Daily Archives: September 23, 2010

The secret hell of tech industry angel investors

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.