On a Wing and a Prayer: 300,000 Angels in Search of a Unicorn


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measure of success, and seem to believe in their own personal doctrine of infallibility. They are investing their savings, hoping and praying for the big win so they can tell themselves or their kids they got a piece of the tech bubble.

I have met a lot of these people. There were almost 300,000 of them funding deals in 2013. They often value companies incorrectly, if they value them at all. They invest in a dream and a guy who is good at telling a story. They just don’t dig too deep into the storyteller’s track record. Some angels have no expectations for a return; they say they’re investing mostly as a way to give back to the community, or to mentor young entrepreneurs.

But I have found that most actually think they might hit it big. When things go sideways they often get pissed. They don’t understand the odds. They don’t understand that the returns for angels make venture investing look as easy as winning a goldfish at a state fair.

The reality is that nearly ALL of these angel-backed companies will fail to grow to more than a few hundred thousand dollars in revenue. Less than 5 percent of them—far less actually—will make it to an institutional funding round, let alone an exit. I can’t find many angels who understand these odds. As a result, the number of angel-funded deals has increased every year for at least six years. I am sure we will set a record again this year.

I see many of the companies these angels have funded: I’ve seen a $10 million pre-money deal for a piece of paper and two chairs in a garage. I’ve seen $30 million pre for $500,000 in revenue. There is no logic to the valuations. Comps are thrown out the window. They don’t do the math on just how huge a return they would need to make money. They take common stock. They get wiped out.

As one angel stops taking meetings, a new one appears. There is no knowledge transfer, no words of wisdom on what to avoid. And just like that, the cycle repeats itself.

This is a story that has not yet played out. There is lots of talk about too much venture money being deployed, overblown burn rates, and big-name firms taking bigger risks than anyone has seen in 15 years. There is talk of a pending vaporization.

But there is little talk about the $100 billion of invested capital, 300,000 angels, and 350,000 companies, each with just a few hundred thousand in revenue. What will become of all these companies? What will become of all of the people working at these companies?

Very few of these deals will become unicorns. Most won’t even become goldfish.

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Jeb Spencer is the co-founder and managing partner of TVC Capital, a San Diego growth equity firm focused on software companies. Follow @

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One response to “On a Wing and a Prayer: 300,000 Angels in Search of a Unicorn”

  1. Theodore says:

    Great post, and for those of us in the trenches a nice confirmation of the constraints we see building. I am on the entrepreneur side, and we see a lot of angels without any operational experience in the verticals they want to invest in. We also see a lot of unrealistic participation demands. When we evaluate angels, they need to do two things for us: 1- have operational experience in the industry, and 2- be able to generate new customer deals for the business. Their money is not that important to us; their management skill and rolodex are essential as our goal is to build a scalable business.

    I do feel that angels can make a nice difference in the start-up ecosystem. The VCs are looking for 20-30x returns which means multi-billion dollar markets, and there are just not that many business that have that scale. But there is a lot of interesting technology that can be developed for <$10M that can generate exits in the $25-50M range as technology or team acquisitions. Angels could completely own that segment of the investment spectrum.