Gumroad founder Sahil Lavingia has teamed up with AngelList to launch his debut $5 million rolling fund to invest in early-stage entrepreneurs.
He is cutting $100,000 to $250,000 checks for startups and has a particular interest in B2B, SaaS, future of work, video and developer tools. Limited partners include Arlan Hamilton, Josh Kopelman and AngelList founder Naval Ravikant.
But, here’s the twist: Lavingia raised $5 million using just a Notion memo, a few tweets and a Zoom call with more than 1,800 registrants.
“It’s the power of Zoom and Twitter in the COVID era,” Lavingia said.
Still, two months ago, Lavingia didn’t even know he wanted to be a VC. The entrepreneur has made some angel investments in Lambda School, Figma, Haus, Clubhouse and HelloSign (which was acquired by Dropbox). Eventually, though, he says angel investing got too expensive for him to do, so he stopped.
Then, following George Floyd’s murder, he followed the lead of other investors rushing to invest in Black founders and tweeted this:
Occasionally I angel invest in tech startups, including @LambdaSchool, @figmadesign, @HelloSign. I’m also an LP in @Backstage_Cap.
My next investment will be in a Black founder. If you are one, please send me an email this week about what you’re working on: sahil@hey.com
— Sahil Lavingia (@shl) June 1, 2020
As a result of the tweet, he invested in four startups founded by Black entrepreneurs. Because some were looking for follow-on capital, he tapped into his network, including AngelList founder Naval Ravikant. Ravikant, seeing the deals, floated the concept of a rolling fund.
Rolling funds via Zoom
In February, AngelList launched a so-called rolling venture fund product to help emerging venture capitalists close their first funds faster. The fund structure allows fund managers to raise new capital commitments on a regular basis and invest as they go, ergo the “rolling” aspect. Lavingia worked with AngelList to create his fund, and has capital commitments of $1.25 million per quarter in a $5 million per year fund.
The rolling fund structure can be a bit volatile because limited partners have to “re-up” their investments on a quarterly basis. It could put a fund’s investing ability in flux and thus impact portfolio construction, too.
One way to battle this volatility is that limited partners must commit to at least four consecutive quarters when investing in a rolling fund. After that, investors can choose on a quarter by quarter basis if they want to invest in the fund. Lavingia says that on this first close, he could have raised five to 10 times the capital, but chose to pick smaller checks from exceptional people. The smallest check is $55,000 a year split over four quarters, he said.
Lavingia also claims that the rotating nature of check acceptance will allow him to continually invite a more diverse limited partner base as time goes on. He declined to share specific numbers on the current diversity of his LP base, but said that 30% of his portfolio companies to date are founded by Black entrepreneurs.
One other note on rolling funds; an SEC regulation — 506(c) — allows investors to publicly fundraise. Traditional venture capital funds are usually raised in private, which disproportionately benefits those who already have their foot in the door. Lavingia says the 506(c) regulation allows him, as a first-time fund manager, to raise publicly on Zoom.
Lavingia hosted a Q&A about his new fund with a group of his buddies: Work Life Ventures’ Brianne Kimmel, AngelList’s Sunil Pai and Earnest Capital’s Tyler Tringas.
Lavingia says there were around 600 to 700 people live on the call, which is larger than most conferences he’s spoken at.
Lavingia was the second employee at Pinterest and left to start building Gumroad, a platform to help creators sell products to consumers. The company went through a gutting round of layoffs and restructuring in 2015, inspiring Lavingia to pen a viral blog post about his “failure to build a billion-dollar company.” Today, Gumroad is at $10 million ARR and is growing 100% year over year with a team of 10 people.
While Lavingia will continue to work on Gumroad, he says that his failure and transparency around it “is actually growing the company faster.”
“I think it gives me a little bit more bandwidth to do an experiment along these lines,” he said, of the fund.
First-time fund managers have had to turn to unique ways to de-risk themselves in this volatile time. Lavingia’s story is no different, and showcases that the power of remote deals isn’t just a phenomenon from which founders will benefit.
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