Marcojaneczek

AngelList is testing out a new service that lets angel investors syndicate deals with each other, a feature that could allow startups to raise venture-sized rounds of money with relative ease. Called Syndicates, the private-beta product lets any accredited investor on the AngelList fundraising platform essentially create, lead and collect carry for a fund of angel money for a specific startup.

The carry part could help motivate an angel who truly believes in the startup to put in the hard work of helping it raise all the money it thinks it needs. In a world where more startups than ever are trying to raise money, and more investors are competing to find the best ones, this model may quickly become popular.

Here’s a bit more about how it works, as gleaned from the newly-public FAQ from AngelList, the resulting conversation around the news on Twitter, and a conversation with AngelList cofounder Naval Ravikant. The news, we’ll note, was broken by anonymous startup personality Startup L. Jackson… who presumably has investor-level access to AngelList, whoever he or she is.

VCs and their limited partners (the entities who put money into VC funds) already use carry to align their interests. In addition to the VC partners collecting a set management fee for each fund, the carry provides them with a percentage of the profit for the fund.

In the AngelList implementation of the concept, the lead angel picks the percentage carry that they’ll get from a positive return in the company if it has a liquidity event. They can set this to zero, which would make the most sense if they’re relatively unknown and most concerned with building a reputation. Or they can set any amount above that — 40% could make sense, for example, if you’re a top angel and looking to monetize your reputation and deal flow.

The FAQ provides the following example of how a lead angel would use Syndicates:

Sara decides to invest in a startup and asks for a $250k allocation in the company. She personally takes $50K of the allocation and decides to syndicate the rest. She shares the deal with investors and specifies that she is charging a 20% carry on the remaining $200k of her allocation. Sara’s capital and her co-investor’s capital is pooled into a $250K fund which invests in the startup.

Sara’s co-investors pay carry for her access, governance and value-add. She sourced the deal and used her judgment to select the investment. She manages the fund and provides oversight for her co-investors’ capital. And she provides ongoing value-add to the startup.

AngelList takes 5% regardless, which makes Syndicates a potentially big revenue stream for the funding platform. It also sets each Syndicate up as an LLC specifically for the startup in question, with the lead angel signing off as an investment advisor. This legally obligates the angel to disclose any conflicts, such as other strategic or financial relationships with the startup.

As part of the service, AngelList also requires the lead to put up at least 10% of their own money into this vehicle, in contrast with the much lower percentages that LPs typically require of VC funds. In my discussion with Ravikant, he adds a few other points on how he sees Syndicates working.

“The backers are likely to be LPs, family offices [of the very wealthy], passive angels, and angels out of market who can’t get into a deal or don’t want to spend the time,” he explains. Meanwhile, the lead angel is expected to take this more seriously than some angels might be used to, in that they are expected to “provide access, oversight, and help the company.”

At the same time, he disputes the notion that Syndicates is competing against VCs here — an assumption one might make given that Syndicates could help a company raise a lot of money quickly. “This isn’t about ‘without VCs’ — in our test, anyone investing less than $100K per deal goes via Syndicates. Over that and you get a direct intro. If you’re putting in serious money, the company wants to meet you. The two will coexist.”

“In fact,” he adds, “some well known VCs have already approached us about syndicating deals — they wouldn’t take a carry, but would get advisory shares for being on the board and / or get to control syndicate allocations and voting. We are also talking to seed funds who want extra leverage.”

A less obvious benefit of the setup is that angels now have a new way to take advantage of pro rata terms. Typical deal terms already allow investors to continue putting money into a company in order to maintain their existing percentage, even as the company raises new funding at higher valuations. But, many angels do not want to raise or borrow the money to do this, so they forego the option. With Syndicates, the investor can fundraise to buy stock made available via pro rata terms, and collect carry on any resulting profit.

What about the murky world of finance law? Where does the Securities and Exchange Commission stand on this new method of raising money? AngelList has obtained a no-action letter from the federal agency, which means that it can launch the service without fear of its legal reprisal. You can view the PDF here.

But wait, how new is this concept? Finance writer Dan Primack notes that “fundless sponsors” already exist, and indeed they’ve become an increasingly common method for private equity investors to pool money in recent years.

There are very few instances of a carry-based LLC being used for angel investment, though. FundersClub, a relatively new investment-vehicle startup focused on raising funds around startups and startup categories, has also been pursuing it. Sequoia’s long-running “Scout” program is another, albeit at an intentionally smaller scale. To Ravikant, “[t]his is closer to Sequoia scouts than anything else. It allows anyone to be a scout, not just Sequoia’s CEOs, and anyone to be a backer, not just Sequoia. And it’s all carry-based (no fees).”

He adds that this is just a test for the next couple months. It may not work, or the implementation may change.

But any startup that needs funding and has an angel lined up is going to be looking at Syndicates hard as a new option. And the early-stage investment community is already busy trying to figure out the threats and opportunities.

Finally, the SEC, Congress and other government entities are currently changing the rules for private fundraising, which could make Syndicates explode in popularity. Private companies could soon be able to publicly advertise that they’re looking for money, which might help them benefit from the Syndicates concept immediately. And if non-accredited investors are allowed in, lots more money could start to flow through, too (and Startup L. Jackson will have a tougher time beating the tech press on AngelList scoops).

[Disclosure: AngelList has a partnership with our CrunchBase startup database product, a non-exclusive deal that is unrelated to this news as far as I know. I also have no financial relationship with AngelList, except through my nearly worthless employee stock option plan with Aol, the owner of TechCrunch and CrunchBase.] 

Betaworks might be one of the most difficult-to-categorize companies in New York. It started out in 2007 as a Twitter-focused incubator of sorts, having both invested in Twitter and sold one of its inventions, Tweetdeck, to the company. It was also known as an investor, making early bets in winners like OMGPop, GroupMe, Venmo and Tumblr (the sale of which produced a nice “single digit millions” return on a $50,000 seed investment).

But it has since evolved into a studio hybrid that acquires, builds, invests in and kills more apps than most people even dream of using. From the outside, the company is a machine, churning out an endless stream of loosely related products. But what does it all add up to?

Believe it or not, there is a master plan. Betaworks is building a version of the Web that CEO John Borthwick and his team of builders want to live in — spartan-designed media on top of apps on top of utilities that all disjointedly make the social Web a better place, leveraging one another to do it.

If Borthwick can pull this off, he may do more than change the way we use the Web. He could live the dream, having built a way to make a living as “the idea guy.”

In the early days, Betaworks’ products were all about utility. Tweetdeck, the Twitter dashboard, was a utility. Betaworks sold it to Twitter. Bitly, Socialflow and Chartbeat were all utilities. They spun out to become independent companies.

Then in early 2011, Betaworks essentially pivoted, returning all of its money to investors and announcing it would slow outside investments to focus on building consumer web products internally.

Since that turning point, Betaworks has released social, mobile and media-related products at a blistering clip. Tapestry. Swirl. Donenotdone. Blend.io. Poncho. Dots. Telecast, Findings. The company even launched a partnership with development agency Fictive Kin to fuel its idea machine. Betaworks is happy to kill off projects too — the company has abandoned around 20 of them, Borthwick estimates.

But Betaworks hadn’t quite captured the fascination of the mainstream media until last summer, when it acquired down-and-out Web 2.0 community Digg. The story had an irresistible narrative: Digg, a high-flying startup had become so beholden to its community that it lost touch with the mainstream. Digg’s fresh-faced wunderkind founder Kevin Rose also lost interest, and with his departure, the brand all but died. The price tag was even more shocking: Betaworks paid just $500,000 for the company, once valued at $150 million. With that deal Betaworks embarked on the rarest of all Internet ambitions, the consumer Web turnaround.

Then Betaworks announced it would build a Google Reader replacement; then it acquired “read it later” app Instapaper. Earlier this month, under the leadership of entrepreneur-in-residence Paul Murphy, the company built six new products and unveiled them all at once. A few weeks later, the company announced it would be turning those new products into real businesses. Betaworks’ pace is accelerating.

It has the tech world buzzing. Lately I can’t sit in a Flatiron coffee shop for more than an hour before I overhear someone talking about Betaworks. And every time I ask a New York techie which startup they’d love to work for?  Betaworks.

But to an outsider, the company’s bold moves look opportunistic, even a little erratic.

The individual updates — Swirl launches, Tapestry rebrands! They bought Digg! They bought Instapaper! They’re making a news reader! They invested in Moped! They launched a music app! And a weather app! And hey, look at this addictive hit game! — seem incredibly disjointed. Furthermore, why build four overlapping products related to content consumption — Digg, Bloglovin, the Google Reader replacement and Instapaper — rather than just focus all efforts on one? The connection between something like a search engine for gifs (Giphy) and a mindless game (Dots) is tenuous. The products all operate separately, so what are the benefits of housing them all under one roof?

John Borthwick does, however, have a master plan.

His underlying thesis for Betaworks has evolved since the company’s start, but ultimately the startup studio, or factory, or incubator, or however you want to categorize it, wants creative experimentation around a few core anchors. Betaworks, with its data and financial resources, serves as their common tech backbone.

Borthwick has compared the company’s loose grouping of products to a blueprint, which blueprint exists in the form of a 40-item “to build” list. “There is an outline and we are continuously editing,” he says. “When we build one piece that really fits well, it is a dark circle and we begin drawing around it.”

The anchors to that blueprint are media, storytelling and data. Media includes the curation, discovery and consumption of content, ie.,  Digg, Digg Reader, Instapaper, Bloglovin. The storytelling bucket includes Tapestry, an app that aims to be a sort of Instagram filter for stories. The data and “contextual computing” bucket includes anything from Poncho to SocialFlow and Donenotdone.

The one thing they all have in common, aside from fitting loosely into the categories of consumer Internet and digital media, is a shared design aesthetic. Most of Betaworks’ apps are clean, stripped-down products that highlight content above all else. “The actual tools are all really thin,” Borthwick says. “The chrome is very minimal.” He compared the common aesthetic to Pixar. Each Pixar movie features different characters and settings, but you can always tell it’s Pixar by the look of it.

And there are little synergies. Betawork’s family of products slyly work together to make each app slightly better. When Tweetdeck wanted to incorporate a link-shortener, it used Bitly. When Tapestry users want to read the app’s uniquely formatted content later, they’ll be able to send Tapestries to Instapaper. And so on.

Beyond that, each siloed product contributes something to the company’s collective knowledge, be it data, design lessons, or specific builds. Even Dots feeds the shared knowledge beast — Betaworks studies user engagement on the highly addictive app (a million downloads in the first week) for making user interface decisions in other apps.

Dots also contributes financially through sales of in-app purchases. Likewise, Digg is running native ads, and Instapaper makes around $1 million a year on app sales.

That won’t necessarily keep the lights on forever. Betaworks has for the most part sustained itself on the spoils of its smart early stage investments. The company’s current investment portfolio, most recently valued at 5.6x, is packed with established consumer web properties like Pinterest, Twitter, Kickstarter, Airbnb and BuzzFeed, as well as hot up-and-comers like RapGenius, Grand St., Branch and IFTTT.

Borthwick chose not to turn Betaworks into a traditional VC fund because he wanted the freedom to experiment and collaborate in-house. “Venture capital forces companies to keep raising more money and that only works well for certain kinds of companies,” Borthwick says. “That is not what Betaworks is building.”

He can explain every reason Betaworks is different from VC funds, as well as incubators, accelerators, collectives, and even late-90s startup studios. His new model is popular enough to spawn a few copycats, including Science, Inc. in Los Angeles and HVF, Max Levchin’s big data-focused “not an incubator or co-working space” project.

Even though the model is new, Borthwick is ultimately trying to do something that’s been done before: a lifetime of being the idea guy. Many successful founders that sell their companies don’t want to retire on an island. But they are also too close to the gut-wrenching agony of building a company to do it all over again. They want to leverage their smarts across multiple projects, while taking a more hands-on role than a mere venture capitalist.

It is a seductive proposition, particularly when the cost of building an app and iterating on it is so cheap. But in practice it’s trickier than it sounds. The consumer web in particular is binary — things are either hits or they’re misses. When a startup studio has a big hit, everyone gets sucked into the hit (see: Obvious Corp. and Twitter). The opposite is also true. When a startup studio doesn’t produce a hit its founders lose interest and it falls apart (see Kevin Rose’s Milk labs).

With Betaworks’ breakneck pace of building, buying and iterating on products, it has taken the startup lab concept to the extreme. Betaworks may not be the first group to experiment its way into a big hit. But if the company succeeds in building something worth more than the sum of its many, fast-moving parts, it’ll be the first to do it sustainably. Which is, Borthwick would have us believe, all part the master plan.

Next week we’ll discuss all of this and more with John Borthwick as our guest for PandoMonthly New York. Buy tickets here. 

[Illustration by Hallie Bateman]

Erin Griffith

Erin Griffith covers New York startups for PandoDaily. She's worked as staff writer for Adweek and a private equity blogger for peHUB. Her writing has appeared in VCJ, Time Out New York, Huffington Post, FT.com, and BUST. She plays keyboard in a band called Team Genius and Tweets as @Eringriffith.

Keeping teams productive and efficient can make or break a business.

Namely has raised $3.35 million from True Ventures to help businesses stay on top of their “people management.”

The startup provides an enterprise platform for businesses to conduct human resources activities. Using Namely’s HR Information System (HRIS), they can store and track data about employee reviews, time off, compensation, work history, and set goals. Namely has built tools to make assignments, customize specific permissions to data, and link assignments to individual and team performance reviews.

Hiring and keeping the best talent is an on-going battle in the tech world, and Namely also offers recruiting tools. The product involves a search engine so organizations can find the right internal person to take an open position or fill a new one. The whole system is meant to optimize efficiency and performance.

Namely founder Matt Straz previously cofounded Pictela, a digital advertising platform that was acquired by AOL in 2010 for an estimated $20 million. He observed how advertising agencies struggled to attract the designers and developers they needed to create rich media campaigns, and Namely was initially created to help agencies stay competitive in the battle for talent with tech startups. It raised a $1.75 million seed round in 2012 from Lerer Ventures, Bullpen Capital, and big names in New York’s media/ad-tech scene including Mike Lazerow from Buddy Media and Michael Barrett of AdMeld to expand beyond advertising.

Namely has since broadened its horizons and now works with tech startups like BuzzFeed, Birchbox, Thrillist, as well as agencies including Saatchi & Saatchi, MediaLink, GroupM, VaynerMedia, and Rockfish. It also focuses more on management than talent acquisition, and competes with companies like Trinet, TribeHR, and 7Geese, as well as recruiting and applicant tracking startups.

Namely supports international currencies (for paying people) and is available on iOS and Android. It is based in New York. This round brings its total capital raised to $5.25 million.

Photo Credit: War Z Crowd