All deals on AngelList will soon be private (plus other updates you should know)

Earlier this week, we sat down with Naval Ravikant, cofounder of five-year-old AngelList, a popular platform that matches startups with early-stage investors. Three million people, including 50,000 accredited investors, have created profiles on AngelList since its founding, and AngelList now uses that information to pair startups with capital, pair startup employees with employers and, more newly, pair startups with customers.

Its become a big business, as well as a confusing one, Ravikant readily admits. And while we cant report on one interesting new, performance-related wrinkle thats coming soon, he walked us through many otherstats and initiatives.Our chat has been edited for length and clarity.

TC: A few years ago, AngelList introduced Syndicates, essentially pop-up funds that allow angel investors to syndicate their investments in exchange for some upside. It wasfairly transparent at the outset, but thatsbeen changing.Why?

NR: Seventy-five percent of the deals are now private, up from 45 percent a year ago. Itll be default private soon because a lot of the hot deals tend to be private. Also, that public-private dichotomy is always really hard for entrepreneurs [in fundraising mode] to figure out, so they start associating our brand [with a place to share information publicly to accredited investors], which is a negative, so they dont want to go on here. We might take a hit on liquidity by making the default private, but at the end of the day, its all about getting the high-quality companies.

TC: An investor,Gil Penchina, has built a big business on the platform. Are more leads starting to see a kind ofof network effect?

NR: Gil is a unique case. Hes the one whos always breaking the system. Were more catering to operator-angels, meaning people who have operating jobs, or VPs at big companies or whove started their own startups. Its people who arent professional VCs but who do four to six deals a year, investing in alumni and people they know.

TC: How many of them close a deal each month? And are the investors on the platform mostly based inSilicon Valley?

NR: We had 55 deals led by 41 leads close in June; we had 44 deals led by 38 leadsclose in July. The average for most leads on the platform is a couple of deals per year. As for demographics, Id say over half [the people who lead deals on the platform] are in Silicon Valley.

TC: Youd said publicly somewhere that you weregetting into special purpose vehicles, which come together quickly to invest in a single, later-stage company. Why would someone create an SPV onthe platform?

NR: Theyresyndicates, too; theyre just targeted to later-stage investors. It isnt a [big part of the platform] yet but theyre fully automated. We dont charge you any carry for any investors you bring in. Its a one-time charge of $8,000 and we handle all the K-1s, reporting, accounting, collections, filings, regulatory compliance, accreditation. Its all online so people can track their exits, distributions, and bank accounts, and we can distribute stock in cash. So its like setting up a Schwab or e-Trade system for people who want to do that. Pejman Mar [now Pear] has used it. Accomplice uses it. Then there are a lot of one-offs.

We also now have a network of 20 family offices, and when we get a later-stage deal, with a lead investors approval, well show them those and they can vote on whether they are in or out. Itll take a year to fully fill out, but you could see 200, 300, 400 [family offices] accessing SPVs in all the hot companies at some point.

TC: People canlead seed rounds; they can form SPVs. Why arent moreVCs using AngelList instead of raising funds the old-fashioned way?

NR:Were not really built for that. For starters, we dont supportmanagement fees. We also dont support custom [limited partner]documents; youd have to go cookie-cutter with our Syndicates model. What we are starting to see ispeople who [build a track record and graduate to their own fund], thoughthats kind of a failure for us. [Laughs.]

TC: Youve saidtheres $200 million flowing through the platform each year right now. Break down for readerswhere that money is coming from.

NR: Between $120 million and $160 million is coming from [accredited individualinvestors]. The other roughly $40 million comes from partnerships and funds that we run on the platform. One of those is the [$400 million seed fund] CSC Upshot fund [in partnership with a China-based private equity firm]; another is Maiden Lane [a $25 million fund raised by mostly individual investors outside of AngelList]. Thats managed by Dustin Dolginow, formerly of Accomplice; Jeff Fagnan, a general partner at Accomplice; and me.

Then theres a third that weve raised from individuals who join AngelList and want a basket of AngelList companies; we try and pick the best 100 to 150 deals for them. I manage that with our COO, Kevin Laws; and Parker Thomson [formerly of 500 Startups].

TC: As for conflicts of interest?

NR: Wehave heavy conflict of interest rules, so when Im running a deal [as a Syndicate lead], I dont vote in any of the funds and Im recused from anything involving the deal.

TC: Whats happening with the recruiting side of AngelList? You launched a service in beta a few months ago. What stats can you share?

NR:[The platform] is stillfree for anyone who wants to use it freely. But for someone with limited time and a certain budget and a specific role they need to fill with good engineers, we launched a service three months ago called A-List. We do the work of going through AngelList and finding the top couple hundred candidates, then we put [the hiring company]into this format where we make sure the parties arematched up very welland wecharge $10,000 for a successful hire.

TC: How many job candidates are on the platform altogether, and whats your close rate on matches?

NR: Its between 1 percent and 2.5 percent, judging by thepercent of candidates who update their profile later with a new employer who was introduced to them on AngelList. Over the last two months, theres been around200,000active candidates, so we think [our hit rate is] between 800 and 2000 hires a month.

TC: Think this business will account for 50 percent of your revenue at some point?

NR: More. Were the largest hiring platform for startups on the planet.

TC: You say youre the largest seed fund, and that youre thelargest hiring platform for startups.What else is on the roadmap?

NR: Its still being built, but were also working on AngelList Enterprise, so companies can evenfind customers at some point. Say you want bug tracking software; all these companies have AngelList profiles on the platform and they tell us what their tech stack is and [other details like] how many customers theyve signed in the last 90 days, and thats all we need to help [both sides to connect].

Its all free, but you can see how it would eventually make money. Right now, were just seeing if its even useful to users.

TC: How far away from profitability are you?

NR: Were not at breakeven, but I expect in the next six to 12 months, we will be, for sure.

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