Mike Arrington wrote about a secret Super Angel meeting and suggested collusion and price fixing. Then Ron Conway dropped a nuclear bomb on the subject saying he disagreed with the tone and direction of the "Super Angel" meeting group. Dave McClure threw some gas on the fire with a few choice words of his own. This will all come to a head at the Techcrunch Disrupt conference on Monday on a panel "Super Angels vs Super VCs". All this hoopla will certainly make the conference more interesting.
Everyone should calm down. These are all good people who work tirelessly to promote startups and take huge risks investing where VCs will not. Most Angel Investors are former entrepreneurs themselves. They are very independent and don't follow anyone by nature. They DO talk to each other and share ideas. But to suggest collusion is to not understand how Angel Investors really work. They are too independent to agree on anything. It is mildly surprising that they could agree on a date and time to meet. :-)
Ron Conway is a Silicon Valley legend and has earned his reputation through hard work. He still comes to every event and talks to everyone even though he could easily just sit in his office and let everyone come to him. He still works hard for entrepreneurs and gives back more than anyone. Dave McClure and the other Super Angels are also great people, former startup guys, who care deeply about startup entrepreneurs. These guys are all friends and it hurts to see them taking swipes at each other.
The meeting was reportedly a discussion about high valuations, the relative merits of convertible notes, and how to keep VCs out of deals. Interesting topics. These are issues that Angel Investors deal with every day. There are so many Angels and VCs competing for deals that there couldn't possibly be any price fixing.
The reality is that determining valuations for startups with no revenues and no customers is just a big guess. In most cases the average valuation for a "fundable" idea is between $1M and $3M. It is rare to see any seed investment deal outside that range. Is that price fixing? No, it is just reality. The price varies between $1M and $3M based upon the strength of the founding team, the viability of the idea, the stage the product is at, and the value of competitors in that space.
The other reality is that most startups fail. We constantly celebrate the winners, and they make lots of money. Hopefully, enough money to pay for all the losses on the other investments Angels make.
What do Angels talk about?
Standard deal documents - Angel Investors often talk about how to get a standard set of deal documents in order to make the process move faster and avoid huge legal bills. Most investment deals have approximately the same deal terms. Yet, lawyers charge thousands of dollars to generate the documents. In most cases the entrepreneur pays the lawyer to produce the documents. The investors pay another set of lawyers to review the documents. It is a giant waste of time and money to review what are essentially standard documents. Paul Graham at Ycombinator has put together some standard documents to help everyone out. Of course lawyers jumped all over them saying they shouldn't do that.
Convertible Notes - Many seed stage investments are made via Convertible Notes because they are easy to put together, don't cost too much in legal bills, and avoid the problem of setting a valuation. Personally, I don't like convertible notes for reasons I explained in a previous post. It was reported that convertible notes were a discussion item at the secret Super Angel meeting. Seems like a reasonable topic, and doesn't suggest collusion, just comparing notes on how to make the process easier and faster for entrepreneurs and investors.
Valuations - Most seed stage valuations are between $1M and $3M, and have been that way for the past 10 years or so. We might be in a seed stage bubble now where valuations are rising. But, seed stage valuations don't really impact the success metrics very much. The winners will have higher valuations when they exit, and the losers will still be losers. The net profit will be about the same. This is why Ron Conway says stop the whining and get back to investing and building successful companies.
This Silicon Valley argument will be center stage at Techcrunch Disrupt next week. Then it will quickly fade away because it isn't really a big deal, and there is nothing a group of Super Angels can do about it anyway. I agree with Ron Conway. Lose the drama, and lets get back to building successful startups.
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