AngelList CEO Avlok Kohli on the Transforming the Company — and Venture Itself

27:26Then another one that only does investor relations. And our view has always been like we should be able to do all of it. And that's really the ideal product. That's what GPs really, really want. And in fact, by not doing it, you're actually keeping a lot of GPs out. People who could be great investors are not getting in because like, you know what? This is too much overhead, too much back office overhead. Totally. Nothing gets these firms. Great firms. But you walk into a Sequoia, you walk into an Andreset, you walk into any venture firm that in recent years has been managing large amounts of capital across multiple sectors and stages.

28:03There's 40, 50, maybe 100 people working there in the back office, managing all this. The GPs didn't get into the business to do that. Exactly. And actually, we're managing like very privately. I can't share the names specifically. But I can share the tier of the firm. We're managing one of the top 10 VC firms. We're managing entire scout infrastructure like all of it end to end the entire thing, all right. And it is actually a result of us building this platform that can handle more and more complex funds and volume as well. And so we're handling it into an every single aspect including compliance, portfolio management, scout management, literally everything.

28:55And by the way, it's all run through software, all through software. You did that to preview your customer conversations over the next few years. But that's like a gateway drug too, right? Like, oh, band into my scout program. Five years from now, we've been managing the whole firm. Exactly. This is just a sort of a classic move up market. Continue to take more and more of it. Yeah. So I'll like, I want to keep digging at this LPA to code thing. So you could imagine it's pretty easy to translate some parameters of an LPA to code. For example, oh, I don't want 2%, I want 2 .5 % or I want 2 .5 % of the beginning and 1 .5 % of the end.

29:33And I want each year to incrementally change between those two things. But let's say I get like really clever in my LPA. And I say something like, well, I want, of course, an escalating amount of carry depending on how much capital has been returned so far. And also I want a non -standard window where let's say I distribute shares of a company after it's gone public. I don't want a five day look back at the average price of the S &P 500 in terms of what I get my credit for. I want a 20 day look back. And my LPA is agreed to it and it's signed a signed document. Like, how does wonky stuff get translated to code?

30:10In a few ways, first is having an infrastructure that is flexible enough where you can actually stack and add these different types of terms so that it isn't fixated on, okay, you can only do this particular term on like look back. You can only do this one look back. You can actually have the infrastructure itself be flexible. Second, there's an aspect of reading the legal documents then translate into a mathematical representation of what the clause means, right? Legal agreements are basically code in English. That's what it is, right? If the agreements were in English. And the job to be done is how do you translate that English, that clause into some formula that bank can get represented and software.

30:56As long as the infrastructure supports that, now the job to be done is how do you translate that LPA and the clauses of the LPA? This is where as we're making big advancements in AI and large language models, what is a large language model? It is using English, a language, natural language as a program language, to query other natural language like other unstructured data. So you can effectively ask unstructured data to structure itself and that's where you get back. And so we have a lot of innovation inside the company that's focused just on that around. We have a huge repository of LPAs, obviously, because we're supporting so many of them.

31:36And we've already, through humans, have taken the LPAs and represented in code today. And so we have this repository that we can then feed in such that going forward. We can actually have the LLM's prompting as a way to pull the necessary information out and representing code. And that by the way, that's just one small aspect of what it means to build software for a venture fund. There are many other aspects as well around managing it for the full lifecycle as I shared earlier. Oh my god, I just think it texts K1 and slid everything. Oh my god. What a nightmare. And I don't think this has been shared publicly before.

32:16There are a hundred workflows that we execute on on behalf of all the funds and SPVs. These are 100 workflows that are operational workflows that could be anything from updating portfolio evaluations, preparing K1s, responding to investor questions about K1s, right? 100 of them. That's 100 that all need to be done precisely and perfectly for 10 years. Of course, it's like a rolling 10 years every time you take a new fund, 10 year obligation. What's actually been happening internally is bit by bit. We're actually turning the non -engineers in the company into engineers using LLMs. And we have an in house tool that is effectively the operational nerve center that we've actually hooked up to GPT.

33:12It's like a flow tool, like a flow charting tool. You can pipe different parts of the workflow. And then you hook it up to GPT for different parts. So you can say for this set of emails that come in automatically categorize all the emails. Great. This one's a follow -on around for Series A. This one's a new investment. This one is tax question from an investor. Okay, great. Based on that, go down a certain path. Let's say it's a Series A follow -on around that we need to review the docs and make sure all the investor rights are managed, make sure the cap table calculations are correct. Great. Read all the documents automatically, by the way, automatically.

33:51Categorize all the documents. Okay, we've got the cap table, we've got the share purchase agreement. And we know that for every Series A follow -on documents, we need X number of documents. And so let's say the cap table is missing. Automatically, we see the cap table is missing. Graph to an email. Autogenerate it. No. Mind you. Yeah. It's so funny. You're saying this, and I'm like, oh my god, I've been living this for the past several months. I know everything you're saying. I'm like, yep, I've experienced all this. You're on the other side of the email. We just have one of our portfolio companies go public.

34:26We had some questions back and forth with the angelist team. And I've started noticing on that and another one, you guys have been proactively suggesting messaging and bullet points for us to tell our LPs. And now I'm like, I see where this is coming from. This is amazing. Yep. Again, the reason we're able to do this is because we've already been doing this for a long time. And so we have this massive set of training data, as the best way to think it or find you can use this data to fine tune. And this is leading to a world where we now, for example, going back to the Series A follow -on round.

35:02Let's say cap table is missing. Great. Hey, can we get the cap table automatically?

35:15Great. And we're doing all of this, by the way, we've already built tools for non -engineers in the company to build all of these automations for their workflows. And we're seeing a lot of movement. It's actually fascinating. And at angelist confidential, which is our annual conference, I actually did a fireside chat with Sam. And that's what opened my eyes. He said something to me that to stuck with me, which was the cost of intelligence is going to zero. And that just stuck so fiercely in my head that I basically took that and I was like, huh, things that we assumed a human needed to do, they don't actually need to do anymore.

36:00And so if we can build tools inside the company for non -engineers to use this such that they can now take intelligence and automate it, because the cost of intelligence is going to zero, we'll get insane leverage, like insane automation coming out of this. I mean, this is going to have such a transformative effect on you as a business, right? Because like, I remember when we were investing in you guys, we get questions of like, isn't that of like super heavy services oriented business? As angelist skills with funds, with companies, with everything, they need people to service all this stuff. This is a major unlock for you guys, right?

36:41Exactly. All you need to do is follow that cost of intelligence curve. And the way to think about it is, as long as the tools are getting built out, such that humans can take their intelligence and automate that intelligence, because again, the cost of intelligence is going down to zero. You're going to see an insane amount of unlock, like insane amount of leverage and insane amount of automation. Now, of course, the companies that are best suited to take advantage of it are the ones who have a depth of experience, depth of training data in order to be able to do it well. And those will win out quite a bit.

37:17The vertically integrated with the good, established software foundations, like you guys. Exactly. You can then just imagine a hundred workflows, with multiple agents per workflow, right? It's a concept of how do you chain all these different tasks in a workflow and you automate different parts of it? Basically, think about as all these bots that are running angelist operations, right? If you're trying to visualize it, just visualize, we have a few bots today. We're going to have many bots in the future. And each of these bots are highly intelligent bots that are very, very good at a specific thing.

37:51And they're essentially helping run the entire world of mental capital. That's the way we think about it. And that's what gets us incredibly excited. It's so funny without realizing it. I'm like, oh, yeah, I've been on the other end of this for the last few months. I really have noticed like a change in the nature of interactions with angelists, the types of responses, and especially the proactiveness coming out of the platform. And now it's just like, oh, of course, it's LLMs. There's an interesting high level trend that you're hitting on here because a long time ago, five years ago, fund back offices were exclusively a low margin services business.

38:31And through all the software you've built and then this new edition of LLMs on top, you could really imagine it becoming a true 80 % gross margin SaaS business. And it's sort of this unlock of, oh, what other industries are perceived to be only possible to have services business margins, but actually could have software margins. Bingo. The assumption that all services business have low margins comes from a world where the cost of human intelligence was high because there were things that computers just can do. And there were things that required engineers to tell computers what to do. Let's cover both.

39:18There are some things that computers could not do. Computers could not solve these read and LPA. They can solve these unstructured problems or these kind of fuzzy problems. They need a very precise problem to solve. Great. Massive unlock. You can now solve fuzzy problems. Things that you actually thought you needed a human to do. It's like a lot of pattern matching based, very complex pattern matching. The second big unlock was it used to be the case that you needed engineers to tell a computer what to do. Well, guess what's happened? English has turned into a programming language. You don't need an engineer to tell a computer what to do.

39:59And by the way, there's a third big thing that is a huge unlock. There is no need for hardware adoption. Everyone already has a supercomputer in their hand. You have seven billion people in the world that are all connected on the internet. And so take all of those three combined, seven billion people connected with a supercomputer in their hands. They can tell a computer what to do using English. And the computer can do what they wanted to do and solve fuzzy problems. The cost of intelligence is not high anymore. And things that were typically limited by service margins, they won't anymore. I think there's also it's not high and it's also not linear.

40:44I think there may be a different problem to contend with now, which really may be differentiation. How do you now differentiate? Maybe that's what eventually drives cost down or the margins down. But that's where if you have specific modes or you're vertically integrated or you're very specialized, you can actually have high margins. But I think the assumption that you need humans to do things and margins are low is an assumption off of the old world, not the new one. And by the way, the new one is coming fast. This is coming very, very, very fast, right? We add our all hands today, every Tuesday we do all hands.

41:28And one of the teams that's been working with a lot of the internal tool that we have hooked up to GPT was sharing an automation they did and everyone just went, wow, that's insane, like insane. And it's coming so fast to all other comics. We're not the only unique company that's doing this in terms of like looking at all the different parts that we can automate inside a company. And so you can imagine all the different use case that are getting deployed very, very quickly. We're in the midst of the biggest technology wave, the biggest 100%. If you're willing to share how many people work at Angelist right now?

42:09We're at 170 -ish total. That includes everything including our back office, angelist, any sort of affiliate entities we have. It just includes everything. It's like 170. Already today, the amount of capital that you manage across, any dimension, dollars, number of entities, see the number of investments, whatever you want to take. There's no way that only 170 people can manage that in the old way. Like zero chance, zero. I mean, Andreessen has more than 170 people working there. Yeah. We shipped, I think, 350 ,000 K1s last year. And it's probably going to surpass that this year. Yeah, you can't do that through like human sitting there just like, you know, we've been drafting these K1s and sending them out.

42:57Told them. I mean, kindergarten alone, I think it's responsible for like 100 of those. So like, yeah, there is a significant amount of volume. Angelist really is at its heart. We're just a bunch of like tinkerers and builders, right? Like, truly it is founders, building for founders. I give basic at the bill tools that I would use. I should use every single product of Angelist, except for CapTable. I need to go start a company. So I may, I was joking. I'm like, I just have to start a company so I can use the last product I can't use right now, which is a capitalist. CapTable isn't on the Angelist.

43:27Oh, no, not that one. But I'm talking to myself as going through as a net new company. And I'm like, I just really want to like use this CapTable product. The one thing that is incredibly interesting about this moment and also about the correction that we went through around a lot of the layoffs in the tech industry was really all of us finding our footing and ground of a technology company is meant to scale and increase a leverage per person, not scale headcount based on how the company is scaling. And so the way we've run Angelist has always been, how do we just bring together the brightest individuals who can use leverage, right?

44:13Like really use leverage. And okay, what really are the forms of leverage? Well, you have code, capital, humans. Humans are the worst form of leverage because your leverage is a function of the number of humans you hire. So we really lean pretty strongly on code. So how can we actually get higher leverage per person? That's how we've actually designed the company. And so we have different ways in which we have that forcing function of the constraint. One of the most recent ones is this has been the case for a while. I've basically said, hey, we're going to keep our headcount like constrained. We're still hiring new people.

44:45That's sort of the natural like as we backfilling roles. But my message has been pretty clear. We're going to keep headcount constrained. We're going to force the decisions needed such that we're building more and more and more leverage with the business. And this is something I actually picked up from early square. Square was actually ahead of a few things on a lot of different trends. One of them was when I first was acquired by square first message we received from Jack was, all right, not adding any more people in the company. It's a good forcing function for the company to really focus on the points of leverage and like building out those points of leverage.

45:19And so there are all these things that I actually, you know, bring in into the company and sort of test around and play around like one of the other ones I love doing is I'll just cancel all my meetings every quarter. And I'm like, see what happens. See what happens. Like, if it's important, they'll get back on. Sometimes I'll just cancel one on one's entirely. And I'm like, hello, it's like garbage collection for your schedule. Exactly. Like this idea that there's a calendar invite that was set like six months ago is even relevant in terms of the prioritization of today makes no sense to me. So yeah, it's really good to try out different things that help shock the system because that's really where I think teams and individuals can actually explore new things.

45:59And again, going back to increasing leverage for the company, there are things that we do that continuously test that and push on it. And we take that very, very seriously. Like, and we really do believe in individual exceptionalism. That's another thing. And so I really expect any person that joins the company can create a new founding moment for the company. They can truly change the trajectory of the company because it I've been in and around founders for the better part of the last decade. Now, I've actually seen how single individual can just change the world. And I do believe everyone is capable of it.

46:30And so that's another thing that we really believe in at Angelus. Well, it's also like your whole business. Like, I mean, that's the customers I'm gonna get, but it's like that's the ecosystem you serve, right? Like you have the data right there. Exactly. It's literally an area. It's like, yeah, we do believe a single individual can change the world. We're serving them. And we're actually like, like serving the GPs who go back those individuals are going to change the world. So it is a little like ingrained in our ethos. Yeah. So as listeners think about the business of Angelus today, which is simplified, you know, well -found has been spun out.

47:03So there's no more talent. You mentioned product that's been spun out. That's correct. And so the business of Angelus today, how does it kind of break down in terms of, you know, to give specific numbers, but like, how does Angelus make money? So there are three customers of Angelus. The first one are the GPs. These are the folks who start SPVs, start funds. The second are the LPs. These are folks who invest behind the GPs. And the last one are founders and startups. For the GPs, two products, SPVs funds, pretty simple. For LPs, they're typically investing behind the GPs or sometimes they'll actually find other deals to invest in on the platform.

47:45That is a part of the business, but the core part of the business really comes from the GPs, right, in terms of starting SPVs and funds. And then the last one for founders and startups, really it's fundraising tools and cap table management. So we actually launch cap tables last year. It's actually growing very, very quickly. We're incredibly excited about the rate of adoption on that product. Each one of these products has their own revenue model. So for SPVs and funds, we charge an administrative fee to manage it over 10 years. Can I just double click real quick on that? For me, when Nat and I were making the decision of the platform too, well, we didn't have a choice.

48:25Our first kindergarten fund was $3 million. There was no other way to do it except on Angelus. But then as we got bigger and managed more, having the experience of having started a firm before it made all the platform decisions, the cost of going with you guys to do that for the administrative fee is like, night and day. It's like a 10x difference versus doing it the traditional way. Yeah, exactly. And again, it goes back to because everything is vertically integrated in a single place. We can actually absorb all the different service providers in one and then provide a single price. Then what you otherwise need to go and stitch together and everyone's going to quote you something different.

49:07You want tax provider, fun admin, etc. So that's on the GP side. That's how we make money on the LP side. If there's a we think about as a primary investment or secondary investment, if there's a primary investment or secondary investment that Angelus has helped facilitate and bring to the table. And this is what we call Angelus LPs. Then there's a broker's fee on that. Where you're matching supply to demand between LPs and GPs. Exactly. By the way, you can actually see where that goes, right? The product strategy goes there around, look today, it's a lot of its primary investment. But we're doing a lot of very interesting experimentation around how do we help funds provide their LPs liquidity within the fund itself.

49:47This already happens offline today. And we think we have a unique approach there. And we're going to be launching a product around that pretty soon. And that's for GPs to control and manage. And so that's on the LP side. Would that look something like, you know, I'm just imagining like, take kindergarten, we have stakes in close to 100 companies. Many of them now very well known. Lots of people would like to invest in those. Some of our LPs may want liquidity. Angel List would be a platform to manage that. Exactly. And we can be the platform that manages it end to end. And we have a unique view on it as well.

50:25We think that we can help facilitate that in a single company in portfolio as well. Again, once you get into the nuts and bolts of the LPA and the way you can which in the old world, the only way that happened was say I was kindergarten that needed to happen. I sold a piece of the whole commitment into kindergarten, the whole blended fund. But you can atomize it to a company basis within a fund. Yep. We have any approach on how to do that and how to make that work. And then on the founder and startup side, the revenue model is a SASPy, pretty straightforward. You're managing the cap tables. Recharge, SASPy depends based on your size of company, the number of investors you're managing on the cap table.

51:09And then there are other fees that sort of get baked in because once you're a financial platform and you're moving money in and out of a financial platform, there are other different and salary fees and everything that you can actually earn by reducing more and more friction. That's the other piece that's not as well understood about Angelus is as a platform that serves three different customers that has a portfolio of products. There are actually many revenue models that you can earn, especially as you get larger and larger. A lot of what we're doing is just continuing to build out this platform.

51:43And we're actually going to be launching a series of products over the next two to three months that will further emphasize what product strategy we have. And now we're going to blanket the rest of venture. We're actually taking a lot of what we've built over the years. And we're going to start unbundling pieces of it. And you'll sort of see how all of it's going to connect. It's sort of a continuation of our strategy to move up market. I'm very, very excited about this. Our team is just pretty jazz like building this out. It's sort of part of the evolution of a platform. And that's another revenue model that starts coming in as well.

52:21And so on the breakdown question, I have to imagine SPVs were a large part of the business before it seems like the funds business has to be meaningfully larger today than SPVs ever was. Yep, it is. And even before the market crash last year, may have 2022, SPV business was not the largest part of the business. That's actually a fact that most people may not know. But SPVs hasn't been the largest part of the business for a while now. The funds part of the business is definitely largest part by many multiples. Interesting. Yeah, very interesting. Some people may think of SPVs as like the key thing.

53:03And don't go me wrong. We're going to continue to support SPVs. We're still the market leader in SPVs. It's a very important component of our product portfolio. But Angelus is firmly in the funds business as well. And actually has a very strong hold in the funds business. And each time we go into a new target, like in terms of funds size, as we keep moving up market, if you map our market share, each time we enter new funds size, we essentially take the market each time. Like we just fundamentally just absorb it, take it. And then we move on and then move to the next one and the next one. Just by virtue of us building that out, the funds out of the business is just much larger.

53:43There's something that to my mind on the SPV and fund dynamic has been the case. But I don't know if it's just my experience or if this also reflects the broader market, which you have the purview of. To me, SPVs have really changed over the last five years from being a way for individuals and groups to invest in companies that like otherwise they wouldn't be able to to more of a elastic scaling product for funds. Or at least that's how I think about it. Like we have core funds that we invest out of that are blind pools. And then when we have opportunities to write larger checks, we use SPVs to flex up on certain investments.

54:29Is that the primary use case of them now or is that just like my use case of them? I would say that's one of the use cases where a fund uses an SPV to amplify the check they could be writing into a company. The other use case are GPs who are just running SPVs and not writing checks from their fund. So the SPV business segments into two types of GPs, one who are doing exactly what we said, amplifying checks from the fund. And then the other one are GPs who are only doing SPVs as the primary thing. And so the use case for both actually looks very, very different. So anyone who's amplifying from the fund typically is really looking to bring their LPs in on an opportunity where they can invest behind the company if you get a larger allocation.

55:15And the ones who are investing directly into only investing in SPVs is really optimizing around angelist LPs. How can you bring more dollars into a company? And so it really bifurcates into the two and they do look very, very different. Those two different types of SPVs and what we were just talking about there to me, that's a good way to start to wrap things up here. It's really changed my thinking on what a venture firm and fund can and should be in the pre -angelist world pre -atomized, pre -software atized world of this. You needed a certain fund size to just be able to do things. Your strategy was literally limited and dictated by the size of your fund.

56:02That's now no longer the case because whatever your core fund size is, or at least this is how I think about it, you still can do much larger and different things by amplifying the SPVs. The complexity around that is enormous. But I think it's really interesting, right? And it's a many ways a better product, as I think about it, for all the participants in the ecosystem as a GP, I can get deal by deal economics on my high conviction bats where I have access. As an LP, I don't have to commit tons of capital to this blind pool, or I don't know what's going to happen with it. And then as a company and a founder, like, yeah, I still can go to, and these days I'm going to the large established funds to be my leads in all my rounds.

56:48But like, I can get a lot of capital from these other folks that I otherwise couldn't get. What we're noticing as well, if we kind of rewind back to a few years ago, is that founders weren't as familiar with SPVs. The world of ventures always been kind of this very mystical to founders. And if we fast forward to today with angelist r uv's rollup vehicles, which are fundraising tools, we've normalized this idea of a vehicle where you can bring many checks in. And it's a single line item on the cap table. And what we've noticed is because of that, more founders have been educated out of the gate on what SPVs are, and also more and more open SPVs if you just track it over time.

57:37And so I think there's also been an overton window, like, shift in the overton window around SPVs, understanding it, rollup vehicles. All of this coming together actually does firmly go into world and lead into world where founders are going to be more and more willing to take smaller and smaller checks wrapped up in an SPV or wrapped up into rollup vehicle and really get these supporters to help them build the company. And I think that's incredibly important. And we're seeing this across the board. We're actually regularly seeing large established venture funds, educating founders to go do an r uv because they're saying use this as a way to bring on helpful operators and investors into a simple, you know, cap table line item.

58:18And so I think we're firmly in this world of, yep, how do you bring on many more people to help support the company so you can continue to build your company? Well, nothing better exemplifies your long term vision than that. Avloc, where can people find you on the internet? And if they're interested in any of the stuff you mentioned, where can they go to learn more about angelist? So to find me, you can follow me on Twitter, twitter .com slash avloc. I'm always there to learn more about angelist. You can go to www .angelist .com. Great. And if folks are interested in becoming TPs on angelist, what does that process look like?

58:56Really fast. You just submit the form online and we get back to them with an hours and we go through a quick call just to get better understanding of the fund and we then move forward to next steps. Technology, it's going to change the world. So great. Thanks, Avloc. Thanks, Avloc. Cool. Thank you. Listeners, we'll see you next time.