How Justin Ernest invested nearly $400M into hot startups without a traditional VC fund

Last year, Justin Ernest noticed a massive gap in how venture capital was working: Family offices and smaller institutional investors were eager to invest in the fastest-growing AI companies but couldn’t get access to those cap tables. 

Having spent over five years at Playground Global investing in deep tech and helping lead fundraising, Ernest was confident his connections to both investors and founders would allow him to bridge that gap.

Instead of launching a formal VC fund, a process he says takes new managers anywhere from 12 to 18 months, Ernest used his network to secure allocations of stock in high-profile, later-stage companies. He then offers these individual deals to a group of about 30 smaller institutional investors using special purpose vehicles (SPVs), single-asset funds, and nominee structures. In the latter, his firm, Sabertooth Capital, holds shares on behalf of participating investors rather than through a traditional SPV.

Over the last 12 months, Sabertooth has invested nearly $500 million into 10 companies, including Anthropic, Base Power, Databricks, PsiQuantum, and SpaceX, according to Ernest. The firm treats each deal as its own separate fund, in most cases structuring it as an SPV, in which the fund’s investors buy shares in the vehicle that owns the stock.

He’s writing checks ranging from $10 million to $275 million — meaning he’s gaining significant chunks of shares — and always participating in official, company-approved funding rounds.

Sabertooth is not the only firm offering family offices an opportunity to purchase equity in individual high-profile, late-stage startups. However, Ernest quickly raised a significant amount of cash from them because, in the sometimes-shady world of small allocations and SPVs targeting family offices, he’s earned a solid reputation.

“Justin is authentically an investor,” said Benjamin Wagner, a CIO for a family office managing the wealth of 50 individuals. “He has judgment, he has expertise, he’s very technical, that really distinguishes him from other organizations that tend to, in my opinion, just trying to aggregate capital.”

When Wagner tried to invest directly in PsiQuantum, the quantum computing startup last valued at $7 billion, the company’s CFO suggested that he invest through Sabertooth.

“So, the first time I met [Ernest], I knew he was legitimate,” Wagner said. “Justin’s access is definitely different from some of these fly-by-night organizations.”

That validation is extremely important. At a time when startups like Anthropic are cracking down on unauthorized SPVs, investing through Sabertooth gives smaller limited partners some peace of mind. They know they are entrusting their money to an investor who, in most cases, is directly vetted and respected by the companies themselves.

Beyond technical knowledge, the Harvard Business School graduate honed his communication skills after largely overcoming a childhood speech impediment. Ernest credits his ability to secure allocations of stock when highly coveted tech companies are raising to his wide network.

“I’ve always found that my sort of superpower is being the nucleus of my network, and I like to use that and utilize that in a very strategic way,” he told TechCrunch.

For instance, he can generally obtain investor capital for a new SPV from family offices on a tight timeline.

“I have a captive set of LPs,” he said. “I can usually make four or five or six phone calls, and I know exactly what my LPs will commit.”

Ernest told TechCrunch that for now, he wants to continue growing his business of raising funds for specific companies on behalf of his dedicated LP base. However, his ultimate goal is to eventually raise a traditional venture fund. That’s a difficult task, but he believes Sabertooth’s strong returns via these one-off SPVs to prove his track record, something investors care about most when deciding to back a new fund.

He’s on his way with that wish. Sabertooth has already had one major big return from chipmaker Groq, which was licensed and acqui-hired by Nvidia for $20 billion late last year. Next up is SpaceX’s highly anticipated IPO this Friday, along with Anthropic’s expected public listing later this year. They are poised to deliver an even greater windfall for his investors.

But SPVs don’t have the same kind of street cred as traditional VC funds. Yet Ernest remains confident that starting with them, and earning a solid rep with family offices, rather than launching an emerging venture fund and duking it out with competitors was the right strategic move. “I wanted to be in the action,” he said. “I think this will end up being one of the best vintages of our lifetime.”

Updated to reflect Sabertooth’s total capital deployed.

Correction: A previous version of this post incorrectly stated that Sabertooth Capital is a direct investor on Anduril’s captable. The text has been updated to remove references to Anduril.