TechCrunch blogger Mike Arrington recently accused a group of Silicon Valley super angels for colluding to drive down valuations of startups.
Missed it? Here’s a summary of the controversy, dubbed “AngelGate,” that’s created quite a stir in the startup and venture community.
9.21.2010
It all started when Arrington barged into a “secret meeting” that took place at Bin 38, a posh restaurant and bar in San Francisco. According to Arrington, about a dozen investors gathered around a table in a private back room, “Godfather style.” Those in attendance are powerful players who’ve been responsible for almost all early-stage startup deals in Silicon Valley.
Adolf Hitler Finds Out Bin 38 AngelGate
“The Hitler video was genius.” — Dave McClure
When the uninvited blogger crashed their party they seemed nervous. Arrington was later tipped off by anonymous sources that these super angles have met on more than 1 occasion to discuss things like how to reduce deal valuations, and prevent new angel investors from grabbing market share and pushing valuations higher.
9.22.2010
Dave McClure, one of the super angels in attendance, fired back with his usual colorful language and called these claims of collusion a conspiracy theory, saying that the meetings were just networking events for relationship building, shaking hands, and swapping notes.
9.23.2010
Meanwhile, the most influential Silicon Valley super angel Ron Conway, who didn’t attend the meeting, sent a confidential email, which soon leaked to TechCrunch, to all those in attendance at the infamous Bin 38 dining event. He condemned their alleged collusion and insinuated that the members were unethical and despicable.
Conway’s motive was unclear. Some believe the legendary investor is genuine given his platinum reputation. Others think it’s a CYA (“Cover Your Ass”) email to distance himself from the allegations since his own firm’s David Lee has “uncomfortably” attended the meetings.
9.23.2010
McClure accidentally tweeted his thoughts about the email.
McClure sent out a tweet earlier that was clearly meant to be a direct message. It read, “Ron is throwing us under a bus. and it’s chickenshit that he writes that after David Lee comes to both meetings.” He quickly deleted the tweet, but not before plenty of people saw it, responded to it, retweeted it, and it was syndicated elsewhere
This is sad. McClure actually liked Conway just fine before the AngelGate incident/misunderstanding. Here’s his retweet of our coverage on Conway’s character:
Wish we could pick sides – we can’t.
9.27.2010
At TechCrunch Disrupt McClure and Conway sat next to each other and were expected by many to produce a heated debated. But Arrington promised not to turn the conference into an AngelGate platform. The 2 super angels also said the blogs and leaked emails have already covered what they wanted to say on the topic and they had nothing else to add.
But they weren’t done talking about it, according to MG Siegler of TechCrunch. There was noticeable tension between McClure and Conway at multiple times during the panel. You can find Siegler’s live notes from the panel at The Panel That Was Definitely, Maybe Not About AngelGate.
Let’s get back to price-fixing.
Chris Yeh, a “minor” angel, thinks that the claim is laughable. Dean Takahashi of VentureBeat reports Yeh’s reasoning and adds a few comments of his own:
[For] price fixing to work, you must have control of a market, just as OPEC controls oil production. [Chris] Yeh noted that the 10 or so super angels might have each had $50 million funds. That amounts to about half a percent of the $20 billion in angel investing that happens in the U.S. These super angels don’t have the market power to enforce a price-fixing scheme.
Add to this the fact that rising valuations of startups are good for angels. If valuations are rising, that means the market is heating up. Startups may command more money when they raise it. But they will also sell for more money. So why would the super angels try to fight market forces? That’s what makes the scheme so implausible. Arrington compared the meeting to a scene from the Godfather. But this is really more like the kind of scheme you would expect from Dr. Evil, the incompetent bad guy in the Austin Powers movies.
It reminds me of mobster movies such as Good Fellas, where even the mafia has trouble keeping a lid on the biggest secrets because there are always stool pigeons and undercover agents and braggarts who want to talk about their evil deeds. The lesson for those who want to commit clueless conspiracies is that there is always the danger that someone is going to leak the evil scheme to the world.
Except those in attendance, no one knows whether the super angels have really been acting devilishly. But even the illusion of impropriety is enough to create quite a stir, especially considering how vocal the super angel community has been in its criticism of some VCs for their greed, arrogance, and lack of morals and ethics.
When angels band together for strength in numbers to support entrepreneurs, everyone considers it super. But if they gather in private as an organized crime syndicate engaged in activities that involve illegal price-fixing monopolies then they’ve definitely fallen from grace.
Not angels; not entrepreneurs.
Bin 38, definitely. Crazy amount of free publicity. Yum.
* For series, references are published in the last installment of the series.
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