I had a nice response to my I Don’t Get Podcasting – Yet post where a number of folks responded privately – both trying to give me a clue as well as sending deals my way.  On my run today, while listening to Postively 10th Street (happy 18th anniversary Fred and Joanne – Chai) and Mass Hysteria, I was thinking about the new investments I’ve been looking at.  I’m working on one that I think will surprise people after I do it, and figure I’ve got one new deal left in me this year after that one.

I’m looking for anything email or RSS related (which – of course – in my lexicon includes podcasting and vlogging).  I’m completely stage agnostic (early, middle, late – it doesn’t matter to me.)  Feel free to give me a clue and send interesting stuff my way.

Yesterday, I received an interview request for an Inc. Magazine article concerning angel investing.  The article is being driven by a recent survey by George Washington University that found 58% of venture capitalist respondents said that angel involvement “sometimes” or “mostly” makes a company unattractive. The main reasons given were that angels tended to give start-ups overly high valuation, made negotiations unnecessarily complex, or were unsophisticated and uninformed about the requirements of venture financing.  Occasionally my interview requests are via email (preferred) so in this case I wrote up my thoughts.  I have no idea what will end up in the article so I figured I’d post the thoughts here for anyone interested in my point of view on the angel / VC dynamic.

While 58% is a nice number, I think that an aggregate statistic isn’t that useful. I’ve had a large number of experiences with angel investors – both as an angel and a VC.  I’ve found – not surprisingly – that there is a wide range of quality and experience among angel investors – if they are experienced and high quality, they are good; if not, they are have no impact or are not good.

When I actually read the study (after the interview, of course), the lead result was that 94% of VC respondents answered “Yes” to the question “Do VCs consider angels beneficial to the venture industry?”  In fact, only 6% of VCs responded that angel involvement “mostly” makes a company unattractive (52% said sometimes – which is where the 58% mostly/sometimes stat came from.)  So – as with many articles – the data is being munged in a way to tell a more provocative story.  Only 5% of VCs said that angels “never” make a company unattractive – if you take off the tails of the normal curve (“mostly” and “never”), you end up with 89% of VCs saying angels “sometimes” and “seldom” make a company unattractive to VC investment – a total non-story as far as I’m concerned (at least around this measure.)

During the interview, I was asked three specific questions.  The questions and my answers follow:

1. What, in your experience, are the most important problems?

• Unsophisticated angels / entrepreneurs who structure the angel investment poorly.


• Angels who are “too active” – they think they are running the company instead of letting the entrepreneur run the company.


• Entrepreneurs who give up too much of the company too early to angels that “are going to help” (but end up only being money) and – as a result – the VCs are faced with founders that don’t own enough of the company.


• Unrealistic valuation expectations.


• Chronically bad advice (e.g. “I don’t know technology, but here is what you, oh Mr. Technology CEO, should do.”)
• Ego ahead of value (e.g. the angel investor is more interested in being able to say “I’m an angel investor in company X” than having company X be successful.)


• Toxic view of VCs (or angels.) I’ve met many angel investors who think VCs are bad. I’ve met many VCs that think angels are bad. This is just dumb. Individual people are either good or bad – evaluate them on their own merits.


• And the biggest –> bad partners. Whether it’s an angel or a VC, the investor becomes the entrepreneur’s partner. The entrepreneur needs to make sure he wants the partner. If there’s a mismatch here, it’s often fatal (or at least very painful.)

2. Could you provide any examples where the angel investor and the venture capitalist clashed and the start-up was held back as a result?

• Case 1 (where I was the angel investor): I was an angel investor and chairman of a company. We were a young (20 person) startup that was raising its first VC round (we’d raised about $1.5m of angel and strategic investor money.) The CEO was young (early 20’s) and I was in my late 20’s. The CEO was doing a terrific job, we had a hot young company, and had four different VC firms put term sheets down to lead the deal. One of the VCs did a great sales job on the CEO and the partner said something to the effect of “I’ll work with you and mentor you.” We chose that firm to lead the investment. Two weeks after the investment closed, the same partner took me out to breakfast “to get to know me better” and within 15 minutes said “I’d like to bring in an experienced CEO to run the company.” As you could imagine, this bait-and-switch didn’t go over very well with me or the CEO. However, after a week or two of struggling with it, we decided to help the VC bring in a “professional CEO” to run the company. We helped recruit the new CEO (took about 3 months) and then the CEO transitioned the business (took about two weeks) and there was nothing for the founder / CEO to do (since the old CEO / founder was – well – the old CEO and the other exec positions were filled.) So – he resigned (as did I as chairman – I didn’t want to be on the board at that point.) There was more tension (not drama in this case – but tension) then necessary (I’d like to think that in this case we went quietly.) The new CEO failed and was fired within a year, but the following CEO that was hired did a great job, the company was ultimately successful, had a very strong IPO, and my angel investment ended up being worth 50x.  The dynamic between the angels and the VCs originally cost the company some time and potential market leadership, although the story ultimately had a very happy ending.


• Case 2 (where I was the VC investor): I was leading a financing of an angel backed company. The largest angel investor didn’t like the valuation. The founders had been working for 9 months to try to raise money and were literally being held up by this angel. He was angry, hostile to the founders, generally unpleasant to deal with, and very irrational. We patiently worked through the issues (I really liked the founders.) At the 11th hour, the angel started insisting on new terms for himself (just him – not the other angels.) The company was out of money and had no options. I walked from the deal. The founders ended up giving the angel some of their equity to get him to support the deal (totally inappropriate behavior on his part.) We did the investments. Six months later the company was acquired – we made 3.5x our investment and the angel made over 5x his investment. Again, a successful outcome, but the entrepreneurs ended up with less then they should have gotten (and a lot of unnecessary stress.)

3. Is there anything a business owner can or should do to resolve the differences that may exist between his early stage angel investors and his later-stage venture investors?

• Pick your angel (and your VC) carefully.


• Do your homework / due diligence – make sure you know who / what your angels (and VC) are.


• Hire a real lawyer and do a real seed / Series A financing. Treat the angel investment professionally – just like you would an early stage VC investment.

Yeah – I know that “Rwanda Venture Capital” sounds a little out there and no – this isn’t yet another email scam migrated to your RSS feed.  A Denver-based friend – Rob Fogler (a partner at the law firm of Kamlet Shepherd) and his colleague Antoine Bigirimana (the founder of the Kigali Center for Entrepreneurs) have started a Rwanda-based Venture Capital firm called Thousand Hills Venture Fund. 

While I’m personally not terribly clued into Rwanda (or Africa in general), a number of my friends in Boulder (including Amy) are and it’s easy to support guys like Rob (Amy and I are investors in THVF) who believe “that the US business community must pay greater attention to the opportunities and challenges of doing business in emerging markets if it will continue to thrive in the globalizing marketplace.”

Rob pointed me to an article in the Washington Post by Carol Pineau titled “The Africa You Never See” which asserts that Africa’s media image – which is filled with stories about hardship, AIDS, war, genocide, poverty, and corruption – does the people of Africa a major disservice.  Pineau suggests that the side of Africa we see is a “one dimensional caricature of a complex continent.  Imagine is 9/11, the Oklahoma City bombing and school shootings were all that the rest of the world knew about America.”  Pineau’s article is great – she argues that while the view of Africa the media presents gets us to “dig into our pockets or urge Congress to send more aid” she goes on to say that “no country or region ever developed thanks to aid alone.  Investment, and the job and wealth creation it generates, is the only road to lasting development.  That’s how China, India and the Asian Tigers did it.”

Rob recently attended the IFC Annual Conference on Global Private Equity in DC. The IFC’s top delegate, Executive Vice President Assad Jabre, said in his remarks that he’d like the global private equity industry to focus on two areas in the coming years:  (i) Africa and (ii) equity investments in the range of $50,000 – $500,000.  Thousand Hills Venture Fund is the only true for-profits venture fund anywhere in the world doing just that!

The venture capital that Rob and Antoine are doing is truly risk capital and far ahead of the curve.  Guys – you make me proud to be associated with you.

My friend Dave Jilk just put a copy of Howard Anderson’s MIT Technology Review article “Good-Bye to Venture Capital” on my chair (I thought it was quaint that he put a xerox copy of the magazine article on my chair instead of emailing me the web page – maybe he was trying to tell me something.)

Howard was a founder of Battery Ventures and then YankeeTek Ventures.  I met him for the first time in the early 1990’s when my first company (Feld Technologies) did some back office network / software work for Battery.  I met him again recently at the MIT Sloan School Dean’s Advisory Council meeting (I’m on the MIT Sloan DAC – among other things Howard is the William Porter Distinguished Lecturer at MIT’s Sloan School of Management.)  It was great to catch up – albeit it briefly – and his mindset during our conversation was very similar to what he talks about in the article.

Howard is saying something that a number of veteran VCs are saying – there are too many VCs in the market, too much VC money trying to invest, and a completely lack of irrational expectations, which are a requirement for the long term success of VC investments.  Howard asserts that a structural change has taken place, rather than a cyclical chance – VC’s thrive on cyclical changes (e.g. buy low, sell high), but structural changes (e.g. the rules are different) causes a real problem.

Yeah – the markets are rational again – but isn’t that just a cycle (I smiled as a wrote that – at least they aren’t irrationally horrifying anymore like they were in 2002.)  While I don’t agree with everything that Howard says, the article is definitely provocative for anyone that is a student of, participant in, or investor in the VC business.

Allen Morgan at Mayfield has a nice series up on his blog about the ten commandments for entrepreneurs.  His post today is Commandment #6: Explain Your New Ideas by Analogy To, or Contrast With, Old Ideas.

He’s right.  Mostly.  At the end of his post, he asks for ways to “categorize the new ‘It’” (if they are VCs).  My constructive addition to his post is the notion of the analog analog (also known as the “analog analogue”, but I like my version better).

In the mid 1990’s, I met Jerry Colonna, we invested in a few companies together, and became very close friends.  I love Jerry and – while I rarely see him since he’s in NY and I’m in Boulder – I feel connected to him in a way that’s unique.  Maybe it was our joint experiences together, maybe it was something we drank one night, or maybe it was merely a cosmic connection – in any case, I smile whenever I think of the things I’ve learned from him and the experiences we have had together.

One day, when we were talking about a deal, Jerry knocked me on my ass by saying “what’s the analog analog?”  In true Feld fashion, I responded with a “huh?”  Jerry went on to explain his theory of the analog analog (which I’ve written about before) – specifically that every great technology innovation (or technology business) has a real world, non-digital analogy.  It’s not the “nothing new is ever invented” paradigm – rather it’s the “learn from the past” paradigm.

I’ve found this to be a much more powerful lens to look through when evaluating a new business than the “technology analog” lens (which is the one Allen is describing in his post).  While “Tivo for the Web” or “eBay meets CNN” are useful analogies, I recommend entrepreneurs take a giant step back – out of the technology domain (or at least our current technology domain) – and get to the core analogy – optimally a non-digital one.  Then – walk forward from the analog analog through other analogies to the current idea.

Throughout my life, I’ve heard the cliche “history repeats itself” over and over again.  This is never more true then in the computer industry.  Earlier this morning, I wrote about Ryan’s post on Mr. Moore in the Datacenter and alluded to the migration from mainframe to web to ASP to SaaS (aren’t they all different versions of the same thing?).

All hail the analog analog – the more things change, the more they stay the same (ok – that’s a cliche also).

When I was a kid, whenever my mom said something like “Brad, you sure do have a mouth”, I’d usually respond with “You better fucking believe it.”  (which usually elicited a grimace from her, but I know she was laughing inside). 

I love giving talks, speeches, and being on panels (although I hate sitting in the audience listening).  I gave one in the fall at the 30th Annual Venture Capital Institute – a multi-day conference that’s one of the key “professional education” events for the VC industry. I always ask for feedback from event organizers after any talk I give or panel I’m on.  Sometimes it takes a while for the feedback to make its way to me – I finally got the VCI feedback the other day.  As I read through my talk specific feedback, I was rolling on the floor with laughter from the specific comments (I’ve italicized the ones that really got me) – they say more about the “style” of the VC industry than anything I could ever dream up.  So – rather than try to describe it, here they are.  Enjoy.

• Just went a little bit too fast.
• Although one of the best instructors of the program – with excellent delivery & content – I’d encourage the Institute to make it clear what is & is not appropriate language. I found Brad’s inferred style fantastic & nothing offensive – but some may, especially in the southeastern U.S.
• Obviously a very dynamic speaker.
• Dress is disrespectful.
• OK.
• Subject content may have been a bit too much of a “war story” recounting but brought valuable bits of info to light and addressed issues and options well.
• A breath of fresh air with great experience to share.
• Just a fabulous speaker – really enjoyed the “learnings” he shared from real deals.
• Instruments used not really applicable to our market.
• Very good.
• Poor time management.
• The best so far – actual cases very helpful.
• More time or probably less slides.
• I thought Brad’s teaching technique and personality was a great change.
• Could have spent more time on term sheet.
• Should have allocated more time to this topic.
• Take time for IPO discussion.
• This presentation was helpful, especially the examples of how exits occurred in his experience.
• I would have liked this to be longer – it would have been nice to learn the rest of this presentation.
• Entertaining speaker.
• Case studies were excellent (and helpful).
• Liberal use of the “F word” detracted from the presentation.
• Knowledgeable speaker; would appreciate more examples of problematic exits & pitfalls.
• Great candor in describing the industry. Perfect choice!
• Nice T-shirt!
• Some terms were beyond my knowledge level (liquidation preference – carve out…). I’m new in the business & will learn from my firm. A little crass and sloppy for my taste (in this setting). But clearly a very intelligent businessman with practical common sense – a guy I’d invest in & with.
• Great!
• Outstanding.
• Bad language.
• Try to stick to schedule. Useful format & detail. Slightly long-winded. Too much time spent on relatively easy concepts.
• What happened to dress code? Too cute! Is this really the presentation VCI wanted? Language was offensive. Good material but inappropriate presentation.
• Brad was terrific, all-around. Very concise, informative and honest.
• Certainly unique but good, memorable presentation.
• Great content. Having more detailed back up slides would be helpful as take-away’s.
• Very practical/useful discussion.
• Good job at describing very rich information. Very open and responsive.
• Very graphic – held my attention.

Mom – you should be proud – you’ve raised a graphic kid (my mom’s an artist, so I’m sure she won’t miss the double entendre).  And – if Tom Peters says “fuck” in public, surely it’s acceptable in business at this point.

Tom Evslin – the founder / CEO of ITXC (public, and then acquired by Teleglobe) – has written two great posts on An Entrepreneur’s View of Venture Capital.  They are here and here – well worth any entrepreneur’s time to read.

Fred Wilson wrote today that he and his partner Brad Burnham have officially launched Union Square Ventures and have completed the final close on their inaugural fund. 

I’ve known Fred since the first day I started working with Mobius (called Softbank at the time).  My very first Softbank-related meeting was to do due diligence at a company outside Boston called Yoyodyne and I met Fred, Charley Lax, and Seth Godin (the Yoyodyne CEO / founder) in Yoyodyne’s office (I kept looking for John Bigboote in the office but couldn’t find him.)  Neither Fred nor I knew each other (nor did we know the other was going to be there), but I remember an immediate first impression about five minutes into the meeting of “smart dude.”  Fred went on to start his first venture fund (Flatiron Partners), invest in Yoyodyne (with Softbank – which had a happy ending as Seth sold it to Yahoo! for a bundle well after he had no hair), and build a very successful NY-based venture fund with his partner Jerry Colonna.

Fred and I shortly discovered that we were both MIT grads and I recall one of our first long discussions on a wonderfully warm Boston night as we wandered from dinner in the Back Bay back to our hotel somewhere talking about MIT, getting to know each other, and laughing about how crazy busy things were (this was 1997).  I worked closely with Fred and Jerry on a handful of companies (eShare – big success, abuzz – solid success, Mainspring – got our money back, Appgenesys – big failure, Return Path – success in progress) and adore both of them.

I’ve had the pleasure of working very closely with Fred over the past four years on Return Path – which we became investors in together when we merged an early stage company Fred had funded (Return Path) with an early stage company I had funded (Veripost).  Return Path and Veripost were direct competitors, were both pre-revenue, and were the only two companies that had been funded to create “email change of address” systems.  Fred and I had one of those “duh” moments and worked closely with the management teams to combine forces early, rather than pummel each other before the market matured.  Matt Blumberg – the CEO of Return Path – has done an awesome job building the business and I’m extremely proud of the company Matt and his team have created (and hopefully Matt’s happy with the “help” that Fred and I have provided along the way.)

While I know Brad Burnham less well than Fred, having never worked with him, I watched Fred work with his partner Jerry Colonna and see Brad as another perfect foil for Fred.  As the cliche goes – “every great partnership starts with two people” – and Fred and Brad seem like a superb fit.

Congrats Fred and Brad!

Fred Wilson has a great post about his decision to no longer sit on public company boards – it’s worth reading if you are either on a public company board or considering being on one.