Bradley Tusk's Equity-for-Services Model Outperforms VC

The Evolving Landscape of Venture Capital

Bradley Tusk, a co-founding partner and managing partner at Tusk Venture Partners, recently shared with TechCrunch on the Equity podcast his assessment that the conventional venture capital (VC) model is effectively defunct. He asserts this shift has been underway for the past four years.

According to Tusk, capital returns to Limited Partners (LPs) have been nonexistent for a four-year period. He indicated that, to his knowledge, few VC firms have experienced substantial liquidity during this timeframe.

Challenges Facing the VC Industry

The VC sector has encountered significant headwinds in recent years. These challenges stem from increased interest rates, a decline in startup valuations from their 2021 peaks, and a slowdown in both Initial Public Offerings (IPOs) and Mergers & Acquisitions (M&A) activity.

There was anticipation among some investors that a return to the presidency of Donald Trump would stimulate the VC environment through deregulation and favorable tax policies. However, the uncertainty generated by Trump’s executive actions, trade disputes involving tariffs, and changes within federal agencies has dampened expectations for a resurgence in VC investment.

Tusk succinctly stated his view on trade wars, noting that few economists believe they are beneficial to any economy.

A Shift to an Equity-for-Services Model

Consequently, Tusk is moving away from the traditional VC structure and has opted not to establish a fourth fund. Instead, his firm is concentrating on an “equity-for-services” approach. This model enables Tusk Venture Partners to acquire equity in exchange for assisting startups with navigating regulatory complexities, managing legislative communication, and securing government contracts.

This strategy represents a return to Tusk’s origins. In 2010, when he founded Tusk Strategies, a nascent transportation technology company, Uber, engaged his firm’s services. Unable to afford traditional fees, Uber compensated Tusk with equity.

Over the subsequent years, Tusk dedicated himself to “leading campaigns across the United States to legalize Uber and ride-sharing services.”

For years, Tusk has specialized in crafting regulatory solutions for innovative technologies, safeguarding startups from adverse political outcomes. This expertise was honed through prior roles, including campaign management for Michael Bloomberg’s 2009 mayoral campaign and as Illinois’ Deputy Governor.

Prioritizing Core Expertise and Financial Benefits

The administrative aspects of traditional VC – fundraising, ensuring compliance, managing board positions, and portfolio construction – began to feel like distractions from the work Tusk genuinely enjoys.

He believes this new approach offers a more direct path to fulfilling work, while potentially yielding greater financial returns than conventional venture investing.

“I discovered that I could secure equity in promising startups by offering my expertise, making the traditional VC model less appealing,” Tusk explained.

He further elaborated that the equity-for-services model can be more lucrative. While it may involve less financial leverage than a typical venture investment, it allows him to retain 100% of the profits. In contrast, traditional VC requires returning capital to investors, covering fees, and distributing a portion of the gains.

Future Outlook for Tusk Venture Partners

Tusk Venture Partners will continue to provide support to its current portfolio companies until the existing fund reaches the end of its term in 2031.