A few people are wringing their hands at news that Foundation Capital has raised a $750mm fund, using it as an excuse to wax despairingly about the disappearance of early-stage investors from the market. After all, you can’t very well make oodles of $2-4mm investments from a fund that size: You’d have few hundred companies in your sprawling portfolio.
Fair enough, but that’s not what’s happening here. Foundation is moving more to cleantech, a capital-intensive area of venture investing requiring a large fund. At the same time, there is, if anything, too much Series A money floating around, especially in information technology. We have post-bubble money hanging around, new IT funds being raised, and angels moving up-market, most of them value-less, and most them taking a bead at Series A deals. Anyone who complains about an absence of Series A venture money needs to get out of their parents’ basement more often.
The real problem isn’t in Series A, it’s what happening with so-called angel investors. In the same way that true entrepreneurs are often celebrated and seldom seen, true angels are often talked about but rarely seen writing gut checks. Many of them are echo-bubble babies, now pulling in their horns in the recent stock market carnage; others are moving up-market, especially in oxymoronic "angel investing associations". Granted, sometimes such things have a purpose, but, as one entrepreneur-turned-investor put it to me recently, I became an entrepreneur/investor to avoid having to be a member of anything. Why would I start now?
A related data point: Today I had lunch with a smart, seasoned entrepreneur who told me about a 4-inch deal binder he had been forced to create for angel diligence. As I said to him: Run. Hide. Any angel who wants that much security in an early-stage deal is to be avoided like a banker.