By Bernard Lunn
VC Funds act as intermediary between:
– Limited Partners (LPs = the actual investors)
It is normal for intermediaries to be viewed unfavorably and for opaque “clubby” business models to be eventually replaced by networks and software that inject a new level of transparency and efficiency.
With this announcement, Angel List has ratcheted up the game again. This is one more example of how once a business gets network effects it is game over for the old way of doing things – think Microsoft, Google, Facebook, Amazon, eBay, Alibaba, AirBnB and Uber.
The announcement of the world’s largest seed fund was made on the Angel List blog on 12th October
Your “shameless copy & paste blogger” has put the key bits from the announcement here for your convenience:
“CSC Upshot, a new venture capital firm, has raised a $400M fund to invest in startups on AngelList. This is the largest fund dedicated to seed-stage startups, ever.
CSC Upshot will primarily invest in syndicates led by experienced angels and VCs. It will help syndicates make larger, faster investments in early-stage startups and their follow-on rounds. It will also help promising new syndicates make investments while they’re building a backing from individual investors.
Syndicate leads will earn their full carry on CSC Upshot’s investments. Leads can accept or decline capital from CSC Upshot, just like any other backer. And CSC Upshot’s investments will leave room for individual investors.”
Here is why this is a game changer:
There is no AUM (Assets Under Management) Fee in Angel List
So a Seed Stage Fund like CSC Upshot is not motivated to raise bigger and bigger funds and migrate to later stage. Think about the 2 and 20 model in VC. Earning the 20% carry is hard – you have to find great ventures to invest in. Earning 2% on a $1 billion fund gets you $20m a year – just to keep the lights on.
Angel List Syndicates and Seed Funds investing in Syndicates kills the AUM model in VC investing. That is a big deal. LPs hate AUM fees.
The AUM model forces Funds to go to later stage. AngelBlog has the data. The money quote is here:
“It takes almost as much time to manage a $1-million investment as it does a $10-million investment.”
So it is even better to deploy capital in $100 million chunks. That forces you to the late stage.
That explains why the air is now escaping from the late stage investing bubble as ventures do the “new down round” which is now called an IPO. The inversion of norm (private valuations being high than public valuations) could never last. It is ending now.
CSC Upshot is interesting because this is smart money from China getting in the game:
“CSC Upshot is based in the U.S. and is independent of AngelList. Its general partners, Huoy-Ming Yeh and Veronica Wu, are both engineers with degrees from MIT and Berkeley. They have had long careers in technology and venture capital, including work at Tesla, Apple, SVB Venture Capital and PacRim Venture Partners.
The fund’s largest limited partner is CSC Group. Founded in 2000, it is one of China’s 3 largest private equity firms, with $12B under management.”
This is another First the Rest then the West story.
In February we pointed out that VC investing was looking increasingly crazy and chaotic These were signs of a business model being disrupted.
I predict one thing. CSC Upshot is not the last Seed Fund to invest in Angel List Syndicates.
The Uberization of the VC business is happening now. The only problem for us scribblers is do we say a business has been Angel Listed? It does not have the same ring as Amazoned or Uberized.
Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech.