Super angels

There are the three contributing factors to the emergence of the current angel investor ecosystem:

1: With the emergence of new platforms and channels (like, but not only, the internet) the capital barrier to entry for new companies has come way down.

2: Now that we’re 10+ years into new media, there’s a large pool of experienced people who have accumulated enough wealth for speculative investments (and have the knowledge/courage to do so).

3: It’s fun to be part of the creation of new products!

Based on these three factors, I don’t see angel investing going away any time soon, in fact, I think we’re only at the beginning of a capital market that is going to be a major part of the innovation ecosystem for a long time to come.

What I like most about the proliferation of early-stage capital sources is that it means entrepreneurs have a wider array of choices, and thereby a greater ability to align their, and their investors’ objectives.  If you want to create one of Mike Maples’ Thunder Lizards and take over the world, you can call Mike.  If you think there’s an untapped niche and you’re sure you can create a highly-targeted service for it, you can give Dave McClure a call and be one of his 500 Startups.  You can swing for the fences, or try to lay down a bunt. 

I also think, in the end, the proliferation of early-stage capital sources will be a good thing for the big VCs, it means they’ll have many more sprouts from which to choose.  I do think it’s going to slightly push the focus of “traditional” VCs towards slightly later stages of company development. In the end, however, that will probably be a good thing as I think it will take some of the risk out of their deals.  So, yes, valuations will rise (a common complaint made by VCs about angels), but in parallel risk should fall.

What entrepreneurs really want

The law firm Dorsey & Whitney did a great study on “The evolving investor landscape.”  

What I liked most about the study are the quotes at the end. The themes in these write-in responses are probably worthy of being on the first page of the report rather than the last. What they illustrate is that what matters to entrepreneurs isn't just the financial dynamics, but the investor’s experience, trustworthiness, ability to form capital and if they’re availability to even return a phone call (or get a beer).  My guess is most top entrepreneurs would be flexible on valuation in order to get the right investor team pulled together.

Additionally, the right angel investor can make meaningful contributions to the development of a company. On stage, at a recent Vator splash event, Neil Young, the founder of ngmoco, recounted a pivotal moment where Mike Maples, one of his angel investors and board observers, made a key insight about their business model: http://vator.tv/n/1788 (right around minute 20:30) – having an experienced entrepreneur and angel investor at the table at that moment added a tremendous amount of value. This is a great example of why having a mixture of VCs and angels can, at key moments, be good for companies