Oh I used to be disgusted
Now I try to be amused
But since their wings have gotten rusted
You know the angels want to wear my red shoes.
— Elvis Costello, “Angels Want to Wear My Red Shoes” (from My Aim is True (1977))
I believe in angels. Investors, that is. The best of them are supremely useful: savvy, experienced, fast-moving, tolerant of risk, and patient with unvarnished entrepreneurs. They are great.
But not all angels are angels, if you know what I mean. There is a Wall Street Journal piece tonight that makes that point in drive-by fashion, talking about all the nouveau riche 30-somethings who are playing at being angels the way doctors play with stocks. That is, it is an idle pastime, something to talk about with buddies as much as something you really believe in.
And it works, sort of. There has been a crop of small-ish companies that have gotten by on less capital than usual, and angels have been able to ride ‘em to returns. And that’s great.
But it won’t last. As always, returns get arbitraged and subsequent generations of companies built on the same premises cost more than the prior one. In other words, it will cost more money to create the next new things than it cost to create the last set of new things. You’ll have to solve harder problems, make more noise, penetrate a more crowded market — even, God help you, sell into enterprises. All of those require money. Much more money than your average angel is able to put up.
Because angels get tired. They may put up their $25-$50,000 once. Maybe even twice. And the odd one will pay three times. But after that, entrepreneurial boys and girls, you’re on your own. Say what what you will about institutional venture capitalists, but “getting tired” is not a problem. Assuming your deal still looks good, they’ll keep rumbling along, putting in new tranches of capital. It’s far harder to kill a deal at most firms than entrepreneurs think it is, and a VC firm lifespan is much longer than the attention span of the average addled angel.
So, sure, take angel money. Take lots of it. Just recognize that we are either at or very close to the point where a bunch of newbie angels start feeling very, very sleepy.