Rolling Fund Weekly - Edition #6
Rolling In The Deep Edition: How To Raise A Rolling Fund
Welcome to the sixth 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. This week, we’re going over some tips, tricks, and general advice for first-time fund managers and emerging GPs on how to raise a rolling fund.
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How To Raise A Rolling Fund 🙌
Some tips, tricks, and techniques on raising a rolling fund as an emerging GP:
Consider starting with zero or reduced management fees. Traditional venture funds typically charge around 2% management fees. If you’re an emerging GP with a “day job” or just starting out as a fund manager, you should strongly consider starting your fund with 0% management fees. This “0/20” fee structure isn’t common yet, but it highly incentivizes LPs to invest with a new fund manager, since LPs are only charged 20% carry if the fund performs well.
Another emerging trend we’ve observed with rolling funds is GPs reinvesting the majority of management fees (80% or more) back into their funds. If you’re planning to charge a management fee, you may also consider reinvesting the majority of management fees back into the fund. (This is known as “recycling” fees. It doesn’t reduce the management fees, but it aligns the incentives between LPs and GPs and provides even more upside for successful fund managers.)
Build in public and grow your audience. Do you need a successful “personal brand” or huge follower count on Twitter before you can raise a rolling fund? It isn’t strictly necessary, but having a personal brand with a relevant and engaged audience of accredited investors certainly helps with fundraising.
If you’re just getting started, don’t worry. The best personal and professional brands are established through authenticity in public and private interactions, advertised by building in public, sharing milestones and progress early and often, and maintained with consistency, or “showing up” consistently every day.
Finally, you have to deliver results.
The “ABC” method for establishing your personal brand:
Building in public
Make really good investments. It should (almost) go without saying. Your reputation as an investor is ultimately determined by the quality of your investments.
We’ll have much more in a future edition on how to benchmark a venture capital fund, the best measures of a fund’s long-term performance, and what’s considered a “reasonable” target return, net of fees and expenses, for early-stage venture funds.
Last Week In Rolling Funds 🚀
Here are some of the best articles and announcements on rolling funds in the past week:
Sahil Lavingia: How to Raise a Rolling Fund - An excellent short guide by Sahil Lavingia with even more helpful tips on raising a rolling fund.
Cavan Klinsky: Don’t Invest in Rolling Funds - A critical take on rolling funds and angel investing by Cavan Klinsky. There’s plenty of “hype” behind rolling funds, so it’s even more important for LPs to evaluate all the risks and potential issues. Investing in early-stage companies is an asymmetric bet, and substantial loss of an investment is possible. The returns are illiquid and highly uncertain.
Oper8r: Seeing the present (of emerging micro-VC) clearly - Another great article from the people behind Oper8r which examines the market forces shaping the emerging mega-trend of “micro-VC.” This new class of smaller venture funds resembles early-stage companies in a lot of ways, and they may outperform older and larger funds on a risk-adjusted basis.
Samir Kaji: Thoughts on AngelList's Rolling Fund Product - Rolling funds are an exceptional innovation for the venture capital industry. They’re not for everyone, but the value proposition is clear. Samir Kaji shares his general thoughts on rolling funds and the value they provide to the venture funding ecosystem.
Decrypt: Bitcoin Evangelist Starts His Own Rolling Fund - Bitcoin evangelist, entrepreneur and investor, and host of the popular “Pomp” podcast, Anthony Pompliano announces he’s starting a rolling fund. Be sure to also check out his post announcing the new fund, which is an excellent example of building in public and provides plenty of lessons in entrepreneurship and investment principles.
Chic Tweets 🔥
In case you missed them, we highlight several of the best tweets from the past week:
@zck on building in public. Will @kanyewest announce a rolling fund?
ye @kanyewestI’ll let you guys know how this goes... I was told to speak with Lucien Grange ... I said I don’t speak with non billionaire employees... I need Arnaud De Puyfontaine to fly to meet me immediately ⛷ https://t.co/hdCJTa6Fof
Why not help Kanye with a rolling fund, @Suhail?
Don’t worry, @Austen. We’ve got you covered with our edition on rolling funds and SPACs.
P.S.—Follow @RollingFund on Twitter for the latest rolling fund updates.
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.