AngelList CEO Avlok Kohli on building the company of companies that is powering private markets

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Welcome back to the Alt Goes Mainstream podcast. Today we peer into one of the most fascinating companies in the alt space, AngelList. AngelList is building the operating system for modern startups and tech innovation, and as such, they see themselves building company of companies. AngelList has had almost 19,000 startups raise capital from syndicates and funds on their platform. They support over $15 billion in assets, and 40% of all US unicorns have had a GP invest in them through AngelList. I talked with AngelList CEO Avlok Kohli, whose impressive background as a tech founder and operator gives us an insight into how AngelList is building their business. Avlok is the CEO of AngelList and the founder and CEO of LegalReach. He's also the former founder and CEO at Faerie. He also created FastByte, a food delivery service, which Wish was acquired by Square a few months after launch and was integrated into Square's delivery product as Fastbite by Caviar. Avlok and I had an interesting discussion about how AngelList's product-driven culture has enabled them to evolve with customer needs and build all sorts of products and services for GPs, startups, and LPs. We discussed what makes AngelList an N-of-1 company in Avlok Kohli's view, how his experience at Square has informed his company-building strategy at AngelList, and why it's almost impossible to compare them to a single traditional financial services company given the breadth and depth of their product offerings. Thanks, Avlok, for coming on the Alt Goes Mainstream podcast to share your wisdom and experiences. If you like this podcast, you can listen or read more about alts by subscribing at altgoesmainstream.substack.com.

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Today, AngelList's GP business has largely been known for its marketplace and fund admin product. That changes this week when they begin to release a series of software products available to any venture firm, even if they don't run a fund on AngelList, which automates and adds intelligence to the most onerous and ambiguous parts of running a fund. It all starts with the most comprehensive and tailored banking product built specifically for venture funds. Avlok, welcome to the Altcoins Mainstream podcast.

Thank you. Excited to be here.

Pleasure to have you. AngelList has built an incredible business over the number of years and really covers so much surface area across private markets. So I want to start with how do you define AngelList?

The way we think about AngelList is it's the operating system for modern startups., and we think about the operating system for modern startups to encompass founders as well as the venture fund managers that invest in them. And what we do is we build infrastructure to bring a lot more capital to the founders through the venture fund managers. If you take a look at what we do for the VC community, we provide a single-stop shop, what we call full-service fund management. Where you come to us, you tap a button, you get a venture fund, and we handle everything end to end from fund formation, if you would like us to do that, but we can also work with your external attorney, all the way down to integrated banking, deployment of capital into companies, reviewing the portfolio documents, and then handling distributions at the end of the fund's lifecycle. For founders, we provide cap table infrastructure so you can manage equity in a really seamless, easy way. And we provide fundraising tools for founders so you can raise capital in a really easy, seamless way. The value that we're providing to our customers is that they don't need to focus on all of the paper pushing that typically used to happen in an analog world. We've digitized all of it, and by digitizing all of it, we've actually made it more accessible to a much larger group of customers, LPs, and the broader world at large to tap into venture.

It's fascinating to think about all the different things you have built or can do with the various constituents you mentioned, whether it's founders, fund managers, or LPs. When you think about each of those constituents, how did you think about what to start with? For business building? I find that so fascinating in the alt space cuz there's so many different ways you can start. How did you think about starting with a certain wedge and then expanding or peeling back the layers of the onion for each of those customer bases?

That was easy. Anytime you're starting a company where there is a marketplace effect, and a marketplace effect comes from you're serving multiple customers. You have to always ask yourself, what is the non-commoditized actor here? For us, those were the GPs. I'm using GPs and VCs interchangeably, so I'll do that through the rest of the conversation. The GPs were the non-commoditized actors, and we really focused on building an amazing experience for them because the GPs will bring the LPs. And now you can see the makings of a flywheel. The GPs will bring the best founders on, but actually all starts with building infrastructure for GPs such that they're incredibly ecstatic. And so that's what we focused on.

It's an interesting concept cuz in the more traditional old world with funds, GPs had generally been pretty guarded about their LPs.

Mm-hmm.

And it's been more of a walled garden approach because they want their LPs to continue allocating to their funds. How have you approached that aspect of things? And obviously it's a platform, so LPs can see other funds, other syndicates, other deals, and that's obviously fine cuz it creates a thriving platform. But that is an interesting difference in the way of thinking about the LP relationship from a GP's perspective.

We've actually built tools so that if a GP doesn't want their LP to go discover the rest of AngelList, they have the option. They have the ability to just say, hey, this LP, one, I know they're not interested in anything else. And hey, I actually want to just maintain this relationship. And we've built tools to respect that because we do understand the value of the GP-LP relationship. That said, there are a lot of GPs who understand that the LPs are investing in multiple funds. That is the definition of what LP does. You want to diversify into many funds. You want to diversify into many deals. So in practice, what we found is vast majority of the GPs are actually fine with it. On AngelList, to be clear, we actually take any LP communications very seriously. We do not send emails to LPs ourselves. We in general are very conservative when it comes to LP communications because we understand that LPs are extremely busy people. They don't want to be spammed. We take that very, very seriously. So the only way in which an LP can get activated is if they've taken some action to demonstrate that, oh, hey, they've invested in another fund or they've invested in a deal. That's really the only way to do it. And so we're not trying to actively cross-sell, cross-promote in that way. The LPs can make their own choice, just like the GPs can make their own choice. We view ourselves as a platform first and foremost, so we actually view all of the tools as a way to give GPs and LPs control over the experience that they want on AngelList.

It's interesting to think about, like you mentioned, LPs may want to access various funds, various opportunities. Makes total sense. How do you think about owning more of the— not just the GP's life, I think that's one category where you can own their entire life, full stack, like you say, but also own the entire LP's, let's call it alt financial life, investing into private markets, VC funds, direct deals, whatever it may be. Mm-hmm. How do you think about owning their entire investing experience and doing as much as they can on the AngelList platform?

The way we think about that is how do we make sure we have all the GPs on AngelList? Our goal is to be the fabric of venture, and the way to do that is to continue to be the default provider. For a venture fund regardless of fund size. And what's happened over the years is we've been supporting larger and larger and larger funds. And in fact, we actually support the entire Scout Fund infrastructure for one of the top 10 top-tier VCs out there. That's how sophisticated our infrastructure is now that it is the default provider for basically any venture fund.. And what happens is when you are the default provider for these venture funds, for the LPs, as they start to invest in multiple funds and multiple deals, it's all hosted on AngelList. And there's a natural moat that builds up because you need to get your reporting. Well, all of your reporting is in one dashboard. You need to get all of your K-1s. Well, all of your K-1s are on one dashboard. And what we've now seen as we've scaled is LPs every year are demanding that more and more of the GPs just use AngelList because they don't want to go and manage yet another dashboard, yet another portal to download K-1s from, yet another portal to try and create consolidated reporting. So what we're incredibly excited by is the consolidated view that we're continuing to provide LPs. And we have a lot more investments actually into financial reporting and tax reporting that's happening this year that we're excited to unveil for LPs where You really are the default platform. You don't need to go anywhere else. You can get everything in one place. And as we think about the broader sort of trend of private markets institutionalizing and really venture institutionalizing, the missing piece was always being able to manage and see and have visibility into the full lifecycle because venture is only a few decades old as an industry. And in the first few decades, it was very much a cottage industry, and it was just all of these service providers were people. It was just humans doing work, and humans doing work means that there's not much transparency all in one place. But by digitizing it and by managing the entire infrastructure, you can actually peek into the value of your investment, your private market investment over multiple years. And by having a single counterparty that is AngelList that manages the entire lifecycle, the entry, the investment into the deal or the fund, and the distribution at exit into the fund, because it's all in one place, you can trust that AngelList has you covered for all of it. You don't need to go work with anyone else. You can just trust that your investment is safe. You can trust that, hey, if there's secondary opportunities, it all comes in one place. You can then sell. Your fund position or your SPV position. That's what happens when you digitize and you have a single platform that manages all of it.

You're getting to something that's really interesting and also really important when it comes to the evolution of the alt space. We've talked about this a bit before, but it's really the market structure evolution from pre to post-investment in the case of alts, and you now handle all of that. How do you think about, one, where you make those bets, defining and refining those bets as a product-driven culture about what areas of that evolution from pre to post investment that you can automate using less people, which most of those processes had been using service providers, or you'd have to go to different people. How have you thought about where you can automate different pieces of that market structure evolution? And what does this mean going forward for AngelList in terms of where you can continue to innovate?

This was actually quite easy for us, because we actually ran AngelList in hard mode from almost the beginning. If you look at any other service provider, they'll only do one small slice of what it takes to manage a fund. You'll have a service provider that only does deal documents. You'll have a service provider that only does fund accounting, or a service provider only does tax reporting. AngelList, from the outset, and maybe we didn't know any better, I'm not sure, or maybe we just like pain, we said, you know what, We're gonna do all of it because the slam dunk experience for a GP is just focus on investing behind the best founders. We'll handle everything else. Don't worry about back office. Your paper pushing becomes our quote unquote paper pushing, and then we'll just automate this all. And so because we led with that as the approach, we had a very deep understanding of all of the stuff that was manual almost out the gate. What we've been able to do is look at the set of things that are taking the longest and have the highest risk in terms of a human making an error. And we've just gone one after one after one, just continue to automate. Fast forward to today, we actually receive 15,000 emails per week. 15,000 emails per week on behalf of the funds. And we're talking, these are portfolio docs, cuz we're the signatory and we can review and, and make sure that all the investor rights are managed. It could be an M&A, it could be a company going public, so we have to handle distributions. What we've done is we've actually built a system that allows us to route, categorize all of the emails, all of the deal docs. We'll know if there's a PDF in an email, we'll know if it's a share price agreement instantly.. We'll know if it's a cap table, we'll know if you're doing a Series A round, oh hey, you're missing the cap table, and we'll automatically write the email, send it back. And so we have a significant portion of the back office automated, and it's not all the way there yet, but it's getting there very, very fast. Because we actually took all of it on at once and we took on that pain, we actually have a very, very deep understanding and have been automating it bit by bit. When it comes to product innovation, that's front-facing. That actually comes from a very interesting second-order effect of doing back-office automation because we said, oh wow, we've got this automated now. So we could actually look at this problem and ask, why hasn't anyone done this? I'll give you a very concrete example. Rolling funds. The observation was, hey, why does a fund shut down for new capital? Why can't it just continually accept new capital? We were able to get it to market within a month from the idea. It was actually sitting in Avlok's head for a while. It was like, "Hey, this is the way funds should work." And we're like, "Yeah, this is exactly the way funds should work." The discussion was, "Hey, we've actually now automated the back office for this. So yes, we can actually do this. We can keep the fund open, we can do cross-carry and make sure everything's structured in the right way." So the product innovation was an output, was a second-order effect of back office automation. Another one were roll-up vehicles. And roll-up vehicles, for folks that don't know, is a tool for founders to raise from a lot of small checks, and then it just goes in as a single line item on the cap table. That one actually came out of a customer escalation on something unrelated. I was talking to this founder and there was something that needed to be fixed with something around how their investment happened, cuz they're about to do a Series A. And I was talking to this founder., and after we resolved it, he's like, hey, can I use your SPV product? And I'm like, what are you talking about? And he's like, well, I want to go raise from these smaller investors, but I don't want my cap table to be all jammed because I don't want to go through all of the downstream legal costs, administrative costs. And I just pulled on that thread. I'm like, this is fascinating. And as I kept pulling on it, the observation was, here is someone who is a little annoyed. We of course fixed it and then was, hey, I actually love AngelList. Can I use this product? When it comes to product innovation, the thing to always pay attention to is if a customer is trying to use some other product that's not intended for them in some like hacky warped way, you really dig in. So we dug in and once we realized what he was trying to get done, me being a prior founder, I was like, you know what, this has been really useful because my second company was acquired by Square and we had a lot of small checks and I had to get a signature from every single one of them during the M&A process. And it was like, oh my God. Great investors, but it's administratively really annoying. And same thing, because we'd automated the back office, the innovating on the product was easy. And we launched our UVs within, I think, like a month or maybe a month and a half tops. And it was out there, done, good to go.

Those stories really tap into something that I think is so apparent to AngelList, really from its founding DNA. It was founded on the idea of experimentation. I've talked to a number of people at AngelList. We've invested in a few ex-Angelist early employees who were part of the team early on and just really smart people trying to solve problems. And to your point, you threw a lot of different people at a lot of different things all at once. Has that DNA still lived on today and how do you conceptualize that as your, bigger company growing, also very much a fiduciary in financial services. This seems a little bit different than the traditional financial services firm, but also apparent that it's one of your big advantages.

I would think about answering that question in two segments. When you're an early, early stage company, how do you approach getting the product-market fit on something? And early AngelList was closer to a think tank around going broad. Early on, the observation was founders need help with 3 things. They need help with raising capital, they need help with finding talent, and they need help with finding customers. There were experiments that branched off on all 3. You had syndicates that came out of raising capital. You had the original job board, which became AngelList Talent, and then now is Wellfound. We rebranded it. And then AngelList had bought Product Hunt for finding customers and continued the iteration there. And those 3 products grew over time. When I stepped in in July 2019, sort of took stock of everything, and Talent was already a separate company run by a separate CEO, but it was still sharing the AngelList brain. And then of course you had the financial platform, which had SPVs then, And then you had Product Hunt, which was also running. It was pretty clear that, at least for the financial platform, what made sense was to take it and spin it out as its own company. Over time, we were known as AngelList Venture, and we just dropped the venture. Now we're just AngelList. The big shift that happened at that point was rather than having 3 different problems that we would go solve, we focused in on a single problem. As there was evidence of product-market fit on that one thing. The reason I bifurcate between early angelist and now is because early on, the key is that you are searching for product-market fit on something. And then as you look to scale the company, you've got your vector, you have your direction, and the things you pursue will be on that direction that are in and around your purpose, and your mission. And so for us, our purpose is to accelerate innovation in the world. And we believe that startups are a big driver of innovation. Our vision is to build the infrastructure to pull more capital into startups. So what we pursue when it comes to net new zero-to-one product innovation is anything in and around that vision. And so we end up being more focused around that. To answer your question around How do we do that when we're a financial technology company? When you deal with people's assets, you can't move fast and break things. That is, you can't misplace money, you can't misplace assets. The way to think about that is you want to separate out your mission-critical systems where you can't have an error rate, right? Or it needs to be incredibly low and a very quick way to recover from it. And then the part where it's not as mission-critical and you can move quite fast. The mission-critical systems are anything to do with reporting on assets, reporting on cash, assets, distributions, anything like that. Those are measure twice, cut once. Be very careful. You typically don't want to innovate on the things that are reporting related to assets because the innovation there was actually done back in the day around double-entry accounting system, and that's pretty good. You don't want to innovate around that. What you want to innovate around is everything around the edges, around the products that you can create in and around the underlying infrastructure. That's how we think about separating it out such that we can still move very, very quickly and try new things and separate that out from the mission-critical systems that you just can't have failures in.

How much do you think you can truly automate a lot of these processes versus have people who do them manually?

My answer If you'd asked me this a year ago, is very different than the answer today. I think the answer today is quite a lot because when you think about the set of things and workflows, that's the way we look at it, that you have to execute on to run a fund, it is a mix of process, very easy binary inputs and outputs, and judgment, fuzzy heuristics and judgment. What we've done with a lot of the generative AI work, you can now take unstructured data, which kind of the fuzziness of it, and you can turn to structured data, and you've actually are able to automate some of the human judgment now. Because of that, our view is we can automate a significant portion of it. And in fact, we've already started. The example I mentioned earlier of us receiving 15,000 emails a week, That's all unstructured data. We've already started to structure that through a lot of the recent advancements in it. And so we have a, a, a lot of product innovation happening right now. And in fact, we're going to be unbundling some of it pretty soon and we'll be announcing it to the world so that anyone, any other fund can use it. We're very excited about what's coming in the next month or so.

I want to touch on data as it pertains to private markets. It feels like in terms of the evolution of the alt space, data is really the next frontier and figuring out how fund managers and LPs can harness that data is so critical. How do you think about that?

When it comes to venture, what venture is, is technology investing and really believing in the power law of the winners. The only reason to invest in a venture fund is because you believe that that venture fund will invest in at least one mega winner and you're going to have exposure to it. And that's it. Simple as that. At any moment in time, if you look at cohorts, and cohorts are defined by years, the 2022 vintage, the 2021 vintage. There are a small subset of companies from the overall companies that we're invested in that will actually become sustainable unicorns, sustainable decacorns. And I say sustainable because what matters is that these companies are enduring. And so they have sustainable growing cash flows such that if they stay private, they'll thrive. And if they go public, they will thrive. There are just a very small subset of companies that become enduring. It's very rarefied air. My second company was bought by Square pre-IPO, and I was with them before the IPO, through the IPO, and then saw them go from just being a payments dongle company to the company they are today. It is rarefied air to go from where they started to where they are today. You really do need to build a product that just compounds in larger and larger markets. What matters when it comes to investing in venture is you're in one of these companies. When I think about data and the importance of data, it's really a question of what data points to which of the companies are breaking out. So how can data give you that unique insight before it becomes common knowledge? Because once it's common knowledge, the price goes up. Public markets by definition are like, it's consensus. So you wanna find out when it's non-consensus. We think about the data question as How can we surface data that will provide a non-consensus view such that you can, as an investor, increase your exposure to a company? And then the related question is, how can you get access to that company? And that's where the GPs come in. As we think about the data question, it's just that. It's how can we use data to surface a non-consensus view on the companies that are breaking out or about to break out? And then how can we give LPs access to the GPs who can actually get access to those companies? And that's how you create a winning strategy in venture.

You've to some extent done that with the new product creation that you've created in-house, AngelList Access Fund. Abe, your head of data, he's done a ton of great work on that, on showing some of this data and why this— what you said is the way things generally play out. How do you think about new product investment, product creation at AngelList, and how do you think about harnessing data to do things like the AngelList Access Fund and maybe other things you could do going forward?

For that, we work backwards from what the LP needs are. Some LPs love deal-by-deal investing. Some LPs just want to invest in a few venture funds and that's it, and that's how they're gonna get exposure. Some LPs want broad exposure through something like an access fund. As we look at the set of products that we can build for LPs on top of the broader platform, because we have access to the GPs, we have access to the best companies, we really think about it as what is the LP's investing strategy and how can we build a product that fits that investment strategy. Through that, we've created things like deal-by-deal investing, We've created the Access Fund, created the Quant Fund. What we also actually have is the ability to launch a public accredited fund, unlimited accredited fund. We actually have approval for this and we are looking at launching something like this. How do you give broad access? Because we think you can get broad access to venture in a very safe, risk-managed way. When what you do is you invest behind the fund managers, the best fund managers who are then investing behind the best companies, and you have broad exposure. The broad exposure is key here.

On that point, I'm fascinated by the concept of as more capital goes into venture, private markets more generally, but certainly into venture, returns tend to go down as markets get larger and more liquid. Doesn't mean you can't still find alpha. But how do you think about the concept of, as more people invest into venture, you're enabling that, which is great, and that access is important, but at the same time you say you want to get diversified exposure to venture. How do you think about the delineation between alpha and beta? And maybe what I mean by that is the concept of, is there beta in the search for alpha?

If you're creating a very broad diversified portfolio, like what Access Fund pursues and what a broad index fund would pursue, then you're not looking for the type of alpha that you would get from investing in a single venture fund. Because even investing in a single venture fund has risk. There's risk that this venture fund alone won't return any capital. When you diversify across many venture funds, you can actually reduce that risk. So of course you reduce your alpha, At the same time, you can actually still make very good returns. And Abe, our head of data science, has published a paper on this. What does it look like as you create an index of venture funds and you create a broad diversified portfolio? And he actually compared it to public market returns as well. You can actually see that you have an uncorrelated portfolio and it's actually a very, very good portfolio. Again, it goes back to what is the LP optimizing for? What's their investing strategy? Because every LP is different.

On that point, there have been fund of funds that have shown that on a risk-adjusted basis, their returns end up being better than investing in specific funds. Obviously venture's an outlier business. If you're in the top funds, yep, you're generally gonna be fine. But on a risk-adjusted basis, that diversification may be beneficial. And it sounds like, I guess, to do that well, you have to have enough great companies or funds on your platform that investors can access. How do you think about that?

Yep. That's where being the infrastructure provider for all funds is such a key focus of ours. And how I led the beginning of the conversation with, we started by focusing on GPs and bringing all the GPs in. And even our product evolution and what we'll be launching soon is to serve that goal, continue to just be the fabric of venture. Because once you're the Fabric of Venture, you actually bring all of the primary access, meaning the primary investment opportunities into great companies, all on AngelList. One thing we track to make sure that we're continuing to do this is we look at what percentage of top-tier US VC deals are the GPs on the platform invested in. We don't just look at volume of GPs, we look at volume of GPs with a check metric of What percentage of top-tier US VC deals are they accessing and getting access to? That's how we make sure that we're continue growing with quality managers on the platform. Now that is around primary investments. We also have and have been experimenting around secondary opportunities within funds. And if you think about a fund, a fund is just a portfolio of investments where typically there's 1 or 2 or 3 winners, 3 if it's doing really well, and How can we provide secondary opportunities for LPs in the fund who maybe came in at pre-seed or seed, and how can we provide that secondary opportunity to an LP who invests later stage and allowing them to transact in the company alone and doing it while making sure the fund stays intact? The one thing that AngelList is very good at is we actually sit at the intersection of legal innovation. Fund operations innovation, software innovation, and design. That's what makes AngelList incredibly unique. When we see a problem like this and we see the infrastructure we've built, all the back office automation, we now see new opportunities. We think we can provide the ability to do secondaries within just a single company from a fund while keeping everything else intact. That's the type of tinkering and exploration that we are uniquely suited to do because We've automated the back office. As we think about opportunities for LPs, it's not just primary, but also secondary. And once that happens, once you can shorten the time from investment to a secondary, the time to liquidity, wow. At that point, you've opened up the asset class to even more LPs, because now you don't need to underwrite to, well, got to wait 10 years. You can maybe underwrite to I can wait 3 years or 4 years, and that changes the total addressable market of LPs that would want to invest in venture.

And you're giving yourself the opportunity for new product creation. I mean, you're getting me really excited in terms of where we can go with this conversation, because like you say, AngelList is a legal innovation, infrastructure innovation. It's an access point innovation for the LP side and even GPs, because more GPs can now access the ability to have a fund which is huge for the space. This brings up a question that fascinates me about AngelList because it's— there's no one way to describe AngelList in a sense. In some ways you're a fund admin, in some ways you're an investment platform, in some ways you're a legal tech company. I know you're not yet a public company and you may choose to be, you may choose not to be, and answer this as you wish because it may be a provocative question, but if an investor in public markets or a very large private investor were to look at AngelList, How would you think about valuing the business and what would it look like?

They would probably need to do comps of multiple businesses. AngelList is actually multiple startups all in one. That is what makes it very unique, and that's what gives us differentiation and builds up moats around the business. It's actually not too dissimilar to Square when Square went public. It was the payments company. It had Cash App, which was personal banking, and it had a SaaS component, which was the small business software that was starting to build. The same thing actually happened when Square went public where analysts were like, what is this? It's this plus this plus this. And those are typically the companies to pay attention to. Because those are the companies that are building something incredibly unique and something that will endure the test of time, where you have a wedge with a certain product, then you have a cross-sell into other products, then you effectively are just owning more and more and more and more of the market. One thing that Square did early on that I've actually brought with me to AngelList is Jack specifically had this phrase as he compressed the strategy of Square in a very short, pithy statement. And it was, we want to be the beginning and the end of every transaction. So when you start with just the payments dongle, you're at the beginning of the transaction. Then when you're at the end, that means you're there every step of the way. And Cash App is sort of the end manifestation of it. You're literally at the end now and you have it all. We think about that in a very similar way on AngelList. How can we make sure that we're at the beginning and at the end? And what that means is all of venture, all of private markets just sit on AngelList infrastructure, and all happens in one place. When you do that, you build a company that is hard to compare, because you can't compare it. It's an N-of-1 company.

It's a great way to describe AngelList and also take some of the lessons learned from Square. The way I would say it is that Square's built a closed-loop payments ecosystem. Like you say, from beginning to end, I think of it as there's the transaction that you pay at a Square terminal, and then you're able to keep people in the ecosystem because they might have Cash App, etc. It seems like you've done the same with AngelList. You've almost created this closed-loop system for GPs, LPs, and that creates this incredible flywheel Is that a fair way to describe AngelList?

Yes. And the way we think about product expansion is how do we bring more people into the closed-loop ecosystem? And then how do we expand the closed-loop ecosystem? You can actually map the product launches that we do to one of those two things. It's either increasing our exposure to more customers to come into the AngelList ecosystem. And then the product launches that will just keep them in the AngelList ecosystem for more and more things. In that sense, it's actually a very simple optimization function that we have on the business, which is bring more people into our infrastructure and keep them there.

How do you think about buy versus build?

In that context, we generally lean towards building because a lot of what we're doing has never been done before, and it requires the back office automation that we've done. So generally we lean towards building. It's also in the culture, it's in our DNA. We are really a group of builders and tinkerers and craftspeople. Now, it doesn't mean we're against buying. It's just that the bar for buying becomes much harder. And even then, we would look very carefully at who the leader is and making sure that they are also a tinkerer. They're also an engineer or a designer that is passionate about what we're doing. And so we're not against it. It's just the bar is higher and they would really need to fit the culture of AngelList.

It's a fascinating insight into how AngelList as a culture thinks. I think we've talked about how it's a product-driven culture.

Mm-hmm.

Your background is also fascinating. It's more from consumer tech, and you built successful companies, one of which you sold to Square. And I think that really sheds light on how sometimes people from outside of a certain industry— yes, to some extent you were in financial services, but outside of the alt space— comes in with a fresh perspective. What's the right fit for a personality type for the AngelList culture? And why maybe is it that outside looking in perspective ends up being so valuable if you are building this N of 1 company?

The outside looking in perspective, meaning someone who doesn't have any context, sometimes actually is the right person to come in and do something because they can look at what is considered common knowledge and common wisdom and say, huh, that just seems weird. That seems odd. Why are things done this way? So the benefit you get is you get someone who is going to approach it like a child and ask why, why, why, why this way. You want that perspective because you want someone coming in that will continually question things, will continue to question the status quo because that's where innovation comes from. And in fact, startups by definition, when they are pursuing something, it is non-status quo. It's against the grain. You need people who are against the grain or non-status quo. You need to continue to bring those people into the company. Like when I came in, I knew venture, but I didn't know venture funds. Yes, I'd raised from investors, but I ramped up on everything about venture funds, about everything about the venture industry. And I just kept asking why, because I was curious. And I'm like, "Wait, I don't understand. Why are things done this way?" Or, "Hey, why is this product viewed in this way?" Like a child, and you kind of pull on the thread and explore and you find new things.

What's the biggest thing you learned during that process?

The delta between how focused venture capitalists are on funding innovative technology in every industry relative to how archaic the venture industry was in terms of allowing for— not even allowing, but enabling automation to automate a lot of things. And that delta, I'm actually still surprised by it to this day, which is I think VCs serve a very important role in society. They communicate the way the world could be. To capital that is more anchored in the way the world was. So they serve a very important role. And despite that, it was surprising that it's taken this long for someone like an AngelList to truly come in and create real innovation. Even on the fund structure, rolling funds is an innovation on the fund structure itself. I was surprised that we're not seeing more of that.. But I get it. I think when it comes to financial services and raising from LPs, you generally want infrastructure that they're used to, they're familiar with. It takes time for something like that to bake in, to set in. And so now again, maybe I'm just too in it now. I have too much context. I get it. But when I first stepped in, I was like, I don't get it. Like, why not? Why isn't there more innovation here?

Well, what's fascinating is AngelList has really created that connective tissue to enable that to happen. Number one. Number two, to your point, it's enabled the explosion of a number of new managers to be able to come managers and do things like fund innovation that they may see as being essential to what the future of the world looks like.

Mm-hmm.

That was the past decade, and I think AngelList actually was a big part of enabling the micro VC or emerging manager explosion. You have this concept of solo GPs, you have micromanagers, smaller funds who can now run their funds on capital-efficient rails, AngelList. We're in a different environment than we were past few years. Certainly markets have changed, public markets, interest rates, et cetera. That's obviously had a knock-on effect on venture.

Mm-hmm.

If you think about that was the innovation of the past for AngelList, 2010 was a decade of micro VC. What's 2020 the decade of?

For 2020, the path we're already on is supporting and working with larger and larger venture funds and larger institutional capital. That story is actually the story of any technology company, where what you do when you start looks like a toy. We start off with just small SPVs, and tiny retail LPs. As we've built each of the layers of the infrastructure, we're essentially moving up the stack, and we've actually already moved up the stack. We're supporting larger and larger funds, and like I mentioned, we're actually supporting the entire scout program for one of the top tier US VC funds. 2020s will actually be the decade of connecting everything we have to larger funds, larger LPs, such that The vast majority of venture funds, venture fund LPs, and the transactions all happen on AngelList. It's really the transition from analog to digital on AngelList for venture activity.

What happens to the micro VC community in the current environment?

I think the micro VC community will shift the LP base slightly to lean more towards larger LPs. Because what we see, and we manage 20,000 funds and syndicates across a portfolio of 13,000 startups, so we actually are a complete proxy on venture at this point. What we've seen is within the LP base, there's the individual LPs, and then there are the LPs that are investing in teams, are basically the institutional LPs, family offices, et cetera. Within that, we've seen the individual LPs' dollar commitments go down relative to if you compare from a year ago to today. The institutional LPs, interestingly enough, and I'm using institutional pretty loosely here, like just a family office, et cetera, their dollar commitments went down and then recovered in the last couple of months. So it actually is back to where it was a year and a half ago. What's happening is the LP base that the micro VCs need to raise from is changing. There will still be a place for individual LPs, but they're going to need to raise from larger LPs as well. I think that— we'll probably see the rate of net new micro VC funds starting going down relative to the boom times of 2021. But we're still seeing first-time fund managers getting started raising capital. But the number of those first-time fund managers raising capital will go down, and the time it takes them to conduct a forced close will increase, which means it takes more time to be able to raise capital.

On this point, just pulling this thread a little further, You see plenty of interesting data on AngelList. What is the most promising data that you see that gives you hope for the venture ecosystem?

I think the most promising actually is you just have to follow where the technology cycle is. And we're in the middle of the biggest boom in a technology cycle. And it's weird because we're in the midst of a giant macro Right? Like, it's a very bear market on the macro side. What gives me hope is the technology cycle and the rate of new startup creation is accelerating. The rate of technology innovation is accelerating. And the amount of capital going into this is increasing. That's what gives me hope. I'm actually a complete optimist, and I think it's a great time to invest in venture.

It's going to be a hard question for an optimist to answer. What's the most ominous data point that you've seen on the platform?

I think there's going to be a reckoning for some portion of startups that raised in 2021, 2022, because the number of startups that VCs are investing in has gone down, which means just by pure math, a good percentage of those startups that could have raised, that, that did raise in the boom time won't be able to raise in a bust time, and they will go out of business. So there will be more shutdowns. We're starting to see an increase in pay-to-plays on the platform because we're the signatories. We see this all. The overall number of startups that will shut down will increase over the next coming quarters. I think that's the most ominous, but still very bullish because venture is all around net new startup creation and really around the technology cycle. So yes, we're going to have some correction, some pain., but we also have an incredible opportunity with net new startup creation around AI as the next big boom cycle.

Really curious to see how AI impacts all sorts of things, but venture included, like you mentioned before. That's something that is fascinating about AngelList. Expanding that more broadly, what's the biggest part of AngelList that people outside of AngelList may not realize?

I don't think people realize just how much of a venture fund workflows we actually support. We are a very unique, even when it comes to our product, and we're very unique in terms of the depth of the product suite that we have relative to anyone else. It's almost like an iceberg product. You don't see everything that's underneath the hood. We're actually going to be unbundling it and then launching it in the next few weeks. And I think people are really gonna be surprised that, wow, we had no idea that all of this was already built out and we were already doing it for a lot of venture funds. And so I think that's the most misunderstood part about AngelList. People just don't know.

That's fascinating. I think AngelList covers so much surface area that it's hard to appreciate at times how deep and how wide you go at the same time, which to your point is what makes AngelList so special and so different. I want to end the podcast the way I always do, which is asking everyone what their favorite or most interesting investment in the alt space is. What is your favorite or most interesting alternative investment?

For me, it's a startup called Layer 2, not to be confused with Layer 2 blockchain, but although it's a crypto-influenced company, and the most interesting thing about it is it's actually solving for international cross-border payments, and it's basically being dubbed the SWIFT killer. And if you think about SWIFT, SWIFT's a pretty archaic technology, and it costs a lot of money to send money internationally, no transparency. What Layer 2 has done is build a product where you can actually send money internationally, you have full transparency, and it actually settles on USDC in the middle. And so it happens same day or next day, at a fraction of the cost with full transparency. I've always loved innovation that compresses the number of hops, the number of steps, and innovation that compresses the steps and makes it cheaper typically ends up doing extremely well. So that's my favorite one. And we're already starting to pilot it at AngelList because we do a lot of international payments.

You're not just describing Layer 2, but you're also describing AngelList. Yeah.

Maybe that's why it's a favorite investment.

It's a good reason to be a favorite. Avlok Kohli, this was a fascinating conversation. Thanks for taking us inside AngelList, all the amazing things that you're doing for the alt ecosystem. Congrats and pleasure to have you on the podcast.

Thank you. This was, this was a fun conversation. Likewise.

Thanks for listening to this episode of Alt Goes Mainstream. I hope you enjoyed it. You can find more episodes of the podcast at any of your favorite podcast sites. And you can read more about alts at my Substack altgoesmainstream.substack.com and follow me on Twitter @michaelsidgemore and @goesalt. Thanks a lot and have a great day.

We're going mainstream.