AngelList was started in 2010 by Naval Ravikant and Babak Nivi, the guys behind Venture Hacks, as a “community of startups and investors who make fund-raising efficient” by connecting entrepreneurs raising money vetted by AngelList to a large pool of accredited investors. It created a new marketplace for early-stage investment, borrowing the best techniques in social proof from Facebook and Twitter to encourage investors to write checks. It has also become a top resource for hiring developers and designers in Silicon Valley.
In its first iteration, AngelList gave entrepreneurs a platform to get in front of qualified investors, while giving individual angel investors access to deal flow and providing social proof of which angels invested in which deals. Whereas traditionally getting in front of top angel investors requires a solid network, stars aligning, and a great referral, AngelList offers startups a level playing field to get in front of those top investors.
In July 2013, the ‘each investor for him/herself’ model changed with the introduction of AngelList Syndicates. Syndicates allow anyone to invite investors to co-invest with them on AngelList, amplifying the angel platform into an opportunity for startups to raise venture-sized rounds of money easier and more quickly than a traditional venture round. Basically, a well-known and high-value angel like Kevin Rose invites other wealthy individuals to become “backers” and invest in startups as a group. Jason Calacanis describes AngelList Syndicates as a “pop-up VC fund.” Before, his investment averaged between 3% and 10% of a round; with the syndicate he can now become a lead investor, covering 33% to 100% of a round.
Mark Suster likens Syndicates to the way VCs operate: AngelList Syndicate leads don’t take any fees on the investment, which should help with returns. Smartly AngelList requires a Syndicate lead to actually have their own money in the deal so they can’t just be packaging and taking fees – they actually have to put skin in the game. This is the same way VC firms work, by the way. If you don’t know, VCs end up writing sizable checks into their own funds, which is important in better aligning interests.
The fine print: AngelList handles the back office work (setting up funds, tax filings, K-1s, etc.) for syndicates and gets a 5% carry. The lead angel gets a 15% carry.* A “carry” is a percentage of the gain: If you invested $10,000 as a syndicate and it turned into $100,000, there would be a gain of $90,000. AngelList takes 5% of that $90,000, and the lead angel takes 15% of that $90,000. The rest goes to the backers.
* Some places say the lead investor sets his or her own carry, others say it’s 15%. AngelList FAQ doesn’t specify a 15% carry, it appears to be up to the lead investor.
We aren’t in Silicon Valley, so why should we care?
1) As David Cummings has said, this is a great opportunity for cities like Atlanta, giving startup investors that don’t want to set up a full blown fund the deal flow, guidance, and skin in the game that a lead investor provides. This is a win-win for the local startup ecosystem.
2) The investment world has flattened and startups now have an opportunity to get in front of angels who may have previously only focused on the Valley, New York, or Boston (if you’ve followed the guidelines on how to create a bang-up profile). In the same vein, investors looking for super specific technologies or industries can find startups working in specific areas.
3) As a startup with a Syndicator, you have the opportunity to raise a larger round with more valuable partners. As Sundeep Ahuja explains, if you’re raising an angel or Series A round in the next few months, AngelList Syndicates is absolutely worth exploring. Figure out the best person to take your story to AngelList and raise value-add capital on your behalf, and get them to Syndicate an allocation.
4) Accelerators can also raise money on the platform and distribute to all companies in the program. AngelPad, for example, has raised more than $1 million on the platform for 12 companies. This could mean larger seed investment for startups being accelerated or incubated.
5) AngelList location summaries give a good snapshot of the size of a city’s startup ecosystem. One of our goals at Atlanta Tech Village is to pull Atlanta into a top five startup city in the U.S. Listing companies on AngelList immediately puts them into the national spotlight, in turn highlighting all of the awesomeness that is happening in Atlanta.
Creating and launching a profile is easy, but take the time to read and follow the guidelines suggested here and here to make a big entrance. There are ways to push your company profile to the top of the pile based on high-quality people wanting to work for you, high-quality investors wanting to invest, number of followers and referrers, etc. Now go, young founder, go and make your AngelList profile!