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Go small or go home

by evbart on November 22, 2008 in angel investing, startup, Uncategorized, VC

At the Web 2.0 Summit a few weeks ago, I sat in on a small panel called Incubator2.0.

It consisted of an all star alley/valley line-up: Josh Kopelman, Paul Graham, Jeff Clavier, and it was moderated by Dave Mcclure.

The underlying theme of the talk was that these guys are all betting on the early early.  Not the “early stage” that your “bulge bracket” VC lists on their site, but actual early stage deals.  Less than a million, ideas on napkin, barely a powerpoint, etc

For these the investors, the numbers also make more sense.  Get in early, get in with your friends through syndication, have room for your company to grow, and have the flexibility to take a $15million exit, rather than pushing for the IPO or the billion dollar acquisition.

I’ve been seeing this theme reflected in the angel community as well.  And frankly, its why we targeted the angel investors first at Angelsoft.  Its a more exciting space, and theres plenty of room upstream for your investment to find success.  I’m even seeing individual angel investors break off from their investment networks to do even earlier stage deals on their own.

I also want to point out that the guys on the Incubator2.0 panel heavily invested syndication.  They almost always do deals with each other, and are always shopping deals around.  Now not everyone has the connections that these guys have, but throug Angelsoft we’re connectin Angel investors from all across the world, and they’re syndicating to get larger deals done (or here)!

So there you have it, go early or go home.  Lots of people are feeling this trend, and they’re even predicting a lot of “culling” at the high end of the markets.  Money will dry up as the big funds can’t meet their numbers, and the model breaks down.  Even the MBAs are going back to the drawing board with Adeo Ressi.

At the earliest stages, you can get your hands dirty, find deals before the rest of the private equity world, and you can get in cheap.  This is where the real funding gap is, so there’s lots of people looking for money to get over the hump.

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Angel networks getting a bad rap

by evbart on September 19, 2008 in angel investing, VC

I’ve been out in the bay area now for a little over a month, and I’m seeing an interesting trend in how angel networks are perceived.  Some VCs that I talk to are very interested in working with angels, and see the value of Angelsoft as having aggregated all these different angel investors into one place, making it easier for VCs to engage them.

This is a great positive attitude, and I think the VCs could benefit a lot from angels.  Angels definitely have some advantages over VCs, that shouldn’t be down played.  Ron Conway points some of them out here, and Roger Erhenberg has been talking about how “Super Angels” are going to dominate for a while.

The flip side of this argument, and one I’m hearing just as often, is that angel networks are a waste of time and tough to deal with.  I didn’t understand where this sentiment was coming from until I had a more in-depth conversation with Jeff @ Softtech VC.

His criticism was one more directed towards the time spent raising capital.  He hates that startups have to spend time raising money, and he feels that non-specialized angel networks can take too much time.

For a web2.0 company to go pitch to 80 investors with varying interests along side a biotech company and a retail company, that startup may not get the attention they deserve.  Even if they do, it make take much longer for a group of people to organize and decide to invest, than it would with an individual angel.

This concept also adds to the case for super angels being the best route.  Investors that are quick, can do deals anywhere, and are well connected across the startup community.  I think it also makes a great case for sector focused angel networks.

In the end, since this angel network = slow and inefficient concept seems to be pretty wide spread, I think its a great thing for the networks to be aware of.  Yes, we’re talking generalizations, and we all know there are some really great networks out there, but if the Venture community is going to become more efficient as a whole, all the parts need to work better together.

Its really all about reputation.  Investors are starting to realize that from the entrepreneurs perspective through sites like the funded, but its more than that.  You also have a reputation to maintain amongst investors.  Realize that if you’re not sector specific, that you need to find someone who is, so you can provide value to the entrepreneur.  Be even more aware of how long you take to get back to those entrepreneurs, because this is a big deal to them, and if they have VCs backing them (as angels), you need to take care to protect your reputation with investors too!

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Profiling Angels: not an exact science

by evbart on May 15, 2008 in angel investing, early stage investing, Uncategorized

Over the past two years at Angelsoft I’ve seen a lot of confusion from entrepreneurs, service providers, and even VCs, about what or who an angel investor is. This confusion causes problems in the investment/fund raising process process because knowing your customer/audience is half the battle, so I wanted to take a second to help clear some things up and hopefully kick off a productive discussion!

My over simplified definition of an Angel:

“An individual investor investing their money in early stage companies”.

Its critical to understand that this definition is broad, and a lot of different types of people fall under the definition of “angel”!! They could be successful entrepreneurs looking to invest in the next generation of entrepreneurs or they could be successful executives looking to get their hands dirty with small startups and higher risk investments. They could just as well be family members that unintentionally become angels by providing seed money to son/daugther entrepreneur, or they could be self proclaimed lone wolf angels investing big on their own and actively seeking deal flow.
Recently I’ve found two great posts on the topic. Todd Vernon, CEO of Lijit, wrote a very well structured post with the goal of entrepreneur setting expectations. He says:

Many young startup entrepreneurs tend to look at Angel Investors as a group of people with more money than sense (which sometimes is true) but generally not. They give no thought to the motivations of their Angels, what their Angels should get from the relationship, or simply why the Angel should be interested in investing. Like anything, understanding your audience is half the battle.

He goes on to propose a series of different angel types including The Family Investor, The Relationship Investor, The Idea Investor, The Once removed investor, and the Arc Angel.

Roger Ehrenburg at Information Arbitrage focuses on the Arc Angel or Super Angel profile here. He goes so far as to say that he thinks this new breed of angel is better equipped to deal with seed stage deals than any VCs. There is definitely some cross over here with Roger’s definition of a Super Angel, and Todd’s Arc Angel. I’ll profile the type of person we call a “deal lead” in a future post.

Please contribute, and let me know how you think of angels, and what all the different profiles might be.

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