Dec 21, 2020 · 36m · 20vc
20VC: Why the Theory of Pro-Rata is Often False, How Rolling Funds Impact Both Pricing and Competition & The Biggest Lessons from Working with Jack Dorsey with Avlok Kohli, CEO @ AngelList Venture
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of 20VC, host Harry Stebbings interviews Avlok Kohli, CEO of AngelList Venture, to discuss the mechanics of rolling funds, shifts in early-stage venture capital dynamics, and key operational and leadership lessons learned from working alongside Jack Dorsey at Square.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 30.3% of the talking time here. How this is scored →
Harry as informed peer 3.2 Guest teaching 3.2 Guest disagreement 0.8 Harry pushing back 1.8
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 19:29 Avlok rejects Harry's framing on undisciplined pricing
Avlok directly counters Harry's suggestion that rolling funds drive undisciplined valuations by explaining that software market expansion and global founder supply justify higher valuations.
Hardest push from Harry ▶ 22:33 Harry challenges the uniqueness of rolling fund commitmentsHarry directly refuses the framing that quarterly rolling commitments are novel, bluntly stating they sound like traditional capital calls and demanding Avlok prove him wrong.
Biggest teaching moment ▶ 14:45 Avlok dismantles the theoretical pro-rata modelAvlok educates Harry on why traditional spreadsheet models for reserves and pro-rata fail in practice due to leverage dynamics in hot follow-on rounds.
Harry holds his own ▶ 15:50 Harry firmly asserts his first-check ownership VC thesisHarry uses his experience as a VC to challenge spray-and-pray strategies, asserting a strong conviction that fund managers must target strict ownership on the first check.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Avlok Kohli's Journey from Engineering to AngelList CEO | 1 | 1 | 0 | 0 | Harry invites Avlok to share his career journey from engineering to becoming AngelList CEO. Avlok delivers a friendly monologue on his past startups, acquisition at Square, and transition to AngelList via Naval Ravikant. | |
| Core Learnings on Customer Centricity from Square and Fastbyte | 2 | 2 | 0 | 0 | Harry references a prep conversation with Gokul Rajaram and asks practical follow-up questions about maintaining customer focus. Avlok breaks down internal management frameworks like product memos and dogfooding. | |
| Leadership Lessons from Jack Dorsey and Disagree-and-Commit | 3 | 2 | 0 | 0 | Harry asks a nuanced question about conviction-led leadership versus open team consensus. Avlok reflects on Jack Dorsey's leadership principles during his dual Twitter/Square tenure. | |
| Rolling Funds as the Printing Presses of Innovation | 2 | 3 | 0 | 0 | Harry quotes Avlok's statement comparing rolling funds to printing presses. Avlok articulates an insightful analogy explaining how rolling funds democratize venture capital distribution. | |
| Portfolio Construction, Reserves, and the Pro-Rata Myth | 4 | 5 | 2 | 3 | Harry asks a provocative question questioning whether new rolling fund managers lack basic portfolio construction and reserve logic. Avlok dismantles the classic VC pro-rata theory, explaining why spreadsheet models fail in competitive rounds. | |
| First-Check Ownership Strategy vs. Access and Retrospective Bias | 5 | 5 | 2 | 4 | Harry strongly pushes his own VC thesis regarding target ownership on first check versus spray-and-pray strategies. Avlok counters by highlighting investor retrospective bias and the unpredictability of early-stage outcomes. | |
| Impact of Capital Expansion on Startup Valuations | 5 | 4 | 3 | 6 | Harry explicitly challenges Avlok on whether the influx of rolling fund capital creates undisciplined round pricing and market compression. Avlok rejects the premise, pointing to massive market expansion and global founder supply. | |
| Structural Advantages of Rolling Funds for LPs and GPs | 4 | 6 | 2 | 5 | Harry skeptically compares rolling fund quarterly commitments to traditional fund capital calls, asking Avlok to prove him wrong. Avlok provides a masterclass on LP commitment flexibility and 506c general solicitation advantages. | |
| Institutional Capital Adoption in Rolling Funds | 3 | 3 | 0 | 1 | Harry asks detailed questions about institutional capital adoption and distribution mechanics for LPs. Avlok clearly explains individual LP fund accounting and institutional adoption curves. | |
| Scalability Limits and Billion-Dollar Rolling Funds | 4 | 3 | 0 | 1 | Harry inquires about fund sizing limits for rolling funds and AngelList's long-term strategy, concurring with Avlok's full-stack vertical integration approach. | |
| Quickfire Round with Avlok Kohli | 2 | 1 | 0 | 0 | Harry conducts a standard quickfire round covering personal books, leadership trade-offs, and recent investments in a rapid, supportive format. |
Statements from this episode (23)
AngelList Venture facilitated funding for 5,000 startups and manages $2.2B AUM
“They have facilitated the funding of over 5000 startups, including 47 unicorns, and they're the home to 4300 funds and syndicates, with over 2.2 Billion dollars in assets under management.”
Teams dogfooding their own product do not need extensive customer interviews
“Now, the best thing, though, is to actually have your team be customers of your own product. Because when your team are customers of their own product, guess what? They don't need to talk to multiple people to figure out what people want. They can just go thro…”
Leaders must sometimes act as islands and demand disagree-and-commit
“There will be many moments in a company where you're, as a leader, you will be an island, and you will need to make a decision that you think is best, and you will expect your team to disagree and commit.”
Cash App hedged Square when over half its revenue was exposed
“Half of their entire business, actually arguably more, was directly linked to small businesses being affected, but then the way Hashapp came about and became such a great hedge on the rest of the business, it's just been fascinating to watch.”
Employees accept executive decisions they oppose if they feel heard
“What people really want to feel is that they've been heard, that their opinion and perspectives were considered, and that with all of that, the right decision is made. It doesn't need to be. The right decision is a decision they agree with. It's just their opi…”
Rolling funds operate as high-resolution fundraising tools that democratize venture capital
“Rolling funds enable capital to flow to more VCs who fund the tech innovation. And before rolling funds, managers would have to raise capital through closed networks. Now, all you need is a tweet and a fund, and the network just comes to you. And really, rolli…”
AngelList data shows more check-writers leads to more founders and innovation
“Is that when you have more VCs in the ecosystem, you actually do get more innovation, which I know is against what most VCs think, but we're actually seeing it play out in our data that when you have more people writing checks, you actually end up getting more…”
Some established VCs intentionally forego fund reserves to use SPVs instead
“We have some fund managers, some established fund managers, actually, who don't have reserve strategy on purpose. They actually, exactly, they want to focus on just the first checks, and then for pro rata, they can go ahead and have a opportunity fund, or they…”
Early-stage VCs cannot rely on executing pro-rata rights in breakout companies
“In reality, when you really are trying to invest your pro rata into the companies that are becoming really great, the assumption that it is going to be available for you is false.”
Avlok Kohli uses a dual ownership target strategy for personal angel investing
“I actually have that dual strategy myself. I have a certain portion of my portfolio where I'll actually look for a certain Number of percentage of ownership. And then I have another part of my portfolio where I'm okay participating in a round and just being a …”
Software market expansion to $10B outcomes justifies higher early-stage entry valuations
“Software markets are much larger than anyone thought. The billion dollar companies are now ten billion dollar companies. And so what that means is the entry valuations can actually be much higher than before.”
The tech ecosystem is entering the early innings of a startup explosion
“And I believe we're in the early innings of a much larger Cambrian explosion of startups.”
Rolling funds and solo capitalists will squeeze traditional seed firms upwards
“Anyone that used to play at seed, but really is a series A firm is going to get squeezed upwards because what's happening now, rolling funds is actually taking the entire early stage market and solo capitalists is taking the entire early stage market with pre-…”
Traditional venture funds give late-entering LPs an unfair information advantage
“I'm actually an LP in many traditional funds where they've made a bunch of investments. And they're still raising. Portfolio's been marked up, and I'm like, hey, what's going on? Like, the new LPs actually have an information advantage, and they're able to inv…”
Venture funds would naturally be rolling funds in a software-first era
“Is rolling funds are what a venture fund would have just looked like in an age of software.”
Active institutional venture investors are already committing capital to rolling funds
“So the ones that actively invest in venture, we already see them committing to rolling funds, and that's already happening.”
Participating in venture rounds is positive-sum, but leading is zero-sum
“When you participate, you're playing a positive sum game. When you lead, you're playing a zero sum game.”
AngelList expects to host a billion-dollar rolling fund very soon
“And we're actually seeing some rolling funds scale extremely quickly. And we do expect us to have the Equivalent of a billion dollar fund very, very soon under a rolling fund structure.”
AngelList aims to become the largest financial platform in venture capital
“The way to think about AngelList is we're going to be the largest financial platform in venture.”
AngelList will expand its financial platform to directly serve startups
“Our stack includes the LPs, the fund managers, and all the services needed, and tomorrow we're actually going to add startups to that as well.”
The next cohort of top founders will raise entirely from rolling funds
“That the next cohort of great founders are raising their entire pre-seed and seed round from rolling funds.”