In Seed Funding Race, AngelList Sorts the “Junk” from the “Maybes”

You don’t have to search far on Twitter for glowing testimonials about AngelList, a matchmaking service for startups and angel investors launched in February by San Francisco investor/entrepreneurs Babak Nivi and Naval Ravikant:

“Wow, just a few days and I’m pretty impressed by the quality of the opportunities”—Hunter Walk

“An entrepreneur’s best friend. Two companies just became over-subscribed thanks to the list.”—Keith Rabois

“If there was a Nobel Prize for helping the startup/angel ecosystem it would go to @angellist. :)”—Christoph Janz

“Love what Nivi and Naval are doing”—Satish Dharmaraj

“Angel List is killing it”—Mark Suster

Let’s leave aside the fact that tweeting about AngelList is a great way to butter up “Nivi and Naval,” as the two influential founders are invariably known. It’s still clear from comments like these that their operation is addressing a perceived gap in the ecosystem of tech entrepreneurship.

After all, the Great Recession of 2008-2009 appears over (at least in the Bay Area), and it’s become respectable once again to be a chaser of startup glory. That means there are many, many more entrepreneurs running around with business plans than there were a few years ago. At the same time, there’s a growing clan of successful serial entrepreneurs who have more cash than they really need (again, at least in the Bay Area, thanks in large part to the diaspora of Google, Facebook, and Yahoo alums) and who want to support the next generation of world-changing companies. To top it all off, it’s actually possible these days to start a software or Internet company for a few hundred thousand dollars in seed money—the kind of financing that an entrepreneur can assemble from a relatively small syndicate of angel investors, without ever having to set foot on Sand Hill Road.

But it’s a chaotic marketplace. It’s hard for entrepreneurs to know who has money to invest or how to contact them. And it’s hard for angels to sift through all of the proposals for the truly golden opportunities. That’s what AngelList is for: Nivi and Ravikant and solicit written pitches from entrepreneurs, winnow out the losers, and send the best ideas on to their hand-picked pool of angels.

Naval Ravikant“We’re helping startups raise money more efficiently from the people they want to raise money from,” says Ravikant. “And we’re helping angels by sending them high-quality deal flow. A lot of angels get hammered with deal flow, and a lot of it is junk. If we can screen out all the obvious nos and just leave the maybes and investment-grade deals, in one blow we have made the angel’s job much more efficient.”

Ravikant makes it sound easy, but there’s a real art to what he and Nivi are doing, and a few land mines that have to be sidestepped as well. These days, there’s automatically some skepticism toward organizations that try to insert themselves between investors and entrepreneurs. A case in point: When Boston-based Revolutionary Angels tried to set up a contest last year where startups paid $5,000 each for a chance to share their business plans with angel investors and perhaps win a $300,000 investment, critics attacked it as a “pay to pitch” scheme, and the negative PR eventually contributed to the contest’s shutdown.

But AngelList doesn’t take money from entrepreneurs or angels. The funds to run the SoMa-based operation come out of Ravikant’s pocket, together with a grant from the Kauffman Foundation. All Nivi and Ravikant ask—and it’s a suggestion, not a requirement, Ravikant says—is that … Next Page »

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Wade Roush is a freelance science and technology journalist and the producer and host of the podcast Soonish. Follow @soonishpodcast

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4 responses to “In Seed Funding Race, AngelList Sorts the “Junk” from the “Maybes””

  1. Ken Smith says:

    Great article. another early stage funding innovation – coming from the west coast, as usual.