Over the last six months, a heated debate has raged in a small corner of the startup ecosystem pitting angel investors against VCs. Both groups have made various cases about the general usefulness or uselessness of the different investors.
Some have gone so far as to predict the death of traditional VCs with the rise of angels and super angels. The truth, of course, is more nuanced. We all understand that traditional venture capital is in the midst of one of its inevitable phases of change.
As a practice, it has been around since at least 1939 when Laurance Rockefeller formalized the idea of entrepreneurial capital. Since then, it has evolved through many economic cycles. In all the noisy rhetoric about whether entrepreneurs should accept capital from institutional VCs, institutional angel funds, or individual angel investors, I think the most important point is lost: people matter most to entrepreneurs.
Entrepreneurs spend a huge amount of time recruiting and selecting ideal candidates to join them as they build a company. Many sophisticated VCs hold true that people matter most in predicting a company’s likely success. Particularly in the early stages of a company’s growth, CEOs think a lot about who they want around the table with them. Shouldn’t they chose their investors the same way? The answer is, in my experience, they almost always do.
When Doug and I raised money for Myplay, for example, we chose Peter Gotcher to lead our Series A not because he was with IVP and was launching RedPoint, but because he was an accomplished CEO who had founded and built one of the most successful digital music companies (Digidesign). We didn’t chose him because we believed the economics of his industry were superior to other forms of capital, but because he had a wealth of knowledge of how other successful companies were built. We didn’t chose him because we thought Limited Partners (LPs) were excited to invest in RedPoint (in fact, I didn’t even know what an LP was at the time), we chose him because we though he would add huge value around the board table. And we certainly didn’t choose him because we thought a convertible note structure was much better for us than pricing the round. We chose him because we wanted him to help us be successful. I think most entrepreneurs think the same way.
As an entrepreneur starting and running companies, I had a bias towards investors who were once operators, who had built successful companies or those investors who had witnessed great companies get built as board members. I was never comfortable with investors who had primarily traded stocks on wall street or been analysts investigating public companies. But that was my bias and how I felt. Each entrepreneur makes her own choices about who should have a seat at the table.
So in this “debate” about VCs and angels, I think the experience, personality, point of view, track record, and passion of the investor matters most to an entrepreneur, not the name of his fund or the colour of the jersey he wears or the team he plays for. Whom do you want around the table every day? Who is willing to actually do work for you, help you recruit, help make key strategic decisions, help sell customers, help anticipate competitors’ moves, help review product designs? Who will help you make the hard decisions that you will most certainly face? That’s who entrepreneurs chose as their investor.
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