Idea: 68
Monday, 09 March 2015
By. Francis Pedraza
FFF
Special Purpose Vehicles (SPVs) as-a-service, so small checks don’t pollute cap tables and slow down signature gathering.
Every entrepreneur who raises money will inevitably encounter this dilemma: should I take a small check, and how small is too small? On the one hand, every little bit helps. It never ceases to amaze me how lots of small numbers add up quickly. On the other hand, it sets a low precedent, sends a weak signal, pollutes the cap table, slows down signature gathering, increases communication costs and generally distributes interest in the company too broadly. In other words, there are very real bureaucratic and political overhead costs to raising money in small checks from lots of investors.
But especially in the beginning, when risk is high, valuation is low, and capital is scarce — most entrepreneurs, naturally, take the money. Sophisticated ones wear protection. That is, they set up Special Purpose Vehicles (SPVs) to gather together all the small checks into one entity, so that only that one entity is on the cap table. Recently AngelList has pioneered this approach with syndicates (5% carry + $8K setup costs) and “public” fundraising (10% carry + $8K setup costs). This is a marvelous resource, but it is only available to companies that are able to convince either a syndicate to invest or AngelList to feature them.
The idea behind FFF would be to make this available to any company, at any time, for any reason — in an off-the-shelf and streamlined way. I imagine this would be particularly useful for companies “born yesterday”, that want to raise money from “friends, family, and fools” (hence the name). Click a few buttons, you’re all set up and ready to raise money — send investors this link and have them wire to these coordinates. Manage reporting seamlessly through visible.vc, so you don’t have to endlessly meet with investors to keep them up to date on progress, etc.
So now you can say “our minimum check size for direct investment is $100K, anything less than that, we will accept through our SPV”. :-)
