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Founders Come First

By Jon Callaghan, September 22, 2010

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The last two weeks have seen incredible ink, time, and venom spread around the competitive dynamics in the super-angel and VC markets. First the “smackdown” news and chatter this week and now Angelgate. While this makes for great press and lots of pageviews, the voice of the Founder has been absent from virtually all of the discussion and postings. In fact, more than being absent, Founders lose from the shredding and group think and activity happening in the market today, and this is a really bad thing.

Super Angels and VCs are spending tons of time and energy arguing vehemently that one approach is better or best, all the while polarizing the discussion. Both groups are ganging up in various ways against the other. We’ve seen it in deals in the past few weeks whereby big VCs are actively cutting out the super angels, and yes, Super Angels are actively working to keep the big funds out of early deals. As Fred points out, the competitive dynamic in the market is heating up, and some of this behavior are the normal results of higher competition. While this should be a good thing for Founders by creating more access to capital and more options, the problem is that the current the polarization and warring between the two camps directly places the Founder in the middle of a battle that only hurts the underlying company.

A lot of our industry has lost it way in the current environment and on this debate. We’ve seen this movie before. It was playing on every screen in 1999. Back then, as now, the market was feverish and investors were judged by the checks they were writing. It was deemed most important to be in and around all the “hot deals” if even for a tiny amount. Everything got funded, and there was constant talk of early checks as “options”. “Just get in, ’cause it just might work,” was the thinking. At True we’ve tried to steer clear of this mentality, largely because we recognize that it’s really easy to write checks, and it’s even easier to write lots of checks. What’s hard is committing to a 3-10 year relationship with a Founder and working over that period of time to build something real. It’s hard to bring checks back. I wish this business were as easy as funding everything that looked good, but it’s not. It’s not about the funding, it’s about the building, and Founders build companies, not VCs, not super-angels. Founders.

Moreover, in the words of a friend, startups are a “team sport.” Our experience at True has shown us that companies need lots of important ingredients at the right time to succeed, and Founders shouldn’t be put in the artificial position (by any one ingredient) of needing to choose. Why is it a good thing for a Founder to have his/her angels antagonize the folks who are later important sources of capital for the company? Why is it a good thing for those later sources of capital to spend time competing for super angel checks that should actively feed them the best deals later? And while we’re at it, why is it a good thing for a Founder to have a bunch of “buddies” acting together in a syndicate? We’ve witnessed lots of group think, proxy investing (“if he’s in, I’m in!”) in the past six months. Leaving aside whether that’s a good or bad investment strategy, from the viewpoint of the Founder, it’s really bad to have folks in your deal that are there for any other reason than that they believe in you. It’s not about your syndicate, nor your angel investors, nor your VCs – it’s about YOU!

I’d suggest our industry do ourselves a real favor and remember where the power and creativity comes from in our world: it’s not from Super Angels, nor from VCs, it’s from Founders.