11 ms·

AngelList Announces $400M Early-Stage Fund

182 points by albertwang 11y ago

DanBlake 11y ago
Naval is such a genuinely nice and caring guy. So many investors say they are entrepreneur friendly, but hardly any of them live up to that when things get hairy. Naval is a guy who absolutely lives the mantra of putting entrepreneurs first and goes above and beyond to help them out in so many ways. There is a long story about the stuff he went through to get where he is (when he was at epinions), google for it- its worth a read. I wont get into it too much, but I owe alot to Naval for where I am today. The help, advice and just conversations he gives to entrepreneurs is completely 'no bullshit, no fluff'. All in all, its very refreshing to see that AngelList has risen to the top and has helped disrupt the 'old boys / sand hill road' way of doing things.
- rbres 11y ago
  ++ Naval is an unbelievable investor, entrepreneur, and friend. He's completely founder aligned in a way that is almost unheard of in silicon valley. Someone you don't have to watch what you say and can simply be direct with. I've only recently gotten to know Naval. But, immediately, he's risen to the top as my favorite person to work with hands down. Truly a unique founder ally amidst the staunch traditionalism of silicon valley investing. Can't wait to see AngelList continue to change/democratize fundraising.
spike021 11y ago
Unfortunately I had an experience with Naval completely the opposite of what you're describing. I'm a student and had heard of him before several times along with using AngelList. Earlier this year I saw him walking in downtown San Francisco with somebody else, so I thought I would say hi and introduce myself for a moment since he seemed like a nice person. I think they must have been having some kind of very important, heated conversation because as soon as I went up to him and simply started to say "hi, hope I'm not interrupting...", he stopped me and said "we're having a conversation!!" and kept walking. Most likely it was just the wrong time and place to do that but unfortunately I now have a pretty disappointing first impression of him.
- brobinson 11y ago
  I don't think most people would take kindly to a stranger trying to butt into their conversation. This alleged event makes me think no less of him.
  - spike021 11y ago
    I'm not quite sure how just saying "hi" is butting into a conversation. I didn't shove my hand in his face and ask to have five minutes of his time immediately. That's rather extreme. Why not just say something along the lines of "it's alright, but I'm not able to speak right now"?
    - deleted 11y ago
      [deleted]
    - brobinson 11y ago
      His response was probably a bit more aggressive than necessary, but think about how many times he gets propositioned/pitched to per day. Also, consider the venue: someone who comes up to you on the street and starts a conversation (especially in SF, I lived there for 7 years while working at startups) is likely asking for a handout, donation, trying to get you to sign a petition, trying to scam you, mentally ill, or some combination of the above. Someone who interrupts your conversation with another person on the street immediately comes across as rude regardless of their intentions. There was probably no way you could have successfully engaged him in a conversation, even a very short one, at that chance encounter. It just wasn't a good set of circumstances.
    - hugh4 11y ago
      >Why not just say something along the lines of "it's alright, but I'm not able to speak right now"? Because he probably doesn't have superhuman levels of patience and tolerance.
- deleted 11y ago
  [deleted]
- 11y ago
sschueller 11y ago
Why does AngelList needs so much cash?
- illumen 11y ago
  For investing.
- morgante 11y ago
  AngelList isn't using this money for their own operations, they're using it to invest in hundreds of other startups. You question is equivalent to asking "Why does KPCB need so much cash?" to which the obvious answer is "so they can invest in interesting companies where are likely to generate substantial returns for their partners."
jdimov9 11y ago
What other people need and what is a lot and a little are not matters to be decided or judged by you. Get your nose back on to your plate. -- Remember: only cowards down-vote anonymously.
- forgetsusername 11y ago
  >Remember: only cowards down-vote anonymously. What is is or isn't worthy of a downvote are not matters to be decided by you.
- ddorian43 11y ago
  The dude was just curious. (downvoted non-anonymously)
  - deleted 11y ago
    [deleted]
- rokhayakebe 11y ago
  I think you were being down-voted because your answer was mean spirited, that is your intention appears to have been to want to hurt someone verbally. Besides their question is very legitimate. How does a directory spend $400M? I had to read the answers to understand they were planning to make some investments.
  - jdimov9 11y ago
    That's just your insecurity speaking. My remarks were very benevolent and highly beneficial to the commenter. The question was NOT "how do they spend it". The questions was very clearly "why do they need it" and as such is NOT a legitimate question (unless you're the one giving the money).
    - rokhayakebe 11y ago
      Sure, I am insecure. I do have an issue with people who are mean or rude. Your comment was not just rude, as in not agile; it appeared as if you wanted to say something to hurt someone. If you father/spouse/best friend asked the same question, would you say "Get your nose back on to your plate." If not, then you should not give the same answer to someone you do not know. Listen friend life is too long to go on being not sensitive to how you talk to people. By the way I upvoted all your comments, because I want you to be enlightened. The world is a better place when you are nicer. You sound frank, so I assume you do not even know you were being impolite.
EGreg 11y ago
Imagine some combination of the crowdfunding website Kickstarter and the social-networking site LinkedIn, only everyone on the site has to be an accredited investor. Early-stage startups show up, hat in hand, and 165 different angel investors, called “leads,” evaluate them. If an investor likes what he sees, he can put in some of his own money, while encouraging other investors, who are part of what is known as his syndicate, to fill out the investment with their own funds. These first investments average around $315,000 per startup. Wait, what? We joined a few years ago and put several of our existing investors on there. We're not well connected on the west coast and I never heard from anyone major on the site. Was our company evaluated by one of those 165 people who then lead a syndicate? How does it work exactly? How do they discover startups that are on the site?
musha68k 11y ago
It would be interesting to see the effects of a combination of something like AngelList together with robust decentralized technology for identity and smart contracts. How much work is still ahead of us until I'll just have to set up a new team on a service like AngelList which will be a globally accepted business entity?
memossy 11y ago
It looks to be a pretty smart strategy, take the top 50 syndicate leads, put avg $400k behind them in year 1 ($20m investment). This grows platform, in year 2 put $500k behind top 100 syndicate leads ($50m investment) as more money available for syndicate leads. AngelList takes the management fee on the $400m ($4m a year say as a "fund of funds" at 1%), 5% carry on the syndicate. Note 99 max investors per The syndicate leads take the carry and do most of the due diligence, CSC Upshot gets to follow on on whatever deals they like most.
- 7Figures2Commas 11y ago
  > The syndicate leads take the carry and do most of the due diligence... What leads you to believe the syndicate leads are doing real due diligence?
  - thrill 11y ago
    Apparently their syndicate partners believe so.
    - 7Figures2Commas 11y ago
      But that's the point: everyone believes somebody else is doing due diligence, even when it's not actually happening. This is a huge problem today because of the "party round." Just look at Zirtual[1] and Amicus[2][3]. [1] https://news.ycombinator.com/item?id=10036321 https://news.ycombinator.com/item?id=10036321 [2] http://www.newrepublic.com/article/119350/amicus-app-how-tech-investors-are-failing-due-diligence http://www.newrepublic.com/article/119350/amicus-app-how-tec... [3] https://news.ycombinator.com/item?id=8082785 https://news.ycombinator.com/item?id=8082785
  - memossy 11y ago
    > What leads you to believe the syndicate leads are doing real due diligence? Never said real due diligence, just most of the due diligence that is actually done However, if one is investing in 1,000 startups then due diligence is actually of less importance as you approximate a normal distribution of returns..
graycat 11y ago
> We are, as ever, either at the dawn of a golden age of startups and innovation, as technology’s boosters claim, or soon we’ll be shaking our heads that investors ever believed the market for startups was as big or fast-growing as they thought it was. Well, for at least 10 years now, traditional, mainstream US information technology (biomedical is different) venture capital has been essentially stuck in the mud due to a dirty little secret. As a result, on average, returns on investment (ROI) have been low, e.g., as reported in Kauffman http://www.kauffman.org/newsroom/2012/07/institutional-limited-partners-must-accept-blame-for-poor-longterm-returns-from-venture-capital-says-new-kauffman-report http://www.kauffman.org/newsroom/2012/07/institutional-limit... and at AVC.com, the blog of Fred Wilson of Union Square Ventures http://www.avc.com/a_vc/2013/02/venture-capital-returns.html#disqus_thread http://www.avc.com/a_vc/2013/02/venture-capital-returns.html... Here is, apparently, what the secret is: It used to be that venture capital firms could invest in a project described only on a napkin, but this practice was brought to nearly a halt. How? Traditional US venture capital gets nearly all its funds to invest from its limited partners (LPs) which are mostly pension funds, insurance companies, wealthy individuals, sovereign wealth funds (likely Mideast oil money), hedge funds, and not much more. Well mostly the LPs are quite conservative, invest only a tiny fraction of their funds with traditional information technology venture capital firms, and, apparently, have a relatively uniform deal with such firms. The deal: Invest much like private equity investment, that is, in a company evaluated mostly via standard accounting except instead of revenue be willing to substitute traction. So, here's the recipe for traditional US information technology venture capital: Look for a company (1) exploiting information technology, i.e., Moore's law, computing, the Internet, the Web, the cloud, mobile, etc., (2) with a novel product/service, (3) addressing a huge market, (4) with traction significant and growing rapidly, (5) that is desperate enough for some cash to be willing to accept onerous terms. So, here are some of the weaknesses of this traditional approach: (A) Any development work, e.g., writing software, needed for (4) traction has to be already funded and done. Result: This part of the deal means that usually the development work has to be what a few guys can do on a diet of Raman noodles, and that severely limits what products/services can be offered. (B) The deal does not permit giving weight to real progress in research or technology; so, venture partners will not attempt to evaluate such progress and, indeed, nearly never have the background to do, or even direct, such evaluations. Again, the evaluations are basically to be much like in private equity, that is, based on traditional accounting. Result: The companies that get venture funding are doing little or nothing to exploit original research or technology. Maybe something about a market niche, a user interface, or a partner list is novel. But, from US national security, there is now a history of 70+ years of the astounding power of original research and new technology, and, with the deal of the LPs necessarily, that power is nearly always neglected. E.g., for a joke, venture capital would have said: You build and test the first one, build and test the B-29, build a good base in Tinian, and build a good base in Iwo Jima for fighter escorts, and for 30% ownership with BoD control, a full ratchet, and 2X liquidation preference we will chip for in half of the aviation gas for the Enola Gay. In other words, that is vulture capital. We should not expect vulture capital to do much to bring us to > ... the dawn of a golden age of startups and innovation ... and it has not. So, as a result of weaknesses (A) and (B), the information technology startups are on average much less valuable than they should be. So, in particular, there is an opportunity to do much better, in particular, to get much higher ROI. AngelList and YC have a chance for this progress and, thus, to disrupt traditional US information technology venture capital. If the CSC in the OP is willing to consider being an LP with a new deal, then there is a chance of > ... at the dawn of a golden age of startups and innovation ... and much higher ROI.
pbreit 11y ago
Surely they could have sourced such an investment domestically?
- deleted 11y ago
  [deleted]
- 7Figures2Commas 11y ago
  I'm not sure you could easily find one LP willing to put up $400 million for a fund that, according to the article, will potentially make more than 1,000 investments. AngelList, because of its platform, obviously has a way to deploy this capital more efficiently than a typical firm, but these types of small early-stage investments are still fraught with challenges and I think sophisticated domestic LPs who have experience in venture capital would be very skeptical. As the WSJ article implies, CSC may have certain motivations that a domestic LP wouldn't, such as a desire to get capital deployed outside of China. And fast. Personally, this looks like dumb money hoping AngelList can turn it into smart money. It could very well distort market for early-stage startup investments, but it isn't likely to change the way these investments tend to behave in terms of returns.
  - mbesto 11y ago
    There is a big trend in Chinese PE throwing money into the US market with expected returns that much lower than what the western market would expect, and therefore western PE is continually being outbid by the Chinese. So, even if Chinese get lower returns for their capital in the US than typical PE's, those returns are still higher what they would get domestically in China.
    - 7Figures2Commas 11y ago
      Yes, and the Chinese have logical reasons for accepting lower returns because they're exposed to risk in China that domestic PE firms aren't exposed to. This said, it should be noted that when the music stops, these firms aren't guaranteed a return at all. Many of them are going to lose. It's just a question of how much.
albertwang 11y ago
Blog post with full presentation and more details: http://blog.angel.co/post/131017147560/csc-upshot http://blog.angel.co/post/131017147560/csc-upshot
rebootthesystem 11y ago
The China part bugs me. Why? First, there's plenty of money in he US and Europe. I feel they could have worked a bit harder to secure non-Chinese funding. Second, like it or not the world is engaged in an economic war with China. The industrial bases in the US and Europe have been destroyed to the point that entrepreneurs have trouble finding such things as machines to sew socks. Issues abound across a myriad of industrial segments. While some in the western world might be all hippie/feel-good about China this is at the cost of ignoring what has been going on. Before you call me a paranoid asshole consider I've been manufacturing products in the US for over thirty years. During that time I have seen, first hand, what the reality of manufacturing has become. Over the years I've seen vendor after vendor systematically taken out by China's expansion into every nook and cranny of industry, even in areas you'd think make no sense. Now the Chinese are going to insert "probes" into thousands of startups by means of providing insignificant (to them) funding. This will give them unparalleled visibility into trends, products and whole new industries ripe for pillaging. AngelList is a fantastic resource. I am sure they could have made an effort to source this fund in the US and Europe. In the grand scheme of things $400 million is not that much money with the clout AngelList has, particularly if spread across a range of investors. I, for one, would not want to have a Chinese investor. Down-vote away.
- robbfitzsimmons 11y ago
  Even taking your skepticism about Chinese investment at face value, having LP involvement is tremendously different from operational involvement or investment committee involvement. Having been involved in LP reporting at a seed fund, I can say that it happens regularly but infrequently (quarterly, or at most monthly) and at a 30,000 foot level. I've really never seen LPs interact with portfolio companies at a seed stage, beyond chatting at a cocktail party after the annual meeting. Besides, given the nature of the platform, if they're looking into trends and products, isn't that information publicly available (this is just adding money behind the top syndicate deals on AngelList)?
  - rebootthesystem 11y ago
    You are probably absolutely correct. Yet, based on watching what's gone on with China from my front seat in manufacturing I can't help but remember a multitude of instances where someone said something akin to "what's the big deal with having them ..." and few years later they are out of business or hooked to China in a big way. China looks at things at a different time scale than we do. Among other things, companies can sell at insane prices because they make their profit at the end of the year when the Chinese government hands out 15% "bonuses" on their exports. I've been in businesses where a 15% net at the end of the year would have been a dream. When you are dealing with someone who has been systematically eroding your industrial base over decades you have to, at one point, take pause. I know I might come off as paranoid, I get that. There's a reason for that. I have experienced the "China effect" personally. It can be absolutely devastating. And nobody is doing a thing about it (not sure it is possible to any more).

182 points by albertwang 11y ago

Naval is such a genuinely nice and caring guy. So many investors say they are entrepreneur friendly, but hardly any of them live up to that when things get hairy. Naval is a guy who absolutely lives the mantra of putting entrepreneurs first and goes above and beyond to help them out in so many ways. There is a long story about the stuff he went through to get where he is (when he was at epinions), google for it- its worth a read. I wont get into it too much, but I owe alot to Naval for where I am today. The help, advice and just conversations he gives to entrepreneurs is completely 'no bullshit, no fluff'. All in all, its very refreshing to see that AngelList has risen to the top and has helped disrupt the 'old boys / sand hill road' way of doing things.

rbres 11y ago
++ Naval is an unbelievable investor, entrepreneur, and friend. He's completely founder aligned in a way that is almost unheard of in silicon valley. Someone you don't have to watch what you say and can simply be direct with. I've only recently gotten to know Naval. But, immediately, he's risen to the top as my favorite person to work with hands down. Truly a unique founder ally amidst the staunch traditionalism of silicon valley investing. Can't wait to see AngelList continue to change/democratize fundraising.

spike021 11y ago

Unfortunately I had an experience with Naval completely the opposite of what you're describing. I'm a student and had heard of him before several times along with using AngelList. Earlier this year I saw him walking in downtown San Francisco with somebody else, so I thought I would say hi and introduce myself for a moment since he seemed like a nice person. I think they must have been having some kind of very important, heated conversation because as soon as I went up to him and simply started to say "hi, hope I'm not interrupting...", he stopped me and said "we're having a conversation!!" and kept walking. Most likely it was just the wrong time and place to do that but unfortunately I now have a pretty disappointing first impression of him.

brobinson 11y ago
I don't think most people would take kindly to a stranger trying to butt into their conversation. This alleged event makes me think no less of him.
- spike021 11y ago
  I'm not quite sure how just saying "hi" is butting into a conversation. I didn't shove my hand in his face and ask to have five minutes of his time immediately. That's rather extreme. Why not just say something along the lines of "it's alright, but I'm not able to speak right now"?
  - deleted 11y ago
    [deleted]
  - brobinson 11y ago
    His response was probably a bit more aggressive than necessary, but think about how many times he gets propositioned/pitched to per day. Also, consider the venue: someone who comes up to you on the street and starts a conversation (especially in SF, I lived there for 7 years while working at startups) is likely asking for a handout, donation, trying to get you to sign a petition, trying to scam you, mentally ill, or some combination of the above. Someone who interrupts your conversation with another person on the street immediately comes across as rude regardless of their intentions. There was probably no way you could have successfully engaged him in a conversation, even a very short one, at that chance encounter. It just wasn't a good set of circumstances.
  - hugh4 11y ago
    >Why not just say something along the lines of "it's alright, but I'm not able to speak right now"? Because he probably doesn't have superhuman levels of patience and tolerance.
deleted 11y ago
[deleted]
11y ago

sschueller 11y ago

Why does AngelList needs so much cash?

illumen 11y ago
For investing.
morgante 11y ago
AngelList isn't using this money for their own operations, they're using it to invest in hundreds of other startups. You question is equivalent to asking "Why does KPCB need so much cash?" to which the obvious answer is "so they can invest in interesting companies where are likely to generate substantial returns for their partners."

jdimov9 11y ago

What other people need and what is a lot and a little are not matters to be decided or judged by you. Get your nose back on to your plate. -- Remember: only cowards down-vote anonymously.

forgetsusername 11y ago
>Remember: only cowards down-vote anonymously. What is is or isn't worthy of a downvote are not matters to be decided by you.
ddorian43 11y ago
The dude was just curious. (downvoted non-anonymously)
- deleted 11y ago
  [deleted]
rokhayakebe 11y ago
I think you were being down-voted because your answer was mean spirited, that is your intention appears to have been to want to hurt someone verbally. Besides their question is very legitimate. How does a directory spend $400M? I had to read the answers to understand they were planning to make some investments.
- jdimov9 11y ago
  That's just your insecurity speaking. My remarks were very benevolent and highly beneficial to the commenter. The question was NOT "how do they spend it". The questions was very clearly "why do they need it" and as such is NOT a legitimate question (unless you're the one giving the money).
  - rokhayakebe 11y ago
    Sure, I am insecure. I do have an issue with people who are mean or rude. Your comment was not just rude, as in not agile; it appeared as if you wanted to say something to hurt someone. If you father/spouse/best friend asked the same question, would you say "Get your nose back on to your plate." If not, then you should not give the same answer to someone you do not know. Listen friend life is too long to go on being not sensitive to how you talk to people. By the way I upvoted all your comments, because I want you to be enlightened. The world is a better place when you are nicer. You sound frank, so I assume you do not even know you were being impolite.

EGreg 11y ago

Imagine some combination of the crowdfunding website Kickstarter and the social-networking site LinkedIn, only everyone on the site has to be an accredited investor. Early-stage startups show up, hat in hand, and 165 different angel investors, called “leads,” evaluate them. If an investor likes what he sees, he can put in some of his own money, while encouraging other investors, who are part of what is known as his syndicate, to fill out the investment with their own funds. These first investments average around $315,000 per startup. Wait, what? We joined a few years ago and put several of our existing investors on there. We're not well connected on the west coast and I never heard from anyone major on the site. Was our company evaluated by one of those 165 people who then lead a syndicate? How does it work exactly? How do they discover startups that are on the site?

musha68k 11y ago

It would be interesting to see the effects of a combination of something like AngelList together with robust decentralized technology for identity and smart contracts. How much work is still ahead of us until I'll just have to set up a new team on a service like AngelList which will be a globally accepted business entity?

memossy 11y ago

It looks to be a pretty smart strategy, take the top 50 syndicate leads, put avg $400k behind them in year 1 ($20m investment). This grows platform, in year 2 put $500k behind top 100 syndicate leads ($50m investment) as more money available for syndicate leads. AngelList takes the management fee on the $400m ($4m a year say as a "fund of funds" at 1%), 5% carry on the syndicate. Note 99 max investors per The syndicate leads take the carry and do most of the due diligence, CSC Upshot gets to follow on on whatever deals they like most.

7Figures2Commas 11y ago
> The syndicate leads take the carry and do most of the due diligence... What leads you to believe the syndicate leads are doing real due diligence?
- thrill 11y ago
  Apparently their syndicate partners believe so.
  - 7Figures2Commas 11y ago
    But that's the point: everyone believes somebody else is doing due diligence, even when it's not actually happening. This is a huge problem today because of the "party round." Just look at Zirtual[1] and Amicus[2][3]. [1] https://news.ycombinator.com/item?id=10036321 https://news.ycombinator.com/item?id=10036321 [2] http://www.newrepublic.com/article/119350/amicus-app-how-tech-investors-are-failing-due-diligence http://www.newrepublic.com/article/119350/amicus-app-how-tec... [3] https://news.ycombinator.com/item?id=8082785 https://news.ycombinator.com/item?id=8082785
- memossy 11y ago
  > What leads you to believe the syndicate leads are doing real due diligence? Never said real due diligence, just most of the due diligence that is actually done However, if one is investing in 1,000 startups then due diligence is actually of less importance as you approximate a normal distribution of returns..

graycat 11y ago

> We are, as ever, either at the dawn of a golden age of startups and innovation, as technology’s boosters claim, or soon we’ll be shaking our heads that investors ever believed the market for startups was as big or fast-growing as they thought it was. Well, for at least 10 years now, traditional, mainstream US information technology (biomedical is different) venture capital has been essentially stuck in the mud due to a dirty little secret. As a result, on average, returns on investment (ROI) have been low, e.g., as reported in Kauffman http://www.kauffman.org/newsroom/2012/07/institutional-limited-partners-must-accept-blame-for-poor-longterm-returns-from-venture-capital-says-new-kauffman-report http://www.kauffman.org/newsroom/2012/07/institutional-limit... and at AVC.com, the blog of Fred Wilson of Union Square Ventures http://www.avc.com/a_vc/2013/02/venture-capital-returns.html#disqus_thread http://www.avc.com/a_vc/2013/02/venture-capital-returns.html... Here is, apparently, what the secret is: It used to be that venture capital firms could invest in a project described only on a napkin, but this practice was brought to nearly a halt. How? Traditional US venture capital gets nearly all its funds to invest from its limited partners (LPs) which are mostly pension funds, insurance companies, wealthy individuals, sovereign wealth funds (likely Mideast oil money), hedge funds, and not much more. Well mostly the LPs are quite conservative, invest only a tiny fraction of their funds with traditional information technology venture capital firms, and, apparently, have a relatively uniform deal with such firms. The deal: Invest much like private equity investment, that is, in a company evaluated mostly via standard accounting except instead of revenue be willing to substitute traction. So, here's the recipe for traditional US information technology venture capital: Look for a company (1) exploiting information technology, i.e., Moore's law, computing, the Internet, the Web, the cloud, mobile, etc., (2) with a novel product/service, (3) addressing a huge market, (4) with traction significant and growing rapidly, (5) that is desperate enough for some cash to be willing to accept onerous terms. So, here are some of the weaknesses of this traditional approach: (A) Any development work, e.g., writing software, needed for (4) traction has to be already funded and done. Result: This part of the deal means that usually the development work has to be what a few guys can do on a diet of Raman noodles, and that severely limits what products/services can be offered. (B) The deal does not permit giving weight to real progress in research or technology; so, venture partners will not attempt to evaluate such progress and, indeed, nearly never have the background to do, or even direct, such evaluations. Again, the evaluations are basically to be much like in private equity, that is, based on traditional accounting. Result: The companies that get venture funding are doing little or nothing to exploit original research or technology. Maybe something about a market niche, a user interface, or a partner list is novel. But, from US national security, there is now a history of 70+ years of the astounding power of original research and new technology, and, with the deal of the LPs necessarily, that power is nearly always neglected. E.g., for a joke, venture capital would have said: You build and test the first one, build and test the B-29, build a good base in Tinian, and build a good base in Iwo Jima for fighter escorts, and for 30% ownership with BoD control, a full ratchet, and 2X liquidation preference we will chip for in half of the aviation gas for the Enola Gay. In other words, that is vulture capital. We should not expect vulture capital to do much to bring us to > ... the dawn of a golden age of startups and innovation ... and it has not. So, as a result of weaknesses (A) and (B), the information technology startups are on average much less valuable than they should be. So, in particular, there is an opportunity to do much better, in particular, to get much higher ROI. AngelList and YC have a chance for this progress and, thus, to disrupt traditional US information technology venture capital. If the CSC in the OP is willing to consider being an LP with a new deal, then there is a chance of > ... at the dawn of a golden age of startups and innovation ... and much higher ROI.

pbreit 11y ago

Surely they could have sourced such an investment domestically?

deleted 11y ago
[deleted]
7Figures2Commas 11y ago
I'm not sure you could easily find one LP willing to put up $400 million for a fund that, according to the article, will potentially make more than 1,000 investments. AngelList, because of its platform, obviously has a way to deploy this capital more efficiently than a typical firm, but these types of small early-stage investments are still fraught with challenges and I think sophisticated domestic LPs who have experience in venture capital would be very skeptical. As the WSJ article implies, CSC may have certain motivations that a domestic LP wouldn't, such as a desire to get capital deployed outside of China. And fast. Personally, this looks like dumb money hoping AngelList can turn it into smart money. It could very well distort market for early-stage startup investments, but it isn't likely to change the way these investments tend to behave in terms of returns.
- mbesto 11y ago
  There is a big trend in Chinese PE throwing money into the US market with expected returns that much lower than what the western market would expect, and therefore western PE is continually being outbid by the Chinese. So, even if Chinese get lower returns for their capital in the US than typical PE's, those returns are still higher what they would get domestically in China.
  - 7Figures2Commas 11y ago
    Yes, and the Chinese have logical reasons for accepting lower returns because they're exposed to risk in China that domestic PE firms aren't exposed to. This said, it should be noted that when the music stops, these firms aren't guaranteed a return at all. Many of them are going to lose. It's just a question of how much.

albertwang 11y ago

Blog post with full presentation and more details: http://blog.angel.co/post/131017147560/csc-upshot http://blog.angel.co/post/131017147560/csc-upshot

rebootthesystem 11y ago

The China part bugs me. Why? First, there's plenty of money in he US and Europe. I feel they could have worked a bit harder to secure non-Chinese funding. Second, like it or not the world is engaged in an economic war with China. The industrial bases in the US and Europe have been destroyed to the point that entrepreneurs have trouble finding such things as machines to sew socks. Issues abound across a myriad of industrial segments. While some in the western world might be all hippie/feel-good about China this is at the cost of ignoring what has been going on. Before you call me a paranoid asshole consider I've been manufacturing products in the US for over thirty years. During that time I have seen, first hand, what the reality of manufacturing has become. Over the years I've seen vendor after vendor systematically taken out by China's expansion into every nook and cranny of industry, even in areas you'd think make no sense. Now the Chinese are going to insert "probes" into thousands of startups by means of providing insignificant (to them) funding. This will give them unparalleled visibility into trends, products and whole new industries ripe for pillaging. AngelList is a fantastic resource. I am sure they could have made an effort to source this fund in the US and Europe. In the grand scheme of things $400 million is not that much money with the clout AngelList has, particularly if spread across a range of investors. I, for one, would not want to have a Chinese investor. Down-vote away.

robbfitzsimmons 11y ago
Even taking your skepticism about Chinese investment at face value, having LP involvement is tremendously different from operational involvement or investment committee involvement. Having been involved in LP reporting at a seed fund, I can say that it happens regularly but infrequently (quarterly, or at most monthly) and at a 30,000 foot level. I've really never seen LPs interact with portfolio companies at a seed stage, beyond chatting at a cocktail party after the annual meeting. Besides, given the nature of the platform, if they're looking into trends and products, isn't that information publicly available (this is just adding money behind the top syndicate deals on AngelList)?
- rebootthesystem 11y ago
  You are probably absolutely correct. Yet, based on watching what's gone on with China from my front seat in manufacturing I can't help but remember a multitude of instances where someone said something akin to "what's the big deal with having them ..." and few years later they are out of business or hooked to China in a big way. China looks at things at a different time scale than we do. Among other things, companies can sell at insane prices because they make their profit at the end of the year when the Chinese government hands out 15% "bonuses" on their exports. I've been in businesses where a 15% net at the end of the year would have been a dream. When you are dealing with someone who has been systematically eroding your industrial base over decades you have to, at one point, take pause. I know I might come off as paranoid, I get that. There's a reason for that. I have experienced the "China effect" personally. It can be absolutely devastating. And nobody is doing a thing about it (not sure it is possible to any more).