Funding Gary Robbins
Just don't bet on him ever crossing the finish line.
Welcome to Volume Two of the Innovative Finance Newsletter. Building off of the Innovative Finance Playbook, this is a twice-per-month exploration of the future of finance.
This impressive audience includes 1,331 capital entrepreneurs, founders, and community leaders who are building a more inclusive economy and future (welcome to our 35 new readers).
This, from Jonathan, edition explores the philosophical side of funding once more.
Funding Gary Robbins
In 35 years, only 15 people have finished the Barkley Marathons. Ever.
Attempting to “run this race” is a complete misunderstanding of the challenge.
This ultramarathon in my home state of Tennessee entails five laps of 20+ miles each and a cutoff time of 60 hours to complete them. It begins when the race’s founder lights his cigarette, which occurs whenever he decides within a nebulous twelve-hour window. From there, runners ascend and descend the equivalent of two Mt. Everests, collect pages within books hidden in the woods (to confirm their honest route-finding), and generally disappear into lonely, thorny, disorienting misery.
If my job were to pick the winner, choosing Gary Robbins would be a sound strategy, but ultimately, heartbreakingly, a failing strategy.
Robbins is a professional runner with numerous ultramarathon wins and records. He’s a contender for any race he enters.
For the Barkleys, he is best known for not finishing.
Funding the Journey
Personally, I’ve never run the Barkley Marathons, but I am a sucker for a good journey.
I’m a serial founder turned early-stage investor. I’ve run many races, but my knees are too far gone to be competitive anymore. My job is to sponsor, cheer, and guide where I can.
But is it my job to spot the 16th Barkley finisher?
Last year, only 4,677 US companies received a venture capital check - a sponsorship to pursue the one-billion-dollar-unicorn-finish-line. A study of startups funded from 2008-2010 found that only 1.07% succeeded at reaching that valuation (and even less actually cashed out).
During one of my startups we joined the race, raising venture capital to pursue a lucrative exit. We’d chosen a distant, audacious finish line.
We had another investor too. Month after month, I looked forward to his “how’s it going?” drop-ins.
This was our landlord. In hindsight, he was there to collect a rent check.
Neither of us knew our journey would result in us renting three offices from him as our team grew. That was a finish line well beyond our site when we signed the first lease.
As the years wore on, he provided regular, meaningful encouragement to keep me running. He was rooting for us to reach our finish line, but critically, he was aligned with our journey, and cheering for us to simply keep running to the next mile marker. I looked forward to him coming to collect.
In 2019, I pondered what kind of racers and races I wanted to bet on.
It didn’t make sense to bet it all on the rare Barkley finisher. In fact, it didn’t make sense to solely focus on finish lines at all.
Taking a page out of my landlord’s book, I decided to bet on journeys.
To me, funding has to be structured to support each company entering the race, not knowing whether it is embarking on one 20-mile hellacious Barkley loop, the “Fun Run” (three laps in 40 hours), or towards the rarified air of five laps in under 60 hours. Every good journey, and especially the startup journey, feels like a Barkley at some point.
The result was Capacity Capital, a small fund that invested in companies using a redeemable equity deal structure (largely similar to the Indie VC terms). This untethered Capacity’s returns from the exit finish line. We found strong racers and funded their next lap. Much like our landlord, we just want to help them keep running.
Funding the journey, as opposed to the exit finish line, did something else profound.
It also negated the starting line.
Good businesses, like good runners, can come from anywhere. Some like to race; others just run for fun. All that mattered to us was whether or not they were fit and needed funding to keep on running - start the next lap, climb the next hill, sprint the next straightaway.
As a result, in three years of investing in journeys, the Capacity portfolio is:
70%+ women, POC, or veteran-led
50%+ cash flowing to support equity redemption payments (generating real cash returns)
50% now venture-backed (sponsored to try to win a race!)
This is the result of employing just one innovative finance tool - redeemable equity. Without exit myopia, the number of fundable journeys becomes exponentially bigger, and they come from more diverse beginnings.
Now as a partner at Builders and Backers, we are only starting to see just how big the opportunity is with a strategy built around journeys. Last year, our nono-dilutive studio saw 432 builders develop 314 ideas into 233 experiments and launched 128 ventures. Almost all of them had a backable journey.
The “total addressable market” of venture suddenly looks laughable in comparison.
Finding Gary Robbins
This brings me back to the Barkley Marathons and Gary Robbins.
The entire running world wants to see Robbins complete the Barkleys.
In his closest, infamous 2017 attempt, he arrived six seconds after the sixty-hour cutoff. The finish line crowd welcomed and celebrated the sixteenth member of the Barkley finishers, mistakenly. Not only was he a touch tardy, but Robbins arrived at the finish line from the wrong side. His monumental effort is officially, unceremoniously recorded as a DNF (“did not finish” in race lingo).
However, Robbins does not run for the Barkleys. In fact, in 2022, he announced that he would not be running the race in order to spend more time with his family:
I've long since come to terms with the fact that the race does nothing to define me, and a finish will bring nothing more than exactly that, a race finish.
Thankfully, my job is not to bet on Robbins ever crossing the Barkleys’ finish line. My job is to find and support Gary Robbins, whatever his or her next mile marker is.
I suspect there are a lot of Gary Robbins out there. And I will bet on their journeys every time.
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In our next newsletter, we’ll transition from financing philosophy to the nitty-gritty–spreadsheets and all.