Go read Elad Gil’s You Should Read Every Word of Every Legal Doc.

Some docs are too long and boilerplate to read, so this is how I read financing docs:

  1. Read and understand everything in the term sheet. But when it comes to the closing docs, ask your lawyer to explain all the terms that he has seen written, or could have been written, more favorably to the startup. The closing docs are too long and boilerplate to read.
  2. Get a good lawyer because you probably don’t have one. You really won’t know what a good lawyer is until you’ve fired a few. I regularly run into lawyers at big firms who give bad advice alongside good advice. Don’t assume your lawyer is good just because he works at a big Silicon Valley law firm.
  3. You probably can’t tell the difference between good legal advice and bad legal advice. So you will need a great advisor like Elad.

You should subscribe to Elad’s blog. It is consistently great.

Eric Paley’s Curve of Talent is a brutal must-read. I’ve remixed it a bit to come up with the following definitions; the word’s are Eric’s, I’ve just re-ordered them:

F performers are not at all productive.

C performers struggle to competently fill their role, but are somewhat productive with sufficient coaching. Hard to admit, but most people in the business world don’t have a particularly clear idea on how to do their job well. Startups need to help C players transition out of the organization.

B players understand their objectives well and deliver them competently with minimum coaching. Coach B players on the need to not just competently deliver their function, but drive toward innovation within that function.

A players write the book and not just read it. They not only have a clear idea how to competently accomplish their functional objectives, but actually lead the organization to innovate and be world class within their functional area. They raise the bar on the entire organization. One way these candidates can be identified during an interview is when they actually teach the interviewer something about how the company can win.

Congrats to TechCrunch Disrupt winner GetAround. Guess what they used to raise part of their first round?

We’ve covered this before, but it’s worth repeating: don’t raise money in series, raise it in parallel.

Don’t talk to one investor at a time, talk to all of them at once. It’s the only way to get market-clearing terms.

Meeting every investor over a short period of time creates a positive feedback loop of social proof and scarcity that closes deals.

Recently, we’ve noticed a new way of making this mistake. The entrepreneur says, “I’ll use AngelList if my other intros don’t work out.”

If you can get intros on your own (and all the good startups can), you should use AngelList at the same time, not afterwards. Why?

First, no matter how good your offline network is, it’s unlikely to introduce you to the optimal investors, or help you close the deal as quickly as AngelList can.

Second, if your other intros don’t work out, AngelList probably won’t work out either — the startups that do well on AngelList are the ones that use it to complement their offline intros.

Related: Why would a seasoned entrepreneur use AngelList?

Mike at TechCrunch published a nice post today about VCs who use AngelList. I especially like the quote he pulled from DFJ’s Josh Stein.

The only part I disagree with is the “VCs hate AngelList” idea. I think it’s the opposite—they’re all over it like white on rice. What’s not to like about high-quality dealflow in your inbox?

Personally, I’m juiced to see firms like Kleiner, Sequoia, Khosla, A16Z, and other “Gods of VC” use the site.

Okay, enough preamble, who is actually investing?

Mike broke the news about which investors are taking intros. Now I want to break some news about which VCs have actually invested via AngelList.

We don’t have a good way to track who is investing in what. AngelList makes the connection and gets out of the way. But here are a few of the VCs that we know sourced (or reconnected with) a startup via AngelList and then made an investment:

Kleiner
Matrix
CRV
Google
Atlas
Greylock
Softbank
Floodgate
General Catalyst…

…and angels and seed funds like Matt Mullenweg, Mitch Kapor, Dave Morin, Jim Young, Jeff Clavier, and tons more listed here and here.

I’m psyched these investors are using AngelList and I’m even more psyched to see startups like Uber, Yipit, Wanderfly, Branchout and a billion more use AngelList to raise money. That’s why we’re really here—AngelList is a platform for startups.

AngelList now has a sweet new blog. Therein, the AngelList team expounds upon the latest features, including screenshots that are sure to bring you great joy.

Our team is using the AngelList blog to post our weekly progress. We used to put it on Yammer, but now we’re posting it publicly on the blog. So don’t expect polished posts with the “final” version of each feature. We’ll be sharing works in progress (that we’ve shipped).

So check out the AngelList blog and stay up to date on our endless product developments. We promise a steady stream of pretty pictures.

I recently wrote that it’s “fair for founders to own about 100% of a startup while employee #1 only owns a few percent.”

My argument was that the dollar value of stock that founders get when they start the company is actually less than the dollar value of stock that employees get when they join the company. The disparity between founders and employees is therefore just a matter of timing.

There’s a corollary to this theorem:

The first 1000x in valuation is the easiest.

The first 1000x in stock appreciation is easier than the next 1000x. Here’s why:

Let’s say the company is worth $1 when you start. To get a 1000x increase in valuation, you only need to grow the company to $1000 in value. So if you join a company when it’s worth $1, you only have to create $999 of value for your stock to appreciate 1000x!

If someone else joins the company after it’s already worth $1000, he has to create $999,000 of value for his stock to appreciate 1000x!

To get a 1000x return on your stock, you either have to create $999 or $999,000 of value. One of these is easier. By 1000x.

The first 1000x is the easiest, because it is easier in an absolute sense.

“The easiest way to become a millionaire is to start off a billionaire and go into the airline business.”

– Richard Branson

Summary: Every investor uses social proof to filter dealflow; Ron Conway has a fund that uses social proof as the sole investment criterion. Angels should almost do more homework than a professional VC would—VCs invest other people’s money while angels invest their own. We should all be thankful that we live in a world in which VCs exist. Finally, the accelerating returns on innovation means that all of the value in the public markets will be shrunk and put in the hands of startups.

I’m not an investor. And maybe that’s a good thing. Because it means I don’t have an investment philosophy.

Naval has a personal investment philosophy that he uses for his own investments—it’s focused and it has nothing to do with social proof. But there is no AngelList investment philosophy. The site helps startups and investors connect and the rest is up to them.

On Social Proof

Almost every investor uses social proof to filter dealflow. They just call it a “personal intro” or a “referral”. In fact, it’s usually the first filter they apply.

If social proof is a good filter, is it also a good investment strategy? Can I make my entire investment decision based solely on social proof? Will I make money if I invest in a company just because Warren Buffet invested in it, as long as I get the same price as him?

As in all investment matters, the answer is “who knows”. When I share a startup on AngelList, I consider the company’s traction, product, team, and social proof—in that order. If you do a great job with an early item on that list, it doesn’t really matter how bad the later items look.

But some interesting people are pursuing the social proof strategy. Yuri Milner, Ron Conway, and David Lee created Start Fund to “blindly” invest in every Y Combinator startup. And several VC funds are set up to provide follow-on capital to startups backed by Sequoia, Benchmark, Khosla, and other tippity-top-tier venture funds.

On Angels

If you’re going to invest your own money in private companies, as an angel or otherwise, get educated. Read Mark Suster‘s series on angel investing. Listen to our (old and somewhat out of date) podcast on the topic.

Angels should almost do more homework than a professional VC would—VCs invest other people’s money but angels invest their own!

And don’t invest in a startup if you can’t lose all that money tomorrow, with a smile on your face. Frankly, I wouldn’t invest in anything if it didn’t meet that criterion (except money markets and very broad, low-fee index funds).

On VCs

We’ve gotten about half a dozen Series A’s and B’s funded on AngelList, and we have 400 happy VCs on the site. I think Marc Andreessen put it best, well before he became a VC:

“Why we should be thankful that we live in a world in which VCs exist, even if they yell at us during board meetings, assuming they’ll fund our companies at all:

“Imagine living in a world in which professional venture capital didn’t exist.

“There’s no question that fewer new high-potential companies would be funded, fewer new technologies would be brought to market, and fewer medical cures would be invented.”

On Startups

Startup valuations are up. That’s because capital is flowing into the system and, therefore, there is more demand. That’s a cyclical trend: the amount of available capital will go up and down and so will valuations.

But there are some secular trends that are driving up valuations.

First, many investors believe that the vast majority of returns come from a few new companies every year and, therefore, those companies attract a disproportionate amount of investor interest.

Second, startups are getting better at creating a market for their shares and unbundling capital, control, and advice. This is where AngelList can help.

Third, startups have become a (bit of a) science. Entrepreneurs are much smarter about the art of building companies than they were even five years ago.

Fourth, the accelerating returns on innovation means that all of the value in the public markets will be shrunk and put in the hands of startups. The NYSE alone has $14 trillion of value. NASDAQ has almost a trillion dollars of volume every day. Today’s startups are the heirs to that value.

Of course, today’s startups will be disrupted by more startups. And on and on, with shorter and shorter time cycles. But I don’t think big companies will hold onto this value. The principal-agent problem is too pervasive, among many other reasons that big companies are considered “dumb”.

[Click the links in this post, they’re all good.]

Mark Suster is interviewing a founder who used AngelList on This Week in Venture Capital. Today. This Wednesday 5pm Pacific. The show is live and you can send in questions. Watch it here.

If you’ve been reading this blog for the last few months, you know we’re big fans of Mark. You may also know Mark as the guy who wrote this.

I never miss an episode of Mark’s show—it helps me get into the work groove while I’m brushing my teeth in the morning.

Mark is being very stealthy about who he’s interviewing and your guess is as good as mine. The AngelList team is going to be watching it live. See you there.

We can now match investors and startups based on location at http://angel.co/locations.

It’s simple. Investors follow locations and startups add location(s) to their profile. Then they get matched.

Browse

Browse by continent, country, region, or city. Here’s a screenshot of Silicon Valley:

I want to see everything

If you’re an investor and you want to see everything, follow Earth. But you should still follow other locations if you’re particularly interested in them. It will help our code and community match you to interesting startups.

Where are the startups?

San Francisco and New York are essentially tied for the top spot:

Flattening and Fattening

The Internet is obviously flattening investing. So investors in India can find good startups in New York. And startups in Austin can find good investors in Europe.

But I think it will also fatten cities all over the world. So startups in Paris can find investors in Paris. And investors in Moscow can find startups in Moscow. We just need to fatten up those cities. There’s no reason we can’t have Silicon Valleys all over the world.