What’s the Real Deal with AngelList?

Posted on Feb 27, 2011 | 17 comments


In case you missed all the kerfuffle this weekend, I posted this blog post originally on TechCrunch. I attempted to do a fair balance job of an increasingly important service – AngelList – started by a friend of mine – Nivi with the feelings of a colleague who I respect – Bryce – who has opted out of the service.

I hope I straddled people’s points of view well enough not to have offended anybody while adding a framework for how I think about the service.

This is a blog post I really didn’t want to write. I didn’t want to write it because I have mixed feelings about AngelList. I didn’t want to write it because the bloggosphere doesn’t always do nuance well.

So why I am writing it then?

A few reasons.

  • Bryce Roberts, a person whose opinion & judgment I greatly respect as well as a person I consider of high integrity has gone on record as having “deleted his AngelList account.” You should read this post. It is thoughtful and respectful.
  • Shervin Pishevar, another person who I respect wrote the following on Twitter, “Saying you don’t like @AngelList is like saying you don’t like Email. It’s a communication tool. Not an investment philosophy“. I understand the sentiment of this post and it’s how I view AngelList (like email), but I feel like it loses a nuance about AngelList.
  • Jason Calacanis weighed in with his disrespectful post calling Bryce a crying baby. I know Jason well. I know this is his style so I take it with a grain of salt. Still, as I’ve written in the past, what I love about blogging is the ability to have a public debate where we can all learn. Often my opinions shift as I read comments on my blog or others’ reactions. I think Jason’s post was sort of bullying unnecessarily and I don’t like seeing good people bullied. So I feel the need to speak up.
  • Babak Nivi is one of the most understated, helpful & important people on the entrepreneur / startup scene in NorCal. What he gave the community with VentureHacks is a pure gift to the community. What he (along with Naval) started with AngelList is also a very important transformation to the communications between first-time entrepreneurs & angels. I am on record speaking effusively about AngelList. I believe everything I wrote then.
  • Still, I have some concerns. These are the same concerns I echoed on the phone with Nivi before they even launched. I said, “if you can help first-time entrepreneurs get access to investors – that’s golden. Still, as a VC I value proprietary dealflow & long term relationships. If AngelList becomes too hot I worry that each deal gets over-hyped and doesn’t give investors & entrepreneurs the time to really get to know each other and decide whether to work together. I worry about that.”
  • Since I invest in lines, not dots, I worry about the rushed decision-making and over-hyping of deals. Getting to know each other before exchanging money for stock certificates is important for both sides.
  • AngelList isn’t hot. It’s hotter than hot. I worry about hotter than hot for reasons I’ll try to respectfully discuss. I know it was over heated when a deal where I wrote one of the first checks on (as an angel, not VC) went out on AngelList. An investor called the founder, spoke for 30 minutes on the phone and committed to funding having never met the team. I’m sorry, but that’s dumb. Isolated incident? I don’t know. But worth a moment of caution? Of course.
  • Robert Scoble has weighed in calling AngelList, “The New Silicon Valley Hype Machine.” I’m not sure if that’s how AngelList would like to be branded. The post is balanced and worth reading. But on Bryce’s blog he wrote the following comment, “don’t think your decision will hurt you much, because you’re part of the O’Reilly ecosystem. But it +is+ an anti-entrepreneur stance.” I don’t believe Bryce’s statements or not being on AngelList will effect him one way or the other. Mostly, I don’t believe that a VC not being on AngelList is “anti entrepreneur” – it is not.

Where do I stand on AngelList?

1. My personal use

I have no reason to delete my account. As Shervin said, it’s just email. I have now put a filter on my email so it is auto-filed in Gmail. I mostly don’t look. It has become too much noise, not enough signal. This is what I feared up front. If Nivi ever sent me a deal I’d meet the team without any question or pre-review. But AngelList is now a place where many people post deals. That’s less interesting for me as a VC.

I’m still assuming these are all pretty high-quality intros but the top end of my funnel is already full of interesting dealflow. I’m pretty easy to get in touch with. I don’t do very well with unsolicited because my volume of email is too high. Still, I live in public & am pretty easy to get introduced to.

2. My view for entrepreneurs

AngelList is a great way to market your deal. Lots of people will see it. So as I said, for this I’m grateful to Nivi & Naval for having started the service.

I cannot stress enough, though, that I believe getting access to the right investors in critical and spending time getting to know who these investors are is equally critical. Far from being a waste of time, the fund-raising process introduces you to a lot of experienced entrepreneurs & VCs who will offer opinions on your business & approach. It should be a continual process.

“Filling out a round” with extra investors you don’t know well to take a round from $500k to $750k is fine as long as those additional investors don’t have significant rights and aren’t PITAs.

Just don’t use AngelList as a short-cut for the hard work. But to be clear, used properly there is NO downside to AngelList for entrepreneurs.

3. My view for VCs

Where I think Robert’s comments are slightly wrong is that AngelList is a net positive for VCs. Most VCs fund companies with a degree of traction. If we have way more companies to observe who have money from angels to get to a point where they prove traction (or don’t) that’s a gift to the VC community. I don’t think AngelList hurts VCs at all. If anything it’s complementary.

4. What about “seed” investors?

I don’t believe AngelList hurts seed investors either. I believe that AngelList will increase the total number of deals funded in the same way that YCombinator does. Great seed investors like Bryce Roberts / OATV (and other great ones like Floodgate, Founder Collective, Information Arbitrage or Rincon Ventures) still get all the dealflow the need.

If I were a founder I would personally start with these kinds of seed funds. They bring specific expertise (e.g. Floodgate / Information Arbitrage do “big data” amongst other things), or Founder Collective (consumer & ad-tech knowledge of people like Chris Dixon) or geography (Founder Collective is in Boston / NY, Rincon is the best early-stage in Southern California).

I would consider supplementing with AngelList to see whether you can bring on additional value-added angels. That way you can have the best of a fund that has deeper pockets and angels so you can have more people helping.  If you haven’t read my post on “how many investors are too many” I describe it all here.

5. What about “angel” investors?

Here is where I actually worry the most. There are many sophisticated angels and I suspect AngelList is a perfect tool for them to organize dealflow. Nivi & Naval are doing a great job of making it more useful by adding geographies and such. It will be a great way of organizing your dealflow as a sophisticated angel.

But there are many angels who either don’t have enough money to allocate to this class of investment or don’t have the experience to drive real returns from angel investing. Let’s just say this: if you’ve invested through boom & bust cycles then you have a realistic perspective. If you’ve been in only boom cycle or have invested less than 5 years you’re in for some surprises.

I wrote a series on angel investing in direct response to my fear that everybody was becoming an angel investor & I felt I had seen this movie before.

I feel angels need:

Still, we’re nearly 2 years into a bull market for angel investing (read: bubble) and 1 year into a VC bubble. Prices are crazy, behavior is turning herd-like and deals are being evaluated too quickly and terms are skewing toward the inane. I decided to stop talking about this publicly because I realized that nobody likes to hear this. But privately here is what I say every week,

“I was at the dot com cocktail party in 99-2000. We were all drunk & stupid. The hangover was sure painful for everybody involved. 2011 is one big cocktail party all over again. Different kind of party, but the margarita’s are a flowing just the same. This time I’m sober. And after writing my previous post about the market being in a bubble, I learned this:

Nobody drunk at a party likes to hear the sober guy telling them how silly they’re acting after 5 drinks. So I’ll keep my mouth shut for now. And in the morning when there’s a bad hangover, I’ll also try to not remind people how they acted.

Still, if I can help a few people privately put down their next drink I think they’ll thank me one day.”

That’s how I feel. Enough said on that topic – enjoy the party.

And I worry that there are too many angels out there who have never felt the morning as angels. So they’re sprinkling their money. Let me turn once again to the wisdom & knowledge of Nivi & Naval in their angel investing guide.

  • Don’t do this to make money becaase you probably won’t
  • Assume your investments are lost the day you make them
  • Balance your portfolio with ultra-safe investments

Hear, hear.

On Bryce’s post:

It was a thoughtful and legitimate contribution to the debate. Jason’s response was not only unnecessarily bullying but it was wrong. There is a transformation in startup land – it is cheaper to launch a company. But this doesn’t negate the benefit of having valuable investors with real experience. I have come to accept that combining higher-volume investors like Dave McClure with focused investors like Bryce or similar can be a smart strategy.

But to his point that, “Today things like Angel List have boxed out VC–especially small ones like your firm–to the point at which you are not needed in the food chain” is inaccurate. To encourage people to run from skilled investors is bad advice. Ask anybody who has worked with a hand-on early stage investor (Fred Wilson, Josh Kopelman, Jon Callaghan) and they’ll tell you they wouldn’t do it any other way.

  • http://blog.daryn.net daryn

    I love the concept and execution of AngelList in many ways (and think Nivi and Naval are fantastic), but I agree with a lot of what Bryce (also fantastic) said.

    Things I find problematic: The hype, the timing, the glut of herd investors who don't add value to other investors but just escalate the first two issues, and finally the noise. I'm not sure AngelList can continue to deliver the value that it did when it first launched.

    I do sprinkle money a little, and I will likely have a bit of a hangover in the morning, but I party with people who I personally believe it, and win or lose, I can't imagine any regrets there.

  • Kylepearson

    So, given all this talk about bubbles in VC land, in your opinion would this be a bad time to join a startup when there is a corporate job available? Almost through with college and have offers with a small venture backed cleantech in biz dev. vs a few corporate analyst positions.

    I'll slowly die in corporate, but I can grind through a few years. I'm worried if I go young company, the funding will run out if its truly a bubble time in 2-4 years and leave me with little to show.

  • Hamilton Chan

    The spirit of the internet is disruption. Like an unstoppable bulldozer, the internet has leveled the playing field for so many industries, and startup investing is not immune. AngelList, micro-finance startups, Kickstarter – these are all great equalizers in the financing game.

    It definitely hurts to be equalized (I would know, coming from the print industry), but the smart players always figure out their point of differentiation and pivot to higher ground. I am sure that the top VCs and angel investors you have mentioned will continue to command and reward a premium.

  • http://bothsidesofthetable.com msuster

    whether to join a startup or not comes down to your goals, ambitions, risk tolerance and DNA. I don't believe you choose the right time to do it or not.

  • http://bothsidesofthetable.com msuster

    Agree to disagree. I don't believe that tech startup financing are going to be bulldozed. I think that players like AngelList are additive but the value of focused & experienced investors doesn't go away.

  • Hamilton Chan

    Actually, I agree with you (but didn't express myself clearly). The value proposition coming from experienced investors is still definitely there. AngelList is additive and would certainly not wipe out the investors who provide a lot more than just a check.

  • Subraya Mallya

    Hi Mark, all the posts you listed makes for really good reading, thanks for linking them. I think anything (like AngelList) that eliminates the hurdles between an entrepreneur and the investors has to be additive to the entire value chain.

    We have been debating signing up and pitching on AngelList and might do it soon. Wonder if there might be a middle ground in that just like pitches are evaluated, investors could also be classified into their interests (not based on their expressing interest, but their track record) and then maybe the match making should happen – sort of market making. That way someone does not just do spray-and-pray and create artificial frenzy for deals that eventually creates misfits partnerships amongst investor-entrepreneur. Today what I see in AngelList is I can define my interests in just about any area and get deal flow. Leading towards the overload of traffic.

  • jason

    Good post, Mark. People here getting too wrapped up in Bryce’s or Jason’s motivations may be missing the point. Of course Bryce posted to get attention to his perspective. And of course Jason wrote something inflammatory and hyperbolic to fire up a debate, stir the pot and keep his opinions live and relevant. Not too valuable to debate the objectives of the messengers.

    The real question here is whether the internet-driven democratization of angel investing helps or hurts first-time entrepreneurs and — secondarily — early stage VCs. And a quick read of that would indicate that the entire process boils down to how quickly and cheaply you can get money. But, more so than most others, first-time entrepreneurs need the involvement and guidance of experienced and (hopefully) successful investors. There are several drawbacks to working with angel investors, notable of which are their low likelihood to lead a follow-0n round and the fact that their invested dollars may be personally meaningful to them — each of which create substantial overhead for the entrepreneur.

    Following the IPO of our last company, we had literally all the angel money we could want in front of us, and we opted to go with experienced VCs again, instead. AngelList may cause a shake-out of sorts for the lower-end and seed-stage VCs, but it’s an opportunity for the great ones to differentiate themselves from the pack and step up their game on this leveling playing field.

  • Jeff

    and…….who says you will have little to show! You will have likely learned how to function while under-resoursed and with tremendous uncertainty…both admirable

  • http://lmframework.com David Semeria

    Quite a few people have pointed out that Bryce could have silently taken himself off AL and gone about his business as usual.

    Does Bryce write a public post every time he deletes an account from some web service he's been checking out? Does he even bother to delete such accounts?

    Bryce argues having his name on AL implies some sort of seal of approval, and hence the rationale for removing himself.

    Even if this flies, that's still not a reason to broadcast the removal to the four winds.

    I sense just a teeny bit of ego at play here….

  • http://twitter.com/danmunro Dan Munro

    Career choices are the most personal of all – right up there with getting married and “let’s have kids!” – so I would never presume to advise directly. What I would share with you is that like Mark – I’ve been in both worlds and from several experiences, I don’t think you can equate one as high risk – and the other as no risk. In the corporate world – it’s referred to as the binge/purge cycle. They staff up – they staff down – sometimes with equal abandon/recklessness.

  • http://terezan.tumblr.com/ Tereza

    For the first time entrepreneur, today, it seems imperative to go to AL first in your fundraising process. I say this not because of Nivi or Naval — I'm sure they're great. I've never met them.

    It's simply due to the concentration of investors there and a race for exposure among entrepreneurs in your competitive set. If you don't, you're guaranteed to get crowded out.

    While it seems compelling over the long run to do a focused fundraise with the investors you want and trust, then go to AL after to fill in, you need to survive in the short run. It takes time to develop the 'lines' Mark's looking for (not dots). If AL already promoted competitors, you've missed the boat.

    I don't think this was obvious last spring but today it's clearly the case.

  • http://venturehacks.com nivi

    AngelList is a work in progress and we’re definitely thinking about the issues you brought up. I think you’ve previously brought up concerns about party rounds and we’re starting to address them here:

    http://venturehacks.com/articles/taulia

    Basically, we would love to see more experienced investors lead rounds via AngelList. It’s happening. And we’re working on it.

  • http://twitter.com/bensweat Ben Sweat

    Fun reads throughout your post on the subject, but I’m glad to see you sticking up for Bryce, who got unfairly railed on for a relatively straightforward, un-inflammatory post.

  • http://bothsidesofthetable.com msuster

    Respectfully disagree, Tereza.

    - I don’t think you go AL first. I think you use AL to supplement
    - I think if you’re finding it tough to fund raise (e.g. taking a long time) that may not be a result of the market itself. It should force harder questions
    - If a competitor is getting traction on AngelList that is not a reason to panic. If you’re in a good market, if you have a great product & vision, if you have a great team – you’ll get funded regardless. A funded competitor on AL doesn’t affect this. It’s an excuse, not the reason. I promise you.

  • http://bothsidesofthetable.com msuster

    Perfectly written.

  • http://bothsidesofthetable.com msuster

    AngelList is as innovative & important as I wrote in my Quora post linked in this post. As you know from our private conversations – I have always been a big supporter of what your doing. You also know I’m very fearful of herd mentality. In no way am I implying that AL is responsible for this. I just want to should “caveat emptor” from the mountain tops anytime new angels over-use social proof for decisions.

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