How Do I Raise Seed Capital If I Don’t Know Any Investors? (Part 3) – AngelList

by Scott Edward Walker on November 10th, 2010

Introduction

This post is part 3 of my three-part series: “How do I raise seed capital if I don’t know any investors?”  In part 1, I discussed the importance of hustling and building relationships in order to get warm introductions to investors.  In part 2, I discussed some of the different mentorship and seed capital programs, including Y Combinator and TechStars.  In this post, I will discuss applying directly to a relatively new site called “AngelList.”

What is AngelList?

AngelList is a free service founded by Naval Ravikant and Babak Nivi of VentureHacks, which provides pre-screened startups with introductions to angel investors.  Naval is a smart entrepreneur and angel investor whom I just met in person this past Thursday at the Women’s 2.0 Pitch Conference in San Francisco.  Nivi is equally impressive, and I had the pleasure of working with him earlier this year in connection with my two sponsored posts on VentureHacks: “5 New Year’s Resolutions for Closing Deals in 2010” and “Top Ten Reasons That Entrepreneurs Hate Lawyers.”

As the Wall Street Journal noted:

AngelList, started in February by angels Naval Ravikant and Babak Nivi, vets dozens of deals before highlighting the best ones in emails each week sent free to a group of 200 investors.

Messrs. Ravikant and Nivi—who also run Venture Hacks, a for-profit site that provides advice to start-ups—say they have received pitches from more than 1,000 start-ups, mostly consumer Internet companies. Of the 48 companies featured so far on AngelList, about half have received funding, they say.

Accordingly, if you’re a startup seeking seed capital, you can apply to AngelList via their online application; and, if you are chosen as an appropriate investment opportunity, you will be introduced via email to an extraordinary list of angels.  As Naval and Nivi advise on the site, “[w]e look for the same things that early-stage investors look for: traction, social proof, and team.  You don’t need all 3, but you need to kick ass in at least one of them.”

The founders of BlockChalk wrote an excellent post, “Lessons From Raising a Seed Round” about how they secured funding via AngelList.  Here are a few highlights:

The team is key

We found that the makeup of our founding team contributed directly and measurably to our ability to raise funds. . . .

It’s hard to go it alone. It’s probably also not smart in most cases. A powerful team is greater than the sum of its parts, and investors know that.

Always be tweaking

We never stopped tweaking our pitch. Every meeting we had was an opportunity to both audition our latest pitch and to gather feedback for the next iteration. . . .

Prototypes will love you and leave you

There is no substitute for real feedback from real users. . . .

If we could do it again we might have launched our prototype under a different brand. Or perhaps emblazoned it with the word “beta”, or even “alpha”. But at some level this is the price you pay for having a “product” before you have funding. Prototyping is a double-edged sword. Be prepared for both blades!

Gagan Biyani, the Co-Founder and President of Udemy (whom I discussed in part 1 of this series with respect to his extraordinary hustle) also gives very high marks to AngelList in his post, “Udemy’s $1M Fundraising: Lessons Learned about Pitching Investors from a First-Time Entrepreneur”:

We can’t speak higher of AngelList and the value it provided to Udemy’s fundraising process. We received over 25 intro’s to top-tier investors. What other way can you get 25 investors to ask for intros to YOU! AngelList led to investments from Jeremy Stoppelman (CEO of Yelp), Dave McClure (500 Startups), Josh Stylman (Angel Investor, co-founder at Rotomedia and Reprise Media), and Ben Ling (executive roles at Google, Facebook, YouTube).  But what was even more important was that AngelList got our round over-subscribed, so we had momentum which helped convince our other investors to make their decisions faster and in our favor.

Rafael Corrales, the co-founder of LearnBoost and a very scrappy and highly-intelligent entrepreneur, discusses AngelList at the 33:10 mark in this mixergy.com video.  Indeed, in terms of the role that Nivi and Naval play, Rafael specifically notes that:

Nivi, even Naval, would hop on the phone and say, hey, here’s how you can think about this. Here’s an interview that we did that we haven’t even released publicly. This will help you. That will help you. Go talk to this guy.

And so, these guys were basically, while we were fundraising, really hands on coaches, and it’s really great coming from them because they’re basically these really incredible guys who know exactly what they’re talking about. And they’re biased in your favor. So, they’re going to try to help you find ways to solve your problems in ways that are beneficial to the entrepreneur as opposed to, maybe, meeting with, a hypothetical example, meeting with someone at a VC firm who is going to have more biased advice.

And so, these guys are sort of more independent or, at least, biased in your favor. And so that’s really how they can help is prep you for meetings, help you with your pitch. And then, ultimately it’s also on the entrepreneur to go to VentureHacks.com and read all the blog posts that they’ve done because those resources are incredible.

Finally, if you would like to learn more about AngelList, you can check out some of the answers on Quora to the following questions:

• What do people think of AngelList?

• Which startups have been funded via AngelList?

• How do venture capitalists feel about AngelList taking all the prime deals and leaving them with the leftovers?

Conclusion

In conclusion, it is clear that AngelList is a great place to go if you’re an entrepreneur seeking to raise seed capital.  I would also recommend applying to Open Angel Forum, which was founded by Jason Calacanis, a highly-successful serial entrepreneur and super angel, in response to his disgust with angel groups charging entrepreneurs to pitch.  Indeed, I am a big fan of Open Angel Forum and have not only been a sponsor, but also wrote a poem about my experience at one of the events: “Ode to OAF: A Personal Tribute to Jason Calacanis, Tyler Crowley and the Angels.”  Cheers, Scott

Tags: angel investors, Angel List, Angellist, angels, investors, Jason Calacanis, Naval, Nivi, Open Angel Forum, seed, seed capital