large balance sheets control everything. But when we can all properly leverage our personal equity, the balance of power shifts back toward young and productive people who have decades of potential ahead of them. Or put another way: Allowing individuals to leverage their personal equity early in their careers is key to getting us out from under the thumb of the baby boomers.

What VC for Individuals Actually Means

When we talk about VC for individuals, we’re talking about hundreds of thousands and even millions of dollars of no-strings-attached money provided by investors directly to people in return for a percentage of their future earnings and intellectual property. The goal is to take advantage of the unlimited upside of backing future superstars early in their careers. (Just think about buying 5% of Jeff Bezos’ or Elon Musk’s future earnings back when they were both young pups.)

But the model is the same as traditional VC, which provides cheap money to companies when no other capital is available, using superwinners to balance out the many less successful outcomes. This makes VC for people different from the income-sharing agreements offered by lots of coding boot camps, which cap returns for investors and have a short payback window. It’s also distinct from borrowing against things like a content catalog, which more companies are offering as a debt-financing product for, say, YouTube stars, but which is very expensive when you do the math.

Instead, the idea is to give people every freedom and protection on the downside: that is, dollars they never have to pay back if things don’t work out, total latitude to invest in themselves as they see fit, and high earnings marks to hit before they have to start paying anyone back. It also means investors can rationally assign valuations into the tens and even hundreds of millions of dollars to individuals relatively early in their career. This all works because the superwinners carry the cost of capital for everyone.

As I’ve noted many times before, the specific go-to-market of the company, especially in seed investing, tends to shift many times before launch, so you’re primarily investing in the person or team anyway. All we’re doing is making that explicit.

Now here’s how that all works in practice.

Model 1: The Serial Entrepreneur

Slow Ventures recently invested several million dollars into the Liberman Company, a holding company founded and operated by four siblings with a great track record of starting companies. (Snap acquired their most recent company.) For the next 30 years, the Libermans have agreed that all of their forward-looking entrepreneurial efforts will flow through the holding company. That means all of the equity of the companies they start—plus any income they generate—will be held by this single C corporation, of which the Libermans own the vast majority and their investors just a small piece.

This structure makes sense for Slow Ventures for a few reasons. First, as investors, we don’t want the Libermans wasting time on small ideas just because they seem safer, or else feeling that they have to keep focused on one idea while newer, bigger, possibly better ideas get put off. Would we invest in one of their companies if they decided to commit to it? Of course—but given how fundamentally generative they are, we would rather own a smaller piece of everything over the long run than a bigger piece of just their most recent project. The Libermans are big thinkers, and we’re excited about aligning with them long term.

The obvious next question to ask is, why would the Libermans want to do this deal with us? They’ve done well and don’t necessarily need the cash. Based on their history to date, they could easily raise money for any company they wanted to build.

The first reason is simple economics: The equity value of the Liberman Company is much greater than the equity value of just their most recent startup. This means the Libermans can raise far more capital for far less dilution if they are selling equity in their holding company as a whole versus in any single project. In practice, that looks like a seed round that requires them to sell less than 5% of the holding company, where the same amount of capital could easily have cost them up to 20% of a single project. This means they can use the vehicle and skip all the early-stage financings for the projects they want to start, going directly to Series A financing while still owning 100% of their companies—a very financially powerful thing to be able to do.

The second answer, which is equally important though more subtle, is alignment. Venture capitalists like to say to founders that they are “on the same team,” but as anyone who’s ever started a company before will know, this isn’t strictly true. Their incentives might be largely aligned when things are working well, but they can quickly diverge when things aren’t working or markets go sideways. The Libermans want investors who are committed to them and their success, not just the success of a specific project they may have started.

Model 2: The Creator

While we strongly believe that Liberman-style equity financing for people will be important, the C-corp structure of the Libermans’ company really only works for a select set of entrepreneurs: One, they are primarily engaged with building equity value in companies, and two, personal cash flows are minimally important for them.

The more common case, we believe, will look more like our investment in Marina Mogilko, a fabulous up-and-coming YouTube creator and entrepreneur.

Our structure for investing in Marina involves us funding an “investment LLC,” which she controls and can deploy as she sees fit. She conducts all her normal creator activities as she does today—building YouTube channels, doing product partnerships, using her likeness and ideas to start companies and so on—using all the same legal entities. There’s no need to change anything about her current business structure, and Slow Ventures has no control over the deployment of the funds. In return for our investment, we get a single-digit percentage of all of the money she makes annually for 30 years. Further, if she develops any intellectual property during that time frame, we get a small percentage of the proceeds from that.

Very importantly, Slow Ventures doesn’t get anything until Marina clears a substantial six- figure profit every year. We never want to be taking even a small percentage of the first dollars she would need to live her life. Also, the deal is only related to her creator work. If she decides to stop being a creator and take a regular job—as a lawyer, doctor, burger flipper, whatever—that is outside the deal. We’re the ones taking on the risk by betting that she’ll be a serious creator over many years.

This makes sense for us as investors for the same reason the Liberman investment makes sense: We believe that Marina will generate a lot of economic value over a long career. She’s following what we see as a textbook pattern for creator-driven businesses, building a personal brand and then leveraging that into various products and business lines. The ability to deploy VC this way will only get more and more important as the creator economy gets more crowded with voices all looking to differentiate themselves.

For Marina, the advantage is being able to build with a balance sheet, not just operate off day-to-day cash flows. This is a big deal for creators, who easily get sucked down the rabbit hole of short-term deals so that they can, you know, eat.

The Lessons We’ve Learned

1) The deals that have made sense for us are the ones where people have a clear vision of what they would do with investment dollars. When people have that understanding, it’s generally easy to justify the deal. Most young people, however, have never considered how having a few thousand or million dollars invested in them would change how they approach their work. Finding the ones who can come in with a clear plan of how to use capital to grow is critical for the investments we’re doing to make sense.

2) Much of U.S. corporate law is showing its age. Our legal and contracting frameworks are set up for investing in LLCs and C-corps, but individual people—their personal balance sheets and financial operations—can be quite different, making the whole investment process more complicated than it should be. Crypto, distributed anonymous organizations and many other innovations are challenging what companies are and how capital is formed. Building better templates will be key to investing in any of these industries at any real scale.

3) Pricing is the biggest question mark for everyone. This happens with new financial products, which is another reason it will likely take a while for this type of investing to ramp up. In the meantime, people like me will be willing to take our best shot at doing deals. But until there’s enough trusted data and liquidity to help rationalize pricing, we likely won’t see the investment dollars really start to flow.

4) The legal wrinkles will take a while to get ironed out. How do we represent these deals in our accounting? What mechanisms exist to enforce them? For now, the goal is to invest in people we believe will be honest and transparent, and will pay what they owe investors in return for their financing. But at some point, for everyone to be comfortable with the rules, it will be critical for this model to face court challenges.

5) The venture financing model is clearly the best approach to meaningful creator financing. There are more and more companies and models focused on backing individual creators, offering them loans, evaluating their creditworthiness and so forth. The simple fact, however, is that to move meaningful dollars to individual creators to build their businesses, we’ll need to be able to use the superwinners to offset the cost of capital for everyone else. That means VC.

Our Vision for the Future

Will many entrepreneurs finance their work by taking investments in holding companies, the way the Libermans are? I think so. The model gives them access to lower cost of capital, greater leverage over the companies they start, and more deeply and holistically aligned investors, and sets them up to be far more nimble actors in meeting a more uncertain future.

Will many creators finance their careers by taking investment in their long-term oeuvre rather than a single project, the way Marina is? Again, I obviously think so. It’s hard to argue that the model she’s operating with isn’t providing cheaper, better-aligned growth capital than she could get anywhere else.

Will this model be right for everyone? Absolutely not. If you are going to go into a predictable and stable career with predictable income and career progression, then borrowing money traditionally will always be less expensive than VC. Further, many people just won’t need capital early in their careers.