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

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their angels’ interests and specialties. “There’s just a lot of stuff that is wrong for our group of angels—it might be a hotel or a restaurant or a biotech company in Geneva,” he says. “And there are a lot of judgment calls. I ask, could I see myself investing in this company?”

Since February, AngelList has helped “dozens” of companies raise money, according to Ravikant. But only 12 or so have gone public with their funding details, including Thumbtack.com, an online marketplace for local services, and LearnBoost, a maker of software for teachers and schools that I profiled a couple of weeks ago. “The non-obvious value Nivi and Naval provide is that they are like sherpas helping startups scale the Mt. Everest that is fundraising,” says Rafael Corrales, LearnBoost’s co-founder and CEO. “The fact that they’re helping founders out for free just makes AngelList that much more valuable.”

In a June post on VentureHacks, Nivi described how one AngelList-mediated deal came together. The startup in this case was BlockChalk, a service in San Francisco that helps users communicate with other people in their neighborhoods by leaving place-based virtual notes or classifieds. AngelList was introduced to BlockChalk by Joshua Schachter, the Del.icio.us inventor and former Yahoo employee who’s now an active Silicon Valley angel. After word went out to AngelList investors, the company won seed funding from Mitch Kapor (founder of Lotus), Thomas McInerney (creator of the Usenet search engine Guba), and Josh Stylman (co-founder of Rotomedia and Reprise Media). Through Stylman, BlockChalk connected with Chris Dixon and Eric Paley of Cambridge, MA-based Founder Collective, who also invested. Then Battery Ventures’ Satya Patel, Harrison Metal’s Michael Dearing, and former AOL exec David Liu piled on (though not through AngelList referrals).

“What this shows is that the old model of angel deals is alive and well,” writes Fred Wilson, the Union Square Ventures principal whose site A VC is probably the world’s most widely read venture capital blog. Wilson is one of the venture capitalists on AngelList, and he lavished praise on the organization in a July 24 post. “Angels love to share deals with each other. It is how angel rounds come together,” Wilson wrote. “But AngelList adds at least two things to the mix. First, it adds a place where the deals can come together online. And second it adds people to the mix that would not be part of the offline deal sharing networks that already exist.”

Ravikant says running AngelList is pretty much his full-time job these days—but that’s partly because he sees it as an extension of his own angel investing. Nivi also works full-time on AngelList, using VentureHacks as its “marketing arm,” in Ravikant’s words.

But while AngelList may fill a gap by connecting the most promising startup founders with the most appropriate investors, Ravikant cautions that this is only the final step in the angel investing process. “I think the way to get into angel investing is, first, you obviously have to have money; you have to have a brand, otherwise you are not going to be differentiated and you are not going to see good deals; and you have to have a network of angels to work with, so you can move in packs and find other people to help you with due diligence,” he says.

It’s only then that AngelList can help. “The final thing is that you need to have good deal flow, so that you can see when the good things come along,” Ravikant says. “We will bring you deal flow, make it easy to syndicate deals, and we’ll show you deals that hopefully over time match up to your interests.”

[Update, 10:50 a.m. PT, August 20, 2010: Investors and startup entrepreneurs are generating an extensive discussion thread today about AngelList at the question-and-answer site Quora.]

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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.