Gumroad founder and CEO Sahil Lavingia launched his first managed fund, something he said was undreamable even two months ago. ‘If it goes well, it’ll grow.’
It was June 11 — he remembers it well — when Lavingia got an email from AngelList co-founder Naval Ravikant encouraging him to launch his own Rolling Fund, which allows any accredited investor to raise money from friends, as long as they are accredited investors as well, on a rolling basis.
“The great thing about a Rolling Fund is you don’t need a cap or fund size,” Lavingia said. “Naval said, ‘Let’s start at $100k, and if it goes well, it’ll grow.’ So that’s what we did.”
$1M raised in 2 months
Aiming to raise $100k to deploy in the fund’s first quarter, Lavingia instead raised more than $1M and maxed out the number of subscribers allowed by SEC rules.
“From never considering being a VC to having a fund that launches this month at over $1M a quarter — that’s pretty meaningful,” Lavingia said. “And it’s replicable. I think this is the future, and I hope people try it.”
AngelList makes it easy
With AngelList handling the legal, back-office, accounting, and other parts to managing a fund that he neither has interest or time to deal with (he still runs his company, after all), Lavingia was able to focus on the part he could do well: marketing his fund.
He sent a Notion memo to friends and family and leaned on his Twitter following of 120k+ to get the word out. He recorded a Zoom webinar that to date has more than 4k views — all of which helped him max out his fund subscribers in a matter of weeks. That’s much faster than he thought possible, he said.
Innovation in VC
“I think there’s a huge level of innovation happening with Rolling Funds and venture capital in general,” Lavingia said. “We’re at the bleeding of bleeding edge, which is where I like to be.”
In this interview with AngelList Venture’s Seif Salama, the founder/CEO discusses:
- How he got started investing.
- Covid-19’s impact on traditional VC.
- How Rolling Funds lowers barriers to investing.
- His advice for founders out fundraising.
Seif: How did you first get into startups?
Sahil: I started out making iPhone apps in high school and went to school at USC for a semester, which is when I met Pinterest founder Ben Silbermann. Instagram had just launched, and there was a demand for these types of apps but not that many people who could design and develop them. I ended up joining as employee No. 2. I was at Pinterest for a short span and then left to start Gumroad.
Seif: What does Gumroad do?
Sahil: Gumroad helps sell digital content directly to their audience. We launched in 2010, before the Stripe launch and before “passion economy” and “creative economy” were buzzwords. Back then, it was hard for people to monetize their digital content. They could build large audiences on social media, and we realized the next step would be that they’d want to transact directly with them.
Seif: When did you first start angel investing?
Sahil: I did five deals as an angel investor when I was at Pinterest. I invested about $45k I had saved to go to college. It’s not maybe the recommended advice, but it worked out for me. In my first six investments, three have gone 10x, including one that is at 100x. I did one more deal in 2017.
I got more active in 2019 because one of my first five investments, HelloSign, sold to Dropbox. I reinvested that money into 10 to 15 companies and built a bit of a track record. More importantly, I developed a mental model for investing.
Seif: What’s your mental model for investing?
Sahil: As John Doerr of Keiner Perkins is often quoted saying, “no conflict, no interest.” Things that are useful to Gumroad are probably interesting for me as an investor. The stuff that’s valuable for us clearly has a product-market fit, given that we’re the market.
I think most investors adopt a “spray and pray” investment strategy because they want to get into the best deals — and to get into the best deals, they need to have a track record as an investor. So they have a bias towards saying “yes.” But if you get spread too thin, you’re not really helping the companies because you don’t have a lot of conviction behind each deal you do.
I hope to maintain a high conviction in the deals that I do. I don’t think I will be doing 50 deals a year. I’ll write $25k to $50k checks and look to be not the lead investor but hopefully the second.
Seif: When did you first think about starting a fund?
Sahil: It was Naval’s idea. I sent him a couple of deals, and he asked if I’d thought about raising a fund. He told me he’d help me fundraise. I told him that I didn’t know that it could be done so easily. I run a company. I don’t want to do all the stuff involved with managing a fund.
It’s all been easier than I would have thought possible. I expect my overhead on the fund will be around five hours a quarter, which I think most VCs can’t say.
Seif: How have you managed to raise so much so fast?
Sahil: One of the unique things I did was that I fundraised publicly. Because of the 506C designation, I was able to Tweet about it, do a Zoom webinar that over 4,000 people have watched so far. I don’t think a traditional VC can have that kind of reach. Over 100 LPs will be in the first quarter of the fund.
Something interesting is happening in venture capital that’s accelerated due to COVID-19. People aren’t spending two days and $1k to travel to Sand Hill Road to meet with six venture capitalists. It doesn’t need to come back, and I don’t think any founder wants to come back, either. There’s an interesting future ahead.
I think there’s a huge level of innovation happening with Rolling Funds and venture capital in general. We’re at the bleeding of bleeding edge, which is where I like to be.
Seif: What types of companies do you look to invest in?
Sahil: I’m really excited about finding companies outside of the Silicon Valley bubble, giving them their first check, helping them close their pre-seed or seed round, and then connecting them with all that Silicon Valley has to offer.
Silicon Valley does have a lot to offer. At the same time, nobody likes the fact that so much of the venture capital industry — which is so important to innovation and the overall economy, whether you like it or not — is concentrated in a single place. Rolling Funds is a step to a decentralized fundraising process that’s good for everybody, except maybe the select few. Fundraising is already distributed. Everyone’s doing it on Zoom anyways. My hope is to accelerate the trend towards Silicon Valley not being super essential to raising money, hiring, and gaining knowledge.
Seif: What should your portfolio founders expect from you?
Sahil: I think I can add a lot of value to founders. At the same time, I don’t pretend to be a full-service firm like Andreessen Horowitz. I think the No. 1 one thing I can offer folks is the fact that I’m a founder, so I have empathy. I’ve been there in some way.
I’ve had a really easy time raising money from top-tier investors and VC funds, and I’ve had an impossibly difficult time raising money and completely failed. I’ve had to do layoffs of over 75% of the company, and we also made it through that and are a sizeable company now and doubling revenue every year.
Seif: What mistakes do you see founders make when raising money?
Sahil: The number one thing some founders don’t realize is that money is actually a big part of what you’re getting from a VC. Often it’s not a bad idea to take the money on a good term from an investor who’s going to get out of the way and let you do your job.
I’ve taken money from top-tier investors. Some of them have been incredibly helpful, and a lot of them have done zero for the company. Ever. Which is fine; they’re not legally obligated to do any of that.
VCs are primarily fundraising, talking to LPs, helping maybe their top 1% companies, and chasing new deals. They’re not going to go bat for you as much as you might think.
I’ve had many conversations with founders who say, “Wow, I really thought they were going to be incredibly involved and really help me get to the next level. But the day after they wrote the check, they disappeared.” Why? Because they’re on your cap table now. They made the sale.
Seif: Do you have advice for anyone looking to start a fund?
Sahil: AngelList economics are really friendly to raising a fund, so I think getting easily started and incrementally growing every quarter is a great way to do it — doing it publicly, raising from your friends and the people who respect you. I have “famous” investors backing my fund. But I also have many, many people whose names you wouldn’t recognize. I hope more people do it because I think that’s the change we need.