Streaming Venture Funds

by Eric Friedman

The state of venture is changing and AngelList has been at the forefront of this movement for awhile. The recent announcement of “open ended funds” got me thinking about the evolution of venture fund structures themselves. Software has been eating venture funds by simplifying syndicates, managing SPVs, and even traditional fund management. The devil is obviously in the details but after chatting recently with folks building these new “firms” I wanted to share my thoughts. 

There are lots of open questions and possibilities with this offering and I wanted to explore a few; why does a venture fund need to stop fundraising? The idea of a “vintage” provides the industry a way to understand the year of first deployment and the lifestage of a fund. With a open ended fund this is turned on its head, further breaking the old guard system. The idea of a streaming venture fund matches the fluidity of entrepreneurship and the operator>investor>operator paradigm that seems to be growing. There is a common bond between those that build + invest for founders, and this gives both sides more of what they want; access to capital from people they trust (operators), and smart LPs access to empower the next generation of investors.

New GPs benefit from this structure by being able to build a track record faster, gain the ability to move fast and invest in access they have, and continue to operate if they so choose.

What rolling funds do not address is traditional portfolio construction that requires a thoughtful capital deployment strategy. A common question among LPs are questions like; “How many companies will be in your portfolio?” “How much capital are you reserving for follow on financings?” “What do initial ownership positions look like, and how do they change over time?” “Can I co-invest alongside your fund?” So far the answers are unclear.

I was originally bullish on AngelList when it launched (even making a semi-public bet about its success and won!) and I am equally bullish about this new structure.

The good news for founders is that they have a growing list of options as the landscape of venture changes. One of the most interesting conversations I can have with founders is what they *really* want to do over the next 10 years without forcing the conversation of venture funding. This is one of the key benefits of the Company foundation we are building.

The idea of rolling venture funds is new, and certainly bold. Thinking about future firms as streaming venture funds helps break the traditional norms of VC and focusses on the most important things like building great companies. These new options allow for operators who can sometimes see problems/pain before others to act on their conviction and invest. The good news for those that are building longterm relationships with incredible operators and have the fundamental building blocks of company building will prosper.

Like many posts here I have more questions than answers, and am learning in public. The good news is that I am more excited than ever to see what the next decade of venture looks like from the greatest city in the world, and more bullish than ever on NYC.

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