I’ve mentioned AngelList before (here and here and here), and Promus Ventures is a strong supporter of the platform and privileged to be an investor in the company. They just came off quite a week.
Here are some thoughts to the many already articulated over the last week specifically concerning the early-stage investment landscape:
- More liquidity and less friction in any market is a great thing. AngelList has taken so much noise out of the fundraising process that founding teams live in a remarkably more efficient fundraising world than only three or four years ago. Old-timers like me can remember what the fundraising world used to be like, and it’s far better for everyone now (except for those that got lazy).
- The new “Backer” product efficiently leverages the well-deserved respect of successful entrepreneurs who also invest in angel rounds, creating a new category of early-stage capital (call it “Angel Funds”). Other platforms will rise up to compete with AngelList, and these Angel Funds will charge LPs (individuals) 20% carry and little to no fee (typically will expect to see 15% of carry to the Backer, 5% carry to AngelList or other platform). This makes sense to many individuals unable to invest in larger MicroVC/VC funds due to higher minimums, access, etc.
- As individual angels show they can produce above market returns, they will be rewarded up this progression curve. VCs who don’t produce returns (regardless of size and that includes us!) will dissolve quickly. This is democratization at its finest, and the best-of-breed investors will be noticed and capital will flow their way. Data will be the decider, and we will long forget resumes of what the best investors should look like and just focus on the numbers. This will take time to play out, as Angel Funds will now be held to the same standard as other vc funds.
- When raising seed/Pre-A capital, the two biggest variables I constantly hear from top founding teams’ wish lists are a) fit and b) follow-on capital/long-term view. These talented teams can raise far more cash than they need (cash is commodity) and ultimately they will pick the investors whose profiles best fill out their company’s investing team. Those investors who run models that allow for meaningful Series A and beyond follow-ons (generally $1M+ positions) gain points. These new Angel Funds will need to raise enough capital to be able to meaningfully participate in follow-ons.
The institutionalization of funding from Angels has now begun. The progression started with a) a number of Sand Hill firms being able to let the best startups come to them to then include b) smaller, nimble and more hands-on MicroVC funds to now include c) well-known angels with Angel Funds. This market evolution is logical and continues to make for a better investing environment for founders and investors.
The only constant is change — embrace it and respond accordingly or die.
Recipients of this post are not to construe it as investment, legal, or tax advice, and it is not intended to provide the basis for any evaluation of an investment in any fund. Prospective investors should consult with their own legal, investment, tax, accounting, and other advisors to determine the potential benefits, burdens, and risks associated with making an investment in any fund.
