Blog Post

Video: Angel Investor Chris Dixon on Startups & Why the VC Model Is Broken

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

Chris Dixon is outspoken. He says difficult things. On his blog, Dixon writes about the technology industry’s taboos. “My blog is written from the perspective of the entrepreneur,” he says. “It was started as a VC countermeasure.” And when he’s really angry, his inner comic tweets gems such as: “Twitter is like a drunk guy with an uzi killing partners left and right. Expect investment in ecosystem to drop significantly.” So you might be thinking, just another blogging blowhard. No sir — Dixon is co-founder of a company called Hunch. He sold his previous startup, SiteAdvisor, to McAfee.

And these days in his spare time, he invests in startups through a New York-based founders-backed fund called Founder Collective. In fact, he’s on the speed dial of many Silicon Valley investors. And yet he marches to a different drum — one heard only by entrepreneurs and startup founders.

I first met Dixon back in 2005, when I was working for Business 2.0. An MIT graduate with big ideas, big ambitions and more importantly, a refusal to never take the status quo for an answer, he made an impression on me, and we’ve since stayed in touch. He’s come a long way, but the moment I sat down with him for this interview, it was clear to me that he hadn’t changed. Sure he had new, hipster glasses. A bit more swagger. But he’s still the same plain-speaking guy I met five years ago.

And he pulls no punches in our interview, especially when talking about the rise of super angels and micro VCs, a new trend that’s shaking the venture capital industry to its very core.

Part 1:

He also talks about his transition to investor from entrepreneur. “I got involved in investing mostly to get into the flow of what was happening on the Internet,” he says. “It was the exact opposite of the reason as to why others may invest.” In the process, he said he discovered that some VCs were pushing large amounts of money to startups at a higher valuation than was necessary. “When a buyer is asking for higher price, you know there’s something wrong.”

And it’s why he believes the current seed-stage investment movement started. At Founder Collective, the fund has a negligible management fee. “We make money when our investors make money…What’s so radical about that?” he says, adding: “What scares most VCs is that they don’t know what they’re doing.”

Part 2:

He also talks about lean startups, why entrepreneurs shouldn’t start a business with the goal of flipping it and why fewer people swing for the fences these days. As to his investment philosophy, it all comes down to one thing: the people. He looks for ideas that are unique and ones that others don’t quite understand. “If a Wall Street person is trying to start a company, it’s almost always a disaster and I wouldn’t invest in that,” he says.

I suggest you watch both videos. Before you do, here’s another little gem from Dixon:

“There are two kinds of investors: Ron Conways who try to create value by finding good people and helping them create something great, and others, who want a piece of someone else’s things. The builders and the extractors. Avoid the extractors.”

15 Responses to “Video: Angel Investor Chris Dixon on Startups & Why the VC Model Is Broken”

  1. Martin McGuinness

    Hi Chris,

    I am a law student at New York University doing a case study for my Deals class on angel investors. The goal is to produce a final product that looks something like a Harvard Business School case study and captures the essence of the decision a promising entrepreneur faces when considering whether to apply to Y-Combinator, Techstars or an angel investor.

    I am looking to interview a number of people in connection with the project. If you are willing to have a chat either in person or by telephone then I would be extremely interested in hearing from you.

    Alternatively, we have outlined a few quick questions we would like to ask you below. If you are able to complete these then this would be a convenient substitute to an interview.

    And if you have any other suggestions of people we should chat with, please do not hesitate to say. Thank you in advance for any assistance you may lend.

    Best wishes,
    Martin McGuinness

    Angel Investor specific questions:
    1. What is the single most valuable element an Angel Investor provides to entrepreneurs?
    2. Would you consider Angel Investors in any way similar to an “incubator” or something different? Why?
    3. Will the current economic climate affect Angel investors and the potential for success of the entrepreneurs they invest in?
    4. What type of companies do you typically invest in, for how much and what is their success/failure rate?

    Angel Investor vs. other options for entrepreneurs
    5. How does an Angel Investor stay involved with their startups?
    6. Apart from the mentorship provided by Y-Combinator/Techstars and the increased control demanded by Angel investors, in your opinion what are the main differences between angel investors and Y-Combinator/Techstars?
    7. Are there any reasons you would recommend to a startup who applies to you to proceed with either Y-Combinator OR Techstars instead?
    8. What is normally the contractual relationship between angel investors and the startups? What would you recommend to the entrepreneurs?
    9. How often do companies receive initial funding from angel investors and then receive additional funding from the same or a different angel investor at a later date?

  2. Check out video interviews with Randy Komisar, VC, on Business Models Includes response to Chris Dixon Gigaom video interview. Randy is an author & venture capitalist with Kleiner Perkins Caufield & Byers. He wrote ‘The Monk & the Riddle’ & ‘Getting to Plan B’. He is the original ‘virtual CEO’ and has a hands on approach with startups with whom he invests.

  3. Smart guy and some good comments. But, his comment about builder vs. extractor is interesting. Ron invests in literally 100s of companies. Given that, how in the world can he really help them build the company? He can’t – not enough time in the day. The evil VCs that Chris is talking about are typically invested in only a few companies at a time and can at least spend the time to “try” to help even though I assume Chris would just assume they are going to F it up.

  4. Watched the vidoe, loved the interview and admire Chris for hitting it stariaght from the gut. He makes a lot of sense and I fully agree with him when he says entrepreneurs shouldn’t start a business with the goal of flipping it.Business should always start on a notion of creating a long lasting profitable value and transforming things which rewards all those who are involved and not just a few. It should be a luanching pad to make all those who rolled up their sleeves to work on the idea a sucesss becuase that is where true satisfaction comes to see commom people around you flourish as well.

  5. I respect the balls on this guy when he takes a shot at Benchmark (which I’m sure everyone agrees with but no one has the balls to come out and say in public like this). Good interview.

  6. The interesting thing about the last quote is that every single VC will say they are like Ron Conway. I mean, ask VCs to put themselves in either bucket – do you think any will self-select into the latter? The problem is that most “extractors” are not very self-reflective.

    It’s going to be really funny – I predict that in the next six months VCs start saying stuff like “I am a builder, not an extractor”. Lol.

  7. Its a good balance to have other opinions about the venture capital/entrepreneur universe. I appreciate hearing Chris’s perspectives & revelations. It may also break the bubble of other’s idealistic preconception of it all??? Nice….

  8. Vischameel

    His comment about Twitter was incorrect and aimless. Twitter is not randomly killing anyone they are trying to build their business. it just happens to be the case that Chris doesn’t like it. Well, tough sh**!