How AngelList Hacked Its $24M Round

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AngelList, the mailing list that turned into one of the Valley’s most powerful fundraising channels for early-stage startups, just picked up $24 million of its own.

Like we reported nine months ago, Google Ventures participated. They are one of the leads along with Atlas Ventures, a firm that’s supported AngelList through its early years. On top of that, there are another 100 or so investors involved. While not confirmed by the company, we hear the valuation was about $150 million, as we previously reported.

What started out as a curated mailing list of high-quality angels has since grown into a potent force for seed-stage funding. Co-founders Naval Ravikant and Babak Nivi were longtime critics of the way venture funding has been traditionally done in the Valley. They’ve been especially critical of its lack of transparency.

But now, they’ve gradually changed it from the inside, insinuating their platform into several major deals of the last few years like Uber’s initial financing.

The company estimates that it has facilitated around $200 million in investments, with $186 million through introductions and $14 million through a new, more direct “invest online” product. They have about 21,000 investors on the platform and 1,300 companies have successfully raised funding on it.

So how did the company pioneering the way early-stage fundraising is done in the Valley construct its own round? Through following some of their own advice, naturally.

They didn’t give up board control to an outside venture firm, for fear that it would create a perception that they were biased or passing on better deal flow to specific investors.

“We were able to do it in a ‘no strings attached’ way,” Ravikant said. “This allows us to maintain control and stay neutral.”

AngelList wanted an angel on its board to represent the community, but not any person associated with a venture firm. Notably, many of the Valley’s top-tier firms aren’t on AngelList’s very long list of investors. Ravikant wouldn’t comment on specifics, except to say that many firms couldn’t budge on asking for board seats or taking a certain percentage of the company.

Then on top of Google Ventures, The Kauffman Foundation and Atlas Ventures, the company took on another 100 or so investors. There were bigger venture firms like Draper Fisher Jurvetson and Kleiner Perkins, then earlier-stage firms like SV Angel, CrunchFund, 500 Startups and Floodgate.

Then there is a long list of angels including DST’s Yuri Milner, Mitch Kapor, YouTube co-founder Chad Hurley, Yammer co-founder David Sacks, Paypal co-founder Max Levchin, Bebo co-founder Michael Birch, WordPress co-founder Matt Mullenweg, former Twitter CEO Evan Williams, Quora co-founder Charlie Cheever, Friendster’s Jonathan Abrams, Delicious’ Joshua Schachter and Google’s Brian McClendon.

In total, there were 116 investors in the round, 70 percent of which invested purely online through a product AngelList announced earlier this year. It lets accredited investors put in as little as $1,000 in startups on the platform. Most of AngelList’s individual angels were longtime friends of the company.

Unfortunately, because of general solicitation laws, which have prevented companies from openly or publicly asking for money until today, they couldn’t widen out their ask beyond specific accredited investors.

“We ended up inviting people that we knew because there’s a liability issue,” Ravikant said. “Otherwise, people could turn around and say that we abused our platform. We were only able to do a limited distribution and we could not go out to our entire investor base.”

With the round, AngelList is also building out its revenue model. With the “Invest Online” product, they’re taking a 10 percent carry fee off returns on every deal. This comes on top of many other product releases happening today.

With these new revenue streams, here’s the bet from an investor’s point of view: if AngelList’s now massive funnel of early-stage companies ends up including at least one once-in-a-decade Google or Facebook-style home run, then their carry could seal their own return for investors.