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Micah September 24th

Entrepreneur at the Door; Angel at the Gate

It is 2am the night before a board meeting. I have put in a big week of travel (2 days in NYC; 2 days in LA and now back in Boulder getting ready for said board meeting) and I am exhausted. As I work on our board deck, which is kinda a mess, I keep thinking about “AngelGate.”

Not exactly the best time to write a post about something that seems to be just heating up.

For those that dont know what “AngelGate” is, basically, a bunch of investors (mostly ”Super Angels”) got together and talked over dinner. There is a lot of conjecture over the content of that conversation, and depending on what you believe, either there are a bunch of Super Evil Angels in Silicon Valley, or this is just a big explosion over nothing.

If you were to ask me, I would say its a bit of both.

The Valley has long been an echo chamber that relies on its own ability to drink its own kool-aide and believe in its own self-worth. I know, I grew up there.

The genius of that environment is that risk is part of the culture, and if you are not a risk-taker, then you are ejected from its bosom, and left to fend for yourself outside of the community. But, if you are willing to take risk — real risk, not the I will dip my toe in the risk waters risk — you are welcomed with open arms, even when you fail.

That basic belief is what makes the Silicon Valley unique and different.

Recently, there has been this “rise” of the “super angel.” Angels have long been thought of as emotional investors, who get enamored of an entrepreneur, and then put cash into the venture. These amounts tend to come in around $25,000, but they could be much larger (or smaller).

The super angel phenomenon is interesting in that it requires the professionalization of the angel. No longer playing only with their own money, the angel must approach investment differently. Its no longer about personal gain (completely) but rather about ROI and IRR. The basic emotion (I love this entrepreneur, so I will invest in him) shifts to having to balance between emotion and responsibility to investors.

In addition, lately there has been this growing celebrity surrounding the super angels. Chris Sacca and Dave McClure (two friends, mentors and investors in Graphic.ly) are both well known as investors and personalities. Chris road his bike across the US, was involved with Obama, tirelessly raises money for Livestrong and Charity:Water. Dave spends the lion share of his time in the air flying around the world to meet, work with, and sometimes, invest in entrepreneurs. He hosts events like Startup2Startup, and every once in awhile is caught on film dancing.

Both of them are brilliant in their investment decisions (if I say so myself), and its a mix of gut and analysis. Very stereotypical of super angels. Some big wins (Chris with Twitter; Dave with Mint) and some bad breaks.

When raising money for Graphic.ly, many investors, some of which I consider to be friends, passed. Rob Hayes of First Round Capital, in passing, spent time with me to help me better understand what parts of Graphic.ly were not only interesting, but potentially very valuable. Tony Conrad of True Ventures, in passing, gave me great advice, much of which I implemented. Bijan Sabet of Spark Capital continues to spend time with me listening to my hair brain schemes and helping to refine my thinking.  Would I have liked to have Bijan, Rob or Tony involved with Graphic.ly? Sure. But, I also know that they will be available now and again to bounce an idea or two off of, and I will truly listen to what they say.

Here is the part that was lost in all this AngelGate talk:

Most entrepreneurs will seek investment only from investors that TRULY WANT TO BE SUPPORTIVE AND HELP.

Money isnt always green. And, if you are smart as an entrepreneur, you are looking for investors that can provide more than a check. Whether its connections, or ideas or admonishment, a true investor provides so much more.

When I raised the first money, I sat down with Brad Feld, another person I consider to be a friend and mentor. I told Brad that I really wanted him on my board. It would be great, I said. He could watch our growth and progress up close.

“Micah,” Brad said leaning back in his chair “there is no value to having me on your board. You get everything from me for free.”

Investors that truly put entrepreneurs first are the ones that realize that success comes from giving, not taking. Much like so many companies today talk about putting their communities first, investors are learning that their money isnt the important part of the equation.

Now, I know that most people are concerned about the idea of angels getting together and deciding to work to increase their returns and decrease the entrepreneurs potential upside. Price fixing, collusion, and lots of other evil sounding words have been thrown around. Did it happen? I have no idea.

What I do know is that the best investors know that the moment you put the potential of your return ahead of the potential of your entrepreneurs, you lose.

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  • http://twitter.com/metysj Joel Cheuoua

    Thanks for sharing. It sounds thought like you’re mostly echoing the standpoint of an experienced entrepreneur.

    Investors and entrepreneurs need each other, hence in theory, they ought to work hand in hand indeed.

    But like in any partnership, any imbalance (or a perception of imbalance) in the relationship is likely to foster more selfish egotic ambitions and attitudes that leads to misbehavior of the sort of what we’re likely witnessing.

    You can say what you want about connections, ideas, mentoring, etc. being important – they are – but what really make or break a business at the end of the day is money.

    Most entrepreneurs instinctively know that, but many (especially those who don’t have your experience) fail to understand how to stay away from the wrong investors because they’re blinded by the color and odor of the king $. It’s hard for them to establish trust, and in fact, they’re told to trust the investors blindly. NDAs are frequently mocked (“I don’t do NDA, no time for that, trust me or nothing”), business plans are devalued (“45 pages ?? what ? do you think I have time to read that #$…”) then amped up (“meh … entrepreneurs nowadays don’t have a clue …”).

    Bottom line, many entrepreneurs are prey to investors who can smell that they have the upper hand 1000 miles away.

    This is not new, and it seems that Bin38 isn’t anything that surprises most veterans on the field.

    IMO, there need to be a shift in the direction the entrepreneurs-investors relations is going towards (or at least is perceived). It’s clear that there’s great well intentioned investors out there, and there’s lesser intentioned one, and the same applies for entrepreneurs.

    The latter (especially the less experimented) of course need to be reminded that they are the one in charge of building their ventures and investors are just there to help, but investors too has to be reminded that they are there to help and they actually DO need to worry about establishing (or re-establishing) trust with entrepreneur, no matter how big they are.

    And that, to quote McClure, is “trying not to be a d!@$”.

  • http://twitter.com/metysj Joel Cheuoua

    Thanks for sharing. It sounds thought like you’re mostly echoing the standpoint of an experienced entrepreneur.

    Investors and entrepreneurs need each other, hence in theory, they ought to work hand in hand indeed.

    But like in any partnership, any imbalance (or a perception of imbalance) in the relationship is likely to foster more selfish egotic ambitions and attitudes that leads to misbehavior of the sort of what we’re likely witnessing.

    You can say what you want about connections, ideas, mentoring, etc. being important – they are – but what really make or break a business at the end of the day is money.

    Most entrepreneurs instinctively know that, but many (especially those who don’t have your experience) fail to understand how to stay away from the wrong investors because they’re blinded by the color and odor of the king $. It’s hard for them to establish trust, and in fact, they’re told to trust the investors blindly. NDAs are frequently mocked (“I don’t do NDA, no time for that, trust me or nothing”), business plans are devalued (“45 pages ?? what ? do you think I have time to read that #$…”) then amped up (“meh … entrepreneurs nowadays don’t have a clue …”).

    Bottom line, many entrepreneurs are prey to investors who can smell that they have the upper hand 1000 miles away.

    This is not new, and it seems that Bin38 isn’t anything that surprises most veterans on the field.

    IMO, there need to be a shift in the direction the entrepreneurs-investors relations is going towards (or at least is perceived). It’s clear that there’s great well intentioned investors out there, and there’s lesser intentioned one, and the same applies for entrepreneurs.

    The latter (especially the less experimented) of course need to be reminded that they are the one in charge of building their ventures and investors are just there to help, but investors too has to be reminded that they are there to help and they actually DO need to worry about establishing (or re-establishing) trust with entrepreneur, no matter how big they are.

    And that, to quote McClure, is “trying not to be a d!@$”.

  • http://500startups.com/ Dave McClure

    great post Micah… keep on putting it out there, buddy.

  • http://500startups.com/ Dave McClure

    great post Micah… keep on putting it out there, buddy.

  • http://twitter.com/NukeGold Nuke Goldstein

    I must say that regardless of what is going on in these ‘secret meetings’ there is now a major trust issue. As an entrepreneur and inventor when raising seed capital you are at an amazingly vulnerable place. You basically put the future of your family at risk, most times its an ‘all-in’ game (unlike investors who heavily hedge their bets). From the entrepreneur point-of-view this is why they are called ‘angels’, to watch over and make sure a good idea and venture gets the best chance as oppose to broken dreams. Will entrepreneurs now have to watch over their shoulders; is the ‘likable’ ‘friendly’ angel that looks and talks like us actually out there to screw us in order to make a buck? I certainly hope not, greed is a powerful and distractive force.

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  • Anonymous

    Outstanding post, Micah. As my company starts the arduous process of raising money, I have this idea that I want to raise from folks who have been in my shoes. Or can add significant value above just the money. But mostly I don’t to raise money from people whose interests aren’t aligned with mine. The best thing about many of these Angels is that I think they’ve proved that they’re great for the startup community and great for the founders. In a strange way, Angelgate reminds me of the Prius recall earlier this year. We all know Toyota stood for quality and were surprised when they turned out not to be 100% perfect. They fixed the problem and plenty of people (like me) bought one.

  • http://www.alefocardi.com Ale Focardi

    I have to say you were able to articulate perfectly what I hoped was the reality of the situation, I just found your blog thanks to Angelgate so I hope you’ll see more of my comments soon

  • http://twitter.com/tskaggs tskaggs

    Great post on AngelGate… instead of assuming what happened, you focused on the benefits of having an Angel Investor. This helps people like me (working on a startup) realize what we could potentially lose if this AngelGate thing is real.

  • Pingback: AngelGate Goes Nuclear, Startups Get the Fallout | AniChaos.com

  • http://www.howardgreenstein.com/blog Howard Greenstein

    Great advice – I may be in touch to ask more.

    Howard Greenstein
    inc.com Start-up Toolkit

  • http://www.montrealstartup.com John Stokes

    Well said Micah !

  • John haden

    Nice Post! As I watched TC Disrupt and the panel including your friend Dave McClure…. I couldn’t help but think….. “who cares” ? A bunch of angels met w/o Arrington? Who Cares? Are these guys the ONLY Angels in SV ? Of course not…. there’s no doubting their popularity, power and influence…. but if you can’t raise money without these guys…. I think your start-up or your idea is doomed.

    An idea, product and market need to be good enough where you can attract angels from just about anywhere….not just SV. I think about it like this: a div 1 college football player hopes to get picked up in the NFL. If their numbers are good enough…. he’ll get the call…. if they’re not, they won’t. Simple.

    McClure is Dallas, Roelof is Seattle, RC is Pittsburgh, Sacca is St. Louis… guess what? If the college kid doesn’t get picked up by any of those teams there’s another 28 that may be interested…. and hell if they aren’t interested there’s Europe and Canada… I think Arrington got everyone up in arms with the term “collusion” …. when in fact it could have been as simple as a few guys getting together for beers… either way… who cares? these guys aren’t the only angels on the planet! and if you’re idea, company and market are good enough… there will be a ton of great angels to choose from.

  • http://learntoduck.com/ micah

    Its not so much that angels are available, and if the “top” angels are
    unwilling that there are others.

    There is always investment money if you try to find it hard enough.

    The key is in the word “partnership.” Investors should be partners in the
    endeavor. Our investors (angels and VC) work extremely hard at helping us
    understand what is working, what should be changed, what can be
    opportunities. Their rolodexes are open to us, their ears are open, and so
    are their minds.

    That is a good investor relationship. The money is truly secondary…

  • http://learntoduck.com/ micah

    Its not so much that angels are available, and if the “top” angels are
    unwilling that there are others.

    There is always investment money if you try to find it hard enough.

    The key is in the word “partnership.” Investors should be partners in the
    endeavor. Our investors (angels and VC) work extremely hard at helping us
    understand what is working, what should be changed, what can be
    opportunities. Their rolodexes are open to us, their ears are open, and so
    are their minds.

    That is a good investor relationship. The money is truly secondary…

  • Cabbagetreesolutions

    Thanks for sharing. It sounds as though you’re mostly echoing the viewpoint of an experienced entrepreneur.

  • http://www.convurgency.com Mike, SEO Technician

    When i saw that you mentioned someone actually trying out for the CFL, I couldn’t help but smirk.
    Most CFL players only do so as a part time thing and have other jobs on the side. Lawyers, etc

    But still the analogy stands i guess. But if you have some internet start up thats trying to get off the ground you’d probably start in SV first.

  • Sam

    It does not take long for a savvy business owner to determine what is really going on. The world is a very small place, indeed. The only thing I have found truly annoying is being offered consulting, for a fee, from a “VC” On the other side, the quickest way for an owner to never raise money is to shop a term sheet. It cuts both ways, and there are few secrets.

  • Sam

    We contacted a set of EX VCs via friends. When we asked what to look for in a VC/Angel, they all had one word answers: candor.