20VC: Why the Theory of Pro-Rata is Often False, How Rolling Funds Impact Both Pricing and Competition & The Biggest Lessons from Working with Jack Dorsey with Avlok Kohli, CEO @ AngelList Venture

Avlok Kohli is the CEO of AngelList Venture which has facilitated the funding of over 5,000 startups including 47 unicorns and is home to 4,300 funds and syndicates with $2.2B in assets under management. This year, AngelList Venture launched the much-discussed, Rolling Funds and Avlok recently launched his own rolling fund, Avlok Capital. Prior to AngelList, Avlok built and sold two companies; FastBite, acquired by Square in 2015 and Fairy, also acquired. If that was not enough, Avlok is also an angel in 25 companies. In Today’s Episode You Will Learn: 1.) How Avlok made his way into the world of facilitating over $2Bn in AUM having sold 2 prior companies on the other side of the table as a founder? What is Avlok's favourite Jack Dorsey story? 2.) Why does Avlok believe Rollings Funds are the "printing presses of innovation" for capital markets? Does Avlok believe that everyone should be a fund manager and managing capital? What are the benefits of rollings funds vs traditional micro funds? 3.) How does the rise of rolling funds impact the early stage pricing of companies? How does it impact the competitive landscape for seed and pre-seed allocations? Is Avlok concerned about a wave of undisciplined capital entering the market? 4.) How does Avlok evaluate reserve allocations for early stage and micro fund managers today? What does the data show for funds that do reserve for pro-rata vs those that do not? How has this impacted Avlok's own approach to pro-rata and reserve deployment? Item’s Mentioned In Today’s Episode Avlok’s Favourite Book: Meditations As always you can follow Harry and The Twenty Minute VC on Twitter here! Likewise, you can follow Harry on Instagram here for mojito madness and all things 20VC.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  It is the final episode before the Christmas break and what better way to finish than by discussing an organisation introducing new structures and new vehicles that change our industry by the day. Yes, Angel List and I'm so excited today to be joined by Angel List Ventures CEO, Avlok Kohli. Now, to frame the magnitude of the Angel List Ventures organisation, they have facilitated the funding of over 5,000 startups, including 47 unicorns, and they're the home to 4,300 funds and syndicates with over $2.2 billion in assets under management. This year, Angel List Ventures launched the much discussed Rolling Funds, and Avlok recently launched his own rolling fund, Avlok Capital. Prior to Angel List, Avlok built and sold two companies, Fastbyte acquired by Square in 2015, and Ferry, which was also acquired.

• 0:42Harry Stebbings?

  And if that wasn't enough, Avlok is also an angel in 25 companies. But before we move into the show today, I want to take a moment to mention HelloSign, a great example of a company that found success in building a product focused on user experience. HelloSign is an effortless e-signature solution used by millions to securely send and request legally valid digital signatures and agreements. They raised a total of $16 million in funding and recently got acquired by Dropbox for an impressive $230 million. Check out hellosign.com/20vc to join the thousands of companies and founders who value fast, secure and simple e-signatures. And speaking of beautiful products there, and honestly, cutting the crap, there are a few products I truly could not live without and use 10 plus times a day.

• 1:26Harry Stebbings?

  Affinity, it's a home screen app for me, and not just me, it's the number one venture capital CRM, allowing you to manage deal flow so much more efficiently, track pipeline using Smartlist or Kanban style board view, which is actually my favourite, and their alliances feature means it connects to your network, so you can always see who knows the person that you want that intro to. It's not just me that loves it though, Kleiner Perkins, Redpoint, DCM, Techstars, we all use and love it. So head over to affinity.co to check it out today. And finally, if affinity recognises the importance of people, so does Zoom. And Zoom realises communication is just everything and you really need to build that relationship and there's nothing like meeting face to face and there's nothing like Zoom to make that happen. Zoom lets you connect and do business across town.

• 2:10Harry Stebbings?

  All around the world, Zoom ties together all of your communication needs into one easy platform for video conferencing, for phone calls, group chat, webinars, and your conference rooms. And connect easily from anywhere, your mobile phone, your laptop, or your conference room. Zoom is how business gets done. Get your free account at zoom.com today. Meet happy with Zoom. That's enough from me, though. So now I'm very excited to hand over to Angel List Ventures CEO Avlok Cody.

• 2:40Speaker 01

  You have now arrived at your destination.

• 2:43Harry Stebbings?

  Avlok, this is such a joy to do. I've wanted to do this one for quite a long time now, having heard many good things from Mr. Ryan Hoover. So thank you so much for joining me today, Avlok.

• 2:51Speaker 02

  Yeah, very excited to be here.

• 2:53Harry Stebbings?

  That is very kind of you. But I do want to start today with a little bit on you. So tell me, how did you make your way into the world of startups? And how did you come to be CEO of Angel List Ventures today?

• 3:01Speaker 02

  Yeah, so my journey into startups was predictable, but into venture it wasn't. I grew up in different parts of the world. My early childhood was spent in the Middle East and India. And high school and university was spent in Canada. I'm Indian by background. And so the usual influences were doctor or engineer, but I get squeamish about blood. So engineering was a, it was an easy choice. I studied software engineering at the University of Waterloo and then moved to San Francisco on a whim in, in 2008. Unfortunately, I got here at the height of the financial crisis. I still remember Sequoia's infamous memo, R I P good times, but didn't quite register for me at the time. I spent the first few years working across different companies as an engineer. Most of these companies achieved some level of success.

• 3:42Speaker 02

  One was bought by StubHub, another is actually the world's largest doctors network, Doximity. It's doing really well. And then between 2011 and 2019, I started and sold multiple companies. The most notable one was an acquisition of a food delivery company, FastByte, which was bought by Square in 2015. And I was there pre-IPO for two and a half years. And that experience really left a strong impression on me and a lot of the lessons I learned that I carry with me to this day. I wrapped up the acquisition of my last company in January of 2019 and then joined the acquiring company this time around and really took somewhat of a sabbatical. I was, I've been operating pretty intensely for, for

• 4:20Speaker 02

  Ten years and during that time during the sabbatical in the vault who'd been an investor in a bunch of my prior companies asked me to consider stepping in as CEO to scale the venture business at AngelList. I was happily fun employed and never really saw myself working in the venture space. I'd started angel investing, but I wasn't really steeped into venture and didn't really know much about it. But after a few months of digging in the business with the vault, I was like Square. It had the characteristics of a large financial platform and I officially accepted on July fourteenth, twenty nineteen. And I started the next day and have been busy, busy since. We immediately spun out the venture business from AngelList Holdings and got to work. And in the first year as an independent company, launched several new products. And of course, the most popular of them all is our rolling funds.

• 5:04Harry Stebbings?

  I mean, absolutely in terms of capturing the zeitgeist. You mentioned kind of the lessons from Fast Bite and then also the time with Square. I spoke to Gokul Ajaran before the show and obviously you worked with him and we both know him well. And he said specifically, what were your biggest learnings from Fast Bite, Caviar and Square? And how did that shape your thinking?

• 5:22Speaker 02

  Yeah, I would say the biggest learning was always keeping the customer in mind. And we did this across everything we did, and I mean everything. Annual reporting to the public markets, all hands, planning sessions. The customer was always front and center and it's too easy to get caught up in internal politics. And most people forget that a company ultimately is just a team of people that come together to serve their customers. It's nothing more, nothing less. And I would say that Square across all of its businesses did an amazing job at emphasizing that again and again and again. And you also see it in the way that Jack talks about the customers of Square. So that really left an impression on me.

• 6:04Harry Stebbings?

  Can I ask, I love the customer centrist, Steve. As you said, it's so easy to get kind of bogged down in the plethora of things that can happen internally. Is there anything that you can actually do or you do to really retrain the focus back to the customer? When you recognize that it's going a little bit off piece?

• 6:19Speaker 02

  Yeah, the simplest thing you can do is always write as if you're building for a customer. And what I mean by that is work backwards from what the customer really needs and what they. Want and the best thing you can do is dog food the product as a customer. So the closer you can get to what a customer experiences day in and day out, the more visceral you understanding you would have, you're actually going to have about the customer. And different companies do different things. Amazon, of course, writes their product memos as PR releases, where they work backwards from what the customer is going to want. And at Square, we used to have a framework called Jobs to Be Done Framework that applied across all planning exercises and that used to work extremely well.

• 7:02Speaker 02

  And so you have to find these different types of frameworks that you can apply inside the company that you institutionalize, that the team can actually adopt and carry with them. Now, the best thing, though, is to actually have your team be customers of your own product. Because when your team are customers of their own product, guess what? They don't need to talk to multiple people to figure out what people want. They can just go through all of the iterations in their mind and they can figure out all the pitfalls and really understand, are they building something of value? And that's all that matters at the end of the day. You need to build something of value. The whole goal of a tech company is to consistently put out great products that your customers love. If you're not doing that, you're not a tech company. And so that has been something I've carried with me from Square days, as well as just watching the great companies execute,

• 7:47Speaker 02

  really putting the customer first and really enabling their team and their employees to always put the customer first.

• 7:53Harry Stebbings?

  I mean, speaking of creating something of value, you mentioned it earlier, but it's something that Jack has done countless times. So when we talk about Jack Dorsey, how can I not ask one question before we move into the rolling thumbs, Adam, which I'm super excited for? But like, go who asks this one. What's your favorite Jack Dorsey story?

• 8:08Speaker 02

  God, there are many. The one that definitely stands out is when Jack took on the dual roles as CEO of Twitter and Square. And I was at Square when this happened and for months, there was discontent. People were worried about all sorts of silly things, like Square's stock price being linked to Twitter's stock price. Remember one All Hands where someone actually posted the Twitter stock price, Square's stock price? And like, look, it's all linked. And, you know, definitely understandable why people would be discontent. And what stuck with me was Jack explaining the thought process and how we Came about making that decision and he was very understanding, yet firm. And my favorite line from him was, look, we don't always need to agree and that's okay.

• 8:49Speaker 02

  And that really, really reaffirmed for me this idea that there will be many moments in a company where you're, as a leader, you will be an island and you will need to make a decision that you think is best. And you will expect your team to disagree and commit. And so that for me was a very pivotal moment in watching him lead Square through a time where it wasn't quite that Square was going through a tough time, but through a time where people were discontent about a decision that he was making to go lead another company. And that was, it was, it was really fascinating to watch how firm he was in his thinking and his principles. And he stood his ground and he still did it. And of course, the rest is history. He's done an amazing job running both companies and Square is just a monster of a company.

• 9:32Speaker 02

  Of course, as we can see, you know, the resiliency Square had during the pandemic, where half of their entire business, actually arguably more, was, was directly linked to small businesses being affected. But then the way Hash App came about and became such a great hedge on the rest of the business. It's just been fascinating to watch. That would be my favorite Jack Dorsey story.

• 9:51Harry Stebbings?

  Can I ask for you as a CEO today, how do you think about the times when you have a conviction led decision that you want to stick with, that you're happy to disagree and commit, and this is the decision that's been made? Versus this is the decision, but actually, you know, we're a team and we're open to interpretation and my mind is willing to be made with the team. How do you think about that conviction led versus, you know, I'm willing to be proved wrong and we can alter?

• 10:13Speaker 02

  Yeah, the way I would think about it is, what is the conviction level of the decision? Like how, if you have strong conviction on a certain view as a leader of where the world is going, and you believe you've already solicited everyone's opinions, you've taken everyone's opinion into account, and you still have landed on a particular, particular view of the world or direction that goes against what most people think, that's okay. The important piece is, is that you're soliciting everyone's opinion. So you're understanding all the different blind spots. And that is something that I actually take very seriously in my role is making sure I understand all of the blind spots. In fact, I consistently Ask people to proactively let me know when I'm not seeing something because it's their job to let me know and provide.

• 10:57Speaker 02

  Hey, look, you need to consider this or this or that. Now, after all of that has been considered and I still come down to a decision that most people disagree with. That's okay, because what people really want to feel is that they've been heard, that their opinion and perspectives were considered. And that with all of that, the right decision is made. It doesn't need to be the right decision is a decision they agree with. It's just their opinions and perspectives just should be considered as we make the decision.

• 11:20Harry Stebbings?

  I totally agree. I think you're exactly right in terms of people just feeling like they've fundamentally been heard. I I do want to touch on the rolling funds element. You mentioned earlier, it's captured most of the Twitter sphere for most of the last few months. So when we chatted before, you said rolling funds are the printing presses of innovation. Now, I mean, that's almost a book title in itself, but what did you mean by this?

• 11:41Speaker 02

  Yeah, so printing presses enable knowledge to flow to the people. And before the printing press, people would seek knowledge through these closed networks. Now, with a book, anyone can be educated. Similarly, rolling funds enable capital to flow to more VCs who fund the tech innovation. And before rolling funds, managers would have to raise capital through closed networks. Now, all you need is a tweet and a fund and the network just comes to you. And really, rolling funds are high resolution fundraising for VCs. With one tap, you can get an institutional grade venture fund. And how this leads to even more innovation is you get more VCs entering the industry. Because they don't need to go through all of these closed networks anymore. They can raise capital very, very quickly, start investing right away.

• 12:26Speaker 02

  And what that means is founders actually have more VCs they can raise from. And their first check can come in much, much faster versus having to wait to go through a full process. And so this idea that I truly believe and AngelList truly believes is that when you have more VCs in the ecosystem, you actually do get more innovation, which I know is against what most VCs think. But we're actually seeing it play out in our data that when you have more people writing checks, you actually end up getting more founders starting companies, especially founder-led and operator-led VCs.

• 13:00Speaker 02

  I can definitely say that as I've increased in my, started increasing my check sizes, I've started to look at all my founder friends or people who could be founders and start working with them on new ideas and how they can go start something new. And so this idea of adding more VCs, which leads to more innovation, we see and we truly believe to be true.

• 13:19Harry Stebbings?

  Can I ask a potentially divisive question? And it's when you look at the explosion of venture investors that result from it. Bluntly, when I speak to them and I speak about portfolio construction, reserve allocation, the benefits of diversification, traditionally more kind of institutionally minded topics when it comes to kind of portfolio construction and maintenance. Some of them don't have it and don't have that logic. I guess to what extent do they need it, one? And to what extent do you think everyone should be a fund manager, I guess?

• 13:48Speaker 02

  Yeah, it's a great question. And some of this is actually taught over time. So when you're just investing and you're investing, you just start off investing and investing smaller amounts, you don't really need to understand all of that right away. Meaning when you start off on day one, you don't fully need to have this idea of how do you actually construct the full portfolio? It's something that you actually learn very, very quickly as you start writing check one, check two, check three. And so part of this is just a learning curve that all investors have actually had to go through and they can actually adapt very, very quickly. The other piece is we as AngelList, we are actually starting to educate rolling fund managers and some of them are established VCs and some of them are new to the industry. And we're actually going through and educating them about how to think about portfolio construction,

• 14:31Speaker 02

  how to think about reserves, whether reserves is even the right strategy for you or not. We have some fund managers, some established fund managers actually, who don't have reserve strategy on purpose. They actually, exactly, they want to focus on just the first checks. And then for pro rata, they can go ahead and have a opportunity fund or they can do it in an SPV. And so there isn't a one size fits all. And really it's a question of what is right for you in terms of your investing strategy. And on the topic of pro rata, the one thing that I've observed, and this is more in my time at AngelList, is you can create a spreadsheet and this beautiful model of how pro- And reserves and everything's going to work and look this is you know this is what's going to make the fun.

• 15:15Speaker 02

  But in reality, when you really are trying to invest your pro rata into the companies that are becoming really great. The assumption that it is going to be available for you is false. I have been part of several rounds where I've seen how pro ratas get allocated. And especially in this environment where there's so much capital at some of the later stages, people get squeezed out. Founders don't want to dilute as much. And so while in a model, you can have a certain strategy, how it actually bears out is a function of leverage in future rounds. And so because of that, we're starting to see fund managers adopt different strategies for how they want to invest their funds.

• 15:50Harry Stebbings?

  So I totally agree with you. I often find on the best companies, the pro ratas available are not at all what is initially thought. Or bluntly, the pricing is often so high that you're probably best placed putting another line in the portfolio than doing it at a hundred and twenty when you got an initial entry at ten. A question for you that I'm just too interested by, I'm a big believer on ownership on first check and really taking that as the stance. Not kind of the spray and pray and then doubling down when you see something working. Because I, as we said, don't think it often comes out that way when it works. Would you agree with me on the ownership on first check, just from a personal preference stance?

• 16:23Speaker 02

  As from a personal preference, absolutely. In terms of if you're the first check and you have a certain ownership target and that's how you've built your fund and that's your strategy for the fund, absolutely. It's not right for a lot of other fund managers who actually just want to participate and they want to be a small part of a round. But if you're looking to take a larger ownership in a company on the first check, then absolutely. I actually have that dual strategy myself. I have a certain portion of my portfolio where I'll actually look for a certain number of percentage of ownership. And then I have another part of my portfolio where I'm okay participating in a round and just being a small owner in that company. And really, it's a function of how far along progress as a company and progress in terms of fundraising.

• 17:05Speaker 02

  It's not going to be practical for me to participate in a company that's already raised, you know, one or two rounds, maybe took a pre seed and then a seed. And I'm coming in participating for a small check. It's going to be much harder to hit that ownership target. So I would say if you have the choice and That's part of your strategy. I do believe that having a certain amount of ownership is important, but really it's a function of what is your strategy as a fund manager. I've seen folks write 25K checks, you know, return many, many times their fund because the company just does really, really well. And I've seen folks look for certain ownership targets and then not do as well. Because in a way, it also also becomes adverse selection, right? Can you get into the best companies? Can you, you know, have the deal flow and the access into the best companies at the right time? And put enough of a slug of capital and get enough of an ownership

• 17:50Speaker 02

  that those companies are really going to work. And that ends up becoming very, very hard to predict. And you actually see this in, you know, when most investors who've had a big company in their portfolio. It's funny because you'll you'll see them reflect on it. It's like that people ask, what's your biggest lesson that you've learned? I should have written a larger check into that company. Well, if you actually go all the way back and you think about that moment where you they made the decision to invest, it looked risky. Like, of course, it's easy to say, looking back, you want to write a larger check. But in that moment, it looks extremely risky. And it's interesting because I'm actually going through this right now. I'd written a check into a company at the seed stage and it is going IPO in Q1 of next year. And I'm sitting there and I'm like, I should have written a larger check. That's what I'm saying to myself.

• 18:33Speaker 02

  And I'm like, wait a second, at that moment in time with that information, I thought the founder was great, but it was still risky. So it's interesting that when people look at it, you know, going backwards, the biggest lesson is I should have written a larger check. But it's so hard to predict what companies are actually going to do really, really well at pre-seed and seed.

• 18:51Harry Stebbings?

  There are two sayings that are most common, I think, about like very, very often is like in your winners, you will always have wanted that larger check. And then the other one is, you know, anyone that invests like past your stage, they're growth investors and anyone that invests before you, total gamblers. What are they doing? I love those two. I do have to ask, on the rolling funds element, you know, it does change the ecosystem fundamentally. When we think about, you know, how it impacts the early stage, one question, well, there's quite a few here actually packed in, so I'll take them one by one. I'm concerned about how it impacts pricing with the explosion of capital it brings. In some cases, no offense, undisciplined mindsets around pricing. Like, how do you think it impacts pricing?

• 19:29Speaker 02

  Yeah, it's a great question. And this is a story I've actually heard every single year I've been in tech. There are too many startup or too many funds, not enough startup. Yet every single year, the rate of great companies has actually increased. And I really think there are two major things that people have underestimated, myself included. Software markets are much larger than anyone thought. The billion dollar companies are now ten billion dollar companies. And so what that means is the entry valuations can actually be much higher than before. And the other piece that's happening is that Silicon Valley is actually being uploaded into the cloud. And this means that more founders are now inspired across the world to start companies.

• 20:10Speaker 02

  And I believe we're in the early innings of a much larger Cambrian explosion of startups. And to match all of this new supply, and by supply, I mean all of these great founders starting companies, we need more VCs in the market, not less. And so while we do see prices go up, the overall outcome is also much larger than people expected. And we're also seeing a flood of new founders enter the market. And so that's what we see at Angel List in terms of what's happening at the very early stages across the hundreds and hundreds of funds that we see. We're just seeing huge explosion of founders starting companies across the world. And we need to match that with more VCs entering the ecosystem, not less.

• 20:50Harry Stebbings?

  How do you think it impacts competition? One, you know, we said about kind of squeezed parrot's earlier. You know, we're also seeing squeezes on initial checks just because the competition, like in some cases because of new rolling fund managers that have been enabled through the rolling funds program. But it just squeezes check sizes for a lot of us. How do you think it impacts competition?

• 21:09Speaker 02

  Yeah, it's a great question. One, it's amazing for founders, right? Having more VCs to choose from and select from is just great for founders. Now, for VCs, what happens? You now have to go earlier. And if you are investing at seed, you'd want to find a way to invest at pre-seed. And you want to find ways to meet founders when they're much earlier in their process. So the way it's going to impact competition is that anyone that used to play at seed, but really is a series A firm is going to get squeezed upwards. Because what's happening now Rolling funds is actually taking the entire early stage market and solo capitalist is taking the entire early stage market with pre-seed and seed fund or seed and seed rounds.

• 21:50Speaker 02

  And so with respect to competition, it's really going to come down to do you go earlier or do you go later? Where as a fund are you really going to have your strength and you want to go play to your strength? And so I can give you an example with me personally, what I look to do is I look to go earlier rather than later. I don't have as much of a, you know, I can't really flex at the later stages because I'm not part of a large firm. I'm a solo capitalist. I invest through my rolling fund. But what I can do and where I can be extremely helpful is actually even earlier. When a founder is just starting to think of an idea and they're just starting to think about putting together a team and that's where I play. So that's what we're actually seeing investors do when they actually hit competition is they just change what stage they end up playing at.

• 22:33Harry Stebbings?

  Can I ask you a question? You mentioned your rolling fund there and sorry, this is off schedule, but it's something I think about. You know, I have a lot of people who pay me like, oh, I'm doing rolling fund. I'd love you to invest. And that, and then they're like, you know, but you know, if you invest in four consecutive quarters, then you know, you'll get the diversification across the quarters. And I'm like, yeah, you know what that sounds like? That sounds like a capital call. Welcome to traditional funds. Why am I wrong? Cause I, I clearly am wrong. So what am I, what do I not see when I take that perspective? And how should we think about maybe as an LP investing in like one quarter versus across quarters?

• 23:04Speaker 02

  Yeah. So when most LPs invest in rolling funds, they actually do invest in for a minimum of a year or two years. And the framing of the capital is coming in every quarter and it being similar to a capital call is correct. Capital does come in every single quarter and then the rolling fund manager can go invest that in that quarter. And the carry itself is actually calculated across your minimum term. So if you're committed for a year, it's calculated across a year. If you're committed for two years, it's calculated across two years. Now, the piece that actually makes a rolling fund different than a traditional fund is that the rolling fund can continue to accept new capital. And it can continue to accept new capital from new LPs while being fair to all of your prior LPs. So if you start off in Q1,

• 23:50Speaker 02

  Let's say I'm doing a rolling fund and I come to you and I say, hey, would you love to invest? And you're like, great, yes. You invest for a year. Now I invest after the first quarter, I roll into the second and I go find another LP to invest. That LP that comes in, in that second quarter, doesn't get exposure to any of the investments in that first quarter, which is different than a traditional fund. I'm actually an LP in many traditional funds where they've made a bunch of investments and they're still raising. Portfolio's been marked up and I'm like, hey, what's going on? Like the new LPs actually have an information advantage and they're able to invest into a better deal. With a rolling fund, we've taken care of all of that. Also, what we're seeing with a rolling fund is an LP can come in and really get to know the manager. They don't need to commit for the full year or the two years if they don't want to.

• 24:34Speaker 02

  They can start with one quarter, understand the manager, get to build a relationship and then they can increase their commitment. So just like you can accept new LPs into a rolling fund at any time, you can also accept an increasing amount of capital from your existing LPs. And for the LP, they can actually get to know the fund manager over time through real skin in the game and understand the companies they're investing in, understand how they think, and then they can go to increase their investment. And we actually see this all the time. We've seen LPs double their investment after a couple of quarters because they're like, wow, this fund manager is great. They're investing in companies that are doing extremely well. I want to give them more of my capital. So it's very flexible. It flexes up very, very nicely.

• 25:16Speaker 02

  The other big piece, of course, is the 506C general solicitation nature of it, where with one tweet, you can have the entire network come to you. I was actually just talking to a rolling fund manager the other day, who'd actually tweeted out that, hey, they're looking to meet more LPs for the rolling fund. And they had the founder, CEO of a very large company reach out to them through a DM on Twitter. He wouldn't even figure to even reach out to this person. And even if you wanted to go reach out to this person, you have to then sit down, look at your network, maybe look at your LinkedIn and go, who do I know here, here, here? What we've done is compress this all together. You don't need to go through closed door networks anymore. You can just tweet it out and your network comes, the network actually comes to you. And so those are the characteristics that are driving more and more.

• 26:00Speaker 02

  More people to rolling funds versus traditional funds. The other frame that actually is useful is rolling funds are what a venture fund would have just looked like in an age of software. When traditional funds were built, they were built in an age when the assumption was people would be doing all of the back office accounting, legal and all of that. While in an age of software where you have everything automated, you can actually add a lot more bells and whistles to a venture fund structure. And that's really what a rolling fund is. You can actually create a traditional fund structure out of a rolling fund by adding constraints and parameters, and you can simulate a traditional fund. But most people choose not to do that. They love the flexibility of it.

• 26:36Harry Stebbings?

  Can I ask, I think a big inflection point for rolling funds in particular will be when you see institutional capital start flowing in, be it fund of funds, endowments, pension funds, you name it. Do you think we'll see that? And what do you think would be the tipping point?

• 26:49Speaker 02

  Short answer is yes. We're already starting to see this. And it really is a question of which institutions are actively investing in venture and which ones sporadically invest in venture. So the ones that actively invest in venture will already see them committing to rolling funds. And that's already happening. The ones that aren't investing as much into venture into traditional funds, for them, it's a new structure. And for them, they will go through the normal diligence process, which sometimes can take months to a year in order to go through that process. We are seeing institutions investing in rolling funds. And the less the institution invests in venture overall, the more time it takes them to understand the new structure. And we're actually working with a lot of them right now in order to walk them through the structure itself.

• 27:34Speaker 02

  Uh, but we are seeing institutions already invest in rolling funds. Because ultimately, the leverage comes from the GP, right? The GP is raising a rolling fund and they're the ones bringing the LPs into the fund. And their pitch is if you want exposure to my investments, here is the vehicle through which I'm going to be investing into companies and it's going to be a rolling fund.

• 27:53Harry Stebbings?

  Got you totally. That makes sense. Can I ask, like, on the distribution side, that's another big question for me where it's like, it's just less clear than a traditional fund. How should an LP and how should I be thinking about the distributions and just clarifying that?

• 28:06Speaker 02

  Yeah, so the way to think about it is as an LP, when you go to invest in. A rolling fund, think of it as you have your own fund that's there that the GP or the fund manager is just pulling from to make the investments. And your fund, if you're investing for a year, let's say, or two years, think of it as it's your pool of capital that is being invested from for the one year or the two years. And that now as any distributions are coming in, there's a liquidity event from a startup. It is coming into that pool of capital and then based on whatever the terms are, either get your distribution from that pool of capital that's calculated across the investments made in that pool of capital for that time. And so that's the best way to think about it is each LP has their own fund that the fund manager is pulling from. Now, we think that we can do a much better job explaining how this works for LPs.

• 28:51Speaker 02

  And we're actually going to be launching a section on our website explaining exactly how distributions work for LPs and how to think about the minimum term and when the capital will come and when flow back out to the LPs. But that's really the best way to think about it is your minimum term is really the term at for which the your capital is going to be pulled out of and as distributions come in, you can pull from those.

• 29:12Harry Stebbings?

  Is there a fund size where rolling funds taps out? You know, when we look at traditional funds, it's anywhere from, you know, 30 million maybe to multiple billions. You know, could rolling funds facilitate a billion dollar fund?

• 29:23Speaker 02

  Absolutely. And we're actually seeing a couple of funds scale pretty quickly. And we we expect that we're going to see something like that in the next couple of years. And there really is no limit to the amount of capital that you can close into a rolling fund. And really, it's going to come down to a question of what the fund manager's strategy is. So we do see some rolling funds wanting to cap the amount of capital that they are collecting per quarter. Because they want to participate in venture rounds, they don't want to lead venture rounds. Because when you participate, you're playing a positive sum game. When you lead, you're playing a zero sum game. So it's really a question of what is the fund manager's strategy? But there really is no limit to how large a rolling fund can be.

• 30:06Speaker 02

  And we're actually seeing some rolling funds scale extremely quickly. And we do expect us to have the equivalent of a billion dollar fund very, very soon under a rolling fund structure.

• 30:15Harry Stebbings?

  Can I ask the final one before like the quick fire? And I know we've gone totally off schedule, but we can do a round two. It's the beauty of the show. And it's like, you know, what does Angel List place in this? Like, does it look like the world's largest fund provider? Like, how do you see Angel List's role moving forward in this in an ideal world?

• 30:30Speaker 02

  The way to think about Angel List is we're going to be the largest financial platform in venture. And today, our customers are fund managers and LPs who invest in funds. And tomorrow, we're also going to be including the startups. Because what's happening is we're essentially the financial platform that's allowing LPs to invest into funds and then funds invest into companies. And we can actually provide all of the different products and services needed for LPs and fund managers and startups for startups ultimately to get all the financing they need to grow. And so that's how we view our role in the ecosystem. It's not going to just end at fund managers and LPs. It's also going to include startups. The only reason we're in the fund administration business

• 31:14Speaker 02

  is because we believe that we needed to own the full stack. Because when you own the full stack, you can actually do things like rolling funds. Rolling funds would not be possible if we'd outsourced that part of the stack to someone else. It's very similar to how Apple works. When you own the full stack, you can do a lot more because you can modify different parts of the stack, create something new. And so that's how we think of ourselves. And so today, our stack includes the LPs, the fund managers and all the services needed. And tomorrow, we're actually going to add startups to that as well.

• 31:43Harry Stebbings?

  And listen, I'm totally with you. I think it has to be vertically done. I don't think the horizontal play would have worked at all. So totally with you there. And as I said, I'm so sorry for going so off schedule, but I've loved this discussion. So tell me, let's do a quick fire round. So I say a short statement, Alblock, and then you give me your immediate thoughts. So you ready to rock and roll?

• 31:59Speaker 02

  Let's do this.

• 32:00Harry Stebbings?

  Okay, so what's your favorite book and why?

• 32:02Speaker 02

  Meditations. I have a tendency to get consumed by work, which takes me out of the present. And the book taught me a few concepts and frameworks to stay in the present.

• 32:11Harry Stebbings?

  Tell me, hardest element of your role with Angel List today?

• 32:14Speaker 02

  Saying no to the good ideas to make room for the great. It is really, really, really hard.

• 32:19Harry Stebbings?

  What's your biggest strength and your biggest weakness?

• 32:21Speaker 02

  Biggest strength, determination. Biggest weakness, hard to be present.

• 32:24Harry Stebbings?

  What would you like to change? Change about the world of venture, you're innovating more than anyone else in the world of venture. What would you most like to change?

• 32:30Speaker 02

  A lot more founders becoming investors.

• 32:32Harry Stebbings?

  Love that. Okay, what's the biggest benefit of founders investing?

• 32:37Speaker 02

  Empathy and the network that they have to go inspire more people to become founders.

• 32:41Harry Stebbings?

  What do you ultimately want to achieve with rolling funds?

• 32:44Speaker 02

  That the next cohort of great founders are raising their entire pre-seed and seed round from rolling funds.

• 32:49Harry Stebbings?

  When I say success, who's the first person that comes to your mind?

• 32:52Speaker 02

  Definitely Jack Dorsey. He's an inspiration for the work he's done on Square, all while staying extremely present.

• 32:59Harry Stebbings?

  And the ultimate one, I have to ask this, it's not on schedule, so this is an interesting one. What's the biggest takeaway from working with Naval? I mean, he is just the Yoda of this industry. So like, what's the biggest takeaway?

• 33:09Speaker 02

  Biggest takeaway, the importance of building a product that has, that delivers extreme value to customers. And constantly, constantly thinking about that. Yeah, that's the biggest takeaway.

• 33:20Harry Stebbings?

  Final one, what's your most recent publicly announced investment and why did you say yes and get so excited?

• 33:25Speaker 02

  Oh, that's easy. Definitely Settle. It's at settle.co. Alec, the founder, was the head of credit at a firm. And he and his founding team built a better bill.com and it found extreme product market fit. E-commerce companies instantly pay for their inventory without hitting their cash flow. Love the founder, love the company. I think they're gonna be, they're gonna be great.

• 33:44Harry Stebbings?

  I mean, listen, I think we all need to innovate on bill.com. I'm amazed that that's still a surviving company. I've learned a public company, but I totally with you. I think Settle's supremely exciting. And so, yeah, it's super aligned there. But listen, Avlok, I've had so many great things before this. This has been so much fun. So thank you so much for doing it.

• 34:00Speaker 02

  Thank you for having me. This has been great.

• 34:04Harry Stebbings?

  I just loved having Avlok on the show there and such exciting times ahead for the angel, this team and for the rolling funds industry. So I do want to say again, a huge thank you to Avlok for that. If you'd like to see more from us behind the scenes, you can on Instagram at H Stebbings 1996 with two Bs. However, before we leave you today, I want to take a moment to mention HelloSign, a great example of a company that found success in building a product focused on user experience. HelloSign is an effortless e-signature solution used by millions to securely send and request legally valid digital signatures and agreements. They raised a total of sixty Million dollars in funding and recently got acquired by Dropbox for an impressive two hundred and thirty million dollars. Check out helosign.com forward slash two zero VC to join the thousands of companies and founders who value fast,

• 34:48Harry Stebbings?

  secure and simple e-signatures. And speaking of beautiful products there, and honestly, cutting the crap, there are a few products I truly could not live without and use ten plus times a day. Affinity, it's a home screen app for me, and not just me, it's the number one venture capital CRM, allowing you to manage deal flow so much more efficiently, track pipeline using Smartless or Kanban style board view, which is actually my favorite, and their alliances feature means it connects to your network. So you can always see who knows the person that you want that intro to. It's not just me that loves it, though. Kleiner Perkins, Redpoint, DCM, Techstars, we all use and love it. So head over to affinity.co to check it out today. And finally, if affinity recognizes the importance of people, so does Zoom.

• 35:30Harry Stebbings?

  And Zoom realizes communication is just everything, and you really need to build that relationship. And there's nothing like meeting face to face, and there's nothing like Zoom to make that happen. Zoom lets you connect and do business across town or around the world. Zoom ties together all of your communication needs into one easy platform for video conferencing, for phone calls, group chat, webinars, and your conference rooms. And connect easily from anywhere, your mobile phone, your laptop, or your conference room. Zoom is how business gets done. Get your free account at zoom.com today. Meet happy with Zoom. As always, I so appreciate all your support and I can't wait to bring you some incredible episodes in the new year.