The recent flurry of seed activity and the rise of Super Angels has lately inspired great deal of debate and even pure entertainment in the tech community and beyond (just watch the installments of Super Angel / VC SMACKDOWN on TechCrunch!).
The Super Angel / VC debate fundamentally touches the core of what today's Silicon Valley culture is starting to define as successful tech entrepreneurship: One camp (occupied mostly by traditional VCs) believes that successful entrepreneurs are those who aspire to, and succeed in, building B.I.G. (aka Google-size or at least Facebook- or Twitter-size), industry-changing, behavior-defining, money-making behemoths, whereas the Super Angel camp believes that successful entrepreneurs are not in it for the money, but for the love of the game, and therefore should rationally desire to build moderately successful ventures that can be flipped at a $50M exit or thereabouts, so that founders can make their F.U. money, as Dave McClure eloquently puts it.
In other words, the VCs tend to place the normative weight of entrepreneurship on the size of the total outcome, whereas Super Angels tend to place it on rational risk optimization for size of the proverbial "founders' pie".
But as an entrepreneur, neither of those measures of "success" sits well with me; in fact, they seem to fundamentally miss everything that I stand for, and in the process somehow even insult me!
For starters, we all know plenty of successful entrepreneurs who have not set out, nor been successful at, building billion-dollar companies. We also know plenty of successful entrepreneurs whose essence is defined by defying the odds, rather than making the safe bets. I know plenty of successful entrepreneurs for whom any kind of financial calculus is at best secondary to their primary motivation, if not a total buzz kill (will discuss in a later post).
Instead, the primary motivation that all great entrepreneurs seem to have in common and which uniquely sets them apart from others seems to be their will to overcome.
The desire for financial independence (aka, McClure's F.U. money) and the desire to topple monopolies and change the world (something that the good VCs tend to pick up on), are only two different manifestations of that "will to overcome". Other manifestations can be seen in ways that people approach hardships for themselves and for fellow human beings, and in lessons learned from past experiences. But such manifestations cannot simply be assumed to be the proxy for the real thing!
So therein lies my uneasiness with the Super Angel / VC debate:
Being a big dreamer or a risk optimizer does not necessarily mean that you are an entrepreneur, as you may very well still be lacking that entrepreneurial will to overcome!
And therefore, an investment philosophy that puts any significant weight on those factors would be optimizing for the wrong variable and is statistically doomed to fail.
But there is even a greater danger: The ethos of the American Dream are fundamentally at risk here: The American Dream (at least the way I understand it), is not about some materialistic outcome, but rather about the life journey and the attitude one takes along this journey. Do you want to be your own boss? Do you want to have control over your own destiny? Do you want to change other people's lives?... Or simply put, do you want to overcome existing limitations? If your answer is yes, then I think you can safely be considered an entrepreneur. And the strength of your will to overcome will have a direct relationship to how successful you will become (at least, so I believe).
nice post Touraj.
ReplyDeletecertainly agree we shouldn't over-focus on size of outcome.
there are plenty of other areas to emphasize diffs between Big VC & SuperAngels, altho should be noted the two aren't in direct competition as much as in diff parts of the overall startup financial ecosystem.
prob more relevant is the more-likely operational and/or entrepreneurial background by many SuperAngels -- which is better suited for solving early-stage product & marketing issues than large VCs with MBA/finance bkgrds & later-stage focus on organizational growth & balance sheet financing.
i liked this post too and rarely do I comment on blogs, but I've been consumed in thought these days about todays startups and entrepreneurs, VCs and Angels and trying to understand where of if any importance is placed on "integrated philanthropy" in the business plan, funding, or part of the long term goals.
ReplyDeleteIn other words, in addition to the "financial independence" the "journey" the "control of ones destiny" the "overcoming of (personal/professional) limitations" how important is making a positive social impact in the world when developing/running/investing in a new company or venture?
Examples: The likes of Salesforce.com Foundation formed at the birth of salesforce to grow and be a part of the corporate culture and ensure nonprofit, NGOs, social good organizations are successful through their use of the donated CRM product, the employees, and grants (1/1/1 model). Or like John Wood of Room to Read - who left a phat job at Microsoft to ensure that "World Change Starts with Educated Children" and founded his successful nonprofit driven by his passion of education not just $$$ he was making for/at microsoft. Or the growing movement of BCorps forming which uses the power of business to solve social and environmental problems...
My question: Is social impact (beyond "cause marketing" or "check writing") an important aspect to VCs or Angels when investing in new business ideas?
@Dave and @Julie,
ReplyDeleteThank you both for your thoughtful responses.
I agree with you Dave that VCs and Super Angels can theoretically co-exist in a "stage dependent" approach to financing, but I think the filtering you put on top of your deal funnel and the entrepreneurial traits you look for will yield to selecting very different kind of portfolio companies.
And @Julie, I totally hear what you are saying. Traditional investors have been very reluctant to put much emphasis on social change, as their performance is purely measured on financial returns. That is starting to change with the likes of Omidyar Foundation and more socially-aware investment firms.