A great deal has been written about angel investing in recent years. Angel investing has become the sport of choice for many successful entrepreneurs in Silicon Valley (e.g., Dave Morin, Chris Michel, Ariel Poler, etc.). What's more, it has spawned a whole new class of venture funds — once called Super Angels, now called Micro VCs (e.g., First Round Capital, True Ventures, SoftTech VC, etc.). And now traditional venture investors (e.g., Greylock Capital, Andreessen Horowitz, CRV, etc.) have created programs to invest small amounts of money in large numbers of startups. Unfortunately, as seed investing moves from a boutique practice to more mass market, its value is diminished dramatically.
As a general matter, I think that more seed funding is a great thing. It is certainly beneficial — often times essential — for small companies to raise a little bit of money to help validate an idea or market. But historically one of the most valuable things about angel investment was that it was accompanied by an angel. That angel wouldn't just invest in the company, he or she would serve as an indispensable advisor to the company as well. Not only did you get money to propel your business forward, you also got the help of someone who had run the startup gauntlet before you.
Regrettably, what once was a boutique business has in many instances become mass market. While there are some angels and Micro VCs can provide meaningful time and attention to their entrepreneurs, there are a number of folks out there who think that angel investing is a volume business. Needless to say, as the number of companies financed by any given investor grows, the amount of help that investor can give to each company diminishes proportionally. These investments become more about the placing of bets than they do about helping entrepreneurs succeed.
Sure, some of these stock pickers will make some good bets and even make some money. But it won't be any thanks to them. As a general matter, early stage entrepreneurs don't just need money, they need help and advice. And if help is no longer part of what you get from your seed investors, I believe the likely success of those investments will diminish.
Worse yet, taking seed investment from traditional venture investors can be counter-productive. It is impossible to imagine how a VC firm that is investing in dozens of early stage startups can find the time to be helpful while also working with their more traditional portfolio. You may get a little of their money and a little of their reputation, but you will get Continue reading “Pick Your Angel Investors Wisely”