Investment Memo: Earnest Fund 2


What follows is a public draft of the investment memo that I intend to use for Earnest’s second fund with as few redactions as possible. This is not a invitation to invest; we are currently investing in new companies out of our Fund 1 (now closed) and Earnest Fund 2 does not yet exist. This is simply an extension of our experiment in radical transparency beginning with our open-source process designing our funding for bootstrappers investment strategy and Shared Earnings Agreement investment structure.

Why you should send monthly advisor and investor updates

An interesting aspect of running a fund is that I am both raising money from high net worth individuals and institutional investors and speaking to founders who are raising money from investors like me. One upside of that is I get to learn fundraising best practices from smart founders and then test and deploy them myself in my own fundraising processes. I rarely publish fundraising advice (because most of the time I think it’s a hacky way to get the attention of founders) but when I do it’s because it’s something I’ve put into practice myself and seen work.

Which is why I whole-heartedly recommend that every founder start a monthly update newsletter that you send to a tight knit group of advisors, potential hires, current and potential investors.

Here is a laundry list of reasons to do it

FirstBase: launch a US company from anywhere

I incorporated my first real business entity in 2010. Every part of the process of setting up a business—incorporation, opening a bank account, setting up payroll, etc—was a horrifically inefficient and expensive experience to me. Over the past decade we’ve seen a number of startups emerge to put to modern customer experience, often by using automation and turning code into PDFs and faxes. But the process of forming a company is still dominated by clunky incumbents with few dedicated modern startups tackling the problem.

The challenges of setting up a US-based business are compounded if you happen to be physically located outside the country. I spent much of the last seven years outside the US and getting business entities and bank accounts set up for several new ventures, including Earnest Capital itself, in many cases has required physically flying to the US just to put a signature on paper in front of a human.

So it was with immense pleasure (and relief) that I found and got the opportunity to invest in Mark Milastsivy and FirstBase ( which offers 100% remote-friendly LLC or C-Corp formation, business bank account creation, and much more in a simple $399 package.

A huge global opportunity for entrepreneurs

Every year more than 500,000 new businesses are started in the US, several million US business entities are incorporated, and somewhere between 30-50 million new businesses are started worldwide. So the opportunity to radically improve the customer experience here is vast. More and more businesses are being built distributed and remote-first and very few services are able to handle the entire process with founders physically located outside the country.

Although we’d love to see this process made seamless in every country, the US is still the best place for many entrepreneurs to open a new business.

As more forms of capital are available for entrepreneurs, the US is the epicenter of this innovation. For regulatory and tax reasons it’s immensely easier to invest from a US-based fund into a US-based company. Earnest has invested in four startups now with founders not currently living in the US, but all but one of them operates a US-based business entity. It makes far more sense to make it easier to incorporate in the US than to try to create global funding structures. But fundraising is only one of many reasons for entrepreneurs to form a US entity.

Not just business formation

FirstBase is only a year old but already they do far more than just forming your business entity. Included in the price is a seamless process for opening a business bank account with Mercury1, a free tax consultation, a US physical address and mail forwarding, and a growing list of benefits from partners like Brex, Sonetel, Freshbooks, Bench, and more.

Relentless improvement of customer experience

Forming a business remotely can be a nerve-wracking, opaque process, but the support team Mark has built is unflappably helpful. As part of our (remote-friendly) diligence process I will often ask for an account to poke around in the support platform and view some recent tickets and customer conversations. What I saw with FirstBase was a dedicated team diligently and calmly answering a wide array of questions and collaborating to make the process as smooth as possible for entrepreneurs. World class support is a top priority for FirstBase and they have already launched Spanish language support.

Behind the scenes the FirstBase team is constantly thinking through the intricacies of every step in the process. In one of our initial conversations, Mark walked me through in excruciating detail everything that was hard about getting an ITIN2 issued and his plans to simplify it. FirstBase is tackling a big problem involving multiple government bureaucracies and this kind of relentless focus on the details is the only way to make launching a business truly seamless.

Isn’t this just like…?

It comes up in every conversation so we’ll speak to it here. Yes, a large and beloved Silicon Valley startup offers a competing company formation service. It’s great. And when they first launched, it was a far better option than anything that previously existed. But it is, to the best of our understanding, primarily a marketing channel designed to incorporate businesses that are strategically the most likely to be their ideal customers, not a core product offering. The FirstBase team is entirely dedicated to smoothing out every last rough edge in the business entity formation and ongoing management experience. Company formation is not a loss-leader for FirstBase, they actually make money off this product, despite it being remarkably affordable, and they are aligned with Earnest’s vision of sustainable calm profitable companies. All this adds up to an experience that is smoother, cheaper, accessible to more companies, and getting better every day in a blue ocean-huge market.

A perfect fit for Earnest

At Earnest we are a remote-first fund and community of founders and mentors. We are particularly interested in tools for remote companies. We also believe that entrepreneurship is an inherent good and love backing products and founders that make starting and running a business easier.

If you’re considering setting up a new business entity give FirstBase a shot and use the discount code “earnest” for $20 off + a few other extra perks.

  1. At Earnest we are happy Mercury customers as well and very pleased to see this partnership

  2. Similar to a social security number for foreigners.

Why we invested in Junglebee

One of our primary areas of focus at Earnest Capital is software as a service built by and for specific industries. We’ve made several investments in the B2B SaaS space and feel it’s a great market that aligns with our model. One of our more recent investment was in Junglebee, software for connecting local tour suppliers directly to activity desks, agents, and their customers.

Junglebee is laser-focused on the Caribbean market where day cruises, fishing expeditions, scuba diving, catamaran trips, and other day tours are still primarily booked in a time-consuming fashion via email and WhatsApp, and are not yet directly accepting credit card deposits to reduce no-shows. Junglebee is an all-inclusive software package for tour operators to manage their activity availability, reservations, bookings, and payments. With Junglebee, operators can accept bookings via an embedded widget on their own site, from activity desks and agents (who also have their own version of Junglebee custom-built for their needs), or via integrations with third-party sites like Viator.

The opportunity to get 100,000s of tour operators using software for bookings is vast, but we invested in Junglebee first and foremost because the founder Michael Rouveure lives and breathes the Caribbean tour industry. He grew up in St. Maarten, working in the family catamaran business. Later he developed his own online agency for booking tours in St. Maarten and finally, after experiencing first hand the difficulty in managing reservations, gathered a group of tour operators on the island to invest in and co-develop the first version of Junglebee’s reservation management software.

Jungle Pay: Credit Card Processing for the Caribbean

Right away Michael noticed another pain point in the industry. Whereas credit card payment processing kept getting cheaper and easier in major markets like the US and Europe, Caribbean islands’ small isolated banking systems were not keeping pace. After raising a small investment from payment processor Stripe, Junglebee launched Jungle Pay, a seamless way for operators in the Caribbean to directly accept credit card deposits for tours from their own websites.

The power of industry-focused founders

Over time, we’ve noticed something special about founders who grow up in and deeply understand the industry they are serving that contrasts with entrepreneurs who just picked an industry at random to deploy a startup playbook. The tour industry is shockingly complicated. Experienced investors and entrepreneurs often underestimate the complexity of the different business models involved, but Michael speaks them fluently as a first language. Even now he is driving himself around Costa Rica, St. Lucia, and Barbados having one-on-one discussions with business owners. The recently launched support for private charters and iPhone app are a direct result of consistently listening to tour operators and hearing what they need to run their businesses better.

If you’re not the customer, you’re the product

Junglebee has competitors—some owned by travel giants like Booking and TripAdvisor, and others that have raised tens of millions in venture capital. We think tour operators, tour desks, and local agents will continue to choose Junglebee over these alternatives for a few key reasons.

These large players will have to execute on one of two standard playbooks in order to justify their sky high valuations and provide a return on the capital they have raised. One route is to “disrupt” the industry and cut out all the “middle men”… While direct booking has been a success for more commoditized products like hotel rooms and rental cars, we think it falls flat for experiences. We love Airbnb for booking a room but, while we definitely would like the process to be as smooth, the idea of filling up our holidays with tours plucked right of TripAdvisor or Airbnb just doesn’t do it for us. The second playbook for this big competitors is to capture all the booking traffic and then squeeze tour operators on pricing. When we were initially researching our investment we saw a few booking software options that were free for operators to use, which reminded us of the classic warning: if you’re not the customer, you’re the product.

Another CEO in the industry argued: “TripAdvisor and are running these systems at a loss in order to capture and monopolize data from tour operators. This is not in suppliers’ best interest.”

We aren’t predicting these players will fail, but they have committed themselves to an all or nothing bet. Either they need to gobble up huge chunks of the market or they’ll just shut down. We think many tour operators will not want to run their whole business on software that could vanish overnight.

Junglebee is making neither of these bets and is totally focused on software to make everyone’s life easier and smoother, not start cutting folks out or squeezing prices. Junglebee takes a community-first approach that incorporates booking agents, tour operators, tour desks, and OTAs.

In it for the long haul

Like all Earnest companies, Junglebee has focused on not raising too much capital and building a profitable, sustainable business that doesn’t need to consume the whole market to be successful. We think at the end of the day this will resonate with business owners throughout the tour industry who want to focus on delivering a great experience for their customers without disrupting the entire industry.

We’re excited about the future of Junglebee and also trying to figure out how we can join the door-to-door (err… dock-to-dock?) sales team to work out some business trips to Barbados.

Learn more about Junglebee on their website here.

The Purpose & Theme of the Founder Summit

The theme and purpose of the inaugural Founder Summit is: having the conversations we’re not having. As founders we are fire-hosed with tactical and strategic advice on acquiring customers and building products. We have enough books, blog posts, and podcasts to fill every waking moment with tips for building a company. But there are still some conversations we are not having. These are often the kind that can only be had with other founders in an environment of candor and openness. Conversations like:

  • What does it mean to live a mindful daily life as a founder?
  • How do I fire employees with grace and keep a team motivated through change?
  • How can founders balance their identity as an entrepreneur with their other identities? How can we strengthen those other identities in a way that helps our company and team?
  • How can we be better mentors to our employees and communities, and better coaches to our peers?
  • What kind of personal finance strategy makes sense for founders?
  • Why… really… are we actually doing this?

Does that mean this will be non-stop tough, heart-wrenching conversations? Absolutely not! We believe that the best substrate for these conversations is… fun. Most attendees will be flying to Mexico City, many for the first time, and expecting an adventure. We intend to deliver. Venues, experiences, food, culture… we’ll do our best to create a genuinely fun environment that creates the space for openness and connection between founders.

How will you know you’ve had a successful summit? Actually this one is easy. The reason for having these conversations in a large gathering of founders, rather than say in a 1-on-1 coaching session, is that the goal is simply to create meaningful relationships between other founders. One of the conversations we’re not having (at least often enough) is that being a founder can be lonely at times, doubly so if you’re running a remote company. The real goal of Founder Summit is for everybody to open up and in a relatively short period of time create or reforge lasting relationships with other founders.

Why state the purpose here? To help guide the rest of the decisions but also to help folks determine if this event is not a fit for them. If you are looking for non-stop tactical content on SEO, agile development, content marketing, or Facebook Ads, you will not find that at the Founder Summit. If you’ll be meticulously calculating the ROI based on the number of warm leads you bring back or business cards you’ve handed out, you’ll be disappointed. If you want to have an experience that will reinvigorate you for the whole year, have discussions that will affect you and your company’s trajectory over decades not quarters, and make a new founder friend or two, Founder Summit is for you.

You can read more about the Founder Summit here or start the pre-registration process below. We’ll begin releasing the first batches of tickets on Nov 3rd. If you’re interested to come please pre-register now as we already have substantially more pre-registrations than total tickets available and will be releasing them on first-registered, first-served basis.

PS – this post was inspired by the excellent book The Art of Gathering which I highly recommend for anyone planning an event.

Why we invested in MemberSpace

At Earnest Capital, we are big fans of platforms that enable entrepreneurs to build profitable, scalable, remote-friendly businesses. MemberSpace enables nutritionists, personal trainers, educators, and entrepreneurs of all kinds to build a membership business on any website.

Although the category of enabling members-only sites is not particularly new, we think MemberSpace is unique in a couple of interesting ways.

Build a membership business on any web platform and take it with you

Like so many great products, MemberSpace began as an agency focused on building Squarespace sites for businesses. The co-founders, Ward and Ryan, listened to their clients and heard loud and clear they needed a way to build membership businesses on Squarespace. They productized the results, and as they perfected the product, slowly transitioned their team to a full-time focus on MemberSpace.

But they cleverly built their technology in a way that is decoupled from the underlying content management system (CMS). Around the time we invested, they began rolling out support for Webflow and Weebly, and will imminently support Wix, WordPress, JAMstack static sites, Carrd and basically any web platform out there1 . Customers of MemberSpace can easily switch between platforms, much to the envy of folks running complicated PHP plugins deeply integrated with their WordPress sites. Being able to switch platforms or even combine multiple platforms (ie a CMS, podcast host, private group, and download library) into one comprehensive membership business will be so powerful for their customers over the long-term.

Profitable, calm companies supporting each other

I don’t think the founders mind me sharing that MemberSpace is currently profitable on a team of nine full-time employees and intends to stay focused on building a profitable, sustainable company.

Why should customers care about this? Two reasons:

  1. Fair long-term pricing. We all know the story by now. A platform that creators and entrepreneurs rely on to run their business raises a giant pile of venture capital, tries to grow too fast, and eventually is forced to massively hike prices to their customers’ dismay or implode. MemberSpace is optimizing their company to never do that to their customers and we support it whole-heartedly.
  2. World class support. Profitable companies don’t optimize for growth, they optimize for retention. They want every customer that walks through the door to stay with them forever. I constantly see the founders intentionally holding back expansion to new platforms to make sure they can maintain the extremely high level of support that MemberSpace customers love.

Relentless focus on supporting their customers and community

The founders understand deeply that the key to their long-term success is a thriving community of makers building membership businesses. From their podcast highlighting awesome Member Makers, to their support of underrepresented founders at conferences, to their excellent guides to building a membership business… MemberSpace gets that community is the key.

  1. Note: technically through their “Custom HTML” integration they already work with all of these platforms if you don’t want to wait for the official integration.

Help Design the Earnest Opportunity Fund

These days it’s common for venture funds to raise an “opportunity fund,” a separate fund that sits alongside the main fund so they can invest more cash the performers in their portfolio. These funds are about opportunities for the fund. I want to talk about opportunities for founders.

We are designing the Earnest Opportunity Fund, an early-stage fund with the same investment thesis as Earnest Fund 1, but solely dedicated to backing underrepresented and underserved founders.

One year ago, we posted our draft ideas for how to design “funding for bootstrappers” and got tremendously helpful feedback from the entrepreneurial community on what became the Shared Earnings Agreement. We’re here today in the spirit of transparency with the same intention in mind. To put forward our best ideas on how to tackle a challenge and to solicit feedback so we can be better aligned with the founders we end up working with.


We often talk about ‘bootstrapping’ but very few founders actually build a business with literally no outside capital, savings, or help. In our personal experience, from asking lots of founders in private, a large portion used their own accumulated savings from a high paying job, had a spouse that covered the bills, had a windfall or inheritance, or relied on loans and help from family members. Every one of these is systematically harder in some way for founders of color, female founders, LGBTQ founders, and founders from underprivileged geographies. Note, none of these are insurmountable and we all know folks in every one of those categories who has successfully bootstrapped a business, but bootstrapping as we know it is systematically tilted against underrepresented founders in a way that we believe justifies a countervailing strategy.

The world of capital allocation is not much better. Statistics abound, like these from the Kauffman Foundation, showing that all-female founding teams and founders of color are able to access dramatically less investment capital from across the spectrum of venture capital to bank loans to credit cards.

Our experience with Earnest has led us to believe that we are still ‘downstream of privilege’ in a lot of important ways. We expect founders to find a way to build and launch a product, get some amount of revenue traction, and have a roadmap to build the company profitably without relying on too much additional outside capital. Perhaps unsurprisingly, as I’ve tweeted before, the vast majority of the inbound applications have come from all-white-male founding teams. We don’t officially collect this data at this point but anecdotally I would say it’s 85-90% of the 1,000+ opportunities I’ve seen this year. To date, Earnest Capital has not had a mandate to invest in diverse founders. We have tried to pick the companies that most closely matches our funding for bootstrappers thesis and those that showed the most traction and trajectory. So our portfolio looks a lot like our inbound: full of amazing founders, but predominantly all-white-male founding teams.1

We had roughly the same experience with the process of buiding our mentor group, largely as a result of our “skin in the game” rule that requires mentors also be invested in the fund, and thus in the founders they are mentoring. We’ve gone over that in more detail in a previous post.

It’s become cliche to say that “talent is evenly distributed but opportunity is not” but it’s correct. The point here is we have an opportunity to do better.


So here’s what we’re proposing, drafting, and looking for feedback on.

Earnest could launch a second fund with the same thesis and stage of investment as the main fund: still early stage, $50-250k checks, business models with a focus on capital efficiency, profitability, and sustainability.

We’ll be investing concurrently out of both funds, in some cases from both into the same company. We may not even make it obvious which fund is investing—though it would probably be impossible to completely obscure that even if we wanted to—or may leave it up to the founder to decide if they want that information public.

Update: After publishing this idea and subsequent discussions it became clear that operating two independent funds and choosing which to invest out of had too many possible conflicts. I think a better solution would be to have the Opportunity Fund simply amplify via a co-invest alongside the main fund in a fixed ration (1:1 or 2:1 most likely) any deals that met the criteria. So a $150k check to an underrepresented team would be either $75k from each or $50k from main and $100k from Opportunity. This way there’s effectively no decision on my part of how to allocate across funds, but the Opportunity fund gives us more dry powder to allocate to underrepresented teams.

Founders would have undifferentiated access to mentors and the community. This would not be a separate cohort or have a separate mentor group (though we would also love for this process to expand the diversity of our mentor group as well).

One big open question is what is an appropriate, fair, technical, and legal way to define who exactly is an underrepresented founder. If anybody has some well-tested best practices to share, perhaps from another industry, I would love to hear them.

So why bother having a separate fund?

One question we’ve been asked, and asked ourselves, is: why not just make a concerted effort to invest in more underrepresented founders out of the main fund? It’s a fair enough question. Here’s our current thinking on it:

1/ We raised money for Earnest Capital to prove a very specific, altogether different set of assumptions around investing in early-stage companies, that were not on the VC track, while still generating an appropriate risk-adjusted return. Earnest as it exists today does not also have a mandate to invest in underrepresented founders, so to date, we just haven’t taken it into account in our investing process.

2/ Whether in investing, recruiting, or conference organizing, everyone who does this well seems to agree, it takes work to build a network and a pipeline of underrepresented people. It doesn’t just happen. We are practically bootstrapping Earnest ourselves and operate with an extremely lean team. It probably makes sense for well-funded established funds to try to make efforts to move the needle across their entire operations, but for us it has felt like balancing too many different priorities with too little bandwidth.

3/ Based on tons of discussions on this, our current position is that to make a difference here you need to really plant a flag. As we launched Earnest, and we noticed the lack of diversity in folks applying and would occasionally reach out to underrepresented founders with interesting side hustles and ask why they hadn’t applied.

One of the things we heard most commonly was “Oh, I just thought this isn’t for me.” Well… this is for you. So let’s get to work!

Is this a publicity stunt?

No. But it’s a fair question and one we want to be held accountable to. To be clear, the Opportunity Fund is not live (yet) and may never get there. Launching funds is extremely challenging and the more constraints you begin to stack up—funding for bootstrappers, Shared Earnings Agreement, underrepresented founders only—the less likely it can be to get it off the ground. We’ll see what happens.

Who will run it?

The current plan is to have one or a small group of folks in a role modeled on “venture partners.” Here is a good explainer on how these roles typically work. The gist is they are part-time roles focused on sourcing and vetting opportunities, working with and mentoring founders post-investment. The compensation is primarily (though not exclusively) in the form of carry on the profits of the investments we make out of the Opportunity Fund.

Some have suggested that if we’re going to do this, we should add a dedicated general partner for this. We agree it is the right goal, but finding a new general partner is not something to rush into and not something that should hold up this process. Ideally the Opportunity fund is a huge success and one of the venture partners becomes a full general partner in the future.

Are we, at Earnest, even the right people to run this? Honestly maybe not. We’re still going to try this but if somebody else wants to take the idea and run with it, we’ll help.

We’ve already had a number of conversations here but it’s very important to break out of our filter bubble for this process. So, who should we be talking to?

Time for feedback

We’ve turned on comments for this post and would love to hear any and all feedback. You can leave a comment below, tweet at us, discuss on Indie Hackers here or Hackers News here, or email me directly.

  1. Although interestingly Earnest is far more geographically diverse than any venture fund portfolio we’ve ever seen.

Earnest Capital Invests in Makerpad

We have some bittersweet news at Earnest. The inimitable Ben Tossell is going full-time on Makerpad and stepping down from his role running platform at Earnest. Fortunately he’s not leaving us as I’m thrilled to announce Ben and Makerpad will be joining as the latest Earnest portfolio investment ?

When Ben came on board last year, Makerpad was still an experiment spun out of his previous startup newCo. Over that time he’s done an amazing job balancing growing Makerpad with making himself available for weekly founder 1:1s and creating a vibrant community of mentors and founders and generally rolling up his sleeves to help our founders in all kinds of useful ways. But as the no-code movement kept building up steam, Ben kept cranking out the best tutorials, content and community for it anywhere. With new no-code platforms and tools launching every day, Makerpad just kept growing like a rocketship.

In his great interview on the Indie Hacker podcast, Courtland asked him frankly “why is this still a side project for you?” It was a good question (thanks Courtland!). Ben and I had frank conversations about this all along and it became clear that the opportunity was too big to not have his full-time attention (plus a team… did I mention he’s hiring?) focused on it.

So this means two things:

1/ We are hiring a new head of platform. Is that you? We are going to run a public process for the role this time so please apply here or forward this to the person you know most likely to love working with our founders and mentors, and building our community and tools.

2/ If you haven’t checked out Makerpad yet you should, it’s the best resource on the web for building tools without code.

For Investors: What is a Shared Earnings Agreement and How does it compare to a SAFE?

This post will answer some common questions from investors looking to use a SEAL themselves or considering co-investing with us. If you are a founder looking to raise capital you will probably find the main Shared Earnings Agreement page more helpful.

Relevant excerpts from our public term sheet are pasted inline but the full document is viewable here.

Wholesale Gorilla: the best wholesale app for Shopify

Earnest Capital is proud to back Wholesale Gorilla, which allows any Shopify store to seamlessly serve wholesale customers.

Matt and Hallie, from Louisville, Kentucky, founded Wholesale Gorilla in a classic scratch your own itch story. Hallie launched Graymarket Design, a scarf and textile vendor on Shopify. When wholesale buyers started inquiring they found Shopify was not able to support the key features wholesale customers need like bulk pricing, minimum orders, freight shipping, NET30 payments, and so on. Rather than bolt on a separate wholesale portal, they built out a custom app to allow logged in wholesale customers to use their existing store. After using the app to run their own business for two years, they made it available to other merchants. With zero marketing they have accumulated a huge waiting list of customers that they have been diligently working their way through.

At Earnest Capital our core thesis is around enabling distributed entrepreneurship and any time we can back a company and double-down on that we love it. Wholesale Gorilla enables a literally seamless—the product actually transforms the full shop UI for logged in wholesale customers—transition from DTC e-commerce startup to growth via local retailers and wholesale distribution. We are excited about the Wholesale Gorilla team because as avid customers of their own product, the team is always going to stay a step ahead for their merchants than the inevitable dev shops or copycats.

Shopify merchants should check them out directly on the app store. Merchants not on Shopify but looking for a powerful wholesale engine should say hello directly to stay in the loop for future announcements.