• Mon. Jan 17th, 2022

South Park Commons, an “anti incubator” founded by early FB and Dropbox engineers, gains momentum

ByASNF

Dec 18, 2021

When South Park Commons (SPC), a community of tens of engineers in San Francisco’s South Park neighborhood, came together, it mostly flew under the radar, save for a New York Times profile in 2017, a year after it was formed.

Founded by Facebook’s first female engineer, Ruchi Sanghvi, she explained at the time that her ambition with SPC was to create tech’s answer to the Bloomsbury Set or Benjamin Franklin’s Junto club, where people could discuss their respective and shared experiences and hopefully form new ideas along the way.

Fast forward and SPC — which went on to raise a $55 million venture fund in 2018 to back projects born by community members — says the experiment is working. It now has 450 members in the Bay Area and across the globe. It just closed a new $150 million fund from tech luminaries, as well as institutional investors.

It says it also has a highly valuable portfolio. In fact, says Sanghvi, SPC’s debut fund has already returned its capital — and then some — to investors owing to Compound Labs, an open-source platform for decentralized lending whose tokens were distributed in part to early shareholders. Sanghvi says SPC has 10 to 12 other so-called unicorns across its portfolio, too.

We chatted earlier today with Sanghvi and her husband and business partner, Aditya Agarwal, who was also an early engineer at Facebook before cofounding with Sanghvi a startup they sold to Dropbox in 2012 in a reported talent acquisition. (Sanghvi stayed two years as Dropbox’s VP of Operations; Agarwal, who joined as Dropbox’s VP of engineering, was promoted to CTO in 2016 and left in 2018, joining Sanghvi at South Park Commons.)

We talked at some length about the evolution of the SPC community, which began in a physical space, has largely become a highly structured virtual society during the pandemic, but that remains very focused on bringing people together in real life.

Indeed, Sanghvi and Agarwal believe so strongly in the power of offline interactions that in addition to their San Francisco hub, a New York location is currently in the works and they suggest that other locations could follow, including in Seattle and even Southeast Asia.

As for that membership, roughly 70% of SPC members are “technical,” says Sanghvi, though she adds that the other 30% are “domain experts or have operational expertise or are even academics.” That composition is very much by design. “The funny thing is that when you talk with a great entrepreneur and ask if they want to hang out with another entrepreneur, the answer is always ‘no,’” says Sanghvi, laughing. “They want to hang out with the expert who beat the Stanford team on some AI algorithm, so having those operational experts mixed into the community is super valuable.”

The connections lead to more than friendship and fresh ideas, seemingly. According to Agarwal, upwards of 50% of the organization’s members find their cofounders or founding employees within the community, which underscores another way that South Park Commons sees itself as distinctive. Unlike a Y Combinator, which meets with nascent teams, or VCs who keep tabs on operational execs at big companies, SPC says its focused on capturing people who are plainly talented and probably much in demand but who, though they’ve left their last gig, aren’t immediately sure of their next move and mostly just want a little time to figure it out.

It’s looking to capture people whose next move is simply to freely explore ideas, squishy though it might sound. “We’re really like a learning community that helps people in the ‘negative one to zero phase’ get to the point of being able to start a company,” says Agarwal, “and if startups come out of that process, the fund invests.”

Other things to know: members tend to work closely inside the community for nine months before “graduating,” meaning they’ve either raised more than a million dollars for a new startup concept, have more than four full-time employees, or they’ve taken a job. (Exploring ideas doesn’t always lead to starting companies.)

When a community member does reach the fundraising phase, one agreement made early on is to give SPC the right of first refusal to invest. (Each member is also invited to invest in SPC funds if they like, and many take the firm up on this offer. According to Sanghvi, SPC’s new $150 million fund counts 100 members as investors.)

As for the shape of those investments, it’s fairly standard. Agarwal says that SPC typically invests anywhere from $700,000 to $2 million dollars for 7% to 10% of the company. He also suggests that because SPC’s network is so valuable, the venture firms that tend to make subsequent investments typically make room for SPC to maintain its percentage ownership rather than dilute it for their own shorter-term benefit.

Certainly, the formula appears to be working right now. In addition to Compound Labs, some of the outfits to pass through South Park Commons’ corridors (physical and virtual), including The Graph, an indexing protocol for organizing blockchain data that has gained the very public support of Ethereum founder Vitalik Buterin; Pilot, a maker of bookkeeping software that’s now backed by Sequoia Capital and Index Ventures and valued at $1.2 billion; and Unit21, a no-code software startup that helps businesses monitor fraudulent activities and in July raised $34 million in Series B funding led by Tiger Global.

In addition to Sanghvi and Agarwal, who are the outfit’s two general partners, SPC counts as investors Mitra Lohrasbpour, who previously led revenue analytics and international expansion efforts at Dropbox, and Finn Meeks, who previously spent two years as chief of staff for Sanghvi.

For what it’s worth, Agarwal says that though SPC’s new fund is triple the size of its last, he doesn’t expect the team to invest any more aggressively.

“Our emphasis is on quality over quantity. If the quality happens quickly, that’s great, but that’s not the high-order play.”

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