Part 2: How AngelList and Stonks deal with Adverse Selection
Part 1 is here, where we talked about different startup funding platforms, and how we started using a tier-based approach to dealing with adverse selection.
TLDR — Angel list started as a funding marketplace, listing deals directly. Didn’t scale due to adverse selection. They rolled out Syndicates, building tools for others. That worked a lot better, solved adverse selection, and now they have a giant platform. Marketplace → Tools → Platform. Stonks has been following the same route for incubators / accelerators / funds.
Angel list: the Funding Marketplace (2011–2016)
Angel list started off trying to become a fundraising platform, a marketplace for startup equity. This sort of worked, with AL funding over $10m a month in startup deals. By most measures, this would’ve been seen as a success.
But startup quality dwindled over time. AL started to focus on jobs. Anecdotally from users — fewer and fewer worthwhile deals were on the platform. Fundraising in public became a negative signal: the folks doing it were those who had to as a last resort.
During this time, AL also launched Syndicates, their first tool for leads (individuals, emerging fund managers, founders with dealflow) to organize a fundraise privately on the platform. This was their first major feature focused on intermediaries rather than startups or investors — folks who were vetting deals, had access to good deal flow, and had solved adverse selection with their own deep, personal networks.
Syndicates changed what AngelList fundamentally was. Instead of trying to connect investors and startups directly in public, this would now allow embedded startup experts to connect investors and startups in private. AL created a tool (and a strong monetary incentive via carry) for a whole class of syndicate leads to build their business on top of AL (think “Shopify for Investing” rather than a marketplace). And as is the case with successful creator tools — as syndicate leads pushed to build their own businesses, they grew AngelList as a platform.
Angel list: Tools for Syndicates & Funds (2018 — Present)
It is no longer possible to raise or invest publicly on AngelList. There is now no central marketplace listing of all deals visible to users. AL is now a group of closed silos, each with their own LPs, deal-flow and community. In the last couple of years, AngelList has doubled down on this strategy with a number of new tools, and now includes:
- Rolling Funds
- Traditional Fund Administration
- AngelList Stack (for Founders)
- Roll-up Vehicles (cost-effective SPVs, for Founders)
In some ways, AngelList’s journey could be summarized as:
Marketplace → Tools for Investors & Founders → Funding Platform
Seems to bear out the “come for the Tool, stay for the Platform” strategy, and the Creator tools strategy, that we’ve seen play out before with marketplace businesses.
Stonks: Platform to Tools
Stonks started off doing its own demo day every 4–6 weeks. We partially solved adverse selection through investor signaling. But the way we’re really solving it long-term is by transitioning from hosting our own events, to primarily hosting partner events instead.
Quite organically, we seem to be following a similar evolution to AngelList:
Stonks Demo Days → Tools for Partners → ?? (platform)
Our focus is similarly changing: what matters is Partner success, not our own. We win if they win. If they can grow their demo days and convert them into 2X-3X more investments using our tools, we will succeed alongside them.