AngelList: Selling Advertisements and Data
AngelList is an online platform that enables founders of companies to find suitable investors for their startups. The company was established by Naval Ravikant and Babak Nivi in 2010. Initially, it was simply an extension of their blog Venture Hacks, which helped individuals to navigate through the complicated process of venture funding. Although the platform has been successful in enabling founders to get funding from suitable investors, Naval and Nivi had not yet determined the most appropriate business model for their operations.
Currently, the two founders of AngelList have various options of the business model that they will establish, which includes them acting as brokers by charging a fee among those who use the website, co-investing money with other investors, or selling advertisements and data from the site. Based on my analysis of the business regulations and investment opportunities in the United States, AngelList should engage in the selling of advertisements and data from the site.
AngelList has sizeable vital information that is demanded by founders, investors, and even other business stakeholders. For example, the company can sell information of potential investors, such as their address and business contacts to founders. However, it must be careful so that it does not breach the privacy of these individuals. Similarly, investors can purchase information of suitable founders from AngelList. In this case, the investors can ask for details of founders that much a specific profile, such as those investing in technological products, have an experience of 5 years or more, are located in Europe, or have started a business before. AngelList can also sell different types of information to various business stakeholders such as employers, the government, and research companies. As for employers, they may be interested in hiring individuals who have some specific professional skills and experience. Therefore, they may approach these individuals with employment offers. The government can also seek the expertise of various startups in research projects, and would thus be willing to purchase relevant information, such as that on the experience, technical skills and experience of specific founders.
IRR for Five Years
Assume Angle List has a 10x revenue value in five years (2013-2018). The 2013 Angel List valuation is $150 million. A 2013 investor in AngelList needs a 50% expected IRR for five years, so what should AngelList’s revenues be in five years (2018) to provide such a return?
The internal rate of return (IRR) is used to estimate the profitability of potential investments. The internal rate of return makes the net present value (NPV) of future cash flows equal to zero (Render 67-71). Therefore, the NPV formula can be used to establish the required cash flows in a specified IRR. An NPV is calculated as follows:
NPV= Net present value
Ct= Net cash inflow during the period t
C0= Total initial investment costs
R= Discount rate
T= number of time periods
When calculating for the IRR, a person sets the NPV as zero and determines the discount rate r, which is, in this case, the IRR.
Investor needs an IRR of 50%
Initial investment (valuation of Co.) (C0)= $150Million
Period of investment (t) = 5 years
NPV (0) = [Ct/ (1.5)5]-$150Million
From the calculations, AngelList should have cash flows of $1,139,026,500 from the five years (2013-2018) for it to provide such a return.
Investopedia. Internal Rate of Return-IRR. https://www.investopedia.com/terms/i/irr.asp. Accessed 23rd February 2017.
Render, Barry et al. Quantitative Analysis for Management (13th Ed.). Pearson, 2017.