AngelList 101 for Entrepreneurs and Investors

One of the biggest trends in tech and finance over the last decade has been the rise of equity crowdfunding platforms that enable investors from around the world to find and invest in privately-held companies. For companies, this provides a whole new financing source where founders can promote themselves and receive investments from investors outside of their networks. Crowdfunding democratizes investing by allowing small investors to pool their capital into one large investment, accessing opportunities they couldn’t tap into on their own.

Among startup-focused crowdfunding platforms, AngelList was the early leader and remains at the head of the pack. In 2014, they processed over $100MM in investments…and this is still the early days. Equity crowdfunding is moving into every sphere of finance from real estate to hedge funds and is predicted to surpass $30B this year globally.

AngelList originally started as an email newsletter that founder Naval Ravikant sent to fellow angel investors in San Francisco to share the new startups he found most compelling. In time, that newsletter evolved into a platform where anyone can share what they are investing in, browse the profiles of new startups, and make their investments on the spot.

Our unique model as a venture capital firm that shares every deal on AngelList results in us fielding a lot of questions from entrepreneurs and angels about how to make the most of the platform, so here is my advice:

For Entrepreneurs

Nowadays there are thousands of startups with profiles on AngelList. Sticking out among the noise requires you to make a strong first impression in the few seconds that an investor skims over your profile – you need to hook them. Take the time to fill out your full company profile (and your team’s personal profiles) and to think about the story you’re pitching to investors. Include recommendations as well as media like your pitch deck, product screenshots, and ideally a well-produced 1-2 minute video that concisely shows your team, product, and vision. Dustin Dolginow of Maiden Lane wrote a helpful 3-part series on how to craft a great AngelList profile that you can use for guidance.

View equity crowdfunding as a tool you use in addition to traditional fundraising offline. If you’re planning to fundraise on AngelList, lock up firm commitments from several angel investors offline before you begin publicly fundraising on the platform. Like donation-based crowdfunding campaigns on Kickstarter, you want to seed your fundraising campaign with an initial base of backers on Day One. Those first backers lend needed social credibility to other investors that view your profile – an investor who has never met you wants to know that at least others in the deal have vetted you more in-depth. Moreover, their backing on the first day of your fundraise gives the campaign momentum, which can make your company “trend” on the site, generating greater interest and giving prospective backers a fear of missing out if they don’t act quickly. (Justin Thiele sheds light on how to trend on AngelList here.)

We strongly advise entrepreneurs to raise capital on AngelList through a vehicle called a “Syndicate,” however. Syndicates are like online angel groups who back deals led by their one lead investor (to whom they pay carry for sourcing and managing the deals). For an entrepreneur, having one lead investor who rallies other backers and handles the logistics of the transaction results in a much more time-efficient process. The syndicate acts as one entity on the cap table, with one person serving as the liaison and handling all paperwork. Crowdfunding via a syndicate lead gives you the best of both worlds: access to the angels that crowdfunded the syndicate but not the requirement to directly deal with each of them if you don’t want to. Make sure you go with a syndicate lead who knows what they’re doing and is committed to the responsibilities they’re taking on, however. (Also make sure the size of their syndicate is more than enough to cover the amount to expect to raise from them.)

For Investors

For those getting into angel investing, AngelList is an incredible tool: it allows you to find and invest in exceptional start ups without needing to be a Silicon Valley insider. You can easily sort through the profiles of every startup on the platform, view their story / team / early traction, and look at who else is backing them. One of the most helpful functions of AngelList for new investors is the ability to follow notable angels’ investing activity and start understanding the types of startups they back and people they invest alongside. Learn, in part, by watching the best.

Much like how AngelList’s syndicates are the most efficient model for entrepreneurs raising equity crowdfunding, syndicates are an important resource to investors as well. While a new angel has the money to invest and perhaps a background working in tech, they don’t yet have a track record of angel investments that they’ve learned from. Picking out the winners at their seed stage is incredibly difficult. To make up for their inexperience and lack of a large personal brand in the investor community, they can back syndicates led by more experienced investors in order to access their deal flow (which leads to higher returns). Typically syndicate leads are professional or semi-professional angel investors that hunt for deals around the clock and bring their syndicate opportunities that weren’t appearing on AngelList otherwise. Expect them to share their full, detailed analysis of each startup so you have the information to make your own judgement call (and be wary of those who don’t provide much information).

Best of all, you can back as many syndicates as you want without a commitment to invest alongside them. You’re asked to “back” the syndicate for an amount in order to convey the check size you would write if you decide to participate in a deal, but there’s no commitment to do so. To maximize your deal flow, back the syndicates of several people whose judgement you trust. Many syndicate leads never make their active deals public to those who don’t back their syndicate, so you’re missing out if you don’t back any. Angel investing / venture capital is a “hits business” where you make all your money from your few big wins, so you want to optimize your likelihood of backing one of those winners.

If you are comfortable committing capital to a certain syndicate (putting capital in escrow that is required to be invested through that syndicate), you have the option to do so as a “Pre-Funded Backer.” Some syndicates (ours included) give Pre-Funded Backers early access to their deals and guarantee them allocation. A Pre-Funded Backer can spread money across every deal the syndicate does or can opt-out of some in order to invest more heavily in others. You do pay carry to syndicate leads (15-20%, plus 5% for AngelList), but in a good syndicate, the deals are considerably higher quality than what a new investor is likely to come across on their own.

AngelList profiles, by the way, matter for angel investors too. When you back a deal or request to become a Pre-Funded Backer of a syndicate, the entrepreneur and syndicate lead (respectively) get to decide whether or not to accept your money. In competitive deals, the entrepreneur doesn’t necessarily have the space on the cap table to accept every check, so you want your profile to show off who you are and what value you can add to companies. With a compelling your profile, you will also be more likely to benefit from the social aspect of AngelList – organically building a following of entrepreneurs and fellow investors that you can tap into for sourcing deals or for bringing them in as co-investors into a deal of your own.

When you make full use of it, AngelList is a powerful platform for raising capital and investing in new, high-growth-potential companies. It’s a global marketplace where the best entrepreneurial ventures can get funded, and it continues to evolve every month for the better.