Eager to make their own ‘mafias,’ startups are launching funds to invest in ex-employees

The HR startup Lattice launched a VC fund to invest in its own alums, an attempt to actively encourage the creation of its own mafia of successful alumni.

March 3, 2020

After former PayPal employees went on to launch a string of hugely successful companies — including Tesla, LinkedIn, SpaceX, YouTube, Yelp, and Palantir — people started calling PayPal’s unusually successful alumni the PayPal mafia.

Over the years, ex-employees from many other companies have tried to mimic the PayPal mafia, with varying degrees of success.

But now startups are starting to actively make their own mafias by launching venture funds designed to keep things in the family.

So, how do you make a mafia?

Most analysts agree that PayPal’s alums succeeded because their time at PayPal encouraged them to do the following when launching new businesses:

  • Embrace transparency
  • Reject hierarchy
  • Encourage competition 
  • Align their company values
  • And, perhaps most crucially, lean heavily on their network of former colleagues for recruiting, support, and investment

PayPal’s Cosa Nostra had imitators

Ex-employees from successful startups — led by their own dons and consiglieres — developed their own mafias:

In both of these cases, the mafia-making was driven by employees who had already left their original employer, not by the employer itself.

Now companies are getting into the family business 

Earlier this week, an HR startup called Lattice launched a venture capital fund specifically to invest in its own ex-employees.

The fund, called Invest In Your People, makes employees a $100k offer they can’t refuse on just 3 conditions:

  • The employee must have worked at Lattice for 3+ years
  • The employee must leave on good terms
  • The employee must launch the new company within 12 months 

Lattice’s fund will draw its cash from the company coffers, not a separate investment fund. 

And since the investments will give Lattice equity in the new companies, they’ll also give investors in Lattice a stake in employee spinoffs.

After all, as they say in the biz: Startups are a dish best served sold.

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