http://www.cinchcast.com/cinchplayerext.swf
Damn, the secret hell of angel investors in San Francisco has come to all of our attention over at Techcrunch. Mike Arrington started out the week reporting that there was a secret meeting of 10 angel investors who met over dinner. All well and good. I go to lots of private dinners of industry insiders. So does Mike. For the past two years Mike has gone to The Lobby, a conference of industry insiders. I haven’t gotten to go yet. Boo hoo.
Heh. So, when the story broke, I thought it was just Mike being bombastic and trying to make something out of a dinner that he wasn’t invited to. I know lots of the people involved and consider them friends too and talk with them often. The tech world is actually a pretty small place and you bang into these folks all over the place because they are hustling to get deals done, etc.
But I was wrong about this one. I tweeted earlier that I owe Mike an apology for taking too flippant a stance on this story at first.
Mike stumbled into a story that has a ton of undercurrents.
Some of those are:
1. The angel investor world is getting HYPER competitive. I attended the recent YCombinator and Techstars demo days. YCombinator had 36 companies. But hundreds of investors in the audience. Techstars, had 10 companies, with more than 100 investors in attendance.
2. That’s pushing valuations up up up. Listen to angel investor Thomas Korte. He made his money at Google and now has funded more than a dozen companies and is one of those behind AngelPad, an incubator that currently houses eight companies that will launch soon.
3. There are different philosophies and personal styles that cause friction. Up to now that friction has been kept under bitten tongues, but Ron Conway blasted Dave McClure and now those frictions are on Techmeme for everyone to see. They are very different people, even to how they dress. Ron is a careful, buttoned up, guy, while Dave is a bombastic, t-shirt-wearing, hustler.
Take away the high school drama, though, and there’s some really interesting stuff going on here.
Entrepreneurs are seeing access to lots of capital. Angels are having to hustle to be included on deals. Valuations are going so high that many investors who’ve been around the block are saying “too high for me.” Like Bob Ackerman told me.
What’s the truth? Were those 10 VCs colluding against entrepreneurs? I honestly don’t think it matters. Why? I know more than 500 VCs around the world, many of whom are angel investors. A good percentage live within 60 miles of San Francisco. Heck, just see my Twitter list of tech industry investors (I can’t add any more people to this list because Twitter only lets me put 500 people on a list). 10 people just are not going to have enough market power to do anything really naughty although it’s good to nip this problem in the bud, which is why I now support Arrington’s stance.
This is an appearance thing and it appears that San Francisco angel investors got caught doing something naughty. That alone is enough to get everyone talking.
The truth is, though, that if you are an angel investor this world is pretty damn difficult to navigate due to competitive pressures.
It’s good for entrepreneurs and good for users to have angel investors caught in hell. When they feel they have to spend more money to stay in the game, that’s good for all of the rest of us (press, users, entrepreneurs).
I think Arrington did the rest of us a big favor for trying to keep the angels in hell.
Scobleizer 
Definitely agree with you that, while these are only a few investors in a large group, it’s a good thing this issue was brought to light now. I find it amusing that for all the crap Arrington seems to get he usually ends up being right (see http://j.mp/cQqvbk via Techmeme).
LikeLike
Robert, as a founder myself, I think it’s hard not to be skeptical of the whole situation. The headline talk at TechCrunch Disrupt is the Super Angel vs. Super VC debate (http://disrupt.techcrunch.com/2010-sf/agenda/) featuring, no surprise, McClure and Conway. This is a hell of a story, and one that drives a TON of traffic to TC only days before the big event.
Personally, I think it would be a hell of a shame if all the companies busting ass to release something exciting are drowned out by the story of the investors and their perspectives on their industry.
LikeLike
I made a joke on DMC’s blog that he and Arrington were colluding for page views!
It does appear to be as scripted as a WWF event. Although I’ve known DMC for years and can’t really see him participating in this in a consensual way.
LikeLike
Good post! Nice to hear a calm voice on the subject 🙂
I assume you’re going to Disrupt? Look forward to seeing you there.
Would love to show you our new iPad app http://bit.ly/yv-hd
Cheers,
Dan
http://www.yourversion.com
LikeLike
Of course I’ll be at Disrupt. I’ll be on stage on Monday afternoon and will be there all three days.
LikeLike
Thanks for chiming in Robert.
Seems silly to focus too much on investors exchanging notes, and not enough on the driving forces behind the meetup. If the angels all went elsewhere to do seed investments the pressure would drop off of valuations, which isn’t necessarily great for SV (but good for other locations).
The shows like Tech Disrupt are an interesting event to me. Why do incredible teams and products need a mediator to get noticed now? If I had a killer product now, I’d contact one of many tech bloggers and build up awareness through users and feedback and my own blog. Why go through a talent show, when the real test is the only thing that matters, user traction/client value.
LikeLike
Mark: most of the guys who were at that dinner do deals all over the world. I know I usually see this group in airports. Plus, anyone who wants to build a global brand visits San Francisco anyway.
LikeLike
Wish we saw more of “The 10” at the Tulsa airport… TwitPic and Ping.fm started up here (seed funding by Ito and Hoffman on Ping). Plenty of deal flow here in fly over country with realistic valuations. Hey 500Hats, we’re a pirate friendly lot too… you’re welcome here any time! & Mr. Scoble… You know you and the fam have the open invite (no aubergines… cross my heart).
LikeLike
It’s not just the YCombinator startups that are seeing valuations going up. I’m seeing the competition around the world heating up as more investors come on the scene.
LikeLike
ycombinator has a strangle hold on SV. VC desperation is rampant.
LikeLike
Really? Plug-n-play has hundreds of companies that aren’t controlled by YC. DogPatchLabs has 25 companies, not controlled by YC. Of my favorite Silicon Valley startups only a small percentage are YC-controlled.
LikeLike
No offense Robert, but the fact that you are aware there are many great startups in many different parts of the SV ecosystem is not the issue. Unless you’re an angel and I wasn’t aware of it…
LikeLike
No offense Robert, but the fact that you are aware there are many great startups in many different parts of the SV ecosystem is not the issue. Unless you’re an angel and I wasn’t aware of it…
LikeLike
The angels I know are aware of the same things I do and travel the world. In fact, you’ll probably meet many of the folks we’re talking about here in Paris in December.
LikeLike
The angels I know are aware of the same things I do and travel the world. In fact, you’ll probably meet many of the folks we’re talking about here in Paris in December.
LikeLike
thanks for the comments Robert. I still stand by my post that there was no collusion and no “price-fixing” going on, despite what Arrington accuses us of (at a dinner he didn’t attend, btw).
i respect Ron a lot, but he wasn’t the either so I’m not sure what he’s trying to distance himself from.
again, most of the commentary was around how to improve the industry, but I doubt that will get any airtime right now.
if you’d like to chat about it, feel free to give me a call… you have my #.
LikeLike
There was me thinking the whole point was to form a syndicate
Better deal flow
Stronger negotiating position
More value add with varied skills and contacts
Dispersed risk
A players working with A players
Who wants to invest their money (or that of their LPs) with someone who isn’t maximising the chance of success.
Success is the balance – if the deals don’t maximise the chance of success of the startup then the investment strategy fails.
LikeLike
the debate in real-time here: http://office.mashape.com/question/debate.html
LikeLike
+1
LikeLike
+1
LikeLike
Hey Robert,
Cool post. But I have to argue that startup/angel leverage is actually somewhat skewed…while there are 500+ angel investors, for web deals there’s a small list of 10-12 names that the other 488 follow. In other words, for a certain type of deal, if you don’t have a sacca/conway/dixon/yeh/mcclure/senkut/etc/etc name involved, the others don’t want to play. It’s another form of the signaling problem. (Fortunately this only seems to apply to consumer web deals, and not so much B2B or other types of deals.) An interesting time, to be sure! See you at the Vator thing next week Nathan
LikeLike
Good balanced point of view Robert and a good interview with Thomas.
LikeLike
Great Points here, the fact of the matter is Dave and the rest must be ‘beyond reproach.’ and have some nobility and common horse sense.
I often have my head in my ass and foot in my mouth- it is all well and good- but at least I try to have some humility and pay attention to the perspectives of others. I see myself in Dave’s response- and also see that his response hurt him more than the Techcrunch postings. His response shows what really lies beneath.
Circumstance does not make the man: it reveals him to himself.
LikeLike
Robert: If true, collusion and price fixing are a little beyond being “naughty.” As one would expect after consultation with lawyers, the backpedaling and denials begin. Sure beats jail.
LikeLike
Robert – as usual you put some smart perspective on this. Thanks.
LikeLike
life is communication … so is the application of most technology … all is well … and about disrupt; it won’t /// old paradigm thinking already
LikeLike
hope the FTC and the FBI are as dismissive
LikeLike
Too much money, not enough products/ideas to sponsor:
Is’t it the sign that ideas and innovation are slowing down or going elsewhere?
LikeLike
No. When I started my career there were far fewer angel investors than there are today. And, anyway, if you haven’t noticed, most of these angel investors now fly the world. I’ve seen angel investors from the valley go to London, Israel, China, and other places lately and I’m not just talking about Dave McClure.
LikeLike
oh I meant “slowing down in the US” not in the world!
LikeLike
oh I meant “slowing down in the US” not in the world!
LikeLike
There was always a thread of improbability in the main premise of the piece. The market is way too diverse, and the people in the room way too smart to not see that there’s really no way to control it for longer than an instant. However, having said that, the brands of the Angels likely represented increase the likelihood of follow-on rounds from VCs. And so there is a potential control point to be had against entrepreneurs that are determined to go that route. But again, the market would correct itself. Entrepreneurs would eventually see this as yet another obstacle to navigate and go elsewhere for funding…like their customers 😉 As my grandmother used to say, “There’s no smoke without fire.”
LikeLike
Hi Robert – couldn’t help but notice that you’re still annoyed by Twitter’s 500-person limit on Lists. As a potential solution, you could always create 2 (or 3 or 4) Lists, then build an Agora using our TweetAgora app to bring those Lists together (creating a local list of Lists).
My partner gave you a brief TweetAgora demo at Chirp, and you said you’d be interested in using it for the Agoras alone, so I figured I’d let you know it’s on the App Store now – http://tweetagora.com
LikeLike
Hi Robert – couldn’t help but notice that you’re still annoyed by Twitter’s 500-person limit on Lists. As a potential solution, you could always create 2 (or 3 or 4) Lists, then build an Agora using our TweetAgora app to bring those Lists together (creating a local list of Lists).
My partner gave you a brief TweetAgora demo at Chirp, and you said you’d be interested in using it for the Agoras alone, so I figured I’d let you know it’s on the App Store now – http://tweetagora.com
LikeLike
I can’t create any more lists on my main Twitter account. They only let you create 20 lists.
LikeLike
Hmmm…you could always create more Lists with another account, then bring everything together with an Agora. Unfortunate that it has to come to that, but TweetAgora handles multiple accounts & List creation quite well, so it’s certainly a decent workaround until Twitter takes the limits off Lists
LikeLike
great post Robert!thanks for sharing
LikeLike
The early stage investment world is seeing major churn, but I would like a much larger geographical spread, not just on the continent, but globally. It will happen. http://goo.gl/fb/PpyhK
LikeLike
Geert: German tech companies rarely build world brands. There’s a reason investors stay away. Why don’t you move to San Francisco?
LikeLike
Angel investors are almost always investing their own money, or a small friends and family pool. Institutional investors go into VC funds, not angels. Angel investing is too risky to be good for an institutional investor.
LikeLike