March 1, 2021

Rolling funds and how they are different from regular funds. By Jonathan Wasserstrum

Rolling funds and how they are different from regular funds. By Jonathan Wasserstrum

Jonathan Wasserstrum, CEO and Co-Founder at SquareFoot and lead of a syndicate and a rolling fund talks about running a rolling fund, how it is different from a regular VC or a syndicate and also what difference does it make for the founder which entity invests in them. We also discussed Jonathan's own fundraising experience and where he believes the PropTech industry is headed.


Jonathan's LinkedIn: https://www.linkedin.com/in/jonathan-wasserstrum-8a77533/

SquareFoot: https://www.squarefoot.com/

Link to Jonathan's rolling fund: https://angel.co/v/back/jonathan-wasserstrum

Jonathan's syndicate: https://angel.co/jonathan-wasserstrum/syndicate

Zach Aarons, Co-Founder and Partner at MetaProp.vc talks about PropTech on Fundraising Radio: https://www.fundraisingradio.com/Zach-Aarons/

Transcript

And today's a guest speaker, we have Jonathan and Co founder at square foot also syndicate lead and a manager, all for rolling fund.

And they SAP is a, we'll talk about all those 3 things and especially about the rolling funds how they work. How are they different from normal funds? How are they different from syndicates and.

What difference does it make for a founder choice from a rolling fund versus from a regular fund so, Jonathan, let's kick it out by you giving us some background on yourself and on square foot.

Perfect yeah, thanks so much for having me see, my my quick story. Grew up in in Houston, Atlanta, for college DC after that.

Most of the time doing commercial, real estate at, which is 1 of the big commercial real estate services firms was doing capital markets works essentially helping people buy and sell big buildings.

Who's doing this during the last recession, which was an interesting time to be.

Doing that not the most lucrative few years of my life, but learned a ton had a lot of fun move to New York for business Columbia in 2010.

And shortly after that start, I got a call from a friend of mine who was looking for space to his last company.

Gig online and try and do that. I thought you could find office space online. You can't. So we decided to fix that that square foot square foot similar to a compass or Redfin for office space. What that means in practice. We have online listings.

Uh, which brings transparency to the market to us, it's the best aggregator of tenant demand ever and then we have in house brokers who work all those transactions because everybody who's looking for space in addition to access to inventory also needs help with that transaction.

And because we're a tech company, we're also building products for our clients and for our in house brokers, it's a lot of fun.

Sounds like it's speaking of fun. We're moving on to the next question, which is a lot of fun. So, 1st of all you are syndicate leads. You also run a growing fund.

You are also running a company and you also mentor some startups. How do you manage to do all those things at the same time? Yeah, I mean, they all they're all extremely symbiotic. Right? So I got into angel investing.

Because I had friends who I met through work or through business school, whatever who were starting companies or.

Other people who were reaching out when they were starting prop tech company and, by the way we were doing prop tech before contact was a word. So, we would get people reaching out saying, hey, starting this thing would love to talk to you about it and going back kind of 5 or 6 years ago. When things were interesting.

I'd say this is really cool. Like a 2000 dollar check. Did that a handful of times was having fun learn a lot.

And then middle of 2018, I guess somebody told me about AngelList the syndicates. So, 1st, I started participating in them as an L. P. again really?

Small checks actually, even smaller than the 2000 then after a couple of minutes. And I said, wait a minute, why don't? I try and run my own syndicate the deals that are coming to me.

Um, through my activity at square foot don't look any different from the deals that I'm doing here like, participated. So why don't I try and run a syndicate so yeah start doing that the end of 18 and yeah, it's been going. Great.

I've been doing that for a couple of years. It doesn't add and the rolling fund is actually just an off growth of it.

Um, knock on wood the syndicate does really well, you know, we have more than 1200 backers now, but what happened I guess last summer, there was 2 deals I wanted to do.

Where I said great this is awesome. Like you're doing can I please have 100000 allocation?

And the CEO said, Jonathan really, really want you involved, but I came and gave my brother 100000 on occasion.

Can you write, you know, 25000 dollars, check yourself and I say, I can't be right in 25000 dollar text myself.

In any ways, my dumb luck would have it. That's when AngelList was launching their rolling fund product. So I said, great. Guess I'm going to start a fund.

Um, and with the fund, we only do prop tech.

Uh, the L P's kind of 80 to 90% of real estate or pop tech executives, the rest are kind of just people either from the syndicate or elsewhere who just want kind of financial exposure to.

Uh, early stage startups, so having rolling fund doesn't add any time on the syndicated.

Quite frankly having the syndicate doesn't have much time on my day job and by the way it's like my hobby. Right? So, you know, after work, I have dinner with my wife, we put the kid to bed 8 months old, spent a lot of fun.

And I just I don't, I've never been into TV and especially now during quarantine.

And we moved to the suburbs, like, my Tuesday nights look really different. I'm not getting dinner with a client not getting dinner with a friend.

Just like sitting on the couch, so it's giving me cycles to get involved with all of this and it's been it's been a lot of fun.

And that's really cool and yes, it sounds.

Insane how how cool it can be especially independent. I'm making a, having a fund as a hobby is just 1 of the variety of benefits that they spent and they gave us which I personally love as well, to be honest. So, let's talk about the rolling funds.

It's a Pre new concept that was rolled out by angel list and it's.

Pretty good product. So, can you tell us a little bit more about rolling funds? What are the major differences between the normal funds? You know, old school VC funds versus this rolling fund?

A couple of things will look 1st for me. I mean, this is like, kudos. Angellist Angelus has a non rolling fun product too, but Angela you asked about, like, how do I spend time? I had I have time to do all this.

It takes like, 0T time to do. Angeles does everything. Like that they deal with all the funding.

Collecting checks, and then when we get allocations, they deal with all the closing. It's my job to find allocations both for an LP perspective and from the fund, you know, companies we invest in perspective but that's all I do.

So it's really the minimum time.
Um, anyway, the main difference between a rolling fund, and a non ruling fund is that we.

Uh, take capital on a quarterly basis. So if you really like, what I tell you today, or some of your listeners really like, what I tell.

Y'all today, you can join the fund today. We're actually almost valentine's day. So we have kind of like 2 weeks left of this quarter. We'll take new commitments and then it closes and then we open it again next quarter. So that's 1 thing.

Because if I have a traditional fund, I tell you a bunch of really cool stuff you say. Oh, this is so awesome. I'd love to get involved.

I'll say, let's talk in 2 years and I'm fundraising, so that's 1, 2, because of whatever crowdfunding regulations past as part of the jobs that I can actually publicly solicit. Right?

So, I can say, hey, everybody, what I'm doing is really awesome. We're investing the best prop tech companies alongside some of the top investors in the country in the world.

You should come invest alongside me. I'm allowed to do that. Not risk getting arrested. I don't want to get arrested. So that's the other thing that the rolling fund affords.

Right, right, right. And that's the last part is especially important. It is.

Presale for the founders of those rolling funds to disclose that publicly and bringing investors. So, from the founder perspective, because most of our listeners are founders and not people have 7.5 K.

plus per quarter to invest in rolling funds from the founder perspective. What's the difference between raising money from a rolling funds versus raising money from a syndicate?

Uh, well, 1st off, we are flexible for founders so if anybody's interested just.

Ping me, I'm sure we'll get to my information later, just reach out and I'm happy to have founders in for well, less than the minerals. We've done that a bunch of times today. So that's 1 to the difference for a founder.

Taking money from a funder rolling fund is the exact same. The money's green the difference between a syndicate and a fund and a.

In a fund or a rolling fund, is that with the fund or rolling fund, it's committed capital. I don't have to go pass the hat. I can say.

Hey, Sally love what you're doing. We're in and I don't have to go talk to my 1200 closest friends about.

Trying to get them in. Right? Fill in the syndicate Cindy kits that size where I don't ever lose sleep, knock on wood for a good quality deal, filling it but.

There's a chance and also it takes like, I can fund.

If I like what you're doing today, I can write you a check from the rolling fund tomorrow. So there's that also like, speed to closes there but there's also some benefits of taking mine from the syndicate.

Like, the syndicate has 1200 people, super, super successful founders and CEOs and execs. Um, in tech, and in other real industries, too.

Um, and depending on what your company does, those can all be value added investors anywhere from, like, actually value, add investors. How like to talk about it to actually.

You know, we did a, we've run 2 syndicates now for 1 of my favorite companies Porter road, which is direct to consumer me.

And they've gotten dozens of new customers from my syndicate so that's good for them. Yeah, I know that's syndicate.

So now, let's see, again, from the founder perspective, when they're raising their 1st money, they have so many options. So they have individual angels. They have angel groups. They have Cindy, because they have rolling funds. They have normal funds.

They have debt financing. They have.

Probably something else we should have forgetting, but point is there are tons and tons and tons of financing options for every single start.

So, from your perspective, from the perspective specifically off, which 1 seems to be the best on early stages, so let's call it Pre selection stages.

There is no better or worse. I mean, there's probably some bad, but actually, I'd have to scratch my head and think look a live. It depends on like the company the stage of the company.

What the company's trying to do, um, you know, it's not a helpful answer, but it's. It's also helpful answer because if I said.

X is the best answer that X is the best. Then somebody listening would go spend all their time trying to chase X and for.

Somebody that might actually not be the right answer.

So, I mean, look, dead is probably the only 1 that's probably the closer to a wrong answer, just because it's hard to get that early stage because 2.

Yeah, I don't think that vc's are better than.
Major investors are better than.
You know, your rich uncle, it just depends what you're trying to do over what timeframe. With them, we're running a syndicate now for a company.
That is only taking money from angels and they're raising.
Several 1M dollars only taking money from angels.

Because the product that they are, um.

The company is making all the people who.

Angel and best pledge to become customers. So now they're going to get like.

50 or 60 customers.

On day, 1, and this is a group where, you know, it's 3 or 4 founders all of whom.

Successful multi time founders, they could walk up and down Santo road or whatever people do now on zoom.

Uh, and raise whatever money they wanted to raise, but they said, look that money will be there for next round.

Let's get a whole bunch of early if we're going to raise money.

Now, from these people who both will give us customers, like, they will be our customers and to we'll also.

Um, get a lot of feedback on the product from them, because it's a product we're all committed to use.

As opposed to a check from a partner, a firm, and hoping that the rest of the partners at that farm also help out.

Right, right, right. And very accurate response. And again yes, there is no, no golden bullet.

Silver gold, silver bullets, but let's pretend that I'm a founder. I know that I really don't care who I'm going to raise money from. And now I just want to try out every single option for financing.

How much time do you feel like? I should spend on every sector, so. For me,
personally,
like,

from my current perspective,

I could say that maybe reaching out to a 100 plus investors in each sector will be enough to tell if they are interested or these sectors specifically might be a good fit for me or not from your perspective.

What do you think is the ideal number of outrageous.

I don't know about, like, per sector, but, I mean, whenever we raise, even when we did our series B, at the end of 19.

I mean, you're talking to 100 people easy.

Right, yep hire people. That's, uh, that's I think 100 people is the normal answer for pretty much every single round, but since you mentioned square foot, let's talk a little bit more about that. You've raised.

Up to series. What's yours? Are you on? Right now? We did our series B at the end of 2019. nice. So looking back at your very 1st Pre C round would you see the major difference between your approach

to preceded versus your approach to the series? B.

I mean, look when you're Pre seed or seed, you're telling the dream a dream.

Later stage, you're both selling a dream, but also have to have underlying metrics.

So the conversations are a little different.

Look for us personally no, we're doing project. Like I said, project wasn't a word when we.

1st, started this when we 1st, did our angel round in August of 2013 so, like, the 1st, half of a lot of the conversations we would have was actually, like.

Educating the investor on the industry, and that's almost never going to result in a yes.
So, it's been awesome that the industry around us as industry being.
Financing for real estate technology companies has grown. Now there's.
Dozens of people who write those checks, if not hundreds, where at the time there was like. A handful, so it's a much more fertile, much more fertile ground these days.

Very true, and he has his 21 there are tons and tons of money out there, floating in the private equity world. So just figure out where to find it. So, speaking of finding money and.

Actually,

I might not speaking of that,

but speaking about my favorite topic discussing mistakes of that past,

so,

you know,

looking back at your previous fundraising experiences for square foot,

maybe for other companies,

or maybe experiences that you just saw in your career,

what was the major mistake you saw founders making where you personally making while fundraising?

It's a good question.

You know, not, I'm just I'm thinking, I mean, so, like, the things that you're supposed to, that you want to create momentum.

So any time you're not paying right to that to the state want to.

Uh, you know, right running type process. We've probably been guilty of this. I've seen others be guilty of this, but.

Uh, you know, not stacking meetings, you know, you're there fundraising or you're not.

The joke on me, because you're not fundraising if somebody asks if you're talking to a, by the way about your company, you're not fundraising and then you don't start saying your fundraise until you have a term sheet.

Right because you don't ever want to do.

Is, uh, give the, um, uh, sort.

Gives the appearance that it's like a steel deal that everybody's saying mm.

You just you have conversations until you're almost done and then you're fundraising if somebody asks. So we're wrapping up fundraising now.

Because people are in general and vc's, I think in particular, I don't have a lot to say this type of stuff, but yeah, although the self aware ones will admit it. Everybody's heard.

Right. So it's like, um, our CFO was talking about at all hands a couple years ago and you're doing.

Our last round, which was like, it's like a high school dance. Everybody sits around at the edge of the dance floor and, like, kind of nervous and awkward and shy. And then once on the floor, everybody wants to be on the dance floor.

And you go from, like, you can't you can't sell a share of stock to Holy s***. Like, we're oversubscribed for.

And that's a very common thing for a lot of people.

And that's actually great. An analogy I absolutely love it. And it is very applicable to the real world. So, 1 more question on creating this momentum.

I've heard this advice from pretty much every single investor that I spoke to, or from every single founder that raised money in the past successfully. So, what's your advice on creating momentum? How should founders approach that?

Especially with founders who is networks might not be super huge.

I mean, I think, you know, like I said, you you start by having conversation for not finance and hey, hey, George, you know, working on building this.

App for dogs, and we just like to get your thoughts on it.

So, it's not hey, George, I'm raising right there's this, the old joke, right? If you want advice, ask for money and if you want money, ask for advice.

So you start just by having conversations because you might not have to be ready to fund, right? Just because you want money and need money doesn't mean you're right or fundraise.

So you should actually have as many those early conversations you can to, like. Refine your pitch, I mean, your pitch out on me and you're like, 12.
Page slide deck, but what are you actually sell.
Right so you want to have a bunch of those conversations to refine all of that. And then you create a momentum by all of a sudden, like.

Great we have something interesting. Somebody interested.

Uh, we're ready to start moving forward and then you tell everybody else to talk to you already that that's happening.

And the momentum kind of creates itself and a good example of this kind of momentum is 1 of my VC friends reached out to me to see if I know someone in tech to give feedback on.

An idea that she was about to invest, and at the same time, a literally like an hour before that email, I got a pitch deck over the same exact company from another person. That's that's an example of a good mindset. Like, okay, there should be something interesting.

That company since 2 people at the same time, reaching out to me about this company.

I should take a look at it and I did and it was pretty cool, but unfortunately too late for us, but that's a different story anyhow, on this optimistic note and super helpful advice we're moving on to the last question of today's episode. We choose a call to action.

So, Jonathan, what is the 1 thing that you want to listen to do? Right after the episode is over.

Well, 2 things, 1, I've been need office space goes Square, foot dot com and then 2, they want to angel invest. They should back my syndicate.

What you can find on AngelList or my rolling fund.

You can also, this is a long way to say 1 thing the link, a certain, my Twitter bio to reach out to me on LinkedIn. I'm pretty accessible across all this.

Very true. I'll make sure to leave all those links in the description of this episode. So there is going to be a link to Johnson sends it kids to seem to catch.

And as a single also to rolling funds to Jonathan's to where to Jonathan's LinkedIn, and to probably to something else, most likely to some other episode.

On top tech investing more fundraising that we have here on fundraising radio. So definitely my call section is give me check out those groups since this episodes. A bunch of helpful stuff is going to be there and.

As usually go.