BuildGroup is supposed to be the anti-Silicon Valley capital firm, only investing for the long term and not cashing out of its companies for 15 years or longer, if ever, its cofounder Lanham Napier tells Business Insider.
Napier, who earned his fame and fortune as the 14-year CEO of Rackspace, a job he left in 2014, calls his new investment firm a “company, not a fund.” It has a board of directors and partners that have experience running companies. And they have all contributed their personal cash to the $330 million fund it finished raising on May 31.
“At BuildGroup, we are trying to do for other founders and senior teams what wasn’t done for us,” Napier says. “We raised $330 million, I put in $30 million myself. I’m the largest individual investor. We need alignment [with founders], with people with skin in game. We may make 1 or 2 investments a year and that’s it. You can’t be on 15 boards and know what’s going on.”
All the folks at BuildGroup have also agreed to long-term ownership of every company they back, he says.
It didn’t take long for this model to face its first real-world test: Right out of the gate with his first investment, he faced a moral dilemma with Anaconda, a data science startup.
“The first investment we made was in Anaconda. We sign the LOI [letter of intent] and then the company gets a call from ‘giganticorp’ kind of saying, ‘we want to buy you,'” he said.
The founders were flummoxed. It was a week before Christmas, and Napier flew out to the West Coast to help the founders meet this prospective buyer.
Napier wouldn’t confirm which Seattle company was making the offer, but Anaconda had just signed a partnership agreement with Microsoft about that time, and it was also known to the folks at Amazon Web Services, Napier’s former bitter rival when he was at Rackspace. Napier had plenty of experience dealing with both of those giants.
“I said, look dudes, if you want to sell to Darth Vader that’s fine. We will rip up the LOI and we’ll do the right thing …
“I said, look dudes, if you want to sell to Darth Vader that’s fine. We will rip up the LOI and we’ll do the right thing here because an entrepreneurial journey has it’s highs and lows. You’ve got to be all in or it’s not going to work,” he said —meaning he wasn’t going to elbow his way into the deal at the last minute, or sweet talk them into staying separate and giving him favorable terms for buying in.
“I believe karma is real. How we treat people matters,” he said.
The Seattle company wouldn’t let Napier join the meeting, he remembers. When it was over, they told him they weren’t going to sell.
“They said, ‘We’re going to build,'” Napier remembers.
The anti-Silicon Valley investor
Thus began Napier’s investment company. It officially came out of stealth this month, in the hopes it will help turn the traditional VC model on its head.
BuildGroup’s other founders include Rackspace alumni Jim Curry and Klee Kleber, as well as Pete Freeland from General Catalyst.
Napier says that BuildGroup is different because it’s ready to keep its stakes in its startups for decades or longer, with the option of kicking in extra money as needed, too.
“We are a company, not a fund. The capital we invest can go forever,” he says, which is a very anti-Silicon Valley venture investment point of view. Most VCs want to cash out and realize their returns in five to 10 years.
Napier says the key to success is being selective, rather than going for volume in the hope of getting a hit.
In its first two years, for example, BuildGroup has invested $57 million of that $330 million in just four companies. Besides Anaconda, it’s backed CDSC, Fiix, and Valkyrie Labs.
Another key for success: helping companies prioritize profitable operations over growth. He wants these companies to have “unit economics that function” rather than burning through cash, needing to continually raise more money from investors to survive.
That’s also a very anti-Silicon Valley point of view.
One more thing he’s doing: looking to invest mostly outside of Silicon Valley, targeting startups in the Texas and Rocky Mountain region, home of BuildGroup’s investors.
“From a structure point of view, we are a company not a fund, that is a big difference, we don’t have to exit anything. We will build these companies as long as you [the founders] want to build,” he says.
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