A few days ago, Ilan Abehassera and Carlos Diaz announced Diaspora Ventures, their new VC fund.
The duo plan to invest in French founders who have a global mindset: They might be based in France and willing to relocate to the U.S., in the U.S. already or they might be starting a remote company from day one.
According to Diaz and Abehassera, French engineers and product designers have the right mindset to tackle hard problems, but they don’t necessarily have access to funding or talent in the U.S. The partners came up with the idea for Diaspora Ventures at the end of April, but in just a couple of months, they went from zero to closing their first investment deal.
To move quickly, they took advantage of AngelList’s Rolling Venture Funds, a new type of fund completely managed by AngelList. Kima Ventures, Breega, Alexis Bonillo, Christophe Courtin, Salomon Aiach, Frédéric Laluyaux and others have already invested $3 million in Diaspora Ventures.
As the name suggests, the fund is always raising, so the list will become longer and the total amount of capital raised will grow over time. With this new format, venture funds could become a sort of subscription product.
I talked with Ilan Abehassera about AngelList Rolling Venture Funds to understand how it works. The interview was edited for clarity and brevity.
TechCrunch: What is Diaspora Ventures?
Ilan Abehassera: Over the past few years, we’ve talked with a lot of French VC funds and we realized that French funds don’t really know how to finance French entrepreneurs in the U.S.
As soon as we had this idea in April, we started raising right away. We put together a pitch deck with the investment thesis, we sent it to a few people. We didn’t know if we would be able to raise right in the middle of the COVID-19 crisis. Some of them told us that it wasn’t the right time. But enough people said yes that we decided to go forward and created the fund with AngelList.
Can you describe how AngelList Rolling Venture Funds work?
Those funds are evergreen funds. AngelList has already been creating funds — think about it as funds as a service. I had already been using AngelList’s Venture Funds for my previous fund that was called Avrhm Capital. I made around 15 investments through this small fund. But it was a traditional fund. You decide on the size of the fund, you raise and then you can start investing.
They launched this new model and it is currently available as a private beta. And we are the third rolling fund. [The first rolling fund was from AngelList founder Naval Ravikant and the second one was from one of the founders of Highfive.]
What’s nice about this type of funds is that you don’t need to set a target and you can close with new limited partners every quarter. From the outside, you see it as Diaspora Ventures. From the inside, limited partners invest on a quarterly basis. Every quarter, it’s a new fund.
Depending on the size of your investment, you can be a limited partner for the next four quarters or for the next eight quarters.
Do you need to invest a certain amount to be a limited partner for four quarters or eight quarters?
Below $500,000, you invest in four quarters. If you invest more than $500,000, you invest for eight quarters.
Is it just a threshold, can you invest $200,000 for instance?
Yes, exactly. Every quarter, we close a new fund and we let new limited partners participate in the fund. They are not shareholders in portfolio companies from past quarters, but they will be going forward.
It’s completely managed by AngelList — it’s a software play. You get a dashboard, you enter your deals in the dashboard, our analyst at AngelList takes care of due diligence, signs deals for us and wires the money. We can’t even access the fund’s bank account for instance. Compliance and regulatory issues are managed by them. We have an SEC license to operate a fund but the back end is managed by AngelList.
Do you have to register the fund yourself then?
Technically, the fund is operated by AngelList and we need an ERA license, which lets us manage other people’s money. Technically, AngelList is registered with the SEC as fund operators and we are general partners.
How does AngelList make money?
AngelList take around 0.5% to 1% in management fees. It’s a cut of what we take from limited partners. That’s how they make money, they don’t take any cut on carried interest. But if they bring you limited partners, they take 5% in carried interests on those limited partners specifically. Typical carried interest is 20% and that’s what we require.
[Update with some clarifications: AngelList serves as Investment Adviser to the fund and the Diaspora Ventures team undertakes the traditional roles and obligations of a general partner in a VC fund. Here’s the rundown of fees involved with rolling funds: AngelList charges 1% of fund size per year during the lifetime of the investments (10 years), charged to the fund as an administrative fee. This fee includes everything from legal formation, filings, banking, fund administration, tax, accounting and distributions.]
How does it work for limited partners?
Everything is online. It works pretty much like subscribing to a Software-as-a-Service product. You send a link to each limited partner so that they can fill out a form and upload some documents. AngelList checks that they are accredited investors. Then, you get banking information for the transfer.
Limited partners who invested in Diaspora Ventures want to follow our investments and they understand the subscription aspect. Most of them invested for a year, but it would be natural for them to invest a small portion of their assets in Diaspora Ventures every year.