Website plays matchmaker for start-ups and investors
Jim Bull didn’t have great expectations when he set up a profile on a website called AngelList back in June. His company, Brass Monkey, had secured funding commitments from two Massachusetts venture capital firms for a couple hundred thousand dollars, but Bull was hoping to raise $750,000 in total. Based in Boston, the start-up is developing software that will let you use an iPhone as a video game controller.
But within 10 days of posting an overview of the start-up on AngelList, Bull says he had a verbal commitment for $150,000 from one investor and serious interest from another, who was doing research on the four-person start-up. “One fellow flew in from Cincinnati to talk with us, and we’ve been talking with investors in New York and even San Diego,’’ says Bull. “That’s a place where we normally wouldn’t have made the rounds to talk with investors.’’
AngelList wants to be to entrepreneurs what Match.com is to love-seeking singles. The California-based site says that about 10,000 companies and 2,300 investors have set up profiles, and it has already helped a handful of New England companies hook up with investors - some of whom they have never met in person.
You could view AngelList as an emblem of the current frenzy in Internet investing, driven by stratospheric valuations of companies such as Twitter and Facebook. But from an entrepreneur’s perspective, there isn’t a downside. It’s simply a fast and efficient way to get in front of a big group of individual investors (often called angels) and partners at venture capital firms.
So far, AngelList operates as a kind of public service: Neither investors nor start-ups pay a fee to use the site, and there’s no advertising. Cofounder Naval Ravikant says there are no plans to charge. AngelList’s backers include Cambridge venture capital firm Atlas Venture and Dharmesh Shah, a local angel investor and cofounder of HubSpot, a Cambridge online marketing firm.
Traditionally, raising money from angels has involved trying to get a personal introduction to one who might specialize in your particular industry sector, and then setting up a meeting. (Unlike venture capital firms, most angels maintain a fairly low profile.) Another path is to secure presentation slots at meetings of angel investing groups, which bring together angels on a regular basis to hear pitches.
But like all successful Internet ideas, AngelList lubricates, accelerates, and globalizes the old way of doing things. And for a site that is less than 18 months old, it already seems to be dividing investors into two groups: with it, or hopelessly behind the curve.
“When an investor tells me they are not on AngelList or won’t use it for X or Y reason, it’s kind of a red flag for me,’’ says Alex Cook, cofounder of Rentabilities, a Boston website that enables consumers to arrange all kinds of rentals, from Jet Skis to party tents. “It streamlines the process for everybody - not just us, but the investor, too.’’ Among the investors with profiles on the site are Lotus Development Corp. founder Mitch Kapor, LinkedIn founder Reid Hoffman, and actor Ashton Kutcher.
Any company can set up a profile on AngelList, but doing so doesn’t mean you will get in front of Netscape founder Marc Andreessen (another member of the site). “Thirty or 40 companies a day create profiles,’’ says Ravikant, “and you probably won’t get noticed unless you have connections to people who are part of the AngelList community. Those entrepreneurs or investors can circulate your profile to people they are connected to.’’ Ravikant and the rest of the AngelList team also sort through new profiles looking for “deals that look credible,’’ and forward those to investors who might be interested.’’
Companies can offer up two different profiles: one for the general public (which might include a video demonstration of the product and information about the market), and one with more details (like specific customers using the technology, or the amount of money sought) for those investors to whom the company grants access. They can also offer updates to investors who choose to follow them on the site, noting, for example, if they have been granted a patent, or secured a key distribution partner.
Investors profiles typically list companies they have backed previously, the sectors and geographic locations they are interested in, as well as their activity (for instance, making four investments totaling $100,000 over the course of a typical year).
Once investors a company they would like to learn more about, they can discuss a prospective investment any way they would like: e-mail, phone, Skype videoconference, or in person.
“For an angel investor, I see AngelList doing what Bloomberg terminals did in the financial markets,’’ says Ty Danco, an angel investor in Burlington, Vt. “It democratizes information and deal flow. You no longer have to be in the cozy inner ring to see a deal.’’ Danco says he has invested in eight companies discovered through AngelList, one of which was quickly acquired by LinkedIn.
For Cook, the Rentabilities founder, AngelList is a way to avoid becoming consumed with fund-raising as he builds his company. “My main focus is our customers and our product,’’ he says. “If I can use AngelList and not have to take a hundred meetings, that’s a good thing.’’ Another local entrepreneur, Rene Reinsberg, says AngelList will have helped him find about half the investors putting money into his company’s next funding round.
As AngelList expands from tech into other industries, Ravikant acknowledges that the challenge will be to maintain quality, making sure investors and entrepreneurs continue to find the site useful.
Two other things to watch: what happens to AngelList when the current mania for investing in fledgling Internet and social networking start-ups subsides, and how AngelList affects established angel groups.
Match.com, after all, was not kind to the world’s dating services and matchmakers.