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Rolling Funds and the Emerging Fund Manager

library, rolling funds, startup investment

In the past few months, Rolling Funds by AngelList have been the talk of the town. Instead of having to raise a new fund every 2-3 years, fund managers can now continuously accept capital on a quarterly basis, where LPs (limited partners, like family offices or endowments or fund of funds (FoF)) typically invest with 1-2 year minimum commitments. Under the 506c designation, you can also publicly talk about your fundraise as a fund manager. Whereas the traditional Fund I typically took 11 months to fundraise for a single GP (general partner of a VC fund), 11.9 if multiple GPs, now with Rolling Funds, a fund manager can raise and invest out of a fund within a month – and as quick as starting with a tweet. AngelList will also:

  • Help you set up a website,
  • Verify accredited investors,
  • Help set up the fund (reducing legal fees),
  • And with rolling funds, you can invest as soon as the capital is committed per quarter, instead of waiting before a certain percentage of the whole fund is committed as per the usual 506b traditional funds.

Moreover, Rolling Funds, under the same 506c general solicitation rules, are built to scale. Both for the emerging fund manager playing the positive sum game of investing upstream as a participating investor, and for the experienced fund manager who’s leading Series A rounds. In the former example with the emerging fund manager, say a solo GP investing out of a $10M initial fund size, 20 checks of $250K, and 1:1 reserves. Or the latter, $50-100M/partner, writing $2-3M checks. Maybe up to $7-10M for a “hot deal“, which by its nature, are rare and few in between. In the words of Avlok Kohli, CEO of AngelList Venture, Rolling Funds are what funds would have looked like if they “were created in an age of software”.

I’m not gonna lie, Rolling Funds really are amazing. Given the bull case, what is the bear case? And how will that impact both emerging and experienced fund managers?

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Four Signs of Startup Founders Prioritizing Growth Too Soon

scale, too soon, founders, startup growth metrics

Humans are one of the most awe-inspiring creatures that have ever graced this planet. Even though we don’t have the sharpest claws or toughest skins nor can we innately survive -50 degrees Fahrenheit, we’ve crafted tools and environments to help us survive in brutal nature. But arguably, our greatest trait is that we’re capable of writing huge epics that transcend our individual abilities and contributions. And share these narratives to inspire not only ourselves but the fellow humans around us.

A member of the our proud race, founders are no different. They are some of the greatest forecasters out there. To use Garry Tan’s Babe Ruth analogy, founders have the potential of hitting a home run in the direction they point. They build worlds, universes, myths and realities that define the future. They live in the future using the tools of today. In fact, there’s a term for it. First used by Bud Tribble in 1981 to describe Steve Jobs’ aura when building the Macintosh – the reality distortion field.

Yet, we humans are all prone to anxiety. A story nonetheless. Simply, one we tell ourselves of the future that restricts our present self’s ability to operate effectively. Anxiety comes in many shapes and sizes. For founders, one of said anxieties is attempting and worrying about the future without addressing the reality today. In the early days, it’s attempting scale before achieving product-market fit (PMF). Building a skyscraper without surveying the land – land that may be quicksand or concrete.

Here are four signs – some may not be as intuitive as the others:

The snapshot

  1. Your code architecture looks beautiful.
  2. You’re onboarding expensive experienced talent.
  3. Your cultural values lag behind the talent you hire (plan to hire).
  4. You’re bundling the market before you unbundle the needs.
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Being the Only > Being the Best

crown, being the only, startup, marketing

This week I revisited David Sacks’ essay Your Startup Is a Movement. It was first brought to my attention during my conversation with Yin Wu, founder of Pulley. And again, with a friend who recently jumped into venture after an operating career, particularly around the topic of our investment theses. Our conversation underscored his fourth point in his Movement Marketing playbook.

david sacks, craft ventures, your startup is a movement, category leader
* Excerpt from David Sacks’ Your Startup Is a Movement

It’s much easier to compete in the market of one – the only one – than in a market to be the best one. As some VCs call it, companies that are “allergic to competition.”

Why?

The goal for any startup is to achieve product-market fit before your competitors, especially your incumbents, notice the market opportunity. Frankly, the incumbents have more cash, more talent, more resources, more in every regard except one… problem obsession. Insatiable desire to fundamentally change the way we live. And with that desire comes speed.

It reminds me of a time over a decade ago, right after the spectacular Olympics which put the greatest Olympian of all time on center stage. Our swim coach asked the team, “How do you beat Michael Phelps?”

A few of my teammates suggested we work longer and harder. Another suggested that we should’ve started younger. And another suggested we wait till he retired. But my coach responded, “Just don’t race against him in butterfly. Race him in breaststroke.” While Michael Phelps is by no means slow in breaststroke, still faster than 95% of swimmers out there in it, the theory holds. It’s the stroke one would have the best chance to beat him in. But what stood out to me most was what the wisecrack on the swim team shouted out as an answer.

“He can swim while I run.”

And he was right.

Another fascinating aspect I realized in hindsight was that no one suggested the question was impossible.

Photo by Ashton Mullins on Unsplash

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The CEO’s Evolving Job Description

Not long ago, I was asked: “Why do founders often fail as CEOs?” A rather provocative question. I wouldn’t go as far as to say founders often fail as CEOs as a blanket statement. Equally so, the question isn’t “why”, but “where”. People can “fail” in their positions for any number of reasons. “Why” is simply that they didn’t perform well under the expectations of the role. The better question comes down to “where” might they need to watch out for. Still so, there are many. But one that often catches founders by surprise is: the (in)ability to scale themselves with the company.

Founders often make great CEOs at the beginning. What I’ve seen and heard more of is the inability of founders to scale at the same pace as their company. As the company grows, the job description of the CEO changes as well. The same is true for all executive/leadership positions in a company. Something I personally love is at Shopify, every year the executives have to requalify for the position they hold, and that includes the CEO.

In the early stages, the CEO is a maker. They’re the most obsessed about the problem space. Their main job is to get the product to market. And test if it resonates. They get shit done. As the company scales (post product/market fit), the CEO is a manager. They’re no longer working on the daily/weekly updates of the product at a granular level, but making sure the entire organization functions as a well-oiled machine. How can the CEO enable their team members to be greater than the sum of their parts? To quote Paul Graham of Y Combinator, it’s the difference between the maker’s schedule and the manager’s schedule.

When you’re a small team of 5 or even 20, you’re the product lead. You decide the direction in which the product will go and you’re involved in the day-to-day nuances of the product itself, from the UI/UX to talking to customers to discover pain points, etc. When the company grows to 50 – give or take, you have already hired or are going to hire your first product manager, which means you won’t be involved in the day-to-day anymore, but rather in the larger strategic directions of the company and the product. As a maker, your decisions are tactical. On the other hand, as a manager, your decisions are strategic.

Similarly, Ben Horowitz, the second name in the investment firm, Andreessen Horowitz, wrote about peacetime and wartime CEOs. In the early days of a company, you’re at war. You’re selling; you’re networking. You’re fighting in a competitive market of attention. Not only from your customers, but also potential hires and investors. As your company scales past $100M ARR (among any of the other heuristics when you stop being a “startup”), you’re now a category leader and possibly a market leader as well. As the market leader in “peacetime”, you decide the rules of the game. You’re working to maintain your market position. You focus on the masses, and not the niches as much. And therefore, the job description of a leader born in an era of war is different from a leader born to maintain peace.

Many founding CEOs understand that their role will evolve over time, but unfortunately, many are still unable to keep up with the pace at which the company evolves. Effectively, CEOs have to always be one step ahead of the company’s growth to prepare the infrastructure for the rest of the team to grow into.

Photo by Patrick Tomasso on Unsplash

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Predictions Are Popular

Predictions are in season. It started back during the holidays. A number of my friends, colleagues and folks online have been making predictions of what is going to happen this year. And I’m sure some are sure to hit. Many to miss. Since I’ve been reasonably active on Quora and given my role in the startup community, many people have asked me: “What are some of the best startup ideas to start in 2021? In 2022?”

Over the past year, the pandemic became a forcing function for late majorities and laggards of the adoption curve to pick up newer social and technological trends. Subsequently, accelerating many timelines. Timelines that would have otherwise been realized two, three, maybe even five years out.

  • Social is back.
    • Consumer social has been back. The pandemic has saved on average 2-3 hours of travel time per day for the average worker, job-permitting. At the same time, quarantining has reduced, if not eliminated, many in-person interactions with friends. More time means people seek to find more places to place their attention.
    • Enterprise social is here. The pandemic has forced many businesses to go remote. Similarly, there’s been a migration away from metropolitan/urban areas to save on rent, as well as an opportunity to not be shackled by geography in the past few months. Now, as well as “post-pandemic”, businesses, as well as individuals, are looking for new ways to improve efficacy, communication, and culture at work. In efforts to both retain and attract talent.
  • Impact-driven and socially-responsible businesses are hot.
  • Diversity in the board room is gaining traction. And it’s created ripple effects in the financial world. LPs are demanding venture funds to invest in diverse founders. At the same time, when diverse founders consider which investors to bring on, they look at if the checkwriters at the firm are diverse. Some investors have acted proactively; some reactively. Nevertheless, the cogs are moving.
  • E-commerce, entertainment, streaming, gaming, remote tools, edtech are all up.
  • SPACs and 2020’s string of IPOs have created many “overnight” millionaires.
  • Investing in the stock market, in alternative assets, in syndicates, and more mean more capital is being recycled back into the economy at various stages.
  • There is more capital available at the early stages. New angels. More startups. Just like pre-seed/seed is the Series A from a decade ago, more institutional investors will move upstream. Who knows, there may be a pre-pre-pre-seed round one day.
  • Innovation around the home office space is building momentum.
  • Unsurprisingly, Zoom fatigue is real, which will only led a hand in hybrid work-life models post-pandemic. Equally so, innovation around virtual meetings is only a matter of time.
  • Oculus brought down the price of a VR headset to be as much as a video game console, which means more people can and will adopt VR. Leading to larger markets and more diverse consumers for VR/AR. More startups.
  • Mental health has taken center stage, where it had previously been overlooked or disregarded.

When will the pandemic end? I don’t know.

When will we get vaccines? While experts have given us an expected date, I also don’t know.

When will “normal” return? I’m willing to bet it’s on the magnitude of years rather than months. Then again, will “normal” ever return? I might be completely wrong, but I’m willing to bet the “normal” we knew will never return. But instead, we’ll have a normal 2.0.

In truth, I can only answer what I see in my very narrow periphery. And by definition, there are a hundred-fold more that are in my blind side. And the thing is, what I’ve thought of I guarantee many other founders have already seen, tried, or are trying. What I’m looking for this year, and every year, is what I haven’t thought of yet. But when I hear and see it, it’ll click. Everything I know will make sense.

Investors are lagging indicators of innovation.

Founders are the leading indicators. Listen to them.

Photo by Nathan Anderson on Unsplash

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#unfiltered #38 Warren Zevon, Hockey, and Ambition

Having lived under the proverbial rock for most of my adult life from music, I recently learned of the late Warren Zevon. Particularly in his last appearance on his friend David Letterman’s show in 2002. He had been diagnosed with terminal mesothelioma. In other words, lung cancer, with about a year to live.

Letterman asked him one rather profound question, “From your perspective now, do you know something about life and death that maybe I don’t know now?”

And Zevon responds back with an equally, if not more profound answer, “Not unless I know how much-… how much you’re supposed to enjoy every sandwich.”

Needless to say, I was quite intrigued, which I wasn’t shy about sharing with my friends. One of such conversations was with my mentor. Someone who had followed Zevon’s career with a higher-powered magnifying glass than I did. And, he said, if I were to truly appreciate Zevon’s craft, I had to listen to his song Hit Somebody!.

Hit Somebody!

The song is about Buddy, a Canadian farm boy, scouted to be a goon, whose role on the hockey team is to defend the the top scorers of the team. Needless to say, dirty and violent play is part of the job description. While Buddy greatly distinguishes himself in his role, even to be hailed as the “king of the goons”, he wishes to be someone greater.

“Coach,” he’d say, “I wanna score goals”
The coach said, “Buddy, remember your role
The fast guys get paid, they shoot, they score
Protect them, Buddy, that’s what you’re here for

[…]

He never lost a fight on his icy patrol
But deep inside, Buddy only dreamed of a goal
He just wanted one damn goal

After “twenty years of waiting”, one game, he finally gets the chance. He shoots. And he scores, after getting dropped to the ice by a Finnish goon. And in his dying breath, in a poetic sense of wordplay.

‘Cause the last thing he saw
was the flashing red light
He saw that heavenly light

My thoughts

We often identify ourselves by our job title. In college by our major. In grade school by our grades and extracurriculars. By our past accomplishments, and not enough on those to come. We’re so often trapped in our own microcosm of “rules” and labels. Rules either society has reinforced or rules that we have capped our own potential with.

But that is exactly why I bet on people who live in the future. Because those ambitious enough to dream are the ones who are most likely going to turn those dreams into reality.

That is exactly why I bet on founders. Founders who are like Buddy. Those who don’t let conventional wisdom sway their ability to dream. Those who don’t let titles and labels parameterize their ability to act on dreams.

I, admittedly, don’t follow hockey closely. And some of the jargon in Zevon’s song, I had to do a double take with my mentor and Google. But I can’t help but appreciate the clever choice of words as well as the emotional impact in the lyrics. Which makes sense for Hit Somebody! and Warren Zevon to have a cult following in the international hockey community.

Photo by Aliane Schwartzhaupt on Unsplash

#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.

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How to Build a Culture that Ruthlessly Prioritizes w/ Yin Wu, Founder of Pulley

Last week, I was lucky enough to jump on a call with the founder of Pulley, Yin Wu. Backed some of the best investors out there including Stripe, General Catalyst, YC, Elad Gil, just to name a few, Pulley is the ultimate tool for cap table management. In addition, Yin is a 4-peat founder, one of which led to an acquisition by Microsoft, and three of which, including Pulley, went through YC.

In our conversation, we covered many things, but one particular theme stood out to me the most: how she built a culture of ruthless prioritization.

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The Four Traits of World-Class Startup Founders

Proportionally speaking, I rarely make referrals and intros. Numerically speaking, I set up more intros than the average person. Frankly, if I made every intro that people have asked of me, I’d be out of social capital. It’s not to say I’m never willing to spend or risk my social capital. And I do so more frequently than most people might find comfortable. In fact, the baseline requirement for my job is to be able to put my neck on the line for the startups I’m recommending. The other side of the coin is that I’ve made more than a few poor calls in my career so far. That is to say, I’m not perfect.

I only set up intros if I can see a win-win scenario. A win for the person who wants to get introduced. And a win for the person they will be introduced to. The clearer I can see it, the easier the intro is to make. The less I can, the more I look for proxies of what could be one.

This largely has been my framework for introducing founders to investors, as well as potential hires, partners, and clients. Over the years, I realized that I’ve also been using the same for people who would like an intro to someone above their weight class.

Below I’ll share the 4 traits – not mutually exclusive – of what I look for in world-class founders.

  1. Insatiable curiosity
  2. Bias to action
  3. Empathy
  4. Promise fulfillment
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My Top Questions to Ask Portfolio Founders When Doing Investor Diligence

I’ve recommended in a number of essays on this blog the importance of founder-investor fit. That founders should always do their diligence on potential investors, like here and here. And for a more robust understanding, asking founders in their current and previous portfolio, specifically the ones that didn’t work out. Some of my favorite questions for (ex-)portfolio founders:

  • How has [insert name] been helpful for you in your founder journey?
  • What was [insert name]‘s involvement like when shit hit the fan? Do you remember specific examples?
  • If you were to build another company (if applicable), would you work with [insert name] again?
    • If they are building another company in a relevant field, and if they say “yes”: Why haven’t you?
    • What are scenarios in which you would, and ones you wouldn’t?

Then think to yourself, were those pieces of advice actionable? Did the context help or detract from your initial disposition? Your goal isn’t to point fingers, but to paint a more holistic picture of who you might be working with closely for the long haul.

The best investors can inspire founders to think on wavelengths they might not have considered before. Some may hurt when you first hear them, but if your investors truly care, they mean well. The only reason the truth hurts is because it is the truth. And it’s your job as the founder to do your best to fix it.

The red herring

When a founder responds to the above questions with, “X investor just spent less time with us”, it’s not enough to say that an investor isn’t great.

Each VC always has his/her first and foremost duty and responsibility to the partnership. By simple economics, most of their investments won’t work out. Investors generally understand that they have to:

  1. Spend more time with the winners ’cause they’ll return the fund (and then some, hopefully),
  2. And cap their time commitment with the ones who won’t return the fund.

While that isn’t an excuse for VCs to only focus on maximizing returns (i.e. selling your IP, forcing an acquisition, unjustly firing the founder), it is something that founders should keep in mind. When you raise venture funding, just be aware of the fact that investors need to prioritize their time, especially when the going gets tough. And while it is usually implicit in the investment, a great investor/board member will often have that conversation explicitly with you at the beginning.

This notion, on the other hand, contrasts with angel investors, who are often investing out of their own net worth. So the dynamics, as well as commitment level, for angels is different. Angels often have between tens to hundreds of active investments at a time, meaning their time allocation per startup is much more limited than a VC. For context, a VC is usually actively involved in 3-7 investments at a time, meaning they’re going to be more involved per startup.

In closing

At the end of the day, the world of entrepreneurship, and business more broadly, is a relationship-building industry. And it’s extremely hard for an investor to build great relationships and a reputation if they have a track record of burning bridges. With founders. Even other investors – downstream and upstream.

Photo by Dariusz Sankowski on Unsplash

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The Frequency of the 3 Types of Mentors

I wrote an essay about the three types of mentors exactly a year ago. Peer. Tactical. Strategic.

  • Peer mentor – Someone who has a similar level of experience as you do in a given field.
  • Tactical mentor – Someone who is 2-5 years ahead in experience, and someone who can check your blind side. Because they have gone through similar situations as you are currently going through not too long ago, they can provide context as to the variables (core and confounding) involved.
  • Strategic mentor (which I formerly called veteran mentor) – Someone who has attained success in a particular field as you would define it. While they won’t be able to help you in the play-by-play, they can provide the bigger picture – the macroscopic view. Assessing and reassessing your long-term goals – your true north.

Rocks, pebbles, sand

Many of you might be no stranger to the rocks, pebbles, sand analogy. As the metaphor goes, if your life were a jar, you’d want to fill it with rocks first, then pebbles, then sand. If you start off filling your life with sand, you will have no more space for rocks and pebbles. Similarly, if you start filling it with pebbles, you will only have space left for sand, but not rocks. Analogized, rocks are your life and career’s most important projects and milestones. Pebbles are the smaller projects that lend itself to the whole, some of which you could do without. Sand represents the day-to-day, week-to-week ups and downs.

Rocks

Strategic mentors are most useful once a year (or at best 2-3 times/year) to see if you’re aligned with your goals. They help you set the large milestones you want to accomplish in your life.

  • What matters?
  • What doesn’t?

Pebbles

Tactical mentors, you seek after you come up with a few solutions/hypotheses that you would like to test. You don’t seek them as often, but they can help provide context to what you’re going through now, largely from their own experience having gone through it recently.

  • What variables am I overlooking or underestimating their effects on the outcome? Or simply put, what could go wrong?

Sand

You seek peer mentors before you come up with your solution and in problem-solving mode. These are the mentors you’re going to be spending the most time with. And most likely, the most abundant category of your mentors.

  • How would you attempt to resolve this dilemma? What would you do if you were in my shoes?
  • What are new, innovative ways I can use to tackle this problem?

While they vary in their sizes, each rock, pebble and sand is necessary to live your most fulfilling life.

In closing

Over the years, I’ve had the great fortune of having some amazing mentors and mentor figures that have shone me the proverbial light when alone, I may have struggled to find. Yet equally so, I’ve met their antithesis. Luckily very few, but nevertheless. People who don the mantle of being a mentor, but cannot tolerate your success when you surpass them. The latter I met years ago when I indiscriminately and naively sought out mentors, for the pure sake of just having “mentors”. Arguably, as a foolhardy contest of ego and pride, specifically to compensate my feelings of ineptitude.

A mentor like a friend is someone who is happier and wishes for your success than sometimes you do for yourself. Often, independent of their own escape velocity. Simply put, they invest in your success. And of course with that pretext, they are a scarcity. Even of those are willing and free enough to be mentors, given the volume of their inbound, understandably, their response rate is exceedingly low.

While that fact shouldn’t deter you from seeking mentorship, it makes me cherish the time, effort, and advice I have been fortunate enough to receive.

In the words of Tom Landry, legendary head coach of the Dallas Cowboys, “A coach is someone who tells you what you don’t want to hear, who has you see what you don’t want to see, so you can be who you have always known you could be.”

Photo by Anas Belmadani on Unsplash

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