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

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startup founders give them a place in the seed round, if their matchmaking is consummated.

“We have no real ‘business model’ that I care about, and I’m happy not to have one,” says Ravikant. “I’m happy to do it, because as an active angel investor myself, I want to build a brand and get the best deals. This brand allows us to get into a class of deals that we would not be able to access otherwise. That alone will pay us back.”

The AngelList “brand” is itself a spinoff of another brand, VentureHacks, a blog that Nivi and Ravikant launched in early 2007 to give new entrepreneurs a better understanding of the venture capital industry’s inner workings. That’s a topic the 36-year-old Ravikant knows well, having made his name around Silicon Valley as the founder and CEO of the consumer review site Epinions.com (funded by Benchmark Capital and acquired by Shopping.com in 2003) and as a former venture partner at August Capital. Most recently, Ravikant founded and now chairs Vast.com, a pay-for-performance online advertising network for the auto, travel, and real estate industries. Nivi, meanwhile, was the president of Songbird, an online music startup backed by Sequoia Capital and Atlas Venture. He’s done entrepreneur-in-residence stints at Atlas and Bessemer Venture Partners and is now an advisor to multiple startups.

Babak NiviThe very first post at VentureHacks, back on April 1, 2007, was called “Term Sheet Hacks” and was full of tips for entrepreneurs preparing to go up against steely-eyed venture capitalists in deal negotiations. The blog has won a large and fervent following, with 40,000 RSS subscribers. But Ravikant says that as the angel investing culture gained momentum, the pair came to realize there was a group of entrepreneurs whose fundraising challenges start long before they get to the stage of approaching venture capital firms.

“Problem Number 2 for startups is how to negotiate a good term sheet,” says Ravikant. “Problem Number 1 is how to get a term sheet in the first place. That’s what Nivi and I set out to do with AngelList.”

Ravikant says that if he were starting over with AngelList now, he’d probably pick a different name, because it’s not really a “list” or a directory in the sense of Angie’s List or Craigslist. Angel investors can’t automatically sign up, and entrepreneurs’ pitches don’t automatically get their pitches sent to every AngelList angel.

“We reject probably more than half of the angels who apply, because they are not serious,” says Ravikant. “We try not to reject real angels who have been out there making real investments, but the guy sitting in Dubai who just read a TechCrunch piece and decides he might angel invest someday, we don’t want to corrupt the list with that.” At the time of my meeting with Ravikant in early August, there were 95 angels on AngelList, plus another 60 venture partners looking for seed-stage deals, as well as nine incubator programs, according to Ravikant.

On the startup side, the competition is even stiffer: Ravikant says he and Nivi receive anywhere from 15 to 200 pitches per week, and pick 2 to 3 percent of them to send on to investors. There’s a lot of pre-screening, based on what Ravikant and Nivi already know about … 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.