Loyal’s core fund is their Loyal Startup Index Fund. To drive returns, Loyal works to remove bias, return to first principles, leverage global networks, and often fund companies with impact.
Entrepreneurs frequently complain that VCs don’t get it. Loyal believes it’s not the people, it’s the process. Demanding snap judgements on hundreds of pitches typically results in superficial, biased thinking.
How does Loyal make smarter decisions? By getting better information. By becoming an insider and watching a company progress. By funding based on what entrepreneurs do, not what they promise. By doing diligence through months of collaboration. And by using a process and rules designed to overcome innate human biases.
How do we know it is working? Today over 30% of Loyal’s companies have a woman CEO, which is ten times the industry average. And Loyal’s founders are similarly racially diverse.
It is a statistical fact that proper diversification in seed stage investing is a portfolio of 100-500 startups. So Loyal redesigned the VC process to work at scale, for their core Startup Index Fund, which holds >110 companies, and growing.
It is also a statistical fact that VCs are bad at predicting which companies will win. So Loyal allocates only small amounts to start, and optimizes follow-on investing, using a multi-stage Darwinian process where winners continually emerge over time.
Fund structure is also re-examined. LPs want to be able to access their money; entrepreneurs want long term capital. So Loyal’s core Startup Index Fund has no end date, yet also prices and transacts quarterly. In effect the fund acts as its own secondary market, so investors have better liquidity.
And Loyal’s founding partners don’t like the concept of annual management fees as the main compensation mechanism. So the Startup Index Fund fees are tied to investors receiving real gains and liquidity.
Loyal minimizes negative selection bias, and reduces bad actor risk, by sourcing deals through two global networks where they have multiple deep relationships, and can act as insiders.
One is the Founder Institute, accessible to aspiring entrepreneurs around the world. Active in over 100 cities, the Founder Institute is the largest global pre-seed accelerator. The second deal source is alumni of the INSEAD business school, rated by Pitchbook as the #1 non-US school for unicorn founders.
Loyal’s third global network is their own, of >250 advisors.
Loyal impacts their portfolio companies, most powerfully reflected in the 100% acceptance of Loyal’s follow-on offers to date.
In funding diverse entrepreneurs, Loyal gains financial returns and has social impact. Overall, Loyal has 35% women CEOs, and 20% emerging market and non-wealthy founder investments.
The entrepreneurs have even more impact, with 80% addressing one or more of the UN SDGs. This helps with returns: entrepreneurs who are motivated by more than just money have more resilience in tough times, can better recruit and keep a team, and attract the best partners and funders.
Loyal believes in quantifying real net environmental and social impact, rather than checking boxes. Quantification is necessary so Loyal can deploy money for the biggest returns, be they financial, environmental, social, or a blend.