Some of you have read my recent post AngelList, CapLink and Financing Marketplaces, in which I publicly supported the work Naval Ravikant and others are doing to increase liquidity in the seed capital portion of the market. Following that, Naval and I decided to sit down for a more comprehensive chat. Over the next several days, we will publish the interview here as part of the Seed Capital from Angel Investors series.
Naval is an entrepreneur and angel investor, co-author of Venture Hacks, and co-founder of AngelList. Earlier, Naval was a co-founder at Genoa Corp (acquired by Finisar), Epinions.com (IPO via Shopping.com), and Vast.com (largest white-label classifieds marketplace). He has also advised Bix.com, iPivot, and XFire, among others, and invested in many companies, including Twitter, FourSquare, DocVerse (sold to Google), Mixer Labs (sold to Twitter), Jambool (Social Gold), SnapLogic, PlanCast, Stack Overflow, Heyzap, and Disqus.
With AngelList, Naval and his partner, Babak Nivi, have created a marketplace where entrepreneurs post their deals and connect with investors.
Sramana Mitra: Welcome to the Seed Capital series, Naval. To begin, the Bryce Roberts post on why he deleted his AngelList account kicked up a storm of publicity for AngelList recently!
Naval Ravikant: Yep! Traffic went through the roof, with hundreds of startups coming in and hundreds of new investors signed up.
SM: Yes, that is what PR does, even negative PR.
NR: Yes, it is unfortunate, though, because you can’t make everyone happy. You can’t get every startup funded. The truth is that 95 percent of startups are nonfundable.
SM: Yes, I was going to talk to you about that … But first, would you talk a bit about what brought you to this project? I know some of your background and I know that we have a lot of common friends. You have some history with Benchmark and August, obviously …
NR: Yes, that was a long time ago. They are both with AngelList, by the way.
SM: What got you to this idea?
NR: Basically, because I had been on both the investor side and on the startup side, I was one of the few people who understood what term sheet negotiations, venture dynamics, signaling, later round board seats, and so on meant. How do they work, and why? Your lawyers know what is illegal and they know what is standard, but they honestly don’t know why you do it, what issues are at stake.
I was one of the few entrepreneurs who knew that space really well because I have spent quite a lot of time in the venture field. So, my friends would always ask me and refer people to me to ask about term sheets. And then Nivi came along. He was raising money for Songbird, and he was asking me a bunch of questions. He wrote them down and then came back with more and wrote them down, and every time he wrote something down – he is a really thoughtful guy – he would ask, Why is this done, how come this is not on the Web?
He asked, Do you mind if I blog [about] this, and I said, Sure go ahead, and he created VentureHacks, which got pretty popular. We became very widely read, a go-to authority on these term sheets and financing topics. Nivi was the one working mostly on VentureHacks. I was off [doing] angel investing, and I called Nivi and said, You know, I am tired of these meetings, I am tired of these companies coming out and asking questions; it is like a flood, and of these companies, even the ones that are not in my area of interest, I still think there are many that are worthy of being funded. But I still constantly have to make introductions. It is a silly process; everything else is online. Why is this offline, why is this still manual, why is the industry stuck in the Stone Age?
We decided to try and productize VentureHacks and created AngelList, but we actually tried a few times in different variations and this time, the minute we started it, it just took off and the timing was good. We lit a spark with the right investors and the right entrepreneurs, and since then it has been a flood. All we are trying to do is keep up and get all these good startups funded and find good matches for these investors.