I'm closely following the developments of the new super angel funds and regular business angels turning their activities into something a bit more "professional". On one hand, I'm a huge fan of this. On the other, I have to admit that it's getting a bit ridiculous. The media as well as the angels who are in heavy PR mode are making it out as if it were the "second coming". Is it really that new and innovative?
Let's look at what the majority of these groups are proposing and a couple of common blurbs:
"We finance only geeks or techies!"
"We are entrepreneurs financing entrepreneurs!"
"We're in it for the long-term!"
"We invest earlier than everyone else!"
"We take the biggest risk!"
"We are company builders!"
"The venture capital model is broken!"
"We don't wear suits!"
I could go on and on with these quotes. In the past two months or so multiple new launches have come about and I have plenty of material to work with. Yet, let's look at the reality of this.
About 30 to 40 years ago, a bunch of geeks got rich when the whole technology wonder that we've been experiencing for most of our lives let loose, picking up speed when IBM launched the first PC in 1981. Their pockets were full of money from exits and they were full of hope. What did they do? They started investing their own money in their friends' businesses. They started out small, taking little bits and pieces of companies here and there. They had some success as well as flops but they were in it "to give back" and "to have some fun". Those who were most successful had other friends approach them and ask if they could also invest alongside them. Many gave in since hey, these are my friends. How did they do this? Well, they set up funds. After having set up these funds, they realized they were starting to do more investments than they could handle so they hired a couple other friends who then also hired a second tier of people below them. All of a sudden you had a team which required a budget. Since the money was being put to work, you had to manage portfolios. One partner could only do so many investments and sit on so many boards. Salaries really started to become a burden and you realized you had to increase your fees. How did you increase fees? Well, you increased fund sizes as fees are based on this. Before you know it, 30 years have passed and the kid in a t-shirt and jeans with a couple million bucks in his pocket is coming to work in his Bentley to his venture capital firm on Sand Hill Road.....wearing a damn suit!
So, are the new "angels" and "super angel funds" really that new? Are they completely breaking the mold and going their own way? Not really! We're just at the beginning of another cycle and I find this extremely exciting. It's not the end! Venture Capital is not "broken"! We're just starting to innovate and re-invent again, creating the future just as those senior guys in suits did in the 70's and 80's.