The Quantum Evolution of How Startup Investments Are Crafted

February 2, 2015

12:30 pm

Angel investors, venture capitalists, and entrepreneurs often wax poetic on the hot industries of the moment – social media yesterday, wearables today, virtual reality tomorrow – yet one of the most exciting current movements in startup investments may be a matter of how rather than what. The way startups and investors are curated, deals are crafted, and investments are executed is rapidly changing; evolving from the age-old practices of email updates, pdf attachments, and faxed documents to a more mature, instant process involving platforms, deal syndication, and seamless online execution.

When I first started angel investing, as cro-magnons roamed the earth back in 2010, startup deals were primarily executed via email. Some venture capital firms had internal management systems for deal flow, but, for the most part, deals were shared among angels via email, material was attached to missives and shared directly, and deals were closed by printing, signing, and scanning or (dare I admit it) faxing the materials back to the deal lead. In less than five years, that whole model has changed, and will continue to undergo seismic reform.

Investing Platforms

Now, no matter who I am doing a deal with, the old ways are gone. Gaingels, which invests in companies with an LGBT founder, uses a members-only Proseeder plaform. Members access the platform and all information – from member updates, to meeting invites, to due diligence materials, to actual electronic signature to close investments – is done via the platform.

“Proseeder allows Gaingels to easily manage all the deal interest, commitments, communications, events, and document management in a closed environment and provides entrepreneurs a secure way to communicate with investors,” said David Beatty, co-founder of Gaingels.

With my venture capital partners and many west coast angels, we routinely share deals through AngelList. AngelList is, today, the most mature platform for deal syndication.  Zuli, a new smart home technology, used Angelist to raise its most recent round and a significant part of the investment process – from materials sharing, to diligence, to seeking the opinions of fellow investors, to cash transfer – was all done through the Angelist platform.

“AngelList has been a great source of inbound leads for potential investors, giving Zuli access to investors that I wouldn’t otherwise be able to reach and we’ve been successful leveraging syndicates as a way to generate a lot of interest from smaller investors.” said Taylor Umphreys, founder of Zuli.

The move to platform-based, paperless, near-email-less investing opens up limitless possibilities for both speed and scale. When a company like Zuli, which just a few years ago would have required dozens of in-person and phone meetings with investors across the globe to close a small seed round, can raise serious money on angelist primarily through secondary referrals and fast transactions, it’s a quantum leap forward. Like the Medieval World after the advent of gunpowder, the how side of startup investing is about to take a quantum leap into the future.

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I am an entrepreneur, angel investor, and early-stage VC living and working in New York City.

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