Editor’s Note: Last year, a Raleigh entrepreneur and former product & growth team manager at Facebook started an early-stage venture firm, setting out to “democratize access to opportunity for thousands of underserved founders.” Anthony “Pomp” Pompliano, along with partners Jason Williams and Chris Hare, molded Full Tilt Capital around a strategy to defy the norms of how VC investments are traditionally made. Full Tilt began by testing new, more substantial models to supporting startups, throwing out the return-based approach to investing, and reshaping the way VCs hear/respond to company pitches in the first place.
Nine months since launch and many investments later, Pompliano shares how that strategy has come to life at Full Tilt, and what that means for early-stage companies. (This post was originally published on Medium.)
Full Tilt Capital Overview:
- 9 months since launch.
- 39 investments (all still operational with significant runway).
- $2,920,000 deployed.
- LPs: We have never taken more than $100,000 check from anyone, have no institutional backers, and more than 90 percent have MD, PhD, or have an exit for $100 million or more.
- Our portfolio has 10 female founder teams (25.6 percent).
- We have had one acquisition (2.5x+ return in less than 100 days).
- There are four companies who raised additional capital at 2X+ valuation.
- Portfolio companies are based in 13 different cities (CA, WA, TX, FL, GA, NC, NY, MA).
- Portfolio companies are in consumer software, biotech, healthcare, enterprise software, medical device, consumer goods, etc.
- Post-Full Tilt Capital investment, companies have been accepted into Y Combinator, TechStars, and 500 Startups.
- Co-investors include Accel, Founders Fund, Lowercase, Canaan Partners, Mark Cuban, Marc Benioff, Ashton Kutcher, Pierre Omidyar, Maveron, FlyBridge, John Maloney, Mike Gorman, Backstage Capital, among many other great investors.
Who are we and how did we do this?
Full Tilt Capital is an early stage venture capital fund based in Raleigh, North Carolina.
Our goal is to build the best early stage investment firm in the world. In order to do this, we believe we need to (1) do something different than everyone else and (2) be “right” with this different strategy. Our goal is ambitious but as we tell our founders: Ambition is never discouraged here.
So what are we doing differently?
Before launching Full Tilt, we identified three aspects of venture capital that were held sacred by the incumbents: deal economics, investment decision process and portfolio company support. We decided to intentionally do the opposite of the incumbents in these three areas (do something different) and now, time will tell if we’re correct or not.
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Deal Economics: It is our belief that most early stage venture capitalists have forgotten they are in the business of company building. Instead, they spend their time trying to financially engineer returns. These investors take the approach of making concentrated bets (small number of deals with large check sizes), which is built on their self-trust that they’re able to accurately select “winners” at the earliest stages.
As former founders, we fundamentally disagree with this approach to investing. We’re not interested in financially engineering returns — it feels like an unnecessary shortcut at best, and a recipe for failure at worst. Historical venture return data reassured us that our initial gut feeling was correct.
The data shows that investors are more lucky than they are smart. The only correlation to outsized returns is if an investor is (1) in the best deals and (2) in those deals early. The traditional focus on importance in check size, follow on decisions and terms is unsupported by the data over numerous economic cycles. To be clear, we’re not saying these decisions don’t matter at all, but we do believe that they’re drastically less important than most investors are willing to accept.
Our belief in this binary-outcome based model led us to the foundation of Full Tilt’s strategy: We invest $50,000 — $100,000 for 2-5 percent of a business, with a goal of building a portfolio of 100+ companies in less than 18 months. This portfolio is industry and location agnostic. There is no capital allocated for follow-on investments and we encourage founders to avoid predatory investment terms (ratchets, warrants, liquidation preferences, board seats, etc.) at the earliest stages.
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Investment decision process: Investors who are trying to financially engineer returns will become interested in a vertical, conduct competitive analysis across the vertical, select a small group of companies to due diligence and decide to invest in the company that they believe will be the vertical’s “winner.” This would be a great strategy if venture capitalists (1) were as intelligent as they claim (2) evaluated opportunities with a perfect set of information and (3) were able to completely remove the human bias that we are all victim to.
At Full Tilt Capital, we believe this decision making framework is flawed. We accept that (1) we’re not intelligent, but rather have high EQ (2) we never have a perfect set of information when evaluating an investment opportunity and (3) we have a high level of human bias that we will never be able to remove. Admitting these three points was the first step to creating an investment decision process that fits our investing strategy.
This means that since we invest differently, we also make decisions differently. In an ideal scenario, a founder reaches out directly to us (not through introduction) and is able to efficiently describe (1) who they are, (2) what they are working on, and (3) how we can be helpful outside of the capital. This introduction can occur via email, LinkedIn, Twitter DM, etc. Next, we schedule a 30–60 minute phone call, with no more than one potential follow up call. We really like to avoid meeting the founder in person before making a decision because it removes the human bias of physical appearance (24 of our 39 investments we had never met in person before investing).
Lastly, our investment decision process is based on two things: (1) people and (2) speed. People are important because the founders are likely to be the only constant in the chaotic, ever-changing startup maturation cycle. This “people-first” focus is not shockingly different on the surface, but we don’t focus on the traditional patterns (education institution, previous employment, etc). Our focus on people is driven by a (admittedly flawed) process of identifying a founder’s ability to withstand stress, synthesize complex amounts of inputs, establish comfort in unpopular decisions, and unnatural level of self-confidence (different than arrogance).
When we find these people, we’re able to make decisions incredibly fast (point #2 was speed). We have made multiple investment decisions in under 30 minutes, with very few decisions ever taking longer than 48 hours. This desire of speed forces us to avoid the shiny things/rabbit holes, while empowering us to immediately drill into the mission critical aspects of a business or founder. When we say “no bullshit approach,” we mean it.
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Portfolio company support: Incumbent investors love to tout how helpful they will be once they invest in a company. We believe there is an inverse relationship between how helpful an investor claims they will be and how helpful they actually are. This is not necessarily the investor’s fault, but merely a rational outcome given the position these investors are put in. The best investors know that they are selling a product (capital and advice) in an inefficient market. The issue is most investors are not good salespeople, so they end up reverting to begging founders to believe that (1) they have the capital and (2) they can be helpful.
Every great founder knows that this sales pitch is less substance and more of a half-hearted attempt to convince the founder to say “yes.” The traditional VC sales pitch is the equivalent of a software company saying, “We are the greatest software company ever. We have given our software to many other great companies like yours. These other companies like us because we solved all their problems with our software.” Anyone who has been around the block knows that these sales pitches (1) are bullshit, (2) are built on a flawed logic of repeating historical performance, and (3) lack any level of focus or measurability.
At Full Tilt Capital, we believe our foundation of future success is built on the incomparable level of portfolio company support we provide within a highly defined space and timeline. We would be lying if we claimed that we could help startups with everything and anything, so we never claim that.
Our simple focus is on “creating a significant, measurable inflection point within 90 days post-investment that changes the value of the company.” That’s it. No shiny toys. No bullshit. Just a simple statement that we ruthlessly focus on executing towards.
It would take an entirely different article to describe the details of how we create these inflection points, so I may do that at a future date. In the meantime, it is worth noting that our strategy is working. We have companies that 10x’d their user base in 75 days, 5x’d revenue in 90 days, and even a company that 8x’d their valuation in 120 days.
Point blank: We’re experts at moving the needle on a company’s most important metrics.
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It has been a little uncomfortable and weird to share this level of detail about Full Tilt Capital. Most venture capitalists actively work to keep their LPs, progress and returns, behind the curtain of the general public. Since we’re doing so many things differently at Full Tilt, we figured it would be interesting (and fun!) to share these details along the way.
The early signs are encouraging but we have a long way to go. It’s safe to say that we won’t know how good we are as venture capitalists for another five to seven years. While this may sound like a long period of time, we actively try to look at everything through a 100 year lens.
Imagine what we can do if we go Full Tilt for a century…