'Every software company is an AI company now,' says AngelList CEO Avlok Kohli

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Hello and welcome back to Equity, TechCrunch's flagship podcast about the business of startups. I'm Maryann Azavedo, and this is the episode where we bring on industry experts to help us explore a trend in the tech world and dive deep. Today we're joined by AngelList CEO Avlok Kohli to dive into a variety of topics, including just what AngelList does today, the state of angel investing, and so much more. Avlok, welcome to the show. How are you today?

Thank you for having me. Doing great and excited for this podcast.

Yeah, looking forward to it as well. So I don't know if everybody's aware of your background. Prior to joining AngelList in 2019, you actually founded and sold two companies of your own to the likes of Postmates and Square. They include FastByte, which was a food delivery company. And then Fairy, a provider of high-frequency house cleaning services. So you obviously bring an interesting perspective as a former founder and operator. So we're going to get into that a little bit more later, but I think one thing I'd like to clarify upfront before we get into anything else is just really exactly what AngelList does today. I know that it started as a platform to connect startups with early-stage investors. It's expanded over the years into kind of more of a, I think, an infrastructure provider. It's definitely evolved over time. So I guess AngelList is no longer just a job board or angel investment platform. Can you clarify for our listeners exactly what does AngelList do today?

Yeah, the best way to think of AngelList today is we're actually the go-to fintech platform where any GP in venture can actually launch or scale their next fund. We took what was a SPV provider in 2019, and we scaled it out over the last almost 6 years now into venture funds, rolling funds where we invented a whole new product. We also introduced another innovation, ROVs, roll-up vehicles for founders to raise capital. So you can really think of us as the go-to fintech platform that has scaled up fund management for any GP that's looking to start or scale a venture fund. That has really been the past 6 years of AngelList, is really scaling everything we have out. And at this point, we run a fairly large portion of early-stage venture funds, and we've also started supporting scout funds for some of the largest venture firms. In fact, we support the scout program for one of the top 5 firms in tech. That's really the best way to think about AngelList today. And we can also talk about where AngelList is going, which is even more exciting because we now have enough scale that we've started looking at Act 2 and Act 3 of the company as well.

Hmm. Okay. Yeah. So the scout program, what does that mean exactly that you actually —rather than a VC firm having an in-house scout, that you provide a scout to help them scope out potential investments?

We're actually the management layer, the fund management layer for scout programs. So what typically happens is if you're a venture firm that wants to do a scout program, you need to have a fund that then can house the capital for the scouts, and then the scouts themselves are deploying capital from that fund. You need to set budgets for each scout, how much they can invest into deals. You need to manage the investments over typically a 10-year hold period. And so AngelList manages the whole thing end to end. So rather than a firm needing to handle it in-house, they effectively have offloaded that whole management to AngelList because over the past 6 years, we've built up all of the necessary sophistication on the software, on the accounting, on the reporting, taxes, and compliance. This is actually one of the most key differentiator for AngelList is we can actually handle compliance for the entire scout program. They've actually offloaded over to us and it actually allows them to scale it out further and faster. And in fact, scout programs are the best-kept secret in tech. I don't think any firm will ever fully speak on the record the details of their entire scout program because it works incredibly well. And we actually just recently published some stats on a scout program where at least what we're seeing within the AngelList platform, which we've also validated is reflective of the industry, is we see almost 1 in, 1 in 5 investments that are made are actually made through a scout first. So they're very important sourcing for some of these firms.

Didn't realize it was quite that much. You know, obviously we saw saw a lot of craziness during the pandemic, and you mentioned the initiation of rolling funds. But anyway, there was funding craziness. We saw crazy highs, record investing, peak valuations, and then we saw kind of like a plummet, right? So, um, I feel like a lot of people were burned through these kinds of ups and downs. Would you say that people are still as enthusiastic about nascent startups as they once were outside of AI? Because I know right now it feels like that's what everyone seems to be interested in. And what do you think angel investors want now versus a few years ago?

So I will say that every software company is an AI company now. And so the enthusiasm into AI carries over into everything, which effectively impacts all startups. And so because of that, I would say the interest in investing in startups is still very, very high. We even a few quarters ago, were categorizing, oh, this is an AI startup and this is not an AI startup. But it turns out as AI and the underlying models are getting really good and they're just everywhere, it's the substrate on which every company is going to get built now. And if you're an existing company, you need to adjust and become an AI company. If you're a new company, you absolutely are by default an AI company. You're going to be using all these models to make your product better. What we're seeing is interest in startup investing is very, very strong and call it the ZIRP times where interest rates were zero, were definitely a huge peak point and that there was some artificial element to that huge rise. But given where interest rates are today relative to, let's say, pre-2021, it is actually very strong. Investing in startups is very, very active. And the reason is because we're seeing that a lot of these new crop startups, they're having record growth. They're actually growing very quickly with much lighter headcounts. And so that is ultimately driving a lot of the interest in startups.

Yeah, I think me, I'm reminiscent of a few years ago when fintech was all the rage and people were saying a similar thing, but obviously on a different scale, far different scale. But oh, everyone's a fintech, every company is going to be a fintech, meaning that a lot of companies are going to be incorporating financial technology somehow, like embedded payments or embedded banking or something like that into their offering. AI is different, I think, because it can be used in so many different ways. Although I have to say, I probably Wouldn't necessarily myself agree that every single company needs to either become an AI company or incorporate it into what they do, because I feel like I keep getting pitches that people are trying to use AI to get my attention, but it's really kind of a lame attempt to just try to pretend they are AI so that they can get attention. Because I feel like there are still companies out there that can do awesome things that aren't necessarily going to be classified as, as AI companies, but But having said that, you know, I'm encouraged to hear that there's still a lot of activity and interest in early-stage startups. Would you say beyond AI, what sectors are doing well, I guess? I mean, well, first off, what percentage of deals on your platform do you think are actually AI deals right now? And then what other sectors are on the rise or decline?

Yeah, just by percentage, AI is in terms of what's being categorized as the highest and it's growing. We're seeing 40% plus of just the companies that are getting started investing at the early stages are AI companies. Companies. I just saw a stat too, YC in the latest batch had an even higher percentage of companies that are billing themselves as an AI company. And we see this stat will continue to increase. And actually, a comment on what you said earlier, the way I generally think about these waves, right, we had— have been in Silicon Valley since 2009, so I've seen many different waves at this point. At one point, social was the wave, then local was the wave, then logistics was the wave, fintech was the wave, and AI was the wave. And I probably missed one or two in there, right, in the past many years. And the very interesting thing about these waves, it's actually very natural. What you get is you get a Cambrian explosion of these startups. You get these boom-bust cycles. And it turns out that these boom-bust cycles is more of a discovery mechanism to find what actually will work. You can think of these as many parallel experiments running to look at how do we take this technology or this insight and we bring it to the masses and we bring it to something that can push society forward. And you can't have one without the other. You kind of need to have all of these experiments running in parallel, which also means a lot of capital goes into it, which also means that if you're not in the winners, then people who've invested the capital do lose money there. But that's kind of the natural byproduct of the venture industry and also why we see the venture industry punch way above its weight class with respect to contribution to GDP or with respect to contribution to jobs. It's kind of part and parcel. You can't have one without the other. Now, on the topic of AI specifically, we are seeing a very large number of these companies that are AI companies. Even the other categories that are there, like people are still starting fintech. The acquisition of Bridge from Stripe created this other wave for fintech. Crypto, of course, is also having a comeback because of this administration. They're very open. There's a lot that's going to change on the compliance side. I would still say despite all of these tailwinds in these other industries, AI will continue to dominate, and we're seeing that in our data as well.

Yeah, no, I, I would agree with you there. I'd like to switch gears just a little bit. I'm curious about what AngelList is doing to help solve liquidity challenges for investors. I know that there was a very dry IPO period, which is finally starting to pick back up a little bit this year, but what that has meant that there's all these companies that stayed private longer than maybe anybody thought they would. So what is AngelList doing with regards to secondary markets? I believe you had a product that was competing with Carta. Related to secondary markets?

So there's a broader theme of liquidity in private markets. I would say that the thing that's led to the illiquidity in venture and private markets is the lack of companies going public, as well as the lack of big M&As. In this administration, I think we're going to start seeing some more M&As, which is good. In fact, just today, Google announced they're purchasing Waze for $30 billion in cash, which will actually bring a lot of liquidity into the private markets. For the LPs that were actually invested in Waze, of course, right? It's not going to bring it to everyone. When it comes to the public markets, we're also starting to see that window open up. We saw Klarna just filed to go public, and we're also seeing a few others that are starting to line up. Remains to be seen though. Obviously, the public markets are very unpredictable. It's hard to know where it actually goes, but at least today we're sort of seeing some of those signs. With respect to what, you know, the product St. Julius has had, any product that we've actually looked at building has always looked at How do we provide liquidity at the fund level versus at the company level? And what this means is that anything where you're trying to provide liquidity, the question answer is, hey, if an LP is trying to sell out of a position in a fund, then that is something that we can support. So at a minimum, we can support the logistics of it. So if you're a fund on the platform, you're trying to sell a position to someone else, the GP coordinates it, and then we facilitate that transaction. Then there is another aspect of it, which is, can we bring the capital, right? Can we collect the capital and then bring it. And we've never actually had a large-scale effort on this, but we do have a program that we are looking at, which is, can we actually pool together capital and help purchase out specific positions from specific GPs? It is, I would say, at the fund level, and it is something that we're experimenting with, but we don't have any large-scale effort. On the startup side, we do allow for different ways in which we can make it easier for companies to facilitate secondaries within their own cap table., and a lot of this typically are the employees. So employees want to sell a little bit, and what can AngelList do to help smooth that out? And we have experimented with a few product updates there, and we facilitated some of these transactions. And one example is a company that uses our RUV product to facilitate secondaries. So every, every quarter or every year, I can't remember the exact frequency, they will actually have investors that are excited to invest in the company. They will create an RUV, and then they'll actually use that to facilitate secondaries for the employees. And so we've supported there. So we have crossover with Carta on that product. But as we think about bringing capital, we think about at the fund level. Right.

And I, I think last week you announced a new product called Fin. Yes. Right. You describe it as a reasoning engine for private market data for GPs and LPs. So are you using AI for that? What exactly is that product?

Yeah, I alluded to earlier that we're very focused on Act 2 and Act 3 of the company at the same time. This is natural as a company scales. You can move into adjacent markets. So you can think about the last 6 years of AngelList as we're building out the back office business, the fund management business. And we're now looking at the front office side and the intelligence tool. So that Fin is our first intelligence tool. What, and what it is, is we've built this reasoning agent to access private market data and we've plugged it into anonymized AngelList data because AngelList has a lot of data we built up over time. So For example, you can use Fin to answer a question like, hey, what's the median valuation for a company in the last month? Even the question, as we get people off the waitlist, even the question you asked, what percentage of investments are going into AI companies versus non-AI companies? You can just run this, by the way, in real time yourself. Okay. Right? And this is what we're creating. You can run it and ask any sort of questions. And then we've also connected and created partnerships with other providers. So another one is, let's say you want to see Hey, over the last quarter, where's the most amount of secondary activity traded at? We actually have partnered with a provider that works with brokers to collect all this information in one place. And so we can provide visibility into that as well. Down to, we've connected it to any fund that is on AngelList. They can actually ask questions of their own data. They can say, hey, what are my top value drivers? Then can I just take this and go create an LP update for me? Take the first pass at my LP update. And we think, what I mentioned earlier, every software company will be an AI company. We deeply believe that at AngelList, and this is our step forward in a product that Lives and breathes that. That's what FIN is. I'm incredibly excited about it. I'm directly involved with it, and I find a lot of value in it. But, uh, that's just to give you a sense of what this tool does.

Well, how else is AngelList using AI? There are some other ways.

Like I mentioned, our core business is our back office business. You can almost think of it as like a factory where we have all these documents that are coming in and we're managing all the legal docs, equity docs for a fund, for investments, and it has to make its way through an entire process where we pull the right values out. We then record it to a general ledger. We get the accounting ready. These or financials for a fund, and then we, every year, we have to handle the K-1s. That process is typically managed with people at every step. AI is helping us automate all these different steps now. So for example, what used to take a human reading a long legal document, well, we've now taken that, replaced that with a quick agent that will now read the legal document automatically, pull the information out, and ready to record. So you can kind of think of, we have a human-driven back office process, which will now turn into an agentic-driven back office process with humans helping verify certain things versus humans being everywhere in that process. And so that's another way in which it actually is improving quite a bit of our back office operations. Eventually, we're also going to look at how do we take— it's sort of like the combination of FIN and our back office system. How do we then start to expose it within our support side? So when someone emails in, let's say someone emails in asking, what's this company worth? Or can I get my K-1? Well, we can actually help answer that question directly through AI versus through software versus needing a human to respond to that. So still very early actually in the entire process of how this thing will rewrite the entire business and just change the entire business. But these are just some ideas, some flavors of what we're working on today.

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In April of 2022, it's been, gosh, already almost 3 years. I wrote about AngelList taking on its own capital at a valuation of about $4 billion. Can you update us on the health of the company? What's your current valuation? Are you looking to raise more capital? How's your customer base now compared to then?

Yeah, overall very, very healthy as a business. We have more cash in the bank than we had when we raised that round, and we continue to add to the cash balance. So we're very profitable. Our revenue has actually grown since we raised that round as well. And so we've managed to grow throughout the last few years since we raised that round. In terms of current valuation, that is the last mark that we have, and we haven't raised since then, and we don't have any plans to raise. In fact, if you look at AngelList's history, we've We've always rarely raised, and this is even prior to me. We raise capital and assume it's the last amount of capital we ever raise, and we really focus on building real leverage in the business, real efficiencies in the business. And we don't always get it right, but I would say the general market is where we get it more right than wrong on that. And that sort of put us in a very strong position that we're in today.

When did you become profitable?

It's actually been a couple years. I don't know the exact date, but it's definitely been a couple of years.

Have you changed how you charge customers and how many employees do you have today? I think it's closer to 220-ish or 230-ish.

I'd have to go get the exact number. We're in the process of hiring. The customer base has shifted quite a bit in the last few years. So fun fact is prior to 2022, majority of our revenue actually came from the SPV side of the business and, uh, post-2022 SPV side of the business is actually the smallest part of our business. We evolved the business extremely fast and our product roadmap extremely fast. And we think of our path as we're continuing to move upmarket, taking on larger and larger funds and getting a lot more sophisticated with the types of customers we work with. And to be clear, this was always part of our journey. We had always intended to start with the small funds, small GPs, and it's a classic. You start out looking like a toy. We were a complete toy even like 6 years ago. We could only do small SPVs, only do very, very small funds. But that is the path for how you build something great, is you start looking like a toy and then you keep inching up. And so pre-2022, majority of the revenue from SPVs, and post-2022, we start changing that mix. And now the fund side of our business is the largest part of our business as we've continued to grow and take on more and more of the GPs. And like I mentioned, we've now made a pretty big push into scout programs. Scout programs today are typically reserved for the largest firms who can afford it, but we think that we can actually take scout programs and bring it to every firm. It's sort of the classic thing that Ageless does, which is take something a small number of people do and find a way to bring it to all other firms. And we just think it'll actually expand the number of people that can participate in venture, which is sort of a classic thing we've done, which is on the LP side, we can bring a lot more people in. On the GP side, we can bring a lot more people in because every scout is a future investor, a future venture investor, and a future GP. In fact, AngelList's track record is that because of our early product on the syndicate side and SPV side, a lot of the really good investors today actually credit their entire entry into venture to AngelList because AngelList helped them get started in like a really easy, lightweight way. And so we think we can do the same thing again and again and again. It's really like be this almost like entry point for a lot of people into the venture industry and investing in startups, which again, what drives us ultimately is innovation for society. And we think that having more people out at the edges backing a founder when they first have an idea, when no one believes in them, is actually incredibly powerful because all you need is that first check from someone that believes in you. And the more people you have out there that can write that first check, we think that more startups will get started, more people will get funded, and then we can see more innovation in society.

So as far as AngelList being profitable for a couple of years now, awesome. So revenue-wise, you say it's grown. Are you still in the double-digit range? And, and do you see AngelList continuing to operate as a standalone entity or ever being incorporated into a large organization?

We haven't shared our revenue publicly, but you can sort of guess where we're at based on us being profitable and our employee size. In terms of our independence, which is that next question, yeah, we have plans to stay independent. We've had over my time here multiple offers and people interested in absorbing AngelList, but for me, I'm like very focused on building a long-term enduring business. That's really what I'm here for, and that's what the team is here for.

This current market, what does it mean for these emerging GPs and founders alike? Having been a founder, what advice can you offer for aspiring founders? And, and sorry, I'm asking a lot of questions at once, but also what are some other trends, or what are some trends that you think that we can look out for the rest of this year?

Yeah, I think we're in the middle of the biggest transformation in tech in the world, period. Maybe I'll, I'll tackle the founder piece first. On the founder piece, go learn every single possible AI tool out there. It is truly changing every single week, and every single week there are new capabilities that shocks even me.

You know, it's very fast moving.

It's extremely fast moving. Uh, I'm, you know, I'm a software engineer by background. I went to school for it. You know, I spend my evenings and weekends just trying to keep up with everything, and it is changing so fast, and these tools are improving so fast that I would just recommend that folks go learn it and learn it quickly. And that's sort of like advice number one, go do that. And second, as a founder, just solve your own problem. That is literally all that matters. All companies are basically built off of some product that solves typically what a problem the founder has. And so really just stay focused on a problem that you have solve it. And that's typically the best way to build something great. I'd say on the emerging GP side, the key thing there I would recommend, and we have to kind of define emerging GPs, there's like different classes. There's like below $50 million, then between $50 and $150 million, right? So you kind of have like two different classes of GPs. But generally what I see is as GPs scale up fund size, they move from a positive-sum game where you're participating in early-stage rounds to a zero-sum game where you need to lead a deal. But when you lead a deal, someone else loses. Someone— you, you now compete with the likes of Sequoia and Threesand. And what you have to ask yourself is, as an emerging GP, like, why would a founder choose you to lead their deal? Whereas when you're participating in rounds, it's very different. Everyone can win, right? There's more than enough allocation. Not always, but typically you can invest at least something in a round, and especially rounds in companies that are pretty high signal. So my general recommendation is counterintuitively actually is you do want to keep the fund size smaller until and unless you have a very good and core thesis that you will win a zero-sum game because that's what it is. And I know of plenty of incredible proven investors where they've had incredible actual cash-on-cash returns who will very actively decide not to play the zero-sum game and will play the positive-sum game where they continue to participate versus lead and they theoretically lead, of course, but it's just the nature of the actual investing changes. So that's one. I'd say the second broader trend that we're seeing is where we are seeing some firms scale up, right? We're seeing the rise, and I think this is normal for any industry that started off as a cottage industry, which is what venture was for many, many years. And as that industry scales up, you're now seeing the rise of the mega investors, right? You're seeing Andreessen Horowitz, Sequoia, General Catalyst. So you kind of have that category, and then you have, I would say, the emerging category. And we're not seeing as much in the middle right now. It is changing very fast. We're observing market trends. That's one of the biggest ones that I've noticed is that we're not seeing a lot in the middle. We're kind of seeing this like complete shift and push into two ends of the spectrum. And that I think does change the nature of venture investing. But the other piece is a lot's changing with startups, how much capital they need. Actually, this was on— I was reading a TechCrunch article yesterday on this founder. I think he was 18, built Cal AI. It's like an iPhone app that does $24 million in revenue a year. And I think it's just him or maybe a couple of other people. Now that was so fascinating. I downloaded, I'm like a user and I paid for it instantly. I was like, this is awesome. You know, built the entire thing. It's a beautiful app, really smooth. You can tell he cares about the details. And the really beautiful thing about it is you don't need a lot of people to build that anymore. You can actually use a lot of the AI tools to even change how you build companies, how you write code, how you market and all of that. And so, okay, what does this mean for investors? It means —there are founders that'll need a lot less capital going forward. So now you have to change also the way how you think about where you invest, when you invest. So anyway, it's like a really fun time because I think the underlying technology is changing, the underlying capital needs of startups are changing, and I think just the venture industry overall is changing. But I will say that the folks that do win in all of this will be the founders and customers that ultimately use our products.

And we're just about out of time, but there is one last thing I wanted to ask you about. I wrote earlier this year about startup shutdowns, and you had told me, according to your statistics, that they were up in 2024, but that still there were so many startups that weren't shutting down. Do you think we've kind of peaked in terms of startup shutdowns, or what do you see happening the rest of this year?

No, I think we're going to continue to see it. Yeah, I, I think it, it's one of those things where it takes time for all of this to get worked out of the system. And so, you know, our view is we will continue to see more of these shutdowns. And you can almost look at what was the sort of big increase in startups in the 2021, 2022 era. And what is the average growth in the industry. And this is sort of this idea of reversion to the mean. And the way I kind of think about this is all the startups that were funded in excess of what should be expected will just revert to the mean and all of those will eventually get flushed out of the system. And I don't know, have you seen this chart where they show e-commerce adoption during COVID and then they superimpose it on the trends of e-commerce adoption that they expected if COVID hadn't hit? You have this chart that goes up, and then people assumed, oh, this adoption, like, this is a permanent increase. It turned out that the adoption went up and then it went back down, and it effectively reverted to what people expected the trend should be. Yeah. And that's our view on what's going to happen here as well. And the why behind it is capital isn't typically the constraint for any of these startups. In fact, if you give them more capital, it means they have a higher probability they're not going to be able to do anything with it, right? Because capital is never the constraint. Constraint always is creativity, product innovation, building something great for the customer. That's always the constraint. And in fact, if you give a lot of capital to a lot of startups, you just create a lot more copycats that are out there. And if you're not differentiated, you're not doing anything unique, you're not permanently increasing the number of startups that can exist. Now, I do think in general we're seeing the increase in number of startups, but I think the ZIRP time was a, it was a big blip that will revert to the mean.

That's interesting. Now we are officially out of time. This has been so interesting. I know we covered a lot of different topics, but All of it fascinating. Thank you so much for being on the show, Avlok. Where can our listeners connect with you or find your work online?

Yeah, you can find me at x.com/avlok. A-V-L-O-K. I'm typically on there way too much.

Aren't we all? Thanks again for joining us on the show. And to our listeners, you can find me on X at Bay Area Writer and Equity at Equity Pod. Talk to you next time. Equity is produced by Teresa Locansolo with editing by Kel. We'd also like to thank TechCrunch's audience development team. Thank you so much for listening, and we'll talk to you next time.