January 25, 2021

Avlok Kohli — An Angel Investing Revolution (#16) | Paradox Podcast with Kyle Tibbitts

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Key Takeaways

• The most surprising trend in the past 12 months was the velocity at which rolling funds are starting and scaling up
• Education is a key piece if we want to democratize venture investing
  • Accredited investors laws protect “uneducated” investors
  • The ideal solution would be to allow more people to access diversified funds
• The pandemic broke San Francisco’s location monopoly for startups
  • Miami and Austin are already emerging as the new tech hubs
  • AngelList is facilitating this transition by helping founders from anywhere to connect with investors
• “The only thing that matters is getting product-market fit, nothing else matters. Everything else is just a rounding error” Avlok Kohli
  • Focus on building an amazing product that absolutely delights your customers
    • They can’t help but use it, despite its flaws

Intro

• Avlok Kohli (@avlok) is the CEO of AngelList Venture. In 2014 he founded Fastbite, which was later acquired by Square
• Host: Kyle Tibbitts (@KyleTibbitts)
• In this chat, Avlok and Kyle talk about how the startup funding ecosystem is changing, the future of Silicon Valley, the launch of rolling funds and much more

Trends in Investing, Rolling Funds and AngelList

• The most surprising trend in the past 12 months was the velocity at which rolling funds are starting and scaling up
• Rolling funds’ small size fosters a spirit of collaboration among investors
  • Rolling fun investors want to participate in rounds, not win rounds
    • They create a positive-sum game for all investors to benefit
    • You want to bring in other investors to help make that company successful
  • These funds are often started by founders, who are used to collaborating with peers
• Kyle thinks that it would be impossible for him to keep his day job and do angel investing on the side if it wasn’t for AngelList and rolling funds
• The main focus of AngelList is reducing friction for startups and investors
  • Rolling funds are a great way to reduce friction in fundraising
    • They eliminate the need for raising big rounds

Democratization of Investing

• Prohibiting people from investing in startups seems like a bad way to deal with wealth inequality
  • Startups are one of the best asset classes to invest in
• Accredited investors laws create many barriers for people to invest in startups
  • You need to have a specified income or net-worth level
• There have been some signs from the SEC to relax some of the regulations
• Education is a key piece if we want to democratize venture investing
  • Accredited investors laws protect “uneducated” investors
    • If you don’t diversify, investing in startups becomes extremely risky
• The ideal solution would be to allow more people to access diversified funds

The Future of Silicon Valley

• The pandemic broke San Francisco’s location monopoly for startups
  • You used to have to explain why you were not starting in SF
  • Now you have to explain why you are not moving out of SF
  • You can start a company from all over the world and raise funds on Zoom
• AngelList is facilitating this transition by helping founders from anywhere to connect with investors
• The frustration level with San Francisco is continuing to increase (due to the lockdown and political situation)
  • Depending on how long the lockdown continues we might see more people get frustrated and leave
  • San Francisco will likely still be the major hub for tech and startups, but it won’t have the monopoly it once had
  • Miami and Austin are already emerging as the new tech hubs

On Product-Market Fit

• “If you are not growing quickly and you are not sitting there chasing a dragon by its tail, you don’t have product-market fit” Avlok Kohli
  • Founders always trick themselves thinking they found it
    • They look for the next optimization to increase growth
  • Until your startup is growing unboundedly, you haven’t found product-market fit and you should only focus on that
    • When you have it, your company is growing despite all its flaws
    • It doesn’t need tiny optimization to continue growing
  • There’s a great essay by Marc Andressen on Product Market Fit
• “The only thing that matters is getting product-market fit, nothing else matters. Everything else is just a rounding error” Avlok Kohli
  • Focus on building an amazing product that absolutely delights your customers
    • They can’t help but use it, despite its flaws

What Makes Good Fund Managers?

• Good fund managers are going to be actively helping startups to find product-market fit
• Common Traits of Good Rolling Fund Managers
  • Strong Network
  • Good judgment
  • Constantly looking to help founders
  • They bring a specific skill set to the company
    • Kyle brings his marketing skills, Sahil brings his product skills
• As companies grow, they get less use out of their early investors
  • There are different problems to be solved

Where to Start with Investing?

• If you have capital aside and want to start investing in tech, what to do depends on your goals
  • If you’re looking to get exposure to early-stage tech
    • Invest behind a fund manager 
  • If you’re looking to engage with a founder and help them
    • Start investing directly into companies and possibly start a fund
    • Unless you truly enjoy it, this can be really tough
• Roles of an entrepreneur, LP (Limited Partner), and GP (General Partner) are beginning to blend

Additional Notes

• Avlok both misses and does not miss the “blank canvas” from his time as an entrepreneur
  • The future is yours, you can create anything, it’s super exciting
  • It also creates a lot of uncertainty and anxiety
• Avlok is concerned with the US currently printing its way out of the pandemic crisis
  • It seems like nobody is concerned about this

Paradox Podcast : investing, startups, tech
Notes By Giorgio Parlato