How the VC and Angel Investing Landscape is Being Transformed: Highlights from VC Crossfire

10/29/10

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that you’re going to be seeing is if you want to go make me two or three times, we’re not giving you money. Unless you’re willing to take big risks and take big capital returns, we’re not playing. And the only way to do that is to go back to the model from the ’70s or ’80s—be patient, take big risks—that’s how people have historically made the most money. I think it’s going to go back to that. Now the one question is whether  a bubble is going to come and bail everybody out?

CH: In many ways, you brought this upon yourself. You got spoiled into thinking instead of getting paid on performance (and that takes a long time), you started getting paid as money managers—we’ll grow the funds, and we’ll have a cake and eat it, we’ll get paid at the same time. You’ve got these billion dollar funds, and you can’t deal with a guy who wants $200,000—$200,000 means nothing to you now. So you force the guy to put in $20 million, so now you’re a banker, you’re not a venture capitalist—you’re one-stop shopping for funding. You frightened away all of the patient companies—all of the companies that need time to come to fruition, and used to be enabled by the venture community, and are now not served. Everything changed.

Tom Alberg: The best model for venture capitalists is early stage companies. I think this community is still short of early stage money, so I hope venture survives and angels come along.

X: With the contraction of venture capital—smaller funds, smaller firms—and the “fail fast” mentality of super angels, what is the impact on creating the next Google or Amazon here? How will angels and VCs work together to build companies that change the world?

TA: Our attitude is this is the strongest deal flow we’ve ever seen, probably because the tech community has really grown. Sometimes you hear people worry a bit that everything has been invented—take Internet retail; no one is going to create the next Amazon, but I keep seeing new Internet retail models, and people are making money.

AS: In the ecosystem in Seattle, you just don’t have what you have in the Valley, of people saying “I’m going to change the world.” The likelihood is lower and risk is higher, but it takes the dream to want to change the world to actually have the chance. It’s certainly a role for venture capital. We haven’t had a huge win in the Pacific Northwest specifically—Amazon was a long time ago. There have been some small wins—Picnik, Urbanspoon. But it would be nice if there was more big thinking. It’s an entrepreneurial ecosystem, and a willingness to think big and take risk—I’d like to see more of that in the Northwest.

It comes from people who support those visionary dreamers. It’s venture capital money—it usually takes a longer time, more capital, and venture capital. It takes a larger fund to be able to stomach that risk. I’d like to see more entrepreneurial activity in that dreamer category.

Q (audience): What’s going to happen in Seattle to get more competitive compared to San Francisco, New York, and other places?

AS: As an entrepreneurial city with a lot of potential, we’re doing a lame job. I do think it’s changing, I do think it’s getting better. I think TechStars is the start of something pulling together—five to 10 years out—making Seattle the center of a place for pulling innovation together.

TA: This is not a zero sum game—we’re not just moving money around a board. You’re actually creating wealth for everybody, potentially. Your success is not taking away from our success—that’s another reason to be supportive.

Thea Chard is a correspondent for Xconomy Seattle. You can e-mail her at theachard@gmail.com or follow her on Twitter at http://twitter.com/theachard. Follow @

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