Friday, March 4, 2011

What Does All the Angel/VC Noise Mean?

AngelList has been all the rage in the venture capital / angel investor world over the last week.  It started when well-known VC Bryce Roberts publicly deleted his AngelList accountThe "kerfuffle" that followed was described well by Mark Suster (another well known VC) in this blog.

AngelList is a website where entrepreneurs can connect with angel investors who are looking to provide seed money for start-up companies.

This is just the latest chapter in a growing trend within the angel/VC world.

First, we heard about the huge valuations for social media companies – Facebook at $67 billion (33x revenue), Groupon at $15 billion, Twitter at $10 billion, LinkedIn at $3 billion.

Then, Yuri Milner and Ron Conway, two prominent Silicon Valley angel investors, announced that they would provide every Y Combinator company with $150,000 of seed capital.

Now, AngelList.  The result is that most experts agree we’re in the midst of a bubble in the start-up investment world.  The result is too much money chasing too few good investments, with higher valuations, shorter due diligence periods and riskier investments.  Fred Wilson described this environment really well a few months ago.

All of this can have a dizzying effect on entrepreneurs.  What does it mean?  Whether you're in the golf industry or any other, my view is that there are a few universal lessons.

The first is a reality check.  We're still seeing maybe 1% of the applications getting funded at the angel investment group I help.  Thus, don't get the idea that you can start up any old company and get funded.  For every success story you read on Tech Crunch there are 100 non-success stories.

Secondly, I don’t think angels can or will ever replace VC’s, which has been a main discussion point in the post-AngelList vs. Bryce Roberts break-up.  There are several reasons for this:
  • Generally speaking, angels have far less personal money to invest than pension/hedge/etc. funds do, and the latter need VC firms. 
  • Even at my well-respected angel group, most angels do this part-time.  Thus, it's nearly impossible for them to have extensive knowledge of all the industries, ecosystems and companies they encounter.  Thus, their reach cannot be as wide or deep as VC's who live and breathe this stuff 24/7. 
  • In my experience, it's been very difficult for angels to raise more than $500k for any one company, so they have to go to their syndicate VC partners when the raise is higher.  Angels are good for seed money but not the $2-$5MM expansionary capital that almost all fast-rising hotshot companies need.
Thus, if you’re an entrepreneur, my belief is that you need to view most of the news coming out of the VC/angel world as noise. 
What does it mean?  In my opinion, absolutely nothing.  Focus on your company like always and the rest will work out.
Why?  Because if you build a business that has a disruptive product in a growing market with strong IP, distinct competitive advantages, a scalable revenue model and a strong management team … you’ll be farther than most down the road to happy entrepreneuring.  And I promise, angels and VC’s will be standing on the sidewalk with their checkbooks hoping to take that journey with you, regardless of the investment environment.


  1. Hey Golf Entrepreneur

    Why are you wasting your time with Golf? Everyone knows golfers/golf industry are brain dead.

  2. I built a new insert for graphite golf shafts that increses club head speed on it's own and is already USGA approved. contact