Venture Hacks

Liz Gannes from AllThingsD has a great article on AngelList today:

“AngelList ran the numbers this week and found that venture capitalists are actually more active than angels on its year-old service…

“Currently, 725 angels and 557 venture capitalists subscribe to their matchmaking service. (Nivi counts 378 of the VCs as multi-stage investors, and 179 as seed-fund investors.)…

“AngelList doesn’t formally track the investments that occur due to those intros, but Nivi estimated that the service has helped orchestrate funding for 219 start-ups from 384 investors.

“AngelList counts about half of the investors in each category as active participants. Active seed fund investors have taken 5.6 AngelList intros on average, active multi-stage VCs have taken 5.4, and angels have taken 5.

Read the article to find out who are the 5 most active VCs on AngelList and which VCs have recently invested in startups via AngelList.

We generated most of the data in Liz’s article at her request. It’s always fun answering questions from reporters like Liz because they force you to think.

The venture industry works on the premise that investors are generalists and entrepreneurs are specialists. VCs are good at being, well, VCs, and the entrepreneurs have to be really good at whatever specific task they set out to do.

This isn’t by choice—ask an entrepreneur what they’re looking for in an investor and they won’t say things like “advice, corporate governance, recruiting.” Entrepreneurs would prefer someone who has specific connections, interest, and knowledge about the market they’re attacking and the technology they’re building.

The problem is that it’s very, very difficult to find VCs by sector and expertise. The new markets feature on AngelList solves that problem. For example, a smartphone baby monitoring company joined AngelList. They wanted to meet investors with who had expertise in Analytics, Babies, Consumer Electronics, Parenting, and Mobile. A music startup joined AngelList and wanted to know which investors still love the music market (and which hate it).

Now you can go find your specialist investor. The one who can really add value. Try the search box or browse.

See Part 1 for an introduction to the new markets feature on AngelList. This part is all about the details.

Creating new markets

We encourage people to use the existing markets, but anyone can create a new market:

Admins organize the new markets

The admins regularly review new markets and delete, rename, alias, or merge them (we stole this straight from Quora). Only the admins have these powers and only the admins can set the parents and children of a market. For example, see Internet’s parents and children in the sidebar at http://angel.co/internet:

…and you can see the full Internet tree at http://angel.co/internet/tree.

Trying to make it “just work”

I don’t think we could have made a list of 20 canonical markets and called it a day. Believe me, we tried—and it would have been a lot easier. Just check out the rich set of markets here—20 hand-picked markets wouldn’t do justice to the diverse interests of investors and startups.

It’s also the nature of venture capital to chase new markets, whether it’s a broad new market like Mobile or a specific one like Location Based Services. A static set of markets defeats the purpose.

So we let anyone create a new market and we use tricks to keep things from spinning out of control. I’ve already written about how admins organize the markets. Next, we hide markets with fewer than 10 followers:

Third, we use color to indicate that following a market also implicitly follows its children. For example, I just followed Mobile and all of it’s children turned green:

If I hover over one of Mobile’s children, I see a message like this:

So if you’re already following Mobile, you don’t need to follow Mobile Commerce. But the “Follow Anyway” link lets investors add Mobile Commerce to their profile, if they want to show startups that they’re specifically interested in Mobile Commerce.

The markets are technically not a tree

Even though I say that the markets are organized in a tree—like your desktop file system—that’s not technically true. They’re actually a directed acyclic graph (DAG). The main difference between a DAG and a tree is that a market can have multiple parents. It’s as if a file on your desktop could be in two folders at once.

For example, Games has two parents: Information Technology and Consumers. You can see the Games tree at http://angel.co/games/tree:

Structuring the markets as a DAG is Yet Another Idea I Stole from Quora™. It would have been impossibly difficult to implement markets with an actual tree—we would have had to put each market inside exactly one parent. Where would you put Games or Mobile Enterprise or Digital Media? Multiple parents ease the burden of organizing markets.

(Crazy people can learn more about different classification systems like DAGs, tags, and trees here).

The most accurate set of market names in the world?

Back in the day, when investors applied to AngelList, we had a text box that asked investors to list the markets they’re interested in, and the markets they’re not interested in. We extracted the initial set of market names from this text. Then we automatically made those investors follow and block those markets. Finally, we replaced the text-box with a nice autocomplete form:

I think we now have the most accurate set of venture capital market names in the world. First, the initial markets were self-reported by investors, so they came up with their own names for markets. Second, there was no autocomplete until very recently, so each investor named their markets independently, without looking at what other investors were doing.

In other words, investors voted for market names independently, without being influenced by how other investors were naming markets—and that’s a critical component of a wise crowd.

AngelList now has markets at http://angel.co/markets and we’re using them to match startups and investors. The markets look like this:

Startups add markets to their profile, investors follow markets, and we match them. Magic!

1. Adding markets to startup profiles

Startups can add 4 markets to their profile:

And here’s what a startup sees while they’re editing their markets:

2. Adding markets to investor profiles

Investors can add markets to their profile with a similar interface:

(For example, check out the markets Mitch Kapor is following and blocking.)

You won’t see this part unless you’re an approved investor, but investors can also follow and block markets from various places on the site like http://angel.co/markets:

…or any market page like the cloud computing page:

3. Matching startups and investors

If an investors blocks a market, the admins won’t email them startups in that market at all (but investors can still find these startups on the website).

If an investor follows a market, the admins will email them startups in that market before everybody else. If the startup performs well among those investors, the admins will email it to everybody else (who isn’t blocking the startup’s markets).

Organizing the markets with a tree

Investors don’t need to worry about following and blocking every single market on AngelList. The markets are set up as a tree—like your desktop file system—with markets inside other markets. So when investors follow a market, they also follow its submarkets. Likewise with blocking.

If you prefer to view the markets as a flat list, go to http://angel.co/markets/list:

Sorting

Whether you’re viewing the markets as a tree or list, you can sort them by name, recently added, # of followers, and # of blockers. Approved investors can also sort the markets by # of startups. Here’s a picture of the the flat list, sorted by followers:

Searching for markets

The search box at the top left of the site lets you search for investors and markets (and startups too, if you’re an approved investor):

Again, investors who follow mobile will also follow all of its submarkets like mobile commerce, mobile advertising, etc. Or if they’re only interested in mobile coupons, they can just follow that instead.

Stealing from Quora

We stole a lot of the design for markets from Quora’s topics. There are some differences and technical details that we’ll write about soon. But we refer to Quora and Facebook a lot while we’re designing. The rest of the web is going to look like Quora in a few years anyway, so you may as well steal from the best.

Serving new markets

We’re very excited about this feature. It’s going to increase the relevancy of the startups that we send investors. And it will let us serve startups and investors in markets that we haven’t been able to serve before (biotechnology, clean technology, life sciences, you name it).

The markets tour continues in Part 2.

AngelList has changed a lot since we launched it, so I want to describe how the site works today.

1. Share your startup with investors

First, you create a startup profile and pick which investors can see your startup. If your profile isn’t ready to share with investors, just pick zero investors. You can update your profile and investors anytime.

As soon as you share your startup with an investor, they will see it in their feed:

2. The admins email the best startups to investors

Every investor on AngelList sees 10-20 new startups in their feed every day. Plus they have their own non-AngelList dealflow. So you may get a few intros this way (and we’re working on some things to increase the rate of these spontaneous intros).

Since the investors can’t review every startup profile, the AngelList admins (Nivi, Naval, Brendan), with help from a few crazy investors and scouts, review every single startup that that pops up in their feed. If any of them like a startup, they can e-mail it to their followers.

And that’s where the magic happens—investors pay attention to the startups that land in their inboxes and take intros.

3. How long does it take to get feedback?

Before an admin emails your startup to investors, they’ll get in touch and suggest some improvements to your startup profile. This usually happens a few days after you create your profile.

If you don’t hear from an admin by then, keep updating your profile as you make progress. We’re working on tools that let you notify investors when you’ve made significant progress. And we’re working on tools to give you specific feedback on what you need to improve before you can get intros on AngelList.

4. Start early, update often

It’s never too early to start your profile. Pick zero investors and leave a note for the admins that says you’re still working on your profile.

If you have any questions, please email us at team@angel.co.

AngelList is changing every day, so don’t expect this post to be accurate 3 months from now. That’s just the nature of building software on the Internet today—perpetual design and redesign.

There are almost 300 VCs on AngelList now. Investors from Sequoia, Kleiner, Accel, Greylock, CRV, A16Z, and on and on. They all take intros via AngelList and you can see which ones are the most active here.

Four startups have already used AngelList to raise their Series A. So if you’re raising a Series A and you want to raise money on market terms, from the most value-add investors, fast, reach out to the AngelList community here.

If you just want intros to VCs, we can do that. If you want intros to angels too, we can do that. The angel picker gives you complete control over which investors see your startup.

And if you have any questions about your Series A, feel free to email me at nivi@venturehacks.com.

Appendix: What’s a Series A these days?

I think of a Series A as a round that’s big enough to require at least one (multi-stage) VC. Today, you can raise a seed round of $25K – $1.5M from incubators, angels, seed funds, VCs, or any combination of these four. But once you get above $2M, you usually need a VC in the deal. That’s my definition of Series A.