Fall 2013 will be looked back on as the turning point in fundraising for early stage startups. The JOBS Act, along with the acceptance of “General Solicitation” has indeed changed the game for founders looking for startup capital.
Although changes in government regulation will have an impact on startup funding, I believe the biggest impact will come from innovations in the private sector – more specifically the Seed/Angel community.
AngelList has emerged as a black swan in the investment community and is opening up funding channels founders never dreamed of even just a few short years ago. It allows well known entrepreneurs, advisors, and angel investors a digital network to follow startup activity and quickly jump into investment deals with new hot companies. This makes it quite a bit easier for startups to close a round of seed funding. The days of hitting Sand Hill road in hopes of simply getting your project off the ground are over.
And more recently, AngelList announced a new feature called Syndicates, where Angels can basically become “leads” and pool capital from other Angels (or Syndicates) to quickly create their own mini-fund. They then use this to deploy into early stage companies on AngelList, with the transaction happening all through the AngelList platform.
I will not dive into details of Syndicates, please go here if you want a full description of how it works. I simply want to touch on where this is going and why AngelList’s innovations are game changing to the larger startup community, for better or for worse.
The big question is how will this affect founders and the overall startup community? Is it all good? Or will there be unforeseen consequences which inevitably come with drastic changes?
Since I am not the expert I looked around to others and researched their take on the changes happening with Syndicates.
The innovations around AngelList are clearly going to benefit founders – namely to speed up the fundraising process. Mark Suster believes it’s a net positive for the industry. “The most obvious, syndicates can move faster in early-stage deals than rounding up 40 individual investors.” Good, we don’t need to heard cattle as much anymore!
But what about for the angel investors? Although it might be better deal flow, it seems market dynamics and economic factors are going to come into play on the investor side. Hunter Walk sees interesting changes coming for angels, “My guess is there are also some angels who were popular when they represented a $25k check but won’t be as sought after if they try to push $300k into a round.” The nuances here are not obvious and only time will tell if this is good for the angel community or not.
Fred Wilson also believes this is good for founders. “Angel List Syndicates are turning angels who have traditionally been followers into leads. That’s a good thing in many ways. The more folks who can lead a round, the better, at least for the entrepreneurs.” But he goes even further to describe how it will force the investment community to grow and work harder. “It also means that they will have to learn to lead and lead well. They will have to step up before anyone else does. They will have to negotiate price and terms. They will have to sit on boards. They will have to help get the next round done. Essentially they will have to work. That’s why they are getting carry from the syndicate, after all.”
So maybe it’s too early to tell how AngelList will affect the ecosystem but questions loom.
Is this actually going to flatten the playing field for all of us founders looking for seed capital? Or is it just going to make it even easier for “highly connected” founders to close a deal even quicker than before? You only get discovered on AngelList if you can float to the top by “trending” on the network. What does “trending” mean on AngelList? And how do you achieve that if you are not in in the Bay Area, in 500 Startups or a part of YCombinator? Is AngelList inevitably the web 2.0 version of the Old Boys Club? Or is it the fundraising mecca all of us founders have dreamed of when we say to ourselves “if only we had access to more angel investors!”
We shall see!
In the end, AngelList is a new beast and we don’t know what the effect will be on the industry as a whole but I am fascinated with the direction things are going. My hope – easier access to angels and seed capital for all qualified startups no matter their location.
In a recent Founders RAW conversation I asked Duxter founder Adam Lieb his thoughts on AngelList.