AngelList Intros

Connecting early-stage startups with investors

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#2 Product of the WeekApril 28, 2016
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Parker Thompson
Maker
@pt · Startup Fanboy
I work on Intros with some other awesome folks at AngelList. Happy to answer questions.
Danny Espinoza@abcdannye · Founder @looksyvideo
@pt Love this, I've often wondered why it wasn't easier to socialize an upcoming raise and this looks like it's fits the bill. Quick q: if you aren't matched can you re-apply (eg when you are further down the road, more traction, etc)?
Parker Thompson
Maker
@pt · Startup Fanboy
@dannyjespinoza yes. we're saying every six months. What we don't do well due to volume is actually helping you understand that you're too early and what milestones you need to hit. Most startups I see fail to raise fail because they shouldn't be raising yet. Hopefully we can solve that problem in the future.
Loren Sands-Ramshaw@lorendsr · CTO @parlay
@pt Great product SLJ, thanks for joining AL and making it! 😄 > because they shouldn't be raising yet Do you see any room in the market with angels or pre-seed funds for earlier, pre-traction startups? The traction bar keeps raising on the seed round or even incubators (in the extreme case, YC going from all idea-stage companies to ones with 1M in funding), and it can be hard to get to that bar without wealthy friends & family. Incubators and YC Fellowship certainly help address it, but maybe there can be more. The demand side is clearly filled 😜 I'd guess the largest block on the supply side to be the sheer quantity – I've been hoping for something like a shared YC-like application & recorded interview that allows investors who want to be FMI to differentiate among the masses provides by providing some amount of vetting and proof. Perhaps instead of only taking the 1% with double-digit growth, you could widen to the best 3% of applications+calls, and only send the 2nd and 3rd percentiles to those interested in earlier early stage? (And maybe provide a section of AL with those 3% that investors could search through and request the full application of? Or just see the full application, depending on the startup's pref.) But maybe there's not enough supply interest for this. Re: feedback, AL's comments would certainly be valuable to investors looking at the 3% AL site, but it would be really nice (as you're hoping) to be able to go the Foundry Group route instead of the YC route and at least say something short and general about why not, like "We think the market might not be big enough" or "For a consumer social app, we find it hard to get angels interested without X users or Y growth".
William McGowan@wrytre · Co-Founder, PAGEOY
@jrpickhardt @pt @dannyjespinoz Thanks, Jeff, for standing up and speaking to the early-stage startup conundrum. It is a chicken and egg situation with a Catch-22 attached. As investors go, why think in millions when all some folks need is a few $100K to kick things forward. Micro loans work in third-world job creation and promote self-sufficiency. Perhaps that concept needs to be applied to promising, well-thought out, well-executed start-ups. If it crawls, maybe it just needs a little help to walk and then run.
Parker Thompson
Maker
@pt · Startup Fanboy
@jrpickhardt @dannyjespinoza I think you may misunderstand this product and our process. We don't expect consistent growth. Most of the startups we're speaking with are focused on product-market fit, not growth. Growth is typically a focus of companies post-seed or post-A. We're looking for companies appropriate for early stage investors, which may be as early as idea stage for some verticals where that is appropriate. With respect to success/failure, we may have a disagreement. I reject the premise that market needs are unmet because investors make mistakes. Some may, but the nature of markets is that they fill needs that can be filled economically, so if one investor fails another will certainly succeed. Some markets just don't exist. With respect to lean, lean is simply the scientific method applied to startups. Some may require millions of dollars or more to test the hypothesis. That's fine, and not incompatible with lean. If your suggestion is that startups should not validate their business models with data as quickly and efficiently as possible, we disagree.
Parker Thompson
Maker
@pt · Startup Fanboy
@lorendsr the market here is efficient. I recognize that wealthy people are advantaged, as are people who have worked for years and have a stash of cash, or a working spouse, etc. As a community, we should be cognizant of that and work to provide opportunities for folks. However, look at this from the investor perspective. An investor meets with 5 startups in a day. 4 have $1M ARR and want a $8M valuation. 1 has a great idea, but nothing else. Which one(s) should they invest in? Likely not the idea at any price that makes sense for the company. Ideas are a dime a dozen, and the person with an idea hasn't demonstrated any initiative. "I can't without money they say. Well, "I can't" the best first impression. "I did" is much better. Again, while acknowledging that some folks have advantages coming in, grit is figuring out how to "can." JFDI. With respect to traction, let's also be clear that the bar for good pre-seed investors is not $1M ARR. If you have a good b2b startup in a big market, you may just need a few paying SMB customers and a few months data. In an enterprise startup, a team with domain experience often raises with no product. I just did a deal with a great team that raised $2M on a (great) idea. With the caveat that this last point isn't directed art @lorendsr so much as the proverbial frustrated founder, VCs are not stupid. There is a market. It's a lame excuse for startups to call the VCs stupid and say they just don't get it. If one VC doesn't get, it's them. If you talk to 100 and all pass, it's you. You might be right and you just need to take risk out of the business before they can see it, but it's just not a good investment if they all pass. These are excuses losers tell themselves to feel better. Winners take the feedback, keep going, and come back when they've de-risked the things 100 smart people told them would kill their business. That's what makes them winners. Forgive the rant, but I see this all the time. Great founders don't make excuses, they find solutions.
Ravi VadrevuHiring@raviformative · Making entrepreneurs with Leo (Kriya AI)
@pt Thanks a ton man. You have no idea how many times I thought someone built this on top of AngelList. Although I did traditional growth hacking on AngelList to get to peopleI want to, this is super duper helpful for those who are looking to raise.
Loren Sands-Ramshaw@lorendsr · CTO @parlay
@pt Thanks for the response. I didn’t mean to complain about wealthy people – F&F is just the most commonly mentioned solution for the stage I’m talking about. I agree with you that ideas mean little. There can be a lot of room between having an idea and getting traction, and sometimes you need funding to get to traction. You can judge a pre-traction team, product, and market, but it takes more time than judging based on traction numbers. I’m wondering whether there are investors who would like to invest earlier but don’t due to the size of the task – thousands of pre-traction startups with no numbers to judge by. If there are such investors (or if there will be such, post-JOBS), perhaps they would be interested in a product like I mentioned – the vetted top 3% of startups on AL, each with their application and maybe a founder intro video, the interview video, and a brief comment from AL.
Parker Thompson
Maker
@pt · Startup Fanboy
@jrpickhardt @dannyjespinoza I didn't write that text and will update it. Thanks. Just briefly on Color/VC, and then feel free to have the last word. Startups are definitionally about trying something with an unknown outcome, so failure is built in. Examples of failure are the system working, not signs of problems. I'd recommend Fred Wilson's recent post on risk and failure in VC. He's one of the best and loses more than many. WRT VC, venture capital is really hard. It looks easy in twitter, but trust me, these folks are working hard (mostly), are very smart (mostly), and worried every day about how the hell they're going to turn $1 into $3-5 over 10 years. It is incredibly arrogant to think they're stupid and there's "obvious" gems being missed that you would have clearly found and funded. But if you are confident of this, feel free to form a thesis, convince LPs, and raise your own fund. It sounds like you think it would be easy money.
Osama A. Hashmi@coffeeandosama · Founder, CDF Software ; Mocha7
@jrpickhardt @pt @dannyjespinoza Have to say, this is an excellent comment. Jeff, you bring up great and valid points. I think it would certainly help if the evaluation of the company for "riskiness" would have an assessment from domain-knowledge experts, to help give the right weight to balance that subjective "I don't know what this is so must be risky" type of risk. That could be built in as part of the AngelList intro mechanism (adding the domain-expert perspective on opps) Domain-expert perspectives may still miss companies like SpaceX, but I'm surprised how often very good businesses or companies in very "normal" areas are passed over because of the subjective risk you mentioned - an investor just not wanting to spend more time understanding the opportunity when there's obviously excited trends to follow. Another way would be to setup a qualitative framework to determine the right opportunities - to say "if a company is demonstrating these traits, there's a high likelihood that it might be seeing something no one else is seeing". That's somewhat what Peter and Elon and others seem to have built as internal frameworks. But I think a more standardized framework applied more broadly can be found and built as well, that could consistently channel capital to the companies most likely to yield the best results, regardless of subjective "risk" (based on not understanding an opportunity) I've personally looked at all companies over the past 150 years that created a shift in the market and have tried to identify common patterns that they all did that was different from a typical company or business. That's one decent way I've found of approaching it. I tried to put part of this framework into a book I published last month (you can find it on my profile here) - that framework isn't by any means complete or comprehensive, but I do believe any company that demonstrates "innovation-thinking" traits would likely be on a path to being a good investment. (but then again, I'm not an investor so take it for what it's worth then).
Parker Thompson
Maker
@pt · Startup Fanboy
@jrpickhardt @dannyjespinoza I would suggest that VCs passing on things they don't understand is a good thing. The easiest way for VCs to lose money is to bet on things they don't understand, because that's where they mis-assess risk. See Theranos. There may be opportunities for more VCs in domains where current VCs don't operate. Generally speaking though, I think that problem works itself out quickly. See explosion of seed VCs in last decade.
Paul Sheridan@paulmxci · CEO, REFLEX
@pt Hey - this looks awesome, how long does it take for your application to be submitted etc?
Sonia@soniallatas · HR/IT
@pt hii!!! Does it work as the intros to applicants and candidates?
Ryan Hoover@rrhoover · Founder, Product Hunt
AngelList, which started as an email list like Product Hunt and many others, has an interesting evolution. I love how they're working toward a more efficient funding marketplace (which is broken in comparison to many other industries). @pt - how are choosing startups to intro to investors now?
Parker Thompson
Maker
@pt · Startup Fanboy
@rrhoover Yes! Around the office we talk about this product as taking us back to our roots. It's a little more tech-mediated these days for scale/efficiency, but there's a lot of power in simple tools. In terms of how we choose, this is a challenging and subjective process and I'm sure we make mistakes. With that caveat, we review applications folks submit and offline referrals (our next release should make that better). Our goal is to find companies we believe match what investors are looking for. Our bar is that a firm should look at a company, vs having conviction ourself that we'd put our own money in. That allows us to have a very lightweight process. We look at the application and look for something interesting that merits a conversation. That's usually team, or market, or traction. If your team is super interesting, we'll usually reach out. If you're in a big and exciting market, that's worth looking hard at. If we don't really understand, but you have a bunch of people paying you $75k/yr on contracts, we'll probably give you a call. The first pass is an art more than a science. We try not to miss winners (though I'm sure we mess up). We then do a quick call. We se funded deals all day long, so we have a great sense of the market. When we talk to startups, our goal is just to understand the business and the approach. If it seems like they're doing something interesting and would be able to raise venture capital, we make the intros. If not, we give them feedback on the market and advice on how we'd go about the process.
Ben Tossell@bentossell · Partner https://theupstarters.co/
Oohhh interesting :) Current rough guidelines are: - Technology companies - Technical founders - Impressive founders - Traction - Market - Clarity of vision - US or Europe
Parker Thompson
Maker
@pt · Startup Fanboy
@bentossell definitely tech companies, and we're US focused for now since there's manual work and a lot of trust involved amongst the people. Great founders and a big market is a must, since this is focused on VC-scaled outcomes. Clarity of vision is maybe what I like to call "strong opinions," and we like those ;). Traction is less important, particularly for pre-seed companies or founders with a track record. But, in general the best candidates have some early customers and can demonstrate that someone actually wants what they're making. That could be a few customers in an unpaid pilot for some enterprise startups, or a few thousand dollars in MRR for an SMB or consumer business. These requirements are a reflection of the market. We are looking for companies that are ready to raise. Most of the reason we reject companies in this process is that they apply too soon. Knowing when to raise is a problem we solve indirectly. Maybe in the future we'll address that a bit more directly.
Ben Tossell@bentossell · Partner https://theupstarters.co/
@pt awesome! Do you think it would be good to have some hypothetical examples of 'fake companies' on the landing to show what likely causes a rejection? And in those cases, could be some resources to help them get to that stage and reapply [EDIT] - just saw your response to ryan "If not, we give them feedback on the market and advice on how we'd go about the process."
Charlie Hinojosa@charliehinojosa · Founder, CEO at Sightbox & Tapp That App
This is great. What's the turnaround time to get a response on this? A lot of times these things go into a black hole - not that AngelList has been known to do that. Just curious.
Parker Thompson
Maker
@pt · Startup Fanboy
@charliehinojosa we're decent at getting a reply in a week and shoot to keep on top of this. It may take a little longer this week with the PH launch ;). Usually fundraising is a several month process. Starting with us at the beginning is a good plan. We can talk, then send the company out when it's ideal for them.
Charlie Hinojosa@charliehinojosa · Founder, CEO at Sightbox & Tapp That App
@pt right on. It's great to see this on PH. Good luck.
Erik TorenbergHiring@eriktorenberg · Former Product Hunt
@pt congrats on the launch! What do you think is one of the biggest challenges to making this work well? What does success look like here?
Parker Thompson
Maker
@pt · Startup Fanboy
@eriktorenberg this is a marketplace. We think a lot about trust on the investor side and are therefor very selective on what we send to them. On the startup side, we think we've done a great job with the experience, but we worry about sustained quality. Without great companies, this doesn't work. This is great product for any startup raising as it can put 10-20 awesome investors in your inbox, but often those folks just take intros from whatever VC finds them first. That works, but we need to convince them to run their own process and that we should be part of it.