Tonight’s Venture Shift NY, hosted by Vator and Bullpen Capital, kicked off with its first panel: How Angels and Super Angels/Micro-Cap VC Funds are Changing Stakes and Creating a New Ecosystem. Daniel Garrie (Pulse Advisory), Roger Erhenberg (IA Ventures), David Tisch (TechStars), Owen Davis (NYC Seed), and John Borthwick (Betaworks) took the stage, with Bruce Taragin of Blumberg Capital moderating.
The first question of the evening: How are angels and micro-VCs changing the funding landscape?
John Borthwick: “Your VCs are dying. There are fewer and fewer VCs. It has to flatten out at some point. You’ve seen a culling of massive amounts of money with the VCs…and they’ve produced shitty returns. I think you’ve seen alternative platforms who are trying to do it differently and not replicate the model, because there are parts of the model that just don’t work anymore. At Betaworks, we’re a company, not a fund. We build things. our thesis is very much around social real-time, so we’ve got one area we’re focused on solely and we’ve been doing that for four or five years. We’re a very different animal than Blumberg.”
Ehrenberg: “One thing that’s evolved is this $1 million to $1.5 million layer that used to be the realm of angels. It now takes a lot less money to start a business. It used to be in the ‘80s that it took about $30 million to get a software company up and running. The reality is now the level of qualified angels who can help you grow your company and the institutionalized companies have significantly changed. This layer of capital is much more prevalent than it’s ever been before.”
Borthwick: “People in this business talk about how cheap it is to start a business. True, true, true. What’s also cheap is scaling a business.”
Taragin: How many portfolio companies do each of you have?
Garrie: “We have 100 investments. Seven companies have died between one to eight years.”
Borthwick: 36 companies we’ve either built or seed invested, so there’s about 10 that have failed or we’ve sold. About 35 are alive and kicking.”
Taragin: So you had 45?
Borthwick: “Yes…when we build companies, we pivot very aggressively…”
Tisch: “I’m a personal investor in 51 companies and none have died, but I expect there will be deaths. Techstars has funded 85% of the companies reach profitability. Out of the 110 we’ve funded, 13 have died.”
Ehrenberg: “In our first fund we have 21 companies, zero have died.”
Taragin: I guess all the crappy funds are on the west coast.
Davis: “We have 18 companies and have seen two closures. People like to focus on certain kinds of metrics when they look at financing…and I wonder what’s derived from that that could be useful. That seems like the more important question. There’s real nuance in looking at something like that. The question is: was it really a great idea and a great team, and the wrong time? Did some external factor screw things up?”
Taragin: What’s the dumbest decision you’ve ever made?
Davis: “I went against the rule never to fund a husband and wife team and…it didn’t work out.”
Ehrenberg: “Investing in great ideas and great markets, and not necessarily great people. If I had any gut issues with the founders and I rationalized it—always lose.”
Tisch: “As an entrepreneur you get no points for level of difficulty for what you’re doing. You don’t get more funding for doing something harder. It just means you’re going to have to work harder. You can just launch a Web app and there’s no barrier for entry, and you can do great.”
Borthwick: “Do what you love, make something. Start off by building something and solve a problem that the world deeply needs solved. Do it fast, do it cheap, and don’t raise money from VCs until you know where the business plan is and where it’s going to scale because it’s much easier to pivot and change when you’re working with angels and the smaller guys. In the next ten years, there’s a lot that’s going to happen and be invented. Facebook, Tumblr, Foursquare...those companies are going to have to work hard to maintain their position in their markets.”
Taragin: Predictions for 2012?
Garrie: “I can safely predict angel fatigue. A lot of people are getting into angel investing because it’s sexy.”
Tisch: “I have seen no fatigue.”
Garrie: “It’s not here yet, but it’s going to come.”