Mark Suster of GRP Partners recently wrote about why it is probably not wise for super angels to dismiss or alienate VCs. As Suster points out, “It’s fun to have a villain – less fun when you need them.”
Many angel investors in this day and age are proud and passionate about their commitment to supporting social causes and solutions, underdog entrepreneurs, and visionary values that aren’t simply based on greed and profit.
Of course they feel good about doing good – and they should. They also have every right to point out how their investment philosophy or strategy differs from that of the typical VC, and to trumpet the fact that they believe that their super angel approach is better.
Lately this kind of inspiration has, however, led some start-ups and super angels to define the participants in the investment industry as mutually exclusive – meaning you’re either in the David camp or you’re on the Goliath team. Populist perspective is really trendy these days.
But as much as super angels would like to distance themselves from venture capitalists, everyone still appears to eat from the same trough. Money still fuels start-ups and if times get tough entrepreneurs and super angels may get hungry or even starved-out unless they are willing to sit down at the same table with the VCs and break bread.
In the late 1990s, angel deals benefited immensely from good market timing. They got on board deals that become successful IPOs really quickly and set sail. Between 2005 and the crash of 2008, some innovative companies, such as Flickr, Delicious, Blogger, and Writely hit the ground running, as did the more recent Invite Media, Aardvark, and Dodgeball ventures. So those angel investors didn’t have to worry too much about second round capital or deep pockets.
These days super angels are also enjoying exciting early stage deals. But this string of successes may be obscuring the reality that there is a potential downside. Suster explains, for example, that within the past couple of years large tech companies didn’t invest heavily in research and development, and lately they have been buying into younger deals because they can’t afford to wait for these start-ups to mature into serious competitors that command much higher prices. This market dynamic may not last forever, in other words, and sprinters may look like champs for the short stretch.
But once they have to go the distance it will be a whole different world and it will help to have someone to whom they can pass the baton for those last long laps. Angel investors and super angels can talk trash all they want about the VC industry, but if they find themselves in an endurance contest they may wind up eating those words and wanting to be teammates.
* For series, references are published in the last installment of the series.