Fundraising Hacks: Interview with Naval Ravikant of AngelList

Fundraising Hacks: Interview with Naval Ravikant of AngelList

This is the first of a multi-part blog post I'll be writing over the next week that will chronicle my experience raising a $1MM round for AppMakr.

I'll be sharing my learning and experiences as a first-time fundraiser out here in the Valley. My goal is to provide pragmatic tips to help other entrepreneurs understand the process and short-cut the time fundraising typically takes. Think of it as download that condenses 4 months of learning into a series of blogs you can read in an hour.

Be sure to subscribe to the blog if you'd like to get those future posts. Also, we're throwing a party to thank the investors who made this round possible, and celebrating the fact that over 1,000,000 people have now used apps made through AppMakr. RSVP here to join us on 10/28 at 6:30pm. You'll meet Mitch Kapor, George Zachary, Pietro Dova, Ben Narasin and other AppMakr investors.

For this first post, I scored an interview with Naval Ravikant, one of the co-founders of VentureHacks, which runs AngelList. AppMakr went through AngelList, and intros from AngelList were responsible for 54.5% ($545k) of the $1MM we raised. Needless to say, these guys rock. I'd also like to give a huge shout-out to my brother Sam Odio and amazing entrepreneur James Hong, both of whom intro'd me to Nivi & Naval of AngelList at the beginning of our fundraising process.

Here's the video with Naval:

Here's a transcript of the video: (learn how & why I do this)

Fundraising Hacks: Interview with Naval Ravikant of AngelList Posted 10.21.2010 on ravikant-of-angellist/ Length 34:18 Conversation is between Naval Ravikant, Co-founder of Venture Hacks, which runs AngelList and Daniel Ruben Odio-Perez, Co-founder and CEO, PointAbout Inc. the creators of

Naval- Entrepreneurs, even though they are inherently smart and understand the concepts of markets, efficient markets and market pricing, they still tend to get seduced by kind of that individual investor who's saying, don't worry, I will give you the best deal, like oh I want you to go with me.

Daniel- Well yeah, it's money in front of them, right?

Naval- That's right.

Daniel- Alright, to start, I'm here with Naval of AngelList, and this is Daniel (speaking), I'm doing a blog on what it's been like to raise money and AngelList has been the most valuable resource that we have come across, it's been amazing. So I asked Naval if he would spend a few minutes just talking about what AngelList is and what they are doing with it. I would love to expand that into what kind of trends that you're seeing and advice that you have for people who haven't yet gone through it.

Naval- Thanks.

Daniel- Thank you for being here.

Naval- Thank you, so AngelList is an open free service that we launched from our Venture Hacks blog about six months ago. It is a free way for start-ups to get efficiently in touch with a lot of investors at once and to take control of their financing. Our mission is to basically help every worthy start-up get funded. All you have to do is come in and fill out a simple application, you can choose which angel investors you go to, we now have almost 450 on the list.

Daniel- Wow.

Naval- If you are a really high quality application, as determined by us or by the community, the angel investors can vote it up. We then email it to all of their inboxes and we try to get you a large number of highly qualified introductions. It's a passive channel, like Twitter, so someone doesn't have to take a meeting with you unless they are genuinely interested. There is no social pressure to do so. The meetings do convert at a very high rate into investments.

Daniel- Alright, but lets step back for a second.

Naval- Sure.

Daniel- This is the most altruistic thing I think I have seen in the venture community. Who is we and how did you get here to be doing this, why are you doing this? It's such a capitalistic world and it seems like you're doing this amazing thing, why are you guys doing it?

Naval- Well, we actually started our blog Venture Hacks three years ago, and we didn't make any money off that either. We did that mostly to educate entrepreneurs in the game through venture capitol and we were helping to negotiate terms the terms sheets. What we really got asked is not how I negotiate the term sheets but how do I get a term sheet. So we realized that we were solving the wrong problem. We kind of had to do AngelList as an offshoot of having done Venture Hacks. Why were we doing it- because what matters in this industry is reputation and brand. People want to raise money and work with the best people. I am an investor, I go out there and I invest money from a fund and personally. So that right there is worth it for me, if it makes it, the entrepreneurs know that I have helped them. Then that makes it more likely that they are going to want to include me when they are raising around financing.

Daniel- So that lets you see deals.

Naval- Exactly.

Daniel- It's a phenomenal service you're providing, but like the business model, if you can call it that, is that it keeps you close.

Naval- There is no business model at this point, but you can think of it as, you know why is that Tech Mine works on CVC documents, or why is it that Fred Wilson writes his AVC blog. So it is kind of the same sets of things. The same sets of drivers. Honestly, what I love about AngelList is that for the first time in my life I've gotten to build a project, work with many companies and do something that is socially useful. When the intersection of those three things line up in your life then you cant ignore it.

Daniel- That's cool

Naval- So for me, it's a labor of love.

Daniel- So this is you and Nivi, lets frame by frame here. What is Nivis background?

Naval- Nivi was the main author of Venture Hacks. He was the founder of Songbird before that. He was went to M.I.T. He is passionate about learning and the processes of creating good start-ups. He is more of a professor type that he learns these things and he likes to share them. Venture Hacks became his pulpit to do that. AngelList is a productized version of Venture Hacks.

Daniel- Our office is next to you guys and I see you guys in there with developers. It seems like you guys are up to a lot of stuff. What are you up to? Are you guys building out more structure for AngelList, or what is coming up?

Naval- We have two developers on staff. They are young, hard working, great guys who also want to improve the community with us. We are hacking on code, and allowing start-ups to select which Angels they go to and allowing the Angels to efficiently process the deal flow. To vote it up, vote it down to take introductions, to track the data around who are the active investors, to build up the investor profiles to do the automation's of introductions. We do an enormous amount of volume now we are probably right now, getting one start-up funded per day. That's funded, not applying because that number is far greater. We are also on-boarding a couple of Angels everyday now into the system. You have to automate it at that point, you have to build some code around the community. In an ideal world we would finish the coding job in a couple of months. The it would sort of run itself, the community would be putting in companies, sharing companies, putting feedback on companies, voting up companies and doing investments. We just want to make that whole introduction, finding investors, taking control of financing later, very efficient. Today if you are an entrepreneur and you want to host your code somewhere, you don't buy servers and go to a colo and stick them in somewhere.

Daniel- Or use Amazon

Naval- Right, you would use Amazon. Or if you want to get advertising, you want to get users to your site, you don't buy an ad buying agency and you don't build creative or go out and buy a billboard, you go into Google and buy an adword. So the same way if you want to raise funding today, you could if you wanted to go to a meeting and they introduce you to someone else and do a meeting and after three to six months you've got one or two term sheets. Or you could just go on AngelList fill out a form and decide who you want to go to and have 20 or 30 qualified leads in your inbox in the next two days.

Daniel- Alright, lets really dig into that because right before we started the recording you were telling me about this scenario where an entrepreneur who is ready to go AngelList, gets convinced by an investor to not to use AngelList, can you talk through that?

Naval- You always have to be careful who you get advice from because it is often very self serving. Mine is very self serving too, which is, I am the believer in markets and efficient markets. So if you are going to sell your spare car then you are going to put it on Craigslist. If you are going to sell a piece of clothing you don't want then you would put it on Ebay. You are gonna get it out in the market, you are going to get it out in the market in front of as many participants as possible. But there is this feeling among a lot of people that well, that you should go with the first great investor that you find or term sheets. Very often with an entrepreneur, you'll meet someone that likes what you are doing and they will say, alright that's it, you don't need to go talk anyone else, I have it from here. But the truth is, its a market, how do you know what you are worth, how do you know what your price is, how do you know you are getting good terms, how do you know you are getting the best people that you possibly can. That's why AngelList exists, so you can take control of your financing. We've got 450 Angels on there including Marc Andreessen, Mike Maples and Aydin Senkut some of the top names. So you can go on there and pick who you want to go to, you can go to the best people. In terms of a fair evaluation, you going to get a lot of bits. Roughly half the companies that we have on AngelList are over subscribed. They have not had room for all the investors. The companies definitely had the ability to do market pricing. We have more data than anyone else on who's investing, what evaluations are they investing at and what the fair price for a company is. We can help you with that on the negotiations, term sheets and the price. There is definitely an incentive on the part of some investors who are scared they are going to lose the deal or who are trying to get it at a below market price to keep you off the list. But we think that if you are a user of efficient markets in any other place in your life and you know the benefits that markets bring then you should on AngelList.

Daniel- Lets come back to that but first I would like to understand how are guys keeping the quality up, because I think the message to the entrepreneurs is probably, don't go out to that list, you don't want to be using this list. You don't want to be using this list with all these low quality people on it. The fact is, I have found out is that AngelList, personally is really high quality like you're mentioning these people who do in fact look at these and ask for intros to the top investors as you grow. Do you screen the Angels, do you make sure they are not just there on the list because it's the cool thing to do? What processes do you have for that?

Naval- First of all, all of the top investors on the list. I actually don't even know one top investors that is not on the list SV Angel, Ram Shriram and are on there top VP's from Google are on there, really high quality people are on there as well as some of the Facebook guys are on there. Number one, early on we make sure the quality is there, the highest quality is what forms the super Angel list. Second is, if you don't want to go to the Angel because you don't think they are high quality enough or you wouldn't take their money or they are a competitor, you can leave them off the distribution. We have tools that allow you to say who you want to go to.

Daniel- This is part of the productizing?

Naval- Exactly, you went out before that tool, but we are working on a tool right now that looks a lot like the Facebook friend picker so you can go in and pick who you want. Thirdly, you can do it based on statistics, so you can I only want to go to actual VC's because we have about 140 VC's on the list now. Or I only want to go to people who are investing their own money, true Angels as opposed to seed funds or Super Angles. You can also say I only want to go to people based in New York except for those two guys who I think are investors in a competitor. We do qualify the Angels heavily, the base line is we have to ensure that they are base line accredited investors, that's the law. Then beyond that we make sure they have done at least three high quality investments, that they've done them as stand alone investments, not taken advisory shares, not done business advisement deals, they are going to do one or two more investments in the coming year, they are not going to sell services in the start-up and at least three other investors that are already on the list will vouch for them. We run that whole process with the Angel.

Daniel- Social proof is a big part of both AngelList and I know that you request social proof. What kind of social proof do you have as an entrepreneur do you have which to be pitched to the list? I've seen what Facebook is doing with quantifying social relationships. It's something that you've really taken to a very deep level. It seems to be very important to you guys.

Naval- Yes, so how do investors make decisions about companies. I would say that they are four key things that they look at in order of importance. Number one is traction, which is just how well is a company doing in the market place. You can think of that as social proof of your customers. The second thing is what we call social proof, what really is social proof from other investors and from advisers. Who are the other knowledgeable people that you've gotten involved with the company. The third would be the product, which is your own assessment, the investors assortment. They look at the product, they play with it, they see how good it is. Then finally, is the team. What is the reputation of the team, what have they done before? So those are the four we look at. Social proof ends up being a very important one I'd say, that is more easily attainable than traction. Traction is the hardest thing to get, but once you have traction, everyone wants to be in on your company. Generally, we look for companies that three of these four criteria in order before we email them out to the list. We can always put them out on the site, investors can find them, if they are interested then they can take early meetings. But if you rally want to get your financing done then you really want to get three of those four nailed down.

Daniel- You have a lot of resources for that. I have seen that you have the Venture Hacks bible that is amazing and a lot of other things. Those are all on your site for download or purchase.

Naval- They are all listed individually on the site for free but it you want o download them all in a nice consolidated PDF, there is a small charge for that. If you see it, and you don't want to pay the $10.00 just email me and I will give it to you. You can also just apply to AngelList and very often if you are an applicant then we will just give it to you as well. All the resources are there, at this point all of the information is out there in overwhelming force. Now the question is just sorting through it and doing it in an intelligent way. One of the interesting things is we get companies applying not that they necessarily want to raise money but because they want to see what the application process is and what it looks like. The application form itself is a distillation of the stuff that we are espousing so we always say- what is your high concept pitch. It's snakes on a plane, it's Flickr for video, it's hot or not for mobile. A lot of the stuff that we have been educating people on is money. We just distill down to into this form.

Daniel- Lets go back to this question, of the point that you were raising. If you are an investor meeting with an entrepreneur who says don't meet with those guys, just come to me. What response would you recommend that the entrepreneur give to not piss off the investor and still get the value of AngelList.

Naval- Even if you want that investors party around, which is absolutely understandable they believe in you early and has faith in the company. It is still very hard to get them to make a decision on a time table. If nothing else, them seeing you go out on AngelList will make them move faster because they know there is no inherent time limit. Companies that go through AngelList get financing very quickly, they are usually done with in weeks as opposed to months that it takes to really go out there. I would say our biggest advantage is that we can get you financing much faster than you would otherwise. Second, then of course giving you a broader range of people to pick from to let into your round as opposed to just the few that you happen to know. I guess my response to that investor would be we definitely want you on board, you seem like a great person. We are still going to go do some introductions with AngelList either select or who go to or go to all because there are other people that we want. We also want to get more information of what market terms are and what we are worth.

Daniel- That kind of gets me into something that I would love to get your prospective on. I am new to the Valley, I am from DC it is kind of like being the new kid at the high school. There is this culture out here that is a very defined culture and it's very non-obvious. One thing is, there is this level of politeness, these investors are pros and great at saying no in really polite ways. I think for entrepreneurs it can be very misleading, like oh we want to look at you in the A round. There are also things like, what might piss an investor off. One question would be, not knowing the culture would be it sounds like you are saying, well if you do that it is acceptable, you know it's not going to upset an investor.

Naval- Well first of all, if it upsets an investor then you already know you shouldn't be dealing with that investor. If you can't be honest with them, then do you really want to marry them in your start-up and then not be able to get rid of them later on? As an investor you can't divorce them since they invested in your company. However they treat you up front is going to be 10 times harder to deal with later on. If an investor starts giving you tough conversation about terms or if they are hard to get a hold especially before financing, if they will not give you a straight answer quickly and easily, it is going to be much harder after the money is in. The reasons to behave well are gone. By the way, if the investor says anything other than yes, that means no.

Daniel- That is a really huge point right there. So what about, I am not sure yet, or ping me in two weeks after you have some other people involved.

Naval- Those are really good reasons to go to AngelList because that investor is basically saying I can't decide on my own, I need social proof. There are companies that we've sent out to AngelList that are great companies but inherently because of what they are trying is so big and so audacious that they could have never gotten funded without everyone moving at once. It's like jumping off a cliff, its a really scary thing to try but if this company works then it is going to be huge, who else is with me. They all kind of have to hold hands and jump off the cliff together. Social Proof, like or not is part of the funding atmosphere. As a entrepreneur, you have to learn how to crack that. The old technique used to be, line up your all V's within two weeks, move as quickly as possible have 30 with two weeks. That is really hard to do, and that's what AngelList does, we make that really is to do.

Daniel- That is really hard to gather of all those resources to do that.

Naval- Investors will always say come back later, more social proof, come back in the A, they just don't want to say no. Let's face it, you don't want to be known as the guy that said no to Google. David Cowan from Bessemers is a very intellectually honest guy because he cracks when he calls it a anti-portfolio, which is all the companies that they turned down which moved on and turned out to be huge hits. He publishes it and I think that is amazing. Most investors don't do that, they don't want to have to tell their limited partners or their friends, or their other investors that they passed on this company. Everyone has passed on a great company if you've been in the business long enough. It is just statistically likely that it has happened. You also want to keep your options open, you never know what is going to change. Every company that looks good now, look really ugly at some point. You just want to keep your options open to keep coming back in. One of the things we are enabling on AngelList is the continuous is this sort of living updated applications. There should be no concept of I am raising or I am not raising. It should just be a open flowing system and I think you will start seeing the industry move into that in the next few years.

Daniel- Can we talk a bit more about that because one of the things that we did, I think wrong is we went out to the top VC's first. Well maybe this wasn't wrong but I would like to hear prospective but we refined our strategy over the summer basically as we were pitching. We have hit on some things that are exciting investors a lot but we already had those meetings, we have burned that powder already on the big VC's up front. Do you recommend a certain path or process starting with maybe the ones that you don't care about as much. It seems inevitable that as you pitch you are going to figure things out, I don't think that is realistic to say figure everything out before you pitch or maybe I am wrong. Tell me, what is the best way to handle that and how does a start-up go back to a company from a month ago and say we have this new thing. Can they do that, is there a way to do that on AngelList or is that important?

Naval- So there is a learning curve to this like there is everything else. You want to start learning as quickly as possible. You want to get as much data as possible. There are multiple ways to try it, one is you can go and find an investor on your own and then come onto AngelList with that social proof and have gotten that education. You could go out to a subset of the people on AngelList, you could say I want to go to the Angels first and then I will go to the VC's later. Or you could say I want to go to these 20 Angels first and I will go to these next 20 later. You could go out on AngelList and then 3 months later go out AngelList again, but this time you have changed your business plan or you have the social proof of a new investor. We actually go out of our way to help you highlight those differences.

Daniel- Which is what you guys did for us, which has been amazing. I think the second time we went out George Zachary is the one who put us on AngelList. I guess you have the ability for one of the investors to send the company through.

Naval- Exactly.

Daniel- We got a lot of great investors.

Naval- Right, an investor can share the deal. Actually in your case, you didn't even go back out to the people from before we just sent you to new people. AngelList is growing quickly not that there is always a big batch of new people coming. Now if you wanted we could actually take the initial social proof and send you back out to the old people. We have done that before as well to close financing through companies. It actually works quite well. I think investors don't want to see the same companies in the same stage again but if you point out to them hey this is what has changed and I have made progress they like to see that. One of the hardest things about being in an investor is you put your money in without knowing whether this team is really good and is going to execute. So if you see a team every month and every month something has moved forward than you get a comfort with the momentum.

Daniel- Is that something that you are working to productize? I don't imagine that you can do everything without feature creep and maybe the answer is no but. Is there a way that you are working so an investor can see progress? Or is that the entrepreneurs responsibility to say we have done X,Y,Z since the last we spoke.

Naval- It's on our to do list. It is a long to do list.

Daniel- What about other tips for entrepreneurs just culturally out here in the Valley. Like how to dress, or how to act, should you get dressed up or should you not get dressed up? It seems like there is almost this culture where you should show up wearing your t-shirt and hipster shoes kind of thing.

Naval- I would say try and avoid MBA's in suits. You don't want to come across and the fresh faced MBA grad wearing a tie, it just looks awkward.

Daniel- Being from the East Coast though, that's very usual out there.

Naval- That is not the way to do it out here. Just be casual however you dress to go to work. I am not sure I would show up dressed like a skate rat although that actually works in some circles and if you are a technical guy it may actually lend you creditability. As opposed to it hurting. Just be comfortable be casual. Silicon Valley the good news is just by everything that looks good goes on certain mentality or who you know as so on. It is a meritocracy nothing succeeds like you product and your intelligence and knowing what you are talking about. The best investors will see right past any front that you want to throw up. In fact, they are highly sensitive to people throwing up fronts. So I would say just be as comfortable as possible.

Daniel- What about convertible notes versus seeds . (22:01) We did a convertible note but I don't think I would do it again. I think I would try do a price to equity round. We have a lot of investors and again maybe this is the politeness. I can never, are they just being polite and looking for a reason not to say yes but we had a number of people say that they don't like notes that they would've participated if it were in an equity round. Should we have stopped the note right then and started a price round and not filled the note up is there a stigma to not filling the note but then doing a price round?

Naval- That is a good question. There was a day in age when notes were clearly superior to equity for start-ups. That point has tipped. The reason is that notes used to be very friendly terms, you were in control of your company and equity rounds were very controlling. But that has changed.

Daniel- Changed in the last?

Naval- Changed in the last year to two years. Also, equity rounds used to be very expensive. Notes were cheap, notes were seen as faster not true anymore either. That happened because things like series seeds came along, which are very simple equity rounds that don't have control.

Daniel- That's series seed, S-E-E-D, not like C, like A,B,C

Naval- Correct, seed. Done by Ted Wang over at Fenwick who has done an incredible job. Its at So very simple equity rounds came along, also investors realized that there were problems with notes. If you are a professional investor, your capital gains clock doesn't start ticking until the note conversed equity. So it the company sells within a year or two you have to pay income tax which is pretty brutal. Especially in California. On top of it there are disadvantages in notes for entrepreneurs, which is to essentially given the investors a full ratchet anit-dilution until the note converts. So if you merge the company, you bring in a co-founder you are taking all of that dilution and the investor doesn't feel any of it. Your incentives then don't quite line up. Also, a lot of people who have notes tend to do uncapped notes or try to do uncapped notes, that's non-economic for the investor.

Daniel- Doesn't seem like it is even possible. In the Valley I hear, in the East Coast nobody mentioned caps at all not even once. On the West Coast everybody from the first day I was here mentioned caps.

Naval- Right, because they don't want to invest in your company just to get 10% return when you sell to Google.

Daniel- Right

Naval- It is not an economic outcome for them. I think that has turned and I do think now there are enough investors who will only do equity rounds that you can get more money if you do an equity round. You can do a series seed which is very cheap and is very entrepreneur friendly. On the flip side there are a lot of companies that will only do notes.

Daniel- Oh really?

Naval- So there is a bit of a battle going on. For the white collar companies for example, pretty much only do notes. They are sophisticated and hot and up companies that the investors go in on notes. I don't think there is a single right or wrong answer but I would say that the trend line moves sharply towards notes about two years ago. I think that its started to move back towards equity rounds. The one advantage that notes still have in peoples minds in the perceived advantage is that you can leave the note open so you can kind of bring in people later. You can keep raising the price slide because different people have different prices different accounts. But I think even the equity rounds will start accommodating that it's just one simple edit on series seed to make it stay open for 180 days and to allow different people to have different pricing.

Daniel- I've started to hear about equity rounds with rolling closes. Is that something that you are seeing?

Naval- Very common.

Daniel- Very common, now. What about the importance of actually being in the Valley? We moved from DC to San Francisco it seemed like the right place to be. Do you get a lot of activity outside of Silicon Valley from AngelList?

Naval- Roughly half the companies we have funded on AngelList are outside of Silicon Valley. But, they are either in New York, Austin, Seattle or they are willing to move to Silicon Valley. Or they have traction where they are, so for example we just recently got two Canadian companies funded, but they both have traction in their local markets.

Daniel- So should a company move to the Valley or does it depend on the company? Or is there just a general answer for that?

Naval- If you are a brand new start-up with no traction to show and if you do not have the brand whether its tech stars or some local organization that's internationally known behind you then yes, it makes sense to move. Not necessarily to the Valley but to a hub. Today I would rank the hub as 1. Silicon Valley, 2. New York, I think New York is very viable. The start-up scene there has really exploded over the last two years.

Daniel- Do you have any other thoughts on the whole Angel versus VC battle? Paul Graham was talking about it recently, anything that hasn't already been said?

Naval- It is a question of degrees, to me the distinction between the Angels and VC's is not about the amount of capital that they have. It's not about how they brand themselves. It's about do they invest in entrepreneurs friendly terms or not. The two definitions for me there are control issues Angels don't need a board seat, they don't try to control your M&A , they don't control as much of your investing as stuff like that. They don't insist on equity they can do notes. That is one distinction, the other is, are the they willing to share the round or not. VC's will very often say well have a minimum ownership of 20%. Or we are only going to share with this one other person we care about. Where the Angels tend not to have minimum ownership and are willing to share the deal with other Angels. To me Angel versus venture is about behavior it's not about who invested. I think that is point that is always lost in this debate it always seems to be about are you investing your own money or other peoples money and how much are you putting in. It's really about terms and sharing. There are VC's out there like True Ventures that has really built a brand in this regard, as has Andreessen Horwitz where they are extremely entrepreneur friendly the terms are incredibly entrepreneur friendly and they are always happy to share with other investors. Then there are Angels who will walk in and say I want to control 80% of this round and here are the terms and I want to be able to board and you are going to this, this and this as I say. Those people are not Angels, they are behaving more like traditional old school VC's. It's all in the behavior not in the amount.

Daniel- What are some entrepreneurs friendly terms like for an Angel or for a VC. Whats a standard equity stake range, or other things that identify terms being entrepreneur friendly or not. What are the preferences, liquidation preferences and stuff like that.

Naval- The number one for me is board control. Which is, do they want to be on the board and if they want to be on the board are they trying to do an even board to control every company early on. If the investors are buying 20% of your company they should have 20% of the board. They shouldn't have 50% of the boards seats. So that is the single clear easy one. Second is if they deviate from standard terms in terms of anti-delusion or liquidation preference or vesting in any way. All of that is on Venture Hacks investors all this novel self serving arguments, my favorite one is its standard. Well if you really want to know what standard, you can go and look it up on Venture Hacks or you can go give the series seed documents. I just got an email from an entrepreneur the other day where the VC's argued with him that there is a certain acceleration cause on exit that is standard, and he said no value added investor will accept otherwise. I said ha, go to what is built in there contradicts him directly. 80% or more of the Angels VC's who do early stage investing will accept a series seed. I think that's another way to find entrepreneur friendly terms. Third is, I wouldn't sell more than 20 , MAX 25% of my company in the first round. I consider 25 in the upper bound. Any investor who is basically muscling in to own 35, 40, 50% of your company is not used to the Silicon Valley way of doing things, the Silicon Valley ethos, which holds the entrepreneur up in the highest regard. Everyone understands that the entrepreneur has to be incented. They have to feel ownership. For entrepreneur out there who's run a company for a long time and raised a lot of money they know what I am talking. There's that feeling that you wake up one morning when you realize that own single digit % of your own company, and you are doing it for the board, and you are working for somebody else. The magic is lost at that point and unless the company is really far along then that's a terrible feeling.

Daniel- I have two more questions for you. 1. Are there mistakes that you see entrepreneurs making over and over again like top one or three, is there anything that just makes you cringe?

Naval- Number one is falling in love with the investor before they go to terms. That's the number one and that is probably what investors try and do to them all the day long. Which is convince someone that they have to have this investor before you know what your term is. I understand that there is such thing as value added investor and I hope to be considered one of them. But there are many of us and how someone treats you after they have power over you is usually much worse than they treat you when they are trying to get into your deal and be friends with you. So don't get seduced to early on. Highly related to that is this belief among many investors and some entrepreneurs that a great investor will make your company and that is just not true. Entrepreneurs build companies, investors job is to be supportive, to be helpful, to be capital on demand but it is not to build your company for you. I would say that the number one mistake entrepreneurs make is falling in love with the investor before they know the terms and before they have gotten a number of bids. A second big mistake I think that they make is that companies raise money prematurely, or they spend too much time with fund raising in relative to building your product. If you have to pound the pavement for six months to raise money, your product is not ready and your team is not ready. Go look in the mirror, go change how you are building it. When your company is ready your fund raising can be very quick. We have had companies that have shown up to AngelList they have no investors, zero walking in, no social proof. This has happened to a company in Singapore of all places, they send in their application, we see it, we get on it, we email it out, two weeks later they are over subscribed.

Daniel- That is amazing.

Naval- That is how you want to do it. You want your company to be ready and then you want to hit the investor market with full force at once. That is the idea.

Daniel- OK, last question is there anything that I haven't asked that you want to talk about or that entrepreneurs should know about. Any other tips or tricks or generally anything .

Naval- I think that the trend that I have seen that I am seeing right now is the single most difficult thing now in Silicon Valley is recruiting great engineers. The cost of product start-up company has dropped so low that a great engineer feels like that they can go and start their own iPad App company, iPhone App company or Facebook App company. The investment market is so hot thanks to AngelList and Y Combinator that are Tech Stars and all these other institutions that help people get started that it is just really easy to get the capital if you are a good team with a good idea. So the scarcity among every company is great engineers. I would encourage companies to recruit their engineering talent early try and bring in people that you worked with in college, or that you know from outside. Maybe from D.C if you have great contacts there, ship those engineers, help them move here and get them in. Also, be generous with the equity. The opportunity cost for a great engineer has gone up. Don't think of these people as employees think of them as late founders and make that reflected in the equity and the seniority and the responsibility that you give them. I feel like this batch of companies that is being started today, the winners will separate from the losers based on their ability to recruit great engineering talent.

Daniel- Thank you so much, I cant tell you as an entrepreneur especially one that is new to the Valley and it is just been so helpful and useful to have you guys doing what you are doing with AngelList.

Naval- Great, you are welcome. We are at www.Angel.Co we couldn't afford the M. So just go to www.Angel.CO or drop us an email or come by to Venture Hacks. I am always available at or

Daniel- Awesome, Thank you.