31 Mar 2013, 10:30am
Startups
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AngelList Receives SEC No-Action Letter Two Days After FundersClub

Updated at 1:53pm PST with comments from AngelList CEO Naval Ravikant.

On March 26th The Funders Club received a no-action letter from the Securities and Exchange Commission stating that it will not recommend enforcement action against the year-old private equity investment platform, making it the first government sanctioned online VC.

What has not yet been reported is that AngelList, a competing service used by early stage companies to receive introductions to investors and take some online investment, received its own no-action letter just two days later on March 28th (embedded below). While being first makes for great PR, FundersClub can expect AngelList will be the first of many competitors to emerge now that its business model has been validated.

The letter to AngelList also mentions a currently unformed business entity with an identical model to that of The Funders Club:

AngelList Advisors LLC (“AngelList Advisors”) intends to form a limited liability
company and register as an investment adviser either with the Commission or one or more states.
AngelList Advisors will be a wholly-owned subsidiary of AngelList or its affiliate. AngelList
Advisors proposes to establish a new angel investing platform (or part ofits existing website)
that will assist AngelList Advisors and accredited investors (“Investors”) in identifying
companies that seek capital and in which one or more so-called “angel investors”3 intend to
invest (each such company, a “Portfolio Company”). If Angel List Advisors identifies and
approves ofboth a Portfolio Company and an angel investor (referred to hereinafter as a “Lead
Angel”), then AngelList Advisors will form a separate investment vehicle (“Investment
Vehicle”) for the sole purpose ofinvesting in that Portfolio Company. You state that the
Investment Vehicle will likely be structured as a limited liability company or limited partnership,
and will be responsible for all organizational costs and expenses associated with its formation
and the investment in the Portfolio Company.4 You also state that AngelList Advisors will
provide the initial capital required to pay such organizational costs and expenses.

UPDATE – 1:53PM PST: I have just spoken with AngelList CEO Naval Ravikant, and he has confirmed they have received this letter from the SEC. According to Ravikant, their funding vehicle has been enabled for 28 companies to date and generated $2M in funding in the past month. He also says AngelList on the whole now generates around $10 Million in investment commitments monthly to the larger community of startups receiving introductions on the platform.

He also told us they expect to make money on other services not related to investing, such as Angel List talent which according to Ravikant, “has growing 2-3x in the past month with 1600 mutual matches of about 600 candidates, with 3300 companies recruiting and a reported 5% close rate. AngelList hired their last 3 engineering team members on their own platform”. Giving the hiring challenges in Silicon Valley, this could be huge. Currently AngelList does not charge for talent placements or listing.

“We didn’t really announce this since a lot of it seems like behind-the-scenes inside baseball. It lets us know the legal boundaries of what’s possible in the space and will inform our future products, but right now we’re happy with the SecondMarket partnership – SM vets investors for sophistication, companies for background, and provides Broker-Dealer level protection and compliance.

The /Invest[sic] feature on AngelList is working well so far. We do curate the opportunities to those with a high-quality lead investor, and to date we’ve announced 7 fundings, 14 are closed or in closing, 18 are currently open for Accrediteds, adding about one per day. We’ve received over $6M in commitments in the last Quarter in 915 separate transactions. We have 12,000 Accrediteds on AngelList, and via our SecondMarket Partnership, can reach another 20,000.

Unlike others in the space, we don’t think we can pick the winners – rather, it’s a more open approach for any company with a high-quality lead investor. We also don’t view it as a money-maker for AngelList – more of a community service. We also think it makes sense to augment it with our base service of introducing high-quality companies to sophisticated investors (VCs, Seed Funds, Professional Angels) – we currently drive 500-700 of those introductions per week, and drive about $10M / month there.”

AngelList SEC No-Action Letter from March 28, 2013

Www.sec.Gov Divisions Marketreg Mr-noaction 2013 Angellist-15a1

FundersClub SEC No-Action Letter from March 26, 2013

Www.sec.Gov Divisions Marketreg Mr-noaction 2013 Funders-club-032613-15a1

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Good article. You may want to proof for typos – found a few.

They are a sneaky lot those SEC fellows – I’d wait even more to see where the fallout comes. Remember, the SEC sent SAC a similar letter a bit ago….

[...] its crowdfunding platform. But it wasn’t alone: a few days later, AngelList received a similar letter from the SEC. [hat tip to Danielle [...]

[...] Danielle Morrill recently blogged about The Funders Club and AngelList, online angel/VC platforms that connect startups and investors [...]

[...] of any change of emphasis in how AngelList currently operates. As quoted by Danielle Morrill on her blog, Ravikant states that the no-action response from the SEC staff “lets us know the legal [...]

[...] (SEC) issued what is called “no action letters” to FundersClub and AngelList.  (More here.)  Both companies operate online venture capital or angel capital platforms.  Both companies had [...]

[...] (SEC) issued what is called “no action letters” to FundersClub and AngelList.  (More here.)  Both companies operate online venture capital or angel capital platforms.  Both companies had [...]

[...] against its crowdfunding platform. But it wasn’t alone: a few days later, AngelList received a similar letter from the SEC. [hat tip to Danielle [...]

[...] of it seems like behind-the-scenes inside baseball,” Naval Ravikant, AngelList’s CEO, told Danielle Morrill. “It lets us know the legal boundaries of what’s possible in the space [...]

[...] would not pursue action against its crowdfunding platform. But it wasn’t alone: a few days later, AngelList received a similar letter from the [...]

[...] announced its referral program Similar to what Angellist outlined in its letter to the SEC. Expect many more platforms to follow suit—it’s a powerful mechanism for distributing the [...]

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