

VCs Offer Terms Most Angels Can't Match In Pulse Funding - daniel_levine
http://techcrunch.com/2010/10/05/pulse-takes-an-angel-round-but-where-are-the-angels/

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joshu
So, this article identifies broad classes of actors ("VCs", "angels", etc) and
attributes motivations and patterns to them.

However. there are very big differences in behavior in sub-classes inside
these groups. Top-tier VCs, low-tier angels, etc. The types of deals that
these groups are willing to engage in differ radically, especially due to the
ecosystem and the structure. This stuff isn't particularly apparent until you
spend a great deal of time understanding the structure of the marketplace...

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daniel_levine
You're absolutely right Josh, really important distinction.

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johnrob
Wow. Fred Wilson has written before about seed investment as a way to buy
rights to a bigger deal downstream, but treating it as a loss leader never
crossed my mind. Makes perfect sense for them, since a deal that won't raise
bigger money later on is probably not one of their home runs anyways.

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sachinag
Note how they had multiple VC firms to mitigate signalling risk if one or more
decline to invest in a priced Series A round.

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daniel_levine
I posted this on my blog and to my batch mates but I wonder what HNers think:

I think this investment brings up an interesting point. Angels often portray
themselves as being more entrepreneur-friendly with deal terms and often they
are.

But VCs care about being the first institutional money and getting more than
20% (usually higher). Aside from that they care about getting people to that
point. As a result a VC could care less about the terms of a seed convertible
note so long as it converts (which everyone cares about). Many VCs will want
the follow-on option but that is not always the case as with Pulse/Alphonso
Labs.

Angels cannot really compete with those terms as they will not usually be
setting terms at the next level and make a lot of their money off caps and
discount rates.

Just something to think about.

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skmurphy
This requires VC's to spend partner time managing many more portfolio
companies which dramatically changes their business model. It also means that
they have to get better at judging "younger companies" than they would
normally invest in, otherwise why not offer a "real A round" and be done with
it?

It doesn't mean that they cannot change their model but I would like to read
about a few more deals like this before I would take this as a harbinger of a
new VC model.

The Right Side Capital folks announced several months ago that they would
pursue a model like this (see <http://www.rightsidecapital.com/> ) but they
have yet to announce their first investment.

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daniel_levine
Sequoia has made tens of deals as have other firms such as Accel, CRV and
more. They don't publicize these deals because they don't think it is in the
best interest of the companies or themselves but they happen as Dave McClure
and Roloef Botha alluded to on stage at TC Disrupt.

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tzury
Three days ago, the Sequoia Capital branch in TelAviv (Israel) have announced
_explicitly_ that they wish to compete with angels and would provide a pre-
seed and seed funding up to $500K for startups.

(Sorry guys, I currently have it in hebrew only,
[http://www.themarker.com/tmc/article.jhtml?ElementId=skira20...](http://www.themarker.com/tmc/article.jhtml?ElementId=skira20101004_1191770&log=true))

