With $240 Million Fund, The General Partnership Looks To Revamp Value-Added VC For Founders

Phin Barnes and Dan Portillo, founders of the General Partnership, believe that their approach to services is more beneficial to founders than traditional VC firms.

Venture capital firms usually start with money. Venture capital firms grow in size and become more competitive for the most discerning entrepreneurs. Over time, they add more bells to their business, such as marketing services, recruitment services, and legal support.

The General Partnership founders Dan Portillo & Phin Barnes have taken the opposite approach to their new company. They believe that high-quality entrepreneurs will receive more value by trading their equity for support in an easier-to-understand swap. They say it works, but there are limitations. They have now raised $240 million to create a new fund that will provide long-term capital.

Its leaders claim that the General Partnership’s capital will enable them to support startups for more extended periods. They also plan to double down on their emerging winners as they grow. After Barnes joined, the GP’s new fund represented the first outside capital for their firm. The previous funds were raised by Reid Hoffman, a Greylock partner and former chairman of LinkedIn. Hoffman is still an investor in the fund.

It’s not a change in the core model Portillo and co. it is operated under since 2018, Sweat Equity Ventures. The firm has a team of 25+ individual professionals in people, product and market and a portfolio that includes more than 50 companies, including Coda and Eight Sleep, Grafana Labs and Nuro. According to the firm, the fund is instead a “fourth-pillar” option for founders.

“In Venture there are the investors, and then everyone else. Portillo says, “And here, there are us, then there’s an investment,”

Portillo’s journey to Sweat Equity’s launch in 2018 was not typical. Portillo, the son of immigrants from El Salvador and Cuba (who both became U.S. Citizens), was the primary member of his family to go to college at UCLA. He was bitten by the tech bug and left school early to climb the ranks of recruiters at several startups, culminating in Mozilla, where he was vice-president of talent until 2010. He followed John Lilly, former CEO, to Greylock, where he was its talent partner for seven years until 2018.

Greylock’s talent team secured 17 deals for Portillo while at Greylock. Portillo and his staff helped secure the first ten employees at Instagram. Portillo believed these functions could be unbundled as Andreessen Horowitz had led the industry to a period in which it needed more staff in support functions like legal, sales, and recruiting. Instead of paying a fraction of fees to the firm, the 2%-3% of a fund’s capital raised annually could cover salaries and expenses firm-wide and deliver such support.

Sweat Equity Ventures’ model is to invest all money from backers in its staff and services. Then, it provides equity to entrepreneurs for specific projects or engagements in return for equity. Portillo states that Venture was not designed to deliver services. Greylock’s team costs $2 million per year to manage across multiple funds. Here, I could spend 2 million on one company.”

Startups like Finix loved the model, which has raised over $100 million from investors such as Lightspeed Venture Partners and Bain Capital Ventures. Richie Serna, a CEO, met Anthony Kline as a roommate in a seven-bedroom apartment they shared with other startup recruiters. Kline was later responsible for recruiting at AppDirect (and Stripe). Kline and

Sweat Equity were able to help Serna hire more than ten critical employees after Finix’s Series A investment round. They included a CTO, COO, and VP of People and engineering leaders. Finix also used Sweat Equity Ventures to develop a compensation strategy and build a team that can go to market.

Serna states that founders often say that there is no VC that can help your company. There are only VCs that will make it worse. GP seems to be challenging that notion. They are working side-by-side with their portfolio companies and working hard to build the company.

Sweat Equity’s model was not without its limitations. Startup founders understand that their equity in the company is their most valuable asset. It appreciates as they succeed. It can be costly to trade equity for services, so it is only practical in small, high-impact amounts. And it’s not so easily scaled the way traditional VC firms have raised multi-billion-dollar, multi-stage funds. Equity costs sweat in the Sweat Equity model. Although the firm used special-purpose vehicles to support its winners, the upside of being part of an emerging breakout was limited compared to a firm that doubles down on its pro-rata rights to continue bringing in cash.

Enter Barnes. Barnes, a former creative director at And 1 and a founder of a fitness startup in 2003. He also interned at First Round in 2008 as an intern. By 2012, he was a partner. He was rumored to be launching his fund after Barnes’s departure in 2012. He teamed up instead with Portillo, who he had previously met as a board member and co-investor in an augmented reality startup acquired last year from Discord. It was called Ubiquity6.

The recent venture capital investment cycle, known for its fast commitments and cheap capital, made Barnes less interested. Investors have key differentiators in attractive pricing and speed of commitment. He says that the joy he got from deep partnerships with a small number of highly talented founders, where he focused on being able to bring out their best and then supporting them with the best, was what drew him to the venture capital investing industry.

Barnes and Portillo aren’t convinced TheGP’s fund has changed its approach. Barnes states that it is not value-added services designed to make money greener. He says that the fund gives TheGP the flexibility to reach the ownership stakes it desires to work with startups over the long-term (10% to 15% compared to the 20% to 30% for a typical Series A company or startup studio).

Phaedra Ellis–Lamkins, co-founder, and CEO of Promise, offers interest-free financing for government debt. After running one project-for-equity, Ellis-Lamkins was initially skeptical about TheGP’s equity-swap approach. However, she raised $25 million in a Series B-led firm. Ellis-Lamkins have used GP to hire a chief product officer, head of engineering, and several other engineers.

GP partners state that startups that TheGP funds do not receive unlimited support. Ellis-Lamkins and other founders will still try. She says, “My job is to push the limits, be thankful, and appreciate when they tell us that we’ve reached our limit.”

The founders of GP hope founders will be more open to such a relationship, given that valuations have dropped and capital being offered to startups comes with more strings attached. Portillo believes that The General Partnership could be a good deal for founders who want to preserve equity and cash.

Portillo states, “We offer an engineer they probably wouldn’t be able to afford or who would consume a considerable amount of runway.” It allows them to build faster and more efficiently without consuming as much runway.

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Samatha Vale
Samatha a senior writer for HC's entertainment team. She is an entreprenuer, mother and an excellent writer. She's also an avid reader, music enthusiast and all around inquisitive person - which is just a nice way of saying she's nosy.

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