1. Rolling Fund Structure
What is a rolling fund?
A rolling fund is a series of consecutively-formed, privately offered pooled investment vehicles (each, a fund) intended to allow fund managers to share their deal-flow with investors on a quarterly, subscription basis while netting carried interest across a two-year period.
This open-ended venture capital fund allows a GP to start by raising a small amount of capital and begin investing immediately, then scale up over time while allowing LPs to invest on a quarterly subscription basis requiring less of an upfront commitment and the option to opt in or out any time.
How is the carried interest calculated?
A backing subscriber will pay carried interest only after they have received back 100% of their contributions to all funds they have participated in through the Rolling Venture Funds program over the preceding two-year period.
How do distributions work for Rolling Venture Funds?
Backing subscribers participate only in distributions from the quarterly funds to which they contributed. An LP has no interest in portfolio investments of funds formed before their subscription was accepted or after their subscriptions is canceled or rejected.
How does an LP subscription work?
Subscribing LPs may apply to back a fund manager’s Rolling Venture Fund through the AngelList platform. Subscriptions commit an LP to contribute to the next quarterly Fund.
Can LPs increase, decrease, or cancel their subscription?
Subscription amounts may be increased, decreased, or canceled at any time in accordance with program requirements. Unless canceled, modified, or rejected, an LPs subscription will automatically apply to subsequent quarterly Funds.
What happens if the Fund doesn’t deploy all of the capital in a given quarter?
If a fund does not deploy all of its capital in one quarter, the balance will be rolled automatically into the next quarter’s Fund as additional capital contributions from the participants in the prior quarter fund.
What are the fees?
Our team is charging traditional venture fund fees of 2% (management fee) and 20% (carry).
AngelList charges an administrative fee which is paid by the fund. This covers setting up, advising, and administering the funds over the lifetime of the Rolling Venture Fund. AngelList does not charge carry on the LPs brought in by the fund manager (What If Ventures). AngelList will charge a 5% carry for LPs who we source through the AngelList platform.
2. Sourcing Deals and Investing
How do you find good deals?
We have built the best, and broadest top of funnel in the mental health startup world. In fact, we started building this funnel 18 months before we launched the fund. If you go to Google and search “mental health VC,” then you’re going to see us first. This is great news, because this means founders find us first too. This is a result of not just the deals we’ve done, but our thought leadership, content creation and community building.
We leverage the following things:
1. Content Strategy — We launched the Stigma Podcast in August 2019 and have grown to nearly 10,000 downloads per month (and nearly 70 episodes) with top founders, clinicians, thought leaders, and many others joining us regularly. This content platform has become an important component of our top of funnel deal sourcing strategy. Founders value our ability to get their story in front of customers, payers, investors and partners.
2. Thought Leadership — We’ve written several white papers on the industry that are consistently sourced and cited by journalists, other investors, and founders (we love seeing our data show up in pitch decks that we receive via random inbound). Here are a few of those content pieces:
Approaching 1,000 Mental Health Startups in 2020
Who is Investing in Mental Health Startups?
Explosion of Mental Health Startup Funding in Q1 2020
3. Mental Health Startup Community Slack Channel — We created a home for founders, investors, employees, aspiring entrepreneurs, clinicians and more to share ideas and collaborate. We have nearly 1,200 members in the slack community at the time of this blog post.
4. Shared Personal Experience — There is no teacher greater than experience. I almost lost my life to the problems I’m trying to solve today. Many of the founders in this space have lived with addiction or mental health differences as well. I relate to the founders in a way that many others can’t and won’t because of the incredible level of transparency and vulnerability required in the broader recovery community.
What is your deal selection criteria?
I have a simple set of 4 primary criteria that I evaluate first…
1) Could / Would this solution have helped me with my own recovery / mental health journey? If Yes, then I look at three more things.
2) Does this solution increase care capacity in the system? Meaning, if this solution just repurposed or re-brands existing capacity and calls it something else, then I’m not that interested. Remember, the supply/demand imbalance is my thesis. We want to solve for supply of effective care.
3) Does this solution deliver care in a new or improved way that adds value to all stakeholders from patients, to payers, and providers?
4) Does this founding team have two key qualities: First, are they world class leaders who can build a team? I lean heavily on my West Point training to identify great leaders and coach them to success. Second, what is their purpose for solving in this space? If they are driven simply by money, then I’m not that interested. If they are driven by a desire to improve the human experience, then I’m all about helping them one way or another.
What is your vetting process?
Once an opportunity passes through our basic vetting filters mentioned above, I begin what you may think of as traditional diligence where I evaluate the business plan, go to market strategy, and any other business specific diligence items (finance, team, operations, market, product market fit, etc.). During this process I rely heavily on my years of experience doing diligence including 7 years as an investment banker on Wall Street executing buy and sell side M&A transactions, as well as my 5 years of venture investing experience since 2015 where I’ve invested in 32 startups with 6 exits and a TVPI of 2.8x to date.
I also have a world class team of advisors, investors, and friends I’ve gathered who are interested in seeing founders in this space succeed. I leverage their expertise as clinicians, entrepreneurs, investors, doctors, politicians, and executives at both payers and providers to give me feedback on each deal I am evaluating.
You may be wondering who those people are. Some of them are listed as advisors in our fund deck, but our list of resources is far greater than that. We have over 1,200 investors in our syndicate, all of which are available to us and motivated to help out. One amazing thing about our fund is that we are going to have a lot of small check investors all of which are personally motivated around this space. I’ll be leaning on their inputs and their expertise where applicable before making investments.
Another way to get a sense of what our talent bench looks like is to take a look at the dozens of experts we’ve interviewed on the Stigma Podcast. Every one of those guests are people we can rely on to help us validate ideas, business plans, go to market strategies, and not only that, but help add value to these companies once we have invested.
What stage investments will you target?
Mostly seed and Series-A, but we will occasionally do a later stage round where it makes sense. We invested in Mindstrong and ATAI and would have done those out of the fund if the fund was online at those times. However, our focus will be seed and series-A.
How many deals will you invest in per quarter?
We intend to invest in 2–3 startups per quarter.
What is your target check size per investment?
In the initial quarters, as we grow, our check size will usually be between $100,000 and $250,000. As we grow, we will increase that size.
Will there be capital allocated for follow-on opportunities?
Follow-on investments will be conducted by the quarter fund that is active in the period that the follow-on round happens. We intend to leverage our pro rata rights fully, both from our syndicate and our quarterly rolling funds. For LPs to take part in that, they need to have contributed to the quarter fund in which the follow-on round is raised by the founders.
3. Why a Rolling Fund Versus Syndicate?
Why is a rolling fund better for an LP than a traditional fund?
Better control over your allocation versus total invest-able assets instead of always feeling like you have to write a max check. You should be smart about how much exposure you have to the venture asset class as a percent of your total invest-able dollars. This fund structure lets you get diversified venture returns without having to take on deal by deal risk or make a huge commitment to meet a traditional fund’s investment minimum.
Will this fund replace your syndicate or be incremental to the syndicate?
No, this fund will not replace the syndicate. This fund will, however, take priority gaining access to the first allocations in each deal. If there is excess allocation, then the syndicate will get to see the deal but only after our fund investors get first look for incremental individual exposure.
Will the syndicate have access to every deal the rolling fund invests in?
Not always. The fund will get first priority. In the case where a founder only allocates a small piece to us, such as $250,000 then the fund will take the entire allocation. If there is excess allocation above our target check size, then the syndicate will get access.
Our fund investors will get first access to our syndicate allocations at a deeply reduced carry rate. This way, if our fund investors really like one of our deals, they can get extra exposure and do so at a drastically lower carry rate than normal. Once our fund investors have had their chance, then the rest of our syndicate members will have third bite at the apple. For our slightly later stage investments where the size of the raise is larger, the syndicate will get more access. For our smaller, and earlier stage deals we suspect the syndicate will get access sometimes, but not always.
Will any deals be exclusive to the fund?
This will be determined by the allocation we are given by the founders. If a founder only gives us a small allocation, then the entire allocation will go to the fund first.
Let me give an example. If we raise $750,000 quarterly fund and have the chance to invest in 3 startups where the first two give us an allocation of $250,000 then the fund will take that allocation, and none will be left over for the syndicate. Then, assume the third investment comes along and we have a $1,000,000 allocation. In that case we would write a $250,000 check out of the fund and syndicate $750,000 giving first access to our fund investors at reduced carry, then letting our general syndicate members see the deal to fill out the round.
Why are you launching a rolling fund instead of just operating your syndicate as you have been doing?
Having committed capital gives us the ability to make a firm commitment and support founders more firmly. This gives us significant leverage to get into competitive rounds. Often founders don’t want syndicates involved because of the privacy and information flow concerns of sending the deck out to hundreds of people. This gives us the ability to invest in those deals.
Why wouldn’t I just invest in the syndicate deals that I like?
The fund gets first priority in all deals. If there is allocation left over, then fund investors get first access to the syndication piece. Then, syndicate members can take a look.
Carry reduction — Fund investors get reduced carry in all syndicate deals (half off).
Fund economics — you get paid back for your last 2 years of contributions before I make any carried interest. This is more in line with traditional fund economics for LPs than deal by deal syndicates.
This gives you indexed exposure to a basket of mental health startup investments over time instead of relying on your own limited diligence efforts to scattershot into a few random deals.
What type of investor are you targeting as LPs for this fund (angel, family office, funds, etc.)?
We believe that rolling funds are democratizing the early stage venture asset class. This brings more liquidity to more entrepreneurs while giving investor who would never have access to Sequoia or other large funds, the ability to get exposure to this space without having to make huge, 10-year commitments. We suspect most of our investors will be individuals who can write a $10,000 check per quarter. We have some family offices and a few institutions who have made commitments as well, but more of our investors are what you may think of as angels or first-time fund investors.
Why would a fund manager prefer this over a typical fund structure?
This fund structure democratizes access to the VC asset class while lowering the cost (time and money) to get started as an investor. The cost of starting a company has declined dramatically in the last 20 years, and now it is time for the cost of deploying capital to decline as well.
As venture investor, my passion and my focus is finding great founders, investing in them, and helping them grow their business. This fund structure allows me to spend all of my time doing exactly that. In a traditional fund, I’d be spending most of my time on back office duties.
I don’t have to handle all of the back-office duties such as creating formation documents, doing taxes, updating valuations, preparing K-1s, and all the other back-office work that is not “investing work.” This gives me the ability to focus on founders, get to conviction faster, invest faster, and get to helping founders build their company faster.
Plus, I have the added value-add of my many passionate LPs to draw from to bring value, introductions, advice, and other help to the founder.
This fund structure allows me, to do what I’m best at, while AngelList handles the non-investing activities of a fund manager. Check out this diagram below that compares it from the fund manager (my) perspective:
Why invest with us?
If you believe there is a huge mental health problem, that every human has mental health and the supply of effective resources is low then you likely would agree that investing in mental health startups makes sense from a social impact and financial return perspective. If you’re willing to invest in mental health startups, then you want access to the best deals. We have them and we have that access because of my story, my experience, and the community we’ve built around the What If Ventures brand.
You have a better chance at being in the next big mental health startup by being our LP, than relying on your own sourcing and selection. The deal networks in this space are tight and there is affinity among those of us living in recovery who are also solving in this space. Those of us who have lived with these problems, work closely together to ensure that each other succeeds. The traditional investor who is just investing here for the sake of economics will not have that same access.
4. Logistics / Participation
What is the deadline to invest in the rolling fund?
We close each quarterly fund on the first of the following quarter and begin actively investing immediately. Your commitment, and your funds must be in by the first of the quarter, or you will be included in the following quarter as your first quarter of participation.
Can I pre-fund the next 4 quarters? ( we actually receive this question)
What is the minimum commitment?
The recommended quarterly commitment for the What If Ventures rolling fund is $10,000 per quarter. However, we can make exceptions and we don’t want people to feel like they can’t get access because of a few thousand dollars difference per quarter.
How do I invest in the rolling fund? What is the process?
1) Review our materials and ask questions
2) Go to our deal page and indicate a dollar amount of interest:
3) Go through the AngelList accreditation process
4) Close and fund when AngelList prompts ahead of the start of the next calendar quarter
Would you prefer an LP to write a big check now?
I’d rather have a smaller check and have you stick around indefinitely, investing in each quarter. If $10,00 a month is too high for you, then we can make an exception for a few early investors. We want more people getting access to the asset class and get more people supporting funding for effective mental health resources.
Think about it this way, every month I put a little bit of money into an index fund in my brokerage account. I could try to time the market or pick the stocks myself but I’m not a professional, so I am probably going to be wrong most of the time. It’s better to dollar cost average and diversify into an index fund. The same applies in the venture asset class for most investors unless you plan to build a broad enough, diversified angel portfolio, which most people don’t have time to do intelligently.
I want to do this for the next 20 years of my life. This is an ongoing thing forever and I’d love to have you as an LP forever. I’d rather have you do $5k a quarter and feel good about it than stretch to do a lot now.
Also, in a traditional fund you put in a lot of money right now, then in a few years I ask you to invest in Fund 2 before you know if I’ve done anything right or wrong. Then I come back and ask you to invest in Fund 3 right about the time you figure out if Fund 1 generated a positive return and now you are three large checks into me and my thesis. What a mess. The rolling fund structure allows you to dig in as we go and see if we are doing a good job then increase your exposure whenever you’d like or quit any time.
What If Ventures Resources/Info
What If Ventures Fund Deck
What If Ventures Rolling Fund Overview
Join Our Syndicate’s Deal Distribution Email List
Stephen’s Personal Story of Addiction and Bipolar Disorder
Invest in our rolling fund here: https://angel.co/v/l/wbKyy