I have a list of 17 random startup / side project ideas. For fun and practice, I want to write about them here to assess their quality and flesh them out. Because I don’t know which to start with, I used a random number generator at random.org to pick which idea to address first. Now of course, it’s 12:30am and I’m not very motivated to dig in deep on this particular idea today, but I’ll at least get it started and I’ll continue on this thread tomorrow.
12. Learn everything about AngelList and where a startup could compete with the safest, simplest offering, e.g. tokenization of seed funding. Or FundersClub
That’s #12. I rolled the random number generator around noon today, so I’ve spent a little bit of time thinking about it today. The reason this idea is attractive is because the business model of AngelList is so insanely lucrative, yet it seems like the moat they have around their business should not be THAT strong. Their business doesn’t actually create any network effects, or at least not super strong, locked-in network effects. To me, the syndicate leads are really just brokers or agents for allocations in investment opportunities, and AngelList is like a super expensive SaaS platform in the cloud for those agents.
Now the reason being an agent is so lucrative is because these tech investors are so well-respected that they serve as signal in themselves. Naval Ravikant will never have trouble filling a deal, as long as he is interested in that deal. I don’t even need to know what the deal is; I’ll invest if Naval Ravikant is leading. That’s because he’s invested in Uber, and a bunch more, but mostly Uber is all that matters to me. This signaling is so critical to both the fundraising startup and the syndicate investors, that Naval Ravikant becomes a critical part of the ecosystem even though he doesn’t actually add that much value, like I can’t imagine he makes or breaks the company with respect to his decisions about how they operate. Maybe he does, maybe he doesn’t, but he’s probably not truly even 100x smarter than anyone else. That just can’t be the case. Even though he’s 10,000x richer. Returns accrue in power law.
Anyways my point is this model is so insanely good for Naval Ravikant because as long as his reputation is strong, and the social proof is there, syndicating a deal has no downside and insane upside. If every deal has 0 loss potential but infinite upside potential, then if Naval syndicates massive volume, he WILL WIN. And he will win big. Statistics wins, and Naval is the beneficiary.
So the question is really how do you rip this model up and improve it. Why should the broker AND the broker’s technology platform take such a gigantic cut of the returns of the company? Well the incentives are such that if the company fails, Naval gets nothing. So he is incentivized to help them as much as he can, as long as he believes they can be successful. But he’s always incentivized to help where he thinks his time can have the eventual highest return multiple on his investment; so if you aren’t the hottest company in his 500-company portfolio, you aren’t getting shit from Naval. If you’re the 10th hottest company you might not get shit.
So what I’m getting at is, AngelList is not the intermediary to disrupt here; Naval the syndicate lead (and to an extent all venture investors) are the intermediary to disrupt. You can see how ICOs tapped into this in a huge way, although they were all kinds of fucked up. Founders don’t actually care if their investors are value add if they can raise exponentially more money for less effort versus fundraising the traditional route. So that indicates that they aren’t locked in to the VC side. From personal experience at Compound, our VCs aren’t bending over backwards to help us — like at all. They try to help, but only in ways where it’s clear they can derive value back.
Meanwhile, LPs and syndicate investors just want to follow social proof; but social proof doesn’t have to be ONLY the big name investor; it could be created in many ways that are actually more rigorously analytical and thoughtful.
Anyways I’m looking at my notes and some logic is missing in my thought process but the rest of my notes say things like:
- VCs/syndicate leads are just brokers, agents who price deals then try to sell and take a huge carry but no downside incentives except success breeds success so volume wins
- Incentive mechanism
- How to get social proof – ppl want to follow
- How to price deals with no VCs involved (this is a key value add they do at the fundraising stage, though I’m really curious how it affects outcomes)
- Aggregate venture investment analysis; then open fundraise
And the key is in the last bullet point. I want to aggregate the attention of every LP or potential LP that ever invests in a venture fund or through AngelList, then create a fundraising platform around that where the platform actually is the intermediary instead of the VCs/syndicate leads. I won’t go further than that right now. If I do go further later, you’ll hear about it!