Naval is such a genuinely nice and caring guy. So many investors say they are entrepreneur friendly, but hardly any of them live up to that when things get hairy. Naval is a guy who absolutely lives the mantra of putting entrepreneurs first and goes above and beyond to help them out in so many ways. There is a long story about the stuff he went through to get where he is (when he was at epinions), google for it- its worth a read.
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.
Imagine some combination of the crowdfunding website Kickstarter and the social-networking site LinkedIn, only everyone on the site has to be an accredited investor. Early-stage startups show up, hat in hand, and 165 different angel investors, called “leads,” evaluate them.
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?
I'm not sure you could easily find one LP willing to put up $400 million for a fund that, according to the article, will potentially make more than 1,000 investments. AngelList, because of its platform, obviously has a way to deploy this capital more efficiently than a typical firm, but these types of small early-stage investments are still fraught with challenges and I think sophisticated domestic LPs who have experience in venture capital would be very skeptical.
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.
It would be interesting to see the effects of a combination of something like AngelList together with robust decentralized technology for identity and smart contracts. How much work is still ahead of us until I'll just have to set up a new team on a service like AngelList which will be a globally accepted business entity?
AngelList isn't using this money for their own operations, they're using it to invest in hundreds of other startups.
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."
> We are, as ever, either at the dawn of a
golden age of startups and innovation, as
technology’s boosters claim, or soon we’ll
be shaking our heads that investors ever
believed the market for startups was as
big or fast-growing as they thought it
was.
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
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 ...
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.
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.
Even taking your skepticism about Chinese investment at face value, having LP involvement is tremendously different from operational involvement or investment committee involvement.
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)?
I think you were being down-voted because your answer was mean spirited, that is your intention appears to have been to want to hurt someone verbally.
Besides their question is very legitimate. How does a directory spend $400M? I had to read the answers to understand they were planning to make some investments.
Unfortunately I had an experience with Naval completely the opposite of what you're describing. I'm a student and had heard of him before several times along with using AngelList. Earlier this year I saw him walking in downtown San Francisco with somebody else, so I thought I would say hi and introduce myself for a moment since he seemed like a nice person.
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.
Sorry spike, I wasn't trying to be rude. Never my intention. You likely caught me unawares and my animal brain responded before my human one could catch up. Be well.
Why is everybody down-voting the guy/gal. Can you at least give an explanation?
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.
You have to understand in SF it's somewhat common for scammers, homeless people, or very aggressive Israeli sales people to butt into conversation and try to talk to you on the street. It's very likely he has been conditioned to this or thought you were one of the above.
[+] [-] DanBlake|10 years ago|reply
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.
[+] [-] rbres|10 years ago|reply
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.
[+] [-] albertwang|10 years ago|reply
[+] [-] EGreg|10 years ago|reply
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?
[+] [-] memossy|10 years ago|reply
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.
[+] [-] 7Figures2Commas|10 years ago|reply
What leads you to believe the syndicate leads are doing real due diligence?
[+] [-] pbreit|10 years ago|reply
[+] [-] 7Figures2Commas|10 years ago|reply
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.
[+] [-] unknown|10 years ago|reply
[deleted]
[+] [-] musha68k|10 years ago|reply
[+] [-] sschueller|10 years ago|reply
[+] [-] morgante|10 years ago|reply
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."
[+] [-] illumen|10 years ago|reply
[+] [-] graycat|10 years ago|reply
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.
[+] [-] ThomPete|10 years ago|reply
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.
[+] [-] vasilipupkin|10 years ago|reply
[+] [-] rebootthesystem|10 years ago|reply
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.
[+] [-] robbfitzsimmons|10 years ago|reply
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)?
[+] [-] dang|10 years ago|reply
Please follow the last guideline at https://news.ycombinator.com/newsguidelines.html.
[+] [-] jdimov9|10 years ago|reply
[deleted]
[+] [-] dang|10 years ago|reply
https://news.ycombinator.com/newsguidelines.html
We detached this subthread from https://news.ycombinator.com/item?id=10373252 and marked it off-topic.
[+] [-] unknown|10 years ago|reply
[deleted]
[+] [-] rokhayakebe|10 years ago|reply
Besides their question is very legitimate. How does a directory spend $400M? I had to read the answers to understand they were planning to make some investments.
[+] [-] forgetsusername|10 years ago|reply
What is is or isn't worthy of a downvote are not matters to be decided by you.
[+] [-] ddorian43|10 years ago|reply
[+] [-] spike021|10 years ago|reply
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.
[+] [-] dang|10 years ago|reply
[+] [-] morgante|10 years ago|reply
I certainly don't think you should hold this experience against him. Hopefully he doesn't hold it against you.
[+] [-] naval|10 years ago|reply
[+] [-] brobinson|10 years ago|reply
[+] [-] rokhayakebe|10 years ago|reply
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?
[+] [-] visakanv|10 years ago|reply
[+] [-] chrischen|10 years ago|reply
[+] [-] unknown|10 years ago|reply
[deleted]