AngelList is an online platform that allows startups and venture capital managers to source funding from amateur investors. It is widely perceived as an “amateur platform.” Despite its value as a starting point, more serious investors and venture capital managers often outgrow its features and capabilities, choosing instead to forge their own path. This article explains why and how this transition happens.

NOTE: It is being reported that syndicate LP funding is down 90% on AngelList in 2023, making it a critical time to switch for professional managers.

Going Pro from AngelList

AngelList serves as an essential stepping stone for venture capital beginners, offering easy access, educational resources, and opportunities for small-scale investments. Yet, as managers gain experience and their investment skills evolve, the platform’s limitations can become apparent.

Experienced managers often seek increased control over investments, ownership of legal entities, the capacity for larger deals, and access to significant, stable capital sources. Transitioning off AngelList is key to achieving these goals.

The evolution from an amateur AngelList investor to a professional venture capitalist offers numerous benefits. It not only demonstrates a manager’s growing investment acumen and ambition but also their entry into the venture capital industry’s elite, bringing increased respect and credibility.

Why switch off AngelList?

Many factors compel venture capital managers and angel investors to move away from AngelList. 

• ⦿ Growing Liquidity: With AngelList’s limited partner pool diminishing since the end of 2022, managers are exploring other avenues for greater liquidity and stable capital sources.
• ⦿ Increasing Professionalism: To bolster their professional image, managers are moving away from AngelList, often viewed as a platform suited more for amateurs or prosumers.
• ⦿ Acquiring Firm Ownership: Managers targeting complete ownership of legal entities and bank accounts find themselves separating from AngelList, as it is the true manager and owner of funds.
• ⦿ Constructing a Track Record: Managers aiming to create a robust track record between Fund I, Fund II, Fund III, and beyond, depart from AngelList, as it does not offer them full managerial control.
• ⦿ Gaining Firm Control: Managers wanting enhanced control over the investment process and limited partner experience transition away from AngelList, where platform tools are limited and final investment decisions rest with AngelList.

How to switch off AngelList

Once managers complete their learning phase on AngelList, they quickly transition to their own firms in order to build their own track record. Being a new manager with a new firm is considered negative by many limited partners. So, managers seek to start this process so that they can become emerging or established managers as quickly as possible.

The process of de-platforming off AngelList includes the following steps:

• 1. Initiating the Switch: Ease activities on AngelList. This first step marks the start of a fresh journey.
• 2. Building the Firm & Fund: Commence with your fund planning. VC Lab’s free accelerator program aids this process, along with crafting a compelling Thesis.
• 3. Checking LPs Demand: Initiate pitches to potential limited partners, especially trusted Confidants. This step offers valuable feedback.
• 4. Crafting the Funnel: With initial traction, create a target list of LPs, possibly featuring AngelList investors. This list conforms to LP Archetypes.
• 5. Engaging in Pitches: Consistently pitch to 10 to 20 LPs weekly for a period spanning 9 to 19 months, contingent on fund size. This action secures the fund.
• 6. Confirming Commitments: Regular practice helps managers secure a commitment from every fifth pitch as a PACT. Upon commitment of $1 MM or 10% of the fund, a formation process unfolds.
• 7. Coordinating with Vendors: When commitments are firm, work begins with vendors like Decile Launch and Decile Partners to establish entities, bank accounts, and accounting. This paves the way for closing.
• 8. Finalizing the Close: Post signing of the LPA and initial capital call by target LPs, managers can embark on new investments with their new, fully-owned fund. This marks the end of the switch process.

Process to switch off AngelList

The transition from AngelList to managing your own fund takes a few months. The initial stages, from decision-making to securing commitments, span about 4 to 6 months. This phase involves steps like planning the firm and fund, testing demand among LPs, building the funnel, and securing commitments.

Following these steps, the subsequent closing phases last around two months. This period focuses on organizing with vendors and concluding with the first capital call. It involves collaborating with vendors to establish the necessary infrastructure and finalize all legalities before commencing investments with the new fund.

Special considerations when switching off AngelList

Making a switch from AngelList carries with it a few unique considerations:

• ⦿ Recognizing Limited LP Interest: AngelList investors typically have a low investment capacity. These small investors seldom commit to real venture funds or SPVs.
• ⦿ Refusing Carry Requests: AngelList might propose carry in the new fund to managers exiting the platform. It is normal to reject such requests.
• ⦿ Navigating General Solicitation: AngelList promotes wide solicitation of investors on the platform and via social media. These practices are regulated and frowned upon off the platform.
• ⦿ Preparing for More Work: Operating a fund demands more exertion compared to running a syndicate, rolling fund, or similar offerings on AngelList.
• ⦿ Mitigating Conflicts of Interest: Running an AngelList offering and a professional fund at the same time presents conflicts of interest. Adopting clear guidelines ensures effective management of both.

Managing Conflicts when Switching Off AngelList

While maintaining some level of activity on AngelList after launching a fund is common, it’s typically much more limited. The key to balancing both effectively lies in creating and adhering to clear rules, maintaining transparency, and ensuring that conflicts are addressed by the Limited Partner Advisory Committee (LPAC) when needed.

Here are four hypothetical scenarios and how a manager might address them:

• Deal Allocation Conflict: The challenge here lies in determining where the prime deals should go – the VC firm or the AngelList syndicate. A manager can address this by creating a clear policy for deal allocation, which is then disclosed in the fund materials and Limited Partner Agreement (LPA).
• Fee Structure Discrepancy: The differences in fee structures between the VC firm and the AngelList syndicate might incentivize certain behaviors, creating a conflict of interest. A manager can manage this by establishing fair fee structures, disclosing these in the fund materials and LPA.
• Time Commitment Imbalance: Balancing time between managing a VC firm and an AngelList syndicate could potentially create a conflict. Addressing this conflict involves setting clear expectations about time commitments, which are communicated in the fund materials.
• Investor Relations: The relations with investors between the two entities may vary, leading to potential conflicts. To handle this, the manager can set distinct rules for investor relations and include them in the fund materials.

In any instance of conflicts, it’s beneficial to have the issues cleared by the LPAC. They can provide an unbiased perspective and can aid in making decisions that are in the best interest of all parties involved.

Benefits of switching off AngelList

Switching from AngelList to your own platform has several advantages.

• ⦿ Controlling Your Destiny: You are liberated from dependence on the AngelList ecosystem, brand decisions, and trends.
• ⦿ Selecting Your Tools: You hold the power to choose the tools that suit your needs for building and managing the fund.
• ⦿ Collaborating with Elite Partners: You choose the right partners for legal, accounting, marketing, tax, audit, and other essential services.
• ⦿ Making the Final Decisions: You, as the ultimate manager, are entitled to make all decisions devoid of AngelList’s obligatory oversight.
• ⦿ Establishing a Lasting Brand: You are presented with the opportunity to build a sustainable brand in the venture capital sphere, which can be grown or handed over to future generations.

Conclusion

AngelList provides a valuable starting point for venture capital managers and angel investors, but it’s not the end game for many. It equips novices with the necessary tools and exposure to initiate their journey in the investment world. However, as they gain experience and their aspirations evolve, the constraints of the platform become more evident. The transition from AngelList to managing their own platform is a crucial step towards professionalism, control, and building a lasting brand. Despite the complexities and challenges involved in making the switch, the benefits—owning the legal entities, controlling the investment process, and fostering a track record—often outweigh the initial hurdles. In a world where success is defined by one’s autonomy and credibility, this move can be a game-changer in the careers of venture capital managers and angel investors.

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