By now, everybody should have heard about AngelGate, from Arrington’s initial walk into the secret meeting of Silicon Valley super-angels to Dave McClure’s blog post as a response to Ron Conway’s email distancing himself from whatever was going on. A lot of drama during these past 3 days, too much drama in my opinion. And drama that had been building up over the past months with the ongoing discussion around super-angels versus VC’s. So after this crescendo, it might be a good time to take a step back and go back to the basics. And if you strip off all of the noise, a few simple truths emerge:
- Entrepreneurs are king: they create the value, they are the customers of investors. And thanks to programs like YCombinator and generally lower capital requirements for start-ups, entrepreneurs are in a better position than ever before when it comes to negotiating deal terms. No investor – if super-angel or VC – will be successful in the long run if they do not respect entrepreneurs and treat them fairly.
- Investors want to make a buck: as much as I wished that investors would only be in this game to be part of shaping innovation and helping entrepreneurs (as Ron Conway seems to be), it must be clear that they need to create significant returns and therefore need to protect their interests as well. A large part of angel investing is driven by passion for entrepreneurs and start-ups and not primarily by the need for financial return but this is unfortunately not a scalable system to bring more money into the ecosystem. We need investors that are driven as much by passion for entrepreneurs as by making a buck.
- Angels and VC need each other: they are part of the same ecosystem and provide money and mentorship at different stages of a company life cycle – sometimes they compete for deals, most often not. So the ongoing super-angels versus VC discussion seems artificial.
- Investors need to add value: it does not matter if you are a super-angel, a micro-VC or VC – if you don’t add value on a daily basis, you will neither have many successful start-ups in your portfolio nor get great deal flow in the future. So start collecting karma points!
The ecosystem is shifting – less capital is required, funds get smaller, new entrants have emerged, entrepreneurs have gotten more powerful – but these 4 truths were valid before this shift happened and are even more valid today. So let’s remember them, stop the drama and go back and build companies!