Put a hybrid in your bag
On the green in two, with two puts for birdie
(Brace yourselves for 1000 words with an absolutely tortured metaphor)
It’s a big week in golf and we are bad at golf but enjoy it at Front Porch, so you’ll have to brace yourselves on this post.
A common question that we get is: “what is a hybrid fund?”
This is a good question because we are a rare breed.
In fact, outside of a handful of funds on the West Coast, the only other entities that deploy this investment strategy in venture are the large family offices and institutions, and the secrets of their success are closely guarded.
Investing in startups has become a mystified meme since the early 2000s. Meet a founder who seems a little crazy and has a crazy idea? Check. Working out of a garage? Bonus points. Get to know them, and cut a $100K angel check. Meet with them every few months. Then Rip Van Winkle until IPO and earn millions!
Fact #1 — most angel investments return nothing and most funds return ~1x.
Fact #2 — 80/20 rules lurk around just about every corner in venture. 20% of venture funds drive 80% of returns… 80% of returns within a successful venture fund are driven by 20% of investments… Angel investments into startups that raise future rounds at higher valuations are typically diluted by 80% over time. (Etc etc)
Fact #3 — it’s almost possible to take one venture shot and have it return 100x or even 10x or even 2x. You need to put a bunch of different types of clubs and balls into your bag because venture is like a 500-yard Par 5 with a bunch of pine trees down the fairway and a pond in front of the green and traps on either side.
So… how do you get fully outfitted for 18 holes from the tips?
Option #1 is that you could be really rich or work for someone or something that has a lot of money. Large institutions like university endowments (who have generated some of the best returns in history) build the foundation of their venture portfolio by investing in the highest performing funds and then negotiating direct access to their best deals. Top large family offices very quietly do the same. This creates a strong flywheel between funds and startups in their portfolio, which puts them in a position to make shots from any spot on the course (or call someone to hit it for them).
If you aren’t a large institution but want to get exposure to venture, you probably have a bunch of Pro-V1 sleeves in your bag, but only have a wedge and a putter to make your way 500+ yards uphill to the green. You could hit your wedge 5-7 times and hope that you don’t shank it or slice it or have it get stolen by a goose or another player or lose it in the woods or hit it 10 times into the pond. But your range of outcomes will be incredibly wide and you’ll likely have a good walk spoiled.
You have nowhere near enough long clubs to make the game playable, and all the big guys who actually succeed in venture over the long term have drivers and a bunch of woods and hybrids and long irons and those fancy 3-inch plastic tees.
So what can you do? You could buy a hybrid. And this is where Front Porch comes in.
Our funds are structured as hybrid funds to help you maximize your chances of success in venture over the long term. We do the diligence and get you into the best funds from pre-seed to growth equity in technology and healthcare. Then we leverage those relationships to get into the best startups at a discount. And then whenever possible, we get you access to our pro rata ownership as they grow.
On the green in two shots, nothing lost in the pond, then two puts for birdie. Just like the best players in the game, but without needing a bankroll from Tiger Woods.
Thanks for joining us… We are currently accepting $20 per eye roll for this tortured metaphor, payable into the next Front Porch SPV or our Masters pool this week!