This panel about the merits of Angel versus Venture capital investment was moderated by Sam Angus, Partner at Fenwick and West. The panelists were:
- Ron Conway, Founder Angel Investors LP
- Rob Hayes, Partner, First Round Capital
- Joyce Chung, Managing Director, Garage Technology Ventures
- Aydin Senkut, Founder & President, Felicis Ventures
Conway, sometimes referred to as the Godfather of Silicon Valley because of the propensity for and success of his Angel investing, has made over 500 Angel investments in the past ten years. He expressed optimism about the current opportunities for investing in startups.
Chung characterized the environment as “a buyer’s market” (for investors).
Senkut sees the older venture capital funds as bogged down in “portfolio management” – working actively to nurture prior investments to exits. Angus questioned whether the venture capital model is broken, with companies needing less capital to get started, and limited opportunities for exit.
Conway went through the math comparing taking a small e.g. $1M Angel round and exiting with a $25-30M IPO, versus taking $5M venture capital, raising the bar on the size of exit required.
Discussion about the nature of Angel versus Venture investments
Senkut added that taking a $50M exit isn’t necessarily a bad thing for many entrepreneurs, although many vc’s would consider it a failure; the vc $ come in at a higher valuation with much larger expectations for exit. Conway pointed out that both Google and YouTube started out with $1M Angel rounds. Senkut, who sometimes invests with Conway as part of a syndicate of Angels, sees most Angel rounds going down with 1 to $5M valuations, VC higher.
Conway, Hayes, and Senkut are investors in Mint, a runaway consumer SaaS success story over the past year, taking on Intuit’s Quicken. Hayes pointed out that web applications can be “fired up in a huge data center with a credit card over the weekend”, so he expects to see some serious effort beyond that being expended before coming for funding. The need for “traction” prior to seeking Angel investing was debated, with Conway expressing the sentiment that the relationship with the entrepreneur is more important than demonstrated traction.
In terms of trends for Angel investing, Conway is very keen on real-time data, search, and applications. He sees this type of data as perhaps 1% of web content today, but 25% in three years. Chung described Garage as sector agnostic, with a focus on capital efficiency, e.g. it requires less than $5M to demonstrate traction in the market.