Jason: Hey, so excited to be back from our sabbatical. We were hard at work running the fifth cohort of my Fundraise with Confidence program. It's become so involved that pausing production of Funded was really our only option. But now we're back. Same great content with a new, amazing producer who you'll meet later. Enjoy this episode. And if our podcast has been helpful in any way, please pay us back by subscribing and dropping a rating or review. Thanks.
Lolita: It is a lot of work to have a lot of LPs and they are smaller checks, but the point of this coming into VC wasn't ever to be traditional, to do the status quo. It was to really change the scene.
Jason: This is Funded, where founders who raised millions in venture capital share the gritty side of what it actually took to get that money in the bank. I'm Jason Yeh. Not too long ago, I was trying to get my ideas funded. And back in the day, I was a VC listening to founders pitch me for money.
Jason: Choosing to break the status quo with anything in life is tough. Some might even say it's not worth the hassle. But for Lolita Taub, breaking the standard set by the VC industry is not only worth it, it's her life's work. What started off as one Latina apprenticing at various VC shops and writing small angel checks to make a name for herself eventually became a well-known online personality with a large following and an opportunity to start her own venture capital fund, Ganas Ventures. A VC firm focused on funding minorities in the US and Latin America, running community-driven startups. That description ruffles some feathers in the industry because it flies in the face of what we see today, where greater than 80% of VC backed founders are men, and a similar percentage are white.
Jason: Tackling a tall order like disrupting the VC establishment takes incredible grit and passion. Unsurprisingly, much of that grit and passion can be traced back to some of Lolita's earliest memories.
Lolita: So, imagine this, right? My parents immigrated from Mexico to the US for the American dream for their children. They had already determined this, and little Lolita is living in a garage that her dad turned into a one-bedroom apartment. We were really struggling to make ends meet, didn't know anyone in the US, so we were really a core family, and that was it. Life was tough. I grew up in South Central Los Angeles, which you may actually know where it is, 69th Street and Hoover, and it's a gang-ridden area. So you can imagine that on weekends, we would hear gang members being initiated because it was actually a dead-end street to an elementary school. But this is where a lot of the initiations happen. The Rodney King riots were there. So this is a lot of where I grew up. But my parents had this dream of having the American dream be something that was possible for their kids.
Jason: I don't want to rush ahead too far because you did set the table for a fascinating conversation for the future. But the picture that you painted about where you grew up is fascinating. And I think people come away from those experiences with different personality types. You right now, this is actually the first time I've met you face to face, at least digitally. I've seen you online, but you have a very bubbly, outgoing personality. Someone that has a magnetism to her ability to talk to people. When you were growing up, did you have these opportunities? Either be entrepreneurial or the idea of asking for money? We're going to talk a little bit about you raising money, but was that something that was natural to you as a younger person?
Lolita: Is it a transferable skill?
Jason: Exactly. I want to...
Lolita: Is there a transferable skill set from childhood? Not fundraising in general, but I think what is very much congruent is that when you come from little to nothing, when you're struggling, you have to do with what you have. You have to start with where you are. You have to do more with less. And so, while some folks are struggling in a downturn for the first time in their life, this has been my life, and this has been the life of many other underestimated, underrepresented founders, GPS, and the list goes on. And so, Ganas Ventures, right? The name of my fund, Ganas, means persistence, grit, overcoming resistance, continuing to push forward. There isn't a clear definition, and if you ask any Latino, what does Ganas mean to you, it can mean something very different. But the core of it is this passion and power of continuing to drive through things. And so, that is what I bring from my childhood. I bring the, you know, on the daily, my dad and mom would say, "Give it your all." And I bring that to venture capital. And if you come from not a trust fund, not the network that has the money, you don't have a trust fund to fall back on. If your VC fund doesn't work out, you really need Ganas. And, and so, here I am.
Jason: I think that is actually a great transition to the conversation that I want to have. This idea of Ganas and whatever it means to you, but grit in a sense where I'd like to take the conversation is we can kind of lightly touch, or we'll just describe, your lead up to starting Ganas. And what I saw in your background was a career in tech, it looked like in sales. And then, it seemed like a very determined effort to work within this world of venture capital and get your experience at multiple funds that, um, a lot of people know very well before starting this. Where along the journey did you have this idea that at some point I'm going to run my own venture capital firm? Was this a game plan that you had set out with right before you joined your very first venture capital firm? Or was there something along the way that triggered this idea that I think I can do this myself?
Lolita: Yeah, great question. I don't think that, again, I was never like, "One day I will run my own VC fund." I think at the juncture point where I am coming into this world where I see so much opportunity and so much money left on the table because we're not backing founders because they don't fit the status quo. Silicon Valley, my goal becomes, "I want to go and become a check writer." It wasn't, "I want to start a fund," it wasn't, "I want to do X, Y, Z." I was determined to break into VC, and the status quo VC at the time didn't think I fit. I went to interviews in Silicon Valley, and a lot of what I got was wrong school, wrong background, wrong network, wrong deal flow, and then George Floyd happened. I was continuously working on building and supporting our ecosystem and getting money into the hands of awesome founders from the underestimated, underrepresented community. George Floyd happened and all of a sudden, everyone is like, "Lolita, can we please have you help us find deals? Can we give you money to scout for deals? Can we do this and that?" Now, I think the timing really helped certain people in the industry have the opportunity to pitch for capital, to be deployed in communities that are underestimated, underrepresented. So, I am very happy and grateful for the opportunities that came. But it's been this long journey of where the market certainly has underestimated undervalued people of color, LGBTQ, women, and so on. And at times also said, "Here's some capital." And that's certainly some of what started to allow me to really break in and lead the path. So, I became a Lightspeed scout, and I also relaunched another fund called the Community Fund prior to even starting Ganas Ventures.
Jason: Got it. So there were certainly challenges to get to this point, to even think that not only will I be a check writer, but an opportunity to maybe run my own fund. Um, at some point you did say to yourself, I am gonna do a fund. And this part is going to be interesting. For me, I've been parts, as a junior person, parts of fundraisers for venture capital firms, but never have really done it myself. So I talk about preparation for fundraising quite a bit because I think it's extremely important. Right. After you had this thought, I'm gonna go raise a venture capital firm for myself. Talk us through what it takes to prepare to raise a venture capital fund. Because I think like, I think founders that, you know, normal founders, not venture capital founders, don't realize that in many ways, raising a venture capital fund, the fundraising for a VC fund is much harder than the raise for a startup. So tell me a little bit about, I'm like, I'm gonna do this. What's next? Like, how long does it take you to prep, say, I want to go raise a fund, and what are the steps that go into that?
Lolita: Yeah. Uh, first I'd like to answer the question of how do I go from wanting to write checks to raising my own fund? Because I had the opportunity to co-run the Community Fund and really get all the nitty-gritty of the background of what is managing a fund because, as you said, very similar to startups that VCs, we are also a business with operations, so you have to think of the legal, the finance, everything. And so one thing that as I started getting into my VC career and investing and getting up to over 90 plus investments, I felt very comfortable with what is, and what does it mean to be an investor? I didn't know, uh, for a long time.
What was that back office work? What was, what did it mean to run a VC fund? And when I had an opportunity to co-run the Community Fund, I learned a lot of that. Now. What caused me to go and launch my own fund was this realization of, look, this is my life's work. This is the only industry, the only thing I could do where I see that I can make a humongous change from a financial perspective and give my family a better life, but also in a, the community changing who we back, changing who backs who in the ecosystem. And um, that was all great and done, but I was working a full-time job and doing the Community Fund, and I was getting burnt out and I said it because my fund was just paying me and Carrie. And so this was a great opportunity, but it didn't pay the bills.
And like you said, Jason, there is some misconception sometimes that VCs are rich, but not all of us are rich, and I am one of those non-rich ones. And so I had to take a job and run a fund, and then I realized, you know what? This is way too much. Uh, if I'm really gonna go in, I'm gonna go in and, and launch my own fund, raise my own fund so that I can pay myself a salary and make this my full-time living. And so when I decided that, then that's when the question that you just asked is, how do you, how do I prepare to fundraise?
Jason: By the way, first of all, before you get to that, I'll just say I, you know, you saw how the sausage was made, like the non-sexy parts of VC, the fund operations, and you were still like, you know what, I'm gonna do this. Which I think shows you, shows other people just like how much you wanna do this, because I've considered that myself and my answer actually. I, I don't like, it's like, it's hard. It's, it's not fun. There are many parts of that job that aren't fun,
Lolita: People don't know about the sausage, the sausage making. They're like, what I, my perception is
Jason: we're just like sprinkling dollars and
Lolita: Yes, exactly. It's, I think I, I have, uh, I've talked to founders and they're like, well, don't you just like write checks? And that's so much fun. It must be so awesome to be a VC. And you have to explain, well, actually we're also a company. We need to manage everything just like you. And then we have actually three customers, right? You have your customer that's gonna give you money to deploy, your LP limited partner. You have your founder that you need to convince to allow you into their cap table. And then you have the rest of the ecosystem who's gonna support you. And so you have to market to all three cater or to all three, and do this balancing act, especially when you're a solo GP.
Jason: You're not Andreessen Horowitz with billions of dollars of capital, tens of millions of management fees. It's you,
Lolita: It all. You're doing it all yourself. And you have to also think about the budget that you have, right? So sometimes founders and, and the ecosystem, even LPs, LPs that are just new, they think that when they hear, oh, Lolita is raising 10 million and she's raised 4.2 plus, it must mean that she has that in the bank and she's rich and she can spend it however she wants. No, that money is to deploy, and you have these things called capital calls. So we only have a portion of that money, and only depending on how much is raised am I gonna know how much I get paid. And from that money we need to pay everything else, the fund operations, the legal and all this. And this is stuff people don't know. And so I learned all of that. I spent a lot of time doing all the research and managing and, and figuring out what was the most efficient and cost-effective way of setting the fund up, and then I launched in March, um, but of last year. But to your point on the prospecting part for LPs and fundraising is the same thing as, as founders. Uh, and this is something that founders are like, what really what? You also have to, we get a lot of no's, but we have to go and, and target people. and institutions to raise capital.
I think what makes it a little bit more challenging on the GP fundraising side versus the, the, the standard founder side is that for founders, it's much easier to find the investors, uh, because we're all marketing. We're like, Hey, Ganas, we invest in community-driven companies. Come pitch us. We wanna give you money. You know, but LP. That's not the same case. It's a lot of LPs. Um, and these are investors and investment funds. Uh, they are not marketing themselves. In fact, there are LPs that don't have even LinkedIns. There's no website, there's nothing. And so you have to really think about if you come from nothing, you're starting from scratch, you're managing it all.
You have a limited budget and probably just you to start. If you're a solo GP from an underestimated background and you're first generation, that didn't come from money, then you have to think of a lot of things and really ask yourself, do you really wanna do those? Right? Um, but um, the three things that, that, that I would recommend if you find yourself in this situation, 'cause I now there's so many people that are thinking about or on their path to raising a. It's first build a community. Uh, it is our thesis, so I'm biased. It is my superpower too, so I'm a little biased. But build a community, because think about it, none of these things work without people. You need your LPs, you need your founders. You need the ecosystem and being able to share your vision and mission and attract those that are aligned with your vision and mission and what you're building as a fund. which will be your differentiator, will be so important to be able to attract the investors into the fund.
Now, if you also, uh, have a similar background to me, my second step was to set up a 506c, which means that I can actually talk about my fundraise. I can say, Jason, would you like to invest in Ganas Ventures? And Jason will say, yes, I'll give you all my money. And I'll be like, thank you. I see you're community-driven. Come in, let's do this. If your, if your structure, if your VC fund is a 506b, which is the other option, you can't talk about it publicly, but for me, community is everything. We want everyone to know everything. So we're building in public, we're sharing in public, we're asking the community to come in and make Ganas Ventures successful.
Um, and then that's the third part. Literally, you tell your vision, your mission, you set up legally in a way that you can share with the community, and then you ask them. Do you want to come and join? And some people will say, yes. Unfortunately, when you don't come for money, that means that a lot of the people you know, may not even be accredited, which is kind of that next hurdle.
Jason: When we come back, Lolita dives into how Ganas Ventures is breaking the status quo.
Jason: Early on at my last company, we had the chance to sell to a large public company but ran into a wall. They wouldn't work with us unless we were SOC2 certified. We tried really hard for weeks to get something done. We were Googling how to get SOC2 certified; that was before ChatGPT, and we interviewed tons of expensive consultants. In the end, we abandoned the deal because it was too distracting. So when I learned about Vanta, a company that raised over $200 million from Sequoia and others, that thousands of startups have used to get SOC2 certified, I was so annoyed because I wish they had been around back then. Vanta makes it super easy to get a variety of certifications like ISO27001, SOC2, and HIPAA. They integrate with your cloud provider and other tools you already use to automate the super complex and time-consuming process of preparing for an audit. Anyway, if you'd like to drop a months-long process down to weeks, like I would have back then and actually sign those major contracts, you should check out Vanta.
Also, I'm really happy to share that listeners, if funded, can get hooked up. You all can get a thousand dollars off your service by going to vanta.com/funded. That's v-a-n-t-a.com/funded. In the world of venture capital, it can be tough for those who don't fit the mold to get into the industry. The reality is, whether you're a minority looking to write checks as a VC or raise money as a founder, things will be tough. For Lolita, she's gone through both. She wrote checks as a VC and then raised money for her own venture capital firm while paving a path for those who don't fit the status quo. You might think Lolita would look for every possible strategy to make overcoming challenges like that easier, but you'd be wrong.
Jason: I think what you laid out sets me up to ask this next question, which is, You talk about trying to find LPs, right? Because you are a 506C, you said. So you're able to source from your community, which I think is great at building momentum and excitement around what you do, but it's a way of getting smaller checks. What you want to find are LPs that will write million-dollar checks, multimillion-dollar checks if possible, something that can take a large bite out of that fund size that you're trying to raise. And this is part of the dynamic that I think founders don't realize and why it's such a grind. I have lots of friends that have raised funds and, and I hear about this. It's like when we talk to founders, when you and I talk to founders about going out and raising their, their, you know, fundraisers, their precedes, their seeds.
A lot of time you find that lead or a large credible investor that puts in that first check, and it opens the floodgates, right? It's like, "Oh, Lolita's investing, if Lolita's investing, it gives us so much credibility, lots of other checks come in," and it's like we're all trying to knock over that large first domino. And for the most part, as far as I've heard, until you get to like 80% of the fundraised, those large dominoes, like, it doesn't happen. It's like you close one and then you start from scratch again, and you just have to convince another person to do it. One quick question, was that your experience too, running the fundraise for Ganas?
Lolita: It, I mean, I'm still in it, right? We're in the middle of it. We're targeting 10 million. We're at a little bit over 4.2, and I think the fact that we have a community of over 78,000 founders, funders, and friends. I thank Angel List for making it easy for me to run my back office and Twitter and other social media for being able to communicate with so many. I agree with what you've said as the status quo. What we're trying to do at ESS has been a little different. We want the community. So part of the reason why I set a target of 10 and not 20 or more is because we really want the 249 LPs that we can have, legally by the SEC, right? If we set a target, and it's actually 9.99999, right? Like the 10 million.
Jason: Uh, and typically, you're right, funds do want big checks, a smaller amount of LPs. We're trying to change the industry. We're doing things a bit contrarian. It is a lot of work to have a lot of LPs and they are smaller checks, but the point of this coming into VC wasn't ever to be traditional, to do the status quo. It was to really change the scene. And let me tell you, it's a lot of work. Uh, trailblazing. You get a lot of fire in your face. Uh, but ultimately I feel really proud when you look at the demographics of our LP base and who we're investing in. It's a very thoughtful, intentional group of people. And so while, yes, I would love a lot of, a lot of LPs to write million-dollar plus checks, I am so happy to have a 50k, a 100k check, uh, from individuals who believe in returns but also want to see a shift in the industry and being more inclusive and more representative of our population.
Jason: So I didn't realize that about the Ganas strategy, which is very commendable. Very cool. Definitely going against what you see most fund managers trying to do. It actually just underlines my point even further for you. Like, it's even harder. Yeah. It means that you're really stitching together 249 checks in order to get there. Not with one big chunk coming from a $5 million anchor LP or something like that. Now. That leads me to guess, and I can only assume how crazy these stories could be, but like it means that you've had conversations with thousands, hundreds, maybe thousands of people at this point, around...
Lolita: Hundreds of people.
Jason: Yeah. Um, and you know, they're not all going to go super well, I would assume. Uh, you talked a little bit about, you know, getting blowback, fire in your face. Are there any stories that come to mind about experiences that you've had on the fundraising trail that, like, really beat you down, that you're still here, you're still smiling, but, you know, making sure...
Lolita: We gotta, we gotta keep going. There's no other luxury. I think that's the other thing, right? Like if you come from privilege, you have money, you have something to fall back on, you're just like, oh, okay, fine, whatever. I'm just gonna, you know, do something different. But for me, it's just like, look, it's gonna be tough. So better have a good attitude than not. But definitely I do have, Jason, my days where I cry and I eat my ice cream and I'm just like, I don't want to talk to the world. But most of the time it's like, it just doesn't help. But one story in particular that I don't think I will ever forget is I have this call with an institutional fund, this guy had said he was interested in putting in a million-dollar check and we have a series of conversations and every conversation gets deeper and deeper into my personal life experience and how I grew up and what I've been through.
And the whole time I'm thinking, he wants to learn this because he's gonna be in this for the long haul. And institutional investors say they're gonna be in your first fund and usually in your following funds too. So I invested the time. The last, it was maybe the fifth call, if like one-hour calls, right? where at the end he said, "Okay, well thank you so much. It was so great learning about your life." And I said, "Well, but we've been talking about potentially having you come in at this tech size. We talked about it in the first call. We kind of, you know, have touched on it in different calls." And he said, "Oh no, I was just really moved by your story."
And um, but no, we can't invest because you're investing in Latin America too. And it was just so upsetting because. Literally the status quo, right? White, cisgendered, middle-aged man who loved the storytelling. Took my time, had me send him a ton of information on the financials, on the details of the fund, and at the end says, "That was a nice story, but we're passing because literally our fund cannot invest in a structure like yours or in a fund that invests outside of the US." And I am just thinking, "Wow, you're a professional. You shouldn't be doing this." And he claims to be an ally. That was horrible.
Jason: just like the lack of respect for your time and, uh, that's horrible. It's like, I think it felt, it sounded a little bit more like an ego thing for him to be like,
Jason: tell her story to me.
Lolita: and this is something that it's, it's, this is my personal story that I just shared, but, uh, from other emerging fund managers that are people of color that are women, L G B T Q, I've heard similar things where there will be, I don't know, this, uh, white LP, and there are some really wonderful white people that are supporters and L LPs in my fund. So I am not saying all white people are bad, but there are, there is a pattern that we've noticed in the community where there will be white LPs that claim to be allies that just want to hear our story and do not want to actually write checks that are very wealthy. And I think it's such a disrespectful thing to do. If you're not interested, just don't take the call. And it is also painful and traumatic sometimes for us to share our personal stories. It has been a struggle to get here for many of us. Please don't make us, tell us, uh, tell you our stories if you're not even interested. Like that's just not.
Jason: Uh, well, I'd love to juxtapose that with something a little bit happier. Um, you're in the middle of your fundraise. Congrats on being almost to 50%. I know that's a big accomplishment. Um, at some point, you, you had an experience up until now with Ganas where. It became clear that this was going to at least happen for fund one. It was going to happen. And I don't know, for someone in a, this, this similar conversation with a founder, I, I love asking like, do you remember when you got the call or the message when someone said they were going to write that check? You know, because like everyone remembers it when I raised my last, uh, round for a startup, it's like burnt in your memory because it was like, oh my God, this is going to happen. Um, what was, what was that for you with Ganas and, and do you remember, um, the...
Lolita: Yeah, absolutely. I have to say Arlen Hamilton definitely pushed me over the fence on that one. I was still thinking about launching the fund because as we have discussed, there's a lot of nuances, responsibilities, and work that goes into a micro fund of the type that I'm building. Uh, and, I, I met Arlan at, uh, Afro Tech in LA, an event. Um, and I told her, I said, "You know, Arlan, I'm gonna launch a fund." And she said, "I'm in, I'll be your first check." And she, she, she wrote me a, a sign. She, she committed a significant amount and that to me meant so much because she was the first fund manager to give me a VC job in the US And uh, that's where my journey started at Backstage Capital with her as, as one of the GPs. And so having someone who understands what I'm trying to build, who knows my work, jump in and say I'm, I'm in. That is so magical. And. and she's been such an emotional support as well throughout the journey because this is, it does get real, real, real, real fast, um, from a human perspective too. So, uh, that was such a great moment. I'll never forget it.
Jason: Just to wrap up, first, what's your dog's name? And then, can you give everyone a full description of Ganas?
Lolita: Choco is my dog's name. He's a rescue and he's not a puppy anymore, but he will always be my puppy. He's seven years old, turning eight. He's a dachshund mix. I'm not sure what else he has in him, but he's the cutest dog and my baby. In terms of Ganas Ventures, at Ganas, we invest in startups. If you have a dog startup, that's cool too. We don't invest in physical products, but I always keep an eye on what's happening in the pet space because of Choco. Ganas Ventures is a pre-seed and seed VC fund. We write $100,000 checks to companies that are community-driven and headquartered in the US or in Latin America. We're happy to look across all segments, although some are more interesting to us, such as the greater economy, future of work, FinTech, and e-commerce. Ultimately, we focus on people and companies leveraging existing communities around their startups, whether they're community-driven or not. Communities surround every startup, so we're looking for those that effectively use them to kick off their marketing and sales flywheel and differentiate themselves.
Jason: That was my conversation with Lolita Taub, founder of Ganas Ventures, a venture capital firm that invests in early-stage companies in the US and Latin America leveraging the power of community. When we come back, my new producer, Paige, who's far outside the VC world, asks what it's like to figure out how to pay yourself when starting a venture capital firm. Many founders I meet understand dilution during fundraising, but they don't fully grasp what goes into it. Not knowing what happens to your ownership when you raise different amounts at different valuations can be damaging. If you're unsure, head over to adamantventures.com and click on fundraising tools to grab my free dilution planning tool. It'll guide you through the basics of dilution, show you an ownership sensitivity table, and help you understand the impact of multiple fundraisers on your final ownership. Let me know if you have any other questions on the topic. Alright, back to the show.
Jason: Alright, Paige, this is super fun. This is our first conversation about an interview that you did. This is Paige Randall's first time working with us, a brand new producer. This interview is your first experience, so people need to know you're super talented within media, built an amazing following in the mindfulness space. But how would you describe your background in the worlds of venture capital and high-tech startups? Are you an expert or super expert in these areas?
Paige: I would say my knowledge is close to zero. This has been very new to me, but also fascinating. Over the past few weeks, I've learned a lot about the venture capital world, or maybe I think I have. Either way, I've been learning, especially through listening to your podcast and hearing from founders and people in fundraising with confidence. It's been an interesting ride, and I'm excited to learn more.
Jason: It's great to have you on board. We worked with Olivia for two and a half seasons, and seeing how much she absorbed over 20 plus episodes was fantastic. But having new perspectives like yours is valuable. You're my foil in this debrief, asking questions that most founders might be too embarrassed to ask. So, what were your first reactions to your very first interview? This one was quite different and interesting, even for Funded. Lolita was an amazing guest. What were your initial thoughts?
Paige: Yeah. You know, I loved listening to Lolita. I feel like she brought so many different ideas to the table, even with my limited background knowledge on venture capital. I feel like she brought new ways of thinking about how to raise a fund and going about fundraising. She talked a lot about collecting smaller checks and some different questions that I will get into with you because I'm really curious. But yeah, I love the energy she brought. I loved how she mentioned community a bunch, and I thought it was a really refreshing episode.
Jason: Yeah, I wanna underline that a little bit too. I think you see this in a lot of different industries where outsiders will come in and they have an opportunity to disrupt what is done because everyone that comes from the space and has been brought up in the space feels like they know what's possible and what's not possible, and they'll avoid the things that they're like, well, that just wouldn't work because of X, Y, and Z. And so they never go down that path. And Lolita, to a certain extent, grew up way outside the industry and then got her taste inside the industry and decided like, well, because I understand this other perspective or because I understand what other opportunities are out there, I'm gonna do this thing in a very, very different way. And I'll say like, a lot of people will probably listen to this interview that come from venture capital, and they'll be like, this is gonna be really hard or maybe this is gonna be impossible, the way she's doing things. So that was awesome to hear.
Paige: Yeah, and I admired this about her, how usually, especially when you are a minority entering a field like venture capital, she didn't try to fit the mold. She's trying to create a new mold. And that's what I found so fascinating about the conversation because a lot of times you can feel pushed or forced into fitting in the same mold as everyone in that industry, and she's really going against the grain and creating a new wave for minorities or anyone else for that matter coming into the business.
Jason: Yeah. So let's jump into it. Um, we talked a lot about things that were inside baseball even for insiders like me and Lolita. So I was very curious what an outsider, uh, would think about the conversation. Anything come up for you where you're like, what was going on?
Paige: oh. There was a bunch, Jason, in the beginning when she was talking about starting the fund and trying to figure out just how to pay herself, she mentioned a fund paying you in a carry, and I have no idea what that means. And I also wanted you to touch on how should founders go about paying yourself a salary with the fundraising that you're getting or if you are creating a fund, the fund, you're.
Jason: Well, awesome questions. Okay, so. I think we're, we're talking about a couple things that are worth pointing out and Lolita and I touched on this, which is one we wanted to demystify what it meant to be a venture capitalist. Someone that runs a venture capital firm and point out that especially someone like Lolita who is starting her very first fund, she's a startup founder too. So there are a lot of similarities between what she does and what a software founder does. She's gotta start from scratch. She's gotta go after it. Now, the way a venture capitalist makes money are two different ways, and this is a great basic call out that I would say 80% of founders don't really understand. So understanding this will at least give you, as a founder a little bit of even footing when talking to VCs. But there are two ways. So there are management fees and carry. So you asked about Carry. Carry is the share of the profits.
Of the investments that they make on behalf of their investors. So a venture capitalist's job and business is to say, Paige, you have money. Let me take your money and let me invest it for you in these great businesses that I have access to. And when I invest that money and it becomes a hundred x what you gave me, I'm gonna take a portion of that as. Payment for doing so right by you and making your money worth 10 x. A lot of times that's 20% of the upside. The standard is 20% carry, so that's what carry is and carry that type of money. Just so everyone listening knows doesn't happen for like a minimum of five, even 10 years out. So a VC won't make money for a long, long time, and it is like a lottery ticket. So they're still running a business, as in they have expenses.
They might have an office, they probably have to pay for software, they're going to have to travel to meet founders. They're gonna have to spend on diligence, a lot of different things. And like Lolita said, if you're not wealthy yourself, you are also living. You're paying rent, you're eating food, you're taking care of a family, and so they need to make money on day one and day one. Revenue, or the way they make money is called management fees. So it's a percentage of the total amount in their fund. They take down on an annual basis as management fees, and that's supposed to cover their overhead. So generally speaking, it's 2% of the total amount of the fund per year. Um, so a lot of times you'll hear about a fund structure and they'll say two and 22 and 20. Or sometimes they'll be like, well, three, three and 20, or one and a half and 15, but two and 20 references the percentage of the management fees and the percentage of the carry.
So that is how. VC makes money. I'm gonna pause right there because you started blending well, how should a founder pay themselves? And I think that's an interesting question as well, but completely in a different direction. I wanna make sure that you understood, or if you have any follow up questions, you let me know.
Paige: Yeah, I will definitely be chewing on that. But I think I, I get the overall now and I find it extremely fascinating that a lot of people do assume VCs make a lot of money. And for me to hear as an outsider that they usually don't get paid within the first five years. That's pretty insane.
Jason: Yeah, I mean, the thing to think about it is you'll meet a lot of these first-time fund managers and younger VCs, and they'll have these fancy titles. Like they raised their first fund, they raised their own fund, and let's say it's 10 million, which is like a common number to go after. If you're a young VC that's going after their first fund. It can be very hard to convince someone to give you money, and Lolita's targeting something around that, right? So
1% of 10 million would be what? A hundred thousand dollars. So a hundred thousand dollars would be a 1% management fee, which sometimes you have to lower the management fees that you say you're gonna take in order to get people excited to invest in a first-time fund. But let's say it was.2%. That would be $200,000 a year to run a fund. Not just your salary, but to do everything that you need to do to run a successful venture capital firm. So whether it's software offices, if you wanted to hire even a junior person or a part-time person, travel, etc., that is your full budget for the year, which is, you know, a tiny amount, but it's not like, they're not splashing cash everywhere.
That's not a big budget. Right. And the more money you raise, certainly your management fees go up. So you have more money to pay yourself, but it is actually harder to deploy. More money. And when I say deploy more money, I mean make more investments. And so the more money you raise, the more expenses you'll have, the more help you'll probably have to hire. And so it just becomes this thing where, you know, people aren't necessarily getting rich off of the management fees. They're really rolling the dice on the investments that they make in order to take part in that carry.
Paige: Now you just transitioned us into my second question, which Lolita was talking about deploying LPs, and I believe I know what an LP is, a limited partner. Yeah.
Jason: There you go. There we
Paige: cool. See, I got it. Um, but yeah, what does it mean to deploy an LP? And I do have some further questions on LPs themselves, but we'll start there.
Jason: Yeah, I mean, I think it's, the full, full phrase would probably be deploy LP capital. Um, so again, it's, it's essentially what I had said before, your job as a venture capitalist is to. Raise money from other people. Um, take money from other people who have money, and that could be individuals or institutions like pension funds. Um, but you take their money and invest it for them. The people and entities that you take money from, they are called limited partners. They're limited partners in the fund. The people that actually run the fund on a day-to-day basis, those are the GPs, the general partners. Lolita would be considered a general partner in her fund, and so deploying LP capital is just taking the money that you've raised from other people and making investments into startups.
Paige: Okay, so I think I understand that. So LPs allow you to grow your fund?
Jason: LPs are the basis of
Paige: Are the basis, uh,
Jason: money. Their money is your fund,
Paige: Yes, they make up the fund. Okay, cool. why are LPs usually more hidden, as Lolita was talking about, and why do they usually give smaller checks?
Jason: It's a good question. I mean, the thing about raising a 10 million fund or anything, call it sub 50 million, is that the dollars that you're trying to find? , um, are small checks. They're like wealthy individuals usually because there's another category of LP, which is the institutional fund, which are endowments and um, retirement funds and these big pools of capital. But they usually are like, well, we want to give a really big. 200 million to invest. When they look at an opportunity where the fund is only 10 million and they're collecting checks that are like sub 1 million, they're like, this is too small.
Like we, it'll take us more effort to figure out if we want to deploy a million dollars than is worth our time. So we need to go find opportunities to deploy. 200 million all at once. So when Lolita's looking for checks, they're like half a million dollar checks, million dollar checks. There just aren't any directories. There isn't like a Yelp for, you know, small check LPs that are like, yeah, I write 500 K checks. Um, and so it is, it's a like a relationship game. It's finding. Whether they're these family offices of wealthy individuals who, you know, made a hundred million dollars in some sort of fashion and want to deploy money, uh, into little funds like this. So, um, you know, I, I don't know if I've really thought through the dynamics of why LPs are so hidden, but the fact of the matter is, it's, it's. A business for them. Right. It's not necessarily a, a business.
So because it's not a formal business for them, they're kind of doing it on the side. There is no layer on top of it that's like, let's formalize this because it really is like, yeah, I'll put some money here, I'll put some money there. That's cool. Yeah, I wanted to ask you what a 506 was, because that's, How Lolita runs her fund. Yeah. 5 0 6 C. Um, this is a. Uh, this is a great showcase of the fact that we do not script our debriefs. And if I had, then maybe I would've made sure that I had all the details right on this, but 5 0 6 is a new newish regulation over the last few years that allows fund managers to create a different type of investment vehicle that allows them to. Promote what they're doing before the fund is closed. Now the distinctions are historically, if you said you were going to raise a fund, you couldn't do what is called solicitation.
You couldn't post to a public place and say, I'm raising a fund. Who wants to invest? You had to do it in a very private manner, which also again, made it hard for people that didn't have access to some of these communities, uh, or access to some of these LP base to raise capital. Um, but with new crowdfunding regulations that got passed, I think in the last, call it five to eight years, 506C meant that a fund manager could create a variation of a fund and start promoting it, and Lolita herself has something like 50 plus thousand followers on Twitter, which allows her to go out and say, Hey, raise my hand. I'm raising the community fund. Um, here are my documents. Here are the things that you need to know about it, and here's a link where you can actually join and invest in my fund. So again, that's another evolution of the structures within venture capital that are opening some things up. Um, and it's very exciting to see what comes out of that, and especially things like Lolita and her ability to fund the next generation of founders,
Paige: Wow. That's okay. That's really cool. Then it's kind of along that same theme of changing the status quo of venture capital. So I feel like I learned a lot today. I learned the difference fund and fundraising. I carry is, LPs, uh, smaller checks, 5 0 6 C community, the changes we're seeing in venture capital. So I feel pretty
Jason: Paige, you are, you are on your way to being a venture capitalist. We're, you know, throughout the course of our seasons here, we're, we're gonna mint a new VC for sure.
Paige: No way. Alright. I guess I will find out,
Jason: awesome. Paige, this is great. If you're looking for more insights, strategies, and support around fundraising, subscribe to our weekly email@example.com/newsletter. And find me on social. I'm @JayYeh, that's J a Y Y E H on almost every platform. I respond to newsletter replies and DMS. So hit me up. This episode was produced by Paige Randall.
Paige: Hey guys.
Jason: Thanks also to Jon Lee from the Adamant team.
Jason: And thanks to Lolita from Ganas Ventures for helping amazing founders who get overlooked by so many. As always my final thanks goes to our sponsor. Vanta the leading automated security and compliance platform.