Step off the elevator into AngelList’s loft-like office in downtown San Francisco and you pass through a hallway hung with staff bicycles to enter a large room where CEO Naval Ravikant is the first person you see. He stands in profile at an adjustable lectern barely larger than his laptop, typing and speaking quietly into a headset. On the wall behind him hangs a large flat-screen television and, above it, his technology startup’s logo: a standard icon of a hand forming the two-fingered “V for victory” followed by the company name spelled out in Arial, one of the world’s most common typefaces. Beyond Ravikant sit some of his company’s 23 employees, working quietly at desks arranged in an open plan.
Ravikant has no papers, files or photos around him. When he steps into a conference room for a private call or sits to speak with a visitor, his workspace takes on the tentative air of a claimed but momentarily unoccupied spot in a café. He has no corner office or glass room and that suits him fine.
“In college I thought I was going to be a lawyer for a bit,” says Ravikant, who ended up majoring in economics and computer science. “I worked at Davis Polk & Wardwell [a New York City firm] as an intern. After three months I got fired. They expected me to sit around a conference room with a newspaper—they wouldn’t allow me to read the newspaper—just to sit there attentively in case somebody needed photocopies or binding or whatever. It’s the whole corporate legal discipline thing. After three months I was completely insubordinate. I would be showing up late and I wouldn’t be wearing the proper clothes and I was reading message boards on Usenet, the old Internet. It was a bad fit for me for sure.”
For a time it seemed that Silicon Valley wasn’t a good fit for Ravikant, either. A lead claimant in a lawsuit over the spoils of an initial public offering during the first dot-com boom, he had risked alienating the tight-knit venture capitalists he would need to bankroll any future projects. But rather than burning out with a bad reputation, he persevered and is now transforming the industry from within. AngelList, which Ravikant founded in 2010 with Babak Nivi, is a web platform that brings an unprecedented transparency and simplicity to funding startups. In so doing, the site is challenging venture capital firms and their role as middlemen between dreamers and investors. It is also positioning itself as the filter for a massive flow of money. “If there are people who are sitting out the Silicon Valley tech scene right now,” says Ravikant, “they’re possibly losing out on their generation’s greatest wealth creation.”
Ravikant is a trim 40-year-old with an easy smile who often wears a light jacket over a T-shirt or dress shirt. Never a tie. He has gone so far as to cancel speaking engagements to avoid wearing one. AngelList is the latest in a series of endeavors to satisfy a fierce ambition and a need for challenge. An immigrant from India to the United States at the age of 9, he and his older brother, Kamal (now an entrepreneur, investor and self-improvement author), were raised by their mother in Queens, New York. She worked long hours for little pay and the family moved frequently. After the age of 4 he didn’t see much of his father, who emigrated ahead of the family and split with his wife not long after she arrived with the kids. “As far as I recall being conscious, I think I’ve been pretty self-sufficient,” Ravikant says. “I don’t have any concept of someone older in your life telling you what to do. That doesn’t exist for me.”
Ravikant’s life changed course when he was accepted to Stuyvesant High School in lower Manhattan. It was a long commute, but the school put him on track to attend Dartmouth, which he chose for its high student satisfaction rating and an attractive financial aid package. Overweight, sober and a vegetarian, he hung out at Phi Tau—“the geek and misfit house,” he calls it—and says he wasn’t a typical student. He loved college and, after that ill-fated internship, didn’t leave campus again until graduation. Equipped with a Mac Classic (“for which I got a Stafford loan that took me 10 years to pay off. Three thousand dollars for this little, 9-inch, black-and-white screen”) he threw himself into computer science courses and became a habitué of the computer lab. He landed his first tech job, providing computer support and database management for DAM as part of the College’s work-study program. “It was great because it was my first flexible-hours job, which was a new concept. You just got paid and you told them how many hours you worked and you did it whenever you wanted. It was my dream job,” he says.
After college Ravikant did a short stint at Boston Consulting Group, where he taught staff how to hijack the fax line for dial-up, before heading to Silicon Valley. There he cofounded Epinions, a product review site that merged with another company before going public as Shopping.com in 2004, finishing its first day at a value of $750 million. It was a resounding success, except for one hitch: Ravikant and three other cofounders saw none of the money. The four later argued in a lawsuit that, during the merger, another cofounder and venture funders backing the company conspired to hide the company’s true value. This led Ravikant and the other three cofounders to agree to a devaluation of their common stock, which left them holding worthless paper.
The day he realized what had happened “was horrific,” he says. “It feels like being hit by a truck when you realize the company you founded is going public and you aren’t making any money. People are calling to congratulate you on the IPO, and you’ve got nothing.” He and two other cofounders, along with 39 former employees, filed the lawsuit, a dangerous move in an industry where an entrepreneur’s personal reputation plays a huge part in winning startup funding. The lawsuit settled out of court for an unpublished amount and, rather than start a new company, Ravikant raised enough money to become what’s known in the venture capital world as an “angel,” investing relatively small amounts—$10,000 to $50,000—in promising early startups, including Twitter, before they were large enough to attract venture capital funds, which typically come with more zeroes attached.
“I realized I didn’t know what I was getting into when I first raised money and signed those term sheets at Epinions,” says Ravikant, so he and Nivi began posting tips and advice for other entrepreneurs on a blog they called Venture Hacks. It became a Valley mainstay, and in 2010 they began screening startups and recommending the best prospects to a mailing list of select investors they called AngelList. That proved so popular that by the end of the year they decided to make the service a full-time company.
“I think I've been pretty self-sufficient. I don't have any concept of someone older in your life telling you what to do. That doesn't exist for me.”
In the years since the first tech boom many companies have packaged mundane business needs as services for hire. Amazon’s cloud storage has replaced expensive server farms, sites such as Squarespace enable quick website design, Salesforce software makes customer management easy, Google simplifies advertising. As a result, the cost of getting a startup off the ground has plummeted and the flow of new companies has increased. AngelList has positioned itself as a meeting place where these new companies and angel investors can build profiles, search for each other and make or raise investments with the click of a button. As of early September more than 100,000 companies had raised more than $200 million through AngelList. The site routinely helps 30 to 40 companies raise a total of $10 to $20 million a month.
Ironic as it sounds, this social media approach to fund-raising is a revolutionary development in the Valley. “It’s a very opaque market,” says Tom Fallows, who cofounded and later sold the online retailer Mercantila after working at Epinions and now works in e-commerce for Google. “If you want to raise money for your company you have to pitch your way into meetings with each venture capital firm. That’s a full-time job that might take you two months. At the end of it maybe you have two or three offers—it’s just not a competitive landscape.” AngelList can cut that time investment drastically, and its openness can drive better terms. The platform makes life easier for small-stakes investors such as Fallows as well. “It gives me access to deals and opportunities that I would never have had the ability to know about or invest in,” he says.
AngelList also handles a portion of the required filings surrounding a deal, such as screening investors to ensure they’re accredited and providing standard term sheets, thereby reducing legal fees. “Most of the venture industry is all about meetings and coffee and business development and marketing, which is fine, but [venture capitalists] do that so well they don’t need somebody else to show up and do it over again,” says Ravikant. “We just stick to product and try to stay thin.” In other words, they’re not the dealmakers. Instead they make other people’s deals as smooth and trouble-free as they can—a role not so different from Salesforce and other business services. For its trouble AngelList claims a share of the profits that result from investments they’ve enabled. And it captures a user base to which it can sell other services.
Recently the company began offering job listings for those looking to work for startups and charging a fee for successful hires. But the site’s most powerful feature is the “syndicate,” through which high-profile investors can marshal many backers and bring their collective buying power to a deal. “Historically, angels didn’t have much capital capacity,” says Tim Ferriss, the author of The 4-Hour Workweek and a marketing advisor to AngelList and other startups. “That is being turned completely upside down. In my case I have between $3 and $4 million in automatic backing and, for the last three of my deals, I’ve funded in two to three hours. I fully anticipate that I and many other angels will get to the point where we have $5 to $10 million to command in competitive deals.” Syndicates won’t soon reach the depth of the venture firms, which command an average pool of $221 million, but an angel with backing in the millions has enough leverage to compete—in 2013 the average venture deal was for $7 million, and most included multiple investors.
Given his age, Ravikant is an unlikely entrepreneur in an industry where the energy and brashness and naiveté of youth rules. Before AngelList, he was, he says, “having a good time going around as a so-called ‘superangel.’ It was all very sexy and fun. But because I come from a very modest background and have always been overachieving and competitive, I wanted to do something bigger. I didn’t want to just be a money manager.” He wanted to make a difference beyond investing. Kamal, his older brother, who lived with him during the Epinions lawsuit, validates Naval’s motivation. “AngelList is now a powerful thing in its own right, but it came from an idea: Let’s take away this power that venture capitalists have,” says Kamal.
Ravikant’s mix of experience, contacts and perspective has enabled him to pull it off. He has a reputation for systematically and holistically building companies—Ferriss and Fallows both refer to him as a business chess master. “In Silicon Valley I think there’s often too much focus on seeing something nobody has ever seen before. Naval is good at looking at something everyone sees and seeing something different,” says Ferriss.
One move Ravikant considered essential to AngelList’s success was reshaping federal law. He lobbied in Washington, D.C., to have the platform’s business model excepted from the regulations on broker dealers. He and other advocates succeeded, and the change went into effect as part of the 2012 Jumpstart Our Business Startups (JOBS) Act, a mix of policies aimed at making it easier to start a company and take it public. One part of the bill still being worked out by the U.S. Securities and Exchange Commission would open AngelList and sites like it to anyone, not just to accredited investors.
“Until the JOBS Act it was hard to do some of the stuff that we do now, especially the online transactions,” says Ravikant. “In some sense we were too early. But if we hadn’t shown up when we had, we wouldn’t have been involved in the JOBS Act. So by being early and not being able to do the things we wanted to do we had to go out and create that opportunity.”
Getting the bill passed was just the sort of challenge Ravikant enjoys, says Fallows. “I think he’s found a place where his home is for a long time,” he says. “He’s supremely optimized to work in a company that’s all about connections and leverage, where it really is about the strategy of setting up this marketplace—and that has so much longer to go.”
Although Ravikant married visual designer Krystle Cho last year, press him on what he does outside of work and the answers turn short. “Not a whole lot,” he says. “I’m basically obsessed with startups, I’m always helping someone start a company. I’m working with them on a company, advising them on a company or investing in a company. I’m kind of all in.” As Ferriss puts it, “The venture capital world isn’t always kind to the entrepreneurial participants, and Naval has seen the ugly side of that. He’s been called an avenging angel, and there’s some truth to that. He really believes in the world changers, the 20-year-olds in the coffee shops with the big ideas. He wants to level the playing field for them.”
Eric Smillie is a freelance writer and editor who lives in Oakland, California