Why AngelGate Is A Good Thing

In all the chatter, debate and outrage (real and fake) around AngelGate, it’s easy to lose track of one critical point: there are a lot of damn startups being funded right now. The parallel rise of the super-angel and the seed incubator model has tilted the early-stage funding process strongly in favor of the entrepreneur. Few would argue there’s a better chance to get a startup’s first break from someone like Paul Graham, Dave McClure, Chris Sacca or Ron Conway than from a traditional VC firm. There are concepts, people and companies coming to market that simply would never meet the deal criteria of the big VCs – and that’s the best news of all.

So the real question is who leads this new breed of investors? Unless you can somehow argue with sheer numbers and stunning success, you have to give the hat tip to Ron Conway and his 600+ deals. He broke this ground, and turned on an entire generation of new investors like Chris Sacca. Chris’ recently leaked email to Ron opens with the type of awe that exists for Ron. But like any Sherwood Forest band of merry men (subtracting the thief innuendo, of course), there are players of all kinds but they have one critical trait in common: they celebrate entrepreneurs. It should be empowering to all co-founders to hear Chris Sacca say:

“Founders have never been better educated or more empowered than they are today. We aren’t giving them money; they are giving us the right to invest in their companies. Our founders hire us and they do so after consulting a rich network of datapoints confirming whether we are or are not helpful. Slackers don’t get deal flow. Jerks don’t get deal flow. Poseurs get left aside.”

Dave McClure lives in the same pro-entrepreneur space, but in a style all his own:

“Innovation & investing is not about price.  it's about finding great entrepreneurs to build solid companies, and solve customer problems.  price matters, but innovation & execution matter a helluva lot more. find good people, bet on them, help them succeed. try to improve the ecosystem, and try not to be a dick (that last one is actually hard... it's sort of easy to be an asshole as an investor).”

But if you don’t think Ron is the impetus behind this pro-entrepreneur thinking, go back and watch him take on Mike Arrington at July’s Social Currency CrunchUp. He defends the entrepreneur’s right to make M&A decisions carte blanche. He may not agree, but notes that those who had the “guts, fortitude and passion” to start the company have the right to make those calls. Having been involved with many VC-funded startups, this was rarely the case…

This rise in funding does however have a downside in the bigger picture. Talk at this morning’s ‘Super Angels To Super VCs’ panel here at TechCrunch Disrupt focused on rising valuations for startups. When Mike Arrington asked the question, Chris Sacca was the first to respond, and his answer was simple: “we do fewer deals.” So while all this funding activity is good, the average angel or super angel has a smaller pot of money than a traditional VC. The good news is there's a wide range of personalities and styles among these many angel investors. You should surely be able to find one of these guys who best fit your outlook of the world, and in a perfect world they’ll bring along 3-4 friends.

So are we really going to dump on these guys for trying to work together more effectively? Why wouldn’t they try to find an open source doc approach to executing a round? Why not collectively figure out the rules of the road for this new category of investor? Call me naïve, but it would seem they each have more to lose in reputation than they have to gain in manipulating the funding process. This is – as Chris Sacca points out – the age of Twitter after all…

But don’t worry too much about the VCs. While they may lose a portion of the big-bang software deals to these smaller entities, Fred Wilson points out there are still plenty of capital-intensive industries like medical devices, biotech and cleantech that could barely buy lab coats and Bunsen burners with $25K from YCombinator. And they still have GreenDot

As an example, Dr. Jay Yadav of CARDIOmems told me recently their medical trials cost $30M alone. And they just inked a deal with St. Jude Medical that tees-up a $375M acquisition as an add-on to a recent $60M cash infusion for 19% of the company. Clearly there are still some nice multiples to be made. The VC business will change, but that’s not necessarily a bad thing – especially if you’re a consumer internet startup whose two choices have been big VCs or local angels that have been slaughtered by the economic downturn – neither have a high propensity to lend early-stage dollars.

So kill the drama once and for all, and let’s celebrate the fact smart people are getting their chance to change the world. That dynamic is good for us all…

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