Seed Capital From Angel Investors: AngelList Founder Naval Ravikant (Part 3)

Sramana Mitra: OK, so, team, traction, social proof, and product are the four criteria. How do you gauge team?

Naval Ravikant: Team is hard; we do not meet the people, so we just look at where they have been and what they have done. If they are at Stanford that helps, or on Facebook. All the usual metrics one would use, we use.

Traction is evidence that customers are adopting the product. This metric is different in different spaces, and right now the traction bar for social network companies or a Groupon clone is set a lot higher.

Social proof is: Are there good investors who are committed to the round, or good advisers on board? We could even measure this by whether the startup is associated with someone who is knowledgeable in the space and basically said yes, I think this works.

Finally, product is very important and probably the most underrated in terms of what we look at but what we spend the most time on. We go and play with the product and because …

SM: So, you take the time to play with the product?

NR: Absolutely. We ask for the free demo links and the login and so on.

SM: What is the procedure for comments, reviews, and readings? Is it a free-for-all?

NR: No! The only people who get into the site are accredited investors who have some investing history, so we do vet them. When the startup applies, they choose exactly whom they are visible to.

So, for example, this company makes console-quality games on Facebook. You can see the screenshots of their games. There is an investor who was in the previous round and is committed to this round. He is confirmed, so when they say, Oh, this person is an investor, they enter information about him, and the investor has to confirm by email to show up. So, a new investor looking for social proof knows if is it real or not.

There is a bit of initial cleverness here … you can see we are recommending investors to them based on what others like. They have these two investors, right? So …

SM: Whom they co-invest with?

NR: Exactly. Based on that and on his interest in these markets and this location, [we say], Here are other people for you, and the companies choose their visibility settings …

SM: You would recommend entrepreneurs choose whom they want to apply to?

NR: They can. They can go to anyone who is an accredited investor, or they can basically say “only these people,” but usually it is better to cast a wide net. It depends how specific you want to get; you have to be a pretty hot company if you are going to narrow it down. The more you narrow the scope, the fewer responses you are going to get.

SM: And by the time entrepreneurs show up on AngelList, you have already vetted them?

NR: [Not just] entrepreneurs, no. No, this is free for all.

SM: It is free for all?

NR: But what happened was this one got emailed to some investors, so it got traction through that. So, this is a screened deal that I have referred over to investors.

SM: I guess my question, going back to the screening processes, is where in this, in what you have just showed me, where are you coming in to do the screening?

NR: If you go through the recently updated list, this is where everything comes in. You can see it from two months ago, seven months ago, nine months ago, 11 months ago, 20 months ago, and so on. This is just a flag. So, just in the past hour, eight companies updated their profiles. That is eight companies we get to review. We will pick out the best ones, and if we like a company a lot we will follow it. If we love it, we will email it. Other investors can watch this too; there are a couple of investors on the site who just hang out in this field all the time, but most of them are going to wait until it gets to be popular and get on the homepage, and then we will take the top ones out of these and email [about] them.

This segment is part 3 in the series : Seed Capital From Angel Investors: AngelList Founder Naval Ravikant
1 2 3 4 5 6 7 8 9