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Founders Come First

  • Posted On Sep 22, 2010 |

  • by Jon

The last two weeks have seen incredible ink, time, and venom spread around the competitive dynamics in the super-angel and VC markets. First the “smackdown” news and chatter this week and now Angelgate. While this makes for great press and lots of page views, the voice of the Founder has been absent from virtually all of the discussion and postings. In fact, more than being absent, Founders lose from the shredding and group think and activity happening the market today, and this is a really bad thing.

Super Angels and VCs are spending tons of time and energy arguing vehemently that one approach is better or best, all the while polarizing the discussion. Both groups are ganging up in various ways against the other. We’ve seen it in deals in the past few weeks whereby big VCs are actively cutting out the super angels, and yes, Super Angels are actively working to keep the big funds out of early deals. As Fred points out, the competitive dynamic in the market is heating up, and some of this behavior are the normal results of higher competition. While this should be a good thing for Founders by creating more access to capital and more options, the problem is that the current the polarization and warring between the two camps directly places the Founder in the middle of a battle that only hurts the underlying company.

A lot of our industry has lost it way in the current environment and on this debate. We’ve seen this movie before. It was playing on every screen in 1999. Back then, as now, the market was feverish and investors were judged by the checks they were writing. It was deemed most important to be in and around all the “hot deals” if even for a tiny amount. Everything got funded, and there was constant talk of early checks as “options”. “Just get in, ’cause it just might work,” was the thinking. At True we’ve tried to steer clear of this mentality, largely because we recognize that it’s really easy to write checks, and it’s even easier to write lots of checks. What’s hard is committing to a 3-10 year relationship with a Founder and working over that period of time to build something real. It’s hard to bring checks back. I wish this business were as easy as funding everything that looked good, but it’s not. It’s not about the funding, it’s about the building, and Founders build companies, not VCs, not super-angels. Founders.

Moreover, in the words of a friend, startups are a “team sport.” Our experience at True has shown us that companies need lots of important ingredients at the right time to succeed, and Founders shouldn’t be put in the artificial position (by any one ingredient) of needing to choose. Why is it a good thing for a Founder to have his/her angels antagonize the folks who are later important sources of capital for the company? Why is it a good thing for those later sources of capital to spend time competing for super angel checks that should actively feed them the best deals later? And while we’re at it, why is it a good thing for a Founder to have a bunch of “buddies” acting together in a syndicate? We’ve witnessed lots of group think, proxy investing (“if he’s in, I’m in!”) in the past six months. Leaving aside whether that’s a good or bad investment strategy, from the viewpoint of the Founder, it’s really bad to have folks in your deal that are there for any other reason than that they believe in you. It’s not about your syndicate, nor your angel investors, nor your VCs – it’s about YOU!

I’d suggest our industry do ourselves a real favor and remember where the power and creativity comes from in our world: it’s not from Super Angels, nor from VCs, it’s from Founders.

Comments

  • When I read my partner’s thoughts like this in a blog post, I am reminded why I love this firm and what we are doing!
    Thanks Jon!
    Phil

  • thank god someone has finally said it

    if it weren’t for founders, investors would have NOTHING

    • by a founder

    • on September 22, 2010

  • Very thoughtful post.This and Fred Wilson’s post earlier today are the only two that throw real light on what’s happening and what should happen. Everyone else is busy playing the blame game.

    • by d

    • on September 22, 2010

  • Good post. My experience has been different from what people are suggesting is happening. Maybe I got in before the craziness.

    My first investor was Halsey Minor, who I think it’s safe to say doesn’t care what any VC thinks about his investments other than he’d prefer they not know what he is investing in.

    My second investor was Sequoia Capital, who could not care less what any other VC thinks and would probably prefer that other investors know they are investing.

    My other second investor was Dave Strohm at Greylock, who opened their west-coast offices 25 years ago. He would probably not want other investors to know he is investing either.

    All my investors have had amazing, record-breaking track records. None of them need to compare notes with anyone else. Successful VCs are like successful entrepreneurs, they lead and define their path. They don’t follow.

    The idea of investors acting like a syndicate is probably true and I’m sure it happens. But it doesn’t happen to the good ones. And as an entrepreneur, if you think you have that happening as you are raising money, you should run away from them — not because they are colluding, but because they are idiots who can’t think independently. You don’t want that kind of remedial thinking on your board.

  • Truly refreshing to read such a level-headed and spot-on post re: Angelgate.

  • What makes some of this surprising is that many invoked in this debate were once founders and entrepreneurial executives in the past themselves.

  • Semil — That’s actually not true. Not sure why you believe it to be the case.

  • I am glad this post was written and I hope there are still VCs who think this is the case – it takes a lot of effort and energy to build a team to make something (speaking as a founder)- and just going by “come through this person / network” (while it does make someone’s life easy) can be some times inconvenient for the person who’s fervently trying to take his /her product to the next level.

  • Hi David, my apologies for the confusion. My perception was that many “invoked” (using that word carefully) were either founders or “entrepreneurial executives” at startups that are now big companies, meaning that they were in early in some of the bigger companies. Do I have it wrong?

  • It has been an interesting debate. What you say is absolutely true.

    “Angelgate” sounds like 3 gas stations on a corner…and this type of behaviour is why many founders/entrepreneurs don’t trust investors. It’s really just an issue of how the venture industry is being re-defined, ultimately because of the low cost of a software startup. Virtually any startup can go from 0-beta launch totally boot-strapped…which means capital comes in late and valuations go up.

    Of course the issue of a “syndicate” as you put it is not foreign to us Canadians!

    I say good for founders. The Y Combinator model demonstrates that investment is more than just cash and quarterly board meetings – as it should be. Sounds like you guys have it right.

  • This is so refreshing to me as a founder just a week or two from rollout. Its good to see that we are valued by some in the industry. Truth is some projects have a no entry cost so that when we are in a position to need any angel help, we will have some value anyway. Thanks again for a great post Jon.

    • by Ric

    • on September 22, 2010

  • [...] possible for me to imagine how a recession might also be a good time for startup funding. The rhetoric of True Ventures is the kind of rhetoric I would mostly expect during an era when things were tilting in a direction [...]

  • Thanks, guys.

  • Hi Jon,

    Brilliant post.

    One of the posts which is truly stating the obvious reality amidst all the noise that we are seeing in the last 2 days post the Angelgate episode.

    Cheers,

    Venugopal
    Vengo Ventures.

  • Founders Come First…

    The last two weeks have seen incredible ink, time, and venom spread around the competitive dynamics in the super-angel and VC markets. First the “smackdown” news and chatter this week and now Angelgate. While this makes for great press and lots of page…

  • Good post bringing founders into fresh perspective. We shud go back to the founders/investors smack down..Why did you pinch me like that :P Those debates are healthy(ier).

  • [...] True Ventures has a rational take on the increasing competitiveness between super angels and VCs, while Fred Wilson at Union Square says collusion has certainly happened where several VCs have been involved in a deal. [...]

  • I like the idea of “Founders First” and it is a potent antidote to the self importance that occasionally arises when a money source gets comfortable.

    But really it’s a symbiosis and each part is equally critical,(right?)and therefore valuable. Don’t you think?

  • [...] AngelGate affair first blew up. True partner Jon Callaghan said it well in a post entitled simply “Founders Come First.” Angel investor Chris Yeh echoed this perspective in a post, saying “the last thing any of us [...]

  • [...] AngelGate affair first blew up. True partner Jon Callaghan said it well in a post entitled simply “Founders Come First.” Angel investor Chris Yeh echoed this perspective in a post, saying “the last thing any of us [...]

  • [...] their checkbooks. Like my old colleague Jon Callaghan of True Ventures explained, we’ve all seen this movie before. To the extent there is anyone who can be called a super angel, his name is Ron Conway. And [...]

  • [...] True Ventures has a rational take on the increasing competitiveness between super angels and VCs, while Fred Wilson at Union Square says collusion has certainly happened where several VCs have been involved in a deal. [...]

  • [...] – Jon Callaghan [...]

  • [...] True Ventures has a rational take on the increasing competitiveness between super angels and VCs, while Fred Wilson at Union Square says collusion has certainly happened where several VCs have been involved in a deal. [...]

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