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Louis Volpe, a managing general partner at Kodiak Venture Partners, penned a commentary in Forbes warning entrepreneurs that not all angels are "saviors." Ignore for a moment that this message is coming from an early-stage venture capitalist who may compete with angels for deals. Instead, let's focus on the triteness of Volpe's viewpoint and his misleading use of data.Of course there are bad angels out there, much as there are bad venture capitalists, bad entrepreneurs and bad magazine editors. Volpe cites returns data from a recently issued report on angel investment to dramatize his message. From the article (emphasis his):
First, while he notes that over half of angels lose money on their investments, that's not much different than the venture investment axiom that half of a VC firm's portfolio companies will fail (indeed, that stat is tossed out as a blithely as a weather report). That's why venture investors swing for home runs. And that ties directly into Volpe's parenthetical point that angel-backed companies that take VC money typically do better. The corollary to that is such startups also have a greater chance of failing. As a venture-backed company, you shoot for the stars; if you miss, you plummet back to earth.While overall returns averaged 2.6 times the initial investment within 3.5 years, only 48% of the deals returned more than the original investment. In other words, 52% of all angels lose money on their investments. (As for startups that initially ran on angel capital but later accepted VC money, the returns on the winners were higher -- but so were the number of losses.)
In short, Volpe's use of the recent angel data to buttress a cautionary tale of bad angel investors is a tad disingenuous. The story he tells of an angel gulling a college professor into signing a foolish software distribution contract is worth hearing, as is his advice that entrepreneurs should only do business with angel investors who are knowledgeable about the sector they're investing in.
But the angel report Volpe touches on addresses that issue and offers data highlighting the importance of dealing with experienced angels. The study, which is from the Ewing Marion Kauffman Foundation, states, "Analysis indicates that expertise had a material impact on angel investors' earned returns. Investment multiples were twice as high for investments in ventures connected to investors' industry expertise."
Why not cite that statistic, rather than try to tar the angel industry as a failed model of investing? - Stacey Higginbotham
See Nov. 13 story from Forbes
See Nov. 12 post from Tech Confidential
See Kauffman Foundation report on angel investment return
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This article is a "hit piece" on Lou Volpe. If you read the actual article in Forbes, he is not insulting the entire angel community or suggesting entrepreneurs go straight to VCs instead of angels. He is actually offering sound advice to entrepreneurs by showing that a huge influx of angel investors over the past several years means that many inexperienced investors with no value-add have entered the fray. He actually advises taking angel money with the caveat that it be from people who know your industry and can help with more than just cash. It is unfortunate that The Deal would allow Stacey to spin such a ridiculous angle on the article. Nowhere in his article does he "tar the angel industry as a failed model of investing". Shame on you, Stacey.
The goal of the post isn’t to attack Volpe, but instead point out that he’s using data from the study in a way I find misleading. From the statistics he chose, the emphasis added to the stat that 52% of angel investments fail, and his line about angels spending time on the golf course rather than helping out entrepreneurs, he’s painting a false picture of many angels. I also point out that his advice and the story he tells are good reminders for entrepreneurs seeking capital. As for him trying to “tar the angel industry as a failed model of investing,” that may be overkill, but he’s certainly not doing angels any favors with his article. His article and conclusion: “Bottom line on angels: Take their money--but only if they bring other strategic benefits to the table. In the end, entrepreneurs need investors who offer more than just deep pockets,” perpetrates a stereotype of angels that is quickly becoming outdated.
Much of the huge influx of angels mentioned by Jeremy is a direct result of the growth in organized angel groups. In many cases those groups are being formed as a way to professionalize angel investing and address the issues referred to in Volpe's article.
Ah, Lou, come on! You gotta do better that that! My stories on bad VC's are much, much worse. You make angels sounds like, well, angels compared to some of the bad VC's. Of course, I am assuming you are a *good* VC. Anyway, I'll make sure to spread your comments to my fellow angels across the US of A.