This was how a startup company of eighteen months in the Silicon Valley made its recent investment. The startup works on developing a roving robot that can be used in teleconferencing. It received an investment of $10.000 from a technology consultant in Columbus, Ohio. All that Adam Winter had to do after reading on about the $2000 gadget developed by the startup was to click on the button that says investment, state his amount, which he decided at $10,000,and hit go. This is what the new website for investments works like.
"It's almost as easy as the Amazon one-click checkout.” says Winter, as reported by online.wsj.com.
"It's a totally new way of raising startup capital,” David Cann, co founder of Double Robotics, where Winter invested says.
The company had in fact received fifty such investments from angels and investors alike. No face to face interaction has been involved in the investment.
"Money is money," Mr. Cann says. "We're happy to take it from whomever."The company was in need of $3, 00,000 and this is when a profile was created on the website by Cann who also spoke about his preorders of two million.
The website’s name is AngelList. Though having existed for a couple of years as a networking site to investors and entrepreneurs, users then did not have the opportunity of these direct investments. It was mainly a website for the sharing of information where entrepreneurs could create their profile and hope to find some investments in the process.
The growing success of this site does not mean that AngelList is free if criticism. It is often commented that to make an investment after just a research online is quite a foolhardy thing to do. Some traditional investors still believe that investments can’t be made without having a face to face meeting involved in the process.
"You're adding a whole layer of risk to an already very risky investment class," says Jeffrey Sohl, director of the Center for Venture Research at the University of New Hampshire. "With most of these investments, you're going to lose money."
"It's no different than when you go hire someone to work for you," says Catherine Mott , a retired entrepreneur and an angel investor for fourteen years , "You just don't blindly reach into a bag and pull out a résumé and say this is the one I'm going to hire."
It also does not mean that this site keeps away from getting investors warned. "Startups are very risky investments. Expect to lose your money.".This is what AngelList bluntly states to investors. Investors are also warned with the fact that the information posted by startups is not verified by the site.
Another investor, Brian Cohen, who has been the chairman of the New York Angels Group the reason behind why some investors, especially those far away are attracted to the site.
"You get so excited about the possibilities," says Mr. Cohen "Even the best angel investors get caught up in the excitement.
"Not doing due diligence is like having unprotected sex," he says. "As you scale up the amount of dollars you put in, you need and want to do more due diligence."
The website is powered by SecondMarket, an investment platform based in New York and allows over 95 accredited investors to commit an amount of $1000 each in any startup. The exceptions here are that they need to have an annual income of more than $2,00,000 for more than two years at a stretch if not a net worth that goes up to a million dollars.
The website’s tool for investment has been made use of by 11 startups so far. These companies were in fact picked and chosen by SecondMarket and AngelList to make use of this tool. Investors here can receive a stake in the startup with variations depending on the deal and the company.