According to AngelList, the renowned startup funding and recruiting platform, the number of companies being minted continues to far exceed the numbers of funds that can support them at the Series A and even the seed stage. Meanwhile, angel investors don’t necessarily have enough capital, particularly those who may be respected operators but haven’t yet enjoyed a major liquidity event yet, meaning their wealth continues to be tied up in their companies.
That’s the argument for a new twist on AngelList: angel funds, or venture funds for angel investors who will be wholly supported by AngelList on the backend, as well as provided $35 million in funding from AngelList for the initiative, via a second Maiden Lane fund. (The firm’s first Maiden Lane fund was a $25 million vehicle that was similarly created to provide some money to active angels on the platform.)
Not just anyone can create a fund on AngelList right now. The firm has for a couple of years been quietly testing out the idea with investors who AngelList has already tracked and supported for some time, and its new spate of so-called deal leads includes serial entrepreneur Rick Marini; social entrepreneur Shiza Shahid; and Product Hunt founder Ryan Hoover. (AngelList acquired Product Hunt last year for a reported $20 million and continues to operate it independently for now.)
It’s an interesting and seemingly natural development for AngelList, which in late 2013 introduced its now-popular Syndicates program, which allows angel investors to gather capital from fellow investors and plug it into companies on a deal-by-deal basis.
To date, those angels have raised $540 million and invested that money in 1,400 companies.
Now, AngelList may spin Syndicates as a product for newer angels and newer backers looking to leap into the world of startup investing, while marketing its angel funds as designed for slightly more sophisticated investors.
Here’s how it works: Each “fund manager” receives between $500,000 and $1 million from AngelList, along with additional venture fund partners and their own backers (if they have any). They’re expected to invest that capital over a six- to 12-month-long period, though AngelList cofounder Naval Ravikant tells us it’s find if it takes these mini general partners longer than that to deploy the capital.
The deal leads will then earn 15 percent of the profits from any deal, and another 5 percent will go to AngelList (unless the deal lead brings in a significant amount of capital from investors other than AngelList, in which case AngelList will take a percentage as small as 2.5 percent).
AngelList also has partners in its experimental initiatives, including Accomplice, Foundation Capital, Crosslink Capital, and Bain Capital Ventures.
Bain, for example, says it will invest $2 million to $5 million per year to sponsor angel investors on the AngelList platform, “in effect acknowledging, participating in, and enabling the gradual disruption of the venture capital industry,” says managing director Salil Deshpande, who will lead the program on behalf of his firm.
Deshpande says the firm will pick and choose the operators it wants to back. In other words, the aforementioned venture firms aren’t expected to fund exactly the same operators as AngelList chooses to back. He also says Bain hopes to convince “great angel investors who we already know and will find in the future to get set up as microfunds on AngelList.” He says that in some cases, Bain might even be the sole limited partner in an angel fund, which sort of underscores that there’s a lot of flexibility here.
Asked what he’s telling his own investors about why Bain is getting involved in the program, Deshpande says it’s pretty simple. “We — I, my firm, and venture capitalists as a class — are always looking to fund disruptive models in every industry. Why not apply the same logic to the venture industry?”