Are VCs Investing in Their Own Disruption?

Photograph by Brian Ach/Getty Images for TechCrunch

Naval Ravikant of AngelList speaks onstage at the TechCrunch Disrupt NY 2013 at The Manhattan Center.

Venture capitalists are known for backing startups that are disrupting established industries. Typically that doesn’t include their own.

But Silicon Valley’s elite firms are finding it hard to ignore a growing threat to their once proprietary deal flow. Venture investing — like seemingly all businesses — is gravitating to the Web, and at the center of the movement is Naval Ravikant, the co-founder of AngelList.

Ravikant, 39, a longtime startup investor, has spent three and a half years building AngelList from a niche site matching founding teams and wealthy individuals to a buzzy investment tool that’s chipping away at Sand Hill Road’s dominance.

And now, thanks to some of those legendary firms, AngelList has a war chest from which to invest in new products. The company said today that it raised $24 million from 116 investors, including Google Ventures, Kleiner Perkins Caufield & Byers and Draper Fisher Jurvetson, as well as prominent angels such as Yuri Milner, Mitch Kapor and Max Levchin.

“In the past it was kind of like a mafia,” said Wesley Chan, a partner at Google Ventures in Mountain View, California, the biggest investor in the round. “Folks had secret access to companies and it was all relationship-based. Naval is at the forefront of disrupting and democratizing access.”

So why did Google Ventures invest in its own potential disruption?

“I’d rather be on the right side of history than the wrong side,” Chan said.

Since its launch, more than 1,300 startups have raised a total of $200 million on AngelList, including alternative-taxi service Uber and e-retailer Wanelo, Ravikant told investors and reporters last week at The Cavalier restaurant in San Francisco. That’s still a tiny sliver of the industry: Venture capitalists invested $27 billion in almost 3,800 deals last year, according to the National Venture Capital Association.

Ravikant doesn’t expect to put venture firms out of business. After all, top-notch funds have hundreds of millions of dollars at their disposal and experienced investors and technologists on staff that most startups will always need. Rather, he’s focused on eliminating inefficiencies, like the amount of time and money early-stage companies have to spend on setting up meetings, traveling to pitch sessions and finding and paying lawyers.

“The issue is – how do we scale investing,” Ravikant said.

For now, AngelList isn’t making money. The biggest opportunity to do so, according to Ravikant, is in recruiting. Some 37,300 job candidates — largely developers, designers and product managers — have posted profiles on AngelList, and more than 3,000 people have been hired on the site. Considering that traditional recruiters and online options like Hired.com, formerly Developer Auction, charge thousands of dollars per successful placement, Ravikant expects a healthy business to emerge.

That’s good for venture capitalists because it’s one more service that helps their companies. And it’s one more way that Ravikant can play nice with the big boys.

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