It may not have been an actual hand grenade, but the post Mike Arrington of TechCrunch lobbed into the center of the Silicon Valley venture-capital community on Tuesday was certainly a stink-bomb. He alleged that a group of super-angels — which he said represented “nearly 100 percent of” the early-stage deal flow in the Valley — met at a clandestine gathering in a San Francisco restaurant as part of an attempt to drive down startup valuations and fight back against upstarts such as YCombinator, as well as mainstream Sand Hill Road VCs.
Not surprisingly, this post has led to some fairly strong responses from venture capitalists, both angels and non-angels (which — it must be said — was likely one of the goals of the post, especially since TechCrunch has a conference coming up that features a panel on super-angels). The most colorful, in all the senses of that word, came (not surprisingly) from Dave McClure, the foul-mouthed PayPal alumnus and founder of the 500 Startups angel fund, who launched into an expletive- and exclamation-mark-laden post about what really happened at the meeting. According to McClure’s version of the events:
[A]t the dinner, there was a fair amount of kvetching about convertible notes, capped or not, hi/lo valuation, optimal structure of term sheets, where the industry was headed, who was innovating and who wasn’t, and 10 million other things of which 3 were kind of interesting and 9,999,997 weren’t unless you like arguing about 409a stock option pricing
McClure’s take on the “secret” meeting was echoed by Bryce Roberts, co-founder of O’Reilly’s AlphaTech Ventures group. On Twitter, he said of McClure’s version “this sounds like the dinner I was at.” In a response to a question on Quora he said:
Apparently, I was at a very different investor dinner than the one Mike wrote about. The dinner I was at didn’t have agreement on anything, let alone agreements and pacts as outlined in his article… the dinner I was at reflected a bunch of different styles, not consensus
Angel investor Chris Yeh argues that there is a secret super-angel conspiracy, and that all of the venture capital community and the media are in on it, since all sides want to increase the visibility of the venture business, in part because angels and traditional VCs alike are fighting for deal flow. According to Yeh, there is actually a lot less animosity between angels and mainstream VCs than many think, since more angel-funded startups potentially means more future deals for larger VC funds. Yeh also says describing those at the meeting as representing 100 percent of the seed-funding community as “laughable.”
Union Square Ventures partner Fred Wilson, meanwhile, argued on his blog that there is no collusion in the angel community — not because they don’t want to collude, but because they can’t. The Twitter financier says that many VCs would love to work together to drive valuations down and get more favorable terms from startups, and that this kind of activity has happened in the past (in the late 1990s in particular, he says) but that the market is too competitive for it to occur now.
In other responses, Gawker called the meeting “comical” and “hapless” — in part because the group apparently mulled using a wiki to keep track of the so-called collusion among its members — and startup advisor and investor Andrew Payne said it was a symptom of too many investors chasing too small a pie. Entrepreneur Mark Essel said that the meeting was another sign that startups should look outside the Valley for seed funding.
If you’re looking for a list of which super-angels were at the secret meeting, Quora users have been busily constructing one.
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