Founders

What is XX?

We're a team of founders who've built startups before. We've lived the struggle. We want to pay it forward.

Our moonshot: to help 20,000 founders get off the ground. By 2029. In all 50 states. Of all backgrounds.

We run an accelerator for pre-seed startups and also serve as Lead Investors to help startups raise more money on Wefunder.

Do you invest out of a fund?

Yes. We make $20K to $50K investments in pre-seed startups out of a fund.

We only make investments out of our fund for startups accepted to one of our accelerator programs. Our Partners, however, may make personal investments.

Can you help me raise more than $50k?

Yes. We also act as Leads on Wefunder. Startups can raise up over $1M on Wefunder, with only one entity on the cap table. It is similiar to how a Syndicate works.

What is your relationship to Wefunder?

We started as an internal Wefunder project, then spun out as a separate company. Wefunder has no ownership in XX. However, as Wefunder alumni, we think they are pretty awesome.

Do I have to raise on Wefunder if you invest?

No.

How often do you run the XX accelerator?

We run it once a year.  In 2018, we ran it for female founders.  In 2019, for immigrant founders.  In 2020, for startups tackling the coronavirus crisis.

Our acceptance rate is under 3%.  

About 20% of our investments have later been accepted to Y Combinator.

How do I join the XX community?

There are two ways for founders to join the XX community:

• Get accepted to one of our accelerator programs
• Have one of our Leads sponsor your company on Wefunder

What kind of help does XX give me?

Founders we invest in get:

• Access to an online community of other founders and mentors
• Ability to book office hours
• Invites to fire-side chats and dinners (on Zoom and in SF)
• Help with fundraising to close a seed round
• Review of Y Combinator applications 

What’s the format of your programs like?

We follow the Y Combinator ethos. Your time should be spent talking to users, building product, and staying healthy. Every Wednesday, there are group office hours, followed by dinner and an intimate fireside chat with an accomplished founder. You can request individual office hours if you feel stuck on a problem.

Unlike most non-YC accelerators, you focus on real work. The program is a ruthless sprint to focus on the 'most important thing', so your startup becomes valuable. It's not about spending 3 months in classes or pitch workshops.

What % of my company will you take?

We don't charge an equity fee. However, when investing in startups that attend out programs, we invest on with an uncapped SAFE with MFN provision. This basically means that we get the same terms that later investors offer you. You can read about how this works here.

If, after the end of the cohort, you are happy with the value we offer, you may opt in our advisor program. If you choose to do this, we take a 1% advisor stake, vesting over two years. You can fire us anytime.

What is the quality of advice?

We're not Paul Graham. But we do our best. We've all founded companies and internalized the hard lessons. We're very confident our advice is worth it. We also certainly will not offer negative value like most of the accelerators that distract founders from doing real work.

Can you get us into Y Combinator?

We try to help with that. But it's not through any "inside access" (recommendations from YC alumni count for little) or "interview prep" (the best way to prep is to know your business inside out). It's by helping you become a better startup.

So far, about 25% of the startups we've worked with have gone on to YC.

What if I live outside of the US?

That's fine! We'll even try to help with any visa issues.

I'm not sure I’m ready. What should I do?

You never know. So just apply! We have no problem helping founders who are very early-stage. That's why we exist.

Leads

What is a Lead Investor?

The Lead Investor vets a startup and decides to personally invest.

When investors on Wefunder invest more money on those same terms, they share 5% of the profits of their investment with the Lead Investor.

In return, the Lead Investor is responsible for directing the vote of all investors on Wefunder. The startup only has one entity on their cap table: XX Investments LLC. The founder must only get the signature of XX Investments (as directed by the Lead) to authorize any corporate actions.

It works much like an AngelList Syndicate Lead, except the legal structure is not an investment fund. Instead of an SPV, an SEC-registered transfer agent serves as a custodian. The outcome is the same: one entity on the cap table and a single Lead to direct the signing of any corporate documents and the voting of the securities.

What is a Lead Investor responsible for?

The Lead Investor:

• Helps the founder grow their startup, with advice, connections, and mentorship. They only earn money if the startup grows in value.
• Directs the signing of documents on behalf of all investors on Wefunder, such as SAFEs converting to equity, follow-on financing authorizations, acquisitions, or any other corporate action. (Technically, XX Investments LLC, as the Custodian, signs documents on behalf of other investors - based on the Lead's direction). These are the same documents a Lead signs for their personal investment.

How does a Lead Investor make money?

A Lead Investor earns 5% of all the profits made by investors after an acquisition or IPO, if the SEC issues guidance by then that such compensation is permissible. This compensation works like carried interest, except it is taxed like ordinary income.

What does 5% mean in terms of money? Let’s pretend you are the Lead for the next Uber and they used Wefunder to raise $1M for the seed round. That $1M would be worth $5 billion at IPO (based on Uber's return multiple from seed through IPO). The Lead Investor would earn $249,950,000 - 5% of all profits from Wefunder investors.

The Lead Investor can also earn an additional 5% carried interest in any pro-rata rounds that may be filled by XX. This compensation is not contingent on guidance by the SEC.

Am I qualified to be a Lead Investor?

XX will interview a first-time Lead Investor for 10 minutes to determine if they meet the criteria.  We look for if they:

• Have the founders consent to serve as a Lead Investor
• Invest at least $1,000 the startup on the same terms as other Wefunder investors
• Are not a family member
• Are founder-friendly (as the best investors in Silicon Valley are), but also understand their fiduciary duty to the investors.
• Have enough basic sophistication to understand how venture financing works
• Are willing to provide a quote (text or video) to Wefunder investors about why they have agreed to be the Lead Investor.

Do I need to be an accredited investor to be a Lead Investor?

No.

How much do I need to invest to be a Lead Investor?

$1000 or more, on the same exact terms as other Wefunder investors. The amount will be disclosed.

Do I need to disclose any potential conflicts of interest?

Yes! You must disclose any potential conflicts of interest, such as if you already are a shareholder, have a prior investment, are on the board, are an employee, etc.

Most potential conflicts are not disqualifying, except for being a family member.

Is the personal investment of a Lead direct in the company?

Yes. The investment of the Lead Investor will be one line on the cap table.

Other small-dollar investors on Wefunder will be represented by another line on the cap table: XX Investments LLC, an SEC-registered transfer agent that acts as a Custodian.

The Lead Investor signs any corporate documents for his or her personal investment and directs XX Investments LLC to sign with respect to the other Wefunder investors.

For a Lead, how is this different than an AngelList Syndicate?

The main difference with a Syndicate is that we also allow unaccredited investors.

Instead of an SPV, an SEC-registered transfer agent serves as a Custodian. 

As a result, there are a few important differences for a Lead Investor:

• Your compensation works like carried interest, but it is taxed like ordinary income.  This could almost double the tax bill on an IPO or acquisition.  
• You can earn more carried interest from your AngelList syndicate. We limit the amount that unaccredited investors pay.  

On the plus side:

• You don't need to do any work to build an audience. We have over 450,000 investors who may invest.  
• You'll also receive 5% carried interest for any pro-rata funds formed.  
• You can run a Syndicate while being a Lead on XX to deliver more funding to a startup, while earning incremental additional compensation.
• The companies you are a Lead for will also have help from all the other XX mentors.
• We're building a community of experienced founders that pay it forward.  Hopefully, you'll meet some awesome friends!

Can I be an XX Lead and run an AngelList syndicate at the same time?

Yes! A startup can raise on both Wefunder and from your Syndicate. Some startups - such as consumer-facing ones with passionate fan-base - can get a lot of value from having an army of people who are personally invested.  

In this case, you'd help deliver more funding to the startup, while earning compensation from both your Syndicate and XX.

Can a Lead Investor build up an audience?

Yes!  Every time you serve as a Lead Investor, it's easy for other investors to follow your profile.  They'll be notified when you decide to act as a Lead for future companies.  This means you may be able to deliver money faster to a startup you help.  It also builds up your brand as a valuable investor and helpful human being.

Do I need to source a company to be a Lead Investor?

No, you don't need to source all the companies.  Many times, other XX members source deal flow and can introduce you through our online forum. If you hit it off with the founder, you can agree to be their Lead Investor.

Will a Lead Investor earn compensation for every investment?

Not exactly.  The Lead Investor earns 5% of the profits of only those investors whose shares are held by the Custodian.  

A founder can choose to invite certain investors they already know to invest directly in their company, bypassing the custodian.  A Lead Investor will not earn any compensation from those that invest directly on the cap table of a startup.

How do SPV rights work?

When a startup that you are a Lead for raises follow-on financing (such as their Series B), SPV Rights allow a Wefunder Advisors-advised SPV to invest (at the valuation and terms at that round that the VC's negotiated).

As a Lead Investor, you can earn 5% carried interest on any SPV Rights fund that is formed. Behind the scenes, any such Venture Capital Fund specifically will be meant to only to invest in the company, and allow eligible accredited investors to invest.

What contract does a Lead Investor sign?

XX Team LLC hires Lead Investors as independent contractors.

Refer to the Lead Investor Agreement.

Can a Lead Investor get fired?

Only in extraordinary circumstances, such as evidence of egregious behavior or undisclosed conflicts of interest.  

The Lead Investor can be replaced if Wefunder decides to organizes a vote of all investors in the custodian. We'd lay out all of the facts and let them decide.

Can I resign as a Lead Investor?

Yes, you can resign anytime.  However, you would forfeit any compensation./p>

How do I get invited to be a Lead?

Email Gadi to request an invite. Please let him know how you can best help founders.

What is the legal structure of XX?

XX Investments LLC is a SEC-registered transfer agent that acts as a Custodian for all securities sold on Wefunder.

A custodian is an entity (such as a broker-dealer, bank, or transfer agent) that holds securities on behalf of investors (the investors become "beneficial owners" of the securities held by the custodian). The finance lingo is that the custodian holds these securities in "street name" on behalf of the "beneficial owners". As a result, only the custodian appears on the cap table of the company whose securities the custodian legally holds.

This means investors do not appear as record owners of any shares, convertible notes, or SAFEs in a company. Instead, the custodian holds the securities on behalf of the investors. The custodian also votes these securities and signs any documents on behalf of the investors, following the direction of a Lead Investor.

XX Team LLC hires Lead Investors as independent contractors.

The compensation the Lead Investor earns is roughly equivalent to 5% carried interest, except it is taxed like ordinary income. In order to avoid any regularory risk to the Lead Investor, this compensation is subject to the SEC issuing guidance that it is permissible.

The Lead Investor can also 5% carried interest in follow-on financings. A Lead Investor may become an independent contractor, hired by Wefunder Advisors, in the event a SPV is formed to participate in a non-Regulation CF offering.

From the standpoint of startup founders, this works like an SPV and Syndicate Lead like on AngelList, except the legal structure is not a fund. When using XX, a company will have one line on their cap table and a single Lead Investor to direct the signing of any corporate documents and the voting of the securities.

Partners

Is XX a VC firm?

Technically, yes. XX is new kind of "pre-seed" venture capital firm. The partners are experienced founders, most of which are part-time, who earn carried interest.

We want to band together hundreds of founders who want to pay it forward. When one of our partners personally invest as little as $1000 in a pre-seed founder, one of our funds will match it.

Why would I want to be a partner?

You'd be a good fit if you want to help earlier-stage founders get off the ground... because it's the right thing to do. We believe in paying it forward. We get fulfilled when we've made an impact. We often learn a lot of interesting things too.

You also can earn carried interest, like a VC, without having to raise your own fund. Plus, your personal capital goes farther. You can invest smaller amounts in more founders. When you personally invest, one of our funds will match it.

What does a Partner do?

Partners provide office hours, fireside chats, and one-on-one mentorship to startups funded by XX.

Partners also run our accelerators.

Can Partners invest out of a fund?

Yes.  XX has a fund that Partners may invest out of, so long as they invest at least $1000 personally in that startup.

Do Partners get paid?

Partners split the profits for all startups funded while they are an active partner. This means a Partner will have small stakes in hundreds of startups.

This compensation is in addition to what a Partner earns by being a Scout or a Lead.  

Partners that are running an XX accelerator (invested in by one of our funds) also split the carried interest.

How much time do I need to commit to be a Partner?

To be eligible for profit sharing, at least 20 hours a month with a 6-month commitment.  

However, we expect most Partners to be founders between startups.  When it's time to go forth to start your next company, you can retain your Partner title while reducing your time commitment. You'll still be involved in the community, you just won't be eligible for  profit-sharing.

How do I become a Partner?

Email Gadi to request an invite.  Please let him know how you can best help founders.

Mentors

What does a mentor do?

Mentors volunteer for office hours, fireside chats, and one-on-one mentorship to startups.

How much time commitment is it to be a mentor?

The time can be ramped up or down as needed.  All we ask is that if you make a commitment to a founder, you keep it.

Does a mentor get paid?

No.  But if your time commitment increases, you may decide to become a XX Partner the next time a slot opens.  

How do I increase my odds of becoming a XX Partner?

Be known as a very helpful resource to startup founders.

How do I become a mentor?

Email Gadi to request an invite.  Please let him know how you can best help founders.

Invest in a Fund

Can I invest in startups that XX invests in?

Yes, if you are an accredited investor. We have multiple funds available to invest in, that match the personal investments of the xx partners. Each one has a different investing thesis. To see which funds are available, check them out here.

Who manages the funds?

xx.team has partnered with Wefunder Inc. Wefunder's fully-owned subsidiary, Wefunder Advisors LLC, manages the fund on your behalf. Wefunder Advisors is an exempt reporting investment advisor.

What is your track record?

You can view Wefunder Advisor's track record. We've invested in multiple startups at the seed stage, that are now valued at over several hundred million to a billion dollars, such as Checkr, Zenefits, Gingko Bioworks, Rappi, uBiome, Equipment Share, and ShipBob. In total, we've invested in 10% of Y Combinator's Top 100 companies.

Why would this offer better returns than a traditional venture capital firm?

We believe founders make the best early-stage investment decisions. At this stage, there is little data, and intuition from a lifetime of experience is the guide.

Experienced founders often see the best upcoming founders first, well before venture capitalists do, and are typically on the cutting edge of what is new.

Our funds follow-on when those founders make personal investments. Further, most often these founders are making a personal time commitment to help these startups succeed. We believe matching the wisdom of a group of experienced and well-connected founders will lead to better returns.

Why are only 250 investors allowed in each fund?

If a fund has greater than 250 investors, it is regulated as a full-fledged mutual fund, which would dramatically increase costs and make the fund impractical as an investment vehicle.

What is the investment horizon?

This is a 10 year venture capital fund. Investments in startups have a very long term horizon. It typically takes 3-10 years for a successful company to have a liquidity event, when it either gets acquired or has an IPO.

When are returns distributed?

We disperse funds to investors when any company has a liquidity event, once per year on May 30th.

What are the fees?

The Fund charges 20% carried interest and a 2% management fee. This is the standard fee for venture capital and private equity funds.

Are there capital calls?

After you invest in the fund, there will be no further capital calls.

Can I cancel my investment and get a refund?

Yes, for 5 days.

Can I withdraw my money?

No. This is not a mutual fund. All capital will be invested in private companies in long-term, illiquid investments.

How many investments will be made?

Each fund is expected to make at least 10 investments. Most will make 20-50.

Can I opt out of one of the fund's investments?

No. You can't opt out of any individual investment that the fund makes.

Can I make a follow-on investment?

In many cases, yes. We expect most startups will want to raise more money than the fund provides. When this happens, we will give inside access to limited partners.

Can I see a preview of the investment contracts?

Here is the Operating Agreement, Subscription Agreement, and Disclosure Statement. The agreements were drafted by Cooley and Wilson Sonsini.

What is the typical investment size?

Most often between $10,000 and $25,000. We may invest up to $100,000.

Why are pro-rata rights important?

We have pro-rata rights in almost all portfolio companies. This means that when a seed investment receives additional investment from a venture capitalist, we have the right to invest more to maintain our percentage ownership on the same terms. Since startup investments obey the power law, it's very important to double down on the winners to turbo-charge returns.

When a pro-rata opportunity exists, we will spin up a special-purpose-fund and give limited partners in the fund the opportunity to invest. We give first priority to those limited partners who invest $50,000 or more.

Here's a concrete example: in 2014, we invested $100,000 in Checkr's seed round. In 2015, Checkr raised $9M from Accel in a Series A. We gave an opportunity to limited partners to invest on those terms. Recently, Checkr raised $100,000 million Series C at a substantially higher valuation. To date, Checkr has a 34X cash on cash unrealized return.

Can I get tax advice?

We're not allowed to offer tax advice. You'll receive a single K-1 from each Fund each year. Your accountant can offer more specific advice.

Do you accept international investors?

Yes, if legal in your country. You should check with your lawyer and accountant.

Do I have to be an accredited investor?

Yes. We can accept investments in a Fund only from those who are an accredited investor. Unfortuantely, it is still illegal for unaccredited investors to invest in venture capital funds.

Can I make an investment within my IRA?

Yes.