AngelList Announces $400M Early-Stage Fund
wsj.com
wsj.com
I wont get into it too much, but I owe alot to Naval for where I am today. The help, advice and just conversations he gives to entrepreneurs is completely 'no bullshit, no fluff'. All in all, its very refreshing to see that AngelList has risen to the top and has helped disrupt the 'old boys / sand hill road' way of doing things.
Naval is an unbelievable investor, entrepreneur, and friend. He's completely founder aligned in a way that is almost unheard of in silicon valley. Someone you don't have to watch what you say and can simply be direct with. I've only recently gotten to know Naval. But, immediately, he's risen to the top as my favorite person to work with hands down.
Truly a unique founder ally amidst the staunch traditionalism of silicon valley investing. Can't wait to see AngelList continue to change/democratize fundraising.
If an investor likes what he sees, he can put in some of his own money, while encouraging other investors, who are part of what is known as his syndicate, to fill out the investment with their own funds. These first investments average around $315,000 per startup.
Wait, what? We joined a few years ago and put several of our existing investors on there. We're not well connected on the west coast and I never heard from anyone major on the site. Was our company evaluated by one of those 165 people who then lead a syndicate? How does it work exactly? How do they discover startups that are on the site?
This grows platform, in year 2 put $500k behind top 100 syndicate leads ($50m investment) as more money available for syndicate leads.
AngelList takes the management fee on the $400m ($4m a year say as a "fund of funds" at 1%), 5% carry on the syndicate. Note 99 max investors per
The syndicate leads take the carry and do most of the due diligence, CSC Upshot gets to follow on on whatever deals they like most.
What leads you to believe the syndicate leads are doing real due diligence?
Just look at Zirtual[1] and Amicus[2][3].
[1] https://news.ycombinator.com/item?id=10036321
[2] http://www.newrepublic.com/article/119350/amicus-app-how-tec...
Never said real due diligence, just most of the due diligence that is actually done
However, if one is investing in 1,000 startups then due diligence is actually of less importance as you approximate a normal distribution of returns..
Which in a lot of cases is zip, zilch, nada by professional standards. A few lunch conversations and "social proof" don't constitute due diligence, but that passes for a lot of angels in Silicon Valley.
> However, if one is investing in 1,000 startups then due diligence is actually of less importance as you approximate a normal distribution of returns..
The problem is that the "normal distribution of returns" could easily turn out to be very different from what you expected. Markets aren't static. A lot of fund managers who rushed to buy boatloads of subprime MBS without doing their own due diligence learned this the hard way. They simply relied on the credit rating agencies and assumed everything would work out.
Here, you don't even have credit rating agencies. You have a hodgepodge of individuals ("syndicate leaders") who are black boxes. Just look at this[1]. According to https://angel.co/syndicates, he has the fifth largest syndicate on AngelList.
Pure madness.
When it comes to investing, ignore these words of wisdom at your own peril: do your due diligence or eventually your due diligence will do you.
As the WSJ article implies, CSC may have certain motivations that a domestic LP wouldn't, such as a desire to get capital deployed outside of China. And fast.
Personally, this looks like dumb money hoping AngelList can turn it into smart money. It could very well distort market for early-stage startup investments, but it isn't likely to change the way these investments tend to behave in terms of returns.
You question is equivalent to asking "Why does KPCB need so much cash?" to which the obvious answer is "so they can invest in interesting companies where are likely to generate substantial returns for their partners."
Well, for at least 10 years now, traditional, mainstream US information technology (biomedical is different) venture capital has been essentially stuck in the mud due to a dirty little secret. As a result, on average, returns on investment (ROI) have been low, e.g., as reported in Kauffman
http://www.kauffman.org/newsroom/2012/07/institutional-limit...
and at AVC.com, the blog of Fred Wilson of Union Square Ventures
http://www.avc.com/a_vc/2013/02/venture-capital-returns.html...
Here is, apparently, what the secret is:
It used to be that venture capital firms could invest in a project described only on a napkin, but this practice was brought to nearly a halt.
How? Traditional US venture capital gets nearly all its funds to invest from its limited partners (LPs) which are mostly pension funds, insurance companies, wealthy individuals, sovereign wealth funds (likely Mideast oil money), hedge funds, and not much more.
Well mostly the LPs are quite conservative, invest only a tiny fraction of their funds with traditional information technology venture capital firms, and, apparently, have a relatively uniform deal with such firms.
The deal: Invest much like private equity investment, that is, in a company evaluated mostly via standard accounting except instead of revenue be willing to substitute traction.
So, here's the recipe for traditional US information technology venture capital:
Look for a company (1) exploiting information technology, i.e., Moore's law, computing, the Internet, the Web, the cloud, mobile, etc., (2) with a novel product/service, (3) addressing a huge market, (4) with traction significant and growing rapidly, (5) that is desperate enough for some cash to be willing to accept onerous terms.
So, here are some of the weaknesses of this traditional approach:
(A) Any development work, e.g., writing software, needed for (4) traction has to be already funded and done.
Result: This part of the deal means that usually the development work has to be what a few guys can do on a diet of Raman noodles, and that severely limits what products/services can be offered.
(B) The deal does not permit giving weight to real progress in research or technology; so, venture partners will not attempt to evaluate such progress and, indeed, nearly never have the background to do, or even direct, such evaluations. Again, the evaluations are basically to be much like in private equity, that is, based on traditional accounting.
Result: The companies that get venture funding are doing little or nothing to exploit original research or technology. Maybe something about a market niche, a user interface, or a partner list is novel. But, from US national security, there is now a history of 70+ years of the astounding power of original research and new technology, and, with the deal of the LPs necessarily, that power is nearly always neglected.
E.g., for a joke, venture capital would have said: You build and test the first one, build and test the B-29, build a good base in Tinian, and build a good base in Iwo Jima for fighter escorts, and for 30% ownership with BoD control, a full ratchet, and 2X liquidation preference we will chip for in half of the aviation gas for the Enola Gay. In other words, that is vulture capital.
We should not expect vulture capital to do much to bring us to
> ... the dawn of a golden age of startups and innovation ...
and it has not.
So, as a result of weaknesses (A) and (B), the information technology startups are on average much less valuable than they should be. So, in particular, there is an opportunity to do much better, in particular, to get much higher ROI.
AngelList and YC have a chance for this progress and, thus, to disrupt traditional US information technology venture capital.
If the CSC in the OP is willing to consider being an LP with a new deal, then there is a chance of
> ... at the dawn of a golden age of startups and innovation ...
and much higher ROI.
But, IIRC, consider Arthur Rock, Sherman Fairchild, and Fairchild Semiconductor.
You didn't just build and app or used aws. You had to spend a lot of money on getting things set up.
And if the problems where genuine enough then I think it's fair to say that this happened much more often. But I don't have any data to back it up only my own experience.
> had to spend a lot of money on getting things
When I was at IBM's Watson lab, the PC on my desk had parts worth a total of $50,000+.
When I bought my first PC at home, from Gateway, it cost me $10,000+. Single core, 90 MHz clock.
Later a friend and I considered a startup, I went shopping, and saw that parts for a good PC would run ballpark $6,000 -- we didn't do the startup!
Later I wanted a more up to date PC, and the parts cost about $5000. So, single core 1.8 GHz processor, that is 1800 / 90 = 20 times faster for half as much money.
Now I'm shopping for the first server for my startup. I've been assuming that the parts would cost about $2000. Nope: How about $1000, for a processor with 8 cores, at 4.0 GHz, with 32 GB of ECC main memory, etc.
But I already have a spare screen and power supply, now really want to do backup from one hard disk to another, both internal, and to a 2 TB external hard disk via USB so don't need Blu-Ray.
And good 1 TB hard disks go for about $60 and, thus, make room enough for internal disk to disk backup surprisingly cheap and easier than working with Blu-Ray disks.
And main memory prices are significantly lower: E.g., the Kingston, 32 GB of 1600 MHz ECC main memory
KVR16E11K4/32
was $429 but now is easy enough to find for $230.99, nearly half price.
So, $700 gets such an 8 core box.
But, for my first server, really not sure I need the full 8 cores, 32 GB of main memory right away so could settle for 4 cores with a slightly slower clock and 16 GB of main memory and three disk drives 1 TB each, for under $400.
So, start with a $400 server and, if it stays busy sending Web pages with ads, then the ad revenue just from on the way to getting busy should be much more than needed for some high end servers.
And now 1 GbE IP routers are much cheaper, too!
And for $90 a month my ISP can give me a connection with a static IP address, no ports blocked, and upload bandwidth of 35 Mbps. Half fill that 24 x 7 sending Web pages with ads, and should be able to show a profit!
Several US locations have 1 GbE service!
Prices, they've been a coming down!
It used to be, to bring up a busy Web site, needed big bucks to, say, Sun and maybe a T3 leased line, etc.
Now nearly everything about bringing up a Web site is much easier and cheaper than 10-15 years ago.
E.g., my startup is based on Windows, so I get to use IIS and ASP.NET for the Web site, ADO.NET and SQL Server for the data base, parts of the rest of .NET for more, e.g., de/serialization of instances of classes for program to program communications over TCP/IP sockets. Some big sites use this infrastructure; it should work well enough for my startup!
E.g., I wrote my own Web site session state server key-value store using TCP/IP sockets, de/serialization, and two instances of a .NET collection class. The .NET collection class was great fun to use! Terrific infrastructure.
Much easier, cheaper than 10-15 years ago!
Thats a great way to put things in perspective. Thanks for that. If you don't mind I would love to use this as an example of the difference between now and then in one of my future essays?
Tech stock in general are underrated it's the SV investments that are overrated.
If the problem you are trying to solve is big enough and you have an idea on how to solve it then back of the napkin drawing ARE enough to get you funding with the right people.
But when everyone is running around and trying to invest yet another social, location aware travel and transportation unicorn to get rich and famous instead of investing in actual problems that need solutions but perhaps more years then we are left with a media backed startup reality show.
Why?
First, there's plenty of money in he US and Europe. I feel they could have worked a bit harder to secure non-Chinese funding.
Second, like it or not the world is engaged in an economic war with China. The industrial bases in the US and Europe have been destroyed to the point that entrepreneurs have trouble finding such things as machines to sew socks. Issues abound across a myriad of industrial segments.
While some in the western world might be all hippie/feel-good about China this is at the cost of ignoring what has been going on. Before you call me a paranoid asshole consider I've been manufacturing products in the US for over thirty years. During that time I have seen, first hand, what the reality of manufacturing has become. Over the years I've seen vendor after vendor systematically taken out by China's expansion into every nook and cranny of industry, even in areas you'd think make no sense.
Now the Chinese are going to insert "probes" into thousands of startups by means of providing insignificant (to them) funding. This will give them unparalleled visibility into trends, products and whole new industries ripe for pillaging.
AngelList is a fantastic resource. I am sure they could have made an effort to source this fund in the US and Europe. In the grand scheme of things $400 million is not that much money with the clout AngelList has, particularly if spread across a range of investors. I, for one, would not want to have a Chinese investor.
Down-vote away.
Having been involved in LP reporting at a seed fund, I can say that it happens regularly but infrequently (quarterly, or at most monthly) and at a 30,000 foot level. I've really never seen LPs interact with portfolio companies at a seed stage, beyond chatting at a cocktail party after the annual meeting.
Besides, given the nature of the platform, if they're looking into trends and products, isn't that information publicly available (this is just adding money behind the top syndicate deals on AngelList)?
China looks at things at a different time scale than we do. Among other things, companies can sell at insane prices because they make their profit at the end of the year when the Chinese government hands out 15% "bonuses" on their exports. I've been in businesses where a 15% net at the end of the year would have been a dream.
When you are dealing with someone who has been systematically eroding your industrial base over decades you have to, at one point, take pause. I know I might come off as paranoid, I get that. There's a reason for that. I have experienced the "China effect" personally. It can be absolutely devastating. And nobody is doing a thing about it (not sure it is possible to any more).
Please follow the last guideline at https://news.ycombinator.com/newsguidelines.html.
Let me offer my opinion on where this sort of thing comes from.
Why would someone say something like that?
Well, because voting on HN (and other platforms) is still broken. People will down-vote you simply because they don't like what you are saying or if you are saying something that paints a different light on their hero, ideology, etc. It has nothing whatsoever to do with the strength or quality of the argument at all. And, because of this, it also does not open the doors for discussions.
For those of us who might not align with the most prevalent culture on HN (pick a topic, there's a favored ideology) this can be rather frustrating at times. You have rules for all sorts of things but no enforceable rules for when and how to down-vote and people don't have to justify their down-vote in any way at all. I have the ability to down-vote yet I don't remember when and if I have ever exercised it. Because, for the most part, I don't feel it is a fair system.
Personally, I think down-voting ought to be eliminated because it is conducive to emotional or ideological abuse, particularly by the younger members of the audience. Up-voting is a far more positive type of engagement and one where if you don't like the argument you simply do nothing about it or pick the one you think might be better. With software limiting such things as rate-of-voting and mass up-voting one could make it far more civil. For example, a reader might get only two or five up-votes per thread or some such thing.
Sometimes you look at topics where, perhaps, you'd like to contribute some experience and the first thought is "crap, if I write anything on this I am going to be showered with down-votes" and that's where, sometimes, making that comment comes from.
I would urge you to view such comments not as rules violations but rather a symptom of something that might need to be addressed.
Facebook is dealing with this right now with their like/don't-like voting system. Their reasons and platform are different, of course.
Learning does not happen when everyone agrees with you. A healthy dose of counterpoint is how you learn. I know it's difficult to manage these kinds of fora, I've done it in the past, back in USENET days, and it was a nightmare. Your job isn't easy. Just take what I said as constructive criticism and nothing more. HN is excellent, so you are doing something right.
Thanks.
I think they must have been having some kind of very important, heated conversation because as soon as I went up to him and simply started to say "hi, hope I'm not interrupting...", he stopped me and said "we're having a conversation!!" and kept walking.
Most likely it was just the wrong time and place to do that but unfortunately I now have a pretty disappointing first impression of him.
Why not just say something along the lines of "it's alright, but I'm not able to speak right now"?
Also, consider the venue: someone who comes up to you on the street and starts a conversation (especially in SF, I lived there for 7 years while working at startups) is likely asking for a handout, donation, trying to get you to sign a petition, trying to scam you, mentally ill, or some combination of the above. Someone who interrupts your conversation with another person on the street immediately comes across as rude regardless of their intentions.
There was probably no way you could have successfully engaged him in a conversation, even a very short one, at that chance encounter. It just wasn't a good set of circumstances.
Because he probably doesn't have superhuman levels of patience and tolerance.
I certainly don't think you should hold this experience against him. Hopefully he doesn't hold it against you.
Like I said, it was likely wrong place/wrong time. First impression doesn't mean all subsequent impressions.
Anyway, I hope I do get the chance to meet him eventually when it's the right time.
I'm not sure I agree. He might be relatively prominent within the SV startup community, but that doesn't make him a celebrity. The vast majority of people (heck, the vast majority of engineers) would have no idea who he is.
I have no idea what the context was for Naval, but if someone walks to you and say "excuse me I hope I am not interrupting," REGARDLESS of your conversation (because you are in a public place), you stop and give them 15 seconds.
For how do you know they are not telling you your car is being towed, or your kid is being taken away, or you dropped your wallet.
If it were Obama who walked to them would they have stopped for 15 seconds? If yes, then what is the difference?
At the very least say with a smile that you are sorry, but this is really not a good time, but they can email you if it is not urgent.
You don't generally start conversations like that with "hope I'm not interrupting". "Someone's taking your kid!" would be the starting point, most likely.
> If it were Obama who walked to them would they have stopped for 15 seconds? If yes, then what is the difference?
They're not Obama?
Note: I am not saying this is what the guy did, I have no context and I was not there.
Chris Chen, why do you think Israeli sales people are on par with scammers? That sounds more than a little bit out of line. Why do Israelis bother you so much?
Chris, you need to take a good long look in the mirror and decide if this is who you want to be. I'm also surprised that this forum is not down voting comments which don't seem so on topic.
https://www.reddit.com/r/SkincareAddiction/comments/30mlby/a...
I didn't even realize they were scammers, but I didn't say they were scammers. I said they were very aggressive, because those Orogold and Adore cosmetic salespeople stand out on the street and aggressively try to make conversation with you and interrupt you.
The common thread with all those people I mentioned were that they were aggressive and they would try to interrupt you.
You found 2 links and you've concluded that Israeli sales people are scammers. The first article starts by refer to an Israeli as a Gypsy thief. You should be ashamed to link to an ugly statement like that about the Romani and the articles don't get much better.
I don't see anything in your two links about Israelis interrupting conversations. In both links they are giving away free products and not interrupting people. I'm guessing you took a free sample and then bought something. I'm not a fan of the entire beauty care industry and won't defend such companies. Perhaps you should consider a healthier lifestyle if you want your skin to look better, or better yet, don't worry about your skin, instead worry about what's in your heart.
A quick peek and I can see that people have contacted the BBB about your company. My customers (yes, I'm a salesperson) can always call me up and I proactively make sure they are happy so they don't have to. Maybe you should contact your customers after they receive your product and make sure they are happy. Forcing your InstaPainting.com customers to go to the BBB to get a response out of you is not ideal. I don't think you are a scammer though. That'd a very unfair conclusion, don't you think?
Nowhere in their comment did they write something negative about Naval. They just described their interaction, and frankly if this is exactly what happened, I would go out and call it "not friendly" at best.
One unfriendly interaction does not make a person bad, or take away from Naval. We have no idea what his context was, or what he was discussing at the time.
As for OP, I think it is great you shared this. If for nothing for the simple reason that you have just given him a chance to reflect on that and rectify it if it were a mistake.
Isn't this what we want? Honest feedback?