Roll-Up Vehicles (RUVs) are the single most powerful invention for founders to come out in the last 10 years.
Why? Because they help break up the power monopoly that VCs have had over startups’ early days. All VC funds have what’s called an “ownership target,” which means they own at least a certain portion of every company they invest in (anywhere from 10% to 20%). Early-stage founders in need of capital are often bound to ownership targets, which can hurt valuations and make founders give up more equity than they planned.
What’s better than a cap table consisting of 3 to 5 big-check investors? One consisting of 100+ small-check investors.
RUVs make that easy.
As Harry Hurst illustrated, small-check (as little as $1,000) investors hustle ten times harder than big-check investors. When you’re a small part of a big fund’s portfolio, they’re not going to do as much for you as they will for their biggest fish. A small, well-connected investor is much more likely to help with things like sales, recruiting, marketing, press—whatever they can do to nurture their investment.
Here’s how our RUV helped us leverage our cap table’s small-check investors
Network activation. I’ve met small investors in a bunch of different contexts—On Deck events, parties, social gatherings, and oh yeah, during the actual fundraising process. Though their checks might have been small relative to big VC funds, their influence was anything but.
Each small investor turned into a network activator. They introduced us to a wide variety of people, including other investors and potential hires. They turned into a sort of distributed marketing team, retweeting our updates, progress, and goals. They even became recruiters for us—one investor went as far as conducting a final-round interview with a product manager from Uber (who we eventually hired).
Even if a big fund gave us access to their whole network—which is unlikely—there’s no way they could replicate the effects of 100+ influential people giving us access to theirs.
The Tesla effect. Elon Musk’s is perhaps the world’s single most visible founder. As much as his audience likes his products, they really like him. His irreverence comes across as authenticity, and authenticity attracts a big fanbase. The result: Elon’s superfans are also his customers, investors, and advocates, and their devotion helps spin Tesla’s flywheel.
The same has proven true for our 100+ small-check investors. They’ve transcended the “investor” tag and become superfans. Fundraising on a more human level, coupled with building in public and being transparent about our progress, has given us access to the Tesla effect…as a private company.
Gamification. As an extra incentive for our investors to hustle for us, we’re rolling out a gamified system for stock options. The more value an investor adds (through marketing support, recruiting support, intros, joining an event or a podcast, etc.), the higher they climb on a leaderboard, and the more options they can earn.
Not only does this motivate investors to hustle, but it will also serve as a public record of who has invested and how they’ve added value.
The options are small—the equivalent, today, to a bottle of wine. But the better Lawtrades does (i.e., the more value each investor contributes), the more likely it is that a bottle of wine today turns into a Tesla in a couple of years.
The RUV has been so self-evidently useful, it’s hard to believe it didn’t exist before. From nearly every perspective, it’s a superior model to the more monopolized VC model. It gives founders more control over their valuation and equity dilution, it carries far more positive network effects, and it has more potential to create superfans.
Plus, when small-check investors see our regular updates about performing well, they’re likely to double down or increase their investments in subsequent rounds.
The future belongs to founders who can turn their cap tables into leagues of super-contributors. It all starts with an RUV.