Calm Fund Investment Thesis

Tl;dr: Calm Fund are focused on “funding for bootstrappers”. They’ve written more about their investment thesis than pretty much everyone. 

I’ve broken up what I was able to find on their site into a few parts for you to parse:

About Calm Fund

The Calm Company Fund is a fund launched in 2019. We do “funding for bootstrappers,” which is a strategy to back founders and businesses that most people would associate with bootstrapping: capital efficient, often focusing on niche markets, balancing growth with the sustainability of the business rather than growth at all costs.

For founders, we offer a bootstrapper-aligned financing instrument we created called the Shared Earnings Agreement (SEAL). The SEAL retains all the flexibility of other early-stage instruments (converting to equity in the event of a next financing equity round or participating in an exit) and aligns the investor with a strategy of building a profitable ongoing business through a profit share arrangement called Shared Earnings.

Beyond investing, the Calm Company Fund brings an incredible group of successful founders and operators as mentors who have skin in the game by being investors in the fund. We run a remote community of founders and mentors and run our fund and investing process entirely remote-first.

Calm fund 2 investment memo

What follows is a public draft of the investment memo for our second fund with as few redactions as possible.

1/ The Macro Momentum: Software is entering the Deployment Age

Candidly, we began without a solid macro theory as the product of a practitioner just looking for a solution for founders like me. I built, bootstrapped, and eventually sold a niche SaaS business. Along the way, I was fortunate enough to meet many many founders currently building or aspiring to build a calm, profitable, software business. But at the earliest stages, enough capital to quit your job, stop freelancing or make your first key hires has still been a constant struggle for this rapidly growing category of entrepreneurs.

But relatively quickly into developing the principle ideas of the Calm Company Fund, and solidified over thousands of conversations in the last two years with people smarter than me, it has become clear that this is far more than a search for a niche alternative to VC. We are in a search for a new default form of funding entrepreneurial ventures that should be substantially larger than the entire early-stage VC market.

Earnest is leaning into a powerful macro trend that I think is best explained by this post from Jerry Neumann that builds on the widely read work of Carlota Perez to argue that software is transitioning into what both would call the Deployment Age.

Both Perez’s work and Neumann’s analysis are very in-depth, so I’ll only briefly cover the relevant points. Perez argues that technological revolutions follow distinct long-term waves with different characteristics in each phase. Jerry claims that software is transitioning from the “Installation Phase”—which consists of frenzied adoption, financial bubbles, winner-take-all opportunities, and spectacular failures—to the Deployment Phase, which consists of more steadily and incrementally (at least incremental compared to the previous phase) spreading these new technologies to every aspect of the economy. A key characteristic of this phase is that new forms of capital are needed to fund the deployment process.

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The consequences of this transition are numerous, but the most important one for our purposes is that a new kind of risk capital is required to fund businesses in the Deployment Age. The terminology used is a transition from “financial capital” to “production capital.” The post takes a somewhat more pessimistic view on the new “production capital,” which takes on less wild risk and is more calm and methodical, but I very much agree with the assessment of “financial capital” which in our current phase is essentially traditional VC investments in software.

Financial capital invests in innovation because it thinks it can earn a good return. It is primarily controlled by agents that are external to the means of production, financiers. Production capital invests in innovation to add to and make more efficient its production resources. It is controlled by the management of companies. Financial capital has a casino-like mentality: nine losing bets and one that pays 12x is a good year. Production capital has a planning mentality: a failed investment is a failure of management, almost a moral failing.

When financial capital pulls back, both because of decreased opportunities for massive exits because of the new regulation and because of the new conservatism that fear teaches, production capital takes over. Production capital is not looking to create entirely new markets and disrupt incumbents–they are the incumbents–it is looking to improve the means of production through innovation. Production capital funds predictable innovation: classic sustaining innovation, not the riskier exploratory innovation. This period, when production capital starts to take control, is a period of synergy, with less technological volatility, fewer business failures, more (and longer-lasting) employment, and less income inequality.


I agree with much of the assessment here except for the implied prediction that the transition to production capital means that this capital will come from entirely large established incumbent businesses. As Alex Danco points out, we are seeing a form of production capital coming in the form of merchant advances from Stripe/Shopify/Square, but these same dynamics also create an opportunity for new kinds of funds to provide this kind of capital.


A good analogy is that the Installation Phase of inventing and manufacturing the machines of the modern industrial age (cars, radios, televisions) required the creation of consumer credit (store financing, credit cards) and commercial leases to fund the widespread deployment.

For a few decades now, venture capital (or angel investors deploying a very similar strategy) has been the default/only form of funding for software and software-enabled companies for two key reasons:

  1. For a long time, software companies perfectly fit the profile of venture capital. They had high startup costs of racking servers and hiring developers and designers for 1-2 years before even launching and often had highly scaleable winner-take-all outcomes in huge markets as yet untouched by software.
  2. These companies lack entirely the collateral and other characteristics needed for underwriting and accessing the traditional business banking options.

If this ever was true is a matter of debate, but certainly now, venture capital not the best source of early-stage capital for the vast majority of all software/software-enabled companies. Note: this thesis is not an outright indictment of the venture capital asset class, I just believe that the opportunities that fit the risk profile of VC are leaving pure software and increasingly found in other markets like hard tech, machine learning, synthetic biology, and other areas well outside the scope of my expertise.

It’s easy to take a pessimistic view of this transition by thinking that “less risky” ventures in software will mean “less ambitious and impactful.” But I believe this is not the case. The opportunity to make people’s lives better with software is vast. We are fortunate to be entering a phase when entrepreneurs do not have to “go big or go home” to build something meaningful and ambitious.

The principal conclusions of all this are:

  • Fewer software businesses have genuine winner-take-all market dynamics, and most are increasingly not a fit for VC.
  • The opportunities of the Deployment Age are in niches with smaller total addressable markets, lower risk of failure
  • We need a new default structure of funding for software businesses

2/ The Lever of Change: The Peace Dividend of the SaaS Wars

One property of the Installation Phase is the bubble dynamics often leave substantial physical and intellectual capital available for the next wave of entrepreneurs to build upon. The UK Railway Mania of the 1840s led to a massive bubble in the shares of railroad companies, leading to an inevitable financial collapse. However, the result was 6,220 miles of railroad tracks were built in a short time

and were thus available for the rest of the economy to make use of during the Deployment Phase.

From Geocities to Salesforce and Shopify, vast sums of money have been poured into software companies enabling, among other things, the building of substantial capital stock that today’s entrepreneurs don’t have to waste time and money reinventing. I call this the Peace Dividend of the SaaS Wars.

The Peace of Dividend of the SaaS Wars includes:

  • Quick start open-source development frameworks (Ruby on Rails, Laravel)
  • Scaleable server infrastructure (Heroku, AWS)
  • A full-stack suite of tools for the basic operations of software businesses (SaaS for help desk, email & social media marketing, FAQ, billing, analytics)
  • Free distribution networks from piggy-backing on fast-growing app stores and platforms
  • No-code platforms allowing entrepreneurs to reduce their engineering costs to get to market (Zapier, Webflow, Airtable, Shopify)
  • Battle-tested methodologies for finding and validating businesses (Lean Startup, Traction)

The net effect is that it’s easier, cheaper, and faster than ever for a solo founder or small team to get a software product live and creating real value for customers with little to no outside investment.

This has two principles effects:

1/ It is economically viable to build a software business targeting a smaller, more niche market than in the past.

The amount of capital needed to get a business to positive unit economics and sustainable profitability is a fundamental driver of whether a business plan targets a sufficiently large market. Businesses that will consume $30m-100m+ in investment capital before getting to profitability must tackle huge multi-billion-dollar markets. But, we believe that profitable software businesses with mature products, thousands of customers, and margins enabling growth through free cash flow can be built with $100k-$500k of either founder sweat equity or outside capital. This fundamentally changes the scale of what challenges it makes sense for a software business to tackle.

There is still a vast ocean of problems currently solved with sticky notes, spreadsheets, and human labor that become viable targets for software entrepreneurs building with this level of capital efficiency.

2/ Businesses built in this environment should have a fundamentally lower rate of failure than the preceding wave.

When you speak to people who have been investing in early-stage companies for the last decade or so, either professionally or as an active angel investor, you will often hear a variation of the following: “80-90% of startups fail, so you need the ones that don’t fail to be huge winners to make up for all the failure.” Leaving aside the substantial data challenges of validating the underlying claim, this is simply not true in a Deployment Age enabled by the Peace Dividend.

Founders can find a niche market

with a problem that is widespread within that market and with no existing solutions, build an initial version of a product that genuinely solves the problem, and get initial validation from customers before they ever need to involve investors. It is probably still true that a very high percentage of startup ideas still fail, but bootstrapping the early phases allows entrepreneurs to quickly iterate through those failures and get to a substantially de-risked and validated young business. With this methodology, a significant portion of the conventional risk associated with a “software startup” is taken out of the business before the founders ever speak to outside investors.

3/ The Opportunity: A Tidal Wave of Calm Companies

Software is transitioning from the frothy Installation Phase to the more steady Deployment Phase with fundamentally less risky ventures pushing into every niche in the economy, fueled by the Peace Dividend of the SaaS Wars. What does that mean for the economy and entrepreneurship?

One thing we know is that despite billionaire startup founders dominating culture, any way you measure it entrepreneurship is in decline in the US. The full diagnosis for this decline is probably a broad combination of factors. Still, I believe one component is that the central area for new entrepreneurship, software, and software-enabled businesses, has no default form of aligned funding.

Just like it is eating everything else, software is eating entrepreneurship. If you grew up in a small/medium-sized American town like me, the wealthy entrepreneurs you knew or heard of got rich building businesses like a successful regional chain of health food stores, a large auto dealership, or multiple franchises of retail mattress stores. Those same entrepreneurs in this generation are building software CRMs for auto dealerships, software-enabled networks to track and deliver the freshest possible produce to health food stores, and direct-to-consumer e-commerce businesses for sleep products.

These businesses are:

  1. Great businesses! They have higher margins and are more scaleable than their generational predecessors. They can launch from home with a team distributed around the world.
  2. Typically completely locked out of the traditional banking and capital due primarily to a lack of collateral and other physical trappings of a business. Most of these businesses are launched by founders scraping together savings, working on nights and weekends, or funded by credit cards.

These are Calm Companies, and the next phase of the modern economy is going to be powered by millions of them, but they need an efficient source of funding like the small business loan and commercial leases that funded a previous generation of retail entrepreneurs.


Calm Companies are differentiated from what many think of as traditional technology startups in a few key ways:

  • They often balance the sustainability of the business with growth. Growing more slowly means spending less on marketing, hiring carefully, and ensuring an otherwise good business doesn’t collapse under the pressures of hyper-growth
  • They are acutely wary of the venture capital model that they associate with founders building billion-dollar companies, owning just 2% of the equity, and losing control of the business to an over-bearing board of directors.
  • They are ambitious but value work-life balance, sane work hours, often embrace remote work and expect their businesses to serve the founders, employees, and customers.

wrote recently that “building, owning (and possibly someday selling) a profitable remote software business is the New American Dream,” and I firmly believe it.


For the past two decades, Calm Companies have sometimes been given another name: lifestyle businesses. Primarily VCs looking for the next Facebook or Uber, to their determinant, have dismissed business plans with an exceptionally high chance of building a $25m or $100m business with minimal capital by quipping “that’s a nice lifestyle business but, it’s not venture backable.” The time has come to put this kind of thinking finally to rest.

Not only are Calm Companies very attractive to talented entrepreneurs, but when done well, they are incredible investment vehicles thanks to very high operating margins, recurring revenue with predictable low churn, strong revenue per employee, and the ability to fund continued growth through free cash flow.

These businesses are almost all privately held, so comprehensive financial data is difficult to come by, though we can look to one category as an example.

Although Calm Companies encompasses a broader definition, the quintessential Calm Company is probably the vertically-focused B2B SaaS. This strategy takes a particular industry (payroll processors, mortgage lenders, construction, hotels) and builds a custom software solution to systematize and automate manual processes, sticky notes and spreadsheets.

As one example of the quality of Calm Company, Vista Equity and Constellation Software have both been some of the top-performing private equity funds of the past two decades with a model of acquiring and continuing to operate a portfolio of fully mature vertically-focused SaaS companies. Vista Equity’s 2007 fund was the top-performing PE buy-out fund of that vintage, and it recently raised its seventh fund of $16B for the same strategy. The public success has paved the way for a new wave of middle-market PE funds acquiring profitable software businesses like SureSwift Capital, who invested in Calm Fund 1.

The demand from investors to acquire and own these businesses is mounting, as is the multiple at which they are willing to pay, shows us that many savvy investors have caught on to the quality of these companies, but who is helping to start the next wave of them? The number is certainly growing but not nearly at its full potential.

Many of the founders of Calm Companies have no intention of selling their business and are wary of investment terms premised on eventually exiting their business. However, having been in the situation myself and after having hundreds of conversations on the topic spurred by my widely read post on the subject, I believe many of them will ultimately decide to sell their business at some point. Founders want to found things. After building the preeminent product in a business niche and spending 5-10 years crafting the company and lifestyle they want, many founders will seek new challenges and the opportunity to collect a life-changing sum of cash, keep their current customers happy, and create new opportunities and challenges for their team is a great choice for many. Some of these entrepreneurs will build products and businesses they run for decades (some of our mentors have built businesses like Basecamp and Wildbit), but for founders and investors alike, there will be immense liquidity for businesses that seek it for the foreseeable future.


As a final aside on the quality of Calm Companies as an investment opportunity, I’ll add that, while I’m certainly not hoping for a (some say long overdue) recession, this part of the economy is in many ways counter-cyclical. For new investments, a downturn in promotion opportunities and bonuses would likely be the nudge many would-be founders need to raise a small round, quit their jobs, and go full-time on the side project they’ve been working on for years. For companies that would be already in the Earnest portfolio, they are typically small enough that changes in the top line of the total market don’t affect their short-term outlook. By optimizing for sustainability most of them implicitly build substantial slack into their financial models, leaving plenty of room in the budget for a short-term revenue hit to do minimal damage. By focusing on niches, Earnest Businesses can build mission-critical software that customers will continue paying even when budgets come under pressure. Lastly, most Earnest Businesses’ capital plan involves never raising another round of capital, so they are entirely insulated from fluctuations in the funding environment.

4/ The Tools of the Trade: The Shared Earnings Agreement, Aligned Capital, Mentorship

Software is entering a new age of deployment, and the Peace Dividend of the SaaS Wars is unlocking opportunities for new software and software-enabled businesses in every nook of the economy. Talented entrepreneurs are seeking the New American Dream and looking to Build C that become incredible financial vehicles for founders, employees, customers, and investors alike. Private equity funds are building up war chests to acquire these businesses even while the founders build calm sustainable plans that make both exiting and never exiting perfectly viable options.

So the question I found myself asking was: why on earth is there no source of early-stage funding aligned with these kinds of founders and business plans? Early in building my last SaaS business, I was inspired by a small movement of founders exploring radical transparency and decided to blog hyper-transparently about my founder journey in real-time. Through that, and the magic of the internet and Twitter, I met many other founders currently bootstrapping remarkably successful businesses and many more who aspired to the same. But while these businesses can fund themselves through cashflow once they reach a certain level of maturity, they often still need some amount of capital at the earliest stages to give the founders enough runway and bandwidth to get a first product launched or make a few key hires to get their minimal viable team in place.

When I began workshopping this problem with other founders, I heard the same horror stories over and over about the initial phase of bootstrapping:

I moved in with my parents, who also wrote us a check for $10k at several points to keep the business alive.

I wasted two years pitching VCs until I finally decided to just build it myself.

I was only able to build my business because my spouse had a high paying job with great insurance that covered our family’s costs while I bootstrapped for two years.

Or my own story that so many other founders share:

I burned through all my savings and lived off credit cards, eventually hitting $60k in debt before the business turned a corner and started covering my bills.

But despite the obvious upside of owning a piece of these very successful and profitable businesses, there was still no form of capital aligned with these founders who were:

  • Aren’t a fit for venture capital either by targeting too small a total market or the founders were just not interested in the associated hyper-growth strategy.
  • Too light on collateral to get a small business loan. The entire business often consists of a Stripe account with recurring billing, a Github account holding the code, and a distributed team working from their laptops.
  • Too early for existing and emerging revenue-based financing options, which are only viable for businesses generating $25k-$50k in monthly revenue.


So, along with several other highly supportive founders, I started pulling the thread and asking the question, could we design an investment structure that aligned with “bootstrappers” and a fund that brought the best parts of an accelerator–shared resources, mentorships, and a sense of community–without the unicorn-hunting baggage of the venture capital model.

One of the first problems we faced is that nothing in the existing quiver of investing terms (convertible note, SAFEs, preferred equity) was in sync with building bootstrapped profitable businesses with no intention of selling them. Success for founders might be raising a single small round and growing to a sustainable business that throws off millions a year in profit, while a convertible note sits unconverted waiting on a follow-on priced round that never materializes.

So I sat down, drew up a bunch of personas of different bootstrapped founders and the kinds of successful business trajectories they could take, and from essentially a blank slate built the first version of the investment structure we now use. After getting a first version worked into a term sheet (with the generous help of Joe Wallin) I decided to open-source both the term sheet (in a Google Doc with comments left open) and publish our thinking behind it in a post called “help design funding for bootstrappers.” The response was overwhelming. We were deluged with interest from founders, criticisms, and suggestions from investors and other industry professionals, and above a refrain from all corners of “this needs to exist, how can I help?”

After a few iterations, we have settled into a production-ready version that we call the Shared Earnings Agreement (or SEAL for short). A SEAL is differentiated from traditional early-stage investing agreements by the following:

  • It takes no board seat or control of the business but goes to great lengths to align investors’ and founders’ interest in every scenario.
  • It receives a percentage of what we call Founder Earnings (roughly profit + founder compensation above a certain level) as the business generates it. We get paid out of the business only when the founders do too.
  • It has several provisions that enable the founder to control whether they want to run the business optimizing for profits, maximize reinvesting profits into growth, sell the business, or raise more growth capital in the future.
  • It gets repaid only as a percentage of either a very profitable business and a sale, giving it equity-like characteristics of being aligned with the founder and having an uncapped upside for the investor.

You can read more details about the SEAL here, download a spreadsheet to calculate how it works here, and view a comparison between it and a SAFE or convertible note here.


It’s become a common twitter refrain to echo Vinod Khosla’s sentiment that most VCs add negative value to the companies they invest in. Some have turned this into a meme-ified claim that investors can’t and indeed shouldn’t even try to add value to their companies beyond writing a check. I find this genuinely baffling.

It is self-evident to me that there is immense value in experienced mentors who help founders plan long-term and see around corners with their decisions, a community that solves shared problems collectively, and shared resources and best practices that save founders from reinventing the wheel on the basic operations building a business.


The centerpiece of our “value-add” at the Calm Company Fund is a group of 40 or so mentors, all of whom have skin-in-the-game by also being investors in the fund. Bootstrapper Heroes like Natalie Nagele and Chris Nagele from Wildbit, Sahil Lavingia of Gumroad, Rich Thornett of Dribbble (see the full list) as well experienced founders and operators with a lower profile, have stepped up to help Earnest a reality and dedicate time and energy to helping the next generation of founders succeed. We thought deeply about how to structure our mentorship program (read our guide to mentorship), and the results have been an ego-free community that works together to solve problems and learn.



Despite the firepower in the mentor network, the founders in our portfolio consistently rank the remote community (leveraging Slack, Basecamp, and a suite of no-code tools) of the portfolio founders themselves as the most valuable aspect of working with us. Our approach to the community has been one of consistent experimentation and iteration, humility, and acknowledging that we do not need to optimize for “engagement” since everything we provide for founders is secondary to their actual goal of building a healthy business and team.

As the Calm Company Fund grows, investing in our mentorship and community will remain a top priority.


The current iteration of the Shared Earnings Agreement is relatively optimized for high margin recurring revenue businesses like SaaS. There’s no fundamental reason it couldn’t work for a DTC e-commerce company or another business model, but it’s not quite as tightly scoped to those use cases as I would like. We are closely monitoring other experiments with financing terms and may introduce some new variations in the future… which is about all I can say about that at the moment.

5/ The Strategy: Early-Stage Value Investing & Heresy on the Laws of Startup Physics

Some have looked at this market and thought this just a different flavor of unicorn-hunting. They look at Atlassian, MailChimp, Qualtrics, and GitHub that all basically bootstrapped to multi-billion-dollar status and think our plan is an “alt-VC” strategy to find those companies on a slightly different path to unicorn land.

I’m here to tell you the Calm Company Fund is not in this camp.

While the odds are fair that—if we continue to execute on our strategy for many years and if we are able to grow the number of companies we back each year—we will someday end up backing an eventual billion-dollar company, it is not a primary goal of ours nor is estimating that likelihood part of our investment criteria.

This is tantamount to heresy in the early-stage investing world. I’ve had thousands of conversations about the Calm Company Fund and almost inevitably I will hear the recitation of the basic axiom of investing in startups: “90% of startups fail, so you need the ones that don’t fail need to be billion-dollar companies to make up for all the failures.” When pressed on this, a surprising number will double-down and argue that a high failure rate is genuinely an immutable law of startup physics and the only option to adapt your portfolio strategy to that reality by trying to get at least one home run investment. I believe this is a huge availability bias from people who spend too much time in the company of venture capitalists.

The following thought experiment is illustrative. It can’t be true that every single portfolio of early-stage investment into entrepreneurs will result in a “power law” distribution of outcomes made up of mostly total failures and a small number of huge wins that represent all the returns. If I had a fund that wrote equal-sized checks into entrepreneurs opening McDonald’s franchises in mid-sized American cities, you would absolutely not expect that portfolio to result in the same distribution of outcomes as an angel investor in Silicon Valley. The Calm Company Fund is not building a portfolio of McDonald’s owners, but we are betting that the filtering and selection process of an investor, the incentives of the investment agreement, and the nature of the post-investment mentorship, can change the distribution of outcomes in an early-stage portfolio.

The Calm Company Fund is making a bet that the very high failure rates of venture-backed startups are at least in part self-fulfilling prophecies. Founders raise a seed round encouraged to spend aggressively within a defined runway period and are coached by their current investors about what kind of growth rates they will need to achieve to raise a subsequent round of funding. This leads to a go big or go home mentality that may in fact increase the likelihood of the startup becoming a unicorn, but also increases the chance of the business failing. Specifically this could manifest in the form of:

  • Early-stage venture funds are primarily incentivized to achieve “markups” in their portfolio when companies raise a new round at a higher valuation. This makes raising another round the default path for venture-backed founders and discourages reaching profitable self-sufficiency.
  • Building and exiting a multi-billion company in less than ten years requires the very top tier of “10x” talent, so venture-backed companies still strongly prefer to co-locate teams in high cost of living cities and pay top tier salaries, substantially increasing the overheard of the company
  • Companies are incentivized to utilize high risk expensive growth strategies at the expense of margins and unit economics

At the Calm Company Fund, we take specific steps to counteract these failure loops at two levels. First, our filtering and focus on Earnest businesses, tackling niche markets without winner-take-all dynamics, leveraging the Peace Dividend to bootstrap a product and de-risk the business make our portfolio on average less inclined to shut down in the short term.

Second, our messaging and mentorship encourage founders to take a path of slower more sustainable growth. For example:

  1. Our model assumes that generally an early-stage investment from the Calm Company Fund is the first and last round of dilutive financing. We are not interested in mark-ups and walk founders through a simple forecasting model showing that path from the point of investment back to break-even sustainability.
  2. The Calm Company Fund strongly encourages capital efficiency and maintaining strong margins.
  3. We advocate for the Basecamp model of “hire when it hurts” so founders hire slowly and carefully.



Why are failure rates so important? The rate of failures in our portfolio is an essential question because again, we are not a VC and we are not unicorn hunting. If we expect to generate a reasonable overall rate of return from single, doubles and triples (rather than mostly strike outs and a few home runs) we need to see fewer strike outs.

Specifically we are betting that, even if we don’t back a single unicorn, we can see a low enough failure rate across our companies that we will generate a competitive risk-adjusted return for our investors.

The Calm Company Fund is built on a fundamentally different investment hypothesis: can we consistently generate a great risk-adjusted return by maximizing the percentage of founders that we invest in that succeed, rather than assuming most will fail and maximizing the scale-of-success of the few that don’t fail.

To reiterate, we are successful if as many of the founders we invest in go on to succeed as possible. I think this better aligns with founders, versus our incentive being for the few that succeed to be as big as possible, though opinions may vary.


Our strategy to make the math work, and challenge the law of startup physics, is two-fold.

First, we seek to slightly flatten the distribution of outcomes in our portfolio through filtering and selecting companies and founders with lower outright risk in the business model, in markets with less competition and winner-take-all effects, where the founders have an unfair advantage and niche expertise. The distribution should have more successes even at the expense of a lower chance of backing a massive outlier success.

Second, we seek to make substantially more of the spectrum of outcomes a success for both the founders and the fund by helping founders grow through cashflow or with non-dilutive capital. Many of the “zombie” firms (eg $5m ARR, profitable, growing 20% per year) in funds mis-applying the venture model to good SaaS business plans would be successes for us, even as they have been practically written off as “fund-makers” never to be.

In our first fund, our approach to the math looks like this. For each investment opportunity we structure our terms based on a very simple model that shows a range of results for the business from typically 3x to 7x our investment for outcomes that we think would represent success for the founder, team, and investors. These scenarios are based on fairly conservative projections that the business gets back to default-alive with just it’s current capital raise, grows to profitability and we see a return through a combination of Shared Earnings, proceeds of a sale of the business, or a secondary transaction of our interest if the business is still growing strong toward the end of our fund life. We completely ignore the chances that the business catches lightning and decides to raise a monster round of VC (on their terms, having put themselves in a position of not needing the additional capital) or an out of the blue strategic acquisition for a huge multiple; any of those would be gravy in our forecast. This means we need to see a 50-65% success rate (meaning companies that don’t outright fail and at least return some of their investment) to have a fund that returns >3x our investors’ money. Despite the constant discussion of grand slam 50x investments, fund-level returns in early-stage venture are fairly underwhelming where the median venture fund simply gets investors their money back over ten years (or worse). Despite doing something fundamentally different from early-stage venture, we know that most potential LPs will benchmark us against it and be considering making an allocation out of their capital ear-marked for VC. So at the Calm Company Fund, we are striving to consistently generate 3x or better returns, which would put us in the top decile or so of venture firms with a much lower concentration of returns in the portfolio and much faster liquidity (via Shared Earnings) in a world where venture-backed companies are increasingly staying private longer and longer.

I believe that this entire thesis—from the macro level winds at our back, to the specific choices we have made around around investing structure and strategy— makes a compelling case that we can do this, but it is fundamentally a bet without a huge compelling body of data to support it.

Except for the late-stage private equity firms mentioned previously, nobody has built a portfolio of bootstrappers nor had any vested interest in reporting the results of failure rates, sizes of successes or total potential return from investing in a basket of these companies at the early stage… at least until now. We are starting to see early, promising results, but the fact remains that, like nearly all investors who generate outsized returns, we are taking a fundamental bet into uncertainty in this one core way.

But what general evidence do we have that this could work?


While some have called what we are doing “Alternative VC” (or alt-VC) I don’t approve of the label. Unicorn-hunting is not the only known way in the investing universe to earn a return by backing entrepreneurs companies. Public markets and later-stage private equity have long held that there is a spectrum of investing methodologies with growth investing at one end and value investing at the other. Growth investing is based primarily on the expectation that the business will grow fast and be valued more highly by subsequent investors and gives little heed to whether the business is expected to generate profits at any point, whereas value investing builds a model of the expected stream of future profits from the financials of a business and attempts to put a present value on it. Neither is universally better and both are considered valid ways of investing in companies in the public markets and in later-stage private equity.

But at the early stage, where businesses are valued at $10m or less and the investment checks sizes are below a few million dollars, value investing has traditionally been ignored. Competitive seed rounds have made valuation a function of supply and demand (how high can founders raise the valuation before investors start dropping out) and it has been presumed that there just isn’t enough information, when it may be just a few founders and a prototype, at this stage to bother doing a fundamental analysis. Unicorns like Slack, that started as completely different products and companies before a major pivot, have taught investors to ignore the actual underlying business and just back smart founders who will “figure it out.” I won’t speak to whether these are rational developments in the world of venture, but I will argue that it has made early stage investors miss a relatively new opportunity.

The Peace Dividend of the SaaS Wars and the ability of founders and small teams to ship real products means you can now frequently do fundamental value investing level analysis of companies even when the check sizes look like a seed round. We frequently find ourselves looking to write a $150k-250k check, which will be the entire investment round, and doing diligence on a company built by one or two founders that, without raising any capital, has 100s of customers, a reasonable understanding of their customer acquisition funnel, a year or more of metrics on monthly recurring revenue growth, customer churn, expansion revenue, and lifetime value. This is still “early” so we do still have to heavily evaluate the founders, strategy, and target market. But you can also evaluate the actual business!

Essentially you can now get to the level of uncertainty in a later-stage private equity round at a stage and investment size typically associated with seed-stage uncertainty. This is our unfair advantage. Please don’t tell anybody else about it.


Like all investors, our investment criteria is not a set of iron glad rules that I rigidly follow but this does represent the center of gravity that I try not to venture too far from in multiple ways in the same investment.

Our public FAQ page lists out the three main buckets we evaluate for whether a company is the right stage for a Calm Company Fund investment. Simply put we expect the company to already have some evidence of 1/ the team as it currently exists has built a working version of the product that is useful to customers 2/ customers are paying a reasonable price (not deeply discounted/free) for it and 3/ they have at least one channel for acquiring new customers beyond their personal network.

We believe recurring revenue is the lifeblood of a Calm Company and focus most of the portfolio with explicit subscription revenue models or recurring use cases (and early evidence customer stay subscribers for the long haul or come back as repeat customers).

A linchpin of what makes the Shared Earnings Agreement work is the potential for the business to grow through free cashflow and eventually throw off very substantial profits. This requires “high” operating margins. We don’t have a specific number, but do benchmark against the kind of margins you see in SaaS businesses.

We are one of the very few remote-first investment funds. The team is remote, the community of founders and mentors is remote. Our investment and diligence process does not require an in-person meeting. We do believe that building businesses remote-first is a long-term competitive advantage. It is absolutely not a requirement that companies we invest in be remote teams, but nearly all of the companies we have invested in to date are.

One of the conclusions of our macro view of the world is that opportunities in interesting business niches are now numerous and it now makes sense to build products for these industries and use cases. But distribution can still be challenging. This is not a hard requirement, but we find the best solution to this is investing in a founder that has had a career in or otherwise deeply understands this market niche and has an unfair personal advantage in distribution and product intuition.

I am often asked how our evaluation process differs from VC/growth investors from metrics perspective. My simple answer is that we evaluate and prioritize metrics in the customer lifecycle bottom-to-top while growth investors prioritize top-to-bottom. Growth investors are primarily concerned with top line growth, customer growth, growth in pageviews and trial signups; and while churn is not ignored, it’s something that can be fixed later with product iterations, new features, or expanding into adjacent markets. We take the opposite approach and strongly prioritize low (or ideally “net negative”) churn where customers stick around effectively forever, a high average revenue per customer where the product adds mission critical value to the customer, a high percentage of conversion of free trials to paid customers meaning the product deeply resonates and acquisition campaigns will be very efficient. Top line growth is not ignored of course, but it’s much further down the priority that metrics that indicate the products deeply resonates and solves a core problem for the target market.

The Canonical Calm Company
What we have learned after evaluating 1,000+ businesses in year 1 of operation is that the canonical business for us looks like this:

  • A founder works in a specific industry, trade, or segment of the economy and identifies a pain point still being done by hand with spreadsheets, email, or sticky notes.
  • The first order total addressable market, while large enough to build a real profitable business, is too small for VCs to back or for tech giants to serve.
  • She learns to code or finds a technical co-founder and builds a specific SaaS or software-enabled solution. The pain point is large enough, and with no direct tech-based competition, they can charge a substantial average revenue per customer of at least $100s/mo or $1,000s/year
  • Potential customers are well known and the target market well-defined (“film production studios” and not “people in leadership roles”) and the founder can find their first 25-50 customer manually through founder-led sales.
  • The product quickly becomes the no-brainer default solution in the industry. Non-revolutionary customer acquisition strategies like long-tail keywords, attending industry trade shows, and customer referral programs have a strong ROI due to tight product-market focus and efficiency in the funnel from free trial conversion to churn.
  • Of course this is early-stage investing so we frequently make investments that look nothing like this, but a little more than half of our initial portfolio looks very similar to this in most respects or has characteristics that achieve the same results.

6/ The (Early) Results: It’s working

This is the one section where I don’t feel I can comfortably share the precise details of the performance so far. I’ll be preparing a more detailed analysis later this quarter but it will have to remain private and by request for now.

Recognizing that the data here is very early, the headline is that our funding for bootstrappers model is working extremely well. The portfolio so far is performing well above our median expectations. We have taken some genuine risks, in many cases investing in founders that had only built products as side projects while working full-time or freelancing and writing the check that allowed them to go full-time on the business. And we are getting rewarded adequately for that risk with very substantial performance from the companies and talented founders post-investment.

The Calm Company Fund went live at the end of February 2019 and made 13 total investments in the year. So to reiterate, we are only just approaching 12 months of data for our earliest investments and some investments are only a few months old. We are still being extremely cautious about drawing any overall conclusions.

Of the 13 investments, nearly all of them have reached break-even default-alive status, getting there in a very rough average of 6-9 months. None of the businesses have failed. Other than the general axiom that “some businesses have to fail” we don’t see any indications that 100% of them won’t at least reach a simple level of founder-break-even, where the company generates enough revenue to cover the existing team and pay the founders a sustainable salary. Some are seeing slow and steady growth, while others have seen 5x, 7x, and 11x MRR growth in less than a year, showing our model not preclude fast growing businesses.

Although we did not have a fully rigorous system to track all of our inbound deal flow (something in the roadmap) the simple answer is that we saw way way too many good opportunities to invest. We saw at least 1,000+ investment opportunities (a mix of formal applications, cold outreach, and referrals) and many more than 13 met the investment criteria for our portfolio construction model, allowing us to be exceptionally picky.

The volume of dealflow and overall interest directly led to perhaps our worst performing part of the fund: communications with founders… especially ones we choose not to invest in. My personal bandwidth was a key constraint in this regard and in many cases I was not able to follow up with founders at all, something I regret and would like to improve in the future.

Broadly we are almost never competing with other funds or financial products and most founders we speak to are exclusively considering either bootstrapping or working with us. We have been able to agree on Shared Earnings Agreement terms that believe make our financial work well and are fair to founders.

Skin in the game Mentorship is working. The community is striking the right balance between support and motivation and over-bearing “here’s the formula for how we did it that you must follow” curriculum approach. Lots to build on and improve but happy with early results.

Readers of my monthly investor letter will know I’m highly cautious with projections and not one for overly optimistic projections but there is effectively no other way to interpret the results so far.

The basic strategy we are deploying is working, quite well in fact.

7/ The Future: A sustainable advantage in funding for bootstrappers

So far this thesis has primarily made the case for investing in Calm Companies, but what’s the case for the Calm Company Fund itself?

I tell every investor I meet that I want there to be dozens more firms investing in these kinds of businesses… I just want to run the firm that is the best at it.

We are still in the very early days of exploring this strategy but I believe that the Calm Company Fund is laying the ground work for a sustainable long-term competitive advantage in backing the best founders at the vanguard of an explosion in this part of the economy. We invested in 13 companies in our first year, built a network of 40 skin-in-the-game mentors, launched a private (investors and founders-only) podcast and several newsletters. We did hundreds of good tweets and launched the first in-real-life extension of our remote community in the Founder Summit. I believe the opportunity here is immense and the plan is start adding zeroes to the end of all of those outputs and back 100s and ultimately 1,000s of entrepreneurs per year.

The core of our long-term competitive advantage comes from three simple principles:

  1. Create alignment (through empathy)
  2. Tell the truth (transparency)
  3. Don’t take ourselves too seriously (have fun)



From day one (and continuing to the publishing of this draft memo) we have experimented with a level of transparency virtually unheard of in the investing world. I tell everyone that I am one-trick pony when it comes to marketing—long-form radically transparent prose—but that this turns out to be exactly the one trick needed for this venture. This has been a phenomenal advantage for Earnest in the form of earned media, brand recognition, and word of mouth referrals that have allowed us to punch far far above our weight from the beginning.

Everything about the Calm Company Fund is designed from first principles and we have made several very opinionated decisions—from the way we structure our investments, to our approach to mentorship, to being completely remote—with potential for backlash and some amount of controversy. But by and large these decisions have consistently been lauded by founders and there’s a reason for it: listening to founders about what they need to be successful and deeply empathizing with their challenges and goals. I don’t consider Earnest “founder friendly” because it implies to me a zero-sum scenario in which investors are trying to beat out other investors by giving up more of something (equity, control, protection, who knows) to the founder. I strive for Earnest to be founder-aligned, where we relentlessly refine every aspect of our process, strategy, LP base, terms, team and community to be as aligned with founders’ interests as possible.


We will always be built on radical transparency. We believe this critical earning and retaining the trust of founders and keeps us accountable to our goals of being founder-aligned.

We will continue with first principles thinking and experimentation with an open dialog with the founder community.

We will continue to grow a network of skin-in-the-game mentors and our broader network of values-aligned founders. If you are interested in joining as a Calm Company Fund mentor, please start by filling out the interest form here.


Expand the investing team with Calm Company Fund Operators. Some investing firms are built on the individual exceptionalism of the investing founders… that’s not the road I want us to go down. If we are going to back 100s and 1,000s of founders per year and fuel a huge expansion in Calm Fund-style entrepreneurship it is imperative that we quickly move beyond me making 100% of the investment decisions. I’m giving a great deal of thought about to expand the investing team beyond me and we will start by opening a small number of roles modeled after the “venture partner” role in VC called Earnest Operators. These positions would be a bridge to a true investing role with each partner staking out an area of focus (by industry, business model, geography), have an allocated portion of the fund, source and vet their own deals, collaboratively come to an investment decision with me, and get carry (a portion of the profits of the investment) in their deals and overall. More to come on this later in the year, but for those interested the best way to start it is to request to be mentor.

Tools to systematize our process and simplify the experience for founders. Early-Stage Value Investing needs a better toolkit and we intend to spend significant time and energy building them. Much of the fundamental analysis we do from analyzing and benchmarking key business metrics, finding and evaluating the competitive landscape, reference checking founders and customers, could be better systematized and automated. Ultimately I believe we are operating in an area of risk that cannot be fully underwritten in an a largely automated fashion in the way some revenue-based financing products seem headed. Well trained and experienced investors will still to make the final bets, but there is much we can do to make the process faster and more efficient for investors and founders alike.

Expand our shared resources & in-house experts. One of the easiest wins here has been founders comparing notes on solutions to the ubiquitous challenges of running any business: payroll and benefits, bookkeeping, accounting, taxes and financial modeling, planning team retreats and building culture. As we grow, we will move from simply having good recommendations for these problems to having professionals on hand for the entire portfolio to leverage. I consider this quite different from the focus on design, PR, and head-hunting that some funds have tried along these lines.

8/ The Bets: What questions will Calm Fund 2 seek to answer

To generate attractive returns, any venture, including a new fund, needs to be making a fundamental bet into some amount of uncertainty. I try to be explicit about what those bets are both for the long-term arc of the Calm Company Fund 2 and each individual fund within the journey.

Our first fund, which I called our Pilot Fund asked a three distinct questions, two of which we have answers for and one we only have early positive indication on:

  1. Would the bootstrapper community react positively to the SEAL structure and could we close deals with great founders on SEAL terms that make our fund economics work?
  2. Would we be able to work with the most talented founders operating with a bootstrappers mindset, or would there be adverse selection where the best bootstrappers do just fine without investment and only the ones who struggle to get traction show up looking for investment?
  3. Does our basic bet on portfolio construction work? Can we make early stage investments and see a high percentage of those companies go on to succeed?

The answer to the first two questions has been a resounding “Yes!” I believe in part because of the collaborative and transparent way we designed and rolled out the Shared Earnings Agreement, the overall response has been very positive. Most founders I speak to assess it as a reasonably fair way to align incentives between investors and founders who want to focus on building a profitable sustainable business, while keeping their options open. We are also finding that there is very little adverse selection. The best founders, much like the many successful ones we spoke to during the process, can still make good use of capital in the very early stages of building their business and the Calm Company Fund is operating at a phase of the business where literally the only capital alternatives are seed VC, friends and family, or credit cards. Even founders who don’t technically need the capital are excited to work with us, seeing the benefits of the mentor network, shared resources, and community of other founders. Indeed most of the businesses we have invested in could have executed on their business plan without the capital, though it would have taken enough extra time that the capital becomes a sensible choice. Of the few deals where we offered terms and didn’t close, the majority of those came from founders who were excited about the prospect of working with us, but decided to continue bootstrapping “for now” and re-evaluate in the future.

Question #3 is the fundamental bet at the heart of the Calm Company Fund and we won’t get definitive answers until the portfolio reaches somewhere around 5-7 years of maturity, however the (admittedly very early) data on the quality of founders and businesses we’ve been fortunate to invest in and their post-investment performance is very promising.

For our Fund 2, we’ll continue asking question #3 from Fund 1 and won’t have definitive answers until the portfolio matures in several more years. This is partially the reason for this open source investment thesis. We simply can’t point to a dataset of any significant size to argue that a portfolio of “bootstrappers” will have a higher rate of success, or more importantly how much higher, than a basket of similar companies pursuing venture-scale growth. To make this work, we have to rely on a mix of theory and the gut intuition of the many many bootstrapping founders whose direct experience concurs.

We’ll also be making few new bets with the second fund:

  1. Can we scale its investing capacity beyond just me? If we are to reach our goals of backing 100s and then 1,000s of entrepreneurs per year, we must be able to empower more people with investing decision-making. As explained above, we’ll begin experimenting with a few roles that source and vet investment opportunities and use those collaborations to build best practices around teaching (and iterating) our unique investing point of view.
  2. Are there enough founders in enough niches for this model to grow rapidly? Calm Fund 1 was inundated with investment opportunities from before we even launched, but I firmly believe that the opportunity here is larger than the entirety of the venture capital asset class. For that reason our current long-term plan is to scale up the Calm Company Fund much more quickly than you would expect of typical VC franchise. In committing ourselves to deploy more capital, we’ll test whether there is enough demand… although that this point this seems like an incredibly low-risk bet.
  3. Do the fund economics actually work? Calm Fund 1 was a micro-fund and unsustainable for forming a long-term platform. Fund 2 will be our first attempt and running the full math on whether we can build the team we need, vet the opportunities, service a growing portfolio on a fees and carry structure that is market competitive.
  4. Can we expand beyond our B2B SaaS comfort zone? Fund 1 has several bets outside of B2B SaaS but candidly this subset of business models has dominated our approach to date. It seems to be the most maximally aligned approach with our economics and happens to be the area I personally know best. In collaboration with our partner roles, we will look to run a few small tests that are clearly outside of the B2B SaaS arena to see how well our approach resonates there.


As mentioned at the top, this is a draft of ideas for a second calm fund, but here is currently the way we plan to answer these questions going.

Our second fund will be larger than our pilot fund, though still quite small by seed fund standards. The plan is $25-30m. We’ve updated our fund strategy to double down on building the Calm Company Fund with entrepreneurs, angels, and real people. Learn more about our quarterly LP subscriptions approach.

We’ll continue roughly the same investing pace over a longer period of time (we expect to fully deploy our Pilot Fund in 18 months). In addition to a longer deployment period, the larger fund will enable us to do two things:

  1. Write slightly larger checks of up to $500k. For our pilot fund our check size was $50k-250k and we have been deploying with an average of about $150k. But we often meet entrepreneurs with a credible plan to raise more in the $250k-$500k range. On a few of our deals we have successfully led and syndicate a small round allowing angels to co-invest alongside us on SEAL terms, but the process is time-intensive and I believe it makes sense for us to at least have the option to take the whole round ourselves when the situations warrants.
  2. Run several Calm Company Fund Operator experiments. There are many talented entrepreneurs and investors with their own expertise and sources of dealflow. I have made it clear from the start that empowering more people to make investments in Earnest Founders is one of our top priorities and Earnest Operators, who will have a real seat at the table including an official designation as “our point person on X” and will work closely with me on investment decisions, will be our first foray into empowering more investors in this space. The long-term plan is to bring the most successful Operators on as full investing partners to help Earnest scale horizontally and do more investments per year.

Although we will still keep a very lean team, we will begin making more investments in systematizing our process in a toolkit for Early Stage Value Investing.

Above all we’ll continue our commitment to helping entrepreneurs build calm, sustainable, profitable businesses and making sure every step we take keeps up as aligned as possible with those founders. It’s been amazing to see the response to the Calm Company Fund so far and I can’t wait to see what we can build together if we keep at it.

​Investment strategy

Market Overview

In the last 10-15 years bootstrapped, internet-enabled, technology businesses have grown into a thriving market driven by two main themes:

  • Dramatic reductions in the upfront cost to launch a software or technology business on the internet. Beginning with Amazon AWS allowing incredibly low cost, easily scalable servers, and continuing with an expanding universe of SaaS platform tools like Heroku, Stripe, Cloudflare, Intercom, etc. Products like Shopify have exploded the number of niche e-commerce businesses and WordPress, Substack, Patreon have opened new avenues for profitable content businesses. It has become possible for a single founder or small team to build and launch a working minimum viable product (MVP) and acquire paying customers with no upfront capital.
  • Backlash to the venture capital and the Silicon Valley approach to startups. The venture-funded world of technology startups dominates the news and culture but many talented entrepreneurs and developers reject the ideas of growth at all costs, the binary choice between building a billion dollar business and flaming out, 70+ hour work weeks and businesses without profits or a sustainable business model. Communities like MicroConf, Indiehackers, and the Dynamite Circle are filled with entrepreneurs building internet-enabled, profitable, sustainable businesses. The appeal of this kind of business is growing enormously along with the number of new businesses in the space.

The word “bootstrapped” narrowly means a business built without outside capital, but it has come to represent a culture of entrepreneurship that explicitly rejects many aspects of the venture-backed startup culture.

Specifically bootstrapped entrepreneurs reject:

  • Forcing founders to push for billion-dollar exits no matter the risk
  • Founders losing control of their personal life and company destiny due to multiple rounds of investment
  • A culture of workaholics and a lack of diversity
  • Valuing paper valuations over real businesses with sustainable sources of profits and competitive advantage
  • Forcing employees to live in expensive cities

Bootstrappers by contrast:

  • Prefer profits over paper valuations and hype
  • Avoid moonshots and prefer a much higher probability of success
  • Value longevity and viability of a business over growth at all costs
  • Balance business growth with founder, employee, and customer happiness
  • Prefer remote and flexible teams

Bootstrappers don’t raise capital because there are no aligned capital options for them.

Most capital options for tech entrepreneurs have either been (1) a terrible fit for their business like bank loans and credit cards or (2) traditional venture capital, rejected for the reasons above. Thus “bootstrapper” founders frequently conflate the values of this particular approach to entrepreneurship with never taking outside capital. This is a market failure and our opportunity.

The right fund with appropriately creative financial products could offer capital and back these businesses and persuade them that capital can be an effective tool for their business without compromising these values.

These businesses are a strong investment opportunity

Broadly there are four main types of businesses in this space in decreasing order of focus for the Calm Company Fund:

  1. Software as a Service (SaaS): which is sold on a monthly/annual subscription basis
  2. Information Products: ebooks, online courses & screencasts ideally bundled into a membership product.
  3. Niche E-commerce: hyper-targeted e-commerce businesses ideally with a key innovation that limits inventory requirements
  4. Content & Media: Independent media, websites, and newsletters with a recurring monthly membership or patronage model.

These businesses are frequently bootstrapped but offer very strong investment economics for the following reasons:

  • Recurring revenue products. Most of these businesses are transitioning to recurring revenue business models which provides predictability and de-risks revenue forecasts.
  • Low overhead and near-zero marginal cost. Most of the businesses run remote teams with no office space. The primary costs are employees and other software platforms which are paid monthly and scale nicely with the business. This means there is typically little to no overhead, zero marginal costs and no lumpy investment costs. This allows founders to optimize nicely between investing in growth and reaping profits at a granular level.
  • Dominate niches. The internet enables these businesses to serve the entire world as a potential customer base. Because of their low overhead and costs, theses businesses can be very successful and profitable even with a comparably small audience. Thus innumerable niches, too small to be targeted effectively by the largest companies, can be a suitable base for a profitable business
  • Maker-Founders with strong track records. Because the time and energy required to launch a product has been dropping so precipitously, many current founders have a long track record of building and launching functional products. Execution risk is substantially lower than elsewhere.

Investment Thesis

The Calm Company Fund will make three kinds of investments outlined below. They are presented in order of the expected size of investment but Thesis 2 will be the focus of this fund.

Thesis 1 – Incubate: Enabling a broader spectrum of founders to go full-time on their products

Even as the model of bootstrapping a software business has become perceived to be less risky and more widely known, there are still a huge number of potential founders with the skills to build profitable software businesses that are unable to make the leap into working on their products full-time. Specifically, some of the most common obstacles are:

  • Family and other dependents and obligations.
  • Mortgages, student loans, and other financial liabilities
  • Under-privileged background, lack of family wealth and support, risk in reentry to the job market if the business fails

An incubator-sized amount of capital ($25-100k) could allow founder(s) to work full-time on a pre-product-market-fit business.

Thesis 2 – Accelerate: Early-stage growth capital experienced founders in competitive markets

Experienced and talented founders are increasingly finding that the software market is no longer a blue ocean. Many niche markets have several competitors and there is an increasing interest in the idea of growth capital for businesses that might have stayed bootstrapped 5-10 years ago. Even ardent bootstrappers are beginning to realize the value of a capital infusion shortly after early product-market-fit to outrun competitors and accelerate customer acquisition and scaling.

An accelerator-sized investment ($100-250k) structured in a way that aligned the fund with the goal of a profitable independent business would be increasingly attractive to top-tier founders.

Thesis 3 – Diversify: Enable founders of profitable businesses to “take chips off the table”

Founders of successful profitable software businesses currently have very few options to diversify their personal finances while retaining some upside in the business they built. The primary model is a full sale of the business via a small number of niche brokers. The pool of capital available for sale is mature but still relatively small and there are almost no options to sell a portion of the business to “take some chips off the table.” Finally, the market lacks a go-to financing structure for an outside investor to buy a portion of the business and be paid back primarily through profit-sharing versus a liquidity event.

As the first big waves of successful bootstrapped businesses start to hit years 5-10 of operation, founders will increasingly want to liquidate a portion of their businesses to (a) diversify their personal finances which are heavily concentrated in one business (b) fund significant life events like a house, college tuition, etc. An investment option ranging from $250k-$1m+ would generate returns from immediate participation in profits.

Investment Structure

The Calm Company Fund will use an investment structure aligned with founders’ goals and businesses who ultimately aim to become sustainable and profitable while offering competitive risk-adjusted returns.


  • Allow founder to grow the business sustainably
  • Incentivize profitable businesses and allow investors to participate in profits
  • Avoid incentives to force a liquidity event or follow-on investments.
  • Explicitly acknowledge the founder’s livelihood, family obligation, “life outside business”
  • Build in options to participate in rocket ships
  • Sensible structures that maximize founder optionality
  • Be “patient capital” — no promise of hyper-growth or paper returns to LPs

Structure details

  • Fund participates in profit share
  • Founders pay themselves a salary up to a cap (negotiated, but based on a simple formula) any profits above that are considered dividends
  • Fund claims 15-30% share of dividends with a lifetime cap of 3-4x invested capital.
  • Fund has a discounted option for equity stake in the event of (1) a significant funding event or (2) sale of the company.
  • Option is reduced over time by dividend payments but does not reduce to 0% so that fund retains some upside in the event of catching a rocketship.


Fund invests $200k in Thesis 2 company.

Over next 5 years fund receives $700k (3.5x) in dividends.

Dividend share ceases.

Fund retains a minimum 2% in options on the business.

Fund invest $75k in Thesis 1 company.

Initially has equity option for 15% of business.

In years 2-3 fund is paid back $100k of dividends (of $300k total cap). Implied ownership stake is “paid down” to 10%

In year 4 business is sold for $1.5m. Option converts and Fund receives $150k (10% of sale).

Fund invests $100k in Thesis 1 company.

Product hits early product-market-fit and raises a seed round at $2m pre.

The investment converts at 20% discount: $100k / ($2m * 80%) = 6.25%

No further profit-share.

Fund Structure

Target fund size

$5-10m deployed over 3-4 years.

By Founders for Founders

The Calm Company Fund is primarily raising capital directly from successful founders and, in rare cases, funds managed by previous founders and operators.

Everything from the risk/return profile, to the language we use, will be optimized and aligned with founders long-term interests.

Goals of the operating structure

  • Simple legal structure.
  • Minimize fund overhead (remote team, streamlined operation)

Incubator/Accelerator Value-adds

Fund 1 will begin testing the cost-benefits of various value-adds such as:

  • Coaching, mentoring, guest lectures
  • Cohort networking (dedicated Slack or forum for portfolio companies)
  • Clarity/coaching on future exit opportunities
  • Dedicated resources for common services: legal, accounting, HR, payroll

A key component of a true accelerator is creating a defined investment offering with clear terms that many founders/businesses can apply for. At this stage, EC Fund 1 will optimize for learning exactly what that ideal early-stage investment structure is for the target market. If the opportunity presents it self, we may carve out a chunk of the fund for a batched accelerator pending further research.

Additional Fund Principles

Diversifying & Expanding the entrepreneurial ecosystem

There’s not a ton of diversity among successful founders of bootstrapped startups. One thing I think the world of venture capital is making good progress on is starting to acknowledge privilege and a structural lack of diversity and providing more opportunities for founders who don’t fit the typical stereotype. I’m not saying they’re great at it, but all it takes is a few dedicated funds or committed VCs to decide they want to fund more women, more people of color, more people in a different age bracket or from a different part of the world and it happens. The bootstrapped startup world doesn’t have those kinds of mechanisms and I think it is to it’s detriment.

Clear decision-making & feedback

One of the worst things about the VC world is the way that they will never ever give you a clear: No. They always want to maintain the option to invest later, or jump on a round if another VC decides to lead it, so every pitch that doesn’t end in “Yes” will end with some form of open-ended feedback or critique. I hated that so much, if you’re not going to invest, just tell me and give me some clear reasoning. We will always give founders (who request it… sometimes it makes sense for both parties to have an open-ended discussion) a clear decision in 14 days with our honest feedback.

Optimized for Learning

This fund will be breaking new ground in many different ways. Pursuing multiple theses at once and maximizing flexibility in the first fund will lay the groundwork to scale successful investments in the future. This fund structure will all significant experimentation which could substantially de-risk a more structured incubator, accelerator, startup studio or larger follow-on funds.

Lean, Remote, Flexible

Build the fund like the businesses it works with. Remote-friendly, flexible, lean, transparent.

Comparables, Competitors

Part of the opportunity is that there are very few comparable or competitors in this space.

Risks to Mitigate

“Don’t take on venture risk for debt returns” – Bryce from

Adverse Selection.  It’s possible the best entrepreneurs in this space are hustling without capital and only second-tier founders would end up taking the money. Not likely, but a risk to pay attention to.

Bootstrapper culture backlash. A large subset of bootstrapper culture has become quasi-religious about not taking capital at all. A commitment to be transparent and to engage with the community with be essential.

What we invest in

At Calm Company Fund we talk a lot about the need for “funding for bootstrappers” to help entrepreneurs build calm profitable sustainable businesses.

While we think that thesis represents a huge market that could apply to a broad range of entrepreneurs and companies, we only invest in within our circle of competence. Our existing portfolio may give some guidance to the kinds of things we’re interested in.

Like all investors, we don’t have anywhere near perfect ability to forecast all the kinds of founders and investors we might want to invest in, so while we are trying to give some guidance here toward the kinds of opportunities we are likely to invest in, we will definitely break these rules and invest in companies that don’t meet every single criteria. Take all this with a grain of salt.

Various things we are particularly interested in right now are:
– B2B SaaS targeting niches or specific industries
– Developer tools
– Remote tools for remote teams
‍- The “picks & shovels” of online entrepreneurship (software that enables building online businesses)
– Online education and personal development communities, membership models, platforms

We do not invest in pre-product or idea stage businesses. We believe that most businesses we are likely to invest in can be bootstrapped to some kind of early launch. We’re okay with a Minimum Viable Product but it needs to actually “work” on some level and provide value to customers. We can invest in an MVP, but not a proof of concept.

Broadly I describe the minimum stage of investment for Calm Company Fund as having at least one solid answer in each of three buckets:

‍Can you build it? We need to see that the team can build at least a minimal version of the product. We don’t invest if the plan is turn around spend that investment capital hiring an outside team to build the real product.

‍Will people pay for it? We need to see evidence that customers will pay a reasonably full price for the product. We don’t do pre-revenue and also can’t invest yet if you just a deeply discounted pre-launch or pilot program. A growing number (even if small) of real customers paying full price is ideal.

‍Can you find customers? We need to see evidence of at least one repeatable channel of acquiring customers that isn’t just your friends, colleagues, or people you know. Any channel will do.

The ideal stage for our model is typically in the $2k – $25k in monthly revenue range. Though we’ve invested in businesses already nearing $1m in annual revenue and (one time) pre-revenue.

The way I describe this is that our center of gravity is B2B software-as-a-service (SaaS). Recurring revenue, high margin, software businesses are our bread and butter and represent the bulk of our investments. It’s a model we know well and what we optimize Calm Company Fund for.

That said, it’s a center of gravity not a rule. We have done a substantial number of investment in companies that don’t have this exact business model.

Recurring revenue, high margin, but not software? We can get there.

High margin, software, but not recurring? Not a dealbreaker.

But we are highly unlikely to invest in a low margin, inventory heavy, one-time sale, physical product. For example.

Here we tend to be wide open. We love to back entrepreneurs going after niche B2B markets but we don’t have any high level constraints on markets we will or won’t back. If VCs have been telling you your market is not big enough or too niche… we definitely want to chat.

We are not the best fit investors for founders who have a business plan of raising millions more in capital every 12 to 18 months. We’re not opposed to our founders raising more capital later on, but we have a strong preference for opportunities where the Plan A after raising from us is to get to break-even and grow the business through cashflows. Typically founders raising more than $2m will not be a fit for us.

Investment questions

We published what we invest in to give a sense of the general stage of a business, check size, geography, sectors, etc. that we are interested as a fund. But we will still see hundreds and hundreds of companies that broadly fit those criteria, so how then do we filter down to the founders and companies we decide to invest in? Below are several core questions I ask myself when working on an investment decision.

Is the market a fit for our thesis? Will other founders + VCs pile in if the market is proven? Can they create a micro-monopoly?

The common wisdom in venture is to look for founders attacking big markets. “If everything goes right how big can this get?” is a common mental model. We take a distinctly opposite approach:

  1. We look for opportunities where the company can build a micro-monopoly, becoming the dominant go-to product in a market that is otherwise too small for BigCos or VC-backed founders to want to compete in.
  2. We actively avoid markets that are obviously hot or likely to attract tons of founders and investors piling in. Escape competition through niching.

Do the founders have an unfair advantage?

Building a great company without raising tons of outside capital and giving up most of your company is hard. Successful founders often have earned some kind of unfair advantage prior to starting this company. I usually look for an unfair advantage in either differentiation or distribution… or both.

Differentiation is about the ability to build a product that is significantly (investors will always say “10x”) better than the next best alternative, weather an existing product or some other manual or expensive process.

Distribution is about being incredibly effective at reaching and converting your target audience.

Note: This is often explains the dividing line between a “good business that you should stick to bootstrapping” and one we can back and get a good return.

Some examples of unfair advantages:

  • Deep industry expertise: you will see a ton of portfolio companies at Earnest that follow a similar pattern: a founder works in a specific relatively niche industry, discovers the software they have available is terrible, either learns to code or finds a technical co-founder, and builds software for the industry they know extremely well.
  • Super-Builder & Pace: sometimes you meet founders who are simply highly effective prolific product builders that can crank out high quality product improvements at an incredible pace. Even without industry specific knowledge, this unfair advantage can be a huge boost early on. Another variation of this would be a founder that is incredible at direct sales.
  • Audience + Market Trust: I don’t believe an audience is a necessary pre-condition for a successful startup, but spending years in advance building up the trust of an audience that is either directly in your target market or adjacent to it is an excellent way to get cheap high quality distribution to help the business get to critical mass.

Is there market momentum? Is demand intense enough? Is it “secret”?

When thinking about the demand or the market for the product, I think in terms of intensity and momentum. Ideally, this demand is non-obvious some sort of secret discovered by the founder .

Intensity: Ideally the demand for the product is intense. This is related to the “is this a pain pill or a vitamin” question but I don’t think that’s as important of a distinction as getting a feel for just how intense the demand is. If it solves a really big pain or is a vitamin that gives you freaking superpowers, that’s better than either with only modest demand. A good indicator here is a really strong average revenue per customer (for SMB SaaS something like $200+/mo. per customer) and very low or negative churn.

Momentum: manufacturing underlying demand is very hard and expensive (eg an old school Mad Men-style marketing campaign) so ideally we’re looking for demand that has a natural increasing pace to it where more and more potential customers are showing up each month. Momentum will most obviously show up in organic customer acquisition channels generated a good flow of trials each month. But more often than not we have to assess this qualitatively.

Secret: Markets that very publicly and obviously have momentum and intensity of demand often do not make great opportunities for bootstrappers and Earnest companies. When everybody can see it, they are likely to pile in and make differentiation and distribution much harder or more costly. The best markets have a kind of secret.

Some ways a good market can be secret:

  • Be Early: sometimes just living on the cutting edge and getting to a market first before it hits mainstream is enough.
  • Latent demand: it’s often best if the demand is not currently something your customer is explicitly spending money on, but is paying for it in other ways like with their time or frustration. This is harder to discover but more valuable when found.
  • Niche industry: it’s a recurring theme here but just operating in an area of the economy that isn’t well known is a great way to find secret demand.

Is the business capital efficient? Can this be “first check, last check”?

A fundamental aspect of our thesis is the idea that for many businesses it now takes a lot less capital to get to key milestones in the business. We try to avoid obviously capital-intensive businesses like e-commerce with a heavy inventory component, but we also look for non-obvious ways that the business could become capital intensive over time including a need to hire talent in a skillset that is highly in demand.

Some evidence of capital efficiency could be:

  • Full-stack in-house team: If the core team can build the product really well without pushing themselves to the limit, it’s incredibly valuable to have that slack in the business where you don’t absolutely need to hire more people to get to the next phase.
  • Very low/negative churn: efficiency throughout the customer acquisition funnel means lower pressure to grow every month to stay afloat, more optionality to find the best/cheapest way to continue growth.
  • Low break-even point for minimum viable team: this one is hard to describe but each business will likely have a “minimum viable team” where everyone is not burning the midnight oil, can take vacations, and isn’t constantly expected to do 3 different roles simultaneously. That point, and the amount of revenue needed to be at break-even, varies from business to business and a lower number is more capital efficient.

Is the business model in my circle of competence?

I often say that the Calm Company Fund thesis encompasses a huge mass of the economy in a way that is much broader than the kinds of businesses that Earnest, and more specifically “I” as only investing partner (for now), feel comfortable investing in. I try to stay within my circle of competence and understand when a business might otherwise be a good one, but not something I’m qualified make an investment decision on.

I generally describe this as: the center of gravity is B2B software as a service. A core piece of investing is backing founders and companies that push at the edges of your circle of competence. And learning quickly about the aspects of a business you don’t already understand is one of the most fun parts of the job. So I think the center of gravity concept makes sense where we may stray in B2B marketplaces, or technically B2C subscription apps that looks a lot like B2B, but we are never going to make a bet on a mobile gaming studio with in-app monetizing. Just not our circle of competence.

Are the founders values-aligned with the Calm Company Fund?

Last but most importantly, I am looking for founders and businesses that are aligned with our values at Earnest. This is doubly important since we do a lot more than write a check; we bring founders into a community of mentors and other founders who help each other solve problems, stay motivated, and succeed together. There’s more to it but I would summarize it as low-ego founders building calm companies who will balance the sustainability of their company and team with growth in a healthy way.

Fund 3


We believe that entrepreneurship is an inherent societal good and powerful lever for progress and human achievement.

Our mission is to maximize the number of successful internet entrepreneurs in the world through capital, mentorship, and community.


The long form version of our macros thesis is published here, but these are the highlights.

We are entering the Deployment Age of Software as the dominant opportunities in the software market move from winner-take-all open markets, to a steady process of applying the gains of software to every niche of the economy.

This shift is creating strong demand for a new default source of funding that isn’t the traditional venture capital model. The explosion of capital options—revenue-based financing, Clearbanc, Pipe, Stripe and Shopify Capital, and many more—is part of that search and it won’t be a winner-take-all market but there will be a new default path for entrepreneurs that looks more like:

Calm Funding to get started → Pipe/Clearbanc to extend cashflows as needed → RBF to build a sales & marketing engine → growth private equity for secondary liquidity and expanding to enterprise → debt to fund operations secured by mature recurring revenue.

“Pre-seed → YC → Seed → Series A → Series B… etc etc” will become the exception not the default as more and more entrepreneurial opportunities are asset-light and tech-heavy, but not “venture scale.”

The linchpin of what makes this transition possible is the Peace Dividend of the SaaS Wars that makes it faster, easier, cheaper than ever to build and launch a software of software-enabled business.

Software is Eating Entrepreneurship and the New American Dream is to own a profitable, high margin, low overhead, remote-first, SaaS or software-enabled business.

And it’s not just entrepreneurs who want to own these businesses, every flavor of private equity wants to buy them, putting steady upward pressure on the value for exits and/or secondaries.


We try to cultivate a first principles approach to problems we see in the market for funding early-stage companies. Too many of the best, or at least very common, practices in the industry haven’t been questioned or re-examined. If something doesn’t make sense for us or the founders we want to support, then we’ll build what we need to create better alignment.

Remote-first: We have been a remote-first organization from day one, well before COVID. It’s nice to see many funds adapt to the remote reality, but it’s in our DNA.

Shared Earnings Agreement: Traditional early-stage financing structures are not aligned with founders who want to build profitable companies and potentially never raise another round. So we created our own, in public, with collaboration from our community. Learn more about the SEAL.

Trailhead: The standard approach to pitching leaves a lot to be desired so we created our own product that allows founders to asynchronously build their pitch, with plenty of learning material from us along the way, and submit when they are ready. So we created Trailhead.

Skin in the game mentorship: Many mentorship programs fail as mentors are either unengaged or just there to upsell companies on their services. From day one we required everyone in our mentor community, now over 160 entrepreneurs and operators, to be an investor in the fund. This has worked incredibly well. Read more about our approach to mentorship.

Subscription Funds: Before rolling funds launched, we identified that the classic fund structure was misaligned with the priorities of our LP base, largely composed of individuals and entrepreneurs. We designed our own subscription fund model with fixed quarterly LP commitments and 1-year funds. In collaboration with our fund administrator, Aduro Advisors, we have built out our own highly automated and scalable back office to manage our fund structure with a very lean staff. Read the deep dive.

Carry-sharing for team + early LPs: Early LPs and team members rarely see the upside for launching a new investment company. We like to play long-term games where people who bet on us are appropriately rewarded. In 2020 we launched a carry-sharing program, carving out 20% of all carry across all our funds allocated across team members and early LPs. The benefits were 100% retroactive for former employees and Fund 1 LPs. Learn more about why we share carry and are so incredibly focused on aligned incentives.


The crux of what we are betting on is that the conventional thinking on how to invest in early-stage companies is, if not wrong, not the only way to do it successfully. The traditional model is based on power law outcomes where most of your investments fail, but a tiny few of them are mega-winners and generate all the returns. We think this is one way to do it, but that it’s not a law of physics that every portfolio has to look this way, especially in the Deployment Age of Software.

Our aim in investing is to generate returns that are competitive with top tier early stage venture firms, typically 3x cash-on-cash returns within 10 years, with two notable differences:

  1. Less concentration of returns and thus less overall risk. Diversification is the only free lunch in investing and our strategy is to hit a wide variety of “single, doubles, and triples” with the types of companies we back versus having all our returns concentrated in “mostly strike-outs and one home run” (apologies to the non-US crowd for the baseball analogies).
  2. Faster timeline to liquidity. Early stage venture investing usually means locking up your capital for nearly a decade until a multi-billion-dollar exit or IPO. We target a much faster time to seeing realized returns in our portfolio. Our initial, somewhat conservative, model expected the bulk of returns to be in years 4-7 of a fund, but from our earlier funds we are seeing an even faster timeline with Shared Earnings and exits within 2 years.

We underwrite our investments against a fairly conservative and boring model of the future opportunity for the companies we back. In the successful scenarios we’re modeling our target returns against: the company grows reasonably well through its own cashflows, becomes profitable enough to pay some Shared Earnings, and then we get some liquidity either through an exit or secondary at a very reasonable financial multiple. We don’t bake in strategic acquisitions at 50x revenue, hyper-growth inflection points, raising big growth follow-on rounds from a position of strength into our model. But of course, these things are all completely possible for the companies we back, they are just free asymmetric upside to our core thesis.

A good analogy is that we should have a distribution of outcomes that looks more like middle-market growth private equity investing but with earlier stage check sizes and more potential upside. This is made possible by the Peace Dividend of the SaaS Wars which means companies are substantially more de-risked when seeking a ~$200k investment than they were 5-10 years ago.

Here’s our unfair advantage in this current market: we are truly contrarian and backing companies that for the most part no other funds want to invest in. This means we are completely decoupled from the eye-popping valuations, driven by more and more VC funds fighting for access, of the latest YC batch. We make fair win-win investment offers at reasonable valuations.


The vast majority of our dealflow is inbound inquiries based on our written content on the site, social media, and word of mouth among like-minded entrepreneurs.

We are beginning to see flywheels spinning where new investment opportunities are being referred by our existing portfolio, existing LPs, and finding us through our community and events at the Founder Summit.

We leverage no-code automation and our Trailhead process to efficiently handle a high volume of inbound per GP.


Fund 1

  • Size: $3.1m
  • First Check: Feb 2019
  • Deployment Period: 18 months
  • Companies: 22
  • TVPI: 1.88x (as of Dec 2020, 22 months since first investment)
  • DPI: 0.35x (1 exit, 3 companies distributing Shared Earnings)
  • IRR: 40%+

Note: TVPI and IRR are calculated on an “as converted” basis using our internal (fairly conservative) valuation methodology which is outlined in more detail in this memo. TVPI is “Total Value to Paid In” which is [the current value of the all investments in the portfolio] + [all distributions to LPs from Shared Earnings and exits] / [the total initial fund amount].

Summary: Our goal with Fund 1 was to start investing and testing the model as quickly as possible. We raised $3.1m in six months and went live. Over 18 months we paced about 1-2 investments per month with an average check size around $150k. We hold investments that are <12 months old at cost so only about half the fund is out of that period and that cohort is showing very strong returns. Our cohort of investments just from 2019 has a TVPI of 2.43x already and the rest of the fund is on track for strong returns.

Fund 2

  • Size: $5m
  • First Check: Aug 2020
  • Deployment Period: 12 months (still being deployed)
  • Companies: 11 and counting
  • TVPI: N/A (all investments are <12 months old which we hold at cost)

Summary: For Fund 2 we switched to a subscription model for LPs. Read more about the thinking here but the upshot is that LPs now commit to a fixed quarterly amount that is allocated into a new fund structure every 12 months. The response to this has been fantastic bringing in a wide array of entrepreneurs into our LP/mentor network.

No major change in strategy from Fund 1 to Fund 2 except that our average check size has been creeping up and is at about $200k for this fund. This is purely a function of more slightly later stage companies coming into our pipeline looking for a bit more capital.

Reg CF GP Equity Offering

We have launched a Reg CF crowdfunding campaign to source $2m of GP Equity (a slice of long-term carried interest in all funds) at a $20m valuation. This raise will give us more firepower to build out the team, platform, and scouting programs ahead of AUM. View the campaign on Wefunder.

Investing Team + The Future of Calm Company Fund

Currently Tyler Tringas is sole General Partner with investing authority (and the writer of most every essay on this website). But the medium-term plan is to expand the investing team and unlock the bottleneck of a solo GP, to back more entrepreneurs per year.

With Fund III we intend to begin a series of small experiments, where Tyler still retains final investment decisions, but “super-charged scouts” (yes we need a better name) bring fully vetted investment opportunities as an on-ramp to GP status in future funds. We have a solid, albeit somewhat informal, pipeline of interest, that we intend to formalize in the near future.

Tyler will continue to personally deploy the vast majority of Fund III, and retain final investing decisions over the entire fund deployment, while gradually layering in small experiments with potential future GPs. Learn more.


  • Max size: $10m
  • Deployment Period: 12 months
  • Minimum LP Commitment: $10k per quarter for at least 4 quarters. Contact us if you need a lower minimum. Exceptions will be made with a priority for underrepresented investors.
  • First Close/Capital Call: July 2021

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