At a basic level, AngelList is the LinkedIn for startups; it’s a directory for finding and researching great startups. Many of the biggest seed venture capital firms and angel investors are on the list, and many use it to help them source and validate deals.
But AngelList is also a crowdfunding platform, a way for startups and investors not only to connect with each other, but also to actually raise money through what AngelList calls Syndicates. Most of the startups on the list that do well raising money with AngelList are in their seed or A round.
AngelList as a directory for startups and investors
Even if you aren’t likely to raise money on AngelList, it may be worth creating a profile — for both you and your company. Follow people whom you find interesting; do due diligence on your competition; search for great designers and engineers to hire.
Raising your money on AngelList
Posting your profile to AngelList is very easy, but that doesn’t mean it is easy to raise money through it. Many founders are tempted to bet on a build-it-and-they-will come strategy with AngelList: Get your profile out there and then sit back and wait for some rich billionaire to reach out wondering how you came up with such a brilliant idea and where he can send the money. This is the lottery scenario.
The majority of ventures on AngelList raise no money at all. Those that do raise money pay attention to how the round dynamics and momentum affect their strategies. If you plan to try to raise money on AngelList, here’s what you should pay attention to:
Connect every influential person you can to your profile in any way possible. You can list people as informal advisers, employees, even as customers and ask them to give you a testimonial. The more people who are connected to your profile, the more people who will see your profile when you raise money. You want to make your company look as if you have a really great set of friends and supporters.
Raise before you raise. The most ideal time to post on AngelList is after you have raised at least a third, if not half, of the total amount of money you want to raise. Most investors are likely to rely on the due diligence that other lead investors have already done. If you already have some major supporters, lots of additional people will be interested in taking part in something on which someone else has already done the homework.
The majority of ventures on AngelList raise no money at all.
Also important is the quality of those investors. The more well-known they are and the larger their followings on AngelList, the better.
Know what kind of money you are trying to raise. AngelList helps you raise money in two ways. First, it helps provide introductions to larger investors, including traditional VC firms. When these seed firms ask for an introduction or reach out to you on AngelList, they are beginning a conversation that will likely evolve in the same way it normally would outside of AngelList.
You probably start with a phone call, maybe followed by a meeting in person. If someone chooses to invest, it will feel just like a traditional round — lawyers putting together documentation, wire transfers and so on.
The other mechanism that AngelList has created for investing is called Syndicates. Syndicates are ways for angel investors to pool together much smaller investments, $1,000-$10,000, and co-invest it in a venture. In a Syndicate, a group of angels commit capital that is unlocked every time the Syndicate’s lead angel invests in a startup.
With Syndicates, AngelList handles the logistics of the actual financing, including validating that an investor is accredited and handling the transfer of money. AngelList takes five percent of each deal done in the platform.
Why you would raise money from a Syndicate
While a traditional seed firm may invest $500,000, a seed investor on AngelList may invest only $5,000. Thus, for your round, you may have dozens of small investors come together to form a pool of $500,000. If your company is the kind that needs lots of support — maybe launching in different geographical markets, getting the word out or sending you business — AngelList presents a way for you to engage a special kind of fan — the investor fan.
Venture spotlight: Outbox
For Baehr’s first venture, Outbox, he chose to raise money through AngelList. At the time, he closed the second-largest amount ever raised on the platform.
Here’s his story. We were interested in raising a Series A and knew we’d likely have one lead institutional investor. Alongside our traditional investor, we decided to raise money from AngelList for two reasons. First, we wanted to see if we could raise an additional million or two to increase the overall size of our round beyond what the lead institutional investors had planned to do.
Second, we wanted to find a way to engage dozens, maybe even hundreds, of people in our future success as a company. In that sense, AngelList was, for us, a way to connect with different kinds of investors. Given that they are investing significantly less money, there will obviously be significantly more people involved in your round.
We were advised that we should have lined up a major institutional investor and 50 percent of the capital before we posted to AngelList. When we actually posted on AngelList, we published that we had already closed $2.5 million of the total $4 million round. Over the following week, we received introductions and offers for an additional $8 million.
We ended up closing $2.5 million from investors through AngelList. About $2 million of that came from only a handful of people who were actually institutional investors and had their own funds. The other $500,000 came from about 40 individuals who were bundled through the AngelList co-invest online product. This gave Outbox an additional 50 people who were rooting for our success and wanted to be helpful however they could.
Excerpted with permission from Harvard Business Review Press. Excerpted from Get Backed: Craft Your Story, Build the Perfect Pitch Deck, and Launch the Venture of Your Dreams. Copyright 2015 Evan Baehr and Evan Loomis.