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Why Angel Investing Is Like Selling Narcotics

There is collusion?

Anyway, I knew everyone would want my opinion on how things went down since I was at the meeting and most of these people call me when they are thinking about things like this, so here it is:

Ron Conway: Awesome investor, slightly disingenuous email

Dave McClure: Open mouth, insert foot

Collusion: Probably not that big a risk.

Let’s drill down.  So these two meetings happen to discuss how deal terms could be improved if people agreed (read: colluded) to abide by a collective set of rules.

That is kind of what brought venture capital to where it is today.  New angel investors are being born every day in Silicon Valley and NYC.  I confess that if Ron Conway offers you money and the terms kind of suck, I would generally suggest you take his money.  Some people won’t.  As the terms get worse, more wouldn’t.  I don’t think any of these investors think their deal flow is so amazing that they pass on deals that are awesome.

Great entrepreneurs have a lot of ability to drive the terms, I think we all agree there.  Any investor would say there are not enough great entrepreneurs to invest in, so there is competition for those deals (Disclosure: I am raising a seed round for my startup and I am not feeling like FourSquare, so I don’t put myself in that bucket.)  If there is competition, collusion will fail.  Then individual investors start moving the line on individual entrepreneurs (I worked with him and he is a superstar!) and all of the sudden it is all out the window.

So then Dave McClure writes this blog post.

I figure a blog post is one of three things:

  • A denial that the meeting happened
  • A denial that the meeting was about collusion
  • An argument that driving to standard terms among angel investors is good

I was a debater for many years and I have to say, that about rounds out the arguments one could possibly make.

Dave probably should have taken his own advice and had the sense to write nothing.  Instead he writes a rambling version of #2: This meeting was not collusion, it was simply a meeting of angel investors.  Pre-money valuations are too high these days.  We discussed valuations, term sheets, convertible notes, and other things.  But if you are a great entrepreneur none of that will matter.

Sounds suspiciously like “it was informal collusion, not formal collusion”.  If you are going to make that argument, you are better off probably saying nothing because people that love you will think you are ok and people that hate you will find this proof that you are evil.  Which is pretty much what you would have had if you had said nothing.

Further, I think in a situation like this you want to come across as humble, thoughtful, and reasonable.  I think even Dave would agree that his writing style does not really fit that style.  The result is that he comes across as defensive, which you don’t want to do.

Then Ron Conway, probably the most famous angel investor out there, pens this email.  Best thing about this email: He sent it to specific people.  This was not a blog post for the general public.  He was telling certain people that he didn’t like them.  What is not too like about that.  If you can’t keep it inside you any longer, I think it is totally reasonable to send someone an email saying you hate them.  (Although you probably need FU money to decide that you can’t keep it inside any longer.)

Also, as I said, I thought that the email felt a little disingenous.  He has a fund.  He is managing other people’s money.  He does have a little bit of a fiduciary duty.  In the same vein, virtually all of these angel investors are rich by almost any person’s standards.  They are angel investors because they want to be involved in building stuff.  Josh Kopelman didn’t start FRC for the money any more than Ron Conway did.  Josh is probably the only person in this blog post that I actually know and he loves building.  He has a passion for building that gets people excited.  I would put his passion up against any angel.  Peter Thiel didn’t start Founder’s Fund because he was broke.  Aydin Senkut: not broke.

Now, I recognize that none of these people were probably people on Ron Conway’s email thread, but the central point is this: Almost everyone who does angel investing loves building companies.  Anyone with a fund that is not their own money has some fiduciary duty.  Also, as Jerry Neumann says, in a great post, if you don’t make money, you don’t get to fund more start-ups.

A perfect example of, “This blog post was worth what you paid the paywall to get access to it.”  I know none of these people, I love all of them. People make mistakes, I don’t think too much of this molehill.

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