AngelList and The Startup Bubble: A VC's Take

This article delves into the author's perspective on AngelList, a platform connecting startups with investors, and its potential role in the current startup bubble.

The author, a venture capitalist, shares his thoughts on AngelList's impact on entrepreneurs, VCs, and angel investors. He highlights concerns about dealflow quality, rushed decision-making, and overheated markets, drawing parallels to the dot-com bubble of the late 1990s.

The Concerns of a VC: Overheated Markets

The author expresses his worry about the "hotter-than-hot" environment fueled by AngelList, fearing that the platform could lead to investors making quick decisions without proper due diligence. He cites a specific instance where an investor committed to funding a startup after a mere 30-minute phone call without ever meeting the team.

The Value of AngelList for Entrepreneurs

Despite his concerns, the author acknowledges AngelList's benefits for entrepreneurs, stating it's a great tool for marketing deals and gaining exposure to a wider pool of investors.

However, he emphasizes the importance of entrepreneurs spending time building relationships with investors, getting to know their expertise, and carefully considering the implications of attracting a large number of investors.

AngelList's Impact on VCs

The author believes AngelList is a net positive for VCs, arguing that it increases the pool of companies with angel funding, creating more potential investment opportunities. He sees AngelList as a complementary tool that supports, rather than hinders, VC activities.

Seed Funding and The Bubble

The author doesn't believe AngelList negatively impacts seed investors. He sees the platform as a way to increase the overall number of deals funded, similar to the role of accelerators like Y Combinator.

He recommends entrepreneurs seeking seed funding to prioritize established seed funds that offer specific expertise, geographical reach, and access to downstream funding. He suggests using AngelList as a supplement to access additional value-added angels.

Angel Investors and The Bubble

The author's greatest concern lies with angel investors. While he recognizes the platform's potential for sophisticated angels to organize their dealflow, he worries about those who lack experience or adequate capital engaging in angel investing.

• He emphasizes the importance of angels having access to high-quality dealflow, domain expertise, relationships with VCs, deep pockets, and access to buyers.
• The author believes that the current market is experiencing a bubble, with high valuations, herd-like behavior, and rushed deal evaluation.

The Need for Caution

The author cautions against the current market frenzy, comparing it to the dot-com bubble. He suggests that investors should approach deals with a sober mind, avoiding impulsive decisions and remembering the potential for a painful hangover when the bubble bursts.

He advises angels to prioritize building a balanced portfolio, diversifying their investments with ultra-safe assets and not relying on angel investing as a primary source of income.

The Role of Experienced Investors

The author acknowledges the value of experienced investors, emphasizing that they bring expertise, mentorship, and connections that can be crucial for startups. He argues that a combination of high-volume investors and focused investors can be a winning strategy for entrepreneurs.

He challenges the notion that AngelList has rendered VCs obsolete, stressing the continued importance of experienced investors in the startup ecosystem.