Use AngelList for customer development...and then raise money.

When I first heard about AngelList, I thought it would never work.  They had grabbed some of the top investors in the tech world and put them on a distribution list for entrepreneurs to spam?  How could that possibly work? 

And then we started hearing about a startup here and there getting a little funding from someone off of AngelList.  I couldn't tell whether it was bad startups finding dumb money or just personal connections orchestrated personally by Nivi and Naval.  Either way, I didn't take it that seriously.  I was in the middle of our FlightCaster acquisition; raising a round of funding was the last thing on my mind.  Whenever people asked me for fundraising advice, I was never down on AngelList, but I never remembered to bring it up.  It just wasn't relevant yet.

It is now.  Mark my words, 2012 will be the year AngelList explodes with traction.

AngelList is for real.  It's here to stay.  And it's going to totally change the way we all raise money.  I don't know if Nivi and Naval planned it this way from the beginning, but they've turned AngelList into Facebook for startups.  It's not just a funding list, it's a full blown social network specifically designed for social credibility in startups.

Before I explain, I'll give you the super quick primer on AngelList for those of you that haven't use it.

Startups go on AngelList and create a profile for each entrepreneur and for their startup.  The startup profile includes a very brief screenshot section, a place to post advisors, current investors, and some financial information that has privacy toggle settings.  Investors can create a profile that post their previous investments, their areas of expertise, and what types of investments they like to make.

So far, pretty simple stuff.  Well-executed and clear.  There are a bunch of other little features on the profiles like status updates, references, etc.  But overall, it's still very similar in content to Crunchbase.

The magic comes in how the social dynamics of AngelList are managed.  AngelList uses Twitter-style following instead of Facebook-style friending.  Anyone that wants to follow a startup or an investor can follow them.  We've seen this show before.  On Twitter, your follower count is a pretty significant indicator of social proof.  On Angel List, it works the same way. 

 

Having a few hundred followers is a way to signal that there is pent-up demand for information about your startup.  I think of it as priming the pump.  It's not as powerful as the social proof that comes with telling the world that some A-List investor just put money into your startup, but it's the signal that comes out earlier.  

In the pre-AngelList days, we used to accomplish this feat by creating buzz amongst investors.  As anyone that has done the Sandhill Shuffle will tell you, startup investing is an incredibly small and social community.  When we raised for FlightCaster, almost every VC with whom we met knew our story before we got to them.  Like most entrepreneurs, we stacked our meetings all at once so that our name popped up multiple times in VC chatter.  We met with 50+ investors during our pitch process...in two weeks.  It was the busiest week of my life.  It was also incredibly inefficient, very distracting to product development, and very risky to us.  We had no way of knowing if the timing was right, no insight into our level of buzz, no feedback loop on our accomplishments.

Now, with AngelList, you can show that pent-up demand online, through your follower count.  We put 42Floors on AngelList before we had even firmly decided on our product.  When we first posted our profile, we had only figured out our problem, fixing the broken process of commercial real estate, but we hadn't yet nailed a minimum viable product. Our profile is still super empty. All we really say is the problem we're solving.


We're not currently fundraising, but I'm having lots of great conversations with investors right now.  And this has become the most surprising additional perk of AngelList.

 

AngelList is a massive source of great customer development.

In building our commercial real estate product, we've needed to talk to lots of brokers, landlords tenants, real estate investors, etc.  Some of these people are hard to reach.  I keep posting to AngeldList each of my 'needs'.  As I've said before, investors are great at providing valuable introductions.  One, they like helping out and two, it's a way for them to prove their value-add as an investor without having to commit to cash.  


When we finally start fundraising, I'll use AngelList to broadcast who our early investors are to the rest of the investor community.   By that time, we'll have hundreds follows that have learned about our progress from day one.  This is how we answer Suster's call to invest in lines, not dots.

All of this means you need to start now!  If you wait until you're actually raising, you won't have time to build up a following and it won't work as well.  You don't have to have your investment deck ready yet.  You don't have to have your advisors ready yet.  Set-up your profile as fast as you throw your Launchrock page up.  As always on this blog, here are a few suggestions to get you started.  More to come as we experiment...


AngelList Reading

Thoughts on AngelList, "Social Proof", "Spray & Pray", & The Network Effects of Large Scale Investing — Dave McClure

"AngelList Fucking Rocks. Period.  it's the single greatest innovation in our industry in the last 5 years (aside from LinkedIn, Facebook, Twitter, & Quora) and it's great for almost all participants. and while social proof can be abused / misused, so can gasoline... doesn't mean you shouldn't fill up your gas tank and go back to riding horses."

 

Venture Capitalists Actually (Slightly) More Active Than Angels on AngelList — All Things D

"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.

Of the VC firms, General Catalyst Partners has the most intros, at 64 spread among five partners. The rest of the top five are Atlas Venture, Bessemer Venture Partners, First Round Capital and Charles River Ventures."

 

Why would a seasoned entrepreneur use AngelList? — Quora

"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."


Is AngelList technically violating the general solicitation rules of Regulation D by sending out mass emails requesting investment? — Quora

"(i) AngelList is not soliciting investors in violation of Regulation D because they have a “substantial and pre-existing relationship” with all of the investors; and (ii) AngelList is not a “broker” requiring registration because they are not receiving a commission or being compensated for their assistance."

 

 I tried to go after cold money and make it warm. Instead, I should have gone after warm money and made it hot. — Jen McCabe

"AngelList is amazing. Worth it. Worth it. Well worth it. Do it. Be ready. Take time to prep and maximize your opportunity. Study how to hack the system, like any other."

 

 

 

Find discussion of this post on Hacker News

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And please come check out my new startup, 42Floors

We're fixing commercial real estate.  Forever.

Sign-up to learn more at 42floors.comand like us on Facebook, and follow us on AngelList, and follow us on Twitter.

 

******************
I'm Jason Freedman.  
I've got a sweet-ass new company: 42Floors.  
Previously, I did FlightCaster.
I welcome connections on Linkedin,  FacebookAngelList and Twitter.