When a Chinese venture capital firm offered AngelList founder Naval Ravikant a $US1 billion seed fund he did a very strange thing: he turned them down.
Pando editor Sarah Lacy has the inside story of the deal between CSC Group and AngelList, with an in-depth story which explains why Ravikant turned down the staggering offer and what it reveals about his long-term strategy.
“We want to give you $100 million…per year…for the next ten years,” was the offer put on the table in the first half of the first meeting between the two companies.
The Chinese firm wanted to invest heavily in early-stage American startups, and wanted to use the AngelList platform as a means to obtain credibility and find smart investments.
But Ravikant was wary about taking on too much money.
“That’s too much,” he told CSC.
“You’d destroy the entire market and put prices up 20% overnight.”
A figure of $US400 million was eventually settled on, with the funding to be dispersed slowly over a period of many years in order to not disrupt the market too much.
It’s still a whopping figure for a fund dedicated solely to provide cash to early-stage startups through the AngelList platform.
“It’s an absurdly large amount for a seed fund,” Ravikant said.
The deal will involve CSC Group provided funding to AngelList startups through the syndicates of investors that form around them.
Instead of scrambling to collate various small cheques, these syndicates will now have a guaranteed source of cash once they pick a worthy company.
“Everyone in the US or Silicon Valley already thinks they have access, whether or not they do,” Ravikant told Pando.
“They get hit by deals all day long. But someone on the outside thinks they can’t get access to those blue chip Silicon Valley deals, except when they go public.”
As Lacy writes, Ravikant is taking a very different approach to most in the startup world, forgoing huge wads of cash and adopting a measured, gradual way of doing things.
His AngelList platform is automating some of the least efficient aspects of the startup world – finding investors, searching through startups, and creating syndicates.
“It’s slowly changing, modernising and automating this 60-year-old asset class,” Lacy writes.
“It is a threat to the way the business of funding startups has been done.”
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Denham Sadler is a former editor of StartupSmart. He was previously a journalist at the publication and has worked as a freelancer for the Guardian, the Saturday Paper and the ABC. In his spare time he likes puns and jaffles.
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