So, you still want to be a VC, eh? I don’t blame you… besides the challenges getting started, venture capital is exciting and provides a level of exposure, both technologically and business-wise, that is hard to match. And look at some the new friends you get to make… Mark Zuckerberg (Facebook), Marc Pincus (Zynga), Reid Hoffman (LinkedIn), Biz/Ev (Twitter)… you get the point.
As an alternative to becoming a ‘traditional’ VC, Angel investing has become even more popular and even more powerful as I’ll discuss below. To apply a simple definition, “Angels” are typically regarded has high net-worth individuals with personal money to commit to new ventures in hopes of making extraordinary returns (conversely, VCs use other people’s money). To qualify as an angel, you technically need to meet the criteria as defined by the SEC, however, I know many Angels with more guts than money that are actively pursuing the next “Google”.
Traditionally, over the life of a company, its operations will require large amounts of money to ensure it reaches key milestones and is ultimately successful. However, with technology continuing to advance, costs to launch a new (tech) start-up has come down exponentially; accordingly, the barrier to entry (money) to enter these new venture deals has also come down thereby making it possible for Angels to invest small amounts into opportunities that were previously not available to them. To give you an example, Angels can get into new ventures for sometimes as little as a few thousand dollars!
Now, as a response to a couple of things that I said earlier, (Angel investing is becoming more powerful and companies require more than just a few thousand dollars to be successful) changes are happening on the Angel landscape to propel their leverage like never before. First, Angel Groups have been established and are bringing Angels together to pool resources (money & time) to apply leverage to deals that require more money to enter or more money for runway. Angel groups are also a great way to learn as you’ll have many experienced investors who will show you the ropes based upon their own personal experiences. The only challenge in working with Angel Groups is actually getting invited to be a part of them. Second, there is a new breed of Angels referred to as the “Super Angel”. Basically, Super Angels are VCs because they use other people’s money but their fund sizes ($20-$40M) are generally greater than what a typical individual Angel has available to them but notably smaller than traditional VC funds ($100M+) and they strictly focus on early stage. A recent example is Greylock Partners giving Reid Hoffman (founder of LinkedIn and who, incidentally, is sitting one row in front of me on this flight from Munich to San Francisco – along with Reid is Jim Breyer of Accel Partners, a legend in the VC world) a $20M Angel fund to explore new, early stage, opportunities.
That’s all for now… in part 3 of our post, we’ll examine the overall VC landscape and what you need to be aware of coming down the industry pipeline.