Serious Questions for Super Angels
In the beginning, there were angel investors. And it was good. As individual angel investors made more and more investments, they became super angels. One day a super angel woke up and thought to himself, “Gosh, I could do a lot more investments if I had a fund.” And so the super angels became micro-VCs (or “institutionalized super angels”). Everyone was excited and on the seventh day they did another deal instead of resting.
I’m a huge fan of the super angel movement. Some of my best friends are super angels and I’ve put my own money where my mouth is in funds like Chris Sacca’s, Dave McClure’s, Jeff Clavier’s, Roger Ehrenberg’s, and David Cohen’s. Not only am I an investor in these super angels, I love to have them on board with our investments at Foundry Group. And whenever they bring me something they’ve been working on, I always pay attention–as I know they know what I like to invest in.
But recently the super angel mantra of “traditional VCs suck” has reached a fevered pitch. What started out in Silicon Valley as a new wave of angel investors has evolved into a belief that “VCs are lousy seed investors” and “no one needs a VC–just raise your money from super angels and go to town.”
Fred Wilson from Union Square Ventures recently wrote an excellent blog post titled “The Expanding Birthrate of Web Startups.” As with many of Fred’s posts, the comment section was as useful as the post, and early-stage investors such as Mark Suster, Charlie O’Donnell, Roger Ehrenberg, and Anonymous Coward weighed in. The comments ranged from the now cliche-ish “VCs suck” to “What happens when super angel-backed companies need a new round” to “Companies will never need more capital. It’s a new world out there.” As I read through the comments, I kept pondering the same thought: “What happens in five years?”
Let’s consider a few situations. Take a typical super angel. Assume success. Investors (LPs and individuals like me) want to invest money with the super angel. The super angel probably creates a fund and raises a lot more money. Now the super angel is a micro-VC. Continue to assume success. More money is able to be raised. Now the micro-VC is a mini-VC. Does this keep scaling, or does the mini-VC succumb to the same challenges that $200 million funds ran into when they turned into $1 billion funds?
Now, take a super angel with a 20-company portfolio. The super angel is hyper-connected and works closely with the entrepreneurs he/she invests in. Suddenly he/she has 100 investments. Are the entrepreneurs getting the same attention from that angel–especially when they enter year three of their life, hit a bunch of speed bumps and need a lot of help? Or does this super angel just turn his/her back and say, “Well, that’s the breaks.”
Finally, take a super angel who is used to making $25,000 to $100,000 per investment. He/she becomes a micro-VC, raises a bigger fund, and now invests $500,000 per deal. Is there a difference in his/her behavior with regard to the $25,000 investments vs. the $500,000 investments?
I think the super angel movement is awesome, but the generalization that all VCs suck at seed investing doesn’t make sense to me. Correspondingly, the idea that entrepreneurs only need super angels doesn’t make sense either. There’s a renewed focus and interest in early-stage investing going on in the United States, and it’s being stimulated by a lot of factors. It’s a powerful thing that will continue to evolve, change and challenge all of the participants.
Brad Feld has been a VC for more than 15 years and is a managing director of Foundry Group, an early-stage venture capital firm based in Boulder, Colo. that invests throughout the United States. Prior to co-founding Foundry Group, Feld co-founded Mobius Venture Capital and founded Intensity Ventures. He sits on the boards of BigDoor Media, Gist, Gnip, Oblong, Standing Cloud and Zynga. You can read his blog, “Feld Thoughts,” at www.feld.com, follow him on Twitter at @bfeld and reach him via email at [email protected].
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Tom said on August 31, 2010
VCs sure seem to be getting overly defensive about this “Super Angel” thing.
VCs would do better to invest in seed deals and let their successes stand as testament to their strength in this area than continually posting about a problem that may be so small it might be better “argued” in Twitter, than a blog.
I think VCs should grow thicker skins: some people will always demonize VCs, so what? Angels
and “Super Angels” will have their place, if they become too numerous or too large like VCs
have, doesn’t the system take care of itself?
The “Super Angel” will eventually discover its “kryptonite”.
What’s next, the “Super Entrepreneur” problem? Boot-strapped, self-funded behemoths
avoiding angels, “Super Angels” and VCs altogether. They must be stopped at all costs!
George said on August 31, 2010
A Noble post, indeed.
The idea that VC’s will support a sideways investment 5 years down the road feels a bit unlikely Brad. The truth is, most VC’s will look to the market to judge the appetite to continue funding a portfolio company and if they don’t see anyone chomping at the bit, the conversations begin taking a different tone. Same path, different end.
I don’t know Foundry, so perhaps you are different, but it would make you the exception.
VC’s don’t suck, there are just way too many of them. SuperAngels are just otherwise VC Partners who have the financial luxury of not having to earn enough via their day job to pay the bills. Therefore, they are more select, make smaller investments and can focus more on their portfolio companies and, let’s face it: their twitter accounts. You will have to stop the growth in the “vested veterans” from silicon valley if you are going to stem the tide of angel investing.
Hombre Sacca don’t care about no management fee, he has all the fancy shirts he’ll ever need.
Brad Feld said on September 1, 2010
Tom – I’m been a seed investor for 15+ years both as an angel investor and a VC. Read the article carefully – I’m not defensive at all about “super angels.” I love ‘em and support ‘em. I’m just trying to point out an interesting dynamic that I think merits discussion.
George – I disagree with your assertion about sideways investments. I’ve supported a number of them and had plenty that ended up winners. I give you Return Path as a prime example (www.returnpath.net). Three VCs – me, Greg Sands (Sutter Hill), and Fred Wilson hung in from 2000 – 2005 until Return Path caught its mojo. It started accelerating in 2006 and now dominates a segment (email deliverability) that it pioneered. We’re all incredibly proud of the team and the company. I’ve got plenty of other examples, but this is one that sticks out whenever someone says “but VCs bail after a few years if things aren’t working as planned.”
Tom said on September 1, 2010
> Read the article carefully – I’m not defensive at all about “super angels.â€
Brad: I read it carefully, you mention “VCs suck” three times and allude to “suckiness” with
other sentences. You then, essentially, make a case for why “Super Angels” may suck in
the future. It reads as defensive to me.
My comment was on VC defensiveness in general: who cares if someone says you “suck”?
Let your record stand for itself (as you do in your follow up post to “George”).
The market will sort out “Super Angels” if their investing model doesn’t have legs.
Alastair Goldfisher said on September 1, 2010
Tom, you’re so stuck on the suckiness comments, I’m not sure you can see the forest for the trees. Brad brings up some great talking points about super angels, such as what happens when they become successful and grow and raise more money, make more investments and make larger investments. Brad is not coming off defensive; he’s trying to create dialogue.
Tom said on September 1, 2010
> such as what happens when they become successful and grow and raise more money,
> make more investments and make larger investments
Yes: there’s a lot of VCs making the same comments in blogs, almost as if they are
being “defensive”, that’s the point.
If you read between the lines, it seems “Super Angels” are taking away some VC seed
investment opportunities and disparaging VCs (“VCs suck”), so now there is a coordinated
effort by VC bloggers to call out “Super Angels”.
I still say: VCs need to be less “thin skinned” – the market will sort this all out.
Tom said on September 1, 2010
One more thing – of the blogs I’ve read on the “Super Angel” thing, this is probably the most
balanced and informative:
http://www.freddestin.com/blog/2010/08/super-angels-lean-vcs-blah-blah-blah.html
George said on September 1, 2010
Brad, that is an interesting story and certainly sounds like a good decision… didn’t mean to overplay the point, but you know that cross-fund commitments and follow-on investments into sideways deals are tough for VC’s. It isn’t even close to a sure thing that your VC will be there for you three years down the road when no one else is willing to dive in. This isn’t a criticism, it is just a fact.