
AngelList Braces for Rainy Days as Startup Seed Funding Falls - pavornyoh
http://www.bloomberg.com/news/articles/2016-09-15/angellist-braces-for-rainy-days-as-startup-seed-funding-falls
======
swanson
> Investors can buy a share of the fund, called the Access Fund, for $100,000
> or more.

This is really interesting to me, but I wish it were at a $10k level. That
would be a no-brainer shift for me to move some money going into Vanguard into
this, but I'm in that weird spot where I'm not rich enough to have $100k to
toss around but am maxing out a Roth IRA and looking for more upside.

~~~
hammock
You can't really max out a Roth IRA (that's an illusion). Backdoor
contributions are unlimited.

~~~
benmarten
Weird, i thought its 5500/year. That's what you can do with betterment at
least....

~~~
refurb
It is. All a backdoor Roth does is it gets around the income limits for Roth
IRAs. If you make more than ~$130K per year, you aren't allowed to contribute.

With a backdoor Roth, you contribute to a normal, post tax IRA, then convert
to Roth. However, if you have a rollover IRA, then you can't do it without
taking a tax hit.

However, I have heard of people putting more than $5500 per year in a Roth.
Search for it on the Bogleheads forum. I can't remember the details, but your
employer needs to be on board as you contribute to a 401k, then do some
conversion.

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rch
Weird article. AngelList is raising money to make new investments and reports
an unrealized 46% IRR, and that somehow makes for a gloomy story.

~~~
nivi
The real story is 46% unrealized returns on 2013 syndicate investments. Which
is in the upper top quartile of VC.

And A-List, a premium recruiting product for busy companies. That complements
our free recruiting product with 180K active candidates.

Down markets are a good time to invest, but we're not anticipating one.

[http://angel.co/returns](http://angel.co/returns)
[http://alist.co](http://alist.co)

~~~
tedmiston
Care to elaborate on the methodology for how you pick companies? Does
AngelList act like its own VC internally?

~~~
nivi
The fund invests in a subset of syndicated deals. About half of them
historically. The investment team consists of experienced investors including
Naval (my co-founder). Details here [https://angel.co/access-
fund](https://angel.co/access-fund)

~~~
hkmurakami
That's a nice advantage you have going -- normally access to the best deals is
hard to come by, but by providing the tools by which stand out individuals can
achieve leverage in their own deal making through syndication (you're both a
technology provider and a channel marketing partner to them), you get their
deal flow in return.

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malchow
The boom/bust assumption undergirding this Bloomberg article is belied by what
AL is itself doing –– creating instruments that allow the private tech capital
market to expand and contract in a fashion that is smoother and less stepwise.

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mangeletti
I'm going to make a prediction. This isn't going to be popular, and it's only
my opinion and doesn't constitute advice:

This fund will not earn its investors a positive return.

~~~
dsr_
Not a great prediction unless you give a time window, too. 50% within a month?
Six months? a year?

~~~
tedmiston
And the short term doesn't matter... 8–10 years, or whenever every company
fails, sells, or IPOs.

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logicallee
this is absolutely ridiculous. there is next to no seed funding in existence.
Let me tell you how the seed market for startups is: imagine you had a
orchard, right, but instead of apples it grew dollar bills, and you just had
to water them or they wouldn't grow. Under this scenario a guy with acres of
dollar-tree bills could not get funding to water them with some kind of farm
equipment. That's the state of the startup world.

You read all those PG essays about not dying? About bootstrapping? Well
because it turns out the only way to capitalize a typical startup is to stand
in front of your dollar-bill tree and urinate. Or organize some kind of free
sporting event with the side effect of making people go piss on your trees.
Then 97% of your trees die except the 5 you pissed on, but you can take them
to the bank and next season repeat. That's how bad startup seed funding is.

You could not literally fund money growing out of thin air.

I sometimes think that the government should step in and fund these things
(after all, even Tesla got gov't grants.) Because the private market sure as
#@$% isn't.

EDIT:

 _This is already at -2 but I am keeping it without altering a word, because
the downvoters are wrong and uninformed (or don 't understand the analogy),
and I am right and well-informed, also it's a good analogy. It's not even
close. Here is an example of someone in Europe describing this precisely:

[https://news.ycombinator.com/item?id=12198883](https://news.ycombinator.com/item?id=12198883)

Notice the words "With a product like that, the second thing that we didn't
expect was that we tripped the "too good to be true" sensor everywhere,
raising doubts." (you might have to click parent from the comment I linked.)

It's not as bad in silicon valley as it is in Europe. But it's not that far-
off either. There is next to no seed funding in existence. This is a fact.
Downvoting me won't change it. Now at -3 after posting this update. Still
right. Still not changing a word._

~~~
ci5er
Your claim is ... what exactly? I'm not disagreeing - I'm just not following.
That revenue is hard to come by for startups? That seed money for revenue-less
company is getting more difficult for startups to raise? If so, where? In the
US? In California? In Europe?

I've never dealt with any structured seed funds, but high net worth
individuals that like to kick-start startups still appear to be active in the
US...

~~~
logicallee
>Your claim is ... what exactly?... That seed money for revenue-less company
is getting more difficult for startups to raise?

That there is next to no seed money in existence, for companies, regardless of
whether they are making money, and anywhere in the world (including California
which by a large margin has the best funding climate for seed rounds.) That if
you sum up the total amount of seed money it is next to nothing.

As an exercise you could try to add up the sum total yourself, and you will
see it is next to nothing.

~~~
ci5er
I guess you're mostly right. From a 2014 point-of-view. Seed funding in 2014
was abnormally high. Amateur hour levels of high. 2015 didn't pulled back much
from that. I think that the market is showing some prudence given that we
could well see the apocalypse of the unicorns any day now.

The various data sources I have access to (CB Insights, et al), tell me that
it's down, but not gone. The fact of this article (AngelList's rainy day fund)
means that people are starting to prepare for stormy weather. A storm that has
not hit yet - but people are skitterish.

Tactically, on the ground, I haven't seen much pull back, but I'm not in CA or
NY. And I prefer to get cash-flow positive ASAP, so I might be a little less
sensitive to it than others.

Thanks for your response: you raise interesting points (esp. your linked EU
funding scene thread - that was interesting) and digging into this will
provide some necessary weekend diversion.

~~~
logicallee
I was not making a year-over-year relative statement. 2014 levels also were
next to zero. (Every year is next to zero.) I am making a much wider
statement.

I asked you to sum up all seed funding in existence: what number did you get?
(This is the number that I call next to zero.) It doesn't matter what year you
pick.

~~~
ci5er
Fair enough.

Since the rise of of on-demand data centers and software eating the world,
Series A is the new Series B, and they expect some commercializable prototype
(MVP) and customer traction before they'll talk to you.

So, even though Series A used to be called "Early stage" financing, I'm not
sure it's fair to include it in what we used to call early stage any more.

So, to your question: sticking with angel/fund/corp seed, I don't know - maybe
$10B or so in the US? You're right - that's pretty tiny. VC as an entire asset
class is pretty tiny in the grand scheme of things (certainly very tiny for
the amount of press it generates).

I'll take a look into the data this weekend, but I would guess that I'm in the
ballpark of a binary order of magnitude with that guesstimate. Close enough to
zero to make scrounging for it painful, I agree.

~~~
logicallee
So I would agree that $10B in seed funding is next to zero, and yes, that is
my point, however I think you are overestimating it by a (decimal) order of
magnitude, and that is worldwide. I think worldwide there was less than $1B in
seed funding in any year. That should be easier to falsify if you can do so! I
would be interested in your data sources or methodology if you succeed in
showing this.

~~~
ci5er
That's an interesting claim!

I will go see what I can see. As for a starting point, I'll probably dig
around CB insights, pitchbook, angellist, and the Center for Venture Research
at UNH (New Hampshire). Then go from there.

If you are right, that's a very very interesting result.

~~~
logicallee
all right! Definitely please don't include series A but personally I'm not
sure whether I should consider kickstarter and co to be seed rounds - maybe? I
am very curious about what you find in the sources you've already mentioned
(without including series A rounds), though, and hope you will give an update!

~~~
ci5er
I hadn't even thought of including kickstarter-and-friends, partly because the
companies aren't selling equity. I'm not including any sort of corporate spin-
out either.

The lines have gotten so blurry compared to 20 years ago (entrepreneural
creativity in action?), so sorting out the wheat and chaff is harder. More
data - less definition.

~~~
ci5er
The thread is deep (as you say in this comment's sibling), so I will email the
longer commentary...

Briefly, most of the published analysis is top-down and less is bottom-up.
People seem to bundle Seed+Series-A in most places. There's a lot of talk
about medians without a deal-count. There are counts for numbers of deals with
a size exceeding some threshold, but that doesn't give us what we're looking
for.

Here's a chart - US only: \-
[https://files.pitchbook.com/images/Angel.Seed%20Activity.png](https://files.pitchbook.com/images/Angel.Seed%20Activity.png)

At about a thousand deals at about a million bucks, that's bumping the $1B
mark, but doesn't break $2B.

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contingencies
I feel like AngelList is a specialized social network with maximum utility ~10
years ago and for people who already know each other or are clearly in the
same network, who basically use it as a less-spammy LinkedIn. I've had zero
luck communicating with people over it and have frankly given up in favor of
raising domestically here in China.

~~~
bgeeek
"less-spammy" is not how I would describe AngelList. Unfortunately, if you, as
a user, allow it to access your email addressbook, it then starts regularly
(days apart) spamming each address.

~~~
contingencies
Good point. It's amazing what companies do under terms of service in the US.

------
tedmiston
> Meanwhile, AngelList is adding new ways for people to get into private-
> company investing. With some 600 startups expected to raise money through
> the website next year, AngelList said it’s creating a sort of index fund for
> young companies that will hold shares in 100 to 200 startups. Investors can
> buy a share of the fund, called the Access Fund, for $100,000 or more.

This could be interesting. I wonder if it will be restricted to accredited
investors or offered to the layman?

As always, of course there are no guarantees in startup returns, but spread
over that many companies... well, I'm not sure what to expect. I guess it all
depends on the returns and how they decide to pick companies. It could be a
cool new take on index investing. Then again, I became wary of most things
"cool" and "new" in investing.

~~~
hkmurakami
You'd need to register the securities with the SEC of your going after non-
accredited investors. I wonder if Angellist is going to go through that
trouble.

One big advantage of only having accredited investors is that it allows you to
not have to make such regulatory filings.

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mixedbit
Is seed funding or seed funding through AngelList falling?

~~~
daxorid
This link is just e-commerce, but chatter is the phenomenon is across the
board:

[https://www.cbinsights.com/blog/e-commerce-deals-
drop-q2-201...](https://www.cbinsights.com/blog/e-commerce-deals-
drop-q2-2016/)

It's effectively Q4 of 1999 and I couldn't be happier.

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hamhamed
I have a startup and want to raise money. It just feels like listing on
Angellist won't do anything, and I'm better off doing "offline" (emails)
traditional way of raising. It just feels like good deals are done through
emails and meetings not through a portal. At least for now

