On February 5, 2020, AngelList formally announced the launch of a new investment product offering: rolling venture funds.
A rolling fund is structured as a Delaware series of limited partnerships: a new venture fund is created each quarter. That process is repeated every quarter so long as the fund manager remains active and there are investors that meet the minimum threshold for forming a new rolling fund. With this fund structure, rolling funds are publicly marketable under Rule 506(c) and remain open to new investors every quarter. (Hence the term, “rolling.”)
AngelList asserts that its rolling funds offering brings high-resolution fundraising to the general partnership side of the venture landscape.
Through investment vehicles like convertible notes and simple agreements for future equity (SAFEs), startup founders have been able to raise capital in small chunks over time, potentially at different valuations pending progress in their business.
Traditionally, venture capital fund managers had to raise capital through a closed-end fund model. This means that, during the fundraising process, a fund manager would have to secure capital commitments from limited partners representing the sum total of the manager's fundraising target for that particular fund. Traditionally, general partners in a venture capital fund negotiate a "subscription agreement" with their limited partners (LPs). Instead of LPs disbursing assets in a lump sum, GPs usually receive LP money through scheduled capital calls.
With a Rolling Venture Fund, emerging fund managers (1) can accept capital anytime, (2) can start deploying capital immediately, (3) LPs can auto-subscribe to the fund, similar to how SaaS subscription products work. This means it requires less capital to start investing, while managers can continuously accept new capital commitments, giving them an increasing stream of capital to invest in startups.
Generally, the fund manager sets the fee structure for terms like carried interest and management fees. Generally these tend to follow industry standard "2 and 20" fund model, which means management fees are charged at 2% per year over the life of the fund (calculated and charged quarterly), plus 20% carry. Although different fund arrangements can certainly be made. AngelList also charges a "platform administrative fee" for its services.
As of August 2020, the fees include:
- Platform and administrative fees: 1.5% of commitments, calculated and charged quarterly
- Minimum fee per series: $20,000 per quarter, waived for the first two quarterly series
- Carry: No carry charged if manager sources own LP; 5% carry charged for LPs sourced on the platform
These and other fees are charged to rolling funds for access to the platform, and they’re reflected in the terms offered to LPs.
Rolling funds are often confused with evergreen funds. An evergreen fund is an open-ended fund structure that permits redemptions and liquidity rights for investors to exit the fund. In addition, fund managers are permitted to recycle capital from realized returns, hence the term "evergreen."
However, this structure is unrelated to rolling funds because (i) applicable venture capital law in the United States does not permit redemptions from investors (see Rule 203(l)-1 of the Investment Advisers Act, which prohibits redemption rights other than in extraordinary circumstances); and (ii) each rolling venture fund is actively investing for only one quarter.
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