By Ryan Hoover on Jun 24, 2021
We just closed Weekend Fund 3.
Thanks to all of the LPs that put their trust in us and for the portfolio founders that brought us onto the ride. :)
Our third fund is unique. We raised from over 350 LPs. The majority of the fund was filled by existing LPs but this time we opened access to a wider group of founders and operators through our Community Raise. Over 1,000 people applied.
After announcing our Community Raise, many asked, "How were you able to raise from more than 99 LPs in public?" Very few people know about 506(c) funds, Qualified Purchasers, and some of the nuances involved in fund construction. And that’s not a surprise. Relative to founders, there’s little information online about how to setup and run a fund[1]. That’s why we wrote about our LP update process and software stack.
If you’re keen to learn about how and why we raised from several hundred LPs, read on.
Most funds are structured as a 506(b) which doesn't allow for general solicitation. In others words, you can't publicly talk about a fundraise. As a result, most funds are raised in private, through pre-existing relationships or those that are already plugged into venture fund deal flow.
But a 506(c) fund can publicize their raise through a blog post, tweet, etc. This introduces a hurdle: Every investors needs to provide proof of accreditation, such as bank statements or a written affidavit from their accountant.
Weekend Fund 3 is a 506(c). We raised the majority of the fund from our existing LPs first. They backed us first, so it felt right to give them a first look. Afterward, we announced our Community Raise on Twitter to bring on small checks from operators and founders outside our network from various backgrounds and expertise.
Most funds are limited to 99 LPs. But they don't have to be.
Weekend Fund 3 is made up of two parallel funds – a QP fund and non-QP fund. Qualified Purchasers (QPs) are individuals or a family-owned business that owns $5M or more in investments, excluding one's primary residence[2]. QP funds can accept 2,000 LPs.
LPs that are not QPs, invest in the non-QP fund. These funds can accept 250 LPs as long as the fund is <=$10M.
As a result, we can accept 2,250 LPs across both funds. When we invest in a company, we write two checks from each fund, proportional to the size of each fund so that all LPs get equal exposure.
Li Jin, and Kevin Kelly before her, highlight the value of "true fans", people that are highly invested in the success of a creator. A relatively small number of true fans can have a major impact.
A similar dynamic exists in venture. Venture is inherently relationship-driven as we all share deal flow, help one another with diligence, and together support portfolio companies build and scale.
Many funds view LPs as simply capital and raise from as few as possible. Rather than limiting our raise to a small group of people in our existing network, we sought to onboard “1,000 true LPs” that are genuinely excited to support with skin in the game.
We have some of the most well-connected and experienced founders, designers, marketers, engineers, and operators from around the world. They work across industries at companies like Airbnb, AngelList, Coinbase, GitHub, Google, Instagram, Reddit, Stripe and many promising early-stage startups.
Weekend Fund isn’t the only one taking more of a community-driven approach to venture. Earlier this year Arlan Hamilton from Backstage Capital raised $5M from over 6,500 investors through Republic. Tyler Tringas from Earnest Capital raised $1.2M from the crowd. This is part of a broader shift toward a community-driven, ownership economy.
We view Weekend Fund LPs as a value-add; an extension of our two-person team and foundation for some upcoming community-driven experiments. If you're interested in being a part of it, subscribe for updates. 😊
[1] Fund managers might find these resources useful: Sapphire Partner's OpenLP, Samir Kaji's writing, Harry Stebbing's 20 Minute VC podcast, AngelList's Venture Education Center, and Lolita + Josh Taub's GP-LP Matching Tool.
[2] Technically there are more ways to qualify as a QP. Read more here.
[3] We’re hiring a third teammate! We’re looking for a part-time community builder to help with some experiments. More details here.
[4] AngelList runs our back office and enables us to operate our unique fund structure without headaches. If you’re starting a fund, you should speak with the team. I’m biased, but they’ve been fantastic to work with and have a bunch of innovative things coming soon. Happy to answer questions about this over email if I can help.
[5] Disclaimer: IANAL. You should consult a lawyer or your fund's back office administer to ensure you're following SEC guidelines.
