Super Angels are high profile entrepreneurs-turned-investors, mostly in Silicon Valley, doing rapid-fire investing in startup entrepreneurs. For many, 10-20 investments per year is the objective. They are now raising small VC funds to finance even more ventures. Are Super Angels a positive influence on the entrepreneurial economy? Let’s take a look at the pros and cons.
The positives:
• Super Angels have created lots of media attention for seed/stage entrepreneurs and investors. Angel investing, which was under the media radar until recent years, is benefiting from this attention. Increased awareness of angels and angel groups makes it easier for entrepreneurs to find angels.
• By forming seed/startup funds, these Super Angels, aka Seed/Startup VCs, are bringing more investment into the “capital gap” between angels and traditional VCs.
• Because of their high profiles, Super Angels can help entrepreneurs meet key partners and customers, moving their new businesses forward quickly. The talent that Super Angels can bring to seed/startup companies is invaluable.
The negatives:
• Super Angels seem to be willing to invest at higher valuations than other seed/startup stage investors, including angels in groups. Recent anecdotal data suggests that angel groups in Silicon Valley and Boston are investing in seed/startup deals at higher valuations than angel groups elsewhere in the country. The competitive tension on valuation created by Super Angels will ultimately hurt the returns of both angels and Super Angels.
• Some Super Angels insist on doing convertible debt deals at the seed/startup stage, which will also reduce their returns on investment. While this only indirectly impacts the rest of us angels, Super Angels using convertible debt as an investment vehicle sends a message to entrepreneurs that debt is the preferred security for many seed/startup deals. Most sophisticated and experienced angels strongly disagree.
• Super Angels have been great investors, spending lots of time with their portfolio companies. But, they have objectives of investing in 100s of companies. As Brad Feld point out, how can anyone make significant mentoring contributions to the direction of companies by spreading themselves so thin?
It appears to me that Super Angels are replacing the Seed/Startup VCs of the ‘90s. But, it is too early to judge their total impact on the entrepreneurial landscape.
It’s a great time to be an angel. Find a group and jump in!