“Thank You For Supporting Capitalism” and Other Investor Tales of Two Cities

5/4/09Follow @geshwiler

Two weeks ago, I was in Atlanta for the annual Angel Capital Association (ACA) conference and, this past week, here in Boston for the annual National Venture Capital Association conference. Depending on whom you asked at both conferences, it was the best of times or the worst of times, most likely depending on whether or not they had money to invest. In fact, NVCA conference chair, Kate Mitchell, even kicked off the event with that opening line from Dickens’ book.

That said, both events were generally positive-you’ve got to be an optimist to be involved in entrepreneurship-and both had a roll-up-your-sleeves, let’s-make-things better outlook. Overall, the mood and energy was somewhat more upbeat in Atlanta than in Boston, as characterized by ACA Chairman John Huston’s welcoming remark and call to action, “Thank you for supporting capitalism!” which drew a lot of applause. Perhaps it was because individual investors don’t feel obliged to go to conferences and the pessimists just stayed home. Maybe this part of the venture investing market is still so young that that there’s a lot to be learned and done.

The hot topics among angel groups were on fund formation, increasing deal flow, deal structuring, and how to syndicate deals—while top of mind with venture capitalists was how (or whether) to invest in the current climate. Kudos in particular to NVCA President Mark Heesen for making the trip down to the ACA annual meeting for the second year in a row to build bridges. He participated in an excellent, frank discussion about how venture firms and angel groups can collaborate better and more frequently. Attendance was about the same as 2008, with around 350 people present. Certainly, a lot of angels have had their portfolios hit hard by the recession and have cut back on investing, but at least this crowd was looking forward.

The NVCA meeting had nearly twice as many people, just over 650, but that was down by maybe half from last year when the conference was in Silicon Valley. To be fair, travel logistics from the West Coast to the East Coast for a mid-week conference may have also played a role, but the mood was still different.

NVCA does a vastly superior job to ACA when it comes to inspirational messages, but a lot of them provided a sober contrast between what venture capital has achieved in the past and what might no longer be possible in the future unless there is structural change in the market. Outgoing NVCA Chairman Dixon Doll’s opening comments included a call for action to the federal government: “Unless we are willing to pull out all the stops, we’re in danger of heading down a slippery slope.” He then proceeded to unveil NVCA’s “Four-Pillar Plan to Restore Liquidity,” which you can read by clicking here.

Both organizations had high concerns about liquidity and availability of capital. At ACA, a lot of the discussion revolved around state and federal tax credits to increase the availability of capital for individual investors. NVCA provided a lot more data and structure, as noted above in the call to action, showing that with liquidity down so much over the past 10 years, the cycling of capital already is decreasing and is at risk of slowing even more.

To me, perhaps the most important issue centers on the fact that these two meetings happened in two different cities. Overall, both organizations still have a lot to gain from each other. In addition to Mark Heesen coming to the ACA conference, about a half-dozen ACA members-including yours truly-also were present at the NVCA conference because we are members of both organizations. But there could be far more overlap and dialog as well. Roughly two-thirds of ACA-member angel groups co-invested with venture firms last year. We have a lot of the same goals and cooperate and collaborate far more than we compete. No matter if you think it’s the best of times, or the worst of times, ultimately, it’s the entrepreneurs who benefit by having the players in the capital markets work more efficiently and effectively together.

James Geshwiler, a managing director at CommonAngels for more than 10 years, has financed over 40 software and Internet companies and worked with them through over 100 rounds of investment and related changes in boards of directors. [Editor's note: CommonAngels is the lead investor in Xconomy.] Follow @geshwiler

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  • http://www.techcolumbus.org will indest

    Well said, James. I love the idea of back to back ACA and NVCA. As one who attended both this year, I agree that they are complimentary, and many will take advantage of the opportunity if they are back-back in the same city. Thanks for your thoughtful leadership.

    Will Indest
    Columbus, Ohio

  • http://www.academicvc.com Stephen Fleming

    I’d love to have ACA and NVCA back to back.

    James, I quoted your ACA panel discussion in the comments to http://tr.im/kBAP … hope I got it accurately.

  • http://www.commonangels.com James Geshwiler

    Stephen,

    Thanks for the comment and the link to the post. The quote from me is correct, and Basil Peter’s analysis is interesting but has a flaw: not all venture capital firms are “average.” If angels have a blind strategy toward co-investment partners, they will run into the clash of interests he describes with VCs as well as other investors. However, picking your partners judiciously and aligning their capacities and interests with a particular company’s needs and goals can work well. We mostly co-invest with VC funds between $50M and $200M and other angel groups; but we also have had successful relations with larger firms when the situation merited working together.

  • http://www.commonangels.com Daniel Weinreb

    James,

    Was there any talk about establishing some kind of market for illiquid securities? Fred Wilson has been talking about this on his blog lately.

  • http://www.commonangels.com James Geshwiler

    Dan,

    There was a presentation that the ACA meeting about secondary purchases. It was pitched in a positive way for angel investors, however historically, these transactions have been at a significant loss–10 cents on the dollar was the going rate during the Tech Wreck. Last recession, the buyers typically targeted at investors who had liquidity problems and needed to generate cash by selling startup-company stocks or to get out from under coming capital calls to venture funds. There have been transactions where angel investors get liquidity at a premium, usually when a large venture firm or private equity fund leads an up round and buys out some of the earlier investors. There’s an argument that this latter type of transaction ought to become more common with more investors that have large funds and need to put more money to work and exit valuations down, so there’s more need to buy a larger portion of the company, That’s balanced by a historic strong prejudice (at least on the East Coast) against early investors exiting while the company is private because its is negative signal about the company’s prospects. It will be interesting to see how much that changes.