Friday, September 24, 2010

AngelGate: Send in the clowns

If you haven't been following the increasingly comical affair being called AngelGate, I'll run it down for you. First, a few definitions:
  • A venture capitalist (VC) is an individual or firm who invests in start-ups and small private companies with the hope of selling their stock for a large profit, either on the public market or to a larger company that acquires a company that they've invested in.
  • Angel investors are individual venture capitalists who invest their own money in start-ups, usually very early in the companies' lives (typically seed or first rounds).
  • Superangels are individuals or small groups of investors that invest in a larger number of start-ups than an individual angel would normally invest in, but still focus on very early rounds.
  • Conventional Venture Capital firms invest in a lot of different companies at many stages of development. They have a lot more money to invest than the angels or superangels, and usually invest in later rounds.
Last Tuesday, Mike Arrington, the publisher of TechCrunch, learned about a secret meeting of superangels being held at a restaurant in San Francisco called Bin 38. He was told that he wouldn't be welcome at the meeting if he attended, but he went anyway, and in a private meeting room, he found "ten or so" of the largest superangel investors in Silicon Valley. They basically went into a silent stupor when they realized that he was in the room, and he left shortly afterward. Later, "sources", which Arrington says were three people who attended the meeting, told him that the following subjects were discussed (I'm going to quote directly from the TechCrunch article:):
  • Complaints about Y Combinator’s growing power, and how to counteract competitiveness in Y Combinator deals
  • Complaints about rising deal valuations and they can act as a group to reduce those valuations
  • How the group can act together to keep traditional venture capitalists out of deals entirely
  • How the group can act together to keep out new angel investors invading the market and driving up valuations.
  • More mundane things, like agreeing as a group not to accept convertible notes in deals (an entrepreneur-friendly type of deal).
  • One source has also said that there is a wiki of some sort that the group has that explicitly talks about how the group should act as one to keep deal valuations down.
Venture capitalists, whether large firms, angels or superangels, are competitors. They do work together at times on deals, but generally, they compete with each other to make investments. There are U.S. Federal laws that deal with collusion between competitors to fix prices, terms and conditions, and to keep out or limit the activities of other competitors, and they have nothing to do with monopolies or market share. The very act of competitors conspiring secretly as Arrington says they did could be interpreted as illegal.

The best thing for the participants to do would have been to say nothing and refuse to comment if asked by the press, but that's not what happened. The day after the TechCrunch article was posted, Dave McClure, a superangel, claimed that Arringon's charges were a "bullshit superangel consipracy theory", admitted that he attended the meeting, gave his take on what was discussed, and then finished his screed with this line (and this is a direct quote: "(sic)i'm here to Disrupt, motherfucker. (sic)so go right ahead & Hate On Me."

Yesterday, Ron Conway, founder of the Silicon Valley Angels and one of the earliest angel investors, wrote a long email to attendees of the Bin 38 meeting to say that:
  • He didn't attend either meeting (apparently there were two meetings), although one of his partners did
  • He didn't agree with the agenda or process of the meetings
  • He'd really appreciate it if the other superangels not talk to him again
  • His only interest is the entrepreneurs that he funds
  • And by the way, Dave McClure, don't write or say anything about this email
One of the most endearing things about Dave McClure is that he's incapable of keeping his mouth shut, so almost immediately after Conway sent his email, McClure demonstrated his mastery of Twitter by sending the entire world a message that he had intended to send only to another attendee of the dinners. In it, he confirmed that there were two meetings, said that he and other attendees were being "thrown under the bus" by Conway, and confirmed the identity of another person, David Lee, Conway's partner, who attended both meetings. McClure deleted the errant tweet, but not before it had been copied and widely distributed, including to TechCrunch.

TechCrunch ran McClure's tweet, and then they received a copy of Conway's email and ran that. McClure is continuing to respond to other postings around the web that agree with his point of view, when the best thing he could do right now is visit a foreign country with no Internet connectivity.

Whose story of what happened at the meetings is right, Arrington's or McClure's? Arrington didn't name any of his sources and didn't go into any specifics about what action(s) the group agreed to undertake (if in fact it agreed to do anything.) For his part, McClure didn't mention the fact that there were two meetings, not just one, in his response to Arrington's story, which certainly detracts from the authenticity of his account. Also, his tweet in response to Conway's email didn't say that Conway's or Arrington's charges were wrong, only that he (McClure) and other attendees were being thrown under a bus by Conway.

What conclusions can we draw from this mess (so far)? In the song "If I Was a Rich Man" from "Fiddler on the Roof", Tevye sings:
The most important men in town would come to fawn on me!
They would ask me to advise them,
Like a Solomon the Wise.
"If you please, Reb Tevye..."
"Pardon me, Reb Tevye..."
Posing problems that would cross a rabbi's eyes!
And it won't make one bit of difference if I answer right or wrong.
When you're rich, they think you really know!
Now we know: Being rich doesn't make you smart or give you common sense.
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