A year ago, a huge controversy erupted before TechCrunch Disrupt (sound familiar?). Michael Arrington walked into a bar in San Francisco, Bin 38, and walked out feeling dirty. It was in Bin 38 that he overheard a group of angel investors talking about a range of things — many of which didn’t seem very entrepreneur-friendly. Anyway, the situation was bad enough that Mike had to write a post declaring: TechCrunch Disrupt Will Not Be About AngelGate.
And it mostly wasn’t. Except for one panel.
Fast forward to today. Mike was back on stage with another group of angels. The situation has changed significantly as Mike is now an investor himself, with several angel round deals in the bag. Meanwhile, the angel scene as a whole has exploded even further as we’re in forthy investing times.
To kick things off, they briefly revisited AngelGate. You may recall that SV Angel’s Ron Conway was the most upset over what went down at Bin 38. On the other side was 500 Startups Dave McClure who was at Bin 38 (Conway was not) that night. Both were on last year’s panel, and both were on this year’s as well.
“The benefit was that everyone realized that we should focus on helping entrepreneurs,” Conway said today to applause from the audience. And that was pretty much it. After that, the conversation moved on to what’s happening in the angel community now.
Mike wondered if the move toward uncapped notes (essentially a funding round where the actual price is determined after investors commit) is a bad thing for investors. Specifically, he asked if Conway’s commitment to invest in all Y Combinator startups with Yuri Milner was hurting the other angels?
Everyone seemed to agree that the uncapped situation started long before that. In fact, that’s the way things were for a while until angels started to gain popularity and were able to push back to capped notes, McClure noted. Only McClure and Conway were the ones on the panel who were open to doing uncapped notes at all. SoftTech’s Jeff Clavier, Freestyle’s Josh Felser, and Felicis’ Aydin Senkut all are generally against the concept.
McClure’s thought is that you should be “open to great companies” not matter what the terms are. Meanwhile, Conway believes that entrepreneurs with great track records have the leverage to do uncapped notes, and believes that’s their right to take advantage of that.
Felser believes that uncapped notes hurt early investors which are often friends or family members. They take the most risk, and commit early, then they can get screwed without caps. But Conway believes uncapped is part of the beauty of free enterprise. He noted that while he invested in Google at $75 million pre and at the time, that would have been considered an uncapped note. He also pointed to Jim Breyer getting into Facebook at $85 million as the same idea.
After some back and forth about the topic, Conway interjected. “None of this matters,” he said. What really matters are the products and the entrepreneurs, he declared.
So Mike turned the topic to angels versus VCs. He noted that McClure once said something along the lines of “fuck VCs” — which McClure said was out of context. McClure said VCs are great downstream partners for funding the companies he backs, but the motivations of the two are different (he didn’t elaborate). Senkut said whether it’s an angel or VC, all that matter is who you’re doing the deal with. Felser agreed — “we like to find good partners (at VC firms)”. Clavier and Conway agreed that traditional VCs are vital to take companies to the next level.
When Mike asked the panel if they thought he’d be good at being a VC, Clavier joked that they’d talk about it at Bin 38. Conway said it was all about how much value he adds. “It will be yours to fuck up,” Felser said frankly. “Everyone wants a piece of you.”
In terms of whether deal flow or instincts about startups matters more, most agreed it’s both. And it’s about knowing when to do follow-ons too. Conway said it’s all about the “D’s” — “deal flow” and “due diligence”. McClure said he thought due diligence was a myth.
At one point, Conway started to rattle off some names of who he thought the top tier VCs were. Andreessen Horowitz, Kleiner, Sequoia, Benchmark, Greylock, Accel — Mike urged him to keep going as to why those are the best, but Conway said those are just the ones off the top of his head.
At that point, the panel started taking questions from the audience. McClure gave his five “million dollar points” he uses towards determining valuation. Clavier advised someone that fund-raising is a huge waste of time (it detracts from focusing on the product). Felser said that entrepreneurs should never give up — he was rejected 100 times before a VC finally said yes to an idea of his.
Conway then noted the size of the line seeking to ask questions and asked his SV Angel team to go meet with the entrepreneurs in line. As the panel ended, the angels themselves descended to talk to the crowd. This year was definitely different than last year.