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Why I Deleted My AngelList Account (bryce.vc)
81 points by DanielRibeiro on Feb 26, 2011 | hide | past | favorite | 40 comments

I'll share my experience raising money with Angellist. As a data point, I've been involved with startups since '99. Before, when you had to raise money, it was a painful slog, you had to set aside months of your life to beg for introductions, nag every contact you had. Basically, you were chasing the VCs (Angels were less prominent then).

This time, raising money for my startup, after our pitch went out on Angellist, it was unlike anything I or most of my friends have ever experienced. Angels and VCs contact you, I had two to three weeks of non-stop meetings, selecting who would be best to take money from, and we raised.

What Angellist did for us was (a) significantly decrease the time to raise money and (b) put us in front of VCs and Angels we never could have met on our own, not without at least dedicating months to the process.

My take - it empowers the entrepreneurs, which is why certain VCs don't like it. Classic internet play - disintermediate the middlemen.

It's just my opinion, but boy, it made my life simple and allowed me to get back to what I love, which is building my company.

Minor nitpick, it's not removing the middleman, it is removing information asymmetry.

Thanks for the insight.

You can't win if you don't play.

AngelList is a marketplace. Marketplaces win because they attracts the best sellers (the companies), and so long as there is competition, the buyers (the investors) will have no choice but to participate.

Investing is a two-sided affair. I'm not really sure where Bryce is going to get his dealflow from if he sits on the sidelines of AngelList as the service itself explodes, attracting all the best companies.

The only companies not on AngelList are the ones that don't quite understand how the service works. As an entrepreneur, the more you understand AL, the more you like AL.

As an entrepreneur, I like it when investors need little to no social proof to make a decision.

As do I. But that takes courage, a trait that few have, AngelList or no.

One is not better than the other. There are people who follow stocks that Warren Buffett buys. And then there are people who stick to their own strategy. In a marketplace there's room for every type of investor. One could even go contrarian and only invest in companies with zero social proof.

The bet Bryce is making is that the more profitable deal flow for OATV involve companies who are looking for different kinds of investors than they're likely to find via AL.

> The only companies not on AngelList are the ones that don't quite understand how the service works.

Investors aren't the only ones prone to herd mentality.

YC's greatest hack is their ability to invest without social proof from other investors.

YC has a number of great hacks:

1). "Proprietary deal flow" is another way to say "A given firms choices are to take my offer or forgoe investment." YC has scads of it, partially because it identifies entrepreneurs at a stage in the lifecycle where angels are not an option or where they might not be recognized as an option (subtle difference there). This has accelerated with YC's successful track record.

2). Mass production techniques in a market where everyone else thinks it is still the Italian Renaissance.

3). Super linear returns to just about everything they do, due to being able to take one firm's gains and reapply them to everyone else with the YC brand. If they coach a firm to get one piece of PR, for most angel's that is a one-off Yay, but YC essentially gets to keep a portion of the win. Ditto link juice, reputation in the hiring pool, discounts, access to nonpublic offerings, etc etc.

4). "Alma mater" levels of loyalty among startups, which means that for a fixed time-bounded investment they continue deriving network effects years down the line. It's comparable to Harvard giving scholarships: you only have to educate a poor kid once but he's crimson for the rest of his life.

There's an entire ice-cream sundae of win here, and it's hard to say it's the peanuts or the chocolate that makes it work. Peanuts taste great, chocolate tastes great, both taste even better together. And if they find a banana? N^2 flavor explosion.

[P.S. They recently found a banana.]

A different way of looking at it is that YC's created their own social proof system and gotten investors to buy into it.

I initially misread this as VCs and was going to blather about how VCs follow the herd like everyone else.

But YC is entirely a different kettle of fish. Anyone who can get in based on deal and team merits before there is any social proof obviously is defining that more than followinng it.

It's interesting looking at Bryce's comment about how AngelList is becoming a "bigger fool's list" is paralleled and Jason's remark that "There are now hundreds of qualified and unqualified angels who are driven by sport and not return!" About that bubble ...

Jason also suggests that deals off of Naval's Playground (aka Angel List) will be in companies "run by very stupid entrepreneurs". Really? Based on Jason's own characterization of the list, smart entrepreneurs who want investors who do care about returns -- or have a different idea of sport than Naval, Jason, and their pals -- would be a lot better off spending their energy elsewhere. It sounds like the AngelList pond is great for some entrepreneurs and some investors, but there are plenty of other good options.

As @shervin said on Twitter: "Saying you don't like @AngelList is like saying you don't like Email. It's a communication tool. Not an investment philosophy."

So if I wanted to wish my mother a Happy Birthday, AngleList would be a good way to do that? How about if I wanted to offer all the angels on the list a deal on certain mortgage-backed assets left over from the housing bubble?

Of course not. And the reason is that AngleList is email from specific kinds of people to specific kinds of people for a specific purpose. It's only useful because it filters out communication that doesn't fit the philosophy. If you have a different philosophy, if your purpose is different from that of AngleList, well, why participate?

A different way of looking at it is that AngelList is also the collection of people who use the communication tool to invest, so I think it's very reasonable to talk about "AngelList's investment philosophy".

Some people I know use Google Finance to invest. With ETFs specifically you can watch daily inflows and outflows to and from specific sectors.

Is there a Google Finance investment philosophy?

Close. An online brokerage firm is probably a better example than Google Finance, because they both give you the information and facilitate the transaction. The firm selects the numbers to they show you that they think are relevant to the decision, and the means to make the decision. If you want to look at other numbers, it is up to you so find them by digging through reports or looking at other tools.

With AngelList, you get what AngelList thinks are the most relevant pieces of information, and it's up to you to contact the entrepreneur to verify information or get more information if you want. AngelList thinks that social proof is one of the most relevant pieces of information, so that's what you get.

The obvious problem with turning off AngelList is that with ETFs and public companies, there are many portals to get information and invest, while with startups, there is currently only one.

This is a disingenuous comparison. AngelList is a community, while Google Finance is merely an aggregator of many other communities.

That's not the impression that I got, but I guess that's just a testament to how customizable the experience on AL can be.

Perhaps a closer analogy would be something like WealthFront. I can choose to follow certain money managers and co-invest with some if I feel like it. Some are heavily into equity, while others are pursuing commodities. But to call it a community and look for WealthFront investment philosophy would still be a stretch.

Leaving aside the efficacy of AngelList as a service, it appears he simply doesn't want to be an angel, he wants to be a VC. Hands-on, with a large(r) degree of control and direction.

That's not incompatible with being an angel.

Semantics aside, I think my distinction covers his rationale as far as it applies to what AngelList offers.

FTA: Think Mike Moritz, John Doerr, Jim Breyer, Fred WIlson, Peter Fenton, Danny Rimer, Reid Hoffman and the like are just exceptionally good at throwing darts in the dark? I don’t.

I don't doubt your sincerity, but there is no statistically sound justification for it. Put 1000 people in a room, have them flip for double or nothing 10 times, and at the end you'll have a handful of geniuses. That's assuming that they're playing a game where winning once doesn't increase you chance of winning again, which clearly isn't the case in the VC world where the first qualification is to have a lot of money. And let's not forget the element of ruin, which is the likelihood of losing one's bankroll given the size and frequency of bets placed.

The one expertise VCs can lay claim to is in the ritual and detail that surrounds the deal-making process: the term sheets, funding rounds, and exit strategies. They're generally skilled at getting contracts written. Beyond that, it's not at all clear that they're any better than 'throwing darts in the dark' in terms of predicting or facilitating business success.

They may be better at influencing running a company or they may not, but their value is in their network as much as their checkbook. Angellist is at least a fair bit its own network - and the "social proof" end of it is WHY it works.

I love this argument (I saw it in Fooled by Randomness) as it also explains why we can have someone like Warren Buffet. If you have a million people playing Russian Roulette, you are almost guaranteed a number of seemingly invincible people.

I think he highlighted a key point, which is that funding seems to be less about product than it is about who's behind you.

It's kind of like credit - you can't get it until you don't need it.

I know this is an aside, but if there were ever a Disqus comment thread that came close to the conversations on HN for quality, the one at the end of this article would pretty much be it.

Some heavyweights have weighed in with some insightful thoughts, there's far more signal than noise, and a variety of opinions on offer. Well worth the read!

For context: in contrast to other early stage investment groups and many superangels, his firm (http://www.oatv.com) invests in a very small/selective handful of deals per year.

I think AngelList is making the market too efficient and some investors don't like that.

Hmmm. I remember, three years ago, being advised not to present to multiple angels at once (then typically done to organized 'angel groups') because the premoney valuations they offered were typically much lower than what you'd get from individual angels, one angel at a time.

Presenting to multiple angels at once doesn't necessarily produce a better valuation for entrepreneurs - it just produces valuations that more closely reflect the consensus of the times. The true value of the startup's equity has little to do with it.

If you have to raise right now, you should absolutely use AngelList -- just don't assume things are always going to be so easy. When the investment climate for startups goes south again, and it eventually will, AngelList will go from being the best place to pitch to the worst place to pitch.

I disagree. The reason you get a lower valuation from Angel Groups is because they act as a group so they have more power to put in more cash and to determine your valuation. Angel List is not an angel group by any means. They do not act as a group and using them is like talking to many individuals. It's just a more efficient way of doing so.

[In the past I have presented and received offers from Angel Groups and from Angel List.]

"it just produces valuations that more closely reflect the consensus of the times. The true value of the startup's equity has little to do with it."

This is a strange statement. How do you determine the "true value" of a startup's equity without the consensus of the times ie. the market? :-)

Can anyone explain what info comes in an inquiry letter other than the social proof? I've always though that YC's app did a pretty good job of distilling who the people are behind a start-up; that's more of what I'd be interested in.

Am I the only one that read the first two or three lines of Jason's comment and got a headache? http://bryce.vc/post/3520840379/why-i-deleted-my-angellist-a...

He made a good point, but why does he have to express himself like that ? Srsly!

Oh, and don't tell me it's passion. Gimme a break.

Kthnx :)

The next evolutionary step after:

"Nearly every email they send includes names of people or firms who’ve committed to invest."

would be:

"Nearly every email they send includes the number of people or firms who’ve committed to use."

I think Bryce's point is that he doesn't like the way AngelList makes him feel about his investing.

Agreed. I think your view of investing hignes on interpreting this quote:

> Think Mike Moritz, John Doerr, Jim Breyer, Fred WIlson, Peter Fenton, Danny Rimer, Reid Hoffman and the like are just exceptionally good at throwing darts in the dark? I don’t.

He says this meaning investing is a skill. I see no proof that it is. If enough people are investing, and success is random, there will be SOME people that, by chance, have long successful streaks. Past performance is not indicative of future performance, and all that!

Those guys ARE social proof! How can he disclaim the value of social proof and cite those guys in the same breath?

Doesn't show number of lives...

Where does this leave you?

Not another blog with text-shadow. :-( I had to highlight all the text to be able to read it.

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