AngelList — Syndicates, Funds, and Rolling Funds; Rolling Funds vs. Traditional Funds

6 min readDec 29, 2020

AngelList Syndicates, Funds and Rolling Funds structure and advantages outlined below. Rolling Fund focus — what it is, how it works, and its advantages/disadvantages over the traditional VC structure are outlined below.

What is AngelList? —

AngelList is a company that connects startups, angel investors and LPs. Since 2010, they have tried to democratize the private investment process by helping startups with the challenges of fundraising and finding/hiring talent.

They operate chiefly through 3 facets. AngelList Syndicates, AngelList Venture Funds, and most recently, AngelList Rolling Funds.

AngelList Syndicates —

Through AngelList facet #1 — Syndicates (2013) — wealthy individuals (think LPs) can invest their money into angel investors (think Jason Calicanis, Paul Graham), who will then turn around and invest the pooled money into a singular start-up.

Rather than backing a VC (think Sequoia, a16z, Accel), AngelList will now allow LPs to invest directly into experienced individual angel investors.
AngelList will collect 5 percent of any profits those investments earn and the angel investors will get 15 percent. The LPs get the remaining 80.

Angel investors will be able to “lead” rounds in early stage start-ups and leverage their personal network.

Angels are usually well-connected, highly reputable wealthy people in tech who invest their own money into start-ups — they know the ropes and have an expansive network of industry contacts.
AngelList Syndicates enables angel investors to write much bigger checks than they used to (since they can draw from an LP pool money) and invest that money on the LPs behalf with complete discretion.

Fundraising won’t take as long.

VCs can take weeks to get their partners to agree on a deal, and although this is part of the GPs value to their LPs, it can also creates problems for founders, who are frequently caught up in the middle of partner conflicts.

Lower-tier VCs and angel investors may go bust.

The bottom half of VCs — the ones who don’t really provide a lot of extra value — have already been at risk due to their anemic returns.
Now that singular prominent Angels can represent millions in capital through syndicate dollars, a few winners may push out lesser known angels (who provide fewer capital and fewer contacts).

Challenges.

Usually angels will take a very passive role in their investments; they write smaller checks than the start-up’s main VC investor, and then watch as that VC “leads” (management, guidance, BoD, etc.).
Now, as leaders, angels will have to negotiate price, terms and valuations. They will have to sit on boards and have to help get the next round done.
Some Angels may get exposed as lousy leaders.

Through AngelList Syndicates, LPs can now connect with Angel Investors and invest into them instead of traditional VCs. This provides LPs a new way to allocate their money for the purpose of private investment and Angels to compete with VCs directly — edging out low-tier VCs and other Angels.

AngelList Venture Funds —

AngelList fact #2 — Venture Funds (2017) — is “the modern way to run a venture fund.”

It used to be when you start a venture fund, there are a lot of legal costs, back office services, accounting costs — everything that’s needed to actually run the fund. These costs used to exceed $100,000/year and were charged every year over 10 years ($1M total).

If you didn’t have a sufficient network or LPs that were willing to burden these costs, the cost of entry was actually a barrier that restricted access to the VC industry.

AngelList Funds provides VC the infrastructure for these back office services at a small fee. They enable you to raise capital from LPs, execute on deals, and manage your portfolio all from a single platform.

AngelList’s team of analysts, fund administrators, and operations managers will set up the fund’s limited partnership, handle tax reporting for the fund and its LPs, provide accounting services, and more. All back office services are available on an ongoing basis for the lifetime of the fund.
AngelList gets paid 1% of your total fund size as compensation.

Essentially, AngelList Funds tries to take the overhead out of fund management. They will lower the cost of entry by handling all the back office services (legal, accounting, etc.) for a small fee. By further democratizing private investment, AngelList has removed a glass ceiling and encouraged investors to use their platform to start and grow their funds and LP network.

AngelList Rollings Funds — the new thing

AngelList is now revolutionizing the idea of traditional VC structure through their newfound facet #3 — Rolling Funds (2020).

A rolling fund now enables fund managers to accept new capital in the form of auto-renewing quarterly commitments, rather than raising the entirety of their fund before investing can begin.

This recurring nature of quarterly- capital commitment allows VCs to:

Raise a fraction of a traditional fund and start investing in startups immediately.
Leverage portfolio appreciation to accept new capital at the best time possible.
Continuously increase the fund size so they never need to raise another fund again.

Rolling Funds vs. Traditional VC Funds.

Rolling Funds completely shatters the way VC fundraising has traditionally been done.

Typically, a fund manager must raise and close the entirety of their fund, say $20M, before they can begin investing that capital into startups. It often takes up to a full year to raise a fund, and VCs, due to the 10–12 year time constraint to actualize returns for their LPs, typically will have to raise a new fund every 3 or so years in order to keep investing.

Now, with rolling funds, VCs can accept capital from their LPs on a quarterly basis and invest the money immediately. This means that VCs can continuously raise capital and simultaneously invest it as they go.

The best time to raise capital is right after one of your portfolio companies hits it big. Your fund has hype and you’re on the front page (so to speak) of VC. After your portfolio appreciates, the value of your fund is at a multiple, and you can capitalize on it by raising more capital, this time at a premium.

LPs love it too because it’s almost as if they are Dollar-Cost-Averaging their capital into a VC. They get to see where the money is invested before they send their next round of capital the following quarter.

One important note, Q1 funds that are not allocated during Q1 will rollover to Q2 and can be allocated whenever the fund manager sees fit. This removes the pressure of allocating funds before the quarter ends, allowing the manager to invest only in opportunities they believe are winners.
AngelList is paid 0.15% annual of AUM as compensation.

It’s genius, really. It’s essentially what VC would look like if VC was created in the age of software (following a Saas model).

Concerns and Addressing Drawbacks —

Carried Interest

Some are concerned with how a GP’s carried interest will be calculated on a quarterly rolling basis if the fund’s returns are negative.

Avlok Kohli, the CEO, clarified that carried interest is cross-collateralized across two year of fund cycles (8 quarters). The picture below clarifies this issue.

Pro-Rata Decisions

Often, pro-rata decisions are made in part to support past checks into a start-up (bridge rounds, etc). But, if new investors are part of a new cohort of LP, all of whom have no previous exposure to past investments (but invest in the fund nonetheless), there could be misalignment in investment decisions and one’s pro-rata rights.

This is a complicated issue and is something fund managers and LP’s alike should consider before committing to an investment. There are many players at the table.

AngelList is democratizing private investment through their three facets of operations — Syndicates, Venture Funds, and now, Rolling Funds. Each provide their own unique angle that reduces the friction of investment, entry and fundraising. Rolling Funds is what’s new, and while there will always be kinks to iron out in the early stages, I think it’s a long-term winner. Ten years ago no one knew Saas would be the go-to structure for software companies. It seems like Rolling Funds may be on the same track.

Thank you for reading!