Venture capital firms typically start out with money. As they get bigger and compete more for choosy entrepreneurs, they add more bells and whistles — marketing help, recruiting services, legal support and the like — over time.
At a new firm called The General Partnership, founders Dan Portillo and Phin Barnes are taking the exact opposite approach. Their bet: that high-quality entrepreneurs will get more meaningful value, trading their equity for support in a more clearly-defined swap. It’s a model they say is working — but with limitations. So now they’ve raised $240 million for a new fund to provide long-term capital, too.
The capital will allow The General Partnership to back startups over more long-term periods, the firm’s leaders say, while also doubling down on its emerging winners as they grow. The GP’s new fund is the first outside capital for the firm, which took its new name in February after Barnes joined. Its previous funds were raised from billionaire Reid Hoffman, a partner at Greylock and former chairman of LinkedIn; Hoffman remains an investor in this fund.
But it’s not a shift in the core model that Portillo and co. have operated since 2018 under the firm’s original brand, Sweat Equity Ventures, with a team of 25-plus professionals today in people, product and go-to market and a portfolio of more than 50 companies including Coda, Eight Sleep, Grafana Labs and Nuro. Instead, the fund is a “fourth pillar” option for founders, the firm says.
“In venture, there’s the investors, then there’s everyone else. And here, there’s us, and then there’s an investor,” Portillo quips.
Portillo’s path to launching Sweat Equity in 2018 wasn’t typical. The son of immigrants from Cuba and El Salvador (both became U.S. citizens), Portillo was the first in his family to attend college, graduating from UCLA, before working his way up the recruiter ranks at various startups culminating in Mozilla, where he was vice president of talent until 2010. The following year, he followed former CEO John Lilly to Greylock, where he spent seven years as its talent partner until 2018.
While at Greylock, Portillo and his staff were an ace up the sleeve for the firm’s investors, helping hire the first 10 staffers at photo-sharing app Instagram, he says, to help secure that deal – one of 17 that Greylock secured through its talent team. But as Andreessen Horowitz led the industry into a period of staffing up in services functions such as recruiting, legal and sales support, Portillo felt those functions were ripe for unbundling. What if instead of using a fraction of the firm’s fees, the 2% to 3% of a fund’s raised capital drawn annually and used to cover salaries and expenses firm-wide, to pay for such support, a firm used all of its funds?
Sweat Equity Ventures’ model: invest all the money raised from its backers into its staff and services, then provide them to entrepreneurs for defined projects or engagements in exchange for equity – a barter instead of a traditional check. “Venture was never really designed to deliver services,” Portillo says. “My team at Greylock was about $2 million a year to run, across multiple funds. Here, I could spend $2 million on a single company.”
The model proved a hit with startups like Finix, the payments infrastructure company that has raised more than $100 million to date from investors including Bain Capital Ventures and Lightspeed Venture Partners. CEO Richie Serna met partner Anthony Kline when they lived as roommates in a seven-bedroom apartment in Chinatown with other startup recruiters (Kline later led recruiting at AppDirect and Stripe). After Finix’s Series B investment round, Kline and Sweat Equity helped Serna find more than 10 key hires including a CTO, COO and VP of People, as well as engineering leaders. Finix also used Sweat Equity Ventures to figure out a compensation strategy and build a go-to market team.
“One of the things that founders say is that there’s no VC that can make your company, there are only VCs that can break your company,” Serna says. “I think that TheGP is definitely challenging that adage, because they are actually side by side with each of their portfolio companies, doing the actual dirty work that it takes to build the business.”
But Sweat Equity’s model had limits. Startup founders know that their equity in their company is their most valuable asset, one that appreciates greatly as they succeed. Trading equity for services can come at a cost that makes it only sensible in smaller, high-impact doses. And it’s not so easily scaled, the way traditional VC firms have raised multi-billion-dollar, multi-stage funds. In the Sweat Equity approach, equity really cost sweat. The firm pursued special-purpose vehicles to back its winners, but the upside of being a backer of an emerging breakout was capped compared to a firm that doubles down on its pro rata rights to continue pouring in cash.
Enter Barnes. A former creative director at And 1, Barnes founded a fitness startup in 2003 before interning at First Round in 2008. He made partner by 2012. Barnes’ departure last year fueled speculation he would launch his own fund. Instead, he teamed up with Portillo, whom he had met as a co-investor and board member in an augmented reality startup acquired last year by Discord, called Ubiquity6.
For Barnes, the recent cycle of venture capital investing, known for a fast pace of commitments and “cheap” capital that made attractive pricing and speed to commit key differentiators for investors, was less appealing. “The joy I got form deep partnerships with a smaller number of extremely talented founders, focusing on being able to bring out their best and then support them with the very best, that was the thing I really wanted to find,” he says.
Barnes and Portillo don’t believe TheGP’s fund changes its approach: “It’s not value-added services to make money greener,” Barnes says. But offering a fund allows TheGP to more flexibly reach ownership stakes it would desire to work closely over the long-term with a startup (10% to 15% overall, versus the 20% to 30% of a typical Series A firm or startup studio, he adds).
Such an option makes sense to Phaedra Ellis-Lamkins, cofounder and CEO of Promise, a startup that offers interest-free financing for government debt. Initially skeptical of TheGP’s equity-swap model, Ellis-Lamkins raised a $25 million Series B led by the firm announced in February after running one hiring project-for-equity with the firm. She’s now used the TheGP to hire a head of engineering, head of product, chief resource officer and several engineers so far.
Startups that receive investment from TheGP don’t receive unlimited support, its partners say. But founders like Ellis-Lamkins will try. “My job is to push the limits and be grateful, and appreciate when they tell me that we’ve reached the limit,” she says.
The GP’s founders hope that founders will be more receptive to such a relationship today, as valuations have shrunk and the capital being offered to startups is coming less freely and with more strings attached. Founders looking to conserve cash and equity may see The General Partnership as a good trade for the long run, Portillo hopes.
“We offer an engineer that they probably wouldn’t be able to afford, or who would eat up a consider amount of runway,” Portillo says. “It allows them to build more, faster, without having to eat up as much of their runway.”