Rise of Angels in Consumer Internet Space

December 29, 2009

This is a must read post related from Bill Burnham discussing the heightened role that angel investors are playing in the consumer internet startup world.

Here’s what he sees happening.  VCs are concluding that its very difficult (very, very difficult) to identify early winners.  Therefore, it makes sense to wait to see and watch for the next Twitter, Facebook, etc. to emerge.  At the same time, VCs are becoming larger.  They need to make larger investments and are, therefore, happy to wait for the winners to emerge (even though that means investing at higher valuations).  VC partners are personally content with this situation because they are sitting on more funds under management (i.e., collecting more management fees).

At the same time, technology has become cheap (really, really cheap).  Very small teams of entrepreneurs can build version 1.0 products for little more than sweat.  Given this, there are a lot more “projects” happening.  Some of these projects might become businesses.  This situation makes the VC’s “wait and watch” approach appear even more rational.  High tech is becoming cheap tech (question: if tech is this “easy” is it really “tech” at this point?).  Angel investment is far better suited for backing early stage efforts that will either succeed or fail fast.

At first glance, this would seem to be a good development for markets like Portland, where there are relatively few established VCs.  However, it may be more of a negative given that Portland lacks an established community of successful entrepreneurs in the consumer internet space (relative to Silicon Valley, LA, NY).  It’s my impression that it’s relatively more important for angels to be located close to their investments.

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