OLC attended Investor Series with Bill Siegel of SecondMarket in Funding Startups on Friday, April 12, 2013. Bill Siegel is responsible for managing fund strategies for SecondMarket. He worked at SAC Capital and was VP of Equity Research at MD Sass, where he focused on financial service and energy sector investments.
Bill Siegel started out on the buy side before he “reformed” himself after the credit crunch. “I joined SecondMarket after the end of the IPO market. SecondMarket as a business has three groups: esoteric securities, legacy business after IPO phase—outside of Facebook, we took ourselves out of private share and allowed us to structure on terms that the companies put in place. We set up regular liquidity windows and that’s the rules,” Siegel said. He also added that SecondMarket is focused on banks. “Banks also have liquidity issues. We also have a fund business too. We think of ourselves as a startup.”
Siegel talked at length about AngelList. “About a year ago, we pooled investors who couldn’t afford Facebook stock and we created like a securities stock. We though about preserving the power of the investors and the fund was developed to directly distribute to the investors. AngelList was looking for a way to get funding. We tried to figure out how to scale and the issue was if we were helping entrepreneurs with a positive service,” Siegel said.
“Today, we have one of the best services today. How it works is, if you have an AngelList profile, you get a series of questions from us if you opt in to take part in it. By activating your list online, smaller angel investors can enlist $1,000 to you. Once you have about $200,000, the fund moves over to SecondMarket and the fund is closed. We’re not a broker-dealer, though. What that fund does is purchase stock that other angels would invest in. We’re allowing investors on the other side to invest in your business,” Siegel said. “SecondMarket gives you time and gets you exposure. But you have to work at it to achieve what is necessary to get the fund on the table,” he added.
From here, Bill Siegel took questions from the audience.
“What is the minimum collection of money?” an audience member asked. “The marginal cost is over $200,000. The fund automatically closes when it hits that number. As of right now, you need over this amount to close the deal. We don’t run the business as a top- down business,” Siegel said.
“How do you structure the terms?” a member from the audience asked. “We don’t do any follow-up investing. We don’t allow any. It’s too expensive to figure out the next step. It’s too much work. To be honest, $200,000 is too small to do that,” Siegel responded.
“Do you guys have any reporting or follow ups on investing?” a member asked. “We work with the entrepreneur and we get information from them and we’ll post the update on a social platform that all of the investors communicate through,” Siegel said.
An audience member asked if Siegel finds that sponsors are reluctant to put their full information on AngelList. “There’s two steps. Activate fund, just list high quality lists—we’re not pretending that we know everything. And we have pretty strict primary controls. A lot of the investors are interested in sale and they’re not going to do full due diligence,” Siegel said. “We think that it’s really tough to raise capital right now. You can’t ask questions or pitch at scale. AngelList is a tool that promotes your brand, but we’re not sure exactly what it is yet.”
“What are more restrictions regarding soliciting bandits?” an audience member asked. “Generally, all you’re funding is behavior on an accrediting wall. You’d need to speak to your lawyer. We try and protect you from natural solicitation,” Walsh said.
An audience member asked if SecondMarket and AngelList used PPM. “Yes, we provide that. The preparation of your documents and taxes are all done here,” Siegel said.
“AngelList is basically matchmaking between investors and startups. Regarding feat ured investors and companies, they are chosen by me and the team. Trending is based on velocity of tagged customers and having them visit your profile and visit you,” Siegel said. “About the future of SecondMarket, a high curated list and managed funds might get us enough capital. We want capital to flow as smooth as possible, but responsibly,” he said.
There were a variety of key takeaways from this particular interview. The audience learned that removing agency from business and not having anyone disengage with the business is an indicator of something wrong in the company. The audience also learned to build business as they build the product. “I’ve seem more product people that don’t know how to build business,” he said. The audience was advised to move very fast. Speed is more important money. If you’re not growing, you shouldn’t let that company, especially since velocity is important.
“A lot of startups need two models to really succeed. Sometimes, one business model is really guarded. That’s the way you get feedback from people. Socialize as much as possible. Network your product. It’s easier to stop marketing, but you still need to keep that network up because with Blogan, you never know where the connections are. I’ve found that a lot of investors don’t pick their board well. Money is a premium, but think about people who you’re taking from. And partnerships can be attractive, but it’s also distracting early on. Think about the opportunity, and think about earnestly purchasing it.