The case for party rounds
We recently announced AbstractOps, releasing our product for general availability and teased a bit about our fundraising strategy.
We’re excited to announce a round. Not our "Series A round". It's just "a round". Because who can keep track of what these labels mean anymore ¯\(ツ)/¯. We’ve raised $7,654,321 (yes, we’re just that weird) from [...] VC Investors, Solo Capitalists / Super Angels, Founders / CXOs at 20+ unicorns, and another 300+ startup operators and angels.
If you’ve ever raised an early stage round, you’re probably thinking we’re insane. But there was a method to the madness! If you’re an early stage founder who wants to consider all possible ways to build a rich your cap table, read on.
The Advent of Party Rounds
When should you consider party round from operator-angels? 🤔 Among other reasons, you might want to consider this strategy it if you: are selling to startups, are well-networked in founder / investing community, have high-signal VCs to set the valuation and kick off the round, and ideally need only modest amounts of capital to build or scale.
Historically, a “party round” was a derogatory term. It meant you couldn’t close your desired fundraising target from VCs and you had to invite everyone to participate (hence “party”).
That’s antiquated. It’s now cool to do a party round... if you’re doing it for the right way and for the right reasons. We weren’t the first to come up with this (though we did notch a couple of firsts).
Two trailblazers in this space were Mercury, which had one of the best-orchestrated angel participation in a round we’ve seen (between their Seed and Series A, 100+ angels, including CEOs / Execs of Square, AngelList, Airtable, Gusto, Atrium, Adobe, Flexport, Lyft, Eventbrite...) and Front (raised $59M mainly from enterprise CEOs / Execs at Atlassian, Zoom, Okta, etc.).
Trailblazers always have it hardest, though. In the two years since, there have been tools developed over the last few years — most of them by AngelList — which has made this dramatically easier:
- an explosion of founder- and operator-led funds (Rolling Funds, Syndicates) who can participate;
- founders can now raise from dozens of people in a low-overhead way (Roll-up Vehicles), including from public sources (public solicitation RUVs), and in small check sizes (crowdfunding from Republic, WeFunder, etc.)
How We Did It
So with those tools now at our disposal, we took this to the next level. It’s hard to know for sure, but we’re probably the first startup to raise an early stage round from 350+ investors. Just like it was for Mercury and Front, it was a very conscious and deliberate strategy for us:
- We’re selling to startups. Who better to understand that pain point and support us, than former founders and operators (many of whom also angel invest)? Our investors are also our evangelists, and a key channel to reach customers. They're the Silicon Valley equivalent of celebrity influencers!
- We’re fairly well-networked — our founders have run YC companies, been deeply involved in On Deck and South Park Commons, made dozens of angel investments, co-invested with dozens of other angels and VCs...
- We had strong leads / early investors (Craft, Naval Ravikant, 8VC, Hustle Fund) for social proof, allowing us to gather a large number of angels quickly.
- We were super capital efficient. We still had 70% of our capital raised going into our third round, and we didn’t want to sign up for another 20%+ in dilution with a typical VC round.
We wanted to invite hundreds of members of the ecosystem onto our cap table. We're a team of operators, and we've also invested in 100+ early stage companies. We know how hard we hustle for our portfolio companies. The most important metric for startup founders shouldn’t be dollars invested; it should be the ratio of help provided : dollars invested. They’ve helped us with intros to candidates, product feedback, GTM strategy, and so on.
It didn’t happen all at once. We invited a few operators to participate (~20-25%) in our first couple of rounds. But over time, we decided to double down.
😇 The 70% ratio flipped in our third round; it wasn’t a VC round with “room for strategic angels,” but an operator angel round with “room for strategic VCs.”
Running a Operator-Centric round with AngelList
Note: AbstractOps and AngelList have a friendly relationship: we sometimes partner on initiatives, our executives are stockholders in each other (Naval, Avlok, Nivi, etc. are investors in AbstractOps; Hari is an advisor to AngelList). This is simply a tacit acknowledgement and hat-tip, that AngelList’s work and products have been key to AbstractOps’ fundraising and building.
💡 Here are some tips to leverage AngelList for an operator-angel raise
- Ideally, have a well-known VC set the terms: valuation, mechanism (SAFE vs. priced round), etc. Reserve anywhere from $100K to $2M+ for angels and operators. It’s surprising how big a component they can make up!
- Early on, set up one (or more!) RUVs; typically, one for early commits, with the optionality to open an additional tranche at a higher valuation, if there’s excess demand. Just send the RUV link for anyone under a certain limit ($10-50K — we used $25K as the cutoff)
- Find groups of angels online (Mercury’s database, NFX Signal, or even our About Us page 😉 are starting points)
- Many angels move in groups. Once you get an angel committed, ask them for intros to friends they typically coinvest with!
- Reach out to Rolling Funds and Investment Funds hosted on AngelList (here is a public list of such funds)
- Reach out to syndicate leads (no more than 2-3! you don’t want to “shop it around” too much) who are aligned with your industry and thesis. If you or a friend is an accredited investor, you can find a list of syndicates to reach out to, on your AL Investor Dashboard.
- Invite your customers (and prospective customers) if they’re accredited... there is no constituency that is more valuable.
AngelList has been around for 10+ years, but this emergence of more “super angels” and "solo-capitalists" has supercharged their value proposition: venture funds, rolling funds, and syndicates. “Angels” are now a powerful constituency in the early stage ecosystem. Since they’re mostly former operators and founders, they’re not just bringing the economic firepower, but the supportive firepower too... becoming a desirable target investor for an early stage cap table.
Roll-up Vehicles are a key bonus way to achieve this — we "accidentally" used a roll-up vehicle (before it was called that) to pool together 60 angels in a syndicate vehicle back in Q3 2020. We consciously did it again in our third round. We also did the first “public solicitation RUV” that we’re aware of... where we invited the public to apply to participate in our round.
❗ Note: you have to turn on a certain setting to do this in a compliant fashion, don’t just tweet it out! Ping your contact at AngelList about a 506(c) fundraise if you’re curious.
In total, our two RUVs assembled >$1.1M across ~150 investors.
In addition, we raised from three syndicate leads — the Hustle Fund Angel Squad, Sam Parr’s Syndicate, and Chris Golda’s syndicate — bringing on dozens of additional founders, startup operators, and other angels who believed in our mission: to make entrepreneurship accessible to anyone.
Finally, there were a number of rolling funds and investment funds operated by AngelList that were key participants and strong signals of support: Naval Ravikant, Austen Allred, Cindy Bi, Packy McCormick, Avlok Kohli, Allison Pickens, Alex MacCaw / Amit Vasudev, Austin Rief, Ankur Nagpal, and others.
📈 ~70% of the capital in our third round was raised via AngelList vehicles. Notwithstanding public market rockiness in the last few months, this remains an exceptional time to raise capital for early stage companies. The dynamics above augment that, opening up an entirely new avenue for how to fundraise. Raise from your evangelists, your customers, your true believers. Invite them all to your party.