AngelList Syndicates has gotten a lot of people very excited lately, but probably none more than Jason Calacanis. The hyperbolic SV man about town has said it “changes everything” “put[s] the power – the money and where it goes – in the hands of the angels” and will be the “nail in the coffin” of weaker VCs. It gives him and other angels the power to invest like a VC.
Now, Calacanis is using that power to dramatically alter the nature of hackathons. Hackathons are about to get a lot more serious because potential companies and hundreds of thousands of dollars in investment will be at stake.
As background, the new AngelList Syndicates program allows investors to back other angel investors, promising to contribute sums of money to every deal they invest in. That way, said angel investors can raise much larger rounds for the companies they care about, acting with the influence of a VC firm instead of an angel.
So how does that impact hackathons?
In the past, hackathons have been fun competitions to create products, but not really a way to build a viable startup. Usually hackathon apps are discarded after the winners take home some hackneyed prizes, like tablets or sporty jackets. After all, the people who compete in hackathons have their own jobs and lives to get back to. No time to drop everything and pursue building out a prototype they created in 24 hours on no sleep jacked on Red Bull and pizza. Of course, there are a few exceptions, but for the most part hackathons are just temporary games without lasting real-world impacts.
AngelList Syndicates may be changing that, starting with Jason Calacanis’ LAUNCH Hackathon November 8-10. This is the second year Calacanis is hosting the hack, which is only open to legitimate designers and programmers. People’s GitHub repositories and design portfolios get screened before they’re accepted to attend. The hack doesn’t have any particular theme — attendees can build what they want to. Last year, Calacanis and a few of his friends invested $100,000 in the winning group WizzyWig on the spot, and the team later got accepted to an elite accelerator.
This year, the stakes are a little higher. Calacanis’s LAUNCH Fund is investing $50,000 in two of the winning teams. In addition, he’s leveraging his new AngelList Syndicate. The winning teams will be able to accept almost $800,000 in capital from Calacanis’ Syndicate. We’re talking about almost a million in funding per team for a product they created over the course of a weekend. From blank slate to funded in 48 hours.
“This is a real shift in angel investing and in venture capital,” Calacanis says. “I’m sourcing and creating deal flow for myself with the hackathon. Funding without having to get a venture capital firm involved. I can make the decision on the spot.” Calacanis has more power than most, given he’s ranked third on the AngelList Syndicates influence lead board, with $762,100 in backing from 203 backers. In comparison the fourth angel on the list, the venture firm Foundry Group (wait a second that’s not an angel…), has only $323,701 in syndicate support to its name.
Of course, Syndicates is so new we don’t know how such funding will play out. People can withdraw their Syndicates backing at any time, meaning an angel fund that is initially $800,000 could dwindle overnight.
Syndicate backers can also choose to opt out of a specific deal under exceptional circumstances, like a conflict of interest because said backer has invested in a company’s competitor. Will all Calacanis’ backers support his hackathon investments? Not necessarily.
Naval Ravikant, AngelList founder, agrees that the logistics of how Syndicates deals will work are still “heavily in flux.”
Although Jason does have a lot of backers, a number of key points are still TBD – i.e.:• Will they see every deal Jason does? Or will he curate some? On what basis?• Do they know they’re committing to every deal he does?• Does Jason want all of these backers? Or will he drop the less sophisticated ones?So the real numbers will come in lower once we finish working out the rules of engagement.
There’s no guarantee that the winning companies will get the $800,000 investment Calacanis says they will. That said, even if half of Calacanis’ backers opted to pass on the hackathon companies, the winners would still get a substantial investment — $50,000 — from the Launch Fund.
A more important question is how long it will take Calacanis to get the syndicate investment money into the hands of the winners. Since the investment program is so new, the timeline has not yet been formalized. Hackers who build a product overnight may not be willing to put their whole life on hold to launch a company without the investment money securely in hand. They’ll have $50,000 from the LAUNCH Fund to tide them over, but they may be nervous to quit their jobs and commit 100 percent to their product until the AngelList Syndicates money comes through.
Calacanis’ LAUNCH Hackathon will surely not be the last time AngelList Syndicates impacts a hack. With prominent angels able to raise big rounds and invest where they see fit, hackathons may very well become a fertile place to find companies, albeit ones founded that same day. “One of the things I want to be known for, as angel investor, is to be the first person to invest,” Calacanis says.
“With a hackathon there’s a competition element. A finite amount of time and resources,” Calacanis says. “There’s that expression that great art comes from great restraint. Restraint and competition will lead people to perform.”
Hackathons are also a breeding ground for outsiders. People with no connection to Silicon Valley, no entry to deal flow, perhaps no experience starting a company, can show up, collaborate with other hackers, and build something potentially awesome. If AngelList Syndicates makes hackathons viable places to form companies, then it’s opening the doors to said outsiders who might not have the experience or investor connections otherwise.
Fifty percent of the people that signed up for LAUNCH last year were from outside Silicon Valley, and the winning team was from Pittsburgh. “There’s a lot going on outside the valley and a lot of people are looking to come here and find out what’s going on,” Calacanis says. “Let’s see if we can go and compete against the locals.” As a condition of them winning, Calacanis sits on the board of the companies for the first year, advising them.
“Now that I have my own fund, I don’t have to ask anyone for permission. I can just do this.”
AngelList Syndicates: letting angels play God since 2013.