Deena Varshavskaya got funding for her start-up, Wanelo, by posting her idea on AngelList, which connects entrepreneurs and investors.(Photo: Martin E. Klimek for USA TODAY)
Deena Varshavskaya had a hotter-than-hot idea for a start-up business, but she didn't have the dough to do much about it.
she posted her idea on AngelList, a website that connects entrepreneurs
with deep-pocketed angel investors willing to financially back folks
like her. These investors - who like to seed start-ups - typically have
more than $1 million in the bank or make more than $200,000 a year.
idea: a Pinterest-like social-media outlet where users create
collections of products they like from online stores. Within two weeks,
her first potential investor offered a hefty $500,000. But she turned it
down because she was receiving even better offers from others around
the world.Terms of investment from an angel typically vary in terms of
stock sold, length of investment and control of the company between
entrepreneur and investor.
"Instantly we started getting e-mails
from investors, people that I've read about, people that I've heard
about," says Varshavskaya, whose site, Wanelo, now has more than 1.5
million users. She ended up accepting offers from 15 investors who were
willing to give her the control she wanted of her company. "It was crazy
As technological advances lower both the difficulty and overhead of
starting a company, entrepreneurs have become numerous and competition
for funding ruthless. Online services such as AngelList allow
entrepreneurs to connect with angel investors they would never otherwise
meet. Last year, some 66,230 companies received $22.5 billion through
angel investors, up from 36,000 receiving $15.7 billion in 2002,
according to the Center for Venture Research at the University of New
Hampshire. Since it was founded in 2010, more than 500 companies have
found funding through AngelList.
These websites work like online
dating sites. Entrepreneurs create profiles about them and their
company, and angel investors cruise the site looking for promising
start-ups. Entrepreneurs can also search investor profiles to see who's
funded start-ups similar to theirs.
Just like online dating,
though, an online profile is no magic bullet for success. Even AngelList
founder Naval Ravikant says most angel investors need to get to know a
company's founder or founders in person, and investors want
recommendations from a trusted source before they shell out. AngelList
is great for an initial introduction, though.
"We're bringing the
Silicon Valley ecosystem online and making it available to the rest of
the world," says Ravikant, who is an angel investor himself, in addition
to being an entrepreneur.
The old system
investors didn't used to be this easy, says David Rose, CEO of Gust, an
online service that connects entrepreneurs to angel groups,
organizations of angel investors who pool their money and share
Before services such as AngelList or Gust,
entrepreneurs usually had to know angel investors or be introduced by a
mutual acquaintance. Finding funding had more to do with who you knew
than your company's potential, says Rose.
"How do you find a
random rich person who is that teeny-weeny itsy-bitsy percentage of
people who's willing to bet on entrepreneurs?" he says. "There was no
industry, no structure, not anything. It was a matter of who you bumped
though Vic Sarjoo, 36, had been both an angel investor and entrepreneur
since he started a hedge fund at age 22, he says Gust reduced the time
it would have taken him to find investors for his online music-licensing
service, Sir Groovy, by directing him to angels who invested in
companies like his.
"Gust allowed us, Sir Groovy, to pinpoint all
the top investors in entertainment technology," says Sarjoo. "Those
investors are receptive, they understand our business, they understand
the problems we're solving."
Investors like being able to find start-ups online almost as much as entrepreneurs like getting funding.
Triest, chief of Detroit-based Ludlow Ventures, says half his portfolio
came from AngelList, which lets him connect with start-ups across the
"It's allowed me to operate from Detroit or have access
as if I were in the Valley or on the East Coast or wherever the hotbed
of start-ups happens to be," says Triest, who regularly surfs AngelList
for tech start-up profiles. "While browsing through the companies, when I
come upon a company that's so interesting I might want to invest in it,
all I have to do is literally press a button that says, 'Get intro'd.' "
Wanelo is based in San Francisco, Varshavskaya says she was contacted
by investors all over the world from Europe to South Africa. After
putting her profile on AngelList in July 2011, she'd finished her first
round of funding by the end of the year, timing that might have been
impossible without AngelList.
"I probably would have been able to
do it on my own, but it probably would have taken a significantly longer
time," she says. "I cannot imagine how people did it without