What (bubble) year is it? 1993? 2000? 1996?

A team of VCs took the stage at Vator Splash LA to discuss tech bubbles, tech booms, and angels

A crew of VCs took the stage at Vator Splash LA last night to discuss the changing landscape of angel and seed investing, and the conversation was interesting. Neal Hansch of Rustic Canyon, Larry Marcus of Walden Capital, Brian Garrett of CrossCut Ventures, and David Cremin of DFJ Frontier all hunkered down together on stage while Bruce Taragin of Blumberg moderated, and here are some of the highlights:

Bruce: I'm based in Silicon Valley. Neal, what do you see as the difference between Southern California and Northern California?

Neal: I'm a bit of a hybrid because I'm based in Silicon Valley but I spend half my time here (in LA). Shawn Colo mentioned that Southern California has such a strong network for getting to profitability. In comparison to Silicon Valley, you're away from the echo chamber in terms of crazy valuations.

Larry: I think the notion of building a partnership with a management company is the most difficult thing to do with the culture in LA. It's really about equity partnership.

In terms of an angel investor and a firm, how do the two compare?

Brian: As a generalization, I would say people describe angels as the first bucket--here's a check, get back to me when you get some money. We have a $5.5 million fund, and we think in the venture category, the small fund size is an institutional mindset that has a better chance of turning a little money into a lot. 

How do you function on a $5.5 million fund?

Brian: It's a startup. We launched the fund in August 2008, we funded 13 deals in that time frame. I'm operating a company, I'm running a fund, I'm a father of three, I don't play in a band, I'm just keeping my head down. It's an entrepreneurial mindset applied to funding. When our entrepreneurs do well, we do well. We don't have a lot of access to venture capital in Southern California. But we just had one of the best years in Southern California--Demand Media went public, Reach Local had a great year...

What's better, larger funds or smaller funds?

Larry: There are individual investors and there are funds. There is no such thing as an angel. It's become really easy in this market to raise money from individuals. A great individual can offer a lot of value, or a fund can offer a lot of value. It just depends on what you want to do. If you get money from an individual--like from friends and family--if you can't take that money and take it to the next level, you've failed because you can't pay that money back. 

Neal: I'll take a different angle on that--but to go back to what's changed, there've always been angels out there, when NASDAQ goes down 30%, that investing category goes away for a while. 

Are we in a tech bubble? What about LinkedIn? Do you buy or sell right now?

Dave: Here's the thing, we're not in a bubble, we're in a cycle. It's a 14-17 year cycle. The last downturn was 2000. We're in 2011 now, so we have another 14 years to go until the next peak.

What year are we in?

Brian: I think it's 1993. 

Neal: No, it's 2000.

Larry: It's 1996.

What's the deal you screwed up? For us, we passed on Palantir. Neal, what was the deal that you missed?

Neal: We passed on Bam, and they just announced a $90 million round. 

Larry: We passed on Fox.net and Photo Log.

David: There was a little business called Savage Beast...they had the music genome project and it's now called Pandora. I also missed ShoeDazzle. 

Brian: We passed on Haute Look. 

What's your one piece of advice for the entrepreneurs in the audience?

Larry: Focus on the consumer and giving them joy. Make them extremely happy with what you do.

David: Differentiation so we know you have a long term advantage and a long term standalone business.

Brian: Team, it's all about the people. That doesn't mean you can't be a first time entrepreneur, but you have to get the right people behind you.

Neal: Brian took mine. Choose your co-founders wisely. 

The onstage discussion was followed by a few questions from the audience.

Why does there have to be a boom and a bust? Is there any way VCs can avoid that?

Brian: It's all the super angels fault. They're the ones bidding in the rounds and making the crazy valuations--it's their fault. 

Neal: I think most of the froth is on the consumer side. But that being said, consumer technology is hot. 

What types of areas aren't getting the attention they deserve?

Larry: I think it's about seeing things other people don't see. If you're doing the exact same thing everyone else is doing, it's not going to go very well. If you're solving a key need that's going where the ball is, that's where the action is and that's where the VCs have to take their spots. I'm excited about mobile. I think it's going to decimate every other platform--it has everything. 

What is the number one thing you look for in a pitch? 

Larry: When you describe what you do right out of the gate. The worst thing is when the pitch ends, and you're wondering what the company does.

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