The Social Network That Really Matters to Startups
Expanding beyond simply connecting investors and new companies, AngelList aims to create a more global startup community.
The course of technology development is determined by which companies are funded.
AngelList started as a website for investors looking to connect with fledgling startups and vice versa. Now, three years later, it increasingly looks like an indispensable part of the startup scene—and in recent months it has introduced new features that could give it an even more central role.
The site—a hybrid with functions similar to those of Craigslist, Match.com, and LinkedIn—has become a daily destination for wealthy “angel” and other early-stage investors, as well as for startup companies busy raising funds. Registered investors can see which companies are raising money, follow their updates, view endorsements, and ask for introductions. The platform still favors startups with some reputation—the AngelList team picks companies to feature—but putting this information on the Internet opened up the very early-stage fund-raising process beyond Silicon Valley’s insider realms (see “Venture Capital, Disrupted.”)
“If AngelList offers to feature you, then you want to say yes, absolutely. It’s a very good place to be in,” says Max Hodak, founder of Transcriptic, a three-person company in Menlo Park, California, that is using software and robotics to automate routine tasks for genetics labs. The startup raised about half of its recent $1.2 million seed round through the site; after being featured, Hodak received 100 e-mails that turned into 30 phone calls and about seven new investors. AngelList cofounder Naval Ravikant is also a personal investor.
Transcriptic also became the first startup to raise money through Invest Online, a new AngelList feature introduced late last year. After investors and companies meet on AngelList, they negotiate the investment’s terms. With the Invest Online option, the company can use those same terms to accept online investments from any individual who meets the SEC’s minimum personal-income requirements to become “accredited” and wants to invest over $1,000. “It’s like crowdfunding for rich people,” says Ravikant.
Today, he says, startups are raising more than $10 million through direct AngelList referrals each month, and another $10 million through investors who see their pitches and contact them offline. Many venture capital and merger-and-acquisition firms regularly visit AngelList, and Ravikant says he knows of one M&A firm that has actually hired a full-time employee to browse for potential acquisition targets.
As AngelList continues to explore new ways for selected startups to raise money, the amounts raised could grow even higher. In January, just its second month, $4 million came in through Invest Online, Ravikant says. The feature works through a partnership with the investing platform SecondMarket—a “hack” to deal with regulations, since AngelList itself is not licensed by the SEC to broker the online deals. The online investing option could potentially expand to an even broader audience once a new U.S. securities law, the JOBS Act, is put into place.
For Hodak, raising money from crowds online was faster than traditional routes, so he saved time and was able to focus on building his company. Transcriptic received almost $150,000 from about 60 investors online, most of whom he’d never met.
AngelList is also moving beyond investing. It is aggregating its data to provide valuation estimates of different kinds of startups. It also makes some data available via an API that is handling three million requests a day. More than a dozen Silicon Valley incubators use AngelList to process applications to their programs, and an e-mail software company called SendGrid uses it as one of many checks to score new customers and make sure they aren’t spammers.
Last August, AngelList launched a hiring feature to make it easier for startups to find talented recruits. Today, says Ravikant, fresh college grads usually find an easier path to working at big companies than startups, because startups lack the means to sort through lots of applicants. Peter Platzer, CEO of the startup NanoSatisfi, one of about 3,000 companies now listing jobs through AngelList, gets a couple of queries a day. “Our bottleneck is now interviewing,” he says of the matchmaking process.
Ravikant is considering additional startup services, including an advanced search feature that would connect possible acquirers to, for example, startups that employ iOS engineers and are close to running out of cash. Another idea is helping startups do business development by networking to find new customers that have worked with other startups.
Yet to come out of this growth is revenue for AngelList itself; it doesn’t charge anything right now. Ravikant says the site’s investing functions will always be free, because he doesn’t want to discourage quality companies from using the platform. But eventually he expects to charge for some services, like recruiting.
As the site grows, it could gain more influence in the startup world, and not everyone is a fan. One investor, Bryce Roberts, deleted his AngelList account last year, writing in a blog post that it encouraged a herd mentality.
Ravikant’s ambitious are to make the herd even bigger. One of the biggest impacts of AngelList, he hopes, will be helping to eliminate geographic bottlenecks and create a more global startup and investor community, so that someone from India can get Silicon Valley money and a college grad in Iowa can more easily find work at a startup in California.