Venture Hacks

When you build a new feature, you try to think about its benefits. But you never know what the real benefits are, until you talk to gratified users.

But getting out of the building and talking to users is hard. Naval and Brendan talk to a lot of AngelList users but I’ve gotten lazy.

So I use Quora to do customer development. I read this Quora thread in agonizing detail to extract the AngelList benefits I posted a couple days ago.

This anonymous answer motivated the exercise because it completely ignores the features of AngelList and focuses exclusively on some surprising benefits (emphasis added):

1) The Application Process
AngelList has a very simple and straightforward application process. But they force you to focus on the key metrics, social proof and other factors that lead to successful fundraising. Just the process of applying, helps you clarify what is necessary to put your company in the best position to fundraise, whether it is through AngelList or through other methods. (It is kinda like a test prep course; all standardized test can be hacked with some preparation and knowledge about how it works. The AngelList process + venture hacks is your Kaplan prep course for raising a round.)

2) The Depth of the Roster
Most startups know about the “famous” investors – those who have great public reputations or are name brands. But there are an amazing number of high quality angels, who fly below the radar, that AngelList gives you exposure to. Oftentimes, it can be these angels who help close out your round.

3) The Time Factor
AngelList creates a sense of urgency around the investment process. Nearly every investor that reached out to us, resulted in a call or meeting within 10 days. When compared to non-AngelList intros we received, this is a huge difference in time. Also, decision (both yes and no’s) were given fairly quickly.

4) The Validation
Compared to other conversation, the investors we met through AngelList seemed to be leaning towards investing from the initial conversation. A large part of this is the validation a startup gets by being on AngelList. What I mean is that investors were looking for reasons to say yes, as opposed to reasons to say no. The answer still might be no in the end, but it was always a more productive and engaged conversation.

Thank you, Anonymous.

A Quora user asks: why would a seasoned entrepreneur, who can get his or her own intros, use AngelList? This is the answer I posted on Quora.

We started AngelList to help startups get intros to investors, but we’ve learned that intros are just a feature of AngelList, not the benefit. We consistently hear the same set of benefits from the startups that use AngelList—even the ones that can get intros on their own:

The AngelList community helps you raise money on market terms, from the most value-add investors, fast. In short, AngelList is efficient.

Or, in other words, AngelList gets you answers to three questions:

1. How do I know what my shares are worth?
2. How do I know the girl/guy I’m marrying is the best one?
3. When is the deal closing?

Before I get into how the community answers these questions, let me say that, one, AngelList is free and, two, you can control exactly which investors in the community see your startup.

1. Market terms

How do I know what my shares are worth?

When you sell your car, do you go to Craigslist, or do you go knocking on doors? When you sell your action figures, do you use eBay, or do you throw a garage sale and offer your toys to one person at a time, over a timespan of ‘whenever’?

You can’t clear the market in series, you can only clear it in parallel. And the only way to clear the market is to go to the market. The best companies on AngelList end up raising money on better terms than they expected. It’s impossible to get that outcome if you’re meeting investors one-at-a-time.

“More than doubled the round size and significantly increased the pre-money.” – Bertram Meyer, Taulia

“[AngelList helped] us close the existing deal more quickly and on better terms than we would have without the considerable additional investor interest generated by AngelList.” – Sean Harper, FeeFighters

“We were over-subscribed not once but twice.” – Gagan Biyani, Udemy

All quotes are from http://angel.co/reviews

2. Most value-add investors

How do I know the girl/guy I’m marrying is the best one?

Terms aren’t everything. You also want investors who can add the most value. All the investors you know are probably on AngelList—but there’s also a thousand other investors on AngelList that you don’t know. It’s highly likely that some of them have massive domain expertise in your market and you will want them involved in your company.

“[AngelList] adds people to the mix that would not be part of the offline deal sharing networks that already exist.” – Fred Wilson, Union Square Ventures

“Not only did we receive high quality responses, they were from investors that had significant experience and insight into our specific vertical. These were angels that understood the market and quickly dove into the core strengths and weaknesses of the business and understood what needed to happen to get to the next level. Nowhere else will you be able to get a collective response from industry experts willing to help not only in terms of capital but from an operational and hands-on perspective as well.” – Nikhil Sethi, Adaptly

“Your network only goes so far. As a NYC-based company, our “reach” into SF / SV investors was fairly limited. AngelList changed that. We have had dozens of investors contact us via AngelList.” – Dave Lifson, Postling

“Most startups know about the “famous” investors — those who have great public reputations or are name brands. But there are an amazing number of high quality angels, who fly below the radar, that AngelList gives you exposure to.” – Anonymous

3. Fast

When is the deal closing?

On AngelList, you show your startup to all the investors that you want to meet at the same time. The investors know that, so they move fast. Even the investors you’re already talking to know that, so they move fast. People sitting on the fence know the time for sitting on the fence is over. The best startups on AngelList start closing in days, not weeks.

“Within hours of posting, we had dozens of qualified, top-shelf investors and by the end of the day we were 100% oversubscribed.” – Mark Risher, Impermium

“Investors I’ve been chasing around for months finally emailed me back. We got $50K committed in the first 10 minutes.” – Anonymous

“By the weekend I had multiple term sheets and by Monday we had closed our round with exceptional investors that I could only dream about. There is simply no other way to raise a round so quickly.” – Shafqat Islam, NewsCred

Bonus: Advice

Fundraising advice from the dudes who do Venture Hacks. We didn’t think this was a big deal and we definitely don’t want to toot our own horn too much but this consistently comes up in customer development with gratified users (see http://angel.co/reviews).

“Nivi and Naval were both available to give me advice as we went around raising our “party round”. For example, I remember having an idiosyncratic issue that I couldn’t figure out, and Naval took a 20 minute call with me where he basically solved what two professors couldn’t quite help me with (background: I was finishing up school while raising my round). The non-obvious value that AngelList has is that Nivi and Naval are like sherpas helping you scale the Mt. Everest that is fundraising.” – Rafael Corrales, Learnboost

Summary

It’s the difference between going door-to-door to sell vacuum cleaners and placing an ad on Google. One approach is a pain in the ass. The other is fast, easy, efficient.

Or think of it like this: you do everything else online, why wouldn’t you raise your money online? You put your code on GitHub. You put your servers on Amazon. You buy customers on Google. You market on Twitter. And you can raise your money on AngelList.

If you have any questions about AngelList, send us an email at team@angel.co.

Frankly, the less you need AngelList, the more the community can do for you. That sounds surprising but it’s not. The stronger you are, the better your terms will be, the better your investors will be, and the faster you’ll close.

“My only regret is that I delayed posting for so long.” – Mark Risher, Impermium

Join AngelList.

I’ve been doing a bit of blogging on a Q&A site called Quora.

Quora makes it fun and easy to write. Sometimes I ask and answer my own questions. Sometimes I answer other people’s questions. Here’s a few of my answers.

How strong does your traction, social proof, product, and team have to be to be accepted to AngelList?

It’s always a good time to apply. You can now continuously update your application and we’ll review it every time.

Here’s how I personally filter the startups:

1. If you’ve got good social proof, I’m done — I’ll make intros.
2. If not, then if you’ve got great traction, I’m done — I’ll make intros.
3. If not, then if you’ve got an awesome demo, I’m done — I’ll make intros.
4. If not, then if you’ve got a killer team, I’m done — I’ll make intros.
5. If not, no intros. Go back to work on your startup, improve one of these metrics, and apply again.

But those are just my personal filters. And my filters don’t matter much anymore. Any of the angels on AngelList can now share deals with their followers.

What is good social proof?

Social proof is when you do something because other people are doing it. If you’re walking down the street and everyone is looking up at the sky, you look up at the sky.

In this context, social proof is looking at what other investors, entrepreneurs, and advisors are doing. Customers don’t count.

I’ll disagree with Naval Ravikant on “An investor is choosing not to invest in your company and is making the introduction for you”. I don’t think this is as bad as he makes it out to be.

The primitive part of your brain will probably recoil when a peer sends you their rejects. But the logical part of your brain will ask why the investor is passing. And there’s often a good reason: wrong market, wrong stage, wrong geography, bad chemistry with entrepreneur, some known risks that the investor doesn’t want to take, etc.

Rejecting a deal just because a peer rejected it is mathematically unsound. Here’s the proof. Every deal you ever invested in was probably rejected by a peer at around the same time you made the investment. So, if your criterion is that you will reject deals that peers reject, you will never make any investments

How do I get started in angel investing?

For dealflow, check out Y Combinator and the other incubators that are popping up all over the world. Also check out AngelList.

For how-to, see Paul Graham’s How to be an angel investor, our follow-up How to be an angel investor, Part 2, and the AngelConf videos.

To meet other angels, check out AngelConf (roughly once a year), and introduce yourself to the angels on the AngelList Twitter List.

Who were the first 25 angels on AngelList?

We started with Naval and emailed the angels we knew. It spread and there are about 400 angels on the site now.

1. Naval Ravikant
2. Manu Kumar
3. Dharmesh Shah

See the rest of the list

Go to Quora for more of my questions and answers.