Raised $3.5M w/ A Tweet? Shaan Puri, and How to Raise a Fund.
How to Start a Fund & Become a Money Manager the Millennial Way.
Welcome to the 432 new Contrarians who joined last week. Ps - did you know CEO of a large newsletter company that just sold is on here, so is one of the largest HF managers in the world 👀 … be cool guys.
I call this the episode —>
So you watched Billions and now you want to run billions.
We are going to dive into the how, the why, and the what the f about raising a venture or a private equity fund. This month we’ll have 3 fund managers from $3.5M to $50M to $200M share their process for raising, forming and investing OPM (other people’s money).
The cool part about this… NO ONE, and I mean, NO one shares these things. Money for me and not for thee. Rule #1 on Wall Street. But at CT we ain’t about that.
Today we’ll focus on Shaan Puri and the Power of Twitter
If you like what he says, make sure to join Contrarian Cashflow (our premium newsletter) for a live video webinar and Q&A with him on it. As well as a live video with Nathan Lustig and myself spilling secrets.
Here’s a fun little Twitter timeline if I’ve ever seen one;
September 1 - Shaan Puri decides to tweet (to his 23k peeps) he wants to raise $1M for a new rolling VC fund of his in 3 weeks.
11 mins later - (faster than an onlyfans live account)
17 hours later - almost $500k
24 hours later…
September 6 - Twitter fam says, “Ya, we’ll give you $1.5M”Update: - In 5 days since posting this, $1.5m has been raised for the All Access Fund. - All from strangers on the internet (no friends/family) - Gonna close the fund for now, don't want to raise too much, too soon. May open it back up in '21!
Shaan Puri @ShaanVPDear Internet, I'm going to raise a $1M+ Rolling Fund for investing in startups -- only from twitter buddies / internet strangers (not counting $ from real life friends) Zero to $1M in less than 21 days.
September 27 - Money keeps coming to the tune of $2.5M.
September 28 - Shaan says… hey buds slow your roll, I’m not taking any more $. Thus, creating exclusivity, and 100 people on the waitlist.
Backtrack - Shaan does a brilliant move. Pings the influencers… We’re still open, but only if you’re these guys:
So that is not impressive at all.
His newsletter is fire btw - check it out.
What ended up happening at the end of it all?
Shaan launched a $3.5M rolling fund with strangers and a few 120 character posts.
Shaan’s All Access Fund Size: ~$3.5M/year
Here’s the All Access Fund according to Shaan in (basically) his own words…
Check Size: Average check size (what he invests in companies) is $100k, but for example, next quarter I'm plowing the entire quarterly amount into a single company. Portfolio construction be damned.
What makes it unique?
0% Management Fee - Because nobody likes fees. I make enough money in my businesses, don't need to charge a management fee. (Here I disagree with him, I think you SHOULD charge fees to ensure your business in and of itself is sustainable, but he and I will debate that live. Usually, fund fees are 2 & 20).
Raised the Whole Thing on Twitter, Though Strangers - I've never met any of my investors face to face (except 1, my friend's wife). Instead, this was raised from people who have been following me (Twitter, podcast) and trusted me to invest with me. (They say in fundraising you need 12 touches and 3 in persons to close someone. The question here is, maybe you really just need so many hours listening and following someone to trust them instead. Can you scale the trust game? It appears maybe).
Open Updates - I regularly write about what I'm seeing in the market, companies I like, companies I pass on, either on Twitter or via my newsletter. (This is traditionally saved for your investor updates as a fund manager but Shaan builds in public and new SEC rules seem to allow for it).
I Started Investing without Money - Early on, I didn't have the ~$300k bankroll to put into high risk, illiquid startups. So I went to the wealthiest guy I know, and cut myself a scout deal, where I would keep 10% of any deal I brought to him. That's how my first investment went down - Lambda School. (This is brilliant, scouts are well used in VC land where you hunt for deals, bring them to those with capital but not the time or access and they pay you a % of the deal for you sourcing it).
The Top 3 Things I Learned from Shaan:
1) Leverage Works: Why Meet if You Can Tweet?
Let me start by saying how rare this is to raise with tweets and give you some perspective. I do on average 15-20 investor calls a WEEK to raise a $250M fund. When I had a business that had $1B in AUM (assets under management) for our funds, the collective team I had did 100+ calls and meetings a week. So to raise a fund without the roadshow is a feat in and of itself. Another way to say this is, Shaan but I’m trying not to hate you a little right now.
2) Fundraising Goes Decentralized
The trend I want you all to consider is that the world it is a-changing. There is an inflection point in fundraising, in Wall Street, in asset management where decentralization is happening. Just like in Real Estate where MANY people make money managing small pools of capital I believe that will happen in asset management for Venture Capital and Private Equity in the future.
There is NO better time that right now, to launch a fund as a first timer (from a fundraise and ability standpoint - WTF knows from a market standpoint).
3) Keep The Backend Simple
Building a fund often requires a fund admin, auditor, custodian, platforms, tracking tools like Carta, a backend for doc storage and secure investor communication. First glance is Shaan has that all covered through AngelList Ventures which is also a trusted name. Smart. I’m sure they take a % cut across the board which would be a no-go for me after a certain $ amount raised but to start. Man it’s like Substack for VC’s.
I have many questions for Shaan, we’ll hit ‘em on the live webinar on February 26th. Here are a few and throw any others you want in the comments:
Investment thesis: how do you invest and why?
What backend do you use to track your investments and deals?
What kind of target return are you after?
How does AngelList tech stack work for Ventures? Do you like it?
Why did you create a fund? What is the benefit to you?
That last question got me thinking, do you all know why people launch funds?
Why Even Raise A Fund?
I sat in on a Merrill Lynch PBIG (aka their absolute wealthiest clients) meeting a few years back when I was at Goldman in 2008. The chairs were filled with the .1% in the Waldorf Astoria in New York. One of the MD’s put up this big slide I wish I would have snapped but will never forget. They did a study to show how generational wealth was created and found almost 100% of the wealth was accumulated in one of five ways:
The Lucky Sperm Club (ok it said Inheritance)
Owner of a Business
Marry Rich (Wealth Through Marriage, same same)
Public Company C Suite Executive
Now the last one is deceiving. What does it mean? It means you are either born lucky, snag a billionaire, climb up the corporate ladder for decades, do the masochistic entrepreneur grind, or learn how to use other people’s money to build wealth. Another word for this is asset management, or building a fund and then a fund family (a group of funds).
The part that’s interesting here is there is a model. Anytime there is a model it’s infinitely easier to replicate it. So let’s dive in.
What Can Fund Managers Make And How Do They Make It?
Private equity and venture capitalists make money when the companies they invest in make money. That’s pretty straightforward but let’s lift up that curtain.
Two Revenue Streams for Alt Fund Managers:
Carry: GP's share of any profits realized by the investors, 20% is standard. For example: If a fund makes $10 million in profits (or returns), the partners take a $2 million to $3 million cut before distributing the rest among their investors.
Management Fee: usually a 2% fee to pay for the running of the fund. So in the case of a billion-dollar fund, that works out to another $20 million to $25 million. However, the truth is getting to a billy is HARD. This fee is paid as a percentage of the total fund size. In this spreadsheet below the full management, fee is paid out in the first 5 years. For the second 5 years of the fund, 1/2 of the management fee is paid out. So, for example, for a $50M fund with a 2% management fee, a management fee of $1M will be paid in each of the first five years. During the next 5 year period, $500K will be paid.
Here’s a sample model… but remember these are paid out over the life of the fund which is usually 5-10 years. It’s a long game AND if you are able to make someone 2.94x their money aka 294%, you are very good, you’ve made a lot of people cash-ish and you will be rewarded with $$$$.
The part that is intriguing is how the money stacks up, now imagine you raise multiple of these funds over the course of a few years… the payouts ain’t bad.
But before you start putting together fund formation docs and asking your grandma if she’s an accredited investor, you have to deliver.
It’s a hits-driven business.
You have one judge, jury, and executioner… your MOIC (Multiple on Invested Capital). A fancy way of saying I give you $100, do you give me back $300 to $500.
If not, pick a new job.
Ok, so it looks like you can make millions picking winners in VC/PE…
How do we go play this game?
We talked to and stole lessons from a group of humans who have raised funds the unconventional way. From tweeting, to bus riding, to get that government money, there’s a lot of ways to play.
Revolution VC - Raised $200M w/ a quasi-political seeming bus tour
Nathan Lustig - Raised $50M for a LatAm VC (big chunks of it with grants)
These days you don’t have to have gone to Harvard (although one fund manager I talked to did), or be a billionaire (although many are). There are some fascinating lessons to be learned here, my friends. The days of old are rapidly deteriorating.
So maybe you too can be a fund manager.
In all honesty.
You need a lot of things to be successful:
you need skills
you need access
you need an independent invesment vision
you need an unfair advantage (your unique skill stack)
you need to be very careful because you are playing a reputation game w/ OPM
investing is NOT EASY
the outcome is often outside of your control
everyone will know each quarter if you are winning or losing
BUT - If you are willing to take on the risks. If you are doing it already with your own money. If you are confident and capable. You don’t have to be given permission anymore. Go take it.
Question everything and buy smarter,
Contrarian Cashflow :
Want to see the list of cashflow artists we have in our lineup…