- Lauren Gross is the chief operating officer at Founders Fund, where she is responsible for raising the billion-dollar funds that the VC firm then uses to invests in startups.
- She landed the job after ranting about “groupthink” to Peter Thiel at a cocktail party about 15 years ago.
- Gross was hired with a mandate to scale the fund to $1 billion. She started interviewing startup founders to ask why they took capital from Founders Fund and shared their stories with investors.
- Gross spoke to Business Insider about her path to Founders Fund and her strategy for raising bigger and bigger funds in a competitive venture market.
- Visit Business Insider’s homepage for more stories.
The most powerful woman at one of the most powerful venture capital firms in San Francisco isn’t a true tech investor.
As chief operating officer of Founders Fund, Lauren Gross fights for checks that go into the pot of money it invests from.
A former investment banker, Gross, who is also the sole female partner at Founders Fund, leads all of the firm’s non-investing activities fom finance to legal. She’s responsible for raising the billions of dollars that the firm deploys and forging relationships with outside investors, who are referred to as limited partners.
Her job is more important than ever as the flush of capital in Silicon Valley is forcing venture firms to raise bigger and bigger funds. This year, Founders Fund closed on $3 billion across two new funds, about twice the size of the last flagship fund.
Founders Fund is often described as Peter Thiel’s venture capital firm, though the tech investor known for his billions and maverick views is just one of three people at the firm with the power to kill a deal, according to an Axios report. In Founders Fund’s office in the Presidio, the partners know that Gross is the showrunner.
How Lauren Gross got the job
A chance encounter at a cocktail party put Gross on the path to Founders Fund.
In 2005, she was working as an investment banking analyst at Citibank when a mutual friend introduced her to Thiel at a party. Gross knew loosely he was.
“I would say, unlike my colleagues who lived and breathed tech from day one, building rocket engines out of their garages, I admittedly wasn’t particularly passionate about tech,” Gross said.
She said she rambled about how investors “could be competing with the herd, or think differently,” a rant that resonated deeply with tech’s most contrarian figure. Thiel asked her to interview for a fundraising job at his hedge fund, which he had seeded with some of his exit money from selling PayPal to eBay.
Gross took the job at Clarium Capital, where she sat in on meetings with the investment team and learned the thinking behind the firm’s trades from analysts. She rose to the role of vice president over the next four years.
When the hedge fund started to collapse during the recession, Gross left for a job at Thiel’s other, more promising firm.
‘A million dollars isn’t cool. You know what’s cool? A billion dollars’
Her hiring had a mandate: Founders Fund wanted to scale to a billion-dollar fund.
Earlier that year, the firm had “struggled to close” on $250 million for its third flagship fund, according to Gross. The bulk of capital came from previous investors and its own general partners.
The firm’s new head of fundraising would need to find a more compelling pitch to raise that kind of money back in 2010.
Gross said she sat in on pitch meetings with founders and followed up with those who raised money from the firm to ask, “Why did you take Founders Fund capital?”
There were two main takeaways.
She said founders liked that the Founds Fund partners were all former founders, who had the technical know-how to help build their companies, and that they didn’t subscribe to groupthink. The firm sought world-changing startups that few other investors would take a risk on.
“The investment team is both technical and loves big visions,” Gross said. “Many funds turn away from companies saying they’d like to colonize Mars or cure cancer.”
It probably didn’t hurt that the firm’s branding was centered on letting founders run their own show. In a press release at the time, Thiel described his goal as providing “as much support for a company as it requires, without interfering with an entrepreneur’s vision for that company.” The firm also made a commitment never to fire a founder.
Gross spelled out the firm’s competitive advantage in the campaign to raise a fourth flagship fund — bigger than all of its previous funds combined — in 2010. The effort required a lot of cold calls to potential limited partners and a good deal of research, she admitted.
“They did not hire me for my Rolodex,” Gross said of Founders Fund. “I did not have contacts in venture. I had to Google what are the top 20 endowments.”
She also ended every meeting with a potential investor by asking them for an introduction to another.
The fourth fund closed on $625 million, above its target size of $500 million.
And every flagship fund that the firm has raised since then has exceeded $1 billion in assets, according to PitchBook data.
Founders Fund is reportedly giving huge returns to its investors
Rhe firm’s performance has made the job of pitching investors easier.
With its deep coffers, Founders Fund has the means to invest in its portfolio companies at later stages, when most of the risk is wrung out of the deal. The firm confirmed it’s written checks for more than $100 million into Airbnb, Stripe, SpaceX, Palantir, Affirm, Stemcentrx, and Wish, to name a few unicorn startups.
A strategy of concentrating capital into its most successful companies is already paying off. The Wall Street Journal reported that the firm’s fourth flagship fund, which was the first fund that Gross helped raise, was returning $4.60 on every dollar invested as of late 2018. That compares with an industry average of returns of $2.11 for funds in the same year, the Journal reported. And Airbnb’s expected exit later this year should give an exorbitant payout for investors.
Founders Fund has skin in the game
Gross also pointed out something “extremely unusual” about the makeup of the funds. Each includes substantial commitments from the firm’s partners. The average general partner at a venture capital firm supplies 1% to 2% of the fund’s total, according to Gross. At Founders Fund, Thiel dropped more than $200 million into the newest flagship fund, which is close to 13% of the pot.
“Our view is that if you have done well on what you’re doing, you should have the capital to do a meaningful investment into the fund,” Gross said.
She acknowledged that most employees are not in a position to write a sizable check in to the fund. Still, anyone who has been with the firm longer than six months has carry, or a share of any profits realized by the fund’s investors, as part of their compensation package, which is also unusual for a venture capital firm.
At Founders Fund, she’s learned to expect the unexpected.