1. Angels, VCs and Entrepreneurs – “No Exit” or “Hell is other investors”
By Tom Tierney
Jean-Paul Sartre, a French playwright, wrote "No Exit" in the 1940's. The play centers on 3 individuals in
the afterlife, trapped in a windowless room with only discussions of their lives as entertainment. As a
result of the character’s interaction, the play's signature theme: "l'enfer c'est les autres" or "Hell is other
people".
With the lack of exits for angel investors, venture capitalists and entrepreneurs over the past decade, we
feel as though we are all trapped in a similar room as Sartre described. We talk of "venture capital being
broken". VCs are moving downstream to smaller funds and seed level investments. Angels are floating
ideas about bypassing VCs altogether. Entrepreneurs talk of bypassing angels and VCs via
“bootstrapping”. For angels, VCs and even entrepreneurs one could argue: "Hell is other investors!"
The likelihood is that the IPO market will never return at the level it was in the “dot.com “timeframe.
Most VC's will have a hard time supporting a large fund model and most will probably implement , if not
a full "seed stage" fund investing strategy, at least part of their portfolio in this manner. Angel investors
will seek more "early exit" M&A type opportunities and may pursue investments that bypass the VC
stage of follow on investment, altogether.
Realistically, this crossover of angel and VC functions is a natural progression and reaction to a
constantly changing technology market. The costs inherent in starting technology companies follow the
same cost and performance curve as hardware, “Moore's Law”. The ever increasing portfolio of open
software further lessens the hurdles of company creation for entrepreneurs. Companies can be created
with minimal investment support, though additional funds will most likely always be required during a
company’s growth phase.
No doubt angels and VCs may have some cross over funding early stage companies, but there will
always be a need for the traditional Friends/Family -> Angels -> VCs investment cycle for entrepreneurs.
Whether we like it or not, angels, VCs and entrepreneurs will always be somewhat intertwined and have
to share the "investing room" and each other's company, for some time to come: possibly even eternity
-- though let's hope we see some "exits" before then!
Tom Tierney lives in Encinitas, CA and is a member of Tech Coast Angels (www.techcoastangels.com).
Also see http://en.wikipedia.org/wiki/Tech_coast_angels for more background information on the TCA.