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Summary:

As the debate rages on about the role of “super angels” in the success or failure of startups, Scott Sandell of venture capital firm NEA suggests that, as funding sources shrink and venture capital firms disappear, we should celebrate these investors instead of vilifying them.

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Michael Arrington’s fiery post on TechCrunch about possible collusion among the so-called Super Angels adds plenty of fodder to an already raging debate about these investors: their near-deified status among entrepreneurs, their increasingly large stakes in startups, and calls to examine whether they are really VCs donning Super Angels’ wings.

As a VC, my reaction may come as a surprise to some. For starters, there is no sense of Schadenfreude here; I really, really hope that Super Angels are not colluding against startups. But the volume of this debate has escalated to a counter-productive level: Whether there’s a new class of angel investors that deserves some special status or is competitive with traditional venture capitalists isn’t really the point. The real focus should be on the entrepreneurs and the enormous challenges they face today.

Funding sources available to entrepreneurs are shrinking and will shrink further in the next few years. Returns from the venture industry have not been healthy for over a decade, and for the first time, 10-year returns are negative. Limited partners are abandoning venture capital, which means the mother’s milk that supports entrepreneurs and innovation is drying up. Since the financial crisis, only 13 venture firms have been able to raise a fund as large as their previous one, and dozens of firms are disappearing ever year.

If individuals are stepping into this funding gap with their own capital, they should be applauded for taking the risk inherent in start-ups, and if they are raising institutional capital they should be called venture capitalists and applauded for their success in raising fresh capital. Understandably, limited partners are interested in funding angels who have been successful, and we should forget about labels and work together to ensure the capital formation process flourishes instead of falters.

Our ecosystem needs investors of all sizes to thrive. Angels and VCs alike are fueling startups with necessary capital, but there’s no denying it takes a larger capital base to fund capital-intensive projects or scale a business. And it’s worth noting that despite the perception that angels ”act like a startup,” these investors do not have a lock on entrepreneur support. NEA writes checks in all sizes, but our defining characteristics are our commitment to company-building and long history of championing entrepreneurs, often through multiple rounds and even funding multiple companies.

The entrepreneurial engine is essential for our economy. Venture-backed startups account for 10 percent of the jobs in the U.S. today, and more than 20 percent of the GDP, all with a tiny fraction of GDP invested. Not only is there room for angels and VCs to work together, but fundamental innovation and our country’s economic future depend on it. Entrepreneurs are the best hope for America, and they need all the help they can get.

Scott Sandell is a General Partner at NEA. He focuses on investments in information technology and alternative energy and leads NEA’s activities in China.

Related content on GigaOM Pro (sub req’d):
Report: U.S. Mobile Venture Capital Investment, Q2 2010
Do You Have What It Takes to Do Business in China?
Carving a Path to Greentech in China

Photo courtesy of Flickr user quinn.anya.

  1. “Super Angels” remind me of the rock-star era of Film Producers back in the 1980’s. They weren’t the steady as you go Studio Producers, they were a new breed based not just on their successes, but on their personalities.

    It didn’t end well for many of them.

    I think I’d rather do a deal with someone who calls themselves a VC. You know what the deal is. You know where you stand and what you are giving up. You know that “control” is no longer yours. That’s the deal you make.

    With a “Super Angel” there is the illusion that you are going to have a fun, open and supportive relationship. When, in reality, your relationship will be absolutely no different than if you’d gone with a VC.

    Not to be trite, but, “wolf in sheep’s clothing” keeps going through my head when I hear “Super Angel.” Where, the clothing includes a shirt that’s never tucked in.

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  2. Scott,
    Nice to see you weigh in. Well said!

    Mark

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