I’ve been lucky enough to participate in almost 20 venture capital funds as an LP — limited partner — over the past decade.
Unfortunately, these funds have historically been impossible to access, even as a person of means.
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They are raised quietly and deployed slowly.
If you miss the window of when a fund raises, which typically occurs in months, you have to wait years for the next fund to be offered.
You are invited into these funds if you can provide value to the firm’s general partners, typically because you have expertise in a vertical, influence, or a network they benefit from having access to.
In my case, it’s because I invest in angel and seeds rounds, which means I’m on the cap table before later-stage funds invest. So this lets me provide warm intros and insights to them — namely, which startups they should pay attention to.
On the margin, the two podcasts I host are helpful as well.
Having helped drive the democratization of angel investing with my book (“Angel”), TheSyndicate.com, and course, Angel.University, I’m now setting my sites on venture capital.
Investors must be accredited to participate in VC funds. In the United States, 10% of households are considered accredited investors and 1.5% are considered qualified purchasers. However, the funds with the most established reputations have been sold out for decades with the same institutional LPs (think university endowments, foundations, and retirement funds).
With my fourth fund, LAUNCH4, I’ve decided to allow potential LPs to hear our pitch over Zoom. I hosted three webinars last month and had over $40,000,000 in interest across 1,000+ RSVPs.
These RSVPs came from members of our angel syndicate, a couple of tweets, and a mention on my two podcasts.
I’ve been able to do this because we elected to do a public fundraise for our 4th fund under the 506(c) designation. Previously, we raised under 506(b).
You can read more about this designation here, but essentially they require a bit more work by our team to verify that our LPs are qualified to invest (under 506(b), individuals can self-certify).
So why wouldn’t all funds select 506(c) over 506(b)? Two reasons: first, they fill up, so they don’t need to, and second, the extra work it takes to certify.
In my experience, these 10+ year vehicles have the potential to be a fantastic way to participate indirectly in company formation long before startups are known or go public. While past performance is not a predictor of future results, as an asset class, venture capital funds have historically done well over long horizons (you can read more about returns here).
Investing in a venture capital fund can also give individuals a window into the future economy on an ongoing basis by having access to GPs and their teams as they place bets on where the future is headed.
If you’re interested in joining us for a webinar, and you’re an accredited investor or qualified purchaser, email us and let us know if you’ve been an LP before and tell us a little about yourself at calacanis@launch.co.
I look forward to meeting you!
best, jason