The Emerging VC Stack: AngelList vs. Carta vs. Sydecar

Here's everything an emerging venture fund manager needs to know when shopping for a fund administrator - from features, to prices, to quirks.

Every emerging venture fund manager (EM) needs a fund admin, and three popular options in the emerging VC community are AngelList, Carta and the newer arrival, Sydecar. I haven’t seen any good write-ups/comparisons of exactly what these admins do, and how they vary on cost, features and other factors. So, here it is.

But first: If you find this post useful and want to see more like it, please subscribe.

And if you’re serious about launching a fund and want to understand which of these options fits your vision, schedule a call with me here. My law firm, Lidow PC, is devoted to working with emerging funds, and I’m always happy to meet new EMs and give some informal advice.

What does a Fund Admin do, and how do the options compare on features?

Your job as an EM should be to source deals and make investments, but there’s a lot of other stuff involved in managing your own venture fund. All of your fund admin options will handle five of the most administratively burdensome parts of running your fund:

1. Closings: “Closing” your fund means getting your LPs signed up and their initial capital contributions into the bank account. This process includes making sure that the investors are accredited, performing diligence on your investors, distributing your fund documents, gathering signatures, and making and tracking your first capital call. You might close all of your LPs at the same time, or over a period of 6-18 months, depending on your strategy and fundraising progress.

2. LP Interactions: Once you’ve launched your fund, you’re going to need it to interact with your LPs. The most common LP interactions are capital calls (getting your LPs to wire you the money they committed when you’re ready to deploy it), reporting (providing LPs with updates and financial reports about the fund), and distributions (sending your LPs money that you get from your exits).

3. Investment Tracking: Keeping track of your fund’s positions in portfolio companies and other investments can be a tricky job. All fund admins track your investments for you, and keep that information in a centralized report (separate from the cap table management systems that your portfolio companies may use).

4. Accounting: An operating fund has lots of transactions - you get money in from your LPs and eventual exits, wire money out for your investments and distributions, and pay your management company, admin and lots of other regular and one-off costs associated with running the fund. These transactions need to be tracked and attributed to give you visibility into your fund’s finances and make sure that the transactions are receiving the right tax treatment, getting paid by the right party (the fund vs. you), and properly driving your distributions when the time comes.

5. Banking: See #4 above - you’re going to be receiving a lot of payments and making a lot of payments, and your admin will keep track of, and trigger, those payments.

AngelList and Sydecar also handle Taxes (Carta is developing a tax add-on service now, but it’s in early stages). Your fund needs to file a tax return every year and distribute tax documents called K-1s to your LPs, and AngelList and Sydecar will handle this for you. If you go with Carta, you will need to hire an outside accountant to handle your fund’s taxes (about $8,000 per year if you’re a simple fund with domestic LPs).

Finally, the three options provide Formation support (after all - you won’t pay them for admin services unless you get off the ground). From most supportive to least:

1. AngelList’s “AngelList-Advised” option is the most turn-key formation option, and will handle literally every aspect of the formation process for you, registering your fund, providing your fund documents, handling securities law compliance, and even forming and handling investment adviser compliance for your management company (a $5,500 per year add-on option).
   
   There are some risks to using AngelList-Advised (summarized here and here) that are acceptable for very small funds, but will become more of an issue when you grow past $3M AUM. These risks can be easily avoided by opting for AngelList’s “Self-Advised” fund admin service, which is available for funds with $3M+ AUM on the Core or Institutional service tiers. Going with Self-Advised will require customizing your fund documents and forming your own general partner (“GP”) entity, which will add about $10,000 in one-time legal fees for a simple fund.

2. Sydecar is also fairly turn-key, and designed to allow you to launch your fund in as little as one week, according to their sales team. It provides all of your fund documents (but doesn’t allow any customization), forms your fund’s entity for you, and handles securities law compliance. But you’re still responsible for forming your own management company and handling its investment adviser regulatory compliance (which will add about $2,000 in one-time legal fees, and about $1,500 in annual legal fees).

3. Carta will provide template fund documents, but it’s up to you to prepare and customize them (which - unlike with AngelList-Advised and Sydecar - you will want a lawyer to handle). You will also have to handle forming your fund, GP and management company entities, and securities law and investment adviser regulatory compliance. Carta will handle some of these tasks for you if you purchase an optional $10,000 fund formation add-on.

Of the three options, AngelList offers the most comprehensive set of features, and is clearly designed to let you (the emerging VC) focus almost exclusively on raising money from your LPs and deploying it on deals. That said, all three offer a fairly comprehensive set of features that will handle much of the administrative burden of running your fund.

How much does a Fund Admin cost?

First off, it’s important to know that YOU (the EM) won’t pay anything for your fund admin. Your fund admin’s fees (and all of your fund’s other costs) are paid by your fund out of the money you raise from your LPs. The EM’s out-of-pocket cost for launching a fund should be close to $0. With that said, let’s jump in to how much these options will cost your fund:

AngelList, Carta and Sydecar have very different fee models, but all of them will charge you an annual fee for the lifetime of your fund (almost certainly 10 years). The fee can range from $3,000/yr for small funds to over $100,000/yr for larger funds. That means that you’re looking at anywhere from $30,000 to over $1M in fund admin fees for the lifetime of the fund.

The exact pricing can be tricky to figure out because the three companies vary on price transparency. AngelList is the most transparent on pricing, publishing its pricing on its site. Sydecar hasn’t published its prices on its site, but will provide them when asked. Carta doesn’t release its pricing model, but has told me that:

• pricing varies based on the characteristics of the fund,

• most EMs can expect an annual fee of between $20,000 and $30,000 per year, and

• they’re currently updating (likely increasing) prices.

The Carta pricing model in the chart below is based on actual prices offered to over a dozen EMs, and lines up with Carta’s statements about pricing.

Based on AngelList’s and Sydecar’s actual pricing, and my model of Carta’s pricing, AngelList and Sydecar are the most cost-effective options for small funds with under $5M AUM. That’s because AngelList’s and Sydecar’s fees are primarily based on the size of your fund, while Carta appears to apply a flat minimum fee to funds below $25M AUM. If you’re raising less than $5M, your cost savings from using AngelList or Sydecar are likely $250K-$300K over the life of the fund, compared to using Carta.

But as fund size increases, Carta becomes more cost-competitive, and has a likely price advantage over AngelList (the other option for customized funds) in the $10M-$30M AUM range. Above the $30M AUM line, AngelList will negotiate their admin fees, so the price comparison between Carta and AngelList is less distinct. Fund administration for a $10M AUM fund (which is what many EMs target for Fund I) will cost about $20K/yr using Sydecar, $30K/yr using Carta, and $40K/yr using AngelList, including the cost of outside legal and accounting services that you’ll need for Carta and Sydecar.

In addition to the annual costs of AngelList, Carta and Sydecar, you’re going to have some one-time launch costs that will be paid to your lawyer or passed through to you by your admin or lawyer. Like the admin fees, these costs are generally paid by the fund, not the EM. Even for the most turn-key options, you’ll want to budget for a few hours of legal review of the fund documents and your contracts with the admin - as I’ve written about here and here, there can be some serious issues and you want to at least be aware of them (and hopefully negotiate them away). There will also be one-time fees associated with your fundraising (which requires state “Blue Sky Law” notices to be filed) and the formation of some or all of your legal entities (your fund, general partner and management company). These one-time fees should range from about $8,000 on AngelList to about $14,000 on Carta.

Overall, Sydecar is the lowest cost admin option. However, remember that this is not an apples-to-apples comparison. AngelList, Carta and Sydecar have very different offerings, and their various features and constraints can impact your fund’s economics and performance. This isn’t a choice that should be driven by cost alone.

Which option is best for me?

It depends! If I had to break the three options down into a narrative for the market - solely based on my own impression and opinions from working with and learning about them - it would be:

• AngelList is best if you want to feel completely supported by one service provider and you’re willing to pay a bit more for it.

• Carta is best if your target AUM is $10M-$30M and you’re comfortable hiring and managing your own lawyer and accountant.

• Sydecar is best if you’re looking to launch a small fund (<$5M AUM) as quickly and cost-effectively as possible.

Of course, this is a giant oversimplification. This article should give you a decent overview of the differences between AngelList, Carta and Sydecar, but you’re going to want to consider all of these in light of your own objectives for your fund. Here are just a few possible questions to ask yourself:

• How much do you care about customizing the economics of your fund? Custom components like distribution waterfalls, management fee stepdowns, and cashless contributions significantly affect the EM’s income during the life of the fund and share of the fund’s returns. If you want to understand and make decisions about these components, you’re going to value customization over turn-key options.

• How much do you care about speed and simplicity? Some EM’s may be willing to accept large risks and costs to get things off the ground quickly. Momentum is key, an EM’s time is often scarce, and launching a poorly-optimized fund is better than launching no fund at all.

• Are you comfortable hiring and working with professionals? If you’re launching a VC fund, the answer should be “yes”, but there are different degrees of comfort. If you’re very comfortable managing professional relationships, you’re probably going to need less support from your fund admin.

• Are you expecting to raise a Fund II, and grow into a mature VC, or is this a one-time thing? Your relationship with your fund admin will likely roll over to your next fund (which most managers will start raising within a few years), so you’ll want to consider how that second fund will fit into the admin’s costs and offerings. You might be fine with no bells and whistles on your Fund I, but make sure you understand how that might limit your Fund II.

Are there other options out there?

Yes! I focused on AngelList, Carta and Sydecar because they have significant brand recognition in the emerging VC community, but there are many other fund admins out there to choose from. Both Cornerstone and NAV are very well established fund admins that work with venture EMs and would be worth a look (especially for funds that require complex accounting or are investing outside of traditional venture rounds).

Utah-based Cornerstone explicitly bills itself as a services company (rather than the tech and product-focused AngelList, Carta and Sydecar), and assigns a dedicated team of CPAs and relationship managers for each client. You interact with this team through email, and you shouldn’t expect a tech-forward experience, but Cornerstone can be paired with LP-management software like Flow to provide dashboards and app-based interactions with your LPs.

Chicago-based NAV also bills itself as a services company, but has developed its own fund admin and LP management software similar AngelList’s and Carta’s. In addition to being a very flexible admin option (handling PE, VC, hedge, real-estate and even carbon credit funds), NAV can be the most cost effective option for EMs with funds >$25M AUM, because its pricing is not based on a % of AUM.

In conclusion, go start your fund

Hiring a fund admin can be an intimidating and complex part of launching your fund, but you shouldn’t let it affect your momentum. There are several good options out there, all of which will handle your basic administrative tasks and help you figure out anything you need to do on your own. While they differ on features, costs and quirks, any of them will work for your fund.

And if you haven’t already, please subscribe to see more posts like this:

Thanks for reading! If you’re an EM or aspiring-EM and need help launching or running a fund, schedule a call with me here. My law firm, Lidow PC, is devoted to working with EMs like you.