- Gumroad CEO and early Pinterest employee Sahil Lavingia will announce details of his new VC fund next week.
- Lavingia is creating a “rolling fund,” a new type of fund operated by AngelList that allows investors to pay up on a quarterly basis and cancel if they’re dissatisfied.
- Lavingia said he was drawn to the rolling fund model because it requires little effort, allowing him to keep his CEO job while operating a fund on the side.
- Rolling funds were introduced by AngelList earlier this year to allow new VCs to depart from the fundraising methods of traditonal venture firms that raise large amounts from fund investors over an extended time period.
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“I’m sort of gainfully employed,” Lavingia told Business Insider. “So that was just never on the table for me. I’d really never considered being a VC for that purpose.”
But Lavingia was intrigued by the rolling fund model, which allows investors to “subscribe” to a fund, paying relatively low amounts into it on a quarterly basis. New investors can start a subscription at any time. That’s different from the fundraising path for traditional venture firms, which often take long periods of time to raise large sums from their investors, who are called limited partners.
Lavingia wouldn’t need the substantial operational infrastructure of a big VC firm. For a fee from his rolling fund, AngelList would handle all the legal and regulatory busywork for him. All he had to do was let them know who was investing.
Now he’s the latest tech figure to create their own rolling fund. Earlier in July news leaked that former Facebook employee Dave Morin was starting his own fund, Offline Ventures.
Lavingia said his fund will wrap up its investment period this Saturday and he will announce further details next week, including how much it raised and how much he plans to invest per startup.
The startup CEO said he won’t have strict rules about what he invests in, but he wants it to be a mix of his own esoteric personal interests and physical products that make the world better.
“When I look at my phone, there’s been so much innovation in the last forty years,” Lavingia said. “It’s like this crazy window. But when I look out my actual window, it looks the same as it probably did a bunch of years ago, which I think is kind of strange.”
People are drawn to the rolling fund model for various reasons. For Lavingia, it’s convenience. But the end result is an alternative to the way traditional venture firms raise and announce large new funds every few years.
“VC’s say they like disruption,” Lavingia said. “But we’ll see how much they like disruption when they’re the ones getting disrupted.”
The limited partners in traditional venture funds commit to making periodic payments into the fund for as long as a decade, and to wait for the VC’s startup investments to pay off. But investors in a rolling fund can bow out.
The ability of investors to stop paying into a rolling fund could put pressure on the person running the fund to perform, quickly. That’s why Lavingia is asking investors in his fund to commit for a year.
“I’ve told folks to think longer-term,” Lavingia said, “So I’m hopeful they’ll be understanding.”
But Rich Wong, a partner at prominent traditional venture firm Accel, said he approved of the shortened timeframe of the rolling fund, seeing it as a heightened version of the pressure that he faces at his own firm.
“That’s called discipline,” Wong said. “That means if you’re kicking butt, of course there’ll be tons of interest. But if you aren’t, that is actually the system working. “
Lavingia said he doesn’t have to travel to persuade people to invest in his fund. He doesn’t need to take people out to dinner. He doesn’t have to make any significant investment of time into fundraising other than asking people who already know him if they’re interested. That’s why he says most of his investors are friends, coworkers, and colleagues.
“One of the things that I’m excited about is that there’s people who have never been LPs before,” Lavingia said.
He can even raise money in unorthodox ways, like sounding the horn to his sizable Twitter following to invest. Under some circumstances, that public appeal would be a violation of SEC rules, but Lavingia is operating under SEC Rule 506(c). The rule allows him to advertise his fund provided he only takes on “accredited investors,” people or businesses that verifiably have large incomes or a large net worth, and so are less likely to be financially ruined if their investment doesn’t pan out.
The nature of rolling funds means that there’s a low barrier of participation — both for the people who run them, and the people who invest in them. The W Fund, a rolling fund focusing on early-stage tech companies created by women, has a minimum quarterly investment of just $6,250. Lavingia also set his minimum at $6,250, but allowed some investors to go as low as $1,250.
Lavngia hopes that means opening up the famously homogeneous VC world to “more diverse LPs, more diverse GPs, and more diverse founders eventually as well.”
“There’s going to be a broader base of fund managers, hopefully,” Lavingia said. Those managers could be “scattered all across the country and the world, eventually, (and) that will bring varied sets of experience to use,” Lavingia said.
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