

Scoble's view on Angelgate. A well balanced view. - marklittlewood
http://scobleizer.com/2010/09/23/the-secret-hell-of-tech-industry-angel-investors/

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smoody
Here's where he argument falls apart... and he should understand this, and I'm
surprised he doesn't -- yes, money is available from many sources. Perhaps
some of you even have rich uncles or aunts who can throw cash at you. But, the
reason some angels rise above others is: the value and power of their network.
This translates directly into an ability to help a startup a) get follow-on
funding, b) get some initial biz-dev deals and alliances, c) get some press.
That's what separates a top-tier angel from a second-tier angel.

It's a fact that, as with VCs, some entrepreneurs (the smart ones in my
opinion) will take money at a slightly lower evaluation from the top-tier
angels than a higher valuation from second tier angels, because anyone can
throw money at a startup, but not everyone has a powerful business network and
collection of relevant portfolio companies to contribute (the classic "smart
money vs. dumb money" argument that you'll hear over-and-over once you start
to try raising money).

Let's create a fictional example using Y Combinator... Let's say that PG just
announced that he's going to take 1% more of companies that are accepted into
his accelerator than the competing accelerators take. If you believe Scoble's
argument, then people should just go to another incubator because there are
plenty around, but many, if not all, would probably give up 1% more because
they get more than 1% of extra value out of being involved with Y Combinator.
My guess is that the deal flow into Y Combinator would not change all that
much.

That's what's at stake here. It seems like people are assuming that these guys
want to cut valuations in half or something like that. What if they just want
to drop them by 2%? Seems trivial -- almost laughable -- but that 2% could
mean tens of millions of additional profit in the pockets of these top-tier
angels. And when an entrepreneur is given two offers -- one from a top tier
angel that has a 2% lower valuation than a competing offer from an angel that
is just getting their start in the industry -- which will they take?

Scoble is coming at this as a reporter and not as an entrepreneur. It's a lot
more slippery when you look at it from the eyes of an entrepreneur.

