SUB CATEGORIES OF Funding Your Startup

AngelList is a social networking platform for startups. At a most basic level, as of August 2013, it is an online meeting place for startups to raise debt and equity capital from investors without charge (free, free, FREE) and recruit talent through an online job board. The site is growing quickly and will likely change substantially when new features and services are added over the course of the next few years.The site allows investors to observe which startups well-known tech players, such as Reid Hoffman, are investing in or following. This brings more transparency to the world of angel investing, which, prior to AngelList, had been largely opaque.

Startups vie for attention from investors on AngelList through their profiles. The process is democratic in a way because an unconnected startup could be visible to the most influential and successful investors in Silicon Valley. That is the theory, but in practice it is difficult for a startup to standout and be noticed unless a startup has backing from a well-known backer, such as Mr. Hoffman. AngelList ranks investors by numbers of followers, Mr. Hoffman being the number one followed investor according to many media sources.

AngelList was started in 2010 by founders, Babak Nivi and Naval Ravikant, who also jointly started and run the blog Venture Hacks. They are commonly known in the startup community as Nivi and Naval. According to Naval, there were, as of early 2013, 100,000 startup profiles on AngelList, more than 500 introductions were made between startups and investors every week, more than 2,000 introductions were made between startups and talent every week, more than 18,000 accredited investor members were registered on the site and in excess of $10 million invested in startups a month as a result of the site ($2 million of which is direct investment through separate funds established by AngelList in conjunction with SecondMarket where investors can invest at little as $1,000 in a startup).

Only accredited investors are allowed to invest through the website. However, the website itself does not handle any investment funds (but we think that will change). Over time, according to Naval, the site intends to make money by charging for recruiting, as well as other premium services.

How Does it Work?
When a startup registers on angelList, it is first prompted to create a startup profile. The profile is matched to a type of investor chosen by the startup. The startup may also choose not to be matched to investors if it does not want to be initially connected with investors, such as during the time when the startup is developing its profile.

Investors on AngelList receive an email featuring 10 to 20 new startups every day and a list of “trending” startups. Needless to say, the competition to standout to the most active investors is tough because those investors likely receive 100s of solicitations a day. Investors are not allowed to review every startup on the site themselves, which is why the website’s administrative team is an important link in the connection process. If a startup looks promising, the AngelList team forwards it to selected investors. The site claims that an investor is more likely to review feeds that are curated for a particular investor and take introductions to the selected startups. An “eHarmony” model for startups and investors.

The site’s administrators contact a startup after its profile is posted on AngelList and make suggestions about how to improve the profile to attract capital. A startup should continue to tweak its profile if it is not getting traction. In practice, a startup could have an excellent profile and still have no traction if the startup does not have prominent backers or has a poor business model. Most startups, including those on AngelList, will not be able to raise venture capital investment and will fail. As a general rule, most startups will be unable to raise venture capital or even angel investment. AngelList is not a panacea to unfundable business plans.

Prompting Investments
AngelList offers startups certain tools to promote their businesses.
Every startup has followers similar to the social networking website Twitter and founders can make introductions similar to LinkedIn;

  • Investors, entrepreneurs and startups have AngelLink profiles that are designed to be similar to Facebook profiles for ease of use and familiarity;
  • Startup profiles can be commented upon similar to Facebook;
  • The website notifies startup owners when an investor follows a startup similar to how Facebook notifies users when they have a friend request; and
  • An updated status prompts notifications to all followers similar to followers of a user on Twitter.