Most young startups with an innovative platform or disruptive idea face the same challenge on their path to success: Navigating the murky waters of Silicon Valley finance. Of course, two geeks in a basement can invent a radical new platform, but to grow that into a real business and rise above the fray, they will need financing, team-building skills, and intelligent execution.
The same goes for all artists today. In fact, I contend we share 99% of the same traits and challenges as entrepreneurs – which is why I try to evangelize the need for us to study and learn from the hoodied-coders-turned-global-influencers to our north. There is the long-fermented saying, “Don’t throw good money after bad.” It can be just as important to know who to trust with your baby when one hits the fundraising or acquisition stage, and venture capitalists predators circle their prey. It can be a guessing game, with sound advice that is free from entangling alliances, in short supply.
AngelList co-founder and CEO, Naval Ravikant, has accomplished a seemingly impossible mission that was inspired by being on the other side of a bad deal. He and co-founder Babak Nivi have tipped the scales back in the favor of the entrepreneur by pulling the veil back on the VC process on their breakthrough platform. “I didn’t like how this system, and how these private markets are very inefficient and how entrepreneurs were at an information disadvantage.” From doing battle in the boardrooms Silicon Valley to lobbying in the halls of Washington D.C, Ravikant has earned both the reputation of a dark horse and the respect of entrepreneurs.
For Naval, it all started in India. Ravikant’s family moved to New York City when he was nine to chase the American Dream, but they could never have imagined how Naval was going to change the shape of his new country. Ravikant studied math and science at Stuyvesant, a high school for students with special talent in those areas, but he didn’t entertain the idea of becoming an entrepreneur. His mother, on the other hand, was more certain. She picked up on Naval’s sophisticated analysis of the opening hours, store lighting, and product options of pizza parlors and other small businesses in their neighborhood and called his potential future.
At Dartmouth, Ravikant fell in love with the design aesthetics of Apple computers. After college, he dabbled in consulting before changing course and heading out to Silicon Valley to seek his destiny. It was the heady days of the dot.com version 1.0, and Naval quickly got a taste of the roller-coaster highs and lows of Silicon Valley. He got a job for @Home Network, a company valued at 20 billion dollars, before it plummeted to zero during the crash. Naval went on to design Intrinsic Graphics, which later became Google Earth.
It was his next venture, however, that eventually led to the formation AngelList: Epinions.com was an online review network for restaurants and movies which pre-dated Yelp and Rotten Tomatoes. Epinions was eventually acquired for more than $600 million by eBay, but Ravikant and his co-founders Ramanathan Guha and Mike Speiser didn’t see any of the spoils, losing out on a roughly $40 million windfall. The powerful venture capital firms that originally backed him, along with one of his other co-founders, had convinced his team that their company was worthless.
Risking becoming a Silicon Valley pariah, Ravikant fought back and sued the heavy-hitter VC firms, walking away with a settlement. But rather than turn their backs on the dot.com world, this eye-opening experience of the ruthless world of venture capital inspired Naval to start Venture Hacks with long-time colleague, Babak Nivi. Venture Hacks was an online guide to educate and advise the startup community on the byzantine term sheets and thorny legal issues that have tended to define the arcane aspects of fundraising. Meanwhile, Naval’s sharp eye for startups led him to become an early investor in Twitter.
In 2010, Naval and Nivi took it to the next level by launching AngelList. What began as a simple mailing list of reputable angel investors rapidly transformed into a sophisticated online community where startups could safely raise equity or debt investments with complete transparency. Yet, Ravikant was still frustrated by the backroom deals and obtuse rules that defined raising capital in the Valley. Ravikant explains, “All investments used to happen as a black art behind closed doors…we had to force transparency into the system.” It was time for Mr. Ravikant to go to Washington.
Rallying a group of industry leaders and moguls, Ravikant headed to the nation’s Capitol to lobby legislators on the JOBS Act on behalf of startups. For six months, he built his argument, made his case, and networked with lawmakers to allow entrepreneurs to protect and better grow their businesses. He organized an online petition that included over 5,000 investors and entrepreneurs. As we know, they have emerged victorious, changing the course of history, and the course of business for generations to come.
Last Monday, Title II of the JOBS Act went live, lifting the ban on the General Solicitation rule. This means that startups and small businesses can openly advertise to the general public that they are fundraising. Perhaps the most exciting part of their political triumph is the part of the new law opening the field for the next stage in crowdfunding: Equity Crowdfunding. Title III is expected to be voted on and passed in early 2014. It will allow companies to solicit investments in very small amounts from all kinds of people – not just accredited investors like venture capital firms.
The JOBS Act has the potential to be an enormous engine of capital for small businesses which have been shut out by banks since the financial crisis. Artists can also go about funding independent projects by allowing fans that qualify above the financial threshold to become investors. That threshold is $2,000 (or 5%) for people earning or worth up to $100,000 and $100,000 (or 10%) for people earning or worth more than $100,000. According to Ravikant, “Unlike Kickstarter, you’re actually buying an equity stake in their business. So if they’re successful or if they make money, you can make returns.”
Back in Silicon Valley, there are no signs that Ravikant is slowing down. Since he began in 2010, over 800 companies have made a hire on AngelList, and over 1300 startups have successfully raised an estimated $184m through introductions on the site. Just recently, AngelList launched Syndicates, a fundraising platform where individuals can invest their money with angel investors, who are able to pool money to fund startups without relying on traditional venture capital. In the first month, there have already been 12 deals with $3.5 million raised. Just last week, AngelList itself raised $24million in financing from Google Ventures, Atlas Ventures, and Kauffman Foundation. Ravikant’s original vision to bring the entire Silicon Valley ecosystem online and even the playing field – not only between investors and startups in fundraising cycles, but for recruiting, finding office space, hiring lawyers, you name it – is well on it’s way – and we are all the better for it.