Will AngelList help or hurt startup fundraising?

Angel in Guisley. Photo via Baldur McAqueen

Angel in Guisley. Photo via Baldur McAqueen

The fall of 2013 will be looked at as the turning point in fundraising for early-stage startups. The JOBS Act — including the acceptance of  ”General Solicitation” — has indeed changed the game for founders looking for startup capital.

Although changes in government regulation will have an impact on startup funding, the biggest impact will come from innovations in the private sector – more specifically the angle community.

AngelList is opening up funding channels founders never dreamed of even just a few short years ago.  It allows well-known entrepreneurs, advisors, and angel investors a digital network to follow startup activity and quickly jump into investment deals with new hot companies.  This makes it quite a bit easier for startups to close a round of seed funding. Maybe the days of hitting Sand Hill Road in hopes of simply getting your project off the ground are over.

More recently, AngelList announced a new feature called Syndicates, where angel investors can basically become “leads” and pool capital from other angels (or Syndicates) to quickly create their own mini-fund.  They then deploy the capital into early-stage companies on AngelList, with the transaction happening all through the AngelList platform.

I will not dive into details of Syndicates. Go here if you want a full description of how it works.  I simply want to touch on where this is going and why AngelList’s innovations are game changing to the larger startup community, for better or for worse.

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Some of the top angels in AngelList’s new Syndicates offering

The big question: How will this impact founders and the overall startup community?  Is it good?  Or will there be unforeseen consequences which inevitably come with drastic changes?

The innovations around AngelList are clearly going to benefit founders – namely to speed up the fundraising process.  Mark Suster believes it’s a net positive for the industry.  ”The most obvious, syndicates can move faster in early-stage deals than rounding up 40 individual investors,” he says.  Good, we won’t need to heard cattle as much anymore!

But what about for the angel investors?  Although it might be better deal flow, it seems market dynamics and economic factors are going to come into play on the investor side.  Hunter Walk sees interesting changes coming for angels, “My guess is there are also some angels who were popular when they represented a $25k check but won’t be as sought after if they try to push $300k into a round.”  The nuances here are not obvious and only time will tell if this is good for the angel community or not.

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Fred Wilson

Fred Wilson see more supply of investors, and also believes this is good for founders.

Angel List Syndicates are turning angels who have traditionally been followers into leads. That’s a good thing in many ways. The more folks who can lead a round, the better, at least for the entrepreneurs.”   But he goes even further to describe how it will force the investment community to grow and work harder.  ”It also means that they will have to learn to lead and lead well. They will have to step up before anyone else does. They will have to negotiate price and terms. They will have to sit on boards. They will have to help get the next round done. Essentially they will have to work. That’s why they are getting carry from the syndicate, after all.”

So it’s probably too early to tell how AngelList will affect the ecosystem but questions loom.

Is this actually going to flatten the playing field for all of us founders looking for seed capital?  Or is it just going to make it even easier for “highly connected” founders to close a deal even quicker than before?  You only get discovered on AngelList if you can float to the top by “trending” on the network.   What does “trending” mean on AngelList?  And how do you achieve that if you are not in in the Bay Area, in 500 Startups or a part of YCombinator?  Is AngelList inevitably the web 2.0 version of the Old Boys Club?  Or is it the fundraising mecca all of us founders have dreamed of when we say to ourselves “if only we had access to more angel investors!”

We shall see!

In the end,  AngelList is a new beast and we don’t know what the effect will be on the industry as a whole but I am fascinated with the direction things are going.  My hope – easier access to angels and seed capital for all qualified startups no matter their location.

In a recent Founders RAW conversation, I asked Duxter founder Adam Lieb his thoughts on AngelList.

Nick Hughes is the CEO of Seconds, a mobile payments startup located in Seattle, and co-founder and host of Founders RAW.  In his spare time he inspires entrepreneurs to build meaningful and enduring companies through his writing on SoEntrepreneurial.com.  Follow him on Twitter@jnickhughes.

  • Jon Staenberg

    The reason i have decided to start a syndicate using Angel List is sheer ease of use for both me as the general partner and my limited partners. Having been a general partner in 3 funds to date, the amount of time and effort running the fund was not time well spent for helping the companies. Moreover, i like the idea of not taking a management fee (or said differently, my investors aren’t paying me unless there is success) and having a lower than normal carry. All of this is creating more ways for more people to have access to the asset class.

    • Jerry

      Curious what IRR in your past funds you had and you happily could brag about and we could trust your pick? Kevin Rose and Brad Feld promote the syndicate and are known people. Why would someone go on blind date with you if no past success.

    • http://adamlieb.me/ Adam Lieb

      Excited to see you leading the financing innovation charge here in Seattle. Most of the syndicate buzz is firmly in the bay. We will have to catchup soon.