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Summary:

Lately we’ve been discussing the many reasons why taking smaller, angel-sized investments instead of larger venture capital stakes often makes more sense for startups in a wobbly, exit-bereft market like the current one. Today, Ron Conway, the well-known founder of the Silicon Valley-based Angel Investors LP […]

Lately we’ve been discussing the many reasons why taking smaller, angel-sized investments instead of larger venture capital stakes often makes more sense for startups in a wobbly, exit-bereft market like the current one.

Today, Ron Conway, the well-known founder of the Silicon Valley-based Angel Investors LP fund, now associated with Baseline Ventures, weighs in with his own assessment of the benefits of the “all angel” investment path.

A former semiconductor executive who went on to co-found Altos Computer Systems, Anchor Intelligence and, most recently, SNOCAP, Conway took up angel investing in 1998. He’s seen his share of both hits and duds, but among the investments that earned Conway his “super angel” status are Google, Digg, PayPal, and Ask Jeeves (now Ask.com). He is also an advisor to Facebook. In other words, Conway knows what he’s talking about. So, if you’re seeking funding, you’d do well to consider his advice, dished out below the fold.

1) Angels are not fiduciaries. Angel investments are always going to be smaller, but the due diligence process is also going to be less rigorous, because angels are not acting as a fiduciary to another investors. VCs are duty-bound to put your company through a thorough review process because they are investing other people’s money. This is why I enjoy being an angel and not being a fiduciary: I can make my own decisions based on my intuitive process, my own opinion and gut feel about a company, because I am investing on my own account. This means I can make decisions faster, which is also good for the entrepreneurs.

2) Angels are often vertical specialists. Some VCs tend to be generalists when it comes to an industry (e.g., retail), or technology (e.g., mobile). Because angels often come from a successful industry background, you can do a better job of hand-picking a partner who will add expertise and value relevant to your precise market area — not just money. If your company operates in social networking, you might be enticed to go to a bulge-bracket, or marquee VC firm—and they would consider you because the space is so hot. But chances are that even some of the biggest VC firms won’t have someone with deep domain expertise in social networking, it’s just too new. But you could go see Owen Van Natta, who just left Facebook. You’re in cloud computing? Go get Diane Greene, the former CEO of VMWare. They’d both make great angels.

3) Angels have one-degree of separation from people in their professional network
— not two, or three, or four. But because angels tend to be operational types, the business relationships they bring to the table are personal, not transactional. Angels also tend to invest in concentrated themes, consistent with their operating experience. So when it comes to accelerating your business development — through things like recruiting, partnerships, cultivating sales, etc. — angels tend to connect the dots. The combination of first-hand relationships and focus means an angel can might get your company to an “exit” sooner.

  1. Sound advice. Short and to the point. Concise in thought and insightfulness. It’s no wonder Ron Conway has made angel investing a cottage industry serving the needs of entrepreneurs.

    Best,

    Curtis

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  2. You’re lucky in US to have this kind of investisor, in France we have only bank…

    Fidgee : Post linked on http://eng.fidgee.com – Feeds from the Geek Side

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  3. Great information. When i built Cocktail Match i wanted to make sure i had created a great product first and foremost. In the past i pitched concepts. I think a project that has been taken from concept to product is more appealing to an Angel’s eye.

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  4. Ron’s the best investor I ever had – bar none. If he wants in your company say yes.

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  5. This is a great overview. Can you write one about how to locate Angels though? I have been looking for an Angel for quite some time for Twitturly, however, because I do not know any of them, or anyone who does, it makes it kind of hard.

    Twitturly has a great future and I think it just needs some financial help to get it there. Many people say fund it yourself, as long as you can, and I have done so, but it only goes so far.

    Any tips that you can provide to locate interested Angels would be really appreciated.

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  6. Ron is the hardest working investor I know. He’s long past the point of needing to work, yet I can email him at 1am, and get a response at 1:05 without fail. A no brainer to take his money if he wants to give it to you.

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  7. [...] Vertical Experts in India I’ve just finished reading the Post More reasons to Go All Angel at GigaOm. It generally talks about “Why taking only the smaller investments from Angels for [...]

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  8. [...] many Angel Investors are Vertical Experts? I’ve just finished reading the Post More reasons to Go All Angel at GigaOm. It generally talks about “Why taking only the smaller investments from Angels for [...]

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  9. I always say that your company need to be grounded in the point. It also works great for the point.

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  10. [...] 15 2008 | Entrepreneurship |  Email This Post I’ve just finished reading the Post More reasons to Go All Angel at GigaOm. It generally talks about “Why taking only the smaller investments from Angels for [...]

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  11. Very Interesting. Especially the second one. Vertical expertise on the angel investor is something that can take them places.

    Have some experiences related to it in the Indian Scenario. But not so positive ones :(

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  12. A very basic introduction to Angel Investment, however, its always good for people that may need to raise capital to be aware of this type of funding.

    It may be wise to inform people of what stage they should seek Angel Investment as its typically not something that people should look at before they’ve exhausted other sources.

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  13. [...] technology industry insider, Esther Dyson. It was an all-angel round of funding, something we’ve discussed on our FoundRead channel. Apart from Dyson, other investors in the company include Xing founder [...]

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  14. Very helpful. Here is a video with Ron Conway at Stanford University:

    http://ecorner.stanford.edu/authorMaterialInfo.html?mid=1902

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  15. [...] your weekend enjoyment, are some highlights from my recent reading, for you. On Starting Up…http://gigaom.com/2008/09/13/ron-conway-more-reasons-to-go-all-angel/Key reason’s that Ron Conway advocates startups only using Angel [...]

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  16. [...] Ron Conway, a prolific west coast angel investor, in a recent article for GigaOm writes why startups should seek angel funding over venture funding. [...]

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  17. Nice advice. I’m recommending this article to my readers for their Weekend Reading…

    http://tpgblog.com/2008/09/19/the-product-guys-weekend-reading-september-19-2008/

    Jeremy Horn
    The Product Guy
    http://tpgblog.com

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  18. [...] have some advantages over VCs, that shouldn’t be down played.  Ron Conway points some of them out here, and Roger Erhenberg has been talking about how “Super Angels” are going to dominate [...]

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  19. [...] Leinwand, Saturday, September 27, 2008 at 5:00 AM PT Comments (0) Recently two separate posts ran here that argued in favor of technology entrepreneurs who need early-stage money taking it from [...]

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  20. [...] Conway, a well known “super angel”, follows up with 3 more reasons why Angel money is more attractive than VC [...]

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  21. [...] This comes via Carleen Hawn over at Gigamom.com [...]

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  22. [...] Article #5 Leave a Reply [...]

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