VCs And Super Angels: The War For The Entrepreneur

http://techcrunch.com/2010/08/15/venture-capital-super-angel-war-entrepreneur/

by cwan • 16 years ago

26 10 16 years ago

Cmccann7• 16 years ago

Mike actually makes some interesting counter arguments against the super angel movmeny. I'm curious to hear what HN thinks about this statement:

"And without those occasional but huge exits, the entire ecosystem can fail. Venture firms need big returns to raise new funds. Without venture money a lot of the innovation in Silicon Valley would end.

So in effect, the argument goes, the angel investors are like a quickly growing cancer. Without radically invasive surgery, Silicon Valley will eventually flatline."

adamsmith2• 16 years ago

Some problems with this argument:

* Value creation is value creation. Even if the optics of how liquidity is realized are changed, what matters is making something people want, not the exit strategy.

* There will always be financing options for later stage startups. Super angels will not kill venture capital altogether, as is implied.

_delirium• 16 years ago

It's a sort of strange argument, because it seems to be making a good-of-society kind of argument, but via free-market investing, in a weird hybrid. The argument is that one kind of free-market investor ought to bow out, because they're hurting the other kind, who, the argument goes, are ultimately required for innovation. But what's this asking for? Government regulation? Angels foregoing profitable deals in order to altruistically keep the VCs in business?

adamsmith2• 16 years ago

This is a good overview of today's funding ecosystem.

I'm not sure how concerned I am about having enough founders swinging for the fences and building big companies.

Certainly founders are getting more of what they want as these small exits happen more frequently. For first time entrepreneurs a few million in the bank is a huge fucking deal.

Acquiring companies are getting what they want, too. Often at the lower prices they want the talent, and I think companies are starting to understand more and more the value of acquiring founder talent.

I think we'll see where this goes. Everything is still playing out and it's a very rapid evolution. Examples:

1) Founder cash-outs are happening more and more, likely in direct response to more frequent early acquisitions.

2) Acquiring companies are still experimenting with how to motivate founders after a talent acquisition. The state of the art for the median case -- shelf their code and throw them into a team often with little creative freedom -- is quite stark.

edanm• 16 years ago

"Certainly founders are getting more of what they want as these small exits happen more frequently. For first time entrepreneurs a few million in the bank is a huge fucking deal."

This is the important point, imo.

More small startups -> more small exits which "solve" the money problem for first-time entrepreneurs -> more entrepreneurial-minded people creating companies for "fun" without worrying about the money.

I.e., solving the money issue for entrepreneurs by them having one smallish success is probably good, since they're the kind of people who will go on to create much larger, more interesting companies.

OoTheNigerian• 16 years ago

Isn't this the free market speaking? Maybe the message is that the VC's need to change their ways. Treat founders better, have their interest and they will come back.

If the ways startups are created is changing (nimble, cheaper), why shouldn't the way their being funded change?

nanospider• 16 years ago

"But if big companies aren’t being built because of this small thinking, we’ll all suffer sooner or later. "

This assumes that SV has only web and software startups. Certain kinds of companies (biotech, telecom, etc.) do need VC, and these companies are built to IPO. That won't change.

bl4k• 16 years ago

Something to be wary about as an entrepreneur: the angel investors who are now raising larger funds will have to invest in more companies, which will result in them being able to spend less time and less energy with each startup.

The traditional VC model is to have a large fund spread out across a number of partners who can each invest in around 3-10 companies each per fund. As an entrepreneur, you have the benefit of more attention from your VC partner, as well as the resources of the partnership as a whole.

These super angel funds will likely start hiring associates and bringing in other partners to share the load, and at that point they become no different to, and competitors to, the traditional VC firms.

Every investor has limited deal bandwidth, regardless of if they are an angel, a super angel, or a VC.

revorad• 16 years ago

Every investor has limited deal bandwidth, regardless of if they are an angel, a super angel, or a VC.

I guess the difference is that the new breed of "super angels" can provide a lot more technical help compared to traditional VCs.

donaldc• 16 years ago

It seems like the most fundamental difference between VCs and Super Angels is that VCs have more checks and balances (and overhead) surrounding where they invest their money. With Super Angels, one person makes the final decision. For making $50 million bets, checks and balances seem like a good thing. For making $500,000 bets, perhaps one (very competent) person is the better approach.

Some of the appeal of the VCs and their checks and balances may be for reassuring the LPs investing in the VC fund, rather than with its actual effectiveness in improving investment decisions. As Super Angels invest larger and larger sums, perhaps we'll see to what extent the VC approach is (or is not) needed when large sums of money are involved.

VCs And Super Angels: The War For The Entrepreneur

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