More Angels = More Startups?

August 15th, 2009 by Miles Leave a reply »

I was reading Paul Graham’s How to Be an Angel Investor and I was struck by this section:

So if you want to invest seriously, the way to get started is to bootstrap yourself off your existing connections, be a good investor in the startups you meet that way, and eventually you’ll start a chain reaction. Good investors are rare, even in Silicon Valley. There probably aren’t more than a couple hundred serious angels in the whole Valley, and yet they’re probably the single most important ingredient in making the Valley what it is. Angels are the limiting reagent in startup formation.

If there are only a couple hundred serious angels in the Valley, then by deciding to become one you could single-handedly make the pipeline for startups in Silicon Valley significantly wider. That is kind of mind-blowing.

As part of a larger essay, he makes the point (almost casually) that the number of startups in a given area is limited by the number of angel investors.  Does that mean that if you could increase the number of angel investors you can increase the number of startups?  I doubt that that what he meant, but what if it were true?

At one point, a few friends of mine jokingly formed Project Shepherd to lure a top-name VC firm to step-up shop in New Haven.  Maybe we should have focused on increasing the number of angels.  Has anyone tried that before?

I grew up in San Francisco and during Yale started Higher One in New Haven.  So, I’ve been involved in many a conversation about the resources available in New Haven for start-ups and how it compares to San Francisco.  I agree with Paul that Silicon Valley is a special place and is #1 for startups.  I am not sure I agree it is the only good place.  I’d love to see that you can replicate Silicon Valley at least on a small scale in other places.  Agreed, that may be a 20 or 30 year project.

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  • SeanGlass

    When I was in London, it felt a lot like being in New Haven – with many of the same issues for early stage startups… and in London there are a good number of strong VC's (Index, Atlas, Balderton, Accel, Atomico, etc…)… yet there weren't many angels and this was a significant inhibitor. Saul and Robyn Klein were really the primary angel investors through TAG – and it was clear that there was a need for more angels. So I think you're right on point – if Paul Graham argues that one new good angel can make a difference in Silicon Valley, think of the difference it can make in New Haven or London. Hopefully what we're doing with Top Floor Capital can make that sort of difference.

  • gusfuldner

    The State of Wisconsin takes a relatively active role in promoting angel and VC investments. It is quite different that the CT Innovations model in Connecticut. The State has a 25% tax credit for qualifying angel investments. There are also some publicly supported initiatives to promote angel networks (Wisconsin Angel Network, a network of networks). These efforts create awareness of opportunities and lower the financial risks for early stage investing. I'm not sure if it is successful at creating additional “serious angels” that lead deals and get actively involved vs. those that help fill out rounds. Keeping new companies local is a strong motivator for some investors in the Midwest.

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