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Venture capital and angel investing are asset classes that can generate massive alpha, but too many potential LPs are “locked out” of this exclusive world.
Gale Wilkinson, managing partner at Vitalize Venture Capital, joins Andy Hagans to discuss how her VC fund is investing in the future of work, while also working to make VC and angel investing more accessible to all.
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- Background on Gale’s career in angel investing and venture capital, and how she came to launch her own VC fund.
- What the “future of work” really is, in concrete terms.
- An overview of the financial dynamics of a VC fund, from the GP’s point of view.
- The challenges faced by emerging managers, and smaller VC funds (as well as some of the benefits enjoyed by smaller funds).
- How the VITALIZE Angels group is helping to make angel investing more accessible, even to non-accredited investors.
Today’s Guest: Gale Wilkinson, Vitalize Venture Capital
- VITALIZE Venture Capital – Official Website
- VITALIZE Angels Webpage
- VITALIZE Venture Capital on LinkedIn
- VITALIZE Venture Capital on Twitter
- Gale Wilkinson on LinkedIn
- Gale Wilkinson on Twitter
About The Alternative Investment Podcast
Hosted by WealthChannel co-founder Andy Hagans, The The Alternative Investment Podcast is the #1 alts podcast reaching RIAs, family offices, and High Net Worth investors.
Andy: Welcome to “The Alternative Investment Podcast.” I’m Andy Hagans, and today we’re talking about the work revolution and venture capital investment from the perspective of a GP, from that inside perspective. So, I’m very excited that joining me today is Gale Wilkinson, who is managing partner at VITALIZE Venture Capital. Gale, welcome to the show.
Gale: Hello, Andy. Thanks for having me.
Andy: I’m so excited to have you here, because, it’s funny, you guys are great at marketing, because I was, like…I just found VITALIZE, like, clicking around, surfing LinkedIn…I forget how exactly I found it. I know you obviously, but I didn’t even know it was your fund. And I was, like, clicking around, and I saw Gale, and I was like, “Wait a minute. I know Gale. That’s my Gale,” so…
Gale: Andy and I went to school together many years ago. So, we have a former life together as friends.
Andy: Yes, we do. And Gale, I also remember your being involved in angel investing, you know, even, like, a decade ago. And it’s been so cool to just, you know… I kind of meet up with you, like, every five years or whatever. And then the next time I kind of came across it, I was like, “Wow, she has her own fund. This thing is awesome.” So, why don’t you give us a little bit of your background? Like, how did you come to be running a venture capital fund?
Gale: Sure, sure. So, I started a couple businesses many years ago. Both of those failed. One of them was when I was in business school. And when I left business school, I wanted to have something that I was running. I had learned over time that I’m definitely a good fit for early-stage organizations, and had the opportunity in 2012 to start an angel network. That was IrishAngels, which is a group that is affiliated with the University of Notre Dame, which is where Andy and I went to school. And ran that for nine years. That was a lot of fun. We invested in about 50 companies while I was there, and deployed quite a bit of money into all of these companies. Concurrently, in 2017, had some of my angels come to me and say, “Hey, we really wanna buy a basket of your stuff. We missed on a couple great deals back in 2013. And what do you think about raising a small fund?” I hadn’t thought about it, but it seemed like a good time to do it. So, raised a proof-of-concept fund that was $16 million in 2018, and deployed that over the following three or four years.
Andy: You say that so casually, like, “Oh, just, you know, 16 million bucks.” But in the venture capital world, that’s a pretty small fund, right?
Gale: Yes. Most funds are much larger than that.
Andy: But, you know, it’s interesting, because, to me, smaller capital, it enables opportunities. Whether you’re talking about private equity, venture capital, angel, or whatever, it’s like, would running a billion-dollar, $200 million fund be fun and interesting and all that? Like, of course. Well, but then there’s things that you’d be giving up, right? With not being as nimble. Do you think that’s fair?
Gale: Yeah. I’m a founder, and so we have a team of four full-time and three part-time, and that’s perfect for somebody like me, who likes to move quickly, who likes to empower the rest of the team to do what they do best. You know, back to, you said you found us on marketing. I decided a couple years ago to invest in a head of marketing, which is super rare for a small fund like us. But I really see opportunity here. And Justin has done a great job in terms of building our podcasts and our newsletter and our social media presence, and beyond that, to ensure that people really know who we are, so that we’re seeing the best deals in our space.
Andy: I wanna encourage all the fund managers that listen to the show, that watch the show, even if you’re not a VC fund manager, even if, private equity, private real estate, look at what VITALIZE is doing. Because, from my perspective…I’m a marketer at heart. I love marketing. But what you all are doing, I mean, I think that’s genius because you have a newsletter, you guys blog, you’re very active on LinkedIn, you have a huge Twitter following. It’s all very engaged. So, I imagine by the time an LP, or by the time a founder interacts with you, it’s like you’ve built all this trust. Like, they already know who you are, they already know what you stand for, you know? It’s like they just kind of soak it in. You know, we would call that content marketing, if I could use the nerdy marketing term or whatever, but it’s branding. Then when you have that meeting with an LP or with a founder, or really, any kind of meeting, there’s just, like, all this context and trust built up. It’s hard for me to imagine that anybody’s not doing that in today’s day and age, but they’re not.
Gale: Yeah. It’s mostly the larger funds, and in venture, there’s a long tail of a ton of small funds like us. So, I’ll call those sub-$100 million funds. And the way that VC works, as most of your listeners will know, it’s based on, you know, an operational budget built on management fees, and the smaller your fund is, than the smaller your operations budget. And that’s why it’s typically the larger funds that have a surplus in their operations budget to be able to pay for things like marketing and content. And it’s a luxury for small funds, but we were able to figure out how to do that at the same time where we were building our angel community, and we see that content and thought leadership, branding, community are all things that others aren’t really focusing on. But we see that as a way to differentiate ourselves in the market.
Andy: Well, totally. And for the record, you know, larger funds with larger marketing budgets, in my experience, they don’t necessarily do it better. Like, a lot of the most interesting marketing is the founder or executive team, or, like, the folks sitting in the seats making the decisions. You know, that person, you know, like Gale, tweeting in real time, or on LinkedIn. To me, that’s the interesting content. You know, not someone three levels deep in the org chart. You know, “I wrote this press release. Now I need three different people to sign off on it.” I’m like, that was marketing in the 1980s. You know, I think we’ve all moved on. But I wanna talk about your funds specifically though.
So, speaking of marketing, you know, I think it’s so important for a fund to have a thesis. You talked about the long tail in venture capital. By the way, a ton of our audience will not be that familiar with venture capital because, you know, a lot of VC has a more institutional capital base, and a lot of our listenership are individual high-net-worth investors. But in that marketplace of the long tail, you know, there’s so many funds, with private equity, venture capital. You have to differentiate, and your fund is just so focused. Like, I go to your website, the theme is clearly the future of work. The tagline that I actually wrote down, “Investing in the Work Revolution.” I love that. You know, again, I’m a marketing guy. Like, I land on a homepage like that and I’m like, “Okay. You’ve piqued my curiosity.” But I think a lot of our audiences heard those phrases, you know, “the future of work” and all that. But I wanna know what that means in your view, because I think I’ve kind of heard a couple different definitions of that. What does that mean to you?
Gale: For us, we define work tech, or the work revolution, as people-first, data-driven, really big ideas that transform how we work today. So, I’ll break down that definition. The people-first is important because at the end of the day, it’s customers or employees that have to have, you know, this dramatic improvement, in terms of how the work is impacting them, for us to get excited about it. And the second is data-driven. I’ve done 125 deals over the last decade. And when I look to see which companies are doing well, typically there are some kind of proprietary data that creates additional value. So, that’s something that we look for as well. And then the third is big. We want to invest in companies that are going after really big markets, that touch sometimes a number of industries, versus something that would be considered more niche.
Okay. So, that’s our definition. People-first, data-driven, really big. And then we look at three areas within work tech. So, the first is the transformative workflows. This is enterprise software. It can be horizontal, like a customer support platform, or it can be vertical. We did a deal out of our angel group in the vet industry. So, antiquated, you know, veterinary industry. Obviously lots of ways to impact and enhance the future of work. And then the second is infrastructure for the freelance economy. We’re very bullish that this area of our economy is gonna continue just to blossom and get bigger. And then the third is HR tech. Hiring, training, and employee engagement and retention.
Andy: Got it. Okay. No, you know what, I love that because you defined it very specifically, in, like, concepts that I can understand. Very, like, concrete, the ways you defined that. Because, you know, sometimes you hear, like, “the work revolution,” or just anytime, really, just the word “revolution.” I’m like, but what does that mean in reality? So, I think you did a really good job being concrete with that. But you mentioned one thing that I wanna ask about, which is, you know, investing in companies with, like, a big TAM, or, you know, total addressable market, where, big. They’re just big ideas, big concepts, big markets. So, could you talk a little bit about, you know, the power law, or just, I guess as a GP, as a fund manager, what you’re looking for, you know, from the financial point of view? Like, obviously, you’re investing with founders that you believe in, founders you like. But just the economics of a VC fund, it seems to me like there’s, you know, quite a bit of pressure, right?
Like, what you do is expensive. Like, you have to have a team, you have to do due diligence, you have to source deals, you have to raise capital and all this stuff. And then also, just the attrition or failure rate of startups is obviously very, very high. So, I think, you know, with private equity or private real estate, you know, people are looking at, like, oh, a 3X return in that, you know, deal. That’s great, you know, but in venture capital, it’s like, no, we need the winners to do way better than that. So, could you talk a little bit about, you know, how you look at that? Percentage-wise, how many of your portfolio companies do you need to make it? And if they make it, how big do they need to make it?
Gale: Mm-hmm. Yeah. So, for those who aren’t as familiar with VC, what we as GPs are trying to do is get a 5X net return on our fund. That would put us in about the top 10%. A 3X net return puts us in the top 25%. So, that’s kind of baseline. And a 3X net return on an early-stage fund, so, that would be pre-seed and seed stage, also probably series A, that is commensurate with about a 20% to 40% IRR. So, we are beating the 10% to 12% IRR in the stock market if we hit that 3X. Anything less than that and we start to get into, you know…we’re about equal with the stock market, and then obviously, we’re not liquid, so we’re not as good of an investment.
Therefore we really have to swing for the fences when we invest. Of the 30 companies in my portfolio, I need to make sure that somewhere between one and three are going to be, you know, hundreds of X return. And what that does is it helps me, as a fund manager, to make sure that I get that 5X return from my LPs. And in order to make sure that that’s happening, I have to, one, be a good picker, and two, be very clear with my thesis around what I think has the potential to get there. That’s why big is part of this. It’s one of the things that I’ve really learned over time. I also look for capital-efficient founders. So, can they get there without having to spend a ton of money? You know, I’ve been involved in deals where they didn’t have to raise very much money after we invested at the early stage. And even though at the seed stage, my organization owned very small piece of that company, that one deal can still 5X the fund. That’s really what I’m looking for. And hopefully I get a number of those, so it’s even higher than 5X.
Andy: Got it. No. So, that’s the power law distribution, though. And then, in that, if there’s 30 funds in one of them, 5X, or 30 portfolio companies rather, and one of them, you know, in and of itself, 5X is the return implied in that, there might be 10 or 20 portfolio companies that don’t make it. And that just kind of comes with the territory, you know, with venture cap. Like, in real estate, it’s like, I need every deal to come back at least a single, and then I want some doubles and triples. I’m not even really shooting for a home run with a real estate deal, you know? So, it’s a little bit of a different mindset, right?
Gale: Yeah. Fund one had 27 companies. We’ve shut down, or exited, for about a 1X, it’s about six companies so far. And then there are eight that are doing very well. And then there’s, you know, a handful in the middle that it’s still uncertain. I believe, based on where everything is trending, we are likely to have three or four that are superstars. So, very big returns. There’s gonna be probably four to six that are good returns, and I’ll call that 3X to 10X, or 3X to 20X for those deals. And then the rest are gonna be zeros, or up to ones, which, you know, those are the losers in the portfolio. And we expect, to Andy’s point, at least half of our companies are gonna be in that bucket.
Andy: Gale, talking to you, I’m a little bit jealous. I mean, I love this world of startups. You know, even the concept of you can invest in a company that’s gonna 20X, 50X, 100X your capital, it’s like, on the one hand, it kind of makes me clench a little bit. Like, “Oh, that’s a lot of risk.” But man, when one of those companies hits it big or does a big liquidity event, that’s gotta feel good, right? That’s gotta feel like you did something truly amazing.
Gale: Yeah. I mean, at this point, I’ve invested in three unicorns, two of them with IrishAngels and one with VITALIZE. And there are more that are coming, which is the cool part, and the scary part. It can take 5 to 10 years to really understand how good of an investor you are. So, you have to be really disciplined. Which, to your point, it is really scary, and I have no idea if a company is going to make it or not. I have to make an educated guess. And a lot of it’s based on intuition at the early stage, because there’s not a lot of data yet.
Andy: So, what do you mean by discipline then? You sort of named your criteria. So, does that mean, like, “Oh, I really like this founder. I really like this or that, but the TAM, total addressable market, is too small. So I have to pass.” Is, like, that what you mean by discipline? Or is there something else?
Gale: Yeah. So, we have a rubric that we’re looking for. Does it fit into one of those three areas within work tech that I mentioned earlier? You know, is the stage correct? So, are they raising the right amount of money? And do they have the valuation? So, are the economics of the deal commensurate with what we’re looking for? Do I think that I can underwrite this to a 100X return? I’m looking at all of those things. So, we do diligence to understand what do we really believe is the risk profile and the reward profile of this opportunity. And a lot of it has to do with the founder. Can they execute? And can they execute fast? And do they have a product that is very good already? You know, it has to be an intuitive user interface. I can’t tell you how many I see, the just, the product is terrible, and at this point in startup-land history, like, we just can’t invest in that.
Andy: Yep. Understood. So, I’m thinking, okay, if you’re looking to underwrite for a 100X exit someday, and then I’m thinking, well what’s a typical valuation? I don’t know. Two million or $3 million, or $5 million? You know, it sounds like you’re dealing with more early-stage companies.
Gale: Ours are typically, at the seed stage, $10 million to $20 million post.
Andy: Okay. So then that…
Gale: …Is, like, a $5-ish million post.
Andy: Got it. So, then that’s basically, like, you’re looking to underwrite a billion-dollar valuation? Like, a company that can IPO, essentially? Is that…
Gale: Yeah. Yep.
Gale: If I hit at least one of those in the fund, then we’re gonna have a good fund.
Andy: Okay. Now, I’m gonna ask a dumb question, so try not to judge me, Gale. And I’m gonna hide behind Jimmy on this one because he was asking me. So, both of us are angel investors. And I was actually in Hyde Park Angels back in the day, when I lived in Chicago. That was fun. I had a great experience there. I did several investments there. Jimmy and I are both limited partners in a VC fund, and we were talking about VC and angel, and he was like, “Wait, which one is the seed round? Is that the angel round or is that VC?” I’m like, “I’m pretty sure angel would be pre-seed, and then you’d have seed round would be early-stage venture capital, and then you’d have series A. Am I right? Let’s just pretend I know nothing. Could you just define pre-seed, seed, series A, all that, for all of us? Because now I’ve just confused myself, even just now, trying to…
Gale: Okay, I’m gonna answer for software, which is what I invest in. That’s business-to-business software. The way that I think about the stages is based on traction that the founder has achieved. Pre-seed is typically either pre-product, or post-product, pre-revenue. So, very, very early stages. When a company comes to us and they’re raising pre-seed capital, it tends to be about a million-dollar round. And, you know, a $5 million post is very typical. So, they’re selling 20% of their company at this pre-seed, and they’re using that capital to finalize the product and to get early revenue traction. Then, when they start to get that, you know, “I got it ready, it’s a good product, and I’m starting to talk with pilot customers,” they’re ready to raise their seed round. And a seed round tends to be somewhere between $2 million and $5 million. Valuations, let’s say 8 post to 20 post.
I’ve seen revenues at seed stage anywhere from zero all the way up to a million. You know, I tend to see about $250k is what we look for as a hurdle point that is typically good. It means they’ve got a number of clients, and they’re really starting to figure out what their clients want in the product. And so, from there, a founder’s really trying to get somewhere between $1 million and $2 million of annual recurring revenue for that software product to hit the series A. And this is what a lot of VCs will call early product-market fit. So, as you accelerate into that, you know, close to $2 million of annual recurring revenue, the later-stage VCs get a little bit more certainty that you’ve hit something that is a true pain point for your customers.
And then, into series B, you’re trying to hit $5 million of ARR. And each time you do this, you have somewhere between, let’s call it six months on the very fast side, all the way up to two years to hit those milestones. So, when a founder raises their round, they really wanna try to raise enough to ensure that they hit that milestone of getting to, you know, the next stage. Otherwise they’re gonna be stuck in no-person’s land, and that’s where, you know, we just can’t invest in those companies.
Andy: Understood. Yeah. And I’m thinking, you know, what you just told me, that kind of tracks to, like, Alex Hormozi, he talks about $3 million as a threshold where you have product-market fit. But he’s talking about a lot more content-based businesses, you know, or e-businesses, e-commerce, that kind of stuff. Whereas I think software has more enterprise value. It’s gonna have a much higher multiple tagged, I think, to a software business. So that kind of makes sense. So then, okay, like, a company raising at $4 million pre-money valuation, they’re raising a million bucks. So, that would be pre-seed, and that would be angel. Is that right?
Gale: Yeah, and the interesting thing about angels, angels can really participate anywhere, as long as they have access. So, we just led a seed-stage deal, it was a $4 million round. And those founders took money from some angels. There were five or so VCs involved, plus a few angels. So, I would say angel comes in a lot at pre-seed, but it also comes in quite a lot at seed, and sometimes even later than that. But most of it is pre-seed and seed.
Andy: So, why would an angel investor come in at seed? Is that because they have co-investment rights or whatever? Is that just because the VC fund doesn’t wanna bite off the whole capital raise? Why would they allow, I guess, an angel to invest in a seed round?
Gale: So, a founder that has a lot of options is looking for the set of investors around the table that are gonna add the right value. This deal that I’m talking about is a great example, where, you know, I’m bringing future of work experience to the table. Another investor’s bringing FinTech, another investor’s bringing go-to-market, another investor’s bringing customer interest. So, like, all of us are coming to the table with our own specialty and our own value-add, and I want, if I’m the founder, and this is what I counsel our founders on, make sure that you, one, like everybody that’s investing in you, but two, they’re bringing something that is unique to the table, where you’re gonna get value from it. And sometimes angels who cut even small checks can be very strategic. You know, maybe they’ve been head of products in the same industry, and you need that expertise. If you give them $5,000 or $10,000 allocation in your seed round, you know, with the understanding that they’re gonna help you, sometimes that is the right thing for a founder to do.
Andy: Understood. And so if I’m a GP, you know, leading a round, in that case, I might rather invest, instead of investing $4 million the whole round, I might rather put $3 million in, and let that founder fill up that other million with strategic investors who are actually gonna basically help execute, or help find, give them advice, or connections, or whatever that will help them get traction. Okay. That makes a lot of sense. And I wanna talk about angel investing more, but before even getting to that, I wanna talk about the capital base of your fund, and just VC in general. It’s interesting, because, I mean, in theory, like, I guess, like, in a textbook, this is all kind of under the umbrella of private equity, right, that you have…
I mean, it’s funny how much I talk about this issue with guests. I’m host of “The Alternative Investment Podcast.” If you google, or go into iTunes, search alternative investments, we pop up number one. And I’m like, “I still don’t totally understand this. You know, what is all this called?” People ask me, what is an alternative investment? And I’m kind of like, “Well, it depends on who you ask. I can give you, like, seven different definitions.” But private equity, in theory, encompasses private real estate, private equity, venture capital, maybe, you know, angel investing, but there’s a such different capital basis for those, because, like, in private real estate, so many funds now are taking on investors with, like, $100k checks, right? So, LPs, like, the minimum is $100k. There’s so many private funds now that take on LPs who invest $100k. Whereas, in venture capital, in my experience, the minimums tend to be a lot higher. But then the other aspect is, with private real estate, if I invest in one or two, or maybe three diversified funds, I can feel like, well, that’s pretty good diversification.
There’s always a chance that, you know, one GP is gonna be a fraudster or something. But it’s real estate. It’s asset-backed. You know, whereas in venture capital, it feels like, well geez, I probably need to make more than one or two VC investments as an LP to feel like I have a diversified allocation to that asset class. So, due to the higher typical minimums, I think, as well as that diversification thing, I feel like it’s like, you know, you almost need to be institutional or a family office to really allocate to VC. Is that your experience, Gale?
Gale: Yeah. Unfortunately there’s a rule that the SEC enacted back in the ’40s, I believe, that requires GPs who are raising more than $10 million to do that from 99 or fewer limited partners. And actually the reason they did this, interestingly enough, is because back in the day when everything was paper-based, they just wanted to put a limit so that the folks pushing the paper weren’t gonna be overloaded. So, I’m part of some lobbying efforts right now. We’re trying to increase that number, because obviously everything’s automated today, and it’s really a silly, antiquated rule. But what it does is it pushes a lot of people out of this asset class. For me, you know, let’s say I were raising a fund today, and my fund target is $50 million, I only have 99 spots, so I have to make sure I’m getting, you know, $500k, a million dollars, more than a million dollars, from a good number of my LPs, so that I can take a few smaller checks and still get to my $50 million target with that limit.
Andy: Now, does every VC fund have… Because, I mean, there’s private equity funds, obviously, that don’t have this legal restriction, that have hundreds of accredited investors. So, is this specific to how the fund is legally… Or maybe I need to talk to your lawyer. I don’t know, but.
Gale: Well, there’s a QP, so, a qualified purchaser fund, can have up to 2,000. So, a lot of private equity funds would fall under that designation. If I’m taking money from accredited investors, that means they have a million dollars in net worth outside of their primary residence, but they don’t have the $5 million level, then I’m in the SEC reg where I can only take from 99 investors.
Andy: So, okay. So, if you have the lower threshold of accredited investor, you can actually only take on fewer investors, but if you set your threshold higher, to qualified purchaser, then you could take on more investors? Is that…
Gale: Yes. Yes. It doesn’t make sense. But yes. We love qualified purchasers. We love accredited investors. I am a founder at heart, and I’m trying to innovate on this. If we can’t get Washington to fix this regulation, one of the things that I’ve recognized is, you know, if you create an LLC, so, this is a special-purpose vehicle, and you have at least three VC funds involved in it, that means you can take 249 people to invest within this entity. They just have to be accredited. And you don’t have to pass-through count those people if each of those three managers is taking less than 40%. So, we all took a third, which is less than the 40% threshold set by the SEC, therefore it’s on our cap table as one LP.
So, I have a couple of those entities being tested right now. And what it does is it allows a bunch of people to write checks into VC funds for the very first time. And it’s interesting because the way we set it up, one has a $20,000 minimum and the other has a $40,000 minimum. Both of them are $10,000 a year. The thinking being, everyone who’s accredited is making $200k at least of salary per year, and so this is a small percentage. Most accredited individuals can afford $10,000 a year. And we want to open up funds to more people, so that they can do it at a threshold that’s safe for them, especially as early as possible in their career, so that later, when they have more capital, when they have more net worth, they might say, “You know what? I’ve really learned a lot about investing in these various funds. I’m ready to be a bigger LP.”
Andy: That’s a really interesting idea, because not only that makes it more accessible, but it’s a diversified bundle, right? Because an LP… If you’re going, okay, if a fund minimum is $500k, and I feel like I need to invest in at least three funds to be diversified, now all of a sudden I have $1.5 million allocated to VC, and maybe I want 10% of my portfolio to be allocated to VC, so that means I need a $15 million portfolio to allocate to VC, which is…right? Obviously the definition of accredited investor is way below $15 million. Even qualified purchaser is. So, I mean, that sounds like that could be a really good solution for people.
Gale: Yeah, I mean, when I first started doing deals, 10 years ago, you know, I thought that the right answer was for people to build their own angel portfolios. But it actually takes a lot of time and energy, and you have to have…
Andy: Gale, I gotta stop you there. Like, that’s me. I did it and I loved it. Like, I did it before I was a dad, and then maybe when we had our first. I actually loved it, but it was almost more…it wasn’t even just a financial thing. It was just being around founders. And then I was, like, on an advisory board in one of the startups, and that was fun. But I just, like, don’t have time for that anymore. I don’t know. And if you’re writing a check for, like, $25k or $50k, and how many of those are you gonna write? You’re supposed to due diligence all of those? It’s just, like, you don’t have the time, right?
Gale: Yeah, I mean, I personally have 45 direct angel deals, but I started doing small checks and funds. So, I’ve written $25k checks into small funds six times now, and I will do much more of that going forward. You know, in addition to what I’m doing, so, I’m a mid-size fund, you’re trying to find $50 million, as are the others that I’m working with. But there are some funds out there that are $10 million funds that will take $25,000 commitments from LPs. And so, for anybody out there that is interested in starting to write that size check, you know, I’m happy, if they DM me on Twitter or LinkedIn, to give them some names of funds where they would be able to invest at that level.
Andy: Yeah. And for our audience, I have to recommend, Gale knows…it seems like she knows almost everybody in this whole space, because she’s been operating in it for so long, so…
Gale: It is a long time.
Andy: She probably gets, like 50, 100 DMs a day. So it’s very generous of you to even offer that. I wanna shift a little to talking about angel investing now. So, you know, talked about venture capital. Angel is just more accessible. I mean, the thing I like about it, and maybe I don’t like about it, but that I like about it, is that it’s more time-intensive in a way. But, like, it’s fun. Like, to me, it’s something I wanna do maybe when I’m retired, just not even for financial returns. Like, it’s just, I love startups, I love founders. But I wanna talk about your specific angel investment platform. So, this is the VITALIZE Angels. And I know even that there are some details here, something that you guys are doing that’s really unique, to make it more accessible to even non-accredited investors. Is that right?
Andy: Tell us more.
Gale: Yeah, so, once again, I’ve been in the industry for 10 years, and for those of you who like data, I’ll share a stat with you which is alarming. The percentage of dollars going to underrepresented founders today is lower than it was when I started in 2012. And the reason that’s happening, if I take a step back, and this is a really important point for everybody to understand… The founders are getting dollars from GPs. So, these are VCs. So, the VCs are determining which kinds of founders are getting funded. And there is a certain recipe that a lot of VCs, especially the big VCs, are looking for. And that’s limited in terms of who is able to access that. Well, it’s really the limited partners who dictate where their money goes to the GPs.
And many of the limited partners, or institutions, endowments, foundations, pensions, these are really large, large pools of capital, and so they have to write large checks. And these large checks go to the big funds, and the big funds are investing in the same people. So, you see, it’s this virtuous cycle that keeps happening, and it needs to be broken. And when I take a step back and think about the business model, and is there something we can do to innovate? You know, I just told you about the fund model, where we’re offering people the ability to invest a low amount.
On the angel investing side, you have a few things that you have to do to remove hurdles. One is to allow everybody to do it, so you don’t have to be accredited. And the second is to reduce the minimum to invest. So, where a lot of angel groups or syndicates require $5,000, $10,000, or even $25,000 per deal, our minimum is $1000. With the thinking being, let’s say you’re not accredited, but you make $100,000 a year, and you have $5,000 that you wanna allocate. You can do five deals at $1,000 per year on our platform, and in five years, you have yourself a portfolio of 25 deals. And the most important thing is, you actually got your checkbook out and you wired your money, and you’ve done it enough so that you can feel the pain when something goes wrong and you can feel the excitement when something goes well, and you’re seeing the reporting, and you’re learning, and you’re getting comfortable with the asset class. It’s all about letting more people sit at the table.
Andy: That is so interesting. I’m thinking, even as an investor, as an LP, you’re, like, getting your reps in, right?
Andy: It’s like it’s better… I mean, I don’t know about financially, but if you’re trying to improve your own skill as an investor, it’s better to do more deals, to say no to more deals, to say yes to more deals, to experience more the ups and the downs, like you said. You know, like, why, as a GP, you have so many reps in, and I think, you know, that’s the reason a lot of people trust you, right? And that’s your credibility, because you’ve done multiple funds, you’ve done all these angel investments. Like, at this point, you’ve probably seen it all, right? But to do that as an LP, you’d have to have a pretty big checkbook, right? Whereas with this angel platform, it allows you to kind of succeed small, fail small, just get started, with a relatively small amount of money.
Gale: Yeah, it’s a really interesting model. We have 450 people in the group. About half are accredited and half are not accredited. And we’re seeing checks being written anywhere from $1000 to $10,000 per deal. So, you know, some people are allocating a little bit more than the $1,000 minimum, which is great. And we’re seeing a lot of interesting things, like colleges are joining together, or we have some parents who are bringing their college or just-after-college-aged kids in, and doing something as a family. And they can do that because the minimums are low. So it’s this really cool model, which it just, it opens up the opportunity for a lot more, you know, diversification, really, sitting at the table.
Andy: I love that. Just the idea of community. Yeah, like I said, that was my kind of experience with angel investing. You almost think, like, “Who is the angel investor with Google or Microsoft or whatever? They made a million X.” But that wasn’t my experience at all. It was more, like, people just having fun, and kind of networking, and building community and being supportive, so I absolutely love the idea of giving more people a seat at the table. So, does this fit into your VC fund picture? Like, are these pre-seed companies that might become portfolio companies later?
Gale: Exactly. Yes. So, if a company comes to us, they’re a strike zone fit for our criteria, but they’re pre-seed, so, they’re a little early for our seed-stage fund, we ask the founder, “Would you like to pitch our angel network?” And we explain that it’s crowdfunding, because there are some red tape factors that the founder has to consider there. We partner with Wefunder. So, we have all of that, you know, good processes set up. Here’s what it looks like. Do you wanna pitch? If they say yes, then our team will do the due diligence. We’ll put it in front of our 450 investors. If we get collectively $50,000k plus of interest, we’ll close that deal. When we close that deal, the founder gets the cash, and they also sign a side letter with us, which will allow our fund to come into the next round, if that makes sense. We’re actually, the deal that I mentioned earlier, that we’re leading right now, was a VITALIZE Angels company last year. So, we got, finally, our first one, where it came full circle, the founders knocked it outta the ballpark. We worked with them for a year. We effectively bought an option for our fund investors.
Andy: That’s so awesome. Okay. Well, now I have to ask, loaded question. I do have a dog in the fight. So, if it’s on Wefunder, it’s crowdfunded. If I join the club and I invest in 20 deals, do I get 20 K-1s or one K-1? Tell me about my K-1 situation here.
Gale: Well, here’s why I love what we’re doing. So, there’s no fee and no carry for you, the investor. And there’s no K-1 unless there’s a distribution. And when there is, it’ll be one, with all of your distributions collectively together, which is way better than anything I’ve seen. So, once we get past the part of, it’s harder for the founder, which means, you know, we have to work really hard as the VC team, bringing the founders, and we have to sell them on the process. Once we get there, everything after that is way better for our investors.
Andy: It’s just really amazing. All this stuff that you’ve done, Gale. I mean, the thesis of your fund, I love that, and just your track record. But just, like, in all these areas of the ecosystem, I feel like you are removing friction, and just improving access. Do you feel like you have, you know, are there other people in VC and angel really working together to do this? Or are you going against the grain, I guess, with your…
Gale: There are a lot of people that care about this. I think I tend to push the envelope a little bit on model. I’m working on one that’s even bigger right now, and if I can figure that out, then it will make a much bigger impact than what I’ve been able to do so far, which will be awesome. But I see little girls, Andy. I see little boys, and, you know, when they’re sitting in our seats in 25, 35 years, unless we make drastic changes today, those girls are gonna have so much of a harder time than the boys will, because nothing will have changed from today. And I say that after 10 years of experience in this industry, and, you know, I’ve thought about quitting many, many times because I have to be so much better than the guys who have the same experience as I do in order to make it in this world. And therefore I wanna use my talents to completely, you know, blow it up, and see how we can make things happen, so that when those little girls and little boys get here, it’s more of an equal playing field.
Andy: So, you know, I appreciate you sharing that, your experience as an emerging manager. I mean, I feel like VC is kind of a daunting, you know, field or industry to break into as a GP. Like I said, it’s amazing what you’ve done. Do you feel like as an emerging manager… I think I can use that term, you know, a smaller fund, what you’re doing…
Gale: I’m emerging. You’re emerging through fund III, technically.
Andy: Okay. Have there been other people who’ve kind of given you a helping hand, you know? With mentoring or anything like that? Or have you had to kind of fight your way to where you are?
Gale: The group of people that I owe everything to are the angels and the GP, or the angels and the limited partners who believed in me from the beginning. So, these are the wonderful people I met through IrishAngels, and then the fund I for VITALIZE investors. And many of them are reinvesting in fund II. And, you know, I’ve told them, “I will always, always, always let any of you invest in my future funds for whatever you can invest.” Because I really believe in giving back to them. They gave me the start here. And without them doing that, there’s no way that I would’ve been able to get off the ground. And the other thing I will mention is, the set of other GPs that I have met in the industry is also truly amazing. Being in this seat, and you know this very well, it’s the same as a CEO seat. It’s very lonely. You have to figure everything out on your own. You have to do all aspects of the business. And being able to go to the hundreds of other GPs that I know is a lifesaver.
Andy: Wow. I love that. And Gale, I just wanna thank you for what you do, because not only, you know, everything you’re doing, removing friction, and just being creative, and trying to expand access. You also just… Back to the beginning, you’re sharing all this stuff online, you know, on LinkedIn and on Twitter and everything. And I feel like that’s already helping the next generation. I mean, I know you’re technically an emerging manager, but I also kind of feel like you’ve made it, you know? But, I mean, you definitely have. But you know what I mean.
Gale: There are many days I don’t feel like that, Andy.
Andy: Well, you have. I hereby officially declare that you have made it. And I feel like just sharing the process, ups and downs, and all of that, that’s helping influence, you know, the emerging managers of even five years from now. So, I really appreciate just everything that you share online. And also, you know, the cool opportunities that you’ve talked about today, especially the angel investing group. I love that. We may have some potential LPs for the venture capital fund listening. So, that being said, where can our audience go to learn more about VITALIZE Venture Capital?
Gale: Sure. We have a website, vitalize.vc. Or you can send me a direct message on LinkedIn, at Gale Wilkinson, or on Twitter. My handle is @GaleForceVC.
Andy: And I’ll be sure to link to all that stuff in the show notes, so you can click it easily. Gale, thanks again for joining the show today.
Gale: Thanks, Andy.