Call it Angel Gate. Or call it the Super Angel/VC Smackdown. The world of Super Angels has exploded.
The pivotal event was a September meeting of Super Angels – angels that have morphed into investors and invest their own money as well as that of others – at Bin 38, a San Francisco bar and restaurant about which high-tech blogger Michael Arrington was tipped off with the proviso “Do not come, you will not be welcome.” But like any self-respecting blogger Arrington went, and, of course, was turned away. Still this is what Arrington, who writes on the blogsite TechCrunch, could tell about some of what the group discussed:
• How Super Angels can act together to keep traditional venture capitalists out of deals entirely
• How the group can act together to keep out new angel investors invading the market and driving up valuations.
• Complaints about rising deal valuations and how Super Angels can act as a group to reduce those valuations. One source told Arrington that there is a wiki of some sort that the group has that explicitly talks about how the group should act as one to keep deal valuations down.
• Complaints about the growing power of Y Combinator, an innovative start-up group which focuses on seed investments to startup companies, and how to counteract competitiveness in Y Combinator deals.
The Bin 38 meeting was just the beginning. Since then venture space has become charged with private e-mails made public, blogs and tweets. And the conversations have ranged from accusations of Super Angels collusive and price-fixing practices to conflict within angels and Super Angels about the secrets that threaten the financing of innovation and embarrass Silicon Valley.”
Still, the concerns are legitimate. Angels and SuperAngels have co-existed with VCs but uncomfortably. And as angels have morphed into Super Angels – with larger pools of capital to invest – they resent that they can be out muscled by VC funds with more capital and also have their own stake downsized. Super Angels also have greater financial responsibility: they are managing larger pools of capital for themselves and others and need more of a structure and organization.
Entrepreneurs are confused by term sheets: each group has a separate version, many in conflict with the other. So entrepreneurs often have to spend inordinate time and money – always a scarce commodity – trying to reconcile the disparate pieces of paper. More disturbing: Many term sheets are legal mine fields, designed more to exclude others than to facilitate financing.
There are other consequences, noted Y Combinator’s Paul Graham in a recent Silicon Valley presentation. Most VCs are mostly price-insensitive and they don’t really mind if start-up valuations are higher than they should be. But high unwarranted valuations could lead to what looks like another bubble with skyrocketing valuations, Graham noted.
The result is confusion, especially for many entrepreneurs who have found angels and Super Angels a willing and accessible source of start-up capital. They see their interests increasingly out of alignment with the growing division between their sources of capital. And as each group rallies round their own flags, entrepreneurs see the financing environment getting more bureaucratic and costlier, not easier and more transparent.
