Monday, August 16, 2010

Angels vs Superangels - What is the difference?

There has been a lot of noise in the press lately about "Superangels" and how they are a potential disruptor to the early stage venture funds (see also TechCrunch article).  This blog focuses on angels vs superangels and how the two work together. 

    Definition Of A Super Angel - Someone With An Institutional Fund
  • Small institutional funds. Super angels are in part characterized by the fact that most of them are effectively small venture funds who have raised money from limited partners. By "small" I mean fund sizes typically in the ~$5 million to ~$70 million range (these numbers are inexact, and depend on the number of partners in the fund).  This contrasts to "angels", who are investing their own money.  This means angels and superangels may have different underlying motivations in some cases.
  • Partnership structure.  Many super angel funds started off as 1 person investing their own money (e.g. Maples, Aydin, Jeff Clavier) and morphed into a broader partnership as money was raised for an institutional fund.  
  • Motivations for investing.  Ultimately, super angels will be judged by their LPs on financial return.  Given their smaller fund sizes, super angels are less beholden to VC economics so they have more alignment with entrepreneurs than traditional VCs.  Many super angels also invest to give back / help out the next generation of entrepreneurs or for other reasons (see angels, below).   However, it should be noted that super angels are not charitable organizations who exist to serve entrepreneurs - they do have LPs counting on them to generate a great ROI, and this is ultimately what they will be judged on.
  • Investment size. Super angels will each invest anywhere from $50K to a million or so in funding in a given round.  There is a bit of a split between those typically investing $100K-$250K per round, and those that typically invest $500K-$1 million.
  • Board seats. Many of them *may* take a board seat (and *may* step down with a "full" venture round where the VCs take over the investor seat).
  • Value add. They often are very good at providing introductions, strategic advice, etc.  See my blog post on the 7 types of angel investors for more on types of angel value-add. Many super angels are as entrepreneur friendly as they claim, but I have seen at least one act in a negative manner towards entrepreneurs repeatedly.
  • Upstream of VCs or co-invest in Series A/seed. Super angels may often act upstream of, our co-invest with, VCs, although they may sometimes compete with traditional VCs for a seed round.  I have seen many many instances of super angels co-investing with VCs in series A.  Taking a round from superangels will typically help your odds of getting a top tier VC into your series A, rather then hurt it (as recent press articles incorrectly suggest).
  • Lead rounds. The super angels often will help pull together a broader syndicate for the entrepreneur if useful.
  • List of super angel funds.  This list is not comprehensive and is in no particular order.  If I forgot someone - please let me know and I will add them.  Floodgate (Mike Maples and Ann Miura-Ko),  Harrison Metal (Michael Dearing & Erik Rannala ), HitForge (Naval Ravikant), SoftTech (Jeff Clavier), Lowercase Capital (Chris Sacca), Manu Kumar,  Felicis Ventures (Aydin Senkut), SVAngel (Ron Conway and team), First Round Capital, 500 Startups (Dave McClure), Founder's Collective (Chris Dixon et al), betaworks.  

Definition Of An "Angel" - Someone Investing Money On Their Own Behalf
  • Invest their own money. Your plain old vanilla angel is someone typically investing their own money.  
  • Motivations for investing.  Angels can vary quite a bit in the reasons they want to invest in a company.  Their primary motivation for investing may be financially driven, ego driven (i.e. instead of collecting sports cars or pokemon cards, they collect startups), or to give back to the community / help out the next wave of entrepreneurs (these angels are often the best ones).  
  • Investment size.  Angels will usually invest anywhere from $10K to a few million dollars depending on their personal wealth and agenda.  A typical amount to expect from an angel is $10K-$100K with $25K-50K being seen as pretty standard.
  • Board seats.  Traditional angels will rarely take a board seat unless they are either deploying a large amount of capital (with "large" as defined as large relative to the overall round or "large" as defined relative to the angel's personal net worth.).  Anecdotally, it seems that people who have worked as VCs before, or who spend most of their time these days on their investments rather then having an operating role, seem more likely to take board seats with their angel investments.  Some angels may be brought in as a board member to fill the "independent" board member spot when a venture round happens.
  • Value add. There is a very wide variance in angel value add.  While superangels are investing professionally for a living, angels are doing it for other reasons.  Some angels are amazingly helpful (think Reid Hoffman or Marc Andressen before they became full fledged VCs).  Others are spectacularly unqualified to invest and may be doing so because they have excess cash (trust funds, early employee at major company, your local family dentist) or excess time (ditto).  Screen both your angels and super angels carefully! :)
  • May invest in all rounds/financing types.  Since angels are investing their own money, they often have more leeway in what sorts of companies they can invest in and at what rounds (series A, B, C, etc.).
  • Lead rounds.  A handful of especially wealthy or plugged in angels will lead rounds and in some cases have a fund in which they are the only LP.  It is unclear if they should be classified as super angels or not, but they include e.g. Mitch Kapor, Ram Shriram, Russ Siegelman, Marc Benioff, Youniversity Ventures (Keith Rabois, Jawed Karim, and Kevin Hartz) and others.
  • List of angels.  See Angel List for a good cross section of angels.
How Angels and Super Angels Work Together
Within Silicon Valley, angels will often refer deals to super angels, and super angels will often pull in angels to fill in rounds.  Typically the angel/super angel networks are tight knit with the two types of investors working together.  Outside of Silicon Valley, you are more likely to run into angel investors who are not very savvy about starting a business but have access to capital.  These investors (finance guys, trust fund babies, etc.) can often be quite destructive to startups as investors and will be the topic of a future post.

Whether you are dealing with an angel or superangel, you should still chose the types of angels in your round carefully, as well as decide whether to let a venture fund invest.

Any angels or super angels I should have pointed out?  Let me know in the comments section below.

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