Disruption of Venture Capital

Why you should apply for AngelList Analyst Program


TL;DR

  • AngelList has the potential to change the venture capital industry
  • Apply for AngelList Analyst Program (click here)
  • Application deadline: August, 23rd 2015
  • From investment analyst to data-driven analyst hacker
  • Potential for analysts to become a syndicate lead after 12 months

Nobody is going to be surprised by it, but tech has and still is dramatically changing our relation to the world, replacing one after the other well established social organization.

Graduates with an outstanding academic track record, proven execution skills usually want to join a traditional venture capital firm.

If you also have a technical background (e.g. math, programming, etc.) you should definitely consider AngelList Analyst Program, which launched last week. Application deadline is: August 23rd 2015:

In this post, we at Hackevents want to explain, why we believe that this is an awesome opportunity for graduates to build their future career in the startup and investor ecosystem.

1. Traditional venture capital analyst program

The historic narrative of VC investing is a compelling story filled with entrepreneurial heroes, awesome return on investment and companies that change the world. Pension funds and other investors are attracted to the ‘lottery ticket’ potential VC offers, where one lucky ‘hit’ investment like Uber, AirBnB or Twitter can offer the potential to mitigate the damage done to a portfolio after a decade of poor risk-adjusted returns. (Source: Kauffman Foundation)

Venture Capital is an industry that has been around for a long time, protected by certain regulations and limited to a small elite network of people. Moreover the VC industry itself is technology-averse and mostly gains access by leveraging proprietary information and local networks.

In general there are a few partners who raise funds from limited partners and their network, to get paid by a 2% management fee and 20% carried interest (‘carry’). The management fee is used to pay for lavish office space in a posh location and because of the prestige of the VC firm, young graduates are more than happy to attend an investment analyst program. Paid or unpaid — well, that depends on the brand of the firm.

The idea is: You graduate from a top business school, work hard scanning business plans, going to meetings and conferences to generate deal flow and prepare for the deal. After this you do due diligence and co. After a lot of years of hard work, you got the experience, network and access to money to have the possibility to raise your own fund and be part of the elite club of venture capitalists.

2. AngelList analyst program

AngelList is launching a 12 month analyst program for recent graduates. You’ll have the opportunity to work across AngelList’s business, building skills and connections for a career in startups, venture capital or technology.
Source: Job Description on Angel.co/Analyst-Program

We believe that the analyst program is a great opportunity.
First, we show you why AngelList is a rocket ship, you should join.
Second, we analyze the leverage you will have as a data-driven analyst
and third, we imagine the potential career you could build by running your own syndicate after the 12 months analyst program.

2.1. AngelList has the potential to change the venture capital industry

Quote: Slideshare: Venture Hacks — The rise of the Angels (2010)

Venture Capital is the fuel of innovation. VC–funded disruptive companies like Uber, Airbnb, and Twitter are changing industries. Ironically, Venture Capital might be about to get disrupted as well. By building efficient software, leveraging social networks, and having courage Babak Nivi and Naval Ravikant are onto changing the course of VC.

According to HBS Professor C. Christensen, disruptive innovation “describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors “.

In other words, disruption is a phenomenon by which market leaders are slowly ousted by one or several once seemingly innocent outsiders. This disruptor is slowly gaining market share until he has pushed the former leaders out of the market. Most of the time, the leaders of the market don’t even worry about the market segment the outsider is targeting because it’s considered the least profitable. As Christensen says it, disruption is typically an opportunity long before it becomes a threat.

And that explains the inaction of market leaders until it’s too late for them.

VC funds have the job to accelerate innovation by providing capital, advice, and control to innovative startups. This job of helping the entrepreneur to build a company and create jobs could possibly be served by other stakeholders and incumbents as well.
The force of change in the venture capital industry is foremost economical: In the last 15 years it got much cheaper to build, market, and distribute products. Therefore, it is only logical that the VC industry will change as well.

So far, traditional VCs seem to be ignoring that there are changes in the ecosystem. As a consequence they might be disrupted at the bottom of the market. They refuse to innovate, as they judge that their core business is still strong enough.

AngelList started by offering the same basic functions as traditional VC funds, but online. AngelList’s innovation here is that it charged software to suppress the middleman, utilizing a “low-cost buisness model”.

It all began with a basic list of investors, and gradually improved its content and interface to make it user-friendly. At first sight, AngelList could be described as an amalgamation between a traditional professional social-network and a dating website, to facilitate encounters between both investors and capital-seeking companies.

AngelList is a market network and succeeds exactly where the other professional social networks fall short. The website is organized to make you want to do business and take concrete actions. With one click, you can browse their worldwide database and use their powerful search engine to find that next unicorn startup. It also lets you know what’s hot at the moment and what could possibly catch your interest, using similar algorithms as seen on Facebook.

Here the company uses tech to reduce transaction costs by avoiding useless charges, and therefore sparing resources. As the low-end disruptive innovation coined by Christensen postulates, AngelList offers a “good enough” performance and reaches for the “over-served customers in the mainstream market”.

AngelList is targetting the people who think tradionnal VC funds have too much transaction costs.

The process is the following:
An angel investor could invest her own money while drinking coffee at home and browsing AngelList to find startups; the search engine decreased her search time tremendously. On top of that, there is no need to pay for the expensive management fees a traditional VC would charge. This opens angel investing to a much broader audience. From a democratic point of view, although, this change does not stop with angel investors. Entrepreneurs who were not necessarily taken in consideration by traditional VCs are given a chance to prove that they are competent, by building a profile.

Talking yet about new market disruption, Prof. Christensen notice three important spots to look at. A disruption has to target non-consuming customers. Customers which were not yet considered as customers.

Prior to the JOBS act, venture capitalism was limited to very few individuals who could prove they were sufficiently wealthy to take the risk. Since then, Ravikant has been offering his service to a part of the society that has previously been ignored: smaller investors:
In 2013, he introduced syndicates as a new function on AngelList.

Syndicates have the advantage to enable accredited angel investors, even those without a strong network, to access the most promising deals in the ecosystem.
On the other hand for the syndicate lead, Syndicates let any accredited investor on the AngelList fundraising platform essentially create, lead and collect carry for a fund of angel money for a specific startup. Syndicates are Micro-VCs with no fees, no lockup, and the leads having real skin in the game.

AngelList is basically targeting customers who lacked the access and time investment to be part of a very exclusive and local network.

Therefore, AngelList is empowering a lot of new individuals and permits angel investing and innovation to be much more democratic and open for society. This is important for a society, which is defining itself by progress and wealth creation. AngelList is essentially the operating system of the startup world and thus, we emphasize to seize this opportunity of a lifetime.

2.2. Data Driven Analyst Hacker

Moreover, AngelList is a big data technology company focused on venture capital. There are 500.000 startups, 1 million entrepreneurs and more than 10.000 investors on the platform. Due to the social network aspect of AngelList, these users are naturally generating massive amounts of data.

Never before has there been more transparency and information about the startup and angel investing ecosystem. Thanks to the technology and data of AngelList, you could become the first real data-driven investment analyst in the venture capital ecosystem.

Here are some of our thoughts, what you could hack together with the AngelList API as an investment analyst:

For more information, have a look at the job description on AngelList about the Analyst Program: See here

2.3. Become a syndicate lead after 12 months

In general, the analyst program in traditional VC firms is a necessary career step to build and have your own fund and be your own venture capitalist.

We at Hackevents believe that the AngelList analyst program is actually not preparing you for a career in traditional venture capital, but is preparing you to build your own syndicate.

  • You learn how to screen deals at scale
  • You make contacts with startups all around the world
  • You make contacts with limited partners (angels) at scale
  • You learn how to setup the fund structures of syndicates

Of course we don’t know for sure, but it seems likely that after 12 months there will be graduates who either will lead a syndicate themselves or consult other syndicate leaders on the technology behind building and establishing a smart syndicate fund.

3. Conclusion

So here’s the thing:
We have never met Naval in real and we are not affiliated with AngelList in any way. We believe in the power of the internet and the free flow of information. As Jason Calacanis noted: Learn a skill or everything about a topic and then share all your knowledge with people around you.

We are obsessive users of the platform and want to support AngelList on their journey to change the venture capital industry. Even though, we are not affiliated directly, but as entrepreneurs we believe in the mission of AngelList. We have read a lot about them and we want that more people understand, that AngelList is about to change the world.

There we hope this essay provided some useful and new information, why we believe that you should consider applying for AngelList Analyst Program until August, 23rd 2015. There are 6 positions open.

We are looking forward to follow the results of the chosen investment analysts and love to hear your feedback on this blogpost.

@gloria_eller @_strobl