V3 Release: Employee's Guide to Employee Led SPVs
I’ve released a massive set of updates to the Employee’s guide which should make it much easier for an employee to source and fundraise for an allocation in their VC backed employer.
The major changes are:
Fleshing out the fundraising process in significant detail. Many people have said they are most mystified by fundraising so hopefully this should make the entire process much less intimidating.
Strong recommendations regarding vendors. AngelList seems to provide the smoothest UX for both employees, issuers, and investors so I’ve defaulted to utilizing them in the guide. Their built in integration with AltoIRA (disclosure: I’m an investor) also makes investing with IRA funds easy. The SPV cost structure is also competitive and fixed (seems to include everything like state filing fees, etc.) I’m open to adding more vendors in the future.
How to handle when investors ask about negotiating carry or implementing hurdles: employees should reject both asks unless the value add is extraordinary. I’ve also added supporting materials in the guide regarding market benchmarks for carry rates.
There are definitely areas for improvement but I believe the core workflow on the employee side is now fairly stable.
Going forward, my focus will be on
Sourcing employee leads at companies that have recently announced a Series A. I will execute a cold email outreach campaign targeting every single employe at every Series A company in the US over the next 7 days. I’ll be using tools like Apollo and SalesQL for prospecting and drip campaign management. I’ll also run an educational cold email campaign targeted towards founders of those companies after the first batch of emails to employees go out. I may hire someone to handle these workflows on either a contract or full time basis.
Researching methods to scale the amount of capital raised per employee SPV. This could take the form of a fund that matches capital raised by an employee. So for example if an employee gets a $500k allocation and sources $250k from their network at 20% carry, then the fund could provide another $250k and the employee discounts carry charged to the fund to 10%. The fund’s LPs would pay 20%. An investor would effectively have the choice of paying 20% carry to invest in a single SPV or 20% carry to invest in a portfolio of SPVs. Seems that AngelList’s Rolling Venture Funds product might be a cost effective way to launch a vehicle like this especially if there is at least $1.25m in initial commitments at 20% carry and 2% annual management fee (given the annual cost from AngelList is $25k, $1.25m/2% annual management fee). Assure also seems to have a very competitive turnkey fund formation/admin offering. This is an early brainstorm on all fronts (and absolutely not a solicitation) so I’d love your thoughts.
More guides. I’m writing a new one for employees at later stage companies who want to lead SPVs into external companies as traditional outside investors. I’m also considering writing a guide targeted at VC associates, principals, etc. who may want to raise a SPV fund of fund to invest in one of their employer’s funds. For example, a principal works at a VC firm, and one of their fund’s has a $500k minimum (2/20 terms). The principal can raise a $500k SPV from 10 LPs at an average check size of $50k and charge between 1-10% carry on top of what the underlying fund charges.
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