eric lefkofsky

Description

So Brad and I got asked to do an interview about Lightbank on Fox News the other day, and it naturally created a lot of questions from people who either (a) didn’t know what we were up to with Lightbank or (b) knew exactly what we were up to but didn’t really care enough to pay attention when we launched and now have thoughts on the topic. The exercise of having people actually focus on our fund has made us realize that we probably haven’t done the best job of explaining exactly why Lightbank is different from other such funds, and why 2 guys with collectively 2 wives, 5 kids, 8 companies, and a partridge in a pear tree, would decide to start a fund in the first place. The answer is pretty simple, I think. We’re drawn to creating things that don’t exist, but should, and nothing like Lightbank exists. Now people might market themselves like Lightbank. They might say that they not only provide capital but also provide operational support, but I think they’re largely full of dog poo. Some will tell you they give you operational support - but not like us. We'll actually put someone on your team. We'll actually meet with you on a regular basis. We’ll actually take responsibility. You can even move your office into our building. We don't invest in a lot of companies, because every investment we make is not only our money, but our time. Operational support to us means doing actual work, not just dispensing advice. The VC business model is not designed for this support. By its very nature, if you start a fund, the only way you make money is to deploy capital, try and earn a return, raise more capital, deploy more capital, try and earn a return, and do it all over again until the pile of capital you allocate gets really big, and the fees you earn on that capital allow you to buy a big house in the Hamptons. The economics of virtually every VC fund are the same – you earn 2% of the total size of the fund in annual fees and you earn what’s called a “carried interest” of 20% of the profits of the fund after the investors are paid back. As you can see, the primary incentive in running a fund is to get bigger because bigger equals more fees and more carried interest. You want to be the “biggerest” you can possibly be. At Lightbank, we don’t earn fees and we don’t earn a carried interest. Not 20%, not 10%, not 1%. Since the majority of the money we invest is typically ours, we don’t need to. The way we make money is take common stock in the companies we invest in at an early stage in exchange for our time and expertise. Sometimes the companies we invest in were created by us, and sometimes the ideas come from other brilliant entrepreneurs that beat us to the punch. Either way, once we get involved, we become far more like another partner in the business than an investor. Lightbank is different from VCs, Angels, and Incubators because we are actually in it with you - simply put, we make sure we understand your business well enough on an ongoing basis so that our experience is actually useful to you. Over the last 10 years, we have developed a methodology for starting and growing successful businesses.

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