Contrarian Cashflow – How To Raise A Fund

Your February Vault Resources – How To Raise OPM (Other People’s Money) 

Here’s how this playbook will work. You’ll receive a video (or two) specifically from experts on the topic at hand aka raising a fund. Then you’ll receive resources from them specifically. Finally, you’ll get my playbook. The 10(ish) most important downloads, tools, resources you will want when you go to execute this idea. If you’re missing something, if you have questions, go to the Facebook group and ask. We’ll answer – and the community itself will too.

Shaan Puri

Who is Shaan? (VC, $3.5M raised on Twitter, 25 startups invested in)

#1 – Hosts a killer podcast MFM which is how I found him, it’s a guilty pleasure (@2M downloads a year).

#2 – 150k+ humans following him on twitter, tens of thousands on his Website Shaan Puri.

#3 Sold a biz for 8 figures to Amazon and now an exec at Twitch.

#4 I jokingly say in the internet cool kids club with the young guns coming up at the intersection of media/tech/vc/ etc.

#5 Brilliant at frameworks, monetization of audience and pivoting.

Here’s our interview with Shaan… Tech was a NIGHTMARE so it’ll only get better from here 🙂

Nathan Lustig

Entrepreneur and investor,  managing partner of Magma Partners, a seed stage investment fund and accelerator based in Santiago, investing mainly in LatAm.

Transcript to Nathan’s Video (What do you all think? Do you like having a transcript?)

How to Write an Investment Memo

Highlights & Takeaways:

  • The 100k Club – Shaan (and a bunch of other investors) made a text group about growing their Twitter following to 100k. They had a goal to do it in 6 months and to amplify each other. The Smart investors know the value of content and leverage. They used both. They share what they’re doing and ask each other to share content or give best practices. Surround yourself with people who are doing complementary things so you can help each other win. I’m starting a 100k club on Twitter w/ 10 others I’ll let you know how it goes.
  • Non-traditional approach – Raised rolling fund on Twitter. Zero roadshows and no pitch deck. Used his audience as leverage because he’s already garnered some trust from Podcast followers on Twitter. This does max you out at 99 accredited investors per the SEC which is why he raised up to $3.5m yearly to invest (rolling fund gives 1x/year to invest).
  • Accreditation rules and SEC – Rule 506c, general solicitation. Someone asked – How us capital raise in compliance with SEC if through Twitter? The answer – new private placement laws through SEC. In an email from Hustle, they raised 100’s of thousands for Commune Capital. It’s. a trend worth reviewing. Shaan says he thinks you can publicly promote a raise, even run paid ads to webinar of portfolio with CTA to invest in your fund. Check with your attorney but I do see a lot of people doing this. In total: he is upending traditional meetings, phone calling etc, in terms of time efficiency, solid gold.
  • What happens after raise? He brought in a young hungry killer team (fund manager and admin, and scout specifically). He did this so he could focus on his strengths… making noise and creating content as the honey pot to attract deals and investors. He incentivized his team through purely carry, no salary or hourly payout. Intrinsic motivation, everyone’s doing it because they’re interested and want experience.
  • How to hire a team for $0? The key was writing a great pitch to find his people on Twitter. “People don’t leave jobs they leave managers, and people don’t join jobs they follow leaders.” So he had to lead them. Job posts are “applications to candidates”, so don’t post on job board…go where they are and speak to them as humans. Twitter is the best network for tech industry, so his strategy, “say something that resonates.” Like this: Tweet #1, Tweet #2.
  • The no-fee approach – Shaan did a 0% management fee. His rationale was, no one likes fees. That’s his hook. While I hate that idea, I think you should be compensated for work, it helped him differentiate from the explosion of rolling funds. His fund here. So ask yourself what is your hook?
  • Your personal brand as leverage – Founders prefer working with investors they like, which works great with Angel Investing. Building a personal brand is important to finding and sourcing deals. CONTENT. His goal is to grow the brand so when he talks about his companies, they’ll make sales and when he talks to new startups, they’ll make room on the cap table for him.
  • Investment thesis tips – His thesis is simply this: speed. He looks for things designed to grow FAST. What does this mean? A new market growing fast, or huge market not yet disrupted (ala. Stripe). Before he invests in tech he asks, “Is this for ‘everybody everyday, or some people some days, or few people few days.” Essentially what’ is the frequency of use case.
  • What does it take to cut it? – The top sets of VC become extraordinarily wealthy… it is a winners game. Power law – top 2 companies make most of the fund return. Top 1-2% of VC make most of industry return. What do you need to be good? Be extremely well networked amongst founders and other investors to get invited into deals.
  • Structure, structure, structure – Creative people should not work M-F 9-5, yet most do it . Instead…be a LION, sit and wait for prey, then hunt. Not a cow, grazing all day. His day is threefold organized: Creating content to build a flywheel with his audience. Founders raise from people they admire. Then he does investing and managing of investments. Each day is focused on his one thing… wherever the highest impact may be.
  • Due diligence process – Investment memos. Beautiful part about early stage is there not much to diligence (founder, market, peer-to-peer diligence). But mostly he just looks at who else is investing and then writes a ‘what if everything goes right’ memo, then a counterpoint memo.
  • Shaan’s tips – If you were starting a fund from scratch, no street cred or following, don’t do it. It’s not the best financial asset in the beginning. Startups are illiquid for 10ish years. Immediate returns are poor for VC as an asset class. DO IT if you’re deeply embedded in the ecosystem and have a strong network, or if you’re actively involved in the immediate trend spotting. Start by syndicating deals. Find them on Angel List, write all memos, convince the best founders to give you an allocation, then reach out cold to people on why they should invest in the company, share in your allocation cut.
  • HACK early on – subscribe to Angel List syndicates as an investor, you don’t need to invest but ou can see all memos they write on deals. Great way to learn for free. Then write your own investment memo, track even if you can’t get money. Nathan Lustig does same thing…and put in DocuSign with timestamp to show what you would’ve done.
  • Niche specific VCs – Could be a good strategy. AI, automation, tech, if you niche down go where you can build your brand in that space. Or aggregate niche funds as a fund of funds, i.e.

The Playbook

Here’s how we visualized this; if I was to go out and start a fund right now what would I want to know? What resources would I need? Thus voila! Your insider playbook:

1 – Fund Economics Model – This model will tell you how much you need to raise, how much you’ll make based off how much money you make and depending on the returns you have. It’s all editable for you to manipulate and change the expectations. So you can see, is the salt worth the shake. 
2 – VC Fund Tech Stack – The devil is in the details in creating a fund family. Here’s a list of my favorite tech stack tools so you can run a fund without losing your mind. I’d also look into Assure to do SPVs’ (special purpose vehicles) if you just want to raise a one-off fund deal. Massively more efficient on the back end than doing it yourself. 
3 – Waterfall Analysis – 1x Liquidation Pref – Great example of a model that shows you what you’d make in the case of a liquidity event, you can manipulate the numbers all you want for your own deals. This is relevant for VC, PE etc not for RE or other funds. 
4 – Editable 1 Page Fundraise Template – You now know how much money you’ll make, what tech you should use, how you’ll do in the event of a liquidation next is tools to fundraise. I’d keep it stupid simple. I like this editable Fundraise template one-pager you can customize for yourself. These all tend to blend together after a while. 
5 – VC Model Editable (below) – This model below is another version of your fund economics model but with a lot more bells and whistles. I like showing two so you can see how VC’s differ. 
6 – Outcomes Analysis – This is great for you to plug your portfolio companies into as you think about portfolio management and what your overall fund return might be aka what are your outcomes. 

7 – Sample VC Pitch Decks – Ahh, the pitchdeck. It’s the bain of analysts existence and the prize of the partners once done. I think they’re largely overrated. More important is your follow-up process in fundraising but here are a dozen or so examples. 

Example of some of the models: Below is a sample model you can play around with created by a VC as well as bunch of our models included above.

What did we miss? 

Tips and Tricks:

You take the lessons learned from above and apply them, paired with any of the following resources and your monthly CC is a mini-MBA in the subject of your choosing. Or, do what I do, delegate out the learning, to my dad, mom, bro, fiancée and we each tackle an issue and make an allocation based on what we learn.

If you have questions on any of this and didn’t get them answered throw them right here in the comments of the newsletter on the subject and I’ll answer them OR join us on the Facebook community just for you Contrarian Cashflowians. 

  • Codie

Your financial and mental freedom starts here.

Contrarian Thinking, the things they never taught us in school about making money and making moves.

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