Seed Capital From Angel Investors: AngelList Founder Naval Ravikant (Part 2)

Sramana Mitra: How many startups have you funded? I think you said about 200?

Naval Ravikant: We don’t know exactly because what happens is …

SM: They go offline!

NR: Yes, they accept an introduction and they go offline, and there are many cases like that. We had one startup go through recently that said that more than half its introductions to angel investors were made because of AngelList but not through AngelList. So, the investor just read the information, contacted to them through LinkedIn, or had another connection or whatever, and it boosted them along.

So, we honestly have no way of tracking, but we assume that if you got 10 introductions, then you probably got a bit of money off us. The reason being there is no pressure when there is an introduction. The investor gets an email; they get two or three emails a day sometimes, and they delete most of them. It takes quite some time for them to find what they like, so they have a high propensity to want to invest, and what we found with some of our informal contacts was that if you are a really good company, you might get five introductions and you can convert three to investments. If you are the kind of company that is more show than reality, you might get 40 introductions and zero investors.

Anecdotally, what we have heard is that a third to a quarter of introductions convert into some sort of investment, so we said if you have at least 10 [introductions], you are good to go. We have had about 90 to 100 companies publicly report that they have been funded via AngelList, either by contributing to a Quora thread or a press release they emailed to us, and we think there are an additional 150 or so that have raised money but haven’t announced, or it is been a small fraction of the total round that came through AngelList.

SM: And are you doing any kind of prescreening in the process?

NR: We screen both sides, so if I say roughly 250 companies have raised money, that is because more than 7,000 have applied.

SM: Yes, that is where I was going … very few deals that come are fundable.

NR: There is an enormous amount of filtering. Basically, the company goes to the website and lives in the feeds. You can sort by time, by market, by location, and so on. So, investors can find [the information], but the reality is very few of them go digging through; most of them wait for us to pick stuff out …

SM: And send it to them?

NR: Yes.

SM: So you screen on both sides.

NR: Exactly!

SM: And who is paying?

NR: The Kauffman Foundation has been kind enough to fund a lot of it so far, and some of it is out of our pockets, and so we just chug along.

SM: What is the philosophy behind this; is it a nonprofit?

NR: It’s not a nonprofit, it is kind of a productization of VentureHacks, VentureHacks was not a nonprofit either, not that Venture has ever made any money. I don’t expect we will make money any time soon. I think it is very much like craigslist, where you build the community and let the different actors participate and do their thing, and then over time, if a natural business model emerges that doesn’t tax the community, that is fine. But the one thing you can’t do here is you can’t tax the community, you can’t say startups have to pay, investors have to pay because then the good investors and the good startups leave, and it is such a hits-oriented business that you don’t do want to do that. You don’t want to lose the top people. Worst-case scenario, we can raise our own investment funds and invest them in these companies; we have access to all of them.

SM: That seems like the most natural business model, to raise your own fund.

NR: All the VCs keep trying to brand themselves for access to hot deals, so in that sense we do have access.

SM: Okay, fair enough. Would you talk more about the screening process?

NR: The screening used to be 100 percent me. That didn’t scale, so now there are a couple of us who look at the companies and try to pick out the best ones based on team, traction, social proof, and product. Those are our four criteria.

This segment is part 2 in the series : Seed Capital From Angel Investors: AngelList Founder Naval Ravikant
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