AngelList – Do Or Do Not, There is No Try

Yesterday, at our weekly Monday (sushi, sometimes tacos) lunch, we talked about AngelList. Over the weekend we each read blogs about how AngelList was going to transform venture capital, including The Great Venture Capital Rotation, AngelList Syndicates Will Also Pit Angel Against Angel, Leading vs. FollowingIs @AngelList Syndicates Really Such a Big Deal?, and Some Thoughts On The Big AngelList Deal. Notwithstanding the theorizing, prognostications, and brilliant prose, we think that the verdict is still out on the longer term effects of AngelList to the venture capital industry.

After joking that every VC in the US was at this moment discussing AngelList and how it might, or might not, impact them, we decided to do something. Rather than talk, we decided to participate. After discussing a few different ways to engage, we decided to form FG Angels, through which we’ll be an active funder on AngelList.

We are committing $2.5 million to this effort with a goal of making 50 investments between now and the end of 2014 in companies that list on AngelList. We will invest $50,000 of our own money in each company and the balance from our syndicate. Over the years, we’ve had many entrepreneurs ask if they can invest alongside us. We’ve never had a side fund – this is our first experiment with it. For now, we are capping our syndicate at $500,000 although we’ll revisit this from time to time.

These are seed investments from Foundry Group. We don’t have a separate seed program, although we have always been active seed investors through our fund and indirectly through a variety of vehicles. One example is Techstars, where we are investors in the various Techstars city funds as well as Star Power Partners. Another example are the 30+ seed VC funds that, between the four of us, we are personally investors in.

We will make these seed investments using the same strategy that we’ve made in the past as angel investors.  The money will be coming from Foundry Group and all of the economics associated with the investment, including any carry on our FG Angels syndicate, will go to our fund. For these seed investments we will focus on people over ideas (the idea is the price of admission), will decide quickly, and will run in a pack with other angels as we don’t have to be the lead investor. We will be acting like angel investors in these investments – it’ll be unlikely that we’ll follow on in later rounds, unless the company specifically fits in one of our Foundry Group themes, and we won’t be taking board seats in these companies.

Our reach at the seed investing level is now well over 1,000 companies, across Foundry Group, our personal investments, Techstars, Star Power Partners, and the various seed VC funds we invest in personally and as a partnership. We’ve decided to spend the next year working hard at amplifying this network dramatically. Our FG Angels strategy is part of this.  We’ll reveal more as we progress.

We recognize that the landscape for early stage investing is constantly evolving. While we aren’t worried about being negatively impacted by crowd funding, we figure that the best way to really understand it is to participate.

62 Comments
  • NuPlays.com

    How do we apply if we’re outside U.S.?

    • http://www.feld.com bfeld

      I think AngelList works around the world. Just sign up.

      • NuPlays.com

        We’re already there. Thanks for the info.

      • Rent My Brain

        We have signed up for 3 months, so far nothing happens. We’ve come to the belief that angels prefer to invest in U.S. and with introduction in the angel network. Is this how it works??? Thanks/ oraco_2013

  • http://www.semilshah.com/ Semil Shah

    Guys, this is awesome to see. Check out points #4-6 on this list, this was most fascinating to me: http://blog.semilshah.com/2013/09/24/the-big-angellist-deal-is-important/

    • http://www.feld.com bfeld

      Yup – your post was awesome. I’ll go list it on the Foundry Group blog – it was one that I read over the weekend.

      • http://www.semilshah.com/ Semil Shah

        Oh, no need to! Was mostly saying that the economics for everyone are pretty stunning and worthy of experimentation on many sides. I’m really psyched you guys did this — so…awesome.

        • Chris J Snook

          +1 to both and what is intriguing is how syndicates like this can/may actually create a cleaner and more uniform angel investment model that pairs more equitably and efficiently with institutionals for the high growth deals that make it to a sophisticated Seed or A round trajectory.

    • http://www.sethlevine.com sethlevine

      Awesome Semil. I hadn’t seen your thoughts on this – thanks for the pointer.

  • http://iphone5slink.simplesite.com/ Guillermo Rosario
  • http://iphone5slink.simplesite.com/ Guillermo Rosario
  • http://www.pointsandfigures.com/ pointsnfigures

    Exactly the right response for a VC based on the economic incentives in the VC/Seed world and via the rules/regs of the JOBS Act. More VCs will do this in order to compete. It’s smart strategy and gives an advantage to your LPs. I predicted 10 things that I thought would happen with the JOBS Act and this is one of them. pointsandfigures.com

  • comforteagle

    Bravo!

  • http://www.startupmanagement.org/ William Mougayar

    You are 100% correct that all the analysis and prognosis of today will be subject to real world realizations.

    Here’s my curated list of recent articles on the AngelList developments:
    http://startupmanagement.org/2013/09/30/angellist-as-the-modern-stock-exchange-and-rome-of-venture-capital/

  • scottannan

    Congrats @bfeld:disqus and the team – love the attitude of participating rather than commenting on the sidelines. Well done!

  • Tom Blue – Lead411

    Brad: A question..

    It says… “how much do you want to invest in each deal?” and $1K is the minimum. So does that mean that $50K is the total minimum because you will be making 50 investments? Or is it possible to throw in like 25K and that would be spread to all 50 deals. I would definitely like to diversify if possible.

    I have to say… this is exciting.

    tb

    • http://foolishviews.blogspot.com/ babu

      i was thinking the same thing. brad/jason, would appreciate if you could clarify this. thks..

    • http://www.feld.com bfeld

      We decided to set the minimum at $1k – so effectively you would be committing $50k over the next 15 months where we expect to make 50 investments. However, you can drop out at any time – so if you want to hang in for the first 25 investments and then call it quits for the time being, that is cool.

  • Shea Oliver

    Always love your positive attitude and open mind! Outstanding! Cheers!

  • http://500startups.com/ Dave McClure

    nice move brad :)

    • kentuckyorganics

      How do I start my own post in here

  • stevewfindlay

    Great move – FG (its partners) have precisely the brand quality to pull this off easily.

    Not sure that syndicates will destroy VC (as some have predicted). But it’s always better to cannabalise yourself than be cannabalised by others…

    As an aside: would love to discuss Invrep.co being used as the post deal tool to keep all your FG synidcate investors updated (it’s precisly what the platform is for…)

    • http://www.feld.com bfeld

      Sure – email me!

  • http://www.spindows.com/ Clay Hebert

    Kudos for moving quickly, Brad. Impressive.

  • http://www.binpress.com/ Eran Galperin

    As a founder, I think it makes sense for VCs to use syndicates even more than Angels. Angels are typically brought on for different reasons, and having them in a syndicate changes how founders will look at their investments. I wrote about that more in detail yesterday – http://www.techfounder.net/2013/09/30/founders-perspective-on-angellist-syndicates/

    Moves like this makes me excited to see how AngelList will continue to change the landscape of venture capital.

  • http://o-mg.me/ Michael Gold

    Very nice!

  • Christina Roberts

    Excellent, just fabulous news! YAY!

  • http://bernardi.me/ Stefano Bernardi

    Brad, that’s an awesome move.
    If you’re investing $50k+ the $500k of the syndicate, why aren’t you taking a board seat, and what value do you bring? Is it just the access to the best deals / judgment?

    • http://www.feld.com bfeld

      Our judgment, our help for the companies, and our broad network.

  • http://www.localsandvoyeurs.com/ Brandon Burns

    “It’ll be unlikely that we’ll follow on in later rounds.”

    Are you worried that this will be detrimental to the portfolio companies? Aren’t you pretty much setting them up for signaling problems down the road, right from the get go?

    Why not just limit the investments to companies that already fit FG themes?

    Also, per Fred Wilson’s post, if you’re syndicating, shouldn’t you be leading? If not, who are you expecting to lead?

    • jasonmendelson

      We are leading. We are going to be making the decisions on which companies get funding. I don’t see this at all be detrimental to our current portfolio companies. This is something completely different. This is going to be a seed experiment and we’ve done similar things within the Techstars ecosystem.

      • http://www.localsandvoyeurs.com/ Brandon Burns

        Hm… Fred Wilson wouldn’t say that you’re leading.

        “It also means that [Syndicates] will have to learn to lead and lead well… They will have to sit on boards. They will have to help get the next round done. Essentially they will have to work. That’s why they are getting carry from the syndicate, after all.” – Fred Wilson, via http://www.avc.com/a_vc/2013/09/leading-vs-following.html

        You guys are saying you’re not going to sit on boards. You’re not going to invest in the next round. Thus, while you’re making the decision on who to invest in, according to Fred, you’re not really leading. You’re not doing the work. You’re not earning your carry. You will instead, as this post itself says, “run in a pack” — which is the opposite of leading. And you’re possibly putting the companies you invest in via Angel List at risk because of it.

        Again, that’s according to Fred. I’m far less versed on the ins and outs of angel investing; however, weighing the arguments, I’m inclined to take his point of view.

        • jasonmendelson

          I don’t think Fred’s view pertains to us, frankly. Just because you don’t take a board seat doesn’t mean you aren’t helpful to the companies. And the amount of money doesn’t matter in the seed stage. Leading is leading.

          • http://www.localsandvoyeurs.com/ Brandon Burns

            “There are different ways to lead” is a fair argument. And I suppose TechStars provides value without taking board seats or actively participating in future rounds, so there’s some evidence of validity to the FG way of “leading” syndicates on Angel List.

            I suppose time will tell which way — Fred’s active method of FG’s passive method — will benefit the Angel List companies best.

            I will likely seek angel/seed investment soon, so I’m more engaging in this discussion to formulate my own opinions vs. trying to prove anyone right or wrong.

      • http://www.DomainRegistry.com/ LE

        I don’t see this at all be detrimental to our current portfolio companies.

        Will the investments be vetted to make sure they don’t conflict with existing portfolio companies?

        • jasonmendelson

          Absolutely

  • http://ohheyworld.com/ Drew Meyers

    Leading by doing…love it

  • cfrerebeau

    Wow that’s great! The economic definitely works well for experimentation.
    I agree with your last statement I don’t think it will impact VC that’s much, but it add some options and change the game a little bit for entrepreneur raising from angels: http://cfr.io/2013/10/01/angellist-new-game-new-rules/

    I joined a syndicate this morning in the same spirit: If I ever want to raise money from a syndicate, better understand the in and out first…

  • http://www.microsoft.com/bizspark Douglas Crets

    if someone was to put $10,000 in to this syndicate as a commitment, would that mean that each investment of the 50 you make would allow that person to put in $10k for each one of those investments? Or is the $10k a kind of “buy-in” to participate in the syndicate and only a single participation at that level?

    • http://www.feld.com bfeld

      You commit a “per company” amount. We are planning to do 50 companies in the next 15 months. So – if you committed $1,000 to the syndicate at this point, you would be committing $50,000. However, you can drop out of the syndicate any time you want.

      • http://www.microsoft.com/bizspark Douglas Crets

        Thank you. I will apply to join you. I think this is a great way to learn. I’m reminded of a story in your blog about your dad hooking you up with that guy who gave you the voice computing thing and you just went with it. This is like that for me. This is how I want to learn. I’m willing to pay that tuition!

        • http://www.feld.com bfeld

          Good memory! That was Scott Instruments / Eugene Scott – and is now a very long time ago!

  • Chris Yeh

    The best way to learn is to do. Nicely done.

  • http://www.thehighwaygirl.com/index.php thehighwaygirl

    So smart. This rocks! Congrats Brad & co.

  • http://twitter.com/jimhirshfield JimHirshfield

    @bfeld and @jasonmendelson:disqus this is awesome…you read about it; talked on Monday, and pulled the trigger on Tuesday. Exciting times. Kudos. Now you have to rewrite your book on venture investing, LOL.

    • jasonmendelson

      I hadn’t considered the book! :)

      • http://twitter.com/jimhirshfield JimHirshfield

        Supplemental chapter.

  • oneumbrlla

    Love the fact the VC is experimenting and learning in the same way entrepreneurs do. Walk the talk is a great leading indicator of the commitment to the mission.

  • Terry A Davis

    I don’t think a year-out, a month-out, a week-out. I live in the now, all day, every day.

    • http://www.feld.com bfeld

      That is the best way to live!

  • JC

    Fantastic!! I love your committment to the expirament.

  • http://twitter.com/chrisamccoy Chris McCoy

    Love this hack. Incumbent’s Solution!

  • elliottdahan

    2/3 of Angel Groups Co-Invest (“Halo Report,” a joint project of the Angel Resource Institute, Silicon Valley Bank and CB Insights. March 2012)

    All early stage companies need both Funding and Validation.

    But . . . .
    1) The Early Stage Marketplace is a global community which must serve
    the self-interests of all members: sponsors, companies, partners and funders.
    2) The startup – the technology – the talent – the team is what will determine what is invested in and co-invested in.
    3) Angellist’s co-investing solution is too self-serving and does nothing to recognize the true marketplace nature of the early stage. It is a good thing for Angellist and Angellist accepted investors and Angellist sponsored companies – but still just a product feature from a
    gatekeeper.

    Steve Blank writes about Silicon Valley becoming Hollywood – “The attributes of the Hollywood “star ecosystem” are familiar to any recent observer of the technology industry: gossip press, gatekeepers, herd
    effects and fad investing. Hidden somewhere among them—hard workers”

    “Hard Workers” = the team, the technology and the products. This “star ecosystem” puts an artificial constraint on Demand.

    Elliott Dahan

  • http://LeanStartPad.com/ Jeff ‘SKI’ Kinsey

    Exactly the message many of us startup entrepreneurs were hoping to hear. Thank you.

  • http://vizify.com/philip-liveplanit C.P. Spencer

    Nothing wrong with experimentation !

  • http://www.davidmcohen.com/ David Cohen

    Brad, do you know why the word ‘Syndicate’ was specifically chosen for AngelList Syndicates? What does the word Syndicate represent or mean in this context? Thanks.

  • http://www.youradshere.co/ FIVEyearsAD$15_YourAdsHere.co

    -

    my AngelList project

    angel . co/newspaceagency

    -

  • Mark Upton

    What would be the procedure to review companies and would the first batch review happen?

  • Doug Ward

    Thank you for all the sharing Brad. Learning patiently and really enjoying the education, from Manchester, UK. Look forward to meeting you one day.

  • http://www.mortgagefraudexaminers.com/ Mortgageexaminers

    excellent

  • http://www.csengerilaw.com/ Csengeri Law

    Thanx for post