SAN FRANCISCO — Riley Newman, a former head of data science at Airbnb, set out in mid-2017 to raise a venture capital fund that would invest in a multitude of tech trends.
But he quickly realized that potential investors were not interested in that kind of fund. Instead, all they wanted to hear about were his former Airbnb colleagues and whether they might start their own companies.
“It was, ‘Yeah, all that stuff is fine, but Airbnb, right?’” Mr. Newman, 36, said. “Airbnb was where we had a competitive edge on the market.”
So Mr. Newman and his partners at Wave Capital adjusted their pitch: They said they were creating a fund to invest specifically in Airbnb employees who were planning to leave the company to become entrepreneurs. It worked. He and his partners quickly secured $ 55 million and now are preparing to make a flood of investments after the $ 31 billion home rental start-up goes public sometime in the next year and employees cash out their shares.
“We know they are planning to start companies,” Mr. Newman said of Airbnb employees, adding that in the last week alone he had heard from four who left to pursue their entrepreneurial dreams.
Everyone else in Silicon Valley seems to know it, too. As Lyft, Pinterest, Postmates, Slack and Uber — among some of this decade’s most prominent start-ups — get ready to list on the stock market, investors are preparing to write checks to a new generation of companies created by their workers.
It’s part of Silicon Valley’s often-incestuous circle of life. The start-up world projects a meritocratic image, but in reality, it is a small, tightknit club where success typically hinges on whom you know.
In this model, employees of tech start-ups frequently leave the companies once they have been enriched by their firms’ initial public offerings. Then networks of alumni from these companies — called mafias — support their peers’ new businesses with hiring, advice and money.
The cycle goes back to at least the 1950s, when Fairchild Semiconductor, one of Silicon Valley’s earliest successes, was started by a group of disgruntled Shockley Semiconductor employees called the Traitorous Eight.
Decades later, early employees of PayPal, known as the PayPal Mafia, are more famous for their successes after leaving the company — many of which they collaborated on with one another — than for their initial breakthrough in digital payments. The group includes Elon Musk and Peter Thiel, as well as the creators of YouTube, Yelp and LinkedIn.
Silicon Valley is now anticipating new mafias connected to Uber, Airbnb and their brethren after the companies go public.
“It’s going to trigger a massive explosion in entrepreneurship,” said Howard Lindzon, an entrepreneur in Phoenix who invests in five to 10 venture capital funds a year. He said he particularly wanted to put money into funds with connections to the Uber and Airbnb networks.
When venture capitalists pounce
Venture capital firms are already hiring former employees from Uber and other I.P.O.-ready companies to get a foothold in their networks. Some of the fiercest recruiting has been of Uber executives, with venture firms including Sequoia Capital, GV, Javelin Venture Partners and Redpoint Ventures all adding former employees from the ride-hailing firm to their ranks.
One recruit was Andrew Chen, who worked at Uber as head of rider growth and left the company last year. He has since joined the venture firm Andreessen Horowitz as a general partner and hosts quarterly dinners for Uber alumni turned founders.
Mr. Chen, 36, estimates that two dozen venture-backed start-ups have come out of Uber so far. Andreessen Horowitz has recently invested in two, which have not been announced.
“Those are the prime start-up investing opportunities,” Mr. Chen said.
The problem is that venture firms might create a brain drain from the likes of Airbnb and Uber if they keep luring the companies’ workers to start new companies. Talent, after all, is a precious commodity in Silicon Valley.
Jonathan Golden, who worked as a director of product at Airbnb and who joined the venture firm NEA last year, said Airbnb was fine with his plans to invest in former employees. He said he had discussed his intentions with Airbnb’s chief executive, Brian Chesky, before he left the company in 2017.
“I’m not actively trying to have people leave Airbnb,” Mr. Golden said. “But if someone is going to leave, I want to be supportive of them, and Brian is supportive of them as well.”
Nick Papas, an Airbnb spokesman, said, “We’re always sad when talented people move on, but it’s been great to watch so many of our former colleagues succeed.”
Uber declined to comment.
In February, Annie Kadavy, a former Uber executive who is now a venture capitalist at Redpoint, announced an investment in Ike, a self-driving truck company created by — who else? — ex-Uber employees.
Ms. Kadavy, 33, who left Uber last year, said her network of former ride-hailing colleagues would help her find and vet deals. In addition, it would help find talent to bring to other start-ups that Redpoint has invested in.
“If you’re a person leaving a company, who are you going to ask about what company to join next?” she said. “Your friend who works at a venture firm, because their job is to have a point of view on a bunch of different businesses.”
Friends in high (income) places
In February 2018, Dan Hill and Michelle Rittenhouse, longtime Airbnb employees, felt the entrepreneurial itch and quit. They had a general idea to start a company that would make it easier for people to donate to charity, but not much else.
The details didn’t matter to Wave Capital, which wanted to invest in them. “These are people we know can build great products,” said Mr. Newman. “They know us, they trust us. We know them, we trust them.”
Within a few weeks of leaving Airbnb, Mr. Hill and Ms. Rittenhouse had secured $ 2 million — including from Wave Capital — for Alma, their newly formed company focused on philanthropy.
Entrepreneurs typically make dozens of pitches over several months to raise financing. But Mr. Hill said the relatively quick fund-raising for his start-up was not a surprise.
“We already had a strong relationship,” he said. “So when we pitched the idea for Alma and our initial plans, it was an easier conversation.”
It’s a common story among former employees of hot start-ups. Andrew Chapin, who previously worked at Uber, also said it wasn’t hard to round up $ 3.75 million last October for Basis, his new mental health start-up, thanks to his reputation among the Uber crowd.
“When you look at V.C., there is a lot of pattern matching and trying to act on that, so if you worked at Uber, you must be O.K.,” Mr. Chapin, 31, said. “I didn’t have to do a lot of pitching.”
It helps that many of his former colleagues are now millionaires, having cashed out their shares in private stock sales.
A syndicate of several hundred former Uber employees are even investing in start-ups together. Josh Mohrer and William Barnes, early Uber employees who left in 2017, said they used a private email list to manage the syndicate’s deal selection, adding a few new people to the list each week as they “graduate” from the company. The group has backed around a dozen start-ups at a pace of around one a month, they said.
To stay on top of all the new companies emerging from Uber, Mr. Mohrer and Mr. Barnes said, they have organized reunions of former employees in cities around the world, using a Facebook group with more than 1,000 members.
The pair also plan to raise an investment fund dedicated to backing Uber alumni under the banner of Moving Capital, according to three people familiar with the project, who asked to remain anonymous because the details are private.
It’s different this time
How will Silicon Valley’s new mafias be different from those in the past?
The Uber and Airbnb networks are part of a generation that pioneered the on-demand “gig economy” and everything that came with it. That means many fought real-world policy issues in cities, as opposed to primarily dealing with the digital world.
“There are just not that many places to find people who have seen that kind of scale,” said Ryan Graves, Uber’s former senior vice president of global operations and a member of the company’s board.
Each city that Uber, Airbnb, Lyft or Postmates expanded into created a new set of operational, regulatory and business challenges. Regulators balked. Rival business operators resisted. Neighbors protested. And people abused the platforms, over and over.
Uber managers ran each city like a mini-start-up. “If you were the general manager of San Francisco or of Atlanta, you were the C.E.O. of your region,” Mr. Chen said. “It led to a really entrepreneurial approach from everyone.”
Blaine Light, a former Uber employee, said he had taken the importance of creating an inclusive culture to heart. Half of the employees at Qwick, a 20-person start-up in Phoenix that he joined as a co-founder in 2018, are women, and the staff includes a mix of races, backgrounds and sexual orientations. Mr. Light said he emphasized a culture of humility.
“Uber people, in general, are looking to take what we’ve learned and make something better this time,” he said.