CommonAngels, Moving Into Smaller Seed-Stage Deals, Looks to Drive East Coast “Super Angel” Agenda—Some Reactions
Anyone can say they want to be “Boston’s super angels.” But Chris Sheehan and James Geshwiler are trying to back that up with some action.
The managing directors of Lexington, MA-based CommonAngels announced last week they are adding a key new component to their firm’s financing strategy: the ability to invest in a greater number of startups at earlier stages, and in smaller amounts. Those types of investments—intended to be part of total financing rounds of less than $1 million per startup—will complement the firm’s larger and more traditional angel investment rounds (typically around $1.5 million total), which it will continue to do. And they will enable the angel fund to act in some cases more like an individual angel investor. [Editor’s note: CommonAngels is an investor in Xconomy, and Sheehan is a member of Xconomy’s board of directors.]
It’s a potentially significant development for CommonAngels—and for the Boston startup community. These days, it seems like every tech investor in America (well, Silicon Valley especially) is trying to get involved at an earlier stage with promising entrepreneurs, mostly in Internet software. That’s because it’s far cheaper and faster to test out different Web interfaces and business concepts than it was just a few years ago, and so both startups and investors need to have more of a “fail fast” mentality to get to something that works. (The deeper impact of all this remains to be seen, but in the meantime it has generated lots of entrepreneurial buzz, and investors are jockeying for position.)
Instead of going through the CommonAngels committee process, Sheehan and Geshwiler alone will make decisions about their firm’s earlier-stage investments. The two have been busy raising a new fund, but can’t talk about it yet. (The fund will not be exclusively devoted to the new kind of seed deals.) To be clear, they say, CommonAngels has been making what people would call seed-stage investments for 10 years; what’s changed is that the target companies will be at even earlier stages of development (alpha versus beta software, say), and the investors essentially are paying the founders to build out their first product and get it to market, rather than betting on a certain amount of revenue growth, say.
“Early on it’s about backing the team and the idea, and you don’t need months to do testing,” Sheehan says. What’s more, the success of these fast, early-stage investments will probably depend more on the business model, marketing, and distribution than the companies’ technology per se.
So what will these new investments look like? CommonAngels will continue to look across sectors such as consumer-focused Internet, e-commerce, digital marketing, digital media, mobile, and gaming. The first two examples of CommonAngels’ new approach were announced last week: its seed-stage investments in Boston-based Ayeah Games (“social reality” gaming) and Canada-based Blaze Software (a stealth startup). These deals, which included other investors, totaled several hundred thousand dollars each, Geshwiler says.
CommonAngels says it will focus on making investments in New York and Canada as well as New England—basically targeting a large swath of the Northeast. In terms of pace, the firm will not be looking to make a certain number of seed-stage investments per year, Sheehan says. Instead it will be “responsive to what the opportunities are in the marketplace.” Look for a couple of New York-based seed investments to be announced in the next month or so, and then others after that, he says.
It sounds like Sheehan and Geshwiler sense a big gap in the market that is ripe for the taking. The Boston area has a growing number of seed-stage funds and investor networks such as Founder Collective, LaunchCapital, Golden Seeds, TechStars, and the upcoming funds from NextView Ventures and Project 11—as well as many prominent individual investors. But entrepreneurs still lament a paucity of options for raising money fast.
Of course, traditional venture capital firms are also getting into startups at earlier stages, and some have started smaller funds specifically to make seed-stage investments. “All the venture firms are thinking about what their seed strategy is,” Sheehan says. “But every firm is different,” he says, in the amount of scouting they do, their visibility in the community, and so forth. (In terms of visibility and getting closer to entrepreneurs, CommonAngels announced last week it has opened an office in Kendall Square at the Cambridge Innovation Center.)
So how is the local community reacting to the new “super angels” in town? I’ve heard mostly enthusiastic responses, tempered by realism and the occasional competitive agenda.
“I think it could be a big deal,” says Roy Rodenstein, a tech startup advisor, mentor, and investor who works at AOL, which acquired his startup, Going, last year. (He’s also part of the recently formed Hacker Angels, a group of tech entrepreneurs who make investments together.) “They could make a big change and a big contribution.” That’s because CommonAngels is well established, very active, and one of the largest groups of influential angel investors around, he says.
Indeed, the sampling of entrepreneurs and investors I talked to all agreed that the key to seed-stage success is improving startups’ access to investors—and speeding up financing decisions. For traditional venture capitalists, this will help bridge the gap between early-stage entrepreneurs (especially first-timers) and VCs, who are equipped to make larger follow-on investments. For angel investors and “micro-VCs,” it’s about betting on promising ideas and teams, and working together to test products in the market. And for entrepreneurs, it’s about making connections and getting faster feedback so they can get on with the business of building their dream works.
“It takes a lot of work and time for startups to get to these different firms. Faster [financing] decisions will help,” Rodenstein says. “Entrepreneurs don’t have that many choices yet. But over the next five years, that could change.”