True Angel Investors Are Becoming Extinct

For no particular reason, I have recently spent a good deal of time with very experienced individual angel investors with deep Valley experience. When I say “angels” here, I mean individuals who invest $50,000 or $100,000 or even more in early-stage technology companies. These folks have made their money through a blend of entrepreneurship and/or executive leadership in and around technology, and because of their networks, have insights and access to talented folks who go on to found new companies. This definition seems obvious but it’s worth restating because now “angel” can mean many different things.

From what I gather from these angels is that they’re style of investing is long-gone. In those days (meaning, even up to just a few years ago), founders who needed capital would find these angels and raise money at very modest valuations. The benefit was that smaller valuations expanded their exit options, but of course, they had to give up more of their company. Angels would spend more time with their companies and in many cases act as very active board members or part-time and moonlighting operators to these startups. Today, by contrast, founders are lucky to have much more capital available to them, from myriad sources and institutions, and there are more micro-VC or “institutional” angel funds, and now hyper-syndicated rounds, more celebrities, more private equity (individual and pooled), and the competition to invest in the best — say, out of Y Combinator — is so fierce that valuations and the number of people on the cap table has gone up and to the right with no sign of stopping.

I’ve been thinking about this a lot lately based on these conversations. To hear these angels reflect on what they did, it felt more like a “craft” and they spent a lot of time with their founders. Today, it seems generally that seed investors have more in their portfolio and take options on company. Money is green. Net-net, I do think founders are better off than they were before, for all the reasons listed above, though higher valuations statistically will lead many to disappointing outcomes. I’m not sure what point to drive home with all of this, other than that my intuition tells me losing these individual angels seems to be a big shift (and loss) for the culture around the Valley, and may be a significant factor in explaining why things feel so hyped and crazed these days.