Angels

The Next New Thing: Women VCs

The venture landscape changes fast. Ten years ago, few would have predicted the ubiquity of micro funds or the rise of Andreessen Horowitz or the very existence of a platform like AngelList that enables people with enough connections to become pop-up VCs.

Few — though not most — see what’s coming next, too, and that’s women VCs, taking their place alongside men, in equal, or nearly equal, numbers. In fact, we’d argue that the shift will represent the biggest opportunity over the next decade.

It may be hard to believe, given the wealth of attention paid to the low numbers of women in the industry and the obstacles they’re having to overcome. But the signs of change are everywhere if you’re paying close enough attention.

Women now make up 60 percent of college graduates, and many more of them are graduating with tech-friendly degrees. (Women are exceeding at elite institutions particularly, and now account for one-third of Stanford’s undergraduate engineering students, as well as one-third of Stanford’s graduate engineering students.)

Though women are making slow inroads at venture firms — according to CrunchBase data published last week, just 7 percent of the partners are women at the top 100 venture firms — women are increasingly finding paths around today’s guard.

They represent 12 percent of investing partners at corporate venture firms — a percentage likely to grow because of heightened interest in how tech companies fare when it comes to diversity. “We believe it’s a missed opportunity if we aren’t an active participant” in funding women- and minority-led companies and funds,” says Janey Hoe, VP of Cisco’s 40-person investments unit.

More, over the last three years, 16 percent of newly launched venture and micro-venture firms had at least one female founder, shows CrunchBase data.

Ch-ch-ch-ch-changes

So what’s happening? As VC Jon Callaghan of True Ventures noted during a panel discussion in San Francisco last week, Moore’s law has played a starring role. As costs have fallen and made entrepreneurship accessible globally, more people are coming into venture capital.

Monique Woodard, a longtime entrepreneur and more newly a venture partner at 500 Startups, credits her own path to the democratization of information brought about by social media platforms, as well as the many public insights into the industry that VCs like Fred Wilson and Brad Feld have contributed over time. “You suddenly have this library around venture capital and thought leadership that didn’t exist before,” said Woodard, speaking on the same panel.

It’s also the case that women — an expanding number of whom are founding startups, as well as rising through the ranks of other companies — have more role models in VC than they did a decade ago.

Of course, none of these trends is brand-spanking new. So why, you may be wondering, is now suddenly the tipping point? Because the ethical, business and financial reasons for change are finally poised to overtake the industry’s inertia.

More here.

(Image: Bryce Durbin)

Gil Penchina is Coming for You

Gil Penchina is a former eBay and Wikia executive. He’s also a longtime angel investor who has enjoyed cash-on-cash returns of 6x over the last 15 years, he says.

But the latest feather in Penchina’s cap is his place within AngelList’s universe of so-called Syndicates, which are essentially pop-up funds that allow angel investors to syndicate their investments in exchange for 15 percent of any upside. (AngelList collects another 5 percent. There are no management fees.)

Since the program was rolled out by AngelList roughly a year ago, Penchina has attracted 1,300 accredited investors who’ve committed to collectively plug up to $4.6 million into each deal he wants to make. Those numbers make his the largest Syndicate on the platform. They also give him the firepower, theoretically, of a mid-size venture fund.

Penchina, who has already invested “between $5 million and $10 million” in startups through his syndicate, says he’s just getting started. We caught up yesterday. Our chat has been edited for length.

You don’t have an office. You have no institutional investors. And yet you have a stunning amount of capital at your disposal suddenly.

Yes. We only started nine months ago, and [our commitments are up] to $4.6 million per deal, which is slightly frightening when you’re used to writing $25,000 checks [from your personal bank account]. We’ve now led two A rounds, for [the sales prospecting company] Datanyze and *Contactually [a relationship marketing platform], and we’re trying to do more [lead investing].

We’ve also launched a SaaS syndicate, a bitcoin syndicate, an [Internet of Things] syndicate, and we’re launching a [financial technology] syndicate. And we’ve launched a late-stage syndicate for B and C rounds and we’re in the registration and comment period with regulatory authorities for a venture debt syndicate, which will be interesting once that’s up and running. Notionally, we want to [represent] every vertical, and every asset class – from bridge rounds to A and B and C rounds — so if investors want a more narrow thesis, they can invest in it. If they want a broader thesis, they can in invest in my main syndicate and get a more diversified pool of investments.

Wow. How much have investors committed to these vertical syndicates?

The SaaS syndicate has [commitments of] $1.8 million, the late-stage syndicate has $1.1 million, bitcoin has $700,000. All of these ideas are getting some traction. Ultimately, I’m trying to build Fidelity, with fund managers who specialize in certain sectors.

Who are all these investors?

We get a mix. When you democratize and reduce friction, everyone shows up. CEOs, dentists, young guys who are making their first investment. Six months ago, we had 200 investors. Today we have 1,300. If things continue [apace], we’ll have 10,000 investors in a year’s time.

And who’s the “we” when you refer to your syndicates?

There are two managers per syndicate. They aren’t full time but rather executives in each particular vertical. One is a chief revenue officer, another is a product executive, another is the CEO of a bitcoin company.

We also have 30 volunteers, from associates at venture firms, to executives who think these syndicates are a great way to learn about other industries, to people who want to work in venture and think [helping us] is a great training ground.

These managers and volunteers are essentially scouts? Do you promise them a percentage of your carry if they bring you something you eventually decide to fund?

It isn’t that structured. We aren’t making management fees, though, so I [will] share the carry with [everyone who helps me]. We want everyone’s interests aligned, so that if there’s a mediocre deal, we don’t do it.

By the way, we’re always looking for new recruits, if you can let your readers know.

How would you describe your pacing, and what size checks are you writing right now?

We did smaller deals at first, a couple hundred thousand dollars here and there to see how it works. Then we moved from $200,000 to $500,000 and now we’re writing checks of $1 million. Six months ago, we’d do a deal every two months and in October, we’ve already done three deals, two of which were $1 million, so the pace seems to be getting faster every month.

The public market has been been volatile. Meanwhile, unlike a traditional fund’s investors, Syndicate investors can opt out of deals or opt out entirely. You must be seeing some kind of pullback.

I’m not. The market was up last week; it was down the week before. You have to remember that AngelList is growing at a rapid rate itself, so every day, new people are joining the crowd, and a rising tide raises all boats. Even if my boat is a little leaky, I don’t notice it because I’m [moving up] and not down.

You’ve said before that the beauty of AngelList for an investor like yourself is not having to deal with attorneys and LPs. AngelList sets up the funds; it handles customer accounting. But AngelList has a lot of out-of-pocket fees as a result, something like $12,000 per fund, cofounder Naval Ravikant told me last year. Do you worry that it’s not sustainable, given that AngelList is not yet producing revenue?

No. Putting together an LLC is a bunch of legal docs. Costs are higher now because there are probably 75 different permutations of deal structures or term sheets, but at some point, they’ll have a template for every one of the damn things and it will be cheap. More and more of this will get automated – reporting, tax [considerations]. I’m really not sure why anyone would start a micro fund in 2014 when they could start a Syndicate for zero dollars instead and not spend a lot of time doing the annual accounting or figuring out the legal structure of this stuff.

*The original version of this story misidentified Penchina’s investment as in Contractually, a different startup.

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Elad Gil on the Angel Investing Lifecycle

By Semil Shah

Elad Gil is like a lot like other smart, accomplished Silicon Valley angel investors. His credentials include an advanced degree from M.I.T. He has worked at both small and big companies, from Plaxo to Google (where the mobile wireless team he started acquired Android). He’s also an entrepreneur himself, starting Mixer Labs, a service that helped developers build geo-location apps.

When Twitter acquired the company in 2009, Gil stayed on as a Twitter VP for two-and-a-half years, becoming an active angel investor — or a “startup helper,” as he describes himself on LinkedIn — more than two years ago. Unlike a lot of his peers, Gil is content to remain an angel investor for the foreseeable future, too, for a variety of reasons. We’ll delve into some of them early next week. In the meantime, here’s Gil on why angel investors tend to pursue certain, predictable trajectories.

There aren’t many true individual angels left. Why is that?

It seems like there is a natural lifecycle to individual angel investors, especially if they stop being operators. At some point many individual angels who were successful investing chose one of two paths — raise your own fund, or join a traditional venture firm. This isn’t something I’m planning on, but many have, and I think this transition has a few drivers:

1.) People want leverage on time or run out of capital. If you’re an individual angel writing small checks, eventually you may realize you are investing an enormous amount of time working hard for your portfolio companies. But you may not have a lot of skin in the game relative to other, less engaged investors. In my own case, there are a number of companies I am involved with where I have put in a lot more work then people with 10X or even 100X the financial position. At some point, angels may want to have more leverage on their time. If an angel is putting in so much work, why not also participate more in the upside by investing a larger amount? Or, an angel may want to expand their role to be able to lead seed or larger rounds and to set terms. This is actually starting to be enabled by AngelList.

Alternatively, you may at some point tap out financially or be too illiquid to keep investing your own money. This supposedly happened to Elon Musk for a period when he had all his capital tied up in SpaceX and Tesla and neither company was public. So raising a fund or joining a VC is a way to keep investing without tying up all your own cash.

2.) People want to learn or do something new. Some institutional venture capitalists have a really strong process or perspective on investing. Benchmark and Sequoia are two that come to mind. Some individual angels feel they have a lot to learn at these institutions. [It’s also the case] that many individual angels don’t take board seats or get involved with other aspects of a company, and joining a traditional venture firm allows them to do things they have not done before.

3.) People stop operating. Running a company can be exhausting. Many individual angels are often former operators. Once an entrepreneur or executive gives up their day job, they may want to still to be involved with startups day to day. A firm — either their own or one they join — provides them with a regular outlet and a job without the soul-crushing 24/7 grind of an operating role.

4.) People get lonely. It’s nice to have other people to bounce ideas off of. As an individual angel, if you spend time bouncing investment ideas off of other angels, you may be violating the confidentiality of the startup — or you may fall into group think. An institution provides people with a framework for tapping into other folks regularly and having a firm and culture to be part of. (That said, I hear that many VCs feel they are “lone wolves” and the job of the VC is not one where you spend a lot of time with your partners. I guess all things are relative.)

5.) Prestige. Some people are really attracted the societal prestige associated with being a venture capitalist. It is sort of like the people who join Goldman Sachs straight out of school so they can brag about it to their friends.

One of the cool things about Silicon Valley is the ongoing cycle of capital and talent. The pool of individual angels keeps getting renewed and refreshed as entrepreneurs or early hires at breakout companies make enough money to start angel investing. A small handful of these folks end up either generating a sizable brand or a good return and reputation, many of whom then transition into VC. (Of course many individual angels end up loosing money and dropping out before building a reputation, so there is also the “dark side” of being an angel).

Y Combinator has its own interesting version of this, where a number of YC alumni cycle back as partners at YC and/or raise their own funds. So YC is functioning as a farm system for its own investors, which reenforces it.

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The Case for More Transparency on AngelList

Last week, AngelList, the hugely popular platform that connects entrepreneurs with accredited investors, introduced what many have heralded as a game-changing new twist to its business. Called its Syndicate program, AngelList now allows angel investors to syndicate investments themselves, work for which they will receive carry. (An angel who syndicates a deal will earn 15 percent of any upside, while AngelList will collect 5 percent.)

If some of these syndicates involve the same groups of investors, and those groups morph into venture funds, don’t be surprised. As some angels have said on social media since AngelList announced its new program, it might allow many of the “best” angels to strengthen their brands and, potentially, move up the investing food chain.

And there’s no reason why angels shouldn’t be able to extract more leverage from their investments, particularly if they’re willing to manage a big syndicate or serve on a company’s board.

Still, while the syndicate program seems like a well-considered start, AngelList might think about providing some public accounting of the track records of its various syndicate leaders. As the gossip site Valleywag pointed out in its inimitable way yesterday, without a structure that manages to disclose something about the investors’ IRRs, the program seems likely to degenerate into a popularity contest. Much of AngelList’s matchmaking still rests on “social proof,” which isn’t quite the same thing as cash on cash returns.

Last week, for example, author and entrepreneur Tim Ferriss raised $350,000 for a logistics startup called Shyp in 53 minutes. Ferriss’ fundraising prowess is impressive, and nobody is prejudging Shyp, but it’s hard not to be skeptical about investments that are closed in less than an hour.

Most VCs wouldn’t wish their fundraising process on their worst enemy, but it does help them demonstrate their qualifications and commitment to the investment process to both their investors and their fellow partners. Through vetting their PPMs with Cambridge Associates, undergoing lengthy and arduous roadshows with family offices and pension funds, and sacrificing a large amount of their own capital – typically 3 percent – in order to launch their funds, venture investors let it all hang out. (Yes, there are top-tier funds that are able to raise funds by picking up the phone a few times, but that’s the exception not the norm.) By the time a firm has raised a fund, they have left a trail of evidence testifying to the work they will put into an investment. Can the same be said of Ferriss?

Obviously, AngelList doesn’t need to replicate the venture business – it’s large enough as it is. But in the interests of both entrepreneurs and the syndicates themselves, it might be time for AngelList to adopt an objective ratings process, one that would provide everyone with more insight into an investor’s qualifications than just his or her Klout score. No doubt it would make an already promising initiative even better.

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Angels

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