Seed Capital From Angel Investors: AngelList Founder Naval Ravikant (Part 4)

Sramana Mitra: OK, so let’s say I want to send you a set of deal flow, screened deal flow, because in One Million by One Million we don’t advise people to apply for investment too soon and without enough traction. The reason is that 99% of deals are rejected by investors. We want our members to work on their company to the point where they have improved the odds of playing this very low-probability game. So, if we were to send you screened deals, how would you recommend we advise our 1M/1M companies to play here?

Naval Ravikant: Fill out a really good profile, make sure it is complete, give a good demo link, have good screenshots, and have good evidence of traction. It is amazing how people will spend 10 hours and 20 meetings with investors, or trying to meet the investors. But when they come on here, they will just give us a basic URL and not much else. Well, look here, you are in front of 1,500 investors …

SM: Don’t blow it with a bad presentation. And don’t put yourself on the list until you are ready.

NR: Exactly. You can evaluate the opportunity, do some homework, fill out a good [information] page, write a one-pager. All we are asking for is the bare minimum that we need to know and that any investor is going to want to know. We don’t want to know too much, either. Having a good referral helps, having good advisers or committed investors helps a lot, but we look at everything. I mean, the company can leave notes and messages to us saying, “I am still working on it, it is in draft mode, I don’t want to publish it yet,” or they can leave a message saying, “Here is the update; would you come back and take a look?”

We are trying to move toward a much more crowdsourced system in the future. Today it is partially crowdsourced where, for example, if you look at the basic page, it is based on popularity. It is like a Digg or a Reddit based on what other investors have done.

We are moving to a more personalized system, which is in development right now, but we will function a lot more the way the current industry works. You will be connected and sent automatically to people whom your group of current investors and advisers and team members already know. [Getting this system up] is going to take us about an additional 30 days.

SM: OK. What are you doing with the rejects? You get 7,000 deals, and you recommend maybe 200 … what about the rest?

NR: First of all, I wouldn’t call them rejects, because a lot of them still get picked out and funded. I would say of the ones that have gotten funded, probably 40% are ones we didn’t email out. That is, somebody else found them and made an introduction; someone else then saw that and made another introduction and left a comment, then the company got a little more traction. Eventually they got on our radar, and we emailed at the end, but it was almost too late, obviously. For the other companies that don’t get funding, you know, sometimes if we think it’s a solid company and is a little too early for us, we will try to give them feedback.

SM: What is the process of coming back into the deal flow? In the real world or the brick-and-mortar world, you are rejected by an investor, and you can’t really come back into that circuit for an additional six to nine  months.

NR: That is not the case with us. The company can just leave a comment saying that something was updated and would we please take a look. We are really startup-focused and friendly, so we try to service every startup. They are our customers, so if it is a legitimate startup, we will help them. If it’s some guy with an idea who is just writing about vision, then that wastes everyone’s time.

SM: But among your 7,000 [applicants], I bet there is a lot of that going on.

NR: There are a ton of those.

SM: I see a lot of that in One Million by One Million.

NR: Yes, but if it is a legitimate company that has … for example, this one right here, this company [looking at AngelList page]? I haven’t emailed this out to investors, but it is on the homepage. The entrepreneur made it up here because he got these people making two introductions and five [people following], and something is going on.

This segment is part 4 in the series : Seed Capital From Angel Investors: AngelList Founder Naval Ravikant
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