Rolling Funds represent an exceptional innovation for the industry. They won't be for everyone, but it's clear to the value they provide the funding ecosystem
This comment could probably use a little more balance:
"Further complicating things is the unique quarterly model that may result in an LP investing in one quarter having a top-decile outcome and an LP that starts investing in the next quarter getting a bottom-decile outcome."
Part of the structure of the rolling fund is a rolling average carried interest over two years. So if an LP misses the next quarter, that will be baked into the average of 8 quarters.
Quoting From Ali Hamed's Medium Post: 'But in the case of a rolling fund, you could invest $100k, lose 30% of your money, and the GP could still get carry. How? The fact that each vintage is its own distinct entity means that the carry on each deal is cross-collateralized. And therefore if one deal flops, it won’t wipe out part of the carry from the next winner.'
Thanks! The note was less about carry, but the possibility of one quarter including a unicorn (and maybe a 100X exit) vs. others. I.e. you invest this quarter and have exposure to that unicorn exit, and then next quarter I come in (let's say on 10/1) and there is no exposure to a great company, our investment outcomes will be wildly different even though we may have invested within a few weeks of each other.
As I understand it, this would be similar with regular funds, just different timeline - quarter vs four years. Or is it literally deal by deal vehicles underneath ?
Each quarter is a standalone entity from the perspective of the LP's in for that quarter. An LP that comes into Q2 wouldn't get exposure to deals that were done in Q1. Unlike a traditional fund, where during the raise all LPs that come in get access to all deals.
As I managed a few traditional funds before, I can tell you; fund administration for the "evergreen master series LP structure" must be a nightmare. I wonder what platform they use to manage this? Do you?
I used giants such as Maples, Vistra, etc., but I can't imagine they would work something like this. I heard that Angel List used to use Assure.co as an infrastructure, but not anymore.
Hey Samir, great article - one note for correction: Rolling Funds are on a master series LP structure, not LLC.
Great analysis as usual.
This comment could probably use a little more balance:
"Further complicating things is the unique quarterly model that may result in an LP investing in one quarter having a top-decile outcome and an LP that starts investing in the next quarter getting a bottom-decile outcome."
Part of the structure of the rolling fund is a rolling average carried interest over two years. So if an LP misses the next quarter, that will be baked into the average of 8 quarters.
From my article: https://lawofvc.substack.com/p/2-episode-rolling-venture-funds-through
"2. Carry Calculations
Quoting From Ali Hamed's Medium Post: 'But in the case of a rolling fund, you could invest $100k, lose 30% of your money, and the GP could still get carry. How? The fact that each vintage is its own distinct entity means that the carry on each deal is cross-collateralized. And therefore if one deal flops, it won’t wipe out part of the carry from the next winner.'
Avlok Kohli, the CEO of AngelList, clarified that carried interest is cross-collateralized across two years of fund cycles (up to 8 separate vintages)." https://twitter.com/avlok/status/1293207877415387137?s=20
Thanks! The note was less about carry, but the possibility of one quarter including a unicorn (and maybe a 100X exit) vs. others. I.e. you invest this quarter and have exposure to that unicorn exit, and then next quarter I come in (let's say on 10/1) and there is no exposure to a great company, our investment outcomes will be wildly different even though we may have invested within a few weeks of each other.
As I understand it, this would be similar with regular funds, just different timeline - quarter vs four years. Or is it literally deal by deal vehicles underneath ?
Each quarter is a standalone entity from the perspective of the LP's in for that quarter. An LP that comes into Q2 wouldn't get exposure to deals that were done in Q1. Unlike a traditional fund, where during the raise all LPs that come in get access to all deals.
As I managed a few traditional funds before, I can tell you; fund administration for the "evergreen master series LP structure" must be a nightmare. I wonder what platform they use to manage this? Do you?
I used giants such as Maples, Vistra, etc., but I can't imagine they would work something like this. I heard that Angel List used to use Assure.co as an infrastructure, but not anymore.