How Justin Ernest invested nearly $400M into hot startups without a traditional VC fund

Last year, Justin Ernest noticed a monolithic spread successful however task capital was working: household offices and smaller institutional investors were anxious to invest in the fastest-growing AI companies but couldn’t get access to those headdress tables.  

Having spent implicit 5 years at Playground Global investing successful heavy tech and helping pb fundraising, Ernest was confident his connections to both investors and founders would let him to span that gap. 

Instead of launching a ceremonial VC fund, a process he says takes new managers anywhere from 12 to 18 months, Ernest utilized his network to secure allocations of stock in high-profile, later-stage companies.  He past offers these idiosyncratic deals to a radical of astir 30 smaller institutional investors using Special Purpose Vehicles, or SPVs, which act as single-deal funds. 

Over the past 12 months, his firm, Sabertooth VC, has invested nearly $400 million into 10 companies, including Anthropic, Anduril, Databricks, PsiQuantum, and SpaceX. The steadfast treats each woody as its own separate fund, successful most cases structuring it arsenic a peculiar intent conveyance (SPV), successful which the fund’s investors buy shares in the conveyance that owns the stock. 

He’s writing checks ranging from $10 cardinal to $275 million — meaning he’s gaining significant chunks of shares — and always participating in official, company-approved backing rounds. 

Sabertooth is not the lone steadfast offering household offices an accidental to purchase equity successful idiosyncratic high-profile, late-stage startups.  However, Ernest rapidly raised a important magnitude of currency from them because, successful the sometimes-shady satellite of tiny allocations and SPVs targeting household offices, he’s earned a coagulated reputation. 

“Justin is authentically an investor,” said Benjamin Wagner, a CIO for a household bureau managing the wealthiness of 50 individuals. “He has judgment, helium has expertise, he’s very technical, that truly distinguishes him from different organizations that thin to, successful my opinion, conscionable trying to aggregate capital.” 

When Wagner tried to invest directly in PsiQuantum, the quantum computing startup past valued at $7 billion, the company’s CFO suggested that he invest through Sabertooth. 

“So, the archetypal clip I met [Ernest], I knew helium was legitimate,” Wagner said. “Justin’s access is definitely antithetic from some of these fly-by-night organizations.” 

That validation is extremely important. At a clip when startups like Anthropic and Anduril are cracking down on unauthorized SPVs, investing through Sabertooth gives smaller constricted partners a bid of mind. They cognize they are entrusting their wealth to an investor who is directly vetted and respected by the companies themselves. 

Beyond method knowledge, the Harvard Business School graduate honed his communication skills after largely overcoming a childhood speech impediment. Ernest credits his ability to secure allocations of stock erstwhile highly coveted tech companies are raising to his wide network. 

“I’ve always found that my sort of superpower is being the nucleus of my network, and I similar to usage that and utilize that successful a very strategic way,” helium told TechCrunch. 

For instance, he can generally obtain investor capital for a caller SPV from household offices on a choky timeline. 

“I person a captive set of LPs,” he said. “I tin usually marque 4 oregon 5 or six telephone calls, and I cognize precisely what my LPs will commit.” 

Ernest told TechCrunch that for now, he wants to proceed growing his business of raising funds for specific companies on behalf of his dedicated LP base. However, his ultimate extremity is to yet rise a accepted task fund. That’s a hard task, but he believes Sabertooth’s strong returns via these one-off SPVs to beryllium his track record, something investors care astir about erstwhile deciding to backmost a caller fund. 

He’s on his mode with that wish. Sabertooth has already had one major big return from chipmaker Groq, which was licensed and acqui-hired by Nvidia for $20 billion late past year.  Next up is SpaceX’s highly anticipated IPO this Friday, on with Anthropic’s expected nationalist listing aboriginal this year. They are poised to present an adjacent greater windfall for his investors. 

But SPVs don’t have the same benignant of street cred as traditional VC funds. Yet Ernest remains confident that starting with them, and earning a solid rep with family offices, rather than launching an emerging venture fund and duking it retired with competitors was the right strategic move. 

“I wanted to beryllium in the action,” he said. “I deliberation this will extremity up being 1 of the champion vintages of our lifetime.”