Inside Flight.vc’s back-to-back billion dollar acquisitions on AngelList

Inside the Deal is a series where we interview investors and entrepreneurs behind some of the most high-profile, invite-only deals on AngelList.

In this interview with Gil Penchina and Shawn Merani at Flight.vc, we go inside their investments in Dollar Shave Club, Cruise and Managed by Q to learn:

  • How they manage working with dozens of syndicates and thousands of backers
  • How they work with syndicate leads to improve pricing
  • How they’re getting their backers access to deals at all stages

Julie Ruvolo: You guys had two billion-dollar exits recently. You invested in a secondary transaction in Dollar Shave Club led by Mike Jones, and you also worked with Zach Coelius to raise a $100K round on AngelList in Cruise as part of their $12.5M Series A led by Spark Capital.

Gil Penchina: The interesting thing about both of these deals is that we don’t just do seed or angel investing anymore. We’re stage agnostic deployers of capital. We’re doing seed, bridge, A, B, C and common.

If you look at the two unicorn deals we had this year, Cruise was a Series A, and Dollar Shave Club was post-Series B. The fact that they both got acquired within a year is pretty shocking, but they weren’t seed deals.

How does it work when you partner with leads like Mike and Zach?

Gil: We’ll use the partner syndicate, Mike Jones in this case, and promote it through the Gil Penchina syndicate. If you follow the Gil syndicate, you see a ton of deal flow from all the different partners we work with. It’s a meta-mailing list. Our goal is to recruit senior executives from the industry to help us source and qualify the best deals.

How does it work? Did you split the carry with the lead?

Gil: Yes. It’s just like a VC partnership. We share the work and the economics.

Do you have any idea how many syndicates you’re running?

Gil: A couple dozen. I try to describe it as the Fidelity for the asset class: Different funds have different focuses. It allows you to pick and choose what you want to see. We also have a late stage syndicate and a fund that invests in big data.

One thing I find fascinating about AngelList is that everyone’s using it a bit differently.

Shawn Merani: A couple of years ago we did not set out to say, “We want to build a VC fund.” We said, “We think AngelList is interesting.” Fast forward, now this is our full-time job. We’ve built a practice on top of AngelList, which is different than the way the majority of people use the platform.

Gil: Our syndicate lead partners include CEOs, a CMO, ex-CFO, ex-CRO and the ex-VP of engineering at VMWare. We have more relevant industry knowledge, networks, and connections than a lot of VCs, and we have a team of people that each focus in their area.

When we pitch startup CEOs, we talk a lot about this group of syndicate leads that can offer them specialized expertise. We also have thousands of backers, and we built some software that gives those backers incentives for helping our companies. AngelMob.co is a place where backers can get early access to deals in exchange for helping all our companies.

Do you have a sense of who your backers are?

Gil: The last time we did research on it, they were 40% in tech — tech broadly speaking, including IBM, Accenture, as well as startups. And they were roughly 50% US, so it’s a global audience. Anecdotally, in talking to them, it’s founders, Wall Street people, executives, startups, and mid-level managers of big companies and up.

Thousands of backers is an entirely different paradigm than a short list of LPs that back your funds for decades.

Gil: By its nature, an AngelList syndicate is a pop-up fund, right? We have partners who were very active, went away, and came back. It’s not a big deal. If people transition out or take a break, we think it’s great. It’s one of the nicer things about working on the platform.

The other thing that’s interesting about the way we run on AngelList versus a fund is that a fund has incredible pressure to spend the money. Whereas we are under a lot less pressure and spend money when we see something we’re willing to invest in.

You don’t have the pressure to spend down, but you guys have been deploying a lot of capital.

Gil: Again, 25 people have been deploying a ton of capital, not two guys in a seed fund. You could almost argue we’re running 25 seed funds.

How does this stack up against some of the traditional VCs who have piloted scouting programs?

Gil: They’ve all pulled back. The reason they pulled back is, if you talk to an entrepreneur who got $200,000 from Andreessen, and they’re out trying to raise a Series A, the first question you ask is, “Well, is Andreessen leading it? If not, clearly I’m the idiot, since they would be doing it if you’re awesome.”

It had massive negative signaling for the entrepreneur. I was a founder of a company that Battery put seed money in and then didn’t do the Series A. It was an uphill battle trying to convince everyone that they were not stupid to even take a meeting.

We lead rounds too, but no one expects AngelList to follow on. It’s a bonus, but there isn’t as much of a social obligation. No one’s going, “Well, AngelList didn’t lead a $10M round. Something must be wrong.” That social stigma doesn’t exist when you take money from smaller investors.

Yet, should you want to follow on and have the opportunity, it sounds like you’re configured to do so.

Gil: Yes — we have a fund for folks who want to invest $100,000 or more and get access to pro-rata in our best deals. It’s open to anyone on AngelList.

How did you guys get into Cruise? I’ve written about that deal from Zach and Tikhon’s perspective, but wanted to complement that with yours.

Gil: Zach came to us and said he has an opportunity to put some money in Cruise. He had three days to close. Zach had deep connections and great entrepreneurial perspective on what were good companies. We added to that, with some sense of what were good prices and terms.

That’s something traditional VCs don’t do. They look at a deal, and they say, “Yes, no.” We look at a deal and say, “You know, you could fix it. It would be better if…”. I think that’s a big piece of why people come to us. We help syndicate leads improve pricing, not just accept pricing, which will enhance returns for everyone who invested.

Versus this just “yes or no” type of iron gates of money being dispersed?

Gil: Yes. We’re much more collaborative, working with syndicate leads and saying, “Let’s help you grow and let’s help you do better deals.” We launched a deal a couple of weeks ago where we convinced the syndicate lead to go back to the entrepreneur and get a better price than every other investor and explained why he was reasonable in asking for that. We got that. We’re investing in a better price than everyone else.

Managed By Q is one of your more recent deals. This is an office management platform that closed a $25M Series B with GV and Kapor Capital in April. How did you get into it?

Shawn: I was having lunch with Satya Patel at Homebrew, and he mentioned there was an opportunity to invest in the Series B — Satya is a board member and led the seed round. He needed us to move as fast as possible given there was a short deadline. We went back and looked through the numbers, had a few internal conversations, and were able to come to a quick decision. The personal relationship with inside investors, combined with our backgrounds, our early stage portfolio, and our backer influence made it a good fit.

Gil: Managed by Q is looking to get into commercial offices, and probably half our backer base works at a big company or a startup that could be a customer. A traditional VC’s investors include Harvard, Stanford, and Calpers. How often do you think Harvard and Calpers are going to help you grow your business?

Where is this headed for you guys? Where do you see yourselves investing in the next couple years?

Gil: We’re interested in trying to get people access to the broader asset class — getting them access to not just seed, but also A, B and C. And not just the US; we now have syndicates in the UK, Germany, Finland, Israel, and more coming soon. There’s a big business in investing companies from overseas and bringing them to the US when the valuations are higher.

How do you see your relationship evolving with AngelList?

Gil: I’ve started some companies in my day. Focus is one of the key determinants of success. The less you have to do, the more you can focus on the important things. In some ways, you can view AngelList like AWS. It’s a set of infrastructure and tools that are constantly evolving to help you build your business faster. From that perspective, much like AWS, AngelList is great and allows you to move faster and get more things done. It’s also always evolving, which can be a real headache sometimes. But it beats buying and booting up your own server.

Yeah, it doesn’t necessarily mean you should go build up your own cloud.

Gil: Right. And I think AngelList is continuing to grow with us. When we launched the expansion fund, AngelList helped us build and manage that as well. It’s the first VC fund raised on AngelList.

Shawn: It’s been a little over two years since we began investing together on the platform. The amount of invested capital on AngelList by Flight is about $25M, maybe a little more. Let’s say modestly, taking into account follow-on capital; that’s a $75M fund. We were able to spin up Flight Ventures quite fast on AngelList by marketing ourselves, bringing good deals to investors and being proactive on the platform.


Originally published at blog.angel.co on August 15, 2016.