A new program just launched on AngelList to invest in YC companies”– though please note, this is not a formal partnership. YC Alumni who have chosen great deals in the past in their individual investments, and now they can leverage AngelList’s platform to pool outside money together, package it up alongside their investments, and charge a 20% carry for that access. Given that the amounts will be relatively small, and that it’s only $10k minimum to invest, those who want to invest in YC companies but live in rural Florida can now do so with a click of a button without ever having to meet the direct investor or the company itself.
This combination bundles new companies with equity crowdfunding. So, why is this happening?
- Online platforms create access. Let’s not lose sight of the fact that this wasn’t possible over two years ago. We are in a new world. Just because you’re invited to Demo Day doesn’t mean you’ll be able to invest.
- Excess supply hungry to invest in startups. The brilliance of AngelList is it democratizes the ability of money to flow to opportunities and rewards those who have been granted access from founders, or a incubator/accelerator. That excess money can then pour through these channels. Many will not like that because it could challenge what they believed to be their own proprietary flow. One risk here, however, is the indirect investor has to go along with whatever terms either the startup or syndicator set, and those may not be market prices.
- Lower minimum amounts to play. It’s only $10k to play. A family office in Oklahoma with no connections to the Valley but lots of money could find this an interesting way to learn and invest somewhat more directly than before.
- Who is on the cap table? To me, this is the BIG SHIFT and one I’ll write about in more detail soon. With so much money out there, founders care about getting brand names which send a signal on their cap table. After a few brand names (if they’re lucky to score them), some (not all) start to care less about where the rest of the money comes from. This phenomena is happening more even as companies go to Series A, B, and beyond. The currency now is to have a brand name whereby the founders want that name on the cap table. They want that association. And, once they have those names, they’d prefer the following name on their cap table “John Trusted Friend — AL Syndicate II” vs having the name of a Fund of Funds or family office they don’t know to have direct access. This adds a layer of protection and distance between the company and the equity.
It will take some time to see how the effects of all of this play out, but it is definitely changing fast and becoming a new world.