AngelList Boulder and Some Thoughts on Seed Investing

I got a note from Nivi, the creator of AngelList, over the weekend saying that he’d put up a special page for angel investors in Boulder.  He’s looking for the local Boulder angels to add their names to the list.  Gang – let’s get ‘em up – if you are an angel investor and based in the Boulder area, sign up!

There’s been an enormous about of blog and news chatter about angel investors, especially seed investors and the emergence of super angel / micro VCs, in the past few months.  I’m a huge fan and supporter of the super angel / micro VC phenomenon and have watched with delight as it has built momentum.

However, in the past few weeks I’ve started to see a rant start to emerge that I’ll simplify as “VCs suck as seed investors – the only path to happiness are angels or super angels or micro VCs.” This rant bugs me as I think it’s incorrect and isn’t very helpful to entrepreneurs. While I know many VCs that I would categorize as terrible seed investors, I know plenty that are excellent seed investors.  And while I know many angels who are terrific seed investors, I also know some who are abysmal.

The thing that started to bug me last week wasn’t the discussions about the characteristics of what makes a VC a bad seed investor, but that the comments, including some from super angels, were becoming generalizations that all VCs were bad seed investors.  As I read through them, they started feeling like statements of “hey entrepreneur, trust me, I’m just trying to save you from Mr. Evil VC and here’s the answer, the answer is me.”

As a VC who has been a very active angel investor (I’ve made over 75 angel investments), an active seed investor as a VC (I just counted and 7 of the 25 investments we’ve made out of Foundry Group since we started our fund in Q4 2007 are seed investments), a co-founder of a “mentorship-driven seed stage investment program” (TechStars), and an investor in several super angel / micro VC funds, I believe both angels and VCs can be excellent seed investors.

There is a lot more transparency than there ever has been, the structural dynamics of early stage investing are moving around a lot, and entrepreneurs have more clarity on their choices, ways to figure out who is good and who is bad, and ways to get access to great choices than ever before.  Fred Wilson wrote two excellent posts on this over the weekend titled Angel vs. VC and The AngelList as well as an earlier post titled Some Thoughts On The Seed Fund Phenomenon.  Until last week I didn’t feel like I had a ton to add to the discussion, but I felt like it was time to weigh in as I saw the tone shifting to “VCs are bad seed investors.”

While I completely agree with the phrase “many VCs are bad seed investors” especially around VCs simply trying to create option value for themselves or the issues around signaling risk, I felt like there wasn’t enough discussion about why and when VCs were effective seed investors.  So I thought I’d take some of this on over the next few weeks. Hopefully my perspective and examples will be additive to the conversation and helpful to early stage entrepreneurs, especially first time ones.

In the mean time, if you are a Boulder angel (or seed) investor and you are still reading, sign up on AngelList already!

  • http://gorankem.com adam wexler

    brad, great to see you rallying the troops :)

    on the topic of the angel community in boulder, would you say that investors there are as inclined as the ones from the valley to invest in their own region? i know boulder has made tremendous progress over the last 5 years as a startup haven, but i imagine it still doesn't possess the wealth of resources in san fran.

    (i ask from the perspective of someone who has been bootstrapping a business for a couple years from another "town" of athens, ga)

  • http://twitter.com/paulgould @paulgould

    Brad, just so you know.. your link to AngelList on the first line is wrong, should be angel.co and not angel.com

  • http://www.grouponesolutions.com Trina Hoefling

    Right on, Brad! I don't know why we collectively seem to be stuck in black and white, either / or, good/bad dualistic thinking. Maybe because it's easier to think binary than with complexity. Choices, at the core, involve critical thinking that is seldom binary. Thanks, once again, for being a sane and grounded voice, Brad.

  • http://intensedebate.com/people/2speed Will

    As with everything, it's just too convenient to lump people into categories. VCs as poor seed investors is convenient for some because they can lean on a few rich examples that everyone seems to have – even if without personal experience. Extremes are easy and help that categorization, of course. bad stories multiply much faster than most good ones.

    As you say, it's a disservice to both VCs and to startups who might not look at VCs as a channel for investment. It's a much bigger problem for the startups, though.

  • http://twitter.com/hgadhia @hgadhia

    What would be really insightful to understand which VCs you think are good seed investors and why. The entrepreneur has always had it drilled into them to look at signalling risk as a hugely important issue, but as long as VCs invest in seed in a similar fashion to a Series A (budgeting follow-ons, being at least semi-active, not just using it as an option), I think it all becomes moot. Good link from Chris Dixon earlier today on how LearnBoost overcame some of these issues and had 4 VCs in their seed round http://j.mp/9rC3Li

  • http://twitter.com/IvanGaviria @IvanGaviria

    Brad, I just posted a comment on Fred's blog this weekend that was very much in line with your post. Having seen a ton of these deals go through our Firm in the last year or so, it's clear to me that the seed investing space is evolving at a super high speed. There are lots of "traditional VCs" who have been very nimble and innovative in adjusting their process, terms, etc. to better compete for seed stage deals and, of course, there are many angels who frankly suck and vice versa. I've worked on a couple of deals lately where angels have over negotiated, demanded goofy terms and generally served to generate legal fees, mgmt distraction and general pain totally out of proportion to the size of their investment.

    As such, I think for the entrepreneur, it's all about doing the work to really research investors and dig into their styles, reputations, references, etc. The good news, however, is the incredible proliferation of information readily available to entrepreneurs and the number of industry insiders who are openly sharing, discussing and explaining these issues (you, Fred, Suster, etc. etc.). To me, that is a truly revolutionary change from even a few years ago (let alone 10 years ago).