Great, great, great post from Ben Horowitz who does an outstanding job of summarizing how structural changes in start-ups have changed the nature of start-up investing. This is probably an argument for guest posts on blogs. He waits until he really has something to say, then says it, rather than feeling the need, like myself, to just vomit on the page to keep you all reading.
A few key points stood out to me:
- Maybe this hints at why so few angel networks seem to work. Angel networks potentially re-create much of the meeting/diligence overhead of dealing with VCs. If angels, at the end of a night, stood up and wrote checks and used a standard term sheet like the new Seed Series, people would be so aggressive about pitching angel networks, it would be crazy. That would change the dynamic for angels. Now one meeting for the entrepreneur turns into 40 meetings with angels. Huge value add. If you have the same circus you had anyway of a bunch of meetings after that, that is less compelling. Maybe the angel network could announce that they have developed a “True Ventures” formula where they have 3 pre-money valuations they invest at with certain criteria for each tier. That would be really out of the box thinking.
- Part of what Ben talks about demonstrates the burden on entrepreneurs. To close a round with an angel in one or two meetings, you need a pre-existing relationship, a warm introduction, or a god-like aura surrounding you. Sounds like you really have to work your network for those warm introductions! (At least I do)