- Voluntary contributions (current approach)
- GP
- Unpredictable subscriptions and dollar amounts. Not sustainable at current levels
- LPs
- Effectively pay optional. Great deal for LPs
- Deal velocity
- Enterprise Value
- Little to no enterprise value created since payment is optional
- Monthly subscription (all access)
- GP
- More predictable pricing and frequency
- Churn becomes an issue
- LPs
- Potentially paying for months where LP does not invest
- Deal Velocity
- Could dramatically slow deal velocity since LPs generate soft commits and a paywall would result in fewer LP members than no pay wall.
- Enterprise Value
- Would create enterprise value since there would be MRR.
- Annual subscription (all access)
- GP
- Same as monthly but with stronger cash flow position all else equal
- LPs
- Deal velocity
- Likely much slower than with monthly subscription since fewer LPs likely to commit to annual subscription than monthly.
- Enterprise Value
- Higher than monthly, assuming all else equal
- Freemium tier with subscription option for for first look
- Allocation has not really been much of an issue so setting up a structure where subscribers get “first look” seems disingenuous
- Raise capital and figure it out later
- GP
- Provides runway for X months
- Significant dilution without any improvement in roadmap
- LPs
- Good for LPs today but may create new skewed incentives for GP later
- Deal velocity
- Enterprise value
- Doesn’t change enterprise value
- Management fee per deal
- How would this work?
- I’m confirming the following but my understanding is that AngelList and other SPV admins support the ability to charge a management fee on SPVs. The fee is paid out to the SPV advisor over 5 years.
- Example
- Let’s say the SPV has Paid-In Capital of $200k.
- Admin Fees: $8k
- Blue Sky Fees: $4k
- Admin fees = $12k
- Admin expense ratio (fees/paid in capital) = 6%
- 2% management fee would be $4k
- Total expense ratio (admin + management) = 8%
- Invested Capital = $200k - $16k = $184k
- Management fee is paid out over 5 years, so $400/year to the SPV’s management/advisor entity
- Since the management fee is collected up front by the SPV admin and paid out to to the manager annually, it may be possible to use a services like Pipe/CapChase/FounderPath/etc. to sell/borrow against the receivable.
- The revenue is far less risky than standard SaaS MRR that needs to convert to ARR since
- it’s collected up front by a 3rd party
- paid for with wire/ACH so chargeback risk is borderline non-existent relative to credit cards
- There is no option to get a refund
- Total expense ratio ≤ 10%
- (admin fees + management fee) / Paid-In Capital
- For context
- Reg CF campaigns are around 7.5% of Paid-In Capital (Wefunder) or 6% + 2% in form of equity (Republic)
- A standard VC fund (”2 & 20”) will charge essentially 20% of Paid-in Capital (2% a year for 10 years)
- Managerial work
- Sourcing investor members
- Moderating the community
- Building and maintaining capability of gathering soft-commits
- Connecting with founders to source allocation
- Gathering materials from founders
- Drafting deal memo in collaboration with founders and community members
- Making the GP commit
- Publishing the deal and managing all founder/LP communication until close
- Closing the deal (docs and wires)
- Voting the SPV’s ownership when required
- Searching for secondary opportunities at the LP level or the underlying security level
- And more
- If the management fee is paid out annually for 5 years, what we have is Annual Recurring Revenue with a 5 year contract period. And it should hit the > 90% gross margin target I specified in last week’s update. The revenue drivers are number of deals and dollars raised per deal. AUM.
- Valuation looks like a RIA/asset management firm but with higher quality revenue. 10x EBITDA?