FAQs – Frequently Asked Questions about the Triangle Tweener Fund
This page is a repository for the most frequently asked questions I receive. They are presented in a pop-down format so you can see all the questions and then pull down the ones interesting to you.
Q: Can I invest from a 401k or IRA?
A: Yes, most IRA/401k’s are setup to only invest in public companies/ETFs/mutual funds. There is a category of IRA/401k called a ‘self directed IRA’ that allows you to invest in a broader set of investment vehicles (assuming you meet all the other criteria) such as this fund. AngelList has a helpful article here and you should talk with your IRA/401k administrator to verify they provide this option: https://help.venture.angel.co/hc/en-us/articles/360047685192-What-is-a-self-directed-IRA–
Some folks have requested help when applying to invest through an IRA or a trust. This page has very good help information on what boxes to check for your specific situation: https://help.venture.angel.co/hc/en-us/articles/360057863351-Accreditation-Overview
Q: How often will you be communicating with investors (LPs)?
In the AngelList Rolling Fund ‘platform FAQs’ it states that the GP has no obligation to communicate which has raised a lot of eyebrows. I can tell you that’s the opposite of the plan. One of my core tenants of business is transparency and heavy communication. As you go through signing up for the Fund, you will see some checkboxes and in the AngelList rolling fund FAQ it says there is no legal requirement to communicate – that is true, but I will be planning on a variety of communications:
- Real-time public portfolio announcements via blog posts and social media.
- Monthly LP confidential communications with portfolio details
- Quarterly LP confidential communications with updates on the portfolio and details on new investments (financial terms, etc.)
- (maybe) regular LP-only zooms to talk about the deal flow pipeline, introduce portfolio co ceo’s and work on match making portfolio co’s that need assistance with LPs.
Q: Subscription-related questions: When in a quarter can I subscribe to invest in that quarter’s portfolio? What happens when I raise/lower my subscription. What happens when I cancel/pause?
A: One of the reasons I chose to build the Tweener Fund on the rolling fund platform is the flexibility for the LP. My goal is to exceed expectations so that you not only stay as a subscriber, but consider increasing your investment amount and duration over time. That being said, the rolling fund has a lot of great features for LPs.
First, you can subscribe up to the end of the second month of a quarter and participate in that quarter’s portfolio. Under the covers, I believe the way AngelList manages the rolling funds is that because each Q can have a different set of investors, they lock down the LPs at the start of month three of the Q and form an SPV for the Q under the hood that represent’s that quarter’s investors and investments for tracking purposes.
The minimum investment for a new investor is $5k/Q and 4 Q’s or $10k/yr. You can invest more and longer and change your subscription (above the minimum) at any time. Here are some examples:
- Example 1: You start with the minimum subscription (4Q’s x $5k=$20k). In Q3, you decide you’d like to increase your investment to $10k for that quarter. In that quarter, assuming no other LPs change their investment, your relative ownership % of the quarter’s portfolio is doubled.
- Example 2: You start with the minimum subscription (4Qs x $5k=$20k) and at the end of the first year, you have other liquidity needs and decide not to invest in the 5th or 6th quarter. In the 7th quarter, you decide to come back into the fund. This is one of the features of the rolling fund subscription model. But, it’s important to note that during the 5th and 6th quarter, you are not investing in the companies that will be in the fund’s portfolio added in those quarters.
The fund’s strategy (detailed in the Fund Detail section) is to make a large number of smaller early-stage investments each quarter. With this strategy is best to invest a longer time and not miss a quarter vs. a shorter time with a higher amount. This increases your chances of ‘hitting a winner’. For example, if you have $100k, it is a better strategy to invest 5 quarter’s for $20k/Q vs. $25k/Q for four quarters.
Q: Why do you require investors be ‘accredited’? What is the accreditation criteria?
A: The SEC requires that investors are accredited investors. AngelList has a great explanation here with links into the SEC rules if you want more clarification. AngelList will run a qualification process asking for proof of accreditation status, you will see that in the work flow of signing up-> https://help.venture.angel.co/hc/en-us/articles/360048803251
Q: What data do you have that suggests this will be a good investment?
A: First, you should be 100% aware that investing in startups is very risky and they have a very high failure rate. Also, as a well known local entrepreneur/angel investor, LP in IdeaFund Partners, LP in co-founders Capital and LP in Bull City Venture Partners, I have confidential access to most of the venture deals done in the Triangle over the last 5-10yrs. As the author of the Tweener list, I also believe i’m the only person/entity tracking this basket of companies over a long arc. What I have observed is the Tweener criteria tends to result in a set of companies that have historically had both a low failure rate, a high fund-raising rate and a high exit rate.
Because of this, I have been very early to learn of companies in the Triangle that have done quite well: Pendo, CloudFactory, ArchiveSocial, Spreedly, Nugget, Candle Science and FilterEasy are examples where I got to know these companies and their founders/team when they crossed the min threshold of the Tweener list which is $1m annual run-rate. You can see the current tweener list here. https://scotwingo.medium.com/2021-triangle-tweener-list-544125ee87b4
I’l conclude by saying this again: Startups are risky, the past performance is in no way a guarantee of future performance. You could lose your principle investing in this fund.
The entire fund’s strategy is detailed in the “Fund Strategy” Section, so definitely check that out if you haven’t yet.
Q: Why would Tweener companies want this fund as an investor?
A: This fund has 20+ of the top entrepreneurs in the area as investors and over the first year will create a brand of being the first call startups make when they reach the Tweener level. One of the unintended positive side-effects of the Tweener List has been that I get to know the founders of companies as they scale up to reach the Tweener :ist. Having your company ‘make’ the Tweener list has tons of benefits, but the biggest two are:
- Great senior candidate flow
- increased VC activity
This creates a v
Q: How many Investments will you make?
A: The fund’s goal is to make 5-10 investments a quarter which would be 20-30 a year. This ties to the fund’s index strategy detailed in the Fund Details section. Over the course of 2-3 years, our hope is to have as much coverage of the Tweener List as possible.
Q: What size investments will you make?
A: At the time of this writing, the fund is starting it’s initial fundraising and the quarterly size of the fund isn’t know. I suspect there will be a range of $250-500k/Q. With a target of 5-10 investments per quarter, this yields an average investment size of $50k. If we can increase the size of the fund we’ll first seek to invest more and then once we’ve maxed out the investment quantity, we will increase the investment size.
Q: Will the fund’s investments meet the section 1202 criteria?
Generally, yes. There are certain requirements placed on partners that could exclude one or more partners from utilizing the benefits of the Sections 1202 or 1045 classification.
- Partners must have been partners in the partnership at the point in time that the partnership made the equity investment in the company.
- Corporate partners cannot utilize these benefits.
Additionally, the company stock must meet all of the requirements from Section 1202 to otherwise qualify as “small business stock.” This is irrespective of the investment being made through a partnership.
To learn more about section 1202 tax benefits, talk to your financial advisor
Q: Will the fund buy secondary shares?
A: No that is not a focus of the fund – primary shares only.
Q: Where is the fund’s prospectus and deal documents? Do you have a PPM?
A: Unlike a traditional venture-fund, the Tweener Fund does not have a Private Placement Memo or documents to sign -everything is handled electronically. This site has all the background information available and the documents are all done through an online process that is initiated at our AngelList site here.
Q: What is the form of investment Tweener Fund will be making? (debt, equity, ?)
A: The Tweener Fund’s focus is equity(stock) investments in early-stage high-tech startups. There are three primary vehicles to achieve this:
- Venture capitalist led rounds – The Tweener Fund will invest along side venture capitlist rounds (seed, series A, etc) that usually is in the form of preferred stock
- SAFEs (Simple Agreement for Future Equity) – SAFEs are a fast, easy and startup-friendly way to invest in early stage companies. The basic concept is they ‘kick the can’ on the valuation question by instead providing early stage investors a discount, a cap, or ‘ceiling’ or both on a future round.
- Convertible notes – Like SAFEs, but they also can add a debt component. A great video on this topic can be found here.
Q: How does the Investor/LP make money?
A: Because the Tweener Fund invests primarily in startup company equity, there are four potential outcomes:
- The company fails and the investor loses the investment
- The company continues on and does not have an exit (frequently called a lifestyle business)
- The company is acquired (M+A)
- The company goes public (IPO)
Investors make money in scenarios 3 and 4 and thus, that’s the focus of the Fund.
Here’s a theoretical example:
In Q2 2022, the fund invests in CompanyX – investing $50k at a $1m post money valuation and let’s say the fund owns owns 50,000 shares at $1/share. 18 months later the company raises a Series A at $3/share, then 2yr later a Series B at $6/share and then is acquired for $10/share. This is a 9x return for the fund. The fund put in $50,000 and the shares are now worth $500,000, or $450,000 return.
To keep the math simple, let’s say back in Q2 2022, there were 50 equal Tweener Fund investors, each effectively owning 2% of the fund. The $50k investment in CompanyX was $1k per LP and now is worth $10k/LP
There is more complexity in there around pro-rata rights and possible down rounds and what-not, but that’s the ‘holy grail’ scenario for startup investing success – Find a company early, get a great deal on their stock and then ride it up 1/2/3/4/5….25x to a big outcome.
It’s important to note that for early-stage startup investments, the timeframe for these types of exits is typically 5-10yrs, this is not a short-term return investment vehicle.