Social Angel Investors Need to Figure Out How to Get to "Yes"

It has been impossible not to notice the growth in angel investing in Silicon Valley and the internet space in general over the last 6-12 months. One of the leaders in the trend, Y Combinator, hosted a daylong conference for angel investors yesterday in which a number of trends were articulated. Their learning has some important implications for the social enterprise space.

Trend #1: More Deals: What's for sure is that there are more deals happening. More young companies are getting funded. Some of this can be attributed to the growth of programs like Y Combinator, which are bringing down the real and perceived costs of starting a web company and attracting more people to the field. Even more of this can be attributed to the aspirational models of companies that go through programs like YC and inspire their friends to say "Hey, I could do that." Finally, part of it is an economic recognition that a lot of small bets are the best way to make money at the seed stage.

Trend #2: More Investors: "More Deals" and "More Investors" are a self-reinforcing cycle. More angels are coming into the space as current seed-stage investors bring their friends into deals for the first time. The rise in angels is also probably driven in part by questions of whether the traditional venture model is broken (too few, too big deals), as well as the more positive fact that its simply fun for many investors to work with young entrepreneurs.

Trend #3: More Power to Entrepreneurs: Paul Graham, founder of Y Combinator, identified that one of the trends was that entrepreneurs are gaining more and more power relative to their investors, which he (and others, like Fred Wilson) agree is a good thing, even if there is a question of what this means practically for the venture industry.

Trend #4: Robust Pipeline: Part of the reason that angel investing works well in the Valley is that there is an incredibly robust funding food chain. Angel investors know the institutional capital that could be coming next, and so on and so forth. This means fewer delays and holdups because of the fundraising process.

As someone building a consumer web company, this is incredibly exciting. As someone who cares about the growth in the social venture space, it is a reminder of just how under-developed our seed venture space is.

Too few angel investment deals are done in our space. There is a lot of talk and bluster, and a lot of chances for "social venture investors" to get together and talk about the issues, but far fewer leaders who are stepping up, committing resources, and then getting their friends involved. This leaves most social entrepreneurs chasing after the few resources -- the Echoing Greens & Village Capital funds -- that are established, and more likely turning to these silly online competitions to crowdfund and raise what they need.

The reality is that there will always be good reasons for angel investors not to invest in social ventures. They are inherently risky deals -- riskier in many ways than deals in the pure web space. Entrepreneurs in our space tend to have less experience, less background, less whatever.

But all of these things can be adjusted for. High potential entrepreneur but who doesn't have the experience you'd like? Take a higher percentage of the company and get more involved. Great product but no company to support it? Give them two months of rent and tell em to come back with a team.

The point is that if we want to build our field, the default perspective of social angels need to be thinking about how to get to yes, rather than finding excuses to say no.

Photo credit: aussiegall