Thursday, September 30, 2010


I think Chris Dixon is one of the smartest investors around.  I co-invested in him when he was an angel and I've co-invested with his early stage fund, Founder's Collective.  But while I generally agree with his recent post on venture investing segmentation, I need to call bull on this:

What we are witnessing now is a the VC industry segmenting as it matures. Mentorship and angel funding are performed more effectively by specialized firms.
It's kind of surprising to me that someone who did such an excellent job as an angel would imply that he really wasn't the best investor for those companies in the first place but, hey, he's entitled to his opinion.  But saying you'd be a better angel if you were a firm is like saying that you'd be a better amateur athlete if you went pro*.  You can't be an angel if you have a fund.  And though this sounds like a semantic argument, it make a real-world difference to entrepreneurs.

What bothers me is the lumping of angel motivation and technique in with the "Super-Angel"/micro-VC motivations and techniques.  The otherwise excellent David Lerner makes this mistake when he says he intends to explicate the angel investing world and then lists, as half his angels, people with funds.  This is a fundamental analytical mistake: taking the average of a bimodal distribution tells you nothing very interesting at all.

There are reasons why angels existed in the first place.  While the lower cost of getting a startup from A to B has changed the dynamics of early stage rounds, it hasn't changed most of the fundamental advantages of having individuals investing their own money: a personal--rather than institutional--connection to entrepreneurs, the ability to make quick decisions, the ability to make decisions that may not seem fiduciarily responsible but are for the greater good, primary expertise in an industry and in company building rather than in money-management, etc.  Most importantly--despite what the Supreme Court may think--firms are not people and they don't, in the long run, act like people.  Angels do.

* While this is the reasoning behind the modern Olympics and many college football programs, it flies in the face of the actual meaning of "amateur" and destroys what makes amateur athletics so appealing. 


Jeff Rosen said...


Agreed -

I need a mentor, teacher and advocate. Not a bank.

Excellently put.

chris dixon said...

Hey Jerry -
I think I wasn't clear. I meant the emphasis to be on "specialized" vs "general", not "firms" vs "individuals." I was arguing for the need for specialized early stage firms ("superangels"). I think individual angels play a very important role. Almost all of our deals include them and we actively encourage entrepreneurs to do so. And I also think pure angel rounds are a great thing for entrepreneurs and innovation in general.
-chris dixon

Jerry Neumann said...

Chris--Thanks for the clarification. Sorry for using you as a stalking horse :)

Jeff--You might need both, you never know... every company is different. I like the VCs and when I see a company I really like I often try to pull one in, because it's usually the case that I can't do the whole round by myself and pulling together enough $50k checks to do a $500k round can be time consuming.

In most of the early-stage companies I see (and keep in mind the selection bias here) companies move from needing more advice/specialized expertise and less money to needing more money and less outside expertise. This argues for the segmentation that Chris blogged about.

Sometimes that outside expertise can come from a YCombinator or a Betaworks, but what they can help you with resides in the scope of the people running them. If you need knowledge of something a bit more esoteric (the market for selling data to adnets, DSPs and agencies, say) you won't find that in the incubators, IMHO. Every person, every incubator exec, every VC, every angel can only know so much. And usually they have either breadth or depth, there's a bandwidth constraint on any person's ability to take in information. Incubators provides deep expertise in broadly needed areas. In most emerging, industry-specific areas they do not. In those cases you find some angels.

Jeff Rosen said...

Thank you Jerry.

I'm still hunting.

I need two niche mentors.

Not easy.

Thanks for the insight. It was very helpful.