Grays Sports Almanac for Venture Capital proposes a new risk management strategy for venture capital. In this investment hypothesis, I outline why a venture fund might beat the odds by purchasing 2,208 to 4,416 warrants on startups. Startups would operate under a governance framework called the Founder Friendly Standard, which gives entrepreneurs control of their companies. In exchange, the venture fund would have the option to exercise warrants for 15 years—purchasing discounted equity only in the startups that become successful.
Beat the odds with a new asset class of warrants on the Founder Friendly Standard.
Credit Suisse discovered that companies where founders have a large ownership interest—like Nike, Alibaba, Berkshire Hathaway, and Google—outperform their peers by 400 basis points per year. Credit Suisse calls these companies the CS Family 1000. They are an “asset class with a compelling investment case” (Klerk et al., 2017).