The combination of the JOBS act (open solicitation and communication of fundraising by startups) and crowdfunding sites promises to shake up the way that seed-stage financing gets done. Crowdfunding sites, like AngelList, have offered open, public disclosure of startups and their financing activities. Now, with the addition of open syndicates, the combination could prove to be powerful.
In only a few days, syndicates of angels have emerged that have the power to seed companies entirely, with $500K to a few million, in a matter of hours. Already, we have seen formal and ad hoc syndicates form from Foundry Group (FG Angels), Jason Calcanis, Tim Ferris, LaunchAngels, and plenty of others.
Will this fundamentally change seed stage VC or angel rounds? Does this matter more for markets outside of Silicon Valley? Perhaps.
In effect, AngelList has enabled the rise of the ad hoc VC firm- these groups are taking carried interest on the syndicates they lead/create. Since many are well known, the angels are using their Internet notoriety to offer “regular” angel investors the chance to invest alongside them.
But… One of the hardest parts of raising early stage money is in finding a lead
Even if it’s a “party round,” someone still has to throw the party, buy the beer and the chips, find the location, and clean up after. As Chris Dixon points out here, financings tend to be oversubscribed or undersubscribed.
Traditional angel groups are tough to pitch, can move slowly, and the real challenge for the entrepreneur is in finding a lead, because most investors want to follow. One of the most frequently asked question in angel AND VC rounds: “Who else is investing?”
So while AngelList syndicates offer the chance to change the game for entrepreneurs by significantly altering the speed of the raise, it seems to me that the entrepreneur still needs to find that lead, push the rock up the hill. Once that happens, then the power of openness, networks, and speed can take over.