How the venture industry is pivoting, Part 3

Eghosa Omoigui, angel investor, shares his views at AngelPad's Demo Day

At AngelPad's recent Demo Day, I caught up with Eghosa Omoigui, former-Intel-Capital-VC-turned-angel investor, who's in the process of closing a $11 million fund. We talked about the AngelPad class of startups. He gave a shout out to Stickery, Cloudbox, Hopscotch and Splash. He also talked about why he thinks there's not enough angel investors, or at least investors focused on true early-stage investing. These angels are just looking at "social proof" vs the "necessary diligence" that should be conducted when making investments, he said.

Here's what he said (slightly edited) when I asked him what most troubling about the venture industry.

"Having worked at a big VC at Intel Capital and done true stage-agnostic investing, there’s no question that what you’re finding in today's market is that a lot of the current 'venture' opportunities as perceived by VC funds are defined as 'leaning in' to a few winner companies at late-stage valuations. Do I think Facebook is a $100 billion company? I thought that since 2007. Do I think that Twitter is a $10 billion company? That’s debatable.  What the venture industry does now is still very lemming like. You’re not getting a lot of true early-stage investing with the material effort that goes hand-in-hand with company building. It’s a simple returns game that a lot of the funds are playing: You buy into Facebook secondaries at $40 or $50 billion, you put in $40 or $50 million and hope for 2x returns. It's nice window dressing with 'designer mannequins' from an IRR and cash-on-cash return perspective for the LPs and it simplifies raising the next fund. But have you actually done any venture investing coupled with actual company building? Created new jobs? Funded the pursuit of disruptive innovation and related opportunities? Not really.

"Is that more like index or mutual fund investing? Yes. Excluding a few companies, it feels like folks are occasionally paying late-stage valuations when early-stage risk is still very much present. As I pointed out on Quora, doing stage-agnostic investing is extremely difficult.

"It’s a shame and I am bummed for a lot of the entrepreneurs out there, particularly those that don't come w/ any hype but have great concepts, products and a passion to make a positive difference. I've always loved the underdog types and it sometimes feels like its a total solar eclipse funding-wise for most for those I run into.

"And, it goes back [to what I was saying earlier] that there’s not enough early-stage investing occurring and I hope there are more angels doing seed and early stage deals. Seems a lot of the VCs are all getting into this secondaries frenzy. Ultimately, this is great because it’s leaving a lot of opportunity for disciplined angels, super angels and micro VCs to invest in today’s micro companies (at relatively attractive valuations) that will be tomorrow’s very large companies in 2013, 2014 and 2015. The opportunity to be a birther investor today is huge. "

This interview is part of a series of interviews with venture capitalists that I will be conducting, in preparation of Vator and BullPen's upcoming Venture Pivot conference. Save the date: July 20, 2011 in San Francisco."