Embracing Angels: A VC’s Perspective


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small amounts; some as little as $10,000. And they can band together with other angels to meet a funding round’s capital requirement. Once the startup reaches certain company milestones and needs a bigger infusion of capital, it is common for them to seek their next round from VCs.

There’s been a lot of talk about “super angels.” Some people say super angels are those who do more than 10 deals a year. Some say they have sizeable, institutional funds. Some notable recent funds include: IA Ventures, a $50 million fund set up by Roger Ehrenberg, former president of DB Advisors; Floodgate, a $74 million fund started by Mike Maples; Felicis Ventures, a $40 million fund started by former Google executive Aydin Senkut; SoftTechVC II, a $35 million fund started by investor Jeff Clavier; and SV Angel II LP, a $20 million fund by startup investor Ron Conway. The Angel Capital Association estimates there are about 100 angel funds in the US at present, but they and the super angels are just the tip of a very large angel iceberg.

So What’s the Gripe?

I think the level of acrimony has died down since late last year, but if you’ve been reading the blogs and so-called “smack downs” between VCs and angels, then you know it was not all “kumbaya” among us. In a nutshell, the angst comes from competition (what a surprise!). Some young companies will need only a few million dollars, and we VCs as well as some angels are interested in the best of these. So we have to compete—some may not like that but that’s the way we do things in this country. There is also the misperception that choosing investors is a binary decision—that if you pick an angel, you can’t pick a VC. In reality there is often room for both and there are different roles for different investors. The 80/20 rule applies here: A great majority of successful angel-backed companies are sold for under $30 million and everyone is happy with that outcome. We VCs look for much bigger exits…because we need to impact bigger funds. For the most part, we are looking for home runs. There are many good investment opportunities for angels in early stage companies, and the more options an entrepreneur has, the better.

Sweeten the Deal

If our leaders really want more job growth in this country, Congress and state policy makers should encourage the growth of the angel investment community with lower tax rates. Every successful angel investor pays capital gains tax today. I think there should be an even lower tax rate for investors in very young, pre-revenue companies. Angel investing is the most efficient way to give as many entrepreneurs as possible a chance at bat…and in the long run that creates more jobs. Angels were behind Google, Apple and Facebook when they first started. And VCs were there when they swung for the fences. A strong country needs both.

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Bob Pavey is a partner at Morgenthaler Ventures and a past chairman of the National Venture Capital Association. He currently sits on the boards of eight companies including CLK Design, OmniPV, Paratek Microwave, Peregrine Semiconductor, R2 Semiconductor and Sezmi Corporation. Previous investments included Apple, Synopsys, and Atria. Follow @

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2 responses to “Embracing Angels: A VC’s Perspective”

  1. Bob, thank you for the thoughtful article, and as co-chair of this year’s Angel Capital Association Summit next week in Boston, I say the same thing goes the other way. We deliberately juxtaposed the ACA Summit to the NVCA Annual Meeting to build more bridges through dialog and joint events. A lot of individual investors are wary of VCs, more from misunderstanding incentives and motivations than reasonable judgment.

    In the end, it’s the entrepreneurs who loose. They receive poor guidance, and worse, suffer when their misaligned investors fight. There can be competiton and collaboration simultaneously in the capital markets. VCs have been doing that for decades; individul investors and VCs can do it together too.