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Summary:

As legendary investor Ron Conway has pointed out in a strongly-worded email to some of the super-angels who were at a recent secret meeting, the most important part of the Silicon Valley startup ecosystem is the entrepreneur — something certain angels seem to be forgetting.

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Just when you thought the AngelGate fuss — which Mike Arrington of TechCrunch touched off earlier this week with a blog post exposing a meeting of “super-angels” — couldn’t get any more emotionally fraught, legendary Silicon Valley investor Ron Conway upped the ante late Thursday with an email to some of the investors who were at the meeting, calling their discussions “despicable and embarrassing for the tech community.” Among other things, the long-time angel investor asked those at the meeting to remember who they are supposed to be working for, namely the founders of the startups they are investing in.

This 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 (see disclosure below) have also made in blog posts since the AngelGate affair first blew up. True partner Jon Callaghan said it well in a post entitled simply “Founders Come First.” Angel investor Chris Yeh echoed this perspective in a post, saying “the last thing any of us — angel, VC, or entrepreneur — need is a conflict that will get in the way of what we’re all trying to do: Create great products and build great companies.” And entrepreneur Micah Baldwin of Graphic.ly wrote that “the best investors know that the moment you put the potential of your return ahead of the potential of your entrepreneurs, you lose.”

Dave Pell, meanwhile — an occasional angel investor and advisor to startups since the early 1990s — also made some great points in a post about advice he has given to startups, including how they should approach venture investment, from angels or anyone else. His advice includes a suggestion (probably not a popular one among super-angels) that they avoid doing so if at all possible:

The best advice I’ve ever given a founder during a pitch is: Don’t take any outside investment from me or anybody else. Most of the start-ups that are really products being built to flip to one of the big web companies are better off bootstrapping it than taking on outside money and all the hassles and headaches that come with that decision. If you can swing it without investors, do it.

It’s no secret that a big part of what led to the secret meeting of super-angels — where the topics of discussion (allegedly) were things like how to push startup valuations down — is the current bubble-like atmosphere around startups and seed investing in Silicon Valley. As Liz has pointed out, it seems as though every open house or launchpad event draws hundreds of angel and VC funds, with some offering YCombinator startups financing before the ink is even dry on the napkin where they sketched out their idea.

Dave McClure, an angel investor and startup advisor — who came in for particular criticism in Conway’s email — is just one of the “super angels” who have raised (or are trying to raise) large funds over the past few months. McClure’s 500 Startups has filed to raise $30 million, former Google executive Chris Sacca has raised over $20 million for his Lowercase Capital group of funds, and another former Googler, Aydin Senkut, has raised $40 million for his Felicis Ventures fund — and there are new funds appearing every few weeks, it seems. That much money chasing a relatively small startup field is bound to lead to pressure on prices, and to pressure on relationships between angels and traditional VCs. Some, like Kauffman fund advisor Paul Kedrosky, have even argued that there is a super-angel bust coming.

Whether there are too many angels is a moot point in some ways. As with other investment cycles, the number of investors tends to rise and fall. But without taking sides, Conway’s central point is a good one — if the in-fighting and/or attempts at collusion among angels (which Union Square VC Fred Wilson said recently has always been around) gets out of hand, then the ones who ultimately suffer are the founders and startups that are supposed to be at the heart of the entrepreneurial ecosystem (and some recent analysis shows the U.S. has some work to do in that area). As Clay Loveless of Mashery said about the AngelGate blowup: “I’m glad I’m not launching a startup in the midst of all this.”

That’s not to say Silicon Valley and a handful of “super-angels” are the entire startup ecosystem — they clearly are not. But they help set the tone and drive attention and funds towards startups of all kinds, and friction in that process does no one any good. In closing, we leave you with Hitler’s perspective on the whole fracas.

http://www.youtube.com/v/ZlZOfHCpFFs?fs=1&hl=en_US&rel=0&border=1

Disclosure: True Ventures is an investor in the parent company of this blog, Giga Omni Media. Om Malik, founder of Giga Omni Media, is also a venture partner at True.

Related GigaOM Pro content (sub req’d):

Post and thumbnail photos courtesy of Flickr user Dave Vaughan

  1. You know why this ultimately doesn’t matter? Because those of us out in the world building stuff and making money don’t give two shits about what goes on in the valley. It is not the center of the universe.

    The biggest bubble in need of bursting is the idea that technology and success can’t happen outside of California. All of those people need to get over themselves.

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    1. This.

      The finest work in the valley is damn fine, but it exists elsewhere also.

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  2. Good roundup, Mathew. Here’s how I summarized it in Collusion’s such an ugly word:

    Godwin’s Law! Mathew Ingram’s got a roundup, a great graphic, and a Nazi reference in AngelGate Goes Nuclear, Startups Get the Fallout on GigaOm.

    Mathew starts with a Jon’s post from True Ventures (an investor in GigaOm) saying “Founders come first”. He also links to Chris, Micah, Dave, Dave, Chris, Aydin, Paul, Fred, and Clay.

    I wonder if any of them are talking about gender?

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    1. Thanks, Jon.

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  3. As an angel investor, I strongly agree with Dave Pell’s advice to entrepreneurs to avoid taking outside investment if possible.

    I have given that very advice to numerous entrepreneurs, gone on record publicly about this:
    http://chrisyeh.blogspot.com/2010/08/little-bets-and-power-of-quitting.html

    You don’t make money when you raise it; you only make money when you sell the company, either to the public markets, or to an acquirer. No entrepreneur gets rich off their Series A.

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    1. Thanks for the comment, Chris — have really enjoyed your posts on it.

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  4. Wally Eve Burton Saturday, September 25, 2010

    I am not amazed at all this. Picking up on a comment by one of your readers some time ago, I can only recommend to get out of the States altogether when looking for funding. The investment climate is more open; and investors in general are less aggressive. We followed the example of your reader, and talked to Manfred Haldenwang at eSolve Capital. This led to great success all around

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  5. Definitely poor news for startsups – I hope the situation will improve once this matter is resolved!

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  6. Comments like “Founders Come First” from an angel investor normally indicate the investor is dellusional at best and blatantly lying at worst. Investing – angel, regular VC etc – is first and foremost about making money for their LPs and themselves. That’s how they get to keep their job. So, while I’m sure investors want their companies to be successful let’s be honest, they put themselves first before the company. This is just fine in the capitalistic system we live in.

    If this were not true they’d invest more often in ideas that could change the world rather than the next me-too product (currently any business plan that mentions Cloud) because they believe in the founders, their ideas, and their investment thesis – not in valuations and liquidation event timeframes.

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    1. That’s a fair point, Arjun — most of these VCs are not in it for their health or to save humanity, they have investors and partners and want a return.

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  7. [...] the AngelGate controversy and shift your attention to the big-money world of cloud computing and infrastructure startups. [...]

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  8. [...] startup ecosystem, but during our conversation, the venture investor also had some comments about the recent “AngelGate” clash between “super-angels” and traditional VCs, as well as some advice about the big online trends he is thinking about as he makes investments [...]

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  9. [...] and were “not particularly interested in brand names” (a point that many of those jockeying for attention during the recent AngelGate furore might want to consider). And the survey also suggested that there may not be a lot of truth to the [...]

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  10. [...] all the fuss surrounding the recent “AngelGate” meetings and the tension between angels and super-angels and traditional venture funds, it’s instructive to listen to one of the legends of the Silicon Valley VC business — [...]

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