This has been tried multiple times before (a startup funding marketplace) but all have failed because they couldn't build out the two-sided network.
AL is the first to solve this. They have quality investors and startups (the 2 critical sides of this network) which is what gets the flywheel turning on these marketplaces.
We see lots of Crowdfunding platforms getting funded and all focus on competing on features and fees but fail to build out credible network participants on both sides and getting liquidity on the platform. AL is doing this well.
Given that Naval also seems smart as heck, this is going to be big and I suspect quite disruptive to the broken VC model.
If that is why VC is broken, how will a service like AngelList help? I fail to see how connecting investors and startups in new ways addresses the issue of poor returns.
For what it's worth, my impression has been that there is too much capital chasing too few funding-worthy startups and in recent years this has been driven in large part by monetary policy, which is producing capital misallocation and malinvestment across many asset classes.
I'd guess that when the game is over, angels and super angels will be especially affected and many will drop out of the market altogether. That, of course, would negatively impact AngelList.
- marginal VCs die sooner. This is already happening but more competition for deals hurts VCs who don't bring a lot to the table. This either brings in new smarter blood or right sizes the industry.
- can allow for a set of investors whose criteria for success is more in line with reality. A $100M exit doesn't get most VCs excited but angels and syndicates of angels prob love those. And 60% of tech M&A exits last year were less than $100M.(1)
> A $100M exit doesn't get most VCs excited but angels and syndicates of angels prob love those.
Sure, I could see an angel who put $50,000 into a $250,000 seed round for a company at a $2 million pre-money valuation being happy about a $100 million exit if said company never raises additional capital, but I'd be interested in knowing a) how typical this type of scenario is and b) what the overall returns are, on average, for angels actively making these kinds of investments.
Doesn't this depend upon how your stratify the data?
That technicality aside, two points worth making: (1) VC funds are like startups. All of the money (that is made) investing in the winners, not the losers; and (2) The other side of the coin: VC is also like investing in hollywood Films and pro-sports franchises. People have an irrational desire 'to be in the game', and much value can be extracted through (what is best thought of as) dark externalities.
I was a VC back in 2000 when McKinsey was running around Sand Hill talking about how bad venture returns were compared to much more liquid asset classes. Unfortunately, time has demonstrated it doesn't matter too much to private equity as a class.
I love Naval and think AngelList will be a wild success (arguably it already is). But it's not a zero sum game. There is too much liquidity chasing too few venture partnerships and too much hope of being the one to invest in the next Google|Facebook|Twitter for AngelList to be destructively disruptive to venture investing.
How does early stage jump from 5.8 to 68.8% when going from 10 to 15 years? It seems there is some small sampling issues going on there.
Anyway, you can take a certain time frame, slice the start/end dates to match when certain companies sell or are the market is doing well and make your point look in either side's favor, especially for short time intervals like 1-3 years. Also curious as to how NVCA collects this data.
Absolutely fair critique. Cambridge Associates and Preqin are primary data providers in this world, but in talking to our VC customers, we've heard that sample size, reporting bias (funds doing well may be more inclined to participate) and large time lags are a problem with judging VC performance based on their data. Some studies have also found that the same fund can have different returns in each system.
That said, it's the best of what's available today.
The best indicator or proxy that returns suck is that LPs are voting with their wallets and leaving the asset class and investing in it less.
10 year doesn't include the 1999-2000 bubble era, 15 year does. Those couple of years were among the best periods for VC returns ever, hence any period including them will have disproportionately high #s relative to other periods.
The interesting thing is that, from when I talked to the guys at AngelList, the bigger market (with larger monetization potential) is not its funding platform. It's the hiring platform.
I'm a huge fan of both Naval and AngelList. I'm excited to see what they do with this new war chest. AngelList played a big role in getting my company funded & I was lucky to have Naval as an investor as well. To me, the most impressive thing is they run AngelList like any other startup. I remember emailing Naval about a bug and 10 mins later he responded with news that it was fixed. The implicit data they are collecting is incredibly valuable and there's no one better positioned to capitalize on it than the team they have put together.
What's to prevent one of the incorporation mills from creating a flat fee syndication platform to manage the LLC and provide template documents? Asking for % carry as a platform that streamlines the legal filing and record keeping seems aggressive.
Comes down to dealflow. Quality angels are sought after, and if they're capable of syndicating a larger round, so much the better.
To quote PG from http://paulgraham.com/fr.html: "The best type of intro is from a well-known investor who has just invested in you. So when you get an investor to commit, ask them to introduce you to other investors they respect."
AL is the first to solve this. They have quality investors and startups (the 2 critical sides of this network) which is what gets the flywheel turning on these marketplaces.
We see lots of Crowdfunding platforms getting funded and all focus on competing on features and fees but fail to build out credible network participants on both sides and getting liquidity on the platform. AL is doing this well.
Given that Naval also seems smart as heck, this is going to be big and I suspect quite disruptive to the broken VC model.