Suddenly, everybody wants to be an early-stage startup investor – an “angel.”People you may have heard of doing it include Chris Dixon, the Hunch cofounder, Zach Klein, the Vimeo creator, Shana Fisher, the IAC M&A boss, Ashton Kutcher, the actor from Dude, Where’s My Car?, and Joshua Schachter, the Delicious founder.
That’s just a few. There’s an army of them.
More established VC types – and some of the angels – want to get into a debate about whether all this is good for startups and if it means there is an angel “bubble.”
What we want to know is: WHY.
Why are so many former startup CEOs, media execs, and tech types suddenly throwing whatever spare hundreds of thousands of dollars they have in cash at angel investing?
We have some ideas.
- Google, eBay, Yahoo, AOL and all the other heavy-spenders over the last decade have spawned thousands of millionaires.
- These newly rich have cash in hand and, like everybody else, they aren’t spending it on housing. (Though that might be a smarter investment.)
- Ever since Lehman sank to the ocean’s bottom in 2008, the public markets have been a chaotic mess of dips, double-dips, 900 point plummets, and months of bull rushing. People with cash are seeking investment returns that are uncorrelated with the markets.
- It’s fun to take meetings with younger entrepreneurs and play the hero who knows it all.
- It’s not just about ego. Angel investing is just plain fun. You get to talk about ideas, plot strategy, and work with smart, ambitious people.
- For startup-y types, it makes more sense to invest their money in places where they feel they can shape the outcome by providing advice and introductions.
- None of them have been burned by lousy returns – yet.
There’s no question that being an investor in the early investment stage is a HUGE amount of fun. You get to spend time talking about ideas with smart people. You have no line-operating responsibility. You get to contribute expertise without actually being responsible for execution. You don’t have to fire or manage (too many) people. You don’t have to deliver anything.
But eventually, if you take outside capital (or don’t want to go broke), there comes a point when it’s time to start generating returns. And that’s when angel investing can get a lot less fun. It was at this point that a lot of VCs from the last wave realised they didn’t love venture investing as much as they thought.
If past is prologue, there will eventually be a great shake-out in the angel community, where most of the new-comers to this business will realise that they don’t actually have the talent or desire to go on investing. These people will go back to founding and operating companies (or they’ll just retire).
The good news is that there will be some from the new wave who are very successful — or who learn from the kind of searing early mistakes that forged a few excellent VCs who are now industry-leaders today (Fred Wilson for example). These folks will become the great venture investors of the future.