Thank you to everyone who reviewed the draft guide to securing and filling allocations!
Progress to Date
See previous update for context and the new video update below! The podcast is the audio track of the video below.
How you can help
Back my syndicate. All allocations that I source with partners will be featured here. You’ll need to be an accredited investor or otherwise qualified. Backing my syndicate (no obligation to invest) will enable me to share deal level information with you which I cannot do through Substack.
Reply with any thoughts you have on the video portion of this update. I’m experimenting with this new medium.
Insights since last update
Fund of funds model won’t work because a fund needs to directly invest in companies in order to maintain the VC fund regulatory exemptions. The advisor/finder model while using an SPV as a service provider looks like the fastest and easiest way to get started. Probably best to call it “finder” model since there isn’t really any advisory happening and advisor has other connotations in this space.
AngelList seems to be the best SPV as a service provider for now since it allows for potential investors to follow a syndicate without committing to a specific investment. It’s also a well known and trusted name in the pre-IPO investment community.
I explored securing a no-action letter from regulators for a novel way to share carry. I spoke with a few people who went through that process and they advised that it will cost ~$200k and at least a year’s worth of work with a tier one law firm. After further research, I determined that this concept wasn’t necessary. Especially since allocation sourcers and LPs can often be the same group.
Related to that, I’m targeting Engineering VPs as the initial segment for allocation sourcing because generally speaking
They are often recruited directly by the CEO or at least have enough leverage for the CEO to be involved in the process
They have negotiated compensation with employers and for their employers in conversations with individual contributors and engineering managers.
They are very easy to find as there are often only a few per pre-IPO company and they tend to put more energy into personal branding than individual contributors/engineering managers (ICs/EMs)
They have extensive experience navigating challenging conversations with leadership.
They are almost universally accredited investors and often have invested in pre-IPO companies and/or PE/VC funds. A VPE can act as both a source of allocation and a direct source of capital to fill other allocations as well as an indirect source of capital via their network which is often other engineering leaders who are accredited investors.
From my conversations, VPEs seem to immediately buy into the allocation sourcing concept. EMs/ICs are more initially resistant for a mix of reasons and require significant (though universally successful) persuasion and coaching to explore this option.
Coming soon
Customer development research with VPEs to figure out how they negotiate for compensation raises and new grants at their existing employers.
Cold reachouts to 10 engineering VPs at Series A-F companies and then a system to do at least as many of those daily.
Relevant Links
Hunter Walk on how some funds attempt to take entire rounds
Compound (YC S19 HN launch announcement) built a very cool suite of tools to model equity and outcomes. I’m a big fan of the team and their approach.
TechCrunch on how “rounds” are becoming collections of smaller more discrete fundraising events
Lots of knowledge work is fundamentally prediction, why not compensate good predictions with equity?
An interesting variant of this is if employees are only paid in equity (rather than cash) for making successful predictions. That means the winners only profit if the company wins in the long run. https://t.co/dBScX6jWDiRadical application of futarchy in corporate decision-making: Define a KPI. Have employees to put 10% of their salary to participate in a prediction market of which decision will yield the best KPI.
Qiao Wang @QWQiaoFounder share swap concept seems to be climbing in the zeitgeist
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Disclaimer
I'm not a professional CPA, lawyer, CFP, RIA, B/D, ERA, etc. or anything else. All content is informational only and is not intended as professional/investment advice/counsel or an offering of any kind.
