Super Angels and Seed Funds: Sim Simeonov’s Advice for Investors and Entrepreneurs

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grows from 5 to 20 companies. These are big numbers that can have a very meaningful impact on angel returns.

X: Does the analysis affect how you, or others you know, will make investments?

SS: Two key points come to mind.

First, the analysis leads to the inevitable conclusion that angel investing for financial returns, as opposed to non-monetary types of utility, must be done thoughtfully and consistently over a period of years to take advantage of portfolio effects. It isn’t something to casually engage with. Many angels have told me they are looking to change their investment approach to something that’s a bit less ad hoc as a result of these findings.

Angels should start by asking themselves the following question: “How much can I consistently invest in startup companies for at least five years, regardless of what the public markets do?” Then, they should take this amount and look for ways to invest in 5 or more companies per year.

Second, I have to point out that the analysis is very sensitive to the assumptions about the distribution of returns. I’d like to think that starting with detailed return data, assembled by researchers such as Dr. Wiltbank from Willamette University through a Kauffman Foundation grant, is far better than starting with pure guesses. Unfortunately, even the Kauffman data set does not have great coverage of high-return, long-tail exits. The simulations are also quite simplistic at this stage. For example, they don’t take important effects, such as branding, into account, which have significant impact both on quality of deal flow and the ability to win deals. I am working on a more realistic Monte Carlo study, based on my experience as an angel, entrepreneur, and VC.

My ultimate objective is to empower many people in the tech sector with the knowledge and means to become successful angel investors. This, of course, can be difficult as not that many people have the time or wealth to benefit from the portfolio effect of angel investing. It’s a structural issue with angel investing that I’m working with some smart people to try to understand better and address. I certainly don’t think the answer is for every interested angel to join as an LP [limited partner] in one of the many seed funds being launched every month.

X: What one piece of advice would you give to angel groups, and to entrepreneurs looking for early-stage funding?

SS: During the recession, seed stage capital became very expensive. Angels and seed-stage funds who were active could make some very attractive investments. Some of these investors and investments have been extensively covered in the press, creating a very unrealistic … Next Page »

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5 responses to “Super Angels and Seed Funds: Sim Simeonov’s Advice for Investors and Entrepreneurs”

  1. Len Williams says:

    I wonder if seed money is bound to go really down…super-angels followed by a super-seed crash. Super angels are savvy and seem quite accessible, but too much small capital provided for too many companies…how does that look? These angels don’t even need to co-invest anymore,we would probably see them competing with each other, which I don’t think has happened before. I mean, investing small amounts of seed money or microfunds is not a bad idea at all, provided that the raised capital goes to promising startups and entrepreneurs with marketable ideas.