How to become an investor at Earnest Capital

This is a post about how to become an investor—someone with the authority to write checks— at Earnest Capital.

We like to build in public, so there are unfinished parts of this roadmap. I’m hoping smart folks will weigh in and help us figure them out.

The on-ramps to investing (or lack thereof)

There are essentially no on-ramps to becoming an early-stage investor. This is a problem. Venture Capital is notorious for the fact that all jobs—analysts, associates, principals, and a wide variety of other made-up titles—that aren’t “General Partner” or GP (a) don’t have any actual authority to write checks and (b) having no pathway to go from any of those roles to a GP that can write checks.

GP roles are almost always filled via closed networks. Open spots are almost never publicly announced. This year one prominent fund made the (hailed as ground-breaking) decision to publish that they had an open role for GP. It was… an event in the industry, with Twitter erupting in applause for the progressive thinking of just posting the job opening.

This lack of accessibility of roles that actually make investing decisions is a root cause of a lot of the problems in early stage funding. We can do better.

Funds as personality cults (or not)

Some investment firms are cults of personalities. The quality of the fund is all due to a few brilliant partners who make all the decisions and generate all the returns. Usually, this goes hand in hand with a pseudo-mystic investment thesis where the partners are trusting their finely tuned gut instincts by looking in a founder’s eye and assessing the confidence of their handshake.

That’s… not at all what I want for Earnest Capital.

In the long-term, I want Earnest to be powered by more than my own decision-making. Earnest should be a platform that can outlast and outgrow my own particular point of view.

But recruiting folks to come and join the fund and giving them the keys to the check-writing kingdom seems incredibly difficult for a number of reasons.

  • First, it’s kind of like recruiting a co-founder 2 years into the business. Starting-up a new fund is an incredibly long-term venture. The pay sucks for GPs and the carry is all many years into the future. So you’re starting off with the challenge of finding someone super-talented who wants to work for peanuts plus the upside in your original vision.
  • Second, it seems very difficult, and honestly, I haven’t figured out a way, to just interview for the skills that you are looking for in someone with ultimate investing authority.
  • We are at a unique disadvantage here because essentially nobody is investing using our thesis, so there are no angels out there with a lengthy track record of personal successful investments as proof points.
  • So the only thing I’ve been able to come up with also happens to be my favorite way to hire folks: create a structure for them to just do the actual work of the job, and pick the ones who prove they’re good at it.

How to become an investor here

One of the main reasons we publish our thesis in such level of detail is to turn it into a toolkit that others can use to assess companies as possible investments. We’ll be refining these in more detail but you can already dig into:

In 2021 we’ll be launching a super-charged scout program (cool name TBD) to allow anyone to apply our thesis and make a strong recommendation for a particular investment. To date we haven’t had a formal scout or referral program because honestly we get enough inbound from founders and don’t need any email intros. But I don’t just want introductions. I want well-vetted opportunities with a well thought out investment memo.

We’ll provide an investment memo template and a dedicated way to submit them.

In the short term, we’ll give you meaningful upside in the companies you scout that we approve investment in…

< Here’s where we need some help and your input >

I’m looking for suggestions on exactly how to structure this. There seem to be three broad approaches, and none of them are all that great. So the typical Earnest approach when there are some default options that we don’t like is to think it through from first principles, in public, with the community. The three basic approaches are:

  • 1) Cash incentives. 

The challenge here is to offer something that is high enough to be a real incentive to motivate real diligence work, but that could scale to a meaningful amount of our investments coming via scouts without us going broke. Many folks I’ve talked to have said 10-15% of the investment amount seems fair (so on a $250k investment, $25k – $37.5k scout fee). This seems about right in terms of incentivizing scouts, but it creates an incentive not to scale it up since, at the limit of 100% of deals being scouted, we would be looking at a substantial majority of all our management fees (currently 12.5% of capital) going to scout fees

  • 2) Co-investment.

We could also offer room on the cap table to co-invest, or invest directly on behalf of the scout, so that scouts get the upside of the investment they recommend. This is definitely something we want to support but it has the same drawbacks as cash incentives and additionally we are constrained by accredited investor rules that probably would not allow non-accredited investors to invest.

  • 3) Deal-specific carry-sharing. 

This is an arrangement where instead of getting any direct benefits at the time of investment, the scout gets a slice of the “carry” or upside/profits that come back from that specific investment. The big upside here is that this scales really nicely, since it doesn’t have an upfront cost, and also is the best alignment of long-term incentives. The downside is these arrangements are complex to structure and difficult for scouts to understand what they are actually getting. The main challenge is a fund cannot share carry it doesn’t have and carry is calculated at the fund level. Specifically, a particular scouted investment could do well, while the overall fund does not generate substantial carry (returning all of the investors’ capital and then multiples of that in profits). There are big questions about who bears that risk, the fund or the scout, how to structure any kind of catch-up payments, as well as how to prorate the scout’s proportion of the carry (proportional to the initial investment, magnitude of the success, or something else?).

If you have strong thoughts or good examples to share, I’d love to hear them at tyler@hey.com

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It’s important that we get the incentives right here, but the point of this program is not just to incentivize scouts to send us more opportunities, it’s about building a track record of making real investment recommendations.

In the long term, this is how we will empower more people other than me to write checks from Earnest. Sourcing and vetting opportunities, and making the compelling argument to invest in them is doing the work, so scouts who do this consistently well will be the ones we prioritize to allocate a portion of the fund for them to invest directly under a specific thesis.

We will start building allocations into our funds allocations to be deployed in batches to the most promising scouts to start part-time GP’ing, serving as and a roadmap to full partner status. That’s it. No special tricks, just an opportunity to do the work, get upside in some companies you feel strongly about, and mutually decide if being an investor at Earnest Capital is the right move for you.

Some practical details

The best way to stay in the loop as we roll this out is to subscribe to our investor-focused email list.

Subscribe to the Investor email list here

Scouting will be available to all Earnest team members and investors. Beyond that, we will need to pre-approve scouts to submit deal memos so we’ll be sending a short opt-in/application form to that investor list above.

We are targeting Q2 2021 to open the pilot version of this program with scout allocations starting to come out of our Fund III which kicks off the first quarterly subscription window in Q3 2021.

There’s no way around this, and I apologize to unaccredited folks, but being even a small LP in our funds and getting the behind the scenes look at our investing decisions, will be an unfair advantage, so that’s something to consider.

Here are some areas where I’m especially interested in seeing investment memos:

  • highly technical products that would be difficult for me to personally diligence (developer tools, next-gen programming frameworks, practical applications of machine learning)
  • software or other capital-efficient businesses in highly regulated industries. We have mostly shied away from products operating in highly regulated industries due to the extra diligence required to understand the regulatory risk. If you bring particular experience in a regulated industry and can help us more effectively diligence those regulatory risks and frictions, I want to hear from you.
  • e-commerce, marketplaces, and other non-SaaS business models. The center of gravity in Earnest has been B2B SaaS, in part because I think it most strongly aligns with our thesis, but primarily because it’s where my personal circle of competence is strongest. I’m certain there are great opportunities in non-SaaS businesses that I’m missing but will need a partner with deep experience there to help me think them through
  • content & creators. I think folks building paid and ad-powered newsletters, online courses, communities, and other membership products can become phenomenal and profitable businesses. Earnest should be backing a lot more of them.

We are building the new default way to fund modern entrepreneurship. Join us.

Job Opening: Community Manager

Over the last 10 months, Founder Summit transformed from a covid-delayed conference in Mexico City to a digital community of 300+ low-ego founders of calm companies. It’s been a whirlwind—producing 30+ events, launching Mastermind Sprints (with 100+ participants), and getting a few (as of yet) un-released projects underway.

In all that, I let things slide, particularly around the content, resources, and rituals that would make our community thrive. I’m looking for a person to help me get Founder Summit to the next level in 2021!  – Najva

Founder Summit is hiring a part-time Community Manager to help with the day to day operations of running our community, managing our events programming, and creating content from our collective insights. The Community Manager reports into Earnest Capital’s Head of Product + Marketing. 

What you’ll do:

  • Engage with our slack community daily as a host and super-connector
  • Produce events including expert chats, demo days, etc
  • Distill and publish community insights into our weekly community newsletter and growing resource library 
  • Run our community content calendar AKA become our community gardener
  • Streamline our processes to make sure nothing falls between the cracks
  • Create opportunities to amplify our member stories 
  • Helping manage future mastermind sprints
  • Own our member support channels 
  • Collaborate on improving member application, onboarding, and features roadmap
  • Pitch data-driven experiments to test new ways to better surprise and delight founders

Who you are:

  • Extremely organized and a great systems-builder
  • Excited about all of it—founders, being part of scaling a startup, investing, growing a community
  • You love playing and building in no-code—Airtable experience is a major plus
  • Strong writer, and more importantly, a sharp editor
  • Comfortable taking initiative and executing
  • You lead with curiosity and empathy
  • High output and low ego—that’s just the general vibe across the whole team

Compensation + Timing: 

This as a fairly junior remote part-time role to start with a $40-50K salary, depending on experience and time commitment.

The role is 3-4 days a week, with flexibility to sort out the exact schedule, but you do have to have some overlap with PST working hours.

Other Benefits:

  • Async–you can own your own schedule, meetings + events aside
  • Remote—work from anywhere
  • Ownership—while a junior role means collaboration and training, the eventual goal is to have ownership over your projects
  • Flexible time off
  • Opportunity to grow a company from the earliest stages

How to apply:

Send an email to community@earnestcapital.co with “Community Manager” in the subject line and include:

  • Resume
  • Brief note about why you’re excited about the role
  • Links to any relevant work or writing
  • A sample twitter thread summarizing takeaways from a video/podcast/book/article you’ve recently enjoyed. (It can be published + linked, or drafted in google doc/pdf form!)

Deadline: there’s no official deadline but I would strongly recommend getting something in our inbox by Dec 20th.

We are focused on building a diverse and inclusive workforce. If you’re excited about this role, but do not meet 100% of the qualifications listed above, we encourage you to apply.

Also take note 👇

Earnest Capital invests in Conversion Crimes to bring user testing to startups and small businesses

Meeting a founder with deep consulting experience that they are now pouring into a productized version is, well… the best.

Quinn Zeda built a world-class conversion rate optimization / UX consultancy at Zeda Labs helping clients generate millions in additional revenue. But she consistently found that one of the core tools in the toolkit, user testing platforms where you ask actual humans to test your product, simply wasn’t accessible for her startup and SMB clients. The few big platforms that offered user testing had focused their pricing and product almost entirely on serving massive enterprise clients, leaving a giant hole in the market that founders and CRO consultants were consistently running into.

So after a pilot test, Quinn went all in on Conversion Crimes to make real user testing accessible to startups and small-medium-sized businesses. While the product is technically an open platform to run user testing experiments, it is also infused with expert knowledge on how to run effective tests and offers a done-for-you variation where real conversion rate experts will help you design the best experiments possible.

If you’ve never run a user test before, it is truly an eye-opening experience. Check it out at ConversionCrimes.com

Earnest Capital invests in FixturFab to reinvent factory test fixtures

One of the best parts of early stage investing is getting to dive deep into industries that you previously didn’t even know existed. So it was a delight to meet Duncan and Joe, the founders of FixturFab, and go down the rabbit hole into the world of PCBA test fixture design and fabrication.

As the Internet of Things just becomes Things, more and more things have circuit boards in them. Circuit boards that fail are costly source of customer complaints, refunds, and warranties for manufacturers. That’s why modern manufacturing processes quickly test every single circuit board that passes through the assembly line with a production test fixture: a machine with a very specific layout that checks every connection on the board. Each test fixture is unique to each circuit board design and currently most manufacturers have to order custom built fixtures which are expensive and can take months to turn around.

FixturFab has created a software design platform for quickly creating and 3D printing the unique components of test fixtures, allowing them to either fabricate fixtures for their customers at a fraction of the cost and time, or allowing their customers to instantly begin 3D printing their designs right on the factory floor. This a game-changer for this essential component of modern manufacturing.

Check it out (and learn a ton about the world of test fixtures on their blog) at FixturFab.com

Earnest Capital invests in EnjoyHQ for UX Teams

We love backing niche, focused SaaS businesses and founders crafting them. The best user experience (UX) teams have to take an incredibly multi-disciplinary approach to their work, gathering data and feedback across every platform and touch point of a product. For most UX researchers and teams, this means a jumbled mess of data across dozens of products and shared folders.

EnjoyHQ is superpowers for UX teams to gather all their data in one place and collaborate with features purpose-built for their workflows. From startups to some of the largest corporations in the world, Enjoy is helping some of the most ubiquitous products in the world become more usable, accessible, and all around better for all of us.

Come for the UX superpowers, stay for the awesome astronaut gifs. Check it out at GetEnjoyHQ.com

Earnest Capital invests in Scripto for Writers Rooms

A basic belief from Day One at Earnest is that remote work, or at least the option, is the future of virtually all creative/knowledge work and that every industry will need custom remote collaboration tools to be able to do their best work from anywhere whether across the country or in the next room.

So I was thrilled to get connected to the team at Scripto, purpose-built software for collaboratively writing teleplays and screenplays. We generally believe that the best B2B software is built by teams with deep experience in the industry they are serving, and Scripto is built by and for TV writers rooms.

Co-founders Rob Dubbin and Stephen Colbert initially built Scripto as a scratch-your-own-itch project for their writing teams at The Colbert Report and The Late Show. After refining it in live action for years, they started getting requests from other shows to use a version of the custom software they created and in 2018 they spun it out as it’s own SaaS product.

It’s been a wild ride for TV shows and writers rooms everywhere this year and all are adapting to new ways of working. Thanks to Scripto many of our favorite TV shows have been able to keep writing away.

Check it out at scripto.live

Earnest Capital invests in Documentor EVV Software

One thing COVID-19 has made abundantly clear is that in-home healthcare and nursing is an essential part of our society. When a workforce is inherently distributed at the customer/patient’s home, usable mobile-friendly software is essential for managing a workforce and ensuring excellent patient care, but many of these firms are still operating on outdated software or pen-and-paper systems for planning and tracking visits.

Enter Documentor, electronic visit verification (EVV) software for home healthcare companies. The founders, William and Tyniqua Birdsong, had a background working on the other side of the table, ensuring home healthcare was high quality on behalf of state Medicare programs, and noticed that the home healthcare companies they dealt with had software that was consistently unsuited to modern needs.

So they set out to build the best EVV software on the market, initially for their home state of Indiana and now rolling out in multiple states across the country.

Check it out at yourdocumentor.com

Earnest Capital invests in Mailbrew to reclaim your Inbox

Newsletter Overload. Reddit Rabbit Holes. Doomscrolling. The internet has never had more ways to suck up all your time and attention and we need to take back control over our information feeds.

Mailbrew lets you take control and curate all your favorite feeds—from Twitter accounts, to subreddits, ProductHunt, RSS, YouTube channels, and more—into one aggregated daily “brew” email delivered to your inbox on your schedule. Read through all the best stuff on the internet and then get back to living your life.

Eventually your daily brew becomes the hub of everything you want to read or watch, so the Mailbrew team is continually adding ways import content into your brew. Currently the offer a dedicated email inbox that you can use for all your newsletter subscriptions and a “read it later” feature to save anything on your content to-do list.

Although you may have seen one or two of these kinds of features in other apps, the daily brew structure is a great psychological approach to making all your feeds more finite and manageable, making time and space for you to get back to creating things. But when you can’t resist, there’s also a beautiful reader interface on the site/app to catch up on your newsletters and other sources.

Mailbrew gets even cooler when you start thinking in multiplayer terms. You can easily set up a subscribe form for other people to subscribe to your own custom brews. We used this feature at Earnest to create a daily email, that anybody can subscribe to, of all the top tweets from everybody in the Earnest community. We’re thrilled to back Fabrizio and Francesco. Check it out at Mailbrew.com

Earnest Capital invests in HOA Life

One of the main things we do at Earnest is invest in founders building software for niches: parts of the economy that seem too small, to the casual observer or Venture Capitalist, to justify building a company around and raising money for. We love these opportunities and believe, as we enter the Deployment Age of Software, that they make great businesses for entrepreneurs.

One of the best way to discover these niche opportunities is to work in that industry, discover that the software isn’t great, and either learn to code or find a technical co-founder to build software for an industry you know exceptionally well.

So when I met Tom, the founder of HOA Life I knew pretty quickly we were going to invest. After running a company that managed homeowner’s associations (HOAs) he realized the software they were all using was pretty terrible and decided to scratch his own itch, get a technical co-founder, and build tools for himself and HOAs around the country.

One might think this is a tiny market, but there are actually over 370,000 HOAs in the US alone representing 40 million homes or (>50% of all homes in the country). Thanks to the magic of software and the internet, there’s no reason HOA Life can’t be the default best software for managing every HOA in the US.

Although HOAs (or their managers) are the ones who pay for the software, HOA Life also has tools and a mobile app for homeowners to make it easier to pitch in. So if you run or are a member of a homeowners association, check it out at HOALife.com.

Job Opening: Dealflow Analyst

From day one Earnest has been fortunate enough to get a firehose of inbound interest from entrepreneurs. I’ve done my best, but frankly, I haven’t been great at managing that dealflow, moving things along efficiently, and ensuring we respond to all inbound in a timely fashion. It’s time for us to up our game here – Tyler

I’m hiring an analyst to directly help with the day to day operations of connecting with founders, managing our deal flow database, researching companies, and keeping the whole team in the loop on what we are learning from applying our thesis to specific investments.

Responsibilities:

  • Maintaining the various initial touchpoints from entrepreneurs and guiding them to the right entry point into Earnest.
  • Fielding initial questions from founders and helping to build out our public documentation.
  • Researching companies and investment applications and providing memos directly for me.
  • Owning our Dealflow Database (a somewhat complicated machine of Airtable, Zapier, and other no-code tools). You’ll be supported here by our Head of No-Code Operations on technical questions so you’re mostly using it not necessarily having to build it yourself.
  • Helping me prioritize and schedule deal reviews, responses, and next actions. Keeping founders in the loop through the process.
  • Ensuring investments are closed in a timely fashion.
  • Making our investing decisions and framework more legible to the entire Earnest team through periodic updates and internal memos.

The ideal person for this role:

  • Is extremely organized, a great note-taker, and fluent in spreadsheets and Airtable.
  • Has excellent communication skills. Very comfortable spending a lot of time sending thoughtful emails.
  • Is curious. Digging in and learning about each new company is a core part of this role.
  • Is high initiative. I strongly prefer working with people who can take action and course-correct rather than waiting for permission.
  • Likes reading memos! There will be a lot of them. Start with this one.
  • High output and low ego. That’s just the general vibe across the whole team.

In addition to day to day work, expect a few special projects like:

  • Helping Earnest continue to connect with and invest in more underrepresented founders
  • Reviewing and editing our growing corpus of writing on here to make sure we’re consistently communicating our thesis to founders discovering us for the first time.

Compensation:

We are flexible here but budgeting this as a fairly junior remote full-time salary. This role will participate in the carry-sharing plan which earns “equity” in the upside across all future Earnest funds.

How to apply:

Send an email to tyler@hey.com with “Analyst” in the subject line. Please do not just send a resume. I strongly prefer to see links to any actual work or writing you may have done. The last person I hired applied with a detailed multi-level Notion doc including screencasts breaking down some of our public spreadsheets. The bar is high so make it count.

Deadline: there’s no official deadline but I would strongly recommend getting something in our inbox by Nov 1st.

Also take note 👇