Avlok Kohli on the State of Play in Venture

Our guest this week is Avlok Kohli, CEO of AngelList. Avlok is a serial entrepreneur who came on to lead AngelList in 2019. The platform's grown massively since then and now has $124 billion in assets spread across 23,000+ syndicates and funds. We talked about AngelList's strategy, why GPs shouldn't get their hopes up for a liquid secondary market, and Avlok's approach to angel investing. Please enjoy. Avlok, thanks for joining.

Thank you for having me. I'm excited.

So I talk to plenty of people in the space who— I'll tell them at Seaplane, we're partnered with AngelList. Um, you know, we sit on top of your platform for our fund. Absolutely love working with you guys. And it always comes up in the first conversation, and I always find interesting reactions to how people have engaged with AngelList because the company is so big and has so many different touchpoints. So I guess from your perspective, sitting across the platform, could you maybe walk listeners through, you know, the scope of AngelList and what you all do today?

Yeah. So maybe the way to answer that question is to provide some context on how AngelList started, what happened over the years, and then what led to the change that you see today. So AngelList actually got its original start as a jump-off point from Venture Hacks. So that's actually a blog that Naval and Naveen, who are the two founders of AngelList, had started. And the idea behind Venture Hacks is literally the name— how do you hack venture, venture capital? And what they started sharing were, you know, almost like insider baseball of how to think about raising venture capital, all of the different terms, to watch out for the good and the bad and the ugly. And this was actually done in a time when the market wasn't as open. And so a lot of these things were opaque. So founders would end up heading into fundraising, do these negotiations with people who are repeat negotiators versus founders always, you know, single-time negotiator. Like they're not negotiating these term sheets all the time. And so, you know, Venture Hacks was a huge service to the industry And in fact, actually, you know, today I was going through Twitter and I saw that Bastian Lehmann, he's one of the founders of Postmates, actually tweeted that he credits a lot of what he knows about venture and startups to Naval and maybe— and, you know, Venture Hacks became the jump-off point for what became AngelList at the time, which was to basically help startups come together and meet angels, because back then, uh, this was like 2010, 2011 era, there weren't that many investors to begin with, right? There was a very small number of angels that were actually writing checks at the pre-seed. It wasn't called pre-seed, it was just called your first round. Um, and that was, uh, you know, a really good way for founders to get started. Uber famously also raised a bit of capital using AngelList, actually met some of the early angels using AngelList. And that sort of started the set of experiments that AngelList ended up down over the years from 2010, 2011 to 2017, 2018. And over the years, expanded from startups coming on to then this concept of syndicates, SPVs. So an investor can raise capital, then raise more capital from others, other LPs to invest a single check into the company. There were some experiments on Talent, which was a recruiting marketplace, and then the team had also bought Product Hunt. And so the idea back then was startups really need help raising money, finding talent, and finding customers, right? And so there was like these three prongs that helped them do that. And then around 2018, 2019, the— there was a realization that kind of run these different experiments under one umbrella is gonna be really hard because the business model is different, you know, how you scale it up. And out is different. And so talent separated, at least structurally, still shared the name. Product was somewhat separated, but, you know, further distant, that's a distance itself. And then there was a core, call it the SPV platform that was built at the time. And I ended up coming in mid-2019 and actually took the SPV platform and I spun it out as its own business. And, you know, we changed quite a bit of the core mechanics of the business and really looked to scale it up and scale it out. And so that's really, I would say, the genesis point for what AngelList is today. It was actually that spin-out with the SPV side. And we really focused on building a financial platform, right? So from SPVs to rolling funds to, you know, traditional venture funds to our capital side of the business to we launched cap tables and RUVs for founders, and we effectively took the whole name AngelList. So we were called AngelList Venture, and then we just became AngelList, and then the talent business rebranded its name. So the way to think about AngelList today is it is a financial platform. We serve 3 customers. We serve GPs, LPs, and founders. For GPs, we have full stock funds. So anything that you need to start, run, scale up your fund, you can come to AngelList. Uh, we serve micro funds all the way up to, uh, ultra large funds, uh, call it like $10, $20 billion funds on the platform. Uh, for LPs, and specifically, uh, what we consider AngelList LPs, these are folks who have come to AngelList directly just to look at investing in other, in other funds. Um, uh, they come to us because we are— we're effectively become an index on all of venture at this point. We also recently expanded private equity, so that's getting, uh, where we're, uh, gaining market share there. And then for founders, they come to us, uh, to help with fundraising, stakeholder management. So that's RUVs, cap tables, uh, we handle everything end to end. So yeah, today you can think of us as being a financial platform, and we cut across those three customers. And our roadmap as we look forward, uh, is basically going deeper and deeper, into that because the overall market of venture or private equity is quite large, and we're, we're going to just be the default infrastructure within this, within this space.

Okay, I think since I got Seaplane rolling, the two other firms that I looked at to handle different solutions that AngelList provides, one of One of them no longer exists and the other has had a pretty nasty PR fiasco not too long ago. How have the past couple of years treated AngelList?

It's actually been really great. You know, for us, we're in a really fortunate position where we've consistently grown, you know, through all the market turmoil. SVB crisis, everything, we've just been growing the business. Um, and we're in a really strong strategic position, uh, to keep, um, you know, consolidating more and more of the market. And, you know, for us, what we stay focused on ultimately is our strategy and our roadmap and what we think will be, uh, important for customers. Um, and, you know, through it all, like, we're going to have competition, of course. In fact, I'd be worried if we had no competition. 'Cause it's not like we're gonna be the only player in the space, but we always wanna make sure that we have a differentiated product. So in theory, we don't have competition, right? So in practice we do, but in theory, like, you wanna actually make sure you have a differentiated product that's just hard for others to catch up to. So for us, we've just grown through the entire turmoil in the past 2 years. And we don't expect that to slow down. I think on our end, we're continuing to just grow and take market share within, you know, this pretty expansive venture and private equity space. And so, yeah, I mean, you know, it's interesting to talk about the competition piece. I think from when I joined, actually, you know, there's been many other competitors that have come and gone that attempt to tackle one slice of the business and grow from there. And the reality is that it is deceivingly a very hard business. It looks simple at the outset, but then it's one of those things where you just peel back the layers and layers and layers, and you realize that to really deliver something that customers really, really need and love, in order to do it, you have to be excellent at multiple things all at once. And it just requires a lot of capital to do so and the right type of talent to do so. And so it actually becomes a very illogical thing to try and compete with us head-on because it is, it is going to be hard. You have— I mean, if you're going to do it, you should try and have a different angle. But going head-on with any company actually in their core competency out the gate is going to be really, really hard. So yeah, for us Like I mentioned, we are continuing to now just look at larger and larger funds, consolidate the entire market. Already did an asset class expansion last year. And yeah, pretty excited about the future.

How do you find a balance between— where do you find a balance between building out the platform and that strategy, but not overreaching or overextending?

Uh, I, I'm probably the wrong person to answer that. Um, my, my natural, um, lean is to, um, consolidate and build multiple things in one place. Uh, and so that has actually been our strategy. What we're doing is, um, even as we're moving to these larger funds, our pitch is, hey, you can manage every aspect of your fund using AngelList software. From your data room to your investor portal to the accounting ledger even, right? To managing your portfolio, like we'll build it all. And the core insight there is when you have all of these pieces of software connected to the same data layer, you can do a lot of interesting things. The biggest issue today is funds adopt these, you know, different pieces of software that just don't talk to each other, don't connect to each other. And it causes all sorts of issues. But when you're building a system that has everything in one place, it's a magical experience. And we know this because that's actually where our core business lives today. Everything is in one place, right? We've vertically integrated everything needed to start, run, scale a fund. And so for us, we— that's our core insight. And yeah, so directly answer your question, the balancing You know, some people would say we don't, some people say we do. Um, the way I would answer that question is we do, we are building multiple products. Ultimately, it ties to a root vision of what we're going after and our product promise. And as long as it ties to that, we're going to keep going down that path. And I think we're in the era of, um, uh, you know, what Parker at Rippling calls compound startups. Which is when you're connecting, when you're building these pieces of software and you're connecting to an underlying data layer that is shared, you can build really interesting products and you can really solve problems. Because if you have multiple pieces of software that don't connect, you're now just adding more work on the customer to go and reconcile the data. And so the question you have to ask yourself, and the question that we ask ourselves, is how much time is spent reconciling data in, in, uh, in the private market space? And it is a lot, right? There are humans They're just sitting there reconciling data all day long from one system to the next because nothing ever connects. And that's one of our core insights for why we are building all these products in one place.

I'm curious to hear more about the private equity side. I don't know that a lot of people outside of FinTwit would be aware that there's a subculture of people out there running search funds or, you know, tiny holdcos and whatnot. And it feels like that didn't really exist until fairly recently in the grand scheme of financial markets. And, you know, who is, who's the customer you're serving there and how do you view that market growing over time?

Yeah, it is a, you know, for us, we're serving the broader private equity market. We, we think there's a lot of similarity to venture in terms of the types of assets that are owned and the type of assets that you need to manage. We don't have a specific focus on the exact type of PE fund. We've actually gone quite broad. So we have all the way, you know, we have all the way up to like buyout funds that are part of our mix to even folks who actually have a call like 5-10% VC arm, 90%, 95%, like pure PE. So we kind of have a broad mix of folks that are currently our customers. Now, in terms of the more nuanced strategies and the funds that you're referring to, it is interesting. I don't know what has caused it to happen in the last few years. There's definitely been more and more exploration in terms of the different types of strategies that have come out. And I can't quite pinpoint exactly what's driving that. I suspect there will be more of it. We're seeing a lot of this in venture. Venture is also institutionalizing quite a bit. And even if you compare, you know, the number of venture funds today relative to 10 years ago, it's ballooned quite a bit in terms of unique counts. It's grown quite a bit as an asset class. And it could be, you know, one reason could just be the cost of serving has gone down. So when the cost of serving goes down, you end up bringing more people in. I know this happened in venture because AngelList was a big part of this. You know, it used to cost quite a bit to start and run a venture fund. You would need to raise a minimum of $50 million, um, and to raise $50 million, you need to find an anchor LP. And in order to find an anchor LP, you typically have to work at a venture firm and go from there. Um, AngelList actually allowed you to build literally a half a million dollar fund or a million dollar fund and get going. Uh, now all of a sudden, to raise a half million dollar fund, a million dollar fund, uh, and to build a track record was super simple. And we actually have quite a few folks who did that and have gone on to raise larger and larger funds because they got their start, original start, on AngelList starting off with a smaller fund. So I suspect that's probably one big reason is you also have the cost of, you know, creation. The total size of the fund that you need in the beginning has gone down as well.

One area of venture that feels ripe for some disruption, or at least improvement, is secondaries. So improving secondary market liquidity, you know, a win for GPs, I'd say a win for founders, a win for LPs. Like, it feels like everybody would be rooting for this. And there, there have been people working on this for a while. It's not a new idea, but I wouldn't say anyone has kicked the door down.

Yeah.

AngelList feels like it would be in a pretty unique position to help solve for that. Curious how you think about that market.

Yeah. When it comes to secondaries, I think the root of the problem is that the incentives aren't aligned across the board. So when someone is trying to do a secondary, and okay, let's actually talk about what is an always-on secondary. Public markets are just an always-on secondary market. That's literally what it is. So at any moment in time, anyone can sell or buy shares. And so you effectively have a pretty, you know, pretty accurate read in terms of the demand and supply for a company. The reason that works is because companies have shared all the information. On a quarterly basis. And so people can use that information to underwrite, uh, whether they want to buy or sell. Now, of course, it obviously doesn't always work that way. The markets can be manic, and you can have like an aggressive selling moment, aggressive buying moment, all of that. But generally, you have a lot more information to work with in the public markets. So when you translate that to the private markets, um, the root issue there is the incentives aren't all aligned. The company has not agreed to share any of the information, uh, the financial information for many reasons. It could be that they're not ready to share it, meaning the company is not healthy. It could be competitive reasons. It could just be sometimes you need more time to bake in the oven before you open things up and you actually have a lot of people that are going to look to buy and sell. And so the contract that the companies have with the shareholders, whether the investors, founders, or the employees, is that, hey, this will be an illiquid thing. Until some time in the future, unknown time in the future, but hey, let's go build a great business that scales. And then, you know, liquidity ends up being a sort of like output, right? It ends up happening. When you try to solve the secondary problem with the company incentives not aligned, and specifically, it can be the founder, it can be the board, and you're trying to build a market around it, you're doing it without the company's permission. And even if the company believes in secondaries and thinks it's a good thing, net-net, there are a bunch of nuances there that make it hard in practice. You know, I'd say one, there's an issue around the pricing. So if you're, you know, pricing a if there's a pricing in the secondary market and you then have to keep track of it, it may actually change your 409A price as a company. That has to get input in there. And again, of course, it depends on the depth of the transactions. And so that is just one unknown because you just don't know what's happening and it's actually happening outside of your control. Excuse me, outside of your control. The second one is one of, you know, requests that come into the company of like, hey, how's the company doing? What are the financials? That's kind of an odd thing to get when the company is just trying to build and scale, right? You don't want to get pulled into someone else's transaction. I'd say the third one has to do with, you know, the parties on the cap table, right? It's companies typically curate their cap table very carefully, because you want to have people that are mission-aligned, long-term aligned to the business. And so allowing, you know, having these secondaries happen without your control or visibility could end up being a risk for the type of folks that you bring on a cap table. And so I can actually, I can rhyme off many other incentives, but the thing I just want to say—

I'm sorry, you've already killed my dream here.

Yeah, yeah. The reason I just share that is I think the root of the problem is one of, is the company bought in or not? And that problem, when you unpack it, is really, is the company ready or not? And if the company is ready, they'll just go public, right? The public markets actually just have a lot more demand out there. And so I think that's, you know, where I'm at today. Again, I'll reserve the right to change my opinion on this. Well, that's basically where I've landed with this is that the incentives aren't aligned. And when the incentives aren't aligned, it's really hard to build anything of meaningful scale. So look, I think we're going to continue to see different types of secondaries happen, but they're going to be these one-off, more human-managed secondaries. I think in terms of having an always-on liquid market for or private companies. I'm not seeing a path to that because of the incentive, the root incentive misalignment there.

Fair enough. I'll keep dreaming, but fair enough.

Yeah. I've spent quite a bit of time thinking about this exact topic, so.

AngelList has a pretty unique perspective as far as data with the market, and I'm a pretty avid reader of the research that you all put out. From what I'm seeing other sources, it looks like the steep drop that venture has been going through might be— I wouldn't say reversing, but the dropping might be stopping. And it seems like we might be going a little more sideways than down. Curious your perspective on that and, you know, your read of, of the market today.

Um, and so specifically, are you talking about the round activity for startups, as in what amount of capital is being invested in startups?

Sure, however you'd like to frame it, whatever you think the best way is to measure the market.

Yeah, so I think maybe the best way to think about this is there's really two types of activity you can measure in venture. One is LP dollars into funds, and the second is fund dollars into startups. And I would say LP dollars into funds is recovering. But I would say that the number of funds that are getting started, the number of subsequent funds is going to go down, right? We don't think that it will go back to the 2021 peak in terms of having like that large number of, you know, that many funds that are going to get going and that many dollars are going to flow in. And again, we don't necessarily think that's a bad thing. We actually think that's a pretty healthy thing. There's, you know, there's only so much capacity in venture to get absorbed. Especially at the earliest stages, like, you know, pre-Seed, Seed company, they don't need that much capital in order to get going. Now, in terms of fund dollars going into startups, so this one's interesting. This one's kind of a tale of two types of companies. You have your AI companies, your non-AI companies. I would say AI companies are— we're in a boom cycle for them. So a lot of dollars are going into them. The non-AI companies, there definitely is a bit more of a, call it like a winter. Um, and specifically in the Series A, Series B, there's a little bit more of a caution, uh, for non-AI companies. Uh, so I'd say like overall dollars have gone down. Also, this overall number of count of funding, or the total count of funding, has also gone down. Um, but it's not a slide down anymore. We're sort of seeing things like, you know, they've bottomed out And so our view is actually that the private markets will lag the public markets. So public markets have recovered, private markets will start recovering as well, but there's always a lag. It's like a 12 to 18 month lag as, you know, LP dollars open up, fundraisers happen, you know, funds fundraise, and then the dollars make its way into startups. So we're watching for that. But as of right now, I'd say venture is still, you know, we track a measure internally boom times, you know, bear times, and like venture is still very much in the bear times. And what we look at there is, is also isn't just like the funding going in, we also take a look at the terms that the company is raising on, you know, how many positive markups or like flat rounds or pay-to-plays. And so we take all that into account. And we're definitely in the bear times right now. Like there's definitely quite a bit of correction happening across the, across the entire industry.

Are you still making angel investments yourself, or are you a little—

am I tied up?

Yeah, the day job.

Uh, no, I am making angel investments. Yeah.

Um, uh, what are the type of situations you look for, at the risk of inundating you with cold emails from, from founders?

Um, yeah, for, for me, um I would say the big thing that I'm looking for now, uh, and some of this has changed over the years, uh, but now I'm really looking for the, the big technological, like, leap, or the big, um, uh, you know, the, the big, I would say, um, unlock that hasn't happened before. Um, so what is the new technology that you're building that isn't possible that you were able to build because of some creative, you know, some creative thought or some cleverness that others haven't been able to replicate. And the thing that I started thinking about from there is great, how can this thing compound over time? Because one of the, you know, one of the things I've learned is as you continue to scale a business, moats matter, large markets matter.. And so you have to have some sort of a belief. And I'm not saying the founder needs to have that belief today. But at least me as an investor, I have to be able to see, great, how can these things— how can things compound over time, what adjacent markets could open up, that can help you go build a very, very large business. So that's like one big piece. And so related to that, actually, the other piece I think about now, and again, my investing has evolved over the years, that I look at now are just large markets, like, you know, I've spent some time in broken markets personally, as a founder, and as an investor. And, uh, you know, there's this famous, um, uh, statement around— what is it? Um, great founders, bad markets, market wins. Um, uh, you know, bad founders, great market, uh, founders may win because sometimes the market's so great it'll just pull you into it and, uh, and there'll just be multiple winners in that space. And so I think quite deeply now about markets as well, in terms of how markets can develop, um, or is the product that the founder has built, can it actually create a whole new market? Uh, so again, a lot of my time now is spent on the uniqueness, I would say uniqueness and scale of the overall market, um, and, um, you know, less so on some of the other factors that I used to look at.

What advice would you have for founders who might be listening who are thinking about trying to build their own platform?

Um, oh, think about building their own platform. Um, yeah, I, you, I, I would say you need to start with a single product, a core product first that's going to, that, that's really going to pull, uh, customers in. And then from there, you think about what the other products can be. And the reason is you always need to have some core product that's gonna pull people in. You need momentum, right? Startups are all about momentum, and you have to have that first product that's gonna pull people in, use that as momentum, and then you can use that as a launchpad to launch all of these other products that you're looking to build. So that'd be my first thing is don't over-engineer it. Don't try and build an entire platform from day one, you really do need customers. You need, you need, uh, the momentum, uh, to then go execute on, you know, product number 2, product number 3, product number 4, um, however many you think you want to build over time. You know, Rippling is, is a good example, actually a recent case study of— they are building, you know, compound startup, but originally they started with a single product as well, uh, as a way to, if I remember correctly, It was for HR professionals to manage the onboarding. I could be getting that wrong, but it was like a single product that solved a really gnarly problem. And so you really want to start there, just like AngelList got its start. I would say it's a start for the platform we see today as, you know, the SPV business. So creating the ability for people to invest capital into an SPV and then raise more capital from other LPs. That was the product that pulled a lot of people in, right? And then from there, many years later, we did rolling funds, you know, venture funds. Now we're kind of doing a whole software suite, uh, from like treasury system to investor portal. So like, we still had that core to start off with and to expand from.

Well, I think probably wrap things up with going into a time machine and ask you maybe a little bit of a story and then a little bit of a question. So Go back March 2024 or 2023. I'm a few months into raising my first fund, yet to cut a check, but I've got a decent bit of capital from LPs in there. As you may have heard, SVB started running into some problems. And the day after the raise, I get in touch with AngelList and diplomatically say, I would really like to get our LPs' capital out of SVB. You guys were able to take care of that straight away. And I got it. I have to say, my LPs were very pleased to hear over the weekend that their money was not trapped indefinitely. So first, I just want to say thanks for that. But second, and you know, it's easy to look back in hindsight and I think people can gloss over that. But at the time, as, as a customer, that was, that was tremendous. But I'm curious what Obviously you have your treasury product now, but I'm curious to hear more about that product and kind of the history of how you guys came to build that out.

Yeah. So I'll start by saying AngelList in its current form exists because of SVB. SVB actually took a huge bet on AngelList early on by giving us integrated banking for our customer funds.. And it was a big risk early on. This is before my time, but I actually, I understand some of the facts behind what had happened. And even I'm like, that was actually really important. It was a very important juncture for AngelList. And so we had been primarily on SVB for our banking infrastructure for many, many years. And in the, you know, in the middle of 2022, we made a decision to expand our banking partnerships and to take on a big build-out for expanding multiple banking partnerships because going from a single bank architecture to a multi-bank architecture was just a complete change in terms of like how we operated and what needed to happen. So not only was there a big tech buildout, there was also a big partnership buildout, a lot of negotiations, lot, lot, lot of corralling. Um, and so it actually took us multiple quarters to go do that. And, uh, we started the migration away from a single bank to multiple banks at the beginning of 2023. Um, and a lot of this was also just being proactive around risk management, um, and To be clear, we didn't think a top 20 bank would ever go under, but it was just prudent risk management of remove single points of failure, even though SVB was the gold standard and they were top 20 bank and all of that. And so, yeah, we started the migration away. And when the SVB crisis hit, for us, it was about Great, let's accelerate the migration. And so we'd already notified them we were doing an orderly transition, but on March, in March when it started happening for us, we just accelerated the whole thing. And so we had a plan which was like break the glass plan. Like if we need to accelerate really fast, we, you know, we execute on it and that's what we ended up doing. But it was still stressful. It was a very, very stressful moment. Where we needed to make sure that every dollar was accounted for, everything was FDIC insured, and then everything was moving across multiple banks, all the remaining capital, and all at the same time communicate with LPs and all at the same time, right, communicate with SVB and just manage all of the risk. And this is all within a short, like, 12-hour period. And so, you know, very proud of the AngelList team and the way everyone came together. To just manage it, manage the whole thing from comms right down to execution of the capital, right down to, you know, security of the capital and insurance of all FDIC insurance of all the capital. So yeah, that's sort of the broader context of, of the move. And yeah, we, you know, if we hadn't actually done that early prudent risk management of a multi-bank architecture, it would be a very different story. We'd probably still be tied to SVB. And of course, everything in hindsight worked out. All the capital was secure, but it would have made that moment in time very difficult for us because it was basically overnight SVB went from the gold standard to like bottom of the barrel. So, you know, it was a good, you know, it was a good proactive— it was just a good proactive learning of like, yeah, it's never, it's never too early to just think about risk mitigation. Think about single points of failure, no matter how gold standard something is or someone is or some company is, just never put all of your eggs in one basket. Um, you really need to make sure that you've got a resilient infrastructure architecture for any possible event. And so I can definitely tell you, you know, going forward, I am very in tune with this. No matter how low probability, anything, anything that has like risk of ruin is like very much top of mind though. Yep. Like diversify, redundancy, all of it. And I think that's, that should be the case for any company that reaches scale is you should always be thinking about risk management and especially fintech. It's such a core part of what you do. You have people's financial assets, right? And so you need to have that be part of your culture as you scale.

Great. Well, it's a great way to wrap it up. Avlok, thanks so much for coming on and talking.

Yeah, likewise. This was wonderful. Thank you.

Cheers. Hi, Joe again. Thanks for watching the show. If you'd like more of this in the future, subscribe to our channel. If you'd like to learn more about Seaplane Ventures, just check out seaplaneventures.com.

Cheers.