Seed Capital From Angel Investors: AngelList Founder Naval Ravikant (Part 8)

Naval Ravikant: The combination of inexperienced investors with first-time entrepreneurs is not good. I am going to show you something else just to get my point across very clearly. Let me show you how many investors have applied to get in who haven’t even been processed. So, you see this page [on your computer], right?

Sramana Mitra: Yes.

NR: There are about 20 to 30 people on this page. There are 57 of these pages.

SM: And if somebody gets approved and doesn’t invest for a certain number of days, do you bump them out?

NR: Not yet, because the site itself is pretty young, but we are going to start doing that. What we will do is not bump them out explicitly, but we will segment them into active versus inactive, and I would say that the startups coming in, by definition, want to go only to active investors, so they will know. Even right now, you can do a version of that. This is public, anyone can see this – you can go to the investors and sort them by how many intros they have taken and how many investments they have made. [The investment] could be done through the site and declared, which is a higher bar because a lot of times even when they do investments through the site, they won’t declare them.

SM: OK, got it. How do you view what is going on with this trend of all the Y Combinator–style startup incubators? There are tons of them popping up everywhere.

NR: It is really easy to start a company these days.

SM: Why do you need incubators to start a company?

NR: The incubators are a little different right now. They are not really helping to start a company; they are a vetting process above all; they are a filter. Because it is so easy to hack out a Facebook or an iPhone app, investors want to know that you are a high-quality individual and you have built a high-quality app, and someone knowledgeable has talked to you and screened you. So, it is almost as though the incubator is the micro angel. They are doing the filtering before they even get to the angel level – that is part of it. Part of it is that these incubators are the new graduate schools. They are sort of giving you a graduate education. Instead of doing a masters or a PhD program, and paying for it, now you get paid for it.

SM: Well, that is kind of what we are doing in One Million by One Million, except we are not paying entrepreneurs. But for a $1,000 annual membership fee, you get a full curriculum that takes you through all the basics of what you need to do as an early-stage entrepreneur, and as you know I have developed a large repository of case studies that I have now added to the curriculum. So, if a new entrepreneur, a first-time entrepreneur, goes through 50 hours of the One Million by One Million curriculum, she has a certain level of knowledge and understanding that should make life a great deal simpler going forward.

NR: That is exactly the kind of thing that a graduate school such as Harvard would do. It would filter out people who can’t get into Harvard and would give them another level of education to help them prepare, so it seems the incubators and what you are doing is filtering out people who don’t meet your bar and then giving them a certain level of education. And I think that angels are kind of the new series A VCs, and incubators are kind of the new angels. Because if we get a concept-stage startup, for example, if someone comes in and they have just an idea, it doesn’t matter how good the idea is; they are not fundable on AngelList.

SM: We deal with that a lot, and I am pretty much telling everybody that they need to get their valuation up to $2 million pre-money before they go out to raise money.

NR: Which means you have to build something.

SM: Which means you have to build something; you have to validate with customers.

NR: And incubators are good places to build your first thing. That is what they are really good for. They force you to stay on track; they create a community of entrepreneurs around you who are also building things; and there is great peer pressure on you to put something together in 10 weeks. I think there are going to be many of these, just as there are many schools. You know, Y Combinator is Harvard, maybe TechStars is Yale, or maybe it is the UC system because there is franchising and TechStars has a bunch of franchises. There will be a University of Phoenix equivalent with your mail-in diploma.

This segment is part 8 in the series : Seed Capital From Angel Investors: AngelList Founder Naval Ravikant
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