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Summary:

Super-angels like to make themselves out to be the startup’s friend — the one who knows what founders are going through, the one that shares the entrepreneur’s pain, and so on. But in private meetings, some say the angels can be heard singing a different tune.

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In a blog post that is already making waves in Silicon Valley and throughout the startup community, Mike Arrington says that he recently walked into a secret meeting of the Valley’s so-called “super-angels.” Those are the trendy, not-quite-VCs who invest smaller amounts of money in startups, and who like to make themselves out to be an entrepreneur’s best friend — the kind that knows what entrepreneurs are going through and share their pain by not charging huge fees, etc. Except, according to Arrington, things aren’t always what they seem.

The point behind this meeting, the TechCrunch founder says, was to talk about how the super-angels (some of whom may appear on these lists) could consolidate their power within the Valley ecosystem and win more market share away from the traditional Sand Hill Road VC firms. And are they planning to do this by offering better service to the entrepreneurs whose pain they claim to share? Not according to some of those in attendance at the meeting, who said that the topics discussed included how to blunt the competitive force of YCombinator, how to keep valuations down and how to convince startups not to use convertible notes for financings.

If these reports are true, that doesn’t sound very super at all. In fact, it sounds just like the traditional VC mentality that super-angels were supposed to be fighting against — the win-at-any-cost, anything-is-fine-if-I-get-my-cut attitude that startups have been up against for decades. What happened to the “sharing your pain” approach? What happened to the “act like a startup” motto that some have advocated?

This latest development, if true, is the continuation of a perverse trend in which everyone chooses to focus on the investors instead of on startups and what is good for them. After all, the entrepreneur is supposed to be the one at the heart of this whole process — who is looking out for his or her interests? No one, it seems. It’s ironic that the movie “Wall Street 2″ is going to be opening in theatres soon, and the atmosphere in the VC world seems to be very much like the one that Gordon Gekko raved about in the original.

Everyone knows the VC game is tough, even for super angels — especially when hundreds of them throng to a YCombinator event to see just a handful of promising startups. No one thinks it should just be one big Kumbaya singalong, by any means. But it’s one thing to run a business and another to be advocating that everyone gang up to drive valuations down, or to stop the use of convertible notes — which are a startup-friendly trend that many non-super angels and startup advisors have been promoting. It’s a little sad to hear that some of the same people who have been saying publicly that they were on the side of startups may be saying something completely different in private.

The last time professional investors spent so much time thinking about what they were getting out of the deal rather than focusing in building a healthy startup community, it was the late 1990s, and it didn’t end well. If the super-angels and traditional VCs alike spent a bit more time thinking about the entrepreneurs at the heart of this whole equation and a little less thinking about ways to line their own pockets at his or her expense, we would probably all be a lot better off.

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  1. Quora is going crazy with all the angelgate news, but having followed Mike Arrington for years, I know he loves to sensationalize posts to draw traffic. His reputation has been hurt so often that he now sounds like the boy who cried wolf. Even though there may be a hint of truth in his revelation, it’s wise to take it with a pinch of salt.

  2. PS just to be clear and fair in your article Chris Dixon was not involved in #AngelGate and he still prefers convertible notes http://twitter.com/cdixon/status/25180435516

    1. Yup, no one said he was. I think it was his ideal is what Mathew is pointing to, which indeed is a good ideal from an entrepreneur’s perspective.

  3. Right, probably calling themselves Angels should have already be alarming, in the competitive world it sounds too good to be true. Or probably their former moves have already created an image which can’t be changed by words and meetings only, but the fact is – they still have much distrust and if they want to build trusting relationships, they also need to show some actions.

  4. That’s a lot of “what-if’s”.

  5. Great Point! You wonder if there was some sort of Super Angel meeting a few years back in which they decided they would teach entrepreneurs to take tremendous risk trying to build a free service so they could obtain millions of users and leave out the part about 1 in X (large number) chance of success. They don’t mind, they have already spread the risk.

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  7. I’m surprised that anybody is surprised about this “news”. Whether it happened or not doesn’t matter. Obviously the “super-angels” are constantly talking to each other, and it doesn’t take much to guess that they (i) don’t like Y Combinator, (ii) like low valuations and (iii) don’t like convertible notes. Isn’t that just obvious? Weird that this is causing such a brouhaha. The only important conclusion is that entrepreneurs and founders stick together as well. They are doing a pretty good job at it, otherwise (i) Y Combinator wouldn’t exist, (ii) valuations weren’t that high and (iii) convertible notes deals wouldn’t get done.

  8. AngelGate Goes Nuclear, Startups Get the Fallout: Tech News « Friday, September 24, 2010

    [...] is a message we tried to get across in a recent post as well, and a point that several other prominent angels and investment funds such as True Ventures [...]

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