Seed investing moves online: VCJ

06042014seedinvesting

AngelList has sparked plenty of controversy in its four short years.

According to the likes of Union Square VenturesFred Wilson, Homebrew’s Hunter Walk and angel Jason Calacanis, it will either topple venture by commoditizing it, pit angel against angel, or place insurmountable new duties on the shoulders of investment hobbyists learning to lead deals.

Other less vocal general partners dismiss it as more chaos than collaboration. Some spend so little time on it they don’t yet understand its importance.

It is not hard to see who is right. There is little doubt AngelList is a disruptive force with the potential to transform seed and early-stage investing over the next several years. But it will do so in ways not usually boldfaced on blogs or prophesied on conference panels.

In the most basic sense, it is a crowdfunding seed marketplace connecting investors, entrepreneurs and syndicates online in real time, opening access to capital, improving deal efficiency and democratizing investing by enabling ad-hoc collections of angels to compete for deals with established off-site funds. Pretty powerful, right?

That’s only the start. Add to that the transparency the site provides and you have a mechanism for online portfolio tracking, deal sourcing, investor research, measuring deal buzz, and sector and investment trend analysis using a rich database of aspiring companies.

Suddenly powerful becomes useful. The site is no longer just a social graph for investing, but a knowledge tool.

Now unbundle management fees from carry, as syndicates do since they don’t charge fees, and provide enough organization to attract institutional investors, and you have a potential transformation of the economics of the industry.

Sure, there are plenty of hurdles ahead. Deal quality is one issue.

The forum is criticized for attracting a second tier of companies, especially outside such popular sectors as the consumer Internet.

AngelList also has yet to show that it can generate active, hands-on deal leads to sit on boards, participate with governance and contribute to hiring decisions—all necessary ingredients before it can routinely complete A and perhaps B rounds.

Another open question is whether gut-feel investing will take a back seat to more deliberate due diligence, with founder meetings and trusted off-line deal sourcing networks integrated with online decision making. Many top VCs already perform rigorous due diligence of their AngelList investments, but not everyone does.

Finally, the site needs to show it can reach out more effectively beyond Silicon Valley, where a good share of its companies appear to originate.

Still, online investing is not a trend to ignore. As more and more money moves online, as it is almost certain to do, the investment landscape will change. Deal sourcing and syndicate building may depend on how well GPs adapt to a combined offline-online existence.

So far, site co-founder Naval Ravikant has staked out a careful stance on the site’s potential for changing seed venture.

“I don’t think it disrupts it,” he said. “It augments it.”

This story first appeared in Reuters Venture Capital Journal. Subscribers can read the original story here. To subscribe to VCJ and other venture-related research products, click here for the Marketplace.

Photo courtesy of Shutterstock

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