The Pomp Podcast - #366: Avlok Kohli on AngelList Rolling Funds

Episode Date: August 21, 2020

Avlok Kohli is the CEO at AngelList Venture. This includes the Syndicates, Funds and Capital products. He previously built and sold two companies, including an exit to Square pre-IPO. In this conversation, we discuss the AngelList Ventures platform, how it aligns incentives for founders/investors/LPs, what a rolling fund is, why the rolling fund has structural advantages, and where the venture capital industry is moving towards. ============================ Athletic Brewing is re-imagining beer for the modern adult. We love beer. But we also love being healthy, active and at our best. No matter your motivation, if you want to keep a clear head and drink healthier, we are here for you. Athletic makes non-alcoholic beer that you don't have to compromise to enjoy. The beers are fully flavored, clean ingredients, and a fraction of the calories of full strength beer - they fit in any occasion. Check out www.athleticbrewing.com for more details and free shipping nationwide. ============================ Coinbase Wallets are adding support for .crypto and .zil domains through their partnership with Unstoppable Domains. Unstoppable Domains provides an all-in-one solution for blockchain domains. You can send money using these new domains instead of long Bitcoin wallet addresses, while also storing your domain in Coinbase's collectibles section. Go to unstoppabledomains.com in the dapp browser to register and manage your domains.  ============================ Pomp writes a daily letter to over 50,000 investors about business, technology, and finance. He breaks down complex topics into easy to understand language, while sharing opinions on various aspects of each industry. You can subscribe at https://www.pompletter.com

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Abouak Kohli is the CEO at AngelList Venture. This includes the syndicates, funds, and capital products. He previously built and sold two companies, including an exit to Square pre-IPO. In this conversation, we discuss the AngelList Venture's platform, how to align incentives for founders, investors, and LPs, what a rolling fund is, why the rolling fund has structural advantages, and where the venture capital industry is moving towards. I really enjoyed this conversation with Avlock, and I hope you do as well. But before we get into

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purchase and manage your domains there. Once somebody buys your domain, it's gone. So go get it at unstoppabledomains.com. Lastly, don't forget that I write a daily letter to over 50,000 investors about business technology and finance. I break down complex topics into easy to understand language while sharing my personal opinion on various aspects of each industry. You can subscribe at pompletter.com. Again, pompletter.com. All right, let's get in this episode with Avlock. I hope you guys enjoy this one. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions

and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. All right, guys. bang bang i have a uh a very awesome guest today who uh is one of the people behind i think what is probably one of the most exciting products right now uh definitely adventure but probably

in uh in finance more generally so thanks so much for doing this sir yep excited to be here absolutely uh let's just go through your background real quick for those that don't know you before you got to angel list and the venture business there um kind of where'd you grow up and what'd you do before angel list yeah so i'll do a really quick uh summary so born in the Middle East, son of two immigrants. I really grew up in the Middle East, India, and then Canada. We sort of moved around. There were certain world events like the Gulf War and things like that that caused us to move around. And moved to San Francisco in 2008. So it was right in the financial crisis. I still distinctly remember the Sequoia memo. I didn't quite know,

I didn't really quite feel it then because I hadn't really participated in the internet economy yet, but I still distinctly remember that moment. And then through the years, I first worked as a software engineer for several different companies. One of them is now the world's largest stockers network. Another one was acquired by StubHub. And then I really caught the bug and started working on a few companies. So in total, I've started three companies. I've sold two of them. One of them was to Square, where I was a director there for two and a half years, was with them through the IPO. And then the second one, I just wrapped up the acquisition of it in January of 2019. Around that time, I decided to take a step back. I've been operating pretty aggressively for

a decade. And I had started Angel Investing. Around that time, Naval, who'd been an investor in my previous companies, approached me to consider stepping in into a CEO role at Angelus, uh specifically uh the venture business uh you know at the time i didn't really uh have too much context on venture i was an angel investor and of course as a founder i'd raise capital um so i spent the next six months really doing a deep dive with nival and uh venture and also what angel has built in the venture business because uh for a while uh for at least majority of the uh the world uh it wasn't very clear that angelus had a large and sizable uh venture platform. And yeah, the more I dug into it, the more excited I got. And I officially accepted

the role mid-July last year. So I've been in the role for about a year and a month now. That's awesome. You have now worked at or worked at two of the most exciting companies, I think, in finance and fintech. Let's start with Square first. You were there for two and a half years, went through the IPO, as you described. What were your takeaways from working at that business? Yeah, that's a great question. I would say two primary takeaways. One is financial services are basically an unbundling and rebundling of services. And the second one is reducing friction as much as possible for your core customer is super important. You can actually build a sizable business, but just focusing on that one thing. And so if we actually take a look at what Square did, and you think about, you know, you download an app and you get to accept payments within seconds, a decade ago, that

was unthinkable, right? The process a decade ago was you have to call someone, talk to someone, fill out these paper forms just to get the ability to accept payments. Oh, and then by the way, you're going to pay an arm and a leg for that. uh square came in and said nope this should be as as simple as tapping a button and you get uh you actually get an account to start accepting payments and from that they had a giant multi billion dollar business line that came out of it uh and a brand that people love and they did the exact same thing again with cash app right you they reduce the friction um so you can literally

tap the button and now you get a bank account and then you get all of these other things along with So I'd say that was the other key takeaway for me. Yeah. And as you were kind of there, one of the things that really seems to stick out today is this focus on deposits, right? And once you get the deposits, you can kind of build all the services around it. I think kind of comparing that to AngelList, there's not necessarily deposits, but there's a similar mechanism of once you get the marketplace set up, you can build all of these services around it. So maybe talk a little bit just about how the experience at Square either helped or prepared you for what you're doing now at AngelList. Yeah, it's a really good question. So the framing that has helped me a lot and what's comparable between Square and AngelList Venture is once you're in the flow.

So as you're building out a marketplace or a platform, once you're in the flow of a transaction, you are in a position to own everything downstream of that transaction. I'll use a real example. Square started off with just accepting payments. And, you know, it was interesting. For the longest time, and I was there when this was happening, for the longest time, there was this feeling that Square's margins are just going to get compressed. because just accepting payments means it's low margin and you're going to compress because you get larger clients. They're going to negotiate their fees, et cetera, et cetera, et cetera.

What that was missing, though, was the fact that Square was in a position where they were accepting payments, which means today those payments go to a bank account that the merchant or their customer may have somewhere else. But because they're in the flow of the payments, you can almost think of it as like a router. Sure, today it goes to the merchant's bank account, but what if tomorrow Square builds a better product and says, why don't you just keep it here? And it's easy. And the underlying principle there, it's the path of least resistance, right?

Customers will always choose the path of least resistance when there is a ton of value also attached to it. So I carry that with me to this day with Angelus Venture, where the thing that struck me when I was originally looking at it was it's just massive platform. Tons of LPs all over the world, tons of fund managers using it, tons of startups indirectly getting funded, of course, because of all these fund managers. And we're really in the flow of all of that financial activity. And you essentially own everything downstream of it, right? So it's just a function of time. And it's a function of that re-bundling process where you can own everything downstream of

that. So that's a great way to, I think, look at it. How do you choose where you insert yourself in the transaction initially, right? So obviously, the kind of farther downstream you start, the less that there is to capture a value over time, unless you're somehow able to kind of move upstream. But if you pick the right spot, then there's a good place where you can provide value, do it cost effectively, and then everything downstream is kind of your addressable market, if you will, from a product standpoint. How do you think about picking that spot to actually enter in that transaction? Yeah, it's a great question. You always start with the customer first, right?

Where is the point of highest friction? And you look at that and you ask the question, are you uniquely suited to remove that friction? And when we think about friction, friction is basically a number of steps that someone has to go through. And if you can go from 10 steps to get something done to five steps to get something done, that's innovation, right? That actually is reducing friction. At its heart, that's what innovation is.

you're essentially removing something that you used to take longer, and you're making it shorter and more pleasant. And so really, you start with the customer first, you ask yourself, is this the point of most friction for them? And then you simply ask, can you remove the number of steps in order to get there? And the really interesting part is when you remove the number of steps, what you're inherently doing is you're taking that complexity from the customer, and you're taking it on as the business, right? And there's this really good concept by Jim McKelvey, who's one of the founders of Square,

called the innovation stack. He actually wrote a whole book on it and I thought it was fascinating. And the innovation stack basically gets to the heart of this, which is as you're reducing friction for your customers, you as a company take on the complexity, but then what happens is you build a moat because you're building an innovation stack

to actually create that frictionless experience. So it always starts with the customer first. Then you ask, can you remove the number of steps? What would that look like? And then you add the strategic element around it, which is where in the process is it, right? Like if it's earlier in the process, then you get to own everything downstream of it. So it really is a framework that I really think about as I look at that. Tell us a little bit more about AngelList Venture and kind of what you guys are building just from a theoretical standpoint. How do you think of maybe your mission as a business unit? Yeah, so AngelList really started with a simple premise. It was serve the founder. It is in its ethos. It's just like it bleeds right through it.

It's great. Like, you know, if I just go back a decade, I actually remember my first office space that I actually got for my first startup was because of a post that Naval and Nivi wrote on, I think it was Venture Hacks on the blog, right? So it's just, it's always been the ethos, serve the founder. And so that has carried, you know, we carry with us to this day. And our mission really is to increase the number of startups in the world, number of successful startups in the world. We want to enable the founder. And really, there's three pillars for AngelList Venture. One is increase the number of investors and VCs in the ecosystem, right?

You add more, you have more capital, more capital is available, more founders can get funded. The second pillar for us is to increase the capital for these VCs. So we actually, we have a huge capital raising side of the business. It's massive. 40% of the capital flowing through AngelList Venture today are all AngelList source LPs, right? They're LPs that we brought.

By the way, it's all software. It's all, it's a platform. It's all software, all digital. It's beautiful. And then the third pillar for us is to make it really easy for startups to get founded and funded. We are excited to share something on that third one pretty soon. It's just a, you know, going back to the rebundling process. We are, AngelList Venture is already at scale and we're in the process of rebundling across the ecosystem.

And really the way to think about the entire business is that we are a financial platform for the venture industry. and we're effectively looking at who are all the players in the industry and how can we build something that stitches everything together so that ultimately the founder has an easier time building their company. And so when you think through that today, maybe walk us through kind of the journey that a founder has with the product in terms of what's the most popular kind of entry point for them or first touch point, and then how does that evolve

as they kind of scale their business and look for more capital over time? Yeah. To clarify, the journey on AngelList Venture or the journey generally that our founder goes through? On AngelList. Yeah. So on AngelList Venture today, the journey of a founder is really one of, as they're raising their pre-seed or seed, which is their first round of financing, they're usually talking to a VC, an investor that's actually hosting their fund on AngelList venture. So the interaction that they have with our platform is one of once the capital has been invested, they're engaging with our platform to be able to get the capital. And then as the

founder continues to raise additional rounds of capital, the earlier investors actually use the platform to be able to continue to invest in these founders. So there's this journey that actually lasts a decade sometimes. I mean, we have some companies that started, you know, that raised Capital Coup, an investor on the platform six years ago, that today, as they're becoming larger, they're going public, we're still involved there. As we look forward, we're actually building out products that are going to include the founder as a core part of the journey. We are actually in a very unique position to be able to build out a lot of very impactful tools to make it easier for founders to not just manage their fundraising, but then also really think about other forms of

financing, right? Like, if we, you know, take a step back, equity financing is just one type of financing. And equity financing is really great for innovation, right? It's great for, hey, we have, you know, this product line that we're thinking about, we don't quite know where it's going to go. Great, we want to pour capital towards that, right? That's equity financing is amazing for that but it's just one type of financing once you have a repeatable process whether that's to grow the uh you know whether that's to grow your marketing funnel uh or it's to you already have um capital coming in from uh your customers but you just need additional cash flow there are other types of financing that are easier it's just harder to get to today for

founders so we actually view ourselves as if um as uh as a facilitator to bundle all of these types of financing and just give them as options to founders over time. So that's how we think about how the platform itself is going to grow. It's, you know, equity financing is just one type, but there are many others that companies can use to grow. And we're actually seeing this now. Like I think startups are, and founders are starting to wake up to it, right? There are all these different types of financing models now that are coming about. And I think that's just a very net positive for the ecosystem. And so you have a marketplace where you've got a relationship with the founders. And as you already stated, AngelList is there to serve the founder. But

relationship with the capital side of that marketplace and these LPs, for the most part, from using AngelList and kind of seeing it, it's very, very software driven. But there still is, if you're going to go and get somebody to put a really big check in or come onto the platform with some sort of commitment and size, there's still some kind of communication there and relationship. Talk a little bit about how you see that relationship between AngelList Venture and the capital base. Yeah. So the capital base, we like to call them, they're LPs, limited partners. These are people who invest into venture funds and venture funds are the folks who invest into founders and startups. So that's how the journey works. Now, the capital base itself and our

relationship with them is actually a very useful relationship in that they come to us and they love Angelus Venture because they get to see all of the best fund managers in the world, right? Like there's just nowhere else in the world you can go to see all of them at once. And now with rolling funds, because they're publicly marketable SaaS-like funds, they can see all of them at all times and really get access to the best potential deal flow in the world. And at this point, we're seeing, you know, we publicly stated this in 2019, that we're

seeing 36% of all top tier deal flow. We are much larger than that today. COVID actually, interestingly, accelerated our entire business because of one simple fact. LPs used to want to meet in person. And this is by the way, VCs were the same and LPs are the same. Like if you're going to meet, if you're going to invest a large amount into someone, you don't want to meet them, right? It's really a trust thing. And you're going to want to look them in the eye and build a trust that great. Am I going to invest this large amount and build a relationship

with this person for the next few years? What happened through COVID was that all of that just went out the door. Almost overnight, everyone's sitting at home and everyone is, they still have to make the investments. They still have to engage with the venture funds. And overnight, what we found was the idea that you had to meet someone in person to make an investment basically just went out the door. All of a sudden, people are making commitments through Zoom. And we're seeing this in mass across the entire industry. Actually, the venture industry right now is so active. It's actually never been this active before.

We're seeing this in our data. We are growing on almost every metric. And I thought about why. And one of the reasons I think actually is this, is that people are now comfortable investing just through a Zoom call. And what that did for our business itself and how LPs now get with the venture funds that we have on the platform is they'll engage, they'll join a Zoom webinar. You know, Sahil, of course, did one of those. They'll get their questions answered, they'll build a trust, and then boom, they'll invest. So we are seeing COVID accelerate that entire behavior on the platform.

Got it. And what metrics can you share or you guys have shared publicly in terms of just how big, right? How many funds, how many types of deals have been done through the platform so far? Yeah, so we've done almost 5,000 syndicates and funds. So we're hosting all of these funds. One and a half billion dollars have been deployed through the platform. And we're well north of 2 billion in assets under management right now. We have 47 unicorns in our portfolio. That number is going up. It's going up pretty quickly. And yeah, and then rolling funds itself is actually crushing all those numbers very, very quickly. So yeah, it's very exciting. And so today, when you look at it from the product suite, if you will, the AngelList Syndicate has been a product that's been around for a long time. Maybe talk a little bit about what exactly that is, and then we'll get to rolling funds in a second. But I think the Syndicate was kind of like the initial product that people said, oh, wait, there's something more here than just like a startup directory. Yeah, exactly. Yeah, I can, I'll provide a little bit of context there. The syndicate, so the way venture funds usually work is that you, you have a GP who is a general partner in the fund, they go raise a venture fund, meaning they go raise money from a bunch of people, then they start making investments. They'll usually invest in 20 companies, 30 companies, and a fund. And then they'll wait five, 10 years until the liquidity events, and then they'll just be funding to the LPs.

In 2013, AngelList launched syndicates. And what syndicates were, were effectively single investment funds, meaning rather than raising a venture fund to go invest in 20 or 30 companies, you raise a single investment fund to invest in one company and for the first time that actually reduced the friction kind of going back to our theme again of reducing friction we reduced the friction for uh who can participate as an investor in the venture industry in the tech economy and when that launched that uh that just started growing very very quickly because for the first time you could actually you could have an allocation in a company as an investor and then say, hey, I'm investing $100,000 in this

company. Who else wants to join me? But look, the founder isn't going to have time to meet all of you. But hey, why don't you just join my syndicate? And then I'll invest in the company as one lump sum. And so that is the concept of a syndicate. It's a single investment fund. And as this got launched, obviously, one, it reduced a bunch of friction. But also what it did that was very interesting to me was it now gave a subset of the population access to capital to monetize their access or their relationships. And so maybe talk a little bit about the impact you guys saw, not only on allowing the capital base to now get access to these deals, but actually the new capital allocator, people who previously didn't have a fund in the dedicated traditional

sense, and also weren't independently wealthy writing these large angel checks. How has that product opened up that opportunity for really thousands of people? Yeah. So the way it ended up opening up the opportunity is that you didn't have to go down the previously well-trodden path of how you become a venture investor. Before syndicates, and really if you just kind of go back like a decade the path to becoming a venture investor usually was uh you either sell a company you start your own like large fund right so you need very large lp or you operate for a long time at a company and then you join a venture fund and really there was this hazing ritual of you join a venture fund and then maybe eventually

you make it a partner and then from there now you're investing in startups right so it was just like long, you know, multi-year, sometimes decade journey, but then eventually be in a position where you're writing checks. Because most people in a venture fund don't write checks, right? It's only the GPs, people who actually have check writing authority that can actually invest in companies. So with syndicates, what ended up happening was, for the first time, people could choose their own path, right? They could say, you know what, I don't want to hit on that path, or hey, I still have a company, or hey, I'm still, you know, I founded a company or operating a company, but have access. My friends are starting these companies. I know they're great. And I have

access to these companies. Hey, great. Who else wants to join me to invest in it? And what we found over the years was that new venture fund managers, people who became great VCs came out of this. I could literally rhyme off a ton right now. Folks who started with syndicates, they ended up building a track record pretty quickly. And then based on the track record, they ended up raising larger and larger slugs of capital to the point where the region leading Series A, leading Series B deals. And so we saw that become the journey

of some of these early fund managers, people who had access but didn't have the means before because, and they didn't want to go through the path of the hazing ritual to then become a venture, you know, to become a VC over time. They were just able to start a syndicate, build a track record, and then continue to evolve on their journey.

So that went incredible for you guys from the outside looking in, and lots of people used it. Companies found it valuable. Kind of the capital allocator, the new VC, found it valuable, and then capital partners found it valuable. At what point did you say, wait, maybe we should actually kind of innovate on this model and go after the rolling funds product? Yeah. So after syndicates, there was actually another moment where we launched traditional funds. That's a traditional venture fund. But the real innovation there was actually the innovation to make a venture fund as small as possible.

so usually venture funds when you start a venture fund uh there are all of these legal costs back office costs accounting costs is everything that need that's needed to run a venture fund it used to be very expensive it literally used to be a hundred thousand dollars a year uh two hundred thousand dollars a year just to start a fund and by the way that's charged across 10 years so you actually got about a million dollars at least to get get a fund off the ground which means your target size of a fund ends up being very large and as soon as it's that large you like you have to have relationships right so in a way it kind of restricts access to the industry because of that so the innovation uh going from syndicate to traditional fund was how do we compress the

cost of what it takes to run a fund so angelus managed to we managed to compress the cost by an order of magnitude and again it did the same had the same impact it was like great you were able to now bring in a lot more folks into the industry, because guess what, you don't need to go raise a $50 million fund just to get started, you can actually raise a million dollar fund, right. And so we found that to be very powerful. And effectively, it kind of took the person on the journey, right, you start off with syndicates, you build a track record, a reputation, and then you evolve and you go into a traditional fund. And so we kept, you know, we actually stayed with them along that journey and then with the traditional fund they would start one deploy

the capital and go raise the next one fund number two three etc so that was the second innovation that angelist uh that angelist venture did and this was in 2016 and so from there uh you know we've now supported hundreds and hundreds of these traditional funds right so we we have over time we actually built a ton of infrastructure all the way from banking infrastructure to accounting infrastructure to all of the software, accreditation checks, everything. And from there, we still noticed, kind of going back to, again, the theme of how do you reduce friction, right? How do you remove the steps? We still notice that the biggest friction point for anyone raising capital is the process of raising capital. It's that when you go to raise

a venture fund, the traditional venture fund, the way it works is you basically set aside six months, 12 months, 18 months sometimes to just go raise the capital. And then you're just heads down raising capital, taking all of these meetings, all warm intros. You can't talk about it publicly because it's illegal to talk about it publicly. And then once you raise the capital, you lock down the fund, and then you can't raise capital again into it for the next two, three, four years. And we found that there was still a friction point on the fundraising side, Meaning, you still have to put in a ton of your time, ton of your energy. And one, for people who don't have the access, meaning they don't have the network of LPs to talk to, or two, people who have access, but like, they're just too busy, right? Like, if you're running a company, like, you're not going to go through that six-month, 12-month process just to go raise capital.

And so what we noticed was, you know, we actually just looked at the core of that whole thing and went, why is a structure this way, right? Like, why do you raise capital and then lock down the fund? Because it doesn't actually make sense. your best time to raise capital is when one of your investments has a markup and there's so much excitement around it, right? And so we just, we're sitting there and it actually came through the jam session with Naval

and Naval is great at that stuff, by the way. He's probably one of the best strategic thinkers I've met. And we're just jamming on this. And he's like, yeah, I've had this idea in the past and question, why is this traditional fund structure this way? Why can't you just keep raising capital? And so we kept thinking about it. And we're like, it's interesting. The traditional venture fund structure was built in a world where the assumption was that people would be doing all of the legal back office accounting work, right? It was built in a world

before software. Rolling funds are a venture fund structure built in a world post-software. So our view is that rolling funds are actually a superior structure to a traditional venture fund, meaning if the software existed when the venture fund structure was originally built, it would be a rolling fund. And a rolling fund, if you want, you can actually apply constraints and build a traditional fund out of it, right? So it actually is just a structure that is, it's a venture fund structure that's built through software that essentially has many more features and you can choose the features

and mix and match the features however you want. But it really, at its core, it's just a venture fund built through software. And because of that, you don't need all these constraints of, oh, we need to go lock the fund down and then go deploy and then raise again, go through this big band fundraising.

You can just always keep it open for capital. So that was the real breakthrough moment for us. And from there, because we had all this infrastructure, that we built up over time, we were able to go from idea to initial launch very quickly. And some of the early data that we saw was very, very promising for us. And yeah, we just haven't looked back since. We've just been more than thrilled by not just emerging managers loving the product,

but also established managers. We're seeing people coming from the VC industry like, wow, this is great. I don't need to go through the 12, 18-month fundraising process. I could just set this thing up. So, um, yeah, it's, it's, it's been great. Maybe talk about an example or two, uh, in terms of, uh, somebody who set one of these up, um, when you say, you know, successful, what does that look like in terms of, uh, capital committed, um, and, and kind of how that plays out just so people can kind of tangibly understand what some of these examples are. Yeah, for sure. So when a traditional fund raises capital,

they're usually raising capital to deploy over two to four years. So if you're going to raise $10 million, you're going to be deploying that capital over the four years. And so when we think about the rolling funds and the capital that our VC is raising in the rolling fund, we think about it in terms of subscriptions, right? It's every quarter, this flow of capital is just coming in, and it's just increasing over time and it's actually aggressively increasing over time and how we look at it and,

and how to think about it with a rolling fund is how much in yearly flow do you have, right? Ultimately when you think about deploying into companies and startups, you're thinking about on a yearly basis, how much capital you have to deploy into startups. And that way you can essentially manage how, you know, what your check size is, how many companies you need to invest in and all of that. And so success and what we're seeing, uh,

in our data is that the capital that these rolling fund managers are raising, it's increasing every quarter. I know that there was some chatter around, well, these LPs are not going to be as stable as a traditional fund. It turns out, while some of them may drop, the fact that you can always accept new capital means that some of the LPs will actually increase their check size um and we're seeing this because what's happening is lps are seeing the deal flow and they're like oh wow you're making great investments great i want to increase increase my check size so we actually saw this through covid right post post stock market crash when everyone was fleeing uh that was probably the biggest test for us with the rolling fund it's

like ooh right because we're hearing in the industry like institutional lps are delaying or even backing out of some of their commitments. I know of several funds where this happened. But with the rolling fund, we're like, okay, let's see what happens here. It turned out that the LP commitments increased during this because, again, it was a lot more flexible, right? People don't feel like they're getting locked in for two to four years. Now, a lot of the commitments that do come in are for a longer term.

Again, rolling fund is a structure. you can set it up however you want. Sahil, for example, has his fund set up to get a minimum of a one-year commit from LPs. You actually have the ability to get this cash flow or the investments for a longer time period. We have it set up that way, where you can do just quarterly or a longer time period. Because of that, you end up getting a larger base of LPs that engage with And so as we think about success, we really look at what is the largest fund, equivalent fund, that we have on a rolling fund structure. And today, it's a $100 million fund on a rolling fund structure. And by the way, it is still growing, and it was raised in a fraction of the time.

Because what's happening is your daily activities as a fund manager, as a VC, is doing your fundraising for you, right? Whenever you send out the LP updates every quarter, you can actually accept more capital. And the other great thing is because these are all publicly marketable funds, it's actually a SEC rule called 506C. Angelus was actually involved in writing this in the jobs act in 2013. Because these are publicly marketable, you can also just every quarter talk to your LPs, share the update, but you can also share it with other folks. You can do a webinar and you can accept capital anytime. We're seeing those characteristics are having this compounding impact on the amount of capital that rolling fund GPs are managing to raise.

It's interesting because Sahil, he's publicly said this, I'm not saying anything that's confidential. Sahil started with 100K target, 100K per quarter. He crushed that in, if I remember correctly, it was literally three weeks or four weeks, absolutely crushed it. Then he crushed his next target again, and he's still crushing it. It is because it's so flexible that LPs now are able to engage with it however they want. They want to commit for a longer time frame?

Great. They can. They want to just commit for a quarter? That's fine. They can. They want to just wait and see and maybe come in the next quarter? Totally good because the fund's not going to lock down. It's not going to close down.

And the other interesting thing is this is their only fund, meaning because the rolling fund is the last fund you'll ever raise, you know you're getting access to all of their deal flow, right? So if I want confidence that I'm going to get access to all of Sahil's deal flow, I'll just invest in the rolling fund and I'll just keep investing in it. And so those are all the characteristics why we're seeing such very, very strong success with it across the industry. What's interesting is, I think there's a lot of products that would serve one side of this marketplace, right? So you can make it better for founders, you can make it better for investors. And there's a lot of value that can be created and captured by doing that. The rolling funds seems to actually be one of those rare cases where you get kind of a win-win-win alignment of an improvement for the founders, right? Because there's more capital in the marketplace, there's people who can make decisions much faster.

You get the investor themselves now can raise capital much easier, focus on investing, be a better investor. And then on the LP side, now I've got kind of more choice and also more flexibility in terms of our relationship. And so when you get that rare situation where you kind of get wins that align these incentives, they tend to be really, really big products. And I think that's kind of what you're alluding to here is you're already seeing in the data like, hey, this has a massive addressable market that you guys can go after because you're really just making the entire stack much more efficient and more valuable for people. Yeah, that's exactly it. This product ends up being a better product for everyone involved, right? and that is why we think it's actually striking a chord uh so deeply uh it net is just very positive because usually most financial products especially if it's a platform there's always

someone losing a little bit right and uh and it's sort of like a trade-off and you're like all right well okay fine and you find that those products can't really i mean they'll grow but then because As it grows, there's an anchor of like, oh, the incentives aren't quite aligned. And this product is one where, as it's growing, because all the incentives are aligned, we're now seeing everyone talk about it. Because they're like, yeah, this is so exciting. This is great for us. This is so exciting. This is great for us.

And that is very important in building an enduring financial company and an enduring financial platform. And what matters most is customers love it. And we are, again, going back to our mission, we're helping increase the number. increase the number of startups in the world um so yeah you you hit the nail on the head like the incentives are aligned across all uh all actors uh from an advantage standpoint uh there was a tweet that naval had where he responded to somebody and uh it was basically you know and only the way naval knows how to do a single tweet that you know really highlighted like look this is a sass based fun structure whatever uh when you guys talk about it internally i don't

know if that's a kind of a mantra for you guys, that one sentence that he used, or if it's just something that you guys have thought through in terms of what those advantages are. How do you describe it to people who are considering rolling fund versus traditional fund? Yeah, good question. I will say, Naval is very, very good at compressing complex concepts into tweet form. So it's always great. It's always great to see that. As we think about it internally, uh the the discussions are definitely um there are layers to it um in terms of what the uh like how we think about why this is great for different types of managers one thing that is uh pretty clear is it is like it's it's a clear product it's it's a product that adds value for every

single type of manager um now in terms of why we see an emerging manager that's someone who's just starting a fund, maybe on funds who's using it, for them, what we're noticing is they can effectively raise any time. They can start small. They can raise $100K and then start making investments and publicly share them, assuming, of course, the founder, the startup has publicly shared it, and then raise more capital in Q2 or Q3, Q4, and they keep raising more capital over time. So we're seeing this resonate with them because they're able to get started small and then scale up with it. And our pricing structure actually is like we made a very thoughtful decision to make sure that we set up everything in a way that allows for that to happen. So even

for the smallest rolling funds, we want to make it accessible for everyone. We're not trying to shut anyone out. It's like, great, come here. If you want to become a VC, you can come here, you can get started small, and then we'll grow up with you. For the established manager, and the definition here is anyone who's on fund two, three, four, or they've worked at a large venture fund, and they have a network, what's resonating there is the fact that they don't need to go spend 12 to 18 months of their lives every few years fundraising. And all they need to do is get the fund started today, get the capital in, start deploying, and then it'll just keep growing over time. And so the key piece that's actually resonating with them is never

raise another fund again. This is your last fund. You're all set. And by the way, we'll do everything that a traditional fund does. Like I mentioned earlier, a rolling fund is a venture fund structure that would have been built in the age of software. We're in the age of software, so we build it. So you can create a traditional fund out of it if you want, add constraints and parameters, but you don't need to. And so we're seeing that resonate with the established managers, which is just never worry about raising another fund again. This is your last fund. It's going to be your great fund and that's it. And for emerging managers, it's the get started very, very quickly. I just love the idea that it's so flexible and so compartmentalized in terms of the

different features and parameters so that you can make it identical to a traditional fund, or you can make it something that you deem is more beneficial, right? And so kind of that flexibility, I think, is a key piece. Everyone's excited, but what are the disadvantages? Like when you look at it, you say, obviously, you're gaining a lot here. What is the trade-off or what are you losing by using a real fund versus a traditional fund? Yeah, it's a really good question. It's the number one question I think about every day.

I would say some of this is actually changing very quickly. It's improving very quickly. The biggest trade-off is it's a new structure, right? So if you're an LP, because it's a new structure, it's just new information to take in. But what we found is once the LP knows how it all works, it's very, very quick. And some of this is changing so quickly, even as recent as a few weeks ago, where now the community is writing up all these amazing posts. I'm reading some of these and I'm like, this is amazing.

I will actually send some of that collateral over to LPs or even GPs. And I would say that is the biggest trade-off today is that it is a new structure. There, you know, there, there are additional questions that will come up. But, you know, our solution to that one, it's already happening, which is the community now there's like, it's in the broader ecosystem. ecosystem now people know about it um and and every day more and more people are knowing about it uh so we think it's actually getting solved pretty quickly uh and the other thing that we do

to help in that is we'll hop on a call with anyone any lp we're here we'll provide all the collateral um and we're able to share that um so yeah i would say that if i was to be you know if i'm going to be uh if i was to like really pick one that would be one and then how do uh do the fees work in terms of on a deal basis, and then also for kind of the owner or manager of the rolling fund? Yeah, so we simplified the fees as much as possible, right? We really do believe in a simple model. So there's not a lot of fine print and asterisks and all of that.

The fees are basically 0.15% annually of the commitments coming in. And the fund manager, the VC, will usually charge a 2% management fee annually and a 20% carry. Now, again, the management fee and carry, configurable. We do see some folks charge no management fee and a carry or a lower management fee and carry. So it's completely dependent on the GP and what they want to do. But our fees are just a simple 0.15%. So for an LP, all they need to think about is whatever the GP is charging, just add 0.15% to it, and that's what we're charging. So we've made it very, very, very slim because, again, we want to make sure we bring on as many of these GPs as possible, simple pricing, and we're just going to grow with them.

Got it. And then one of the things that I've heard a lot of investors ask, and I actually don't know the answer to this, is let's say that you've got a rolling fund. and you make a couple of investments in 2020, they end up being, you know, the best investments of 2020, right? And so now all of a sudden, in the way that the world's moving by 2021, they're now all unicorns. And you mean, you mean, DecaCorns? But I'm sitting there, I'm saying, wow, like, I would love to invest in this rolling fund. Can I invest and get exposure to basically the deals that you previously have done? or do I basically get to bet on the manager

and hope that they go find more deals like that? Yeah, it's the latter. And it's the latter because that ends up being a lot fairer to the earlier LPs, right? Because if you allow for an LP to invest after investments have been made and the companies are growing, that new LP basically has an information advantage

that the earlier LPs didn't have and then it would be unfair to them. In traditional funds, it's actually written into the contract sometimes, which is also interestingly why it gets so stressful, right? Because in a traditional fund, what happens is you can do something called a first close. You get the initial capital in,

so you can start deploying, you continue the fundraising and you'll have maybe a couple more closes and then you lock down the fund. And what happens is in the documents, in a traditional fund, it's usually written in that when you reach these specific milestones, whether it's a date or something, you have to lock down the fund. Because what they're doing is protecting against the issue

that if a later LP comes in, they don't want exposure to the early LP's investments, which is how it's structured today. In a rolling fund, the way we do it is as soon as an investor comes in, an LP comes in, they don't get exposed to anything before their investment, only to after. What's interesting is that in VC, when you're investing in a fund where someone has a crack record and you want exposure to their future investments, that's actually still a very, very good sign because you have someone now who's built a brand, they've built a network, and they're most likely just going to get stronger and stronger over time, right? And so we see this with some of the best venture funds in the world, Sequoia and Greeson, they can build such a strong brand, founders are just attracted to it. So that was our thinking in terms of how we design this product. Again, it goes back to what you astutely pointed out earlier, which is our incentives

are aligned for all people involved. And so we thought deeply about that particular piece as well. Yeah. And then rolling funds are obviously growing, and it's very obvious, at least from my perspective that this is just a better way to do it. How do you see the impact on kind of venture capital more broadly? Is every early stage manager going to have a rolling fund? Do kind of the traditional fund structures disappear and AngelList runs the world? How do you just think about that impact and how the kind of traditional world changes over time? Yeah, it's a great

question um my my view is that the branded traditional funds are are going to be here right they're going to stay um and uh and i think that they will continue to stay right i just think that that's how uh you know think about that as a series a branded series a firm series b seriously onwards. What will happen is over the next couple of years, because we're basically leading indicator of this, we're seeing all of this happen, we're going to see the solo capitalist concept scale very quickly. And the solo capitalist, if you really break that down, it's basically one person with a brand that is leveraging their brand to raise capital, to get great deal flow

and to use their judgment and invest in great companies. And today, all of this is possible because AngelList Venture has the tools to make it very, very easy, right? You literally tap a button, you have a rolling fund. We'll handle everything for you. And they're then able to use their audience, right? People that are interested in them

to go raise capital into the fund and then start deploying. And what we're going to see is we are going to see a lot more competition coming into the space for pre-C funds and C funds from these solo capitalists. And we will see some portion of them scale their fund to start leading Series A deals. So there will be more competition that will start coming in across stages. But I do think the branded firms, the ones who've built the brand over multiple decades,

they will continue to endure because, again, they have a crack record. But we are going to see more competition. And I do think that even at the Series A stage, we're going to see more firms coming in, which, by the way, I think is huge net positive for startups because, you know, for the longest time, there was this choke point at Series A of the number of firms that are there writing Series A checks. We think this is going to add a lot more people into the Series A stage and potentially even Series B over time. so I definitely don't hold a view it's going to be a you know this thing eats you know all adventure I do think that there will be a coexistence for sure and again we have a very sizable traditional fund business I don't I it is something we're actually sharing more and more but it is very sizable and so we do see we do see that side of it as well but yeah I think

rolling funds will be from a percentage of number of funds and capital deployed in the startups it's it's going to have an impact at pre-seed seed series a and series b that's awesome and by the way we're already seeing this we're seeing some really fascinating stuff around uh very notable influential early stage managers are now banding together and raising an opportunity fund right to start participating in some of these later stage deals um this is happening very very quickly across multiple managers and again the the common theme is it's so simple right we reduce the friction so that you can raise and you keep raising into the structure um and because of that you're what's happening is you're bringing in all of these uh net new people as well into

the industry uh that just didn't want to go through that long you know painful fundraising process because maybe they're running a company or you know they're already you know uh they're already making angel investments they just want to go through that process but this one it's so easy I personally actually rolled my angel investing into a rolling fund because I had some friends that just wanted to get exposure to my investing. And I don't have an intention to raise a large rolling fund. But for me personally, great. I'll just roll it into it. And it's easy.

It was just so easy. So I think that we're going to start seeing all sorts of different types of managers coming in. Yeah, I'm very excited to see how it's all going to unfold. I've been watching Sahil's videos on how he's posting how he's making investments. It's just great. I think it's going to inspire a whole generation of new investors. It's fascinating to see. I think you're onto something for sure.

I ask the same two questions to everybody before we wrap up. First is, what's the most important book that you've ever read? Loon Shots. um it's it's uh especially important now um moonshots the the thesis of the book is that as you're building a large organization uh you want to have uh the team that is constantly tinkering with new products and the team that's scaling they have to coexist it's hard to coexist it's actually brutal to coexist but if they don't coexist then you'll either have a company that can't scale, or you have a company that can't innovate. But as a tech company, your job is to

innovate, it's to release new products in the world. So I just love that book, because it gave me a framework that I've carried with me for actually pretty much my entire career. Yeah, that's a great one. The next one is a little bit more fun. And then you'll get to ask me one question to finish up, which is aliens, believer or non believer? i'm a believer uh i am a believer i i just don't think that they've reached earth yet uh but i just i can't see a world where we're a unique special snowflake and there's no one else in the world i just don't see it uh so i'm a believer but i'm also a huge sci-fi geek so yeah i uh i don't know you you got uh the ufos you got all these people who think they're here so we'll uh we'll end up

figuring that out. You could ask me one question to finish up. When are you starting your rolling fund? I was worried that that was going to be your question. We'll talk. We'll get it set up in 48 hours. We will talk. All right, let's do it. Absolutely. No, listen, I appreciate you taking the time to do this. I think that obviously you guys are at the bleeding edge of innovation here And anytime that you can kind of have a big breakthrough, I think, just in the structure and, again, align those incentives, this is a no-brainer for a lot of people. So where can we send people to find you on the internet or find out more about AngelList and AngelList Ventures? Yeah, so follow me. You can go to twitter.com slash ablock, A-B-L-O-K.

And to find out more about AngelList Venture, you can go to angel.co slash venture. Awesome. Well, listen, this was a lot of fun. Please, please, please keep doing what you guys are doing. Go faster if you can. We're working on it. I'm really impressed. And obviously, I think that the impact here is not yet quite understood.

So it'll be fun to watch over time. But we'll have to do it in the future. Definitely. Sounds great. Thanks for having me. Take care.