Rolling Fund Weekly - Edition #3

Rolling Up Our Sleeves Edition: Rolling Funds and SPACs

Welcome to the third edition of Rolling Fund News, a weekly digest with updates and analysis of rolling funds and their wider impact on venture capital and early-stage investing. For this week’s edition, we’re looking at rolling funds and SPACs, plus a few great articles on rolling funds and some in-depth podcast interviews.

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Rolling Funds and SPACs 💰

What is a SPAC?

A special purpose acquisition company, or “SPAC,” is also referred to as a “blank check” company. Basically, a SPAC is a newly-formed company that raises a bunch of money through an initial public offering, with the intent to acquire or merge with a private company later, taking it public without an IPO.

SPACs have been around for decades, but they’ve only gone mainstream in recent years to actually outpacing traditional IPOs by volume this year. These two resources will get you quickly caught up on how SPACs work:

What do SPACs have to do with rolling funds?

Both rolling funds and SPACs are incredibly manager-driven (or sponsor-driven, since SPAC management teams are known as sponsors). Both can offer vastly more flexible structures with distinct advantages over a traditional fund or IPO.

As an LP or institutional investor, you’re primarily investing in the reputation and judgement of whoever is behind-the-wheel, the fund manager or sponsor, to pursue good deals in private companies. This is why a solid understanding of the investment thesis and source of deal flow is crucial for both SPACs and rolling funds.

From first check to blank check: A barbell strategy for capital markets

We’re seeing a huge boom in SPACs right now. Every day it seems, a fully formed SPAC springs forth like Athena from Zeus’s brow. As long as the IPO process remains too cumbersome for certain later stage private companies, we’ll continue to see SPACs booming as an alternative. (In fact, some well-known venture firms are already exploring sponsored SPACs for their own portfolio companies.)

The simultaneous rise of rolling funds and SPACs reminds us that capital market innovations will continue to happen. As rolling funds compete effectively with traditional venture fund structures for fundraising dollars, SPACs will compete with traditional IPOs and direct listings as an attractive option for going public.

Last Week In Rolling Funds 🚀

We’re showcasing a few excellent articles on rolling funds, advice for raising a venture fund from an experienced venture partner, and a couple of podcast interviews.

Eric Friedman: Streaming Venture Funds - The state of venture is changing rapidly and AngelList has been at the forefront of this movement. Eric Friedman shares his thoughts on the future of venture firms as “streaming” venture funds.

Alda Leu Dennis: How to Raise a Venture Fund - Venture is a two-sided marketplace matching great founders with capital, but where does the capital come from? Alda Leu Dennis shares her extensive experience with fundraising from over a decade, starting at Founders Fund III and now with Initialized Capital. Practical advice for emerging and experienced GPs and angel investors.

Carlos Diaz: How Rolling Funds Work From the Inside - An insider’s perspective on launching the rolling fund for Diaspora Ventures in just ten weeks, with Carlos Diaz’s thoughts on how the rolling fund structure will change the venture capital industry.

Twenty Minute VC: Sahil Lavingia on Rolling Funds and Their Impact on the Future of Venture - In this interview with Harry Stebbings at 20VC, Sahil Lavingia discusses his experiences as both a founder and VC, how he evaluates product, market, and a company’s founding team, the value of “party rounds,” the advantages and disadvantages of early-stage investing for multi-stage venture funds, and much more.

Pomp Podcast #366: Avlok Kohli on AngelList Rolling Funds - In this hour-long interview with Anthony Pompliano for the Pomp Podcast, Avlok Kohli explains what is a rolling fund, the AngelList fund platform, how it aligns incentives for founders and LPs, the deep structural advantages of rolling funds, and the potential impact on the venture capital industry.

Here’s the six-minute highlight of the interview. Avlok Kohli walks through the fundraising process, the origin of rolling funds and brainstorming with Naval Ravikant, and why rolling funds are superior to traditional venture funds.

Chic Tweets 🔥

In case you missed them, we highlight a few of the best tweets from the past week.

Is the ticker symbol “ROLL” still available, @tanayj?

@semil identifies rolling funds, solo capitalists, and SPACs as three of the hottest trends for capital markets in 2020.

Plenty of solid replies to @TurnerNovak, but check out our Rolling Fund FAQ if you still can’t tell the difference!

Disclaimer: This material should not be construed as a recommendation for any investment or other advice of any kind and shall not constitute or imply any offer to purchase, sell or hold any security or to enter into or engage in any type of transaction.