HACK Fund wants to upend venture-fee model with $100 mln pool

HACK Fund is scaling its model of tokenized investing to launch a $100 million venture fund.

Launched in 2008 by Jonathan Nelson as a network of meetups for entrepreneurs, Hackers/Founders in 2011 founded an investment co-op as a series of special-purpose vehicles to invest in early-stage companies.

The SPVs enable investors to buy and trade blockchain-based tokens representing shares in the fund.

Now, Nelson plans to ramp up his investing model with HACK Fund, a $100 million vehicle to invest in early-stage tech companies.

In addition to its liquid token structure, the fund also differs from the mainstream venture model in its fee structure.

Instead of charging a 2 percent management fee and 20 percent carried interest, the firm will own 18 percent of the fund’s shares, which it cannot sell for four years. Operational costs are taken on as debt, which must be repaid at 5 percent interest.

“The idea is how do we get 100 percent of my investors’ capital earning money,” Nelson said in a recent interview with VCJ.

He likened the fund’s structure to that of Berkshire Hathaway more than a standard GP-LP partnership.

“There’s a problem when [venture investors] as an asset class are underperforming indexes,” he said. “If I cannot make my investors more than an index fund, I need to be doing something else.”

The fund has raised $2 million of its target so far, with LPs including high-net-worth individuals, as well as companies in the gaming and digital-token-trading sectors.

The fund’s token will trade as an ERC-20 token, which functions on the ethereum blockchain.

On Oct. 29, 20 percent of the fund will also be made available exclusively to more than 1.4 million users of BRD Wallet, a decentralized bitcoin and cryptocurrency wallet available in 170 countries.

The firm is in talks with token-trading platforms in Dubai and China to list its token. At this point, no U.S. exchanges are prepared to list security tokens, due to regulatory restrictions.

In addition, because of U.S. regulatory restrictions, the fund is limited to 99 accredited investors in the U.S. It is targeting 10,000 total investors, Nelson said.

And because the fund is liquid, Nelson said his strategy for companies differs from that of most venture firms.

He’s not looking for a quick exit in the form of a sale to Google or Facebook, against a founder’s wishes, he says. Instead, he wants to help companies grow and become sustainable, with less pressure for entrepreneurs to sell.

With offices in San Jose, Mexico, China, and Dubai, the firm sees global deal flow.

Nelson plans to make seed to Series A investments ranging in size from $25,000 up to $2 million, and aims to make 70 investments per year, with a targeted total of 300 companies.