Hacking venture capital markets

I was recently talking with Semil Shah about the concept of selling a venture fund and he encouraged me to post my thoughts. I see a lot of changes in the structure of the venture markets that will lead to some interesting changes.

Here are my thoughts about things we may see more often in the future.

• Syndicate Liquidity – Sell the syndicate lead position for a value based on the carry.
  • Syndicates on AngelList or other platforms are single purpose investment vehicles. They are wholly invested in a single company. The syndicate lead usually takes some carried interest on the investment.
  • There are a few syndicates that are led by companies such as FGAngels.
  • Most are run by individuals like Gil Penchina’s syndicate.
  • If Gil invests in a company that is turning out to be a wild success, but after five years he is suddenly in need of more cash in his bank account. Gil’s simple hack could be to sell the syndicate to another investor. There is a well understood carry structure (Gil takes 15% carry), the potential to use the valuation from a recent financing, peers, and so on. Gil could walk away with a portion of the carry. The new syndicate lead, perhaps another individual, a VC, or a PE firm will have paid Gil for the early risk and putting the deal together and would participate in a portion of the upside.
• MicroVC Liquidity – MicroVCs can create cash flow for their firm by selling smaller funds or selling interest in those funds.
  • Similar to syndicate liquidity, MicroVCs may have a need for cash flow depending on the timeline of liquidity of companies in their fund. If their portfolio is private for longer than their model accounts for, why shouldn’t the firm sell the fund? Buyers are larger VCs or PE firms.
• Seed Consolidation – With the drastic spike in MicroVCs investing in the seed stage, there is an opportunity for consolidation.
  • There are many more solo and duo firms with small funds in different pockets of the country. A masterful seed fund could be composed through acquisitions of the many small funds around the country.