Super Angels = Micro-VC

Let’s call things by their real name

What is the difference between a Super Angel that raised a fund (or has a syndicate) and a Micro-VC? In the words of Fred Wilson: “Angels invest their own money when VC invest LPs money”. This can't be more clear. So why I am writing this? Because there is a grey area. Let’s start with a chart ☺

In my opinion we can classify angels in 5 levels: Super Angels, Angels, Beginners (me), “What’s left” and Outsiders.

The distinction of them are by the size of their commitment in time and money (not necessary in that order or in magnitude). “Outsiders” would be every person that invest money in startups without having any knowledge or relation to them. They have no interest in the actual business or in the return or in the industry. They don’t even really care about the return. You will think this make no sense but you need to think about those people that give you money because its you without really understand what you are saying (many times this are family and friends).

A second group is the called “What’s left”. This are usually professionals (doctors, lawyers, dentists, accountants) that see investing in startups as something “cool” and just want to throw some money to see what happens. There is no real understanding of the business but there is some knowledge about the industry and a lot of #FOMO.

The thirds group is those that are actually interested in doing “Angel Investing” as a way of living. We will called them “Beginners”. They haven't “made” it yet and they are learning. They invest their own money and dedicate 100% of their time to help founders build their startups.

Then you have what we can called the professional “Angels”. Those that have been doing this for 5+ years and already have some good results. It’s not only based on the returns but in the fact that they do it as a way of living and with a professional process for deal flow and sourcing. After years on the industry they have built extensive networks and are well connected to the VC firms. In this group we sometimes have entrepreneurs that are still building their companies but have been angel investing for years so even if they are not 100% dedicated to it they have gathered enough knowledge to do it in a professional way (especially if it’s related to their startup).

And then we have the top of the top: the so called Super Angels

The same professional process and extensive networks applies to them. They are also well connected to the VC firms and have an infrastructure of their own. They hire people to recruit startups and create a constant deal flow for them. They source deals and invest frequently.

These Angels are the ones that invest their own money but also syndicates their deals (or have raised a large fund). They still invest part of their money ($5k-$25k)but the decision of investing is not really created by this money but by the leverage and power they have concentrated by being able to invest $250k-$500k.

This creates great leverage for their own money. Just think you are negotiating with someone with 10x-100x the power you actually have. It not only affects the power but also the deal flow. Once you are capable of investing such large sums a whole new possibilities are open to you. Deals you maybe didn't have access to are now on the table. So it amplifies the power not only in each individual deal but in the overall game. A bigger number of deals diversifies not only in more startups but also in the diversity of them. If you are playing the power law game you may even lower the amount of your personal investment (from $25k to $5k) and try to enter in as many startups as you can.

What are some pros and cons of an Angels doing this:

  • More money is invested in startups / more things are being built*
  • Hundreds of jobs are created / new career opportunities
  • Increases innovation by lowering the risk of ‘starting’

Some not that good:

  • Concentrates the money in a few players, giving them more leverage and power to negotiate (lets remember old VCs)
  • It encourages small angels to take lower risks (syndicate) and disincentivize them of really helping founders by mentoring/coaching
  • It makes deals more homogeneous and bias by the lead super angel.

Don't get me wrong with syndicates. I think what AngelList is doing is great for the ecosystem, bringing transparency and organizing the deal flow between startups and angels.

The problem is when we are confusing what the definition Angel is or should be. I agree with Fred Wilson that an Angel invest their own money. But when you invest $500k and from them only $5k are yours, are you really “investing” your money? Or are they behaving as VC firms?

They may not have GP (General Partners) but for sure they have LPs (other Angels) and they have built a whole infrastructure of people to help them source the deal flow and filter the possible investments.

So, why would Super Angels want to keep themselves being called Angel instead of Micro-VC? Well, they have built part of their reputation around bad talking about them: “old white guys”, “big funds”, “unconnected with founders” and other names. They are playing into the human connection of “being equal” with some “David vs Goliath” on it. This doesn't mean they are not helpful and that they are good for the ecosystem.

My point is that this Super Angels are closer to behave as a Micro-VC and further away of what is known to be an angel investor. Let’s start calling things what they really are instead of trying to behave as something we are not. Transparency would be good for founders and for investors.

PS: It would mean a lot if you hit the Recommend button. Also tell me on Twitter your thoughts, I'm @JDcarlu