AngelList is a platform mediated network for investors, job seekers and startups. It was founded in 2010 by serial entrepreneur Navil Raviktant. Originally it was intended to be an equity crowdfunding network for venture capitalists (VC’s) and entrepreneurs a like, but soon enough it transformed into an employment platform as well. By 2014 the platform funded over 243 startups and raised 104$ million in total. By 2016 there were multiple startups that raised over 100$ million on Angel List, one company was even acquired by Unilever for 1 billion dollars (Dollar Shave Club) (Primack, 2016). Some of the most notable VC’s that can be found on Angel List are Marc Andreesen (Skype, Uber, Groupon, Facebook, Twitter, Zynga, Airbnb) and Mitch Kapor (Uber, Mozilla, Clever).
So why did this platform become so wanted for VC’s and startups? One of the main reasons is Angel Lists vetting process, only 1-2% of the applicants get accepted to be listed on Angel List (AngelList, 2016). Applicants need to fill in a lengthy application form, after which they would need to be interviewed by an Angel List partner. This dual stage vetting process helps to make sure the legitimacy and the competency of the business and its owners. The due diligence that is performed by Angel List helps provide trust for both sides of the network and acts as stimulator for the network effect.
Another reason why Angel List has been so successful is because they subsidized the side of entrepreneurs within the network, this service is completely free for startups. This helps to make sure that Angel List receives many applicants. By increasing the amount of applications Angel List can make sure that they do not lose out on potential rockstar startups and the same time provide a broad portfolio for VC’s to invest in, this increases positive cross side effects of the network.
Additionally, Angel List sets no pre-defined terms like many start-up incubator programs do and they immediately recommend several investors to a startup. Investors then receive the information about the startup in order to get communication going. Angel List provides this service in order to more appropriately match investors and VC’s dependent on industry, market, size of investment and location. By providing this service they can help mediate and stimulate the overall interactions within the platform and help grow the community.
The platform is gaining traction and some stellar companies are even being sold for over a billion dollars. Could this replace conventional bank loans or even IPO’s? Is Angel List managing the platform well? What else could Angel List do in order to increase the benefits from this network ?
Sources:
AngelList. (2016, January 23). Intro – Frequently Asked Questions. Retrieved from Angel.com: https://angel.co/intro
Primack, D. (2016, July 19). Unilever Buys Dollar Shave Club for $1 Billion. Retrieved from Fortune: http://fortune.com/2016/07/19/unilever-buys-dollar-shave-club-for-1-billion/
Derek Loots 379103
In your questions, you ask if AngelList could replace traditional bank loans. I find it hard to wrap my head around that notion.
Angel investors that are listed on AngelList provide financing to startups in exchange for equity and with hope that the investment will bring them money in the future. Setting aside the profitability of loans, the whole dynamics between Angels and startups would have to be different for it to replace loans.
The interesting part about angel investing is that the investor can help the start up along the way and when he/she exits the investment, there is potential for a big profit, which is an incentive for the investors to help the startups along the way.The big profit is only possible because investors have an equity stake in the company. If I loan money to someone, my only profit is the interest – so I also do not care about helping the startup to be the best, I only want them to pay me back my loan.
And there is this whole part about early stage startups probably not wanting to have a loan, because they might not generate revenue yet, so there is nothing to pay off the loan with.
Hi Eva,
Thank you for your comment, I completely agree that the dynamics in-between bank loans and angel investing is different in terms of pay back structure. But every angel investor has a different type of contract as well, some investing does take on a similiar structure of a bank loan. Many VC’s prefer convertible debt rather than equity. Every startup will have to decide on its own capital structure, what interested me more is that AngelList provides the opportunity for relatively big companies (<200 million valuation) to find loan and funding options. Banks would but cut out, they are currently being a middle man with our investments. They loan money to these companies at a cost, now investors in theory could cut out the bank and loan directly to the company with more personal involvement. I believe that banks these days have been too amped up with inflated loans who did not show enough collateral. Angellist provides an alternative for people to invest with more personal involvement with their money. In short debt-equity, cash, stock options are all forms of different type of loan structures, but technology is helping us to find and mediate these loans in a potentially more holistic fashion and therefor hopefully mitigating another financial crisis with financial institutions providing shady loans. I completely agree with you that banks see loans as "money is money".
Overall great post about an interesting movement.
While I firmly believe that technology is going to increase market participation in VC investments by a large factor, I struggle to see this as a disruptive movement. The differentiating characteristics you outline, such as the two-tier vetting process and diverse portfolio, are, as far as I understand, not revolutionary.
However, with bank interest rates tanking and the outlets for private capital drying up, perhaps the lesson to be learned is that true innovation is not necessary in this area. Perhaps doing VC and angel investing WELL is better than doing it differently.
Ultimately, the fate of almost every successful startup right now is acquisition. I doubt that reality will change with these so-called ‘Angels’.