The real value of AngelList

Too many entrepreneurs are using AngelList in the exact wrong way. They decide that they’re going to raise “$1 million” at a “$6 million valuation” on a “Convertible Note”, and then press “Publish” on their account. Then they sit and wait for their first investors to start throwing money at them.

AngelList is not yet a great tool for finding a lead investor (though this may change with their new Syndicates feature). I’ve found that at the beginning, startups have a much greater hit rate with investors in their existing network. This could be friends and family, investors in your startup accelerator, or even early customers. It’s rarely a stranger you met on the internet.

The biggest value of AngelList (besides their awesome talent tool) is the social proof that it can provide your startup once you close key advisors and investors. That green progress bar in the Fundraising section of each startup’s profile page is magical – the more it fills up, the more inbound demand you’ll see. But it can also work against you when it’s empty.

Fundraising feeds off momentum. In chemistry terms, you must overcome the activation energy in order to see the funding reaction occur. Momentum is the catalyst in this reaction. Never start from zero. Skip all the folks who are ‘waiting on a lead investor’ and go find the person willing to go out on a limb to support you. It may require giving the first folks into the round a “valuation discount.” But do whatever it takes to get your fundraising started before approaching the AngelList crowd.

Once you’re in the ‘Second Half’ of your fundraising game, that’s when AngelList really shines. Here are a few quick tips:

  1. Confirm investors and advisors as they commit:
    • If you have a strong verbal commitment, or better yet, signed paperwork, make sure they make it ‘AngelList Official’.
  2. Utilize ‘one-point’ connections to value-add investors
    • Find investors that commonly participate in funding rounds in your industry, or who often co-invest with your existing investors, and use the ‘Message’ tool on their profile to get in touch and introduce your startup. Make sure you have a shared connection that is willing to route your message through them.
  3. Heavily consider the ‘Invest Online’ feature.
    • This is another place where I strongly encourage you to seek legal counsel before proceeding. But I believe that there are few negatives to this feature. The system allows you to cash in on existing momentum, close smaller investors without dealing with paperwork or negotiation over terms, and most importantly, put money in the bank.